Financial Skeptic Bulletin, 2012

Aug 25, 2012 | Jesse's Café Américain

I came across a nice, compact interview with Chris Hedges which illuminates his thesis of the decline of the American Empire and the illusions and the end of rational thinking that accompanies it. Empires seem to give off quite a bit of flash in their latter stages, rather like the last gasp of a dying star.

The interviewer, Allan Gregg, does a particularly nice job of drawing Hedges out.

I would like to add an observation I came to in thinking further about the Sophie Scholl piece which I put up earlier today. Perhaps there is something about gardening that focuses the mind.

The almost frenetic preoccupation and adherence to the Nazi ideology in the latter stages of the war, when it was obvious to any rational observer that they could not win, is remarkable. I had been particularly struck in my reading some time ago with the 'wolf packs' of Nazis who had raged through Berlin, rounding up old men and even boys who had not joined the Volkssturm, and hanging them, even while the Russians were shelling the Reichstag. It never made sense to me until today.

"The radio announced that Hitler had come out of his safe bomb-proof bunker to talk with the fourteen to sixteen year old boys who had 'volunteered' for the 'honor' to be accepted into the SS and to die for their Fuhrer in the defense of Berlin. What a cruel lie! These boys did not volunteer, but had no choice, because boys who were found hiding were hanged as traitors by the SS as a warning that, 'he who was not brave enough to fight had to die.'

When trees were not available, people were strung up on lamp posts. They were hanging everywhere, military and civilian, men and women, ordinary citizens who had been executed by a small group of fanatics. It appeared that the Nazis did not want the people to survive because a lost war, by their rationale, was obviously the fault of all of us. We had not sacrificed enough and therefore, we had forfeited our right to live, as only the government was without guilt."

Dorothea von Schwanenfluegel, Eyewitness account, Fall of Berlin 1945

I was reminded of this phenomenon by the trial of Sophie Scholl, and her words to the judge Roland Freisler, as he ranted his virulent condemnations at them. 'Soon you will be in our place,' she said to him. He did escape the hangman's noose at Nuremburg, but only by virtue of an Allied bomb in 1945. When his body was brought to hospital an orderly remarked, 'It was God's verdict.' He was buried in an unmarked grave, without ceremony and unmourned. Much like his beloved Fuhrer.

This is an almost perfect illustration of the credibility trap. One cannot allow the illusion to falter, even a little, to the bitter end. And as the fraud fades, the force intensifies, becoming almost rabid in its deflection. Because that illusion has become the center of a hollowed people's being, their raison d'être, a mythological justification for their existence.

If the ideology had been a lie, then they are not heroes and gods on earth, but monsters and criminals, and their life has been self-serving and meaningless, without significance and honor. And that is the credibility trap.

And this is the US financial system today.

[Aug 25, 2012] Unfounded Fear of Inflation

...people on the right have been forecasting runaway inflation for years now.

As a follow up to this post on Inflation Lessons from Paul Krugman:

Demand-siders like me saw this as very much a slump caused by inadequate spending: thanks largely to the overhang of debt from the bubble years, aggregate demand fell, pushing us into a classic liquidity trap.

But many people - some of them credentialed economists - insisted that it was actually some kind of supply shock instead. Either they had an Austrian story in which the economy's productive capacity was undermined by bad investments in the boom, or they claimed that Obama's high taxes and regulation had undermined the incentive to work (of course, Obama didn't actually impose high taxes or onerous regulations, but leave that aside for now).

How could you tell which story was right? One answer was to look at the behavior of ... inflation. For if you believed a demand-side story, you would also believe that even a large monetary expansion would have little inflationary effect; if you believed a supply-side story, you would expect lots of inflation from too much money chasing a reduced supply of goods. And indeed, people on the right have been forecasting runaway inflation for years now.

Yet the predicted inflation keeps not coming. ... So what we've had is as good a test of rival views as one ever gets in macroeconomics - which makes it remarkable that the GOP is now firmly committed to the view that failed.

[Aug 25, 2012] Matt Taibbi and Eliot Spitzer Discuss Eric Holder's (and Obama's) Failure: Credibility Trap

A credibility trap is a situation in which the regulatory, political and/or the informational functions of a society have been thoroughly taken in by a corrupting influence and a fraud, so that one cannot address the situation without implicating, at least incidentally, a broad swath of the power structure and the status quo who at least tolerated it, if not profited directly from it, and most likely continue to do so.

Jesse's Café Américain

The failure of Obama's Justice Department to engage in any systemic investigations and indictments of a thoroughly rotten and corrupt financial system that has laid waste to the real economy is an almost perfect example of the credibility trap.

A credibility trap is a situation in which the regulatory, political and/or the informational functions of a society have been thoroughly taken in by a corrupting influence and a fraud, so that one cannot address the situation without implicating, at least incidentally, a broad swath of the power structure and the status quo who at least tolerated it, if not profited directly from it, and most likely continue to do so. They become susceptible to various forms of blackmail. And so a failed policy can become almost self-sustaining long after it is seen to have failed, and even become counterproductive, because admitting failure is not an option for those holding power.

Another example is the blatant fraud, and principles not of productivity but of prey, that prevail on the financial asset exchanges and the monetary system, the stealing of customer funds, and the manipulation of commodity markets such as silver. And it expresses itself in the frivilous coarseness of spectacle, and careless brutality of decline.

"Happy Hunger Games. And may the odds be ever in your favor."

Normally a two party system or a balance of powers would correct such a situation, but if the fraud is pervasive and enduring enough, those remedies can lose their effectiveness since the fraud binds even seemingly diverse elements in its grasp. And therein lies the trap.

There is a general loss of honor, a disparagement of moral principles, the common welfare, and a sense of 'service.' People in power are creatures of the system, 'getting their ticket punched' in Washington, as resume builder on their way to an even more lucrative position back in the corrupt system where they can leverage their connections and knowledge of the system to further undermine the rule of law. Their guiding principles are self-referential greed and power.

After one of the most outrageous periods of widespread fraud in a major developed country, prosecutions for fraud are at twenty year lows. Who expected this outcome from an election in which the theme was change and reform?

Here is a recent article, Why Can't Obama Bring Wall St to Justice, asking the broader question inferred by this video interview. Why? And the answer is not to be found in making excuses and allowing him to hide behind the incompetency or disengagement defense so popular in American management circles.

And if you think that voting for the other guy in this case, the emotinally engaging but fatally flawed red v. blue paradigm, is going to provide a cure you are sadly mistaken. The other guy in this case is the poster child for most of the problems that face a nation under siege by a financial elite engaged in an economic, ideological, and political coup d'etat.

As Glenn Greenwald recently put it:

"You can often, and I would say more often than not, in leading opinion-making elite circles, find an expressed renouncement or repudiation of that principle [of the rule of law]...All of these acts entail very aggressive and explicit arguments that the most powerful political and financial elites in our society should not be, and are not, subject to the rule of law because it is too disruptive, it is too divisive, it is more important that we should look forward, that we find ways to avoid repeating the problem...the rule of law is not that important of a value any longer...

The law is no respecter of persons, but the law is also a respecter of reality, meaning if it is too disruptive or divisive that it is actually in our common good, not the elite criminals, but in our common good, to exempt the most powerful from the consequences of their criminal acts, and that has become the template used in each of these instances."

And thanks to the apathy of the people and the gullibility of the badly used, self-proclaimed 'patriots' they are winning.

"The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least to neglect, persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments."

Adam Smith

Such unsustainable social arrangements are backed by force and fraud. And as the fraud loses its power over time, force must increase, until there is an end in genuine reform, or evenutal self-destruction.

[Aug 24, 2012] John Ralston Saul The Collapse of Globalism

19 August 2012 | Jesse's Café Américain

"The transnational corporations and the money markets have declared the era of human-designed regulations over. Now the market must reign. Because few people in the business community are paid to think about phrases such as 'western civilization,' they don't seem to realize that they are proposing the arbitrary denial of 2,500 years of human experience...

Ever since the democratic systems permitted their various courts to give corporations the status of persons, the individual as citizen has been on the defensive. How could it be otherwise? If you are a person before the law and Exxon or Ford is also a person, it is clear that the concept of democratic legitimacy lying with the individual has been mortally wounded...

If allowed to run free of the social system, capitalism will attempt to corrupt and undermine democracy, which is, after all, not a natural state...Capitalism was reasonably content under Hitler, happy under Mussolini, very happy under Franco and delirious under General Pinochet."

John Ralston Saul

"The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences."

Carroll Quigley, Tragedy and Hope

Globalism, or globalization, is the theory that the world marketplace should be free of local, nation, and regional limits. It is founded on the belief that unregulated markets are the epitome and center of rational decision making, described as the most profit maximizing in the aggregate and therefore the most 'efficient.'

Globalism elevates economic measures as the arbiters of policy, and subordinates society and individuals to economic outcomes. Its value system is dominated by money and corporations, which are monetary organizations, in contrast to nations which are organizations of people.

[Aug 22, 2012] Jesse's Café Américain Bill Black On Wall Street Control Frauds and Moral Hazard

Lack of Justice Department and regulatory prosecutions for Wall Street fraud creates incentives for more control frauds and climate of lawlessness.

[Aug 22, 2012] SP 500 - Telling Action

Unnaturally tight upward ranges like this are generally the sign of a 'market operation' to take equities higher.

The question of course is by whom and for what reason.

It could just be the tendency of the wiseguys to take it higher in the absence of real activity, just because they can, until it becomes priced for fantasy.

Or it could be some of the better connected banks and trading desks front running the Fed.

It certainly is not justified by the economic fundamentals. But that may be an artifact from the old days in which the market reflected the real economy, and allocated capital according to its needs to enable efficient use of productive resources.

In these days of fading empire when the major activity of the US is making money from money, the market is the economy, and its primary function is to redistribute wealth from the bottom to the top.

Interviews with 'The New Economists' From Mindful Money

Mindful Money has published an eclectic collection of short interviews with those whom they describe as 'the new economists.'

These include Steve Keen, Unlearning Economics, Positive Money, Modern Monetary Mechanics, Pragmatic Capitalism, and a little known Café which they describe as:

An anonymous blogging site with a pleasant relaxed feel ("an oasis of civility in an increasingly uncivil world", the site includes images from the Café's signature dishes in the left margin), wry humour and a global readership. Jesse has a strong interest in reining in the banks and reforming economics and incorporates some stunning graphs into his blog posts.

However in a a recent, somewhat resigned post, he wrote: "I do not think the US is ready to insist on serious reform. It will take another crisis. The anti-regulatory slogans are too effectively ingrained in the public psyche. And self-deception is a powerfully addictive state of mind. Especially for those whose expansive lifestyles depend on it."

I don't feel as resigned as exasperated at times. But that is the nature of a sea change which happens slowly and quietly over a long interval until one suddenly notices it and, voilà.

Do not expect profundity and lengthy expositions of economic thought from yours truly, because after all it was a Q&A and I was able to give what I thought were plain answers that struck to the heart of the questions right 'off the cuff' as they say. We become lost in a fog of words, at a time when action is becoming ever more important on the individual level.

The menu of answers should surprise no regular patron of Le Café. But I see in reading it now that I did manage a quip or two to quicken the sauce of the dismal science.

Q. If you could travel back in time and change something in the financial world that would benefit society, what would it be?

A. I would help Alan Greenspan achieve a wonderfully rewarding career as a professional clarinetist.

And then I would skip forward ten years or so and stop the Bankers' campaign to repeal Glass Steagall.

Enjoy.

You can read the entire interview here and the entire piece with links to the entire collection of interviews here.

[Aug 20, 2012] Beyond Outrage What Has Gone Wrong with Our Economy and Our Democracy, and How to Fix Them (Audible Audio Edition)

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Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix it by Robert B. Reich

"Beyond Outrage" is a plea for action for those who care about the Future of America. Accomplished author of twelve books and current Professor of Public Policy, Robert Reich provides insight to what happened to our economy and how to fix it. In a lucid and persuasive manner, Reich provides compelling arguments in support of his main thesis: that our economy and democracy has been manipulated against average working people and what can be done about it. This Kindle Single is an intellectual appetizer. This 1744 KB book is broken out into three parts:

• Part One. The Rigged Game,
• Part Two. The Rise of the Regressive Right, and
• Part Three. Beyond Outrage: What You Need to Do.

Positives:

1. Well written, accessible book that gets to the points.
2. Robert Reich is an excellent author with a mastery of the subject.
3. Establishes upfront the main thesis of this Kindle Single and what the reader should expect from the main body of the book.
4. Provides seven dots that when connected show why our economic system is out of whack.
5. Thought-provoking comments, "Republicans want us to believe that the central issue is the size of government, but the real issue is whom government is for."
6. The gist of the problem; the super-rich have rigged our economy in their favor and at the expense of the average American. Reich provides an overwhelming amount of data in support of his argument. Outrage indeed.
7. The issue of revolving doors with regards to regulators and the corporations they were supposed to regulate.
8. The relation between the super-rich and their political influence. The political influence that money can buy.
9. The best definition for regulation..."regulations make sense where the benefits to the public exceed the costs, and regulations should be designed to maximize those benefits and minimize those costs." Will Dodd-Frank legislation be effective?
10. What economic history has taught us. A look at presidential policies from the past.
11. The conservative agenda. The rise of the Regressive Right and their strategy.
12. A look at the Tea Partiers, their political views.
13. The ten biggest economic lies. Interesting.
14. How to make a movement.
15. An agenda with specific points. Sound policies.
16. Links to further information.

Negatives:

1. If you have read some of the author's previous books this Kindle Single may come across as déjà vu.
2. No formal bibliography or links to notes.
3. I'm never happy when a term like "Social Darwinism" is used. It's a bastardized term. Oh well...
4. Tax Reform , that is, tax simplification is needed.

In summary, if you have read previous books or have followed Professor Reich's videos this book will feel like déjà vu but if you haven't or just like the idea of having this specific thesis as a refresher or aren't familiar at all, by all means get it. Reich writes in a lucid and direct manner, and always provides thought-provoking insight into the economy. His arguments are sound and it will take you a short time to go through it. I recommend it.

Further recommendations: "Aftershock: The Next Economy and America's Future (Vintage)" by Robert B. Reich, "Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present" by Jeff Madrick, "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat Everybody Else" by David Cay Johnston, "Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class" by Jacob S. Hacker and Paul Pierson, "The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take" by Bruce Bartlett, "The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street" by Robert Scheer, "The Fifteen Biggest Lies about the Economy: And Everything Else the Right Doesn't Want You to Know about Taxes, Jobs, and Corporate America" by Joshua Holland, "That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back", by Thomas L. Friedman, "Screwed: The Undeclared War Against the Middle Class - And What We Can Do about It (BK Currents (Paperback))" by Thom Hartmann, and "War on the Middle Class: How the Government, Big Business, and Special Interest Groups Are Waging War on the American Dream and How to Fight Back" by Lou Dobbs.

[Aug 19, 2012] Why Goldman Refuses To Raise Its S&P 1250 Year End Forecast by Tyler Durden

... the market is supposed to be far more efficient than elected politicians. At least on paper. This line of thinking is also the reason why Goldman's head of equity strategy David Kostin ... refuses to raise his year end forecast for the S&P, which has remained firmly at 1250 for the entire year. More muppetry, more dodecatuple reverse psychology, or is Goldman telling the truth? You decide.

Aug 18, 2012 | ZeroHedge

The S&P 500 is at its 2012 highs, and rapidly approaching all time highs, even as nothing has changed over the biggest near-term challenge facing America: the fiscal cliff. Ironically, with every tick higher in the market, the probability that Congress will come to a consensus over what would be a haircut of up to 4% to next year's GDP as soon as January 1 2013 gets smaller. Why - the same reason that Spain is unlikely to demand a bailout now that its 10 Year bond is back to the mid 6% range (ironically on expectations it will demand a bailout!): complacency - both by investors, and by politicians.

After all, it's is all a matter of perception, and the market is seen to be "perceiving" an all clear signal. It means that the impetus to do something constructive simply does not exist, as we explained recently in the case of Spain (and Italy). It also means that Congress has no reason to be proactive about the biggest threat facing the economy: just look at the S&P - it sure isn't worried, and the market is supposed to be far more efficient than elected politicians. At least on paper.

This line of thinking is also the reason why Goldman's head of equity strategy David Kostin (not to be confused with the person he replaced: permabull A Joseph Cohen, who off the record sees the S&P rising to 1600 or more) refuses to raise his year end forecast for the S&P, which has remained firmly at 1250 for the entire year. More muppetry, more dodecatuple reverse psychology, or is Goldman telling the truth? You decide.

Will Bernanke Save The Equity Markets?

Aug 18, 2012 | ZeroHedge

How far is the Fed from reaching the bottom of its ammunition box? Well, both Mario Draghi and Ben Bernanke said no to yet more monetary stimulus recently. Wall Street unsurprisingly was disappointed. Wall Street expected more stimulus, as institutional investors are analyzing monetary policy from their own perspective rather than the central bank's viewpoint – understandable, but a big mistake.

Wall Street's Conundrum: with the S&P 500 up less than 7% in 2012, the year is almost over, and the investment firms have little to show for it.

[Aug 18, 2012] Chris Hedges: Empire of Illusion and the Cult of Spectacle and the Self

A lot of anger at the "inverted totalitarianism" as new social system that dominates the political landscape not only in the USA but in the large part of industrialized world. Little analysis of real problems that are facing the USA. Chris assumes that "Cult of the self" that Jackson embodies ethics promoted by corporations is "cult of the psychopath". The ethics of Wall Street is ethics of celebrity not then different from Jackson ethics. Inverted totalitarianism is the system that makes that possible. "Brand Obama" is the type of political leadership that comes to the top under such a system. The major shift when democratic party shed any union roots and became just a recipient of big business as Republican Party. He essentially folded Democratic party into a faction of Republicans.

Jesse's Café Américain

Here is a recent talk by Chris Hedges at the Cambridge Forum.

The video starts after two introductions and a brief expository by Hedges about the tragic life of Michael Jackson, which he sees as emblematic of the cult of celebrity and the exploitative tendencies of the reality show TV culture.

[Aug 02, 2012] We're too tolerant of corruption at home

Chatham House Independent thinking on international affairs

Mark Galeotti, Professor of Global Affairs, New York University's SCPS Centre for Global Affairs, August 2012 The World Today, Volume 68, Number 7

There is still a comforting us-and-them attitude when Westerners look East. The moral superiority of the West is taken as read. Russia has corruption, embezzlement and capital flight, we just have remnant old boys' networks, a few rogue traders and tax avoidance.

... ... ...

All this has been played out against the backdrop of a global economic slowdown prompted by practices within the Western financial sector ranging from the morally questionable to the outright criminal.

In part the responsibility lies with financial institutions putting the bottom line above all else. In doing so, they fulfil that Muscovite's expectations and – even if doing nothing illegal at home – facilitate crime, corruption and embezzlement abroad. They also open themselves up to moral hazard. Only luck divides the high-flier from the rogue trader. The consequent risk-taking culture has led to such cases as JP Morgan Chase's recent loss of almost $6 billion through under-supervised trades.

Questionable practices are often lucrative and the risks eminently bearable, with fines essentially transmitted to customers. After all, the gamble usually pays off and everyone lives to trade another day. Likewise, many Western companies that are models of rectitude at home willingly pay bribes abroad, albeit tactfully channelled through local partners or entered in the books as 'consultancy fees'.

The real problem is not immoral businesspeople, nor sloppy laws, but a lack of accountability. That, in turn, can be laid at the feet of legislators and the electorate. It is the job of government and society to reconfigure the cost-benefit analyses that encourage these corrupt practices.

[Jul 30, 2012] Money is power

naked capitalism

By Sell on News, a global macro equities analyst. Originally published at Macrobusiness.

Lambert here. Note the use of the phrase "market state," invented if not exactly defined by Phillip Bobbit in his The Shield of Achilles, and portrayed as a historical inevitability.

For the last couple of years, in the wake of the financial crisis, the banking and finance community has darkly warned about the dangers of over regulating the sector. "We mustn't impede the free flow of capital", it is claimed, "otherwise efficiency and productivity will be lost and the real economy will not recover." The other camp claims that the finance sector must be reined in, re-regulated, otherwise crises will continue to happen. The dichotomy is entirely false. Finance is rules. You cannot increase or decrease the amount of rules in rules. You can only change their character. And you can decide who will set them.

And that is what this argument is really about. Power. Who has the power to set the rules of finance. For a quarter of a century, governments have progressively given up their power to set the rules and given it over to private players, who, to say the least, made up their own rules: forwards, futures, options, swaps, CFDs, CDSs, CDOs, securitisation … And my favourite, volatility derivatives, which can be translated as "we make the mess, then we make money from the mess."

False dichotomies are the stuff of political rhetoric and make no mistake, the wresting of power from government by the private sector has been a political exercise, starting in the Reagan and Thatcher years. It has been spectacularly successful. Well, up until the point where its absurdities started to result in the system almost collapsing, that is. When the serpent began to eat its own tail.

The false dichotomy about regulation inevitably led to another false dichotomy. That the only choice facing us is between bad government and good markets. You can see how it works in the Economist article on LIBOR (the London Interbank Offered Rate that sets the interest rate for the world). Never let a chance to blame government go past, even when the traders have been caught cold rorting the system:

BOOSTERS of financial regulation are making hay from the widening scandal over allegations that LIBOR, a key interest rate, was rigged repeatedly for at least five years since 2005. Yet the trove of documents that have emerged also reveal the very flawed nature of regulation, in which government bureaucrats are asked to keep tabs on high-flying financial sorts. Transcripts of calls between officials at the Federal Reserve Bank of New York and traders at Barclays show that regulators didn't really pick up on cues, even when they spelled out misbehaviour.

The same sort of bashing of government can be seen in Karen Horn's article for Standpoint, one of many examples of the rear guard action being mounted against criticisms of the ideology of the market state. Horn announces that the "anti-capitalists are coming out of the closet", eliding, as ever, democracy and markets. Underlying her critique is the neat use of dichotomies, bad government, good markets. Markets have pricing. Governments don't:

Of course it is only through ignoring the pervasive evidence of government failure that they can have their cake and eat it: sure, spontaneous coordination in the marketplace is efficient and innovative, but let's rein it in as we see fit. Rules are not enough; we are entitled to some enlightened ad hoc regulation. That will make the market process non-spontaneous? Oh well, it's for our benefit, and some greater good.

This circular bashing of the state is typical of the quasi logic of the pro-market apologists. The market is defined as inherently better because it has pricing and supply and demand, whereas the state is defined as inherently inefficient because it doesn't have those things. In other words, the market is the market, the state is the state, and therefore the state is not the market.

Such Manichean circularities are pursued, wittingly or unwittingly, to create the impression that, although markets may be bad at times, governments are always worse. Yet such a dichotomy of bad government v (mostly) good markets is not the choice that faces us at all, at least not in the financial markets. The choice is between good government and bad government. In the final analysis, as we are graphically seeing, governments have to set the rules. Traders rely on the basic legal structures that underpin transactions, even when they are based on assent rather than enforcement.

If they are allowed too much freedom to set their own rules, it eventually collapses and guess who has to pick up the pieces? Governments. The euro crisis, for example, has become so intractable, because there is no single government underlying the currency. If one needs reminding how political finance is, go no further than Europe.

It is at this point that 25 years of the political rhetoric of the de-regulation proponents has become so damaging. Francis Fukuyama alluded to this recently in the Financial Times. He commented that the Left has no answers, and that the best way forward is for the right to rethink:

If contemporary conservatives could get over their ideological aversion to the state, they would recognise that American government is both necessary and in great need of reform rather than abolition. Private sector companies have undergone huge chang.es in recent decades, flattening managerial hierarchies, upgrading workforce skills and experimenting ceaselessly with new organisational forms.

American government, by contrast, seems trapped in a late 19th-century bureaucratic model of rules and hierarchy. It needs to be smaller but also stronger and more effective. And this will not happen unless people see public service as a calling, rather than a despised occupation for people unable to make it in the private sector. In this regard, conservatives have an advantage because they can call people to public duty on the basis of the American nation rather than abstract ideals.

What will eventually emerge is a recognition that government must set the basic rules of money. Even taking into account the fact that there are massive cross border flows of capital which are beyond the reach of any one government. The only question, I suspect, is if this will occur after yet another set of crises, or in advance, through an effort to improve the quality of government from within, as Fukuyama is urging. The reality is that, just as you cannot have a legal system without government setting the rules, you cannot have a financial system without government setting the rules.

Improving government will then require the asking of some basic questions about ethics, morality and what the financial system is for. Political questions, in other words. Questions about what is a good and bad society. Of course, while the finance sector enjoys such political reach through its various funding and lobbying campaigns, such a discussion will be hard to instigate. But in the end, as we are seeing with the dysfunctionality of the system, it is inevitable. The political debate contest over the role of governments and the markets has not been conclusively resolved. Political contests never are.

rotter:

"You cannot increase or decrease the amount of rules in rules. You can only change their character. And you can decide who will set them."

you can also choose to enforce them or not…or am i thinking of "laws" there and not rules.

JGordon:

Rather, I think the government and its cronies shouldn't have a monopoly on the money printing business period. And speaking of counterfeiting, the Secret Service gets really bent out of shape whenever anyone prints up a few 100 dollar bills in his basement, but banks are free to electronicly print up new money/credit all the time and dump it on the economy willy nilly with no one saying a word about it. It just goes to show that some people are more equal than others.

rotter :

"If contemporary conservatives could get over their ideological aversion to the state, they would recognise that American government is both necessary and in great need of reform rather than abolition"

does anyone really believe "conteporary conservatives have an aversion to the state".. they love the state, they are the state, that is they LOVE the state, to serve their purposes and only their purposes. protecting their privilege and power, forever. The Left does have answers (the historical left anyway) its just the capitalist totality has spent vast amounts of resources, time, energy, lives, and money making sure the lefts solutions are never applied. never heard really, much less ever applied. or if in some rare case there is some danger of the left breaking through, crushing it, stamping it out.

Ray Phenicie:

Those who bash the philosophical basis of government as in the case of the writer at the quoted Economist article never allow us to see what government that it is that they really would like to have in place. Because government we will have no matter. As Mr. Lambert points out it is the nature and quality of government that is the issue. So called free marketeers always talk loudly and at great length about a limited government without saying exactly what that entails. For a simple reason: it's been much talked about at length by political writers since the times of the Renaissance in Florence, Italy and has been, at least supposedly, thrashed about a great deal so of course, perhaps the writer implies we need not worry or pretty little heads about the subject.

J. G. A Pocock, in a remarkable book entitled 'The Machiavellian Moment' points to Leonardo Bruni from Arezzo as the first noteworthy writer who wrestled with the nature of civic duty, law writing and government.

Most of the writers quoted in the article above who are busy trashing government would do well to look at Bruni's writings. Pocock-p 87- has this to say about the subject of civic virtue:

"But though Florentine thinkers might many times turn away from the image of the citizen as fully political being, this level of analysis could not be neglected. One might easily find oneself admitting that political engagement was necessary to virtue, and when engagement was to seen to have been lost or to have become subject to another's manipulation, something had to be said of what had happened and why."

According to the writer at the Economist we may just blame naughty, simple minded and petulant bureaucrats for our current financial mess without looking at one of the key factors now causing the vehicle known as representative democracy to traverse headlong into the bottom of the proverbial abyss at the far side of the cliff of economic catastrophe that is our lot. We should be looking to such writers as the Economist is wont to keep scribbling as the primary source of shaming us into feeling guilt for caring about the nature of government; this then I suppose, keeps the political arena free of messy democratic involvement of the intellectually unwashed masses who, when they do awake from their current desire to alpha wave the whole mess to oblivion, might decide to stop their subscription to the likes of the Economist.

[Jul 25, 2012] Did Lloyd Blankfein just call the top of the tech bubble - Finance Addict Finance Addict

April 26, 2012 | Finance Addict

Say what you will about Lloyd Blankfein, the CEO of Goldman Sachs, but for all his failings he's probably quite intelligent. Here's what he said in response to a question on the upcoming Facebook IPO from Eric Schatzker of Bloomberg TV. (Hat tip to Barry Ritholtz at The Big Picture):

If we ever added an S to the end of BRIC to make it BRICS, you might have to throw Silicon Valley in there.

Goldman, as you might know, is the firm that invented the BRIC acronym. Sorry, South Africa. Looks like the geeks beat you to it.

But did Lloyd just call the top of a new tech bubble? The main question that seems to be on the lips of everyone in the tech scene (and a good many people outside of it) is, "Are we or aren't we in a tech bubble?" Arguments tend to break down as follows:

• No, we're not in a tech bubble.
  Paul Graham is the founder of YCombinator, the so-called Harvard of startup incubators. With such a personal and financial stake in the industry, you wouldn't expect him to acknowledge a bubble. Here's how he explained his position during an interview with Bloomberg West last month:

In every market prices rise and fall, like a sine wave. Prices are kind of high now. They'll probably go down in the future, right? But high prices is not a bubble. A bubble is like a mania, right? I mean, people are thinking, "I gotta get in or I'll get left behind", right? And I don't feel that people are thinking that now [...] I mean, I was there for the first bubble and that was a mania!

• Yes, we are in a tech bubble.
  Dave Winer is a software developer and long-timer blogger. The following are verbatim excerpts from his recent post:

• We're believing there's value because we want to believe.
• We're bundling young people into things called startups, and selling them to investors for ever-increasing amounts of money.
• In an effort to bring more suckers in, they just passed a law that makes it legal to pimp these startups to people who don't know anything.
• It just doesn't matter if the businesses are any good, not to satisfy the bubble. As long as more suckers are coming in.

• We may be in a new tech bubble but who cares.
  Justin Kan, who has founded a few startups of his own, has this to say:

The truth is that the technology sector as a whole over any length of time is a positive-sum game even if the economy doesn't grow at all, because it is taking business away from other industries (i.e. those other industries will experience negative gains adjusted for population growth; that is, they are shrinking in relation to everything else). A retraction of investment interest in this will slow but not stop the disruption.

But maybe the best, final word on this topic comes from an informal poll on Hacker News, which is a sort of Reddit for tech geeks.

As you can see the majority, about 72%, think that things are looking pretty bubblelicious.

[Jul 16, 2012] Downward Revisions- Q2 GDP Tracking around 1.1%

glimmerman:

Oil sure isn't pricing in a recession. QE3 and we get to $120 easy.

sporkfed

If I were within 15 years of dying I would be loading up with debt extended as far out as could be. If inflation hits,
great, if not, I've had a great time. As it is I'm stuck in the middle.

ac:

Oil sure isn't pricing in a recession. QE3 and we get to $120 easy.

That's what's disturbing. Oil is as high as it is when there is a recession in Europe and a major slowdown in China.

Imagine if the global economy were booming!

rosethorn:

It's bizarro world when the Dems have become the party of fiscal responsibility, relatively speaking.

Of course, the GOP brought this on themselves with W's massive increases in the size of govt(DHS, military) and reckless tax cuts.

Rob Dawg

rosethorn wrote:

It's bizarro world when the Dems have become the party of fiscal responsibility, relatively speaking.

It is all derivatives at this point. The Dems are fighting to retain control of the upper house by repositioning themselves as the less fiscally irresponsible party. They aren't promising responsibility, they are pretending to be less irresponsible.

KarmaPolice

Rob Dawg wrote:

They aren't promising responsibility, they are pretending to be less irresponsible.

You're funny.

You would have thought that the GOP intelligentsia would have nominated a man of finer fiscal prowess. But alas, Romney is the epitome of everything that is wrong.

This will be interesting as they turn to Paul Ryan for financial insight as he will be gutted in minutes.

Doc Holiday:

YouTube - Smith - Baby Its You ('69)

Marc Faber : The World is heading toward a Major Crisis |
MARC FABER BLOG

It is safest to buy U.S. Treasuries because the U.S. can print money. It will pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return. - in Baron's round table June 2012 (?)

Blackhalo:

gregor.us wrote:

1.1% GDP likely does not translate into any growth at all, in real terms.

If you take in population growth and continued productivity gains from automation, it is actually pretty bad.

black dog:

goldman sachs "experts" ... TEN DAYS ago -

"Here are some comments from Goldman Sachs:

We expect a middling June employment report to be released on Friday morning, with a 125,000 gain in nonfarm payrolls and a flat 8.2% unemployment rate. We raised our payroll number from 75,000 earlier today in response to 1) more online help-wanted advertising, 2) fewer layoff announcements, 3) a better ADP, 4) slightly lower initial jobless claims in the latest (post-survey) week, and 5) decent readings in the employment components of the ISM manufacturing and nonmanufacturing survey (despite disappointments in most other components).

If the report broadly matches our expectations, it would probably dampen speculation about an imminent return to balance sheet expansion from the Federal Reserve."

[Jul 16, 2012] The Problem In A Nutshell: Annualized GDP Growth Of 1%; Annualized US Debt Growth of 21%

While economists may waste lots of hot air debating this, that and the other about the future growth trajectory of the US economy, in the aftermath of Goldman's cut of US GDP to just a 1.1% annualized rate of growth. And with the fiscal cliff, debt ceiling, Europe, China, and a plethora of other unknowns up ahead, this number will certainly decline further. Now here lies the rub: as the chart below shows total US marketable debt has doubled in the past 4 years, or an annualized growth rate of just above 21%. And as Zero Hedge has shown before, total US Debt/GDP is on the verge of crossing 102%, the highest since WWII.

Simply said, the divergence between the two data series will only accelerate as every incremental dollar of debt generates ever less bank for the GDP buck. And that, from a "sustainability" perspective, is what the problem is in a nutshell.

[Jul 16, 2012] This Is Moral Hazard

Jesse's Café Américain

"A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday."

The financial system has become a culture of white collar crime and control fraud. We all know it by now.

Bad behaviour drives out the good, if the bad behaviour is seen to be a quick route to success amongst the morally weak and ambivalent.

As the former CEO of Citigroup, one of the biggest TBTF banks, observed during the widespread credit derivatives fraud:

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

The government, the regulatory bodies, the media, economists, and the corporate executives bear a heavy responsibility for this.

They will not admit it, and they cannot reform it, because they themselves are caught in the credibility trap.

Right now white collar crime in the financial system is all carrots and no sticks. The problem is obvious.

Don't whine. Don't pout. Don't complain. Do something.

Reuters
Many Wall Street executives says wrongdoing is necessary
By Lauren Tara LaCapra
Jul 10, 2012

(Reuters) - If the ancient Greek philosopher Diogenes were to go out with his lantern in search of an honest man today, a survey of Wall Street executives on workplace conduct suggests he might have to look elsewhere.

A quarter of Wall Street executives see wrongdoing as a key to success, according to a survey by whistleblower law firm Labaton Sucharow released on Tuesday.

In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.

Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.

"When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk," Jordan Thomas, partner and chair of Labaton Sucharow's whistleblower representation practice, said in a statement...

[Jul 16, 2012] Weekend Viewing- Terror, Robespierre, and the French Revolution

The American Revolution, as embodied in the Constitution, was first and foremost a practical matter of governance, although deeply embedded in philosophical first principles, and not particularly as given to broadly idealistic and Utopian change as was the French. In other words, it was carefully and thoughtfully limited.

The French Revolution was much more expansive, as if the American Revolution, the War of 1812, and the great Civil War, and the rise of the Imperial Presidency were combined into one short period of history, without the definition of a stable and well-defined government of the people with God given rights and an overarching natural law first being established as a cultural icon.

Idealistic theories, such as the natural perfection of capital markets, and a growing centralized power jealous of its prerogatives, if not greedy for more of them, are a dangerous combination when confronted by limitations and threats to that power.

This reminds me very much of the modern Anglo-American financial system, which seeks to promote and hold on to theories and methods that have been proven false, but which support the enormously influential but unsustainable status quo. And so society falls into a sort of cognitive dissonance, and official psychosis.

But again, the caution. This is a complex chapter in history, and it is still being written.

... ... ...

[Jul 16, 2012] La Fête Nationale

The representatives of the French people, organized as a National Assembly, believing that the ignorance, neglect, or contempt of the rights of man are the sole cause of public calamities and of the corruption of governments, have determined to set forth in a solemn declaration the natural, unalienable, and sacred rights of man, in order that this declaration, being constantly before all the members of the Social body, shall remind them continually of their rights and duties; in order that the acts of the legislative power, as well as those of the executive power, may be compared at any moment with the objects and purposes of all political institutions and may thus be more respected, and, lastly, in order that the grievances of the citizens, based hereafter upon simple and incontestable principles, shall tend to the maintenance of the constitution and redound to the happiness of all. Therefore the National Assembly recognizes and proclaims, in the presence and under the auspices of the Supreme Being, the following rights of man and of the citizen:

Articles:

1. Men are born and remain free and equal in rights. Social distinctions may be founded only upon the general good.

2. The aim of all political association is the preservation of the natural and imprescriptible rights of man. These rights are liberty, property, security, and resistance to oppression.

3. The principle of all sovereignty resides essentially in the nation. No body nor individual may exercise any authority which does not proceed directly from the nation.

4. Liberty consists in the freedom to do everything which injures no one else; hence the exercise of the natural rights of each man has no limits except those which assure to the other members of the society the enjoyment of the same rights. These limits can only be determined by law.

5. Law can only prohibit such actions as are hurtful to society. Nothing may be prevented which is not forbidden by law, and no one may be forced to do anything not provided for by law.

6. Law is the expression of the general will. Every citizen has a right to participate personally, or through his representative, in its foundation. It must be the same for all, whether it protects or punishes. All citizens, being equal in the eyes of the law, are equally eligible to all dignities and to all public positions and occupations, according to their abilities, and without distinction except that of their virtues and talents.

7. No person shall be accused, arrested, or imprisoned except in the cases and according to the forms prescribed by law. Any one soliciting, transmitting, executing, or causing to be executed, any arbitrary order, shall be punished. But any citizen summoned or arrested in virtue of the law shall submit without delay, as resistance constitutes an offense.

8. The law shall provide for such punishments only as are strictly and obviously necessary, and no one shall suffer punishment except it be legally inflicted in virtue of a law passed and promulgated before the commission of the offense.

9. As all persons are held innocent until they shall have been declared guilty, if arrest shall be deemed indispensable, all harshness not essential to the securing of the prisoner's person shall be severely repressed by law.

10. No one shall be disquieted on account of his opinions, including his religious views, provided their manifestation does not disturb the public order established by law.

11. The free communication of ideas and opinions is one of the most precious of the rights of man. Every citizen may, accordingly, speak, write, and print with freedom, but shall be responsible for such abuses of this freedom as shall be defined by law.

12. The security of the rights of man and of the citizen requires public military forces. These forces are, therefore, established for the good of all and not for the personal advantage of those to whom they shall be intrusted.

13. A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means.

14. All the citizens have a right to decide, either personally or by their representatives, as to the necessity of the public contribution; to grant this freely; to know to what uses it is put; and to fix the proportion, the mode of assessment and of collection and the duration of the taxes.

15. Society has the right to require of every public agent an account of his administration.

16. A society in which the observance of the law is not assured, nor the separation of powers defined, has no constitution at all.

17. Since property is an inviolable and sacred right, no one shall be deprived thereof except where public necessity, legally determined, shall clearly demand it, and then only on condition that the owner shall have been previously and equitably indemnified.

Real punishment for large-scale financial criminality is a vital element of the financial re-regulation that is, in turn, essential to America's (and the world's) economic health and stability.

Regulation is nice, but the threat of prison focuses the mind. A noted expert, the gangster Al Capone, once said, "You can get much further in life with a kind word and a gun than with a kind word alone." If financial executives know that they will go to jail if they commit major frauds that endanger the world economy, and that their illegal wealth will be confiscated, then they will be considerably less likely to commit such frauds and cause global financial crises. So one reason for writing this book is to lay out in painfully clear detail the case for criminal prosecutions. In this book, I demonstrate that much of the behavior underlying the bubble and crisis was quite literally criminal, and that the lack of prosecution is nearly as outrageous as the financial sector's original conduct.

The second reason that I decided to write this book is that the rise of predatory finance is both a cause and a symptom of an even broader, and even more disturbing, change in America's economy and political system. The financial sector is the core of a new oligarchy that has risen to power over the past thirty years, and that has profoundly changed American life. The later chapters of this book are devoted to analyzing how this happened and what it means.

From: Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America by Charles H. Ferguson

[Jul 16, 2012] Michael Crimmins Why Hasn't Jamie Dimon Been Fired by His Board Yet " naked capitalism

July 16, 2012

Clive:

The problems are:

1) that the investor community - and perhaps society, auditors, the political establishment plus the institutions themselves - have become "inculturalated" (to use one of Yves' words !) to such low standards.

2) that the same parties above have bought into the well spun (but nonetheless completely false notion) that the CEOs of the TBTFs are indeed a small, esoteric and virtually impossible to replicate or replace "Atlases" who keep these behemoths aloft. Quite how this bizzare illusion not only took hold in the first place but was then propagated and finally accepted as a fact by so many otherwise intelligent people is a complete mystery to me. But that is certainly the perception.

3) regardless of the imposition of fines, restatement of phantom "profits" and very uncertain inherent profitability in the medium to long term the view seems to be that, from these entities, there will always be gravy available. This sentiment isn't entirely illogical - after all, what is the point of being a TBTF if you can't still extract unearned rents no matter what ? If your business model is effectively a licence to extort more-or-less consequence free - with only the most outrageous excesses subject to token claw backs - then there's no reason why that won't continue to pay off. It's just a case of "by how much" rather than "if".

So where, then, are the imperatives to change ?

No, it'll take another crisis to finally drive a stake though the hearts of this lot. It will come in time, but to quote "just because something is inevitable doesn't make it imminent". In the meantime, why wouldn't you keep on grabbing ? Only good conscience prevents it and that is one commodity which is in short supply.

jake chase:

Boards of director are hirlings of management, selected for cosmetic reasons related to gender, race, previous condition of importance. Their job is to apply the rubber stamp and collect their emoluments, sit through a monthly lunch without noticeable gastric embarrassment. Boards of directors are a fiction. When was the last time one of them actually did anything? You think these clowns worry about media outrage? They worry only about losing these profitable gigs on multiple Boards, which is what happens when they stop toeing the management line.

IMF cuts China forecast, 'hard landing' possible

BEIJING (AP) -- The International Monetary Fund cut its growth forecast for China's slowing economy Monday and said a "hard landing" was still possible.

The IMF reduced its China growth outlook for 2012 by 0.2 percentage point to 8 percent and for 2013 by 0.3 point to 8.5 percent. That is far stronger than the United States and Europe, but China's slowdown has dampened hopes it might make up for weak Western demand and drive global growth.

China's second-quarter growth fell to a three-year low of 7.6 percent as exports, consumer spending and factory output weakened. Analysts say a rebound might begin in the second half but could take longer and be weaker than previously expected.

"There are tail risks of a hard landing in China, where investment spending could slow more sharply, given overcapacity in a number of sectors," the IMF said in its latest World Economic Outlook.

A prolonged slowdown could have global repercussions, reducing China's substantial imports of oil, iron ore and other commodities from Australia, Brazil and Africa and for industrial components from Asian countries that look to China as a major export market.

The IMF said China, along with developing world giants Brazil and India, is suffering from twin declines in global and domestic consumer demand, as well as the impact of interest rate hikes and other curbs imposed earlier to cool overheated economies.

"Policies have been eased since, and this easing should gain traction in the second half of 2012," it said. "Nevertheless, concerns remain that potential growth in emerging market economies might be lower than expected."

Investor uncertainty about growth prospects of developing countries also is rising, leading to capital outflows and currency depreciation, the IMF said.

Beijing has cut interest rates twice since the start of June. It is pumping money into the economy through higher investment by state-owned industry and more spending on building low-cost housing and other public works.

Beijing is moving cautiously after its 2008 stimulus pushed up inflation and spurred a wasteful building boom. Authorities say curbs imposed on home sales to cool surging housing prices will remain in place, even though allowing more construction could quickly boost growth.

Wen, the top economic official, said last week that supporting investment should be a priority, a tacit acknowledgement that efforts to boost domestic consumption and exports were not working as quickly as the government wanted.

Lower Chinese demand for some commodities already has led to lower global prices, the IMF said. That will mean lower revenues for suppliers in Africa and Latin America that have enjoyed an economic boom driven by sales to China.

On Thursday, the Asian Development Bank cut its growth forecast for developing Asia to 6.6 percent from April's outlook of 6.9 percent. It cited Europe's financial crisis, the slow pace of the U.S. recovery and lower growth in China and India.

• ADB cuts growth forecast for developing Asia
• IMF predicts slower economic growth for world, …

• With slower growth, China can't play economic hero

• IMF cuts its India growth forecast to 6.1 pct …

[Jul 15, 2012] Out-of-control credit markets by Edward Harrison,

Us invention: "Corporatism masquerading as Liberty,"

Jul 13, 2012 | Salon.com

I have called this false ideology, "Corporatism masquerading as Liberty," because it is a sort of crony capitalism steeped in the language of liberty that some are using to remove the protections we have built up to uphold and safeguard our individual rights. The goal of this corporatism is to give corporations the sorts of liberties that permit them to use their size, influence and money to tilt the playing field to their advantage. Absent any kind of regulatory oversight, these behemoths can run roughshod over individuals, trampling their rights and liberties in the process.

The burgeoning LIBOR price-fixing scandal is just the latest example of how out-of-control our credit markets have become because of this false notion that subjecting corporations to regulatory oversight is bad. LIBOR was supposed to be a way of figuring how much banks have to pay to borrow from each other based on daily price quotes from a group of the world's biggest banks. This is the very core of our credit markets. And it affects everything from private students loans to variable rate credit cards. But after Lehman Brothers went bust, banks started submitting "fake" numbers for fear that "real" numbers would make them look bad. Apparently everyone was doing it. Recently, the scandal caught up with British giant Barclays, which was forced to pay a fine for its misdeeds. Many more banks will be found out for manipulating LIBOR interest rates before this is over.

Think back to the Great Depression. What we lost then and now and what we need to regain is trust. To be frank, I don't know how we can win that trust in our system back. But, when it comes to credit markets, I know where we can start.

First, we need to make sure there are no more bailouts. While the bailouts have prevented a Great Depression for now, they have engendered a deep sense of cynicism and resentment which has negatively impacted credit and growth. Second, we need to know that our largest financial institutions are well-capitalized enough to withstand large economic shocks. Without this knowledge, no one can separate liquidity from solvency -- exactly the problems banks had during the Great Depression. Third, we need to enforce regulations through sound regulatory oversight and civil or criminal penalties. Self-regulation is a pipedream promoted by corporatists. And we see that time and again where regulations are not enforced, financial institutions turn to excess that leads to panic and crisis.

[Jul 15, 2012] http://russkiy-malchik.livejournal.com/173466.html

Somewhat interesting analysis of a value of WTO for Russia. Slightly edited Google translation...

The liberal part of the Kremlin and the comprador elite are rejoicing for one simple reason – they believe that the WTO "will open up" Russia and convert it to a new Latin America country as it should in the classic scenario. But the classic scenario was possible in 2004, in 2007, even in 2010 it had a couple of years, but in 2012 the classic scenario does not work.

Comprador liberals are blinded by the "neo-liberal economics" that they are quite confident in the effectiveness of old tools and have not noticed most obvious structural changes in the global economy. Meanwhile a prominent Western economic guru Paul Krugman repeats Mr. Hazin and suggests that we are experiencing a crisis comparable to the depression 30′s and even worse. If this is true, then to predict what will happen to the WTO in 2015-16 is difficult to impossible… The typical line thinking "Russia needs to open to the West" of the comprador part of the elite is nothing but a self-revealing fantasy. It is also possible that in the process of negotiations and finding proper compromises for Russia entry into the WTO was "exchanged" with something valuable like a downshift in the political interference and the relative political calm after the return of Putin. If so, then this barter deal also contains some winning cards for Russia.

Patriotic Forces (at least genuine part of them) expressed outrage about the entry into the WTO. And rightly so. Generally, the more they put a highly critical, but constructive arguments against the WTO, the better Russian government will be able to defend the national interests in the "After WTO" economy. But while we critique the deal we should not forget that a number of countries already in WTO managed to defend their own economic interests and even reap some benefits in the development of their economies. This is true for China, for example. Or more generally for all BRICS countries -- members of the WTO. It is clear that they are still sensitive to the WTO rules and get less preferences than the Western countries that dominate WTO. Still they managed to adapt and even became powerful enough to counterattack Western countries in some areas.

I would like to stress that BRICS which, except Russia, consists of WTO member countries is now powerful enough to create their own international development bank since those countries gained enough strength to defend their economic interests. It will take some time but the crisis will expose a new reality and it turns out that the WTO center of power might move toward new countries, the developing countries. And they might be able to formulate a new, better rules for international trade. It might be possible even without changing the name of the organization. The name might remain, but the rules change. And to ensure that that those rules were developed with Russia's participation, it is necessary to participate in all more or less influential international organizations. Including the WTO. I think this is something like a stated position of the Russian "gosudastvennikov" in power.

The grand "reload" of the dollar reserve currency system (generated by the natural course of events) might give a chance not only to the owners of the Fed who will try to dispose maximum amount of debt and enslave additional regions of the would, but also for the rest of the world, which at the lowest point of the "reset" may be able at least partially get rid of parasites sitting on their shoulders. Russia at this point (and it's pretty close – I think, no later than 2015, but can also begin this fall) should not be a closed economy, but on the contrary, be as open to the world to take part in the formation of the new system. Economic stress – not a dollar is now a factor that might open the international system, and the world for an alternative system of relations. Many public political forces demand that Russia go in opposite direction – to close the economy and go into hiding. This is a destructive way. Even China, which seem to have ideological constraints (albeit weak and conditional), even he, in recent years more and more widely and openly integrated into the world economy: using treaties about all kinds of unions it actively negotiates with individual countries, regions as well as buying up land around the world, and so on. Russia should behave the same way in the economic sphere, and be even more active in the ideological. Indeed, the WTO – is not only opening their own markets to others, but the opening of other markets for themselves.

A separate question – a resentment of Russian industrialists. In my opinion, it has two components. The first – a sincere concerns that some industries and enterprises of the Russian industry could suffer a loss. In fact, with full transition to the WTO rules, such effects will occur. This is not no secret, and the amount of damages vary according to various estimates from 5 to 23 billion dollars (but only with the full accession to the WTO). It's a lot of money. They say that they overlap with additional income from the WTO in other industries, but the fact remains that some industries and businesses will suffer greatly. And this is unfortunate. But when you take such an important and difficult decision, we must understand that the loss in some areas can't be avoided. You just need to honestly and correctly estimate the ratio of losses and gains. I think the strategic benefits far exceed the loss from the accession to the WTO (which, according to Putin, is 50 to 50), which means that the Russian government has the right to take such a step.

Another component of the resentment of Russian industrialists – is the fear of competition. Our entrepreneurs, with all due respect to them is still very inert people. Without a profit of 100% or more, they did not lift a finger. Unless absolutely necessary, they will never go for the modernization of production, and will only be to the maximum squeeze out of the old infrastructure of profit. Fierce competition with businessmen from other countries for which a profit of 10% – is the ultimate dream, will serve our dealers a great lesson. Help them make the right conclusions. Putin has tried for years to convince them about things that stiff competition from global players will convince them at once. And stop arguing about modernization with anyone. At the same time, I have no doubt that Putin and the Russian government will protect our business as much as they can. I think this has no doubt and Konstantin Babkin, who, nevertheless, lobby the power that be to prevent entry into the WTO. Why? Because he is afraid not withstand stiff competition. And partly because he wants to score political points. He dreams in the future to say: Well, I told you so! I warned you!

No entry into the WTO – is certainly not an easy decision. And if you think this decision is incorrect, it is necessary to protest, as well as to offer another solution and to justify it. But not to engage in hysteria. Do not try to play on the uncertainty surrounded any complex problem and important decision. Do not divert the conversation toward demagogic "everything is sold" and do not put stupid slogans such as "Putin you need to choose: Russia or the WTO." If you see that the critics began to use such cheap tricks, this is a signal for you – beware the manipulation! If you see that they throws at you some figures and expert estimates, depict the apocalypse after the entry into the WTO, then give it at least one question: if everything is so bad, why did Russia under the contract is able to provide subsidies to agriculture 9 billion rubles while today they do it at the annual rate of 4.5? Are we this way kill our own agro-industry completely ?

