Redstate

...because I'm hoping his supporters will make a sincere effort to tell us what they think about this situation.

From their statements over the last few days, I'm expecting to hear that the crisis would never have happened in the first place if not for the Federal Reserve.

As far as credit problems caused by distressed mortgage securities, I can see the beneficial effects of not having had fractional-reserve banking in the first place (another of Paul's proposals). Since we'd all be renting tenements from slumlords instead of paying mortgages to banks, there wouldn't be any mortgage-backed securities to become distressed, right?

I knew he was against the federal reserve, but is he seriously against fractional reserve banking? Perhaps we should go back to stoning people for usury? UGGH!

______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777

We would be living back on the farm, as most Americans did before the rise of powerful financial institutions.

People will act differently after the Revolution, Lara! - from "Dr. Zhivago"

...no readily available goods from more than 100 miles away, a private cemetery full of small graves, a perpetual cash shortage, and the endless contemplation of the south end of a northbound mule.

I just can't imagine why we decided to urbanize, instead.

The Fuzzy Puppy of the VRWC. I've been usurped!

Good harvest = food surplus
Poor harvest = people surplus.

In both cases the surplus tended to get discarded.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

Good harvest = food surplus depending on how much of the good harvest is corn going toward etahnol production

You forgot typhoid, cholera, plague, cockroaches, organized crime, pollution, slums, political machines, factory jobs at least as dangerous as farm jobs, indifferent literacy at best, subsistence poverty, overcrowded living conditions, indifferent sewage systems, and work hours that made farm hours look like a vacation by comparison.

I can't imagine how our species survived so long.

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We are all heroes, you and Boo and I. Hamsters and rangers everywhere, rejoice!

Thus allowing them to create specialists who could invent things like science, technology, economics, and politics.

Agrarian living simply sucks in a preindustrial, non-urbanized society. As witnessed by the fact that early Industrial Age rural populations gleefully poured into the hellhole that you described above.

The Fuzzy Puppy of the VRWC. I've been usurped!

They invented cities, and a great deal of what comes with them, such as plumbing and commerce.

The patronising lefty assumption that Iraqis aren't ready for civilisation needs to be challenged. They invented it, after all. We are not imposing some "foreign" western values. We are bringing human values to the cradle of humanity.

Civilisation is coming home.

End of threadjack.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

Respectfully, I think my diary showed the situation. His supporters are perfectly willing to tell us what THEY they think he could do about money, at least the ones who support him for his 'sound money' rhetoric, however Ron Paul himself has not made a concrete proposal that any of them can explain to us.

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Also, it's a little disconcerting to hear so many disparate ideas, not adding up to a program, and backed by the phrase "at least we have ideas, which no one else does."

Sadly, I think the reason the GOP has no ideas on economics is because they're reading the politics shrewdly. Americans don't seem to want anything to change from the increasingly socialist path we're on.

And irony of ironies, I think there is a nugget of wisdom in the Libertarians' "the-sky-is-falling-just-you-wait-and-see" pronouncements. I don't think the fall will be what they think it is. The Paulite view of finance and economics seems to date from around 1980, and both are completely different today. But still there is a lot of danger and risk in the way the world economy is being run. The Long-Term crisis, the Asian Flu, and today's crisis show that.

and she spent the last 20 years of her life in a state institution.

>>>Americans don't seem to want anything to change from the increasingly socialist path we're on.<<<

The American people LIKE the nanny state (well, except those who actually possess a brain.) Conservative philosophy is so counter to the socialism that seems to have infected the US mindset that it seems best to simply ride out the storm.

American people like the nanny state as promised by Democrats, i.e. "You get everything you need for free; we make the rich pay for it." The devil is in the details of course.
~~
"There's a sucker born every minute...and two to take 'em."

I actually find this post to be most disconcerting.

First, "adding up to a program" is code for central planning. The whole point is to NOT try to centrally plan everything. I'm still amazed that you find this somehow less complete than what currently operates, where the Fed chairman wakes up every morning and figures out what kind of fine-tuning the economy needs. THAT is not a program!

I'm not sure why you think anything is "disparate" unless of course you're lumping together things that are a part of the proposal with things that some journalist or blogger has reportedly claimed are also a part of it.

