London Banker: "The market has failed, and officialdom is perpetuating that failure."

Nope the Fed is not "out of ammunition", not even close!

In fact to increase liquidity the Fed can issue more debt instruments, distribute more currency, sell its various reserves, and provide negative interest rates (no I do not mean negative yields).

Nor is the Fed the correct regulatory body to enact a so-called "curing".

Oops best nix my text in brackets, I did not have time to edit it, this lame-ass new A2K shuts down editing way too soon.

The feds are doing most things ass-backwards. They need to save jobs as priority one; not the banks and finance companies. Jobs is what keeps any economy running; it doesn't matter how rich the banks are. Without income, consumers cannot buy anything; and no money to put into those banks flush with money.

They get dumb and dumber with each new bailout.

However, I would have let the US auto companies go bankrupt; they never learn their lessons from past history; the management is incompetent.

In order to increase liquidity in the system the Fed must BUY debt instruments, not ISSUE them. Open market intervention, it's called.

Nope you are incorrect.

Issuing debt increases liquidity through devaluation of the currency.

A devalued currency is the equivalent (in the context as discussed) of lowered interest rates (short end not long end).

Lowered interest rates (short end not long end) is the equivalent (in the context as discussed) of increased liquidity.

Chumly, I agree with you in principle, but what we now have is the government printing money without anything to back it up. As in the past, they don't have bonds to back up those extra trillions their spending on "behalf of our economy." What I see is big time inflation; too much money in circulation for limited products and services. Somebody will have to pay the piker sooner or later.

The US Fed's purpose in life is not to act as interventionist for ailing domestic manufacturing sectors, however the banking / investment sector goes far beyond the domestic manufacturing sector and falls more directly under the auspices of the Fed

You beef lies more with the SEC (if you wish to aim blame). However your government has severely tied the hands of the SEC via "Soft Money" and lobbyists etc. So blame does not lie directly with the SEC either, but more with narrow political ambitions combined with greed and shortsightednesses.

In fact it's wholly unreasonable to expect human nature combined with open markets to act efficiently** at all times. let alone human nature combined with regulated markets.

Out of interest (pun) in Canada there is no Federal watchdog like the SEC for such concerns! So in Canada we are at greater risk as there are only Provincial watchdogs and they have considerably less power that your SEC.

If you do not understand what the efficient market hypothesis is all about read up:

In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information. The efficient-market hypothesis states that it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future.

The EMH was developed by Professor Eugene Fama at the University of Chicago Graduate School of Business as an academic concept of study through his published Ph.D. thesis in the early 1960s at the same school. It was widely accepted up until the 1990s, when behavioral finance economists, who were a fringe element, became mainstream.[1] Empirical analyses have consistently found problems with with the efficient markets hypothesis, the most consistent being that stocks with low price to earnings (and similarly, low price to cash-flow or book value) outperform other stocks.[2] These have been explained by cognitive biases, which lead investors to purchase overpriced growth stocks rather than value stocks.

http://en.wikipedia.org/wiki/Efficient_market_hypothesis

Chumly - write out your statements in equations, see if you can construct a system of simultaneous equations with a unique solution at time T, with delta t asymptotically tending to zero.

See also whether you've confused central banks with departments of the treasury.

EMH is not a working hypothesis for anything. There is no mathematical formula that can include all the variables necessary to make it a tool, because the world economy is always in flux. Economics is an art and will always remain an art form.

We have been off the gold standard for decades now, thus both US and Canadian currencies are based solely on "good Faith and credit".

In the most painfully simplistic terms, you can expect a consistent and perhaps accelerating reduction in currency valuations relative to an underlying basket of assets; yes even without the effects of inflation and yes even taking into account the deflation of commodity prices on a short term basis.

This is necessary* to excise the massive debt per capita in North America (and in the US in particular) a wholly out-of-whack balance of trade.

By the word "necessary" I go back to the efficient market hypothesis in its larger sense.

The math is dead simple: Buying debt instruments reduces supply!

LOL, Chumly - that's not the case if you're paying CASH for said debt instruments! You said you wanted to increase liquidity

No matter, you can read Solow's brief article on Fisher here:
http://cowles.econ.yale.edu/P/cp/p09b/p0956.pdf

I agree in general terms.

Your claim that "EMH is not a working hypothesis for anything" is false and the Efficient-market hypothesis is used as such.

Your claim that " There is no mathematical formula that can include all the variables necessary to make it a tool, because the world economy is always in flux." is tantamount to saying that nothing can be known because everything is in "flux", this is simply nonsense. Further the Efficient-market hypothesis makes no such overbearing claim as you try to attach to it.

Okay, show me a mathematical economic formula that holds true under all situations?

Nope, the issuance of debt increase the amount of " paper" thus more "paper" equal less value per unit of "paper".

I can agree with this hypothesis in general, but I'm not so sure what the real impact is to our economy or the worlds when the US and many countries in Europe are pumping money into the economy without its backing with bonds.

I understand the US alone has now guaranteed or pumped into our economy some eight trillion dollars plus. What the real impact will be for the short-term and long-term is still an unknown.

Please show me why your extreme criteria must be met in oder for there to be merit in the Efficient-market hypothesis.

In fact, if you have knowledge of the Uncertainty Principle (modern physics) you will see that such extreme criteria as you contend, need not be met in order for the Uncertainty Principle to have merit.

Interestingly even mathematical proofs are based on axioms!

That's only true if
1. no other classes of assets exist,
2. no international capital flows exist.

Your model is the equivalent of those mathematical beings that only exist in 2 dimensions - Flatland is where they live - being forced to give up one dimension, and leave them to forever wander on a Moebius strip. Cruelty!