My Visit to the US Treasury, Part 4
So, who did I recommend for the next meeting at the Treasury? (I think there will be one.)
Economists View http://economistsview.typepad.com/
Cafe Americain http://jessescrossroadscafe.blogspot.com/
Market-Ticker http://market-ticker.denninger.net/
Econbrowser http://www.econbrowser.com/
Greg Mankiw’s Blog http://gregmankiw.blogspot.com/
Carpe Diem http://mjperry.blogspot.com/
Credit Writedowns http://www.creditwritedowns.com/
Gregor Macdonald http://gregor.us/
Jeff Miller http://oldprof.typepad.com/
Floyd Norris — NYT http://norris.blogs.nytimes.com/
Market Beat — WSJ and their real time economics blog, deals, and real estate blog… http://blogs.wsj.com/marketbeat/
FT Alphaville — http://ftalphaville.ft.com/
James Pethokoukis — Reuters http://blogs.reuters.com/james-pethokoukis/ (also Matt Goldstein and Rolfe Winkler at Reuters)
Curious Capitalist — Time http://curiouscapitalist.blogs.time.com/
Matt Taibbi — http://trueslant.com/matttaibbi/ (And others at the same site)
Trader Mark http://www.fundmymutualfund.com/
Dealbreaker http://www.dealbreaker.com/
The Epicurean Dealmaker http://epicureandealmaker.blogspot.com/
Ultimi Barbarorum http://ultimibarbarorum.com/
Zero Hedge http://www.zerohedge.com/ (ask for Tyler Durden or Marla Singer)
The Reformed Broker http://thereformedbroker.com/
Crossing Wall Street http://www.crossingwallstreet.com/index.html
Cody Willard http://cody.blogs.foxbusiness.com/
Add to that good ideas from my readers:
Now, Treasury responded to me, thanking me for the list, but said that the mainstream media bloggers already have access. Fine with me — I was just gauging talent and reach.
The Nature of a Liquidity Trap
Go back in history over the last 25 years. How did the Fed manufacture recoveries? They lowered interest rates enough so that borrowers would be willing to borrow and refinance assets that had cash flow streams that were not financable in the higher interest rate environment, but financable in the lower interest rate environment.
With each successive rescue, interest rates at the trough were lower than before, inviting borrowers that were increasingly marginal to buy assets, borrowing money at cheap rates to pay them off over time. We thought we saw the bottom, 2002-2004, but no. The Fed Funds rate can go to zero, and what’s more the Fed can buy longer dated Treasuries, Agencies, and Mortgage Bonds, lowering interest rates on the longer end of the yield curve. This allows even more marginal borrowers to buy assets. If they face some hiccup in their cash flow, they will default, and quickly. If you doubt this, consider the high currently expected rate of default on FHA loans originated over the last two years.
Yes, low rates can get them to buy, but it cannot get them to hold on. But wait, these are criticisms of the Fed, not the Treasury. Mostly so, but what of the expensive housing tax credit and cash for clunkers. Those belog to the Treasury. They are not economic programs — the costs far outweigh the benefits. But wait. Those shouldn’t be pinned on the Treasury; Congress, bought and paid for, are pushing these programs on behalf of their lobbyists.
If so, where is the administration to shame Congress over such behavior? Where is the President who should press for a line-item veto? (I like Wisconsin’s version. 
) Let the Treasury, backed by Obama, ascend to the bully pulpit, and say that such programs are a waste of taxpayer dollars.
The Fed and Treasury have been able to touch of a speculative rally in financial assets, which benefits financials, but with weakness in end-user demand, the lower rates do nothing to stimulate investment in plant and equipment.
All that said, there are three things that could go wrong here:
- Contrary to the expectations of the Fed, inflation could rise, and cause the Fed to tighten.
- All of the excess dollar claims could lead to greater depreciation of the dollar.
- Defaults could cause credit spreads to widen.
Those have not gone wrong yet, but they are all threats. More tomorrow, when I discuss difficulties with entitlement programs.
