Bernanke consumer plan = selling sand to Saudi Arabia

My latest rant from BlownMortgage

How deaf is Ben Bernanke? With the US savings rate hitting a 14-year-high, the Fed unveils a $200B plan to “aimed at boosting the availability of credit to consumers and small businesses.” While I hope this will be of use to businesses in need of it, consumers have already made it clear they’re not interested.

As Morgan explains:

The government is trying to inject liquidity in to the ABS markets for ABS comprised of auto loans, student loans, credit card debt, home loans, etc. The idea being that investors have not bought these securities because they have been unable to secure financing to purchase them through the private sector. The government will make financing available to those investors that purchase AAA-rated ABS to try to reopen the market and make more credit available to main street USA.

I guess the theory is consumers will ignore EVERY SINGLE PIECE OF ECONOMIC INFORMATION AVAILABLE and decide to buy stuff because the credit is now available. At a moment when we are losing (conservatively) 600K jobs A MONTH, who in his or her right mind is going to buy a new car, house, or hot tub? ESPECIALLY when prices are being pulled toward terminal velocity. If consumers did this it would be so far past irrational as to call it “insane exuberance.”

Dear Ben, a lesson from Marketing 101: In order to be successful a product has to fill a need in the marketplace. Consumers don’t want debt! Not only do they not want debt, they’re not going to spend the money they already have. So there’s no way you’re going to get them to purchase stuff right now. Consumer behavior is now a lagging, not leading economic indicator. Consumers will start spending after — NOT BEFORE — the economy gets back on track.

Read more by going here …

Would you buy a used economic commentary from this man?

My latest over at BlownMortgage:

The Fed has announced it will now buy commercial paper from money market mutual funds and endorsed the idea of another economic stimulus package. Far be it from me to turn up my nose at free money. I could use a handout … I mean stimulus check as much if not more than most of Wall Street. But I am disturbed that these efforts continue are in keeping with previous Bush Administration policy to never have a clue how something – like a war or a however many bailouts there will be – will be paid for.

Click for more of this and my paen to William Proxmire.

Uncle Sam sleeps with the fishes as mobsters prefer euros to dollars

Is this a lowlife leading economic indicator? If so it’s certainly not a promising one

The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores. … If the greenback continues its slide in 2008, as expected, more and more criminals are likely to exchange euros for illicit goods, said Criminal Intelligence Service Canada in its annual report.

If we ask the Godfather for a favorable balance of trade on the day of his daughter’s wedding do you think he can get it? Will Ben Bernanke wake up with a horse’s head in his savings account?

No matter how many times it bounces, the cat isn’t getting any less dead

Dead CatStocks and commodities plummeted on Wednesday as the euphoria that carried equity markets to massive gains a day earlier gave way to nervousness that the broader U.S. economy hasn’t yet escaped the dangers of the credit crisis.

Has anyone else noted that we are no longer trying to avert a recession? Now the news stories all say that various actions are being taken in order to avert either a “deep” or “prolonged” recession. Expect to soon read about the steps being taken to end the recession without any formal announcement of its actually having begun. Of course, as M Horn likes to point out, the word recession has been redefined to a point of uselessness. Where it once meant “a decline in GDP for two or more consecutive quarters,” it now is a synonym for “the current mess.”

Whatever you choose to call it, the current mess is large and has quite a bit of room and reason to get worse. Mere economic facts are not enough to prevent the markets from spiking as it did yesterday. During these bounces facts are replaced by faith. Thus the believers know a cut in an interest rate, a not-so-terrible earnings report or the news that oil DECREASED to $104 is the leading indicator that all prayers will soon be answered. At times like these the thinking gets so magical that the Fed, or whomever, gets endowed with the power to make anything impossible come to pass. Thus for a few hours Mr. Bernanke was deemed capable of getting the Cubs to the World Series.

I have always been amused by the idea that the stock markets in some way reflect reality. The markets, like the monetary system itself, are a form of collective wishful thinking. Investors as a group convince themselves that a thing has a value and thus it does. Sometimes these values are connected to the actual needs and demands of the society: oil allows things to function, as does the Windows OS. However a high price is no guarantee of a thing’s pragmatic worth. Frequently a high price indicates only the desire to people to posses them. This explains why people have at different times in history paid exorbitantly for pieces of gold, tulip bulbs, the US dollar, and shares of Bear Stearns. These items’ only actual worth is if A) you want a metal that is both malleable and highly conductive; B) you are a horticulturalist; C) you have a fetish for wallet-sized rectangles of green paper; and D) … well, let me get back to you on that one.

It would be cynical to insist that a connection between a thing’s price and its usefulness is the exception and not the rule. But many people do act this way. Thus the “bigger fool” theory of investing, where the idea is to hope that you will be able to sell your investment to someone who is an even bigger fool than you yourself are. This point-of-view equates the markets with nothing more than a legalized Ponzi scheme. It is a POV that will sadly be gaining many adherents in the near term. There are some contrarians — I believe Mr. Buffet has made some slight amount by not following this course. I have no idea which is right. If I did I would have the funds to not be concerned about a current lack of employment.

Dead cat bounce: A temporary recovery from a prolonged decline or bear market, after which the market continues to fall. As in: “Even a dead cat will bounce if dropped from high enough.”