But I guess the most distressing is how you can put on the blinders by saying "it's different this time" because we're all stuck in the ancient 1980's. Yep. I'll be the first to admit that I believe the history of our economic policy is relevant. I think it's utterly batty to imagine otherwise. Every time someone says "it's all different now" I can know with certainty that it's going to turn out exactly as it did last time. We heard that during the tech stock bubble, we heard it again as the real estate crisis came together, and now apparently it's going to be a new phrase explaining why we can't possibly have inflation. It's in denial of reality.

The problem everyone has with Libertarians, even when they're right, is that if you listen to them long enough, they'll show signs of being just a little unhinged.

Asking for a "program" is not code for central planning. To even think such a thing makes me wonder if you're paranoid.

Ron Paul wants to be President of the United States. He won't come out with a list of things he wants to achieve. I would consider that a program. I would also consider it a program if he were to say that the President of the United States shouldn't be in the business of achieving things and we should elect him on that basis. (That's a program I'd seriously consider voting for, frankly.)

But all I know about Paul's economic proposals are what I've heard here from you and some others. And it's a disparate bag. A Paul supporter even admitted that they differ greatly on their views on economics and economic policy. There's nothing wrong with this, of course, but it gives me nothing to evaluate in deciding whether to support Paul for President.

In this post and others, you've started getting a little personal. You and I don't know each other, so that's not very useful behavior, especially not if you want to convince me. (I'm sure you're very passionate about your point of view, to be sure.)

Perhaps I'm being too inflexible and unwilling to bend my worldview. It's entirely possible that traditional finance of 1980s-era vintage has much to teach us about today's markets.

I'm very put off by your constant emphasis on money, however. And this is perhaps the biggest difference between today's world of finance and the world of 25 years ago.

Finance today is driven primarily by economics, and particularly mathematical economics. I may be completely wrong, but I see a world of assets, not a world of money.

Assets are things with risk-adjusted rates of return, and fluctuating volatilities against risk-free credits. On this basis, gold is a particularly risky asset, one I would not want to own. If you want to go back to hard money, or even harder money, it might have been possible in 1980 (when trading financial futures was still against federal law and the laws of most states). But to do it now, you'd have to sweep away a huge global infrastructure and start over.

I've said many many times that the amount of money doesn't matter at all. What matters is the amount of economic activity, measured in real terms.

The dollar isn't dropping in value because we're inflating it, although we assuredly are. (And yes, I do expect negative consequences from this, but not the same ones you do.) The dollar is dropping because the opportunities for high risk-adjusted rates of return no longer exist in the United States. They exist elsewhere. There's nothing irrational or even necessarily undesirable about this.

In time we shall see who is right and who is wrong, or at least perhaps have a clearer view.

I don't take issue with the fact that you have different views on a number of issues. However, the fact that some of your views are simply repackaged ones that have failed in the past does cause me some concern. Still, that's a learning experience that you'll have to go through apparently, since we're not learning from history anymore. I'm just sad that you have to take me with you on this journey into the past.

What I do take issue with is the way you and others here seem to think it's reasonable to demand far more detail from Ron Paul on his outline for our economy than you do from any of the other candidates. Or than you do from our sitting president. It's an utterly irrational response, and one that has me questioning motives.

I don't know if Paul has said so, but I have, and I think he believes that it isn't the president's job to do everything. He has said that the president is NOT a dictator, and that he would have to work with Congress to achieve any of the things he has laid out. But where in the world you get the idea that he hasn't laid out any goals is beyond me. We live in a soundbite world, undoubtedly, but as I've told others, and as I've linked to, he has commented on the economy considerably, and laid out many details. The fact that there may be a detail missing that you think is important is NOT cause for you to reject it wholly. It is simply cause for you to look further.

Furthermore, in a free market economy, which is what he is selling and what I am buying, the Fed or the President or anybody does NOT control every aspect of the economy. I don't think I'm out of line when I say that he would advocate letting the market run its course in things like the mortgage meltdown. Frankly, I think I've been pretty thorough in laying out what his agenda is, including first steps, general directions, and ultimate goals. Anything more than that is pure conjecture, as I'm sure you know, because after the first steps, we have to observe what has changed and adapt to that before taking the next steps. Furthermore, I don't think anywhere has he said that he plans to turn it over overnight. The idea is to begin freeing the economy from central planning. It isn't an overnight program, and will take a great deal of cooperation from Congress. (In other words, I'm not really concerning myself greatly with what will happen if he eliminates the Fed, because it's not going to happen. What will happen is that his rhetoric will put pressure on the Fed to behave more responsibly, which in my opinion is needed.) What he WILL accomplish is allowing alternative currencies (gold, silver, e-gold without govt intervention) to be used and more innovation to take place. So, in my mind, that's a net good. The rest of it isn't worth my time to study yet, because it won't happen during the Paul administration. He will, however, reopen the debate, which, again, is a good thing. Nothing bad comes from his election, because, contrary to the beliefs around this site, he isn't a radical, but is a fairly cautious person with somewhat uncommon ideas.

