$1 USD, that's like $1 CAD?

[Andrew]

My thinking eh? I'm not even sure what my thinking is.

I guess the relation between inflation and the money supply. This has to do with Quantity Theory of Money.

The government increases money supply by printing lots of money and decreasing interest rates (and lots of other stuff). So inflation goes up.

The US government stopped recording the M3 back in March 2006. If you want to put on a tinfoil hat, it is so people do not know the growth rate of total money (but there still is M0, M1, M2). Also on that page it describes again inflation related to money supply growth here.

So the government (and special interest organizations such as large banks, aka Fed reserve) is increasing money supply, which makes the money you have in your pocket worth less. There is nothing wrong with money supply growth and inflation in moderation, but what is happening is that it is increasing at a rate at which it is not under control. Think back to the 1970s when the interest rate was at 15% and inflation was probably around 10% and with the oil crisis. It is not as bad now, but it is worse than it has been for the past decade or two (since 1990 recession).

As I'm sure I pointed out before, a good read from a paper done 30 years ago is What Has Government Done to Our Money? by Murray N. Rothbard which is a free pdf or html. It's only 58 pages long, and even skimming over some of the stuff in it you can learn something (or look at table of contents and see if anything looks interesting).

Inflation is an invisible form of taxation. From Rothbard paper, look at what he says here.

I'm sure I did this example before (taken from the Rothbard paper I linked to above, but not as well done), but say the total amount of money in an economy (in circulation) is $100. Let's say you have $1 of that money. Then the government says "Lets print a lot more money! (by borrowing more or doing monetary things to increase money supply)."

Lets say after the government does this there is now $200 in total economy. You still have that $1. But that $1 you have is worth 1/2 as much as it was before relative to the total economy.

Or look at it from a point of an economy with $100, with government having $50 and individuals having $50 (50% each). Then the government goes and prints $50. Now there is $150 in the economy with the government having $100 (67%) and individual having $50 (33%). The government just got a larger portion of total money compared to citizens.

It seems the interest rate cut today did limit the selloff. The US fed had an emergency meeting this morning (first time since 9/11). But this is only temporary, and will result in higher inflation due to an increase in the money supply. The Dow Jones is down 18% or so since October 2007. Adjusted for inflation the Dow Jones is no better than it was on Jan 18, 2000 when it peaked at 11,722 (today it is at 11,971).

There's lots of other relationships, but I cant remember them off the top of my head.

[Andrew]

So it looks like the $150 billion aid package will go through eventually.

Senate Pressured to OK Stimulus Deal

Very simple question. If the government had large deficits for the past 8 years, and was projecting a deficit this year before the aid package was announced, where is the government getting this money? $150 billion doesn't just appear out of nowheres. They are planning to give this money out in the form of tax rebates. USA government has to borrow this lost revenue because of larger deficit.

Also how is $600-$1200 per person/family going to help them in the long run?

That amount of money will pay one months worth of bills. Then what? Inflation will increase no doubt because of this helicopter money.

Obligatory humourous image to illustrate what I am saying

http://www.businessweek.com/the_thread/hotproperty/bernanke-helicopter.jpg

EDIT:

Mike Huckabee said it best during a debate. He basically said that they will be borrowing the money from China, and the American people when they get their rebate checks will be purchasing goods from China with this money.

Mike Huckabee video

[Andrew]

Wanna know how I know the USA economy is in the crapper?

Because the government is shutting down a website that tracks economic conditions.

Bush Administration Hides More Data, Shuts Down Website Tracking U.S. Economic Indicators

It's being shutdown due to "budgetary constraints".

and forbes.com gave it an award for "Best of the Web"

[Egeides]

so... are they in the crapper cuz they lack money to support it or cuz they hide it? ;D

[Andrew]

Both. :P But mostly because they are hiding it.

Kinda like how they stopped reporting the M3 money supply. That was stopped due to it "costing" too much.

[Andrew]

Fed lowers economic forecast

The Federal Reserve on Wednesday lowered its projection for economic growth this year, citing damage from the double blows of a housing slump and credit crunch. It said it also expects higher unemployment and inflation.

zomg I didn't see that coming!

;)

Subprime loans defaulting even before resets

So we have people who got large loans that could not even afford to pay the monthly payments with the low interest rate!?