To sum up, I would like once again emphasize that the global financial system and all its structures in its present form have a limited time span, some say months, well, may be years. If so, then even if we joined the WTO on the most onerous conditions, during this period it could not bring fatal harm to Russia's economy before it collapses with the global financial system. In this case we will sustain a minor injury, and can reap serious political benefits. It's not just an economic decision, how the geopolitical. This is a part of positioning your pieces on the Grand Chess Board.

[Jul 12, 2012] The Market Has Spoken, and It Is Rigged

Power corrupts, and financial market power has completely corrupted financial markets. ...

Simon Johnson:

The Market Has Spoken, and It Is Rigged, by Simon Johnson, Commentary, NY Times: In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.

This is a big mistake.. The behavior at Barclays has all the hallmarks of fraud... Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. ...

Nevertheless, five arguments put forward in the last 10 days ... attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.

First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse... Second, it is also asserted that "everyone does it." This is not any kind of defense – try it next time you are accused of fraud. ...

Third, Libor-rigging is defended as a "victimless crime." This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. ...

Fourth, some contend that it is the regulators' responsibility and fault that there was cheating on Libor. It is certainly the case that there was regulatory capture at work... But who does the capturing in regulatory capture? Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.

Fifth, the weakest argument is, "It was only a few basis points, here and there"... Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no "just a little" in this context for the enormous global securities market. ...

How will this play in American politics? There is still time for politicians on the right and on the left of the political spectrum to get ahead of the issue. Digging in around specious arguments in favor of price-fixing cartels is not the way to go.

Power corrupts, and financial market power has completely corrupted financial markets. ...

There's also the argument that regulating the industry will harm economic growth, but look at the growth rates we currently have -- thanks in large part to an out of control financial sector -- to see the folly of that claim. Deregulation of the financial industry did not bring us the robust economy that we were promised, it brought disaster, fraud, and who knows what else, and more oversight is clearly needed.

[Jul 07, 2012] Both The Market and Government Are Irrational

March 14, 2012 | PaulCraigRoberts.org

One of the great economic myths is that markets are rational. Not a day passes without this myth being disproved scores of times, but the myth persists.

For example, today (March 14) Bank of America/Merrill Lynch reported that "yesterday US markets started the day off with a strong rally after the solid retail sales report. . . . tailwinds are helping boost global equity markets today."

The "solid retail sales report" for February consists of 1% nominal gain. That is, the increase is not deflated by the month's inflation rate, which will be released on March 16. In other words, if very much of the 1%nominal gain in retail sales is due to higher prices, the inflation adjusted gain will not be statistically significant. The "rational market" took off without waiting to find out whether the gain was real.

Moreover, as statistician John Williams has established, the official Consumer Price Index (CPI) understates inflation. If an honest measure of inflation was used, retail sales could be in negative territory.

The "rational market" loves deception as long as it provides an excuse for equities to rise. The Federal Reserve's focus on "core inflation," which does not include rising food and energy prices, allows Federal Reserve officials to maintain that the inflation rate remains below target. By pretending that there is no inflation, the Federal Reserve continues to support banks with near zero interest rates while depriving savers and retirees of interest income. With no income from savings, people are forced to consume their capital. Thus, the Federal Reserve's policy makes bankers richer and the country poorer.

Meanwhile, those whose old age security is based on pensions are confronting insecurity. Many with private pensions were harmed by the financial crisis. Those dependent on Social Security and Medicare are finding that these programs are being blamed for budget deficits caused by multi-trillion dollar wars of choice. Those expecting pensions from state and local governments are finding that governments are unable to make good on underfunded pension benefits.

State and local governments counted on a growing economy and rising consumer incomes to provide the tax base to make good on underfunded pensions. These governments did not foresee that US corporations would destroy their tax base by moving manufacturing, engineering, IT, research and design jobs overseas. The absence of growth in real incomes for the vast majority of the people and the capture of productivity gains by capital at the expense of labor have added to the budget woes of most state and local governments.

John Rauh at Northwestern University estimates that the unfunded obligations of state and local governments amounts to $4,400,000,000,000, an amount that is within the ballpark of Joseph Stiglitz and Linda Bilmes' estimate of the cost of the Iraq and Afghanistan wars.

Money that could have saved Americans' pensions instead was allocated to profits for armament corporations and to advance Israel's territorial hegemony.

When the Occupy Wall Street movement says that Washington rules for the benefit of the 1%, OWS is not far off the mark.

Michael Morning

Actually, Ron Paul clearly dispelled the "war for oil" nonsense. He explained that the purpose of our wars in the Mid East are two-fold:

• Continued support for Israel and
• To make sure that the U.S. $ remains the currency of exchange for the oil trade.

Basically, there's no way the U.S. can steal oil from these countries and make it palatable to the U.N. The rest of the world would immediately cry foul. Plus, we don't need to steal the oil when we're already getting it at a tremendous discount and connected corporations move in and garner all the contracts for numerous industrial trades within the conquered region. What's most important is that the U.S. $ remain the unit of exchange for the multi-trillion-dollar oil trade. Were that to end, trillions of U.S. dollars would come home to roost, creating a sudden, massive inflation of the currency to the tune of Zimbabwe. There would be unprecedented poverty, rioting and unrest almost overnight. To keep the music playing, the U.S. has to make sure the Mid East keeps playing ball.

llader Colden

Market fundamentalist imagine the "free" market is both rational (it is not) and peacemaking (it is not,) so Ron Paul would proffer nonsense to insulate his idealistic beliefs.

War-for-oil, or more precisely, power projection to preserve the petrodollar, is realpolitik.

"The conquered region" has been subjugated to allow the "free market" to work, as you say, "move in and garner." Daniel Quinn calls such behavior Taker Culture.

Now and then, even market fundamentalists have an honest moment, and fail to whitewash the aggression underlying their ideology.

"[The Native Americans] didn't have any rights to the land … Any white person who brought the element of civilization had the right to take over this continent." ~Ayn Rand, US Military Academy at West Point, March 6, 1974

Same philosophy with oil. Move In and Garner. The Right To Take.

samwarner

we dont want iraqi oil– we want control of it for leverage on china and india

and the 'we' are also the major westrn oil companies who have negotiated great contracts for themselves in iraqi oil

we. the people, were granted the honor of footing the bill

[Jul 07, 2012] Bigger is Not Always Better

Robert Reich is pleased to see the Justice Department crackdown on "Big Pharma," but doesn't think think the government is doing anywhere near enough to solve the problem:

How Not to Get Big Pharma to Change Its Ways, by Robert Reich: Earlier this week the Justice Department announced a $3 billion settlement of criminal and civil charges against pharma giant GlaxoSmithKline - the largest pharmaceutical settlement in history - for improper marketing prescription drugs in the late 1990s to the mid-2000s.

The charges are deadly serious. Among other things, Glaxo was charged with promoting to kids under 18 an antidepressant approved only for adults; pushing two other antidepressants for unapproved purposes,... and, to further boost sales of prescription drugs, showering doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.

$3 billion may sound like a lot of money, but during these years Glaxo made $27.5 billion on these three antidepressants alone,... so the penalty could almost be considered a cost of doing business.

Besides, to the extent the penalty affects Glaxo's profits and its share price, the wrong people will be feeling the financial pain. ... Not a single executive has been charged - even though some charges against the company are criminal. ...

The Glaxo case is the latest and biggest in a series of Justice Department prosecutions of Big Pharma for illegal marketing prescription drugs. ... The Department says the prosecutions are well worth the effort. By one estimate it's recovered more than $15 for every $1 it's spent.

But what's the point if the fines are small relative to the profits, if the wrong people are feeling the financial pinch, and if no executive is held accountable?

The only way to get big companies like these to change their behavior is to make the individuals responsible feel the heat.

An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can't buy them and shouldn't be influencing doctor's decisions anyway. Before 1997, the Food and Drug Administration banned such advertising on TV and radio. That ban should be resurrected.

Finally, there's no good reason why doctors should be allowed to accept any perks at all from [drug] companies... It's an inherent conflict of interest. Codes of ethics that are supposed to limit such gifts obviously don't work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice.

Simon Johnson, summarizing Dennis Kelleher of the blog Better Markets, says banks have the same problem:

... Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations. Their size confers both market power and the political power needed to conceal the extent to which they engage in economic fraud. The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates. The ripoff is not just of retail investors. ...

This has motivated Samuel Brittan of the Financial Times to rethink his view of competitive markets. Sort of:

As one of the few commentators to have always favored competitive market capitalism I have had to ask myself a few questions. Apart from scandals such as the Libor rate fixing, we have had the behavior of banks before the great recession; a trend to much greater concentration of income and wealth, squeezing the living standards of ordinary citizens; and one could go on.

So, after asking himself these questions, what does he propose?:

Yet if anyone expects me to issue a clarion call for more state ownership and control, they will be disappointed. ... What then has gone wrong? ... Few of us like competition; and the tendency to form closely knit groups to keep outsiders at bay is probably as old as the human race. For pre-capitalist examples one has only to think of the medieval guilds, whether of craftsmen or Master Singers. More subtle are the practices of bankers, as they come disguised as services for customers. In summary, success has depended more on whom you know than what you know. Hence the catchphrase "crony capitalism". ...

The biggest obstacle to reform is that insiders can devote time and energy to maintaining their position. For ordinary citizens, political reform is a sideshow that hardly repays such efforts. The protests in financial canters are a well-meant but ill-focused attempt to offset this bias.

Yet nil desperandum. The UK corn laws were repealed and the US antitrust acts were passed; and in time both the financiers and the Eurocrats will be brought down.

So, no cause for despair? Not so sure about that (the changes he describes did not come easily). It feels a bit like the Libor scandal has produced a turning point, but the power hold on politicians is still as strong as ever. We've seen how some Democrats react if Obama so much as points a finger in the direction of the financial industry, and if Romney is elected does anyone think the government will get tougher with big banks, big pharma, or big anything else?

[Jul 05, 2012] Banker Fraud Is Undermining Confidence in the Markets

Jesse's Café Américain

People forget, but there are times in history when the financial markets fall out of favor with investors because they lose confidence..

And they now have very good reasons to doubt just about anything that Wall Street says.

I think the low volumes indicate that the Wall Street wiseguys are pushing their luck. Once trust is lost, it is difficult to get it back.

And if justice long denied comes in a rush to Wall Street, hell may come with it. History shows us that.

Telegraph
Bank forecasts futile now all trust has gone, says analyst
By Alistair Osborne
6:23PM BST 02 Jul 2012

Sandy Chen, bank analyst at Cenkos Securities, said it was pointless revising forecasts until Barclays came clean over what had gone on.

"Analysts spend 99pc of their time crunching numbers, but underneath the complicated edifice of earnings forecasts lies a basic foundation of trust," he said.

"In essence, the price movements in markets track the flow of conversation around one basic question – 'Do I trust them and their promised returns?' Without the trust, nothing stands."

Mr Chen said revelations that Barclays chief executive Bob Diamond had held talks in 2008 with the Bank of England over Libor simply clouded the issue further.

"The trust has been breached. Until the banks clear their names, we expect the markets for their shares and bonds will remain dysfunctional," he said. "Without full management clarity, transparency and responsibility... we think forecast revisions are futile."

[Jul 05, 2012] Fed Watch- Manufacturing Turns South

Jul 03, 2012 | Economist's View

I marked the initiation of Fed easing cycles since 1995. Notably, multiple sub-50 ISM readings have traditionally triggered Fed easing, with the 2007 rate cut being something of an outlier. Of course, we have yet to start the tightening cycle this time around, but it is safe to say that ongoing sub-50 readings were generally consistent with ongoing easing. On balance, a first look of the data thus suggests additional Fed easing. Notice, however, that a sub-50 reading does not always indicate a fresh recession is on the way. Not by a long-shot. Two not-necessarily exclusive issues are likely at play. First, the drop in the ISM index might be indicative of external issues that are insufficient to trigger a recession in the US. In other words, recessions are domestic events; the external sector alone is simply too small to overwhelm the internal tide. Second, the appropriate application of monetary policy might have been sufficient to safeguard against recession given the relatively small external threat. I think it is clear that new orders sagged as a result of external weakness:

Both the 1998 and 2001 easings followed sharp falls in the export index. Less so for the 1995 easing, but some external weakness was clearly at play. The 2007 easing was primarily a domestic issue; at the time, the external sector was source of strength. The general story, however, is that the Federal Reserve has tended to lean against external weakness. Not because, as some Fed officials have erroneously suggested, policymakers believed they could "solve" the external problems, but because they hoped to minimize the domestic impact. Yet another reason to believe additional Fed easing is on its way. As always, however, the story is not clear cut. Note the employment index:

Fed easing has traditionally been associated with labor market weakness. Soft weakness is not evident in this report, consistent with the belief (also identified by Nomura, via FT Alphaville) that manufacturers do not believe the external weakness is sufficient to derail the recovery. This should be particularly important with regards to additional Fed easing at this juncture, as policymakers have made it clear that progress, or lack thereof, in the labor market is a critical indicator. By this measure, then, the ISM report would not trigger additional easing. Much more important is the next employment report and the initial weekly claims reports leading into the next meeting. Finally, when considering the recession implications of the ISM report, I also watch the imports component:

The theory is that a sharp drop in domestic demand - the type associated with recessions - should cause a drop in imports. By this measure, the domestic-side of the coin is not yet joining in the external weakness. A strike against seeing this ISM report as an indicator of impending recession.

Bottom Line:

The ISM report is murkier than the headline drop would suggest. It is clearly consistent with external weakness. The global economy is obviously struggling. As of yet, however, the story told by the employment and import sub-indexes is that the domestic economy is proving relatively resistant. Maintaining that resistance, however, may be dependent on additional monetary easing. Indeed, in the past, the Federal Reserve has tended to take out such insurance. But in the past, the zero bound has not been a constraint. This time it is. Will the Fed deliver easing with the necessary force to serve as adequate insurance? I am wary that this report gives us much direction on that point, especially given the relatively solid reading on employment. Ultimately, this report is probably a small piece of the puzzle; the employment data remains the key.

beezer:

Not to sound like a broken record, again, but direct government hiring via infrastructure projects is the most effective tool left in the bag.

Monetary policies are constrained. Further easing will only artificially boost asset prices without unlocking the employment door. The so-called 'wealth effect' will be seen by most folks as merely inflation as commodity prices, particularly petroleum, rise.

[Jul 04, 2012] ism-manufacturing-index-declines-in.html

Jackdawracy

Crowds exhibit a docile respect for force, And are but slightly impressed by kindness, Which for them is scarcely other than a form of weakness. Their sympathies have never been bestowed upon easy going masters, but the tyrants who vigorously oppressed them. It is to these latter that they always erect the loftiest statues. It is true that they willingly trample on the despot whom they have stripped of his power, but it is because having lost his power he resumes his place among the feeble who are to be despised because they are not to be feared. The type of hero dear to a crowd will always have the semblance of a Caesar, His insignia attract them, His authority overawes them, and his sword instils them with fear. ~ from "The Crowd"

black dog

BREAKING II: CHINESE MANUFACTURING GROWTH SLOWS - Bloomberg/Beijing: "China's manufacturing expanded at the weakest pace in seven months as overseas orders dropped, and South Korea cut its estimate for export growth this year, underscoring risks to Asian economies from Europe's debt crisis. The Purchasing Managers' Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said ... South Korea's Ministry of Knowledge Economy lowered its projection for overseas sales to an increase of 3.5 percent from 6.7 percent, citing a slowdown in major economies. Manufacturing data from China, the world's biggest exporter, signal the government may need to add stimulus to arrest an economic slowdown that probably extended into a sixth quarter. The downturn is rippling through Asian nations, with South Korea's sales to China, its biggest market, stalling in the first 20 days of June" China's Manufacturing Growth Weakens as New Orders Drop - Bloomberg

KarmaPolice

Recession now much more likely - MarketWatch First Take - MarketWatch

"Manufacturing is no longer a dominant part of the U.S. economy, accounting for about 19% of the economy's gross output and about 9% of employment."

"By itself, the decline in the ISM index below the benchmark 50% level does not mean that the economy is in a recession, but it does make it much more likely. A reading of 49.7% is consistent with slow, but positive growth of about 2.4%, according to the ISM."

Oh god....just stop.

Another fine buying opportunity....

km4

Marc Faber- Markets Are Rallying Because They Were Oversold, The EU Summit Was Another Cosmetic Fix - Business Insider

Mr Slippery

Recession now much more likely - MarketWatch First Take - MarketWatch

The decline in the ISM was led by the biggest one-month drop in new orders since October 2001, just after the Twin Towers were destroyed. The new-orders index now stands at 47.8%, a level that's extremely rare outside of recessions.

KarmaPolice wrote on Wed, 4/4/2012 - 5:23 am

Doomer's head go boom...

Starving Artist

The thing that gives me pause is none of the liquidity operations (QE, Twist, LTRO) have happened without a 50%-100% pullback first. So it kind of seems like rally on bad news may be self defeating. Politically infeasible? Although with the connections, one would assume a crash could be orchestrated. After the election would have better optics.

[Jul 03, 2012] the-perils-of-prophecy

So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.

... .... ....

...in July 2011, the ten-year US Treasury bond rate crashed to 2%, and it was below 1.5% at the start of June. The normal rules of thumb would say that the market is now expecting 8.75 years of near-zero short-term interest rates before the economy returns to normal. And similar calculations for the 30-year Treasury bond show even longer and more anomalous expectations of continued depression.

The possible conclusions are stark. One possibility is that those investing in financial markets expect economic policy to be so dysfunctional that the global economy will remain more or less in its current depressed state for perhaps a decade, or more. The only other explanation is that even now, more than three years after the US financial crisis erupted, financial markets' ability to price relative risks and returns sensibly has been broken at a deep level, leaving them incapable of doing their job: bearing and managing risk in order to channel savings to entrepreneurial ventures.

[Jul 03, 2012] the-impotence-of-the-federal-reserve by Martin Feldstein

The United States Federal Reserve's recent announcement that it will extend its "Operation Twist" by buying an additional $267 billion of long-term Treasury bonds over the next six months - to reach a total of $667 billion this year - had virtually no impact on either interest rates or equity prices. The market's lack of response was an important indicator that monetary easing is no longer a useful tool for increasing economic activity.

The Fed has repeatedly said that it will do whatever it can to stimulate growth. This led to a plan to keep short-term interest rates near zero until late 2014, as well as to massive quantitative easing, followed by Operation Twist, in which the Fed substitutes short-term Treasuries for long-term bonds.

These policies did succeed in lowering long-term interest rates. The yield on ten-year Treasuries is now 1.6%, down from 3.4% at the start of 2011. Although it is difficult to know how much of this decline reflected higher demand for Treasury bonds from risk-averse global investors, the Fed's policies undoubtedly deserve some of the credit. The lower long-term interest rates contributed to the small 4% rise in the S&P 500 share-price index over the same period.

[Jul 03, 2012] The Great American Mirage

Yes, the US economy has been on a weak recovery trajectory over the past three years. But at least it's a recovery, claim many – and therefore a source of ongoing resilience in an otherwise struggling developed world. Unlike the Great Recession of 2008-2009, today there is widespread hope that America has the capacity to stay the course and provide a backstop for the rest of the world in the midst of the euro crisis.

Think again. Since the first quarter of 2009, when the US economy was bottoming out after its worst postwar recession, exports have accounted for fully 41% of the subsequent rebound. That's right: with the American consumer on ice in the aftermath of the biggest consumption binge in history, the US economy has drawn its sustenance disproportionately from foreign markets. With those markets now in trouble, the US could be quick to follow.

Three regions have collectively accounted for 83% of America's export-led growth impetus over the past three years – Asia, Latin America, and Europe. (Since regional and country trade statistics assembled by the US Department of Commerce are not seasonally adjusted, all subsequent comparisons are presented on the basis of a comparable seasonal comparison from the first quarter of 2009 to the first quarter of 2012.)

Not surprisingly, Asia led the way, accounting for 33% of the total US export surge over the past three years. The biggest source of this increase came from the 15-percentage-point contribution of Greater China (the People's Republic, Taiwan, and Hong Kong). Needless to say, China's unfolding slowdown – even under the soft-landing scenario that I still believe is most credible – is taking a major toll on the largest source of America's export revival. The remainder of the Asian-led US export impetus is spread out, led by South Korea, Japan, and Taiwan – all export-led economies themselves and all heavily dependent on a slowing China.

...Alternatively, in a moderate export-downturn scenario, with real exports falling by 5% over a four-quarter period, real GDP growth could slip below the 1% "stall speed" threshold – leaving the US economy vulnerable to a recessionary relapse. By way of reference, the assumption of a 5% export downturn pales in comparison with the precipitous 13.6% decline in real exports that occurred in 2008-2009. As such, this "what if" is a cautiously optimistic assessment of the downside risks stemming from weak external demand.

Greenspan's warning in 1998 came at a time when US exports accounted for only about 10.5% of GDP. Today, that share stands at a record-high 14%, as post-crisis America has made a big bet on an export-led revival. The current global slowdown is not on a par with what occurred in the late 1990's or the more wrenching shocks of 3-4 years ago – at least not yet. But today's global downturn can hardly be dismissed as unimportant for the US or anyone else.

In an era of globalization, there are no innocent bystanders. There are certainly no oases of prosperity in the face of yet another major shock in the global economy. America's growth mirage is an important case in point

[Jul 03, 2012] Manufacturing activity shrinks in June, ISM says - by Steve Goldstein

MarketWatch

The Institute for Supply Management's manufacturing index fell to 49.7% from 53.5% in May, in the first reading below the 50% line indicating expansion or contraction since July 2009. Read "Recession now much more likely."

... ... ...

The U.S. economy is confronting the headwinds from the euro-zone debt crisis as well as the moribund post-recession recovery.

"Clearly this is the biggest sign yet that the U.S. is catching the slowdown that is well underway in Europe and China," said Paul Dales, senior U.S. economist at Capital Economics, in a note to clients. "But it is worth remembering that a reading of below 47.0 is required to be consistent with another recession. This means the index is still consistent with a growing economy, albeit at an annualized rate of a little below 1%."

[Jul 03, 2012] IMF urges US to remove 'fiscal cliff' uncertainty By Lesley Wroughton

• Lagarde: threat of fiscal cliff may hurt growth this year
• IMF cuts 2013 U.S. growth forecast
• IMF says U.S. needs credible fiscal consolidation plan

Reuters

...She said the potential for a deterioration in the euro zone debt crisis was the other main risk facing the United States.

The U.S. economy is facing $4 trillion worth of expiring tax cuts and automatic government spending reductions, and most analysts do not expect Congress to act to soften the blow until after the congressional and presidential elections in November.

"It is critical to remove the uncertainty created by the 'fiscal cliff' as well as promptly raise the debt ceiling, pursuing a pace of deficit reduction that does not sap the economic recovery," the IMF said in its annual health check of the U.S. economy.

...In addition to the looming budget tightening, the United States is expected to hit the $16.4 trillion statutory limit on its debt sometime between the election and the end of the year. If Congress fails to raise it, it would lead to a U.S. default. Most analysts expect Congress to strike a post-election deal to avoid the "fiscal cliff" and buy time for lawmakers to work on a long-term budget and tax plan. But the uncertain outlook already appears to be weighing on business hiring and investment decisions.

The Fund forecast a modest 2 percent growth in the United States this year and shaved its projection for 2013 to 2.25 percent from 2.4 percent the IMF forecast in April.

But it warned that the already modest forecast for next year could prove much too optimistic if Congress fails to relax the fiscal tightening of about 4 percent of gross domestic product contained in current law.

If Congress does not act, the economy could contract early next year and annual growth could come in well below 1 percent, the IMF said.

"We believe that fiscal consolidation is necessary but not just any fiscal consolidation. It has to be sensible and certainly not excessive," Lagarde told a news conference.

..."Continued policy action is needed to boost the recovery," Lagarde said. "We believe that the U.S. authorities do not have a lot of space available - they have limited space actually - to act but they should use it to support the recovery."

The IMF said U.S. monetary policy was appropriately "very accommodative" and emphasized that the Federal Reserve had room for further easing should economic conditions worsen.

The U.S. central bank has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in bonds in a further effort to lower borrowing costs. Last month it extended a program to reweight its bond holdings toward longer-dated securities to push long-term interest rates lower.

The Fed has said it is prepared to do more to spur a stronger recovery if needed and a raft of weak data has kept speculation alive that it might soon launch another round of bond purchases to lift the economy.

IMF chief: U.S. risks to fell off the financial cliff

July 3, 2012 | Viewpoint

The government of the United States should "restore order" in its own economy, because if the United States to pluck from the financial precipice, come to the aid will be no one, warned on Tuesday after the regular annual review of the U.S. economy, the director of the International Monetary Fund, Christine Lagarde.

However, she stressed that she believes in "the wisdom and foresight," the U.S. authorities.

The main conclusions of the IMF on the review limited to the fact that "economic recovery in the U.S. is still lukewarm, and depends on the increased risk - in the light of the financial strength of the euro area and the uncertainty surrounding the financial and budget plans", ITAR-TASS reported.

This is clearly reflected in the numbers: this year the fund expects U.S. GDP growth by 2% in 2013 - by 2.3%. At the same time the U.S. federal budget deficit projected to reach 7.5% and 6%, respectively. National debt should reach in the current year 106.7%, and in the future - to increase to 110.7%.

External risk factors emanating from the euro zone, more or less obvious. Among internal threats Lagarde, together with specialists reviewed, first of all emphasized the danger to the United States off the "financial cliff" in the event that the administration and Congress fail to agree on the prevention of sequestration of the budget in 2013.

... budgetary expenditures in the U.S. in 2013 will be reduced by approximately 4%, it can "slow the annual growth to a level much less than 1%, and in early next year - and to the negative growth growth, with significant negative consequences for an already fragile global economy now. "

In the same context, the IMF and the mention of the need for Washington to increase again in early 2013 the U.S. debt ceiling, which is fraught with "the return of the risk of greater uncertainty and disruptions in financial markets."

[Jun 27, 2012] Fed Watch- A Long Wait to The Next FOMC Meeting

Tim Duy:

A Long Wait to The Next FOMC Meeting, by Tim Duy:

Presumably one FOMC member Bernanke would like to turn is Richmond Federal Reserve President Jeffrey Lacker, who explained his dissent:

"I dissented on this decision because I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable. While the outlook for economic growth has clearly weakened in recent weeks, the impediments to stronger growth appear to be beyond the capacity of monetary policy to offset. Inflation is currently close to 2 percent, which the Committee has identified as its inflation goal. A significant increase in inflation could threaten the Fed's credibility and make it more difficult to achieve the Committee's longer-run goals, including maximum employment. Should a substantial and persistent fall in inflation emerge, monetary stimulus may be appropriate to ensure the return of inflation toward the Committee's 2 percent goal

[Jun 26, 2012] Putin's question at Sanct Petersburg economic forum

"We would like to know what will happen to the dollar after the election of the President of the United States in November of this year, and how the USA plans to address the challenges they faced now and the challenges that will face soon -- they have the public debt of 15 trillion. What will happen to the world's reserve currency, and to what situation we should be ready? "

[Jun 22, 2012] Obama spending binge never happened

MarketWatch

Of all the falsehoods told about President Barack Obama, the biggest whopper is the one about his reckless spending spree.

As would-be president Mitt Romney tells it: "I will lead us out of this debt and spending inferno."

Almost everyone believes that Obama has presided over a massive increase in federal spending, an "inferno" of spending that threatens our jobs, our businesses and our children's future. Even Democrats seem to think it's true.

But it didn't happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.

Even hapless Herbert Hoover managed to increase spending more than Obama has.

Here are the facts, according to the official government statistics:

• In the 2009 fiscal year - the last of George W. Bush's presidency - federal spending rose by 17.9% from $2.98 trillion to $3.52 trillion. Check the official numbers at the Office of Management and Budget.

• In fiscal 2010 - the first budget under Obama - spending fell 1.8% to $3.46 trillion.

• In fiscal 2011, spending rose 4.3% to $3.60 trillion.

• In fiscal 2012, spending is set to rise 0.7% to $3.63 trillion, according to the Congressional Budget Office's estimate of the budget that was agreed to last August.

• Finally in fiscal 2013 - the final budget of Obama's term - spending is scheduled to fall 1.3% to $3.58 trillion. Read the CBO's latest budget outlook.

Over Obama's four budget years, federal spending is on track to rise from $3.52 trillion to $3.58 trillion, an annualized increase of just 0.4%.

There has been no huge increase in spending under the current president, despite what you hear.

Why do people think Obama has spent like a drunken sailor? It's in part because of a fundamental misunderstanding of the federal budget.

What people forget (or never knew) is that the first year of every presidential term starts with a budget approved by the previous administration and Congress. The president only begins to shape the budget in his second year. It takes time to develop a budget and steer it through Congress - especially in these days of congressional gridlock.

The 2009 fiscal year, which Republicans count as part of Obama's legacy, began four months before Obama moved into the White House. The major spending decisions in the 2009 fiscal year were made by George W. Bush and the previous Congress.

Like a relief pitcher who comes into the game with the bases loaded, Obama came in with a budget in place that called for spending to increase by hundreds of billions of dollars in response to the worst economic and financial calamity in generations.

[Jun 22, 2012] 10 reasons Wall Street will hit bottom, crash by Paul B. Farrell

MarketWatch

Yes, Wall Street will crash. Has to. They're gambling addicts. Dodged the bullet in 2008. But learned nothing. Now killing reforms. Teamed up with the Super Rich, CEOs, lobbyists, and crony politicians. It's only a matter of time.

Yes, they'll crash, again. No matter how anemic the recovery. No matter how much more debt they pile on taxpayers. No matter who's president. Crash.

How do I know Wall Street will hit bottom? First off, most American know somebody who's trapped in addictive behavior. I got a front-row seat years ago as a professional helping a few hundred addicts, alcoholics and gamblers getting help from the Betty Ford Center and others like it.

Guess what: Wall Street's behavior is exactly like all other addicts, trapped in denial, they'll risk destroying family, friends, health, careers and even America before stopping. They're obsessed, hooked, blind, addicted to gambling.

Second, the Treasury secretary and his wife warned us. Seriously, Tim Geithner highlighted her in a recent Wall Street Journal op-ed, "Financial Crisis Amnesia," that made clear how addictive and clueless Wall Street and their team are: "My wife looks up from the newspaper with bewilderment at another story about people in the financial world or their lobbyists complaining about Wall Street reform."

Yes, amnesia. Wall Street's got a bad case of denial, blind to "the lessons of the crisis and the damage it caused to millions of Americans." So it'll happen again. And soon. Why? Mr. Secretary's diagnosis: "Amnesia is what causes financial crises." Look closely.

Wall Street has all 10 self-destructive traits of a gambling addict

Yes, Wall Street insiders need treatment. They're like addicts who will resist treatment till the bitter end, insisting there's no problem, protecting their business as usual high-life. Their addiction has control of them, they're in denial, in amnesia, blind to the long-term damage they're doing to America.

So yes, Wall Street must crash, will hit bottom. America cannot reset the economy because Wall Street won't go willingly. So here, you do the full diagnosis. Here are 10 characteristics of this self-destructive addictive personality type. Think about what is happening on Wall Street today, stuff like their war against the Volcker Rule. See why Wall Street's collective mental state is so damaged it's on track to hit bottom, crash and burn, in a meltdown more damaging than 2008, as they take down the rest of America.

Don't believe me? Check out Wall Street's 10 personality traits today:

1. Amnesia: Since the 2008 meltdown, Wall Street's memory erased

Begin with Geithner diagnosis Wall Street's addiction: Banks have "no memory of extreme crisis, no memory of what can happen when a nation allows huge amounts of risk to build up outside of the safeguards all economies require." Amnesia makes Wall Street deaf. Can't hear. Remember, bank insiders are short-term thinkers who naturally discount long-term costs to zero, pass them on to taxpayers and future generations.

2. Overoptimistic: Wall Street casino's blowing another megabubble

Since the dot-com crash of 2000, when the Dow peaked at 11,722, to today with the market hovering around 13,000, Wall Street's lost an inflation-adjusted return of about 20% of your retirement money. And economist Gary Shilling sees no growth through the next decade ... Nouriel Roubini warns of a decade of dark days ... Pimco's Bill Gross sees a long "new normal" of lower returns … GMO's Jeremy Grantham predicts "Seven Lean Years" … Martin Weiss warns that a "historic world-changing event is about to crush the U.S. economy and stock market." Still, Wall Street lives in a fantasy land, ignores warning signs, pushing mega-IPOs, risky junk. Protect yourself.

3. Immature: totally narcissistic, the 'King Baby' syndrome

Yes, Wall Street's an immature child. Members of AA call this the "King Baby" syndrome: People who never grow up. They want what they want when they want it. Now. No compromise, like today's politicians. In "The Coming Generational Storm," Larry Klotnikoff and Scott Burns warn of the massive debt we're leaving for our "kids." Eventually these kids will rebel against the $70 trillion burden. Wall Street's addictive spenders are at risk of a revolution that will make the Arab Spring look like a picnic.

4. Greedy: Yes, "greed is still good" … for Wall Street's gamblers

Michael Douglas' famous indictment is truer today than ever. Vanguard's founder Jack Bogle confronted the toxicity of out-of-control greed in his "Battle for the Soul of Capitalism." Wall Street has become a soulless, amoral culture that cares nothing about the rest of America. Wall Street has sunk back deep into their business-as-usual culture of greed, blind to the public consequences of their behavior. Ethics? Integrity? Fiduciary duty? No. Investors come second. Insiders first. Always. And nothing will change till Wall Street hits bottom, crashes. Then we can truly reform Wall Street as we did in the 1930s.

5. Compulsive liars: Never trust Wall Street to tell the truth

Members of AA use a simple test: "How can you tell when an alcoholic or addict's lying?" Answer: "His lips are moving." You can't believe anything said on Wall Street. Why this culture of lying? Simple: To create illusions, like "investors come first," "you can trust us," and "we the best interests of America at heart." Wrong. Their sole loyalty is to insiders. Period. Carole Geithner sees through the illusions.

6. Insatiable: Wall Street's hooked on 'more is never enough'

Wall Street is past the point of no return, an addict incapable of stopping, must hit bottom. In "American Mania" psychiatrist Peter Whybrow says we're a nation of addicts, we're insatiable, "more is never enough." Trillions in new debt annually, big bonuses, zero savings, as bank bailouts roll on, with the Fed feeding Wall Street cheap money. Forget reforms. No change till the banks hit bottom. A return to the Glass-Steagall might help, but Wall Street hates that as much as addicts hate Betty Ford.

7. Macho-macho: Regardless of the facts, they can't admit failure

Addicts cannot see their weaknesses. In "Confronting Reality" Larry Bossidy and Ram Charan warn: "The greatest consistent damage to businesses and their owners is the result not of poor management but of the failure, sometimes willful, to confront reality." Like Wall Street insiders, they simply cannot admit the gross mistakes, moral lapses and catastrophic errors in judgment that triggered the 2008 crash. They're blind to their faults.

8. Unpredictable: Wall Street gamblers haven't a clue about the future

In "Stocks for the Long Run" Jeremy Siegel studied market history from 1801 to 2000, comparing the biggest up and down days. Bottom line: Markets are random. There were no obvious reasons for 75% of the moves that trigger either long-term gains or long-term losses. Wall Street cannot predict crashes. But they can create them. Finance professors Terrance Odean and Brad Barber did some long-term research on both American and China investors. Conclusion: The "more you trade the less you earn." Yes, returns for buy-and-hold investors are a third higher than heavy traders. No wonder Wall Street pushes active trading.

9. Irrational: Wall Street gets rich off investor irrationality

Behavioral economics is the psychology of investment decisions, based on Nobel Economist Daniel Kahneman who proved investors are irrational. That was 2002. Investors are still irrational, Wall Street as well as Main Street. And yet we still assume we're making rational decisions! Admit it, investors are irrational. As behavioral finance guru Richard Thaler once admitted: Wall Street "needs investors who are irrational, woefully uninformed, endowed with strange preferences, or for some other reason willing to hold overpriced assets." Main Street's naive irrationality makes Wall Street very rich.

10. Myopic: Failure to think long-term guarantees another crash

Wall Street's addiction to short-term thinking guarantees another crash. But worse, Wall Street's shortsightedness is setting up an inevitable global catastrophe and self-destruction of their capitalist ideology. In "Collapse: How Societies Choose to Fail or Succeed" Jared Diamond warns that throughout history surviving cultures are always the ones that focus on long-term planning, far in advance of crises. Failed societies are the ones whose leaders "focus only on issues likely to blow up in a crisis within the next 90 days." And that fits Wall Street's blind obsession with quarterly earnings, annual bonuses, 1% rates, no Volker Rule, no reforms, ever, more is never enough.

So how did your "Addictive Personality Rating Score" add up? Chances are you diagnosed Wall Street with a perfect 10 out of 10. No wonder Wall Street's insiders need treatment for their gambling addiction, at a Betty Ford Center.

How Wall Street Financial Companies Stole Billions From Main Street

Funny how these stories of widespread and systematic financial corruption are so undercovered by the main stream media. Maybe it is because 'truth is a dagger pointed at their heart, which is their pocketbook.'

This is a long piece of investigative journalism, but well worth reading.

It is too bad that the Banks had their major nemesis, Eliot Spitzer, taken out by the Feds under Bush II. And they were able to buy off the White House and the Congress so that no one of substance is touched by indictment, much less conviction.

Later in the story Matt Taibbi mentions the LIBOR rigging scandal, and suggests the broader rigging of markets and the real economy by the financial interests.

In a way a brainwashed vocal minority of the people are to blame for this. Every time the move is made to reform this rotten system, and bring the banks and large financial corporations under control of the law,they pipe up, often hysterically, on cue that government has no business interfering with 'private enterprise.' These are the kind of unthinking used by the powerful as paid propandists, intellectual brown shirts, and even the unthinking and unpaid, known in the power trade as 'useful idiots.'

In political jargon, useful idiot is a pejorative term used to describe ordinary people serving as propagandists for a cause whose goals they do not truly understand, who are used cynically by the leaders of the cause.

The politicians and regulators are bought or cowed, and the people shout slogans calling for their own downfall.

Don't feed the sharks. Don't let them turn you into a useful idiot. Stop watching the propaganda stream and start thinking for yourself.

Stop letting these wiseguys play you for a fool, a sucker, a muppet, and a cockroach. Because that is what they think you are. You really don't deserve it. It just encourages them to be bolder, and discourages those around you from thinking that reform is possible. Think twice before you speak.

This is an old story, with the bad guys wearing different, more expensive suits, but the game remains the same.

"Do not fear your enemies. The worst they can do is kill you. Do not fear your friends. At worst, they may betray you. Fear those who do not care; they neither kill nor betray, but betrayal and murder exist because of their silent consent."

Bruno Jasienski

Rolling Stone
The Scam Wall Street Learned From the Mafia
By Matt Taibbi
June 21, 2012

Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.

But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America.

The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

Barroso blames US banks for eurozone crisis

Baltic News Network

Unorthodox policies of American capitalism are to blame for the eurozone financial problems, says EU commission president José Manuel Barroso.

The G-20 summit participants are meeting in Los Cabos, Mexico, to discuss solutions to the eurozone crisis. The goal is not to receive lessons on how to handle the economy, he said.

Apparently, Barroso did not like the question why North Americans should risk their assets to help Europe, reports The Guardian.

"Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy."

"This crisis was not originated in Europe. This crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market," he said.

Dean Baker David Brooks Says That Mitt Romney and the Republicans Are Not Very Good at Arithmetic

Brad DeLong

June 16, 2012

Daddio:

Brooks doesn't have an inverted reality, it is an 'Invented' reality. Only ideas that work against government programs and public spending are valid. Any other ideas are ignored. He is a hack, part of the right wing megaphone. If he didn't write for the nyt, he would be on fox noise as an 'intellect'.

Donald Pretari:

The Welfare State isn't going anywhere. Conceptually & Practically, it's hard to imagine a realistic alternative. How to organize the Welfare State is the only real question. My guess is that in order for a Welfare State to function well, you have to admit it's here to stay. That doesn't mean Govt can't be smaller or less intrusive over time. It can. But only if that means citizens Need Less Help, not that we give them less help if they need it. The GOP position is that average citizens need to be poorer in order for the wealthy to remain wealthy. The idea that anyone who can use Govt to further his ends won't do so is a pipe/bong dream.

Will :

David Brooks's popularity has confused me for years now. I can understand Thomas Friedman's rockstardom: he's glib and triumphalist, and there's an audience for that. Brooks's writing has a cadaverous quality to it. It is a sustained effort to demonstrate serious, ponderous thought, to cover up the essential death of thought that it stems from.

Apparently, this is the best stab that the modern right has at intellectual respectability. Brooks would say that he's an intellectual descendant of Hume and Burke. I would say that he is correct, and that he has descended very much indeed.

Gibbon1:

"Why oh why can't we have a better press corps?"

You ain't going to get a better press corps till Brooks and the NYT shuffle off into oblivion. I've been listening to those fools blather for the last forty years. I have a good memory, they've been wrong about everything except scribbling things that please their patrons

Zach:

It's always a blast when folks point out that we'll obviously have to cut Medicaid/Medicare/Social Security benefits at some point. These are untouchable programs (Medicaid included, despite what the GOP thinks). Social Security and its projected shortfall are tiny, so forget about them for now. Medicaid and Medicare have this wonderful quality of being defined benefit rather than defined cost programs. Come up with a way to provide the same benefit at a lower cost and you'll eliminate opposition from beneficiaries. It happens that we have a way to halve that cost that's proven effective in about two dozen countries, many of which have extremely similar demographics to the States.

There are losers in this equation: people who combine their efforts to take $2 from someone and give them $1 back. It's true that they're politically powerful. But they're not as powerful as, say, the 50 million people on Medicaid, many of whom don't vote and many of whom vote Republican, who could through their efforts alone demolish national Republican political power.

There's a trillion dollars a year sitting on the table. Picking it up and setting revenues somewhat above their current levels (but way below their projected levels before the Bush cuts) instantly fixes the entire long-term budget problem. Very, very few people are objectively hurt by this change. If there's anything that's inevitable in American policy in the next few decades it's that we're not going to axe the welfare state before we stupidly stop spending twice what's needed for healthcare.

[Jun 13, 2012] Retail Sales decline 0.2% in May

Debt jubilee is not an option for the Empire...

shill:

Another not-recession report. Real retail sales will confirm this. (Retail sales are deflated by CPI-U to derive real sales, but the latest CPI reading isn't due out until tomorrow.) Assuming no big surprises on CPI, real retail sales will probably be around +3.8% (give or take) year-over-year.

Many a prediction gets washed down the toilet with revision...TA in this Typical whipsaw action of a bear market is usless.

Just saying.

shill

Business inventories climb 0.4% in April - MarketWatch

Business inventories rose 0.4% to a seasonally adjusted $1.58 trillion, the Commerce Department reported Wednesday. The ratio of inventories to sales stayed the same at 1.26. Most of the inventories gain came from motor vehicles and parts, where inventories jumped 1.9%. The worst showing came from food and beverage stories, where inventories fell 0.4%. Excluding motor vehicles and parts, inventories edged up 0.1%.

RATM

black dog wrote:

schedule a FOMC meeting every... day?

Already is. They act whenever they want, starting with opex of August 2007.

Their cover-their-ass clause:

The Committee also stated that it will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

energyecon

GDD9000 wrote:

hey ee - what's your take on the latest oil price differential article from casey research?
The Tricky Calculus of Oil Price Differentials | Credit Writedowns

This is not entirely correct:

One of oil's most important characteristics is its fungibility, which means that a barrel of refined oil from Texas is equivalent to one from Saudi Arabia or Nigeria or anywhere else in the world. The global oil machine is built upon this premise – tankers take oil wherever it is needed, and one country pays almost the same as the next for this valuable commodity.

Well, that's true aside from two factors that can render this equivalency void. In fact, crude oil prices range a fair bit according to the quality of the crude and the challenge of moving it from wellhead to refinery. Those factors are currently wreaking havoc on oil prices in North America: a range of oil qualities and a raft of infrastructure issues are creating record price differentials. And with no solution in sight, we think those differentials are here to stay.

The fungibility is quite a bit overstated. There are roughly three tiers of quality, and the ability of refiniries to handle lower tiers can be quite limited particularly for those geared for light, sweet oil. The article actually makes this point down page:

This chart tells the story perfectly. The vast majority of Canada's bitumen is ending up in PADD II – in Cushing – where it simply sits in tanks because there is no heavy oil refining capacity in the Midwest, and there is very limited pipeline capacity to move oil south.

Otherwise, it seems to be reasonably well researched, though I am less sanguine that the differential is here to stay. That $15-$20 a barrel uplift by getting your barrel to tidewater will incentivize substantial investment in transportation.

shill

Central Bank Money-Printing: $6 Trillion...and Counting

http://www.cnbc.com/id/47792734

Just one more hit and I am off the stuff for good.

energyecon:

Jackdawracy wrote:

The emperor has no way to close it down.

Zero bound FTW! .

Blackhalo:

josap wrote:

He has one shot left with a large load of powder. But there has to be blood to justify him "saving" us.

Not to mention the political fallout for taking such action in an election year. He surely wants to avoid any charge of playing politics or providing Paul any traction for "Audit the Fed." .

Preparation H:

The emperor has no way to close it down.

Why would TPTB want to close it down?

"Money for nuthin', chicks for free" is an addictive drug, and coupled with the drug "Power" the combo is totally irresistible for sociopaths...

Ready for WWIII?

Cause jubilee is not an option for the Empire...

t r orwell

Yeh Mish, let's all live together w/o rules of law so that you can f...k us and steal our money cuz your shit don't stink. Free trade is NOT fair trade, but don't let us eva, eva tell you that cuz you're just gonna tell us that the economy stinks because it's our stink, not yours.

And as Mike "Mish" Shedlock, you wail away about the lack of jobs cuz you just do not have a clue nor the intelligence to see its direct connection to free trade's outsourcing. What a dope! Ya can't see the correlation of the long term, secular bull market for bonds with outsourcing and consequent concentration of wealth? Where do you think the recent Hewlett -Packard's 26,000 job cuts "worldwide" and the 6,000 by RIM jobs are ultimately going? And how about the 18,000 Hostess Twinkie jobs?

Oh, and you are so right. It was Greece's fault and is the villain and not Goldman Sachs which fudged their numbers to gain their entrance into the EU and license to steal from the Germans who also are no damn good.

Those Greeks are filthy, corrupt, and no damn good just like the rest of the PIIGS who used Goldman. Long live Israel and the Jews!!!!

[Jun 11, 2012] Sunday Night- Asian Stocks and US Futures Up

Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda. This excessive power has damaged not only the economy but the financial sector itself. One way to combat this excessive power, if only partially, is to bring Glass-Steagall back.

km4:

The second reason why Glass- Steagall won me over was its simplicity.

The third reason why I came to support Glass-Steagall was because I realised it was not simply a coincidence that we witnessed a prospering of securities markets and the blossoming of new ones (options and futures markets) while Glass-Steagall was in place, but since its repeal have seen a demise of public equity markets and an explosion of opaque over-the-counter ones.

Last but not least, Glass-Steagall helped restrain the political power of banks. Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda. This excessive power has damaged not only the economy but the financial sector itself. One way to combat this excessive power, if only partially, is to bring Glass-Steagall back.

The writer is a professor at the University of Chicago Booth School of Business and author of 'A Capitalism for the People: Recapturing the Lost Genius of American Prosperity', published this week

sm_landlord

Well, well, what do you know:

Spain's Handling of Bankia - WSJ.com

Bankia's problems have their roots in Spain's real-estate bust. The country's savings banks-many controlled by politicians-lent heavily to developers and local governments. When the housing market began to tank in 2007, small banks were left with heaps of bad loans and investments. "Having politicians in management positions at the cajas was the real cancer of the Spanish banking system," said Jordi Fabregat, a professor of finance at ESADE, a Barcelona-based business school.

It also turns out that Bankia sold a bunch of stock to their domestic customers when they realized that they were in trouble. Customers took 75% haircuts on the stock.

Interesting article...

Paradigm Lost:

Mary: regarding the City of London "Corporation":

• Tax Justice Network: The City of London Corporation: the state within a state
• New Statesman - The tax haven in the heart of Britain

"...the City of London Corporation, the local-government authority for the 1.2-square-mile slab of prime real estate in central London that is the City of London. The corporation is an ancient, semi-alien entity lodged inside the British nation state; a "prehistoric monster which had mysteriously survived into the modern world", as a 19th-century would-be City reformer put it. The words remain apt today. Few people care that London has a mayor and a lord mayor - but they should: the corporation is an offshore island inside Britain, a tax haven in its own right.
The term "tax haven" is a bit of a misnomer, because such places aren't just about tax. What they sell is escape: from the laws, rules and taxes of jurisdictions elsewhere, usually with secrecy as their prime offering."

"When people ask - as they often do these days - which is the biggest tax haven in the world, our answer is almost invariably the City of London. The City hosts Britain's largest offshore financial centre and is intimately linked to satellite tax havens across most time zones, ranging from Hong Kong and Singapore in the East, to the British Virgin Islands, the Turks & Caicos Islands, Bermuda, the Cayman Islands and the Bahamas in the West. All of these havens are in some respects the Frankenstein creations of the City, as are the Crown Dependency islands (Guernsey, Isle of Man and Jersey) which are easily accessible in less than one hour by jet from London."

It's historical. Check it out. AIG, JPM's London Whale. There's a good reason they're there, and not somewhere else.

Phone call...gotta go. Later, possums.

Mary

courtesy eurotrib subscription: Greek and Spanish crypto-fascists

Pasok leader is in a desperate last-ditch attempt to form a government of national unity with New Democracy and the small Democratic Left; that would establish Fotis Kouvelis, leader of the pro-euro, anti-austerity DL, as the kingmaker in Greek politics; Kouvelis wants a government that stays in office until 2014; the push for a unity government comes as the latest polls gi party a large lead over all the other parties; but platform of a new unity government would still include "disengagement" from the EU-IMF memorandum; Alexis Tsipras, Syriza Pigged leader, toned down his demands from rejection to re-examination of the memorandum; Bankia's auditors discovered another black hole, relating to tax credits of €2.5bn, which may need to be charged against equity; the governing PP has embarked on a blame game campaign to deflect attention from its own role in the collapse of Bankia; among those under attack from the government is the chief of Spain's central bank; the European Commission is ready to grant Spain an extra year to meet the deficit target, but demands a number of quid-pro-quos, including an external supervision of the bank restructuring process;the German government is expected the highest tax revenues in the country history, due to falling unemployment and rising wages; Angela Merkel categorically rules out any debt financed growth measures; Francois Hollande wants to impose his tax on the rich as of June; Daniel Cohn-Bendi[t] warns of a return of military dictatorship in Greece; Germany's Bild is freaking out over the Bundesbank's acknowledgement that German inflation may temporarily exceed the eurozone average; Samuel Brittan, meanwhile, proposes a nominal GDP target (for the umpteenth time), this time as an alternative to austerity.

A few month's earlier El País ran an informative story about the Franco family's RE operations and continuing "transfer payment" schemes among republicans. It's in Spanish though.

aleister perdurabo

Spain's banks: Just don't call it a bailout | The Economist

Yet several details of the bailout are still fuzzy. First, it is not clear exactly what conditions would be attached to the aid. The government claimed there were no conditions for the rest of the economy. Other European ministers might disagree. The Eurogroup praised Spanish reforms but said it would also be monitoring deficit procedure and structural reform carefully." Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance," they said. The Eurogroup also mentioned "horizontal structural reforms of the domestic financial sector", which could mean something.

Second, the Eurogroup did not specify whether Spain would be borrowing from the existing rescue fund (the European Financial Stability Facility or EFSF) or from the new European Stability Mechanism which is due to start in July. This matters because loans from the EFSF are not senior to other bondholders, whereas the ESM loans do have priority over privately held debt. A loan from the latter could spook investors in Spanish sovereign bonds.

Rajesh

Greece Threatens Wall Street Jobs in Third Trading Plunge - Bloomberg

Greece is prompting declines as banks face questions about whether they're experiencing a so-called secular, or lasting, shift in their capital-markets businesses amid new regulations and slower global growth. The industry will see little-to-no growth in the total revenue pool over the next few years and needs to cut 20 percent to 30 percent of its managers, Boston Consulting Group Inc. said in an April 26 report.

JPMorgan Chief Executive Officer Jamie Dimon, 56, and Goldman Sachs CEO Lloyd C. Blankfein, 57, are among top bankers to argue the current slowdown is a cyclical decline that will bounce back.

