Topic: : - page 5. (Read 12716 times)

Heh, that's probably not too far from the truth.

This had been attempted early in the crisis - $500-600 was provided to each taxpayer. The problem from a bank/gov't perspective is that there's no way to guarantee that money will go to consumer spending (or the right kind of spending), thereby supporting economic activity. If it goes toward paying debt down, that exacerbates the banks' condition (the loan may be paid off, but there's still a cashflow shortage). Essentially, attempting to herd cats is much more difficult than just putting the funds into banks where it can then be more effectively directed.

At least, that's the gist of the reasoning. In reality, the banks are black holes due to their insolvency and are dragging the entire system down - but because there's no external reference point, it's hard to see what's actually going on. You could picture a family in a house, with each family member representing one of the major world regions. All of a sudden, a sinkhole opens up under the house and it goes into freefall. Unless one of them looks outside, it will just seem like someone forgot to pay the gravity bill, so they try tying weights on themselves to counteract their floating.

Now it's a catch-22 where immediate collapse of the banking system as it is today will cause massive disruption because of the extent of dependence upon finance, and continuation of the banks' existence by supplying liquidity is just making the problem even bigger without actually fixing the underlying cause. The central and supranational banks (BIS, IMF, etc) have to decide which course of action will be most effective, and that's direct liquidity infusions into banks. It's like the difference between inhaling a drug or injecting it when you've got a plastic bag over your head and can't breathe.

Banker Reply; HAHAHAH MUAHAHAhh ROFLMAO, give, give.. money to workers? They do not know how to manage their money or they would not need our loans in the first place..

Thanks for your explanation, miscreanity.

Why doesn't the fed give the money to the people unable to repay their loans instead of propping up their balance sheets with it? Would that fix the solvency problem? Probably not, right, because you can't borrow yourself out of a debt problem.

Okay... Haven't heard that acronym before and google was no help.

It's basically assets vs. liabilities. If your assets (income) are greater than your liabilities (expenses), you're fine. The other way around, though - not so good.

Let's say I run a bank, and my reserve is 10% of total assets. As with any business, I have cyclical expenses including employees, property costs, shareholder dividends, etc. To make things easy, let's say that the annual expenses are equivalent to 10% of total assets.

I have 90% of total assets to work with, so I make 9 loans at 10% each. Every one of the loans returns 2% annually for an 18% total return. This means that the bank will be running at break-even if 4 of the loans default and cannot make payments. There may be costs involved with recovering the principal capital which could turn a defaulted loan into a net loss, but let's just assume 5 of the loans have defaulted. In that situation, there is now an annual shortfall of 20% (the 2% out of 10% total asset value necessary to keep the lights on). The reserve now has to be dipped into in order to make up the difference.

What liquidity injections attempt to do is recapitalize the banks to a point where the assets are greater than the liabilities again. However, liquidity cannot make defaulted loans profitable again. Instead of helping directly, liquidity can simply flood the banks and allow them to stay afloat until there are worthwhile loan applicants that aren't likely to fail in repayment. The problem is that there's a very large percentage of defaults, like a swimming pool with dozens of big cracks - pouring water in like liquidity injections just winds up flowing out almost as quickly.

The really dangerous part for the banks comes from any shift away from them as a primary source of business. If the banks start losing potential customers (to Bitcoin!), the solvency problem gets even worse, requiring bigger liquidity injections than before. Since most governments are highly dependent upon the banks, there's an extreme incentive to keep them alive. Without the ability to create productive clients for the banks and fix the solvency issue, and no money or insufficient cashflow (tax revenue) to pump into the banks, let alone keep the government itself going, the only option is to generate funny money and distribute that until nobody wants it anymore.

You can think of buggy whip makers for an easier analogy. If everyone has switched to using horseless carriages and no longer need whips, it doesn't matter how many whips you make - you're going out of business. Economists can be a mind-boggling contradiction with their ability at being intelligently stupid.

That went a little further than solvency, but the cascading effect is important too. And this highlights the especially dangerous nature of Bitcoin and gold for the banks in the current situation

It doesn't? Please explain.

Frisch's Restaurants or Family Radio Service?

this is true.  there ARE problems with solvency however.

The Fed didn't ease .

I hadn't taken that into account and I think it's a good point.

However, I still believe the FED will eventually decide on QE3 somewhere down the line. I think this recession is just getting started. What are your thoughts? I'd also be interested in reading any articles you would suggest.

Thanks!

It's only a matter of time! I think it's inevitable at this point.

still whistlin'.

that's like saying i'm going to use the next QE to short gold.

But what happens when they use all the dollars to buy future dollars?

The Keynesian's speak!

Big Ben is saddling up his white horse right now..  Look at all that extra value the dollar has packed on the last year, time to trim the fat..

Looking at real-time data helps to confirm the mechanism that produces long-term patterns. It's like sifting through LHC data and finding correlations with theories in cosmology. The thing is, we don't have a chance of directly operating consistently at such a rapid pace, but it's very easy to front run events that occur far more slowly. Patience is the greatest virtue, after all.

+1

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a few years.