November 6th, 20098:54 am at
David — did you know that you are a “Baby Buffett”?
http://thereformedbroker.com/2009/11/02/the-periodic-table-of-finance-bloggers/
November 6th, 200910:56 am at
Josh Brown is too kind; yes, I knew. I could have fit in a couple of places. I am hard to categorize.
November 6th, 20091:15 pm at
David,
Any thoughts on this?
http://www.savingtoinvest.com/2009/10/extra-250-for-social-security.html
President Barack Obama is calling on Congress to quickly approve the $250 payments to more than 50 million seniors to make up for no cost of living increase in Social Security next year (according to the SSA which has cited negative inflation this year as the reason).
Is it just me, or is the absurdity of this just beyond the pale. The government wants to send additional money to seniors to “make up” for the lack of cost of living increase that results from the very same government’s statistics. Is this a tacit admission the cost of living statistics are bogus or just political pandering?
Here is the million dollar question I’d be interested in your take, and what the Treasury position here is?
When do we wake up and face reality? Seriously, just face reality, and realize collectively the standard of living must go down. Is the current magnitude of the deficit in support of additional payments to seniors, cash for clunkers, subsidized housing, etc. etc. etc. sustainable indefinitely? Does Treasury believe it is? If not, how long can we play this game? 2 more years, 5 more years, 10 more years? What is the catalyst/falling domino that brings the whole thing down? Does the dollar go much, much lower the next 10 years?
From your previous 3 posts, I get the sense that Treasury officials are a bunch of nimrods, and are aware of the issues. Is the endgame here simply a result of the political process of a social democracy? I’m reminded of the De Tocqueville quote:
“When the people find they can vote themselves money, that will herald the end of the republic”
November 6th, 20091:17 pm at
Correction: Treasury officials are NOT a bunch of nimrods is what I meant to say
November 6th, 20092:42 pm at
I agree with the Democarcy is doomed quote. Economically, it doesn’t matter whether the $250 comes out of the trust funds or not, but it would be interesting to know how they are accounting for this.
The debt doesn’t matter until the day when it will be the only thing that matters.
November 6th, 20092:47 pm at
Mike: “When do we wake up and face reality?” You are right. It is all about the dollar. At some point you print enough dollars that no one wants to give you valuable assets for them. Alternatively, your foreign creditors buy up all your valuable assets with the money you’re printing and you wind up someone’s economic colony. We can print as much money as we want and stimulate as much as we want, but we’d better be nice to Canada while we do it or it’s going to be very tough to get the oil that our lifestyle requires. Good thing we can grow corn or we’d really be in trouble.
Unfortunately, most people think of a dollar as a real thing and so as long as nominal asset prices rise upper-middle-class Americans with 401ks/houses will be happy, even if their wages/job prospects don’t go up. I want housing prices to go down so that I can buy a house. I want stock prices to go down so I can make decent investments. I want interest rates higher so that I can make something on savings. But none of these ends is desired by those who owe a ton of money on inflated assets. Keep the spiral going up.
America could use a moment like the one in “Searching for Bobby Fischer” where Ben Kingsley’s Paldolfini says to Josh:
“You want the certificate. You have to have the certificate. You won’t move until you get the certificate. Fine. You win. Here’s your certificate. Fill it out. It doesn’t mean anything. It’s just a piece of paper. It’s a xerox of a piece of paper. Do you want another one? Do you want 10? Do you want 20? 30? I’ve got a whole briefcase full of them. They don’t mean anything, though. They mean nothing.”
The unfortunate thing is that in the chess story this tactic motivates Josh to pursue what matters (excellence/being a good person) but in reality dropping money out of helicopters leads either to 1. missing the point and trying to grab as many bills as possible (where we’re at now) or 2. the collapse of our social and economic system as people freak out due to their lack of any standard of value other than numbers on paper (where we’ll go if the Fed keeps printing).
November 6th, 20096:07 pm at
The debt doesn’t matter until the day when it will be the only thing that matters.
