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www.theguardian.com
The IMF managing director, Christine Lagarde, said the prospect of rising interest rates in the US and an economic slowdown in China were feeding uncertainty and a higher risk of economic vulnerability worldwide.
Added to that, growth in global trade has slowed considerably and a decline in raw material prices was posing problems for economies reliant on commodities, while many countries still had weak financial sectors as the financial risks increase in emerging markets, she said.
"All of that means global growth will be disappointing and uneven in 2016," Lagarde said, noting that mid-term prospects had also weakened as low productivity, ageing populations and the effects of the global financial crisis dampened growth. In October, the IMF forecast that the world economy would grow by 3.6% in 2016.
... ... ....
Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases.
Lagarde warned that rising US interest rates and a stronger dollar could lead to companies defaulting on their payments and that this could "infect" banks and states.
Dec 27, 2015 | naked capitalism
An excellent column by Martin Wolf in the Financial Times, where he is the lead economics editor. Starting with principles put forward by Ben Bernanke in his recent speech on income inequality, Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care.
James Levy, December 26, 2015 at 4:32 pm
I have no idea if Marx was right, in the long run, or wrong–the verdict is still out on the long-term viability of industrial capitalism, which is less than 250 years old and creaking mightily as I write this. It may be that when Rosa Luxemburg said that the choice was between Socialism and Barbarism, she underestimated how likely barbarism was. What I do know is that capitalism today isn't just too ugly to tolerate, it is downright murderous. Its imperatives are driving the despoliation of the planet. It's love of profit over all else is cutting corners and creating externalities that are lethal. But it has made a few percent of the global population comfortable and powerful, and they are holding onto that comfort and that power come hell or high water (and, ironically, if things continue apace both are on the menu).
Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. I am not enthusiastic that this will happen before it is way too late to save more than a fraction of the current world population, and send those people back to the lifestyles and thought patterns of 30 Year's War Europe.
Oct 09, 2015 | peakoilbarrel.com
Oct 04, 2015 | Peak Oil Barrel
Longtimber , 10/05/2015 at 12:47 pm
Gotta wonder bout such an Ad in an article titled "us-shale-oil-industry-will-simply-vanish"
Most Likely it's the Investor that will vanish – the oil industry will be "right sized" when forced focus on fundamentals. Sad.. but the Ad title … OIL BOOM is spot on.
shallow sand, 10/05/2015 at 3:50 pm
AlexS , 10/05/2015 at 4:47 pmSeems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term.
Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another.
KSA realizing around $180 billion less on an annual basis. Wonder how long before they feel backed into a corner enough to do something. Looks like Russia may outlast them, as KSA is pegged to dollar and Russia isn't.
Maybe Jeffrey can send KSA royals some good bean dish recipes and some free ice cream cone coupons from DQ. LOL!!
shallow sand,shallow sand , 10/05/2015 at 7:14 pmSaudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve.
AlexS. KSA could go longer than that as I assume many banks would be willing to loan them money with reserves as collateral. They also could issue many more billions of unsecured bonds.However, OPEC did not go years without cutting in 1986, 1999 and 2009.
Each time the cut worked. The price went up significantly. 1986 was not as successful as the other two cuts.
I may be wrong, but for US producers, it is likely the only hope.
AlexS, 10/05/2015 at 8:49 pm
shallow sand,shallow sand, 10/05/2015 at 10:45 pmIn 1986, OPEC actually started increasing production after unsuccessfully trying to stabilize prices by cutting output over the previous 5 years. Their market share dropped from 45.4% in 1979 to 27.6% in 1985, but was constantly increasing from 1986 and has reached 41.9% in 1998. Over the whole period prices remained low (with only a short spike during the Gulf war in 1990). But, for OPEC countries, this was partially offset by the increased production volumes from 15.9 mb/d in 1985 to 30.7mb/d in 1998 (almost twice).
AlexS.I am just looking at history regarding a cut. The past may not be repeated, I agree.
