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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 02/14/2008 : 18:03:11
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Depression risk might force U.S. to buy assets
Tue Feb 12, 2008 4:19pm EST
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NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.
That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.
In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.
"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.
"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.
Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.
While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.
The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said. Continued...
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Think positive. |
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Nickelless
Administrator
USA
5580 Posts |
Posted - 02/29/2008 : 19:58:25
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| OK, help me figure this out: If the law changes to allow the U.S. government to buy stocks, but the businesses they invest in pull an Enron or something like that, or other factors such as terror attacks cause stocks to plunge, then both the federal government and the companies they are buying securities in will be passengers on the Titanic. How much of a risk would the government take in the securities market for the sake of trying to keep the economy running smoothly? Is this a matter of more money being pumped into the stock market per se--companies don't benefit directly from investment dollars after an IPO, do they?--which would do nothing than put more fiat money into the system, which hardly seems productive, or would it be better for the government to buy (or buy back) hard assets from real estate to PMs to whatever else could help it gain real leverage, not just useless PRNs? |
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misteroman
Administrator
USA
2565 Posts |
Posted - 02/29/2008 : 23:05:11
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| Gov't probably wouldn't let them fail,or at least not until they got their money back and hell with the other investors |
Buying CU cents!!!! Paying 1.2 unlimited amounts wanted. Can pick up if near Ohio area. |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 03/01/2008 : 14:52:35
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| If I were in stocks and the goverment came to the rescue I would be out of them for sure that same day. |
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Think positive. |
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Depression risk might force U.S. to buy assets
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