Fragile and Unbalanced in 2012

 Nouriel Roubini, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Implications, Read and Weep Entries, Sound Familiar?, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Global Economy, The Great American Heist, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, The Ticking Euro Bomb, This self-serving arbitrariness, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, Wage Deflation, We Are All Cooked, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Dec 172011
 

Policymakers are running out of options. Currency devaluation is a zero-sum game, because not all countries can depreciate and improve net exports at the same time. Monetary policy will be eased as inflation becomes a non-issue in advanced economies (and a lesser issue in emerging markets). But monetary policy is increasingly ineffective in advanced economies, where the problems stem from insolvency – and thus creditworthiness – rather than liquidity.

Meanwhile, fiscal policy is constrained by the rise of deficits and debts, bond vigilantes, and new fiscal rules in Europe. Backstopping and bailing out financial institutions is politically unpopular, while near-insolvent governments don’t have the money to do so. And, politically, the promise of the G-20 has given way to the reality of the G-0: weak governments find it increasingly difficult to implement international policy coordination, as the worldviews, goals, and interests of advanced economies and emerging markets come into conflict.

As a result, dealing with stock imbalances – the large debts of households, financial institutions, and governments – by papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings. Likewise, addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.

Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition. But that is the challenge that a fragile and unbalanced global economy faces in 2012. To paraphrase Bette Davis in All About Eve, “Fasten your seatbelts, it’s going to be a bumpy year!”

Fasten Your Seatbelts For Rough 2012 – Nouriel Roubini, Project Syndicate

Nouriel Roubini is Chairman of Roubini Global Economics and professor at the Stern School of Business, New York University. His detailed 2012 global growth outlook is available at www.roubini.com

Posted by Brian Schuettler at 7:08 pm  

Mall Rats Can’t Bring About the Wealth of Nations

 Investment in Infrastructure Is A Win/Win, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Small Business-Bedrock of America, Subsidiarity, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, The Ticking Euro Bomb, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Dec 042011
 

there is something fundamentally wrong with a culture that promotes spending as the key to health and wealth. A multidecade borrowing-and-spending binge whittled the U.S. savings rate from an average of 9.6 percent in the 1970s, to 8.6 percent in the 1980s, to 5.5 percent in the 1990s, to 3.3 percent in the 2000s. At one point during the housing bubble, the savings rate approached zero.

My generation learned about the virtues of thrift from our parents, who were children of the Great Depression. Subsequent generations haven’t had the benefit of real-world teachers. For them, the 1930s are a story told through sepia-toned photographs of ravaged dust-bowl farms and bread lines.

Younger generations of Americans have grown up on conspicuous consumption. The focus has been on what something costs today — the monthly interest payment on the credit card or mortgage — not whether the car or home is affordable. Easy and cheap credit made it all possible.

Incentive to Spend

The Federal Reserve is complicit, too, in discouraging saving by holding its benchmark rate close to zero and pledging to keep it there at least through mid-2013. Consumers aren’t getting paid to save. The rate they can earn on bank deposits is negative when adjusted for current or expected inflation. Therefore, they spend. High real rates induce consumers to forgo current spending and save.

Households have been deleveraging for three years in an attempt to repair their balance sheets. Yet many economists and policy makers advocate more borrowing and spending as a cure for what ails the economy, and cheer as mall rats infest stores in the middle of the night. How can that be?

I suspect it’s the old short-run/long-run dichotomy. By now, though, it should be obvious that the U.S. suffers from an extreme case of short-term thinking, and it underpins decisions on everything from tax-and-spend policy to monetary policy.

Even the stock market applauds more “consumption,” a synonym for spending I try to avoid. A former editor said the word made him think of people wasting away from tuberculosis, which happens to be Merriam-Webster’s first definition. It was enough to convince me.

In the context of this column, however, the alternate definition seems appropriate: “the utilization of economic goods in the satisfaction of wants … resulting chiefly in their destruction, deterioration, or transformation.”

“Destruction” should be a tip-off that whatever it is, it isn’t wealth.

Mall Rats Don’t Produce Wealth of Nations – Caroline Baum, Bloomberg

Posted by Brian Schuettler at 10:09 am  

Prepare For Europe Collapse Before New Year

 A Changing Europe, A Moral Question - Not A Political One, Back to the basics, Bond Market, CDOs, Collateral Damage, Coming Social Unrest, Consumption Ran the Old Economy, Decapitalization, Deflation-Inflation-Stagflation, Deleveraging, Devaluation, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, European Union?, Fiat Currency, Financing Terrorism, Having Fun With Derivatives, History of Finance, IMF Issues - Discussion, Insolvency, Integrity and Responsibility, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, It's the Tribes, It's Your Turn to Cry FOR ME, Let's Call What It Is - DEPRESSION, No Bank Is Indispensable, PANDEMIC, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, PIIGS Default?, Political Chaos, Read and Weep Entries, Smaller Can Be Better, Strategizing Suppy Chain Links, Subsidiarity, The Big Fat Greek Question, The Consequences of Greed, The Currency Wars Officially Begin, The Financial Elite, The Global Economy, The Importance of Strategic Planning, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Suffering Poor, The Ticking Euro Bomb, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, Wage Deflation, Watch The China Market, We Are All Cooked, We Need Open Derivative Models  No Responses »
Nov 122011
 

It’s official: The European Financial Stability Facility (EFSF) plan announced at the EU summit on October 27th is essentially dead prior to arrival.

As a consequence, Angela Merkel and Nicolas Sarkozy appear to be betraying signs of throwing in the towel on the Euro project as it exists today. They appear to be actively contemplating ways to engineer an orderly breakup of the Euro.

As financial market participants gets wind of their intentions – albeit tentative – expect financial markets to accelerate the unfolding of events. The entire Euro edifice could collapse before the New Year.

EFSF Chief: The Insurance Plan Is Dead Prior To Arrival

When the Chief of the EFSF is pessimistic about the capacity of the EFSF to be leveraged to an extent that is adequate to the task at hand, then you might as well kiss the whole thing goodbye.

In a little noted article in Thursday’s FT, Klaus Regling, head of the EFSF essentially admitted that the plan agreed upon at the EU summit on October summit to use the EFSF as collateral for a first-loss insurance scheme is essentially dead.

As I predicted would occur in an article of mine several weeks ago entitled “Europe’s Inane Idea: Fake Brady Bonds,” the EFSF chief has acknowledged that there is no interest on the part of investors to purchase PIIGS bonds with a first-loss guarantee of only 20%.

Regling believes that a first-loss guarantee of 30% may be required to garner any interest.

Personally, I have serious doubts that there would be sufficient interest. Any issuance that actually requires a 30% loss guarantee in order to be viable simply has an implicit default risk profile that will be unable to garner sponsorship of sufficient size.

Since there are only about 250 billion euros available for the EFSF first-loss insurance scheme, that means that, even assuming 30% were sufficient, the mechanism would only be adequate to cover about 800 billion euros worth of debt issuance by Italy and Spain — and any other euro area country that needed funding.

It has been estimated that roughly two trillion euros of funding are needed to simply merely meet projected roll-over and fresh financing needs through mid 2013. Therefore, the 800 billion projection is totally insufficient to the task at hand.

If $800 billion in guarantees are all that Europe can come up with, Europe would probably better off wasting precious resources on this scheme at all.

That is why the EFSF first-loss guarantee proposal seems to be dead on arrival. The plan is totally insufficient, and therefore is unlikely to be implemented at all.

I believe that this realization is thoroughly discouraging the Eurocrats that are charged with structuring the EFSF insurance facility and selling it to investors. These Eurocrats are relaying their pessimism back to Merkel and Sarkozy in real time. This in turn, is prompting Merkel and Sarkozy to begin to contemplate “exit strategies.”

