On Dec 16, 2008, at 11:10 AM, Stephen A. Lawrence wrote:
Q: When interest rates are at zero and you want to lower them to
stimulate the economy, what do you do?
If you want a peak at Bernanke's prescriptions, take a look at the
text of this 2002 speech of his:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/
default.htm
The strategy amounts to dollar devaluation. I don't know where Volker
stands on dollar devaluation by the means prescribed, but what choice
does he have? China is now putting billions of its money into its
infrastructure instead of buying US bonds. Despite the momentary
world wide rush to the security of US treasuries even at null
interest rates, there is a limit to how far people will go in
tolerating a diminishing dollar, and in how much money they have to
do so, especially given the next wave of mortgage defaults is
expected bigger than the one we are in.
I don't know if you saw the latest 60 Minutes regarding the coming
second round of the mortgage crises, i.e. "Alt-A" and "option ARM"
loans, but if not you can see the video here:
http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml
http://tinyurl.com/66u37r
The segment is called "A Second Mortgage Disaster On The Horizon?".
It is extremely informative and shocking. Look for the graph that is
the central graphic of the broadcast. The current round of sub-prime
defaults (about 1T$) is shown in orange. The second round of
(expected "Alt-A" and "option ARM") defaults (about 1.5T$) is shown
in green. From the chart you can see they will be starting up next
year and peaking in 2011.
Roosevelt confiscated gold an then devalued the dollar. Its not so
simple these days - so I have to wonder ... who will confiscate what
and how? The institutions fostered by Bretton Woods are now becoming
much more internationalized, not run by a privileged few nations.
Hard to tell who can get away with what, and what kinds of trade
barriers may result.
Best regards,
Horace Heffner
http://www.mtaonline.net/~hheffner/
