October. This is one of the peculiarly dangerous months to speculate in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February. Mark Twain
-- Iceland's former prime minister has been referred to a special court, a development Tuesday that could make him the first world leader to be charged in connection with the global financial crisis.
... Iceland, a volcanic island with a population of just 320,000, went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold.
Full text Comment: To learn about the full story you must go to Zerohedge and read the following:
"... Frankly we couldn't care less about Mr. Haarde. We are confident he will get his just deserts. What we would like to know is when will someone finally charge his "advisor", former New York Fed, and current Columbia professor Fred Mishkin, in the Hague, for hate crimes against world leverage, and for providing precisely the advice followed by the Iceland PM, that resulted in not just the collapse of the tiny Volcano-riddled country, but was the first domino to set off the discovery that all of the European periphery is now completely and totally insolvent. We refer of course to Mr. Mishkin's 2006 report "Financial Stability in Iceland" in which the then-Fed member observes: "The economy has already adjusted to financial liberalization, which was already completed a long time ago, while prudential regulation and supervision is generally quite strong." Less than two years later the country was bankrupt.
For much more on Mishkin's involvement in the financial crisis, we can not recommend enough the upcoming movie Inside Job, which destroys not only Napoloen Dynamite Sr.'s reputation, but that of his current boss, the Dean of Columbia Business School, one Glenn Hubbard, in a way that has to be seen to be believed." Full text
More on this in the video "Inside Job" Comment 2: Somehow it is amazing to see that almost always the same members of the gang show up as the perpetrators of great crises and financial calamities. Remember that Mishkin was also a Fed Governor. Has higher education in the US been highjacked by a very sinister group who persue evil plans beyond imagination? Were so-called "top universities" the jumping board to get into the big business of government? I wish it were only money that they're after but I fear it is much more.
-- Irish Finance Minister Brian Lenihan persuaded lawmakers two years ago to back a guarantee of the country’s financial system to give banks time to wean themselves off European Central Bank and government life support.
Instead, the banks are growing more dependent on the ECB. The cost of insuring Irish government debt against default has soared to a record as bond buyers shun Irish lenders, forcing the Dublin-based parliament to debate extending a guarantee of all deposits and most bank securities as the original pledge expires today.-- Full text Comment: Over the past one or two decades I have wondered how the economic "elites" in some of the smaller European countries, including Ireland, felt how to make a point by adopting the superficial academic scribblings of their US colleagues. Iceland was the tip of iceberg in this respect. Along with the adoption of fake US mainstream economics (as it is represented in the so-called "top journals" and taught at the US "top schools") came a very strange arrogance, a kind of arrogance that comes automatically with ignorance. Now the time has come to pay the price.
-- Jane Mendillo -- who went to Yale -- stepped in to lead the univeristy’s endowment just as markets crashed and it lost $10.1 billion. It may be years before she can clean up the mess. ... In her first months on the job, Mendillo had to hasten to raise funds to extricate the university from interest-rate swaps it had entered into under former President Lawrence Summers, a Harvard economics professor who’s now an adviser to U.S. President Barack Obama. The White House said in September that Summers would resign and return to Harvard by year-end. -- Full text Comment: Summers is an amazing creature. There is a lot of talk about "crony capitalism" by academics who are quit silent about their own turf of "academic cronianism".
-- European confidence in the economic outlook unexpectedly improved this month as executives and consumers weathered tougher government budget cuts by countries struggling to convince investors that they won’t need external aid.
An index of executive and consumer sentiment in the 16 euro nations rose to 103.2, the highest since January 2008, from a revised 102.3 in August, the European Commission in Brussels said in an e-mailed statement today. -- Full text Comment: The real world of economics is quite different from what Bernanke's and Krugman's textbooks say.
-- Mounting gloom over the outlook for jobs and wages caused American consumers to lose confidence in September, indicating spending will take time to recover.- Full text Comment: And it ain't going any better.
-- The U.S. dollar is “one step nearer” to a crisis as debt levels in the world’s largest economy increase, said Yu Yongding, a former adviser to China’s central bank.
Any appreciation of the dollar is “really temporary” and a devaluation of the currency is inevitable as U.S. debt rises, Yu said in a speech in Singapore today.
“Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.”
Yu also said China is worried about the safety of its foreign-exchange reserves including those invested in U.S. Treasuries as the U.S. currency weakens, reiterating his earlier views on the dollar assets. The U.S. will record a $1.3 trillion budget deficit for the fiscal year ending Sept. 30, the Congressional Budget Office said Aug. 19. Full text Comment: We're beyond the point of no return.
I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.
My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION. If the Federal Open Market Committee cannot see the difference, God help America. Read more Comment: Enjoy the next and even more so the comments to the text.
European Central Banks Halt Gold Sales
Published: Monday, 27 Sep 2010
4:27 AM ET Text Size By: Jack Farchy, Financial Times
Europe’s central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade. - Read more
Obama Says the Future of U.S. Economy Depends on a Better Education System
By Roger Runningen - Sep 27, 2010 9:28 AM GMT-0300
President Barack Obama said today that the future of the U.S. economy depends on improving the nation’s education system. Full text Comment: Government is an institutions that thrives on its own failures. The perfect feedback loop happens with government and failure with more failure more government and with more government more failure.