In the end, no candidate is going to answer every little question that anybody has. What I find unreasonable is that everyone keeps parroting the idea that one candidate needs to express HIS ideas completely and fully, while the others get a complete pass on even formulating the core of a policy. Again, that smacks to me of overt bias.

Finally, a comment: "the dollar isn't dropping because we're inflating it" is a rather odd idea. It flies in the face of most of the economic philosophies I'm familiar with, and especially with the ones that conservatives are prone toward: monetarist, Austrian, rational expectations theory, etc. Yes, clearly there are factors like the limited availability of high-return opportunities that will impede the value of the dollar, but the dollar started dropping before this was an issue. Moreover, the more common understanding is that most of this money is going to go into the currency that provides the best REAL rate of return, and most often we're talking about the bond rates. Which relates incredibly well with inflation. Anyway, as you said, we'll see how it all turns out. But I'm fairly comfortable holding on to my traditional ways of viewing economics. "It's all different now" has always proven wrong, and while you might be right this time, it's not something I'm willing to invest my money in.

Execute your transactions in euros. You can do that right this minute.

Honestly, the financial system is vastly too big for any government to control, or even for an independent semi-government entity like the Federal Reserve. The system is already free, and already confounds the desires of anyone who tries to control it or change its behavior.

There's not the slightest need for gold and silver as currency alternatives. If the world ever loses faith in the dollar (which could easily happen either on a panic basis or a sustained gradual basis), the world would switch to an alternative benchmark credit with no prompting or encouragement from any entity of government. It wouldn't be gold, either. It would probably be a combination of euros, yen, and (possibly) petroleum-delivery contracts.

If this happened, there would be a crash in asset values because the dollar is just so big compared to everything else. But the world would recover.

All of this would happen at lightning speed. By the time the politicians got around to setting up their press conferences, it would all be fait accompli.

Much of that is true, although having alternative currencies legal is a great value, especially come tax time.
The idea, as I've tried to describe, is that, as an alternate currency, one wouldn't pay a tax on the profit gained from holding it, because it is merely a paper profit in dollars that (in your scenario) would have fallen apart. I recognize why you believe the Euro or the Yen would offer the perfect alternative to the dollar, but that's all assuming that the currency fear couldn't spread, and I think, if such a thing happened, it would probably devastate many currencies. The Petro-delivery contracts or other such obligations could easily suffice, but again, why the antagonism to silver or gold? If, as you say, it's just one more commodity (and I agree), then why would we prevent them from being used as what would seem to be a perfect tool to protect oneself from just this kind of event?

There's nothing illegal about holding euros. And there are no tax implications until you sell your assets. Then you'll be paying taxes no matter what.

If you're saying that you want to eliminate the capital gains tax on profits from gold and silver holdings, then why not simply hold gold and silver? You never have to convert them back to dollars (since you prefer not to hold dollars in the first place). When the world comes to an end, as you predict, the government won't know or care that you've chosen to use your gold hoard for ordinary transactions.

I never said the euro or anything else was a "perfect" alternative to dollars. I don't think we need an alternative to dollars, that's your issue. What I'm saying is that there's no need for you to propose government action. There are already alternatives today.

As far as currency contagion spreading, I don't understand that at all. I thought your problem was with the US government inflating the dollar. Are you saying the euro and the yen are just as inflated, or in danger of becoming inflated? So then your problem isn't with us Americans, it's with the whole world. No country with brains has used a gold standard since 1971.

As to your risk scenario: The only real reason I can think of for the US govt to inflate the dollar beyond all recognition is in order to achieve the promise of Social Security and Medicare. Namely, the promise to transfer control over a larger proportion of our national output to retirees. Let's say they inflate the money, oh, 20%, just for the sake of suppose. (Half as much as the inflation of 1934.) And they transfer all of the new dollars to retired people. All of a sudden, you'll be able to buy 20% less stuff. But there won't be any less stuff for the country to buy. It's just that the old people will be buying more of it and you'll be buying less of it.

Is this really the outcome you fear and want to forestall? In that case you're in deep trouble, because even if we go to legal transactions in gold, you won't be able to escape the will of the American people as expressed at the ballot box.

