Thursday, December 18, 2008

Blowing Bubbles

It seems to me that unless our political and economic leaders come to grips with this financial crisis we are never going to find a way out of it. Looking back the Federal Reserve has employed one bubble after another to void the effects of the previous "irrational exuberance" to coin a phrase. The tech bubble gave way to the housing bubble which is now giving way to a TARP bubble that is being sustained by a bond bubble. And the root causes of our problems are not being addressed. That root problem is a total lack of confidence in anyting monetary.
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The problem is that if someone grabs the nettle and tries to figure out a proper clean up policy there is a really good chance the whole economy will implode with unforeseeable results. or possibly with all too foreseeable results- mass penury, disillusionment and "social unrest." In order to avoid pissing off the entire population all at once our dear leaders are most likely making the end result worse even than it has to be by multiplying the disastrous economic decisions.
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Credit remains tight because the infamous Credit Default swaps and Mortgage Backed Securities still haven't been sorted out so banks are holding on to their government supplied funds in a desperate effort to have cash in hand should any of these musical chair obligations fall into their laps. Basically speaking the banks have no idea what their real liabilities are, or might be, and they have no idea what their neighbor's might be either so lending money is a fool's game. So no matter how much "liquidity"the Fed pours into the banks, all they do with the money is award themselves some bonuses and sit in the rest waiting for the meltdown.
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The problem now is the bonds that the government is issuing at zero percent. The idea is that freaked out investors with money to stash are willing to dump their money with the US government and get no interest in return for the favor. It is a sign of the total lack of confidence in anything that moves that people with money are happy to let it sit in the bonds and earn nothing. Nothing at all. At least they figure, they'll preserve their capital. Which means forget stocks, forget loans, forget credit forget normal economic functions. We are in ZIRP Land, where the zero interest return plan offers us the prospect of nothing at all.
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Which puts the economy in a pickle. If the way to get things moving is to let things crash and burn and no one in charge has the nerve to do that then we are going to be stuck limping along with no money, no credit no confidence and no hope. Until things get so bad someone tries something in desperation.The Japanese got stuck in that hole during the 1990s and they didn't much like it. Then they worked their way out of it by laying people off, and generally being industrial hard asses. Then just as they thought they were clear the sub prime mortgage backed crisis hit and swept them back into deflation hell. And now for lack of nerve it seems we are destined to swirl down the same plug hole. This could be a very long drawn out drag.

Nassau Lane

Walking east on Fleming past the library there seem to be dozens of little lanes heading off into the wilderness of Key West's green gardens. Nassau Lane is well marked and obvious, and trafficked too:It's that time of year when parcels make their journeys across country. As much as key West wants sometimes to be an offshore island we do enjoy having access to all those fripperies delivered to one's door. I nearly bought a house here with my wife when we were looking back in 2004.I'm exaggerating a bit. This place didn't look nearly so nice back then but he had asked to see the least expensive listing to start our search. This place came in at $175,000, a few hundred square feet with an outside balcony upstairs and a sleeping "alcove" off the main living room. It reminded my wife of her student digs in San Francisco's mission district when she was studying law, concave floors and all. We readjusted our sights a little higher. The lane is pretty though: The usual mixture of well to do restored and massive:And the unrestored funky and original, which gives Key West it's old town flavor:A bit of early spring cleaning underway perhaps or someone moving in or moving out. Homes tend to be small in Key West so when it's time to rearrange the furniture for whatever reason it generally has to go out in the road in front of God and Everybody, as there aren't massive suburban garages around here to hide one's stuff:The resident cat looking imperious as usual:And look here what do we have. Why I do believe its the beginnings of a lawn. It may not look like much but it caught my eye:I don't miss snow or frost or seasons or any of that kind of stuff. But a nice sun warmed lawn is a fine thing to be able to lay down on and look up at the clouds floating by. I do miss a nice piece of lawn from time to time. Nassau Lane at Christmas, which you would only know thanks to the garlanded house at the corner:I wonder if I would still like Key West had we wedged ourselves, mortgage free, into that tiny little shoe box on Nassau Lane?