"We're in a cyclical business, we've always said we're in a cyclical business," Goldman Sachs President Gary Cohn, 51, said at an investor conference last month. "And we're in that part of the cycle where our client base is tending to be more conservative than it is in the up parts of the cycle."

Rickkk

Why Spain's bank rescue could bring only brief respite

11 Jun 2012

"If Spain got into a catastrophic situation, you could forget French and German banks," Luxembourg Finance Minister Luc Frieden told broadcaster RTL on Sunday. Stress has risen again on financial markets as the effects of the ECB's injection of 1 trillion euros in long-term cheap loans into euro zone banks in December and February have worn off. "It feels as if it is just a matter of time before more issues will erupt, especially if growth remains sluggish," Morten Spenner, CEO of fund of hedge fund manager International Asset Management told Reuters. "To that end, a more holistic and much deeper political and financial solution is ultimately required rather than a continue band-aid by band-aid approach."

aleister perdurabo

Treasuries Drop as Spanish Bailout Call Saps Safey Demand - Bloomberg

Treasuries fell after Spain became the fourth member of the euro bloc to seek a bailout since the start of the region's debt crisis, damping refuge demand.
Benchmark 10-year yields touched a more than one-week high as Asian stocks rallied after Spain asked euro-region governments for as much as 100 billion euros ($126 billion) to rescue its banking system. The U.S. is scheduled to auction tomorrow $32 billion of three-year notes, followed by $21 billion of 10-year securities and $13 billion of 30-year bonds later in the week.
"The news on the Spanish bailout is triggering a relief rally in stocks," said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan's third- largest listed bank. "The bias is for Treasuries to be sold to some extent in the risk-on environment."
The 10-year yield rose eight basis points, or 0.08 percentage point, to 1.72 percent as of 10:44 a.m. in Tokyo, Bloomberg Bond Trader data show. The 1.75 percent security maturing in May 2022 sank 3/4, or $7.50 per $1,000 face amount, to 100 9/32. The rate earlier matched the May 30 high of 1.73 percent, following an 18 basis point increase last week, the most since the period ended March 16.
"Fed speakers today could add another dimension to how U.S. rates move along with the latest development in the euro crisis," Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London, wrote in a note dated today.
The Fed is replacing $400 billion of shorter-term Treasuries in its holdings with longer maturities by the end of this month to keeping borrowing costs down. The central bank plans to sell as much as $1.5 billion of Treasuries due from April 2013 to April 2015 today as part of the effort, according to the Fed Bank of New York's website.

sm_landlord

pavel.chichikov wrote:

Reverse has been removed from the gear box.

In the pumping madness
Of the locomotive breath,
Runs the big-time Bankster,
Headlong to his death.
He feels his finance failing –
Sweat breaking on his brow –
Sir Alan stole the handle and
Bernanke won't stop going –
No way to slow down.

---Apologies to Jethro Tull

pavel.chichikov:

Why Me wrote:

You're right, a casino wouldn't be able to change a six into a face card to achieve blackjack without the gamblers revolting.

You got it.

ResistanceIsFeuda:

dryfly:

The revolution is between the 5% and 0.1% and its on TV everyday - on CNBC. Class war baby!

The war among the top echelons will be quite the thing to witness. 0.1% versus 0.1% in particular. When you develop sufficient economic inequality and regulatory capture to get a nobility, we can reasonably expect that they'll behave like a nobility - political infighting, backstabbing, treachery, blackmail, marriages to consolidate power... the list goes on...

All that's old is new again!

dwb

Mary wrote:

The guys in the conference room x-Pond know exactly what's feasible --and some of those terms are contigent on real-time "bond market" signals between now and 30 June. That's reasonable, wouldn't you agree, if it were your money being "mutualized"?

1. A significant amount of money is already mutualized via the ECB, whether Germany is willing to admit it or not. The fact that they are not willing to admit it and just allow the ECB to buy sovs outright and bring down rates speaks volumes.
2. the lack of details means that they could not agree them, which means that there is a high probability that one of the 17 members (like Finland) demand something silly that Rajoy will not agree to.
3. as has happened numerous times, the credibility of the "firewall" will be questioned. what if the "bond market signals" indicate that the bailout needs to 200, 300, 400, 500... at what point do we call the whole thing off?
4. a bona fide EU-wide banking solution involves having German banks merge with periphery banks. does not seem to be on the table. probably it'll take another crisis...

aleister perdurabo

A.J.P. Taylor's English History, 1914-1945

Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country for ever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. For that matter, a foreigner could spend his life in this country without permit and without informing the police.

Unlike the countries of the European continent, the state did not require its citizens to perform military service. An Englishman could enlist, if he chose, in the regular army, the navy, or the territorials. He could also ignore, if he chose, the demands of national defence. Substantial householders were occasionally called on for jury service. Otherwise, only those helped the state who wished to do so.

The Englishman paid taxes on a modest scale: nearly £200 million in 1913-14, or rather less than 8 percent of the national income. The state intervened to prevent the citizen from eating adulterated food or contracting certain infectious diseases. It imposed safety rules in factories, and prevented women, and adult males in some industries, from working excessive hours.

The state saw to it that children received education up to the age of 13. Since 1 January 1909, it provided a meagre pension for the needy over the age of 70. Since 1911, it helped to insure certain classes of workers against sickness and unemployment. This tendency towards more state action was increasing. Expenditure on the social services had roughly doubled since the Liberals took office in 1905. Still, broadly speaking, the state acted only to help those who could not help themselves. It left the adult citizen alone.

aleister perdurabo

Very good, citizen. You can eat this week.

Speculators Fail to Reap Rally in Crops After Wager Cut - Bloomberg

Speculators cut combined bullish bets across the S&P GSCI by 13 percent to the lowest this year on mounting concern that Europe's widening debt crisis will derail global growth and curb demand for commodities. Agricultural prices rallied as dry weather harmed the corn crop in Iowa and Illinois, the biggest U.S. growers, and Russia's government declared a state of emergency in some areas because of drought.
"People don't look at fundamentals when the crisis overshadows everything," said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York- based Aegis Capital Corp. "The tug of war gets tough when the correlation between the economy and agricultural commodities is very high."
Global food prices had their biggest drop in more than two years in May as the cost of dairy products slumped. An index of 55 food items tracked by the United Nations' Food & Agriculture Organization fell 4.2 percent, the agency said June 7. The gauge dropped 14 percent from a record in February 2011, when higher costs coupled with rising unemployment helped spark protests across the Middle East and North Africa.

pavel.chichikov:

This european episode will be studied for quite some time, and perhaps it will afford some entertainment for posterity, in case there should be one.

Nanoo-Nanoo:

OH and the Greek vote is coming up in what, about 7 days?

Italy Moves Into Debt-Crisis Crosshairs After Spain - Bloomberg

....

Italy has more than 2 trillion euros of debt, more as a share of its economy than any advanced economy after Greece and Japan. The Treasury has to sell more than 35 billion of bonds and bills per month -- more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.

Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros in emergency loans from the euro area to shore up a banking system hobbled by more than 180 billion euros of bad assets. Mounting concern about the state of Spain's banks and public finances drove the country's borrowing costs to near euro-era records last month, dragging up Italian rates in the process.

[Jun 10, 2012] Brzezinski lists components of the USA decline in his book Strategic Vision America and the Crisis of Global Power

"Six critical dimensions stand out as America's major, and increasingly threatening, liabilities":

1. "an unsustainable national debt",
2. "flawed financial system",
3. "widening income inequality coupled with stagnating social mobility",
4. "decaying national infrastructure",
5. "a public that is highly ignorant about the world",
6. "America's increasingly gridlocked and highly partisan political system."

You've got to agree with this analysis (even though I think the analysis in WINNER TAKE ALL POLITICS by Jacob S. Hacker and Paul Pierson presents the same problems with root causes much more effectively).

Interesting book but creates impression of no hope for CHANGE, March 14, 2012 By Sengil - See all my reviews Amazon Verified Purchase(What's this?) This review is from: Strategic Vision: America and the Crisis of Global Power (Hardcover) I will advise this book to understand that for USA to 'CHANGE' will not be easy. Although the Author,Zbigniew Brzezinski-ZB is very experienced,knowledgable and well respected famous elite American, but he holds himself not changed and unimproved conceptually and keeps staying as old-fashioned. Whenever any other country or the region is remarkably progressing then it is assumed by him, as could become America's principal competitor in global political influence and even eventually in economic and military might. To deal with geopolitics worldwide has made gains earlier for USA due to involvement in 1rst,2nd World Wars,even American people had paid much during corresponding decades. Further, consequences of Vietnam War and latter Iraq and Afghanistan Invasions, although cold war had ended, were totaly negative for American people's social and economical benefits for which ZB confesses the same in his book. I presume, it is not a fair attitude, at least against American people, to introduce and tackle worldwide and/or regionally expected conflicts or awfull scenarios which definetely increase the antipathy to America, as already occured in almost half of the world. While having existing serious inhouse liabilities of America such as 'Huge National Debt, Flawed Financial System, Widening Social Inequality, Decaying Infrastructure, Public Ignorance, Gridlock Politics-ZB and Crucial Unemployement' are being to be taken care of, wouldn't be better to leave the other nations and regions alone, to solve by themselves, their occured/occuring conflicts between them and not to spend any time of American's governments and money of taxpayers. Instead, it will be far useful for American people to utilize America's own assets as 'Overall Economic Strength,Innovative Potential,Demographic Dynamics,Reactive Mobilization,Confort of Geographic Base and Democratic Appeal-ZB'. The other nations will normally buy and/or get use of these very valuable assets and then American people will make further benefit out of them. By having '600 billion usd Current Account Balance Deficit(2011) and close to 15 trillion usd National Debt-CIA World Factbook', now it is time for elites like ZB to perform efforts to guide and convince American people how to spend less,save more,work hard and invest wisely. As being the largest and sole power of the world,if USA wants to care its 'National Interests' and further to contribute for the other nations and world humankind, better to cooperate with the other nations to find solutions, only to secure nuclear non-proliferation and to solve global environmental problems. I don't agree with ZB's ethics. His 'highly ignorant public about the world-ZB' the American people who is, according to my opinion fully innocent and is not responsible and do not have any obligation to pay for his and his type of conservative elites' very long term projections about the destiny of USA and other nations.I advise the book but with one star only.

F. Oliveira: One bright political hit-man, April 13, 2012

Zbigniew Brzezinski is a bright man so bright he was chosen to work for the Club of Rome (UN founders), The Bilderberg Group (the media up to few years said never existed) and for The Trilaterial Commission so he's basically a political hit-man like his fellow Henry Kissenger working for the same old Rochefellers and Rothschilds.
What got my attention the most in this book is that the New World Order is cooking many more wars and Brzezinski stated 'The choice for the 21st century is not hegemony or peace, but it's a choice between chaos and cooperation'.
The book is a good read to help you see the big picture and prepare yourself for what is underway. I would suggest watching in youtube End Game: Blue Print for Global Enslavement as it makes this book much more clear to the eyes.

A realist assessment of the American position: Where is Stilicho when you need him?, January 29, 2012 By J. Miller (Fayetteville, NC (Legionnaire Outpost)) - See all my reviews (REAL NAME) This review is from: Strategic Vision: America and the Crisis of Global Power (Hardcover) To mention a few scattered points: To understand Brzezinski's vision, it would probably help to have read some of Michael Klare's books. Control over energy supply is the key to understanding a number of suggested initiatives. The desire to maintain some presence in Afghanistan, the desire to maintain the independent status of Georgia and Ukraine, and the importance of Turkey, are all designed to secure an alternative source of energy supply for Europe, other than Russia. Brzezinski argues that American disengagement will open space for Russia to increase pressure on these states. However, I would argue that pursuit of this strategy also incurs risk . The Russo-Georgia war of 2008 is an indication that the US could get drawn into conflict in the Caucasus. Would you view Mikheil Saakashvili as a stable partner? How about the modern-day 'Phalaris' Islam Karimov? Key to the success of this Eurasian initiative, Brzezinski states, is Turkey finally entering the EU. This does not appear to be likely in the foreseeable future. Just look at the current state of Franco-Turkish relations. One area Brzezinski rightly points to as critical in the future is the resolution of the issue of Arctic Energy resource allocation. This is a potential source of future dispute with Russia. The author indicates support at further centralization of power in the EU. The EU "acts as if its central goal is to become the work's most comfortable retirement home"..Brzezinski makes a number of these kind of statements, which would indicate to me that he is in support of austerity measures and is in favor of greater consolidation of power for the banking houses of Europe, since this is the logical outcome of more centralized control. I would go further and say that Brzezinski hints that such sacrifices are in order for America's "cornucopian culture that worships materialism". The author supports a "mutually acceptable two-state solution" to the Israeli-Palestinian conflict. While such a solution would incur undoubted advantage to the US, there is no indication such a solution lies in the future. The longer such a delay exists, it can be argued that the potential viability of any Palestinian 'State' is gradually eroded away. It can be argued that the longer impasse exists, the greater possibility the ideas of Brzezinski's former boss will gain currency (Carter's apartheid thesis). Brzezinski has little to say about the current Af-Pak War (a term he would shy from using). It would seem 'officialdom' has declared the war on a path to conclusion, but one might be excused for seeing this as wishful thinking. Brzezinski, like most foreign policy officials, cite the fear of "the rise of Islamic fundamentalism in nuclear-armed Pakistan" but he offers little advice other than avoiding an expansion of the war (this would have "no clear end in sight"). In regard to Pakistan he tends to stress the role that nation plays in China's strategic calculus. I would have liked to see the author discuss some possible paths towards ending the Afghan war. As far as South Asia, he is critical of arms sales to India, and cautions against a US-Indian Alliance as too provocative. He advises the US to avoid taking a position on the Kashmir dispute. Another, perhaps intractable dispute. Yet..reaching a solution here, like the Israeli-Palestinian dispute, would do much for regional stability. Brzezinski, regarding India, is not laudatory. I think a mild disdain for India is a long-standing tradition in US foreign policy circles. In East Asia, he takes a stand on the Taiwan issue, seeing this as perhaps one of the few issues that, mishandled, could result in Great Power conflict. He thinks arms sales to Taiwan only cloud a long-term US-Chinese accommodation and provoke Chinese enmity. He suggests a future where "it is doubtful that Taiwan can reject..a PLA presence on the island". On Korea, he envisions a possible scenario where China facilitates various stages of reunification with a corresponding reduction in security ties to the US. In general, the author advises avoidance of conflict. On Iran, he takes the view that the US can respond to Iranian acquisition of Nuclear Weapons by simply extending a US Nuclear Umbrella over the Gulf States. This seems a more reasonable approach than the current one adopted by the Administration. The Administration has taken a risk with a forward Naval Deployment into the Persian Gulf in the current tension-filled moment. One over-aggresive naval officer ('Robo-crusiser' anyone?) could end the Obama Presidency. With regard to China, the author mentions the usually cited issues of contention, such as the Paracel and Spratly Islands. He suggests mutual cooperation to resolution of these outstanding issues. He suggests negotiation to avoid an arms race in the region. Yet this seems to be the path the US has decided upon. Note the recent announcements by the President and Defense Secretary of a 'pivot towards Asia' (while simultaneously negotiating new troop deployments to Australia). How to maintain closer ties with Far Eastern nations, while avoiding the appearance of Chinese strategic encirclement is not so easy to determine. Basically Brzezinski says the US should avoid additional commitments that might result in the US fighting another Asian land War. In summary, his argument is that the continued engagement by the US globally is in the interests of the US, and the World. Peace would be threatened by the failure of the US to maintain this role. However, Brezezinski paints the argument in terms of US will. In other words, 'Can a US "highly ignorant about the world" overcome their limited knowledge in order to fulfill their global destiny' (my paraphrase). While the author acknowledges the global financial crisis (and argues for reforms) he, in my opinion, underestimates the capacity of the global economy to function as it has been functioning. While he mentions climate issues, population issues, societal structural problems (in Pakistan, India, China, Russia, Mexico etc)...his general view is that the global system will continue because it is desired by all parties that it continue. Yet it is possible that this massive global economic system might come apart. There have been numerous subtle (and not so subtle) indications that this is the future that awaits us all. Perhaps his next book will be suggestions on how to pick up the pieces of what remains? Brzenzinski compares our national situation to that of Rome in the fifth century. Hmm..I wonder how far away our 'Crossing of the Rhine' moment is, when it simply becomes impossible to avoid a Chaotic denouement of the Global Commons?

LA Times- "Shortage of homes for sale creates fierce competition"

6/10/2012

josap

The downturn in Europe has been matched by decelerating growth in rising economic powers such as China, India and Brazil.

"We are seeing a global slowdown," said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis

The effects are already evident in relationships with key trading partners. U.S. exports to the European Union, for example, fell 11.1% in April. And exports to China dropped 14%.

Europe's impact on U.S. hangs like cloud - Economic Preview - MarketWatch

josap:

How close to the edge are families, governments and economies when the price of gas (up or down fifty cents) makes a large difference to profits, discretionary spending and health of the economy?

Jackdawracy

ac wrote:

Still you have to appreciate the irony of a how the president who won the Nobel Peace Prize his first day in office is now sending out killer drones all over the world to assassination people.

...thus assuring long lasting peace amongst those so targeted

Mary: re: currency war

He accounts for his unpopularity amongst mainstream economists by saying that it's understandable that "economists would reject a new system that challenges their monopolistic knowledge system."...

EO: What do you mean we didn't realize the importance of money?

Song: ...When I initially proposed this concept, people were confused and asked, "how could a war break out between currencies?" However, as people became more aware of the world's economic environment, they started accepting the possibility.

There is no systematic research on the competition of currencies and money in China. Only monetary theories or economics are studied. China has neglected the importance of finance as a tool, a measure and a weapon, which could be vital for her development, economy and national security in the future. Therefore, my central point in all four books is actually the influence that money has on the fate of a country and the world....

EO: What's have you found?

Song: Based on a recent survey that I did at ETH Zurich University ...

The graphic is ubiquitous. Try to find credit for Song Hongbing in the PR.

we analyzed the equity structure of 37 million transnational enterprises and found that 147 of the biggest financial institutes exercise control over 37 million enterprises.[...] Many big financial families set up funds and donated their fortunes, especially after 1930. What they want is the control instead of the ownership. Although there might be some philanthropists, the common practice of setting up charity foundations doesn't seem logical to me....

EO: In your supposed era of warring states, does China have a decisive role? Song: I'm not so pessimistic about that. The core idea is that a large domestic market is the base for a country's ascent. Some have mentioned the internationalization of the yuan, however it's obvious that the yuan can't become the world's reserve money if China's domestic market isn't the largest in the world. The Chinese economy is dependent on exports, which means the currency will flow back when goods are exported. Japan and Germany both tried the internationalization of deutschmarks and yen. However, their share in the international currency never exceeded 7%, which is also because of their export-orientated economies.

This could serve as a lesson for China. A third of China's GDP comes from its domestic market, which is only a ninth of the size of the American market. The best outcome for export-oriented countries can't be better than was the case for the deutschmark or the yen.

What's the strategic purpose of promoting the internationalization of the yuan? In my opinion, the answer is to replace the dollar. However, is it possible to guarantee an efficient supervision of yuan trading abroad now? The more yuan that flow abroad, the more dangerous it will be. The same applies when pricing the yuan. If the State Administration of Foreign Exchange and the People's Bank of China set up the exchange rate at 6.36, while the deal in New York 5, which standard will the market follow? As there are many financial derivatives abroad, the number of the deals there may exceed those in Beijing. In this case, China may lose the pricing right.

This is precisely why I look into the past. Looking back, we can observe how the pound and dollar rose. When comparing the domestic market in the U.S. and Great Britain to the one in China, it's impossible to argue that the yuan could replace U.S. dollar in the next 30 years. It would be better to promote an Asian currency and benefit from the indirect internationalization of yuan. However, there are also problems, such as how Asia should be integrated.

Interview: "Currency Wars" Author

t r orwell

Banks are back to their old MO and SOS with $100 down or 3% down, 30 year home loans @ 3.7% in 22 states, and they are selling these loans to HUD and FHA as I had posted months ago....even loaning out extra money to remodel. Who else would ultimately own these loans long term at full price (certainly not the hedge funds who are buying on the cheap) but the corrupt and bankrupt govt? No wonder the Denver home market is booming with sales up 25% over the last year, prices up 12%, and inventory dropping like a rock. When you don't put the criminal bankers behind bars, they'll do the same thing over and over again. And the same, desperate, stupid people with no savings will gladly gamble at future taxpayers expense and accept the same stupid loans that caused the problems during the earlier housing bubble. If you look at M-2, it is still going up parabolically even w/o QE3 and even with the monetary base flatlining due to termination of QE. Why? With interest rates artificially low thru QE1 and 2, Ben cherry picks and uses short term treasuries to "twist trade" for the long term treasuries to lower them even further. Who else but our corrupt govt would initially print via QE and then "twist trade" for the majority, around 61%, of these debt instruments and then go out and buy the new home loans generated by these 3.7% rates plus the huge leverage provided by the $100 down and the 3% down payments. This humongous leverage certainly provides the counterbalance for Wal-Mart and McDonalds pay scale jobs. And of course, we've got the other bubble with student loans. Those running this country are putting the tab for this new bubble up on our children and their progeny since you've already been screwed. And if this newly enhanced bubble hasn't reached your area yet, maybe you should stay tuned, be patient, and give it a little time. I mentioned a few weeks ago wouldn't it be sumpin if the economy weakened and home sales exploded up with these bogusly low interest rates. Ben is attempting to balance the world on half a pinhead.
HUD Offers REO Homes for $100 Down in Select States
Denver home sales continue to climb - The Denver Post
The Financial Crisis Timeline
M2 Money Stock (M2) - FRED - St. Louis Fed

[Jun 10, 2012] Steve Keen Why 2012 Is Shaping Up To Be A Particularly Ugly Year ZeroHedge

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we're now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall -- which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

The reason that we have this trauma for the asset markets is because of this whole relationship that rising debt has to the level of asset market. If you think about the best example is the demand for housing, where does it come from? It comes from new mortgages. Therefore, if you want to sustain he current price level of houses, you have to have a constant flow of new mortgages. If you want the prices to rise, you need the flow of mortgages to also be rising.

Therefore, there is a correlation between accelerating and rising asset markets. That correlation applies very directly to housing. You look at the 20-year period of the market relationship from 1990 to now; the correlation of accelerating mortgage debt with changing house prices is 0.8. It is a very high correlation.

Now, that means that when there is a period where private debt is accelerating you are generally going to see rising asset markets, which of course is what we had up to 2000 for the stock market and of course 2006 for the housing market. Now that we have decelerating debt -- so debt is slowing down more rapidly at this time rather than accelerating -- that is going to mean falling asset markets.

Because we have such a huge overhang of debt, that process of debt decelerating downwards is more likely to rule most of the time. We will therefore find the asset markets traumatizing on the way down -- which of course encourages people to get out of debt. Therefore, it is a positive feedback process on the way up and it is a positive feedback process on the way down.

He sees all of the major countries of the world grappling with deflation now, and in many cases, focusing their efforts in exactly the wrong direction to address the root cause:

Europe is imploding under its own volition and I think the Euro is probably going to collapse at some stage or contract to being a Northern Euro rather than the whole of Euro. We will probably see every government of Europe be overthrown and quite possibly have a return to fascist governments. It came very close to that in Greece with fascists getting five percent of the vote up from zero. So political turmoil in Europe and that seems to be Europe's fate.

I can see England going into a credit crunch year, because if you think America's debt is scary, you have not seen England's level of debt. America has a maximum ratio of private debt to GDP adjusted over 300%; England's is 450%. America's financial sector debt was 120% of GDP, England's is 250%. It is the hot money capital of the western world.

And now that we are finally seeing decelerating debt over there plus the government running on an austerity program at the same time, which means there are two factors pulling on demand out of that economy at once. I think there will be a credit crunch in England, so that is going to take place as well.

America is still caught in the deleveraging process. It tried to get out, it seemed to be working for a short while, and the government stimulus seemed to certainly help. Now, that they are going back to reducing that stimulus, they are pulling up the one thing that was keeping the demand up in the American economy and it is heading back down again. We are now seeing the assets market crashing once more. That should cause a return to decelerating debt -- for a while you were accelerating very rapidly and that's what gave you a boost in employment -- so you are falling back down again.

Australia is running out of steam because it got through the financial crisis by literally kicking the can down the road by restarting the housing bubble with a policy I call the first-time vendors boost. Where they gave first time buyers a larger amount of money from the government and they handed over times five or ten to the people they bought the house off from the leverage they got from the banking sector. Therefore, that finally ran out for them.

China got through the crisis with an enormous stimulus package. I think in that case it is increasing the money supply by 28% in one year. That is setting off a huge property bubble, which from what I have heard from colleagues of mine is also ending.

Therefore, it is a particularly ugly year for the global economy and as you say, we are still trying to get business back to usual. We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process.

In order to successfully emerge on the other side of this this painful period with a more sustainable system, he believes the moral hazard of bailing out the banks is going to have end:

[The banks] have to suffer and suffer badly. They will have to suffer in such a way that in a decade they will be scared in order to never behave in this way again. You have to reduce the financial sector to about one third of its current size and we have to also ultimately set up financial institutions and financial instruments in such a way that it is no longer desirable from a public point of view to borrow and gamble in rising assets processes.

The real mistake we made was to let this gambling happen as it has so many times in the past, however, we let it go on for far longer than we have ever let it go on for before. Therefore, we have a far greater financial parasite and a far greater crisis.

And he offers an unconventional proposal for how this can be achieved:

I think the mistake [central banks] are going to make is to continue honoring debts that should never have been created in the first place. We really know that that the subprime lending was totally irresponsible lending. When it comes to saying "who is responsible for bad debt?" you have to really blame the lender rather than the borrower, because lenders have far greater resources to work out whether or not the borrower can actually afford the debt they are putting out there.

They were creating debt just because it was a way of getting fees, short-term profit, and they then sold the debt onto unsuspecting members of the public as well and securitized their way out of trouble. They ended up giving the hot potato to the public. So, you should not be honoring that debt, you should be abolishing it. But of course they have actually packaged a lot of that debt and sold it to the public as well, you cannot just abolish it, because you then would penalize people who actually thought they were being responsible in saving and buying assets.

Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create 'central bank money' (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down -- no choice. Therefore, if you have debt, you can reduce the debt level, but if you do not have debt, you get a cash injection.

Of course, this would then feed into the financial sector would have to reduce the value of the debts that it currently owns, which means income from debt instruments would also fall. So, people who had bought bonds for their retirement and so on would find that their income would go down, but on the other hand, they would be compensated by a cash injection.

The one part of the system that would be reduced in size is the financial sector itself. That is the part we have to reduce and we have to make smaller. That is the one that I am putting forward and I think there is a very little chance of implementing it in America for the next few years not all my home country [Australia] because we still think we are doing brilliantly and all that. But, I think at some stage in Europe, and possibly in a very short time frame, that idea might be considered.

Click the play button below to listen to Chris' interview with Steve Keen (48m:50s):

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veyron

• 2008 was a particularly ugly year
• 2009 was a particularly ugly year
• 2010 was a particularly ugly year
• 2011 was a particularly ugly year

Applying Birinyi's Ruler on my time series of ugliness

• 2012 will be a particularly ugly year
• 2013 will be a particularly ugly year
• 2014 will be a particularly ugly year

...

[Jun 04, 2012] How Slow Can the Economy Go?

NYTimes.com

There are two unavoidable conclusions from the May jobs report: The slow economy is getting slower, and there is no help on the way.

Republicans in Congress seem more determined not only to block any boost that President Obama wants to give the economy, but they are preparing to take the nation's credit rating hostage again over the debt ceiling. Mitt Romney, the Republican presumptive presidential nominee, has no new ideas.

The statistics on Friday were daunting. Only 69,000 jobs were created last month, far lower than what's needed just to keep up with population growth. The job tallies for March and April, shabby to begin with, were revised down, for an average monthly tally of 96,000 over the past three months, versus 252,000 in the prior three months.

The weakness was not only displayed in job growth. Average weekly wages declined in May, to $805, as a measly two-cents-an-hour raise was more than clawed back by a drop to 34.4 hours in the length of the typical workweek.

Similarly, the rise in the number of people looking for work is normally considered a sign of optimism, but, on closer inspection, it appears to be simply the reversal of a drop in job-seekers in April.

[Jun 03, 2012] S&P 500 PE Ratio

Jun 1, 2012 Current S&P 500 PE Ratio: 14.70 -0.37 (-2.46%)

Mean:	15.48
Median:	14.45
Min:	5.31	(Dec 1917)
Max:	123.79	(May 2009)

Price to earnings ratio, based on trailing twelve month "as reported" earnings.

Current PE is estimated from latest reported earnings and current market price.

Source: Robert Shiller and his book Irrational Exuberance for historic S&P 500 PE Ratio.

[Jun 03, 2012] The Fat Lady Is Clearing Her Throat

In fact "a complex system of hoaxes, inaccurate data and false financial reports that have been for the most part believed but that belief system is now crumbling as every quarter" is not limited to Europe...

ZeroHedge

A Loss of Credibility

Once at a social gathering, Gladstone said to Disraeli:

"I predict, Sir; that you will die either by hanging or of some vile disease".

Disraeli replied,

"That all depends, sir, upon whether I embrace your principles or your mistress."

We have reached a point where the shepherd has shouted "wolf" one too many times, where the theatre goer has shouted "fire" one too many times and the crowd no longer believes the jargon and is standing pat. From one politician to the next in Europe the words are strikingly the same; "bold actions, courageous decisions, decisive plans" which are meant to stoke the propaganda machine and assure the world that all is well. We have had the bank stress tests; the first pockmarked by inaccurate data checked by no one and the second humiliated by an inaccurate construct which discredited it by its own shameless manipulation. We face a world where contingent liabilities, promises to pay and guarantees of debts are NOT counted and where asset guarantees, illusionary firewalls and unfunded rescue programs ARE counted and in some cases counted more than once.

Europe has, in fact, provided a complex system of hoaxes, inaccurate data and false financial reports that have been for the most part believed but that belief system is now crumbling as every quarter presents new data that proves the inaccuracy of what we have been told.

... ... ...

Looking Backwards

If the American experience taught us anything it should be first that "best of class" will sink right along with the "rest of class" and that looking backward, when facing a financial decline has about the same benefit as dipping your body in the Ganges river and hoping for salvation. In a recession what was will not be and all of your attention has to be shoved forward to look at what will come and not what has come.

Percentage Increase, 1922-29

Industrial Production: +70%
Gross National Product: +40%
Per Capita Income: +30%
Output per factory man hour: +75%
Corporate Profits: +62% (1923-1929)

"Financial storm definitely passed."

-Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

Greece has hit the wall and its financial engine lies in tatters. Spain has hit the wall and just not made the announcement yet. Portugal has hit the wall and will bang it again for good measure. Ireland has hit the wall and is bathing in its national self-pity. Germany is staring at the wall, declared "no Eurobonds under any circumstances" over the weekend while Monti says Eurobonds "will come" and so we are about to have a re-do of the Battle of Verdun. France is warming up to the wall and wants to spend even more to climb the damn thing. America is in self-denial that there is any wall at all. China is about to hit the wall and is adjusting its parachute.

Treasuries are the needle on the speedometer and if there is one clear indication of very serious trouble ahead you can read it there.

The fat lady is about to sing. If you don't wish to listen then don't show up later and say I didn't warn you.

CommunityStandard:

From Gospel of Matthew, ch 13:

10. And the disciples came, and said unto him, Why speakest thou unto them in parables?

11. He answered and said unto them, Because it is given unto you to know the mysteries of the kingdom of heaven, but to them it is not given.

12. For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.

13. Therefore speak I to them in parables: because they seeing see not; and hearing they hear not, neither do they understand. 14. And in them is fulfilled the prophecy of Esaias, which saith, By hearing ye shall hear, and shall not understand; and seeing ye shall see, and shall not perceive:

15. For this people's heart is waxed gross, and their ears are dull of hearing, and their eyes they have closed; lest at any time they should see with their eyes, and hear with their ears, and should understand with their heart, and should be converted, and I should heal them.

16. But blessed are your eyes, for they see: and your ears, for they hear.

17. For verily I say unto you, That many prophets and righteous men have desired to see those things which ye see, and have not seen them; and to hear those things which ye hear, and have not heard them.

My witness to you in these Final Moments is: If You Love Christ Jesus, it is not your money or safety that matters. Living In God's Accord is the only Deliverance and Preservation any, anywhere will Know.

You must find that Relationship NOW, because the tune the legendary fat-lady mezosoprano is going to sing, will be the end of The Age of Faith. All will Know The Father IS Real and HIS Son Already Is Embarked Upon HIS Return.

Either In-HIM/Of-HIM, or apart.

There is no solution. Europe will default. The US will eventually default. Sure, a "hanging" could make an example and possibly prevent another MF Global, but it wouldn't fix the problem.

LawsofPhysics

Wrong, there will be a solution, it simply won't be one you like. Nature seems to always find one and I have no doubt it will again.

CommunityStandard

By solution, I meant a way to continue the status quo - to continue having large banks with large lobbies, (one) two political parties, cheap goods from China, gas in our cars, hot water in our showers, etc. Yes, there will be a RESOLUTION. I'm simply hesitant to call the major upheavals and required shared sacrifice a solution.

LawsofPhysics

Wrong again. There is never a resolution in Nature. That would imply an end and Nature is always evolving. Unless of course you are talking about the end of the earth when the sun runs out of fuel and implodes.

CommunityStandard

Bleh. I'm not talking about nature (or Nature or the end of the universe or God's ultimate plan, etc), I'm talking about the math problem that is the current economic situation. When given a math problem, the goal is to find a solution, i.e. an answer that solves the equation. There is no answer for this one. There is no solution that makes the math problem viable. There is only removing the problem entirely. That's not a solution.

However, I do understand your point - that civilizations rise and fall, countries prosper and default, and if you were to compare these economic cycles to nature, life will go on. At least I think that's what you're trying to say.

rwe2late

C - Standard. Removing from office and handing out appropriate sentences for the financial and war criminals who currently wield power may well be a necessary step both to "fix" things and "prevent" the recurrence.

May

[May 31, 2012] Not Exactly Good News

May 31, 2012 | Financial Armageddon

The Atlantic notes that 10-year Treasury bond yields have hit a 220-year low:

One of these days, the bond vigilantes will show up. Today was not that day though. Tomorrow's not looking good either.

The chart below from Bloomberg shows the nominal yield on 10-year Treasury bonds the past five years. Thursday's midday yield was the lowest it's been over that period. It was also the lowest it's been the past 50 years. Actually, 100 years. No, 220 years.

Yes, Thursday's brief sub-1.54 percent yield was the lowest ever.

...I suppose most Wall Street "strategists" would say this means stocks are very cheap, since the S&P 500 index has an earnings yield -- earnings divided by price, or the reciprocal of the P/E ratio -- that is more than four times higher and a dividend yield that is 33 percent greater.

Then again, maybe the soaring bond market is telling us something more along the lines of what one successful investor has to say about our future prospects, as Zero Hedge reports in "'The End Game: 2012 And 2013 Will Usher In The End" - The Scariest Presentation Ever?":

If Raoul Pal was some doomsday spouting windbag, writing in all caps, arbitrarily pasting together disparate charts to create 200 page slideshows, it would be easy to ignore him. He isn't. The founder of Global Macro Investor "previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe... Raoul Pal retired from managing client money in 2004 at the age of 36 and now lives on the Valencian coast of Spain, from where he writes." It is his writing we are concerned about, and specifically his latest presentation, which is, for lack of a better word, the most disturbing and scary forecast of the future of the world we have ever seen....

And we see a lot of those.

Consider this:

• We are here...
  
• We don't know exactly what is to come, but we can all join the very few dots from where we are now, to the collapse of the first major bank…
• With very limited room for government bailouts, we can very easily join the next dots from the first bank closure to the collapse of the whole European banking system, and then to the bankruptcy of the governments themselves.
• There are almost no brakes in the system to stop this, and almost no one realises the seriousness of the situation.
• The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives…
• Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations
• From an EU crisis, we only have to join one dot for a UK crisis of equal magnitude.
• And then do you think Japan and China would not be next?
• And then do you think the US would survive unscathed?
• That is the end of the fractional reserve banking system and of fiat money.
• It is the big RESET.

It continues:

• Bonds will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
• The whole bond market will be dead.
• Short selling on bonds - banned
• Short selling stocks – banned
• CDS – banned
• Short futures – banned
• Put options – banned
• All that is left is the Dollar and Gold

It only gets better. We use the term loosely:

• We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses.
• Spend your time looking at the risks of custody, safekeeping, counterparty etc. Assume that no one and nothing is safe.
• After that…we put on our tin helmets and hide until the new system emerges

And the punchline

• From a timing perspective, I think 2012 and 2013 will usher in the end.

Wow. That's pretty scary, even to me.

[May 29, 2012] The Politics of the Super-Rich

Economist's View

Larry Bartels:

More on the Politics of the Super-Rich, Monkey Cage: Andrew argues, based on "extrapolation from preferences of the top 5%, data on campaign contributions, and data on political attitudes of the top third of income," that "there are lots more rich and powerful Republicans" than Democrats. While extrapolation from the top third, or even the top 5%, to the "super-rich" seems perilous, some new data on campaign contributions handsomely support his claim. ...

While these data seem compelling with regard to the partisan alignment of the super-rich, they do not speak to Andrew's additional claim that "rich Democrats tend to be moderate on economic policy, whereas rich Republicans tend to be highly economically conservative." ...

For what it's worth, I suspect that Andrew is mostly right on this score as well-but also that there is a great deal of politically significant variation even within the domain of "economic policy." For example, the finance industry super-rich in Bonica's data look, on average, much like the rest of the super-rich. However, even those who contribute mostly or entirely to Democrats are probably not "moderate" on the issue of financial regulation-a fact that may be relevant to understanding why the regulatory response to the Wall Street meltdown was not more vigorous.

Goldilocksisableachblonde:

I have my doubts about the graphs depicting ideological distributions , like the one above , when the topic at hand is economics. I suspect they're reflecting voting patterns across the universe of issues , including foreign policy , social norms , military spending , etc.

If you define Dems as to the left of the ideology zero point on the horizontal scale , and define that ideology on economic issues to mean pro-labor , pro-regulation , pro-antitrust enforcement , anti-inequality via progressive taxes , etc. , then the graph above looks like it might be about right for around 1970 or 1980 , perhaps with different shapes of the curves.

But today , I think you'd have to adjust the zero point on the above graph well to the left to accurately depict ideology on economic issues. That is , we're decidedly more right of center overall.

Of course if you say that liberal economics is now neoliberal economics , then the graph may be accurate as it stands , but the point remains - the "liberals" of the past were not nearly as "neo" as they are today.

Paine:

I think you are talking on different points here

The shift of the money elite toward an anti interventionist pro market position is
Obvious the move could be from social liberal to neo liberal
And it has impacted the trust fund liberals in particular
The shift has been from redistribution to cultural liberation

The GOP as the business mans party is well understood by the common voters

Charlie Baker:

Here's a report on misinformed voters:

Poll: 2010 Voters Misinformed on Key Issues

Summary:

http://newsdesk.umd.edu/global/release.cfm?ArticleID=2313

Full report:

http://www.worldpublicopinion.org/pipa/pdf/dec10/Misinformation_Dec10_rpt.pdf

While I grant that a lot of people know that the very richest people back the GOP, Red State working/middle class people often buy the "job creator" narrative, and the notion that "tax cuts + austerity = more jobs." The GOP has been very successful in painting Obama as an elite crony capitalist to its base, handing out big govt money to Solyndra and Planned Parenthood.

Conversely, the Democratic voters often have mystification about the nature of Democratic policies. Dem voters often skew "progressive" where the party policies skew "neoliberal." I was responding to this part of the post:

"... even those who contribute mostly or entirely to Democrats are probably not "moderate" on the issue of financial regulation-a fact that may be relevant to understanding why the regulatory response to the Wall Street meltdown was not more vigorous.... "

I apologize for the antagonism resulting from my brief comments, and hope this clears up my position somewhat.

RueTheDay said...

According to the latest stats I could find, the top 5% of households had an AGI > $154k/yr. When exactly did $154k/yr become "super-rich"? In a major metropolitan area, a household consisting of a high school teacher and a police officer could easily be in the lower end of that group.

I'm not a big fan of using income measures (as opposed to net worth measures) to define the "rich" in general, but if we're going to use them then we need to do a better job than this. I recognize that the data may not be available, but then we should either attempt to collect the data or simply say we don't know rather than "extrapolating". Lumping together the political preferences of households with $154k in annual income from wages/salaries with households that have annual incomes of 3-5+ times that amount from passive investments doesn't tell us anything anything at all as the demographics have little in common.

Marc Faber Sees 100% Probability Of Global Recession In 2013

ZeroHedge

Faber ramps up the rhetoric noting that while stock indices are not performing terribly, there are many economically sensitive (and luxury) stocks that are down very significantly - which suggests to him that the huge asset price run of the last decades in come to an end prompting the question of the day from CNBC's Cramer-stand-in "You're not looking for a recession in the US are you?" Faber, in his calm, thoughtful way responds, "I think we will have a global recession late this year, early next year", to which a stunned Wapner asks for odds (surely 30%, 50%?) of this recession - "100% certainty" comes the reply to leave Wapner throwing in the towel on any positive spin as Faber suggests the only 'investment' in this case is 'Cash USD' and investors must own some gold.

[May 29, 2012] War Pigs - The Fall Of A Global Empire

It seems both parties are war pigs

May 27, 2012 | ZeroHedge

We will bankrupt ourselves in the vain search for absolute security." -Dwight D. Eisenhower

As Americans mindlessly celebrate another Memorial Day with cookouts, beer and burgers, the U.S. war machine keeps churning. As we brutally enforce our will on foreign countries, we create more people that hate us. They don't hate us for our freedom. They hate us because we have invaded and occupied their countries. They hate us because we kill innocent people with predator drones. They hate us for our hypocrisy regarding democracy and freedom. Just when we had the opportunity to make a sensible decision by leaving Iraq and exiting the Middle East quagmire, Obama made the abysmal choice to casually sacrifice more troops in the Afghan shithole. We have thrown over $1.3 trillion down Middle East rat holes over the last 11 years with no discernible benefit to the citizens of the United States. George Bush and Barack Obama did this to prove they were true statesmen. The Soviet Union killed over 1 million Afghans, while driving another 5 million out of the country and retreated as a bankrupted and defeated shell after ten years. Young Americans continue to die, for whom and for what? Our foreign policy during the last eleven years can be summed up in one military term, SNAFU – Situation Normal All Fucked Up. These endless foreign interventions under the guise of a War on Terror are a smoke screen for what is really going on in this country. When a government has unsolvable domestic problems, they try to distract the willfully ignorant masses by proactively creating foreign conflicts based upon false pretenses. General Douglas MacArthur understood this danger to our liberty.

"I am concerned for the security of our great Nation; not so much because of any threat from without, but because of the insidious forces working from within."

Economic Opportunity Cost

"You can't say civilization don't advance… in every war they kill you in a new way." – Will Rogers

Any doubt that the Military Industrial Complex is as strong as ever should be removed after examining Obama's 2012 Budget which has $900 billion dedicated to our military machine. We spent $370 billion in 2001, $620 billion in 2006, and now this liberal anti-war Democrat from Illinois is spending 45% more than that war monger Bush who was burned in effigy by the anti-war Democrats during Iraq War protests. It seems both parties are war pigs.

[May 29, 2012] U.S.A. 2012: Is This What We've Become? by Charles Hugh Smith

05/27/2012 | ZeroHedge

The word "sacrifice" has been sacrificed on the altar of expediency. The politicians we elect (those who dare speak the truth of our impoverishment and complicity don't get elected--we abhor and fear the truth) have ground the word "sacrifice" into meaningless with overuse; it now means nothing but yet another clarion-call to swallow lies and artifice to protect our share of the loot. The government can't be the problem, because the government issues me a nice check every month. And so we cling to easy falsehoods... The problem is our consumerist, Central-State dominated society/economy that depends on ever-rising debt and and leverage is unsustainable, and placating ourselves with expedient simplicities that shift the accountability and responsibility from ourselves to someone or something else solves nothing. This reliance on excuses, denial and expediency is the hallmark of adolescence; in adulthood, these are the hallmarks of failure and pathology.
...
Is this what we've become, brittle, simulacra "grown-ups" who are incapable of acknowledging the truth of our situation? If we cannot dare acknowledging reality, then how can we solve our problems? If we cannot bear an awareness of our systemic rot and unsustainability, then how can we move past denial and expediency? If we have lost the ability to live within our means and to acknowledge difficult facts, then we have lost everything: our national integrity, our ability to problem-solve, our vigor and our future.

[May 25, 2012] Egos and Immorality by Paul Krugman

Economist's View

Ruin the economy, then get indignant and whiny if anyone points that out:

Egos and Immorality, by Paul Krugman, Commentary, NY Times

...You can see why Wall Street likes this story. But none of it - except the bit about the Gekkos and the Romneys making lots of money - is true..., and there are real questions about why, exactly, the wheeler-dealers have made so much money while generating such dubious results. ... And it has been especially sad to see some Democratic politicians with ties to Wall Street, like Newark's mayor, Cory Booker, dutifully rise to the defense of their friends' surprisingly fragile egos.

As I said at the beginning, in a way Wall Street's self-centered, self-absorbed behavior has been kind of funny. But while this behavior may be funny, it is also deeply immoral.

Think about where we are right now, in the fifth year of a slump brought on by irresponsible bankers. The bankers themselves have been bailed out, but the rest of the nation continues to suffer terribly, with long-term unemployment still at levels not seen since the Great Depression...

And in the midst of this national nightmare, all too many members of the economic elite seem mainly concerned with the way the president apparently hurt their feelings. That isn't funny. It's shameful.

Neildsmith:

"Once upon a time, this fairy tale tells us, America was a land of lazy managers and slacker workers. Productivity languished, and American industry was fading away in the face of foreign competition."

It's not a fairy tale, it's a religion.

Efficiency: The altar upon which average people are sacrificed to the gods of finance.

Edward Lambert said in reply to Neildsmith...

Yet, they were not efficient... The most efficient economy has MSC=MSB (marginal social costs = marginal social benefits).

The buyout kings worked upon the principle of MPC=MPB (marginal private costs = marginal private benefits). They had absolutely no concern for social costs.

As a result, they left heaps of negative externalities for society to pay for... like low real wages.

Romney envisions providing public goods as private goods. Inept...

Charlie Baker said in reply to Edward Lambert...

Akerlof and Romer had the right word for it: LOOTING. Read it and weep:

Looting: The Economic Underworld of Bankruptcy for Profit
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227162

ilsm:

Lies repeated often enough become reality.

Their attack ads: they (finaciers) ruined the economy so Obama is faulted for the rising debt, much of it coming to keep the republic together after they ruined the economy.

The answer is raise taxes and stopped the wars, not elect a wall st rodent.

In the same add the Heritage Foundation PPACA will cause millions of Americans to going into "pools".

While their tea party puppets wanted pools and vouchers to replace Medicare, to save the medical insurance complex as health costs skyrocket and fewer businesses can get their workers private insurance.

Occupy the media.

Almost Laughable

May 24, 2012

In "'The Death of Equities'… Again?" FT Alphaville ponders whether sentiment has reached the kinds of extremes that have historically marked major -- secular -- turning points:

Thursday's FT declares "the end of a six-decade passion for equities". Quite a claim.

Institutional investors, from pension funds to mutual funds sold directly to the public, have slashed holdings in the past decade. Stocks have not been so far out of favour for half a century. Many declare the "cult of the equity" dead.

The story may evoke a feeling of déjà vu for some. Especially those who read the August 13, 1979 edition of BusinessWeek, which famously also announced 'the death of equities'.

[May 23, 2012] The Inside Story Of What Happened On The Facebook IPO

Business Insider

And now for some more bombshell news about the Facebook IPO...
Earlier, we reported that the analysts at Facebook's IPO underwriters had cut their estimates for the company in the middle of the IPO roadshow, a highly unusual and negative event.
What we didn't know was why.
Now we know.
The analysts cut their estimates because a Facebook executive told them to, a source tells us.
The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors.

km4:

but not to smaller investors

SMALL FRIES. THE MINNOWS. THE LITTLE PEOPLE.

All f#cked.

EngineerJim:

Why is everyone so negative today? Don't tell me everyone on here is long FB?!?!?

I have 200 shares of FB. My wife egged me into buying it -- so I'll blame it on her. I told her -- well look at the bright side, we can only lose about $8K.

Outsider:

I told her -- well look at the bright side, we can only lose about $8K.

This is why I have an imaginary trading account.

Which reminds me, VXX, which was up 35% for the month, is now only up 25%.

Outsider :

What if the SEC imposed larger fines?

That would send a message (a weak one, but one):

"Would you like fines with that?"

rosethorn:

Sheryl Sandberg - Wikipedia, the free encyclopedia

-Prior to Google, Sandberg served as chief of staff for the United States Department of the Treasury. -While at Harvard, Sandberg met then professor Larry Summers who became her mentor and thesis adviser. -in March 2008 Facebook announced hiring Sheryl Sandberg away from Google. After joining the company, Sandberg quickly began trying to figure out how to make Facebook profitable.

later...

[May 23, 2012] ATA Trucking index declined 1.1% in April

dryfly:

black dog wrote:

retail sucked for april

But will be revised down to 'blows chunks'...

[May 23, 2012] JPMorgan Hearing Market Regulators Warn They're Broke, Outgunned By Wall Street

See also:

• JPMorgan's "Wild, Crazy Insane Gamble" Puts Global Economy at Risk: Bill Black | Daily Ticker - Yahoo! Finance

• Given the de facto and de jure power of the Federal Reserve, should CEO of JPM Jamie Dimon resign as a director of the NYFed?

Two of the most important financial regulators in the country have a message for Congress: We need more money.

At a hearing before the Senate Banking Committee Tuesday morning, Securities and Exchange Commission Chairman Mary Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler told lawmakers that the demands on their agencies to expand oversight are growing, but that their pocketbooks are not.

"We're way underfunded at the CFTC," Gensler told lawmakers, after a question on the subject from Senator Chuck Schumer (D- N.Y.). "Imagine if, all of a sudden, there are eight times the number of teams on the [football] field, but only seven refs," Gensler said. "There would be would be mayhem on the field. The fans would lose confidence."

Similarly, Gensler said, investors are losing confidence when when mayhem breaks out in the financial markets as a result of lax oversight. "They feel that the market is unfair."

SEC chief Schapiro echoed the point: "We've been asked to take on very significant new responsibilities," she said. Though the SEC has made progress in hiring new staffers and improving its technological capabilities, Schapiro conceded that, in some areas, the efforts haven't gone far enough.

"We're still way outgunned by the firms we regulate in terms of technology," she said.

The inadequacy of the SEC budget is an issue that Schapiro has raised in the past, and one that sits at the heart of criticism that the regulator is not able to fully monitor and regulate financial markets. Last month, a number of former SEC enforcement lawyers told The Huffington Post that the SEC is playing catch-up in some of its oversight. "The SEC just doesn't have the resources to be everywhere -- to regulate and to be the cop on the beat," Paul Berger, a former associate director of the SEC's enforcement division who left in 2006 for the law firm Debevoise & Plimpton told The Huffington Post at the time.

Outsider :

JPMorgan Hearing: Market Regulators Warn They're Broke, Outgunned By Wall Street

SEC chief Schapiro echoed the point: "We've been asked to take on very significant new responsibilities," she said. Though the SEC has made progress in hiring new staffers and improving its technological capabilities, Schapiro conceded that, in some areas, the efforts haven

't gone far enough.

"We're still way outgunned by the firms we regulate in terms of technology," she said.

I can't believe she has the nerve to say that.

Tell me everyone is not thinking the same exact thing when they hear that.

Pellice:

some investor guy wrote:

""We're still way outgunned by the firms we regulate in terms of technology"

Isn't the problem at base that the markets have outgrown the nation-state, even the United States? They may wish us well, but the market economy will not hesitate to screw the nation-state if profit is at stake. We already have one-world government - by financial interests. Time for regulators to catch up.

josap:

Pellice wrote:

We already have one-world government - by financial interests. Time for regulators to catch up.

It's too late. The regulations will simply be changed to fit the financial interests.