Imminent Fiasco

Because Merkel and Sarkozy are unwilling or are unable to support the only viable option available to them that is to fund bond purchases via the ECB, they appear to be engaging in preliminary speculations regarding a possible exit plan. The problem is that there is no viable exit plan that would not entail a total economic and financial disaster.

It will be impossible for Merkel, Sarkozy and other European leaders to prepare an exit strategy without their intentions being leaked to the press. Financial markets will therefore unravel any and all plans that they contemplate before they can even commit them to paper.

As soon as markets realize that the original EFSF scheme is being abandoned and that the entire Euro project will be restructured, the Euro will be crushed, the European banking system will become insolvent and global financial markets will freeze up.

Merkozy Musings

Sarkozy is already openly musing about a “two-speed” Europe. He envisions a group of countries that will quickly move towards tight fiscal and economic integration and another group of countries that will remain fiscally and monetarily independent.

Sarkozy has stated that he believes that a tight federation is impossible for a large group of economically, politically and culturally disparate countries. The implication is that the group of 16 nations that currently comprise the Euro is probably too large to be manageable.

At the same time, Merkel is already dreaming about a “New Europe.” Exactly what Germany’s Chancellor means by this is ambiguous. However, it is clear that Merkel has in mind much tighter fiscal and economic integration. In this regard Merkel must know that several current Euro members may be unable or unwilling to join in such a tight federation.

The problem with Sarkozy’s and Merkel’s musings is that they are completely irrelevant and even counterproductive to the current task at hand. The issues that they are touching on were issues that needed to have been resolved at the inception of the Euro. At this point, the question is how the damage can best be undone, not to debate what should have been.

Conclusion

Merkel and Sarkozy will soon learn that an orderly break-up of the Euro is not possible. Even the slightest hint that a breakup is being contemplated will cause a global financial disturbance that is so great that any perceived benefits of a break-up will be completely overwhelmed by the costs that will be imposed by the market.

Prepare For Europe Collapse Before New Year by James A. Kostohryz


Posted by Brian Schuettler at 10:58 am  

“forgive us our debts, as we forgive our debtors”: an American year of Jubilee

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, Back to the basics, Collateral Damage, Coming Social Unrest, Consumption Ran the Old Economy, Coup d'etat in America, Deflation-Inflation-Stagflation, Economic Analysis Isn't Science, History of Finance, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, Moral Hazard, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Political Implications, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Judeo-Christian Political Coalition, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Are All Guilty, We Have Become Beggars To The World  No Responses »
Oct 312011
 

The American financial system seems ultramodern in its complexity, but it is actually ancient in the brutal ways wealth asserts power over others. The earliest societies were torn by conflicts between lenders and borrowers, the rich versus the poor. They were compelled to fashion hard rules and put restraints on lending to curb the cruelties and promote a moral minimum for social justice. Nearly every country and culture embedded these values in religious tenets that governments enforced. Anthropologist David Graeber asserts provocatively in his book Debt: The First 5,000 Years that the power struggles over debt were probably the starting point for developing civilization’s moral codes. The arguments typically began when kings or landowners lent some of their surplus wealth to peasant farmers, then took away the debtors’ property if they failed to repay the loans. In olden days, the creditor would seize the debtor’s livestock and vineyard, perhaps even his children to be enslaved as household servants, until the debts were repaid. If the failure of borrowers persisted, the wealthy lenders would wind up owning all the property, with the peasants reduced to tenant farmers on the land they had once owned. The negative cycle stopped when the peasants could no longer borrow because they had nothing left for lenders to claim in default. Economic life at that point was frozen or depressed, no longer functioning. In a rough sense, this resembles what happened to our economy in the financial crisis. Debtors were tapped out, up to their eyes in debt, and creditors recognized that they could not lend to them anymore without losing their money. In modern economies, no one takes away their children, but they do seize homes and cars and other assets. The ancient Hebrew society worked out a solution for recurring debt crises—you can find it in the Bible. Every seven years (in some interpretations, every fifty) the cycle of debt accumulation was erased by a declaration of general forgiveness. This was called the year of jubilee, and Christianity embraced the same moral principles (“forgive us our debts, as we forgive our debtors”). Property was returned to the original owners, and children and slaves were freed. Everyone was redeemed. The economy was freed to start over again. Graeber thinks Judaism’s reform laws were probably influenced by the Babylonians, who issued “clean slate” edicts when excessive debt accumulation threatened social crisis. Graeber notes that nearly every society, ancient and modern, shares moral confusion about debt, with contradictory attitudes. On the one hand, “Paying back money one has borrowed is a simple matter of morality.” On the other hand, “Anyone in the habit of lending money is evil.” Americans share this ambivalence. Here is what Americans can learn from the ancients: severe inequality of wealth and income is not just a question of morality. Inequality is the fundamental source of the disorder that leads to financial crisis and chokes off the economy. Ancient religious principles like the limits on interest rates were a practical way of maintaining balance in economic life. Taking away those rules—as US politicians did when they repealed prudent regulations of banking and finance—in effect authorized the growing inequality that eventually leads to chaos. Modern economists and their supposed “science” generally ignore the ancient wisdom. Most would probably dismiss the connection as folklore. Some economists study inequality and what drives it. Others study financial fragility and macroeconomic volatility. But the two subjects are seldom addressed as underlying cause and effect. Gross concentrations of money at the top help explain why the system eventually stalls out. This is a basic insight that ought to inform the agenda for recovery. Inequality matters.

Economists Michael Kumhof and Romain Rancière wrote a breakthrough paper for the IMF that made the connection between inequality and financial crisis. “The crisis,” they wrote, “is the ultimate result, after a period of decades, of a shock to…two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population.” The 5 percent, broadly speaking, lend to the 95 percent, and in so doing gain still greater wealth and power. The shock comes when the creditor class suddenly realizes that the borrowers are drowning in debt and cannot possibly absorb any more. At that point, financial assets connected to consumer debt are dumped and prices crash, much as they did in 2007. The authors add, “To our knowledge, our framework is the first to provide an internally consistent mechanism linking the empirically observed rise in income inequality…and the risk of a financial crisis.” It took three decades of lopsided borrowing to produce the breakdown, Kumhof and Rancière explain, but the ominous trend was evident for years. In the early 1980s the 95 percent had debts equal to about 65 percent of their income. By 2006 that figure had risen to 140 percent. They were devoting so much of their paychecks to making payments on old debt—credit cards, equity lines and mortgages—there was nothing left to make the payments on new debt. Defaults and bankruptcies were already swelling. The collapse came when creditors grasped the danger and started selling off their mortgage bonds and loans to consumers. It seems odd that the financial interests, with their brilliant analysts and high-speed computers, didn’t see the nature of the crisis until it was breaking over their heads. They may have been blinded by the fabulous wealth they were harvesting. Kumhof and Rancière point out that the same ominous combination—a run-up of debt accompanied by gaping inequality—preceded the crash of 1929. Greed may inspire optimism. But why did ordinary debtors fall into this trap? The standard line is that they, too, were blinded by greed, eager for consumer pleasures they couldn’t afford. This is true for some, but the explanation libels most working people. Wage stagnation started in the 1970s and spread widely in the Reagan era. Typically, as incomes faltered, families faced two bad choices—either go deeper into debt or surrender their middle-class standard of living. Naturally, most people tried to hang on to what they had. The responses to this crisis are well-known. People worked more—women and teenagers entered the workforce, family members took two or three jobs. And they borrowed more, paying the bills with credit cards. In these terms, average families were making heroic efforts to maintain their standard of living. They were doomed to fail unless dramatic economic reforms improved their lot. University of California economist Clair Brown predicted nearly two decades ago in her landmark study of American consumption that sooner or later working people would have to retreat to lower levels of consuming. Working harder and borrowing more had sustained them for twenty years, but neither of these remedies was repeatable. At some point the merry-go-round would have to stop. The retreat is now in full flight. Homeownership has declined by 1.1 percent over the past decade. Wages are stagnant or falling. Foreclosures are tearing through communities, and falling home prices are destroying family equity. Americans, as Whalen says, are experiencing the reverse New Deal.

