Saturday, July 31, 2010

US Unemployment

Friday, July 30, 2010

Baby boomers - old age bust

The Retirement Nightmare: Half of Americans Have Less Than $2,000 Banked for Their Golden Years

With declining earnings and a culture of borrow-and-consume, America's workers face a future of uncertainty and little money to pay for their retirement. 
Comment: Strange things have happened to the American dream. First the American public was fed with pride and arrogance and then when even the common man deemed himself at top of the world, the great rip-off happened, the great expropriation took place. Rarely in history have so many so light-heartedly rendered their savings to the predators. 

Times have changed

America, There Is a Better Way: It’s Called Germany

What anemic America can learn from Europe’s export-happy engine and largest social democracy. 

Comment: Does anyone still remember what has been said only a few years ago? 

euro recovery

Three-months euro chart
Anyone remember the foolish talks by prominent currency experts and economists? I suffered back then. I suffered because sometimes it seemed I was the only one to insist that the euro would survive the attack. But more I suffered because I had to realize how many arrogantly stupid people are out there not only in high places, but also among academics, among investors, among writers and commentators. I also learnt that in order to stay prominent with the media you have to say what they want to hear. Well, I exaggerate. In fact, I knew all that already a long time ago.

Thursday, July 29, 2010

Panic at the Fed

"... Federal Reserve Bank of St. Louis President James Bullard said the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.
“‘The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released today about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.” ...
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Wednesday, July 28, 2010

How to save jobs and make the economy grow

The "baumeisters" at work.

Reductio ad absurdum

The U.S. response to the financial crisis probably prevented a depression, slowed a decline in gross domestic product and saved about 8.5 million jobs, economists Alan Blinder and Mark Zandi said.
Policies including the government fiscal stimulus, bailouts of financial companies, bank stress tests and the Federal Reserve’s purchase of mortgage-backed securities to lower interest rates “probably averted what could have been called Great Depression 2.0,” Blinder and Zandi said in a report dated yesterday. Without those measures, the U.S. would have deflation, they said.
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Comment: Well, probably, it is correct what Blinder and Zandi say. Yet what if when there hadn't been a depression anyway? Then the massive debt accumulation would have been a complete waste. And what if when the Great Depression II was only postponed?

Tuesday, July 27, 2010

$ 23.7 trillion and counting

July 20 (Bloomberg) -- U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.
The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.
“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.
Full text 

"There's no way out of here ...

... the thief he kindly spoke."
Bob Dylan

Friday, July 23, 2010

The great split

While debt stays, values fall.

Poor again

US household balance sheet
Read more

The Fed's balance sheet

Is the Fed's expanded balance sheet a problem or an opportunity? It has grown from approximately $860  billion in early 2007 to about $2.3 trillion today.
Read more

Too little inflation

Read article in The Economist

Purchasing power parity measured by Big Mac

Read article in The Economist why the euro is still overvalued according to the Big Mac index.
It is even more impressive to see that many countries maintain undervalued currencies to the US dollar at considerable margins.
Despite the recent revaluations, the Yuan is still 48 % undervalued against the dollar by this yardstick.

Wednesday, July 21, 2010

How to save your country

Gold Makes Dead Portuguese Dictator Top Investor

Former dictator Antonio de Oliveira Salazar might be remembered as Portugal’s best investor had central bank rules allowed the country to benefit from his shrewdest trade: Europe’s biggest gold pile.
Portugal owns more of the precious metal relative to the size of its economy than any euro country, accumulated mostly during Salazar’s 36 years in power using savings and money from exports including tungsten and canned fish. Gold’s 26 percent advance in the past year leaves Portugal holding an increasingly valuable asset, though one the indebted government can’t touch because the law prevents proceeds from going to state coffers...
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Comment: Remember: before Salazar became president, he was an economics professor of the old school. And I bet: he wouldn't have passed any test of those schools that let pass Bernanke & Co. with the highest grade.