[May 22, 2012] The EU Political Game of Growth Vs Austerity is Akin to Polishing the Brass on the Titanic

ZeroHedge

Both growth and austerity are political hot buttons that fail to address the core issues plaguing the Euro-zone. Those core issues are:

1. Age demographics, which courtesy of a welfare state translates into…
2. Massive unfunded liabilities and debt overhang that stifles growth…
3. And an unwillingness to innovate or pursue democratic capitalism

When political leaders talk about austerity today, they're not even actually addressing real austerity. France, for instance, is balking at the prospect of submitting to more "austerity measures" when it actually increased its spending by $62 billion from 2009-2011.

Indeed, the whole exercise becomes a total joke when you realize that as far back as 2004 France had unfunded liabilities (social programs, pensions, etc) equal to over 500% of its GDP. As Jagadeesh Gokhale of the Cato Institute notes, in order to meet these needs without increasing taxes, France would need to set aside nearly 10% of its GDP every year indefinitely.

Put another way… in order for France to meet its unfunded liabilities, it would have to start saving NOT spending beyond its means

Speaking of which, spending beyond one's means is precisely what EU leaders are referring to when they talk about "growth." For the EU, economic growth is synonymous with spending money (especially if it's someone else's money), NOT economic innovation or organic growth from small business.

[May 22, 2012] Did Morgan Stanley Botch the Facebook IPO by SUZANNE MCGEE

May 22, 2012 | The Fiscal Times

Meanwhile, there was plenty of information out there to make an investor become more wary about Facebook at the kind of valuation underwriters were seeking. Even before General Motors (GM) announced its decision to yank all its spending on Facebook because its ads there weren't attracting new customers, the financials made it clear that the company's growth rate was slowing. There simply aren't that many people left for most of us to "friend," and it seems that we don't like being pitched vacation villa rentals or liposuction treatments when we're trying to chat with those we have "friended."

Reuters Breakingviews published a detailed analysis of the company, its financial position and its strategy that was available for at least two weeks before the IPO as an e-book. In it, the authors concluded that the company likely had a fair value closer to $65 billion than the $104 billion price tag it commanded on the IPO date. Everyone vying for stock in the company last week could have paused to read and think that through instead of being caught up in the hype.

Similarly, Facebook could have avoided being caught up in its own hype. The company, as the premier social-networking company out there and subject of an Oscar-nominated feature film, was always going to be an iconic IPO. It didn't need to be valued at quadruple the level that Google was when the latter made its debut on the public markets in 2004. The company has plenty of savvy backers and employees who were in a position to say, "Waaaait just a second. Let's be sure this is handled properly, so that the stock not only fetches the maximum possible price." Sure, those insiders who sold as part of the deal wanted to maximize their return too. But most of them own more stock in the company that they likely will find themselves trying to sell at lower and lower prices, as lockups are removed in three to six months' time. They could have said "no" when Morgan Stanley and other underwriters suggested raising the size and price, if that is what happened. Or they could have refrained from asking underwriters to make those changes, if that's the way the scenario played out.

[May 12, 2012] JPMorgan $2 billion loss hits shares, credit, image

May 12, 2012 | Reuters

JPMorgan Chase & Co lost $15 billion in market value and a notch in its credit ratings on Friday while a chorus of regulators and politicians reacted to its surprise $2 billion trading loss by demanding stiffer oversight for the banking industry.

The loss by one of Wall Street's most respected banks embarrassed chief executive Jamie Dimon, a leader lauded for steering his bank through the fallout from the 2008 financial crisis without reporting a loss.

"We know we were sloppy. We know we were stupid. We know there was bad judgment," Dimon said in an interview with NBC television to be broadcast on "Meet the Press" on Sunday.

He said it wasn't clear whether the bank had broken any laws or violated any rules. "We've had audit, legal, risk, compliance, some of our best people looking at all of that."

The loss also invited regulatory scrutiny for a man who had all but led the charge to limit it, criticizing the so-called Volcker rule to ban proprietary trading by big banks.

The New York Times reported that the Securities and Exchange Commission has opened a preliminary investigation into JPMorgan's accounting practices and public disclosures about the trading loss.

On Friday, Securities and Exchange Commission Chairman Mary Schapiro told reporters: "It's safe to say that all the regulators are focused on this."

The debacle sparked new fears about big banks and prompted Dallas Federal Reserve Bank President Richard Fisher, who has called for the breakup of the top five U.S. banks, to say he is worried the biggest banks do not have adequate risk management.

The fallout extended across much of the banking sector, with shares of some of Wall Street's top names declining on Friday. Among others, Citigroup dropped 4.2 percent, Goldman Sachs fell 3.9 percent and Bank of America slipped 1.9 percent.

JPMorgan was far away the worst performer, however, falling 9.3 percent on a day when some 212 million of its shares traded, the most volume in its history.

Fitch Ratings cut JPMorgan's debt ratings a notch and put all of the ratings of the bank and its subsidiaries on negative ratings watch.

WFTAsaid:

For the past 30 years I've managed to eke out a living selling fertilizer (not the organic variety that Jamie Dimon was peddling yesterday,) so I've never needed to be a financial genius, but a "hedge" by definition cannot lose money. It is a defensive measure used to protect a gain, or to insure in an outcome. It may limit upside if the event you were defending against doesn't happen, but it never, ever loses money.

When the financial press allows the CEO to use the word "hedge" to explain a $2 billion loss other than in a sentence like, "Our failure to hedge resulted in a $2billion loss," our financial press does us a disservice.

JP Morgan Loss Bomb Confirms That It's Time to Kill VaR

naked capitalism

jake chase:

First of all, Keynes identified the problem in 1923 in his Treatise on Probability. There is a big difference between uncertainty and risk. Trading involves uncertainty. You have positions which inevitably are correlated in ways nobody can predict. That is why banks should not be gambling, particularly when they are using deposits as capital and the Fed as an insurance company. Why do they do it? Because in the short run they can capture profits which are then extracted as bonuses. It is unbelievable that toadying academics still do not understand this, particularly Bernanke who is the poster child for this species.

LeonovaBalletRusse

jc, "the difference between uncertainty and risk" - and why this distinction is crucial - is demonstrated by Dr. Gerd Gigerenzer:

Dr. Gerd Gigerenzer, Director, Max Planck Institute for Human Development, makes the distinction clearly and succinctly in his presentation at the INET Plenary Conference in Berlin: "Paradigm Lost: Economics + Politics" on Thursday, 12 April 2012 (day one), during the session entitled: "What Can Economists Know? Rethinking the Foundations of Economic Understanding."

It's "pay dirt" at http://www.ineteconomics.org

enouf

It's all intentional; for-profit cognitive dissonance

chitown2020:

Chris Whalen spoke about the lack of banking regulators to want to deal with breaking up the BIG BANKS. Chris said the FDIC is willing to do it and it will have to be done. This needs to be done before they clean everyone out. http://maxkeiser.com/

LeonovaBalletRusse:

They're ADDICTED to "hot, fast money" that goes with the "primo tail" risk, the cocaine, with Crystal on the side.

Dr. Gabor Mate will tell you why they canNOT be cured. The pols are addicted also, hence they are enabling co-conspirators, forcing the People to be enablers against our will. Think: crack cocaine system on the street, for How It Works: from plantation owners to manufacturers to brokers to pushers to hustlers dealing, doing, and dying in the gutter. "Uncle Sam" embezzles whatever "money" is required from the People's accounts, and provides the Praetorian Guard to keep the system locked down. Full-circle payout to the 1% comes from every level of the Private Plantation Prison rackets.

London has cut its deal with China, so "The Opium Wars" are meant to run their course in the Homeland. London says: "It's your night in the barrel."

decora:

The problem with 'oops, lets fix the math' solutions is that they don't address the problem, which is that a large part of the system is basically a con. i.e. nobody cares if the models are accurate – the point is not to be accurate, the point is to get other people to think its accurate long enough to milk them for a few billion dollars, and then run off and say 'oops sorry, but I didn't break any laws'.

think about the guys running bear stearns, specifically Alan Greenberg, who loved to tell everyone about his reputation for memos regarding the saving of paperclips.

he works on the street for decades, him and jimmy cayne riding to work together every day for years and years. then comes the rise of the computers, and the derivatives. do you think he understands all this stuff? CDS, MBS, CDO, CDPC, etc etc? obviously he doesn't understand it. but he doesn't need to.

he understands the con. he understands the game. he understands that he can make huge amounts of money off the backs of other people. Bear Stearns was the investment bank where the boiler rooms went when they needed a pipe to the market. They have been playing this type of game for decades. you don't need to understand the fundamentals in order to run the con – because the con is not about fundamentals or math or calculus or Gaussian curves. The con is about people and their beliefs and expectations. The con is about the well spoken guy in the Armani suit.

the con existed before computers and formulas and risk models, and it will exist long after these companies that will cease to exist when their own cons blow up. the game itself is never ending. only from time to time, does a society try to organize itself so that the leaders are not the same people who are the con artists. the US used to be such a place, but it is slipping.

[May 10, 2012] Max Keiser Interviews Chris Whalen on the Banks, And Accounting at Wells Fargo

Jesse's Café Américain

Max Keiser Interviews Chris Whalen on the Banks, And Accounting at Wells Fargo

This is an interesting discussion. I have enormous respect for Chris Whalen, bearing in mind that he is very much a member of the banking community and this must by its very nature affect his priorities if but a little.

And of course, Max is always Max, and always interesting. When he shifts his schtick into low gear (pun intended) he is an excellent interviewer. I wonder if Comedy Central could handle his style. He burned out the BBC fairly quickly when he called for bankers to be sent to the guillotine. Hunter Thompson drives the Shark to Wall Street. Or perhaps more like Lenny Bruce, for those who remember him, the older crowd like me.

Although I think most of what he says is quite to the point, I don't necessarily agree with Chris when he complains that on one hand that the Fed has not done enough to reform the banks, but on the other hand he suggests the Fed raise rates so that the unreformed banks can make more money on their interest rate carry trades, even if it harms the real economy.

I think a strong enough reform of the banks, the real banks, would help reduce their need for outsized returns, and take them off the Fed feedbag. And Chris alludes to that glancingly later on when he talks about JPM. Max hits that point hard, but Chris just doesn't seem to get it quite yet. And Chris defers somewhat to Jamie D. but unleashes on Jon Corzine. Corzine won't be buying any rating services anytime soon.

The Fed interest rate policy is a blunt instrument, and it does definitely penalize savers. But there are other ways to deal with that than by simply raising rates overall to help subsidize the banks, given the extraordinarily weak recovery in the real economy, which at the end of the day is what public policy should be all about. And of course Chris makes no reference to the intense bank lobbying that helped to weaken Dodd-Frank and the Volcker Rule and make them more complex and less effective. I seem to recall Yves Smith taking him to task on that, and she was right.

But overall it is good. His opinions on Wells Fargo are rather blunt and could be an eye opener to some. The American banking system is still a snakepit, and it makes we grind my teeth a bit when the triumphalists on Bloomberg television compare the US 'success' in financial recovery to other nations.

Here is the original source for this excerpt titled provocatively ""I Steal Therefore I Am."

Again I apologize for having to direct viewers to Russia Today to obtain this information about the US financial system, but there is a decided lack of frank discussion like this in the American media, except perhaps on Comedy Central and a few isolated outposts on PBS.

Keiser Report I Steal, Therefore I Am (E286) interview starts at 13:48

[May 10, 2012] From Financial Crisis to Stagnation

Economist's View

jeffrey678 said...

"Shock Doctrine" by Naomi Klein

Klein believes that neo-liberalism belongs among "the closed, fundamentalist doctrines that cannot co-exist with other belief-systems ... The world as it is must be erased to make way for their purist invention. As Klein sees it, the social breakdowns that have accompanied neo-liberal economic policies are not the result of incompetence or mismanagement. They are integral to the free-market project, which can only advance against a background of disasters.

Klein seems to suggest that these disasters are manufactured as part of a deliberate policy framed by corporations with hidden influence in government. Her more considered view, which is also more plausible, is that disaster is part of the normal functioning of the type of capitalism we have today:

"An economic system that requires constant growth, while bucking almost all serious attempts at environmental regulation, generates a steady stream of disasters all on its own, whether military, ecological or financial.

The appetite for easy, short-term profits offered by purely speculative investment has turned the stock, currency and real estate markets into crisis-creation machines, as the Asian financial crisis, the Mexican peso crisis and the dotcom collapse all demonstrate.

http://www.guardian.co.uk/books/2007/sep/15/politics?INTCMP=SRCH

Mike said in reply to jeffrey678...

How is neoliberalism = free markets? It is corporatism. It is amazing that people butcher the English language and suggest that laissez-faire economics is not analogous to corporatism.

Mark A. Sadowski said in reply to Mike...

Neoliberalism supports the privatization of nationalized industries, deregulation, and enhancing the role of the private sector in modern society without regard for the market failures that might have made nationalization, regulation and an enhanced role for the public sector preferable in the first place. Laissez-faire policies pursued naively inevitably lead to corporatism.

river said...

Palley doesn't actually come out and say it, but I suspect that he falls into the "progressive" camp in his beliefs. Just based on simple intuition (which I realize can be misleading, but is very hard to ignore)of a simple minded engineer, this explanation seems to be the best to me (and one I have argued for a while on this board, but didn't have an advocate with any credentials that thought the same thing (Steve Keen, Yves Smith, Barry Ritholtz and now Thomas Palley the main exceptions).

The only reason for a person like me to make an argument about this issue:

"The critical insight is that each perspective carries its own policy prescriptions. Consequently, the explanation which prevails will strongly impact the course of economic policy. That places economics at the center of the political struggle as it influences which explanation prevails."

"As of now, the economics profession is split between the hardcore and softcore neoliberal positions. However, that can change under the pressure of an ugly reality that produces mass political demand for change, as happened in the Great Depression of the 1930s which provided an opening for Keynesian economics. The only certainty is change will be politically opposed as powerful elites and orthodox economists have an interest in preserving the dominance of the existing paradigm by ensuring their explanation of events prevails."

Goldilocksisableachblonde said in reply to Mark A. Sadowski...

I would characterize most of the NGDP-targeting advocates as well to the right of the type of shared-prosperity progressives that Palley describes. Whether conservative , libertarian , whatever , they're members of one of the two economic porn groups who've collaborated over the last several decades to systematically dismantle what had been a perfectly good economic system.

Monetary stimulus was a useful tool for Roosevelt in a way that it isn't today , because he had implemented and would continue to implement policies that ensured that its beneficial effects were widely-shared and thus effective , i.e. , the transmission mechanism actually had a transmission.

I think Bernanke realizes this , as revealed by his repeated hints that fiscal policy would be a more direct method to attack unemployment. Why would he want to carry the legacy of the Fed chair who was the best ever at pissing up a rope ?

I share the view expressed in this piece by Dan Alpert re : Krugman vs Bernanke :

http://www.economonitor.com/danalperts2cents/2012/04/25/earth-to-paul-krugman/

Mark A. Sadowski said in reply to Goldilocksisableachblonde...

"Monetary stimulus was a useful tool for Roosevelt in a way that it isn't today , because he had implemented and would continue to implement policies that ensured that its beneficial effects were widely-shared and thus effective , i.e. , the transmission mechanism actually had a transmission."

Monetary stimulus doesn't need fiscal stimulus as a transmission to work. (FDR actually did relatively little fiscal stimulus). And the idea of shared prosperity is hardly contradictory with monetary stimulus (By strengthening unions, instituting a minimum age and making taxes more progressive FDR did both).

"I think Bernanke realizes this , as revealed by his repeated hints that fiscal policy would be a more direct method to attack unemployment."

Bernanke is merely trying to shift the responsibility to someone else (as is Draghi). He is a born consensus seeker (look at his history as department chair at Princeton). As long as Hawks dominate the BOG he will go along with them. You're just reading you own motives into someone elses. Remember, Bernanke is a Republican.

"I share the view expressed in this piece by Dan Alpert re : Krugman vs Bernanke :"

Alpert's views are self contradictory to the point of being totally incoherent. He argues that cheap labor is leading to increased AS (which should lower inflation) and then argues that monetary stimulus is increasing commodity price inflation (which would be symptomatic of decreased AS). Which is it?

Both arguments are thin as rice paper. How could a positive AS shock in the developing world affect our ability to attain full employment? We always have the ability to depreciate our currency through monetary stimulus to keep our trade deficits in check. How can the monetary policies of the advanced world inflate global commodity prices? They can't. It's all about the fact that supply for these commodities is relatively inelastic and demand in the developing world is soaring. China now consumes over 40% of the earth's steel, cotton and copper and is the world's third largest consumer of oil, which is subject to peak oil. Twenty years ago China wasn't even a blip on the world's commodity radar screen. Now it is the elephant in the world's commodity markets.

Cameron Hoppe said...

I don't think any of the three should be ignored. However, the real explanation to lies in the pursuit of status and power. WWII was a shared goal, and it was fought mainly by working class and poor men. This is not a dig against middle class and rich guys: it was a low-tech total war requiring full mobilization. The majority of men were working class or poor.

It had the effect of putting working class and poor men in a position of status. It put them in a position to be admired. They were universal heroes for life.

That all changed in Vietnam. The heroism demanded of those who fought was just as great, but they were regarded coolly by wealthy chicken-hearts and sometimes berated by some who opposed the war. Even WWII veterans were known to show disdain for those who went to Vietnam, regarding it as something other than a "real war".

This is not the whole story, but it is integral to the present dynamic, IMHO. Capitalism is inherently unstable in that today's debt is always to be paid for via tomorrow's growth. However, it doesn't matter too much what sectors see growth and which workers or rentiers see their income and wealth increase. So long as there is growth, capitalism survives.

For me, the dynamics of increasing inequality, periodic financial crises coupled with public bailouts of corporate executives, and the rise of apathetic trade can only be understood in the light of primate status dynamics. A person making $1 million+ per year may consciously think he or she wants more money. What the earner really desires is more power, more status, more reproductive opportunities for one's self or offspring.

It's easy to justify a drive for money and wealth. Most people can understand it because they don't have enough to meet the real needs of their present and future. It's impossible to justify a constant grab for eternal power for oneself and progeny. But it is exactly what we are witnessing. Economists and everyone else should call it what it is.

PaulS:

There has been much discussion about the Depression/World War II analogies. Many such as Krugman argue that it was the extremely high deficit spending during World War II which lifted the US out of the Great Depression. However, there were two parts to the US economic mobilization, and the spending was only one of the two. The other part is the War Production Board. The War Production Board was a huge act of central planning to marshal the nations' resources towards war. It completely reallocated resources to this end. And arguably this reallocation had as much to do with creating the prosperous postwar economy as did the spending.

This is why it is not a contradiction to say that the 30s unemployment was structural, and at the same time say that the government was able to improve the unemployment picture. To the extent that 30s unemployment was structural, it was the central planning which upended the structure and created a better fit between workers and the economy.

While these two parts of the economic intervention during the War, the planning and the spending, certainly both contributed to the economic recovery, it is only the spending which has really been talked about in public, according to the orthodoxies. The central planning of the WPB certainly is not. As mentioned in the post, polite economists don't talk about central planning at all.

Mark A. Sadowski:

The main problem with your thesis is that unemployment had already fallen to 6.0% (counting FERWs as employed) by 1941 and real GDP was already back to trend although war spending was minimal and the War Planning Board had not even been created yet since we were not at war.

WW II didn't end the Great Depression because the New Deal already had.

Edward Ericson Jr.:

The post WWII role of what Andre Gunder Frank called "military Keynesianism" arguably played a role both in the pre-1980s "virtuous cycle" and its less virtuous aftermath.

It's hard to put 4-8 percent of your imputed GDP into an utterly unproductive endeavor and not produce first order economic distortions.

Jes sayin'.

ezra abrams:

Quote:

"... 1945 - 1975 the U.S. economy was characterized by a "virtuous circle" Keynesian model built on full employment and wage growth tied to productivity growth"

I guess being the world's super power, no competition for industrial stuff from japan and china, low oil etc had nothing to do with it. If all you have is a hammer... I'm always amazed at how little effort economist put into getting something other then a hammer (tools from phd time) to study problems. Of course, if things like military might creating low oil [prices] were responsible for some of the growth, then people might question the high status afforded to the math driven economist

[May 10, 2012] 'We Are Not Doing Very Well'

In "NBER's Martin Feldstein Bashes The Deplorable US Economy, Says Bernanke Has Engineered Another Stock Bubble," Zero Hedge highlights some less-than-upbeat commentary from a Bloomberg TV interview with economist Martin Feldstein:

Feldstein on the U.S. economy:

"We are not doing very well. The economy is just coming along at a snail's pace. The first quarter numbers that we just got last week were not very good at all. The GDP number was 2.2%. That was a disappointment, but you know, it was all automobiles. 1.6 out of the 2.2 was motor vehicle production. So, people were catching up after not being able to buy them the year before. So, this is a very weak economy. The payroll employment numbers, we are going to get some new ones in April. Let's hope they are better than March where it fell by half. The stock market is, I think, responding to the Fed. I think the real danger is that this is a bubble in the stock market created by low long-term interest rates that the Fed has engineered."

On the danger of a bubble in the stock market:

"The danger is, like all bubbles, they burst at some point. Remember, Ben Bernanke told us in the summer of 2010 that he was going to do QE2 and then ultimately they did Operation Twist. The purpose of that was to make long-term bonds less attractive so that investors would buy into the stock market. That would raise wealth and higher wealth would lead to more consumption. It helped in the fourth quarter of 2010 and maybe that is what is helping to drive consumption during the first quarter of this year. But the danger is you get a market that is not with the reality of what is happening in the economy, which is, as I said a moment ago, is really not very good at all."

I'll be danged -- another economist (see: "No Punches Pulled") who is not afraid to speak the truth.

[May 08, 2012] The economic impact of stabilizing house prices

CalculatedRisk

dryfly:

Rob Dawg wrote:

You have to be more specific. Do you want a healthy economy or a wealthy banking system?

I was at a bar in Houston last week in a rather 'interesting neighborhood' - on Telephone Rd for those who know the region - eating bbq and listening to karaoke in Spanish [you got shouted down if you sang in English - really hilarious - everyone quite drunk including yours truly].

Was talking to a laborer on the stool next to me and we were discussing the economy [he actually got it better than many I've talked to at white collar bars]. I told him they had to make the choice - save the banks or save the economy, they couldn't save both. They decided and the rest of us were screwed. The guy said that explains it better than anything I've heard anywhere so far. Ten minutes later the bar wench brought me a full pitcher pro bono. True story.

scone:

Duke wrote:

I would say that the primary impact of stabilizing prices is that they will set a ceiling on interest rates.

Yep. And if the Bernank tries to raise interest rates, it raises the cost of gummit borrowing at just the wrong time. However, the Bernank might raise interest rates just a bit, over several years, to scare the pants off the potential buyers: "buy now before interest rates go up!" That would cause little feeding frenzies to keep the real stakeholders (big builders, stock market, NAR) happier, even as prices dribble slowly down in real terms. So I'd think there's a chance of 1/4% increases starting somewhere around 2014, not before. The cover story on that will be "the economy is recovering," of course.

cdresearch:

Until someone can rationally explain to me how the long-term jobs situation (declining employment/population ratio, more temp/low-paying jobs, reduced benefits, global wage arbitrage, aging demographics, technology displacement, etc.), understated inflation, and an average home price to median household income of nearly 4 to 1, in an artificially tanked mortgage rate environment (unsustainable), could possibly add up to a "bottom" in, or "stabilizing" house prices, I'll just stick with the view that we still have further to slide.

Doc Holiday:

Re: " I think we should start asking what the economic impact of stabilizing house prices will be."

==> No possible way is there a recovery within sight. No one is looking at the increasing shadow inventories and including the population over 65 ... there is a massive hangover and there will be a flood of inventory that will slow any predicted bullshit recovery ... mark your grave with this!

==> Nonetheless, the NAR cheerleading and the upbeat economist will continue to have happy fantasies, and connect those thoughts to the total bullshit that the recession was over in 2008

Comrade Troyski:

Housing is 90% consumption and rising prices on existing inventory serves to impoverish people -- the new buyers -- in a totally zero-sum manner.

While housing is certainly wealth -- that which provides utility for us -- more money flowing into and out of housing is not capital-accreting, since housing is only partially a capital good (again, that zero-sum thing, for housing to appreciate, somebody down the road is going to have to pay more for the same or less amount of hard wealth).

As mp stated last week, there's an entire macro situation looming mostly behind the scenes now. People don't really understand that all taxes, in the end, come out of rents (and housing), even though they do kinda figure out that home prices are set by disposable incomes.

What's the tax situation going to look like this decade and next? If we actually start pensioning off the baby boomers there's going to be 80 million of them by 2030 -- and 80 million x $30,000 is $2.4T/yr in pension burdens. This is going to be an immense wealth transition to a senior-based economy, with major winners and losers.

Even aside from that, we're going to need to somehow reverse the Bush tax cuts -- just Obama's preferred policy won't reduce the deficit more than $100B/yr or so, and we've got a $1.4T/yr deficit as of now. That money reducing disposable incomes would be immensely deflationary to housing.

I don't expect interest rates to rise from here, given the general dire prospect workers still face. And even if interest rates rise somehow, I fully expect the Fed to step in and preserve the low-rate environment, since anything else would cause our $10T mortgage debt bubble to completely pop.

Debt Outstanding Domestic Nonfinancial Sectors - Household, Home Mortgage Sector (HHMSDODNS) - FRED - St. Louis Fed

azurite

Comrade Troyski wrote:

What's the tax situation going to look like this decade and next? If we actually start pensioning off the baby boomers there's going to be 80 million of them by 2030 -- and 80 million x $30,000 is $2.4T/yr in pension burdens. This is going to be an immense wealth transition to a senior-based economy, with major winners and losers.

There is also a growing need for replacement of essential infrastructure like water & sewer plants & transfer/distribution systems. Assuming rates start to increase now/ within the next few years (as is planned in the town I live in)--sewer & water rates & fees, that is--that is in part a transfer from the older generation who may be paying the bulk of those increased rates (although anyone who pays rent or owns will pay a portion) but may not live long enough to get their money back, so to speak, via use of the replaced systems.

sum luk

"Until someone can rationally explain to me how the long-term jobs situation (declining employment/population ratio, more temp/low-paying jobs, reduced benefits, global wage arbitrage, aging demographics, technology displacement, etc.), understated inflation, and an average home price to median household income of nearly 4 to 1, in an artificially tanked mortgage rate environment (unsustainable), could possibly add up to a "bottom" in, or "stabilizing" house prices, "

.... I'd like to offer the theory that it can't get a lot worse, but I'm concerned the upcoming election and the failure to even address the impending fiscal cliff - will prove me wrong.

josap:

cdresearch wrote:

an average home price to median household income of nearly 4 to 1, in an artificially tanked mortgage rate environment (unsustainable), could possibly add up to a "bottom" in, or "stabilizing" house prices,

In my area house prices are 2 to 1, for a good family home. Less for a condo or townhouse. Ratio of 3 to 1 if you want upscale burbs.

sum luk

poic wrote:

Are you interested in my loss-diversification newsletter?

from: http://blogs.telegraph.co.uk/finance/philipaldrick/100016977/greece-is-at-the-epicentre-of-a-new-euro-crisis-and-its-chaos-will-spread/

Contagion risks are back with a vengeance. With Greece edging towards the euro exit gates, pressure is building in familiar territories. Yields on Portuguese sovereign debt have spiked even more rapidly than those on Greek debt. Spanish and Italian borrowing costs are creeping up. The markets are pointing to another imminent euro crisis. And, once again, Greece is at the epicentre.

Doc Holiday

How many years (more likely decades) will it take to paper-over the Multi-Mega-Lotto Trillion Dollar Black Hole from the Housing Collapse?

Not going to happen in our lifetime, mark your gravestones by it!

Former Idealist:

Sovereign strategic defaults. Only a sucker would pay their debts.

Doc Holiday

poic wrote:

Until someone can rationally explain

Several things have to line up, e.g., shitloads of really stupid people and a tsunami of cheap and easy money from Asia, which will probably happen when Romney steals the election, and then we see an instant replay of the Bush Ownership Society with no strings attached, except for having China totally take over every asset in America and all our allies... blah, blah ... actually, even if Obama gets re-elected, refer to Plan A, where China takes over America...

Realistically, there will be shitloads of really stupid people that believe a recovery is under way

cdresearch

Sebastian wrote:

Given only the negatives, it's impossible to explain.

I didn't preclude anyone from using "positives" to rationally explain a sustainable housing bottom, and yet, to be rational and comprehensive, one must successfully address the key issues that I raised. I zeroed in on the most critical variables that must be solved if we are to create a true bottom, and a genuine and sustainable housing recovery. But so far, I have not heard of any reasonable solutions to these variables.

sum luk

josap wrote:

And next week it will be Spain or maybe France now.
They just keep taking turns on center stage.

.... I dunno. They're doin a good job of makin it sound serious this time. You might wanna read this: http://blogs.telegraph.co.uk/finance/philipaldrick/100016977/greece-is-at-the-epicentre-of-a-new-euro-crisis-and-its-chaos-will-spread/

cdresearch

1 currency now -yogi wrote:

For the record, price are only worth tracking relative to other prices.

I agree.

glimmerman

If potential sellers think prices will fall further, then they will rush to sell and list their homes right away. But if potential sellers think prices are stabilizing, and may even increase, they are more willing to wait for a better market or to sell when it is most convenient.

You do realize there was a seminal study about the 90s housing bust that contradicts your assertion?

http://www.andreisimonov.com/Microstr_PhD/GenesoveMayer.pdf

Housing markets exhibit a number of puzzling features, including
a strong positive correlation between prices and sales
volume and a negative correlation between prices and time on the
market. Sales volume can fall 50 percent or more from peak to
trough in a real estate cycle. Although the most dramatic examples
along these lines are in local markets,1 a strong positive
correlation between aggregate prices and trading volumes has
also been documented at the national level in the United States,
Great Britain, and France [Ortalo-Magne and Rady 1998; Stein
1995].

azurite

ac wrote:

BTW for context I made that comment because she was talking about Romney who has these grandiose plans for beefing up military spending because somehow that doesn't count as government spending.

The sad thing is there are a lot of independents out there who support Romney because they see him as the "deficit cutting" candidate.

That was the reason for my "framing the discussion" reply. DoD budget is sacred cow--its unaudited spending/budget is almost always placed outside of any discussion of budget cuts and is now, by Ryan, et al, being explicitly removed from the discussion of gov't functions whose budget can be cut.

Hard for me to understand why people can see replacement of crumbling/collapsing infrastructure they use everyday as less important than yet another sure to run over budget, take twice as long to develop as originally estimated, weapon that isn't particularly useful or even necessarily wanted by the military, as more important then safe water or safe bridges.

But so it seems.

cdresearch

sum luk wrote:

I'm concerned the upcoming election and the failure to even address the impending fiscal cliff - will prove me wrong.

Certainly by now we must have learned that politicians will do their best to avoid tackling serious problems. It's not a good election strategy.

[May 08, 2012] Consumers Are Borrowing Again, Is it Here to Stay? by Asha Bangalore

May 7, 2012 | Northern Trust

Consumer borrowing increased $21.3 billion in March to $2.54 trillion. This is the largest monthly increase since November 2001. Revolving credit (credit cards) and non-revolving credit advanced in March, with the latter posting the larger gain.

The level of outstanding consumer credit is only 1.6% short of the peak ($2.58 trillion) registered in 2008. Consumer borrowing is back in full swing, but will it continue to advance?

The latest Senior Loan Officer Survey shows an increased willingness to lend to consumers (Chart 3). The improvement in the attitude of bankers and the sharp increase in the demand for consumer loans (see Chart 4) are factors supportive of further growth in consumer borrowing.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

[May 08, 2012] The Case for Industrial Policy

May 07, 2012 | Economist's View

Chris Blattman makes the case for more research on industrial policy:

The case for industrial policy (a paper and a rant), by Chris Blattman: A new paper, where some very good economists look at data from Chinese medium and large firms:

…sectoral policy aimed at targeting production activities to one particular sector, can enhance growth and efficiency if it made competition-friendly.

…if subsidies are allocated to competitive sectors… and allocated in such a way as to preserve or increase competition, then the net impacts of subsidies, tax holidays, and tariffs on total factor productivity levels or growth become positive and significant.

"You can't pick winners" is the knee-jerk retort to the mention of anything that even rhymes with industrial policy. I would call it the triumph of ideology over evidence, except that even "ideology" feels like a generous term. Lazy thinking might be a more accurate description. Some have given the question a great deal of thought, but most have not.

I'm not suggesting that ... governments can pick winners (probably they can't). Nor am I forgetting that industrial policy is easily politicized and distorted (as surely it is). So what am I talking about?

I'll make two claims. The first: industrialization is the most important and essential process of development. ... The problem? We have little to no idea how to do that. And many of the tools in the current policy tool box are deeply flawed.

Some take this as evidence economists and researchers should focus on other things. This brings us to the second part of my argument, where I make the opposite claim: there is no more important or promising frontier of knowledge. The fact that we know so little, and the tools are so poor, suggests (to me) that the marginal gains from more research are huge. there is no more important place for scholars to spend their time. ...

When my students run rushing in the direction of micro-poverty programs, or randomized trials, I steer them away. Yesterday's research and policy frontier is tomorrow's old news. What is the next frontier? I would put money on industrial development and, with it, a new breed of industrial policy.

Some of the most interesting development research is coming from people swimming ahead of this wave: Eric Verhoogen, Nick Bloom, David Atkin, David McKenzie, Dani Rodrik, Ricardo Hausman, the authors of this post's paper, and a slew of others. I haven't seen the same swell in political science, but surely it will come.

Alex Smith:

Don't forget that the US government had industrial policy back in the 19th century - railroads, 20th century - highways. 21st century - green energy?

cm:

What about "defense"? Looks like a winner to me ...

Tao Jonesing:

The government has had an industrial policy for almost three decades now that has made the FIRE sector the clear winner at the expense of the manufacturing sector.

While we don't have an explicit industrial policy, we do have one that is de facto.

[May 08, 2012] Jesse's Café Américain Bill Black Austerity During a Serious Recession Is Economically Insane - A Warning From History

"The German's and the ECB are not demanding any sacrifices from European elites. They explicitly target the working class and government workers' wages and oppose any increased taxation of the wealthy. The Berlin Consensus is a road map to ever greater inequality."

Bill Black

"Thank God the US opted for bailouts and not handouts...People in economic distress should suck it up and cope."

Charlie Munger

I will not mince words with this. I see a world on the brink of war, for all the same old reasons. It will take many forms political and financial, at first civil and then regional. If this does not resolve the situation then the conflict will expand and continue by other means.

The elites' price for peace will be a world without borders, or at most three or four spheres of influence, under their direct control and planning.

Appeasement will only serve to inflame their lust for power and dreams of domination. They see themselves as moving from victory to victory. The tide of reform is being turned aside by special interests, compromise is viewed as ideological impurity, and legitimate protests are met by not by recognition and justice but by indifference and repression. This will not stand.

"The technetronic era involves the gradual appearance of a more controlled society. Such a society would be dominated by an elite, unrestrained by traditional values. Soon it will be possible to assert almost continuous surveillance over every citizen and maintain up-to-date complete files containing even the most personal information about the citizen. These files will be subject to instantaneous retrieval by the authorities...

In the technotronic society the trend would seem to be towards the aggregation of the individual support of millions of uncoordinated citizens, easily within the reach of magnetic and attractive personalities effectively exploiting the latest communications techniques to manipulate emotions and control reason."

Zbigniew Brzezinski, Between Two Ages: America's Role in the Technotronic Era, 1970

In fairness to Brzezinski, the above quotes in context seem more a forecast, and a threat to be feared rather than a prescription to be followed.

[May 08, 2012] In Nothing We Trust - Slashdot

April 23

Hugh Pickens writes "Ron Fournier and Sophie Quinton write in the National Journal that seven in 10 Americans believe that the country is on the wrong track; eight in 10 are dissatisfied with the way the nation is being governed, only 23 percent have confidence in banks, and just 19 percent have confidence in big business. Less than half the population expresses "a great deal" of confidence in the public-school system or organized religion. 'We have lost our gods,' says Laura Hansen. 'We've lost it-that basic sense of trust and confidence-in everything.' Humans are coded to create communities, and communities beget institutions. What if, in the future, they don't? People could disconnect, refocus inward, and turn away from their social contract. Already, many are losing trust. If society can't promise benefits for joining it, its members may no longer feel bound to follow its rules. But history reminds us that America's leaders can draw the nation together to solve problems. At a moment of gaping income inequality, when the country was turbulently transitioning from a farm economy to a factory one, President Theodore Roosevelt reminded Americans, 'To us, as a people, it has been granted to lay the foundations of our national life.' At the height of the Great Depression, President Franklin Roosevelt chastised the business and political leaders who had led the country into ruin. 'These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men,' said FDR. 'Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now.'"

daem0n1x: Re:Thanks, media

Don't forget the indoctrination being performed for decades on the minds of people:

1. Society owes you nothing;
2. if you fail, it's your own fault;
3. Don't blame others for being treacherous, just be smarter than them;
4. Your coworker is not your friend, he's after your job;
5. Anything has value only if it has commercial value;
6. Merciless competition is the natural way, live with it;
7. If you're not rich, you're useless scum;
8. . . .

This is not the way our brains were programmed to work. Without a sense of community, we drown in misery. Without trust, there's no community. The USA is a few steps ahead of Europe in this stupid individualistic mentality. Don't expect your country to go anywhere with this.

[May 07, 2012] Fall Out, and Secure For Sea

May 1, 2012 | The Kremlin Stooge

Alexander Mercouris:

Here is an interesting article by Edward Luce of the Financial Times written for the British magazine the New Statesman in which senior members of the US military including the retiring Chief of the Joint Chiefs of Staff tell him that the greatest danger to the US is its debt burden.

http://www.newstatesman.com/international-politics/2012/04/%E2%80%9C-number-one-threat-facing-america-its-debt-burden%E2%80%9D

What is most remarkable about this article is that the analysis of the US's problems comes from serving members of the US military. Their essential points are

1. That the US has at most until 2021 before it entirely loses what room it still has to manoeuvre or to shape events in its own interests;

2. That the US defence burden is unsustainable and the diversion of resources it involves is undermining the US economy beyond the point of recovery;

3. That the US needs to cut its defence spending radically, withdraw from most of its foreign bases, end its various wars and seek a rapprochement with its major potential adversaries (China but also Russia and Iran), which would logically involve recognising their regional interests and abandoning the effort to meddle in their domestic affairs;

4. That the US should use the funds saved from the cuts in the defence budget to reinvest heavily in its economy and in its science and education base.

It goes without saying that I agree entirely with this analysis. It also goes without saying that I think that there is absolutely no chance what it proposes will be carried out.

marknesop:

"It also goes without saying that I think that there is absolutely no chance what it proposes will be carried out."

I think the decision will be forced upon the country's planners, for lack of viable alternatives. The quite understandable pride Americans feel for their huge military will allow it to go on for a while even in the face of decay in other institutions in order to maintain it, but it can't last. As Kirill has pointed out before, sites that feature "shadowing" of government economic data suggest parameters like unemployment and household income gains are actually much worse than they are portrayed. More and more acknowledgement is coming out that the recovery is really not recovering and the U.S. economy is pretty close to stagnation.

Rather than encouraging moderation, the situation merely reminds the warhawks how little time they have, and increases their belligerence in their haste to get the job done while their will can still be imposed. It's a strange concept to think that Russia and China might save the west from making a terrible mistake that might leave its legacy irretrievably tarnished. Maybe. And I don't suppose they will want to do it for nothing, either.

[May 01, 2012] ISM Manufacturing index indicates faster expansion in April

Former Idealist :

march construction spending ... +0.1% ... briefing.com consensus expected +0.5% ... february revised to -1.4% from -1.1%.

Numbers so miniscule don't have any meaning to anyone other than those talking their book.

Former Idealist:

So banksters are slow to kick out homeowner slugs and fast to put them in a new car. Sebastian gives the all clear signal.

Bought a new O-ring for the pool. Same O-ring I buy every spring, $9.99 every year the past 10. This year, $16.99. Ben has blown it again and the collapse will be massive.

These are the good old days.

Sebastian: (in reply to adornosghost ...)

I agree, the ponzi game has more players.

Exactly. Any ponzi scheme is doomed to ultimate failure right from the very start, yet they can go on for long lengths of time. IMO, we should keep that in mind when attempting to forecast when it's all going to go pear-shaped.

Sebastian

Finance_Fan:

KarmaPolice wrote:

Auto workers no longer have that old-time safety net | Marketplace from American Public Media

Quotable:
"Retiree health care benefits are out. So are generous pension plans. And he says wages are half what they once were, down to around $17 an hour. The one bright spot? You can buy a decent house in Detroit for $40,000."

This seems reasonable. Don't you think?

coming to most counties & states soon imho

km4:

Guest Post- Where's The Collateral- | ZeroHedge

Put these two factors together and you get a global economy dependent on debt borrowed against phantom collateral and an American economy in which only the top 10% have credible collateral and income to leverage into more debt. In a sane system, when the collateral vanishes, so too does the debt (writedowns, write-offs, bankruptcy, take your pick). In an insane system, then phantom collateral supports ever greater mountains of debt.

How long do you reckon the insane system we have now will last? The collateral is phantom, but the interest payments are very, very real.

sum luk:

km4 wrote:

There is no reason to panic over our debt now

A TALE OF TWO DIVERGENCES | PRAGMATIC CAPITALISM

ResistanceIsFeudal:

shill wrote:

Operation Twist: New York Fed purchases $4.733 billion in Treasury coupons.

not merely a twist, it's also a squeeze!

[May 01, 2012] Excerpt From 'Debt Generation' - We Are All Kettled Now

For anyone who has never been 'kettled' it is when the police at a protest suddenly close ranks and refuse to let anyone leave. You suddenly find you are held against your wishes. The police will not explain why, and they won't allow any exceptions. You suddenly have no control over what is happening, and no discussion is permitted. A decision made by someone you have never seen now exerts complete and total control over your life. We are all in that position now.

We Are All Kettled Now

30 Mar 09

For anyone who has never been 'kettled' it is when the police at a protest suddenly close ranks and refuse to let anyone leave. You suddenly find you are held against your wishes. The police will not explain why, and they won't allow any exceptions. You suddenly have no control over what is happening, and no discussion is permitted. A decision made by someone you have never seen now exerts complete and total control over your life.

We are all in that position now.

So vast is the debt our government has burdened us with that this one fact will now determine most of the politics of the next decade. Other hopes and desires – the wish for better schools, a better health service, better care for the elderly - will wither in the shadow of the debt repayments. If we are forced to pay back from taxes all the vast sums that have been sucked out of public spending and given to the banks, the country will not recover for a generation.

The economic 'plans', forced on us without debate, are all based on the banks returning large parts of the money they have taken from us. This means, whether we like it or not, we all have to hope that the banks make profits as quickly as possible. We have all been 'kettled' into having to hope and work for the largest possible growth in world trade and finance. We have to hope that the rich get richer, and quickly. The lords of finance and their servants in politics decided this for us.

There never was any discussion or debate of possible alternatives when the financial crisis began. It was declared, and universally agreed (always a bad sign) that the problem was liquidity, not solvency. That meant the only answer ever proposed was to provide liquidity at all costs. Liquidity being our money to cover the massive losses they had incurred. This, we were told, wasn't really a cost at all, but 'an investment'. An investment which would pay back all the loaned, borrowed and printed money long before the debts came due through reinflated levels of growth and asset value.

That was, and is, their only plan. And so absolute is the certainty in the minds of all concerned that none of them can even conceive of looking beyond the closed circle of that logic. No counter-argument is allowed or taken seriously. No warning signs are read as such.

Their so-called 'free market' has seized control and locked us in to a course of action in which democratic choice has been foreclosed. The growing realisation that this is what is happening will bring about increased anger. The smug reaction to anger is to label it 'mindless'. The mindless anger of the ignorant who don't understand the necessary steps being taken by those who know better. That is the boiled down assumption of all our leaders, all the economic experts and most economic journalists.

The truth is quite different. People like me are angry because exactly the same people who, in 2008, assumed they knew how to run the global economy still assume they, and only they, know what must be done now. And their prescription is as simple as it is arrogant: put it back they way it was.

We are told that the debts accrued by those in charge must be paid by us rather than honoured by them. No debate.

We are told we must get lending back to the old levels. No debate.

We are told we must get the consumer consuming again rather than saving. No debate.

We are told that we must agree and complete the Doha round of global free trade liberalization. No debate.

To be robbed is one thing: to be condescended to by the people who robbed you is another altogether.

That is why many people like me are angry. We are angry because the financial elite are shoving their ideology down our throats. We are angry because we might have wanted to have a say. We are angry because we had different ideas that were never even considered.

Here we are at the point in history when many of us are looking at the imminent threats of climate change and oil scarcity, clearly seeing the dangers of unbridled growth, and yet at this point democratic choice has been kettled. No debate.

And that is why this crisis is no longer just about lack of confidence in the markets: it is now about the legitimacy of our governments. The entire political class has been captured by the same ideology. They all, to one extent or another, believe 'the market' is going to save us. No other solutions have even been allowed into the debate.

We shouldn't waste our time arguing over which party is most to blame. All the parties and the economists and the City boys all agreed, and they still do. In their minds the banks had to be bailed out and their losses made ours. We were taken to war without discussion and on false pretences; the same has happened with this financial crisis. So enough of who is to blame: they all were and are.

They all believe in a system that says we must create demand and then feed it with debt. This necessarily involves increasing demand by the creation of yet more debt. It always crashes and always will. That is how their system works. If we allow it to be the solution, it will create another crash and another. Each time the rich will reap profits on the way up and rape the public purse on the way down. It's win, win for them and lose, lose for us.

Plus ça change!

Debt Generation - By David Malone

April

[Apr 27, 2012] Robert Reich Responds to O'Reilly and Dobbs Calling Him a Communist

Bill O'Reilly is really dangerous right wing demagogue, a vicious psychopath and sex addict. Psychopath hired by Rupert Murdoch to brainwash gullible public which watch Fox. These manipulative psychopaths should really be taken out of any powerful positions. The fact that those guys are psychopaths doesn't mean they're not good at what they do. Psychopaths/sociopaths have X-ray vision for other's weaknesses.. If corporations are people, Rupert Murdock empire needs to be imprisoned to safeguard the public.

Video Cafe

Earlier this month we were treated to Rep. Allen West throwing around the "communist" insult for his fellow House members in the Progressive Caucus. As Ed Schultz reported here, now West has found himself being uninvited to speak at a Florida NAACP event. Not long after West's remarks, Fox host Bill O'Reilly and Lou Dobbs decided to follow West's example, calling former Labor Secretary and professor Robert Reich a communist for some of his statements during an interview on The Daily Show earlier that week.

This Monday evening on MSNBC, Ed Schultz gave Robert Reich a chance to respond.

REICH: It's like being back in the 1950's, this communist witch hunt that suddenly has been launched. And the irony Ed is that there are not even many communists left in the world today. It would be one thing if we were back in the 1950's, but there's not a Communist threat. What are these conservatives, these righke Bill O'Reilly – they have nothing else to say. They have nothing else to do. They don't have arguments. They don't have logic. They don't have any analysis. What do they have? They don't have facts. What do they have? They just simply have the same old epithets and slurs they've been using for the last sixty years. […]

And for Bill O'Reilly to say that simply because I a suggesting that it is a role for government to invest in schools and infrastructure and basic R&D, that makes me a communist? Bill O'Reilly, you don't know what you are talking about. You have absolutely no sense of history. You have no understanding of government. You have no understanding of our society. Debate me, head to head, person to person, like a man! Or a woman.

As Reich noted, he's told O'Reilly he's willing to debate him anywhere, any time, name the place and O'Reilly won't do it. Reich also slammed the Republicans for wanting to take us back to the "dark ages" in America where anyone had even a modicum of economic security. Reich said he hadn't seen anything like the extremism we're seeing from the right in the modern ages and expressed his hopes that not only President Obama is reelected but that the Democrats get the Congress back from these extremists as well.

daganium - Okay...4/24/12 8:37am

As Reich noted, he's told O'Reilly he's willing to debate him anywhere, any time, name the place and O'Reilly won't do it.

I wish these corporate media hacks would drop this one.

This is their way of seeing who has the largest penis: They constantly challenge each other to debates that they know will never happen.

All Reich had to say is O'Reilly is a Rupert Murdock puppet who literally quotes into a studio monitor pre-written Roger Ailes' talking points.

That the perfect summation of the character O'Reilly plays on TV.

Say that & you are not forced to start measuring dick sizes.

Say that & O'Reilly is accurately framed for the harmful, hateful, worthless buffoon he is.

Then you move on to the next topic.

--------------------------------------------------------------------------------

When Fascism comes to America, it will be wrapped in excess body fat & carrying a misspelled sign.

appnzllr - They don't know 4/24/12 6:01pm

They don't even know what communists are - or what they were. They just throw around these insults.

Kreskin - The Vietnamese and Chinese 4/24/12 7:16pm

The Vietnamese and Chinese communists are among our best friends , just ask the US chamber of commerce .

"they have nothing else to say. They have nothing else to do. They don't have arguments. They don't have logic. They don't have any analysis. What do they have? They don't have facts. What do they have? They just simply have the same old epithets and slurs they've been using for the last sixty years." Reich really nailed it .
--------------------------------------------------------------------------------

"The poor have sometimes objected to being governed badly; the rich have always objected to being governed at all."

Different Anonymous - 4/24/12 7:24pm

I try not to see a Koch under every bed, but I have to believe this is an outgrowth of the John Bircher wing who have somehow managed to move from the fringes of fringe politics to center stage. Commie this and commie that was their stock and trade back in the day, and now since there are no good so-called booger man names around any more to slur their enemies with - that or their brains have so ossified that they really are back in the '50s - they are back to regurgitating their old favorite, the communists.

Good on Reich for calling out O'Reilly though.

It's hard...

The Glenn Beck ... - 4/25/12 12:36pm

...to improve on Reich's response to BillO, so I won't.

I will point out, however, that during the interview with Stewart, Reich called for an end to corporate personhood (corporate Constitutional rights) and the doctrine that money is speech (the Buckley v Valeo decision). We saw Pelosi attacked for her support for an amendment to this effect on Fox (The Five), so I can't help but wonder if the right wing echo chamber is starting to tune into this movement and beginning their propaganda in an attempt to marginalize this growing effort across the nation that even many Republicans support.

Pitiful...

Deniseindana point - 4/25/12 5:19pm

I watched the interview on The Daily Show and thought that Robert Reich is probably one of the most intelligent individuals around now. It is now the 'in' thing for the conservative right wingnuts to resort to name-calling instead of discussing anything on an intelligent level. Reason: they could not carry their weight in a true debate. C'mon, we all were bored to tears by the endless debacles referred to as debates among the recent GOP contenders. There was no debate ever; they were merely excuses to attack and criticize our President. Neither O'Reilly nor Dobbs are stupid people, but this behavior can only be compared to 5th grade level schoolyard bullying...Reich still comes out on top!

[Apr 27, 2012] Tavakoli: Another Financial Crisis Looming, And You're On Your Own

Jesse's Café Américain

Janet Tavakoli takes the gloves off and tells it like it is in the cover story in the May 2012 issue of Research Magazine.

You'll have to read it here, because I doubt you would hear this in any of the mainstream media.

I hate to apply the overused term 'expert,' but Janet is a highly credentialed expert in financial derivatives with years of practical experience. That does not mean that everything she says is necessarily right, but it certainly has credibility.

Someone asked me why would someone who is in the financial industry, and has benefited from their expertise in derivatives, speak out like this?

Have we really sunk that low that we cannot believe that some people could ever wish to speak the truth as they see it from moral principles, even against their short term material advantages? No wonder we are so easily taken in by lies, because that is what we want to hear. We are a lost generation.

This straight talk is a good spice to add to the somewhat bland presentation on the financial crisis last night from PBS Frontline.

It's all about fraud and the subsequent cover up and ongoing bailouts. Its the credibility trap, and it continues to undermine the recovery and the real economy today.

The cover story is that these are just well meaning and extremely bright people who did their best, but a few people got carried away, and well, you know, things just happen.

Just like MF Global, right?

Finding the Culprits
Derivatives expert Janet Tavakoli takes a hard look at what - and who - caused the financial crisis.
By Jane Wollman Rusoff

April 25, 2012

...Now Tavakoli sees another huge financial crisis looming.

