As a gen x-er who is perfectly well aware of the game, but lacks the same access to equity and market expansion as you 50+ boomer fsckheads, I for one can’t wait until this ponzi scheme collapses and we’re roasting the skewered corpses of fat day traders over tubs of flaming ethanol.

Trade paper? For a commodity? Are you kidding? Bwhahahaha… Look around, boomers and polar bears are in the same boat, for the same reason.

Given that you’re close to 50, you might want to read Roger Ibbotson’s book “Lifetime Financial Advice”. It’s a quick read and discusses putting a portion of one’s savings into a fixed and a variable annuity in order to hedge against an unexpectedly long life.

To accept his first point, you would first have to accept that the Fed’s actions have indeed averted the financial crisis. Only then can you debate whether it was worth the resulting inflation. The Fed’s actions have certainly not resolved the financial crisis. It’s merely delayed the inevitable reckoning. Here are the facts on the ground:

1) Much of the U.S. banking sector is insolvent due to several trillion dollars worth of bad debt.

2) The housing sector will have to decline by at least another 10-20% to come in line with traditional income/house price ratios.

3) The average American has way too much debt for his income, and insufficient savings.

4) The Federal government has way too much debt and insufficient savings (both for long-term entitlement needs and short-term ability to recapitalize the above-noted bankrupt sectors of our economy)

IMHO, those are the foundations of the current U.S. crisis (exacerbated by a lousy regulatory environment that has allowed problems to fester), and the Fed’s actions have done nothing to correct any of these. In that light, the resulting inflation, currency devaluation, and overall loss of confidence in the Fed have been high prices to pay for essentially no permanent gain.

WRT to his second point, it pains me to see that Krugman, a usual champion of the little folk, actually points to the fact that wages haven’t grown as a plus. Indeed, in the current day, everything but wages have been going up, amounting to a tremendous wage cut on top of the job losses, destruction of social safety nets like health insurance and pensions, and ballooning debts that the average American is facing. As Pyrrhus, said, one more such victory and we are undone.

Neither a financial expert by trade nor by education, I have taken the very decision by the end of 2006 to read financial information on an extensive basis (3 to 5 hours a day)in order to push my current life-savings through the crisis. This implies an impressive array of sources including both European and US ones. Naked capitalism clearly stands out both by its critical agenda (à la Roubini) and its neutral stand (à la Financial Times).

Your post which are not bedeviled by the delusional wording of the profession are appealing to a wide range of readers down to the parochial fifty-ish gallic saver. Quite an achievement.

Push on the good work, Yves.

How is this supposed to work, again?

Negative real interest rates in the US make it hard for trading partners suffering even worse inflation (China is a poster child) to take effective corrective measures. Raise rates, and what happens? You attract more hot money inflows, which are highly stimulative, and undercut the economic cooling you are trying to achieve. Of course, a measure that might have much the same impact without sucking in foreign funds would be for Çhina to drastically cut its high subsidies of fuel (gas costs roughly $1 a gallon). But that move would be highly regressive, so China may well resort to multiple measures rather than any one. And having a fair number of its trading partner raise rates (or at least be expected to increase them) would give the Chinese and others in the same boat a good deal more latitude.

China has a problem because it has been pegging its currency and thus has imported American monetary policy.

For us to raise rates to help China with the consequences of their peg is silly – and bad for our economy.

What China should do is a major one step reval of the yuan. Big enough to stop hot money inflows.

Here is what Michael Pettis says today about Chinese monetary policy:

Since the PBoC must monetize these [hot money] inflows – either by issuing currency or by issuing central bank bills – these inflows end up adding to the country’s money base. With the largest part of the inflows probably consisting of speculative money, that is what I mean by saying that Chinese monetary policy is now driven primarily by RMB speculation.

link
http://www.piaohaoreport.sampasite.com/china-financial-markets/blog/Chinese-monetary-policy-is-drive.htm

Ive long thought that nominal wage growth is the only way out of this mess. But it seems nearly impossible for the fed to engineer something that complicated. Global wage arbitrage is so much apart of globalization. If its true that the fed still thinks of the US economy as some sort of closed system then they probably expect wages to rise at some point, but that clearly isnt happening.

Also, a huge international rift could develop inflation begins to really hurt the rest of the world.

Krugman misses the point. How do you prevent credit deflation? Well, you can focus, like the Fed, on promoting access to credit. Let’s call this the “Wall Street” choice. The Fed should not adopt a restrictive policy until it sees broad credit growth.

The other option is to help borrowers pay — the “Main Street” choice. The target of this policy would be none other than nominal wages. The Fed should not adopt a restrictive policy until it sees nominal wage growth.

The Fed has clearly chosen the “Wall Street” option. There’s only one problem: it doesn’t appear to be working. Credit spread stabilization does not necessarily lead to credit growth. Further, with nominal wages weak, it will be hard for spreads to say down.

Will the Fed, at some point, be forced to choose the “Main Street” option?