[Tatar Khan]

That happens because people often have no comprehension in financial matters and never try to comprehend the stuff. Financial services providers don't go and explain everything they expect people to ask questions. People don't. And from personal experience I can tell you that even when you try to explain thing many would not listen thinking that they know how to spend and invest their money themselves. Than you get such cases where people get in complete financial mess.

[gunner154]

You also have banks that actually gave loans away to these people.

[Andrew]

January foreclosures up 57%

Filings saw yet another big jump last month, compared to levels a year ago; 45,327 homes were lost to bank repossessions.

At least those $300 cheques are coming in a couple months to save the economy. ::)

Wholesale Inflation Soars On Rising Energy Costs

Inflation at the wholesale level jumped 1 percent in January on rising energy costs and posted the biggest 12-month gain in more than 26 years, a government report showed on Tuesday.

The price of flour has double in 6 months. So basic products such as bread have increased a lot. Also milk has increased 5% or so where I live.

"The economy is fine, nothing to see here"

[gunner154]

Sigh. The whole inflation problem is hitting the world. We're starting to see it here too...

[Andrew]

FDIC to Add Staff as Bank Failures Loom

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

Recession? What recession?

[Dunenewt]

$1, that's practically 50p for us.

[alchemi2]

http://news.bbc.co.uk/1/hi/business/7265963.stm

The UK pound traded at $1.988 Good for the Uk consumer, Bad for Business.  ;)

[gunner154]

It's good to be British. I wonder if Amazon goods are getting their prices jacked up as a result...

[Andrew]

Economy Still Shows Little Growth, Housing Worsens

GDP increased at 0.6 percent in Q4, 2007, compared to 4.6 percent in Q3

The economy skidded to a near halt in the final quarter of last year, clobbered by dual slumps in housing and credit that caused people and businesses to spend and invest more sparingly.

"Regulators are bracing for 100-200 bank failures over the next 12-24 months," says Jaret Seiberg, an analyst with the financial services firm, the Stanford Group.

Another source for the previous story.

On Tuesday, Canadian government announced its 12th consecutive surplus budget. We're the only G8 country to do anything near this amount of surplus budgets.

Our federal government has been paying down the debt over these years.

Debt peaked at $562.8 billion in 1996/97. It was decreased by 62.7 billion by 2003. And since then has decreased by about 30-40 billion(cant find info). Decreased it by 10 billion in 2008 budget.

Hurray for fiscally responsible governments!

Meanwhile the USA is spending $8 billion per month in Iraq...

EDIT:

Chances of Aggressive Fed Cut in March Jump

he chance of an aggressive 75 basis points cut in the Federal Reserve's benchmark interest rate shot up to 62 percent on Friday, as U.S. equity futures pointed to a lower open and Treasury prices surged.

U.S. fed funds futures had reflected only about a 30 percent implied chance on Thursday.

75 basis point cut should cause lots of inflation and devaluation of the USD. It happened when they did it at the end of last year.

[Andrew]

Economy could contract - White House

But for the past 6 months they said everything would be fine. Now they are saying negative growth? Flip-floppers trying to hide what is really happening.

Bank of Canada decreased interest rates by 50 basis points to 3.5%. But since the USD is doing extremely bad, the CAD is still worth more than the USD. I'm guessing the interest rates will bottom out by the end of this year or early 2009 (kinda like they did in 2002 after the tech bubble). I didn't hear anything about US interest rate setting for this month. Must not have occurred yet. If they do drop it by 75 basis points, the value of USD will decrease and price of oil will increase.

Oil prices are still increasing, and is at the highest level ever adjusted for inflation (higher than the oil crisis in the 70s). Price of wheat/flour is still ridiculous. Actually reports of some shortages in my area, difficult to keep in stock.

Maybe my prediction of stagflation that I made after hurricane katrina will come true. Because if there is high inflation and negative growth, North America is in trouble.

[Dunenewt]

Recession?

http://news.bbc.co.uk/1/hi/business/7283512.stm

[Andrew]

New 'super-spike' might mean $200 a barrel oil

@Dunenewt

Oh Bush. He's so funny. He's going to deny any possibility of a recession until he is out of office. Those $300 cheques he's sending to people will solve this problem. And the Feds are printing more money to increase liquidity in the market.

