The Market Ticker

No, not "Depression."

Deflation.

The name that must not be spoken, according to Ben Bernanke.

Is it inevitable?

Hmmmm..... Steve Liesman on CNBS was all but screaming for (another) 50 bips cut today.

Why?

The credit markets have all-but-locked up. And like a crack addict sniffing the carpet looking for the piece he dropped, the market is screaming for the drug it knows.

Will it matter?

No.

Should you expect that CNBS would ever explain how The Fed Funds Rate actually works? To explain that money is a commodity like any other, and that its cost is strictly defined by supply and demand? To explain that when you borrow $10,000 @ 6% interest, that clear logic (not to mention mathematics) says you must have $10,600 worth of money in the system - a $600 increase - a year for now - or there is no alternative but for you to default on the loan? That a quick stint with a financial calculator - or Quicken - will show that when the "borrowing" $100,000 to buy a house at 6% the money supply must rise to $216,000 over the next 30 years - more than double - for it to be possible for you to make the payments? Naw.

Being honest would mean taking the "BS" out of "CNBS", and actually reporting instead of pumping, and that's not allowed. It would require that people understand that the credit cycle is a natural part of fractional banking, and that it is absolutely impossible for the money supply to grow at the required rate forever without "resets".

The fix is to detox, which means forcing all the crap out in the open, pulling all "SIV" (or is that HIV?) "assets" back onto the balance sheet, and forcing all derivative and complex security contracts to trade on a public exchange with a published bid/ask, and then leave the business cycle alone so we get smaller "resets" instead of really huge ones when everything goes to hell all at once!

Do I expect we'll see that any time soon?

Oh, in 2010 or so, after the full impact of this debacle becomes apparent and the usual "after the fact" outrage comes to the fore in Congress, we'll likely get transparency.

And more meddling to try to void the business cycle.

Well, I guess one out of two is better than nothing, right?

Never mind that this is the same Congress who has taken in millions of dollars in campaign contributions from the same idiots on Wall Street who have been pulling all this crap - and put us in this box - in the first place.

Never mind that after Enron blew up there was wide agreement that off-balance-sheet vehicles were, in the general case, inappropriate. This of course is why every financial out there has been setting them up and going for maximum opacity, rather than maximum transparency.

Recessions are not evil things folks. Neither is the business cycle. Neither will be denied. Attempting to play games and prevent them from taking their natural course leads to very, very bad outcomes.

Recessions and the business cycle clean out the weak businesses. Those who are over-leveraged. Those who do not have a solid product or service at a fair price. Those who are taking advantage of distortions in the marketplace.

We may find that The Fed's "dual mandate" - including "sustainable employment" - is in fact foolish and wrong. That The Fed's only mandate should be to control inflation, and let the business cycle fall where it may.

Of course that is anathema to politicians who believe that there should be a chicken in every pot, a car in every driveway, and a house on everyone's "ownership" list - even if the reality of the situation is that nobody really owns either the house or car due to the crushing load of debt they are carrying on their shoulders that threatens to blow every disc in their spine.

Consequences of all this meddling?

Many and severe.

Maybe disastrous this time around.

Notice that The Fed keeps talking about being very, very concerned about "consumer softness"; that is, a contraction of credit usage.

Why? Well, go back and read yesterday's Ticker. Read it a few times if you need to.

"The Monster" - the debt service monster - is nipping at the heels of The Consumer, and is about to eat him! If the credit monster isn't fed, he devours the principal.

To feed him credit must continue to expand at a higher and higher rate, because he keeps getting bigger and bigger.

Never mind that there is a real tug-of-war in evidence through this entire mess. Congress, for example, is now after the Credit Card companies for raising interest rates not because you defaulted, but because your credit score declined, not to mention all the screaming about the "poor subprime borrowers."

Is this a bad thing or a good thing? Hmmmm... if the card industry is not allowed to raise rates, they will simply cap limits. If you can't make loans at rediculous rates and fees, with less-than-worthy borrowers you simply won't loan at all.

When the credit monster gets starved for dollars he chooses to eat you instead of interest payments!

This is what happens, ultimately, when you refuse to take your recessions and business cycles in the ordinary course of life. When you try to "machine" your way out of it. When you lie, cheat and steal.

Refusing to feed the monster means deflation - the "D" word that must not be spoken by central bankers.... for when he runs out of money (interest payments) he instead eats the principal (via defaults) and the system resets.

Never mind that Charles Ponzi set "the standard" for such "growth industries" many years ago, and we know how that one turned out.

Oh, ICSC came in -2.0%. Grinchmas? Some commentators brushed it off saying "oh no big deal." Yeah, ok. When you have projections of holiday sales that are allegedly going to run more than 8% above last year, a print like this can't be viewed as a positive thing.

Here's your technical!