- 1985-1986. WTI dropped 62.4% from 11/85 to 7/86, from around $31 to $11.50. In November, 1986, OPEC set a target price of $18. 1/87 WTI averaged $18.65. By 7/87 the average was up to $21.34. I do agree the price collapsed again in 1988, but recovered. The price typically was 60-70% of the $31 high in 1985 until the 1998 collapse.
- 1998-1999. The price dropped approximately 55% from late 1997 to 12/98, when the monthly average was $11.35. I remember that very well. Glum Christmas Party. We were at $8 and change. 3/23 OPEC announced 2.2 million barrel cut. 7/99 average $20.10. 12/99 average $26.10.
- 2008-2009. Price dropped 71%. June, 2008 average $133.78. February average $39.09. OPEC announced stages of cuts, 500K 9/08, 1.5 million 10/08, 2.2 million 12/08. By 6/09, monthly average 69.64. By 12/09, $77.99
- 2014-15. Price dropped almost 64% from June, 2014 to August, 2015. June averaged $105.79. August, 2015 averaged $42.87.
Maybe OPEC will not cut in December, 2015. Going by history they will soon. They have not let things go more than 18 months from the peak in the past. 12/4 meeting will be at 18 months from June peak.
Go read news stories from 1986, 1999 and 2008-2009. KSA was concerned about the price each time and stated such. Things are not peachy, contrary to both KSA and Russia official mantras.
Again, I could be wrong, just looking at history. Otoh, maybe lower for longer is needed to stifle the ridiculous North American CAPEX. When reading stories from late 2008, COP had announced a CAPEX budget cut of 18% to $2.8 billion for 2009. By 2014 the CAPEX budget had ballooned to over $17 billion. COP, of course, is a big player in tar sands and all major US LTO plays, so would be a good proxy for "out of control spending.".
shallow sand, 10/05/2015 at 10:56 pm
AlexSWe could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI.
Apparently at this time the crude market does not believe this is enough to stifle North American (sans Mexico) production.
What do you think about this price range from maybe 7/16-12/20? Where do you see LTO in that scenario?
Dennis Coyne , 10/06/2015 at 9:53 am
Hi Shallow Sands,That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.)
Others predict a permanent recession (or very slow growth) due to high debt levels.
If that hypothesis is correct, the future economic outlook is indeed very grim, even in this scenario supply would decrease faster than demand (due to low prices and lack of investment) and oil prices would eventually rise (probably not until 2020), but at a slower rate of increase maybe reaching $100/b in 2025.
I don't find the excess debt story very compelling, but many do.
AlexS, 10/06/2015 at 9:41 am
Shallow sand,Parallels with 1985-86, 1998-99, 2001-02 and 2008-09 may lead to erroneous conclusions.
Sharp oil price declines in 1998-99, 2001-02 and 2008-09 were caused by cyclical demand reduction during global recessions. It was relatively easy, for OPEC, to support prices by cutting output, as demand quickly rebounded. OPEC restored production levels in a few months and didn't lose its market share.
By contrast, oil price decline in the 80s was due not only to a deep recession (1980-83), but also to long-term trends triggered by the oil price shocks of 1973-74 and 1979-80. These included oil substitution by natural gas in power generation and industry, oil/energy saving measures, and a sharp increase in oil production in the North Sea, Alaska, Mexico and Western Siberia. OPEC initially tried to offset falling demand and the tide of rising non-OPEC supplies by cutting its own output, but this proved inefficient. Competitors were taking its market share and prices continued to decline. Therefore, Saudi Arabia and other OPEC members changed their market strategy from defending prices to defending market share.
The current oil price slump is due to long-term trends in supply (primarily LTO, but also Canada and some OPEC members). Cutting OPEC output to maintain prices would only support LTO and other non-OPEC supplies, including costly projects such as Arctic. As we have seen in 2Q15, even at $60 WTI tight oil producers are ready to increase drilling activity, but at the current $45 LTO production is declining.
Therefore, it doesn't make sense for Saudi Arabia and its neighbors to cut output and support competitors. They will wait until rising demand and stagnating or declining non-OPEC production will finally erase excess supply. That will take much less time than in the 80-90s, as current spare capacity is only about 2.5 mb/d vs. 11-12 mb/d in 1985.
