Gene Inger Reviews The ‘State of the Union’

Posted By on January 26, 2010

Gene Inger’s Daily Briefing . . . for Wednesday January 27, 2010: Good evening;

The ‘State of the Union’ . . .has marginally stabilized. As Government is compelled to grow the economy by letting the economy get bigger (instead of believing old ideas that simple low rates with low availability or even lower demand for money will suffice while taxation is increased); there are lots of ideas circulating. The most prevalent is the idea that would have been worse without the TARP and other interventions. Sure, there was systemic stabilization as we projected there would be. However, had funds not been misdirected to supporting depreciating assets (as that and any forthcoming product, car, or housing aid would at this point still be); matters could be a lot better a lot sooner. And that’s the point of what happens when you don’t help small business initiatives, and wait until a Senate seat’s vote forces the Administrations hand to now address what the majority of the American people have thought all along.

 

Hence it wouldn’t surprise me if new initiatives (aside freezing discretionary spending, which means little since interest on the debt, Medicare, Medicaid, Defense, and sure, Social Security, consume the brunt of the budget, and none of that is discretionary) at the State of the Union are proposed; but again this could have come much sooner.

As to the comments the other night about AIG or the lack of New York Fed disclosure about what was going on, the general debate thinks that ‘National Security’ was cited as essentially a veil to prevent transparency, when there may be actually something it has come to my attention, a bit more substantial to account for the incredible secrecy. That something is a comment (not in the press, internet or elsewhere but a private as well as often-informed source) inferring that the CIA may have used AIG to provide at least a cover for the transfer of covert funds for various overseas efforts for years. If it is so; then that would actually be a valid reason for the 10-year redaction of schedule sheets being fully released as per our prior discussion. In Paulson’s new book he has stated that he was ‘not involved’. While cynical about anything he says, if the CIA and not the Fed, or Treasury, was behind the redaction insisted on through the SEC, it is at least feasible that his statement would be technically correct. Technically because it’s likely the Fed or Treasury knew, but weren’t involved in the referenced decisions.

Aside all this; the market is less worried about a Fed ‘exit strategy’, and more about a universe of shrinking markets for MBS (Mortgage Backed Securities); a trend that will not shift for some time with respect to consumers having been panicked sufficiently in fact by Government, into saving; plus the relative irrelevance of saving plans that the Government is proposing. Frankly what looks like a switch by Government plays well to what is probably mostly realization that they have to ‘cool it’ as borrowing ability as well as lenders desires to fund, is also entering a chill mode. So suddenly the fiscal conservatism by this Administration finds it politically convenient, when it’s probably an essential in any event. Further there is simply no ability for consumer credit growth this year, irrespective of consumer confidence being slightly better.

More at www.ingerletter.com

 

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