Thursday, March 31, 2011

Please allow me to introduce myself

I'm a man of wealth and fame:

SAN FRANCISCO – The U.S. housing market may be struggling to regain its footing, but the $100 million sale of a single-family home in the heart of Silicon Valley shows that luxury properties are still in demand.
Russian billionaire Yuri Milner, a big investor in Facebook, daily deal website Groupon and "Farmville" game maker Zynga, bought the lavish, 25,500-square-foot mansion in Los Altos Hills, Calif. The sale is believed to be one of the largest in U.S. history for a single-family home.
Donald Trump sold his Palm Beach mansion for $100 million in 2008 to Russian fertilizer billionaire Dmitry Rybolovlev. Trump told The Associated Press at the time that it was the largest estate sale ever in the U.S.
Milner, the 49-year-old founder of Internet investment firm Digital Sky Technologies and chairman of Group, has no immediate plans to move into the mansion, spokesman Leonid Solovyev told The AP. Solovyev and another spokesman for the billionaire declined any further comment.
The mansion is a French-style chateau in the Loire style set on 18 acres in hills overlooking San Francisco Bay, the architect, William Hablinski, told The AP. Hablinski said the cost of the project, which took about six years to complete, was not a big concern during the building process. He would not comment on how much the seller, Fred Chan and his wife Annie, paid to build it.
"It did have a budget, it just went far beyond," he said.
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Comment: Could be the beginning of a new trend.
See video by The Rolling Stones

Wednesday, March 30, 2011

Obama down in the polls

After a brief resurgence earlier this year, President Obama's poll numbers are back in the dumps. A new Quinnipiac Poll released Wednesday finds Obama's approval rating at the lowest point in his presidency, thanks in part to voter angst over the economy and his handling of the situation in Libya.
Just 42 percent of those polled approve of the job Obama is doing, compared to 48 percent who disapprove, according to Quinnipiac. And in a bad sign for his upcoming 2012 re-election campaign, 50 percent of those polled say he doesn't deserve another term in the White House.
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Comment: What brought Obama down? I still remember vividly his campaign and how he impressed me. I was sure he would win. And win he did. But it wouldn't take long when I became totally disullusioned with this guy. That was the very moment when I learnt about his choice for cabinet. I was not only disappointed, I was shocked, I was flabbergasted. Here they were again, I reflected, the same mafia as before. The same group that was out to bring America down. How could HE, too, do THAT and re-appoint these do-not-goods? I was hit by a sad thought: this man who will now lead this great nation is either a moron or a mole. And after three years gone since then I'm still not sure whether he is one or the other.

Monday, March 28, 2011

Origin of the European sovereign debt crisis

Jesus Huerta de Soto on Philipp Bagus' thesis
"The Tragedy of the Euro"
".. The current sovereign-debt crisis is the direct result of credit expansion by the European banking system. In the early 2000s, credit was expanded especially in the periphery of the European Monetary Union such as in Ireland, Greece, Portugal, and Spain. Interest rates were reduced substantially by credit expansion coupled with a fall both in inflationary expectations and risk premiums. The sharp fall in inflationary expectations was caused by the prestige of the newly created European Central Bank as a copy of the Bundesbank. Risk premiums were reduced artificially due to the expected support by stronger nations. The result was an artificial boom. Asset-price bubbles such as a housing bubble in Spain developed. The newly created money was primarily injected in the countries of the periphery where it financed overconsumption and malinvestments, mainly in overextended automobile and construction sectors. At the same time, the credit expansion also helped to finance and expand unsustainable welfare states..."
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Comment: I totally agree with Bagus and de Soto when it comes to their monetary analysis. Yet what they neglect is the fact that the euro is more a political than an economic project. Even more: the euro is an instrument to (re)gain geopolitical power for the Europeans. In other words: the euro is an imperial tool. In this respect bad economics is a given. The euro does have moral hazard effects, yes, as the authors observe. Yet the main point is that the euro project itself is hazardous game. Bad economics would no longer matter if the gamble will succeed. Current losses would be recouped a thousandfold just if oil were traded in euros or partly in euros. As of now it is already a fact that no far-reaching decision concerning the international monetary order can be taken against the will of the leaders of the eurozone. On a net basis, and even with the costs of the current sovereign debt crisis included, the euro has been beneficial for the whole region and beyond.

Swiss Franc - the only safe haven that's left

The Swiss franc, the best-performing major currency the past year, has become the only haven in the foreign-exchange market as the Group of Seven weakens the yen and the Federal Reserve floods the U.S. financial system with dollars.
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Comment: For the Swiss franc the rule begins to click in that too much of a good thing is bad.

Saturday, March 26, 2011

It must be done

Some lawmakers and market analysts are expressing rising concerns that a demand for capital by earthquake-ravaged Japan could lead it to sell off some of its huge holdings of U.S.-issued debt, leaving the federal government in an even tighter financial pinch.
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Comment: When necessity strikes, there is no escape. What sense would it make to store money forever? The time has come to repatriate - something we announced the first day when the tragedy struck. It will take some time, though, to repatriate an amount of almost a trillion US dollars. The impact will extend over years to come. Go West, buy Yen.