Oct 09, 2015 | Zero Hedge
According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs, while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF).While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further deflation in the Eurodollar system in a self-reinforcing loop.
As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports over imports meaning it can only be utilized through future imports over exports. When the Norwegians look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading Norwegians to consume more imported goods today, without realizing they were tapping into the principal of their future. When the tide turns the gross misconception is revealed.
The Government claims it is all fine though. The current down-cycle will, according to them, end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected 17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow at a healthy pace despite the massive mainland deficit.
Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle.
If we are right, a global recession is imminent, meaning the expected increase in dividend income will never materialize.
In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016.
For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.
Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance and reality.
Latina Lover
Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang them high!
Oct 08, 2015 | www.bloomberg.com
Oil surged above $50 a barrel in New York for the first time since July on speculation that demand is picking up.... ... ...
WTI for November delivery rose $1.62 to settle at $49.43 a barrel on the New York Mercantile Exchange. It was the highest settlement since July 21. Futures touched $50.07. The volume of all futures traded was 45 percent higher than the 100-day average at 3:01 p.m.
... ... ...
Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. Commercial oil inventories in developed countries remain about 190 million barrels above the five year average , he said.
Oct 08, 2015 | Barrons.com
Last month, Courvalin said that oil prices could fall as low as $20 as the global glut drags into next year. See last month's post, "There Will Be Blood: Goldman Slashes Oil Price Forecasts." Here's the laundry list of what Goldman says hasn't changed in the past week:
- The global oil market is currently well oversupplied.
- This oversupply is driven by strong production growth outside of the US with Lower 48 production already declining and gradually tightening light US crude balances.
- Low prices are required in 2016 to finally bring supply and demand into balance by year-end and sustain a US production decline of 585 kb/d next year.
- Although demand growth has surprised to the upside this year at 1.6 million b/d growth, risks are clearly to weaker demand growth in 2016.
Dave wrote:
Goldman has lost all credibility LONG ago. They are looking to load up before the rebound and are trying to drive prices down temporarily.
Earnst wrote:
Only about 20% of trade is between actual buyer's and seller's. There is a terrific bias towards longs and the use of technical analysis as well as conditioned responses to factors such as middle east conflict. It was a new day yesterday but by God it's an old day now; they'll capitulate.
Big Al wrote:
These are the same guys who called for oil in the $20s. They are either: trying to protect some short positions, clueless as to oil and gas industry fundamentals or incompetent at best. Everyone in the industry knows that shorting energy is like playing Russian roulette. You could get lucky, but if you keep playing long enough, you wind up dead.
Jeff wrote:
Hmmmm.... Rig count at lowest level in years. US production swinging lower. Saudis signaling for higher prices as they bleed $12B per month. Seems like higher prices up to $60 not unreasonable.
dsr wrote:
Not many know this, but Goldman owns a large interest in an oil refinery in Indiana. The lower oil is the higher the crack spreads for them, equals $$$$$. They also sell 70,000 barrels of crude per day to another refinery and then buy the product to sell on the market. Do a Google search on Goldman's forecast for energy over the last 18 months and you will see the light of absurdity. It's beyond funny. We have lost 1 million barrels of oil per day in non-opec production in the last 6 months, and at the same time demand is surging, and this guy says "not much has changed." No credibility.
kim wrote:
The vampire squids are having to eat crow right now and they are trying harder than ever to jawbone down the price of oil to save their credibility and probably make a few shekels in the process. Put a little salt and pepper on that 20 dollar per barrel crow that you are having to eat there Damien; makes it go down better.
Phil wrote:
If Goldman said it will go down, bet for oil, it will go up!
George wrote:
And where is the $200/barrel oil they predicted a couple of years ago? Oh, not here yet so now they are predicting $20. Losers.
anonymous33 wrote:
people should read the report. Nowhere does the analyst or Goldman predict $20 oil. That number is specified as a very specific condition which even they say is not going to happen. Typical over-reaction by the public.
