Depression risk might "force" Fed to buy stocks

pup55 · Expert Joined: May 26, 2004 Posts: 3395

What a great article. So many questions:

First of all, the very idea that a serious news organization like Reuters is publishing articles that openly discuss potential ways to avoid a depression is, in and of itself, alarming.

Second of all, the notion of the government itself going in to the market and buying securities (the Plunge Protection Team openly stated) is really dangerous for several reasons: First of all, the government has no money that it does not either extract from the taxpayer or borrow. Buying stocks at something greater than their market value using essentially monopoly money will only compound the problem. No one will know what anything is really worth.

Third of all, from a corporate governance standpoint, if the Feds own 10% of a company, do they get a seat on the board? Do they get to choose the CEO and officers? Influence the marketing and other business strategy? This is a common practice in the land of China, a communist country, plus various other socialist nations, but is unheard of in the land of unfettered free enterprise. Do you trust the same government that gave you the Katrina response to be running some of these businesses?

So many questions.

mattduke · Light Sweet Crude Joined: Oct 28, 2005 Posts: 1045

Not to mention that additional government intervention will only exacerbate and prolong the depression, just as it did in the thirties.

seahorse2 · Expert Joined: Oct 18, 2004 Posts: 1769

I thought it much more likely the Fed would insure all these bonds that the monolines can no longer insure.

In a more exteme case, maybe the Fed would start buying houses etc to reinflate those depressed prices. Then, turn them over to HUD or something similar.

No matter which of the above, or even buying stocks, the budget deficits would be huge. I can't see how this would be good for the dollar. It would only bankrupt the US sooner rather than later. It sounds very inflationary to me, like hyperinflationary if they aren't careful.

But, like Pup said, the fact that MSM are actually running stories on how to avoid a depression ought to scare everyone. I got scared back when the Govt said it was giving away money to every American.

roccman

1) create bubble - check

2) rack up debt - check

3) monetize that debt - check

4) push the red button...

My next wallet will be a wheelbarrow.
_________________
"There must be a bogeyman; there always is, and it cannot be something as esoteric as "resource depletion." You can't go to war with that." Emersonbiggins

"... hope is a rotten-thighed whore" Niko Kazantzakis

dorlomin · Intermediate Crude Joined: Aug 05, 2007 Posts: 797

Nationalise the banking sector?

When did nationalisation come back into fashion?

roccman

MrBill · Expert Joined: Sep 15, 2005 Posts: 4782 Location: Eurasia

There is a precedent. The HKMA did buy HK stocks during the Asian crisis. And actually it turned out to a good thing. At least they made money. But it is a dangerous precedent none the less. It is socializing private risk using taxpayer money! ; - )
_________________
The organized state is a wonderful invention whereby everyone can live at someone else's expense.

roccman

MrBill · Expert Joined: Sep 15, 2005 Posts: 4782 Location: Eurasia

roccman

efarmer · Heavy Crude Joined: Mar 17, 2006 Posts: 394

We have a system that is based on continuous growth and has
some tools to deal with temporary lulls or emergencies. When
the emergency is long, exactly as Kunstler has observed, these
are not going to work. Instead the finance institutions will have to
bounce the markets up and down artificially so they can take the
nibble they need to run on a continuing basis. Visualize a carrot fed
into a juicer without any pressure applied to it, it hops up away from
the blade, only to fall back in and offer the blade another bite in
return for another hop up out of the way. Our retirement and
investment are these carrots. One of the things that boomed right
along with housing in America was banks and investment companies,
and they are hungry for the carrots they need to stay running.
Bankers are bees and money is honey and we are not the sweet
spot anymore.

Plantagenet

Plantagenet

JohnDenver · Light Sweet Crude Joined: Aug 29, 2004 Posts: 1802