TPS

You don't think there's a difference? Maybe not as much anymore on the asset side, but the source of funds? Should the FDIC insure $X for investment banks now too? I'm sympathetic to your view here, but I still think they are very different animals and need different types of regs. However, I think one common area would be capital requirements (maybe not the same % though).

Update2: it'll be interesting to see what happens this week with the futures prices... Impact of speculators?

If you mean making the "loan facility permanent," yes. Getting back to the original point of the thread... increased margin requirements This may make it tough on the "little guys," but not the institutional speculators.

Did someone ever say China was harmless? I thought it is pretty much taken for granted that they are the next major threat to the US--the CIA has stated this. This aritlce is not surprising to me. As for Chavez and Colombia, Venezuela and Ecuador responded to Colombia's attack on FARC inside Ecuador. The combined forces of both countries can not match Colombia. The threat in S.A. is that we have lost influence in nearly half the countries as the left has won election after election. And the "threat" is that they are nationalizing resources once owned by private companies, many of them US. I'd blame the current admin because of their myopic focus on Iraq.

Here's a nice little piece on the Fed's role so far and possible future regulation. Kohn

Drane, Here's a nice little piece on expected bank failures I just came across. 150-300 failures? Yeah, gg, what do you do besides post here a lot? Agree about the asset "thingy." They are swapping good for bad assets on the one hand, then, if necessary, they can buy the good asset back in order to provide (more) "liquidity" necessary for the institution to meet its cash flow obligations.

Hmmm...missed this one. My focus is on Friedman's (and monetarism) contention that there is a close relationship between money growth (as defined by M1, which MF used) and inflation. While Volker's Fed tried to use this (MF's "monetary rule") in the early 1980s, they gave up because the relationship was not tight enough to use as a strict policy. No (advanced country's) monetary authority follows Friedman's "monetary rule" any longer because it's just not accurate enough. Most use "inflation targets" and use changes in interest rates to pursue their target. while my buddy colon is correct that the value of money is a function of the price level (inflation), he doesn't seem to understand what money actually is. btw colon, if you define inflation as including increased prices of assets, then maybe we're closer than we think. Here's the key: when gold was money, if you doubled the quantity from a new discovery, sure, you'd have inflation in the classic sense. Today, most of the money supply (M1) is made up of demand deposits and growth of M1 is a function of loans. Just as a new loan can expand the supply, paying off a loan contracts it. Yes Ad, it's much more complex than this, but the concept is that what we think of as "money" is not something permanent once its created, as in the gold example. And, if one expands the definition of "money" to credit, there's a hell of a lot of "money" being destroyed right now. signed, the sophomore

This from the guy who believes in the helicopter theory of money? You've also crossed the line !@#$. DC and I never agree!

My portfolio is 55% global natural resources, 15% emerging markets, and 30% cash. Overall up about 11% ytd.

I'll have to do a search and see how many of us have been annointed as "not a complete idiot" by my new friend DC. Oh, wait, Darin said he still hates me. Nevermind...

Congratulations SD, welcome to the "I'm not a complete idiot club!"

Another area of agreement. Strange days indeed... Seems to me there is a serious misunderstanding around here of how "money" is created.

Did I say that? I said this, And I've stated enough times for even you to know that I believe the current level of government is too large. I agree with you guys on the need to reduce government and lower taxes. You are so blinded that you want to read into my comments what you want to believe. It is a fact that a larger government sector and activist fiscal policies have reduced the severity of downturns. THAT DOES NOT MEAN THAT I BELIEVE GOVERNMENT CAN SOLVE EVERYTHING OR THAT WE NEED MORE GOVERMENT. THE SIZE OF GOVERNMENT HAS GONE PASSED WHAT'S NECESSARY TO BE A STABILIZING INFLUENCE. When i argue about marginal tax cuts and revenues, I argue against the supply side belief that tax cuts increase revenues. THAT DOES NOT MEAN I AM AGAINST TAX CUTS. I AM FOR REDUCED GOVERNMENT AND TAX CUTS THAT HELP THE MAJORITY OF AMERICANS. REDUCE PROPERTY TAXES PLEASE. I hope this is clear enough for you.