Oct 08, 2015 | www.eia.gov
The current values of futures and options contracts for January 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $32/b to $67/b (at the 95% confidence interval) in January 2016.
... ... ...
Projected U.S. crude oil production averages 9.2 million b/d in 2015 and 8.9 million b/d in 2016.
Apr. 2, 2014 | Seeking Alpha
Barron's assumptions as to the leading factors of lowered oil pricing do not make sense after examining the supply side economics.New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price.
Barron's assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case.
The cover of Barrons this past week read "Here Comes $75 Oil". The article highlights that due to several new "game changers" in the oil production market that within the next 5 years the oil market would fall to $75 a barrel. The three main reasons that would contribute to cheaper oil are deep-water oil, shale oil, and oil sands. All of these newfound resources are estimated at roughly one trillion barrels in newfound oil. Adding that onto the existing global oil reserve estimated at 1.5 trillion, makes this newfound oil a major factor in the future of oil pricing. The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price.
As much as $75 oil sounds nice and would no doubt be a major boon to the U.S. and world economies. Yet after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. According to the U.S. Energy Information Administration (EIA), they expect worldwide consumption of petroleum products to grow by 1.2 million barrels per day in 2014 and 1.5 million barrels per day for 2015.
This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015.
Oct 08, 2015 | OilPrice.com
In London, OPEC Secretary-general Abdallah Salem el-Badri said investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices.
"Less supply in the very near future. Less supply means high prices," el-Badri said in a speech at the Oil and Money conference.
El-Badri's expectations on investment were supported by the executive director of the International Energy Agency (IEA), Fatih Birol, who told the meeting that investments in oil projects this year will fall by about the same rate forecast by el-Badri.
"Upstream investment will be at least 20 per cent lower [this year] than in 2014," said the chief of the Paris-based IEA, which represents 29 oil-consuming countries. "In terms of money spent, it's the highest [drop] in history."
Oil prices will also rise, ironically, because the current low prices have encouraged consumers to buy more fuel, according to el-Badri. He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016.
The current low price of oil has strained the budgets of many oil-producing countries, including wealthy Middle Eastern states. The price of oil is now less than $50 per barrel, less than half what it was in June 2014. Yet el-Badri argued, "We are not in disarray. We see some light at the end of the tunnel."
When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted.
Ben van Beurden, the CEO of Royal Dutch Shell, doesn't see oil prices stabilizing quite that soon, however. He told the conference that while oil prices are due to recover, their rise won't be as fast as el-Badri expects
... ... ...
This [shale] technology can't make money unless oil sells for at least $60 per barrel.
Oct 08, 2015 | fortune.com
October 7, 2015 | Fortune
Baker Hughes' closely-watched rig count showed that the number of drilling rigs in the U.S. turned down sharply in September after signs of a brief revival in the previous two months. At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year.
... ... ...
The International Energy Agency now expects global demand to rise by 1.7 million b/d this year.
KI time
Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business.
Massive credit is required to drill, and it's not there. Government has effectively provided more than $4.2 Trillion$ in bailouts since 2005 as cover for the worldwide credit collapse. Now Government is stone broke and can't do it anymore...
Oct 08, 2015 | news.yahoo.com
For better or worse, oil never really seems to lose out in the long run. You’d think the case against it would be easy to make: It’s last century’s go-to energy source and a nightmare for the environment. There are also those nagging concerns about peak oil and even peak car, given that millennials seem way less interested in their own wheels than their elders were at that age. But oil is still by far the biggest traded commodity in the world. It’s uniquely useful, and so far irreplaceable, as a cheap, liquid fuel â€" after all, you can’t run a car on coal or fly a plane on solar, and while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. All the fracking in the world hasn’t yet diminished the sense that the days of Texas Tea are far from over.
By contrast, the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. OPEC, long the bogeyman of the oil market, has been neutered by a huge surge in U.S. production; at the same time, low gas prices don’t seem to be encouraging people to drive longer or buy more gas guzzlers the way they have in the past. “This time it is not business as usual,” said Maria van der Hoeven, executive director of the Paris-based International Energy Agency, in a recent speech.
