The bailout answers some questions and raises some other questions.The yen is getting hit against everything as it looks like it's back into the carry trade pool; more comfort taking risk.
New Zealand, Japan, Korea and Australia are all up meaningfully. SPX futures appear to be much higher (although Martin Soong on CNBC Asia has made two references to some indicator showing the US market as indicated lower).
Treasury yields are up a lot while gold is up a little. Oil is up but that might be more about Ike than the bailout.
In the post from earlier today I said I thought there would be a pop of some sort in equities. We have it right now, but who knows how long it will last.
Both Steve Forbes and Andy Xie said that this isn't resolved until we know what the gubment is going to do next with these. There was one comment about needing to inject $300 billion to give it a decent capital ratio versus about $5 trillion in debt.
Where does that money come from? Doesn't this have to be inflationary? If it is inflationary then how do we reconcile that with the asset deflation? What about that part of the story about the treasury working with smaller banks with "significant exposure" to Frannie paper? How much will that cost?
Slightly bigger picture the bailout has come about because of a massive failure of how the US does business. The failure as been unfolding for months now, this is the latest but unlikely the last news.
Maybe there is no negative domino effect coming but I'm not sure how that is possible.
6 comments:
The inflationary / Deflationary debate all comes down to how you define money and money supply. I am an inflationist but believe we can have a deflationary "effect" in the short term. They will print the money......
Do you know any blog/link for Andy Xie's comments? I'd like to see his words.
sorry i do not, i saw him on Asian Squawk
There should be a relevant take away for all here.
The relevant facts are that Bush and his cronies ( you know, Katrina Brownie, Harriett M. a personal secretary put up for supreme court justice and others of that competency) were/are running the regulatory part of our government. We now have an opportunity to elect Bush II (er III) or somebody else.
How's this theory ? Easy money in the early part of this decade had the net effect of pumping dollars into the financial system. The result was dollar devaluation and increase in commodity prices -- inflation. Now that this easy credit has ended, this increase of new dollars has stopped. In fact, lately there has been a net decrease in the global system due to selling of securities to increase reserve requirements -- now deflation. Printing more money by the Fed won't increase dollars in circulation because banks keep adding these dollars to their reserves. Therefore, printing money won't lead to inflation until banks can lend again.
Like 8:19 said, us lends 300b to fre, fre buys tbills, kept on deposit at the fed. Really just a transfer of creditbility, we can all trust our guvment to make good, can't we. Until we can't. charlie
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