Wednesday, October 6, 2010

Bubble, Bubble Toil and Trouble

"There you go again!" - Ronald Reagan

"It's a story about us spending money we don't have on things we don't need to create impressions that won't last on people we don't care about." - Tim Jackson (he should have added: "but who we would like to have sex with).

Well, the Fed did it again.

In an effort to re-blow the housing bubble they blew bubbles elsewhere - primarily in precious metals.

In an effort to help exports they have killed the US$, leaving Oil in the mid $80's... and Oil is problem NUMERO UNO for our trade deficit.  In other words, "let's help our exporters by increasing our foreign debt for Oil" - this is not a strategy that any rational person would pursue.

It is simply not possible to know what the hell you are doing in a world in which the rule makers change the rules day to day and week to week.  IF, and its a BIIIIIIGGGGGG "IF", you could forecast the policy response with ANY accuracy you MIGHT make heads or tails out of this... but considering the FEd DOES KNOW what the policy response is going to be.... and considering how badly they have f*&^#!ed everything up... you get the idea.

Oil in the mid $80's is very near to dragging the economy back to the abyss.  Oil over $100 would shoot the economy in the head... and then drag the economy back to the abyss.  Either way, you end up in the abyss.

Here's another thought.... Oil in the mid $80's with 10% unemployment? With REAL unemployment closer to 20%?  I would not have thought possible.

It just gets weirder and weirder.


Anonymous said...

This is furthering a process that has been in play for a while. Because of the trade deficit, a large portion of economic stimulus goes to stimulate foreign economies. It flipped into high gear in 2001, but has been going on longer than that. It is insane.

Coal Guy

Anonymous said...

As a student of 20th century history, I always envisioned economic collapse to be black & white. A massive but thoroughly understandable smashup.

Now, living through the collapse of the world's largest and most complex economy, I am amazed at all the twists and turns. And then more twists and turns.

Or like one of those Russian dolls where you open one doll and another sits inside- and then another- on and on. Except it's not dolls but chunks of our massively indebted economy falling off.

Best, Marshall

John said...

Abolish the Federal Reserve Board. They are killing the dollar and driving the foreign currencies and oil up. This has to be a conspiracy, as the people in power while wrong, are not stupid.
I have concluded that our government has allowed so many stupid people into this country, that, when combined with our own homegrown stupid people, those of us who see clearly are doomed.

Dextred1 said...

We hang the petty thieves and appoint the great ones to public office.

~ Aesop

"But if in the pursuit of the means we should unfortunately stumble again on unfunded paper money or any similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy. Paper money will invariably operate in the body of politics as spirit liquors on the human body. They prey on the vitals and ultimately destroy them. Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice." -- George Washington in a letter to Jabez Bowen, Rhode Island, Jan. 9, 1787

Anonymous said...

Weirder and weirder...Let's come closer to home than the Fed and the FX world.
I think the faulty title work that is becoming apparent in the bankster slice and dice foreclosure world strikes at the very heart of the orderly administration of private property. As Marx foretold.
And they wanted to blame it on the serfs being irresponsible in wanting more house than they could afford?
Corrupt, crony capitalistic end times.
Freedom's just another word for nothing left to lose.
Old Hippie

Donal Lang said...

I don't think the Fed have any real choices anymore. Every cent of money is created by debt, but what happens if you create huge amonts of debt without accounting for it as money?

That's what has happened with exotic derivatives, which would have been ok if they were coralled in the banks, but they've seeped out to pollute the real economy just as surely as that oil in the Gulf or the toxic waste in the Danube.

It is contra-intuitive, but if the banks holding the toxic debts had gone bankrupt, the 'value' of the debt would have been written off by the other banks. As it is the gov't have taken the debts into public ownership and as there is no asset base to the debts, just massively increased the money supply.

Now its all too late - the economy is stuffed and its head is hanging on the wall!

But the good news is; the US uses 25% of the Worlds oil and when the US economy REALLY tanks, the demand for oil will fall for years to come, and if Chindian demand doesn't increase too quickly, then the oil price will stabilise (hell, it might even fall!) and the RotW won't have to worry about Peak Oil until I'm old and past caring!

Anonymous said...


When the US is free of the entanglements of foreign oil, repair here can begin. Until then, things will only get worse. I hope it is sooner rather than later.


Coal Guy

PioneerPreppy said...

As I understand it the banks having been forced to lend out sub-prime mortgages now cannot afford to have those failing loans erased because of the other loans these sub prime mortgages backed.

Therefore the banks were bailed out and other bubbles were created because of course the banks cannot afford to lend anymore as the money they got went to replace the bad sub prime loans.

I am sure it is more complicated than I will ever know but this is the kind of mess you get when Government tries to legislate outcome and force "social" equality.

As for oil demand it has shrunk as far as it can without producing some serious social issues. This is just my opinion as I have not seen any hard numbers but the average joe-blow consumer is not where most oil goes. If the US uses significantly less oil then the reduction is more than likely coming from agriculture or transport and that will cause a world of hurt.

Yet we are missing something from this discussion... Oh ya...

The supermarkets are still full with the standard 3 day supply of "stuff" and the gas stations still have underground tanks with at least 1000 gallons of gas each... We are fine forever!!!

PioneerPreppy said...

Just as I thought...

Corn at the "tightest" supply in 14 years!!!!

This is some bad timing I think.