The most jaw-dropping change by far: OPEC’s effective capitulation in its decades-old game of rigging oil prices. Last November, Saudi Arabia opened its oil taps in what experts considered an attempt to kill off “high cost” U.S. shale-oil production. But it turned out that U.S. operations haven’t been so high cost after all; oil expert Daniel Yergin, vice chair of the research and consulting company IHS, notes that U.S. prospectors improved their efficiency by 65 percent in just a year. U.S. oil production is up to stay, he says â€" and that means oil prices are likely to stay low.
Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is “falling relatively quickly.” As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result.
Some forecasters believe oil’s great run won’t end for decades â€" most of us still love our cars, and demand for them continues to grow in the developing world. But there’s also the threat that governments worried about global warming and pollution might finally cap the gusher.
Says Verleger: “The oil industry has no friends.”
Oct 07, 2015 | Zero Hedge
October could be a crucial month for struggling drillers. With drillers undergoing credit redeterminations, October could see a wave of debt restructuring and cuts to credit lines, potentially forcing deeper cuts in the shale patch.
... ... ...
In the U.S., production declines continue, although fitfully and inconsistently. After several months of large declines in production, the supply picture has become a bit murky. For example, output fell by 222,000 barrels per day between April and May, and then by another 115,000 barrels per day from May to June. But in July, production actually increased by 94,000 barrels per day. The gains came from the Gulf of Mexico, and not the shale patch. Offshore projects are long-term propositions and don't respond quickly to shifts in oil prices. However, even taking out the offshore gains, U.S. production would have only declined by 53,000 barrels per day, a slower pace than what was seen in previous months.
gcjohns1971
"Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States."
This is a red herring because the United States, even in the unlikely event of an oil surplus, is by law not an oil exporter.
What the 'Shale Revolution' has done is send those formerly exporting to the US to fight for markets elsewhere.
... ... ...
cashtoash
But Garrrrrtman said on CNBS [yesterday on fast money] that oil has bottomed, time to buy buy buy
Oct 07, 2015 | economistsview.typepad.com
Economist's View
Larry Summers continues his call for fiscal expansion:
Global economy: The case for expansion: ...The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today's problems have to do with too little lending for productive investment.Inevitably, there will be discussion of the need for structural reform... - there always is. ...Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.[The full post is much, much longer.]
bakho said in reply to pgl...
If Bush would have done fiscal stimulus instead of tax cuts and low interest rates in 2001, we could have avoided the worst of the 2008 mess. When the wealthy hoard capital in an unproductive way and use their political power to increase their wealth, it leads to a stalled economy.
Peter K. said...
Everyone is for fiscal stimulus. Even Republicans like Ben Bernanke and Martin Feldstein.
"The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China."
Interest rates are low by historical standards but monetary policy isn't "loose."
If it was loose we'd see inflation and tight labor markets.
bakho said in reply to Peter K....
Monetary stimulus at the ZLB is weak and carries more risk than fiscal stimulus. The problem for Yellen and the Fed: fiscal policy is dragging the economy down. Monetary policy would be adequate if fiscal policy were doing its part. It does not even come close. The Fed can create more money, but the wealthy are positioned to grab it so very little goes to where it is needed.
Monetary policy, no matter how good cannot fully correct for bad or inadequate fiscal and regulatory policy.
D said in reply to Peter K....
"Even Republicans like Ben Bernanke..."
Maybe that should be: former Republicans like Ben Bernanke.
http://qz.com/518111/bernanke-im-not-really-a-republican-anymore/
"I didn't leave the Republican Party. I felt that the party left me."
-JJF
Peter K. said...
"It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward."
Summers borrows/steals from Krugman.
bakho said in reply to Peter K....
The Fed lacked the authority for Cramdown and Geithner who had the power block most of the help that should have bailed out home owners. Obama's Harvard buddies were against Cramdown, the GOP is a wholly owned subsidiary of the banksters so a good policy was blocked.
