Quote:
Originally Posted by hardflex
"runaway Inflation, Runaway Inflation"
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Very well might come about....
To combat inflation the Fed would have to raise interest rates in an environment where the liquidity of Stocks and Bonds are a very serious issue.
The Fed is having difficulty keeping the system liquid by lowering interest rates as it is, because no one knows what portion of the Sub-prime loan packages that they hold will default. Thus they don't know how to put a valuation on them, and nobody wants them at any price. This then effects the Stock Market because no one knows how much exposure they have to the Sub-prime market and the ultimate effect on the economy and corporate earnings.
U all should remember the name Citi-Corp and the name Richard Ruben as the head of Citi.. remember he was Bill Clintons Secratary of the Treasury.
The perfect storm is abrewing on this good ship lollipop. You can only go to zero percent interest rate to keep the system liquid. Meanwhile the $$ is falling in value because of the decling credit worthiness of the USA. Since the value of the $$$ is falling foreign capital is not flowing into the USA which causes the system to become more illiquid and intest rates to be pushed even lower to prop the system up. At some point the music has to stop.
It is possible for the whole system to freeze up and become illiquid. That means Stocks, Bonds, Money Market Accounts, CD's, 401K's, Mutual Funds, Pension Funds all stop having value because you can't trade nor sell them. The $$ will havve by then declined to almsot nothing anyway. Then what happens to your job? Yeah ya gotta love those Pats!
The net effect is that American Financial Institutions are drawing in capital from NATIONS (as opposed to businesses) that are sitting on piles of $$$ that are doing nothing but stuffing mattresses in places like the United Arab Emirates, Dubai, Singapore, Hong Kong, Beijing, Toyko, Taipei and Seoul. They will lend our institutions the money, but the interest they earn on that capital will be going overseas and not staying in the USA. That in effect means that the wealth of the nation is leaving and we are beocming poorer... But Hey what about those Pats!