Fed Boosts Efforts to Loosen US Credit Markets

The Federal Reserve announced measures to pour more money into credit markets in a bid to ease persistent liquidity strains at U.S. financial institutions.

[Tatar Khan]

Recession is when growth is negative. So far it is somewhere between 0.5% and 1%. But the attempts to fix this problem could back fire.

CLAMORING FOR A FIX

The story everyone thought would be old news by last November rumbled on through January as more giant US banks

[Andrew]

IRS spending $42 million on rebate reminders

The IRS is spending $42 million to notify citizens that the recession saving cheques are on their way! Don't worry, the US government just borrowed that 42 million from China (along with the amount for the rebate cheques).

[Tatar Khan]

Well currently it is like watching a cat trying to get out of aquarium. Anyway it tries ti will just hurt itself.

Actually socialised medicine might help them out of the problem as it would decrease the expected expenditures of the people and as the medical insurances get less popular the money could be diverted to paying of debts.

Of course the fallout could also make the problem worse as the already crippled insurance industry would get hit even worse and that source of credit could dry up.

[Andrew]

Just noticed some topics at fark.com that the markets are doing poorly.

Markets will do crazy stuff tomorrow. Todays futures are apparently down.

And the Feds in USA are planning on cutting interest rates. About a week ago Bank of Canada cut interest rates by 0.5%. If Canada cut them that much, the US will do the same or more.

The USD fell today according to some. At 1.58 euro. Actually it broke through 1.58 and going to 1.59.

Fed Takes Steps to Ease Crisis, Cuts Lending Rate to Financial Institutions to 3.25 Percent

Dropped it by 0.25 today. They do not normally drop interest rates on Sunday.

Nikkei stock exchange down 4% (back at -2%), gold at $1023

JP Morgan bought out Stearns really cheaply. 45% less than it was worth on friday.

The deal values Bear Stearns at just $2 a share. Regulators hope purchase will stave off wider chaos in financial markets.

Also the fed is securing like $30 billion (printing more money!).

This buyout of Stearns is ~$250 million. Apparently Stearns office building is worth that much. So lots of debt.

Expect this week to be busy on the markets. Crash?

Live video of Bloomberg TV so you can watch the crazy stuff without a tv.

And mainstream US media apparently are ignoring all this stuff on sunday night.

EDIT:

BSC (Stearns) stock was valued at $170 Jan 17, 2007 (it's peak). Now it is being sold for $2 a share. FIRE SALE!

EDIT:

Euro at 1.59 now. The Yen is making lots of progress as well, 12 year high.

http://www.dailyfx.com/ looks like a decent currency website. Although it uses java.

[veK]

I didn't read the whole topic. Just wanted to let you know that the weak USD really pisses me off. Every day my poker money is worth less. I really hope the big sites like Party, Stars and Full Tilt will completely change to EUR some day.

[Andrew]

I've seen lots of people on business news channels saying the US has negative real interest rates.

Looks like they might turn into what Japan was for a decade with no interest rates.

One person who bought 19% of Stearns a year ago has lost $1.6 billion today. Sucks to be him :P

They've basically sold stearns at fire sale prices, undervaluing the company so JP morgan can buy it up cheap (JP morgan stock price is actually up today). Even on business news channels they talked about how the Stearns office building is worth more than $2 a share.

EDIT:

Foreign investors veto Fed rescue

Basically foreigners are not buying US bonds, because they believe the US gov is intentionally devaluing its currency.

EDIT2:

Dollars tough to sell on streets of Amsterdam

Amsterdam Businesses are not accepting USD from tourists. :P

EDIT:

CBC news just said they were expecting fed reserve to decrease interest rates by 1% tomorrow. Hurray inflation! Soon there will be so much inflation that deflation will occur with a negative real interest rate.

[Andrew]

So Tuesday stock market went up 3%, today it went down 2.5%.

Tomorrow is going to be another busy day as a bunch of things reset. I forget what exactly, something to do with mortgages.

It's been great with the Daily show talking about business, and easily flaming Bush.

I especially liked the the Fed bank said on Thursday or Friday that they will not be bailing out failing businesses. Then on Sunday they bailed out stearns.

Forgetful Fed repeats errors of the past

Canadas markets took a painful beating today.