Central banks cannot reverse a crisis anymore. A true, panic flight-to-safety crisis, a true liquidity crisis has, as recent events are increasingly demonstrating, no worthy opponent in central banks or national treasuries. The sums are simply too vast in this day and age to meaningfully shove markets or the economy this way or that for more than a few months. Those months are quickly running out for the United States.
In recent months, the Federal Reserve has set up several programs that aim to provide liquidity to segments of debt markets that fell apart last year. The government support is meant to be temporary — and is aimed at reopening markets for debt issuers and coaxing back private buyers.
But there is a nagging fear for investors: The government can’t support prices forever. The longer the government intervenes, the more investors will question its will to continue buying. Already, the wisdom of certain interventions is being questioned.
For now, the Fed shows no signs of backing off. This week, it said that five of its liquidity programs will now expire at the end of October, a six month extension.
At some point someone is going to have to break it to the American people and the world that there is no magic pill. It seems apparent that not even the likes of Helicopter Alan or Helicopter Ben possess the needed capital- even with the printing presses running wide open. Rewriting accounting rules to create the appearance of wealth, buying up nuclear waste at above fair value and trying to re-pump the beach ball of mortgage lending is wishful thinking. The sooner the current administration comes to grips with that, and starts resetting the impossibly high expectations they won the election with, the better. Painful? Yes. But less painful than the fall from grace that will accompany any other path.
The Fed’s Market Footprint [The Wall Street Journal]
I hate flaccid banks so much.
Oh ep, now you’ve done it. Never insult a central banker’s testicular virility. (Knowing you’re somewhat of a Chicagoan thought you’d appreciate the Blago reference.)
3: It’s a test to see if I can spur them into action since their Bolivian Powder Male Circulatory Dysfunction Disorder seems to prevent them from actually performing. Anger, I feel, might be a better motivator. But then, perhaps this is related to my recent viewing of seduction scene in “The Graduate.”
EP, the voice of reason has absolutely no place here, and despite our prognostications of inevitably truth, will fall on deaf ears, most notably, those ears with whom the power and responsibility resides to man the f’ up.
C’mon, EP. The world is a stage, and we just need a new screenplay. Don’t be such a Debby-Downer.
Bess prevents flaccidity rather well for me.
-MoneygripWisdom
Haven’t you heard? Baby Boomers can create their own reality!
Dear Mr. Obama:
It’s not the banks that need re-equitized it’s the consumers….
If housing and the equity markets were the most significant sources of equity, and both are toes up, the piggy bank the consumer had to fall back on is low to empty. We know this because the savings rate has been zero or negative for years. The answer is to provide equity financing to the consumer courtesy of the U.s. government.
A certain historically large % of consumers have shown that they cannot service their debt or make purchases to grow the economy because their coverage of income:debt is 1:1 or similarly narrow. With decreasing employment and many consumers having zero to little in substantive savings, our country will face significant problems until our consumers rebalance, which as we are discovering, is a horrific process.
How about: Giving every American, who filed a tax return, a “bonus” check of some meaningful amount in order to spur spending and aid in repayment of debt? Or a meaningful tax credit?
This is a demand side problem.
EP@5–
“Inadequate!! Don’t move!!”
So EP is telling everyone in government to do nothing, and to tell people to prepare for a crash landing? Assume the crash position!
That’s why ideologues screw things big time. They brought us to this point, and will gladly leave everybody in the dump.
Note that I have no problem with lowering expectations. In fact, people do have a strong instinct for what to expect, especially after they lose their jobs.
But don’t expect that this crash will not have consequences for people who feel that it will not affect them. It will.
Who knew Hoover and Mellon wrote for Dealbreaker?
11: Exactly.
President Obama sounds like a little kid every time he speaks publicly or privately in closed door sessions to Republicans, “I WON! Your ideas failed. Voters went to the polls for CHANGE in November.” So, nearly 30 years of prosperity and record job creation is evidence of failure, or the natural cycle of things? Hmmmm? Nope, I think your ideas will fail and the sequel to Jimmy Carter will end as it did the first time.
“So EP is telling everyone in government to do nothing, and to tell people to prepare for a crash landing? Assume the crash position!”
I’m not sure exactly where you get this from. If you want to argue with someone else, please bring them into the discussion first.
There is plenty to do, but expecting that blowing this kind of capital in this way is going to provide some kind of “We need it RIGHT NOW” fix is fantasy being sold as reality.
Does anyone here really think that pulling mark-to-market and founding RTC III is going to suddenly e.g., bring housing prices back to 2006 levels?
This $15,000 bonus plan for home purchases is the dumbest thing ever. Even if it never makes it into law, even the chance of getting this bonus should cause home buyers to hesitate, starting today. Wait until it becomes clear whether or not this makes it into law. This whole rescue is hopeless.
Wait….the government doesn’t have a magic wand it can wave?
Life is a confidence scheme. Without anyone believe growth or the future, confidence wanes and everything in unsupportable. We’re driving ourselves back to the middle ages.
@16
We already reached ZIRP. So saying the Fed can’t do much more is just stating the obvious. It’s now up to fiscal policy to try to get this baby under some control.
So what’s do you think the economic problem is and what’s your solution? You say “lower expectations” which is more like trying to solve a political problem, rather than an economic problem. You sound so negative and offer nothing constructive. So you really are saying, do nothing, enjoy the way down! That’s a call for mediocrity.
Speak up, what’s your plan?
Too Austrian, didn’t expand credit.
“Who knew Hoover and Mellon wrote for Dealbreaker?”
A nonsensical question, given that Hoover basically followed the opposite policies from what Mellon had recommended (and, incidentally, very similar ones to what we are pursuing now).
Few smears have done more to cloud people’s thinking and short-circuit honest debate than “liquidationist.”
Liquidate insolvent banks, liquidate central bankers, liquidate Keynesians, liquidate monetarists, liquidate bailout artists, and let competent people take over in their place.
You don’t get it. The Fed is making money hand over fist.
Look at the CP program that was what, $600B?
The Fed is borrowing excess reserves overnight at ~25 bp. Then they buy 90-day CP from only the most creditworthy firms at 2.5%.
From that first tranche of CP Ben & Co., pulled in a cool $3.3B.
That’s right, the TAXPAYER earned $3.3B by becoming the intermediary between banks and borrowers.
The only thing that’ll fix this economy is the resurgence of debtor prisons. If the choice is paying back debt or going to jail, you’ll have a lot less people walking away from their obligations and this downward spiral will slow down.
@23:
I want the Treadmill and the Poor Law to be in full vigour.
@23
Great idea ace, so when people lose their jobs, can’t find a new one, we’ll bail them out by giving them food, water, shelter, all on the dime of the taxpayer?
Interesting idea, but yea, epic failure
too turgid, didn’t finish
@23/25: Soylent Green!
@25 I knew you’d love the idea Gary. We’ll just add the cost of their food, water and shelter to their tab. They can work it off making license plates or picking up trash on the highway. I got your stimulus RIGHT HEREEEE.
27: You are my hero of the day.
IT’S PEOPLE! SOYLENT GREEN IS PEOPLE!
That probably is a better idea than debtor prisons. Population control & increased exports.
EP/29: I defer to Metallica’s “Hero of the Day”
-27
Of course, we could always follow the strategy espoused by the Philly-ish mystery man (nay, Savior) and just start burning down excess housing inventory, just sayin…