The University of Chicago MBA has traded, structured and sold derivatives at firms including Merrill Lynch, PaineWebber and Westdeutsche Landesbank; and she had earlier stints at Bear Stearns and Goldman Sachs. Research recently talked with her about red flags and preventive solutions.

You write that, in the past three years nothing has been fixed but that we must hold Wall Street responsible for the fraud that resulted in the financial crisis. What should be done?

We need to have investigations. But with the pushback and all the lobbying, what they've been counting on is that the statute of limitations for some of these frauds is expiring. So if you don't file complaints, you may not be able to.

Members of Congress are enabling the lack of punishment and covering up great misdeeds in our financial system - and they're doing it with no fear of consequences - i.e., being voted out of office, in which case they could find themselves the subject of investigation.

What do you mean: "covering up"?

Many people are covering up for cronies who have a lot of money sloshing around. We threw money into the financial system with no accountability and thus made the problem worse. Our system has been completely infiltrated and bought off. Things aren't changing because Big Money doesn't want it to change.

What other indications are there of a cover-up?

The MF Global dog-and-pony show. The attitude toward bundlers like Jon Corzine [the firm's ex-CEO], who is a big bundler for the Obama campaign, is that the guy can do no wrong. This was before he even testified. People who are raising big money for campaigns get off with no real investigation.

In the Sarbanes-Oxley age, for MF Global to say they were unaware of what they were doing beggars belief. And yet there has been no indictment. Is President Obama part of the cover-up?

Yes, in that he's enabled it. He's left people in place who crashed the global financial system in the first place: [Treasury Secretary] Tim Geithner and [Federal Reserve chair] Ben Bernanke. Obama had told us: "You can't keep doing things the same way and expect different results." So he's been quite a hypocrite.

Who else is in the cover-up?

Mary Schapiro was appointed [by President Obama] to head the SEC. She was formerly head of FINRA, the antichrist of investor advocacy! Yet she was chosen SEC [chair] because the regulators are captive by and serve the people they're supposed to be regulating. They do not serve investors .

In a way, Obama has been the anti-regulator because he didn't put people in the regulatory agencies, the Fed or the Treasury who would investigate and fix things that are wrong in our global financial system.

If he's re-elected, then presumably, things will continue in this same way?

Yes.

What if a Republican is elected President?

Who else is not in the pocket of Big Money interests! (Ron Paul - Jesse)

So, no matter who's President, these crimes - if you want to call them crimes - will be perpetuated?

Yes. And we do want to call them crimes! They are crimes.

What should Obama do now to help Americans?

He has a lot of resources at his disposal, one main one being moral suasion - he's got the pulpit. When there was a crisis, Reagan, Carter, Bush went on television and explained what needed to be done. We haven't seen that kind of leadership from President Obama. If anything, the American people have been told things to make them think [conditions] aren't really as bad as they are: inflation isn't as bad as you think because an iPad is cheaper now - nonsense like that.

So the public is being poorly informed?

Yes. Therefore, financial advisors need to be doing fundamental analysis of investments and not [only] be reading the Wall Street Journal or, God forbid, watching CNBC. (Don't look for any appearances on CNBC or Bloomberg TV, Janet - Jesse)

In other words, FAs should do their own research and figure things out for themselves.

Yes. Sadly, you're on your own. That's part of how we got into this mess: We lost the art of rolling up our sleeves and looking for opportunities.

On Internet TV, you stated that we're "absolutely vulnerable to a repeat [crisis] because the fraud went unpunished and we printed money like crazy to bail us out of the last one." That's scary.

But the fact is we've bailed people out and had no consequences for them. So it emboldened them to turn around and behave in the same way. Look at banks like JP Morgan: Shortly after the crisis, they thumbed their nose at the idea of trying to separate speculation from the rest of the bank. So if you don't have restraints on behavior, you'll see it repeated. And now we've made it worse. It's like handing a drunk driver who got into a crash the keys to a bigger, faster car together with a bottle of vodka.

In every area of finance where we bailed people out, you see the same wrongdoers volunteering to help fix the situation. That's pretty funny: They weren't trustworthy before, and they're not trustworthy now.

But what about the investigations that already have been held?

They're all for show, and people end up with a slap on the wrist for minor issues. Investigators should be looking instead at the interconnected fraud that infected the mortgage lending market. And there is still a lot today, especially fraud on borrowers. If you go to the root of the problem and choke off the money supply, you stop the fraud in its tracks.

But the banks say they lost money.

The fact that a bank lost money isn't an indication that they were a victim as opposed to being a perpetrator. A classic problem with control fraud is that the parasites destroy the host - in this case, the host being the bank and the parasites being the bank employees. If you were the victim of a control fraud by the people who worked in your own bank but meanwhile, you were collecting huge bonuses, you overlooked the control fraud within your own institution.

Why haven't the apparently guilty been punished?

We haven't seen the felony indictments that these people richly deserve because our regulators and investigators are captive - and Congress, more than ever, has been lobbied, courted and bought off by Wall Street. More than any time in the past, you've seen these big-money interests protected by Congress.

Is there an alternative to bailouts, such as those of the financial crisis?

Yes. Troubled financial entities should be restructured, old shareholders should be wiped out and we should return Glass-Steagall.

What should have been done in the case of, say, AIG?

Bankruptcy declared, and then [the government] says: "We'll back-stop your contracts for now, but we're going to investigate all those fraudulent credit derivative contracts and 'claw' money 'back' from your counterparties - like Goldman Sachs and Credit Suisse - if need be." So there's a controlled demolition. You're not just handing money out with no consequences....

Read the rest here.

[Apr 27, 2012] Gold Daily and Silver Weekly Charts

Jesse's Café Américain

We had a little follow through today as the market shook off the weak US GDP number and the continuing problems in Europe.

Next week on Friday is the April Non-Farm Payrolls report.

It is well worth listening to this interview on the US economy by Richard Yamarone on King World News.

There will be no sustainable recovery until the system is reformed. Stimulus will not work because it is being applied to a broken system that is misallocating wealth and resources.

But austerity is even worse. Promoting austerity without significant economic reforms is quackery. It benefits those who took the most during the fraud of the financial bubble and its associated frauds, and punishes the innocent and the victims.

[Apr 25, 2012] Exile on Wall Street: One Analyst's Fight to Save the Big Banks from Themselves by Mike Mayo

"The crisis didn't occur because of something that banks did. No, it was the natural consequence of the way banks are, even today."

"The crisis didn't occur because of something that banks did. No, it was the natural consequence of the way banks are, even today." That little sentence in the middle of Mr Mayo's introduction to the book is perhaps the clearest statement of intent that one can expect from any author who sets out to write a book on a subject that he knows better than the back of his own hand.

Mike Mayo doesn't need an introduction to most "sophisticated" investors in the equity markets, far less anyone who has been a fund manager responsible for managing a portfolio of US banking stocks. He is perhaps one of the most distinguished equity analysts in financial market history; a person with one eye on market strategies and the other on bankers' integrity.

In a funny way, Mayo is also a victim: specifically of Michael Lewis (also reviewed below) who short-changed him famously in The Big Short by heaping accolades on the equity analyst Meredith Whitney for her brilliant call on Citigroup while largely ignoring Mayo, who had made the same call, only earlier (ie before Whitney) and with more market impact. Going through the rest of his history and other calls of stumbling US financial institutions - the former Bank One, Keycorp and so on, it is indeed difficult to fault the predictions of Mayo.

As one goes through the book, it becomes clear that Mayo was a rank outsider who worked diligently and steadily to move up the corporate ladder on Wall Street; an exception that isn't immediately obvious to anyone who isn't deeply familiar with the industry and its recruiting practices that focus on Ivy League schools and family connections. After being rejected for many a job, Mayo describes going to work for the Federal Reserve.

Perhaps he should have spent a bit more time examining the intricacies of the Fed bureaucracy and the lack of capabilities amongst its staffers (barring a few) but Mayo then moves on to Wall Street where his career takes him through UBS, Lehman, Prudential Bache and Deutsche Bank (in the book; I understand that Mayo then went to work for Credit Agricole in the US but he doesn't mention that in the book for understandable reasons). Using arcane financial models initially but then moving closer to the "story", ie the actual care and diligence of the banks amidst a stunning growth in their asset bases, Mayo starts outlining the structural failings of the banks.

He could have added that the pressure to perform on quarterly earnings was another big factor in banks focusing excessively on the short-term; essentially sacrificing their long-term viability at the altar of analyst expectations but he misses that particular angle (perhaps on purpose, seeing where he has been located for much of his career).

Other than that, I found his take on banks' management style refreshingly candid to the point where a number of CEOs evolve from their PR-burnished cardboard images (Jamie Dimon for example) to something altogether more human and likable. Even his bete noire in the book, Vikram Pandit of Citigroup, comes across not so much as a schoolyard bully but as someone who is fundamentally decent albeit with an over-protective or controlling inner circle.

A side note for Asian investors and readers: the context of Mayo complaining about access to banks' management would be thoroughly unfamiliar in a region where companies and banks are managed as personal fiefdoms and only lip service ever given to corporate disclosure and transparency. Reading through the publication I couldn't help but feel that Asians would be happy to have the kind of problems that Mayo has outlined in his book.

Mayo describes in detail the conflicts at the heart of investment analysis wherein the needs of profitable bankers to effect deals (equity calls, rights issues, bond buybacks) exceeds the more sedate commission-driven world of turnover that is dictated by the accuracy and strength of analyst recommendations.

Perhaps he could have actually explained the differences through a financial model in his book; but what does come through is the conviction of how good analysts are easily waylaid by their own franchises for a quick buck and anyone who doesn't play along is punished and cast out.

His long-running feuds with the likes of Citigroup and JPMorgan aside, Mayo comes across as a decent person with terrific insights into the now hopelessly arcane world of the big banks. Towards the end of the book, he relates how his wife, a doctor, keeps him grounded by telling him to "now take out the trash" whenever he comes back home gloating about his work achievements.

Reading that bit though made me think: from the perspective of a decent chunk of people exposed to the world of finance directly or indirectly, the need of the hour is to have leaders in place who are capable of standing up to the big banks and pushing through strong improvements in transparency and risk management.

Whether it is the Fed, the European Central Bank, the Bank of England or the Bank of Japan or indeed the International Monetary Fund/Bank of International Settlements and other truly global organizations involved in high finance; Mayo may well be the most suitable person to stare down the CEOs of the world's top 100 banks.

I say give Mayo the chance to actually supervise the top 100 banks in the world. The results may prove a fitting epilogue to his book when updated a few years from now.

Bailout Nation (with post-crisis update), by Barry Ritholtz and Aaron Task To be fair, Bailout Nation deserved better than to be reviewed a full two years after its publication. I did start reading it, but coming across more compelling works at the time dropped the book for a later date; little was I to know that the "later" would be two years. Perhaps because of that intervening period that has been rich in both explaining the effects of the financial crisis and the role played by various agencies in effectuating this result, the review is also perhaps more critical than it may have been if I had written it when the book was first published.

A compendium of tales that strings together the ever-increasing trend towards the socialization of losses in the United States, the book starts well with pre-bailout history of the US, the effects of launching the Federal Reserve (Fed) and the slow trend towards governments getting more involved in business with the attendant moral hazard.

Specifically, I loved the "intermezzo" between the various chapters as well as the tongue-in-cheek guide to funding the unfundable such as national healthcare (clue: launch a hedge fund). These ready reckoners are well worth the price of the book.

Where the book fails is in layout that reminds one of a hyperactive sports reality program on television where the televised action is all-too-often interrupted by the cameras panning back to the commentators for their expert views. That layout or book structure is in my opinion unsuitable for any serious book on the financial crisis, particularly because the books were written in the aftermath of the crisis rather than as a predictive fable written before the crisis.

Dude, we know how it all ended: what we wanted to read was how the machinery got jammed.

The corollary criticism of the book - like some of the others here - is that the authors are so obviously skimping on details or thorough analysis. Now, I have been in front of book editors and am well aware that they like to use a "name" (like Ritholtz) to sell the merchandise but also advise alongside that the material is kept simple enough that the casual airport browser would want to pick it up and also recommend it to their friends.

If Ritholtz did get such advice in writing his book, he would have been better off ignoring it completely; for the result in Bailout Nation is tantalizing glimpses of what the author knows (or knew beforehand) albeit without sufficient details to get readers focused on the key points.

An example is the chapter entitled "Tech Wreck", wherein the authors examine the causes for the tech bubble. Writing some 10 years after the fact, Ritholtz would have had ample time for detailed analysis - which he doesn't present. For example, he makes the statement that the "Y2K" bug increased tech spending by companies and banks, and led to a sharp drop in orders immediately thereafter; in effect bursting the dot-com bubble.

This is a point that has been repeatedly made by a number of people and the only way for Ritholtz to stand out would have been to show the actual trends: a break up firstly of total capital expenditure as a percentage of corporate revenues (clue: they rose massively in the second half of the 1990s), broken down between tech and non-tech (clue: tech spending was significant) and within tech, between normal upgrades, online expansion and Y2K.

It is in the analysis of tech spending that the actual story of the dot-com bubble is to be found, but since Ritholtz misses the opportunity to explain the point, he misses the opportunity to stand outside the crowd. Another such example is in the chapter on Bear Stearns, wherein the author makes a number of sweeping points in terms of comparisons with other situations such as the collapse of Lehman Brothers and AIG, but fails to complete the analysis by explaining exactly what those differences were.

[Apr 25, 2012] More Than Just Skint

In spite of the relentless cheerleading by Wall Street "strategists" and other alleged experts, many Americans have refused to play along with the "it's a bull market" song. A chart at Zero Hedge, which has for some time been chronicling the exodus by small investors from the U.S. equity market, reveals in colorful detail just how disinterested they have been:

An article in the New York Post, "No-Confidence Vote: Main Street Shunning Markets," offers a few explanations as to why individuals have been unwilling to jump on the train, including the fact that so many are, as the British slang expression goes, skint:

"I think most people are taking money out of these funds because they either need the money to live - because they're out of work or underemployed - or they're supporting their kids, who are out of college and not getting jobs," Mogavero said. "There is also a fear factor about the economy that is causing them to keep money in the bank and out of the markets."

Still, given my inherent cynicism -- yes, it's true -- I can't help but think that the view espoused by an Instapundit reader, who is apparently a professional money manager, ironically enough, represents a more accurate assessment of what's been going on:

Professional financial market activity is also way down these days. The drop in volumes is damning. The Fed's financial repression – forcing market yields below inflation – is one reason. The tsunami of administration diktats is another. And the Chinese-style theft of customer account capital by John Corzine and JP Morgan is the last nail in the coffin. The economics of investing make little sense, and even if you can thread the needle of profitability, you risk having your property seized by regime buddies. Why do anything with your money but stash it under the mattress, or try to get it offshore?"

[Apr 23, 2012] Banking On Fear: Why the Policy of Stuffing the Banks With Money Does Not Help the Real Economy

"The big banks are buying up what they call fixed income instruments (bonds and other debt backed paper) and at the same time offering CDS insurance on the same. Just like they bought and sold protection on mortgages..."

This is a fairly good description of why the policies of Bush and Obama have failed to effect an economic recovery.

The policy of 'saving the banks' first and foremost, and of stuffing them with cheap money in the hopes that they will stimulate the real economy with loans, is a cruel hoax.

Cheap money is hot money and it seeks high beta returns. It does not seek investment with returns over long periods of time. And in an environment of lax regulation and little deterrence for abusive financial practices, one sets up a scenario ripe for fraud and another, more chilling, financial collapse.

And the problem is not in the US alone. Europe and the UK are following similar practices, of serving the financial elites first, and the people very little or not at all.

There will be no sustainable recovery until the banking system is reformed, and balance is restored to the economy. Growth, not austerity, is the way out of the wilderness. But that growth is only achievable if the corruption that brought down the system in the first place is corrected and the real economy restored to some sort of natural order and sensible priority.

The hot money seeks out speculative returns, and when it cannot find them, it creates them. And that is the well spring of fraud, and of many of the corrosive economic problems facing our world today.

The problem is complicated because most of the western political leaders are complicit, by action or acquiescence, in the financial corruption that holds their nations by the throat, and allows the very few to prosper enormously at the expense of the people in general. The leadership is caught in a credibility trap. They are unable and unwilling to reform the system, and promote a renewal and change might bring them down with it as well as the corruption that feeds them with money and power.

"...The problem (one of them at least) is that while our leaders are banking on growth to save us, the banks are not. They are banking instead, on fear. Our leaders keep thinking if they 'save' the banks then the banks will help save us by investing in growth. They fail to understand that 'invest' is really not something high up on the global bank's 'to do' list. I spoke at length recently to bankers in The City who deal in investing in raising money for Small and Medium businesses. They were unequivocal – it is getting harder not easier to raise money for such investment. The big banks and big funds are looking for short term speculative returns not slow investment returns.

When you have large and growing losses from bad debts you cannot and will not recoup and recover on the basis of wise but slow investment returns. The worse your previous debt mountain is, the greater the pressure to pursue exactly the sort of high-risk speculation that got you in trouble in the first place. If it is a choice between investing in Spanish factories or buying Spanish debt or selling CDS on that debt, the 'smart' bonus seeking money goes for the latter every time.

The brokerage Carmel whose study I have quoted is a good example. On page 9 of their study they say,

We began buying Spain CDS in Q4 2011…[with a coupon of] 3.5% of notional per annum –effectively an option premium on the default of Spain.

Should the Spanish crisis flare up in 2012 as we expect, we can generate a 300% return on the annual premium.

300%! Investing in small and medium businesses or a potential 300% speculating on Spanish default. You choose.

Banks are banking on fear and the volatility fear causes. They are not banking on or helping to support growth. They will do the politically necessary minimum and no more. The big banks are buying up what they call fixed income instruments (bonds and other debt backed paper) and at the same time offering CDS insurance on the same. Just like they bought and sold protection on mortgages..."

Read the rest of this blog from 'Golem XIV' in the UK here.

Also see his essay "We Are All In This Together."

This may also be a good time to read or re-read this essay of mine, Currency Wars: The Anglo-American Century. What is happening in the western world is no accident, anymore that the rise of tyrants and the destruction of freedom are accidental.

[Apr 23, 2012] Faber 'Massive Wealth Destruction' Coming, Well-to-Do 'May Lose 50%'

Mar 27, 2012 | Newsmax

The critical question over the next decade isn't "where will my returns be highest?" but "where will I lose the least money?"

That, according to economist and investor Marc Faber, is the scenario facing investors today.

As the author of the Gloom, Boom, and Doom Report, Marc Faber is a well-known contrarian, earning celebrity status because of his ominous predictions.

So his pessimism during a recent appearance on CNBC wasn't surprising for a man whose nickname is "Doctor Doom." What was surprising was the level of "wealth destruction" he sees in the not-too-distant future.

Faber stated, "I think somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse."

[Apr 23, 2012] Gold Daily and Silver Weekly Charts - Winding Up for a Move - Tomorrow Is Stock Option Expiry

"Well, absent that exorbitant privilege of insiders, all we can do is trade to avoid the losses, and learn to recognize trends, and play them with some discipline..."

Jesse's Café Américain

The trick in trading is not to 'predict' in advance which way the metals will break in the short term, or any market for that matter. I have seen plenty of guys waste their trading accounts and their time trying to find 'the perfect system.'

Believe me, if there was such a system, you would not find it. And especially you would not find it on a publicly available site.

The best system is to sit as the house, and make money no matter which way the market goes, and have plenty of advantageous knowledge of the order flows to boot. The US markets are all about the asymmetrical dispersion and control of knowledge. And HFT has taken it to a literally inhuman degree.

Well, absent that exorbitant privilege of insiders, all we can do is trade to avoid the losses, and learn to recognize trends, and play them with some discipline.

Right now gold and silver are not trending, they are consolidating and winding up before they begin another move. I can argue the reasons for a move either way, and unless you are Ben Bernanke and ready to show your hand honestly I am not particularly interested in what you have to say, because you just don't know. And neither do I. This is not a 'natural market.'

But we can hope to find the trend as it begins again, miss part of it, but be sure to hop on board and take it for a ride. For most people, they have neither the time nor the inclination to do this for the short term, and probably even for the intermediate term. They just feed the trading letters and system creators and of course the brokerage firms.

Chat boards are a nice way to spend the time you may have on your hands in socializing, if you have nothing more pressing, but they offer little in the way of constructive trading advice. To paraphrase Dr. Greg House, traders lie. And most amateurs become bitter with their losses. Misery loves company.

Don't get me wrong. Fundamentals still matter in the longer term, and in the lesser covered stocks one can always find the undercovered gem or two, if you have the stomach for the risk and can wade through all the price manipulation and naked short selling that is tolerated, especially north of the US border.

So for now I am long bullion and short stocks, in a pretty robust hedge. I have taken the profits out of miners but am still willing to flip a trade in the case of some unusual deviations from trend. And they certainly happen. Sometimes you just have to wonder.

I am waiting to see which way the market breaks and if stocks continue to move with the metals or if there is a divergence developing. My 'bias' if I have one is to see the metals bounce and rally up to the top of the larger symmetrical triangles, but that is a 60-40 proposition at best. I mean, the market is being rigged, or isn't it? And if it is, probabilities are being written by other than 'the invisible hand' of supply and demand.

I am not trading nearly as frequently or aggressively as in the past because a) I am getting older b) these markets are almost ridiculous. Its like playing cards with the little girls.

If I put in a order for a few thousand shares, the liquidity from a large offered set of multiple positions evaporates instantly and I close on maybe 100 shares. If I offer to buy above market but below ask I get ten 'friends' appearing instantly along with my bid.

There is little genuine liquidity in the equity market. It is mostly a sham, a flash crash waiting to happen unless the ESF intervenes which I am sure they will. At the first sign of real trouble it will collapse like a house of cards.

As for gold and silver, price discovery is buried under a mountain of paper and faux trades. With 100:1 leverage and naked positions dominating the trade, its a bit of game in the short term at best, and not a particularly honest one at that.

Don't exhaust yourself chasing rainbows here. Sometimes the best trade is to stay out of the short term scrums, the wash and rinse cycles, and just ride the macro trends, ignoring the day to day noise. And judging by the shrinking volumes and low open interest, quite a few people are fine with that decision.

The pit crawlers had best start studying origami and advanced airplane design to while away their empy hours, with only phony computer generated order flows and Fed buying programs to light up their screens.

This speech was given by Herbert Hoover as the country was caught in the depths of the Great Depression 6 December 1932, as he was leaving office, largely perceived as a failure.

I have sympathy for Hoover and rightfully so. For many years I saw his portrait every time I would visit the headquarters of the IEEE in New York City. I read about his magnificent acts of logistical organization and the relief of suffering in the European famines. He was an accomplished and talented person.

And yet he failed, or at least has been judged a failure as President, because of a timidity and unwillingness to act, boldly and in a timely manner. He was constrained by bad advice, and an ideological bent that prevented common sense action from moving the country forward. Afterwards in his Memoirs he blamed the advice he received from his Treasury Secretary, Andrew Mellon, the great liquidationist, who had been appointed by Warren Harding in 1921, and who throughout the 1920's preached the gospel of tax cuts for the wealthy to stimulate growth.

"Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."

This speech could be given with little alteration by Barack Obama today, although I am sure he would add quite a bit more flair.

The Too Big To Fail Banks are still with us, but even larger and more dangerous and powerful. Obama himself, despite pledges to the contrary, is taking large amounts of funds from the corrupt campaign process.

Instead of acting quickly to correct the causes of the financial collapse, he expended most of his early political capital on a healthcare plan that, despite some genuinely beneficial changes, serving to increase the control and reach of a few private healthcare monopolies by requiring all people to purchase insurance from them.

Fed policy still serves the few and is largely opaque in its dealings, becoming even more powerful as regulator.

And the markets are dominated by even fewer players, and tainted by a major scandal in which over a billion dollars was stolen from the customers.

Corporate profits are excellent and the very wealthy few are making enormous strides in increasing their wealth. And yet the bulk of the nation suffers from fear and uncertainty.

The people's vehement objections to the bailout, marked by faxes, calls and emails in their millions, were ignored.

Yes, Obama faces a rigid and uncompromising opposition in the Congress, which achieved its House majority during his term I might add, but he still has broad Presidential powers, including the ability to direct the enforcement activities of the regulators and the Justice Department.

And not one major participant in the fraud has been indicted and prosecuted. Instead, the perpetrators and beneficiaries of the fraud have crafted the words for the very reforms which they have opposed and weakened every step of the way. And the regulatory agencies continue to hand out wristslap fines for egregious market frauds that continue to add to the deterioration of the confidence of average market participants.

If the US had a Parliamentarian system, Prime Minister Obama would have most likely already been ushered out the door.

Am I being too harsh? He promised much, and achieved little, and broke almost every major pledge he had made to his constituency in his zeal to curry favor with those who would have nothing to do with his mandate. In this he is more Chamberlain than Hoover, who at least acted on his principles that were unfortunately mistaken as he later admitted.

When he writes his memoirs I will be shocked if the current President does not paint a picture of magnificent accomplishments, and for the shortcomings, blame everyone but himself and his inability to execute on principle.

President Obama will undoubtedly provide a good case study for the failure in leadership in a crisis for future historians.

"There are three definite directions in which action by the government at once can contribute to strengthen further the forces of recovery by strengthening of confidence. They are the necessary foundations to any other action, and their accomplishment would at once promote employment and increase prices.

The first of these directions of action is the continuing reduction of all government expenditures, whether national, state, or local. The difficulties of the country demand undiminished efforts toward economy in government in every direction. Embraced in this problem is the unquestioned balancing of the Federal Budget. That is the first necessity of national stability and is the foundation of further recovery. It must be balanced in an absolutely safe and sure manner if full confidence is to be inspired...

The second direction for action is the complete reorganization at once of our banking system. The shocks to our economic life have undoubtedly been multiplied by the weakness of this system, and until they are remedied recovery will be greatly hampered.

The third direction for immediate action is vigorous and whole-souled cooperation with other governments in the economic field. That our major difficulties find their origins in the economic weakness of foreign nations requires no demonstration...

Banking Reform

The basis of every other and every further effort toward recovery is to reorganize at once our banking system. The shocks to our economic system have undoubtedly multiplied by the weakness of our financial system.

I first called attention of the Congress in 1929 to this condition, and I have unceasingly recommended remedy since that time. The subject has been exhaustively investigated both by the committees of the Congress and the officers of the Federal Reserve System.

The banking and financial system is presumed to serve in furnishing the essential lubricant to the wheels of industry, agriculture, and commerce, that is, credit.

Its diversion from proper use, its improper use, or its insufficiency instantly brings hardship and dislocation in economic life. As a system our banking has failed to meet this great emergency.

It can be said without question of doubt that our losses and distress have been greatly augmented by its wholly inadequate organization. Its inability as a system to respond to our needs is today a constant drain upon progress toward recovery. In this statement I am not referring to individual banks or bankers. Thousands of them have shown distinguished courage and ability.

On the contrary, I am referring to the system itself, which is so organized, or so lacking in organization, that in an emergency its very mechanism jeopardizes or paralyzes the action of sound banks and its instability is responsible for periodic dangers to our whole economic system."

Herbert Hoover, Annual Message to Congress, 6 December 1932

The cost of a nation of incarceration - CBS News

A report by the organization, "The Price of Prisons," states that the cost of incarcerating one inmate in Fiscal 2010 was $47,421 per year. "In states like Connecticut, Washington state, New York, it's anywhere from $50,000 to $60,000," he said.

Yes - $60,000 a year. That's a teacher's salary, or a firefighter's. Our epidemic of incarceration costs us taxpayers $63.4 billion a year.

The explosion in incarceration began in the early 1970s - the political response to an explosion in urban violence and increased drug use.

"So 'Tough on crime,' 'three strikes, you're out,' 'Let 'em rot, throw away the key' - all that stuff resulted in more mandatory sentencing, longer and longer sentencing," said Jacobson.

The case against Lehman Brothers - CBS News

Anton Valukas: There was evidence which would show that that's not accurate. The president of Lehman Brothers told us that in fact he had conversations with Dick Fuld about this and documents were shared with him which would reflect the Repo 105 transactions and how they were being used. Richard Fuld's view on that was that he has no knowledge of it. You have other evidence that he did. A jury would have to decide who's telling the truth.

But so far there has been no jury to hear the evidence. Despite Valukas' findings -- and the supporting documents and testimony to back them up -- the Securities and Exchange Commission has not brought any charges of any kind against former Lehman executives. For the past few months, we've made numerous requests to interview the SEC's head of enforcement. All of those requests have been declined.

Steve Kroft: The Securities and Exchange Commission has not brought a case.

Anton Valukas: No, they have not.

Steve Kroft: Does that bother you?

Anton Valukas: I'm not permitted to be bothered by that. You know, my job was to set out the facts, lay it out. They have to make their own prosecutive decisions.

There is one plausible explanation why SEC hasn't has not gone after top Lehman executives. As it turns out, some of Lehman's most egregious accounting shenanigans took place right under the noses of government regulators.

Steve Kroft: How closely was the SEC monitoring Lehman Brothers during this time?

Anton Valukas: They were on premises. They were talking to the Lehman people daily. They officed there.

It was not widely known at the time, but during the last six months of Lehman's existence, teams of officials from the SEC and the Federal Reserve took up residence inside the firm to monitor its precarious financial situation. They were inside the building when Matthew Lee wrote his letter to Lehman executives alleging unlawful accounting practices, and they were there when the practices took place. Valukas says the SEC also knew that Lehman was being less than truthful when it said it had enough assets to survive the crisis. But that and other damaging information was never disclosed to investors who continued to pump billions of dollars into the firm.

Steve Kroft: Should it have been disclosed?

Anton Valukas: Absolutely.

Steve Kroft: Isn't the government, the SEC in this case, the people who were supposed to protect the investors?

Anton Valukas: Yes.

Steve Kroft: Aren't they charged with informing investors?

Anton Valukas: Yes.

Steve Kroft: Why didn't they do it?

Anton Valukas: They may not have had the expertise necessary to understand the material they were receiving. They were getting the material. Whether they understood it is another question.

The very fact that government regulators were inside the company with access to its books and records would complicate any prosecution of Lehman officials.

Until four months ago, David Kotz was the SEC's inspector general. Over the previous four years, he issued more than 100 reports about major deficiencies in the way the SEC did its job.

Steve Kroft: If the SEC knew about some of these problems at Lehman Brothers and they weren't disclosed, doesn't that make it difficult for the SEC enforcement division to come back and bring action against Lehman Brothers? They were there; they saw it.

David Kotz: Yeah. I think that that's definitely an impediment to a potential case. And, certainly, if you go before a jury, the defense lawyers can make a big point about the fact that, "You were there. You knew about it. Why didn't you do anything at the time? Now, you're coming after them."

In fact, former Lehman CEO Richard Fuld seemed too be trying out that defense when he testified before Congress in 2008.

[Apr 22, 2012] Why Has the American Economic System Failed, and What Are We Going To Do About It

This is Joe Stiglitz' presentation at the INET conference in Berlin last week. Only under a fiat currency trade system can these large deficits and surpluses be created, in the same manner as the debt bubbles, and asset bubbles. Some of today's problems are indeed because the US is acting as the 'deficit of last resort' because it owns the world's reserve currency. This is known as Triffin's dilemma.

April 16, 2012 | Jesse's Café Américain

"We always want to keep in mind what the function, the purpose, of the economy is. The purpose of an economy is not producing GDP. It is increasing the welfare of citizens, and it is increasing the welfare of most citizens. And the American economic system has failed, and failed very badly. Most Americans today are worse off, most American households have lower real income adjusted for inflation than they had fifteen years ago."

Joe Stiglitz made an aside about half way through his talk about mercantilism at INET Berlin this month that is worth noting. I like the way he frames the problems and his fresh look on the situation but do not favor many of his suggested cures, especially the notion of something that sounds dangerously like central planning by a financial elite. I think that is something that needs much more work, but that is a discussion too often impeded by denial, misdirection, and diversion.

Although he initially addresses his talk to America, he goes on to include other countries, especially Germany. I would add the UK, among others including China, which is a disaster in the making.

I start the tape of his talk at 13:25, so you can hear the basic question and the simple truth that so many have overlooked. The American economic system has failed the public, and that failure has its roots in the 1990's, accelerating at the turn of the century into the financial collapse. It is a story of deceit, corruption, and betrayal.

And the majority of the people, who have suffered the most from this injustice, are being asked to suffer even more for a system that does not benefit them and actually works against them. And they are asking, 'is it worthy of our support?'

And history indicates that they will provide an answer that may be unpalatable for those who benefit the most from the current unsustainable arrangement, who are enriched by the misery of others.

I cannot say it more simply or more emphatically, that the gaming of the system by the monied interests, marked by but not wholly due to the repeal of Glass-Steagall, the trade agreement with China without a floating exchange rate, and the Bush tax cuts for the wealthy while initiating aggressive war on multiple fronts, have set the American economy on a spiral of demise and eventual self-destruction.

What has institutionalized this demise and made it pernicious is the corruption of American power and distortion of thought by big money, and the short term selfishness and self-interest of the status quo. That is what I call the credibility trap.

The point must be made, that the system did not fail because our economic models were no good, that our financial leaders were simply mistaken, that the political powers were pursuing the right path but that things went wrong in ways that no one could have foreseen, and that even now, the thought leaders and spokesmodels for the monied interests are hard at work concealing and deceiving and misleading, feeding the rotten system that has brought us to where we are today.

It was never a mistake. They knew, but it was easier to go along or do nothing, being either craven or compromised. It was always about easy money, and the fraud.

Giving even more money to the Banks, and asking the people to pay for it, in the hope that it will eventually trickle down to the people from whom it has been stolen is not a policy, and not even a policy failure. It is an obscenity.

I sense we are in the negotiation phase, in which the powerful monied interests want to be let off with a wrist slap, and no admission of guilt. And of course for change to come slowly, maximizing their returns.

The powerful think that they are the system, the economy and the government, and that it exists to serve them. And so any change must suit their needs, first and above all. But a prideful greed and will to power can never really contain itself, as it can never be truly satiated. It always craves just a little more.

The existing US dollar trade regime dominated by global corporations and banks, backed by widely deployed military power, is not sustainable. We are entering the next phase of this unfolding crisis, and some countries are already there, in which we will see growing domestic unrest and repression, and regional trade wars and alliances, in the evolution of the ongoing currency war.

Reform will come, one way or the other. The writing is on the wall.

For in that universal call,
Few bankers will to heaven be mounters;
They'll cry, "Ye shops, upon us fall!
Conceal and cover us, ye counters!

When other hands the scales shall hold,
And they, in men's and angels' sight
Produced with all their bills and gold,
'Weigh'd in the balance and found light!'

Jonathan Swift, The Run on the Bankers

[Apr 22, 2012] Summary for Week ending April 20th

Bob Dawg:

Rajesh wrote:

The report of the week is Industrial Production. This is one of the indicators that NBER uses to decide recessions. It has been flat for two months. I expect a small uptick over the next few months but it will start falling once the global economy weakens enough to start impacting exports. We are already seeing inventory builds, even a slow down in sales growth could trigger an inventory cycle.

My opinion is that capacity utilization is hopelessly out dated through drift and survivor bias. It was never tested in such a long recession. Much like the misallocation of houses we have manufacturing capacity of the wrong type, wrong place and idle so long as to be useless.

km4

The Mother Of All Infographics: Visualizing America's Derivatives Universe | ZeroHedge

Top 5 US banks held 95.7%, or $221 trillion of the entire US derivative universe (which in turn is just a modest portion of the entire $707 trillion in global derivatives as of June 30, 2011).

[Apr 22, 2012] Links 4-21-12 " naked capitalism

April 21, 2012

Hugh:

Re Lynn Parramore's post, the three great issues of our times are kleptocracy, wealth inequality, and class war. You can guage how serious economists are by whether they are discussing these issues and giving them the centrality they deserve. However, from the little that I can see, Soros and the INET people have not come to grips with any of them. They may talk a little about wealth inequality but the other two are left untouched and unaddressed. Yet without an understanding of how the three are connected, no realistic description of the events of the last 35 years is possible.

Remember these are supposed to be the experts, and not just any experts, but the best and most insightful. The construction of kleptocracy has been going on, as I said, for 35 years. The housing bubble blew up 5 years ago, the meltdown hit 4 years ago, and yet these cutting edge economists have not taken even the first step to putting together what happened.

So my questions are these: How much longer are we expected to wait for them to come to terms with the systemic failure of their discipline? How can we look to them for leadership or understanding when they remain so obstinately behind the curve? And at what point should we start writing them off as irrelevant and/or just more elite distraction and obfuscation?

craazyman:

You're pretty much right on Hugh, although kleptocracy predates the financial crisis by a few thousand years. During which time they called it all sorts of things as long as the money flowed. Anyway.

I'm still hopeful I'll get a 1 million grant from INET to study money's relationship to group psychoanalysis, constructing of the ego and soul projection. If I don't get 1 million, I'll take half a million. and if not half a million, I'll take a quarter of a million, but no less than $100,000.

If I don't get even 100G, I'll write them all off as yackers who can't bring themselves to the point of action.

-Profeser Delerious Tremens, University of Magonia, Institute for Contemporary Analysis, Department of Financial Speculation and Teleology, PO Box 8, Magonia

Kevin de Bruxelles:

Your concepts are vague; for example are we to believe that 35 years ago kleptocracy just rose from nowhere? It didn't exist before? Sure you are correct, there is indeed class war going on, but what are the actual tools and processes that are leading to the demolition of the working and middle classes?

The problem is that with the Left / Right political ideological divide there are certain critiques that are sacrilegious to make and thus force people to avoid delving in too deep and instead stick to the use of such vague terms (on both sides, the Right blames "socialism"). There are "sacred" political ideas linked to each ideological box. For example on the Left one sure way to become declared a heretic is to criticize anyone poorer or darker skinned than you; on the Right I suppose it would be the opposite! But the sacred nature of these ideological boxes tend to help people to avoid the true picture. So I will go on to point out a few on the Left which is not to mean there are not just as many on the Right.

For example, one of the most obvious forms of class warfare in America is the process of globalization. The working classes are facing a pincer movement extraordonaire; the outsourcing of high-wage jobs to third world countries combined with the insourcing of low-wage third world labor to take the jobs that cannot be moved. The Left will moan about Neo-Liberalism in very vague terms but this job and labor migration is the Neo-Liberals most powerful weapon against the working classes. But because the Left has to be "for" immigration and "for" more jobs for Third world people, terms are kept real vague.

As to the rising of kleptocracy, all elites and states are to some extent kleptocratic, why did things get so much worse 35 years ago? One must really start at the beginning with an explanation of why states (and therefore elites) exist in the first place. It's actually very simple. States rose from agricultural societies who suffered from raiding by hunter gatherers, pastoralists or other agricultural societies. In the simplest of terms, people will always choose a fixed bandit / parasite over a roving bandit / parasite. And that is because the fixed parasite is more dependent on the survival of the host than the roving parasite is. Of course what often happens is that the people get a weak fixed parasite (state) and end up getting raided anyway by bandits.

Watch Kurosawa's "Seven Samurai" to see this dynamic explored in its most fundamental form.

All governments and their associated corporations are thieves and therefore kleptocrats. The key is to make sure your elites are fixed bandits and not the roaming type; this minimizes the amount of parasitic activity they can indulge in.

In the post WW-2 era, states and corporations were dependent on their citizens / workers since these were, at least indirectly, also the consumers of these corporation's products as well. This was a clear example of a fixed bandit / parasite. Things are not perfect, corruption certainly exists, but at a tolerable level. With the process of Neo-Liberal Globalization, national elites and corporations have emancipated themselves from their nations and societies by destroying the link between employee / customer. The employees are off in some God-forsaken sweat shop in China while the customers are either also overseas or the locals ones are supported by temporary credit instead of jobs. This other key ingredient of Neo-Liberalism, anti-Nationalism, is also strongly supported by many on the Left who dream of a global family of man living in perfect harmony and humming "Imagine" together even though this idea conflicts with every ounce of knowledge about human nature. In a nation-less global society, the Wealthy few are free of any borders and their parasitic destruction of the local peasantry has no limits.

The elites have become roaming bandits and thus why kleptocracy is now such a problem.

Neo-Liberal Globalization has not struck Europe as a whole as hard as it has the Unites States although it certainly has done some damage. The idea of having a strong manufacturing base is still not laughed at on the continent and although there is a huge amount of third work immigration that is hitting the welfare systems hard, this process has not lowered wages for the working classes as much as in the US. But still factories are getting shipped off to China, especially in southern Europe. On the other hand Europe is going through a painful transition from individual smaller nation states to an eventual European nation state in order to compete on an economic global battlefield of larger national groupings (US, Russia, China, India, Japan, etc).. But European nations, especially in the north, despite all the recent troubles, are still thriving social democracies which represent an affront to Neo-Liberals everywhere. So what shock troops are the Neo-Liberal elite throwing into Europe? American right-wingers? Hell no, they know that would never work. Instead they are attempting to take Berlin with their most destructive of all forces, the American Left, led by of all people the ultimate roving bandit parasite George Soros!

After all what have the American Left accomplished post WW2 in the States. Pretty much nothing. Universal Healthcare? No way! Free pre-school for all? Not even on the agenda! Five weeks vacation? Barely holding on to two! Affordable universities? No chance! Paid parental leave? The feminists say NO! Rejuvenation of Urban America? Detroit! Gini scores in the high 20's or low 30's? Nope, high 40's! Keeping GMO's out of the food stock? As if! Public Transportation? That's for sissies! And the list could go on.

Yes on the other hand the American Left have assured some modest welfare payments, Section 8, food stamps, aid for dependent children, etc, for some of the victims of the globalization and immigration policies that they cheerlead so hard.

The American Left, whether knowingly or unknowingly, often through their naïve good intentions, have supported Neo-Liberal economic policies and have been rewarded with token victories in the various Identity Politics arena. They are Neo-Liberalsm's ultimate Fifth Column and now they are being let loose on Europe.

But why would anyone on the Left in Europe, with all they have accomplished post WW2, want to listen their congenital loser cousins from across the pond? Would American baseball players listen if Europe suddenly decided to send lots of baseball coaches to America to teach how to properly play the game? Or might these Americans ask what the hell Europeans know about baseball? To be honest, American Leftists have accomplished on a relative basis even less than European baseball players.

So along with the Krugman types, they send in the MMT clowns as well. These are the guys who promise a government job for everyone to help provide political cover for the offshoring and inshoring that is destroying the working classes. But ask them if these jobs are limited to US citizens and they will not answer. The idea that you can have open borders with neighboring poor countries and an increasing welfare state for everyone is insane. Obviously all a guaranteed job would mean is an increase in the flow of poor immigrants into the US to take these jobs and an increase of the outflow of productive jobs to China as these temporary jobs, if they ever happened would just serve to sooth increasing tensions that if not dealt with could someday threaten these Neo-Liberal policies.

So now they insist that unproductive countries in Europe introduce a two currency system, the Euro for rich people and whatever useless currency for local peasants. No they don't say it like that but do you really think Greek hotels are going to stop charging in Euros? In Iceland they still charge in Euros or Dollars. They only pay their employees in an increasingly worthless local currency. Yes there are serious issues with the Euro but would the US ever try to solve its unemployment problem by paying people in Pesos?

What Europe does need to do is continue its move towards Federation by supporting productivity with the welfare state while at the same time attacking parasitism – both by Rentier and Lumpenproles. They need to use the advantages given to them by the wise Social Democratic decisions of the past and to reject all attempts to impose American Left Identity politics. The Southern Europeans have to become more like their northern brothers by importing more Social Democracy and to avoid falling into the trap of pathetic American victimolgy where bad results are never the consequence of previous unwise decisions.

Hugh:

It's asking a bit much to expect me to encapsulate the history of kleptocracy, wealth inequality, and class war in a single comment, and not a particularly long one at that.

You include in the American left Establishment liberals, faux progressives, even neoliberals. I do not. As you point out, just because someone uses a label does not mean it is any sense accurate or applicable.

I have written a lot about these three great themes here over the past year or so. You ask why I and others start the clock on kleptocracy 35 years ago in the Carter Administration when kleptocratic elements have been around throughout human history. I often use the example from psychiatry. A psychiatrist once was presenting to an audience various psychiatric disorders and running through the symptoms which characterized them. This created a certain amount of discomfort in the audience because many could identify many of the elements being discussed in themselves or in people they knew. Finally, someone raised their hand and made this point. The psychiatrist took the question completely in stride, and said simply, "Just because you have the trait, doesn't mean you have the disease." Well, that's the way it is with kleptocracy, wealth inequality, and class war. There have been many times in history when we have had the trait but now we have the fullblown disease.

And the reason we fix the onset of kleptocracy to the Carter Administration is that he was the first of the conservative Democratic corporate Presidents. He was anti-union in deregulating industries like the airlines and trucking. The usury laws were repealed under him. And perhaps most importantly there were the actions of Paul Volcker at the Fed. Volcker did not just ruthlessly wring inflation out of the economy. He set in place a dogma that all wage increases were to be taken as inherently inflationary and combatted at all costs. It is not with Reagan but with Carter that the wages of American workers go flat. Volcker took no similar action against investors. Indeed under Reagan supply side economics became a cover for the shift of the US economy from one that was worker based to one which was investor or rentier based, with all the transfer in wealth this implied. Money to workers = bad. Money to rentiers = good.

In the past, there have been countervailing trends. There has been real, popular opposition. But in the last 35 years, this has not happened despite 80% of Americans living on just 7% of the country's wealth, despite the housing bubble bust and the meltdown, and despite the brazen conduct of our elites since, accelerating rather than cutting back on their looting.

Sometimes, things really are different. We are currently living in such a time.

jsmith:

That there's a lot of words to say that the left doesn't exist in America nor hasn't since the turn of the 20th century.

In nearly half of your tome, you bemoan the inability of the "left" in America to get anything done and then you criticize them for being to idealistic.

Hello!!!

There has never been a real American left since WWII.

Anything that can be described as "left" in America since the war has basically been warmed over neo-fascism similar to that envisaged by members of the European Social Movement (ESM) whose vision of Europe looked much like what the EU does today – states subservient to a centralized economy that straddles communism and capitalism – ie., the privatization of profit, the socialization of risk. See link to National Party of Europe below.

Remember in the US that McCarthy guy and how people's lives were destroyed over suggestions by some that they had socialist tendencies?

How the FBI, CIA and police were used to infiltrate and destroy any of the more radical leftist groups in the 1960s?

No, no, sir, let's cut the crap.

Neoliberalism is a virulent form of capitalism that effectively neuters and co-opts any political party it touches as it seeks to establish an inverted totalitarian society, one in which neoliberalism as economic system is installed above the power of party politics.

Neoliberalism is an economic system, not a political one.

One must remember, economics trumps politics in our world now. Politics is just to keep the masses mollified and disunited.

THAT is why Greek and Spanish "socialists" can vote for austerity policies that contradict every Marxist tenet.

THAT is why the "left" in America has been so week.

The post-war "left" in America has not ever been "left".

To say so just continues to keep the populace confused which is exactly what the elite want. People unable to use terms correctly such as "communism", "socialism", "left", "right", have a much smaller chance in uniting against the totalitarian structure because they can't even agree on terms.

Much better to stop trying to attribute blame to one side or the other and much more worthwhile to attribute blame to the system which – if you ARE going to do for accuracy's sake – actually springs from the hard right and not the hard left.

I mean, ask yourself, of the two – right or left – who had more power and money in Western Europe and the US to really affect policy?

Not many billionaire Bolsheviks, huh?

In general, one can say that the US is a kleptocracy.

Specifically, one should say that it is an inverted totalitarian society with neoliberal economic policies as the central tenets.

To see where many of the ideas for this "liberalism" came from check out the neofascist National Party of Europe from the 1960s and look at their aims. Then compare them to the EU today.

http://en.wikipedia.org/wiki/National_Party_of_Europe

Also, see the Italian Social Movement. Gianfranco Fini, the current Head of the lower house of Italian Parliament and Deputy Prime Minister under Berlusconi was the leader of the THAT fascist party up until 1995.

http://en.wikipedia.org/wiki/Italian_Social_Movement

I mean, the elite couldn't have gotten that clever so as to disguise their designs in confusing terms and thus avoid engendering reminders amongst the populace as to earlier totalitarian regimes, could they?

What, you thought 21st century fascists would goosestep down The Mall?

I tell y

EmilianoZ :

Another classic, thought-provoking post by Kevin. It's great to see he's still (sporadically) haunting this blog that DownSouth seems to have deserted permanently.

I'll just ask this. Now that the credit based consumption is over, don't our parasites need workers with good wages to buy their products? Or are they counting on the emerging middle class in China or wherever to take up the slack?

It is, I think, undeniable that kleptocracy intensified these last few decades. It's a bit like the global warming debate. Even skeptics don't deny the warming anymore. It's the causes that are still under dispute. Is it the sun? Is it man-made? Similarly the intensification of kleptocracy seems well-documented. But the causes can still be debated. Kevin's local/roaming parasites' explanation is one of the best I've seen. You can probably find a few others in Yves Smith's Econned. There's another one I read I dont remember where. It says that the beginning of the end for the middle class was the implosion of the Soviet Union at the end of the 80ies. Until then the American 1% didn't treat its peasants too badly. But as soon as the USSR was kaput they could say there's no alternative and started treating the populace as they always wanted to.

Identity politics will never cease to amaze me. Here you have 2 political parties that rationally should never exist as mass parties since they represent the interest of so few. And yet you have the poor of both parties hating each other's guts. I wish I had an explanation.

The Republicans are every bit as pro-globalization as the Democrats. Bizarrely, the Ds seem to have accepted the mantle while the Rs seem to get away with it.

Richard Kline:

What I found particularly interesting about the original story of dubious Pentagon propaganda shops (link below), which led to some jejeune harassment as mentioned in the linked piece, was the sums of money involved. I didn't read this article-USA Today does _investigative journalism_? Who knew?-but I recommend reviewing it in its entirety.

By what was reported, the warhats have sourced upward of $500M in really, really mediocre propaganda on Iraqis, Afghanis, and surely quite a few other foreign national masses trying to make those there think *cough* we're good for them and their activist neighbors aren't. And of course the Pentagon can't come up with any kind of accounting for how the money was spent, or even who was hired and paid. Does that sound like a money-skimming bonanza to you? Sure does to me. The reported methods used don't have steep costs in those venues: leaflets, a few news reports, bus ads, promote a few 'feel good' concerts. Stuff like that. For half a billion. The article focuses on one particular contract shop with no prior experience and _no SW Asian national amongst its principals_ which nonetheless is supposed to be operating at least minimally functional PR shops by remote control in-country in those places. But of course no one can SAY just how the money is being used.

. . . And that's what's interesting, to me. Of course, these phantom contractors can simply be pocketing fat chunks of dough with heft kickbacks; that would be the natural trajectory of cost-plus money with no accounting. But the real opportunity in this is for the money to be skimmed _by the brass_ for propadangda, just not in the areas putatively budgeted. Like in the ol' US of A. That would be, of course, 100% illegal. And being illegal, one would never see a formal budged code and appropriation line for that. But think along with me now, brothers and sisters? Which is more important for the permanent war economy: a) dumbass, low-return PR by known to be ineffective methods amongst foreign populations who know very well not to trust us, or b) high-return domestic US media monitoring and plants to shore up eroding domestic morale in support of grotesque and unending neo-colonialist enterprises? $500M isn't a lot of money in Military Land, but siphoning 20-30% of that for a good bang-for-buck media fidgeting in the US would be extremely worth the money. Couldn't do it by folks in uniforms; too much risk of being caught. But by contractors hiring foreign contractors hiring domestic contractors through several shells of fronts; why that's routine on the cloak-and-pixel front.

Food for thought . . .-but it's a certainty that the warhats keep track of what's said domestically and by whom. Domestic morale is the most important asset in a long-term, 'low intensity' conflict, and this is understood by strategic planners. They'd be stupid not to fight the war on this front too, so one must assume they are. Here may be the kind of funding skim opportunity it takes to operationalize that element of strategy.

http://www.usatoday.com/news/military/story/2012-02-29/afghanistan-iraq-military-information-operations-usa-today-investigation/53295472/1

Paul Tioxon

Considering that the current EuroZone crisis elicits much condemnation over the its very existence to the point of seeing it as some sort of ploy to enslave periphery nations under the jack boot oppression of it Teutonic betters, perhaps this thought can reframe the crisis. It is not the fault of the Euro and treaties binding nations together that is the problem, but the collapse of capitalism, the transnational New World Order that originates the problem, then finds fault with nation states for failing to compensate for the transnational discontinuity on a scale and of a type that the Euro was not placed into this world to accommodate.