Posted by Brian Schuettler at 11:30 am  

Missteps to Mayhem

 A State of Distress, AIG and all that....., Analysis & Commentary, “the Greenspan doctrine”, Banks - Crisis Discussion, Bilderbergers 1 USA 0, Collateral Damage, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Suffering Poor, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Oct 102011
 

Inside the Doomsday Machine with the outsider who predicted and profited from America’s financial Armageddon.

by Michael Burry, MD’97

 

I worry about the future of a nation that would refuse to acknowledge the true causes of the crisis. A historic opportunity was lost. America instead chose its poison as its cure, and the second “Greatest Generation” would never be born.

Today I expect the U.S. government to attempt continuing an easy money policy into the next presidential term—past the meat of the foreclosure crisis, and past the corporate and public financing humps that are upcoming. Junk bonds, incredibly, again are at all-time highs. Quantitative easing seems to be working for now. But this is an invalid validation of what America is doing, a Pyrrhic gamble. As we continue to debase our currency, Bernanke says he is not printing money. Yet I receive an email every day from the Fed saying we just bought another $7 billion or $8 billion in treasuries, monetizing the debt. The scope and breadth of quantitative easing raise severe questions about the Treasury’s needs.

Government borrowing of money for the purpose of injecting cash into society, bailing out banks, brokers and consumers, is an easy decision for a population that has not yet learned that short-sighted easy strategies are the route to long-term ruin. We never quite achieved the catharsis necessary to stoke a deep reevaluation of our wants, needs and fears.

Importantly, the toxic twins—fiat currency and an activist Fed—remain even more firmly entrenched with the financial reforms of last year. The Federal Reserve, having acquired new powers of regulation, has insisted that nothing in the field of economics or finance was of any help in predicting the crisis—period, no more comments. It’s a worthless conclusion that guarantees we’ll make the same mistake again and again.

We need better leaders, but frankly this isn’t going to happen. A problem cannot be solved if it is never acknowledged.

Taxes need to be raised, spending needs to be cut, and loopholes need to be shut if we are to have any hope of returning to a stable base. Home ownership should not be a policy of the U.S. government. The banking system needs substantial reform and bank breakups. Glass–Steagall needs a second run in a strong form. And 22.5 million public workers have no business unionizing against the taxpayer. The list of things that won’t happen—but should happen—goes on and on.

By 2020, interest expense on our national debt could very well exceed $1 trillion. All personal income taxes collected in the U.S. in one year do not total $1 trillion. Our country’s math is scary big, but even scarier is that it simply doesn’t work…

Read the rest here.

Posted by Brian Schuettler at 6:19 pm  

FREE WILL

 Coup d'etat in America, Obama's Hypocrisy, Smaller Can Be Better, Sub-Prime anytime, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Suffering Poor, Time For A New Third Party, Unindicted Co-Conspiritors  1 Response »
Aug 282011
 

A lot of people have asked why New York Attorney General Eric Schneiderman is going after the banks as aggressively as he is. It’s almost unbelievable that one lone elected official, who happens to have powerful legal tools at his disposal, is doing something that no one with any serious degree of power has done. So what is the secret? What kind of machinations is he undertaking that no one else has been able to do? I’ve known Schneiderman for a few years, back when he was a state Senator working to reform the Rockefeller drug laws. And my answer to this question is pretty simple. He wants to. That’s it. Eric Schneiderman is investigating the banks because he thinks it’s the right thing to do. So he’s doing it. This guy has thought about his politics. He wrote an article about how he sees politics in 2008 in the Nation, and in his inaugural speech as NY AG he talked about the need to restore faith in both public and private institutions. Free will still counts for something, apparently. In all the absurdly stupid punditry, the simple application of free will to our elected officials goes missing. Yeah, Obama got money from Wall Street. But Obama is choosing to pursue a policy of foreclosures and bank bailouts not because of any grand corporate scheme. He just wants to. He thinks it’s the right thing to do, and he’s doing it. If you don’t think it’s the right thing to do, then you shouldn’t be disappointed in him any more than you might have been disappointed in Bush. Obama is not trying to do the opposite of what he’s doing, he’s not repeatedly suckered by Republicans, and he isn’t naive or stupid. Obama is simply doing what he thinks is right. So is Eric Schneiderman. So is Tom Miller. So are any number of elected officials out there. In positions of power, the best expression I heard is that “up there the air is thin”. That is, you have enormous latitude, if you want to use it. Power can be wielded creatively and effectively on behalf of whatever it is the wielder wants. Now of course there are constraints, plenty of them. Smart politicians spend their time working to maximize the constraints they want to impose and weakening the ones they want to overcome. But the basic Reaganite liberal argument defending supplication towards Obama these days is that Obama is “disappointing”. In this line of thought, powerful corporate interests and Republicans are preventing him from enacting what his real agenda would be were he unfettered by this mean machine. Eric Schneiderman, who is in a far less powerful position as New York Attorney General, shows that this is utter hogwash. Obama is who he is, and anyone who thinks otherwise is selling something.

READ THE REST –

Matt Stoller: Power Politics – What Eric Schneiderman Reveals About Obama

Posted by Brian Schuettler at 8:11 pm  

Geithner’ Folly

 If I Only Knew It Was This Easy!, Integrity and Responsibility, Is Goldman Sachs Evil?, It Is Nice To Be Part of the Elite!, It Is Supposed to be a Republic!, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, It's Your Turn to Cry FOR ME, Jacksonian Democracy, Let's Call What It Is - DEPRESSION, No Bank Is Indispensable, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Regulatory Failures, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Big Fat Greek Question, The Consequences of Greed, The Dollar's Demise, The Economics of Schumpeter, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Geithner Resignation Watch  No Responses »
Aug 212011
 

  • Summer Rerun: Geithner Plan Smackdown Wrap – 08/21/2011 – Yves Smith

    • Posted by Brian Schuettler at 10:45 am  

    We need an FDR, not a toadie for the oligarchy

     A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A State of Distress, Bilderbergers 1 USA 0, Coming Social Unrest, Constitutional Questions, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, FDR, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, It Is Supposed to be a Republic!, Let's Call What It Is - DEPRESSION, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Rational Behavior, Read and Weep Entries, TARP fruit loops, The American Financial Oligarchy, The Consequences of Greed, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Unemployment Catastrophe, Unintended Consequences, We Have Become Beggars To The World, Who owns Congress-Still!  2 Responses »
    Jul 242011
     

    “On the eve of a national election, it is well for us to stop for a moment and analyze calmly and without prejudice the effect on our Nation of a victory by either of the major political parties.

    The problem of the electorate is far deeper, far more vital than the continuance in the Presidency of any individual. For the greater issue goes beyond units of humanity—it goes to humanity itself.

    In 1932 the issue was the restoration of American democracy; and the American people were in a mood to win. They did win. In 1936 the issue is the preservation of their victory. Again they are in a mood to win. Again they will win.

    More than four years ago in accepting the Democratic nomination in Chicago, I said: “Give me your help not to win votes alone, but to win in this crusade to restore America to its own people.”

    The banners of that crusade still fly in the van of a Nation that is on the march.

    It is needless to repeat the details of the program which this Administration has been hammering out on the anvils of experience. No amount of misrepresentation or statistical contortion can conceal or blur or smear that record. Neither the attacks of unscrupulous enemies nor the exaggerations of over-zealous friends will serve to mislead the American people.

    What was our hope in 1932? Above all other things the American people wanted peace. They wanted peace of mind instead of gnawing fear.

    First, they sought escape from the personal terror which had stalked them for three years. They wanted the peace that comes from security in their homes: safety for their savings, permanence in their jobs, a fair profit from their enterprise.

