Friday, September 25, 2009

Secret: No More Money Market Fund Protection - The Illusion Continues

This is just a quick note on the state of the market and the economy right now. I am very bothered by the false spin that has been coming out of almost every media outlet and the government ever since this spring. The absence of reasonable economic analysis is almost complete.

The government and the media are currently putting ordinary people at risk by not telling them that certain guarantee programs are ending. As of last week, September 18, the Treasury Department’s ” Temporary Guarantee Program for Money Market Funds” HAS ENDED.

Click to view: (note that this only says that the program will end on September 18, there is no announcement that it has actually ended, which it has)

They obviously don’t want anyone to know this, because they don’t want anyone to withdraw money from these funds. If you remember, this program was started last autumn, because the withdrawals that were seen during the most chaotic days could have absolutely destroyed the stock market. The program was initiated not out of concern for ordinary people who had money in these funds, but as a way to support stock prices. The consideration is the same today.

I have not seen a single media entry, except one mention on the CNBC website, telling this story. The problem with these funds is that people see them as savings accounts. In fact, a lot of the money is invested in stocks, and although the fund will not swing like stocks, there is a much higher risk of losing all your money. There is no FDIC protection. A lot of people in Britain and The Netherlands lost money in this way last year.

There are a few people who seem to be keeping an eye on things though. The government is about to hit its debt ceiling of 12 Trillion Dollars soon, and the word is that Geithner is about to ask for it to be raised. In other words, the government has spent so much money bailing out anything and everything, that the $700 Billion last year is now like a spit in the bucket. The question will soon become: who will bail out the government? The situation is really serious now. Please take a look at CNBC's Heidi Moore's article on that:

The absolute surge in stocks over the summer was not something that I foresaw. I am flabbergasted at it. Then it came to me; this is the same pattern as during the depression. Here’s what happened back then:

- 1929: crash

- Early 1930: stock market up by 50%

- Late 1930: stock market down 50%

A lot of things are different now, but I wouldn’t be surprised if the same thing happens within 4-5 months. By this I mean, of course, that the crash and the 50% surge has already happened, and we're just waiting for the 50% drop. After that, all the terrible mistakes that the Treasury, the Fed and Congress have made will become very apparent. They have essentially done everything wrong in the handling of this crisis.

This is my basis for this accusation: this crisis has been dealt with as if it were a smaller, cyclical crisis, but the medicine has been administered on a massive scale. I believe that this is a structural crisis, and that none of the cyclical theories apply. Now we will only get debasement of currency, more unemployment, and a downward-spiraling trend.

Moreover, I advise that the winner-takes-all voting system should be destroyed.


Anonymous said...

Assuming most Americans have very little savings to speak of anyway, is this lack of protection really going to hurt them that much?

Anonymous said...

Why do you think we will get higher unemployment?

Also, since the fund has run out of money, what's to stop Bernanke from just printing some more? that seems to be his only solution lately.

Jacob said...

The lack of protection could first and foremost affect the confidence in money market funds. These funds hold a lot of money, and if a lot of people were to withdraw money from them, it would seriously negatively affect the financial system.

A large-scale loss of savings would be very detrimental to the economy in general. Even if people don't have that much cash, losing your savings makes a big psychological and sociological difference.

Unemployment tends to become a vicious cycle: fewer jobs, less spending, shrinking production, even fewer jobs.

I hear today that the FDIC has basically run out of money. The political spin on this story was just unbelievable. Some serious commentators were actually trying to make this into a positive thing, saying that the fact that banks now have to prepay insurance premiums is a good thing, because they can get tax benefits from that down the road (through less income). Sure, sounds great... The issue is the safety of bank deposits in the whole country, and they're spinning a story on minor accounting details (there are, by the way, a hundred other ways to do the same thing, which companies do every day).

Yep, printing money is the only thing they can do, unless they want to go down the route of countries that have previously gotten into the Keynesian bailout mess: devalue the currency.

Sweden did this in the 70s and 80s, after having supported doomed industries artificially. That policy led to not only the eventual failure of those industries, but also poor government finances, and set the stage for a severe economic crisis.

A devaluation of the dollar was actually suggested by Wilbur Ross on CNBC's Squawk Box this morning. I never thought I'd see the day...

SuperStarSteve said...

Jacob, Thanks for leaving a link to your blog in a comment you left in the New York Times. Your common sense outlook is refreshing in a time when an empty headed public is more than happy (or so it seems) with the corporate junk news which makes minds of most Americans fat and lazy. I also have a blog called "I give up, no I don't" @ "

I stopped blogging in Jan. I was more or less hearing my talking points in the mainstream media and something told me, that some mainstream "journalists" were perhaps reading my blogs, stealing my talking points and then making them their own. So I stopped. I did as you did and would link my blog site into my comments to the NYTimes and quite literally I would see quotes and ideas almost directly from my own blog! Maybe it was a coincidence, maybe it wasn't. I don't know. I'm not being paid to speak my mind. But you have inspired me to start blogging again. Your ideas are radical considering the spin and corporate entities that sell the news instead of tell the news. Our country is force fed a diet of what has become a corporate style of running the nation. Some of the rationale defies the most simplistic ways of thinking. It baffles me that most buy what has become the "American Way".

Bert Dohmen is an financial analyst that I got wind of via my work. He's been talking about the devaluation of the dollar and the rise of gold for some time now. Gold has pulled back somewhat from recent record highs. It's amazing that the FDIC can be running out of cash, the IMF releases 403 TONS of gold

with only passing recognition from the press and public. Obviously they were keeping the price of gold in check. Once again meddling with the market and pricing will only postpone the inevitable. Propping up the dollar is an exercise of futility. Two wars, banking crisis, bailouts...printing dollars is not the answer, conversely it will result in unfavorable conditions in our economy. Let's not even get into the millions that will be poured into extending unemployment for MILLIONS by the end of the year. Combined with falling tax revenues of every variance, we will only see deterioration after December...and beyond into 2011.

Keep up the good work. Your ideas are excellent and thought provoking.

Jacob said...

Steve, thanks a lot for your support. I'm glad I can inspire people to keep writing about these things. It has to be done, because what I have seen happen to America in the last year has been truly frightening on many levels.

I don't know which is greatest in American media, the ignorance or the self-imposed censorship.

I think it's actually quite easy to see where all this is headed, it's only a matter of how long the spin can be kept up.