Sept. 24, 2010, 4:36 p.m. EDT · Recommend (4) · Post:
Bernanke defends economic models that missed crisis
More work needed on how financial sector impacts growth
Go to Comments Contrary to Bernanke, economics did fail us
Story Comments Screener (391)
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Federal Reserve Board Chairman Ben Bernanke on Friday defended new Keynesian economic models even though they failed to predict the financial crisis.
“Although economists have much to learn from this crisis....I think that calls for a radical reworking of the field go too far,” Bernanke said in a speech at Princeton University, where he was a professor for two decades. Full text Comment: Well, what did you expect? What Bernanke really meant to say was: OK, OK, I have been wrong all of the time but this doesn't mean that I have to change my mind about what is right and what is wrong. And this is how I shall go on.
Inside Jobis a documentary by director Charles Ferguson – a onetime software entrepreneur and former senior fellow at the Brookings Institution – that explores the causes of the 2008 financial crisis and features interviews with people to which Ferguson was granted extraordinary access. This list includes former Fed Chairman Paul Volcker, former New York State Attorney General (and disgraced governor) Eliot Spitzer, and legendary investor George Soros, to name a few. Perhaps the best summation of the film’s point comes from Ferguson himself, who told the Wall Street Journal, “I think the central argument is that deregulation, which began in the 1980s, led to the rise of what has, without any exaggeration, given rise to a criminal industry. American finance has become a criminal industry, particularly investment banking.
“The secondary thesis of the film is that as this industry has grown more powerful and wealthy, it has corrupted the institutions and people who should have retrained it – obviously the political system, the regulatory system, and, less obviously but equally important, the academic and research discipline of economics.” Satyajit Das, a Minyanville contributor who appears in the film, agrees. The longtime financial derivatives expert and author of Traders, Guns and Money, says one of his favorite moments in the film is when Ferguson "exposes the participation of prestigious academics, who provided the age of money with seductive economic credibility. Harvard's Martin Feldstein and Columbia University's Glenn Hubbard earned large consulting fees from financial institutions. Confronted on camera, Feldstein glowered, squirmed, and smiled, in the words of one reviewer, 'like Yoda with a hemorrhoid.'" For Das, the moral of the movie is this: "Trust no one with your money, including yourself. Most experts don't know what they are talking about and generally have so many conflicts of interest they develop mental conditions making them incomprehensible and financially illiterate except when calculating their own bonuses." --
Full text Comment: What has happened over the past decades is the criminalization of Wall Street, the corruption of economics, and the cultivation of greed that has not been good for America. Some ruthless profiteers have put their own short-term interests above prudence. They have exploited the naivitee of the ordinary American. People like Rubin, Summers and Greenspan and Co. and their academic cheeleaders have produced an economic and financial wasteland that will remain barren for decades to come.
-- This year’s rally in Treasuries has pushed yields so low that a Federal Reserve measure of risk shows U.S. government securities are too expensive.
The financial model created by economists at the central bank that includes expectations for interest rates, growth and inflation shows Treasuries are the most overvalued since the financial crisis in December 2008, just before 10-year note yields almost doubled in the following six months. Investors who held 10-year notes through that period lost 13 percent, according to Bank of America Merrill Lynch index data.-- Full text Comment: It takes a great bubble to make a big crash.
Laurence Kotlikoff explains the national savings rate:
"... John Mitchell put his finger on economics’ labeling problem. He was Richard Nixon’s attorney general and a real expert on deception. Before being jailed for perjury, Mitchell used to say, “Figures lie and liars figure.”
The personal savings rate is one of those figures, thanks to the U.S. Commerce Department.
The right saving rate to consider is calculated by dividing total national savings by total national income. National saving is a label-free measure because it references physical concepts. It’s the value of a country’s net output minus its consumption.
The national savings rate provides an entirely different picture of America’s behavior with money. As the chart shows, national saving has, for the first time since the Great Depression, gone negative.
You read that right. Instead of adding to our seed corn, we’re eating our existing stock" Read more Comment: What seems like a shock to some about the savings rate has been known for a long a time in the economics profession. Yet the so-called "top schools" have been corrupted by the lure of power. Economists joined the government and it was as if they had a secret deal among themselves about who's the best to lie. The sad part of the story is that after some time the economists began to believe in their own lies and instead of telling their students the truth, they sold them lies and instead of making the kids brighter they made them dumber.
`Black Swan' Author Taleb Says Obama's Stimulus Made Economic Crisis Worse
By Frederic Tomesco - Sep 25, 2010 11:36 AM GMT-0300
U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”
“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”
Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.” -- Full text Comment: You're absolutely right, Sir Taleb, but please don't blame Obama. He doesn't know anything about economics but unfortunately so his economic team knows even less. That is the problem.