Huh? The value judgement I made on S&D? I said the government can correct a supply side shock? Where am I?

Speaking of patterns, yours is always to insult without adding anything to the discussion. You used to try a little harder. Complimented? I was referring to your comment about me. And thanks for the reminder I'm not part of the club. I'm so disappointed...boo hoo...

Gee, I always wondered what it would feel like to be DC Tom... AD, of course you can't reduce an explanation to one general answer, but there is typically one major influence. In this case, activist fiscal (increased government) and monetary policies have reduced the amplitude of Business Cycles. I certainly didn't come up with this; it's accepted by the majority of "the profession." The major change since the GD has been the size of Govt relative to gdp, and fiscal policies to prevent recessions from becoming depressions. DC, pass the salt.

Your first sentence is wrong, the second has pretty much been discredited, but the rest are correct. The FED can control short term interest rates, which influences credit expansion and the money supply. When I say the "mark up is determined by the degree of competition in an industry" that is the influence of S&D conditions. When markets become more competitive, it becomes more difficult to "pass along costs" into higher prices, so, yes, firms will have to pursue other strategies like outsourcing production (longer term) or reduce their margins (short term). Reading the paper this morning DOW chemical is going to raise prices by 20% due to rising energy costs. Is that S&D, or are they passing increased costs along in to higher prices? You have causality backwards, obviously because you believe the "Uncle Miltie" line. Friedman's "helicopter argument" makes for a good story to persuade people like you, but the Fed does not own helicopters. The Fed influences banks' reserves and money is created when banks make loans. Banks and the FED can't directly influence people to borrow however. Inflation occurs from either too much demand (relative to supply) or a supply-side cost shock. If there was some way that people's money incomes were doubled over night, then the helicopter story could work; but money doesn't grow on trees nor is it dropped from helicopters. Friedman and Monetarism was discredited in the 1980s. I've saved quotes from him in the WSJ and Business Week. Each one goes something like this: Money supply growth is greater than potential real growth, so inflation will be higher next year. Each time he was wrong. Inflation was "tamed" in the 1980s because Volker raised interest rates to unprecendented levels causing the most severe recession since the GD with unempolyment reaching 10%. Labor lost its bargaining power (Reagan helped too by breaking the air controllers union). Combine that with increased global competition and low oil prices, and you get lower costs and less ability to mark up prices. Increased global competition has forced firms to constantly try to keep their costs down, and if they can't do it in the US, then they outsource. This is why Greenspan's fed could let the unemployment rate go below 5% in the 1990s--labor's ability to bargain for higher wages has declined. We are currently in a very interesting situation. Global demand is pushing up commodity prices, with oil prices rising from "other factors" as well as demand, while, at the same time, the US is (almost) in a recession (hence the low interest rates). The FED can't control those kinds of cost influences. Conclusion: prices are rising because of REAL factors, not the FED dropping money from helicopters. Corn (and all grain) prices are rising because of ethanol production; global commodities being pushed up by demand from Chine, India and other emerging economies; and oil prices from demand, speculation, and the depreciation of the $. DC, pass the popcorn...

No. The Fed can allow or accomodate inflation, they don't cause it--not unless they are handing money to the average joe consumer or business. I don't know anyone who can go to a federal reserve bank and get a loan or a cash handout. Inflation is a general rise in prices. First question: how are prices set? Businesses add a mark up (some %) over their avereage total costs. The mark up is governed by the degree of competition in an industry. Costs are mainly made up of wages (including salaries and benefits), raw materials, and energy (especially for manufacturers). To keep it simple (so AD can understand it), as costs increase, prices increase. And, given the increased costs, there's an increased demand for working capital, and therefore the need to borrow, by firms. Borrowing, or loans, is how money is created. For the most part, the banking system makes the loans, and the Fed governs the cost of loans by setting a target Fed Funds interest rate (FFR), which is essentially the banks' borrowing cost. The Prime interest rate is a mark up over the FFR. In a fast growing economy costs eventually begin to increase due to increased demand for resources, low unemployment giving workers more bargaining power, some industries hitting capacity before others, etc. Rising costs means increased borrowing by firms, and loans are how money is created. In addition, workers (consumers) with their higher incomes or even more people working are taking out loans. At this point, the FED has to decide whether or not to let the growth continue or not. If it lets it go, it could cause an inflationary spiral. Higher wages (due to labor's better bargaining position) leads to higher costs, which lead to higher prices. Or, it can decide to put the brakes on by raising its FFR target. The Fed almost always chooses this course of action. End of story.

