Quote Originally Posted by EJ View Post

Good point. Indeed if the endogenous credit machine cannot be restarted, there are a nearly infinite number of moves the US government can make.
The government can't make borrowers borrow and lenders lend. The end point of the cycle (deflationary depression) historically has occurred when both parties have been stretched to the max. With the savings rate negative, debt seen as evil (psychological shift) and banks left with a capital gap, we believe we have arrived. Even if the 'Working' Group bailed out the banks 100%, Asians would dump their bonds (long term rates much higher). But the private sector/tightening forces would up the ante with Americans defaulting/walking away from their houses in surprising numbers. Sure the bailouts will continue to come, we just don't think they will work.
The private sector/tightening forces have the upper hand.

Quote Originally Posted by EJ View Post
Our biggest error in 1999 was the one you are making, under-estimating the will and capabilities of the Fed, Treasury, and Congress. Even after that error I'd have not put a dollar bet on the Treasury backing GSE shareholders on top of creditors, but here we are.
This isn't 1999. And it is still undetermined whether we are making an error or not. The Fed/Treasury/Congress/Illuminati does not control long term interest rates. If you look around the globe, it was a global credit boom fueled by the credit creation and low long term interest rates.

As Dr. Marc Faber recently stated 'the global boom will go bust':
"A deflationary stabilization crisis will follow in phase four of our road to financial fiasco. Large segments of the population will be totally impoverished. Smart hedge fund managers will all have sold their businesses to banks and will have left the US to live in the Caribbean, Brazil, Singapore, or Thailand, while Ben Bernanke will flee the US in a hurry."


"If US consumption collapses, the US trade and current account deficit will be halved and will lead to a drying up of global liquidity. I have discussed this relationship many times in the past and have clearly shown the relationship between the growth rate in Foreign Official US Dollar Reserves and the US dollar. Declining US consumption will be positive for the US dollar and will certainly bring down commodity prices because of lower demand (at least temporarily). But if you really think that such an outcome will be good for stocks, then dream on!"