Like the gold bugs that want a metal to back up the paper, some analysis want a nation to back up the paper. However, Europe as a whole is trying to accommodate itself into a new social, political and economic order simultaneously and this does not fit into the neat categories of economists and the people who love them. The world is driven by more than money and economics is not the master theory to understand what is going on globally. So, holding the Euro and The EuroZone responsible for the crisis by not immediately resolving it and calling for its dissolution and the rise of nationalism of its elemental states spits in the face of social unity and precipitates an unknown amount of new and potentially deadly inter state conflict. All to save a buck, er a Euro. The Austerity Technocrats are not going to manage their way through this without the politicians and people working through an amenable and egalitarian resolution. I offer for your serious viewing pleasure, an informed guide to an equitable solution.

http://www.youtube.com/watch?v=MsVzMe7lCUA

The above link is a not too long interview with Prof Nancy Fraser.

You can view the lecture she gave, preceding the interview at the following link, so you can follow the interview with some more depth.

http://www.youtube.com/watch?v=HKzPxVyVM3Q&feature=relmfu

Prof Nancy Fraser, Henry A. and Louise Loeb Professor of Political and Social Science and Department Chair at the New School for Social Research in New York, delivers her keynote speech titled 'Crisis of Capitalism, Crisis of Governance: Re-reading of Karl Polanyi in the 21st Century' at the University of Warwick's Critical Governance conference.

Jim Haygood:

'Bottom line: The Fed's excess reserves are not inflationary. As Greg Ip noted in 2009, "Reserves have not been a relevant constraint on bank lending for decades, if ever. Bank lending is constrained by customer demand and by capital." Forget about excess reserves. The Fed's easing simply doesn't have a lot of influence in a world of overleveraged households lacking in credit demand.' - Ed Harrison

Currently, the 12-month change in M2 is a robust 9.8%, while the expansion of M1 transaction accounts has quickened to an eye-popping 17.4%.

http://federalreserve.gov/releases/h6/Current/

Apparently, low velocity has been offsetting these alarming rates of monetary expansion to keep prices muted.

When folks can earn a reasonable interest rate, they are diligent about quickly putting cash to work in interest-bearing accounts. Velocity rises. But currently, with short rates near zero, holding cash or non-interest bearing deposits has no opportunity cost. Velocity stagnates.

So, when the Fedsters finally are obliged to begin hiking their policy rate, accompanying rises in velocity will potentiate the large expansions in raw money supply, causing old-fashioned, nasty inflation in the mid single-digit range.

With the central planners currently frozen into a fetal, thumb-sucking ZIRP posture, it may take until 2014 or 2015 for inflation to appear. But it will, I assure you.

Madcap central banksters who have roughly tripled their balance sheets in the past five years could be compared to the Coyote in Road Runner cartoons:

The Coyote could stop anytime - if he were not a fanatic. (Repeat: "A fanatic is one who redoubles his effort when he has forgotten his aim." - George Santayana).

http://en.wikipedia.org/wiki/Wile_E._Coyote_and_Road_Runner

When interest rates finally start to rise like a Saturn V rocket at mid-decade, the Acme monetary dynamite will go bang in their fool faces. But will the pseudo-science of economics declare surrender? Dream on! They're tenured!

Literary Critic:

Let's not forget YoY CPI (jiggered up already) is running at 3.5%

I'm getting a little tired of econ types that refer to this as "nothing" or "temporary".

Especially with a return on savings of near zero, meaning your purchasing power is disappering at a 3% clip.

You could invest in the asset market of your choice, but prices are distorted, so that makes you a bagholder someday.

Unless you can invest in a quantum computer hooked to the internet backbone and win the HFT game.

[Apr 21, 2012] Jamie Galbraith on Inequality and Instability " naked capitalism

April 21, 2012

Chunga's Revenge :

I've been told that if you count the USA's burgeoning prison population as "unemployed" (something that's not done now), we are in virtual lockstep with eurozone unemployment levels.

Jim Haygood:

Good point. Not only are those in the 2.5 million-strong Gulag unemployed, they are also several times more costly to maintain than those receiving unemployment benefits.

Spend another 5% of GDP on the military - most of it wasted on global domination - and after a few decades, you're frickin' poor, not to mention more unequal.

The Washington D.C. metro area sports the most educated and affluent urban population in the country. But they just ain't very damned smart.

Tyranny of Consumption:

Prisoners are also being used to turn out office furniture, in other words, "Justice" has created an underclass of slaves. "Sweatshop labor is back with a vengeance. It can be found across broad stretches of the American economy and around the world. Penitentiaries have become a niche market for such work. The privatization of prisons in recent years has meant the creation of a small army of workers too coerced and right-less to complain." Needless to say Banksters like Wells are 'all over that'. – fraser/freeman

Crazy Horse:

The analysis of the role of the imperial military in distorting both national priorities and employment should be brought to the forefront. Go to San Diego, Norfolk, Bremerton and a hundred other cities and you will find one dominant employer– the war machine– which supports the fast food restaurants and shopping malls that spread out from it.

If the US had a military system the size of Canada's, rather than as big as the entire rest of the world it would certainly be a different society. Why, we might even have to spend money on infrastructure that is sustainable rather than designed to blow up,create dead bodies and Shock & Awe, and be instantly obsolete.

scraping_by:

Reading Andrew Bracevich's The Limits of Power, and he makes much the same point. The cost of the military to support the American Empire is a drain on the economy, though his view is it's the cost of the American economy. That is, America's outsized use of world resources, especially oil, is supported and defended by the military, who drain the American economy.

Others have noticed the Empire is a self-referential system, since the resources to fight the foreign wars come from foreign countries. The rest of us just have to pay for the round trip.

It's not easy to say if this large-scale armed robbery is a net gain or not. The costs are, indeed, more than those measured in dollars.

LeonovaBalletRusse :

JH, Hannah Arendt is quoted in YouTube video: "A Brief History of Neoliberalism by David Harvey 1/5″ (ProFreeSpeech on Jul 17, 2007) - 2007! -

"Imperial adventures abroad and tyranny at home go hand in hand."

David Harvey remained perplexed after writing "The New Imperialism." He followed through with "A Brief History of Neoliberalism."

So, Hannah's Totalitarianism "by any other name smells as sweet" to the global 1%? Obama "knows his place" as "Commander in Chief" of the Global Imperial Military and Polizei. As for "pepper spray" table to face, think TABASCO Empire profits from salt to peppers to oil in a Closed DNA System at AVERY Island, Louisiana; together with the Global Oil/Oil Services "Trust" and BP/Shell in the Gulf of Mexico paving the way for Louisiana's de-population in favor of O&G profits unencumbered–a long-term goal of BIG "All your land is belong to us" privateers). The RUIN of water/land the People's livelihood are INTENTIONAL, from drilling to fracking, making "Lebensraum" for the .01%.

The People and Land of the Gret Stet of "Resource-Cursed" Louisiana are but SACRIFICES to the gods of private profit and their high priests in the "Privatized States of America." Louisiana Land is their Inner Temple. Next?

As a British professor has said of Sociopaths/Psychopaths in Power: They don't care about us. Why should we care about them?

William K. Black, Michael Hudson, Steve Keen point the way to go in reality, if civilization for the 99% is to continue to exist. The complete capture, via financial "coup d'etat" (Joseph Vogl at INET 2012), of NationState Governments by the 1% (.01% + .99% Agents du jour) - in order to seize Global "Lebensraum" (of land, water, air, energy, human energy) for .01% DNA in perpetuity - must come to a dead stop.

The Mad DNA Wars for Private Possession of Finite Resources on Earth, following the model of Infinite Growth/Resource Extraction Capitalism by the !%, must end by deliberate human choice. That is, if the "unintented consequences" of Fukushima Fallout don't accomplish the mission of the 1% first. Are we waiting for the denouement?

jake chase:

The system survives because most people believe its corruption and dysfunction can be overcome by their own individual effort.

By the time they realize that it can only be overcome by good luck, they are too old for collective effort.

Propaganda and celebrity are the keys to keeping the whole thing going. Television pumps out nothing else 24-7. Had television existed in the Nineteenth Century there would never have been a union movement.

polistra:

Jake: There isn't an award for "Explaining The Universe In 73 Words", but if it existed, you would have won it!

Most concise statement of our current problems I've ever read.

Aquifer:

Last part of part 3 says it in a nutshell – Dems, as well as Reps, are now controlled by finance and "old" Dem constituencies go along because finance has means to defeat Reps!

What a trip – anything to defeat Reps, including shooting yourselves in your feet and other parts of your anatomy (which is why I suppose, Viagara has taken off – it's natural counterpart has been put in the shredder ….)

Amazing to me how easy it is to distract folks from the real issue – finance, and refocus it on a political party – when both major parties are tools of the self same finance industry …. Never underestimate the power of team sports …

Well, folks, to me the answer is a bit obvious, altogether now:

http://www.jillstein.org/

[Apr 19, 2012] Jeremy Grantham Explains How To "Survive Betting Against Bull Market Irrationality" by Tyler Durden

04/18/2012

"You apparently can survive betting against bull market irrationality if you meet three conditions. First, you must allow a generous Ben Graham-like "margin of safety" and wait for a real outlier before you make a big bet. Second, you must try to stay reasonably diversified. Third, you must never use leverage."...It is the classic failing of value managers (and poker players for that matter) to get impatient and bet too hard too soon. In addition, GMO was not always optimally diversified. We are generally more cautious (or, if you prefer, "more experienced") now than in 1998 with respect to, for example, both patience and diversification, and at least we in asset allocation always stayed away from leverage. The U.S. growth and technology bubble of 2000 was by far the biggest market outlier event in U.S. market history; we had previously survived the 65 P/E market in Japan, which was perhaps the greatest outlier in all important equity markets anywhere and at any time.

These were the most stringent tests for managers, and we were 2 to 3 years early in our calls in both cases. Yet we survived, although not without some battle scars, with the great help that we did, in the end, win these bets and by a lot. Hypothetically, resisting the temptation to invest too soon in 1931 may have been a tougher test of survival in bucking the market. Luckily we, and all value managers, were not around to be tempted by that one.

[Apr 19, 2012] Retail Investors Ignore Generational Opportunity To Buy Stocks One More Week

"It appears that retail has seen right through the once in a lifetime opportunity, and is withdrawing money from stocks at the fastest pace ever, irrelevant of what the myth formerly known as the "market" actually does." It seems like individual investors are evolving from foolishly trying to "make big profits" to wealth preservation. For those who failed to wise up there is generational opportunity to lose your shirt to a rigged market...

ZeroHedge

The week ended April 11th is when equities finally rolled over. Which is why those curious how retail fund flows did in the past week will not be very surprised: if individual investors avoided stocks like Bernie Madoff Asset Management on the way up, there is no reason why they should change their mind on the way down. Sure enough, in the past week, $1.5 billion was withdrawn from domestic equities. I

Instead, cash, solely with the aim of capital preservation enter taxable bond funds, as it has for the past 3 years now. With the latest redemption, total 2012 flows to date are over $25 billion, or more than double the comparable amount in 2011.

It appears that retail has seen right through the once in a lifetime opportunity, and is withdrawing money from stocks at the fastest pace ever, irrelevant of what the myth formerly known as the "market" actually does.

[Apr 19, 2012] Kit Juckes The USA's gentlemen's agreement with Japan and China is coming to an end by Daily Collateral

03/09/2012 | ZeroHedge

Looks like it's time to start looking for somewhere else to peddle those Treasuries -- but then, when hasn't it been? Soc Gen's FX head Kit Juckes:

A cosy relationship has formed over the years whereby the resistance to allow currencies to appreciate too much in Japan and China has fuelled appetite for US assets, which in turn has allowed the US to run a huge deficit (with gradually falling Treasury yields). This is changing, and not (yet) in a good way.

Here are the current account balances he is referring to. Japan and China's combined current account has deteriorated significantly over the last few years and continues to head lower:

Also, why risk-on/risk-off will continue to be the norm:

Capital flows don't match up to current account flows -- and don't need to -- but since the global recession, the decline in the US deficit has mirrored the fall in the China/Japan surplus. The "big story" hasn't been on that side of the equation, but rather, about the increased flow of capital out of the US in response to seriously unattractive domestic yields, and the periodic breaks in that outflow that trigger dollar strength and 'risk off' moments across asset markets. The chart below shows the lurch back into capital repatriation into the US in 2008/2009, but other than that, it?s been a very one-way flow.

As Tyler Durden noted earlier, "the truth is that in this new normal only beta matters (the more lever the better), and the only beta that matters is that generated by relative USD strength/weakness." Observe:

Juckes sees the eurozone (Germany) presiding over the largest surplus provided the euro "escapes the weight of the threat to its existence," and reduced import demand due to austerity in many of the EMU countries running deficits will contribute. He concludes:

The image that comes to mind is of a puzzle where the pieces no longer fit easily together. In the end they will, but the way that happens will affect asset prices. The big price-insensitive buyers of dollars will be less important. That won't move US yields up much while rates are zero and QE (whether sterilised or not) is taking place. But Treasury yields are at the end of their 30-year bull market. As long as rates are anchored by the Fed and the US is running a large deficit without automatic demand for US assets from China and Japan, it isn't helpful for the dollar ... And sadly, the 'risk on-risk off' gyration will go on as US investors seek positive real returns where they can.

[Apr 19, 2012] From Financial Crisis to Stagnation: An Interview with Thomas Palley

In many ways the economic die have been cast. We are now moving into the stage where political risk starts to assume a bigger role. I begin my book with some comparisons with the 1930s and I believe those comparisons remain valid. Mark Twain talked of history rhyming rather than repeating, and today's rhyme is clearly with the 1930s.

I call it [the present crisis] the destruction of shared prosperity hypothesis. This view is not represented in mainstream economic discussions because it challenges the fundamental theoretical foundations of mainstream economics which are shared by both hardcore Chicago School (freshwater) and softcore MIT School (saltwater) neoliberal economics.

April 18, 2012 | nakedcapitalism.com

Philip Pilkington: At the beginning of your book From Financial Crisis to Stagnation you refer to the 2008 crisis as a 'crisis of bad ideas'. Could you please briefly explain why you refer to the crisis in this way?

Thomas Palley: A central and critical element of my book is its emphasis on the role of economic ideas in generating the crisis. This feature fundamentally distinguishes it from mainstream explanations that tend to represent the crisis in terms of surprise events and economic shocks (e.g. black swans).

My book starts with the fundamental idea that economies are made, not found. The way economies are organized and function is significantly the product of social choices, not the product of nature. Over the past thirty years we (society) have embraced a set of economic ideas that shaped economic arrangements – including the pattern of income distribution, the power of corporations and finance relative to labor, and the way in which the economy generates demand.

This shaping of economic arrangements was obviously driven by political forces acting on behalf of corporate and financial elite interests, but economic ideas also played a critical role. First, the ideas of mainstream economists provided justification for the re-shaping of the economy in ways that elite interests wanted. Second, mainstream economists put forward additional ideas that were picked up and incorporated into the policy project of corporate and financial elites. Third, the monopoly capture of economic discourse by mainstream economics served to exclude other competing economic ideas from making it on to the policy table, into classrooms, and into the public debate.

The implication of this view is the crisis is at a deep level the product of a flawed economic policy paradigm derived from a set of flawed economic ideas. Escaping the crisis means replacing that policy paradigm and the ideas from which it derives. That is a massive challenge involving both a political contest and an intellectual contest. We need to win both. One without the other will be useless. It is no good winning the political contest if you simply replace Tweedledum (hardcore neoliberals) with Tweedledee (softcore neoliberals). Likewise, it is no good winning the intellectual contest if you do not win the political contest to implement different economic policy ideas.

PP: In the book you distinguish between two sorts of alternative approaches to the crisis. One you term 'Textbook Keynesianism' and the other you term 'Structural Keynesianism'. Could you briefly delineate the differences between the two approaches? Also, should it be understood that the two approaches overlap with different schools of economic thought?

TP: Textbook Keynesianism and structural Keynesianism both emphasize the significance of total (aggregate) demand for the determination of economic activity. That is what makes both of them forms of Keynesianism.

However, textbook Keynesianism sees the microeconomic structure of the economy as intrinsically healthy. If demand falls off, all that is needed is for policy to step in and temporarily fill the demand gap until private sector demand revives. That is the logic behind temporary fiscal stimulus and temporary easy monetary policy.

Structural Keynesianism argues that the economy's underlying income and demand generating process can be structurally flawed. For instance, income distribution can become badly skewed, creating a permanent shortfall of demand. In that case, private sector demand will not revive and the solution is structural remaking of the economy's income and demand generating process.

Textbook Keynesianism can be identified with neo-Keynesianism (what Joan Robinson less politely called bastard Keynesianism). It identifies the principal macroeconomic problem as price and wage rigidity. This way of thinking gradually morphed into so-called New Keynesianism, which means textbook Keynesianism and New Keynesianism overlap. However, we should be clear that New Keynesianism has little to do with Keynes' original logic and it is more a theory of market imperfections in the spirit of Arthur Pigou, Keynes' great rival.

Structural Keynesianism links with the work of Michal Kalecki who joined Keynes' insights about aggregate demand with Marx's insights about class conflict and income distribution. That means structural Keynesianism overlaps with Marxist sociological and economic analysis. However, classical Marxism views capitalist economies as destined to crisis because of a falling rate of profit. Structural Keynesianism does not.

PP: In the book you discuss various mainstream theories of the recent collapse. Without going into too much detail perhaps you could say something about the mainstream explanations of the crisis?

TP: In principle there are two alternative competing mainstream explanations of the crisis.

• The first is the hardcore neoliberal perspective, which can be labelled the "government failure hypothesis". In the U.S. it is identified with the Republican Party and with the economics departments of Stanford University, the University of Chicago, and the University of Minnesota.
• The second is the softcore neoliberal perspective, which can be labelled the "market failure hypothesis". In the U.S it is identified with the Obama administration and half of the Democratic Party. In Europe it is identified with the Third Way. Among economics departments it is identified with those such as Harvard, Yale and Princeton.

The government failure hypothesis maintains the crisis is rooted in the U.S. housing bubble and its bust. That bubble was due to failures of monetary policy and government intervention in the housing market. With regard to monetary policy, the Federal Reserve pushed interest rates too low for too long in the prior recession. With regard to the housing market, government intervention via the Community Reinvestment Act and Fannie Mae and Freddie Mac, drove up house prices and encouraged homeownership beyond peoples' means. The neoliberal perspective therefore characterizes the crisis as essentially a U.S. based phenomenon.

The market failure hypothesis maintains the crisis is due to inadequate financial regulation. First, regulators allowed excessive risk-taking by banks. Second, regulators allowed perverse incentive pay structures within banks that encouraged management to engage in "loan pushing" rather than "good lending." Third, regulators pushed both deregulation and self-regulation too far. Together, these failures contributed to financial misallocation, including misallocation of foreign saving provided through the trade deficit. The market failure hypothesis is therefore slightly more global than the government failure hypothesis, but it views the crisis as a purely financial phenomenon.

PP: Your interpretation of the present crisis is a little different, right? Could you explain it briefly please?

TP: Yes, my interpretation is different – very different. I call it the destruction of shared prosperity hypothesis. This view is not represented in mainstream economic discussions because it challenges the fundamental theoretical foundations of mainstream economics which are shared by both hardcore Chicago School (freshwater) and softcore MIT School (saltwater) neoliberal economics.

My argument is that around 1980 the U.S. adopted a fundamentally flawed economic paradigm. From 1945 through to the mid-1970s the U.S. economy was characterized by a "virtuous circle" Keynesian growth model built on full employment and wage growth tied to productivity growth. The political triumph of Ronald Reagan enshrined a new economic paradigm that abandoned full employment and severed the link between wages and productivity growth.

The new paradigm was fundamentally flawed.

• One flaw was that it relied on debt and asset price inflation to fuel growth instead of wages.
• A second flaw was the model of globalization which created an economic gash in the form of leakage of spending on imports (the trade deficit), leakage of investment spending offshore, and leakage of manufacturing jobs offshore. These twin flaws created a growing demand gap.

That is where finance enters the picture as its role was to fill the demand gap. Financial deregulation, regulatory forbearance, financial innovation, financial mania, and plain vanilla financial fraud kept the economy going by making ever more credit available, However, as the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed ever larger speculative bubbles to grow. The house price bubble was simply the last and biggest bubble and was effectively the only way around the stagnation that would otherwise have developed in 2001.

The house price bubble delayed the onset of stagnation but at a cost. When it burst it created a financial crisis because of the scale of financial excess. Moreover, it also makes it harder to escape stagnation now because of the scale of debt burdens and the extent of destruction of credit-worthiness.

PP: Your interpretation seems to make a lot more sense than the competing theories, which appear to me reductionist. Why do you think that your colleagues – especially your left-leaning colleagues – are missing the bigger picture?

TP: Thanks, Philip. That is a very good and difficult question. It is key to understanding why the crisis has so far generated little change in economics and economic policy.

There are many mainstream (orthodox) economists who have progressive values but they miss the big picture because their theory cannot accommodate it. Moreover, they can't abandon their theory for a host of psychological and sociological reasons. At the psychological level it would involve a devastating admission that they have been wrong; that they've been teaching their students a lot of nonsense for thirty years. At the sociological level it would mean giving up the trappings of power and pay that go with their current intellectual monopoly because the paymasters of the system would quickly replace them with others.

That said, many mainstream economists are starting to admit income distribution has played a role in fermenting the crisis (you have to be willfully blind not too see it). Consequently, they are busy trying to incorporate income distribution into their narrative. However, they do so in a way that leaves their core theory about markets and market efficiency unchanged. Unfortunately, journalists and the general public cannot see this and are taken in by this tactic. One of the contributions of the book is it unmasks these obfuscations by showing how these stories don't stack up and are inconsistent with the evidence.

Finally, this discussion shows why it is very important the general public be capable of distinguishing between "values" and "analysis". If not, people risk being fooled by the rhetoric of progressive values that provides cover for policies that are actually conservative.

PP: In the book you provide a very clear description of what actually occurred in the financial market in 2008. Reading it I thought that a lot of people – myself included – have never really put the pieces together in their own minds. Maybe you could summarise the key events briefly?

TP: The mechanics of the crisis within the U.S. financial system are actually quite simple and can be understood as a six step process.

1. Step one was the build-up of toxic loans over several years.
2. Step two was when loans eventually started turning sour with the bursting of the house price bubble in 2007, causing loan losses.
3. Step three was the destruction of bank equity caused by mounting loan losses. This process began in the so-called "shadow banking system" and then moved into the Wall Street investment banks and the established commercial banking sector.
4. Step four was the resulting threat of bank defaults triggered by equity destruction.
5. Step five was the rush to cash spurred by the threat of default. That caused a liquidation trap as agents tried to sell financial assets to raise cash, which deepened the extent of asset price declines and caused further equity losses.
6. Step six was the run in the commercial paper market immediately after the collapse of Lehman brothers (September 2008) whereby banks and financial institutions became unwilling to lend to each other. That put every bank (including Goldman Sachs) on the verge of default, prompting the Federal Reserve to step in and de facto take over the commercial paper market by acting as lender of last resort.

PP: In the book you mention the commodities bubble that blew up in the 2008 financial crisis a number of times. Many commodities – oil included – are nearly back at their 2008 levels. Do you think that this could be due to speculation? If so, why on earth are the US government allowing this?

TP: I firmly believe speculation is a significant part of the run up in commodity prices, particularly oil. Over the last decade there has been tremendous change in the character of commodity market participants. In the past, the market consisted of producers, end-users, and traders intermediating between these groups. Now, the market has been invaded by financial investors in the form of pension funds, endowment managers, hedge funds acting on behalf of high net worth individuals, investment bank entities trading on their own account, and exchange traded funds (ETFs) for ordinary punters who want to speculate on commodities. This transformation represents the 'financialization' of commodity markets and it has resulted in a tsunami of money chasing commodities as a speculative investment vehicle. After causing a bubble and a bust in 2008, it has again pushed up oil prices.

The fingerprints of speculation are all over the oil market: large one day price spikes and plunges that cannot possibly be explained by changes in economic fundamentals; high prices in the face of large and growing inventories; storage in unconventional forms like idle super-tankers; and investment banks like Goldman Sachs purchasing oil storage capacity in places like Cushing, Oklahoma.

Why have the Federal Government and Congress done little about this? Two reasons.

• First, Wall Street, the banks, and oil companies are big beneficiaries from these developments and they (as everyone knows) are some of the most powerful vested political interests. Money talks in politics and they have the money.
• Second, economists have been disastrous on this issue, continuously denying the role of speculation. The depth of this denial is evidenced by the fact that even the often critical and insightful Paul Krugman has consistently denied the role of speculation. This provides yet another example of the role of bad economic ideas in the destruction of shared prosperity.

PP: Many economists and politicians seek to blame the Fed for the housing bubble and the financial crisis. In your book you say that this is misleading. Why do you think this?

TP: In my view the Fed is both to blame and not to blame for the crisis.

The Fed is to blame because it strongly supported the over-arching neoliberal economic program that is the ultimate cause of the crisis. Its support for the neoliberal program is most evident in its support for financial deregulation, support for self-regulation, and opposition to regulation of financial innovations such as derivatives. Had the Fed not held these beliefs and done its job properly, the excesses of the sub-prime market and the house price bubble would likely have been significantly prevented. Alan Greenspan was the booster-in-chief but almost every member of the board of governors and the roster of economists working in the Fed deserve blame. They all sung from the same song book and were deaf to other music saying inflation targeting was not enough and needed to be accompanied by tough oversight and balance sheet regulation.

However, the Fed is not to blame for pushing interest rates too low and holding them there too long, which is the charge levelled by neoliberal economists like John Taylor of Stanford University. After the recession of 2001 the economy was stuck in jobless recovery and showed signs of falling back into recession. This was despite significant stimulus provided via the Bush tax cuts and Iraq war. From the point of view of escaping stagnation, the Fed did the right thing.

Unfortunately, most of the public discussion has focused on the Fed's interest rate policy after the 2001 recession. It should be focused on the neoliberal economic thinking that still permeates the Fed. Though there has been some change in attitude toward regulation, the Fed's fundamental thinking about the economy remains unchanged. This failure to go after deep failures of understanding is part of the mechanism that protects the policy establishment, and it explains why the people in charge of the Fed (and other central banks like the Bank of England and European Central Bank) are the same people who failed so disastrously before the crisis.

PP: Regarding the economic thinking about the broader causes of the crisis you are particularly critical of the 'savings glut hypothesis' that has become popular, especially with the Federal Reserve Chairman Ben Bernanke. My impression from the book is that you see this as ad hoc economic thinking that seeks to avoid the real issues. Would I be right in saying that and could you briefly outline what is wrong with the savings glut hypothesis – which, in my reading, is as pervasive on the left as it is on the right?

TP: In my view the savings glut hypothesis is nonsense economics. Looking at it from the big picture, you see it is just another in a series of explanations of the US trade deficit by mainstream economists. My book shows clearly how these explanations evolve to fit the political moment rather than to explain the phenomenon. And the enduring common feature of all these explanations is they avoid blaming globalization as the cause of the problem or having any downside.

That is absolutely staggering. Mainstream economists blind themselves to the most obvious explanation, and that is a pattern that repeats over and over again in other areas of economics. And because the explanation is so obvious and simple you can never write about it in journals which are fixated on complexity. The story about the emperor's new clothes really does apply for much of modern economics.

With regard to the saving glut hypothesis, it ignores the fact that the US trade deficit has been rising for 30 years, long before China emerged on the scene. And there is much other evidence and argument against it – but that is in the book.

PP: The book ends on a slightly pessimistic note. It appears that, given the entrenched dominant policy paradigm governments are likely not to begin the process of economic rebalancing. Do you see any light at the end of the tunnel? Are there any social or political forces you think might move the policy debate forward, both in the US and worldwide?

TP: You are right. I am pessimistic which is why the book predicts stagnation. And by the way that prediction was made in 2010 when the book was written, so it has already been proven right. I had great difficulty finding a publisher because 2010 was the time of "green shoots" and "V-shaped" recovery and there was widespread denial about the systemic nature of the crisis. Princeton University Press who published my prior book turned it down.

I am guided by Gramsci's aphorism regarding pessimism of the intellect and optimism of the will. My intellect tells me that as of now there is no significant political force for progressive change that moves the political and policy debate in the direction I would like to see it go. At best, we are muddling through in a way that contains the economic crisis at its current level. Moreover, if anything, the risks are to the downside from contraction in Europe, risks of trouble in China, slowing growth in emerging market economies, and the prospect of fiscal drag in the US.

In many ways the economic die have been cast. We are now moving into the stage where political risk starts to assume a bigger role. I begin my book with some comparisons with the 1930s and I believe those comparisons remain valid. Mark Twain talked of history rhyming rather than repeating, and today's rhyme is clearly with the 1930s.

That said I am an optimist of the will. Why else write a book that contains a map for change of economics, politics and economic policy. One has to be an optimist if one believes in constitutional democracy, and I do.

Thomas Palley is has served as the chief economist for the US – China Economic and Security Review Commission. He is currently Schwartz Economic Growth Fellow at the New America Foundation. His latest book From Financial Crisis to Stagnation is available at a 20% discount here [Select country location (top right hand corner) & enter code "palley2012" at checkout]

Interview conducted by Philip Pilkington

DiSc :

Amen to that. I am also of the opinion that the problem is a departure from post-war equality-enhancing policies. Wage moderation, tax breaks for the wealthy and union-busting does not work.

No quantitative easing, LTRO, or austerity measure will get us out of the crisis, and no stimulus spending for that matter. We need to go back to strong unions, welfare programs, and progressive taxation, and we need to tackle tax evasion and fiscal paradises.

I believe in German-style social-democracy, or at least what it used to be in the '70s, but even in "socialist" Europe there is no believable political party or trade union that advocates anything remotely resembling that.

Middle Seaman

Even if we assume that Palley offers a new model for understanding the current financial system, the real question is whether he offers different solutions to the financial crisis than are offered by previous models. From this interview, haven't read the book, Palley's model doesn't offer solutions we haven't discussed in public before.

Many of us support less debt, especially when we borrow from the non-rich and give the borrowed money to the rich. Many of us believe that wage stagnation and retreat and massive unemployment, a form of wage retreat, cause huge moral, societal and finance damage. All that was true even in FDRs days when he wanted to propose the 2nd bill of rights.

A model is worthy if it sheds light on unseen before elements. Palley's model doesn't do it although his intentions are excellent.

fresno dan

April 18, 2012 at 5:31 am

"Many of us support less debt, especially when we borrow from the non-rich and give the borrowed money to the rich"

I have never seen it said better.

jake chase:

Nice to know there are two economists (Steve Keen being the other) who may understand what is really going on in the economy. I am not certain economics has any relevance except as it contributes to propaganda on behalf of elite interests. I suppose this guy will be drummed out of the Flat Earth Econmic Society. Hope he has a guaranteed income (or is tenure the same thing?)

Dan B:

"My intellect tells me that as of now there is no significant political force for progressive change… At best, we are muddling through in a way that contains the economic crisis at its current level. Moreover, if anything, the risks are to the downside from contraction in Europe, risks of trouble in China, slowing growth in emerging market economies, and the prospect of fiscal drag in the US."

A thoughtful interview. However, we'll suffer as long as we think restarting real growth is the answer. Energy, water, climate, etc., are now imposing limits to growth. Future generations will ask how we could not make the connection -it's much like Simmelweiss being ridiculed and ostracized for proposing to his fellow MDs in Vienna that they should wash their hands between contacts with patients.

Ramanan:

"There are many mainstream (orthodox) economists who have progressive values but they miss the big picture because their theory cannot accommodate it. Moreover, they can't abandon their theory for a host of psychological and sociological reasons. At the psychological level it would involve a devastating admission that they have been wrong; that they've been teaching their students a lot of nonsense for thirty years. At the sociological level it would mean giving up the trappings of power and pay that go with their current intellectual monopoly because the paymasters of the system would quickly replace them with others."

:-)

Susan the other:

"They (mainstream economists) all avoid blaming globalization" for the mess we are in. Instead they all talk about the imbalances caused by things like "savings gluts." Does Palley imply (or does he imply the opposite?) that if we all just spent all our money buying and selling that global growth would be maintained and money would saturate the world with prosperity like the ocean stream? Or is Palley saying we are willfully simplistic and out of balance in the most fundamental way – we don't have any jobs – aka: we don't have an economy at all. That perhaps we should have been more self sufficient nationally? Or is he saying that 4 decades of "inflation" have so destroyed money as a means of exchange or investment it has become meaningless? And we are going to have to start over.

But never fear, soon the globalizers will commoditize unemployment and trade it just a photon faster than the speed of light. Thereby turning back time.

JurisV :

Another superb interview Mr Pilkington!

Palley's explanations are very clear, helped my growing understanding - and I share his pessimism about our times rhyming with the 1930′s. I also was impressed with how much his views rhymed with, what I felt was pretty much a majority sentiments in the recent INET conference:

1. The current economic models are "Science Fiction" - Dirk Bezemer. They don't now, but must include "money", banking, and capital flows across borders to be even minimally useful.

2. Any new Paradigm has to focus on "reducing injustice –Prof Amartya Sen . He also said to make the distinction between "justice and injustice." He said "reducing injustice" would be a more appropriate focus.

3. GDP (and its growth) should not be the economic focus; rather it must be focused at the root on human beings. So focus on improvement in "human welfare." - Joseph Stiglitz

4. One of the results on the financial crisis has been to produce a growing "Democracy Deficit." - many speakers and discussants mentioned this.

5. ETHICS…… The moderator in the Amartya Sen session had a good discussion in responding to several questions on ethics. He said (and I'm paraphrasing) "New Economic Thinking" needs to, in part, go back to the ideas of the "Old Thinkers" -- He mentioned David Hume and Adam Smith who he said had much to say about ethics and its importance.

6. Understanding the historical record in Economic thought and theory was brought up time after time. The years after the rhyming 30′s saw an understanding of Economics with Fisher, Keynes, Shumpeter, Minsky that spoke to ethics, morality, justice in Economic Theory - and ultimately to the welfare of the human inhabitants of THE MARKET !

A positive note: The moderator of the session in which Dirk Bezemer presented, in his summary said that this INET conference (the third one) had ideas and conversations that were radical compared to the one just two years ago in Cambridge. The current crisis is forcing the economics community to question the established Pillars and re-evaluate fundamental assumptions.

A pessimistic note: POWER… The financial community and their political supporters have amassed an incredible amount of Power in the last decades along with wealth. They are not going to easily relinquish that power. Andrew Haldane said that the burgeoning "revolution" in economic thinking has to keep coming up with facts supporting a new narrative so that those in politics can use those as "weapons". I think Haldane was being overly optimistic. Things are going to get a lot worse for the middle class before we see any hints of the necessary "pitchforks and torches" argument.

JurisV says:

oops… I forgot to list the mention of regulation, regulation, regulation that was also said to be imperative in any system that has even a hint of being effective.

And having just now read Fred's comment above - I have to say that my pessimism is overwhelming. If we closely look at the historical record - it's excruciatingly difficult to be very optimistic of achieving rational progress over any extended period. And not just in economics.

Chris Wroth :

Thank you for a terrific interview. May I offer Mr. Palley an optimistic ray of hope? If someone (?!!) is able to convince Ireland to offer Mosler bonds, the subsequent success of that issue could push MMT to the front of the conversation. After all, look what happened after Iceland started listening to Michael Hudson. There is always hope.

Paul Tioxon:

The change from the New Deal to the rotten deal for the middle class, is still not quite apparent from this interview, but then, I'd have to read the whole book. But let me say this based on what Philip has teased out of the author. I believe I understand and agree with the big concept you are trying to articulate. From the virtuous cycle of mass production, mass consumption, America liberated a massive middle class. It was the wages of the big businesses that gave the middle class the new moniker, consumer, which drove more businesses and more prosperity into more corners of American society than ever before. Low Unemployment and wage growth equaled more consumption of finished goods keeping factories humming, tractor trailers rolling, and shopping center parking lots jammed. But it took wages, rising income on the part of the massive middle class to do all of this.

As capital escaped first to Europe via the Marshall Plan and then to Japan, slowly what was made and sold in America became first made somewhere else and secondly, the profits were harbored somewhere else. The increasing incomes based on increasing productivity leaked elsewhere. The differential in wages of course had not escaped the capitalist, who pocketed the difference and kept it offshore. The trade imbalance grew, without Chinese or Korean savings glut, it grew with American capital's glut. So, the wages stagnated and then given the death by a thousand cuts. Cuts in benefits, cuts in pensions, cuts in public services that were once nominal in cost, now unaffordable. Such as quality public education, low or free college tuition.

And all of this has to be justified. The economics profession is little more than pseudo-scientific justification for political domination by those who use money and its debt as social control. Even among the other 2 pillars of social science, sociology and political science, simple analysis of how to win elections has replaced serious research into policy alternatives. That, and menial counting of misery without any political access to reduce the suffering recounted in a thousand studies of unemployed, the poor and criminals the new names of the citizens formerly known as consumers, voters, and labor.

[Apr 19, 2012] krugman-insane-in-spain.html

Citizen AllenM:

fried wrote:

AllenM,
could you expand on this. I know it is a favorite of yours, and I assume you mean destruction of assets...or acknowledging the dead loans that clutter TBTF bank balance sheets. Am I rite?

I am talking about a surplus of capital that matches (or exceeds- and I am betting on exceeds) the surplus of labor reflected in the unemployment rate.

That surplus (to go real old school economics) is reflected in the paltry low risk returns, and even moderate high risk returns. Further, when you look at in terms of Miller Modigliani life cycle analysis, you find the savings rate of the under 60 crowd is insufficient to purchase the assets of the retired folks, causing the eventual valuation of those assets in real terms to decline. In other words, as we print money, because we don't stimulate enough to get nominal wages to rise, let alone real wages, we find that domestic savings is insufficient to maintain asset valuations as they are transferred between generations. Right now, thanks to the Euro panic, we have healthy capital inflows disguising this imbalance, but if we had to rely solely on domestic savings we would be in trouble.

In other words, while capital loves austerity, because they think everything will be cheaper and they will be richer, a modern fiat state has to vote against austerity because labor ultimately votes and will eventually rebel against capital over time.

This, of course, ignores a bunch more supporting analysis, but is the short form.

Someday this war's gonna end...

Comrade Alexei Mikhailovich:

Citizen AllenM wrote:

Further, when you look at in terms of Miller Modigliani life cycle analysis, you find the savings rate of the under 60 crowd is insufficient to purchase the assets of the retired folks

I thought that was the reason why we gave Chindia access to our markets? They'd buy whatever my generation couldn't.

REBear

gruntled wrote:

Ironic, isn't it?

In multiple ways. How can public policy that led to banks/government agencies easing credit not fiscal irresponsibility?

GDD9000:

gruntled wrote:

Ironic, isn't it? "Easy of credit" can be the cause and the cure at the same time.

Sure, if you have an unlimited CB balance sheet, and you want bigger and more spectacular busts one after another. Um, wait, yeh, that's pretty much what we're doing. Each crisis worst than the former, each response more aggressive, each result leaving us more divided, bifurcated and teeming with those left behind. I'm wondering how they think they can continue along this path without major league backlash eventually.

Citizen AllenM:

Comrade Alexei Mikhailovich wrote:

I thought that was the reason why we gave Chindia access to our markets? They'd buy whatever my generation couldn't.

Sure, but when they lower their savings rate, their capital uptake will preclude continued subsidization of our markets by capital reinvestment. That exorbitant privilege is going to take a hit too, and I sort of follow Eichengreen wrt the timing, because the Chinese are now committed to starting to develop their own consumer economy, which will require more wages (goods) paid in China, and profits to fall for especially local Chinese companies. The Central Committee is, I think, going to squeeze capital hard to appease labor over the next five years.

Many balls in the air, and it is guess to see which one falls first.

Rajesh:

burnside wrote:

'Germany' isn't driving austerity

The questions isn't simply austerity or no austerity. Certainly, government spending has to be curtailed. But a more traditional IMF-style austerity is cutting government spending while devaluing the currency. The cheaper currency is a source of growth that counteracts some of the bad effects of cutting spending.

But the German position is cutting spending and no devaluation, which as we have seen in Greece just leads to bigger deficit ratios because GDP falls faster the deficit.

There is also a fetish about reaching 3% deficit by 2013. This is an entirely arbitrary target, as slower glide path in cutting government spending would certainly be more productive. Spain is not Cinderella and its carriage doesn't turn into a pumpkin at midnight.

convexity:

Bingo. Agree 1000% Retirees have to sell their assets to fund retirement. Who will buy when the labor force is poorly paid and is a fraction the size of the retired population; especially at the retiree wishing prices?

Repeat: Retirees have to sell their assets to fund retirement.

Rajesh

Mr Slippery wrote:

What will be trigger for the vassal states to lose faith in the the political ability of the US to solve its problems?

Sanity in economic policy abroad? That seems like a very unlikely development at this time.

convexity:

Jefferies Describes The Endgame: Europe Is Finished | ZeroHedge

from 2011:

• shows EU banks avg leverage 69:1 versus US banks 22:1 now
• French bank assets 4X French GDP
• Fiscal irresponsibility

Rajesh:

burnside wrote:

Is it an ideological campaign?

Neo-mercantilism: the belief that nations can become wealthy by using non-tariff trade barriers to accumulate reserve assets (sovereign bonds)

an update of

Mercantilism: the belief that nations can become wealthy by using tariff trade barriers to accumulate reserve assets (gold)

Rajesh:

yuan wrote:

it will not have the benefit of a relatively democratic political system.

But it does have the benefit of a well equipped army that has shown a willingness to kill civilians

yuan:

Rajesh wrote:

But it does have the benefit of a well equipped army that has shown a willingness to kill civilians.

This is bullish...right?

Citizen AllenM:

LL, the answer to that is do you feel lucky? If you feel lucky and have no cancer or other bad luck get you before 78- waiting is absolutely the best course until full retirement, and waiting until 70 pays even better. On the other hand, no money, no job, no nothing and 62- early it is.

That is not to say there are not some more exotic options available re spousal benefits, but most are in the simple boat.

SSI is totally exotic to most folks, and well, paying for it is going to be a bit of a strain after the fake bonds are sold, but hey, Greenspan promised that it would continue, he just told everyone I have no idea how much it will buy, and my guess is it will buy groceries.

That is it -- buy groceries and pay your cell phone bill, and maybe the internet.

Now, greyboomers, plan on that!

Convexity gets it, and now a few more do too -- bring on the euthanasia of the rentier!

The working class has been in the pot for quite a while, time for some company!

And anyone who whines about the deficit can soon enjoy higher taxes to save the dollar, now do you feel better?

Someday this war's gonna end...

robj :

convexity wrote:

"Achilles Macris, hired in 2006 as the CIO's top executive in London, led an expansion into corporate and mortgage-debt investments with a mandate to generate profits for the New York- based bank, three of the former employees said. Dimon, 56, closely supervised the shift from the CIO's previous focus on protecting JPMorgan from risks inherent in its banking business, such as interest-rate and currency movements, they said."

Risk on...no need for risk management as Fed will cover all losses.

There is much talk about the "London Whale" in JPMC's London trading group, who is taking huge derivative positions against the hedgies. Purportedly.

Citizen AllenM:

Interesting, I have a very interesting take on this one. I think Jamie D is using those big swinging bets taken at the bottom in 2008 to spin out profits to smooth his earnings. It sort of reminds me of Rigged Online or the GE model. Having huge unrealized profits allows them to write huge insurance against it to spin out even more cash while leaving the original positions unbooked.

In other words, he is using those big unrealized profits to pad his executive compensation through increasing profits, and he will retire and be gone just before they run out, and JPM Chase reverts to a pumpkin of a big bank.

Smaaarrrrrttttt, I like it. So, buy until Jamie D gets out, then sell it down.

Nobody says he is a fool.

Someday this war's gonna end...

convexity:

JPMorgan Chase Knew MF Global All Too Well - Bank Think Article - American Banker

"JPM could have been also feeling a bit skittish about being a beneficiary of inappropriate commingling. Its own broker/dealer recently committed the sin of not segregating customer funds in the U.K.

JPM and its auditor PricewaterhouseCoopers – also MF Global's auditor – recently admitted to UK regulators that for at least seven years, about $23 billion of JPM clients' assets had been inappropriately commingled. JPM was fined 33.3 million pounds."

convexity :

A list of all bank executives noted in the article:

Diane Genova, deputy general counsel for JPM's investment bank

"Genova told lawmakers she asked MF Global General Counsel Laurie Ferber and Deputy Counsel and Chief Compliance Officer Dennis Klejna to put in writing that funds transferred from customer segregated accounts to cover the shortfall did not belong to customers. Genova testified that Ferber and Klejna verbally assured her that the transfers complied with the rules regarding protection of customer funds, but that JPM never received a signed letter."

Plausible deniability!

"JPM had a history with Dennis Klejna. He was the head of compliance at Refco when that firm failed. "

"Klejna was not criminally charged over his involvement in the Refco fraud, but he did sign a consent order with the Department of Justice and paid $1.25 million in disgorgement of his IPO gains. Then he went to work in the same job for MF Global."

Time to stop talking generically and point out names of individuals involved...

some investor guy:

CalculatedRisk wrote:

there is no **current **private market for peripheral debt

I'm going to step into the middle of this debate. You can find that you don't have a private market for new debt for a number of reasons, including:

1. The interest rates are too low. This is one of the big reasons you don't have much private MBS in the US now.

2. Position limits. Most of the people who would normally buy the debt already have as much as they want. It's not that they dislike it. The people who really really really should have position limits in the EU don't. Banks should have limits on the amount of sovereign debt they own, on a per country basis. Local banks buying lots of the debt of their home country makes things worse when you have a problem.

3. There is a huge perceived default risk. If the interest rates are high enough, you would expect to get investors. Ultimately, you do. However, much like foreclosures competing with new construction, the people who bought Spanish debt when it was more highly rated often are letting it mature and not buying more. Some others are dumping it below par. The type of people who invest in AAA sovereigns are not usually the same ones who do distressed debt. It takes time for them to adjust.

4. Headline risk. This is the complimentary problem to the BS statement "nobody could have known" about what would happen with the housing bubble. People who are full of crap don't want to know. People who are idiots really don't know. The people who do know are ignored, and later, the other groups will pretend they never existed. For Headline Risk, because problems or alleged problems are quite well known, it is supposed to be a very risky bet to buy such bonds, and a dumb one. The smart people might have a very different opinion. They might see that certain maturities or issuers have far less risk (some governments issue with several different ultimate forms of obligations or obligors). I got the downpayment for my house by betting against scared stupid bond investors in 2008/09. Somebody else might be doing this on Spain.

5. A perception that it's not a normal market, and you don't just have the usual risks. A perception that people will mess with the rules. That makes a lot of typical analysis hard or impossible. After Greece, lenders and bondholders are quite justified in wondering whether they will get an especially good or bad deal for political reasons.

[Apr 15, 2012] Percent Job Losses- Great Recession and Great Depression

merchants of fear:

The nonchalant and maybe aloof response about the wreckage of a decade of securitization blowing up this bubble might indicate it will happen again or is happening again as the public isn't tuned in and the folks at HCN (small sample) who are tuned in seem to think it's nothing to worry about now... as this process continues moving into new lending areas...

Arthur_500 :

There is circumstancial evidence that the austerity measures of 1937 coincided with a stalemate in the recovery but there is little to suggest a cause and effect relationship. A great deal of other things were taking place at this time, not the least of which was the United States had the majority of the Gold and the Gold Standard had failed. In addition, there were great problems in Europe which resulted in reduced exports and great fear for businesses regarding future prospects overseas.

Employment is a factor of production. As equipment continues to replace repetitive work it becomes an economy to develop new ideas and technologies. We can have zero unemployment tomorrow if we go back to the labor proactices of the 1950's. Few would want that, especially those who use computers.

Inflate Away

Fiscal "austerity" in the 1930's, as evidenced by federal budgetary outlays:

1934: $6.5b
1935: $6.4b
1936: $8.2b
1937: $7.6b
1938: $6.8b
1939: $9.1b

Federal Budget Receipts and Outlays

So, a decrease of $600 million in federal government outlays in 1937 was enough to cause a second depression? Hmmm. As you can see, the $6.8b in 1938 was still $400m more than in 1935.

Counterpointer:

Good article. Second to last para could do with filling out a bit further.

Q: what did the Spanish banks do with the LTRO money?
A: bought Spanish sovereign bonds, because apparently the problems were all going away.

So, if you bought the Spanish short end at 2.5% yield in the February LTRO, it's now at 3.5% give or take a tick, and going higher.

That's not going to be pleasant or sustainable even over the next quarter. A bit like dumb French banks buying up Greek debt for reasons of solidarity with the country, Sarko, various regional hallucinations of state power etc. Ooh, turns out yields go up too, even after the most ardent proclamations from political leaders.

These banks are not too big to fail. But they're certainly too stupid to exist.
C

[Apr 14, 2012] Fed Access for All -- The Big Picture

"National and global "wealth" would appear to be the most extensive criminal fraud ever perpetuated - the perpetuation being advanced by the byzantine structure and elaborate but completely false economic theories which keep the common person from understanding just how political the entire system is, at its heart. Central banking makes organized religion look positively honest by comparison. "

Petey Wheatstraw Says:

April 14th, 2012 at 10:43 am KidDynamite:

Something is absolutely foul in this picture. Being that he banks are/were arguably insolvent prior to the Fed's foray into QE, one has to ask where all of the excess reserves on the Fed's balance sheet came from, if not the Fed itself?

The commonly held and promoted (but, I believe, false) belief that private capital is the only capital, and that the Fed is merely the conduit to a money supply based on said capital, begs the question: exactly where did that capital originate? What private store of capital was used to replenish the banks after their ruinous credit-fest?

National and global "wealth" would appear to be the most extensive criminal fraud ever perpetuated - the perpetuation being advanced by the byzantine structure and elaborate but completely false economic theories which keep the common person from understanding just how political the entire system is, at its heart. Central banking makes organized religion look positively honest by comparison.

I believe we are currently in the Mother of All Bubbles - a bubble that encompasses everything financial: banking, stocks, bonds, currencies, wages, prices, and commodities. The whole shooting match. When it bursts, it will burst politically. The shockwave alone will make heads explode.

I see lots of complacency, even here at TBP. Not a good sign.

James Cameron:

I believe we are currently in the Mother of All Bubbles - a bubble that encompasses everything financial: banking, stocks, bonds, currencies, wages, prices, and commodities. The whole shooting match. When it bursts, it will burst politically. The shockwave alone will make heads explode.

-

Jesus, this is how I start out my Saturday morning. :)

[Apr 11, 2012] "Average Investors May Finally Be Lured Back Into Stocks" By John Melloy

Mar 23, 2012 | CNBC

Bullish sentiment among the most active clients of Charles Schwab hit its highest level since the current bull market began, according to a recent survey by the firm.

The jump in optimism from this group may signal the less active crowd will soon follow, propelling the rally to a fourth year, market analysts said.

Fifty-one percent of individual investors who trade frequently are now bullish, according to the Charles Schwab Active Trader Sentiment Survey, the highest level since they began surveying these clients in April 2008.

John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.

[Apr 11, 2012] Market's Long-Awaited Correction at Hand by Mark Hulbert

Commentary: There is too much bullishness and complacency

March 23, 2012 | Marketwatch.com

The stock market's long-awaited correction appears to have begun.

I say this because the market's successful assault on Dow 13,000 brought a number of eager bulls out of the woodwork - so much so, in fact, that even though the Dow Jones Industrial Average has now fallen back to just above that 13,000 level, there is a lot more bullish sentiment than existed just two weeks ago.

That's worrisome from a contrarian point of view.

Consider the average recommended stock market among a subset of short-term stock market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). After the Dow's initial failure in late February and early March to burst through the 13,000 level, this average dropped by March 9 to as low as 17.6% - which meant that the average market timer was keeping more than 80% of his equity portfolio out of the market.

Today, even though the Dow is less than 1% higher than where it stood then, the HSNSI stands at 42.1%. So a tiny net increase in the market has led the average market timer to increase his or her equity exposure by 25 percentage points.

