Wednesday, November 30, 2011

- Wise Words...

A coworker and I have been going back and forth all day about the Fed's new dollar swaps rate reduction. The long and short of it all is that it doesn't bode well for the future of the Euro (which is toast) and no, that sound you hear is not thunder. I don't expect it to last to 2012, and it might not make it to the weekend.

But at one point he found a "Center For Economic and Policy Research" study that was demanding (as is so common with liberals) that the Fed go out immediately and start buying Italian and Greek debt directly in order to 'save the Euro'. I told him that even if it were legal and a good idea (I don't think it's either... and for the record neither does he) in this political environment it would be impossible because if he tried, someone would end up taking a shot at him. "That threat of violence is a powerful dis-incentive." I said.

He looked at me, quite seriously and said "Learn from my mistakes. Never be in a position to lose money because of something that you think Ben Bernanke will never do."


Hell_Is_Like_Newark said...

I doubt the majority of the public knows enough about the Fed to get really angry about anything Bernake does. He and the Fed are an enigma in many respects. What John Q. Public will relate to is the effects of such policies: For example, the price of West Texas Intermediate just went back up over $100 even though demand is flat / declining and production is up. This will bode ill for million of people buying heating oil this winter.

Even though I don't work in finance, I do make an effort to understand the workings behind the machinations of our fiat based currency. Even with my efforts, I won't hesitate to admit that don't fully comprehend what the hell is going on (which is one of the reasons I hang out here).

Tom said...

Well this is QE3, or is at least the preamble for QE3 which will come in earnest when the Euro breaks apart. The fact that they are trying to do this preemptively tells you how serious they think the situation is. I dont think anyone really believes they can save the euro anymore. they are only doing this to try to stem the deflationary damage that they see as inevitable.

I'm actually most worried by the Chinese announcement that they were lowering bank cap reqs (more QE) which came an hour before this announcement. The Fed vote on this action was Monday and the Chinese would have absolutely been notified at least (as a courtesy) which means they had time to think about it, and mull over a response of their own. Their decision was to lower rates (effectively) too, which means the barn must really be burning.

One thing is for sure...we'll know soon.

Hell_Is_Like_Newark said...

I read that as well about China. They are pumping more liquidity into an economy that is already killing its people with inflation. The labor unrest as a result has been increasing:

From the China Post (hat tip to blogger Alfin):

At Yue Yuen Industrial Holdings' giant shoe factory in Huangjiang town — a major supplier for sports brand New Balance — the mood remained tense after most of its 8,000 workers took to the streets on Thursday, blocking roads, overturning cars and clashing with police.

Security guards patrolling the sprawling industrial estate on motorbikes prevented two Reuters correspondents from mingling with workers near a lakeside area ringed by food joints and dormitory blocks, eventually forcing them out.

At least four factory workers who talked to Reuters, including two slurping steaming bowls of chili noodles in an alley near the factory, said the strike was still simmering into a sixth day, with workers clocking in but refusing to work at assembly line posts.

“We are willing to work but you must also pay us enough to survive,” said one of them, a rosy-cheeked woman in a pink jacket. “To guarantee the basic quality of life, even Wen Jiabao has said that,” she added, referring to China's premier.

A middle-aged male colleague sitting beside her said: “Even during the financial crisis we didn't see pressure like this.”

ikaika said...

I read this post in the morning and out of the corner of my eye, I see on my Bloomberg :

European Stocks ‘Cheap’ Post-Bank Move, Guggenheim’s Minerd Says

yeah, it's obvious that the Central Banks created a short term trading opportunity and how certain people were saying "Maybe buy Greek Bonds"...

you will see a "EUphoria Sell-a-thon" in all asset classes.

"These Deals Won't Last!!!"

tread with caution.

Blegoo said...

..."Learn from my mistakes. Never be in a position to lose money because of something that you think Ben Bernanke will never do."