The credit crunch that isn't

The media and the political interventionists have insisted that a huge credit crunch is going on that "proves" the failure of financial capitalism and the free market in general.

What is a work is another political "fast one" to rationalize and justify the growth of the interventionist-welfare state.

The Federal Reserve's own data shows this to be another big government lie. Throughout 2008 bank loans have been increasing compared to a year earlier, both in absolute dollar terms and as a percentage increase over a year ago.

In the early months of 2008, in fact, commercial and industrial loans were growing at more than 20 percent over a year earlier. And between July and November these types of loans were still expanding in the rate of 13 to 15 percent over a year before.

In addition, the Fed's survey of bank lending practices found that in October (the last month for which the data is available), only 25 percent of loan officers said they had "tightened considerably" on extending such loans, while 28 percent said their practices had not changed at all. About 47 percent said they had "tightened somewhat."

The facts and figures can be found in a new piece that I've written on, "The Financial Crisis and Business Loans: The 'Credit Crunch' That Isn't."

There is no financial "deflation," there is no "collapse" of banking and borrowing.

What is at work is the creation of a new version of the "myth of the failure of capitalism" to serve as the justification for why the straightjacket of even more government controls and regulations must be extended over what remains of the market economy.

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Federal Reserve - masters of doublespeak

Highlighted are the blatantly obvious doublespeak phrases, newspeak language, or otherwise ludicrous statements in order to acclimate the American public into believing that their actions are justified. It sounds so sophisticated and heroic, doesn't it!

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The Federal Reserve will use all of its tools, including unconventional policy measures, to support the U.S. economy and financial markets, Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday.

In a bookend to an earlier speech in which Yellen threw her support behind a huge fiscal stimulus package to boost economic growth, the policy-maker said the Fed was far from out of ammunition on the monetary side.

"The Federal Reserve faces some of the greatest challenges in its history as it strives to restore economic growth, job creation, and financial stability and to preserve price stability," Yellen said in remarks prepared for a panel discussion at the American Economics Association annual meeting in San Francisco. "To achieve these policy objectives, the Fed is committed to using every tool at its disposal."

Yellen is a voting member of the Federal Open Market Committee in 2009.

Looming forces of deflation make the Fed's job even more urgent, Yellen said.

"With growing economic slack, inflation may well decline, for a time, below levels that best promote the dual goals of full employment and price stability," she said. "An important lesson of theory and history is that circumstances like these call for prompt and aggressive action."

In December, the policy-setting Federal Open Market Committee lowered the federal funds rate essentially to its "zero bound" by establishing a target range of zero to 0.25 percent and noting an expectation that rates would stay at exceptionally low levels for some time.

"This move ... by no means exhausts the Fed's options to stimulate the economy through other measures," Yellen said.

"Considerable scope for action" remains in the use of nonconventional programs that use an expansion of the Fed's balance sheet as a lever to improve the functioning of financial markets, she said.

Of the "interventions" done by the Fed recently, Yellen said the program to buy $600 billion in agency debt and agency-insured mortgage-backed securities "could provide significant support to the housing sector."

The approach employed by another new Fed program, the Term Asset-Backed Securities Loan Facility, "can be expanded substantially, with higher lending volumes and additional asset classes," she added.

Yellen said the Fed's targeted approach differed from the quantitative easing policy pursued by the Bank of Japan in the early 1990s, which she said "had little effect on bank lending or on the economy more broadly."

Another Paulson headfake

Just a few short days ago, Paulson said he had "no plans" to seek the additional 350 billion from the TARP fund before leaving office. It should come as no surprise that he juked the country again, running to Congress with his tried-and-true fear mongering. Paulson says he now needs the additional 350 billion to pay for the auto bailout and to "to support financial market stability."

Congress has vowed to debate the issue heavily, with many key democrats extremely upset with Paulson because of his complete and utter disregard for transparency (or any other due process of law). The funds will be distributed automatically unless the houses of Congress vote it down.

Just a friendly reminder that Hank Paulson is not an elected official, he is appointed by the President, and is in complete control of trillions of taxpayer dollars and answers to no one. Congress is powerless to reign him in as a result of language in the TARP bill. All Congress can do is shout at him and Neel Kaskari in episodes of political theater.

While we're at it, let's remind everyone that the Federal Reserve is a private bank with no Federal budget, yet holds the public taxpayer purse. They control the economy by issuing our currency and adjusting interest rates. Essentially, they play god with our economy and we are the pawns.

Had enough America?

A Nightmare Before Christmas

By Peter Schiff
Euro Pacific Capital

Like many pragmatic economists I have always warned that rapid expansions of government debt would result in inflation and higher interest rates. The explanation was always simple: rising supply of government debt inflates the money supply and weakens the government’s ability to service its debt through legitimate means.

But In recent months, government has flooded the market with hundreds of new Treasury obligations and telegraphed its intention to increase the deluge even more. In response, both bond prices and the dollar have risen. This benign reaction has led many to the happy conclusion that the doom and gloomers are wrong and that bailouts and economic “stimuli” can be financed with deficit spending without any adverse consequences on interest rates or consumer prices. Recent action in the foreign exchange markets suggests these hopes will prove illusory. The renewed strength in gold, together with the long over do rupture of the correlation between the movements of foreign currencies and U.S. equities, is further evidence that recent market dynamics are changing.