-- BEIJING – China spent tens of billions of dollars on a dazzling 2008 Olympics. It has sent astronauts into space. It recently became the world's second largest economy. Yet it gets more than $2.5 billion a year in foreign government aid - and taxpayers and lawmakers in donor countries are increasingly asking why.-- Full text Comment: Development aid has always been a folly. In the case of China it is just more obvious than elsewhere. Development aid has empowered the corrupt ruling class, has paralyzed local initiatives, has promoted centralization and has been statist from the begining to the end. No wonder that development aid has been a disaster form A to Z. For decades development "planning" has been the El Dorado for incompetent economists and other self-proclaimed "experts". Those were the winners of the redistribution. Peter Bauer (see books above) was one of the very few who said this what I say here early on. Like it is today, it was so back then: most in the economics profession were dumb like donkeys.
-- When Angela Moore looks into her future, she sees checks for $500, $147, $280 and $250 piling up like leaves in a forest. Those are the amounts she could be paying every single month on her four student loans, which total $92,000, for the next several decades. If she postpones payments, the amounts she owes will go up. If she skips them, she could ruin her credit and end up in court.-- Full text Comment: In earlier times government has mainly cheated the kids into war, nowadys it is debt and useless "education". The profiteers of the scam called "college education" are mainly the very same academics who most loudly love to denounce "exploitation" by the "capitalist system".
`Black Swan' Author Nassim Taleb Says U.S. `Not Aware' of Deficit Dangers
By Frederic Tomesco - Sep 24, 2010 6:38 PM GMT-0300
Nassim Nicholas Taleb, author of “The Black Swan,” said he’s concerned about prospects for the U.S. economy because government debt in the country is higher than in other industrialized countries.
“I am extremely bearish on the U.S.,” Taleb said in a Canadian television interview from Montreal today. “We have an administration that, unlike the European administrations, is not aware of the risks of mounting deficits, of the addiction to public deficits and to big government.” Full text Comment: Nassim misses the point. The real problem is that we're already beyond the point of no return. Therefore it makes no sense anymore to hit the brakes.
-- German business confidence unexpectedly rose to the highest level in more than three years in September, suggesting companies can weather weaker demand from abroad as the global economic recovery slows.-- Full text Comment: Anyone remember when not long ago Krugman said that German economic policy would push the world into a depression? Nevertheless, Mickey Mouse economists of the Krugmanian kind are great in ignoring facts and rather prefer to keep on howling.
- On a rainy Tuesday in March 2009, U.S. military and intelligence officials gathered in a war room north of Washington to watch a simulated conflict flicker across a bank of video screens.
The struggle was pitting the U.S. against China. And China was winning hands down, writes Eric J. Weiner in “The Shadow Market,” a bleak survey of how flush authoritarian governments deploy financial means to achieve geopolitical ends.
The weapons were dollars, stocks and bonds, not bullets and bombs. The soldiers were Wall Street bankers, hedge-fund traders and economists. For two days, they explored what would happen if the world sank into economic warfare. The outcome was alarming.
“There was no way for America to win,” Weiner says. Full text
- President Barack Obama and Chinese Premier Wen Jiabao pledged their countries to closer cooperation on economic issues to foster the global recovery-- Full text Comment: What else to do other than to cooperate if the other guy got you on your balls.
-- The euro may extend gains to $1.35, the most since April, by the middle of next month, Bank of Tokyo-Mitsubishi UFJ Ltd. said citing trading patterns.-- Full text Comment: I wonder what's going on in the minds of these analysts and what kind of models they use inorder to predict the past. Either they are pretty dumb or they are so full of fear that they dare only predict hat we know already.
-- Rahm Emanuel, President Barack Obama’s chief of staff, is likely to leave the White House before the November congressional elections to run for mayor of Chicago, people familiar with the matter said.-- Full text Comment: I hope the Chicago electorate is smart enough to think twice before casting the vote. Nevertheless, the world will become a safer place without Emanual in the White House.
-- The White House said Lawrence Summers, director of the National Economic Council, will leave the administration and return to Harvard University at the end of the year. -- Full text Comment: Make sure to go back to Harvard in order to help that the next generation of economic leaders will be as incompetent as you've been.
-- Standard & Poor’s and Fitch have both granted the Eurozone’s rescue fund a AAA credit rating, clearing the way for swift action if needed as the region’s debt crisis threatens to erupt again.-- Full text Comment: Be it the dollar or the euro, be it the yen or the yuan, all we have nowadays is only fake money. With the exception of China all major issuers of currency are so deep in debt that the debt burden will already continue to grow by it own dynamics.
-- The Federal Reserve said it’s willing to ease monetary policy further to spur growth and support prices while refraining today from expanding its holdings of securities.
“The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” the Federal Open Market Committee said today in a statement in Washington.-- Full text
The Fed is not yet done with its job of destorying the US dollar and bringing the US economy full down on its knees. Therefore, more QE (quantitative easing) will be needed. And it was an easy bet that Bernanke and his cheerleaders will do as promised and deliver.
