The last week has seen the Fed throw more money at the banking system -- and the markets have apparently shrugged-off the positives. After a brief flattening in the Treasury curve, the markets returned to their default view that the Fed has lost control of the situation and credit market distress is the most important story in the room.
Jim Rogers, the Investment Biker and erstwhile colleague of George Soros, was on the show and gave his usual trenchant views on Ben Bernanke and the Fed’s attempt to reflate by cutting interest rates.
Usually I use this blog to discuss the show and my own thoughts on the stories. This time it's your turn. I have pulled out a selection of the e-mail feedback we had after Jim Rogers was on the program. And we discussed his views with Anthony Fry from Evercore Partners.
I think you might enjoy the sentiments:
- I have to take your guest investor to task for suggesting that it is the Fed's responsibility to bail out financial institutions when there is palpable risk of the financial system being destabilized if they do not do so.
This is nonsense.
Is the Fed/central bank function not to manage the collapse of these institutions in a manner that does not destabilize the financial system? Is it not the Fed's function to ensure that investors and management are accountable for their actions during this process and is it not the Fed's function to ensure that depositors and, to some extent, borrowers from these banks are protected from the incompetence of these financiers?
In short, central banks need to quietly consolidate the winners and losers in this game, with as little fuss as possible. If some of our eminent bankers and their investors are ruined in the process, that is long overdue!
J. - I am in the Rogers' camp and so should anybody else with any sense. When you consider a bunch of traders in all banks involved themselves in pyramid selling activities with Joe Public's money, bailing them out is criminal. If I lose money nobody is going to help me. Sack the lot of them, people need a lesson.
John - I agree with Jim Rogers. It is becoming ridiculous to have the Fed becoming a mortgage lender. I understand it makes sense because it creates some relief regarding liquidity in the MBS market. It will be short lived if the U.S. dollar continues to dive and inflation continues to squeeze the consumer.
What will the Fed do if home prices dive 50%? Where do you think the dollar will be? What about gas prices at $7. Do you think the U.S. consumer can handle it?
Markets will continue to dive with the dollar and the increase in oil price. The U.S. might end up the same way Germany end up in the 20s with its currency.
So the US has to support the dollar and stop cutting rates rather than trying the opposite. It moves from a credit crisis to a monetary crisis.
Christophe - Your guest, as most others, does not understand the fundamental problem here. We are unwinding 30 years of credit expansion that took off during the last eight years. There must be pain and the Fed cannot stop this.
The issue is deflation.
John G.
Thanks for tuning in and keep the feedback coming.
Geoff
Your feedback always welcome - here.