The 21st century schizoid nation

... and the winner is:
Comment: no comment

No home, no job, no nothing

This is the end, the end my friend. (The Doors)

Monday, July 19, 2010

Fear turned into paranoia

These are some of the findings of a two-year investigation by The Washington Post that discovered what amounts to an alternative geography of the United States, a Top Secret America hidden from public view and lacking in thorough oversight. After nine years of unprecedented spending and growth, the result is that the system put in place to keep the United States safe is so massive that its effectiveness is impossible to determine.
The investigation's other findings include:
* Some 1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security and intelligence in about 10,000 locations across the United States.
* An estimated 854,000 people, nearly 1.5 times as many people as live in Washington, D.C., hold top-secret security clearances.
* In Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they occupy the equivalent of almost three Pentagons or 22 U.S. Capitol buildings - about 17 million square feet of space.
* Many security and intelligence agencies do the same work, creating redundancy and waste. For example, 51 federal organizations and military commands, operating in 15 U.S. cities, track the flow of money to and from terrorist networks.
* Analysts who make sense of documents and conversations obtained by foreign and domestic spying share their judgment by publishing 50,000 intelligence reports each year - a volume so large that many are routinely ignored.
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Comment: We're all madmen now.

Wednesday, July 14, 2010

As relevant today as six years ago

Dollar freefall = gold surge
Posted: January 16, 2004
By Kevin DeMeritt
--- "A fall in the dollar from its pedestal with no substitute to replace it would … support the theory that we may be entering a period of currency chaos and a global economic contraction," warned economist Antony Mueller. "In the final stages of the currency crisis, the dollar will most likely devalue not so much against the euro and the yen, but, instead, most of the currencies combined will devalue drastically against gold." --
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Remember the howling of the euro bears

Bloomberg reports: "... Rising share prices and foreign sales at Bayerische Motoren Werke AG and Siemens AG show why it may be worth keeping the single currency even as some voters balk at the cost of rescuing Greece and demand a return to the deutsche mark. As exporters benefit from the lower labor costs and currency stability fostered by the euro’s 1999 introduction, unemployment has dropped close to an 18-year low and the DAX Index is the 16- nation bloc’s best performing major benchmark this year.
That’s reinforcing Germany’s status as a pillar of euro stability rather than a weak link as European policy makers scramble to stop the region lurching back into recession. While academics including Martin Feldstein say the Greek crisis could splinter the euro and investor George Soros urges Germany to do more to ease economic tensions in the region, the currency is rebounding. The euro has gained 6.6 percent against the dollar since hitting a four-year low on June 7..."
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Comment: I recommend going back this blog to end of May and early June and read about the howling of the euro bears. At some moment I felt that I might be the only one in the world to believe in an euro rebound. But I did not worry too much. This has happened often to me. The best deals are made against the crowd when you have a strong conviction and hold on to it.

Tuesday, July 13, 2010

Sudden death

China downgrades West

Chinese rating agency strips Western nations of AAA status

China's leading credit rating agency has stripped America, Britain, Germany and France of their AAA ratings, accusing Anglo-Saxon competitors of ideological bias in favour of the West. 

Dagong Global Credit Rating Co used its first foray into sovereign debt to paint a revolutionary picture of creditworthiness around the world, giving much greater weight to "wealth creating capacity" and foreign reserves than Fitch, Standard & Poor's, or Moody's.
The US falls to AA, while Britain and France slither down to AA-. Belgium, Spain, Italy are ranked at A- along with Malaysia.Meanwhile, China rises to AA+ with Germany, the Netherlands and Canada, reflecting its €2.4 trillion (£2 trillion) reserves and a blistering growth rate of 8pc to 10pc a year.
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Comment: Slowely, steadily, mightly is growing China's clout.

Monday, July 12, 2010

2004 - and now 2010

16 Apr 2004
Antony Mueller: Too little inflation?
The US Federal Reserve Bank is worried about too little inflation. Prominent representatives fear that when the price index should approach zero or even turn negative, monetary management no longer could exercise an effective interest rate policy. They are grasped by deep angst that when price level deflation should occur, the real interest rate would rise beyond control. Monetary policy would become ineffective once nominal short term interest rates have hit zero. Pumping more money into the system seems to be the answer.
However, with their fixation on the price level, the monetary authorities ignore an important point first made by Cantillon and later elaborated by Ludwig von Mises. These economists argued that money does not enter the economy smoothly and evenly for all particpants. Rather, it gets into the hands of specific economic units (households, companies, the government) first and from there it meanders through the economy. This way the temporary benefit of higher inflation comes to those who stand at the front of the line when receiving the additional money while those at the end will bear the full inflation burden.
Along its way which the money takes, systematic monetary stimuli change relative prices. Inflationary monetary policy produces spots of booms at the cost of the rest of the economy. This policy creates wandering bubbles along its path and in the end it will lead to a bust and drag down the economy as a whole. Inflationary policies create a temporary boon in the beginning for a few but demand a high price to be paid from all later on.
The United States is currently waging a costly war. More and more resources are absorbed by the State. The implication of this is that consumers and private businesses should have less to spend. But expansionary monetary policy creates the illusion that both butter and guns are easily available for all at the same time. This way the U.S. Central Bank is acting like an accomplice in the cheating of the American people.
Maybe the FED members really do not know what they are doing. Ben S. Bernanke, in particular, the rising star among the board members, appears to be analyzing monetary issues exclusively in terms of aggregates and averages. He seems to have no glimpse about economic theories beyond the narrow scope of Keynesian or neoclassical mainstream economics. He therefore is quite well equipped with the prime attribute that is needed in order to become a formidable economic crash pilot.
Comment: More prophetic than I thought at that time. Among financial market operators Bernanke's silly talks at that time produced either fear or ridicule, neither of that would qualify him, so it seemed, for the chairmanship. Nevertheless, it was "helicopter Ben" who was to become the chairman of the US central bank. 

