Demand Stimulation is Destined to Fail

The environment in capital markets seems to have changed for the foreseeable future. It is being driven by borrowing, all world nations are following the same recipe for disaster more debt.  There is a great sucking sound as bankrupt economy’s suck up other nations dollars to stave off disaster.  This is a Madoff-Esque-Ponsi scheme of immense proportion.  Except his scheme was well thought out!  Trying to stimulate economies through demand by government driven programs mandates a directon for consumer demand.   Economic stimulation through demand can only come from the capitalistic driven private sector that anticipates consumer needs and survives on its ability to supply those needs first and best.

The Depression on 2009 is upon us and Geithner is arranging the chairs on the US Titanic a major iceberg of debt is about to pierce the hull, until Government gets out of the way and allows markets to operate independent of G-7 communist control.

Geithner Reassures G-7 on Bank Plan, Is Urged to Act (Update1)

Feb. 14 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner reassured Group of Seven counterparts about his plan to rescue the U.S. financial system and was urged to press ahead with the effort to clean up toxic assets and revive lending.

“It is a comprehensive plan, the intent is there, the will is there,” said Bank of Canada Governor Mark Carney. “The question is implementation and execution.”

Geithner came under fire from U.S. lawmakers and investors this week for failing to provide details on how he plans to shore up banks clobbered by $756 billion in credit losses. The S&P 500 Index dropped 4.9 percent, the most since Jan. 20, to 827.16 on the day of his announcement. Stocks fell over the week by the most since November.

Finance ministers and central bankers from the Group of Seven were looking to Geithner to provide specifics on his $2 trillion plan to tackle the financial crisis that started in the U.S. 18 months ago and has since spread across the globe. The G- 7 predicted a “severe” economic slump that will persist for most of 2009.

Reports yesterday showed Germany‘s economy, Europe’s largest, contracted the most in 22 years in the fourth quarter and U.S. consumer confidence neared its lowest since 1981. Policy makers are seeking a coordinated approach to stanching the economic damage that’s prompting companies including Caterpillar Inc., Nissan Motor Co. and Alcatel-Lucent to cut jobs.

Clear Answers

Geithner answered questions from G-7 officials “very clearly,” Finance Minister Christine Lagarde told reporters in Rome today. “On paper it looks great,” said Lagarde. “The essential thing is now to implement it.”

Bank of Italy Governor Mario Draghi was the most critical, saying the U.S. is “lagging in the implementation of the package.”

More details on a public-private partnership to buy banks’ illiquid assets will be delivered in coming weeks, a U.S. official said in Rome on condition he not be named.

Geithner’s plan to tackle the U.S. credit crisis also includes additional injections of capital into financial institutions and as much as $1 trillion to promote new lending to consumers and businesses.

President Barack Obama will next week provide a “high level of detail” on how he will help the housing market using $50 billion to $100 billion of the toxic-asset fund, the official said. Lawrence Summers, Obama’s top economic adviser, said yesterday that the administration intends to focus its efforts on reducing monthly payments for homeowners struggling with their mortgages.

Falling House Prices

Geithner’s rescue plan was met with disappointment by investors in the U.S. who said it failed to specify whether banks saddled with illiquid debt will be forced to fail, how tainted assets will be removed from their balance sheets and what will be done to stop falling house prices.

Geithner, 47, arrived in Italy yesterday urging his colleagues to take “extensive” steps to kick-start their economies. After the meeting he said there is now “a much greater scale of urgency and commitment” about taking on the crisis.

“Given the severity of the current economic and financial environment, these actions must be forceful and sustained for a period that matches the likely duration of the crisis,” he said.

The U.S. Treasury chief also tempered his criticism of China after last month accusing Chinese officials of “manipulating” their exchange rate. Today he said he welcomes “their commitment” to making the yuan more flexible.

Working Closely

“The United States is very much committed to working closely and cooperatively with China as we move together to address this global economic crisis,” he said.

He also sought to ease concerns that the U.S. is resorting to protectionism by promising that a “Buy American” clause in Obama’s $787 billion economic stimulus program, approved by Congress yesterday, will comply with the U.S.’s commitments to the World Trade Organization.

Geithner is familiar with the G-7 talks, having attended them as Treasury undersecretary for international affairs in the Clinton administration. As President of the Federal Reserve Bank of New York until moving to the Treasury he also worked closely with many of the central bankers present in Rome.

“Tim is very knowledgable,” said European Central Bank President Jean-Claude Trichet. “He knows what he’s speaking about, he has a very easy way of expressing his views.”

Geithner was “a heavyweight at the table,” German Finance Minister Peer Steinbrueck said.