Friday, March 25, 2011

Obama is a moron who has no clue

Howard Davidowitz, chairman of Davidowitz & Associates and a long-time critic of our government, is positively appalled by the turnaround approach taken by the current administration, which is to spend more money.
Davidowitz thinks President Obama is a "moron" and worries about a looming dollar crisis that will take the market down at least 6,000 points (50%).
I asked Davidowitz what he would do if he were president.
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Comment: A great man like a great nation knows when it takes to accept pain in the short run in order to gain a larger benefit in the long run. A childish man like a childish nation either doesn't understand this or is too weak to do it.

Thursday, March 24, 2011

Tipping point

Dallas Fed President Warns: US Debt Situation At “Tipping Point”

March 24, 2011 – 12:29 pm No Gravatar

Source: SHTFPlan
The latest comments from Dallas Federal Reserve President Richard Fisher at the House of Finance in Frankfurt, Germany would have been considered blogosphere doom & gloom and fear mongering just a couple of years ago:
The U.S. debt situation is at a “tipping point,” Dallas Federal Reserve Bank President Richard Fisher said on Tuesday, and urged the U.S. central bank to refrain from any further stimulus measures.
If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when,” Fisher said in a speech at the University of Frankfurt.
Fisher, seen by economists as one of the most hawkish policymakers within the Fed, said that although debt-cutting measures would be painful, he expected the U.S. to take the necessary actions.
“The short-term negotiations are very important. I look at this as a tipping point.”
He said the U.S. economy was now growing under its own steam, but voiced his concerns about building global inflation pressures and said it was now time for the central bank to stop pumping out extra support.
“The Fed has done enough, if not too much, and we should do no more.. In my opinion no further accommodation is necessary after June either by tapering off the bottom of treasuries or by adding another tranche of purchases outright.”

“The real question is when do we stop accommodation.”
“We need to continue to discuss the exit policy… but before you can tighten you have to stop accommodating,” he said.
Read More:
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Comment: We're not at but beyond the tipping point. The news has been out for decades. Few wanted to listen. Those who knew, knew, but could not get their message across because people in high places wanted it the other way and the sheeples followed. An intellectual corruption of immense proportions has taken place. The science that was supposed to hold up the light of enlightenment, economics, was taken over by a group of bandits who, so it seems, had only one thing on the mind: to bring us back into the age of darkness not knowing that the abyss they were to create would take them down along the way as well. These economists sold their soul to the state in exchange for fame, power and money. Did they really not know that their true deal was with the devil himself? Are you kiddin' me?

How the Brits got their revenge

In order to get their revenge, the Brits sent Keynes to the US and when he got his feast in 1936, the Brits knew they will win in the end. Now here we are and this is official US economic policy. Keynes is at the high command. Some call it a satire, other observers may say that they wish it were only a satire.
Here is the Keynesian economic policy that has become official US economic policy under the Obama/Bernanke rule before similar, though less vigorous attempts had been made under the Greenspan/Bush rule and under the Greenspan/Clinton rule.
"... 1. Air Force Bombing Practice

For an entire day the Air Force can carpet bomb our interstates and highways. Why should Libya get the economic boost? Roads will be off limits to avoid human casualties (building up productivity for the lost work, right?) and we can kickstart the construction sector still reeling from the housing and commercial real estate nightmare.

2. National Food Fight

Let’s take it back to the college caf and have a food fight. Our processed food tastes terrible anyway. Rules are: any and all food may be thrown at other Americans, but under no circumstances may food be preserved. Think of the fun. Sure, our hybrid, pinkish, crossbred, Monsantified tomatoes aren’t quite as messy as they used to be, but boy do they hurt more. Anyway, this is America. We have drugs for that.

3. Public School Fire Day

Every kid wants to burn down his school, right?  (Ok, ok, besides the homeschoolers.) Well, Keynesian Public School Burning Day is their chance. It can be a teaching experience for Keynesian economics. We can invite George W. Bush, so that no child is left behind.

4. Little Rascals Day

We'll give American children a bucket of baseballs and eight hours to break as many windows as possible - a national event with no spankings, groundings, or consequences. Let them loose on cars, houses, whatever. Think of all the fun in the neighborhoods.  Red houses, blue houses, yellow houses. They could start with the White House.

5. Political Car Bashing Event

We'll have all senators and state representatives bring the cars in their household to Washington, where individuals can take free swings with a baseball bat. Call’em Porsche piƱatas. With 100 senators and 435 state representatives, you’d have 1600 vehicles at a minimum. Besides economic stimulus, the electorate could let off some steam. It would be better than cash for clunkers – it would be the bash for flunkers.

6. Skyscraper Demolition

We could just take down the country the old-fashioned way, with a Marlboro and thermite.

7. Cut It Up

Afraid of cutting up credit cards, we can unleash the fiscally irresponsible on the lackluster retail sector and have them cut up, chop up, and rip up poor quality Chinese-made clothing that typically bleeds after one washing anyway. (This plan would actually be a good idea if all of the clothes manufactured for American Don Juans weren’t irrevocably produced in Dongguan).