When the financial crisis of 2008 kicked into high gear in September, the U.S. dollar began to rally furiously. While America’s economic ship was sinking from stem to stern, its currency was becoming the must have asset for public and private investors around the world. The dollar benefitted from the positive flows that result from massive global deleveraging. Treasuries got an added boost from a reflexive flight to “safety.” As a result, politicians were able to fill out their Christmas wish lists with complete confidence that Santa would deliver. However, as these dollar-positive forces appear to be giving way, the Grinch is about make an unwanted appearance.

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Bailout? More like failout.

Looks like the the Senate finally grew a pair and stood up to the unions. Leading the charge is Bob Corker (R-TN), who seems to be one of a few in Washington that knows the real problem facing the Big 3 and actually has a spine. Everything out of Bob's mouth has made absolute sense, perhaps too much sense for thick-headed House democrats, but I digress.

Now that the current bill is dead in the water, here comes the fear mongering. Harry Reid has stated that he "dreads Wall Street's reaction today." I'm sorry Mr. Reid, but you and your confidants just spent weeks speaking against Wall Street and the bank bailout, yet now you are afraid of the effect on Wall Street? That's strange indeed.

I don't doubt that the Dow will plunge several hundred points today, throwing gas on the fire. We've all seen this picture before; in response, the Dems will run around with their heads cut off, demanding that the Republicans pass a new version of the bill or else the country will descend into a black hole. Does this sound familiar? I believe it does. Lets just hope that somebody, ANYBODY, in Congress is smart enough to stop it this time around.

I'm not holding my breath.

UPDATE: The Dow is open and down less than 100 points. So much for Harry Reid's scare tactics.

Low Rates, Big Problems

by Peter Schiff
Euro Pacific Capital

Government and mainstream economists have erroneously concluded that the key to reversing the financial free fall can be found in stopping the plunge in home prices. (I would offer the corollary that the key to reducing injuries in auto accidents is to suspend the laws of inertia). But to accomplish the improbable task of re-inflating the housing bubble, the government appears ready to announce a coordinated plan to push down mortgage rates to just 4.5%. Of course, this is precisely the wrong solution to the housing crisis, but when it comes to bad ideas our government has been remarkably consistent.

The plan would require the newly created Federal agencies of Fannie Mae and Freddie Mac to lower rates to 4.5%, and then require the Fed to directly buy the loans after they were made. The idea is that by lowering mortgage rates, current homeowners will be able to afford to make their payments, and new buyers will be more likely to qualify for larger loans, provided of course they do not have to come up with a burdensome down payment. If 4.5% is not enough to convince reluctant borrowers then look for the mandated rate to drop further. Perhaps there may come a time where the interest flows to the borrower instead of the lender. Anything to get Americans borrowing again.

But artificially suppressing mortgage rates will encourage risk taking and debt assumption at a time when consumers and lenders should be acting prudently. By setting rates below market levels, and buying mortgages that no private funder would want to touch, the government is creating a mortgage entitlement. Given the size of the home mortgage market, the program could eventually become one of the largest entitlement program on the federal books.

The most obvious problem is that the Government has no money. All it has is a printing press. So the more money it provides for cheap mortgages, the higher the inflation tax will be for all Americans. Higher inflation will cause the difference between where rates should be and where the government sets them to grow wider, and the entitlement to become more costly to provide.

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Poor Citi

http://www.cnbc.com/id/27992848

They are hurting so bad that they just spent 10 billion dollars to buy a random Spanish highway company. Where did that money come from? Hmm....I wonder.

The Bailout Surge

By Ron Paul
November 24, 2008

This week the bailout of the Big Three automakers was under heavy consideration in Congress’s lame duck session. I have always opposed government bailouts of private organizations. Back in 1979 Congress had hearings about bailing out Chrysler and I was on record pointing out that these types of policies are foolish and very damaging to the long term economic health of our country. They still are.

There was also renewed pressure this week to bailout homeowners and send another round of stimulus checks to “Main Street” to balance out all the handouts to big business. It seems that eventually the entire economy is going to be blanketed over with Federal Reserve notes. Most in Washington are completely oblivious as to why this model of money creation and spending is so dangerous.

We must remember that governments do not produce anything. Their only resources come from producers in the economy through such means as inflation and taxation. The government has an obligation to be good stewards of these resources. In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.

With each bailout we hear rhetoric that this is the mother of all bailouts. This will fix the problem once and for all, and that this is absolutely necessary to avert disaster. This sense of panic squeezes astonishing amounts of dollars out of reluctant but hopeful legislators, who hate the position they are being put in, but are relieved that it will be the last time. It is never the last time, and again and again we are faced with the same scenarios and the same fears. We are already in the bailout business for such a staggering amount that admitting it was wrong in the first place would be too embarrassing. So the commitment to this course of action is only irrationally escalated, in the hopes that somehow, someway eventually it will work and those in power won’t have to admit they were wrong.

It won’t work. It can’t work. We need to cut our losses and get back on course. There is too much at stake for too many people to continue down this road. The bailouts thus far to AIG, Bear Stearns, Fannie and Freddie, and TARP funds amount to around $1.5 trillion. Considering our GDP is $14 trillion, and our Federal budget is already $3 trillion, this additional amount will significantly eat into our future lifestyles. That amounts to an extra $5,000 that every person in the country needs to somehow produce just to keep up. It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians.