I have been enjoying the financial fireworks lately. Of course the best part has been the "calming" effect injections of liquidity have had on the markets. I was wondering how many people have thought about the effective meaning behind the central bank's activities. I will give the short version of my interpretation:

Worthless money (credit) created with a couple of keystrokes on a computer has been loaned to purchase nearly worthless assets (MBS) which have the added risk of being non self-liquidating.

According to our fractional reserve system this injected credit can now be expanded tenfold.

This worthless money must be paid back with real dollars in circulation at interest. Unfortunately it appears that "everyone else" can't go to their computer and type in a few numbers and transmit it to the bank.

Finally, this "new" money has devalued every dollar already in existence which reduces purchasing power. We've just been taxed without any representation whatsoever (rumor has it that malevolent tea parties and even a revolution got started this way).

With the bulk of resets yet to come it will be interesting to see how the Fed dances with the two devils of hyperinflation and deflation.

I agree w/ Mother of all Bail-Outs. These pigs want "govt out of our lives" when us little folk just want laws enforced, or object to the erosion of laws by corporate American sleaze ball lobbying. But when the corporate sleaze balls get themselves into a jam they cry louder for the nanny govt to come bail them out than anyone I ever heard. These crooks do not deserve to be bailed out, and some of them deserve to do jail time.

Talk about synchronicity. James Howard Kunstler, has a piece that complements perfectly the one I sent in. Except he thinks the Fed can’t do a massive bailout because of international ramifications. I don’t share his assessment. I think things have gotten so bald and so irrational, they may simply say, “damn the torpedoes” full speed ahead. This does raise an issue of both timing and amount of money however. Every time things get “hot”, will the Fed and associated parties simply try to distract people, massage them, pacify them, delude them, defraud them, or flood the market with money.

It looks like right now they are trying to do the minimum to avert a momentum-gaining panic. But remember the early assessments of the cost of the Iraq War. Wolfowitz said it would cost 50 billion and the oil produced by Iraq would pay for it. Well ten times that later, and oil supplies being sabotaged, where is the consequence? I suspect they may try the same strategy here, 50 –100 billion dollars here and there, mixed in with a lot of disinformation and misinformation and cover-up, that adds up to trillions over the next 5 to 10 years.

They’ll arrange extortion schemes with other countries, threatening China, in particular, with causing a Depression here which would turn off the trade surplus. Yes this will cause hyperinflation, and damage the economy, and perhaps lead to a sell-off of U.S. Treasuries, etc. but it will save the financiers and that is what it is intended to do. Anything that actually produces "real" things including publicly-held companies will suffer, so I think the stock market is in for a hit any way you look at it, but it may be more drawn out as the phony wealth schemes are subsidized by cash infusions and lowered interest rates.