Falling dollar warning
Judging by the news about Fannie and Freddie, the helicopter drops of money that are sure to follow from the Fed won't be the kind in which dollars float to the ground, buoyed by air on the way down. No, these helicopter drops will require huge, tightly-bound bundles of bills, in which folks are sure to get whacked on the noggin.
Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.
A "conservatorship." That term has a specific definition, but I suspect to most people reading the article, the word conveys a cachet of responsibility — like something blue-bloods might do for their grandchildren — that serves the purposes of Team Bush and the Fed very nicely.
Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.
"Conservatorship" sounds so much nicer than "backdoor bailout." But in fact, we're looking at Bear Stearns redux — the shareholders can hang, but the creditors recoup every penny. (As do the executives who drove the joint into the ground, natch.)
I'm not too sure that "taxpayers" would foot the bill in the way the article implies, though. Wouldn't that, too, sort of work like JPMorgan's takeover of Bear Stearns, in which the Fed assumes most of the liability for whatever might go wrong, and when it does go wrong, it'll just print money to make up the difference?
The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt.
Hey, no sense putting it on the books if you don't have to. The conservatorship can be the government's own version of a special purpose vehicle.
The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation. But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans.
I take this to mean the Plunge Protection Team has met several times already this week because it is, in fact, a "crisis situation."
As I write, gold has shot up to highs unseen since April. The news wires attribute it to oil hitting a record and more saber-rattling between Tehran and Washington/Tel Aviv. But the smart money knows that with Fannie and Freddie near collapse, the bales of cash dropping from the helicopters are about to land with the force of a boulder. Gold $2000, anyone?
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The dominoes are falling faster and faster. The only question now is not if gold will hit $2000 but when.
Comment on July 11, 2008 @ 10:47 am
I’ve got news for you guys. If gold approaches anywhere near $2K/oz., the Feds will immediately reinstate the Gold Act of the 1930’s. At that price, absolutely no one would want to invest in dollar-denominated assets; this would of course cause our entire non-gold backed financial system to collapse. And since Wall Street wholely owns our Federal gov’t, they will never allow that to happen.
Comment on July 11, 2008 @ 4:06 pm
I JUST HEARD A RADIO TALKING HEAD SAY SOMETHING ABOUT OPENING THE DISCOUNT WINDOW TO FREDDIE AND FANNIE i.e. TRANSFER THE DEBT TO THE TAXPAYERS OH WELL THAT’S THE WASHINGTON WAY
Comment on July 11, 2008 @ 6:15 pm
I just read on marketwatch that the Chinese government is the top holder of Fannie Mae and Freddie Mac bonds, to the tune of $376 Billion. Us homeowners and taxpayers are already paying a premium to these guys (Chinese and Japanese governments) who bought this debt, why on earth should we also guarantee them? That’s why they got higher interest rates than Treasuries, for the extra RISK. Why should U.S. taxpayers bail out the governments of China and Japan if they were dumb enough to invest in U.S. agencies??
Comment on July 12, 2008 @ 12:00 am
“That’s why they got higher interest rates than Treasuries, for the extra RISK. Why should U.S. taxpayers bail out the governments of China and Japan if they were dumb enough to invest in U.S. agencies??”
Apparently they weren’t so dumb.
Seems to me they were pretty smart to get the higher interest rates underpinned by a taxpayer bailout if things went south.
I wonder if governments are “too big to fail?”
Comment on July 12, 2008 @ 1:42 am
How much are weighting 5 trillion dollars in 100$ bills?…
No…I don’t think the US helicopter fleet will do the job…
That means the US Government will have to get in line and buy some Airbus 340 for freight…At about 250 millions a piece, that will icrease our national debt, how much?… only 2.5 billions for ten pieces of technology?!!!Piece of cake! Let them do it!…
Comment on July 12, 2008 @ 3:03 am
Well… hasn’t our entire non-gold backed financial system already collapsed? I mean, if all the $trillions of debt, both acknowledged, and in the mountains of derivatives we don’t (shall we round off to, say, $50T !!!), isn’t a collapsed monetary system, then this once Keynesian-educated, deficit-spending, money-out-of-thin-air flunky-turned-Von Mises advocate needs to reassess his economic fundamentals! What on earth is holding this thing up but a bunch of air and hype? For crying out loud, someone tell me I’m crazy! Where’s Toto, Dorothy?
