My Note –
In the last few hours, I’ve watched Q & A with Bethany McLean speaking on the financial crisis and bloomberg, cnbc squawk box discussing the Fed’s plan of quantitative easing – purchase of $600 billion dollars in assets expectations over the next six months – and I’ve been thinking for awhile about it –
While the Fed plan calls for the purchase of assets and quantitative easing in order to foster inflation and hence growth, to de-value the dollar and supposedly that will stimulate growth, there are a number of economists now who have joined with Republicans in calling for the Fed to cancel the plan. But what were the Fed trying to really do in the first place?
And, when the Federal Reserve does anything – who are they servicing? Aren’t they designed to serve the banks and big banking industry anyway?
But, I’ve been thinking about back a couple years ago when the banks around the world and in the European Union, UK, Germany, Russia and Asia, when they took “write-downs” on their commercial and residential properties portfolios and our banks in the US didn’t want to do that – and neither did the Wall Street financial brokerages that became “banks” want to do that either. So, they didn’t. They left the assets on the books that were being used to collateralize loans and express the overall values of assets available to not only banks, but many other players as well. The values weren’t reality.
So, is this quantitative easing – a way to take those asset write-downs while charging the cost / value difference across the entire economy rather than by individual profitable institutions – banks and Wall Street firms, in particular?
Its a little example – but I keep thinking about it, that there is a commercial property near where I live that had been a bank at one point and now, has stood empty for several years. This property is valued in the tax rolls as $1.170 million and the owner, who is now a real estate firm, has a for sale sign on it for (I called them recently), $1.2 million dollars.
However, the actual market value of the building is probably around $300,000 in real market dollars. As well as having sat there this long, this building is on somebody’s books at $1.2 million dollars and any use of it as collateral for leverage, loans, tax losses against the business profits elsewhere, etc. – and yet, its real value as a commercial property in a glutted over-priced market is likely closer to one- third of that accounting value.
That brings me to the point – when I first saw the information online in news reports about the Fed’s plan of quantitative easing, driving up inflation and de-valuing the US currency, I thought about that example above and extended the problem out across the entire economic landscape. If the banks around the world had taken write-downs on their commercial properties, in particular and all number of asset classes – but none of the US firms had wanted to do that, then could this be a way to make our accounting of those values match reality a bit closer?
If the banks had taken the write-downs rather than pressuring the accounting standards board to change the way accounting was done, then we would have had the same equation as the other players in the world for the assets, commercial properties’ values and other accounted values of financial assets. But, since our firms didn’t do that and insisted on keeping the same values on the books that referred to a dated value (pre-downturn commercial dollar amounts) and insisted on maintaining those dollar values against leverages and collateralized loans *(among other things) – wasn’t it inevitable that sooner or later, the banks and financial institutions would find a way to shift those value losses across some greater audience than their own books?
Its just a thought. But, it is unusual that once the Fed has de-valued the dollar, it will actually have the same or nearly the same value as the actual real market values of commercial properties in the marketplace. Going back to the example given, if the bank building I was discussing is actually only worth $300,000 in the marketplace, but is priced at $1.2 million dollars – then, once the dollars are only worth .30 cents each – the two values would actually match. Then, when $1.2 million dollars are paid for it – the real value that is exchanging hands will only be $300,000 more or less. But it is closer.
The other thing that I had noticed is that there has been such a thrust to get China to let their currency value, to re-value upwards as a method for encouraging consumers to buy American-made goods. Well, to de-value the dollar may be thought as a way to enhance consumer choices for American goods – but America isn’t making many goods that consumers purchase nor that large commercial enterprises, commercial builders and other manufacturers can purchase. So, that is a non-starter.
One week, Mr. Bernanke said inflation was a good thing and that the Fed intended to use this as a way to have a bit of “good inflation”. (I’ll have to look up where I say his statement about that, about three weeks ago). And, then about a week to ten days later, he came out with a statement that said the Fed wasn’t doing this to force inflation and didn’t expect the quantitative easing to do that. It didn’t make any sense. Nobody in their right mind would believe that re-pricing our consumer necessities upward and making our dollars worth less than they are now, isn’t inflation nor that is wouldn’t start a run-away inflation scenario for every kind of basic service, product or utility / gasoline / rent / home ownership, etc.
It also encourages the international community to purchase anything that is not nailed down in the US and drive up the asset values beyond what anyone in America could possibly touch, even while not paying Americans one dime more than they are, or are not getting now for employment, for small businesses, in medium-sized businesses or anything else. Is that the play they are making at the Fed? Is that the plan?
