While I'm on a Noah Millman kick, check out his angry post peeing on the feddle gummint's moves to rescue Fannie Mae and Freedie Mac. He puts his finger on something that bothers me about all this "too big to fail" business, and it's namely this: that if investors come to believe that the government won't let something fail, then there's no reason for that something to take risks responsibly. The whole thing ends up being a confidence game. The other morning I was listening to an interview on the (excellent) public radio program Marketplace with Jim Rogers, a Singapore-based US investor, who was ripping the federal quasi-bailout of Fannie and Freddie. Here's an excerpt from the Rogers interview:
Scott Jagow: Jim, what's wrong with this plan for Fannie and Freddie?Jim Rogers: Well, this plan is adding huge amounts of debt to the American government's burden. Last weekend, we ran up $5 trillion, the same amount of debt that it took 200 years to accumulate. The world knows that's an unbelievable burden added to any government, especially the one which is already deeply in debt. It's bad for the economy, it's bad for interest rates, it's bad for inflation and it's bad for the currency.
Jagow: As you say, $5 trillion in debt -- that's what Fannie and Freddie control; about half the U.S. mortgage market. How in the world can we let them fail?
Rogers: Well, it's better to let them fail now if you ask me than wait two or three years when it's going to be $10 trillion or who knows how much else because if we keep doing this, the United States government, who's going to buy American government bonds? If you were a foreigner and you saw that the government added huge amounts of debt annually, would you continue to buy American government bonds? I mean, I wouldn't and I'm an American.
Today the Democrats are calling for even more government spending to save the economy from our own stupidity. Look, I don't know economics from shinola, but I don't understand how we can spend our way out of this. I don't get how throwing more taxpayer money after bad investments is the way to strengthen our economy.
Ye who do know economics from shinola, help me out here. Is Jim Rogers right? Where is this going? Is Noah Millman right, and the bear that's coming at is right now is galloping onward, and we're running out of bullets?
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Here are the sources for the U.S. and global GDP's, respectively: http://bubblemeter.blogspot.com/2008/07/investors-run-scared-from-fannie-mae.html and http://www.salon.com/tech/htww/2008/07/14/fannie_mae_and_freddie_mac/index.html
Just so y'all know I'm not making it up. ;)
I really wonder how productive it is to screw with Iran considering our reliance on the Chinese and the Chinese dependence on Iranian oil.
Bingo. As the UK and France learned that they had a new boss during the Suez Crisis, so might we in the near future. Some here might enjoy seeing us getting our comeuppance.
Mr Rogers has been proven correct so many times.
For example before he began his Millenium Adventure
he said one word....oil....it was $12 a barrel; also the rise in demand for commodities; and finally the demise of the housing and banking industries.
TAKE HEED
Jim has been RIGHT 90% of the time so you can figure out the odds for yourself.
Jim has been RIGHT 90% of the time so you can figure out the odds for yourself.
I've been in line with Jim for years now, both with commodities and housing. He's an analyst and trader. If his timing is as good as his analizing (which mine isn't, for instance), then he's got to be very, very rich.
On the other hand, it's not his job to come up with answers to the crises that he profits from. Nor George Soro's, for instance. It's a good thing, too.
Of course the govnt can't let F+F fail. It *has* to stop the hemoraging, even if a limb is lost, for the sake of the system. At the same time, there will be a number of losers along the way. Always are. Cheers.
BTW, dept is not supposed to be compared to GDP but to assets. How much in assets (realisticly) does this debt represent?
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