8. The E-Party

We can develop a clay pigeon iphone app and finally give the gun-totin’ Palin-lovin’ domestic militiamen something to shoot at. We can call it the E-Party against smartphones. Actually -- this may not work. Doubtful the drug companies need more stimulus.

9. Bumper Planes

This one might not work either. I was thinking we could have some destructive fun on the tarmac with Boeings and Airbusses (ya know, to help boost the economy), but getting through security screeners would be a radiation hazard, and getting a rubdown from an agent would be worse.

10. Control-Alt-Delete Day

Now here’s one that will definitely boost the economy. We can dump the computers of air-head economists into a pool of highly fluoridated toxic tap water. Biggest splash wins!  Let's begin with Paul Krugman.

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Comment: We live in times when even extreme satire doesn't match reality.

Watch out, he'll do it again

Household wealth down 23% in 2 years - Fed

By Charles Riley, staff reporter

NEW YORK (CNNMoney) -- The average American family's household net worth declined 23% between 2007 and 2009, the Federal Reserve said Thursday.
Comment: There's more to come. Ben did it once, Ben will do it twice. And when after that he'll still be in office, he'll do it thrice. Then comes in another chairman of the Fed, and he'll do it, too, because the land of the brave has become the land of the slaves.

$ 100 bn Portugal bailout

Portugal Said to Need as Much as $99 Billion in Bailout

Preliminary calculations put the cost of a lifeline between 50 billion euros and 70 billion euros, said the officials who declined to be named because the issue is confidential. Portugal continued to rule out a rescue, a day after the parliament’s rejection of budget cuts led Prime Minister Jose Socrates to offer to quit.
A downgrade by Fitch Ratings dealt a further blow today, as European Union leaders called on Socrates and the opposition parties to unite behind belt-tightening measures that might spare Portugal from becoming the third euro country to tap emergency aid.
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Comment: Obviously it is hard for PIGS to learn to fly.

Tuesday, March 22, 2011

The Japanese way

Author Paul Theroux explains: "... The popular notion of Japanese life is one of order, where tranquillity is the ideal made into an aesthetic, whether in poetry, gardening, flower arranging, the tea ceremony, or tittuping geishas. Yet Japanese history, a chronicle of disasters both natural and man-made, helps us understand why it is also a culture of defiance. The Japanese know that they live precariously on these steep volcanic islands. Their iconic mountain, Fuji, is a volcano. Mount Asama in central Honshu has been erupting regularly for 1,500 years—the last time in 2009. Vulcanism, an aspect of their uniqueness, is celebrated; their sense of being offshore, apart, at risk—fires, earthquakes, floods, storms, as well as catastrophic bombings—is part of their culture, not as survivors but prevailing and making themselves better..."
Read more

Monday, March 21, 2011

European Stability Mechanism ESM

Europe agrees on financing for future bailout fund

Europe's post-2013 bailout fund to have paid in, callable capital; lower costs for poor states

, On Monday March 21, 2011, 3:30 pm EDT
BRUSSELS (AP) -- The eurozone's 17 finance ministers agreed Monday on how to finance the region's future bailout fund, slightly lowering the contributions that poorer states have to pay into it.
Nations that use the common euro currency will give the new European Stability Mechanism a capital base of euro80 billion ($114 billion) and provide euro620 billion ($880 billion) in callable capital and guarantees, said Olli Rehn, the European Union monetary affairs commissioner.
The ESM will start in mid-2013, succeeding the eurozone's existing bailout fund, the European Financial Stability Facility.
Full text 
Comment:  The long-established procedure is still in place. Any new obstacle along the way of unification becomes a stepping stone for the next phase of an even deeper integration.

Food prices on the rise again

Financial Sense reports:
USDA Forecast – Record Prices in 2011
Last week the USDA held their annual forum to discuss the outlook for the agriculture sector in 2011. Joseph Glauber, the USDA’s Chief Economist, forecast the grain markets will be ‘stressed’ this year and tightness will extend into 2012. Corn and soybean markets face the largest challenges due to demand and supply issues and the low levels of inventories.
Glauber forecast nominal record prices for corn, wheat and soybeans in 2011, and predicted that the tightness and high prices in the markets would "not be entirely mitigated over the course of one or even two growing seasons." Ending stocks for corn is forecast to be the smallest since 1996 and soybeans will amount to a few week's supply suggesting very little cushion for unexpected shortfalls.
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Comment: Food price inflation will trigger more rebellion across the globe and sooner or later it will hit also the developed countries and provoke social unrest.

Friday, March 18, 2011

The world economy needs Japan

DETROIT (AP) -- A week after the disaster in Japan erupted, its impact on automakers around the world is worsening.
Most of Japan's auto industry is shut down. Factories from Louisiana to Thailand are low on Japanese-made parts. Idled plants are costing companies hundreds of millions of dollars. And U.S. car dealers may not get the cars they order this spring.
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Comment: Some things get only appreciated when they're gone. Very few have given Japan the credit it deserves. The contribution of Japan to global wealth can hardly be overestimated. Too bad that the Japanese authorities adopted the wrong economics since the 1990s. They should have known better by their own experience. What will bring down Japan is not the sad natural catastrophe, what will bring down Japan now in the face of this tragedy is the bad economics that its government has applied over the last two decades.