But our basic commodities like wheat and corn have already doubled in value over the last few months, haven’t they? Won’t those costs already be spread outwards into the economy, though driven by speculators in the first place? Won’t that mean every product containing wheat or corn was already going to skyrocket to some extent without changing the value of the dollar? And, now even more so? And yet, people won’t have their salaries and hourly wages adjusted upwards, nor pension plans, nor 401k’s values, nor their real marketable values on their homes or businesses, nor will it employ more people than are now employed (which is around 58% of the employable population who are employed).
When everything made in China and sold in the US becomes costlier to Americans, will that mean anything to China except for those things to be sold at more reasonable rates of value in South America, Asia, throughout emerging economies elsewhere and to their own domestic markets? What will it mean in the US to consumers who would otherwise not be able to afford those nic-nacs and other goods without the Chinese made products in the marketplace? But, bigger still – what will it mean to the few manufacturers in the US still left in the game who will have to purchase China-made parts and components for their own products at a higher price? How does that help the US businesses using those things to be profitable? It doesn’t.
Whose purpose is it serving for the Fed to de-value the dollar? Who was behind the plan pushing for it as a solution? And, what solution is it, if not the accommodation of commercial property write-downs which should’ve been done and weren’t? (Well, that actually crosses a number of over-valued financial asset classes, which should’ve been written down, but weren’t – even as other places in the world, including Great Britain and European banks were taking those write-downs.) And, wouldn’t it spread the devaluation of those assets across the entire population’s hands and pocketbooks rather than from their own?
But, at what cost to the economic well-being of every American and every American family? Will any of that start or support new businesses where Americans can work when the chances of success for any business venture will be narrowed even further by these moves? Or, is it possible the Fed governors wouldn’t realize that?
The other thing that has been on my mind about this – is –
What happens when a lender makes loans (like China and Japan) to a country who then de-values their currency?
Traditionally, it has meant a whole lot of very “not good” things. And, I am thinking the response would not be good this time, either. When a loan of money is made at one rate or one value and then the exchange rate / value changes, wouldn’t that mean we would owe them more dollars rather than fewer? Wouldn’t it increase the value of those loans by many times over (at least by three times as much, if the dollar is de-valued to one-third of its accepted value)?
And, bloomberg had a story a few minutes ago about housing foreclosures where the statement was made that “there is $1 Trillion dollars in values on these properties that hasn’t been accounted for”. They also mentioned that (in St. Augustine, Florida for instance) that housing values are 40% – 50% off from 5 years ago. But, the loans on those properties and their values on the books could be anything, including the values they sustained and enjoyed from 5 years ago.
So, I looked up this which is very interesting –
Yet, I know our banks did not take the lion’s share of the writedowns they were supposed to take. Instead, they pressured the accounting standards board to change the valuation practices to allow the values to reflect the numerical amounts from a time period before the economic downturn and falling market prices. (And, the banks and Wall Street firms got their way – the standards were changed to reflect their desired outcomes).
This one is pretty interesting also – (but it is not the main article about the Fed today with calls for the cancellation of their expected de-valuation of the dollar with $600 Billion in asset purchases and printing another ton of US dollars -” quantitative easing”) –
from this article –
A group of investors, including the Federal Reserve Bank of New York and Pimco, the money management firm, is pressing Bank of America to buy back a portion of some $47 billion worth of mortgages. They argue that Countrywide, a unit of Bank of America, has not been servicing the mortgages correctly and that the loans did not conform to underwriting standards.
And – one of the cable news shows a little while ago noted that China’s rating group is down-grading the US as a borrower. I’m going to look up that one, it should be somewhere online. They’ve probably got about a month head start in China on responses to this . . .
A group of prominent Republican-leaning economists, coordinating with Republican lawmakers and political strategists, is launching a campaign this week calling on Fed Chairman Ben Bernanke to drop his plan to buy $600 billion in additional U.S. Treasury bonds.
“The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment,” they say in an open letter to be published as ..
from NY Times blog –
- November 15, 2010, 8:54 AM ET
Stop The Fed! And, The New Medicare Rules.
BEIJING – Foreign institutions with a presence in China will only be allowed to buy commercial property for their own use and it must be in the city in which they are registered.
The Ministry of Housing and Urban-Rural Development and the State Administration of Foreign Exchange have issued a notice outlining the rules that will also only allow foreign citizens living in China to buy one home for their own use, the paper said on Friday, citing unnamed sources.
– AND –
Check this photo and story – two traditional “enemies” who now are willing to work together rather than to put up with the US anymore – that is pretty serious –
and during the APEC summit – (Asia-Pacific Economic Cooperation Summit) – the Asian communities decided to open focused trade with one another (which leaves us out, now doesn’t it). So, their populations will have good education, computers, homes, all kinds of nifty goodies and technology and America will look like the hinterlands of nowhere . . .