Sunday, July 11, 2010

Talking head

-- The breakup of the euro area would save the 16-nation region from years of economic stagnation by boosting weaker members’ competitiveness as well as domestic demand in Germany to spark growth, Capital Economics said.
“The threatened breakup of the euro zone, which many see as a potential disaster, would actually open the door to renewed economic growth, not just for weaker members of the zone, but for Europe as a whole,” Capital Economics analysts including Roger Bootle in London said in a report released today. --
Full text
Comment: Does this man know what he is talking about? Suggestions like that quoted by Bootle lack any substance. If Bootle woud have suggested free banking, one could take him serious - but a return to the French franc and the deutsche mark? Silly is too good a word for suggestions like that. It actually is not hard to imagine what would have happened to the euro zone's interior trade if the old currency regimes would still be with us: the disappearance of large parts of the productivity gains that result from the division of labor within a common currency area.

They're getting it - finally

-- Just a month ago, BNP Paribas SA, Royal Bank of Scotland Group Plc and UBS AG said the euro was heading toward parity with the dollar as Europe’s sovereign debt crisis threatened to tear the European Union apart.
Investors who bought the 16-nation currency when it reached a four-year low of $1.1877 on June 7 would have realized a return of 6.4 percent by now after the euro strengthened to $1.2641 on July 9 in New York...--
Full text 
Comment: Maybe I was a bit too extreme in my wordings about the recent attack on the euro, but I really got mad being confronted with so many statements by persons who obviously not only know nothing but also have given up learning a long time ago. I won't name names now. In addition to that I also got pretty frustrated when I had to note that many who call themselves "analysts" and work for well-known financial instutions have let themselves go to the lowest kind of emotion.

Saturday, July 10, 2010

Demise of the dollar

Central banks start to abandon the U.S. dollar

There's mounting evidence that central bankers have little faith in the greenback these days. Can we blame them?
by Heidi N. Moore, contributor

There are those who would argue that the financial crisis was caused by over-enthusiastic worship of the Almighty Dollar. Call it brutal financial karma, but that church is looking pretty empty these days.
A new report from Morgan Stanley analyst Emma Lawson confirms what many had suspected: the dollar is firmly on its way to losing its status as the reserve currency of the world. We already knew that central banks have preferred gold to dollars, and that they're even selling their gold for cash; now, according to Lawson's data, it seems that those central banks prefer almost anything to dollars.
Lawson found that central banks have dropped their allocation to U.S. dollars by nearly a full percentage point to 57.3% from 58.1%, and calls this "unexpected given the global environment." She adds, "over time we anticipate that reserve managers may reduce their holdings further."
What is surprising is that the managers of those central banks aren't buying traditional fall-backs like the euro, the British pound or the Japanese yen. Instead, she suggests they're putting their faith in other dollars - the kind that come from Australia and Canada. The allocation to those currencies, which fall under "other" in the data, rose by a full percentage point to 8.5%, accounting almost exactly for the drop in the U.S. dollar allocation.
Full text
Backgrounder: The End of Dollar Supremacy?
Mises Daily: Monday, October 20, 2003 by

Friday, July 9, 2010

Deep on the hook

Who's going to pay when the inflow stops?

And it is stopping

What will be the consequence? Dollar crash? Bond market collapse? Explosion of interest rate?
Maybe all of that.