    Next, they wanted peace in the community, the peace that springs from the ability to meet the needs of community life: schools, playgrounds, parks, sanitation, highways—those things which are expected of solvent local government. They sought escape from disintegration and bankruptcy in local and state affairs.

    They also sought peace within the Nation: protection of their currency, fairer wages, the ending of long hours of toil, the abolition of child labor, the elimination of wild-cat speculation, the safety of their children from kidnappers.

    And, finally, they sought peace with other Nations—peace in a world of unrest. The Nation knows that I hate war, and I know that the Nation hates war.

    I submit to you a record of peace; and on that record a well-founded expectation for future peace—peace for the individual, peace for the community, peace for the Nation, and peace with the world.

    Tonight I call the roll—the roll of honor of those who stood with us in 1932 and still stand with us today.

    Written on it are the names of millions who never had a chance—men at starvation wages, women in sweatshops, children at looms.

    Written on it are the names of those who despaired, young men and young women for whom opportunity had become a will-o’-the-wisp.

    Written on it are the names of farmers whose acres yielded only bitterness, business men whose books were portents of disaster, home owners who were faced with eviction, frugal citizens whose savings were insecure.

    Written there in large letters are the names of countless other Americans of all parties and all faiths, Americans who had eyes to see and hearts to understand, whose consciences were burdened because too many of their fellows were burdened, who looked on these things four years ago and said, “This can be changed. We will change it.”

    We still lead that army in 1936. They stood with us then because in 1932 they believed. They stand with us today because in 1936 they know. And with them stand millions of new recruits who have come to know.

    Their hopes have become our record.

    We have not come this far without a struggle and I assure you we cannot go further without a struggle.

    For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

    For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

    We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

    They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

    Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

    I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

    The American people know from a four-year record that today there is only one entrance to the White House—by the front door. Since March 4, 1933, there has been only one pass-key to the White House. I have carried that key in my pocket. It is there tonight. So long as I am President, it will remain in my pocket.

    Those who used to have pass-keys are not happy. Some of them are desperate. Only desperate men with their backs to the wall would descend so far below the level of decent citizenship as to foster the current pay-envelope campaign against America’s working people. Only reckless men, heedless of consequences, would risk the disruption of the hope for a new peace between worker and employer by returning to the tactics of the labor spy.

    Here is an amazing paradox! The very employers and politicians and publishers who talk most loudly of class antagonism and the destruction of the American system now undermine that system by this attempt to coerce the votes of the wage earners of this country. It is the 1936 version of the old threat to close down the factory or the office if a particular candidate does not win. It is an old strategy of tyrants to delude their victims into fighting their battles for them.

    Every message in a pay envelope, even if it is the truth, is a command to vote according to the will of the employer. But this propaganda is worse—it is deceit.

    They tell the worker his wage will be reduced by a contribution to some vague form of old-age insurance. They carefully conceal from him the fact that for every dollar of premium he pays for that insurance, the employer pays another dollar. That omission is deceit.

    They carefully conceal from him the fact that under the federal law, he receives another insurance policy to help him if he loses his job, and that the premium of that policy is paid 100 percent by the employer and not one cent by the worker. They do not tell him that the insurance policy that is bought for him is far more favorable to him than any policy that any private insurance company could afford to issue. That omission is deceit.

    They imply to him that he pays all the cost of both forms of insurance. They carefully conceal from him the fact that for every dollar put up by him his employer puts up three dollars three for one. And that omission is deceit.

    But they are guilty of more than deceit. When they imply that the reserves thus created against both these policies will be stolen by some future Congress, diverted to some wholly foreign purpose, they attack the integrity and honor of American Government itself. Those who suggest that, are already aliens to the spirit of American democracy. Let them emigrate and try their lot under some foreign flag in which they have more confidence.

    The fraudulent nature of this attempt is well shown by the record of votes on the passage of the Social Security Act. In addition to an overwhelming majority of Democrats in both Houses, seventy-seven Republican Representatives voted for it and only eighteen against it and fifteen Republican Senators voted for it and only five against it. Where does this last-minute drive of the Republican leadership leave these Republican Representatives and Senators who helped enact this law?

    I am sure the vast majority of law-abiding businessmen who are not parties to this propaganda fully appreciate the extent of the threat to honest business contained in this coercion.

    I have expressed indignation at this form of campaigning and I am confident that the overwhelming majority of employers, workers and the general public share that indignation and will show it at the polls on Tuesday next.

    Aside from this phase of it, I prefer to remember this campaign not as bitter but only as hard-fought. There should be no bitterness or hate where the sole thought is the welfare of the United States of America. No man can occupy the office of President without realizing that he is President of all the people.

    It is because I have sought to think in terms of the whole Nation that I am confident that today, just as four years ago, the people want more than promises.

    Our vision for the future contains more than promises.

    This is our answer to those who, silent about their own plans, ask us to state our objectives.

    Of course we will continue to seek to improve working conditions for the workers of America—to reduce hours over-long, to increase wages that spell starvation, to end the labor of children, to wipe out sweatshops. Of course we will continue every effort to end monopoly in business, to support collective bargaining, to stop unfair competition, to abolish dishonorable trade practices. For all these we have only just begun to fight.

    Of course we will continue to work for cheaper electricity in the homes and on the farms of America, for better and cheaper transportation, for low interest rates, for sounder home financing, for better banking, for the regulation of security issues, for reciprocal trade among nations, for the wiping out of slums. For all these we have only just begun to fight.

    Of course we will continue our efforts in behalf of the farmers of America. With their continued cooperation we will do all in our power to end the piling up of huge surpluses which spelled ruinous prices for their crops. We will persist in successful action for better land use, for reforestation, for the conservation of water all the way from its source to the sea, for drought and flood control, for better marketing facilities for farm commodities, for a definite reduction of farm tenancy, for encouragement of farmer cooperatives, for crop insurance and a stable food supply. For all these we have only just begun to fight.

    Of course we will provide useful work for the needy unemployed; we prefer useful work to the pauperism of a dole.

    Here and now I want to make myself clear about those who disparage their fellow citizens on the relief rolls. They say that those on relief are not merely jobless—that they are worthless. Their solution for the relief problem is to end relief—to purge the rolls by starvation. To use the language of the stock broker, our needy unemployed would be cared for when, as, and if some fairy godmother should happen on the scene.

    You and I will continue to refuse to accept that estimate of our unemployed fellow Americans. Your Government is still on the same side of the street with the Good Samaritan and not with those who pass by on the other side.

    Again—what of our objectives?

    Of course we will continue our efforts for young men and women so that they may obtain an education and an opportunity to put it to use. Of course we will continue our help for the crippled, for the blind, for the mothers, our insurance for the unemployed, our security for the aged. Of course we will continue to protect the consumer against unnecessary price spreads, against the costs that are added by monopoly and speculation. We will continue our successful efforts to increase his purchasing power and to keep it constant.

    For these things, too, and for a multitude of others like them, we have only just begun to fight.

    All this—all these objectives—spell peace at home. All our actions, all our ideals, spell also peace with other nations.

    Today there is war and rumor of war. We want none of it. But while we guard our shores against threats of war, we will continue to remove the causes of unrest and antagonism at home which might make our people easier victims to those for whom foreign war is profitable. You know well that those who stand to profit by war are not on our side in this campaign.

    “Peace on earth, good will toward men”—democracy must cling to that message. For it is my deep conviction that democracy cannot live without that true religion which gives a nation a sense of justice and of moral purpose. Above our political forums, above our market places stand the altars of our faith—altars on which burn the fires of devotion that maintain all that is best in us and all that is best in our Nation.

    We have need of that devotion today. It is that which makes it possible for government to persuade those who are mentally prepared to fight each other to go on instead, to work for and to sacrifice for each other. That is why we need to say with the Prophet: “What doth the Lord require of thee—but to do justly, to love mercy and to walk humbly with thy God.” That is why the recovery we seek, the recovery we are winning, is more than economic. In it are included justice and love and humility, not for ourselves as individuals alone, but for our Nation.