-- Four months after a European Union- led bailout, Germany’s biggest bond dealers say the worst is over for the region’s most-indebted nations. Yields on government bonds of Greece, Spain, Ireland and Portugal will fall to within 2.2 percentage points of benchmark German bunds on average in the next two years from 4.61 percentage points last week, according to a Bloomberg News survey of 15 banks that trade directly with Germany’s debt agency. HSBC Holdings Plc, Europe’s largest bank by market value, Goldman Sachs Group Inc. and Societe Generale SA advise buying securities sold by Greece.-- Full text
Finally the most ridiculou financial market assault is over. Many who followed the gurus have lost their shirts, and rightly so. Any person who believes in what Krugman, Stiglitz or Roubini and many more of these American pundits are saying deserves to be punished. There are two kinds of stupidity: one is following one's own stupidity, and this is often the way to finding the fool's gold. Yet following the stupidity of someone else, particularly of the Krugman, Stiglitz, Roubini kind, is not just being stupid the way we all are. It is the stupidiy of the real fool. That's why those who followed their advice rightly so deserve to lose their last shirt, and I hopelfully pray that it is their last shirt so that they never have a chance to show up again in our business, which is serious.
-- The following are 15 shocking poverty statistics that are skyrocketing as the American middle class continues to be slowly wiped out.... #1 Approximately 45 million Americans were living in poverty in 2009. #2 According to the Associated Press, experts believe that 2009 saw the largest single year increase in the U.S. poverty rate since the U.S. government began calculating poverty figures back in 1959. #3 The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development. #4 According to the U.S. Department of Agriculture, on a year-over-year basis, household participation in the food stamp program has increased 20.28%. #5 The number of Americans on food stamps surpassed 41 million for the first time ever in June. #6 As of June, the number of Americans on food stamps had set a new all-time record for 19 consecutive months. #7One out of every six Americans is now being served by at least one government anti-poverty program. #8More than 50 million Americans are now on Medicaid, the U.S. government health care program designed principally to help the poor. #9One out of every seven mortgages in the United States was either delinquent or in foreclosure during the first quarter of 2010. #10 Nearly 10 million Americans now receive unemployment insurance, which is almost four times as many as were receiving it in 2007. #11 The number of Americans receiving long-term unemployment benefits has risen over 60 percent in just the past year. #12 According to one recent survey, 28% of all U.S. households have at least one member that is looking for a full-time job. #13 Nationwide, bankruptcy filings rose 20 percent in the 12-month period ending June 30th. #14 More than 25 percent of all Americans now have a credit score below 599. #15One out of every five children in the United States is now living in poverty.
As millions more Americans continue to climb on to the "safety net", how long is it going to be before it breaks? -- Full text Comment: The great American illusion is to call itself "capitalist" and "free" and "individual" and well different in these respect from the rest of the world when in fact the US in many respects is less capitalist, less free and more collectivist than many other parts of the world. As long as the US public culture goes on with its lies, no change will come. It takes an ever larger recession before people get ready to ask for the truth and to have the guts to look it in its face.
-- Olivier Blanchard, the IMF's chief economist, said the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time.
"Long-term unemployment is alarmingly high: in the US, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression," he said.
Spain has seen the biggest shock, with unemployment near 20pc. Britain's rate has risen from 5.3pc to 7.8pc over the last two years, a slightly better record than the OECD average. This contrasts with the 1970s and early 1980s when Britain was notoriously worse. UK jobless today totals 2.48m.
Mr Blanchard called for extra monetary stimulus as the first line of defence if "downside risks to growth materialise", but said authorities should not rule out another fiscal boost, despite debt worries. "If fiscal stimulus helps avoid structural unemployment, it may actually pay for itself," he said.
"Most advanced countries should not tighten fiscal policies before 2011: tightening sooner could undermine recovery," said the report, rebuking Britain's Coalition, Germany's austerity hawks, and US Republicans. Under French socialist Strauss-Kahn, the IMF has assumed a Keynesian flavour. -- Full text Comment: From Obama to the head of the IMF - we're ruled by a bunch of socialists. Arm in arm with the political socialist go the technocrats whose interventionist mindset prepares them to get hired by socialists and fascists alike.
-- Forty-four million people in the United States, or one in seven residents, lived in poverty in 2009, an increase of 4 million from the year before, the Census Bureaureported on Thursday.
The poverty rate climbed to 14.3 percent — the highest level since 1994 — from 13.2 percent in 2008. The rise was steepest for children, with one in five residents under 18 living below the official poverty line, the bureau said...
For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050. -- Full text Comment: A littel socialism here, a little socialism there, and soon you have full-blown poverty.
-- Japan’s solo run to restrain the yen exposes a flaw at the heart of the global recovery effort: The world’s major economies can’t all export their way to prosperity.
As governments from Tokyo to Washington and Berlin struggle to spur their economies, unemployment and budget deficits are forcing them to pursue policies aimed at harnessing foreign demand. Japan embraced that strategy yesterday by intervening in markets for the first time since 2004 to slow the yen’s climb to a 15-year high against the dollar and protect its exporters.
The danger is that the race to hand companies such as Hitachi Ltd. and Boeing Co. an edge in the international marketplace will spark currency and trade tensions that further threaten global growth. Japan acted as U.S. lawmakers convene hearings to pressure China into letting the yuan appreciate and as the European Commission urges Germany to lower its reliance on foreign demand. Full text
It seems we're moving back into the 1930s when competitive devaluations pushed the world each time deeper into depression. What is usually forgotten in the debate about trade imbalances is in terms of macroeconomic accounting a trade deficit is the result of insufficient savings. When the leder of a deficit country complain about "too much imports", the remedy is quite clear: the new agenda for this country must be to consume less and save more.
Bob Higgs got it right:
"... In my study of regime uncertainty over the past fifteen years, I have given weight to three independent forms of evidence: (1) specific legislative, executive, judicial, and regulatory actions the government is taking, the ideology embraced by major government actors and advisors, and, in light of basic economic logic, what investors might reasonably infer about the future security of their private property rights from the government’s actions and the ideology of its leading figures; (2) direct testimony by investors themselves, as well as relevant opinion surveys of businessmen, when available; and (3) changes in risk premiums demanded by investors in the corporate bond markets, as shown by changes in the slope of yield curves. During the past two years, my scrutiny of these types of evidence has persuaded me that regime uncertainty has arisen and that this uncertainty probably accounts, at least in part, for the very low level at which long-term private investment has settled, with only relatively small recovery since it hit its most recent trough..." Full text with link to original paper Comment: Regime uncertainty paralyzes economic activity and produces fear. Keynes put a lot of psychology into his concept of "animal spirits" and the "state of confidence". Yet it is Higgs who provides the data and analysis why businessmen and investors lose their entrepreneurial spirit and their confidence.
More than Obama himself it is his staff of "economic advisors" that has brought us into this stage.
The following are 50 mind blowing facts about modern America that our Founding Fathers never would have believed.... Full text Comment: The great question of the 21st century will likely be: how could it be? How was it brought about that such a country as the United States of America could fall so deep in such a short period of time?
-- Cuba has announced radical plans to lay off huge numbers of state employees, to help revive the communist country's struggling economy.
The Cuban labour federation said more than a million workers would lose their jobs - half of them by March next year.
Those laid off will be encouraged to become self-employed or join new private enterprises, on which some of the current restrictions will be eased. Full text Comment: Besides North Korea and its leader, Cuba and Fidel are the most absurd and ridiculous combination on earth right now. Castro has turned Cuba into the largest concentration camp of the world and has held more than ten million people in prison and close to starvation for about fifty years as of now. Those who try to rebel against the dictatorship get tortured, are shot or simply put away for special treatment at places with the most inhuman conditions. The world press is largely silent on these matters. Worse: there are those Western intellectuals who praise the regime and there are politicans, mainly from the rest of Latin America, who hail the "Cuban model". I do not know what is more absurd or more ridiculous. Cuba and Castro or the intellectuals and politicans who praise a system that has turned one of the most beautiful places on earth into a hell for the people (not for the tourists). Nevertheless, in this ranking the U.S. also comes in as a factor by maintaining a blockade that only has strengthened the Communist regime and has given its leaders all kinds of false excuses. The American embargo has been instrumental to prolong and deepen the suffering of Cuban people. The American role in this tragic game is not only absurd and ridiulous, it is also very stupid.
-- The euro is losing out to the dollar as renewed concern over the solvency of nations from Portugal to Ireland points to another slump for the common European currency.
Hedge funds and other large speculators have increased bets on a weakening of the euro to the highest level in almost two months, according to data from the Commodity Futures Trading Commission. Investors are paying close to the most in three months to insure against losses on Greek and Spanish bonds, while yields on Irish and Portuguese government debt surged to records relative to benchmark German bunds last week. Full text Comment: At the time of publication of this post the euro is back over 1.28 against the dollar, up more than one percent.
For your pleasure enjoy the "level" of analysis that is currently en vogue by having a look at the book that I posted. Grant Wonders is not only uninformed. He doesn't know what he is talking about, yet his analysis is made worse by an economic education which has blown out most of the sound reasoning he probably had before he began to study economics. It is absolutely ridiculous to state that the European Monetary Union has Mundell's modell of an "optimal currency area" as its foundation. The idea that vast labor movement were necessary to cope with industrial fluctuations is more than ridiculous, and one could go on.
Economic Docs Find Remedy Amid Bubble Rubble: Caroline Baum
Even the most casual observer of the events of the last five years -- the housing bubble, the bust and the digging-out process -- would be struck by the similarities between the policies that got us into this mess and the prescriptions for getting us out.
Whether it’s ultra-low interest rates, borrowing and spending (too much then, too little now), or artificially inflated home prices, the cure bears an uncanny resemblance to the cause.
I’ve identified five areas where policy makers need to reexamine their recommendations or do a better job of explaining why yesterday’s mistakes will be tomorrow’s remedies. Full text Comment: Caroline is surely right. Policymakers sell now as a cure what has brought about the mess in the first place. The logic behind the current measures is that if policy measures haven't completely killed the economy the first time, let's try it again a second time.