David,
But when does that happen? (I know no one can predict this with any approximate timeline). Couldn’t we play “make believe” a long, long time? I’m thinking of Wile E. Coyote going over the cliff, and maybe as long as we don’t look down we won’t fall?
Aren’t we doing this with the banks right now? We substituted mark-to-market with mark-to-make believe by decree and presto, the banks are all good again, and they are up 200, 300, 400% off their lows. What will the actual cash flows from all those assets actually turn out to be? But maybe it doesn’t matter. If collectively we all ignore the elephant in the room, maybe it just goes away?
2. the collapse of our social and economic system as people freak out due to their lack of any standard of value other than numbers on paper (where we’ll go if the Fed keeps printing).
cgaros,
Thanks for brightening my day! Seriously though, what is scary to me is when you really think this entire situation through from beginning to end and the full implications and ramifications then I come to the same endpoint as you do above. The Mauldin piece on Argentinian disease a week ago was very sobering. Of course, I was told it was just “fear mongering” so I guess I can disregard the underlying rationale.
Now I know history says the bears/pessimists are usually wrong no matter how persuasive their arguments. Triumph of the Optimists and all that. But the dinosaurs dominated the Earth for a tremendous amount of time before the Ice Age changed the game permanently and wiped them out.
Maybe I’m overreacting to what I’ve seen the last 12-18 months in terms of the Financial/Credit Panic/Meltdown, Great Recession, and Government/Fed response (cure worse than the disease???) but I’m essentially reevaluating my life course as I am a middle-young guy at 35 years old, currently unmarried without kids.
1. Do I want to bring children into this world with the future economic society I see on the current course of action?
2. Do I need to start thinking about eventually leaving the United States and moving to another country sometime in my lifetime?
3. What of my savings and investments? Is it prudent to start saving some money in foreign currencies physically located overseas? Will the U.S. government eventually resort to some sort of capital/currency controls, confiscation of “speculative” profits on items of real value that move inversely to the dollar (such as gold and oil)?
I could easily see a situation where the very small minority who realize what is going on right now, and are somewhat hedged appropriately are painted as “evil speculators, villains, hoarders” who have obtained “obscene” profits at the expense of the common man, and have those gains taken away by political decree.
3-5 years ago I would have considered these types of thoughts and questions ridiculous and absurd. Now I see government and Fed policy over the past year, and I think absolutely nothing is off the table, and that scares me because I don’t know how to plan for it. When the range of possible outcomes is so wide, what does one do at the individual level?
My plan has been to basically assume we will get our s**t together, but I don’t know. I’m not a religious person, so I don’t believe in any afterlife to look forward to if this Earthly existance turns out badly. I figure this is it, so I’m very concerned the next 50 years in the U.S. won’t resemble the previous 50 in terms of prosperity.
November 6th, 20096:57 pm at
Was just reading another blog, and this quote seemed apropos to this discussion:
The event itself is far too great, too distant, too remote from the multitude’s capacity for comprehension even for the tidings of it to be thought of as having arrived as yet. – Nietzsche.
November 6th, 20097:16 pm at
So, who did I recommend for the next meeting at the Treasury?
Good recommendations. The Fed could use the independent insight from those who saw this entire crisis unfolding, and forecast this horrendous recession beforehand, right?
November 9th, 200912:54 pm at
No disrespect David but you recommend Dealbreaker, Reformed Broker and Cody Willard??? What kind of advice are these “bloggers” gonna give to the treasury? ,please. This whole “My Meeting with the Treasury” thing is getting a little bit ridiculous.
November 9th, 20091:23 pm at
DDD — I partly agree — the list in question is partly a measure of who the bloggers are who have reach. I’ve talked with the Treasury’s media area regarding bloggers. We’re not all the same. Some have intellectual firepower. Some only bombast.
Others have a firmly decided view and won’t listen to others, some will listen. The Treasury asked me for a list of who got missed in terms of reach. I gave them that. That doesn’t mean that if I were constructing the guest list, this is who I would invite.