BigBozat said in reply to JaaaaayCeeeee...
"But why is Larry Summers saying that the problem before 2008 was too much lending? Said so baldly, doesn't it just support austerians, like the Tory argument that Labor caused the recession by spending too much on entitlements?"
Only if you conflate "lending" with "public debt" (and/or argue that spending on entitlements is a totally non-productive use of the public fisc). If the Tories are good at conflating (and/or believe entitlements are a complete waste of money), then yeah I guess they could make claims... 'tho they'd be either disingenuous or ignorant in doing so.
FWIW, I tend to associate "lending" more with private sector activity. What Larry means by "too much lending" - in this case, anyway - was the cheap & poorly/fraudulently underwritten credit-fueled housing sector bubble.
Dan Kervick said in reply to BigBozat...
The problem was private debt. There was long secular run of private debt to gdp prior to the crash. Eventually private debt was at its highest level since 1929.
http://www.ritholtz.com/blog/2012/09/private-debt-is-the-main-problem/
Oct 07, 2015 | community.3dsbiovia.com
Petroleum is a volatile product. The chemistry that enables it as such a high density energy and ubiquitous energy source is volatile. The economic environment around oil is volatile, with a growing tide of alternative energy sources, and climate change issues. The political environment around oil is volatile. However oil currently is and will I believe remain for the foreseeable future, the essential underpinning of modern societies around the globe. This is why companies like Exxon call themselves energy organizations. Its not a vain attempt to change their image but rather a real understanding of the nature of chemicals and energy and the value they bring. if you need to understand this, image that we had no fuel for transportation, goods delivery, power-stations, and lights; it would be a very cold parochial world.l
Recently we have seen a precipitous change in the energy or per barrel price of oil, across the broad markets. To many people this is shocking and upsetting; a sign of a global economic contagion. However this is not the first significant price shock in the energy sector. When I started in BP oil was about 65-70 dollars a barrel for Brent Crude and was projected to go to 80-90. Unfortunatley due to economics and supply or demand, it actually dropped. Well the oil majors learnt from that shock, the Gulf and early Oil crises. They became fully integrated corporations. The drill, produce, refine, blend, distribute and own end point of sales. They balance their exposure in the upstream and highly risky area, with that of continuous margin driven volume production in refining, and more batch driven specialty chemicals in the downstream and products domain. Now as the oil price drops, the margins and profit in upstream decreases, but the energy costs of running crackers and separating and converting columns decreases.
For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.
So as prices drop the downstream parts of integrated petrochemicals is healthy. The gasoline stations, do not clearly make a lot of money, but the refineries and chemical production outlets are very healthy and currently running at maximum capacity, (a friend verified last week). This balanced portfolio is how the companies manage the significant shifts in costs. It also is why they really need an integrated systems view of the whole business. They need to manage, cost, risk and velocity across different sectors, with differing information, material and economic considerations. being able to have flexibility across a refinery to take advantage of local and global price shifts and consequent supply and material shifts (quality content etc) is important.
Further to this, oil and the exploration of oil has often been subject to regulations. There have been a number of very sad incidents involving oil companies that have affected the environment. In order to continue to operate, the petrochemical companies are very mindful of their "Green License to Operate". therefore they carefully track using inventory and supply chain technologies all of the products, their regulatory and environmental impact and their health, safety and fire code compliance. They do this across all their divisions, to both ensure information tractability and of course compliance to specified procedure.
Lastly oil has always been as a product subject to taxation regimes. These change and as many of you will have heard the allowances for drilling in for example the United States are considerable. Exploration and Production has always been the riskiest side of the vertically integrated, oil company's portfolio. Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly.
http://www.exxonmobilperspectives.com/wp-content/uploads/2011/10/Global-oil-price-factors-420x305.pngNote Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure.
In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. In order to provide a mode complete energy portfolio, Petrochemical companies are actively investigating carbon capture and conversion to methanol for energy consumption. They are likewise working very hard to optimize their entire business processes, documentation and innovation activities along a systems model approach
Oct 07, 2015 | OilPrice.com
...between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia's fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20 percent of GDP.