A momentary break

Yen Falls as U.S., Canada Join G-7’s Post-Earthquake Currency Intervention

  • The yen declined the most in more than two years against the dollar as the Group of Seven nations jointly intervened in foreign-exchange markets for the first time in more than a decade.
Japan’s currency slumped against all its major counterparts as the Federal Reserve and Bank of Canada joined the Bank of Japan and European central banks in an effort to sell the yen. G-7 finance ministers and central bank chiefs said after a conference call yesterday to discuss the impact of the March 11 earthquake that they will “provide any needed cooperation.”
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Comment: No amount of intervention can stop the avalanche. We've been long the yen and will stay long. For those who've missed the ride it will pay to go against the interventionists.

Euro over $ 1.40

EURO 1.4131 +0.0109 +0.78%


Wednesday, March 16, 2011

More to come

  • The Nikkei 225 Stock Average fell for the third time this week and the yen extended gains versus the dollar after reaching a post-World War II high amid growing risks of radiation leaks from Japan’s crippled nuclear plants.
    Full text
    Comment: We're in the early stage of repatriation. Falling stocks and rising yen are the trend.

A Europe of good girls and bad boys

EU’s ‘Good Girls’ Can’t Keep Footing Debt Bill, Halonen Says

Europe’s top-rated economies like Germany and Finland need to stop paying for the fiscal sins of the euro region’s weakest members if the bloc is ever to have a “fair system,” Finnish President Tarja Halonen said.
“The good girls, like Finland and Germany, they are not the payers for the future,” Halonen, 67, said yesterday in New York in an interview with Bloomberg Television’s Andrea Catherwood. “European citizens expect that there will be also a fair system inside the European Union and in the euro, and that’s why we have to have quite hard discipline.”
Finland, one of the single currency area’s six AAA rated members, has seen anti-euro sentiment swell as polls indicate taxpayers in the Nordic country are tired of supporting governments that have overspent. Though Europe’s leaders on March 12 agreed to boost the region’s bailout facility, they remain divided on how to do so in practice. Finnish Prime Minister Mari Kiviniemi said March 9 her government wants the euro area to target stricter economic goals rather than allow “joint liability.”
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Comment: The EU is like marriage and in marriage it is where the bad boys learn how to behave. It may take some time, though, yet learn they will because a divorce is too costly.

No freedom for the Arab world

Arab Uprisings Lose Momentum as `Status Quo' Fights Back

Bombs and tear gas are threatening to smother the “Arab Spring” that toppled the leaders of Egypt and Tunisia and promised to spread democracy in the Middle East.
Already fighting two wars in Muslim countries, the U.S. and Europe were reluctant to engage in a third, enabling Muammar Qaddafi to turn the tide against Libyan rebels. In Bahrain, security forces today used tear gas to drive protesters from their main rallying point in the capital Manama, two days after Saudi Arabia sent troops to bolster the ruling family.
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Comment: The Western leader failed to give clear signs of support at the crucial moment when the rebellion was moving forward. Gahafi has regained control. This way he set a bad exemple which will be followed by the bunch of the rest of the dictators - small and great in the Arab world and beyond.

Caroline Baum and Summers' "General Theory of Nonsense"

Earthquakes Don't Add Up to Wealth of Nations: Caroline Baum

It takes a crisis, such as the financial meltdown in 2008, to rally support for a Keynesian style fiscal stimulus.
It takes another kind of crisis, specifically the earthquake and tsunami that devastated the northeastern coast of Japan last week, to expose the Keynesian fallacy that the government can spend its way to prosperity.
For that reason, Acts of God provide a teaching moment. They make the distinction between spending and wealth so blatantly obvious that even the most dyed-in-the-wool believer in the value of digging holes and filling them up will be hard pressed to deny it....
Yet some economists still see a silver lining for Japan’s economy in the wake of the disaster, claiming reconstruction efforts will create jobs and stimulate growth.
They’re not optimists; they’re just misinformed.
Larry Summers managed to put his foot in his mouth last week when asked about the effect of the earthquake. The former top economic adviser to President Barack Obama, former Harvard University president, former Treasury secretary and now ordinary professor at Harvard’s Kennedy School of Government, told CNBC the earthquake and its aftermath “may lead to some temporary increments, ironically, to GDP as a process of rebuilding takes place. In the wake of the earlier Kobe earthquake, Japan actually gained some economic strength.” General Theory of Nonsense.
Read rest of the story
Comment: It used to be that the nutty professor was often a genius. Now we have nutty professors who lack any genius but dabble in public opionion and walk the corridors of power. No wonder we're at where we are.

Tuesday, March 15, 2011

A lot to sell

WASHINGTON (AP) -- Japan increased its holdings of U.S. government debt for an eighth straight month in January. But the second-largest holder of U.S. Treasury bonds will likely scale back its purchases of foreign holdings, and even sell off some, in coming months to divert money toward rebuilding a nation devastated by a powerful earthquake and an ensuing nuclear crisis.
The Treasury Department said Tuesday that Japan boosted its holdings 0.4 percent to $885.9 billion in January.
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Comment: There's a lot to sell, and sell they must.

Repatriation begins

The yen appreciated 1.8 percent to 112.16 versus the euro at 8:55 a.m. in New York, from 114.22 yesterday. The yen advanced 1 percent to 80.79 per dollar, from 81.63. The Japan currency strengthened to almost 80.22 reached Nov. 1, the strongest since April 1995 when it reached a postwar record of 79.75.
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Comment: Repatriation of Japanese assets will be the big issue for months to come. What lies ahead is a new era in global finance.

Persistent trends of economic decline

Source: A Superpower in Decline

Monday, March 14, 2011

Pity the poor millionaire

NEW YORK (Reuters) – A million dollars ain't what it used to be.
More than four out of ten American millionaires say they do not feel rich. Indeed many would need to have at least $7.5 million in order to feel they were truly rich, according to a Fidelity Investments survey.
Some 42 percent of the more than 1,000 millionaires surveyed by Fidelity said they did not feel wealthy. Respondents had at least $1 million in investable assets, excluding any real estate or retirement accounts.
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Comment: Any amount of wealth can vanish more or less over night. There's no way to find safety in money. Anyway, the best things in life are free and the second best things, like reading a good book for example, cost almost nothing. Who needs to be a millionaire when the best entertainment is free on youtube.

Got time, will wait

, On Monday March 14, 2011, 6:56 am EDT
BEIJING (AP) -- China's premier ruled out allowing a faster rise in its tightly controlled currency to cool surging inflation, saying Monday that Beijing has to consider the impact on Chinese companies and jobs.
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Comment: Time is on my side, yes it is. Is it?


The big story on the financial markets for the months to come will be the impact of Japanese financial repatriation.

Against retirement

Never Retire

by William Diehl
Before the mid 1950s, there was no "retirement" as we use the term today. A 1950 poll showed most workers aspired to work for as long as possible. Quitting was for the disabled. Life did not offer "twilight years," two decades of uninterrupted leisure courtesy of the U.S. taxpayer.
Just since 1960, the percentage of men over 65 still working has dropped by half. And the average retirement age keeps falling. It's down to 62, which gives the average man 18 years to be retired in its current meaning. It is not unusual to see people ending their careers in their mid-fifties.
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Comment:  "Early retirement" is another of the hoax that have been sold to us as social benefit with the caveat that one needs a government to take care that we have enough when we're old. Don't believe it. Early retirment provokes disease and an early death. Remember also that "early retirement" was a trick of the financial industry to make you pay into all kinds of schemes only to learn later on that the little that is still in your "nest" will soon be gone, too. Be determined to work as long as you can, be determined to make it in the workforce at least beyond 70.

Japan: liquidity boost and asset purchases

Japan Adds $183 Billion to Economy, Doubles Asset Purchases

The Bank of Japan poured a record amount of cash into the financial system and doubled the size of its asset-purchase plan to shield the economy from the effects of the nation’s strongest earthquake on record.
The central bank pumped 15 trillion yen ($183 billion) into money markets today to assure financial stability amid a plunge in stocks and surge in credit risk. Governor Masaaki Shirakawa and his board also enlarged a program buying assets from government bonds to exchange-traded funds to 10 trillion yen.
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Comment: The problem is not to act this way in an emergency of the size as today. The problem is that Japan did squander its wealth before that the economy is already drowned half-dead by liquidity and that the government has overborrowed long before. We have this problem with almost any governments nowadays. Nothing is left for the so-called dry day not to speak of when catastrophe hits.

Sunday, March 13, 2011

Liquidity boost

Japan Readies ‘Massive’ Liquidity as BOJ Gauges Risk to Post-Quake Economy

The Bank of Japan may today inject more short-term cash into the banking system after the nation’s most powerful earthquake on record, while keeping its asset- purchase plans unchanged as officials gauge the longer-term effect on the world’s third-largest economy.
Governor Masaaki Shirakawa told reporters late yesterday he’s ready to unleash “massive” liquidity starting this morning in Tokyo, as the BOJ seeks to assure financial stability.
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Comment: Once the principle is broken, there is always a reason to be found to boost liquidity and augment government spending. If it isn't an earthquake, it is 9/11, and if it is not 9/11, it is 2YK or midterm election or whatever. Did anyone note that there are no "Principles of Economics" textbooks anymore? Yes, Virginia, there are no principles anymore in this trade.

Saturday, March 12, 2011

Good grief, Summers

'Tsunami an Economic Disaster? Not Necessarily’

I was right:
The natural disaster of a tsunami could actually provide a temporary boost to the global economy.
Larry Summers, former director of President Obama’s economic council and a former head of the World Bank, said rebuilding could temporarily boost the Japanese economy.
More (if you can stand it), here.
Bastiat weeps time and time again.

Comment: According to Summers' thesis, it would be great to have an earthquake, a tsunami and also a new war every year. Following Summers' logic, it is important to note, though, that in order to have maximum destruction of our own economy we better have a civil war. I guess a new plague would also work wonders. How come people like Summers end up in high places? Because or despite their perversity of thought?  Because -  I tend to guess. If Summers' fools talk what they teach at Harvard nowadays? Then I'd say God bless America. The country needs His help more than ever before.

Friday, March 11, 2011

Worth to remember

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

Closer euro economic policy coordination

BRUSSELS (AP) -- Leaders of the 17 countries that use the euro agreed Friday to better coordinate their economic policies to improve competitiveness and keep public deficits in check.
The so-called "pact for the euro" -- formerly dubbed the "pact for competitiveness" -- is an important prerequisite for Germany, the eurozone's biggest economy, to extending further help to the eurozone's weaker members as the currency union struggles with a crippling debt crisis.
In the pact, which will be formally adopted at a wider European Union summit on March 24-25, eurozone leaders commit themselves to hit annual benchmarks on economic competitiveness, boosting employment and making their budgets sustainable in the long term.
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Comment: The old story is still intact. Each new crisis that threats the euro to fall apart, provokes closer ties in the end.

Japan hit

Japan’s stocks slid 1.7 percent in Tokyo today as the earthquake struck less than half an hour before the market closed. The yen advanced 0.2 percent to 82.77 per dollar as of 5:07 p.m. in Tokyo. The MSCI Asia Pacific Index dropped 1.4 percent as of 5:22 p.m. in Tokyo, with losses accelerating after the quake. Futures on the Euro Stoxx 50 Index fell 1 percent.
The central bank said in a statement that its settlement system was working and that it was able to settle all accounts today without disruption.
Full report
Comment: Depending on the extension of the damage, one may expect a wave of financial repatriation, at least by insurers. Japan will have to do a lot of intervention to keep rates low and to dampen the rise of the yen. Public finances are bound to deteriorate further.

Day of rage in Saudi Arabia

As unrest escalated across the Middle East, activists in Saudi Arabia demanded a political voice as well. Rather than promises of democracy, they got a $36 billion handout and a slap down from Islamic clerics.
Saudi academics, writers and representatives of the minority Shiite Muslim population called on King Abdullah, the sixth monarch in the Arab world’s largest economy, to move the country toward a constitutional monarchy. Anti-government demonstrators are advocating a “Day of Rage” today, and police in anti-riot vehicles patrolled in central Riyadh, the capital, with checkpoints set up around the Al-Rajhi mosque.
“Demands for political reform will inevitably increase in the kingdom as democracy takes root in the region,” said Thomas Hegghammer, a senior research fellow at the Norwegian Defense Research Establishment in Oslo and author of “Jihad in Saudi Arabia.” “If the regime does nothing, tension will grow between conservative and progressive factions.”
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Comment: When the time for a change has come, nothing can't stop it, neither money nor guns. 

Thursday, March 10, 2011

Cowan examines the "Great Stagnation"

Product Description

America is in disarray and our economy is failing us. We have been through the biggest financial crisis since the Great Depression, unemployment remains stubbornly high, and talk of a double-dip recession persists. Americans are not pulling the world economy out of its sluggish state -- if anything we are looking to Asia to drive a recovery.Median wages have risen only slowly since the 1970s, and this multi-decade stagnation is not yet over. By contrast, the living standards of earlier generations would double every few decades. The Democratic Party seeks to expand government spending even when the middle class feels squeezed, the public sector doesn’t always perform well, and we have no good plan for paying for forthcoming entitlement spending. To the extent Republicans have a consistent platform, it consists of unrealistic claims about how tax cuts will raise revenue and stimulate economic growth. The Republicans, when they hold power, are often a bigger fiscal disaster than the Democrats. How did we get into this mess?Imagine a tropical island where the citrus and bananas hang from the trees. Low-hanging literal fruit -- you don’t even have to cook the stuff.In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land; immigrant labor; and powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are barer than we would like to think. That’s it. That is what has gone wrong.The problem won’t be solved overnight, but there are reasons to be optimistic. We simply have to recognize the underlying causes of our past prosperity—low hanging fruit—and how we will come upon more of it.

Eichengreen examines the future of the US dollar

Product Description

For more than half a century, the U.S. dollar has been not just America's currency but the world's. It is used globally by importers, exporters, investors, governments and central banks alike. Nearly three-quarters of all $100 bills circulate outside the United States. The dollar holdings of the Chinese government alone come to more than $1,000 per Chinese resident. This dependence on dollars, by banks, corporations and governments around the world, is a source of strength for the United States. It is, as a critic of U.S. policies once put it, America's "exorbitant privilege." However, recent events have raised concerns that this soon may be a privilege lost. Among these have been the effects of the financial crisis and the Great Recession: high unemployment, record federal deficits, and financial distress. In addition there is the rise of challengers like the euro and China's renminbi. Some say that the dollar may soon cease to be the world's standard currency--which would depress American living standards and weaken the country's international influence. In Exorbitant Privilege, one of our foremost economists, Barry Eichengreen, traces the rise of the dollar to international prominence over the course of the 20th century. He shows how the greenback dominated internationally in the second half of the century for the same reasons--and in the same way--that the United States dominated the global economy. But now, with the rise of China, India, Brazil and other emerging economies, America no longer towers over the global economy. It follows, Eichengreen argues, that the dollar will not be as dominant. But this does not mean that the coming changes will necessarily be sudden and dire--or that the dollar is doomed to lose its international status. Challenging the presumption that there is room for only one true global currency--either the dollar or something else--Eichengreen shows that several currencies have shared this international role over long periods. What was true in the distant past will be true, once again, in the not-too-distant future. The dollar will lose its international currency status, Eichengreen warns, only if the United States repeats the mistakes that led to the financial crisis and only if it fails to put its fiscal and financial house in order. The greenback's fate hinges, in other words, not on the actions of the Chinese government but on economic policy decisions here in the United States. Incisive, challenging and iconoclastic, Exorbitant Privilege is a fascinating analysis of the changes that lie ahead. It is a challenge, equally, to those who warn that the dollar is doomed and to those who regard its continuing dominance as inevitable.

Red ink without an end in sight

February federal budget deficit sets record

Federal budget deficit hits all-time monthly high of $222.5 billion in February

, On Thursday March 10, 2011, 3:14 pm
WASHINGTON (AP) -- The federal government's budget deficit grew by $222.5 billion in February, the largest one-month increase in history. Economists are forecasting the deficit for the year will be the biggest imbalance on record.
The Treasury Department says the February deficit surpassed the old record for any month, a $220.9 billion imbalance set in February 2010.
Through the first five months of this budget year, which began Oct. 1, the deficit totals $641.3 billion, 1.6 percent below the pace set last year.
However, economists are predicting the deficit for this year will exceed last year's imbalance. The Congressional Budget Office is forecasting a $1.5 trillion gap, giving the country a third straight year of $1 trillion-plus deficits.
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Comment: The US would not be the first country to commit national suicide because of the errors of its political and academic elites.

A scenario to consider

The Coming Rout 

by Chris Martenson

There's a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III.
Comment:  Better get out before the music will stop, and stop it will - at least for some time.

Fed about to exit?

The Federal Reserve is trying to let investors know that, even as it pursues an unprecedented expansion of monetary stimulus, it hasn’t forgotten about exiting.
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Comment: Will they? Do they? Can they?

Pimco's getting clean

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits.
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Comment: The right move.

Red ink without an end in sight

The U.S. trade deficit widened more than forecast in January to the highest level in seven months as a surge in imports led by costlier crude oil overshadowed record exports.
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Comment: Who's going to provide the financing when the Chinese no longer will do?

Change of tides

China reported an unexpected $7.3 billion trade deficit, the biggest in seven years, buttressing the government’s case against U.S. arguments for faster gains in the yuan.
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Comment: If this figures should mark the beginning of a new trend, nothing will be like it was before in international finance.

Wednesday, March 9, 2011

Overpriced college education

Study Hard to Find If Harvard Pays Off: Laurence Kotlikoff

The notion that education pays and that better education pays better is taken for granted by almost everyone. For college professors like me, this is a very convenient idea, providing a high and growing demand for our services.
Unfortunately, the facts seem to disagree. A recent study by economists Stacy Dale and Alan Krueger showed that going to more selective colleges and universities makes little difference to future income once one accounts for the underlying ability of the student. Their work confirms other studies that find no financial benefit to attending top-tier schools.
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Comment: Like medicine, it is now education that has become heavily overpriced and the reason is the usula suspect: massive overnment involvement.

Sunday, March 6, 2011

Where's Obama?

The world is in turmoil, and Obama, who? Well, Obama, the President of the United States of America is nowhere to see, nowhere to hear to speak out against the criminals in high places. Anyone right in his mind must know that the time has come for Gadhafi to go, like it was for Mubarak and will be for many more to come.
Where is Obama? Is he waiting for definite orders from his true Masters? Better not, because his Masters are as confused as he is. Blind to what is happening. What is going on won't make a halt before the White House when it's due.

Saturday, March 5, 2011

Another dictator that should go to hell

Wen's inflation angst

Fighting inflation is China’s top economic priority this year as the government aims to limit the risk of social unrest, Premier Wen Jiabao said in his state-of- the-nation speech.
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Comment: Don't believe him. Wen is right that inflation will provoke social unrest. Yet fighting inflation will also cause social unrest. Thus the authorities will just wait as they have in the past and the longer they wait the harder it gets to rein in inflation - it is the same in China as in the rest of the world.