That's not reminiscent of the veritable Wall of Worry that bull markets like to climb.

[Apr 10, 2012] Charles Biderman and Chris Martenson The Problem With Rigged Markets

This stock market rally is by-and-large a Ponzy scheme fueled by HFT and Fed's money...

March 31, 2012 | Jesse's Café Américain

Here is a fascinating Chris Martenson interview with Charles Biderman.

This interview highlights the Ponzi-like, artificial nature of the current stock market rally.

It reminds me very much of the 2003-2007 bull market that ended in tears. I have included a chart of what I called at the time 'The Great Reflation' at the end.

Charles Biderman: The Problem with Rigged Markets
Friday, March 30, 2012

"Even Wile E. Coyote had to come back down to earth sooner or later", says Charles Biderman, founder of TrimTabs Investment Research. In his opinion, the prices of stocks and bonds - enabled by excessive financialization of our economy and central bank money printing - have been defying gravity for a dangerously long time.

If we continue to do all we can to preserve the status quo -- to maintain "phony" asset price levels as Charles calls them -- at best we will restrict overall growth and handicap the economy.

The problem isn't so much the unfairness and malinvestment evident in a rigged market. As Charles shrewdly asks: what happens when the market becomes un-rigged?

We've never experienced the unwinding of an entirely manipulated financial system, so we can't predict for sure. But at this point, a painful collapse of our markets and loss of the US dollar as the world's reserve currency seem entirely plausible...

Read the rest here.

[Apr 06, 2012] Fed Watch Labor Market Softens in March

"This bodes poorly for the sustainability of the recent upward trend in equities." This is a liquidity driven market with very weak fundamentals. Which makes summer correction more probable.

Economist's View

As far as other views, a couple caught my eye this morning. The first was from spencer at Angry Bear:

The index of hours worked has been raising a red flag about the numerous other signs of stronger employment and an acceleration of economic growth. They are not showing the recent improvement that other employment data have been reporting Recently, unit labor cost has been rising faster than prices, implying margin pressure and very weak profits. To sustain profits growth, firms have to reestablish stronger productivity growth. The weakness in March employment is a strong indicator that business is trying to rebuild productivity growth and profits growth.

This bodes poorly for the sustainability of the recent upward trend in equities. Another issue is what does this mean for monetary policy? I think Ryan Avent (via Brad DeLong as the Economist server appears to be down at the moment) captures the general spirit:

This report will be widely analysed within the context of this year's political elections, despite the fact that the single most important influence on employment growth now and over the next four years will be the stance of monetary policy. As this report is consistent with recent Federal Reserve forecasts, indicating that the Federal Open Market Committee is satisfied with present employment trends, policy is unlikely to change in reaction to anything released today

The data is sufficiently disappointing as to not alter the view of the doves, and notably Federal Reserve Chairman Ben Bernanke, that there is no need to tighten policy in the near future, leaving the 2014 timing intact. Thinking about the trends as noted above, there is no reason on the basis of this report to believe that a significant deterioration in the outlook has or is about to occur, and thus no reason to expect this will nudge the FOMC toward another round of QE. This I find unfortunate because, as I noted earlier, the longer the Fed continues to operate policy along the post-recession growth trend the more likely it is that this will indeed become the new trend for potential output.

Burk

This also makes the case that resuming fiscal stimulus should certainly be on the table, to anyone with eyes to see.

Edward Lambert:

There is so much more that has to be balanced in the economy beyond fiscal stimulus which by itself is not likely... (taxes, wages, unions, non-competitive markets, lack of public goods, economic inequalities...) The economy is sick and won't get back to 100% healthy on a sustainable basis if these imbalances continue, even with a sizable fiscal stimulus. It's all a matter of getting marginal social benefits to equal marginal social costs and we are so far from doing that.

anne:

This bodes poorly for the sustainability of the recent upward trend in equities.

-- Tim Duy

[I have no possible idea where stock prices are going, but from an historical perspective stocks are not inexpensive:

http://www.multpl.com/

January, 2012

Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2012

(Standard and Poors Composite Stock Index)

April 5 PE Ratio ( 23.31)
February PE Ratio ( 21.64)

Annual Mean ( 16.42)
Annual Median ( 15.82)

-- Robert Shiller]

anne:

http://www.multpl.com/s-p-500-dividend-yield/

January, 2012

Dividend Yield, 1881-2012

(Standard and Poors Composite Stock Index)

April 5 Dividend Yield ( 1.96)
March Dividend Yield ( 2.02) *

Annual Mean ( 4.33)
Annual Median ( 4.27)

* Vanguard yield after costs

-- Robert Shiller

[Apr 06, 2012] Jobs Report Shows Weakness. Will Policymakers Respond

Economist's View

comma1:

Who can replace Bernanke? Are there less rentier focused people out there that could replace Bernanke? Charles Evans. Anyone else? Is there anybody who noticed this crisis building?

Darryl FKA Ron:

"Who can replace Bernanke?"

Do you really think it would matter? Can one lone gun do what our elected government will not? Yes, blame the Fed, because they do not have to be elected by the people. How far can you push on a string?

"Is there anybody who noticed this crisis building?" Lots of people saw it coming. Certainly the betting mob over at Goldman Sachs that was hanging on to credit default swaps waiting since 2005 saw it coming. The Fed chair that retired early in 2006 probably saw it coming. The new younger Fed chair that had written his doctoral thesis on the Great Depression probably saw it coming. Dean Baker saw it coming. Mike Stathis saw it coming. Hell, I even saw it coming loosely as return to recession by 2004 and then by 2006 as a major financial system collapse and prolonged recession.

What could anyone have done during the Bush administration (or probably any other in the last forty years or more) to rein in Wall Street investment banks from there CDO/MBS and derivative bets feeding frenzy while so much money was exchanging hands. That would have take credibility and courage that did not exist because you can easily take measures in a crisis that are dozens of times more extreme than what you could politically survive undertaking against the flow of Wall Street financial rewards regardless of the risks considerations. The stop light cannot go up until the dead are counted.

comma1:

We each have a part to play, and Mr. Bernanke or his replacement has a bigger role than most.

To point at Congress and say they aren't acting so I won't act, is the same mentality that gave us CDS's and the housing bubble in the first place. It is herd mentality. Bernanke is afraid of the herd. Someone with the courage of their convictions may not be. Who would that person be?

Aaron:

Our national debt has increased from 10 to 16 trillion dollars between 2008 and 2012, and we have been very little positive to show for this massive debt increase. So far, infrastructure spending and not cutting social security has had a beneficial effect on the economy. The administration put money into the economy, and interest rates never rose to crowd out private investment, so it's been like free money up to now. However, we really don't seem to have gotten that much for the 6 trillion, and at some point interest rates will rise, and we'll have to pay the back what we owe. After you add all the negative impact on the economy when we go from receiving benefits to paying cost it may not seem worth the price.

Maybe the Democrats's plan is like one of those net present value problems where you look at the plan and decide if it's worth doing based on the timing of the cash flows, and the cost of capita. I doubt that anyone at the Whitehouse or the FED is doing this type of analysis. And I doubt they are evaluating competing plans to find the one with the highest return. I favor broad-based tax cuts, cuts, liberalizing regulation, and explicitly reversing economic policy such as preventing drilling and building pip lines where the policy lowers economic growth. However, I suspect that for ideological reasons the current administration will keep pushing marginal infrastructure projects and abusing the social security system to push some spending money to the middle class and minimize the payout to those controlling new job creations in the economy.

Observer:

" ... and at some point interest rates will rise, and we'll have to pay the back what we owe."

I don't see any evidence that anyone ever intends to pay it back. The most aggressive plans on offer just reduce the rate of debt increase.

The "Grand Bargain" discussed some months ago was typically characterized as reducing the deficit by $4 billion; it would have been more accurate to characterize it as increasing the debt by $6 trillion (rather than $10 trillion).

I looked for the Stein quote to check the wording, and found this Krugman from 2003:

"Academic economists often cite Stein's Law, a principle enunciated by the late Herbert Stein, chairman of the Council of Economic Advisers during the Nixon administration. The law comes with various wordings; my favorite is: ''Things that can't go on forever, don't.'' Believe it or not, that's a useful reminder.

For we're now led by men who think that macho posturing makes Stein's Law go away. On issues ranging from budgets to foreign policy, they insist that we can sustain the unsustainable. And when challenged to explain how, they engage in magical thinking.

The prime example I have hammered on in this column is, of course, the federal budget. Realistic budget projections say that current policies aren't remotely sustainable. For example, a month ago a joint report of the Committee for Economic Development (a business group), the bipartisan Concord Coalition and the Center on Budget and Policy Priorities concluded that under current policies, federal debt would rise by $5 trillion over the next decade. And then baby boomers will start collecting benefits, and our debt will really explode.Such explosive growth in debt can't go on forever, and it won't.

Yet our current leaders and their apologists insist that the problem will magically solve itself. Last year's deficit came in slightly below forecasts, and we've had one quarter of good economic growth -- see, we'll grow out of the deficit!

But we won't, and there will eventually be a day of reckoning. As Bill Gross of Pimco, the giant bond manager, says, ''Sooner, perhaps later, our Asian creditors will wake up and smell the coffee.'' (Yes, the federal budget and the value of the dollar now depend on huge purchases of Treasury bills by the governments of Japan and China.) When they do, he predicts ''higher import costs, a cutback in spending on cheap foreign goods, rising inflation, perhaps chaotic financial markets, a lower standard of living.''

Something to look forward to."

http://www.nytimes.com/2003/11/04/opinion/this-can-t-go-on.html

Charlie Baker

"...the inflation hawks on the Fed -- the people who see inflation ahead even though there are no signs at all of an impending inflation problems -- are standing in the way."

This is true, but there's plenty of blame to go around. Over 500k government jobs lost due to fake concerns about the deficit. Team Obama's failure to fully assess the impact of the downturn. Geithner's "save the banks first" policy. Fact-free discourse in our legislative branch. An untethered, fully indemnified financial system given free reign to resume looting.

So the short answer to the question "Will Policymakers Respond?" is "not really." They will give us word salad, of course, but words like deleveraging, disinflation, inequality, and lack of demand won't be on the plate.

For those who like pictures better, once again, from Calculated Risk, the scariest chart in the world:

http://1.bp.blogspot.com/-95b2uGl5Mi0/T37yVzzRHDI/AAAAAAAAMt0/Ge4w8MaPv5c/s1600/EmployRecAlignedMar2012

[Apr 04, 2012] SP 500 and NDX Futures Daily Charts - Desperately Seeking Buyers for the Bernanke Bubble

"I don't expect this to 'stick' especially in stocks. These moves have the appearance of perception management and the usual trading desk antics."... "Wall Street is desperate to hand this rally off to the retail buyers. Without volume it cannot continue without becoming increasingly unstable. "

April 03, 2012 | Jesse's Café Américain

SP 500 and NDX Futures Daily Charts - Desperately Seeking Buyers for the Bernanke Bubble

The FOMC minutes precipitated a drop in the markets.

Gold and some of the miners were hit hard, with silver, bonds and stocks down to a lesser extent. The US dollar rallied.

The rationale was that there would be no QE and that perhaps the FED would raise rates. Given the recent data from income tax receipts and wages this appears to be more a fantasy than a sound fiscal policy.

I don't expect this to 'stick' especially in stocks. These moves have the appearance of perception management and the usual trading desk antics.

The spokesmodels were rather eager to twist this into an endorsement by the Fed of 'the recovery' and did the segway to 'buy stocks.'

Bernanke and the Fed have given themselves over to the monied interests. They are no true regulators, and serve only themselves. But the same could be said of those who have taken the oaths of regulators, who sit idly by while the people are cheated and their savings are stolen.

Wall Street is desperate to hand this rally off to the retail buyers. Without volume it cannot continue without becoming increasingly unstable.

Reggie Middleton On Bank Fraud and Financial Ponzi Schemes

Financial analyst Reggie Middleton is interviewed on a range of topics by Max Keiser.

- Fed bought 61% of new Treasury debt issuance distorting markets
- Higher oil prices are due to monetization of the currency and not increased demand
- Higher education has all the characteristics of a debt bubble
- Big name investment banks are taking advantage of their clients in order to make short term financial goals
- JPM and other TBTF banks have forged partnerships with governments to public detriment
- Facebook IPO is good for Mark Zuckerberg but not for shareholders, Wall St. marketing

[Apr 03, 2012] The Daily Mash - Why I am leaving the Empire, by Darth Vader

TODAY is my last day at the Empire.

'I no longer have the pride, or the belief'

After almost 12 years, first as a summer intern, then in the Death Star and now in London, I believe I have worked here long enough to understand the trajectory of its culture, its people and its massive, genocidal space machines. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, throttling people with your mind continues to be sidelined in the way the firm operates and thinks about making people dead.

The Empire is one of the galaxy's largest and most important oppressive regimes and it is too integral to galactic murder to continue to act this way. The firm has veered so far from the place I joined right out of Yoda College that I can no longer in good conscience point menacingly and say that I identify with what it stands for.

For more than a decade I recruited and mentored candidates, some of whom were my secret children, through our gruelling interview process. In 2006 I managed the summer intern program in detecting strange disturbances in the Force for the 80 younglings who made the cut.

I knew it was time to leave when I realised I could no longer speak to these students inside their heads and tell them what a great place this was to work.

How did we get here? The Empire changed the way it thought about leadership. Leadership used to be about ideas, setting an example and killing your former mentor with a light sabre. Today, if you make enough money you will be promoted into a position of influence, even if you have a disturbing lack of faith.

What are three quick ways to become a leader? a) Execute on the firm's 'axes', which is Empire-speak for persuading your clients to invest in 'prime-quality' residential building plots on Alderaan that don't exist and have not existed since we blew it up. b) 'Hunt Elephants'. In English: get your clients - some of whom are sophisticated, and some of whom aren't - to tempt their friends to Cloud City and then betray them. c) Hand over rebel smugglers to an incredibly fat gangster.

When I was a first-year analyst I didn't know where the bathroom was, or how to tie my shoelaces telepathically. I was taught to be concerned with learning the ropes, finding out what a protocol droid was and putting my helmet on properly
so people could not see my badly damaged head.

My proudest moments in life - the pod race, being lured over to the Dark Side and winning a bronze medal for mind control ping-pong at the Midi-Chlorian Games - known as the Jedi Olympics - have all come through hard work, with no shortcuts.

The Empire today has become too much about shortcuts and not enough about remote strangulation. It just doesn't feel right to me anymore.

I hope this can be a wake-up call. Make killing people in terrifying and unstoppable ways the focal point of your business again. Without it you will not exist. Weed out the morally bankrupt people, no matter how much non-existent Alderaan real estate they sell. And get the culture right again, so people want to make millions of voices cry out in terror before being suddenly silenced

[Apr 02, 2012] Hey, Big Spender Paul Kasriel Safehaven.com

As 79 million of my fellow Baby Boomers retire over the next 20 years, federal spending related to Social Security and Medicare benefits will skyrocket. Let's see which Congressmen and Senators want to campaign on reducing the entitlements of the "entitled" generation. By the way, for an excellent article on current and future entitlement spending, see [ the U.S. economy is likely to avoid slipping back into a recession in the next 12 months as moderate strength in domestic demand offsets weaker foreign demand.

Although a recession is likely to be avoided, U.S. growth will not be sufficient to bring down the unemployment rate significantly, which, in the context of moderating inflation, could prompt another round of Federal Reserve asset purchases, i.e., quantitative easing (QE).

The Federal Reserve will keep the federal funds rate near zero and the ECB will continue to lower its policy interest rate. Central banks in developing economies will ease their policies aggressively.

Sluggish global economic growth and the sovereign-debt problems in the eurozone are likely to keep global investors¡¦ risk aversion at a relatively high level.

According to mainstream commentary, a tax cut and/or government spending increase is supposed to result in faster economic growth.

Thus, according to mainstream commentary, changes in the cyclically-adjusted federal deficit should be negatively correlated with changes in GDP.

That is, a tax cut and/or an increase in government spending resulting in a larger cyclically-adjusted federal deficit should be associated with faster GDP growth.

Almost 50 years of U.S. data show no significant relationship, i.e., a very low correlation coefficient, between changes in government deficits and changes in GDP.

[Apr 02, 2012] Another Weaker Than Expected Durable Goods Order Portends Weaker Than Expected GDP

Mish's Global Economic Trend Analysis

SkiCougarRe: globaleconomicanalysis.blogspo...

Yes, but things are getting better says CNBC on a daily basis.

When gas prices climb another 50 cents to dollar by memorial day, it's going to hit the US like a hammer that not even QE3 or Twist 2 can stop. I do think the next recession for the US starts before 2013. We'll see if the president can hold it off until he can get re-elected.

Relax, in the short term of Q1, inventory buildup will be good for GDP numbers. Bernanke pushes on a string long enough, people may stockpile even more inventory, or just enough for Republicans to keep the House and Obama to keep the White House. Everything ends nicely for everybody already in power.

It's just the rest of us that have to pay for it.

[Apr 02, 2012] Construction Spending declines in February

Firemane:

black dog wrote:

But while 'econometeorology' has been an interesting sidebar to jobs growth of the past several months, what we are really seeing is economists seeking to explain a significant one percentage point drop in the unemployment rate with more modest actual GDP growth ...

I can explain it, (not that anyone cares about my opinion).

"Normal" recession works like this:
1) Unemployed total climbs by about 2 million over a 9-18 month period while GDP goes negative for a couple of quarters.
2) GDP turns positive, and the 2 million unemployed get re-employed over roughly the same time frame they got laid off (9-18 months).
3) If GDP growth is "strong", then "recovery" (re-hiring the lost workers), turns into "expansion" - and unemployment rate can continue down.

What happened in 2007-present.

1. Unemployed total climbs by about 2.7 million over 18 months from March of '07 to Sept of '08 - (fairly normal recession).
2. At point where "normal" recession would end and "recovery" would begin, instead we had the financial shock of Sept '08.
3. The response to the financial shock was from Sept '08 to Oct '09, total unemployed climbed by an ADDITIONAL 6 million.
4. Since late '09, we have had a "recovery" from the "normal" recession - effectively gaining back the initial 2.7 million lost jobs - a tad slower than normal - but that's understandable given the economic shock added job losses for an extra year.

The reason unemployment can drop despite low GDP growth is because this is a "recovery" of jobs lost, (and IMO, the majority of the 6 million lay offs after the financial shock were not "required" layoffs). It is my belief that the economists as a group are not differentiating between "expansion" and "recovery".

All of this happening right at the cusp of the Baby Boomer Exodus just makes the waters that much murkier in attempting to judge what is really happening. The "panic" firing of 2009 breaks normal recession recovery rules. The Boomer Exodus into retirement breaks the historic unemployment comparisons. If not for the Exodus, the peak unemployment would've been well over 11% and the current would be well over 9%. But, we have had the Exodus, so it is what it is.

To greatly oversimplify - at the end of 2007, we had an economy X-size - and it employed 146 million people. ZERO net growth over the next 4 years should (in theory) support 146 million jobs. Instead, we have 142 million jobs, AND an economy that is somewhat larger.

Technically, in regards to employment, you do not have "expansion" until you have exceeded the total employment figure from before the recession, you have recovery. While inflation and wages are variables that muck this up - GDP (allegedly) takes inflation into account. In short - you don't "need" excessive GDP growth to simply recover what you lost -- you only "need" solid GDP growth to move beyond where you were before.

Former Idealist:

"Normal" recession works like this:

I'm so sick of this recession being called a "balance sheet recession" when it was an OFF balance sheet recession, and still is.

Inflation is not growth.

sum luk:

Former Idealist wrote:

Inflation is not growth.

Economist's View- No Sign of an Inflation Problem

Oman wrote:

If not for the Exodus, the peak unemployment would've been well over 11% and the current would be well over 9%. But, we have had the Exodus, so it is what it is.

While we rail at Bernank, for reflating asset prices, this still will help the exodus continue. Seems completely overlooked sometimes. I think if you could have an honest answer from him this would be his rational.
I think, but don't know, that he realizes it helps the banks; but, he sees no viable alternative. Get the BB out with some assets; and, meke room for the next generation.

[Apr 01, 2012] Spring Stock Selloff Pros See Signs It's Coming -

Yahoo! Finance

Traders fear a major case of déjà vu this spring, where investors pocket their profits, and really do go away. The "sell in May" phenomena occurred in the past two years, after stocks peaked in April.

However, some analysts expect a less severe sell off this year and mostly agree a pullback is overdue. Last year, the S&P 500 lost 21.6 percent between May 2 and Oct. 4. "Everything suggests it," said Binky Chadha, Deutsche Bank chief global strategist.

"Pull backs are normal, and in the sense the length of this really smooth ride up is unusual. I think there's been very limited participation in this rally. So, it's very likely the pull backs will get bought. On the basis of history, we're due for a pull back," he said.

LPL Financial chief market strategist Jeffrey Kleintop says, in a note, that the sell off this year could be more shallow because of two positives that weren't there last year. One is that central banks around the world are now cutting rather than hiking rates, and the second is that housing is showing signs of life.

The negatives include concerns about China slowing down, a European recession, election uncertainty, the end of the Fed's "operation twist" program.

Kleintop said there are ten things he's watching to see if a spring sell off is in the offing.

The Fed tops his list. In the past two years, the Fed's quantitative easing programs came to an end in spring or summer and stocks sold off until the next program was announced. Last' year's "operation twist" was announced in September, and stocks began to take off on their current run in October. That program expires in June, and traders are watching the Fed's April meeting for a reading on whether the program will end, be extended or replaced with something else.

Also on his list are economic surprises, which if you watch the Citigroup economic surprise index it appears it may be retreating from a peak in February. Consumer confidence is another indicator, and its close to highs now but will be watched to see if it turns lower.

Earnings revisions will also matter. In the first quarter of 2010 and 2011, earnings estimates moved higher as earnings reports looked better, but in the second half guidance disappointed as the number of upward revisions declined. This year, he says the same may occur.

The yield curve is another guide. The spread between the 2-year and 10-year Treasury , currently about 1.80, could indicate concern about he economy if it continues to narrow, or flatten.

A big flash point for stocks has been oil prices. Kleintop notes that's oil in 2010 and 2011 was up $15 to $20 a barrel from the start of February, two months before the market began to sell off. This year, oil was already high and it is up only about $10 since the beginning of February., but a further surge would be worrisome.

Kleintop also watches LPL's financial current conditions index, which peaked around 240 to 250 in April of the past two years. This year it reached 249 already and has fallen to 232.

The VIX, the CBOE's volatility index, is another widely watched signal. On Wednesday, it was up almost 10 percent, but it is still at very low levels around 17. Kleintop said the low reading in the VIX could be suggesting that investors are complacent and could be surprised by a negative event.

Weekly jobless claims, reported Thursday morning, are another important indicator for the stock market. Viewed as one of the most consistent measures of employment activity, weekly claims have been holding at the 350,000 level, but in early 2010 and 2011, they stopped improving in April.

With rising gasoline prices, inflation expectations is another concern. The University of Michigan survey showed a rise in inflation expectations in March and April in 2010 and 2011. This year inflation expectations also jumped, reaching 4 percent in March, Kleintop noted.

March

Jesse's Café Américain Who Captured the Fed

Future generations will look back and ask themselves, 'How could they not see what was happening? Were they blind?'

The Fed is not the only problem here, but a key enabler. White collar crimes and fraud flourished amongst the robber barons even in the days of the gold standard. It just was not as convenient, as easy, to defraud the people en masse through the debasement of the currency.

The Fed has merely proven to be as vulnerable as the regulators and the Congress to the power of the monied interests. If the political campaign process had not been corrupted by money, if the fairness doctrine in the media and Glass-Steagall in banking had not been overturned by the mindless impulse to cast aside the best of the laws, many of the problems we have today would not be so great.

These fellows creates crises, and then 'save us' from them, while lining their own pockets and perpetuating the swindle for their less publicly visible puppet masters.

There is little doubt in my own mind that Greenspan knew exactly what he was doing, and made his fateful decision after a meeting with Robert Rubin in the 1990's shortly after his famous 'irrational exuberance' speech. What was said, what was promised or threatened, I cannot say. But the change in direction became clear. It became open season on the voices of reason and restraint in Washington.

What Clinton hatched, Bush brought to full fruition, particularly with his tax cuts, stock bubble, and unfunded wars. And when the Great Reformer came to Washington in the midst of the collapse, he brought back the very advisors who had helped to create the problem in the first place and betrayed the mandate of those who had elected him, prosecuting no one.

And in the aftermath of the financial collapse, the first popular reform movement that rose up in anger against the bailouts, The Tea Party, was quickly turned into a corps of willing tools that turned on the weak and the least among us, the very victims of a corrupt system, in their petulant pride and misdirected anger.

I only fear that the Fed, and some of the perpetual outsiders of history, will be made the scapegoats by the real culprits when the time of reckoning comes, and that genuine reform will be thwarted once again as it has been so many times in the past. Their hypocrisy and shamelessness knows no bounds.

NYT
Who Captured the Fed?
By DARON ACEMOGLU and SIMON JOHNSON
March 29, 2012, 5:00 am

...But in the light of the crisis of 2008 and its aftermath, we have to ask: Has our central bank fallen back under the influence of special interests?

...At the dawn of the republic, Thomas Jefferson railed against the risks posed by government backing for concentrated power in the financial sector. President Andrew Jackson fought to abolish the Second Bank of the United States in the 1830s, the leading private bank of his day, which helped manage public finances and the banking system. Consequently, there was nothing resembling a central bank in the United States for much of the 19th century.

The Federal Reserve System, created in 1913, was a uniquely American compromise, trying to balance public and private interests. Banks controlled the boards of the 12 regional Feds – with big Wall Street firms holding great sway over the New York Fed, which had a disproportionate influence within the system as a whole - and still does.

This version of the system presided over a crazed and highly leveraged stock market boom in the 1920s and the catastrophic collapse of credit in the early 1930s, while protecting the big Wall Street firms.

...Unfortunately, as the United States and other countries learned after 1945, clever politicians can use central banks to manipulate the business cycle, boosting output growth and cutting unemployment ahead of elections. Richard Nixon, for example, famously pushed the Fed to ease monetary policy when it suited him.

...Increasingly, however, it seems that technocratic policy-making is just a myth. We have come full circle, and the Wall Street banks are calling the shots again.

Crucially, the idea that politics is just about electioneering misses the point. Politics is about getting what you want, not just through the ballot box but by persuading people in public office to take actions that help you. So declaring the central bank independent doesn't move it outside the orbit of politics.

Monetary policy has an impact on inflation, output and employment. But it also has a major impact on stock market prices. Any central banker raising interest rates is reducing stock market values and thus eroding the bonuses of top bankers and other chief executives.

Those people will lobby, asserting that higher interest rates will undermine the economy and cause us to plummet into recession, or worse.

In principle, the Fed could stand up to the bankers, pushing back against all specious arguments. In practice, unfortunately, the New York Fed and the Board of Governors are quite deferential to financial-sector "experts." Bankers are persuasive; many are smart people, armed with fancy models, and they offer very nice income-earning opportunities to former central bankers.

We have lost track of the number of research notes from major banks pleading for easier credit, lower capital requirements, delay in implementing financial reforms or all of the above.

In recent decades the Fed has given way completely, at the highest level and with disastrous consequences, when the bankers bring their influence to bear – for example, over deregulating finance, keeping interest rates low in the middle of a boom after 2003, providing unconditional bailouts in 2007-8 and subsequently resisting attempts to raise capital requirements by enough to make a difference.

As the American economy begins to improve, influential people in the financial sector will continue to talk about the need for a prolonged period of low interest rates. The Fed will listen.

This time will not be different."

Read the entire article here.

Jesse's Café Américain Clear and Present Danger Why We Must Break Up the Too Big To Fail Banks Now - Dallas Fed

29 March 2012

What makes the attached essay on the US banking system so striking is not so much what is being said, since others have said it before, but rather, who is saying unequivocally that the status quo in the US banking system presents 'a clear and present danger' to the national economy.

"More than three years after a crippling financial crisis, the American economy still struggles. Growth sputters. Job creation lags. Unemployment remains high. Housing prices languish. Stock markets gyrate. Headlines bring reports of a shrinking middle class and news about governments stumbling toward bankruptcy, at home and abroad.

Ordinary Americans have every right to feel anxious, uncertain and angry. They have every right to wonder what happened to an economy that once delivered steady progress.

They have every right to question whether policymakers know the way back to normalcy. American workers and taxpayers want a broad-based recovery that restores confidence. Equally important, they seek assurance that the causes of the financial crisis have been dealt with, so a similar breakdown won't impede the flow of economic activity.

The road back to prosperity will require reform of the financial sector. In particular, a new roadmap must find ways around the potential hazards posed by the financial institutions that the government not all that long ago deemed "too big to fail"-or TBTF, for short.

In 2010, Congress enacted a sweeping, new regulatory framework that attempts
to address TBTF. While commendable in some ways, the new law may not prevent the biggest financial institutions from taking excessive risk or growing ever bigger.

TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy.

As a nation, we face a distinct choice. We can perpetuate TBTF, with its inequities and dangers, or we can end it. Eliminating TBTF won't be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.

Harvey Rosenblum, Choosing the Road to Prosperity: Why We Must End Too Big To Fail - Now, Dallas Federal Reserve Bank

Harvey Rosenblum is the Dallas Fed's executive vice president and director of research.

Read the rest here.

The perpetuation of the status quo is favored by the monied interests on Wall Street and the very powerful New York Fed which has always been their house bank.

It is also supported by the politicians and advisors of both parties who have become addicted to taking Wall Street money, both as campaign contributions, as well as highly paid sinecures and consulting fees when they leave office.

The Banks must be restrained, and the financial system reformed, with balance between individuals and the corporations restored to the economy, before there can be any sustained recovery.

[Mar 27, 2012] The Economy's Great Fall Are the Losses Permanent

Economist's View

sam

Of course Ben Shalom Bernanke is talking up aggregate demand. He wants another round of QE. The banking cartel wants another QE. And the stock market wants another round too.

kind of like flair bartenders pouring shots directly into an alcoholic's gaping mouth...of course, anyone who has ever gotten drunk and sick knows that the shit can hit the fan pretty quickly and all of a sudden and then you find yourself throwing up all over floor.

And in other news, the US national debt looks like it's heading towards $16 trillion by election day.

ken melvin

It's a new economics, the old models don't apply. It's not about mismatches nor demand, it's all about offshoring and automation.

Tyler

I reject "foresight" being mentioned in the same sentence as "Greenspan" unless the sentence goes, "During his time as Fed chairman, Alan Greenspan exhibited the exact opposite of foresight."

bakho

All societies that achieve an increase in productivity through process improvement or from trade will have a need for less labor or the ability to provide more goods and services. There are several ways to address excess labor.

1. Allow unabated Unemployment Hell for a lost generation of workers who form a societal underclass.

2. Distribute the leisure time among everyone with shorter work week.

3. Have BigG as employer of last result employ people to provide additional goods and services.

Cheap Labor Republicans and conservatives really like #1.

Dean Baker and the Sandwichman really like #2 but that solution may be too "French" for the US.

#3 is a resurgence of New Deal and Great Society Policies that are viciously attacked by conservatives and poorly defended by too timid, easily cowered, post-partisan Democrats.

Under the current Do-Nothing Congress, we have the default which is Unemployment Hell.

Ellis

Actually, I think companies are squeezing more work out of fewer people. So are government agencies. Just ask the school teachers who are now faced with much bigger class sizes, while hundreds of thousands of teachers are forced onto the street. Don't economists and government officials read the newspapers or speak to actual people who are not upper class?

Edward Lambert

Savings rate is going down again... demand will not return like it once was... based on easy credit...
The only way to recover demand according to the long-term trend is by raising wages and/or providing better puclic goods and services (including health care).

Lafayette

ALAS

{The only way to recover demand according to the long-term trend is by raising wages and/or providing better puclic goods and services (including health care)}

There is yet another way: Putting people presently on UI back to work.

Raising wages is the devil's handiwork. Why did WalMart become America's favorite shopping center? Because it realized long, long ago that Americans want to save a buck - and they don't give a damn who produces the product they think they want or need.

BigAuto, by its incessant renegotiation of both Comp & Ben, priced itself out of the market - aside from the fact that it was producing too many lemons. It's health-care benefits were particularly onerous and, I once saw reported, added 1200/1500 dollars per car.

What can we learn from that experience? That if the US had a National Health Care system, the costly insurance policies that impact the Benefits Package would be far less expensive and the cost would not need to be recuperated from end-product's market price.

Thus making our goods/services both domestically and internationally more competitive. So, why are the Supremes (this day) pondering the present palliative of a universal HC system that might succeed in offering more people coverage but will not reduce overall costs?

Why can we not come to our senses in Congress and pass a bill that does incorporate a Public Option (offered by the Federal Government) and thus reduce the costs to small and medium-sized companies?

Because BigInsurance does not WANT a Public Option that will reduce drastically their profit levels.

It's all about profits and not Health Care. Alas.

mmckinl

"Are the Losses Permanent?"

Well the Japanese have been struggling for over two decades. And that is the model the "powers that be" have chosen.

Krugman and others argued for the "Swedish Model" of writing down bad debt but that never happened and there has been quiet on the Krugman front since.

Instead of writing down bad debt they just changed the accounting rules from mark to market to "mark to make believe".

The banksters and the Fed conceal the losses while using stealth bail out techniques and accounting gimmicks like marking to market their own outstanding bonds to stem the tide of red ink.

Once again here is the graph for the Japanese scenario:
http://economistsview.typepad.com/.a/6a00d83451b33869e2016764240899970b-popup

This is what we are in for plus the drag even implosion of peak oil driven higher oil prices. As I write this RBOB is $3.41 and regular gas in Chicago is over $4.50.

It's only going to get worse ... higher oil prices and eventually another economic tailspin or stagnation and a muddling economy.

I'll repeat what I posted earlier ...

"My suspicion is that the Japanese model was adopted by the US and Europe because of "peak oil". Suppressing growth reduces oil use.

They know that any kind of growth will push oil to prices that will economically be even worse than stagnation.

They also know that that admitting to peak oil is admission of the limits to growth and the death knell of private bank fractional reserve banking."

mmckinl

Peter K ~"The talk of peak oil and fractional reserve banking sounds like paranoia to me."

Then you don't understand that the creation of private bank fractional reserve banking leveraged debt is of future promises that can not be kept with the end of growth ... or how our money is created.

Leveraged debt in the face of the limits to growth is a Ponzi Scheme. The arrival of peak oil whereby transportation and food production prices skyrocket increasingly sucks out disposable income crashing the peripheral economy.

Lafayette

"as we transit from the Industrial to the Information age"

The products that we use are industrial production outputs, including the IT hardware. Software (information processing) collects, stores, retrieves and analyzes data. The devices, media, and network to do this are industrial products. The software or knowledgeware, may facilitate communications (such as social networking or on-demand entertainment), operations reseach, accounting, other scientific research, and (as we are becoming increasingly aware) market demographics and advertising. Software does not provide the things we need it, but it can make the provision more efficient. It can also keep us entertained and distracted while the world around us crumbles. If you do not have food or shelter, then you would know that you really need it. If you did not have FaceBook then you might not really know you needed it, because indeed you don't. We have always needed food and shelter. Transportation became necessary as humanity moved away from self provision subsistence. There is no service economy nor information age. We will remain in the industrial age until we go back to the stone age.

I entered the IT industry in 1968, before it became fashionable. Now that it has become fashionable the general understanding of its relationship to the economy is still abysmal. Only in the finance industry does IT actually play its much lauded role so independent of non-IT industrial production, an we know how much good that has done us. BTW, I count agriculture as industrial production as industrial agriculture produces most of our consumption.

Darryl FKA Ron

Besides code monkeys offshore easier now than steel.

Lafayette

IT'S THE INEQUALITY

{We have always needed food and shelter.}

Yes and this was displayed in a more holistic form by Maslow in his Hierarchy of Needs (in the early 1940s, btw): http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs

However we may tweak an economy, we are nonetheless responding to that hierarchy of needs.

Information Technology is a "great facilitator" and has become a central part of our economy, regardless of where one might want to classify its applications. The technology is used across the board because, as you say, it provides for our needs more efficiently than whatever came before.

And we can expect it to continue to do so. What we do not understand is the need to keep up in parallel with the technology by means of our intellectual capacities in the form of skills/talents.

We should have learned by now that any manufacturing that requires nimble-fingers in sweat-shops will be sub-contracted to the Far East. Which means our people must realize that "brain" is replacing "brawn", though not entirely. Meaning brawn-work will still exist (namely in construction) but it is brain-work that will feed the larger part of our nation's citizens.

And we are not taking seriously enough the fact that capital (business investment) is necessary but not sufficient. Far more important is brain-work (labor input) set to business tastal. But, that is - I submit - very, very far from becoming a commonly understood and accepted notion.

MY POINT?

It's all so very simple (to me): We've gone overboard in the blind rush for capital (aka exaggerated riches), without understanding that the process exacts a choice between Return on Capital and Return on Labor.

An economy can optimize both, but maximizes only one or the other - and ours has been maximizing Income Disparity. Which is why confiscatory taxation (above a certain level of both marginal and capital gains income) is necessary for us, as a nation, to stop incentivizing the accumulation of exaggerated riches.

It's the Inequality, stupid. No personal offense intended, but a lead-in to the title of this link here at Mother Jones: http://motherjones.com/transition/inter.php?dest=http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph (Be sure to punch "skip the message" that may come up on a blank-page)

Darryl FKA Ron

" but it is brain-work that will feed the larger part of our nation's citizens."

Nope, it is industrial agriculture. Some of the brain-work folks just can make enough money to eat more and/or better than some brawn-work people. Food is still grown on farms. Computers will not change that. Computers can optimize the distribution channels for lowering energy use and even help with managing irrigatio and pesticides. But infomation technology is just optimizing tool in a system rather than a productive system in itself. Wealth distribution effects have to do with our focus on short term windfalls via speculation and monopolization. Consolidating mergers and IP rents are thieves. Together they have enabled global labor arbitrage to advance at a rate faster than structural replacement of employment. The resulting interdependence in the global economy will put all nations at risk due to over-specialization that cannot be maintained against the pressure of peak oil. The miracle of trade goes mostly to the middle men.

Lafayette

It seems then that you forgot that it takes money to buy food.

All the advances in agriculture for the past fifty-years have come from brain-work, not brawn-work. A tractor is just a tractor.

But by means of intensive farming, we need fewer farmers - so those in surplus should go drive taxis?

Not quite the best solution, is it?

Darryl FKA Ron

My point is that there is only so much ratio of IT brain work to productive work that we can expect, unless we can expect an economy based only on financial intermediation and social networking. There is a lot of brain work, more or less IT-wise, in traditionally brawn work endevours of production that may in part be done by machines so long as we have the energy resources. That can still be the case if we go back to mules and grass for power sources. Intelligent use of scarce resources can be knowlegde intense. At some point in the future our currency will fall to its trade balanced value again, whether because standards of living align globally, transporation fuels become too expensive, or our competitors help it along by shorting their own dollar reserves. Then the relative values of capital markets, financial intermediation, marketing, and production of goods will realign themselves. At such time we will be in great poverty of the means of production.

There is plenty of knowledge necessary to live in the world besides IT. We should have all of it (e.g., biology, civil engineering, machinists, horticulturists, - everything). Even running a machine with skill is a type of knowledge or leading a mule or plumbing. Computers are just a tool. The information age may dazzle, but Maslowe still rules our lives. Money is just a store of value from labor expended and resources taken from the ground. At some point the value of the money that we print can only equal the value of our labor and resources.

Lafayette

{My point is that there is only so much ratio of IT brain work to productive work that we can expect, unless we can expect an economy based only on financial intermediation and social networking.}

Why? Just go to Taiwan and see what is happening. It has very little arable land and yet it does just fine - with a lot of brainwork, that is.<

Darryl FKA Ron

Taiwan's economic model would not scale well. It is compact and they are a net exporter, which makes their economy dependent on global economic conditions, but is necessary because of how much they must import to support the densely packed population. Transportation costs would be less of a problem in such a small space. They manufacture techonology hardware, but I see that they do have a large service sector. Much of that is finance and financial intermediation is working for them now given the growth in manufacturing in other Asian countries.

My opening argument was about the "Information Age" which is an incorrect assessment of both global and national economies. It is a wrong way of looking at the world, just like treating everything as just a matter of finance. Everyting is just a matter of everything. You can do some barter and benefit by it, but every interdepency is a dependency and vulnerability. Size and population density matter when it comes to economic advantages or even alternatives.

Lafayette

{My opening argument was about the "Information Age" which is an incorrect assessment of both global and national economies. }

I beg to differ.

The transition applies to the world, but it starts with developed economies. And to think it is not happening is to suffer from a heavy dose of nostalgia.

Worse yet, if we do not make an effort to enhance brain-work skills and talents, then we drop so far back in the race that eventual catch-up becomes impossible.

Don't intellectualize the menace, because that's a cheap cop-out. Leave that to rank economists. History tells us that economies grow and die, leaving just the debris of societies in their wake.

The US as a modern example of the Roman Empire? Of Egypt? Or dynastic China? Or the United Kingdom?

As an outcome, it is more than just possible - it has become probable.

Darryl FKA Ron said in reply to Zlati Petroff...

"You think you or anyone else would have done much better?"

Well yeah, a lot of people could have done better, even myself. But to get to someone that was well documented on forecasting all of the events of 2008 I am stuck with a guy that is a bit crazy and really likes to blow his own horn. But his pitch is legit. I saw his CSPAN Book TV road show of "America's Financial Apocalyse" in 2006. That is how I knew what was going to happen, although it had already been clear to me in 2004 that our recovery was based on a bubble bound to burst. If you ignore the anger (he has been black-balled by most of the media since he had worked over two years trying to get Bernanke to meet with him), the Stathis is highly illuminating. He discusses the same issues that paine, mmckinl, myself and others discuss here; he just wrote a book on them which was published in 2006 before most people had ever heard of a credit defautl swap.

Darryl FKA Ron

BTW, when I saw Stathis on BookTV in 2006 he was really a decent guy. Being rejected by the Bush administration and then black-balled by the media after his predictions came true has turned him into a very different person than he was before. What is most interesting is how effective the MSM and the rest of the establishment has been in suppressing knowledge of his forewarnings, but the change in Mike's demeanor has helped make it easy for them to ignore. Most people think he is just a crank and a crackpot.

beezer

If you really value employment that pays livable wages and benefits, it's going to happen only if that desire manifests itself politically.

Economically, in my opinion, creating wealth does not create employment that pays livable wages and benefits. It may create jobs, but left to themselves, those who create great wealth for themselves would just as soon pay only subsistence wages. At least that's what happened historically until workers organized and changed the power (political) landscape.

This nation has forgotten this identity and assumed instead that livable wages and benefits naturally flow from wealth creation. That would be no.

We should slap on import duties both to balance trade and to force manufacturing production back into our domestic economy. Will more production jobs in America raise wages and income and thus raise the cost of goods and services?

That's a yes because manufacturing jobs are more easily unionized and labor costs will increase the cost of goods. One important nuance here. The cost of goods will not increase, dollar for dollar, with wage increases. Anymore than the cost of goods decrease, dollar for dollar, with wage declines.

[Mar 26, 2012] Bernanke's Unspoken Message in Today's Speech -

TheStreet

Anyone who doubts Ben Bernanke's willingness to put the monetary pedal to the metal should read the text of his speech today at the National Association for Business Economics Annual Conference.

He argues that buying demand for products and services remains predominantly a cyclical problem, not a secular problem. That's a fancy way of saying: "If we just add a bit more stimulus to the U.S. economy, we can find 'escape velocity' and achieve a sustainable path to economic recovery." In other words, "QE3, here we come!"

This is a significant milestone that validates a recent shift in the willingness of institutional investors to reassume risk-taking. Many Wall Street strategists and economists have been raising their year-end S&P 500 price targets (from 1,330 at December to now nearly 1,400), and many bearish-leaning hedge fund investors have begun to capitulate and buy equities as well.

In fact, Bloomberg reports today that hedge funds, woefully trailing the returns generated by the S&P 500 Index since September, are buying stocks at the fastest pace in two years! They have no choice but to try and catch up with the market's rapid ascent.

Of course, a note of caution is warranted. For one, when every investor turns bullish, there are no marginal buyers left to purchase stocks (and gauges of hedge-fund bullishness and retail investor bullishness are nearing levels that traditionally signal interim market tops).

[Mar 26, 2012] QE3 Remains Likely

J6P is always the one that pays the consequences; here and everywhere throughout the world.

ac:

km4 wrote:

The Fed has promised to provide unlimited amounts of dollars to the ECB, should circumstances require it. It boggles the mind.

It shouldn't.

This is simply history repeating itself for the nth time.

We knew exactly what, how and why it would happen.

We still continue along the path to destruction that history dictates we will take.

What should interest and confound people is total absence of any kind of free will at the aggregate level.

ac

This could be the year the Fed becomes irrelevant if gas prices keep going up.

Nobody's going to be asking for another round of QE if oil is $200/oz.

The thing I hope the Bernanke understands:

The congress will throw him under the bus the moment it becomes convenient.

Once inflation gets out of control every politician on both sides is going to go on and on about how they thought they were doing the right thing but were misled by the Bernanke.

If things go wrong this man is going to be the scape goat for everything bad that happens in the next 10 years.

Cinco-X

ac wrote:

The bubbles will continue until the collapse of the political and monetary systems creating them.

Bubbles are not a necessary byproduct of a fiat currency....it's just that they're seemingly too enticing to avoid...

glimmerman

Ride the Bernanke bubble - The Cody Word - MarketWatch

You see the common outcome of all those interpretations? That we're likely to continue seeing the stock market bubble right before our eyes because traders, investors, economists, grandparents, Goldman Sachs and even the unemployed and broke know that money is likely to chase stocks - tech stocks and other growth stocks in particular, because where else can you hope to catch the kind of gains that you're likely to need to overcome the loss of value of your money as Bernanke continues to pump new money into the pockets of the worst banks.

ac:

km4 wrote:

Ben is worse than catering to the 1%

That's the real political danger for the Fed now -- more and more people are beginning to notice that every thing the Fed does seems to make the 1% richer and richer at the expense of everybody else.

Again, it is historically well-established that fiat currencies and easy money turn economies into giant casinos where the casino bosses get filthy rich at the expense of everybody else.

Nobody should be surprised that this is happening.

The reason this is allowed to continue is because the alternative is too terrifying to contemplate.

Cinco-X

ac wrote:

Again, it is historically well-established that fiat currencies and easy money turn economies into giant casinos where the casino bosses get filthy rich at the expense of everybody else.

Nobody should be surprised that this is happening.

The reason this is allowed to continue is because the alternative is too terrifying to contemplate.

Good post..

ic:

"an implicit admission that Main Street benefits, as well, though not on the scale of the 1% "

It's a sad fact that real, structural, change doesn't occur without real pain being inflicted on Main Street.

J6P is always the one that pays the consequences; here and everywhere throughout the world.

Weeping Willow:

Eric wrote:

No more decaying ETF/ETNs for me.

I never touch those things. I'm patient, with a time horizon longer than 3 minutes, so there are alternate ways. Even things as simple as longer-dated OTM strangles are better, IMO, just have to watch the volty smile.

Having seen multiple trips down to very low teens on VIX, I have no reason to believe this is an implied volatility bottom, either. But ya have to start somewhere...

ac:

glimmerman wrote:

He argues that buying demand for products and services remains predominantly a cyclical problem, not a secular problem. That's a fancy way of saying: "If we just add a bit more stimulus to the U.S. economy, we can find 'escape velocity' and achieve a sustainable path to economic recovery." In other words, "QE3, here we come!"

I guess you could say we found escape velocity in 2003-2006, but in the end what good did it do?

Ultimately you can boil everything down to this:

We're still doing exactly what we did 10 years ago.

glimmerman:

Crude oil eases higher on Bernanke's comments By Forexpros

Oil prices gained traction after Fed Chairman Ben Bernanke stated that further monetary accommodation is needed to bring about big gains in the U.S. jobs market, which he described as "far from normal," despite a recent improvement.

The comments helped fuel speculation that further quantitative easing from the central bank may be coming, weakening the U.S. dollar.

scone:

Ben has got the markets in Pavlov's dog mode. He doesn't actually have to implement QE3, all he has to do is convince the markets he is ready, willing and able to do it. In fact, I think he'd rather talk the talk and get the markets to move up, rather than walk the walk and take the backlash.

barfly wrote:

but the damage will have been reduced somewhat for the majority

That may be so, but that doesn't mean that there weren't other ways of managing a "soft landing" that didn't include massive subsidies for the TBTF banks, AIG, et al.

Or the painful consequences of the bubble, etc.could've been more evenly distributed. Less bankster risk socialized. Particularly since it looks as though, w/the mortgage "settlement" and HARP2 it looks as though the bank subsidies/bailouts are continuing, with again, the TP paying.

It wasn't an either/or situation, however L. Summers & Bernanke chose to frame the situation.

sm_landlord:

dryfly wrote:

I hate to be a pest but I think people - even people here - don't grasp just how much 'work' has changed and how slow organizations like gov't, schools, capital markets & institutions like the fed are to understand this. And it isn't just in mfg - its in every aspect of services and goods design, manufacture, logistics, marketing and servicing.

You might enjoy this:
American manufacturing has gone, and with it goes our future - latimes.com

Cinco-X

sm_landlord wrote:

American manufacturing has gone, and with it goes our future - latimes.com

While there is no doubt a problem, this article is full of histrionics and bad ideas...while the percentage of our workforce that works in manufacturing (and farming for that matter) has decreased, we still have a huge manufacturing base. Furthermore, punitive tariffs and government managed industrial policies will make us and the rest of the world poorer, not richer...I repeat again that the problem is the tax structure, and how it rewards companies for exporting production and profits....

Comrade Troyski

ac wrote:

Once inflation gets out of control every politician on both sides is going to go on and on about how they thought they were doing the right thing but were misled by the Bernanke.

without wage inflation there can be no inflation, just reallocation.

There's plenty of fat rents to get sliced in this economy. Couple of trillion in health care, about the same in ground rents.

dryfly

Comrade Troyski wrote:

Foxconn now pays ~$300/mo. It still costs a US employer more for a US worker just to clock in every morning.

They are automating like a beast over there now [China] - I know people involved. Capital has opened a new front against labor - the Eastern Front.

It was inevitable too - just a matter of time and economic incentive.

Cinco-X

MAKE NO MISTAKE... INSTITUTIONAL INVESTORS ARE 'ALL IN'
As the old saying goes, you can't have a top until everyone's in...since many if not most of the bottom 90% own their equities via institutions, does this mean everyone's in and we're approaching a blowout top? Of course, I can never take the analysis of Business-Insider too, too seriously....

Comrade Troyski

BarleyReturns wrote:

Bring out the Gimp! 1994 all over for bonds? -- The Buzz

"How the Fed hurts retirees"

fuck these people.

return of capital, return on capital, pick one, assholes

Graph: (Total Credit Market Debt Owed (TCMDO)-Total Credit Market Debt Owed by Domestic Financial Sectors (TCMDODFS))/Wage and salary disbursements (A576RC1) - FRED - St. Louis Fed

ac

Fed warned not to keep rates too low for too long

With Fed Chairman Ben Bernanke looking on from the audience... two experts on monetary policy warned Saturday that the Federal Reserve should be wary of keeping monetary policy too easy for too long.

You might as well tell a dog not to lick its balls.

[Mar 23, 2012] Vanguard Junk fund (VWEAX) dropped below 200 days average

[Mar 17, 2012] Global Economy on Recovery Path, Risks Remain - IMF Chief

The rising price of oil is becoming a threat to global growth.

NYTimes.com

...She said signs of stabilization were emerging to show that policy actions taken in the wake of the global financial crisis were paying off, that U.S. economic indicators were looking a little more upbeat and that Europe had taken an important step forward in solving its crisis with the latest efforts on Greece.

"On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic. Still, optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities we must confront," Lagarde said.

The IMF chief cited still fragile financial systems burdened by high public and private debt persists advanced economies as the first of three major risks and said euro zone public sector and bank rollover funding needs in 2012 were equivalent total about 23 percent of GDP.

"Second, the rising price of oil is becoming a threat to global growth. And, third, there is a growing risk that activity in emerging economies will slow over the medium term," she said.

