Tuesday, March 23, 2010

The Bernanke Helicopter Drop is Leading to Another Credit Bubble

The Fed is enabling free credit to consumers now.  I just got off the phone with someone who said that lately they've been inundated with 0% credit card offers - 0% for 12 months and 0% on balance transfers.  Of course, this is sheer insanity.  It would appear that the Fed/Obama are trying to stimulate another big wave of shopping mall/big box retail consumption. 

Lest you forget, credit card debt is unsecured, backed only by the full faith and credit of the consumer.  Also don't forget that a large portion of the big bank bailout was related to monetizing credit card defaults.

This is the ultimate result of the complete moral hazard imbued in our system now.  The Fed/Bernanke/Big Banks know that Geithner/Treasury will compensate them for any losses from default.  So they can lend away for free, make lots of money on hidden fees, late fees, over-limit fees, etc and face ZERO downside.

This will not end well for our system and especially not well for the Taxpayer.

13 comments:

  1. This is somewhat OT, somewhat, mind you, since this is a gold site, but you might want to take a look at the (none too bullish) chart of FCX and ponder the implications.

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  2. Nothing is OT LOL. Just looked at a 1 yr/2 yr FCX chart with a macd and rsi (standard settings). Looks somewhat similar to most large cap gold stocks and also the SPX. You can make a case that it is bearish, but I think the Fed is going to float the market higher on a flood of liquidity. You see Yellen's speech today? She wants to take interest rates negative if she can LOL.

    What were your thoughts?

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  3. I am awaiting the double dip and then the panic button will be hit and liquidity will be everywhere. We should have a better sens at that point what is coming.

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  4. But But But, Prechter said the US Peso is going back to 120....

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  5. LOL. Hey Joe! You gonna mention The Golden Truth tomorrow? I heard my blog makes Becky slide around her leather seat...

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  6. Hey gyc, the liquidity is being manufactured in ways that are not showing up in MZM/M2. I have a feeling the Fed is giving 0% money to the big banks, using the massive $2 trillion in excess reserves as collateral. They are using other secretive, please-don't-audit-us tricks as well.

    Gold is actually behaving very well in light of the massive sell attacks iniated ever since that discount rate hike a few weeks ago.

    By the way, anyone wonder where that IMF 190 tonnes for sale went? Have not heard one peep about it in a few weeks.

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  7. haha it is a distraction story, public gold sales are never the real story.

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  8. Agree Mike.

    GYC - you a front for the Chinese Govt? LOL

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  9. A front? No, its all buried out back.

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  10. That would explain the sudden reappearance of credit card offers in the mailbox. I thought that stuff was part of the past.

    Silly me!

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  11. You too, huh? You're the third person who's alluded to that.

    It's a function of complete moral hazard. The Fed/Big banks know that the Treasury will back-stop them on any losses from default. So why not make the loans?

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  12. Just added OldSouth to my blogroll, by the way.

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