Sunday, June 27, 2010

About That Whole Global Economic Collapse Thingy - Part II

Remember last fall when the European bank Societe Generale said to prepare for the possibility of complete economic collapse?  And remember just a few weeks ago when another big bank, BMO, said "Get out of stocks and into cash right f**ing now"? 

Today, Ambrose Evans-Pritchard quotes an expert at another large bank who says Bernanke has screwed the pooch (to use early-days NASA jargon).
Gabriel Stein, from Lombard Street Research, said the US is still stuck in a quagmire because Mr Bernanke has mismanaged the quantitative easing policy, purchasing the bonds from banks rather than from the non-bank private sector.
 Add to this the administrations' talk of a tax on banks immediately after a reform package passed (why wasn't that tax included?) and it sounds like the basis for what Soc Gen and BMO are saying.
Rob Carnell, global strategist at ING, said the Obama fiscal boost peaked in the first few months of this year. It will swing from a net stimulus of 2pc of GDP in 2010 to a net withdrawal of 2pc in 2011. "This is very substantial fiscal drag. On top of this the US Treasury is talking of a 'Just War' against the banks, which will further crimp lending. It is absolutely the wrong moment to do this."
Austrian economics writer Gary North asks "Is The Fed Too Big to Fail?" goes through a gentle history lesson from the rights of kings, down to the judgments against the Federal Reserve and reaches an interesting conclusion: either the Fed fails or the US government does:

At that point, we will see who is sovereign: Congress or the FED. If Congress nationalizes the FED and inflates, then the FED will have failed. It will be proven for all to see that it was not too big to fail.
On the other hand, if the FED refuses to buy the Treasury's debt, the Federal government will default. It will be proven as not too big to fail.
Unfortunately, in either case I'd say there's a pretty good chance of blood in the streets.

I am not sure what's in the financial reform bill that just passed, and frankly don't have the knowledge of the banking laws to know if it's good or bad.  My guess, based on how awful government regulation has historically been, is that it's political theater.  It will address the wrong problems, do the wrong things, while creating new problems and either make everything worse, or at the best, just change nothing of consequence - while diverting money to friends of politicians.

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