Could all the hairdryer’s in this world stop the titanic??

Yes they probably could (although I do not say that from a physical proven point of view) but they would produce a hurricane in strength and magnitude, which even might be more disastrous. A simple rule of physics says energy never gets lost – it only changes it’s level. Any force used causes counterforce with the same strength another rule which in both cases also have a universal effect. The picture we should imagine since we all know this effect a big ball and you have to keep it with both hands under water – did you ever try that in the sea? – you can keep that under water for a while although it’s not that easy, since it tends to slip out and at some point it jumps out of the water, even high.

Well why do I tell that? Because that’s what Bernanke (standing for all the others as well) tries to do. In the banking system we are facing a multi trillion death-spiral of losses unwinding. One loss category will trigger another and that’s an easy thing in a global world with up to 800 trillion of derivatives linked to each other somehow, in any case by the counterparty-risk. We saw what the grave mistake to let LEH fail caused. The 3-5 tril armour various governments gave the financial system is already breaking apart slowly and its only a matter of time until more, much more will be needed. The still flat yield curves in Europe are even speeding the process since the banks have no resource of income, which if leveraged could pay for some losses.

This unprecedented situation can only heal itself by letting go – the mistakes made can not be unwind. Central banks can print trillions of new money to pay for the losses but that dilutes only the real money and is real socialism. The regular people have to pay for the stupid greed of banks buy loosing buying power of their money or hyperinflation.

Excerpt from Bloomberg

Further cuts below 1 percent could turn Fed Chairman Ben S. Bernanke‘s focus away from the main rate and toward more use of alternative tools. Those might include increasing its holdings of mortgage bonds to lower costs for homebuyers and purchasing securities directly from the Treasury in order to pump more cash into the economy, Fed watchers said.

“If there is need for more stimulus, the Fed will buy up government debt” to keep borrowing costs low, said Adam Posen, deputy director at the Peterson Institute for International Economics and a co-author with Bernanke. That’s tantamount to “turning government debt, as it is issued, into money.”

Bernanke, 54, has already thrown the central bank’s balance sheet into action in unprecedented ways. Working with the New York Fed, the Board of Governors has rolled out 11 new programs aimed at absorbing risk or making dollars available when banks don’t want to loan.

Assets Doubled

The result: The central bank’s assets, which include a loan to insurer American International Group Inc. and a pool of investments once held by Bear Stearns Cos., more than doubled to $1.772 trillion last week from a year-earlier total of $873 billion that comprised mostly Treasuries. The latest weekly figures are scheduled for release at 4:30 p.m. in Washington.

There’s more to come. The Fed announced this week a backstop for money-market mutual funds to which it will commit another $540 billion. A commercial-paper program approved Oct. 7 could buy up to $1.8 trillion of securities.

“The net effect of these facilities has been a truly staggering pace of growth in the Fed’s balance sheet,” said Jan Hatzius, chief U.S. economist for Goldman Sachs Group Inc.

When the Bank of Japan fought deflation and a banking collapse earlier this decade, its balance sheet ballooned to more than 30 percent of gross domestic product as it pumped money into the economy, Hatzius said. He predicted “further rapid growth” in the Fed’s, which is now equal to 12 percent of U.S. GDP.

`Helicopter Ben’

The Fed has flooded the economy with so much cash that excess reserve balances at banks, or cash surpluses beyond what banks are required to hold against deposits, soared to $136 billion for the two-week period ending Oct. 8 compared with an average of $1.4 billion in the same month last year.


~ by behindthematrix on October 23, 2008.

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