..Crisis may make 1929 look like a walk in the park.

From The Telegraph, 12/23/07:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml

Crisis may make 1929 look a 'walk in the park'

As central banks continue to splash their cash over the system, so far

to little effect, Ambrose Evans-Pritchard argues things are rapidly

spiralling out of their control

Twenty billion dollars here, $20 billion there, and a lush

half-trillion from the European Central Bank at give-away rates for

Christmas.

Buckets of liquidity are being splashed over the North Atlantic

banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of

economists has begun to warn that the world's central banks are

fighting the wrong war, and perhaps risk a policy error of epochal

proportions.

"Liquidity doesn't do anything in this situation," says Anna Schwartz,

the doyenne of US monetarism and life-time student (with Milton

Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going

bankrupt. The banks and the hedge funds have not fully acknowledged

who is in trouble. That is the critical issue," she adds.

Lenders are hoarding the cash, shunning peers as if all were sub-prime

lepers.

Spreads on three-month Euribor and Libor - the interbank rates used to

price contracts and Club Med mortgages - are stuck at 80 basis points

even after the latest blitz.

The monetary screw has tightened by default.

York professor Peter Spencer, chief economist for the ITEM Club, says

the global authorities have just weeks to get this right, or trigger

disaster.

"The central banks are rapidly losing control. By not cutting interest

rates nearly far enough or fast enough, they are allowing the money

markets to dictate policy. We are long past worrying about moral

hazard," he says.

"They still have another couple of months before this starts

imploding. Things are very unstable and can move incredibly fast. I

don't think the central banks are going to make a major policy error,

but if they do, this could make 1929 look like a walk in the park," he

adds.

The Bank of England knows the risk.

Markets director Paul Tucker says the crisis has moved beyond the

collapse of mortgage securities, and is now eating into the bedrock of

banking capital.

"We must try to avoid the vicious circle in which tighter liquidity

conditions, lower asset values, impaired capital resources, reduced

credit supply, and slower aggregate demand feed back on each other,"

he says.

New York's Federal Reserve chief Tim Geithner echoed the words,

warning of an "adverse self-reinforcing dynamic", banker-speak for a

downward spiral.

The Fed has broken decades of practice by inviting all US depositary

banks to its lending window, bringing dodgy mortgage securities as

collateral.

Quietly, insiders are perusing an obscure paper by Fed staffers David

Small and Jim Clouse.

It explores what can be done under the Federal Reserve Act when all

else fails.

Section 13 (3) allows the Fed to take emergency action when banks

become "unwilling or very reluctant to provide credit".

A vote by five governors can - in "exigent circumstances" - authorise

the bank to lend money to anybody, and take upon itself the credit

risk.

This clause has not been evoked since the Slump.

Yet still the central banks shrink from seriously grasping the

rate-cut nettle.

Understandably so.

They are caught between the Scylla of the debt crunch and the

Charybdis of inflation.

It is not yet certain which is the more powerful force.

America's headline CPI screamed to 4.3 per cent in November.

This may be a rogue figure, the tail effects of an oil, commodity, and

food price spike.

If so, the Fed missed its chance months ago to prepare the markets for

such a case.

It is now stymied.

This has eerie echoes of Japan in late-1990, when inflation rose to 4

per cent on a mini price-surge across Asia.

As the Bank of Japan fretted about an inflation scare, the country's

financial system tipped into the abyss.

_______________________________________________

Harry

"Harry Hope" <rivrvu@ix.netcom.com> wrote in message

news:ttu0n39223c0bvt4dl0jsufe4gk1qp4id1@4ax.com...

>

> From The Telegraph, 12/23/07:

> http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml

>

> Crisis may make 1929 look a 'walk in the park'

>

> As central banks continue to splash their cash over the system, so far

> to little effect, Ambrose Evans-Pritchard argues things are rapidly

> spiralling out of their control

>

> Twenty billion dollars here, $20 billion there, and a lush

> half-trillion from the European Central Bank at give-away rates for

> Christmas.

>

> Buckets of liquidity are being splashed over the North Atlantic

> banking system, so far with meagre or fleeting effects.

