As I understood the info at the link. all the institutions bidding submit whatever interest rate they are willing to pay, and when bids are tallied, the highest interest rate bid gets the first allocation and on down the line until all the money put up for bid is gone. So, different institutions will be paying different rates on the same auction. Is that about right?
Dan what you say is very interesting, but why are central banks hesitant to "feed the beast" ?
Does it have something to do with how other countries are owed in USD?
If you have the time go to www.silveraxis.com/todayinsilver/ and read Fed is bankrupt: update on the helicopter.
The Fed has a long history of wanting to avoid inflation even if it means higher unemployment or unbearable interest rates. Though it is possible to inflate our way out of this mess, there is no guarantee that the inflation would not lead to Hyperinflation.
Now, for people in debt up to their ears, hyperinflation would be a get out of jail free card. Imagine hyperinflation like they had in Weimar Germany with workers being paid twice a day (those of us that could find work). Now imagine being able to pay off all of your debts - home, credit cards, car loans, student loans, etc, with what you earned in one day. Do you, in a thousand years, think anyone will allow that to happen? They’ll declare martial law before they allow something like that to happen.
I’m guessing that we’ll see a repeat of the Great Depression and it will be a deflationary one and those that have some cash will be able to use it to buy the factories and farms for pennies.
Finally, I’m not an economist nor am I even an investor other than investing in my own supply of food, water and ammunition, but I can see the writing on the wall and it spells out hardship for us all.
I thought this was cute from Stefan Karlsson an economist.
http://stefanmikarlsson.blogspot.com/
Stop Paying Mortgage Payments!
If you haven't already listened to it, do listen to the LRC podcast where Lew Rockwell interviews Peter Schiff.
As usual with Peter Schiff, he provides a lot of valuable insight, but
what I actually found most interesting is how he reveals that with the
bailout package, it is economically rational to stop paying off your
mortgage. Because if you do, your lender will sell the mortgage to the
government who under the package must do everything they can to prevent
foreclosure, which will mean that they will have to offer you a sweeter
deal. So when Rockwell asked Schiff what an ordinary person can do to
save themselves in the ongoing economic meltdown Schiff replied that
the most obvious and best thing to do is stop paying your mortgage. I
spontaneously laughed when I heard that as I figured he was only
ridiculing the irrationality of the bailout plan. But maybe Schiff is
right, maybe it would be rational (at least for some people) to stop
paying your mortgage with this bailout plan. Can anyone find any reason
why Schiff is wrong on that?
posted by stefankarlsson at 11:13 AM
Last hour buying after the market is tanking occurs with regularity. It’s got Paulson’s Plunge Protection Team footprints all over it. A drop of 800 points on the Dow would have set off a worldwide panic. If they do this long enough, the Treasury is going to find itself the majority owner of 30 blue chip companies.
Have you read what the Federal Reserve Chairman has to say on the subject?
"We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
Indeed 
There is ample evidence that Helicopter Ben has indeed unleashed his disturbing joke of ‘hypothetical black helicopters’ raining down freshly printed cash upon the people (to ‘inflate’ our way out of the problem).
Alas, we’ll soon discover if the Economists who theorize (much like they theorized that there was/still is no problem with our high debt! or that house prices can not fall…) that a recession can be ‘infalted out of’ (because recessions are "always" deflationary…). Or, if common sense and rational thought hold and we end up screwing ourselves twice in one go.
Look on the bright side. We are now about to discover if economics is wrong about yet another one of their theories. One that was shot to pieces by the 70s stagflation but was then "rescued" with the careful application of sophistry and self delusion.
To think, some people accuse physists of being money grubbers when all they want is comparatively dirt cheap super collider to experiment with. Comm on! economists get to carry out their experiements with $14 trillion dollar a year economies!
–
Steve
According to "Money Masters" a depression occurs when central banks contract (ie shrink) the money supply. Inflation, by contrast, is defined as: "overissue of currency, resulting in a reduced value of that currency".
So it seems to me:
Depression = contracting money supply = deflation
XXX = rapidly increasing money supply = Hyperinflation
The question is: what is XXX?
It seems that we can not have hyperinflation in our currency at the same time we are going through a depression. They are mutually exclusive.
Does this make sense?
[quote]According to "Money Masters" a depression occurs when central banks
contract (ie shrink) the money supply. Inflation, by contrast, is
defined as: "overissue of currency, resulting in a reduced value of
that currency".[/quote]
Both of these are deeply flawed definitions of Inflation and Deflation. They are artificially created and reflexive upon an unproven Hypothesis (strictly economics calls it a theory, but most economic theories lack the evidence required to be called such). As such, these definitions result in circular logic, or the fallacy of begging the question. That is, in order accept the conclusions derived from them we must:
1) Agree that deflation can only occur by means of a central bank actively destroying the money supply. That is, the falling prices of houses right now due to a glut of supply is not deflation. Nor is any effect of this current deleveraging and debt destruction.
2) Agree that inflation can only occur by means of a central bank actively increasing the money supply. That is, all those rising prices caused by the oil spike this summer were not inflation under this definition.
Again, as I said, these definitions are clearly and deeply flawed. They do not meet the definition of inflation and deflation used by common individuals, or even a wide number of economists. As always, any redefinition of a common term to suit ones convince is at best misleading and in general stinks of sophistry. Given the vast amounts of psuedo-science polluting economics, this should make you deeply skeptical of any further claims.
