The Fed is printing money.

Part one



Part two

Well, Ben Bernanke last night on 60 minutes confirmed what we all knew. While it is the job of the Fed to control the money supply, the Fed is printing money at an unprecedented rate, and the result will ultimately be inflationary. I had to rewind my DVR to hear him say it again. Imagine if you have a bank account, and you run short of funds. You call up your bank and ask the bank manager if he wouldn't mind just increasing your balance because you are short of funds. What do you think your bank manager would say? Well, this is what Ben Bernanke said the Fed is doing with these failed banks.

Moreover, Bernanke said it is not tax money? Hmmm, maybe not now, but it sure will be. There are two ways this will hit the average American. When there is too much money in the system, inflation occurs. Inflation is a hidden tax that eats at the purchasing power of your money. Second taxes will inevitably increase on everyone when the government cannot pay its increase debt from its massive spending.

"It's not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It's much more akin to printing money than it is to borrowing."

"You've been printing money?" Pelley asked.

"Well, effectively," Bernanke said. "And we need to do that, because our economy is very weak and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation."

To say that we can have a recovery that does not involve inflation with the amount of money that is being added to the money supply is wishful thinking.

Ben Bernanke did say that one of the major reasons for the Great Depression was because of tight money, and he is right. I just wonder if going down the hyperinflation road of Germany's Weinmar Republic or Argentina is the right answer. The markets apparently liked Bernanke's remarks.

In any event, everyone should watch the 60 minute segment with Bernanke. Alan Greenspan never gave an interview during his tenure.

I do have one recommendation on investing at this juncture. Buy Treasury Inflation Protection Securities,(TIPS). The interest rates are low now but they protect against inflation.

The Mortgage Crisis Keeps on Coming

Watch CBS Videos Online

Everyone should have watched the second segment of 60 minutes last night. If you missed it, you have a chance to see it by clicking on the above embedded link.

I have been following Whitney Tilson for some time now. He is one of the few analysts that had this subprime mortgage crisis right. In my posting Fixing the Financial mess in four easy steps, I quote Whitney Tilson of Tilson Funds from an email he sent me:

We've been very bearish on housing for a number of years, but after all of the recent terrible news, we had thought that we might be in the 6^th or 7^th inning of this unfolding debacle and perhaps it might be time to start buying some of the stocks that have been obliterated, in anticipation of a bottom and then recovery. But then we were introduced recently to the CEO of Amherst Securities Group L.P. Sean Dobson, who has collected extensive data on every mortgage that was securitized in the United States this decade. He was kind enough to share some of his data with us, which shows that we are still in the early innings of the bursting of the housing bubble. Believe it or not, as bad as things have been to date, we have only seen the tip of the iceberg: an enormous wave of defaults, foreclosures and auctions is about the hit the United States. We believe it will get so bad that large-scale federal government intervention is likely.

Tilson made this prediction before all the talk of government bailouts.

Tilson says there is a second mortgage shock coming. Tilson has teamed up with Amherst Securities. Amherst Securities ran the numbers on higher quality mortgages, and it is not a pretty pictures. Tilson believes we are only half way through this crisis, and the more exotic mortgages such as Alt-A and option arms will begin to reset. Option arms lured investors in with ultra low interest rates as low as 1%, and when these reset, individuals may see their mortgages rise from a possible 800 dollars to 1,500 dollars. According to Tilson, 50% of these mortgages will default, and many will default even before they reset. "The defaults are incredibly high right now, and there is no evidence they are tapering off." Stated Wilson. Tilson believes it will take 3, 4, or 5 years to work itself out. This does not take into account commercial real estate, credit cards, and the like.

The irony is the preceding segment on 60 minutes was about the charlatan, Barney Frank who should be in jail not leading the bailout charge. 60 minutes called him, "the smartest man in congress". Frank says by the end of 2009, the economy will be back on track (paraphrased.) Seems to me, he said the same thing about Fannie Mae and Freddie Mac before they tanked. 60 minutes showed Barney Frank running around with his shoes untied in an effort to demonstrate he was so busy working for the American people he didn't have time to tie his shoes. I don't know about anyone else, but Barney Frank running around with his shoes untied does not instill confidence.

Tilson also stated we may be half way through this mortgage bubble but we may be only through the third inning of the real estate bubble. We will continue to see blows in the financial system. So, fasten your seatbelts. I sure hope those in power know what they are doing. Somehow, I doubt it.