    That is the road to peace.”

    Franklin D. Roosevelt
    Madison Square Garden, October 31, 1936

    http://jessescrossroadscafe.blogspot.com/2011/07/fdr-speech-1936.html

    Posted by Brian Schuettler at 10:43 am  

    The Rise of the Wrecking-Ball Right

     A Moral Question - Not A Political One, A State of Distress, BANK RESERVES FOR TBTF, Bilderbergers 1 USA 0, Constitutional Questions, Coup d'etat in America, Deleveraging, Devaluation, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, Federal Reserve-Discussion, Figures don't lie but Liars can figure, Goldman: Underwriter or Undertaker?, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, History of Finance, Insolvency, Integrity and Responsibility, Is The Market Rally Real?, IT'S ALL ABOUT POWER AND MONEY, Jacksonian Democracy, Moral Hazard, Obama's Hypocrisy, Objectivism, Our phony middle class, Patience is a virtue...Delusion is a vice, Political Chaos, Regulatory Failures, Robert Reich, Small Business-Bedrock of America, Smaller Can Be Better, Subsidiarity, TARP fruit loops, The American Financial Oligarchy, The Big Fat Greek Question, The Consequences of Greed, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Growing American Fascist State, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, Who owns Congress-Still!  1 Response »
    Jul 162011
     

    One would have thought the last few years of mine disasters, exploding oil rigs, nuclear meltdowns, malfeasance on Wall Street, wildly-escalating costs of health insurance, rip-roaring CEO pay, and mass layoffs would have offered a singular opportunity to explain why the nation’s collective well-being requires a strong and effective government representing the interests of average people.

    The Rise of the Wrecking-Ball Right

    Posted by Brian Schuettler at 10:53 am  

    WAVE GOODBYE TO THE DOLLAR

     Death of the Dollar, Deflation-Inflation-Stagflation, Dismal Science-Ignorant Scientists?, Dollar Musings, Economic Analysis Isn't Science, Federal Reserve-Discussion, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, Monetary Policy - Discussion, Our phony middle class, Patience is a virtue...Delusion is a vice, Politicians, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Big Fat Greek Question, The Consequences of Greed, The Currency Wars Officially Begin, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The Judeo-Christian Political Coalition, The New American Socialism, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, USA Is the New Japan, Wage Deflation, Want To Buy A Car?, We Are All Cooked, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!  No Responses »
    Jun 112011
     

    BEN BERNANKE’S speech on Tuesday got all the attention, but the speech later that day by Bill Dudley, head of the New York Fed, is more intriguing. In it he analyses the macroeconomic origins of the global imbalances that precipitated the crisis and prescribes the policy path forward.

    He does so in logical, crisp and accessible language. Mr Dudley is, however, still a central banker, which means he must be translated, especially when it comes to the delicate subject of the dollar. In a nutshell, Mr Dudley tells us that aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies (EMEs) cooperate and let their exchange rates appreciate (i.e. let the dollar fall), but absent such cooperation, don’t expect the Fed to change course.

    Mr Dudley starts with some striking statistics. EMEs now account for 38% of world GDP, up from 23% in 1990, and 59% of world growth in the 2000s, up from 25% in the 1980s. Since 2007, the BRICS’ GDP has risen 31%; the G7’s, just 1%.

    He retells the familiar story of how global imbalances bred the financial crisis, but with a twist. In the past, the Federal Reserve and Mr Bernanke (here and here) have denied culpability for the credit bubble, blaming instead the influx of excess savings from EMEs into developed-world assets. Mr Dudley, in effect, says both bear the blame:

    [T]he combination of rapid gains in production capacity and relatively repressed consumption in the EME world helped foster a global deficiency of demand relative to supply. In these circumstances, the United States and many other industrialized economies had to sustain domestic demand at elevated levels in order to achieve “full employment” and prevent deflation. For the United States, the consequence was elevated consumption facilitated by asset price inflation, easy underwriting standards for credit and structural budget deficits.

     

    Posted by Brian Schuettler at 5:15 pm  

    Easy Money for the Banksters

     Coup d'etat in America, IT'S ALL ABOUT POWER AND MONEY, Moral Hazard, Obama's Hypocrisy, Political Implications, Regulatory Failures, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The New American Socialism, The Obama OMG magic factory, The Suffering Poor, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, USA Is the New Japan, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
    Jun 042011
     

    A newly-released study from the Congressional Research Service bolsters claims that the nation’s largest banks profited off the Federal Reserve’s financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates.

    The report reinforces long-held beliefs that the banking system in essence engaged in taxpayer-financed arbitrage: They got money for free, then lent it back to Uncle Sam while collecting juicy returns. Left out of the equation are the millions of everyday borrowers, like households and small businesses, who were unable to secure loans needed to tide them over until the crisis ended.

    The Fed released records under pressure in December and March that showed the extent of its largesse. The CRS study shows for the first time how some of the most sophisticated financial firms could have taken the Fed’s money and flipped easy profits simply by lending it back to another arm of the government.

    The report was requested by Sen. Bernie Sanders (I-Vt.), who likened the crisis-era emergency loans to “direct corporate welfare to big banks,” in a statement. The cash likely was lent back to Uncle Sam in the form of Treasuries and other debt “instead of using the Fed loans to reinvest in the economy,” Sanders added.

    In all, more than $3 trillion was lent to financial institutions from the Fed, and terms were generous. Junk-rated securities were pledged as collateral for taxpayer-backed loans. The Fed did not provide conditions for how the money was to be used.

    As part of one Fed program, on 33 separate occasions, nine firms were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities for four-week intervals, paying one-time fees that amounted to the minuscule rate of 0.0078 percent.

    Guest Post: Congressional Research Service Confirms Big Banks Borrowed Cash For Next To Nothing, Then Lent It Back to the Federal Government at Much Higher Rates

    Posted by Brian Schuettler at 1:03 pm  

    How The Government Created A Financial Crisis

     Greenspan is kind of stupid, Our phony middle class, Patience is a virtue...Delusion is a vice, Small Business-Bedrock of America, TARP fruit loops, The Arrogance of Power, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Global Economy, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority  1 Response »
    May 222011
     

    Federal Reserve Board Chairman Alan Greenspan and other governors at the Fed eventually departed from Reagan’s injunction that monetary policy focus on maintaining stable prices, and started trying to stimulate the economy through old Keynesian policies of easy money.  The Bush Treasury supported that, favoring a cheap dollar in response to ubiquitous business lobbyists in Washington more than willing to sacrifice the long term economy to their short term export goals.  The central role of the resulting Fed policies in causing the financial crisis was most authoritatively explained by Stanford Economics Professor and monetary policy guru John Taylor in his timely book, Getting Off Track.  Taylor begins:

    The classic explanation of financial crises, going back hundreds of years, is that they are caused by excesses  — frequently monetary excesses — that lead to a boom and an inevitable bust.  In the recent crisis we had a housing boom and bust, which in turn led to financial turmoil in the United States and other countries.  I begin by showing that monetary excesses were the main cause of the boom and the resulting bust.

    Economics Professor Lawrence H. White now of George Mason University elaborates:

    In the recession of 2001, the Federal Reserve System…began aggressively expanding the U.S. money supply.  Year-over-year growth in the M-2 monetary aggregate rose briefly above 10 percent, and remained above 8 percent entering the second half of 2003.  The expansion was accompanied by the Fed repeatedly lowering its target for the federal funds (interbank short term) interest rate.  The federal funds rate began 2001 at 6.25 percent and ended the year at 1.75 percent.  It was reduced further in 2002 and 2003, in mid-2003 reaching a record low of 1 percent, where it stayed for a year.  The real Fed funds rate was negative…for two and a half years.  In purchasing power terms, during that period a borrower was not paying but rather gaining in proportion to what he borrowed.  Economist Steve Hanke has summarized the result: This set off the mother of all liquidity cycles and yet another massive demand bubble.