Thursday, March 3, 2011

Backgrounder on Iceland

It was a modern thriving economy one day, and then, suddenly, the food disappeared from the shelves, the banks closed, and the ships stopped arriving. Iceland in 2008 experienced an unprecedented economic meltdown that struck fear in the hearts of people all over the world. If it could happen here, it could happen anywhere.
The economic crisis led to a political crises, with resignations galore. The whining and wailing about the disaster continues to this day, with most commentators blaming deregulation and the free market.
In Deep Freeze, economists Philipp Bagus and David Howden demonstrate that the real cause of the calamity was bad central bank policy. Rates were way too low, banks were too big to fail, housing was implicitly guaranteed, and banks were borrowing short term from abroad to finance long term bonds.
The authors discuss the implications of this maturity mismatching and zero in on the central bank policies that encouraged unsound practices. They demonstrate the cause and effect without a shadow of a doubt, using vast amounts of data and a detailed sector-by-sector look at the economy of Iceland.
What they find is another instance of the Austrian Theory of the Business Cycle, working itself out in in a way that is customized for a time and place.
Toby Baxendale writes the introducton to this story that reads like a great novel. It serves as a reminder that central banking policies aren't just about monetary arcana. They affect our lives in profound and sometimes catastrophic ways.
The Iceland Freeze is one of the great historical cases that makes Mises’s point. Let it always serve as a reminder of what happens when the laws of the market are papered over by politicians and central bankers.
This account is likely to remain the definitive one for many years.
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Eichenberg announces the demise of the dollar

Why the Dollar's Reign Is Near an End WSJ 
For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies. 
Comment: Well, thank you, Barry, for the reminder. A little bit late, I'd say after all the depreciation over the past couple years. For an early warning see Antony Mueller: The Demise of the Dollar? December 2002 which would have given you time enough to save your dollars by moving into gold, Swiss francs and the euro.

False promises

Trichet Says ECB May Raise Rates, Show `Strong Vigilance'

European Central Bank President Jean-Claude Trichet said the ECB may raise interest rates next month to fight accelerating inflation pressures.
An “increase of interest rates in the next meeting is possible,” he told reporters in Frankfurt today after the central bank left its key rate at a record low of 1 percent. “Strong vigilance is warranted,” Trichet said, adding that any increase would not necessarily be the start of a “series” of moves.
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Comment: Not different from Ben Bernanke, Trichet is too much of a coward to raise rates in time. What Trichet does at the moment is moral suasion in the hope to avoid a real rate rise later. Nevertheless, the euro has shot up to close to 1.40 to the dollar.

Wednesday, March 2, 2011

Emerging stock market boom over

Pamela Sampson, AP Business Writer, On Wednesday March 2, 2011, 8:04 am EST

BANGKOK (AP) -- Investors disillusioned by the implosion of Wall Street titans, economic anemia in Japan, and a debt debacle in Europe have found abundant opportunities to grow wealth in industrializing economies like China and India.
But now, as angry populations roil one Middle Eastern regime after the next, and discontent over escalating food prices and lagging living standards is heard elsewhere in the developing world, investors are moving staggering piles of cash out of emerging markets -- and back into what they hope are the relatively stable havens of the U.S., Europe and Japan.
That represents a major shift in sentiment since the financial crisis in 2008 upended conventional wisdom as to what is risky and what is safe as the U.S. model of freewheeling capitalism teetered on the brink of collapse.
Strenuous efforts by Europe to contain its debts, the ability of Japan's crucial export sector to weather a strengthening yen and strong corporate earnings in the U.S. have played a big part in convincing investors that the outlook is pretty promising for advanced economies in 2011...
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Comment: As it is said of Brazil that it is the country of the future - and always will be, so we can say of most of the emerging economy that they will go on emerging but never emerge.

Tuesday, March 1, 2011

Mishkin's praise of Iceland

Watch this interview of former FED governor Frederick Mishkin and learn what's been going on in a profession that is corrupted by the evils of the desire for power and money:
Comment: It is not only corruption as a consequence of unhampered greed that turns some so-called "professors"  into liars, it is also a deep-rooted incompetence among large parts of the current economics profession that makes many of them produce nonsense. Just like the current dishonest monetary system makes bankers rotten and corrupt, a false economic theory rots the minds of its protagonists.

Revision of debt statistics

Treasury: China's holdings of US debt jump 30 percent based on annual revision of data

, On Monday February 28, 2011
WASHINGTON (AP) -- China, the biggest buyer of U.S. Treasury securities, owns a lot more than previously estimated.
In an annual revision of the figures, the Treasury Department said Monday that China's holdings totaled $1.16 trillion at the end of December. That was an increase of 30 percent from an estimate the government made two weeks ago.
The government made the change to its monthly report based on more accurate information it obtains in an annual survey. That survey more does a better job of determining the actual owners of Treasury securities.
China was firmly in the top spot as the largest foreign holder of U.S. Treasury debt even before the revisions. But the big increase in Chinese holdings could ease fears that Chinese investors might begin dumping their U.S. holdings. Such a development could send U.S. interest rates rising. That would slow America's economic recovery and increase Washington's costs for financing the $14.3 trillion national debt.
China and Britain were the countries with the biggest revisions in the new report.
The amount of U.S. Treasury securities held by Britain fell to $272.1 billion in the new report. That's a drop of $269.2 billion from the last monthly report which put the Britain's holdings of U.S. debt at $541.3 billion. The holdings of the two countries often show big revisions when the annual report is released.
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