Basel Compromise Means Higher Capital Ratios, Time to Comply
by Yalman Onaran - Sep 12, 2010 8:52 PM GMT-0300
Regulators looking to rein in the sort of risk-taking that caused the last financial crisis reached a compromise in Switzerland yesterday that more than doubles capital requirements for the world’s banks while giving them as long as eight years to comply.
The Basel Committee on Banking Supervision will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress. Banks that fail to meet the buffer would be unable to pay dividends, though not forced to raise cash. Full text Comment: Even after when the new Basle criteria will be implemented, we still will have a fractional reserve system with all of the same consequences we have been suffering from in the past.
The Federal Reserve's decision last month to step up its buying of Treasury securities could be laying the groundwork for inflation and a host of other political and economic troubles, former Fed governor Frederic Mishkin told CNBC.
In a rare public dissent with the central bank, Mishkin, a professor at Columbia Business School who left the central bank in 2008, called the Fed's move to use receipts from maturing mortgage-backed securities to buy more Treasurys "one of the most important decisions the Fed has made in a very long time."
The purchases of long-term government debt—expected to total about half a trillion dollars—should be accompanied by an exit strategy, he said.
"When you hold a lot of long-term debt on your balance sheet, you're now exposed to a lot of interest rate risks," Mishkin said in a live interview. "All of a sudden you could be booking losses. Think about the screams in Congress about all of this."
The Fed decision at its Open Market Committee meeting stunned the financial markets, but at the time investor reaction was interpreted as worry over the central bank not doing enough. Full text Comment: It is all in vain. The sheeples won't listen to me or to you or, for that matter to Mishkin or to anybody else. All the financial sheeples want is low interest rates. As long as they get these, they'll keep quiet. But be forewarned: hell will break loose when rates begin to rise. Then the sheeples will turn into "wolfeles" in one moment to the next.
The Mystery of Barack Obama Continues
By Steve Baldwin, Exclusive to Western Center for Journalism
Most Americans don’t realize we have elected a president whom we know very little about.Researchers have discovered that Obama’s autobiographical books are little more than PR stunts, as they have little to do with the actual events of his life. The fact is we know less about President Obama than perhaps any other president in American history and much of this is due to actual efforts to hide his record. This should concern all Americans. Full text Comment: I'm neither very much interested in nor do I know anything about Obama's upbringing or past. What matters for me is his current economic policy. Yet in this respect I really sometimes feel forced to think: this guy really may be an alien from outerspace (with Paul Krugman as his former co-pilot).
-- Former German Chancellor Helmut Schmidt said talk of the euro’s collapse is wildly exaggerated, and that he sees no particular danger for the single currency. “Contrary to all kinds of silly hogwash written, especially in English-language newspapers, the euro is absolutely not in danger,” Schmidt said in an interview with Germany’s Wirtschaftswoche magazine published today, according to an e-mailed transcript. “It’s the second-most important currency in the world. There is absolutely no reason to talk of a crisis of the euro.”
The European debt crisis that drove the euro to a four-year low on June 7 was rather caused by “the herd behavior of financial managers,” Schmidt said in the interview.
“Suddenly one of them realized: ‘the Greeks are too much in debt, something could go wrong there, so I’ll sell off everything that looks Greek.’ One follows another and suddenly Greece is in a huge debt crisis.” Full text
Comment: All in all I agree with about fifty percent of what Helmut Schmidt has done and said, but this of his comment about the anti-euro speculation hits the nail on its head. Indeed, sometimes financial markets have an intellectual crash when the average IQ of the market goes down to 50. At times like that monkeys throwing darts would do a better job, indeed.
Eric Margolis concludes:
"So what, in the end, can we conclude? 1. We still do not know the real story about 9/11. 2. The official version is not credible. 3. 9/11 was used to justify invading strategic Afghanistan and oil-rich Iraq. 4. The attacks plunged America into wars against the Muslim world and enriched the US arms industry. 5. 9/11 boosted pro-Israel neoconservatives, formerly a fringe group, into power, and with them America’s totalitarian far right. 6. Bush’s unprovoked war against Iraq destroyed one of Israel’s two main enemies. 7. 9/11 put America in what may turn out to be a permanent state of war with the Muslim world – a key goal of the neoconservatives." Read full text Comment: Regarding the doubts that surround 9/11, an event that occurred less than ten years ago, I wounder how so many people seem be so sure to know what happened 50, 60 or 100 years ago.
The Economist is worried:
"FIFTY years ago, in the glorious age of three-martini lunches and all-smoking offices, America’s car companies were universally admired. Everybody wanted to know the secrets of their success. How did they churn out dazzling new models every year? How did they manage so many people so successfully (General Motors was then the biggest private-sector employer in the world)? And how did they keep their customers so happy?
Today the world is equally in awe of American universities.
... Could America’s universities go the way of its car companies?
... America’s universities lost their way badly in the era of easy money. If they do not find it again, they may go the way of GM." Read full text Comment: The Economist misses the essential point. It is not the money which puts US universities at risk. It is rather the same institutional setting that brought down GM: intellectual hybris, a cult of ignorance and a corrupted system of recruitment. Different from the car companies, the matter with universities is much worse. While the US car industry was successfully challenged and the American customer finally got better car despite GM and Ford and Chrysler, this won't happen with education. Not only won't foreign universities enter the US, it is even worse: all over the world countries are imitating the failed American system. Indeed, the two biggest bubble have yet to pop: besides the bond market, it is education, particularly university education.