>

> As the credit paralysis stretches through its fifth month, a chorus of

> economists has begun to warn that the world's central banks are

> fighting the wrong war, and perhaps risk a policy error of epochal

> proportions.

>

> "Liquidity doesn't do anything in this situation," says Anna Schwartz,

> the doyenne of US monetarism and life-time student (with Milton

> Friedman) of the Great Depression.

>

> "It cannot deal with the underlying fear that lots of firms are going

> bankrupt. The banks and the hedge funds have not fully acknowledged

> who is in trouble. That is the critical issue," she adds.

>

> Lenders are hoarding the cash, shunning peers as if all were sub-prime

> lepers.

>

> Spreads on three-month Euribor and Libor - the interbank rates used to

> price contracts and Club Med mortgages - are stuck at 80 basis points

> even after the latest blitz.

>

> The monetary screw has tightened by default.

>

> York professor Peter Spencer, chief economist for the ITEM Club, says

> the global authorities have just weeks to get this right, or trigger

> disaster.

>

> "The central banks are rapidly losing control. By not cutting interest

> rates nearly far enough or fast enough, they are allowing the money

> markets to dictate policy. We are long past worrying about moral

> hazard," he says.

>

> "They still have another couple of months before this starts

> imploding. Things are very unstable and can move incredibly fast. I

> don't think the central banks are going to make a major policy error,

> but if they do, this could make 1929 look like a walk in the park," he

> adds.

>

> The Bank of England knows the risk.

>

> Markets director Paul Tucker says the crisis has moved beyond the

> collapse of mortgage securities, and is now eating into the bedrock of

> banking capital.

>

> "We must try to avoid the vicious circle in which tighter liquidity

> conditions, lower asset values, impaired capital resources, reduced

> credit supply, and slower aggregate demand feed back on each other,"

> he says.

>

> New York's Federal Reserve chief Tim Geithner echoed the words,

> warning of an "adverse self-reinforcing dynamic", banker-speak for a

> downward spiral.

>

> The Fed has broken decades of practice by inviting all US depositary

> banks to its lending window, bringing dodgy mortgage securities as

> collateral.

>

> Quietly, insiders are perusing an obscure paper by Fed staffers David

> Small and Jim Clouse.

>

> It explores what can be done under the Federal Reserve Act when all

> else fails.

>

> Section 13 (3) allows the Fed to take emergency action when banks

> become "unwilling or very reluctant to provide credit".

>

> A vote by five governors can - in "exigent circumstances" - authorise

> the bank to lend money to anybody, and take upon itself the credit

> risk.

>

> This clause has not been evoked since the Slump.

>

> Yet still the central banks shrink from seriously grasping the

> rate-cut nettle.

>

> Understandably so.

>

> They are caught between the Scylla of the debt crunch and the

> Charybdis of inflation.

>

> It is not yet certain which is the more powerful force.

>

> America's headline CPI screamed to 4.3 per cent in November.

>

> This may be a rogue figure, the tail effects of an oil, commodity, and

> food price spike.

>

> If so, the Fed missed its chance months ago to prepare the markets for

> such a case.

>

> It is now stymied.

>

> This has eerie echoes of Japan in late-1990, when inflation rose to 4

> per cent on a mini price-surge across Asia.

>

> As the Bank of Japan fretted about an inflation scare, the country's

> financial system tipped into the abyss.

>

> _______________________________________________

>

> Harry

Do you realize how dumb it is for the US Government to be borrowing money

from a Bank?

The US Constitution gives the right to Congress to Coin Money based on the

Gold Standard. All you need is one Ounce of Gold in the treasury. You tell

1000 People, minimum wage is One Ounce of Gold for Forty Hours Labor. When

they each give you Forty Hours Labor, you now have 40,000 Hours of Labor,

Worth 1000 Ounces of Gold, so you print 1000 Gold Certificates worth One

Ounce Each, and use them as Legal Tender. The more the Nation Labors based

on a Gold Standard, the Richer it becomes, and does not have to fight

Inflation Caused by having to pay Interests. The other Factor that causes

Inflation is Taxes.

Oh, by the Way, that means you as the People, have the right to use your Rep

in Congress, to Coin Money.

In service of God and Country

Joseph