Thursday, July 8, 2010

The new Mr. Bailout

The Economist:
Klaus Regling

Chief bail-out officer
The new head of the euro-zone SPV
Jul 1st 2010
IT IS registered in Luxembourg, the “offshore” domicile of many hedge funds. It has hundreds of billions of euros with which to place macroeconomic bets. And from July 1st the newly formed European Financial Stability Facility, the special-purpose vehicle (SPV) set up to support ailing euro-zone countries, is even being run by a former hedgie. But this is one fund that will never short its investments.
Klaus Regling owes his appointment as the SPV’s chief executive to his nationality as well as his expertise. The fund will be able to borrow as much as €440 billion ($537 billion) to lend to struggling countries. Its borrowing will be guaranteed by euro-zone countries, and Mr Regling’s native Germany could be on the hook for €148 billion of those guarantees...
Read more about Europe's chief bailout officer
Comment: Where is the news about the bloody noses of the euro bears? When will the bearish analysts get the pink slips they deserve? When will solid thinking return to Wall Street and the City?

Euro rally goes on

... The euro rose for a third day against the yen and the dollar as European Central Bank President Jean-Claude Trichet signaled the economic recovery is gaining momentum. The outlook eased investor concern over Europe’s sovereign-debt crisis, which sent gold to a record $1,266.50 an ounce on June 21 and to all-time highs in euros, British pounds and Swiss francs...
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Comment: Does anyone remember the howling of the euro bears? It is mainly in finance and economics where pundits can be consistently wrong and maintain their prestige or at least the microphone. I guess the trick is to say what journalists want the  people to hear. Krugman is a master in this art, and unfortunately Roubini has joined him in this cheap trick of intellectual prostitution.

Tuesday, July 6, 2010

Dollar Declines to Six-Week Low Against Euro as Global Stock Markets Rally

By Oliver Biggadike and Catarina Saraiva - Jul 6, 2010

The dollar fell to a six-week low against the euro and declined versus all of its other major counterparts as a rally in global stocks boosted demand to hold currencies offering higher yields...."

Comment: Most will remember, when the euro was below 1.20 and the forecasts said "parity" is just a few days away, well these were the more sober analysts, while some of the clattering academic crowd with Krugman and more recently Roubini as their cheerleaders wouldn't do it anywhere far from a collapse, sometimes "total". At this blog you were told a different story. At this blog you were told the truth. At the moment, the exchange rate of the euro to the dollar is 1.2638

Once again the roaring of an euro bear

".. The most accurate foreign-exchange forecaster says the euro will continue to weaken and may approach parity with the dollar as the European Central Bank buys more government bonds to support the region’s economy.
Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to $1.13 in the third quarter, $1.08 by year-end and may near $1 in 2011 before recovering..."
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Comment:  OK, see you in December, Shaun. In financial markets the distinction "most accurate foreign-exchange forecaster" means nothing. Nowhere is the change from "best" to "worst" so fast.
In the meanwhile the euro's rally goes on and our forecast still stands: 1.2618 right now. Remember the boys telling that the rate would go down to 1.15 or 1.10 soon? I at least remember how it was some time ago when I felt as if I were more or less the only one to hang on to a bullish forecast for the euro.

Monday, July 5, 2010

Greece on its way towards recovery

Bloomberg: "... Greece may beat a target to reduce the European Union’s second-widest budget deficit, allowing the country to return to markets to raise debt, Finance Minister George Papaconstantinou said.
“Our hope is to tap markets sometime in 2011,” though Greece can hold off until 2012, Papaconstantinou told reporters in Athens today. A planned auction of short-term Treasury bills this month isn’t considered “a return to markets,” he said.
Euro-area leaders and the International Monetary Fund agreed in early May to extend 110 billion euros ($138 billion) in emergency loans to Greece, which faced soaring borrowing costs amid investor concerns it would default on its debt. In exchange for the aid, the government vowed to implement austerity measures of almost 14 percent of gross domestic product over four years...."
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Comment: What else but austerity can help when a nation is at risk to lose funding? Or does anyone - other than Krugman and some other paleo Keynesians -- really believe that one can spend oneself out of a debt crisis?

Macroeconomic policy fight in Brazil

From Bloomberg: "... Brazil’s state development bank President Luciano Coutinho rejected criticism that record lending is placing a burden on the central bank to keep inflation in check and slowing the reduction of public debt....
Central bank President Henrique Meirelles, in an interview with Valor Economico newspaper published today, said that the development bank’s lending may push rates higher because it reduces the efficiency of monetary policy...."
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Comment: It's the old story all over again. Brazil never makes new mistakes, it only repeats its old. This is probably happening again when the credit-pushers like Luciano Coutinho will prevail. Good bye Brazil, welcome next in line for one more aborted "hen's flight" (voo da galinha).