-- European governments made a “wrong bet” by pushing for austerity after the global recession, resulting in slower economic growth for the region and the U.S., Nobel Prize-winning economist Joseph Stiglitz said.
“Europe has made a wrong bet with austerity,” Stiglitz, 67, told reporters today in Budapest. If Germany, the U.K. and France remain committed to budget cutting, “that will have systemic consequences for the entire Europe.”
Europe’s economy is at risk of sliding back into recession as governments reduce spending to rein in budget deficits, Stiglitz, a former chief economist at the World Bank and now a professor of economics at Columbia University in New York, said in an interview with Dublin-based RTE Radio on Aug. 24. Full text Comment: On which planet does Stiglitz live? Where did he learn such distorted economics that he is preaching now? With professors like him it is no wonder that many students leave college more or less braind-damaged. Decline begins in the head and with people like Stiglitz or Krugman we can be sure that American academia is doomed - at least when it comes to economics.
Jens O. Parsson's "Dying of Money. Lessons of the Great German and American Inflations" is now online thanks to the Mises Institute.
From the Foreword:
".. The twentieth century brought the institution of inflation to its ultimate perfection. When economic systems are so highly organized as they became in the twentieth century, so that people are completely dependent on money trading for the necessaries of life, there is no place to take shelter from inflation. Inflations in the twentieth century became like inflations in no other century. The two principal inflations that occurred in advanced industrial nations in the twentieth century will probably prove to have done more to influence the course of history itself than any other inflation. One of these was the German inflation that had its roots in World War I, grew to a giddy height and a precipitous fall in 1923, and contributed to the rise of Adolf Hitler and World War II. The other was the great American inflation that had its roots in World War II, grew in the decade of the 1960’s toward an almost equally giddy height, and contributed to results which could not even be imagined at the time this book was written...
Link to "Dying of Money" Comment: I do not believe that the study of history is useless and that all we can learn from history is that we learn nothing. I rather believe that because we know so little about history and that what we are taught about history is largely false that we have to repeat old errors again and again. Now, with the internet at our hands, I'd say that it is an obligation to learn more and more about history, and revisionist history in particular.
Gonzalo Lira explains:
"... Right now, we are at a stage where Treasury bonds are as weakened as a termite-riddled house. They look fine: Nice glossy coat of paint, pretty shingles, bright clear windows, sturdy-looking plankings on the open-aired porch. But Treasuries are well on their way to a complete collapse. Why? Because of the way they have been mishandled and mistreated by the Federal Reserve Board, and the U.S. Treasury. Whether by incompetence or by design, U.S. Treasury bonds have become the New & Improved Toxic Asset. The question is no longer if they will collapse—it’s when...." Read on Have an interactive look inside the Fed's balance sheet Comment:
What matters most for the investor confronting a mega bubble of this size is timing. In this respect one can be calm: The bond market crash will come step by step, some larger, some smaller. It may well be that at first there will be a kind of bond crash, but we are not dealing here with the Twin Towers of termite-ridden house. The bond market will die like old soldier are said to die: by fading away.
-- The Chinese Government holds the largest stockpile of currency reserves at $2.45 trillion (£1.59 trillion), with 65pc held in dollars, 26pc in euros, 5pc in pounds, and 3pc in yen.
The report was published in official newspaper the China Securities Journal and confirmed analysts' estimates that about two-thirds of the reserves are invested in dollars. Until now the allocation of China's foreign exchange reserves was considered a state secret.
Separately Hu Xiaolian, a vice governor with the People's Bank of China, warned that depreciation was a risk for the foreign exchange reserves held by developing countries.
"Once a reserve currency's value becomes unstable, there will be quite large depreciation risks for assets," she wrote in an article that appeared in the latest issue of China Finance, a central bank magazine.
"The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system," she said.
"A diversified international currency system will be more conducive to international economic and financial stability," she added, calling for greater cross-border use of the yuan.
China has signalled a shift away from dollar assets in recent months, in a bid to diversify. It has sharply increased its net purchases of Japanese debt, and has raised its holdings of South Korean bonds. Full text Comment: In typical Chinese patience, China is trying to diversify as much as it can without making the system crash prematurely. It will be in the final stages of this balancing act when hell will break loose.
-- Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the market will eventually perceive the easing moves, announced by Fed Chairman Ben Bernanke last Friday, as being inflationary and that the next five years could be a possibe disaster for Treasury bonds investors.