Americans want the transfer of income to retirees, and you'll have to deal with that as long as you're an American citizen. It's going to happen, and if it doesn't happen by inflation, it'll happen by higher tax rates. All the gold in the world won't help you escape.

Yes, the point about capital gains is what we want to change. But it isn't feasible to just "hold" gold because if we're doing transactions in gold, then you can't hold it. The point was that he wants to legalize making contracts in gold that can be paid off without invoking capital gains taxes on profits that you and I both know are only paper (if we've seen inflation in the interim).

OK, on to contagion. If a major currency like the dollar falls, then yes, I think it would cause people to rethink their confidence in unbacked currencies in general. This could lead to runs on a few currencies at least. Whether it would spread to the Euro and Yen, that's less certain, but I think it's reasonable to think that if the dollar collapsed, the peso might just go with it. Anyway, this is mere conjecture. I don't anticipate any of this happening, but that still doesn't mean we should utterly ignore the possibility.

But why might the U.S. (or any nation) inflate their currency "beyond recognition"? No nation ever does that intentionally. But what normally happens is that a nation gets overly confident in its ability to manage its money and feels that inflation is not a risk. They expand the money supply over and over and it doesn't have the textbook effect, and the central planners then say, "ah, we're smarter than everyone before. We've killed inflation. No worries." And they go off and inflate like crazy. For a while, nothing. then all of a sudden, it hits, and then it's usually too late to catch the spiral. Kudos to Volcker and Reagan and Greenspan for catching our last spiral before it got out of control. However, I fear that we're doing the same things again, and the overconfidence that "it can't happen here" is precisely what is causing us to keep pushing more and more. We watch the dollar slide overseas, which in my interpretation is a prime indicator, we watch commodity prices and real estate prices skyrocket (prior to this recent RE blip), again all prime indicators of inflation. However, because of cheap Chinese imports, we've masked most of the appearance to the consumer. So, he doesn't worry either. Everything looks great, until the last second. Then, hopefully, it's not too late.

As to the transfers for SS and Medicare, I think that most Americans are mildly supportive of the idea, and are defensive toward radical shifts, but are also open to working toward a better way. They don't reflexively believe that it's right to support transfers, but they haven't heard a better solution. Maybe I'm too optimistic, but I've seen real conservatives get elected before. I think it's still possible. If it's not possible, I don't really see much benefit in fighting to elect moderates over liberals. It just delays the inevitable.

Scott,

Bernanke speaks ill of inflation the same as Dems speak ill of the President: constantly. Many, including blackhedd (I think, though correct if wrong), Cramer, and myself (I don't belong in this company, but thought I'd put myself on the record anyway), believe that the Fed's persistent focus on inflation has led to the liquidity issue we are now facing. In trying to gun down inflation, the Fed has hit the economy with enough stray bullets to cause harm. "Bill Poole is a shame! He's shameful!" Cramer said to the Money Honey during his market meltdown rant. Why? Why was he attacking Poole and Bernanke? Because their insistence on keeping rates high to fight inflation after 17 consecutive rate hikes was not only drying up liquidity, but hurting many homeowners with adjustable rate mortgages (ARM's). I don't see anyone but you, Icarus, and a few others claiming massive inflation, but I just don't see it. Where do you get the idea that Greenspan fought inflation while Bernanke is letting it fly?

**********************************
And statesmen at her council met
Who knew the seasons when to take
Occasion by the hand, and make
The bounds of freedom wider yet
- Tennyson, _To the Queen_

I, and many other investors I pal around with, already keep multiple sets of books. One of them converts and denominates everything based on the 200dma of gold. We also use futures options to lock in our returns in gold ounces.

For Freedom and protection of Life, Liberty and Private Property: RonPaul2008.com

In a very real sense, maintaining currency stability is very much akin to enforcing contracts. That is, without some expectation that inflation will be held in check, no one will lend money.

Only attended economics classes through the Marshallian Cross, and didn't get into that complicated stuff like market failures, govenment regulation of natural monopolies, etc. Too many of these folks live in an Econ 101 world, forgetting about how many assumptions are built into the basic models to block out the infinite externalities of the real world.

I am not going to pretend that the market is perfect, but almost every example cited in economics textbooks (let alone speeches by liberal politicians) of market failure is actually a government failure or a failure to acknowledge or enforce property rights.