Now, see – that is a problem.
Most of these places don’t want our cars being sold in their countries – both because they consider them nasty and an invasive species, but also because they pollute up everything and compete with what is being made elsewhere whose profits stay in the country and are re-invested. The US beef was undesirable by South Korea because it is considered nasty and dangerous with possible mad cow disease or damn near anything and their people simply don’t want to have it infiltrating their food supply.
That isn’t the US having the best of the best from what we do have available to the rest of the world considered as the most desirable. No, it means that much of what we do produce by big businesses that are doing it a certain way in the US marketplace – is the least desirable of all things available. And, other nations don’t want us competing in their marketplaces either when their interests aren’t served by it.
And, those are two more things making the US into a desolate economic wasteland which can be expected to continue unabated by anything the Federal Reserve is doing. And, other nations have already figured out the rigged game that Wall Street and banks have been playing with leveraging and robbing the assets out from under anything and everything they can get their hands on – which means it doesn’t even make sense to get in the game with them.
Asia is focusing on Asia. Dubai is focusing on Dubai. Even Canada, China, Russia and South American countries are saying “no” to us and our shitty ways of doing things which have cost them dearly in the past. Now, they don’t want to deal with it anymore. And why should they? Our Federal Reserve, banks and Wall Street firms, our political machines and international policies have been the cause of much of this mess in the first place and played it all the way along for everything its worth, regardless of these financial policies and practices hurting America’s people and the economies around the world at the same time.
It is clear – the other nations in the world have had enough of this.
I’m also wondering what jobs and employment there will be in the US as a “post-industrial” economy – which supposedly is what we are now? People can’t pay for health insurance or the health care industry, either one – if they don’t have jobs at something else in the first place . . .
And, why aren’t financial products part of the GDP in the US – or are they?
If there are over $600 Trillion dollars in credit derivatives now – where is the real money that backs that up? And, what happens if that money doesn’t actually exist anywhere?
And, what will happen to our national debt when our dollars are worth only .04 or .05 cents next year instead of the .30 cents they are worth now?
And, how is it that someone making $9 an hour can buy groceries when bread costs $4.00 a loaf, eggs are $1.99 a dozen, butter is $3.60 a pound and the skinniest box of cereal in the history of retailing costs $5.00 – oh wait, its already like that . . .
Oh yeah – and rent is still between $700 and $1500 for a one bedroom apartment, house payments for a very standard house for a family of three or four is still around $2200 a month, insurance costs for health care and cars and home can easily cost over $12,000 a year for a family of three or four and cars cost $20,000 and up just to get to own one . . .
Another highlight of the Sunday statement is the pledge to “take concrete steps” to oil the wheels of trade at a time of rising concern over protectionism.
“The world economy is slowly recovering. Yet the recovery is neither firmly established nor balanced, and there exist significant uncertainties,” Hu told APEC leaders. “Moreover, protectionism in various forms has risen notably.”
The president also suggested that APEC should cooperate more with the G20 and other mechanisms to complement each other’s strengths.
“It is a new idea to promote cooperation between APEC and G20. To bring favorable interaction between the two mechanisms will help both better solve global issues,” said Jin of Renmin University.
Regional leaders on Sunday also agreed to refrain from competitive devaluation of currencies and move toward more “market-determined exchange rate systems”.
(the transcript page from CSPAN’s Q & A show with Bethany McLean from Sunday, November 15, 2010 – she co-authored the book about Enron called the “Smartest Guys in the Room” and recently co-authored a book about the inside history of the financial crisis called, “All the Devils Are Here: The Hidden History of the Financial Crisis” which I mentioned at the beginning of this post – )
Her interview was amazing – I wish all of my children could see it, especially my daughters. Anyone with a daughter should have them watch this lady in this interview, particularly teenage and pre-teen daughters. It is a different view of a woman’s ability in the world and options available to our women and daughters and wives and mothers. It is amazing.
Although it isn’t funny, I just turned over to the history channel to the show “Making a Buck” where they were talking about counterfeiting of American currency. The part I just watched said there was about $40 million dollars in the US and $250 million dollars worldwide in counterfeit currency confiscated each year. Then, they mentioned that why, if that is such a small drop in the bucket, would it be such a big deal? And – then explained how the value of our currency is based on faith and that if the worth of our currency is not considered by many, many people to be what is claimed, then it could cause serious problems. Well, durn.
How about that?
Why don’t we hold the Federal Reserve governors and banks and financial firms who are playing games with the values of our currency accountable for treason against the US – they certainly have done more damage than the counterfeiters.