Federal Reserve and Monetary Policy: The Struggle for Freedom and Democracy around the Globe.

Citigroup gets a federal government bailout (Nov 24 2008). Ford, GM and Chrysler will get a federal government bailout. This country is so fragment I do not believe they will get a bailout this year unless they include some sort of UAW give-back (FAT CHANCE). I do not make policies however, I believe these companies should declare bankruptcy before the US of A government steps in and provide funds. Boeing can no longer manufacture a plane. Boeing will be the next in line for a bailout due to their outsourcing of jobs and safety.



Let’s go back to the bailout of Fannie and Freddie and speculate on what would happen if these GSE’s were to declare bankruptcy. This can still occur. One can image that Congress would have to swiftly act on any legislation to provide funds during a bankruptcy. However, equity holders would get a big fat zero for their stock. The biggest concern is the debt holders of which $1,561 billion is held by foreign investors (Sept 2008 release of Flow of Funds PDF pg 123). It could be hard to get US of A’s financial institutions to invest in mortgages. It will be very hard to get the confidence of foreign investors. Hence, all of Wall Street’s drivel about LIBOR rates gets transformed, not into lower interest, but into the carry trade and increasing inflation. The good news, with this result, would be a vigorous effort in achieving wage pressure. The bad news is housing prices will continue to decline and overshot a reasonable floor until pent-up demand breaks through.



I have doubts repealing “mark to market” will achieve financial stability. It is price fixing by the US of A government. "Mark to market" is really a virtual process. Money changing hands is the “real economy” The auction system is a virtual process which can be represented by groups with complex entries. A person, firm or government’s risk to reward policy is a virtual process. No real money changes hand, yet a behavior can be changed. This behavior change is due to a change in the time between a risk’s expiration and the reward has been fully realized. A car loan having been paid off is a good example.



The US of A government is now in the used car business. Paulson has expanded the TARP to include consumer loans (Nov 25 2008). The US of A has now leveraged the US of A tax payer by 10:1. Losses over the agreed percent get paid by the US of A tax payer. Under these circumstances it might be tempting for the US of A government to repeal “mark to market“. If this happens, the America Dream of owning your own home dies. The price of a house will be determined by the US of A government, not by the local economy. This goes beyond company towns but, smacks right into the feudal system of the Middle Ages.



The correct mechanism to fixing the US of A’s mortgage mess is to provide a process in which packaged securities can be taken apart. This will allow the “good” to be kept: the “bad” to be priced and the “ugly” to be auction. The correct mechanism to fixing the US of A’s economy is creating jobs that can pay the bills and not ones which rely on low interest rates. This mechanism will not only stop people worry about their 401Ks but, will also bring back the confidence of investors.



I bet the Neo-conservative mind set is in a tizzy. They set about creating a mechanism in which a fiscal policy is in place and it becomes the Federal Reserve’s job to steer the US of A’s economy. This mind set replaces the one in which an adminstratation micro-manages the US of A’s economy. Only to have fraud, collusion and lack of fiduciary responsibility ruin it all.



I guess this is a good time to subtitle this entry as “I WISH I HAD THE MONEY AND SHORT THE DOLLAR” part 3. The US of A’s dollar is once again weak because the Federal Reserve is “Printing” money with no counter moves by other central banks. The mentality of “Do not fight the Fed” has once again brought dollar denominated inflation back into the world. One can expect “Rice Riots” to flare and weak governments begin to fail. The “Free Market” does not like Global Instability and the US of A will once again begin the slide into a global depression.



Obama is going to become President with half of US of A’s citizens hating the other half. This was emphasized by the McCain/Palin campaign in which they pleaded to ” Real, Loyal Americans” Obama was a “Communist, Terrorist Hugger“. The right wing is now stirring up the pot and throwing in the “Tree Huggers”. If Uncle Sam is going to tell US of A car manufactures which type of cars to produce then there is no stopping Uncle Sam in setting the price of a home.



The struggle for Freedom and Democracy begins anew.




Got to love those topologic invariants.


Viva La Revolucion!!!!!