Nearly all externalities stem from not recognising some property rights.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

Econ 101 also has a faulty premise that increased price will draw out supply of a commodity. Look at the US oil production and oil price from 1950-2007. The US has had increasing oil prices but decreasing oil production. Why is that?

For Freedom and protection of Life, Liberty and Private Property: RonPaul2008.com

There will be no one who outdoes you in the Really, really dumbest post of 2007 category with that one. You can crawl back into your cave now.
____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

Paul/McCain 08!

McCain balances the ticket with his military experience!

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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

I thought I had too much to drink until I read that,

And now I think I need to drive you home Neil.

Get it together man.

MOE!!! HELP!!! Neil needs some discipline of some sort.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

You were so worked up about the whole McCain Victory Tour that I pretty much had the Paulites to myself.

Welcome back. I'm tired. They're yours until morning, unless I get a second wind.

on the McCainiacs. I'm gonna go watch some home and garden TV with Fred Thompson (you know, Lawn Order) and read a crime novel.

It'll be closer to reality than hanging out with the McCainiacs and the Paulies™...
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

Either that, or possibly we made it past Econ 301, too. Because at some point, we have to start thinking about what to DO with the supposed Market Failures, and we realize taht, in a second-best world, we can't solve everything, and that often the cost of the proposed "solution" by government is higher than the inefficiency caused by the original supposed failure in the first place.

In most cases, market failures are as previously mentioned also areas where gov't failure would also exist. More importantly, most supposed market failures are really not market failures at all, but simply places where the solution hasn't yet been found. A Kirznerian would say that this is an entrepreneurial opportunity to find a solution, because in such a circumstance, the need is great. In fact, today, with greater technology, more and more of these supposed market failures are being plugged by entrepreneurial market solutions, because costs of many of these technologies are falling rapidly.

It's always distressing to hear supposedly conservative Republicans parroting the Democratic party line on why the free market can't possibly work.

Market failure is only a theoretical situation. Sure, you get some professors who will find a situation where they would like to impose a certain policy (say, gas taxes or socialized medicine), create a model, and then show how their model of the situation proves that market failure exists.

But you give me a model of market failure, and I think I can show you where the model fails.

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just like the Keynsian inflation-jobs trade off. Every "natural monopoly" anyone has ever pointed me to has always turned out to be a government mandated monopoly because the politicians claimed it was a natural monopoly.

All that is very well said. I might have added, in the old-fashioned terminology: the Fed is doing its job as a lender of last resort.

One of these days I ought to do a background story on bank runs. The classic analysis of these is from the 1940s. Basically, when debtors are in distress, creditors naturally pull back from them, which is exactly the wrong time to do it. It makes weak debtors marginal, and it pushes marginal ones over the edge, and the snowball starts rolling.

Note that we're not talking about major deteriorations of fundamental conditions. We're just talking about short-term panic attacks. That's what's so ironic about calls to abolish the Fed in the name of greater macroeconomic and financial stability.

Panics are a natural, built-in behavior of free markets, just as with antelope herds. The Fed's job is to mute their effects.

... a classic!

and even that the fed is doing the job we have assigned to it, but I still think Nixon finishing the decoupling of our currency from gold was a huge mistake, and I'm not necessarily sure the fed OUGHT to have been given the job of stabilizing the market.

Unfortunately, the whole gold standard issue is now a dead horse, because whether or not it was a good idea at the time, there is no way back to it without major disruptions in our economic system.

Now, I think that in a lot of ways, the Fed has caused the very problem it is now trying to correct. I think Rob Long put his fingers on the heart of the problem in his Do the Ponzi Flip article in National review. Speculators/gamblers in the real estate business weren't being kept in check by bank appraisers, so in certain areas bubbles in the RE markets appeared (I live within the confines of the never ending DC market bubble). The fed took to public pronouncements, but instead of focusing on the specific problems, they spoke of "irrational exhuberance" and kept applying brakes to the entire market until the little guys who weren't really the problem started to feel it, which slowed the healthy markets. This in turn eventually impacted the actual loose canons, and which lead to the free fall we've been in for the last week. And now, having once again overcorrected for too long, the fed is trying to reverse course at tremendous cost to us.

The problem isn't the "exotic home mortage market," it is the way certain players used it. Of all the people I know who have recently purchased homes, only one of them hasn't used one of the 80/20 loans that are being decried (and that couple were purchasing a house from one of their parents, who sold the house to them for less than market value, and then the actual market value was used to calculate an effective down payment; also didn't hurt that the other one works for a bank and got in on some bank-employee only deals). All of them are making their monthly payments and keeping up their houses.