    From early 2001 until late 2006, as White further explains, “the Fed pushed the actual federal funds rate below the estimated rate that would have been consistent with targeting a 2% inflation.”  That estimated rate is determined by what is known in economics as the Taylor Rule.  Steve Forbes adds, “In 2004, the Federal Reserve made a fateful miscalculation.  It thought the U.S. economy was much weaker than it was and therefore pumped out excess liquidity and kept interest rates artificially low.”

    White continues:

    The demand bubble thus created went heavily into real estate.  From mid-2003 to mid-2007, while the dollar volume of final sales of goods and services was growing at 5 percent to 7 percent, real estate loans at commercial banks were growing at 10-17 percent.  Credit fueled demand pushed up the sale prices of existing houses and encouraged the construction of new housing on undeveloped land, in both cases absorbing the increased dollar volume of mortgages.  Because real estate is an especially long-lived asset, its market value is especially boosted by low interest rates.

    Sustained below-market interest rates distort huge flows of investment into housing in particular because the lower rates most favor the longest term investments.

    But low interest rates by themselves do not mean monetary policy is excessively loose.  That depends on what market prices are saying, as reflected by the dollar, gold and inflation.  The Fed’s loose monetary policies during the Bush Administration, however, also generated sharp declines in the dollar.  The dollar was worth 1.15 euros near the start of 2002, but it declined by close to 50% near to 0.6 Euros by the start of 2008.  The price of gold soared from $350 near the end of 2002 to almost $1,000 by the start of 2008.  Even inflation, defeated 25 years previously, started to come back, increasing from 1.55% at the end of 2001, to as high as 5.6% in July 2008.

    The cheap dollar monetary policy further inflated the housing bubble because it generated flight into real assets to escape the depreciating greenback.  This also explains why the housing crisis showed up virtually worldwide.  The Fed managing the world’s reserve currency effectively exported its weak currency policy globally.  Other countries loosen their monetary policies to avoid the negative short term trade implications of appreciating currencies relative to the dollar.  Moreover, the dollar’s weakness masks the looseness of their monetary policies, misleading them into even looser policies.

    When the Fed finally realized it had to rein in its loose monetary policy, soaring housing prices slowed, flattened out and then tipped into declines.  The steep decline in housing prices produced chaos throughout the financial industry in the U.S., and ultimately the world, as widespread financial assets based on housing collapsed in value.  As Taylor concluded, “[The] extra-easy [Fed monetary] policy accelerated the housing boom and thereby ultimately led to the housing bust.”

    How Our Government Created the Financial Crisis – Peter Ferrara, Forbes

    Posted by Brian Schuettler at 10:07 am  

    The End of QE2 Is Going to Be a Disaster

     A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A State of Distress, A Time To Repent, AIG and all that....., “the Greenspan doctrine”, Bilderbergers 1 USA 0, Coup d'etat in America, Credit Card Debt, Death of the Dollar, Deficit Death Spiral, Deflation-Inflation-Stagflation, Deleveraging, Devaluation, Dismal Science-Ignorant Scientists?, HEY AMERICA-STICK 'EM UP!, Is Goldman Sachs Evil?, Is The Market Rally Real?, It Is Supposed to be a Republic!, IT'S ALL ABOUT POWER AND MONEY, Jacksonian Democracy, Joseph Stiglitz, Labor Issues, Let's Call What It Is - DEPRESSION, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Robert Reich, Ron Paul Stands Tall, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The New American Socialism, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, USA Is the New Japan, Wage Deflation, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  1 Response »
    May 152011
     

    The end of the second round of quantitative easing (QE2) is going to be a complete disaster for the paper markets — specifically commodities, stocks, and then finally bonds, in that order, with losses of 20% to 50% by the end of October. The only thing that will arrest the plunge will be QE3, although we should remain alert to the likelihood that it will be named something else in an attempt to obscure what it really is. Perhaps it will be known as the “Muni Asset Trust Term Liquidity Facility” or the “American Prime Purchase Program,” but whatever it is called, it will involve hundreds of billions of thin-air dollars being printed and dumped into the financial system.

    A Premature Victory Lap

    Ben Bernanke recently stood at a lectern and announced to the assembled audience that the Fed’s recent policies could be credited with elevated stock prices and an improved employment statistic while somehow keeping inflation low.

    It was his own version of a “mission accomplished” speech, just like the one G. W. Bush gave. Similarly, it does not mark the end of significant difficulties, but the probable beginning of a very long period of treacherous economic and financial disruption.

    Here’s one recent version of how the Fed’s actions are being interpreted, courtesy of Bloomberg:

    Bernanke’s QE2 Averts Deflation, Spurs Rally, Expands Credit

    Ben S. Bernanke’s $600 billion strike against deflation is paying off, as stock and debt markets rise, bank lending grows and economists forecast faster growth.

    The Standard & Poor’s 500 Index has gained 13.5 percent since the Federal Reserve chairman announced on Nov. 3 the plan to buy Treasuries through its so-called quantitative easing policy. Government bond yields show investors expect consumer prices to rise in line with historical averages. The riskiest companies are obtaining credit at the cheapest borrowing costs ever and Fed data show that commercial and industrial loans outstanding are rising for the first time since 2008.

    “Looking at market indicators, you have to be convinced it’s been a success,” said Bradley Tank, chief investment officer for fixed-income in Chicago at Neuberger Berman Fixed Income LLC, which oversees about $83 billion. “When you get into periods of aggressive central bank easing, and we’re clearly in the most aggressive period of easing that we’ve ever seen, the markets tend to lead the real economy.”

    A rising stock market, low inflation expectations, and lots and lots of cheap credit for even the riskiest companies. What’s not to like?

    The main problem is that this is all an illusion.
    The End of QE2 Is Going to Be a Disaster – Chris Martenson, Minyanville

    Posted by Brian Schuettler at 10:17 am  

    Hey America, It’s Your Fault! How’s That For Change?

     Figures don't lie but Liars can figure, Goldman: Underwriter or Undertaker?, Greenspan is kind of stupid, Is Goldman Sachs Evil?, Is The Market Rally Real?, It Is Supposed to be a Republic!, IT'S ALL ABOUT POWER AND MONEY, No Bank Is Indispensable, Obama Bingo, The American Financial Oligarchy, The Big Fat Greek Question, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory, The Sorry State Of American Manufacturing, Unindicted Co-Conspiritors, Unintended Consequences, USA Is the New Japan, We Are All Cooked, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
    Apr 092011
     

    My comrade Jonah Goldberg compares America’s present situation to that of a plane with one engine out belching smoke. But, if anything, he understates the crisis. Air America doesn’t need a busted engine because it’s pre-programmed to crash.

    Our biggest problem is Medicare and other “entitlements.” They’re the automatic pilot of Big Government. Whoever’s in the captain’s seat makes no difference. The flight is pre-programmed to hit the iceberg, if you’ll forgive me switching mass-transit metaphors in midstream.

    For some reason, Obama, Reid, Pelosi, Harkin & Co. don’t seem to mind this. If you recall the smile on the face of the “automatic pilot” in “Airplane!” as he’s being inflated, that’s pretty much the Democrats’ attitude to binge-spending as a permanent fact of life.

    Hey America, It’s Your Fault! How’s That For Change? – Mark Steyn, IBD

    Posted by Brian Schuettler at 5:58 pm  

    Can Europe Be Saved?

     Analysis & Commentary, Collateral Damage, Coming Social Unrest, European Union?, PIIGS Default?, Political Chaos, Secularized Lending, Sub-Prime anytime, The Big Fat Greek Question, The Consequences of Greed, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Suffering Poor, Truth In Charity, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, We Need Open Derivative Models  No Responses »
    Jan 172011
     

    Paul Krugman does an excellent job of summarizing the genesis of the current crisis:

    THERE’S SOMETHING peculiarly apt about the fact that the current European crisis began in Greece. For Europe’s woes have all the aspects of a classical Greek tragedy, in which a man of noble character is undone by the fatal flaw of hubris.

