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Wednesday, September 12, 2007 12:57 PM


Global Savings Glut Exposed


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In a long winded article Bernanke is yapping once again about Global Imbalances and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Global Savings Glut. The article is complete with charts and 11 footnotes but mostly twisted logic as well as stunning statements like "There is no obvious reason why cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 desired saving rate in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 United States should have fallen precipitously over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 1996-2004 period."

Actually, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re is every reason for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 U.S. savings rate to have fallen: The Fed continuously held interest rates too low cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365reby creating a negative incentive for anyone to save. Eventually a near unanimous belief set in that asset prices were a one way street headed North and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 purchasing power of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 dollar a one way street headed South. So why save?

And after cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Greenspan Fed foolishly cut rates to 1% in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 wake of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 dotcom bust, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re was a mad dash out of cash, culminating with panic buying of houses. That panic in turn was followed by cash out refis to support consumption as people bit off more house than cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y could really afford. This is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 origin of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 much talked about negative savings rate. It is also one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 moral hazards of Bernanke's proposed inflation targeting scheme. For more on targeting, please see Inflation Targeting is Flawed.

Yes, it really is as simple as that.

Nowhere does Bernanke address those simple constructs. Instead his mind sits in long winded academic cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ory and models that do not even take into account real world constructs like global wage arbitrage, asset bubbles, overcapacity, U.S. deficit spending, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 War in Iraq (that has to be funded somehow, and if not by domestic taxes cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n by foreigners) or disincentives to save caused by interest rates held too low too long.

But cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re is now no way to pay back what has been borrowed as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re are no real savings. In Austrian Economist terms, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 pool of real funding is simply tapped out. And once psychology changed, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re was a mad scramble for cash with no bids for commercial paper as all cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 savings (and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n some) had already been lent out. The result is a credit crunch and a new dance craze called The Bernanke Shuffle.

Additional Reasons Banks Won't Lend

a) Banks fear not getting money back because of poor collateral and massive duration mismatches. (See Duration Mismatch Causing Severe Stress Everywhere).
b) Banks like Citigroup are reluctant to lend cash because cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y to fund cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir own off balance sheet investments now heavily underwater. Consider this a margin call on off balance sheet funding.
c) Citigroup (C) as well as JPMorgan Chase (JPM), Lehman (LEH), and Bear Stearns (BSC) are all stuck with LBO commitments that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 debt markets are now unwilling to fund, so those corporations are tight with cash.

Points b and c above were discussed in Swaptions and Financial Turmoil.

Emperor With No Clocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365s

The U.S. is clearly buying more than it can afford as well as gambling more than it has. Proof of that statement can be found in soaring foreclosures, perpetually rising consumer and government debt, and unfunded liabilities kept off cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 balance sheets. We are now (finally) starting to see cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 expected result: a credit crunch.

In essence cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 "Savings Glut" is nothing more than an optical illusion that confuses "savings" with "debt" while ignoring U.S. deficit spending, consumer credit binges, and trillions of dollars blown in Iraq, all in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 face of Fed policies that discourage saving every step of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 way.

No matter what Bernanke's model suggests, an unsupportable consumption binge in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 U.S. does not macá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365matically translate to a "glut of savings" elsewhere.

And given his inability to distinguish between "savings" and "debt" as well as his reliance on macá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365matical models and academia instead of real world practicality, Bernanke keeps reinforcing what we already knew: Bernanke is a Complete Fool.

Picture Bernanke as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 "emperor with no clocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365s" (Image thanks to Wikipedia) where his proposed "Savings Glut" is easily exposed as nothing more than a speculative credit binge now going bust. The construct is so simple that even a brilliant Ph.D can't figure it out.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

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