60 Minutes – The Obama Interview

Well, leave it to Steve Kroft of 60 minutes to give the most uninteresting and uninspiring interview of President Elect Barack Obama since the election campaign. Not much new was said. We know Barack is going to withdraw the troops from Iraq – Is Iran salivating? We know by executive order he will be closing Guantanamo –will the prisoners be returned to the battlefield to kill more Americans? Will Barack continue his plans to raise taxes in this economy to kill an already faltering economy? He says he wants to reset the confidence in the financial markets – not raising taxes would help. And what about the secret meetings his campaign team was having with Hamas before he was elected? We didn't learn much except about his stupid dog, and who cares? And then there was a question about Barack and a college playoff, and again who cares? If the Interview were any mushier, I think Barack and Steve would have kissed each other.

Although President Elect Obama didn't mention it, he will most likely reinstate the executive order to prohibit offshore oil drilling, the one thing that could really give this economy a boost. He did say now is the time to break our addiction from foreign oil even when the price at the pump is down. He is right, but if he signs the executive order about drilling offshore, he is not serious about it.

President Elect Obama was cognizant of the fact that a time of transition was a time of peril, because our enemies look as this time as the easiest time for an attack. Of course, I think any time during the Obama presidency will be an easy time for attack.

He wants to bailout the auto industry (unions), but at least he said he doesn't want to give them a blank check. He wants to make sure the money will sustain them and make them a viable company. How about the Volt? We shall see if his plan works.

President Elect Obama said he liked the way FDR tinkered and experimented with the economy. It was because of this experimentation of FDR that made the depression so long and so deep (ten years) eventually causing a second depression within a depression in 1937. FDR's policies made the depression last long, and not until we removed the entire male labor force and put them in World War 2 did we come out of the depression. Europe came out of the depression years before we did. FDR's fireside chats were a way to communicate to the American people, and it helped put them at ease, Obama can do the same.

President Elect Barack Obama did say he was going to explain what he was doing and why. This was President Bush's greatest fault – a lack of communication. Barack Obama has communication skills, so that will be his greatest asset.

I hope President Elect Obama is successful, but the interview did not instill hope. It only made me more nervous. I am sure the investor class is feeling the same.

 

 

 

60 minutes continues to undermine the war

As I was watching 60 minutes last night, I thought, “Not again!” In CBS’ first segment, ‘The Killings in Haditha” Correspondent Scott Pelley interviewed Sgt Frank Wuterich about the 24 killings of apparently innocent civilians in the town of Haditha, Iraq last December.

In my daughter’s world history class, they debated whether or not there should be rules in war. I told her, rules are fine. You have to have some rules of engagement to prevent rape or true mass murder. But, there is a fine line between rules that maintain our humanity and rules that hinder our progress in the war. Right now, we are afraid to stub anyone’s toes in Iraq. We are not fighting a war, we are playing games, and we are giving the radical Muslims the advantage – and they know it. If we are going to fight a war, we should go in and fight a war, or else we should never go in – that is why we are losing the propaganda war which could easily turn into a complete loss in Iraq and a victory for the terrorists..

Pelley asked Sgt Wuterich if he had to do it over again would he, and the sergeant responded, “I would do the same thing”, Looking aghast, Pelley retorted, “You can’t mean that! Is a sorry in order?” The inflection in his voice reflected the disgust he felt towards the Sergeants’ response. What was the Sgt suppose to say to a question like that. Of course, He said what any soldier would say, “I’m absolutely sorry.” He, along with the other marines involved, are facing life in prision.

Can someone tell Pelley and the other correspondents in 60 minutes that we are in a war and war is brutal? The good we are doing in Iraq is honorable and noble. The Iraqis are in a better situation than they ever were under the banner of Sadaam Hussein.

Instead, the far left, the media and even the leadership in the Democratic party want the United States to lose – it is evident by their actions, and the propaganda emanating from these groups is no less disingenuous than the propaganda that emanated from Joseph Goebbells in Nazi Germany, and the irony is the polls show that many are falling for it. History once again is repeating itself.

The main problem is that Bush and his administration have become listless in fighting this propaganda war. Bush needs to be out there on a daily basis and present the good he is doing in Iraq. The Commanders on the ground have said the surge is working, and that the killings in Baghdad have been reduced by 80%. That sounds good to me. Why hasn’t Bush said anything about it? Just tell the truth.