    Enlarge This Image

    Alfredo Falvo/Contrasto/Redux

    ROME Students protested planned changes in the university system on Dec. 22 in Italy, where youth unemployment is about 25 percent.

    Not long ago Europeans could, with considerable justification, say that the current economic crisis was actually demonstrating the advantages of their economic and social model. Like the United States, Europe suffered a severe slump in the wake of the global financial meltdown; but the human costs of that slump seemed far less in Europe than in America. In much of Europe, rules governing worker firing helped limit job loss, while strong social-welfare programs ensured that even the jobless retained their health care and received a basic income. Europe’s gross domestic product might have fallen as much as ours, but the Europeans weren’t suffering anything like the same amount of misery. And the truth is that they still aren’t.

    Yet Europe is in deep crisis — because its proudest achievement, the single currency adopted by most European nations, is now in danger. More than that, it’s looking increasingly like a trap. Ireland, hailed as the Celtic Tiger not so long ago, is now struggling to avoid bankruptcy. Spain, a booming economy until recent years, now has 20 percent unemployment and faces the prospect of years of painful, grinding deflation.

    The tragedy of the Euromess is that the creation of the euro was supposed to be the finest moment in a grand and noble undertaking: the generations-long effort to bring peace, democracy and shared prosperity to a once and frequently war-torn continent. But the architects of the euro, caught up in their project’s sweep and romance, chose to ignore the mundane difficulties a shared currency would predictably encounter — to ignore warnings, which were issued right from the beginning, that Europe lacked the institutions needed to make a common currency workable. Instead, they engaged in magical thinking, acting as if the nobility of their mission transcended such concerns.

    The result is a tragedy not only for Europe but also for the world, for which Europe is a crucial role model. The Europeans have shown us that peace and unity can be brought to a region with a history of violence, and in the process they have created perhaps the most decent societies in human history, combining democracy and human rights with a level of individual economic security that America comes nowhere close to matching. These achievements are now in the process of being tarnished, as the European dream turns into a nightmare for all too many people. How did that happen?

    THE ROAD TO THE EURO
    It all began with coal and steel. On May 9, 1950 — a date whose anniversary is now celebrated as Europe Day — Robert Schuman, the French foreign minister, proposed that his nation and West Germany pool their coal and steel production. That may sound prosaic, but Schuman declared that it was much more than just a business deal.

    For one thing, the new Coal and Steel Community would make any future war between Germany and France “not merely unthinkable, but materially impossible.” And it would be a first step on the road to a “federation of Europe,” to be achieved step by step via “concrete achievements which first create a de facto solidarity.” That is, economic measures would both serve mundane ends and promote political unity.

    The Coal and Steel Community eventually evolved into a customs union within which all goods were freely traded. Then, as democracy spread within Europe, so did Europe’s unifying economic institutions. Greece, Spain and Portugal were brought in after the fall of their dictatorships; Eastern Europe after the fall of Communism.

    In the 1980s and ’90s this “widening” was accompanied by “deepening,” as Europe set about removing many of the remaining obstacles to full economic integration. (Eurospeak is a distinctive dialect, sometimes hard to understand without subtitles.) Borders were opened; freedom of personal movement was guaranteed; and product, safety and food regulations were harmonized, a process immortalized by the Eurosausage episode of the TV show “Yes Minister,” in which the minister in question is told that under new European rules, the traditional British sausage no longer qualifies as a sausage and must be renamed the Emulsified High-Fat Offal Tube. (Just to be clear, this happened only on TV.)

    The creation of the euro was proclaimed the logical next step in this process. Once again, economic growth would be fostered with actions that also reinforced European unity.

    The advantages of a single European currency were obvious. No more need to change money when you arrived in another country; no more uncertainty on the part of importers about what a contract would actually end up costing or on the part of exporters about what promised payment would actually be worth. Meanwhile, the shared currency would strengthen the sense of European unity. What could go wrong?

    Red the entire article at NYT:

    Can Europe Be Saved?

    By PAUL KRUGMAN

    Is there any way to save Europe’s democracies from sinking together in the ill-conceived currency union?

    Posted by Brian Schuettler at 10:26 am  

    The Poverty Of Ambition: Why The West Is Losing To China And India

     The China Dilemma, The Consequences of Greed, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The Global Economy, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism, The Obama OMG magic factory, The Sorry State Of American Manufacturing, Unintended Consequences, US Trade Imbalance, USA Is the New Japan, We Have Become Beggars To The World  No Responses »
    Jan 012011
     

    The last 10 years have been the worst for Western civilization since the 1930s. At the onset of the new millennium North America, Europe and Oceania stood at the cutting edge of the future, with new technologies and a lion’s share of the world’s GDP.  At its end, most of these economies limped, while economic power – and all the influence it can buy politically – had shifted to China, India and other developing countries.

    This past decade China’s economic growth rate, at 10% per annum, grew to five times that U.S.; the gap was even more disparate between China and the slower-growing  E.U.,  Yet periods of slow economic growth occur throughout history — recall the 1970s — and economies recover. The bigger problem facing Western countries, then, is a metaphysical one — a malady that the British writer Austin Williams has dubbed “the poverty of ambition.”

    This lack of ambition plagues virtually every Western country. The ability to act has become shackled by a profound pessimism that according to a recent Gallup survey

    Attitudes have consequences. The rising stars of the non-Western world — from the United Arab Emirates to Singapore and China — are building cities with startling new architecture and bold infrastructure. Their entrepreneurs are expanding their operations across the planet. contrasts with the optimism found not only in rising states like China, India and Brazil, but also deeply impoverished places like Bangladesh.

    Of course, you can chortle at the outrageous overbuilding in places like Dubai, but the Western world might do better to appreciate the scope of their ambition. Indeed, for years New York’s Empire State building, erected  during the Depression, was derided as  ”the empty state building.” Today it’s visionary developers like Iraqi-born Istabraq Janabi who are planning unlikely  new structures even  in  troubled places like Ramadi, Iraq.

    The difference in ambition can be seen clearly at airports, which now serve as the entry halls of the global economy. A traveler to John F. Kennedy Airport, Heathrow, Charles De Gualle LAX or Dulles passes through decayed remnants of fading late 20th century buildings and technology. In contrast, airports in Dubai, Hong Kong and Singapore offer clean, ultra-modern facilities with often impressive design.

    The West’s retreat from space exploration further underscores its metaphysical poverty. Today, Europe and the U.S., the world’s historic leader in the field, are cutting back on plans to explore the cosmos, which has included a manned operation to the moon. President Obama wants NASA to focus more on issues regarding climate change instead. In contrast, the rising countries of Asia, notably China and India, have begun plans for manned flights to the moon and beyond.

    This divergence is not about resources; it is about the growing conviction in the West that moving forward is an illusion or, as the British academic John Gray’s puts it, “progress is a myth.”  Victorian empire-makers and intellectuals, like their republican American successors, believed perhaps naively in the potential of humanity, economic and technological progress. Today our intellectual and political classes have gone to the other extreme.

    The West’s politics are in the grips of two profoundly retrograde mentalities. One, a small-minded conservatism, harks back to the “golden” age of the 1950s when Western power faced only a flawed Soviet challenge. The idealistic but flawed commitment to imposing democracy by force of the Bush years has faded; it has been replaced by an obsession with taming a bloated public sector. While this focus may be justified, it is fundamentally more reactive than proscriptive.

    The Left, which once portrayed itself as the bastion of scientific rationalism, increasingly embraces neo-druidism, a secular form of nature worship. This tendency’s roots can be traced back to the “Limits to Growth” ideology of the early 1970s which projected, mostly mistakenly, that the planet was about to run out of everything from food to oil. Concerns over climate change have transformed this dismal sentiment into a theology, with carbon emissions treated as a form of original sin.