No, I don't know how to fix the problem, but that doesn't mean I can't see it.

Mmm, Bandaid cliché; bit of class war bigotry; bit of hate . . . Anything requiring independent thought or researched information?

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

So you disagree Mr. Langley with my assertion that our GOP leadership is all talk and no action on reducing government? Prove it with your facts. You can't.

Allan Bartlett

Powder Blue Report

...I have to tell you that, to the best of my knowledge, Ben Bernanke is a liberal Democrat. Although of course the very last thing anyone needs is a perception that the Federal Reserve is politically motivated. If that should ever happen, the Fed would disappear overnight, and everyone would start doing business in euros.

The business and financial worlds are knit together by bonds of personal trust to a degree that I think very few people really appreciate. Especially people who believe that actions by political governments (including Libertarian ones) can possibly be beneficial in the long-term.

I think there has been precious little talk from the GOP leadership on reducing government.

By the way, just out of good manners, if you make assertions, you are expected to prove them. Even though you happen to be mostly right on this one, it is still both rude and intellectually sloppy to go round declaring "I say THIS and you can't prove me wrong".

Also, better to pay some attention to the comment to which you are allegedly responding. Clichés and class warfare are not a good mix.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

Most of it is only toxic in the sense that no one really knows what it's worth, not because the underlying credits are bad. (And much of the reason for that, is that the valuation of mortgages is not well-understood in mathematical terms, unlike for example the valuation of options.)

If we get a liquidity-induced recession, though, you can bet that fundamental mortgage credit-quality will decline rapidly. That's the outcome I suspect you fear. In my opinion (subject to verification over the next few months), the Fed has the equipment to keep that from happening.

for mortgage based securities. At least it would be a starting point for valuation.
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"Enlightened statesmen will not always be at the helm." -- James Madison

The Fed doesn't have many options left. They have all their fingers on the leaks in the dam, but pretty soon there will be too many holes to plug.

The thing that gets me is Bernanke. For the last year they have kept rates steady because they're worried about inflation. He even said this last week in their policy announcement that they must hold the rate steady because of risk of inflation. He's now done a 180 and thrown in the towel. They are now on record as wanting to inflate their way out of this jam. It is going to fail miserably. Mark it down.

Allan Bartlett

Powder Blue Report

by it are of questionable value. In an orderly market, these will be marked-to-market.

And Joe Six-Pack, unless he is personally very delinquent, will not have his mortgage foreclosed, as happened to many, many people in the past before we had a stable financial system.

the connotation denotes "bad" even if the denotation is correct. I think blackhedd had it better when he simply said "unknown." The value might be right, high, or low, but we don't know because the price mechanism of exchanging mortgages has temporarily halted. As I indicated in an earlier post, much of the underlying mortage packages are of good qulaity, and the borrowers will continue to make their payments, the problem is speculators who were overleveraged and should never have been permitted to get overleveraged.

At this rate you'll soon be making your Cross of Greenspan speech at the DNC.

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Wholeheartedly! On the other hand, I'm thrilled by the move, because it will give me more time to potentially sell my other house before the world comes to an end. Yeah, it's a pretty worrisome move, and it confirms for me what I've expected all along: Bernanke is a "fine-tuner" in the image of Arthur Burns. We all know where that led. I really don't see how a mainstream Republican is going to get elected this time. This will probably be the final straw, if everything else wasn't enough. Bush's popularity will rally for a few weeks with the easy money again, and then, plop. when the dollar collapses, he will become the most hated president in history.

still beats the alternative, though.

The Fed's liquidity efforts are meant to stop panic, not to prevent the market from doing its thing.

Surely, there are other areas of our gargantuan federal government that could be downsized?

After opening up over 300 Dow points, markets are retrenching. Financials and oils are still up sharply but well off their earlier highs.

Govvie debt is only a little lower, after spectacular gains yesterday.

With a Cat 4 storm projected in the Gulf by Tuesday, it tends to make those futures a bit nervous on a Friday.

But yes, I'd very much like to see the stocks hold their gains.

They're down sharply (over 10% in many cases) in the last month, not the last few days. The hurricane scare from yesterday turned out to be a dud and still oils got hammered.

Oil stocks are a rough proxy for the economy. When the economy slows down, energy demand does too.

I still think this morning's spike has a lot more to do with speculators fearing/hyping Katrina potentials, but agree with your overall assessment of oil prices as an indicator of global economic strength.

n.t