29-Dec-10 News -- The real estate market is still crashing

[John]

29-Dec-10 News -- The real estate market is still crashing

Russians are outraged over international reaction to Khodorkovsky conviction

** 29-Dec-10 News -- The real estate market is still crashing
** http://www.generationaldynamics.com/cgi ... 29#e101229

Contents:
"The real estate market is still crashing"
"Case-Shiller price change table"
"Additional links"
Russians are outraged over international reaction to Khodorkovsky conviction
Relations between Turkey and Israel becoming tense again
Large Gaza-bound weapons cache found by Egyptians

[gerald]

Dear John:

You should not take your projections and coming events so seriously.

In reading about the last days of the home land of "Atlantis" the general population was in a confused state of panic.
However, there were two small groups who were not. One was resigned to the coming events, were at peace with themselves and accepted that which was to be.
The second took the same attitude regarding the coming destruction, but also took actions to preserve some of the Atlantian knowledge and spirit it and themselves away.

If you have been able to minimally penetrated the " veil " you understand that this live is only one of many.

[John]

Dear John:

You should not take your projections and coming events so seriously.

That ship sailed long ago, Gerald.

John

[OLD1953]

Given the huge number of ARM resets coming up, I doubt it's coincidence the FED has taken action to keep interest rates at or near zero for that term.

[ridgel]

So there's no money going into U.S. equities other than the U.S. government pumpting money in.
So as long as [the Fed] is going to keep rigging the market, they're paying us to be bullish.

That's from the Bloomberg guest John quoted. So the question for John is - what forces the Fed's hand and stops them from buying? Domestic political pressure from the Tea Party / Ron Paul crowd? Plunging dollar? Commodity inflation?

The Fed has a Brigade of idiot economists and journalists backing its Keynesian actions. It has full legal authority to create new bank reserves. It has most of the politicians in its pocket just by virtue of keeping the deficit gravy train rolling. It's clearly not at all concerned or ashamed to use these powers to the level of trillions of dollars. What will stop this thing?

[vincecate]

So the question for John is - what forces the Fed's hand and stops them from buying? Domestic political pressure from the Tea Party / Ron Paul crowd? Plunging dollar? Commodity inflation?

Money has two purposes. First it is used for trade. Second it acts as a store of value. At some point people will realize that the dollar is not a good store of value. If bond prices keep dropping (yields keep going up) then I think we are at the start of this realization. After people realize the dollar is not a good store of value, and while it is still used for trade, we will get hyperinflation. Eventually it will not even be used for trade. This is how the market rejects a fiat currency.

But I too would be interested in John's answer, or anyone else's. Clearly there must be some downside to conjuring money out of thin air and buying government debt or nobody would bother with taxes. What is the downside? How will the market limit the Fed? How soon could this happen?

To me it seems gold and silver are the two currencies that the market never rejects. Sure the value of gold and silver relative to paper currencies can go up and down but there is no danger of gold and silver going to zero. When paper currencies are at risk then gold and silver do well. So far this has proven true and I have seen nothing change to reduce the risk of paper currencies. I think that as they print more and more money to paper over the debt problems the risk to the currency gets higher and higher. And from the book "This Time is Different" the standard pattern is:
1) Bank crisis (long term lending on demand deposits fails eventually)
2) Government bails out banks
3) Sovereign debt crisis
4) Central bank bails out government with new money it makes
5) Currency crisis

The US, Japan, UK, and Europe are all at step 4. Seems obvious what is next. The question is just how bad the currency crisis will be. Will values go down by a factor of 2 or 3 or will they get hyperinflation? Conditions look right for hyperinflation (debt over 80% of GNP and deficit over 40% of spending - see URL below) for all of these. And sadly the other paper currencies have these 4 currencies as central bank reserves to support the local currency. So to me it looks like we are set for a first ever world wide hyperinflation event.

Just to leave on a happy thought. The past world wars have been paid for largely by printing money. If we have worldwide hyperinflation, then printing paper money to support a war may not be an option. So it may not be possible to fund WW3.

http://www.amazon.com/Monetary-Regimes- ... 213&sr=8-1

[ridgel]

Vince, that's obviously one way - severe inflation forces the Fed's hand, or rather diminishes its relevance.

But John quoted the Bloomberg guest's description of the Fed as the only buyer, and a few paragraphs below repeats his prediction that the Dow will drop to 4000. So what happens between now and then that will force the Fed to stop buying? Logically, if the Fed doesn't stop buying the Dow will never hit 4000 because they have enough money to buy everyone's holdings.

[Higgenbotham]

But John quoted the Bloomberg guest's description of the Fed as the only buyer, and a few paragraphs below repeats his prediction that the Dow will drop to 4000. So what happens between now and then that will force the Fed to stop buying? Logically, if the Fed doesn't stop buying the Dow will never hit 4000 because they have enough money to buy everyone's holdings.

The Fed isn't buying and holding stocks; they are giving money to banks in exchange for treasuries. The banks are gambling with the money with high frequency trading and other trading schemes. The banks can do whatever they want with the money. They can even use it to short stocks. When the banks panic and stop buying stocks, then the market will fall.

[vincecate]

But John quoted the Bloomberg guest's description of the Fed as the only buyer, and a few paragraphs below repeats his prediction that the Dow will drop to 4000. So what happens between now and then that will force the Fed to stop buying? Logically, if the Fed doesn't stop buying the Dow will never hit 4000 because they have enough money to buy everyone's holdings.

I think the Fed is about the only net buyer of Treasuries. It may become the only buyer of Treasuries. I don't think it is directly buying stocks. It does loan money out at 0.2% to "banks" like Goldmen Sachs that can then speculate in stocks. And then it does bail out "banks" if they get in trouble. So indirectly it props up the stock market, but I don't think they have taken to directly propping up the stock market by buying stocks for their own account.

Logically the Fed could buy all public stocks since it can print whatever it wants. Logically it could buy all the public companies all around the world as it prints the main reserve currency. But if it tries these things I think people will get upset enough that the Fed's future would be in doubt. So I don't see it doing that.

[Higgenbotham]

How will the market limit the Fed? How soon could this happen?

Time is one thing that limits the Fed. As in how fast a crash can occur (in the blink of an eye) and how fast the Fed can respond (in more than the blink of an eye). They almost lost control of the money markets in September 2008. The New York Post reports they literally had one hour to do the salvage operation.

My hunch is Congress knows the stock market will crash. They are silent and waiting. Once it crashes, they will jump on Bernanke. He will be the scapegoat. But if they remove him now, the stock market will crash. They don't want to be blamed. So they watch and wait.

The stock market can crash anytime or it may take years for it to crash. Asia and the futures can simultaneously crash at night while the POMO liquidity jets are turned off. In my opinion, the flash crash was only a warning and was due to a shortage of liquidity (yes, you read that right - there is a shortage of liquidity - that's why the jets are on again).

Briefly, once again, I'll mention that China can limit the Fed. That ties in with the crash starting in Asia. And I haven't mentioned this before, but the Chinese are excellent traders and market manipulators. I've heard it said many times that Asian traders are the best in the world. They could make a lot of money off a stock market crash!