Which is why the other side of the policy coin is being used too. The government, with one hand, is pushing its housing rescue through and handing out checks with the other hand. If the Fed and Govt can stave off the collapse of asset values, and the economy recovers, they can always start siphoning off the liquidity when things improve. The late economist Hyman Minsky wrote an article titled "Can 'IT' Happen Again?" By 'IT' he meant another depression. He believed IT could be prevented through the policy options available to the FED and Government. The current conditions are such that I believe IT would happen now, but policy makers are using everything at their disposal to try to prevent IT. That doesn't mean IT won't.... As for China and the $, I think most people here already know my view (similar to yours). I think I wrote elsewhere in this thread about my views on the $-oil linkage.

This'll take a bit more time than I have right now, but here's a quick response. Some inflation isn't bad; in fact prices rise as a signal of scarcity (either from increased demand or reduced supply), and we all (businesses and consumers) react to those price changes. Rampant inflation is not good because it distorts the price-rationing mechanism, and can therefore destroy a market economy. Who does inflation hurt then? Anyone without the ability to bargain for higher wages/income, and people/institutions who hold financial assets that pay a fixed return. I'd say that bondholders, banks, and other financial institutions are a pretty powerful force. One might look at inflation as a "conflict of interests." Pun intended. If you are a consumer with a 30-year mortgage or a business with a 10-year fixed-interest debt obligation, you won't mind a little (more) inflation, especially if you have the ability to increase your income to the price index, or a firm that can increase its price as its costs rise.

I'm not talking about the ability to obtain financing; I'm talking about the willingness to spend. It's demand that drives the economy. Downswings occur because spending (demand) slows down--either businessess, consumers, or both reduce spending. Government spending never slows down, and in fact speeds up during a downturn. The scope of capital availability means nothing if businesses and consumers "hunker down" and stop spending in a risky environment. In 1929 government spending relative to gdp was 1.2%; it's now almost 20%. Large government has stabilized demand; that's the reason for less severe downturns.

The Fed is never "out of jack," since they supply a fiat currency. Most, if not all, of what they are doing is trying to prevent further asset deflation because that is what can transfer over to the real sector and bring the economy down. The fed can't directly cause inflation unless they started handing out money to those who spend on goods and services--that's the government's job with its tax rebate. The fed can control credit conditions (in the financial sector), but it can't make businesses and consumers borrow and spend.

That contradicts the experience of the last hundred years or so. I'm not justifying the current size and scope of government, but since WWII, as the size of government (relative to gdp) has increased, the severity of downturns has decreased. The downturns aren't severe because there is "more capital in private hands," they are less severe because government spending is a stable source of demand regardless of the "current state of risk" in the economy, and it also goes up when an economy slows down. Private capital, on the other hand, tends to "get liquid" when the "current state of risk" increases--that is, businesses are less willing to spend to expand, and finance is also less willing to lend. Much like the current state of affairs.

That's not the dollar-oil connection. The majority of oil traded around the globe is priced and sold in $s. Since oil is priced in $s, a decline in the value of the $ doesn't impact the price of oil directly. What the declining value of the $ does is reduce the purchasing power of revenues earned by oil exporting countries. One way to counter that is to reduce production and increase the $ price of oil. Another way would be to switch pricing and sales of oil from the $ to the euro.

Will the company need to hire another accountant? Or will they increase executive compensation?