"It is a fallacy to believe that easy money and the purchase of treasuries will boost economic activity in the US," Faber told Bloomberg in a phone interview from Thailand. "Money will flow into equities at least over the next couple of weeks, and into commodities," Faber said. "Over the last two years we eased massively in the US and where did the growth take place? In Asia". "So when we talk about job creation, do you think that Intel or a small businessman will hire more people in the US because of further monetary printing?" he asked. "No! they will build factories in Asia and hire poeple in Asia and all the monetary policies in the US create mis-allocation of capital and unintended consequences," Faber said. Asked by the Bloomberg anchor if a bubble in Treasuries was one of the unintended consequences, Faber said: The Treasury bonds markets and especially the 10-year and 30-year bonds have been rallying for nearly 30 years, since 1981, and we are close to all-time lows in Treasury yields. -- Read more Comment: The bond bubble is a bubble that should have popped years ago. Yet it still goes on and on and on. That is why it has become the mega bubble meanwhile. That is why it has become the greatest bubble of all. The longer it takes, the louder it will pop. The bigger it gets, the more devastating will be the consequences.
Gonzalo Lira explains the important difference: "... Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena. Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money – they want less of the currency: So they will pay anything for a good which is not the currency...." Full text
Comment: One could add that hyperinflation looms because the productive capacity is shrinking due to massive regime uncertainty brought about by interventionist governmental hyperactivity.
WASHINGTON (AP) -- The unemployment rate rose in August for the first time in four months as weak hiring by private employers wasn't enough to keep pace with a large increase in the number of people looking for work. Full text
Japanese bonds headed for the biggest weekly loss since January 2009 on prospects a government led by Ichiro Ozawa will increase debt-fueled spending and as better-than-expected capital expenditure data supported demand for higher-yielding assets. Read more Comment: Japan is an example of how long irrationality can persist. Sometimes I fear it is forever. Yet then, suddenly, so it seems, sobriety stikes like a bolt out from the blue.
The National Inflation Association is an organization that is dedicated to preparing Americans for hyperinflation. The NIA offers free membership at http://www.inflation.us and provides its members with articles about the economy and inflation, news stories, important charts not shown by the mainstream media; YouTube videos featuring Jim Rogers, Marc Faber, Ron Paul, Peter Schiff, and others; and profiles of gold, silver, and agriculture companies that we believe could prosper in an inflationary environment.
Contact: Gerard Adams, 1-888-99-NIA US (1888-996-4287), firstname.lastname@example.org
Read more: http://www.sacbee.com/2010/08/25/2982875/nia-sees-decoupling-now-currency.html#ixzz0yOSyVXYP
U.S. mutual funds currently have about $10.5 trillion in assets, with $2.5 trillion being in bonds and $4.6 trillion being in equities. Although the amount of money invested in equities is still far greater than bonds, asset inflows into bonds have outpaced equities for 30 consecutive months. During these 30 months, $559 billion were invested into bond funds while $209.4 billion were pulled out of equity funds. It is a real shame that most retiring baby boomers who are looking for safety, are actually investing their savings into the riskiest assets of all.
Brazil's economy has lifted 30 million people out of poverty since 2003. Brazil's political culture, however, has made little progress: the political establishment is still mired in cronyism, and voters still cling to the counterproductive policies of the Workers' Party, according to Alvaro Vargas Llosa, editor of Lessons from the Poor and author of Liberty for Latin America.
"Brazilian leaders have long had an 'anti-American' complex," writes Vargas Llosa. "The obsession makes them do things simply because they seem in opposition." Dilma Rousseff, the leading candidate in October's presidential election in October, is no exception.
Some scholars believe that Brazil's statist economic policies originated partly as a reaction to a perceived rejection by the United States. But if Brazilians wish to improve their country, they would do better by embracing an even older tradition--the one that the Baron of Rio Branco, Jose Maria da Silva Paranhos, pioneered in the early 20th century. Adopting this tradition, Vargas Llosa suggests, would enable Brazil's political institutions to keep pace with its fast-growing economy.
It’s the economy that cried wolf.
With growth slowing, deflation deepening, and the yen inexplicably surging in late August, Japanese policy makers pledged bold action. Bank of Japan Governor Masaaki Shirakawa rushed home from Jackson Hole, Wyoming, to deal with the emergency.
Investors braced for aggressive currency intervention. The media mobilized on Aug. 30 to cover Prime Minister Naoto Kan unveiling a fat stimulus package to counter the export-crimping effects of a strong yen. And then -- nothing.
Disappointment over token efforts resulted in exactly what Japan didn’t want: an even stronger yen, which has gone from 85.2 to the greenback on Aug. 23 to 84.1 on Aug. 31. Read more Comment: Repatriation is under way and has initiated a self-reinforcing process, the more capital comes back home, the stronger the yen; the stronger the yen, the more capital applied abroad will be sent home.
The number of leading commentators warning on US treasuries continues to grow, with Marc Faber - author of the Gloom Boom and Doom Report - saying he would not put his money in them and that under President Obama he fears the US deficit problem will worsen.
Speaking on CNBC, Faber - known as 'Doctor Doom' - said: 'Even the short term for treasuries is uncertain. If I look ten years ahead, where do I want my money? Certainly not in US treasuries.' Read more Comment: As of now, deflationary expectations dominate. How long will it last? It is futile to anticipate price inflation if it has not yet shown up. What to do? Wait, with your feet well planted in the starting block and run the heck for your life when the first signals of inflation flash.