The Fed Reserve guy behind the curtain pulling all those levers of commerce is the King who has no clothes. But give him credit, man, he’s got chutzpah! If it weren’t for all those bratty little girls from Kansas and their snippy little dogs pulling away the curtains revealing what all we grown-ups knew (or at least suspected) all along, we’d still be betting on Wall Street, the Central Bankers, and little despicable men with loud-speakers to transmogrify their pitiful, emasculated little voices so they could continue to bamboozle the bewildered with impunity (talk about irrational exuberance!).
But, alas, we’ve got this thing called the internet and some of us really do care about the mammoth fraud called the Fed Reserve and its little cabal of insider elites embezzling the US economy. And, we can communicate while we still believe there’s a 1st Amendment (so we use pseudonyms!) to air our grievances. Some join righteous causes and organizations to create awareness of the evil that has stormed the gates of the republic. So, keep buying bullion, ingots, coins, and collectibles. If King George and his minions try it again (re-implement the confiscatory, unconstitutional, illegal, anti free market Gold Act, ala FDR – 1933), they’ll have emboldened a few million of us to call their bluff. Besides, in 1933 the US was on the gold standard. The arch socialist and New-Dealer, FDR, pulled his stunt to hasten getting us off it. Now, all we have are these insipid, unredeemable FRN’s. If hoarding metals was “illegalized†today, what would it accomplish? Wheelbarrows of hyper-inflated paper currency? Send the illegitimates a message; buy gold… all you can get your grubby little hands on. The insiders hate it; it renders them naked and empowers the proletariat, er, tax-payers.
It’s nearing critical mass; the sides are forming. Powder is packing and Concord is echoing its clarion call heard round the world. Patriots (not ACTors) are Revering the call to action while the insider quislings move ever faster as they see the last gasp of their nefarious exploits failing to bring fiscal sanity to the ruins of fiat-based financial fantasy. GAME OVER!
Please tell me I’m wrong, that tomorrow I’ll wake up back in the 50’s, Khrushchev can only pound a shoe (that has no sole), and America has money worth more than the ink upon which it’s printed. Oh, and a single scoop of ice cream at Baskin Robbins for a dime (Mercury head, silver). Yesterday, at Fosters Freeze, I traded $2.25 in FRN’s for a medium dipped ice-milk! Somebody wake me up… I’ve got to be dreaming because, if not, this is madness of the first order. May God save the Republic.
Comment on July 12, 2008 @ 3:33 am
So? gold will be $2000!!! or $4000!! so what?
This is not a profit, the oz of gold has remained an oz of gold, the paper certificates of value have changed.
To properly state your thesis, you must say: gold holders will hold their money even, while dollars holders will lose 1/2 or 3/4 of their wealth.
To be a contrarian to the conventional wisdom to get out of debt for the coming crisis, would it not be a great time to borrow alot of dollars, long term @ say 6%
to buy gold or land, and pay it off later in cheaper inflated paper money? Now that would accumulate wealth, not just hold even.
Comment on July 13, 2008 @ 7:47 am
Bill Hopen, your contrarian plan will work only if you can remain liquid enough to meet your ever rising non-fixed costs, in addtion to your fixed costs during this time. Otherwise, as so many others have, you become trapped, and any leveraged equity will be surrendered to your creditor.
The problem here is the inability to forecast costs in the potentially hyper-inflationary, global warfare future we face. In a broken, global financial system, there is simply no way to know how much anything is going to rise, other than to realize it’s going to have to be a lot, given all the monetary destruction occurring.
If you have enough savings to weather the storm, you can come out far ahead. If you don’t however, one single black swan event can wipe you out. This is also the story of the winners and losers of the 1930’s. Many fortunes were both made and lost.
It is scary enough facing this disruption without using debt to leverage yourself. To take on the extra risk that you have no control over though, well, that’s just gambling.
As Kenny Rogers said, “You gotta know when to hold em, and know when to fold ‘em.”
Now is not the time for excessive risk taking, but of securing your assets against loss.
Comment on July 14, 2008 @ 11:34 am
[...] Don't say we didn't warn you. [...]
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