Letters to the Editor
mmckinl
Published Letters: 180 Editor's Choice: 16
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Bubbble to Bubble to Bubble ...
[Read the article: The sky must not be falling: Dow breaks 14,000]
[Read more letters about this article: Here].
Deja vu all over again ...
"The 1987 crash reflected a stock-market bubble burst the liquidity cure for which led to a property bubble that, when it also burst, in turn caused the savings-and-loan (S&L) crisis. "
" The Federal Reserve reacted to the S&L crisis with a further massive injection of liquidity into the commercial banking system, lowering the FFR from its high of 9.86% reached on May 10, 1989, to 3% on September 4, 1992, making the real rate near zero until February 4, 1994. "
"Since there were few assets worth investing in a down market plagued by overcapacity, most of the new money went into relatively low-yield bonds.
This resulted in a bond bubble by 1993, which then burst in 1994 when the Fed finally started to raise the short-term rate, which reached 6% on February 1, 1995."By the mid-1990s, excess liquidity had fueled a worldwide equity rally that found its way into the Asian emerging markets, where it fed an unprecedented bubble of easy money in the form of undervalued currencies pegged to a falling US dollar. When the Asian emerging-market bubble crashed abruptly on July 2, 1997 "
"The first three years of the 21st century saw a worldwide equity-market crash followed by a recession plagued by global overcapacity, over-indebtedness, and over-leveraging"
http://www.atimes.com/atimes/Global_Economy/IF14Dj02.html
So hear we are again , only this time , the bubbles are getting closer and closer together.
In the 50s and 60s we had no such problem .
What has caused all this excess liquidity ? The lowering of Tax Rates on Corporations and High Income Individuals ...
These taxes used to go to infrastructure , education and preserve healthy government balance sheets.
Now this liquidity chases its own tail through the financial system , creating new exotic schemes to capture capital (read derivatives , debt securitization , lend lease of public infrastructure ), and the Fed guarantees the put ...
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High Gas Prices ? ...Peak Oil is just around the corner ...
[Read the article: The Prius vs. the Edge]
[Read more letters about this article: Here].
Most affluent Americans have more than one car. One is used for commuting , the other for home based activities such as shopping , picking up the kids etc.
In the coming years you will see these SUVs and crossovers parked in driveways gathering dust until vacation comes ...
In the coming years you will see them lining up at the car pools or parked at public transit centers to defray expencces.
Peak Oil is expected no later than 2015 ... It could be pushed out a little with the war with Iran , throwing the world into recession. But with that war gas prices still skyrocket.
Just look at the Iraq War . Oil was at $28 just 5 short years ago . A barrel now is over $80.
Has usage gone up 300% ?
The Iran debacle Bush seems intent on will justify $5-7 a gallon gas , and just as now , the price won't fall ...
What they don't want to tell you is that supply is about to go into a terminal decline while demand is excellerating .
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Greenspan was told in 1994 to Regulate Loans
[Read the article: Yet another horrible housing data point]
[Read more letters about this article: Here]Congress saw this coming over 12 years ago.
Greenspan had to know that by lowering rates to 1% the race was on to offer rediculous variable teaser rates . Greenspan did nothing .
Even most of Dean Bakers' work on housing was on pricing , not on the time bomb called resetting variable rates.
There's more , I have seen figures that 50% of these variable rate timebombs were actually refinances or second mortgages , Not outright purchases. Should these people not be above water and have great credit and have loans worth less than $500,000 they are in trouble.
There will be some work outs for borrowers who actually know who their loan company is . Many loans have been securitised and bought and sold more than once and it will take a securities expert to find the owners of the note.
I don't have any hard data but I do watch the real estate market closely . What I see selling are houses in auctions or builders sales at 30% below previous asking . That's a real pisser when your brand new million dolllar house just went on sale for $750,000 just down the street with goodies you couldn't afford . The point being that the inventory moving is 15 to 30% less than housing in that area.
The good news is there are only 3 million more foreclosures to go . : - (
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Simple : Reregulate and Raise Taxes ... or go from Bubble to Bubble to Bubble
[Read the article: The hedge fund quants of August]
[Read more letters about this article: Here]Kuttner recently testified before Congress on this matter .
He suggested reregulatig the financial system .
In the 80s rules for S&Ls were relaxed then guess what ? The S&L crisis or bubble .
In 1999 Congress abolished Glass Steagall and guess what? The LTCM meltdown , the market bubble , and now the subprime crisis or liquidity bubble ...
Effective Marginal Taxes must be raised . Now there so many looopholes , tax schemes (on shore and off shore) that the Effective Tax Rate is in the single digits for those who know the game .
Raisiing marginal tax rates and closing tax schemes will dry up this excess liqudity while allowing legitimate investment to proceed.
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It's All Built on Cheap Oil
[Read the article: All together now: Everybody hates "free trade"]
[Read more letters about this article: Here]The world is living a Lie ! That lie is that there will be enough oil to continue this economiic model well into the 21st century .
Certainly there are other carbon resources such as coal and natural gas , but they are not easily harnessed for transportation .
Peak Oil will arrive sometime in the next 2-5 years . This is when the production of oil goes into terminal decline . The decline is not precipitous , only 3-7 % a year but demand is also going up 2-3 % a year . New sources of oil will cost substantially more to develop and NOT , I repeat Not , stop this decline . We know that for people to use less oil the price must go up substantially . Those without substantial resources will do without first.
The bottom line is that , economies will have to decouple somewhat as their cost of transportation skyrockets . More goods will have to be produced closer to market.
All goods will cost substantially more .
The Cheap Oil Economy is going away soon, and with it , ever expanding drybulk trade.