This is an ingenious idea!  Thanks to Tyler Cowen at Marginal Revolution for starting a book club via his blog.  I intend on following his ideas, as well as come up with my own, while reading The General Theory of Employment, Interest, and Money (Great Minds Series).  

I got some more books in my back pocket, so-to-speak.  But if you have any suggestions, feel free.  I plan on adding this book blogging club aspect to here, on top of normal posts.  Because, seriously, this is a fantastic idea!

~house of cards ~ radiohead ~

I spend a lot of time watching the news, both at work and at home.  We all know what’s going on with our economy, how the fed and treasury are trying to help the financial system out, trying to help consumers out.  And then we see retailers increasing discounts during this time of looming depression to lure customers into relaxing their white knuckles on their cash.

But how has this economy really affected consumers?

Here’s how I see it so far – the banking system has crashed and is evolving into something never seen before.  The financial system is wiping out.  No longer do 150 year old companies exist.  More and more the sector is becoming an oligarchy.

And the news is reporting that it’s all about the credit markets.  Yes – well, it’s what caused it.  But it’s the banks’ problem.  I don’t really see it affecting consumers.  Their reaction to save more may be because of a perceived personal credit crunch.  But how many have you actually experienced a bank withdrawing your credit line on your card? 

I realize two separate points that go against this argument: 1) people are being denied new credit and loans, which cultivate growth in our economy and 2) people are losing jobs.

But for those not employed by the financial sector (about 94% I believe) – there’s still income.  Propensity to save is due to the fact that we see 6% of the job force is losing their jobs.  That we see foreclosures increasing.  That we hear banks not lending anymore.

Maybe I’m not making my point clear – consumers have money.  They have income.  They may not be able to move into a home – but they can still spend.  We still have credit, just not new credit.

Am I insane? I just saw someone on CNN saying they are choosing to use cash over their credit card.  But that means they have the ability to use credit.  I just think that the propensity to save and to spend shouldn’t be affected if you have a job.  You just can’t buy a house right now.

This point is not very refined – I just had to get it out there.

i’m trying out new backgrounds.  how’s this one?

Has anyone else noticed the relationship between the decline in the stock market, and the ceasing of short selling stocks? Granted, it was lifted in October, but the damage only started.

When you short sell a stock, you borrow someone else’s shares to sell, only to buy it back at a lower price to return those shares (called ‘covering’).  If a stock is experiencing a lot of short selling, it’s an indication to the market that the stock is overvalued, that something is not right, or anticipation of bad news going to be released.  But what isn’t realized is the timing of the covering of the short sell is significant.  Covering your position is still a purchase.  It comes at a time when the stock is viewed as underpriced, too cheap, and about to increase in value.

Shorting is the other half of the market.  Think about it – when stocks are in demand, the price goes up.  People stop buying, or sell their shares, and the stock goes down.  Shorting balances it out.  In theory, there’s always a buyer for a seller (*cough* when the price is right).  There’s always a short for a long position. 

Now going a step further – if there’s only long positions, people will sell high and walk away, only to drive the stock down.  And down, and down!  If shorting is banned, there can’t be that other half of trading, and the spiral continues.

Hmm…now where’s that up tick rule…

I can’t resist trading free money  

Current positions:
shorting the GBP against USD
long on both USD & GBP against JPY
^up $1500 for the day ^

Soon to-be-settled holdings (stupid program is slow!):
AAPL
CSCO
AEO
GS
TIVO
BEBE

Also looking into health care and pharma companies for this time in the economy.

Traffic is picking up – I should write more!  Anyone got ideas?

My current thought is (and it seems to be popular with the econ blogs out there…I had this idea two weeks ago!) – Keynesian versus Monetarism, their schools of thought argued against each other, especially pertaining to today.  This will take some research though, so it will take a while.

Any other banking/monetary policy ideas out there?

I figured I would help out the freako blog   I believe I’m comment #24

http://freakonomics.blogs.nytimes.com/2008/11/26/a-question-for-the-finance-types/

http://www.cnbc.com/id/27906891

Hmm intuition? ESP?

For the econ geeks out there – you know that the fed can do more than adjust short term rates with the FOMC.  And, with many previous discussions before, they’ve enacted a new tool – interest on reserves.

But in an article on the WSJ over the weekend, another tool was discovered, and I should have thought of – long term rate manipulation.  hmm, go figure.  Well since treasury now owns freddie & fannie, that seems logical to be able to do.  Purchase long term freddie/fannie bonds to manipulate long term rates.

Let’s think about that – yes that would normalize the yield curve a bit.  Yes that would increase liquidity on the market.  But would it really help?  In pushing the long term rates down – the fed’s goal ultimately would be to lower mortgage rates for the consumer.  Supply-side economics to stimulate demand.  I can see how that would work, but would it really work?  

Tell me, who wants to lend right now?  The best borrowers are still continuing to be lined up next to low grade borrowers.  The banks are hoarding cash due to increase loan losses.  More liquidity would just be more cash to hoard.  A good point was brought up to me – if a bank can buy high grade commercial paper yielding 7%+, why lend at 6%?  Residential and commercial loans have become an unwanted asset.  The banking model is developing – no longer is it borrow short to lend long.  It’s borrow short to lend even shorter.  It’s asking the question ‘how much can we ring out for our NIM’ rather than ‘how can we fund this ninja loan.’

Hmm perhaps the government should buy more commercial paper to loosen up that market.  Perhaps we should just let capitalism hobble along without the government’s crutches.  Let live and let go.