    The anti-progress nature of the new Left is unmistakable. Rather than seek ways to control climate change, suggests The Guardian’s George Monbiot, environmentalism is engaged in “a battle to redefine humanity.” Monbiot believes the era of economic growth needs to come to an inevitable denouement; that “the age of heroism” will be followed by the decline of the “expanders” and the rise of the “restrainers.”

    Europe, particularly the U.K., suffers acutely from metaphysical angst.  Once touted as the new great power by its leaders and their American claque, the E.U. is quickly dissolving along cultural and historical lines; this is especially evident in the division between the  resilient countries of the north (something like the Hansa trading states of the late Middle Ages) and the weaker countries along the periphery. For the most part, Europe no longer seems capable of doing much more than finding ways to control an unaffordable welfare state without tearing about its social net. The once cherished notion of a multi-racial “new” Europe largely has dissolved as immigration has devolved from a source of demographic and cultural salvation to a widely perceived threat to the E.U.’s economic and social health as well as security.

    Such defeatism usually has less success in the United States. But America’s “progressive” left increasingly resembles its European cousins.  Obama’s science advisor, John Holdren, has been a long-time advocate of the idea of “de-development,” the purposeful slowing of growth in advanced countries in order to protect the environment. The critical infrastructure needed to accommodate upward of another  100 million Americans — new dams in the west, intelligent development of our vast natural gas reserves and building new cities, airports and ports  – are not at the center of either party’s platforms. These could be financed largely with private sources, given the right incentives.

    Read it all: Poverty of Ambition: Why the West Is Losing to China – Joel Kotkin, Forbes

    Posted by Brian Schuettler at 10:26 am  

    Rattner to Pay $10 Million to Settle Pension Kickback Case

     Public Pension Crisis, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The Financial Elite, The Intrusion of UNLAWFUL Authority, The Suffering Poor, Unindicted Co-Conspiritors  No Responses »
    Dec 312010
     
    Steven L. Rattner Brendan Hoffman/Bloomberg NewsSteven L. Rattner agreed to pay $10 million to settle charges brought by the New York attorney general.
    http://dealbook.nytimes.com/2010/12/30/rattner-settles-with-cuomo/?nl=todaysheadlines&emc=tha2
    Posted by Brian Schuettler at 9:40 am  

    The time for honoring yourself, Ben Bernanke, will soon be ended

     Ron Paul Stands Tall, The American Financial Oligarchy, The Arrogance of Power, The Bear Facts, The Consequences of Greed, The excellent adventures of Ben Bernanke, The Financial Elite, The Intrusion of UNLAWFUL Authority  No Responses »
    Dec 052010
     

    The image “http://upload.wikimedia.org/wikipedia/en/f/f3/Liberty_Forum_Ron_Paul.jpg” cannot be displayed, because it contains errors.

    Retiring New Hampshire Senator Judd Gregg, one of the Federal Reserve’s most stalwart Republican supporters, showed up for a meeting at the central bank in November bearing a surprising gift: a box of End the Fed books. As he handed out the 2009 best seller by Representative Ron Paul, a longtime Fed critic, Gregg told the gathering it would be worth reading to see what the other side is plotting.
    Fed Lent Early And Often On Easy Terms – Frank Partnoy, Financial Times
    America Bails Out a Thankless World – Editorial, Investor’s Business Daily
    Ron Paul’s Moment Arrives – Schmidt & Mattingly, Bloomberg BusinessWeek

    Posted by Brian Schuettler at 5:55 pm  

    US Treasury and Fed speak with forked tongue

     Dollar Musings, The American Financial Oligarchy, The Arrogance of Power, The Big Fat Greek Question, The China Dilemma, The Consequences of Greed, The Currency Wars Officially Begin, The Democrats Blew It Again, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Suffering Poor, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, USA Is the New Japan, Wage Deflation, Who owns Congress-Still!  No Responses »
    Nov 112010
     

    Who is in charge? Who is coordinating policy?

    Geithner: Strong Dollar!

    Bernanke: Weak Dollar!

    Huh????????????

    BJS

    _________________________________________________________


    The US is pursuing a policy of weakening its currency which is driving up exchange rates in the rest of the world, according to Alan Greenspan, the former chairman of the Federal Reserve.

    Writing in today’s Financial Times ahead of the G20 meeting in Seoul, Mr Greenspan argues that with China also holding down the renminbi, the upward pressure on currencies elsewhere risks a return to widespread trade protectionism. Mr Greenspan criticises China for continuing to prevent the renminbi strengthening, saying it reflects a misguided view that a weak currency is necessary for export growth and political stability. “China has become a major global economic force in recent years,” he writes. “But it has not yet chosen to take on the shared global obligations that its economic status requires.” More unexpectedly, Mr Greenspan adds: “America is also pursuing a policy of currency weakening.”

    Posted by Brian Schuettler at 2:38 pm  

    Will QE2 float?

     QE2-You know as...inflation!, The Consequences of Greed, The Currency Wars Officially Begin, The Dollar's Demise, The End of American Capitalism As We Know It? - Discuss  No Responses »
    Nov 062010
     

    The Fed’s announcement of $600 billion of intermediate and long Treasury purchase, informally dubbed QE2, teed off a peppy rally in stocks, and led to further weakening of the dollar. These trends were already well in motion thanks to the central bank’s winks and nods that it was going to embark on another round of bond purchases.

    This move looks to be bad economics, or at least bad at achieving the Fed’s stated aim of lowering unemployment and promoting growth. The first round of QE did not arrest falling housing prices (although they have stabilized in some markets, there is still a large overhang of shadow inventory, both of delinquent borrowers where the bank has not yet seized the house, as well as owners who would like to sell, and will try to do so if the housing market in their area were to improve (and note some of these potential sellers will relent if they perceive prices are not going to rise any time in the foreseeable future). Nor did it help unemployment (one month of improved hiring was not sufficient to budge unemployment levels). As one wag remarked, “The Fed has found another string on which to push.”

    Some have argued that QE2 is another sop to the banks, but that does not make sense. Moving out the yield curve in bond purchase will lower the interest rate differential between the banks’ super low borrowing costs and the interest they earn by parking the proceeds in Treasuries. If the aim were to help banks rebuild their balance sheets, the central bank would want to create a steep yield curve, one with a considerable difference between short and long-term interest rates, as Greenspan did in the wake of the savings & loan crisis. So the aim of “flattening” the yield curve is not to help banks earn easy spread income. It instead appears designed ot encourage investors to take “risk on” trades, in the cheery assumption that real economic activity will follow.

    But this logic is spurious. Lower cost funds or investment capital will not lead entrepreneurs to gin up new projects. Business opportunities develop out of opportunities in the real economy; the cost of funds can operate as a constraint, but with interest rates low as it is, it seems highly dubious that a further discount on the cost of money is going to make much difference to businessmen (and it’s also worth noting that lower the rate on Treasuries does not necessarily improve availability of credit to small businesspeople).

    However, one clear and immediate effect of QE2 has been to sour relationships with our major trade partners. The Fed announcement produced swift denunciations from foreign finance authorities, who correctly anticipate that a further round of Fed easing will fuel a dollar carry trade, with destablizing hot money inflows chasing the highest returns in foreign markets. China, Brazil, and Germany were quick to attack the program and some emerging markets have started restricting currency inflows.

    http://www.nakedcapitalism.com/2010/11/qe2-bernanke-cuts-geithner-off-at-the-knees-2.html

    Related:

    Jim Grant: “The Fed is out of its lane” (Wealth Daily, 11/3/10)

    The Fed Announces Plan to Print Another Half-Trillion Dollars (Learn Mining News, 11/5/10)

    TIPS Are the Proof of The Fed Distorting the Financial Markets (Investment U, 10/29/10)
    Posted by Brian Schuettler at 12:02 pm  
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