[Mar 14, 2012] SP 500 March Futures Shorter Term Chart - Once More Into the Breach Dear Ben

This top is as artificial as previous one in 2007. It can be lasting but it can't be sustained....

We're at the top of the longer term channel. There is still some room in the short term.

Or Ben could just throw caution to the wind and go for bubble number three.

"The world says: 'You have needs -- satisfy them. You have as much right as the rich and the mighty. Don't hesitate to satisfy your needs; indeed, expand your needs and demand more.'

This is the worldly doctrine of today.

And they believe that this is freedom. The result for the rich is isolation and suicide, for the poor, envy and murder."

Fyodor Dostoyevsky, The Brothers Karamazov

[Mar 09, 2012] Trade Deficit increased in January to $52.6 Billion

Mel

It is amazing that we have not found a way to eliminate the petroleum trade deficit--all that wealth leaving our shores finally led to a lowered standard of living. Allowing this to continue assures our "Greecedom." This should not be a partisan issue--it is truly job 1.

km4

debt equals status

American exceptionalism - Wikipedia, the free encyclopedia

splat

km4 wrote:

Congratulations, America, You're In Debt Up To Your Eyeballs!

And we can do better -- With a little push it could be over our heads -- ~splat

Doc Holiday

Baker Hughes: US Working Gas Rigs Drop By 21 In Week; Oil Rigs +3

Externalized Costs

The Office of the Comptroller of the Currency, a major bank regulator, said on the very day of the settlement announcement that it was giving the five banks in the deal a pass on $394 million in penalties it would otherwise have assessed them for shoddy, and shady, mortgage and foreclosure practices.
...
And just last week, the Treasury Department announced that it would pay BofA and JPMorgan Chase some $171 million in incentives it had withheld since June because of the banks' shortcomings in dealing with homeowners under the government's chronically underperforming Home Affordable Modification Program, or HAMP.
...
Brookings Institution analyst Ted Gayer last week concluded that other carve-outs will limit the number to 500,000 of the nation's 11 million underwater borrowers. Among other points, he observes that the five participating banks service only 55% of all mortgages.
Lowering our expectations for foreclosure settlement - chicagotribune.com

Financial crime has zero downside in America. Even when you get caught, your civil fine will become a credit eventually and if you are really good they'll even reward you with incentives you never earned. Brilliant.

Doc Holiday

http://www.marketwatch.com/story/us-trade-gap-widens-sharply-in-january-2012-03-09?reflink=MW_news_stmp

"The U.S. will suck in goods from abroad while others don't grow and U.S. exporters will face stagnant conditions overseas, stymieing efforts to make inroads," said Robert Brusca, chief economist at FAO Economics, in a note to clients.

But Bob Baur, chief global economist at Principal Global Investors, noted that the trade deficit is only 3.7% of U.S. GDP, well below the peak of 5.6% in 2006.

"I don't see [the trade deficit] going back to 6% of GDP," especially with a new trend of companies relocating plants back in the U.S. from China, Baur said in an interview.

cdresearch

This is a more accurate jobs picture in a nutshell:

How do you add 33 million people to the workforce while the number of full-time jobs hasn't budged in 12 years and claim "job growth is on a tear"? First you arbitrarily subtract 20 million people from the workforce. call them "discouraged" or "marginally attached," whatever, just don't call them what they really are which is jobless.*

For 64.5% of the populace to have some sort of job as in 2000, we would need an additional 14.5 million jobs. That's about 6 years of 200,000 jobs added a month, but then the workforce will rise by between 12 and 17 million in those years so you better add 400,000 jobs a month if you want the participation rate back to 2000 levels.

charles hugh smith-Our "Let's Pretend" Economy: Let's Pretend "Job Growth Is Best Since 2006"

Bob Dobbs

Mel wrote:

It is amazing that we have not found a way to eliminate the petroleum trade deficit--all that wealth leaving our shores finally led to a lowered standard of living. Allowing this to continue assures our "Greecedom." This should not be a partisan issue--it is truly job 1.

The one percent make a lot of money off the impoverishment of America. Change the system for the good of the country and you'll upset a lot of Very Important People.

Doc Holiday

Latin America warned over China slowdown - FT.com

Today, it requires less slaves food and energy to produce the same amount of economic output. However, thanks to intensive Chinese use of metals in its recent development, the world is consuming more metals per unit of GDP output than it did in 1971.
Economists believe this should revert towards the norm as China moves away from a focus on developing metal-intensive infrastructure and heavy manufacturing industries.

Per trade deficit - something you will not read in the press:

Manufacturing here in areas we are strong at [ag machinery, power gen equipment, infrastructure support equipment - etc] is really really tight. If you want castings for a tractor and your orders aren't already in place and in the queue then you are going to have a pretty hard time getting them right now - that is in part why imports are up. They are going back to sources in Asia and looking for capacity.

But utilization of mfg capacity is still pretty low relatively speaking you say ... it is in areas affected by construction directly and indirectly [building supplies and appliances for example]. The capacity utilization in things like ag, oil patch, power generation - its maxxed out. Has been for awhile.

So you want those kinds of parts or products you might have to import them even if the lead times are a huge hassle and frequently cost as much or more.

More microwave frozen burrito.

dryfly

Bob Dobbs wrote:

But my dad was union, and my uncles and some of my cousins, and through them I heard of many abuses. Aside from actual illegal activities, unions at well-paying plants tended to become private clubs. You "got in" to the union, and the job, through a relative.

And the mob. The plant I worked at was teamsters circa Jimmy Hoffa - the company loved them, bribed the local bosses to keep wages lower than the local would have demanded. They then 'ran it through'.

The irony is the top four union officials in that town were convicted of felony extortion. The company laughed and laughed ... until a decade later the top executives were convicted of felony price fixing / collusion. They were mirror images.

My adviser where I got my masters ran unionized companies prior to academia [did it well & profitably] used to say "Companies get the unions they deserve."

Bob Dobbs

Weeping Willow wrote:

Let me put it to you this way - knowing what you know about the US willingness to mount "excursions" - if you ran a smallish country with a resource very important to the US - would you not want to make sure you had the ability to protect yourself?

I think I misunderstood at first; of course you would. And of course you should.

Nukes are a great weapon; as long as none of your enemies have them. Then they're a lousy weapon. I really have thought that the Iranian nuke hysteria is really all about taking away Israel's nuclear get-out-of-jail-free card for good and all.

And I personally worry about the fundamentalists in our own gov't more than I worry about Iranian fundamentalists and what they might do with a small bomb or two.

Bob Dobbs

Comrade Janošik wrote:

You forget that American exceptionalism runs thicker in peoples' veins than blood.

Oh yah, I know. And because of that, if we'd been had by another country who we couldn't stand up to head to head, it'd be called the Rape of America of something like that, it would not be allowed to die in the political culture, and the lust for revenge would be huge and long-lasting. Partly because "we're special," and something must be done. Iranians think they're special, too: Persians, after all, empires back thousands of years while many of our ancestors were painting themselves blue and rushing Roman Legionnaires with spears.

Doc Holiday wrote on Fri, 3/9/2012 - 12:13 pm

2 million cameras watching peeps in Jolly England?

YouTube - Bigger Brother: Total surveillance comes to UK

dryfly

Cinco-X wrote:

free marketeers don't want to acknowledge the "total" cost of production, while limousine liberals don't want to acknowledge to economic cost of forcing jobs overseas

Limousine liberals don't want to pay for it either - that's their problem. They all want somebody else to pay so they pay for it in Harbin and Pune.

Cinco-X

dryfly wrote:

Limousine liberals don't want to pay for it either - that's their problem.

Unfortunately, it's all of our problem, but you are correct, and I'm just agreeing with you. Cheap goods are almost as irresistible as free money....

barfly

Doc Holiday wrote:

2 million cameras watching peeps in Jolly England?

if some of the films I've seen of the hooliganism and thuggery over there are even greatly exaggerated, it's still too much -

anti-immigrant sentiment, football fanaticism, drugs and alcohol, no jobs, no future, piss-poor education

I see no problem with keeping them under surveillance

Former Idealist

ISDA is the big banks.

Of course they will trigger an event just as they did with AIG.

There is money to be made....

Outsider wrote on Fri, 3/9/2012 - 12:52 pm

Okay. In my Quest for Truth I stumbled on this article

The Rising Power of Financial Blog Zero Hedge - Money 2009 -- New York Magazine

Even talks about us (at CR) there.

There are traders, economists, venture capitalists, financial advisers, and pajama-clad cranks all vying to explain the complex machinations that got us into this mess and to critique governmental solutions. Sites like Naked Capitalism, Seeking Alpha, the Big Picture, Infectious Greed, Angry Bear, Calculated Risk, and Zero Hedge have hatched communities based on discontent and disbelief, forming a kind of ragtag insurgency against the financial Establishment and what they view as its feckless lackeys in the government and media.

Pajama-clad cranks? I am highly offended. :covering the webcam over with masking tape:

And:

Such is their power today that the Treasury and Federal Reserve both circulate "blog watch" e-mails, which are sent to the White House every day.

pavel.chichikov

Outsider wrote:

a kind of ragtag insurgency

No insurgency - it's all blabber.

pavel.chichikov

Weeping Willow wrote:

Never really thought about it that way - would imply a deeper game is afoot.

I like that.

It's not called the Samson Option for nothing. If any of those weapons is used it might mean the end of us all. Ripples would spread out fast.

splat wrote on Fri, 3/9/2012 - 1:14 pm (in reply to...)

barfly wrote:

still, laying the blame at the feet of liberals is disingenuous

Agreed. Germany, as an example, should have seen manufacturing completely disappear. As as it has an 'extreme' ( by US standard ) liberal national agenda. Environment controls, strong unions, socialized healthcare, cap-and-trade/Indulgences.
~splat

BarleyReturns

The whole CAC thingy

1. Interest rates reflect risk
2. Time influences outcome
3. Interest rates kept low to foster growth
4. A CAC event
5. Appraise risk
6. Interest rates still artifically low
7. Misplaced/ineffecient money
8. Outcome?

Do long bonds go boom?

5yrs are prolly okay,1yr is would be better...10-30 HA!

Allocation
1. Canada
2. Norway

Any EU - nope
US with a disfuncional you know

[Mar 07, 2012] Europe's Recession Has Barely Begun

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

The reserves from the ECB's LTRO stage II operation are making their way back into the excess reserve facility at the ECB. The overnight holdings were at an all time record of €820.81bn. As I explained previously, this in itself isn't a problem. In fact, unless the reserves are moving to some other non-commercial bank accounts at the ECB there is little other place they can go. However, what is the problem:

…is that the increasing use of the ECB's marginal lending facility shows that not all of these parked reserves are actually "excess to market requirements".

The statistics from last night show that for the last 3 days there is still €783 million being rolled over using the ECB's margin lending facility. With €0.8trn technically available for interbank lending it is certainly a concern that there is at least one bank still having to lean on the ECB for overnight liquidity.

[Mar 05, 2012] America has 40 million McMansions that no one wants By Christopher Mims

9 Feb 2012 | Grist

Americans, especially generations X and Y, want shorter commutes, walkability and a car-free existence. Which means that around 40 million large-lot exurban McMansions, built primarily during the housing boom, might never find occupants. Only 43 percent of Americans prefer big suburban homes, says Chris Nelson, head of the Metropolitan Research Center at the University of Utah. That mean demand for "large-lot" homes is currently 40 million short of the available stock - and not only that, but the U.S. is short 10 million attached homes and 30 million small homes, which are what people really want.

"If we are optimistic that the world is not coming to an end and we're going to get out of this economic trough, it's a good time to consider, when production does ramp up, how we will be building as a country," [says Joe Molinaro head of the National Association of Realtors' smart growth program.]

See also

• Short sales are rising as banks start to shun foreclosures - Mar. 1, 2012
• 'We Wish Like Hell We Had Never Bought': Voices from the Housing Crisis - Derek Thompson - Business - The Atlantic

Former Idealist:

Bifurcation of oil/gas prices based on our the masters priorities.

Nobody talks about economic freedom anymore...

Rob Dawg:

Antipodes wrote:

Over time, at 4.0 and above you can sometimes distinguish between the two.

The middle third of the Pacific/North American rift has been quiet. Too quiet. Too long.

poic:

No problem. I'm only living in a liquefaction zone. Not likely any impact from a major earthquake.

Comrade Elmer Fudd:

another interesting thing is that there have been a series of small quakes on the Hayward fault located close together in the Berkeley area over the last couple of months

February

[Feb 28, 2012] Buying gas like an investment

December 29, 2011 | Jon Aquino's Mental Garden

My brother does this interesting thing when he buys gas, similar to "dollar cost averaging" in investing (i.e., investing the same amount each month, regardless of whether the price is high or low).

Basically he pays the same amount at the pump on each visit ($20), regardless of whether gas prices are high or low.

I was trying to think if this has any real benefit, and actually I think it does. When gas prices are low, $20 will last a long time, which is good. When gas prices are high, $20 will last a short time, and you will be forced to retry again soon - so you will have more frequent opportunities to try again for a lower price. Kind of makes sense.

Compare this to filling the tank to the top every time. You will be visiting the gas station at a constant time interval, without the automatic adaptation mechanism described above.

Interesting!

This rally may have legs :-)

If you think Fidelity is always wrong here is the call:

Putting it all together

We have a stock market in a strong up-trend, but showing signs of technical fatigue against a backdrop of sentiment that has almost caught up to the rally. The fundamentals are strong, but perhaps they are now reflected in the price. The ECB has come to the rescue in a big game-changing way, but now the market seems to have gotten ahead of itself in anticipation of a successful second LTRO. Meanwhile, the trio of tail risks (Greece, China, and Iran) has not gone away and, in fact, there is some evidence that investors have become somewhat complacent. Perhaps it is "gloom fatigue."

So to answer the questions I posed in the beginning: How much risk is appropriate in a portfolio? Is it time to derisk, stay put, or add risk? When I put all the factors together, they tell me that things aren't bad enough to go into full hunker-down mode, but they are also not good enough to be fully invested. The risk-reward is certainly not as good as it was five months ago, when stocks bottomed amid an extreme of sentiment. Perhaps it is time to take a few chips off the table.

[Feb 28, 2012] The Shocking Statistic About Psychopaths On Wall Street

A shocking statistic jumped out at us. From the article:

Studies conducted by Canadian forensic psychologist Robert Hare indicate that about 1 percent of the general population can be categorized as psychopathic, but the prevalence rate in the financial services industry is 10 percent. And Christopher Bayer believes, based on his experience, that the rate is higher.

Bayer is a well-known psychologist who provides therapy to Wall Street traders.

[Feb 28, 2012] ECRI recession call

[Feb 28, 2012] Real House Prices and Price-to-Rent fall to late '90s Levels

This is not a recovery. What we're witnessing is a fundamental change in thinking of Americans about their homes...

2/28/2012

GDD9000:

More CR house bottom calling. Too bad the history is meaningless since the financing regime that created it is never coming back.

I mean, imagine we had no historical data. Just current house prices. And we looked at the reality of supply and demand and the ability of current housedwellers to pay for their current living arrangments, and the ability of wannabees to generate income. What would you expect would happen to prices. Go up? Really? Mhm.

mp:

For those who are the least bit interested in these sorts of things, here is a graph of real personal consumption versus payroll employment, both year-over-year.

As you can see, employment lags consumption and the amount of the lag depends on the phase of the cycle.

When consumption peaks, employment peaks about 1 year later.

When consumption begins to pick up after a bottom, employment starts to rise about 6 months later.

If you examine the linked graph, it's for this reason that some of us think that employment has peaked for this cycle and will soon be turning down.

As for the stock market, it is at best a coincident indicator; it will tell you nothing about the real economy until it has already happened.

http://research.stlouisfed.org/fredgraph.png?g=5ln

Lurking Lawyer:

The meme has always been that the stock market is forward looking 12-months. See how that worked out in August 2007.

GDD9000

12th Percentile wrote:

No argument from me there. But to say there are not conditions to induce people to borrow to buy housing seems a bit odd to me. Record low is record low. Plenty of people can qualify to buy with 3.5% down at a rate of around 4%. Imagine if we said that in the late 90's. It would sound absurd.

Downpayment. What %? Where does it come from?

Former Idealist

My new business cycle model now includes the bailout cycle (throw caution to the wind) and the money printing (these things happen) cycle. Side effects unknown.

Cinco-X:

Former Idealist wrote:

My new business cycle model now includes the bailout cycle and the money printing cycle. Side effects unknown.

Can you combine them into just a "wealth extraction phase" of the cycle?

mp:

Lurking Lawyer wrote:

The meme has always been that the stock market is forward looking 12-months. See how that worked out in August 2007.

I learned many, many years ago that trading is a sucker's game. All it does is generate commissions.

I encourage people to watch the economy because it's easier to read, then do your market analysis.

In other words, "play" the big moves in the economy.

Comrade Troyski:

CalculatedRisk wrote:

I doubt we will see the 10% to 20% "overshoot" that some people are predicting ...

Reverse the Bush tax cuts and we'll see some movement on the downside.

California's pension funds are $750B in the hole. Over 30 years that is $150 per household per month of deferred taxation coming due.

Then there's the $20B state deficit itself. We can cut gov't or raise taxes, either way that's coming out of land values in the end.

$10 gasoline isn't going to do the housing market any favors, either.

Former Idealist:

Can you combine them into just a "wealth extraction phase" of the cycle?

I see your point. Hard to pinpoint that one. As food and energy costs soar, that is immediate extraction. But other than job loss, the massive tax increases to cover bailouts and flat out printing haven't started yet. And what is this wealth for which you speak?

Comrade Troyski

Jim A. wrote:

But the oversupply of housing can put real downward pressure on rents

not to mention the undersupply of disposable income. But you said that : )

ac

I think this graph helps illustrate the illusory FIRE GDP numbers that we report.

memmel wrote on Tue, 2/28/2012 - 9:39 am I think the housing market going forward is going to be very different from the past. I'm calling it bifurcation. I think a large part of the market will remain rentals for a long time to come however I believe we are in a rent bubble right now. In the next few years we should see rents start to decline. This will eventually cause investor purchasing to slow leading to falling prices for houses suitable for rental.

This coupled with deeply underwater home owners unwilling or unable to repair their homes will lead to what I call the great rot.

On top of this I think we will be in and out of recession with short periods of growth for a long time. Exactly what happens will depend on oil prices. In addition the underlying retirement of baby boomers will become a huge drag on the economy and housing as they attempt to cash out.

Now on the bright side if you will housing is in general affordable now for those that have jobs. People will pay what they can pay.

In many cases this means simply they can buy a better house now than they could a few years ago for the same amount of money.

I think this will also drive bifurcation with buyers holding out for the best properties and unwilling to touch anything that has problems.

In general I don't expect significant price declines for excellent properties. Most will hold value however selling a house will be a multi year process. Weaker sellers will be forced into concessions.

And that's pretty much it for decades. I think rising energy prices will make living in urban centers viable, younger people will move back into town and no longer want suburban living. Obviously they have no financial incentive to get involved with suburban houses.

And thats pretty much it. The great suburban experiment fails and life goes on.

Tommy Vu:

Anecdotal CONsumer CONfidence report, (Actually aren't all surveys, con-confidence data anecdotal?).

Talked to a friend of a friend last week. He told me how great things were, confidence high. Wife closed up business, filed BK that only costs him $800 a month in payments, underwater by at least 50% in his home, but that's only $1200 a month. Wished he wouldn't of bought new truck, $700 a month. He works with a friend and I know how much money he makes, wife works for county so I know her salary. They're one missed paycheck away from their house of cards tumblin' down, but the dude's stoked and full of confidence.

Tommy Vu

Optimists point to declining home inventories in relation to sales, but they're looking at an illusion. Those supposed inventories don't include about 5 million housing units with delinquent mortgages or those in foreclosure, which will soon be added to the pile. Nor do they include approximately 3 million housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can't get a decent price for them. Vacancies are up 1m from 2006.

What we're witnessing is a fundamental change in the consciousness of Americans about their homes...

ROBERT REICH: Housing Is The Rotting Core Of The Recovery

[Feb 14, 2012] Bill Gross' More Tempered Active-ETF View

Pimco Total Return ETF (TRXT), the exchange-traded version of the $251 billion Pimco Total Return Fund (PTTRX) that launches early next month.

[Feb 09, 2012] Gross Raises Treasury Holdings to 2010 Level

Is Gross preparing for a storm ? See also his Jan 12 interview Pimco's Gross on Economy, Markets, Treasuries - Video - Bloomberg

Gross boosted the proportion of U.S. government and Treasury debt in Pimco's $250.5 billion Total Return Fund in January to 38 percent from 30 percent in December, according to a report placed on the company's website. He raised mortgages to 50 percent, the highest since June 2009, from 48 percent in December. Newport Beach, California-based Pimco doesn't comment directly on monthly changes in its portfolio holdings.

Treasuries with maturities from five to seven years have been the focus of purchases with longer-term debt unattractive due to risk of a pick-up in inflation, Gross said in an interview Feb. 3 on "Bloomberg Surveillance" with Tom Keene and Ken Prewitt. The Fund (PTTRX) increased its allocation of Treasury Inflation Protected Securities, or TIPS, to 8 percent, Gross said that day.

The fund last year gained 4.2 percent, lagging behind 70 percent of its peers, after Gross missed a rally in U.S. Treasuries and put money into riskier assets, according to data compiled by Bloomberg.

Gross's fund recovered and has returned 7.35 percent in the past year, beating 49 percent of its peers, according to data compiled by Bloomberg. It gained 2.13 percent during the past month, beating 97 percent of peers.

Emerging Markets

Meanwhile, Treasuries have lost 0.37 percent in 2012 as of Feb. 8, versus a gain of 9.8 percent last year, according to Bank of America Merrill Lynch indexes.

Pimco reduced holdings of emerging-market debt to nine percent, from 10 percent and cut the bonds of non-U.S. developed nations to 11 percent last month, the lowest since May, from 18 percent last month.

[Feb 04, 2012] Is Facebook's IPO an exit strategy? By Ken Hess

February 2, 2012

Summary: There's money to be made on Facebook's IPO but is it a long-term investment? I don't think so but there's much to consider.

It's no secret that I'm not a huge Facebook fan. All you have to do is read some of my other posts on the topic. I think Facebook's IPO comes at a time when Facebook is on its way out–out of our lives and out of our gadgetry–for good. I believe that a lot of people have discovered that it's a waste of time and computing resources. It was cute for a while but now, they're trying to rekindle interest in this juvenile phenomenon by issuing this IPO. It's silly but it will make megamillionaires and billionaires out of people who aren't qualified to deliver pizza. Crazy stuff, that.

I think the IPO is a last ditch effort to breathe life into a failing concern. But, it won't work. Not for long anyway. I think people will wake up and say to themselves, "OMG, I have invested in something that doesn't really exist except in Cyberspace. I've…I've…invested in AIR!"

They'll wisely pull their money out and Facebook will fall to the wayside.

Goodbye and good riddance.

Although I hate Facebook and I think that the IPO is really just a money grab for those who own stock, let me add this: If I had stock in Facebook, I'd sell it as soon as possible and retire comfortably on my ridiculously gotten gain. Yes, I'd be on the phone to the broker and say, "Show me the money, baby, I am outta here."

I don't trust the stock market. I've seen fortunes lost in it. It's the same logic that keeps me out of the casinos. Sure, some people win but the losers far outnumber the winners. I don't like to lose so I don't play and I never bet unless it's a sure thing–and it never is. But, if I were the guy who painted that mural at Facebook and today he might be worth $200 million dollars, I'd take the money and run.

However, there will be people who ride it all the way to the bottom.

I can't wait to hear the "analysts" discuss Facebook's meteoric rise and fall. Everyone will give their roundtable spins as to the whys and hows and no one will remember this humble prediction. Except for me, that is.

Years ago Zuckerberg had an offer on the table for a couple billion dollars for Facebook. He didn't sell it. I would have. He held on. People don't know when to let go. Of course, he stands to make billions more now but my guess is that either he'll ride it to the bottom and end up with almost nothing or he'll wisely bail on it. The smart people involved will use this IPO bubble as an exit strategy out of a dying animal's carcass.

My advice is that if you have Facebook stock that you should cash it in because it will never be worth more than it is right now.

Why? Because it's a silly social network thing. It's false, people. There's no value in it. It's a bunch of blips on a computer screen. It's a false way to be "social." It's the latest MySpace.

Be smart, don't gamble your underfunded retirement on it. If you get the twinge to do it, think about Enron, WorldCom and so many others. Also, think about MySpace. MySpace was "all the rage" a few years ago. Now, you couldn't sell it for the electricity it burns up. A few years ago, everyone had a MySpace page. You had to have one or you didn't really exist. That's Facebook.

Facebook and the rest of "social" media is basically a scrolling wall onto which you "spray" your graffiti. It's now an acceptable form of communication. By acceptable, I mean accepted but pointless.

... ... ...

[Feb 2, 2012] Bill Gross Explains Why We Are Witnessing The Death Of Abundance And Why Gold Is Becoming The Default Store Of Value Zero

02/01/2012 | Tyler Durden

While sounding just a tad preachy in his February newsletter, Bill Gross' latest summary piece on the economy, on the Fed's forray into infinite ZIRP, into maturity transformation, and the lack thereof, on the Fed's massive blunder in treating the liquidity trap, but most importantly on what the transition from a levering to delevering global economy means, is a must read. First: on the fatal flaw in the Fed's plan: "when rational or irrational fear persuades an investor to be more concerned about the return of her money than on her money then liquidity can be trapped in a mattress, a bank account or a five basis point Treasury bill. But that commonsensical observation is well known to Fed policymakers, economic historians and certainly citizens on Main Street." And secondly, here is why the party is over: "Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We'll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive "risk" and the "price" of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time." Yet most troubling is that even Gross, a long-time member of the status quo, now sees what has been obvious only to fringe blogs for years: "Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper." Let that sink in for a second, and let it further sink in what happens when $1.3 trillion Pimco decides to open a gold fund. Physical preferably...

From PIMCO's Bill Gross:

Life – and Death Proposition

• Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside.
• Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation.
• We can't put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering and refusing to extend maturities and duration.

Where do we go when we die?
We go back to where we came from
And where was that?
I don't know, I can't remember
Virginia Woolf, "The Hours"

I don't remember much of this life, and like Virginia Woolf, nothing of the herebefore. How then, could I expect to know of the hereafter? I know at least that we all exist at and of the moment and that we make up those moments as we go along. I became a grandfather for the first time a few months ago and proud son Jeff asked for some fatherly advice as to how to go about raising his baby daughter Caroline. "We all do it in our own way, Jeff, you'll make it up as you go along," I said. Parenting, and life itself, is one giant experiment. From those first infant steps, to adolescent peer testing, flying from and departing the parental nest, gene replication and family building of our own, maturity and acquiescence, aging, decay and inevitable death – we experiment as best we can and make it up as we go along.

That death part though, oh where do we go after we have done all the making? There was another Jeff in our family, beloved brother-in-law Jeff Stubban who was as kind a man as there ever could be. Dying within three months of an initial diagnosis of pancreatic cancer, our family sobbed uncontrollably at his bedside as his breath, his spirit, his soul, departed almost on cue while a priest recited the rosary. Where had he gone, where is he now, what will become of him and all of us? Like many grieving families we look for signs of him and in turn for clues to our own destination. A lucky penny in the street, a random mention of his beloved New Orleans, an exterior resemblance of his shiny bald head in a mingling crowd. Where are you, Jeff? Tell us you are safe so that we might meet again.

Having now matured to trust reason more than faith I offer not so much a resolution, but an alternative to the unanswerable question of Virginia Woolf and the departed souls of Jeff Stubban and billions of others. If we don't meet again – up there – then perhaps we'll meet once more – down here. After all, the one thing I know for sure is that we got here once – and because we did, we could do it again. Rest easy, dear Jeff, and welcome to this world, dear Caroline. We'll all just have to make it up as we go along.

The transition from a levering, asset-inflating secular economy to a post bubble delevering era may be as difficult for one to imagine as our departure into the hereafter. A multitude of liability structures dependent on a certain level of nominal GDP growth require just that – nominal GDP growth with a little bit of inflation, a little bit of growth which in combination justify embedded costs of debt or liability structures that minimize the haircutting of or defaulting on prior debt commitments. Global central bank monetary policy – whether explicitly communicated or not – is now geared to keeping nominal GDP close to historical levels as is fiscal deficit spending that substitutes for a delevering private sector.

Yet the imagination and management of the transition ushers forth a plethora of disparate policy solutions. Most observers, however, would agree that monetary and fiscal excesses carry with them explicit costs. Letting your pet retriever roam the woods might do wonders for his "animal spirits," for instance, but he could come back infested with fleas, ticks, leeches or worse. Fed Chairman Ben Bernanke, dog-lover or not, preannounced an awareness of the deleterious side effects of quantitative easing several years ago in a significant speech at Jackson Hole. Ever since, he has been open and honest about the drawbacks of a zero interest rate policy, but has plowed ahead and unleashed his "QE bowser" into the wild with the understanding that the negative consequences of not doing so would be far worse. At his November 2011 post-FOMC news briefing, for instance, he noted that "we are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people" – savers, pension funds, insurance companies and finance-based institutions among them. He countered though that "there is a greater good here, which is the health and recovery of the U.S. economy, and for that purpose we've been keeping monetary policy conditions accommodative."

My goal in this Investment Outlook is not to pick a "doggie bone" with the Chairman. He is makin' it up as he goes along in order to softly delever a credit-based financial system which became egregiously overlevered and assumed far too much risk long before his watch began. My intent really is to alert you, the reader, to the significant costs that may be ahead for a global economy and financial marketplace still functioning under the assumption that cheap and abundant central bank credit is always a positive dynamic. When interest rates approach the zero bound they may transition from historically stimulative to potentially destimulative/regressive influences. Much like the laws of physics change from the world of Newtonian large objects to the world of quantum Einsteinian dynamics, so too might low interest rates at the zero-bound reorient previously held models that justified the stimulative effects of lower and lower yields on asset prices and the real economy.

It is instructive to mention that this is not necessarily PIMCO's view alone. Chairman Bernanke and Fed staff members have been sniffin' this trail like the good hound dogs they are for some time now. In addition, Credit Suisse, in their "2012 Global Outlook," devoted considerable pages to specifics of zero-based money with commonsensical historical comparisons to Japan over the past decade or so. The following pages of this Outlook will do the same. At the heart of the theory, however, is that zero-bound interest rates do not always and necessarily force investors to take more risk by purchasing stocks or real estate, to cite the classic central bank thesis. First of all, when rational or irrational fear persuades an investor to be more concerned about the return of her money than on her money then liquidity can be trapped in a mattress, a bank account or a five basis point Treasury bill. But that commonsensical observation is well known to Fed policymakers, economic historians and certainly citizens on Main Street.

What perhaps is not so often recognized is that liquidity can be trapped by the "price" of credit, in addition to its "risk." Capitalism depends on risk-taking in several forms. Developers, homeowners, entrepreneurs of all shapes and sizes epitomize the riskiness of business building via equity and credit risk extension. But modern capitalism is dependent as well on maturity extension in credit markets. No venture, aside from one financed with 100% owners' capital, could survive on credit or loans that matured or were callable overnight. Buildings, utilities and homes require 20- and 30-year loan commitments to smooth and justify their returns. Because this is so, lenders require a yield premium, expressed as a positively sloped yield curve, to make the extended loan. A flat yield curve, in contrast, is a disincentive for lenders to lend unless there is sufficient downside room for yields to fall and provide bond market capital gains. This nominal or even real interest rate "margin" is why prior cyclical periods of curve flatness or even inversion have been successfully followed by economic expansions. Intermediate and long rates – even though flat and equal to a short-term policy rate – have had room to fall, and credit therefore has not been trapped by "price."

When all yields approach the zero-bound, however, as in Japan for the past 10 years, and now in the U.S. and selected "clean dirty shirt" sovereigns, then the dynamics may change. Money can become less liquid and frozen by "price" in addition to the classic liquidity trap explained by "risk."

Even if nodding in agreement, an observer might immediately comment that today's yield curve is anything but flat and that might be true. Most short to intermediate Treasury yields, however, are dangerously close to the zero-bound which imply little if any room to fall: no margin, no air underneath those bond yields and therefore limited, if any, price appreciation. What incentive does a bank have to buy two-year Treasuries at 20 basis points when they can park overnight reserves with the Fed at 25? What incentives do investment managers or even individual investors have to take price risk with a five-, 10- or 30-year Treasury when there are multiples of downside price risk compared to appreciation? At 75 basis points, a five-year Treasury can only rationally appreciate by two more points, but theoretically can go down by an unlimited amount. Duration risk and flatness at the zero-bound, to make the simple point, can freeze and trap liquidity by convincing investors to hold cash as opposed to extend credit.

Where else can one go, however? We can't put $100 trillion of credit in a system-wide mattress, can we? Of course not, but we can move in that direction by delevering and refusing to extend maturities and duration. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.

Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We'll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive "risk" and the "price" of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time.

January

[Jan 30, 2012] Ripe For The Picking Time to Short Muni Bonds By The ETF Professor

Forbes

ETFs tracking municipal bonds defied logic in 2011. Well, at least they proved doubters, Meredith Whitney among them, wrong on the road to some stellar performances.

Yes, concerns about major budget issues facing scores of U.S. states, cities and towns were and still are legitimate. However, yield-starved investors put those concerns on the back burner and did some serious shopping with muni bond ETFs.

There are no guarantees of imminent declines, but looking at the charts and indicators of many muni bond ETFs, it's clear this group has moved up in a big way and the time might be right for some profit-taking if not all-out shorting of these ETFs.

[Jan 30, 2012] With friends like Facebook, who needs sociopaths by John Naughton

Jan 28, 2012 | The Guardian

The truth is that companies such as Facebook are basically the corporate world's equivalent of sociopaths, that is to say individuals who are completely lacking in conscience and respect for others. In her book The Sociopath Next Door, Martha Stout of Harvard medical school tries to convey what goes on in the mind of such an individual. "Imagine," she writes, "not having a conscience, none at all, no feelings of guilt or remorse no matter what you do, no limiting sense of concern of the wellbeing of strangers, friends, or even family members. Imagine no struggles with shame, not a single one in your whole life, no matter what kind of selfish, lazy, harmful, or immoral action you had taken. And pretend that the concept of responsibility is unknown to you, except as a burden others seem to accept without question, like gullible fools."

Welcome to the Facebook mindset.

[Jan 30, 2012] Is Facebook run by sociopaths?

A commentator on the Guardian suggests that "companies such as Facebook are the corporate world's equivalent of sociopaths." Might this be true?

While I wouldn't wish to wallow in a definition of sociopathy, I did happen to ask a couple of Facebook's advertising clients how they found dealing with the world's most powerful brain child.

"They breathe their own fumes," one executive told me. And he is someone who gives Facebook rather large sums of money.

It is in this, surely, that Facebook has its power. It tells us all that in tomorrow's world, everything will be social. If you're not riding in the social Ferrari, you will be but a mere cipher in the commerce of life. Worse, you will be a mere individual, someone with absolutely no friends in the playground.

And who would want to be an isolated individual or part of an isolated company? It's tempting, then to view Facebook's world picture as expressing the mindset of a sociopath--or even a con man.

The driving force of both is that their world is the only one that matters. Their own personal joy lies in dragging everyone else into their vortex and watching as everyone stares rapt in an excitement they can't quite define. There's a lot of fun in that.

Is there some ultimate meaning and spiritual uplift in the proceedings? Not so much. Rather, it's the power of the game and the protagonist's power in the game that matter.

The gullible--that would be us--play along because the game seems to offer something that we will enjoy: success or approbation, perhaps.

But, in the end, it's rather hard to believe that every move Facebook makes is the move of a benevolent association or a social revolutionary, instead of a move by an advertising company.

Who might suspect, in their private hearts, that privacy is not something that enjoys too much philosophical debate at Facebook HQ? Rather, it's simply something that stands in the way of selling more adverts. It's an inconvenience that gets in the way of economic progress.

Because economic progress is far more important than any individual's right to keep herself to herself. That's not Facebook's fault, some might say. That's just the world we live in. We've all come to believe that economic progress matters more than anything.

Naturally, this might all change a little should one of the Facebook management run into some sort of personal bother that becomes public. But, until then, let's knock down those privacy walls and make some money.

It is wrong, of course, to suggest that Facebook's management might be isolated in their apparent views. Google, too, would surely prefer it if you gave it more and more information so that it can sell more and more--and, cute phrase this, "better"--adverts.

For Naughton, sociopaths are "individuals who are completely lacking in conscience and respect for others."

I have a feeling that the people who run Facebook and Google aren't sociopaths in their private lives -- should they have them. It's just that when they create one of those social networks we call companies, a strange group-think takes over.

That strange group-think doesn't so much distort reality as try to create a new one.

We are now living in the new reality. It's one in which it all has to start with people. People are products, products are money, and money is power.

Once you have the power, you can even try to tell governments what to do and what to think. And that's so much fun.

[Jan 27, 2012] Is High Yield Credit Over-Extended

Jan 27, 2012 | ZeroHedge

"Reach for yield" is a phrase that never gets old, does it? Whether it's the "why hold Treasuries when a stock has a great dividend?" or "if this bond yields 3% then why not grab the 7% yield bond - it's a bond, right?" argument, we constantly struggle with the 100% focus on return (yield not capital appreciation) and almost complete lack of comprehension of risk - loss of capital (or why the yield/risk premium is high). Arguing over high-yield valuations is at once a focus on idiosyncrasies (covenants, cash-flow, etc.), and technicals (flow-based demand and supply), as well as systemic and macro cycles, which play an increasingly critical part. Up until very recently, high yield bonds (based on our framework) offered considerably more upside (if you had a bullish bias) than stocks and indeed they outperformed (with HYG - the high-yield bond ETF - apparently soaking up more and more of that demand and outperformance as its shares outstanding surged). With stocks and high-yield credit now 'close' to each other in value, we note Barclay's excellent note today on both the seasonals (December/January are always big months for high yield excess return) and the low-rate, low-yield implications (negative convexity challenges) the asset-class faces going forward. The high-beta (asymmetric) nature of high-yield credit to systemic macro shocks, combined with the seasonality-downdraft and callability-drag suggests if you need to reach for yield then there will better entry points later in the year (for the surviving credits).

Compare the flow of shares outstanding (black line) as increasing demand for yield drove investors into the high-yield ETF. However, unlike what one might expect (demand-based price action), prices have not risen significantly in the last few months (as demand for creation of shares has blown up). The rally in HYG over the last week or two is notable though as the December/January seasonals come into play.

The seasonals in high-yield credit are astounding as Barclays points out and with so many now watching credit markets for signs of stress, the seasonal front-running and implicit flow has likely reflexively led and confirmed the risk-on rally. That seasonal strength is about to end.

With interest rates so low, and spreads compressing, high-yield bond all-in yields have compressed significantly leaving more than 30% of Barclays HY Index trading above their next Call Price. This means that high yield credit is increasingly prone to negative convexity concerns. In English this means that as yields fall (and prices rise) on high yield bonds (which often have a call option embedded to enable the borrower to repurchase the debt - and perhaps refi at the new lower rate), then it becomes increasingly likely that the firm would exercise the call and buy back the debt. This impact is called negative convexity as it causes the price of the bond to stabilize instead of following up the 'normal' convexity curve (so will underperform).

The point is that the higher the price of high-yield bonds get, the more of a negative impact of this callability and the less attractive the bonds become. The chart above shows that we are already above the levels of the peak in 2007 and are rapidly heading to the peaks in 2011 especially as the Fed flattens the curve out to 5-7Y (where most HY debt is maturing before this).

If the demand for HYG shares could not pump up prices, and seasonal are abating, and negative convexity concerns are increasing, and relative valuation with stocks is not compelling, perhaps the asymmetric nature of high-yield bond returns will be too much for even the 'reachers' to bear as we face a series of known and unknown unknowns in the coming months that will more than less impact credit markets (liquidity and all) first.

RobotTrader

Check out the muni-bond ETF's.

All of them are going completely parabolic.

Dominating the list of 52-week highs today.

http://www.marketwatch.com/tools/marketsummary/screener?exchange=Nyse&report=High52WeekbyPercentGain

[Jan 24, 2012] Paul Krugman Makes Housing Call He Will Likely Come to Regret

2012 is going to be interesting and will be hard to track on the various levels. Especially several types of bonds such as TIPs and high yield.

naked capitalism

hyperpolarizer:

I am a huge Krugman fan, but I think he's missing something else: why did household debt get so out of hand in the Bush years? Because salaries would no longer support accustomed lifestyles, and with the housing bubble, people found they could take money out of their homes.

Until a solid manufacturing economy returns to America, that won't change. The idea that you can run a world-class economy just by building houses is crazy.

Also, Paul doesn't get it about China. It's not (as he claims) about having the supply chain localized - it's about docile workers living in dormitories who can be rousted at midnight to work a 12 hour shift on a biscuit and a cup of tea.

If anyone thinks that is necessarily the future of manufacturing, they haven't been watching France or Germany. A young French friend works in QA/QC for a machine shop making surgical prosthetics (outside Valence.) For Christmas all the workers were treated to Champagne and foie gras!

nonclassical:

Kevin Phillips has shown that U.S. has joined historically irrelevant economies who have exchanged manufacturing base economics for bankers pushing paper debt around…up from 20% of economy (or so) circa 2001, to over 40% by 2007.
Bushitters unite! Our first "MBA" president indeed…("American Dynasty")

James

Except that France and Germany (and especially the example you provided) hardly represent the "future of manufacturing," whatever that is. And the Chinese model might as well be considered the US model, as that's the market it was built to support and which provides its tight-fisted meager funding. The Chinese are merely doing to their workers what American interests are (so far anyway) unable to do to theirs, in the current day at least. Charles Dickens or Upton Sinclair anyone? Options? Further automation or move on to the next third world sweat shop. All for cheap shit that most of us don't need anyway shipped halfway around the world by cheap energy paid for by blood money. American capitalism's something for nothing mentality is a powerful illusion, and it seems that all the world's entranced. And the magicians performing the sleight of hand like it that way.

max:

And the wealthiest generation in history, having most of it's wealth in real estate is preparing to sell for retirement over the next 10-15 years to a middle class which is disappearing daily.

Not to mention that they have eliminated all the jobs for their childre.

Goodbye housing for a long time to come.

Luke Lea:

@ – "we may see a sustained reversal of household formation rates, and it may even go as far as leading to larger average household sizes. Extended families living together used to be not all that uncommon; it may go from being a sign of desperation to being seen as a smart way to economize and conferring other benefits (sharing child care duties, for instance)."

http://facingzionwards.blogspot.com/2009/04/future-of-retirement.html

Hugh:

A few days ago someone tweeted ironicaly, to all Democratic commentators, only good economic news in 2012. Apparently Krugman got the message.

This is a typical Krugman piece where he attacks those crazy Republicans, sucks up to the Democrats, and treats his mentor Ben Bernanke with kid gloves.

There has still been no serious effort to deal with the roiling morass of systemic fraud that is the housing market. Housing prices are still twice their historic (1997) norms. We have this huge overhang of millions of houses, but Krugman is seeing green shoots everywhere. Of course he does sound a note of caution, some understandable CYA given the load of BS he has just dropped on us.

Even if you accept the McKinsey report Krugman cites and I am not sure why anyone should, one of its highlights is US households "may have roughly two more years before returning to sustainable levels of debt," that is this report says that it will take at least two years before Americans don't get out of the water but get their heads above water. It takes more than squinting to make that look like a green shoot now.

[Jan 23, 2012] United Welfare States of America- In 2011 Nearly Half The Population Received Some Form Of Government Benefit

Over 46 million of American are now receiving food stamps.

in 2011 nearly half of the population lived in a household that receives some form of government benefit, which in turn accounted for 65% of total federal spending, or $2.5 trillion, and amount to 15% of GDP.

NewThor

This comment is so muddled and confusing, I'm going to guess it's a FOXbot Algo used to spread profitable piffle.

FOXbot ALGO SAYS....

"REPUBLICAN GANGSTER BANKERS = GOOD

DEMOCRAT GANGSTER BANKERS = BAD"

Ghordius

Confusing? Just *TRY* to have a normal conversation with my UK and US relatives and you will find out that they think they live in the land of the free and that the eurozone is a socialist overregulated hellhole where half of the population is on some kind of government support.

Dr Paul Krugman

I appreciate the work that goes into this blog's technical analysis very much. But the fact is that if people no longer received assistance from the government the economy would be in shambles. Unemployment would skyrocket. GDP would plummet. Then where would we be?

The option is to stimulate growth now and pay for it later. It isn't like the U.S. is going to stop producing goods, food, and other such products. After a "push" from stimulus then Americans will be back on their feet and GDP will rise. Along the way debts will be paid off. It has worked before, it will work now, and it will work again.

[Jan 23, 2012] How Private Equity Firms Like Bain Capital Earn Profits The New Yorker

Jan 30, 2012 | http://www.newyorker.com/

At this point, the people who run America's private-equity funds must be ruing the day Mitt Romney decided to run for President. His fellow Republican candidates, of all people, have painted a vivid picture of private-equity firms-including Bain Capital, where he worked for fifteen years - as job-destroying vultures, who scavenge the meat from American companies and leave their carcasses by the side of the road. Not since the days of "Wall Street" and "Barbarians at the Gate" have the masters of leveraged buyouts looked quite so bad.

Given the weak job market, it makes sense that the attacks have focussed on layoffs. But the real problem with leveraged-buyout firms isn't their impact on jobs, which studies suggest isn't that substantial one way or the other. A 2008 study of companies bought by private-equity firms found that their job growth was only about one per cent slower than at similar, public companies; there was more job destruction but also more job creation. And, while private-equity firms are not great employers in terms of wage growth, there's not much evidence that they're significantly worse than the rest of corporate America, which has been treating workers more stingily for about three decades.

The real reason that we should be concerned about private equity's expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets, deriving enormous wealth not from management or investing skills but, rather, from the way the U.S. tax system works. Indeed, for an industry that's often held up as an exemplar of free-market capitalism, private equity is surprisingly dependent on government subsidies for its profits. Financial engineering has always been central to leveraged buyouts. In a typical deal, a private-equity firm buys a company, using some of its own money and some borrowed money. It then tries to improve the performance of the acquired company, with an eye toward cashing out by selling it or taking it public. The key to this strategy is debt: the model encourages firms to borrow as much as possible, since, just as with a mortgage, the less money you put down, the bigger your potential return on investment. The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust.

[Jan 23, 2012] Philip Pilkington Does Capitalism Have a Future

January 23, 2012 | naked capitalism

Why the Financial Times Asks All the Wrong Questions to Avoid the Real Issues

...First and foremost, the business class – like any class – are concerned not with profits but with power; the former are merely a means to the latter. They sense that their power comes from their ability to invest as investment drives a capitalist economy. The less they invest and the more the state invests, the less social power they will have. Clearly this is a perfectly logical and consistent idea; indeed, it is almost self-evident in its truth.

Without a major war – and we're not talking about some piddly little adventure in Iran – there is no real motivating mechanism to alleviate the business class' fears in this regard. They would much prefer to sit around idly doing nothing than give up some of their power. And the fetish of the balanced budget serves them well to sooth the doubts of the politician who thinks that something should be done despite such action potentially offending his dining partners. And so we end up in our present quagmire.

Democratic capitalism, quite simply, is a self-destructive system. In the present crisis the business class has rejuvenated their profits through financial chicanery. But, as I argued on this site the other day, this is probably through the inflating of a commodities bubble and will likely not last long. Still, even in the event of this coming to fruition we know from history that the business class will probably prefer to accept chronically low profits than they will the government moving in on their turf.

Thus it is likely that the West is heading for a long period of stagnation and decline. Is this due to capitalism? In a sense yes, but to put it in these terms is far too abstract. This has as much, if not more, to do with our political structures and the amount of power that the business class exercises in modern democracies. It is really a problem, not of capitalism, but of capitalist democracy.

Is this to say that some non-democratic system is preferable? Certainly not. Anyone who would give up their liberty for a pay check is reprehensible. Some will say that we already live in a non-democratic system. I would reply: hold your tongues lest that come true and all your fantasies become a horrifying reality.

But even beyond such moral judgments, in reality the idea that some other system of economic governance might come to replace our own seems unlikely. Again, this is January 2012, not March 1933. We have a welfare system that allows people in even the most callous Western states to avoid starvation. In truth, the structures of power have largely solidified. Even another financial crisis and a chronic shortfall in profitability are unlikely to loosen them up much – let alone break them.

These are the real issues that we face as we move into the future. And it is these that people who try to establish a more functional economic and political system face, bravely, everyday. But these are issues that the FT – with its enlightened business class liberal readership – could not raise. Otherwise it might see its profitability decline long before the next financial crisis. Perhaps then, rather than flag-waving and posturing, the FT would have been better leaving well enough alone. Perhaps they should have stuck to what they are good at – that is, actual analysis – and put away their pom-poms.

Selected comments

Mark P.

This has been mentioned before. But for those who haven't seen it, check out Adam Curtis on 'THE YEARS OF STAGNATION AND THE POODLES OF POWER'

http://www.bbc.co.uk/blogs/adamcurtis/2012/01/the_years_of_stagnation_and_th.html

'…I want to tell the story of another time and another place not so long ago that was also stifled by the absence of novelty and lacking a convincing vision of the future. It was in the Soviet Union in the late 1970s and 1980s. At the time they called it "the years of stagnation"…

'Everyone in Russia in the early 1980s knew that the managers and technocrats in charge of the economy were using that absurdity to loot the system and enrich themselves. The politicians were unable to do anything because they were in the thrall of the economic theory, and thus of the corrupt technocrats. And above all no-one in the political class could imagine any alternative future.

'In the face of this most Soviet people turned away from politics and any form of engagement with society and lived day by day in a world that they knew was absurd, trapped by the lack of a vision of any other way….

[Jan 22, 2012] In Search of Yield & Dividends

January 21st, 2012 | The Big Picture

constantnormal:

It would be interesting to see a historical chart with the rise in CEO compensation superimposed with the decline in dividends, both relative to earnings. I wonder how strong the correlation would be.

Sechel:

Dividends are very important component when calculating total return picture of stocks, but as a replacement for fixed income I take issue for two big reasons, first by investing in stocks vs bonds the investor is taking on considerably more duration risk, secondly the income stream is less dependable based on the lower priority in the capital structure. Lastly I wonder about the wisdom of buying into companies the article mentions such as Verizon which has huge infrastructure spending requirements or some of the companies which huge cash overseas that can't easily be repatriated and used as to pay cash dividends. Dividend paying stocks should be how one allocates the majority of their equity exposure(in my view) and not as a replacement for bonds. After all the risk profiles of the two asset classes are not exactly the same.

[Jan 20, 2012] "Business Leaders of Today are Not Capitalists"

Economist's View

John Kay says that the term "capitalism" is misleading in modern economies:

Let's talk about the market economy, by John Kay, Commentary, Financial Times: ...Karl Marx never used the word capitalism. But after the publication of Das Kapital, the term came to describe the system of business organization which had made the industrial revolution possible. By the mid-19th century ... individuals or ... a small group of active partners ... built and owned both the factories and plants in which the new working class was employed... The economic and political power of business leaders derived from their ownership of capital and the control that ownership gave them over the means of production and exchange.

The political and economic environment in which Marx wrote was a brief interlude in economic history. ... Legislation passed in Marx's time permitted the establishment of the limited liability company, which made it possible to build businesses with widely dispersed share ownership. ...

So the business leaders of today are not capitalists in the sense in which Arkwright and Rockefeller were capitalists. Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital. They have obtained these positions through their skills in organizational politics, in the traditional ways bishops and generals acquired positions in an ecclesiastical or military hierarchy. ...

People do not know who owns their work tools because the answer does not matter. If your boss pushes you around, exploits you or appropriates your surplus value, the reasons have nothing to do with the ownership of capital..., ownership of the means of production and exchange matters very little.

Sloppy language leads to sloppy thinking. By continuing to use the 19th-century term capitalism for an economic system that has evolved into something altogether different, we are liable to misunderstand the sources of strength of the market economy and the role capital plays within it.

This is an important point, and it relates directly to the claim by many that inequality is needed in capitalist economies as an engine of growth. I think small businesses still operate in something resembling old fashioned capitalism -- owners putting their own resources at risk to open a new business -- but big business is another story (and in some cases, such as the financial industry, too big too fail considerations reduce risk considerably for high level executives making arguments that this type of risks motivates innovation, etc. hard to swallow).