More widely accepted definitions would be:
Depression: A severe and prolonged recession marked by any of, but no necessarily all of: high unemployment, rising poverty, destruction of wealth, decreasing economic productivity, etc…
Recession: An cyclic economic event where the economy experiences a brief and generally mild bouts of any set of: high unemployment, rising poverty, destruction of wealth, decreasing economic productivity, etc…
Inflation: Any broad decrease in the value of a unit of currency marked by a rise of prices.
Deflation: Any broad increase in the value of a unit of currency marked by a fall of prices.
As a good rule of thumb, any economic theory that starts by distorting these definitions is at best talking about a magical alternate universe which probably has little to do with this one.
–
Steve
I’m thinking we are already in the recession based on all the indcators out there. So when these indcators show depression, the media will say that we are in a recession.
Question 1—If the Currency were to collapse and a new system were to arise, wouldnt it be wiser to implement a digital type of bank account system, where money was stored in the form of Digits instead of paper money, most of the people I work with all do their banking and pay their bills electronically anyway?
Question 2----I wonder sometimes if we aren’t headed to a place where we will no longer see all the mega banks with their multi million dollar monster headquarters buildings, and hundreds of remote branch offices, because as I have heard lots of smart people say " this is a systemic crisis". As the system feeds on itself, it only gets worse and it seems to make sense to me that banks will not be able to sustain all the services they provide, they will have to come up with new innovative ways to cutback, layoffs will happen, and remote banking sites will have to be shut down. In that type of environment where your local bank may be 70 to 80 miles away, it only makes sense that we get rid of cash entirely, is this deep a crisis too farfetched or unrealistic?
Considering our banking system is different to the US’s, does anybody have any thoughts on how we may be affected by the US dollar crashing?
Search the web enough and you’ll discover that a mock up Amero was mad by a commerative medal maker. From there the concept developed a life of its own - not necessarily basd on fact. E.g. as I understand it the congressman who made mention of it did so on the back of a joke being played on him, but his mention of it gave it ‘credibilty’ - think twice about believing what a politician says.
Explore the concept of a single continental currency by all means - the problem with the Amero is that is suggests some existing structures and form are in place that there is no evidence to support.
One of the Amero related sites quotes as part of its substantiation the development of a central superhighway from Mexico to the north - ostensibly as a conduit for trade between Asia and central America - if this foundation is tested using some simple transport economics and a tiny bit of measurement you will find its about as realistic as the tooth fairy.
I suggest making this a forum topic and transferring the discussion - epeciall given that some 40% of subscribers are from outside the US there should be an active dicussion.
I have thoughts and would certainly be interested to see others
[quote]Question 1—If the Currency were to collapse and a new system were to
arise, wouldnt it be wiser to implement a digital type of bank account
system, where money was stored in the form of Digits instead of paper
money, most of the people I work with all do their banking and pay
their bills electronically anyway?[/quote]
In many ways, such a system already exists. Paper money however is likely to persist for many reasons. Not the least of which is a lack of traceability and better contained losses via thievery. It’ll take several generations for paper money to vanish completely, if it ever does.
[quote]As the system feeds on itself, it only gets worse and it seems to make
sense to me that banks will not be able to sustain all the services
they provide, they will have to come up with new innovative ways to
cutback, layoffs will happen, and remote banking sites will have to be
shut down. In that type of environment where your local bank may be 70
to 80 miles away, it only makes sense that we get rid of cash entirely,
is this deep a crisis too farfetched or unrealistic? [/quote]
It seems to me that you misunderstand. Basic commercial banking is still a highly profitable business. The major commercial banks BoA, J.P. Morgan, etc… are the guys buying up many of these investment banks. So, no, it is quite unlikely that banks will stop offering services for customers. Overall these costs are rather fractional as compared to the scale of losses and earnings in their overall business model.
If anything, the fallout of this crisis will make staple banking stronger and more profitable. Americans, once this is through, will almost certainly make the step to returning to a proper and fiscally responsible savings regime. Thus bank deposits will increase increasing overall yields. That’s still a few years in the future though.
–
Steve
Never ascribe to conspiracy that which can be easily explained by stupidity. Recall that many economists are still predicting a mild recession with maybe -1% GDP loss.
To put it simply, there are a lot of Americans that believe that things will turn up sooner rather than later. Its almost as though most of them don’t realize that all throughout 1929 and 1930 everyone kept thinking its just about to get better! Hell, for a while stocks even resumed their climb.
Then they plummeted for ~2 years straight.
I’ve said it before and I’ll say it again. Deep down in their hearts, Americans just don’t believe in long recessions. These last few weeks have been a nasty shock, but don’t doubt for a minute that over the next months as soon as things calm for a bit that everyone – the media, economists, the market, etc… – will start perking up as though its all over.
Then the crisis will steam roll them once again, and eventually the horrible truth will be beaten into their souls.
–
Steve
Hey Steve,
That does make sense. Bad assumptions and definations lead to faulty logic. Thanks for your response!
Dave
I’ve been mulling this one over for a while, and admit that I still have a ton to learn, but this makes a ton of sense. Thanks for posting that!
And here is where I get a little confused… How does the Euro / dollar swap market differ from the Forex markets or are they the same thing?
-T
"The Federal Reserve will double its auctions of cash to banks to as much as $900 billion."
And gold be up 2% this morning.
Coincidence? I reckon not!
Death to Bretton Woods II!
Welcome to Bubble III, my fellow Weimericans.