... ... ...
Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: "Eventually, economic producers will continue to prevail," the paper reported.
Naimi disagreed with analysts who believe OPEC's market share would fall further, the paper reported. "On the contrary, OPEC's market share will be higher," he said.
Maybe so, but make no mistake, this is a precarious time for the Saudis. If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share, and if Iran and Russia end up being content with preserving the regional balance of power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then the Saudis may well weather the storm.
However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic.
Oct 06, 2015 | finance.yahoo.com
Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls, according to a monthly U.S. energy report that suggests a surplus of crude is easing more quickly than expected.
Total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1 percent less than forecast last month, the U.S. Energy Information Administration said in its Short-Term Energy Outlook. Demand is expected to rise 270,00 bpd to 95.2 million barrels a day, up 0.3 percent from September's forecast.
Russia's energy minister said Russia and Saudi Arabia discussed the oil market in a meeting last week and would continue to consult each other.
OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut.
Iran's crude sales were on track to hit seven-month lows as its main Asian customers bought less than before.
Oct 06, 2015 | finance.yahoo.com
Jeff Currie, global head of commodities research at Goldman Sachs, says the risk of crude oil reaching $20 a barrel is driven by "breaching storage capacity."
R.T. Arcand
The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say. After all they're the ones who will tell you to buy, so they can do a pump and dump against you.
Not to mention that these pathetic fools in 2008 had to go so low as to throw in the towel on Free Market Economics to become a bunch of pathetic Fascist TARP Welfare Queens because they were too stupid to keep their fraud with the Ratings Agencies alive with their fraudulent bundled mortgages. Goldman Sachs is the parasite that needs to be destroyed if this nation or even humanity is to advance.
Compare how much the Apollo program cost, compared to the Fascists in the banks and their fraud and bailouts. It's time Americans go after these fascists with the same urgency the "Greatest Generation" did.
Oct 04, 2015 | Barrons.com
Unfortunately, Roy notes, the United States Oil Fund (USO), the most common way to play oil, has often backfired for investors. USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices.Luckily, USO isn't the only way to play oil. The PowerShares DB Oil Fund (DBO) seeks to minimize the costs of rolling contracts forward by choosing the most advantageous futures contract to switch to, instead of always using the next month's, as USO does. Roy also notes that the United States Brent Oil Fund (BNO) holds Brent oil, popular in Europe, which in recent years has started to diverge in price more frequently from West Texas Intermediate, a grade of oil commonly sold in the U.S. In the first three quarters of 2015, Brent lost less than WTI.
However, none of those oil products were able to avoid the big drop in crude prices. For more buy-and-hold investors, Roy suggests the Energy Select SPDR (XLE) that holds energy-related stocks (like Exxon (XOM), Chevron (CVX) etc.). He concludes:
For long-term investors, an equity-based energy ETF like XLE is superior to the futures-based ETFs mentioned earlier, for several reasons: 1) an investor doesn't have to worry about roll costs; 2) the companies can grow their oil production, creating value for shareholders even in a flat oil price environment; 3) they often pay dividends. XLE currently has a yield of more than 3.3 percent.
Year-to-date, XLE is down by 21 percent, less than the futures-based ETFs. Over the past five years, XLE is up 20.4 percent, compared with losses ranging from 40 to 58 percent percent for the other three ETFs.
Oct 04, 2015 | mainlymacro.blogspot.com
mainly macro
Anonymous, 1 October 2015 at 01:04When I reread my collection of BBC articles for the period 2008-15, some of which I have reposted on this blog in the past, I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired.acorn, 1 October 2015Since 2008, Robert Peston, Stephanie Flanders, Hugh Pym, and Andrew Neil have had terrible economic crises, and it must be more than just governmental pressure that has produced such concentrated ineptitude.
Alas, they are all of the neo-liberal religion; group-thinkers. Peston has never understood the difference between a currency issuing government and a currency using non-government sector. Hence, government financial accounts are totally different to a households financial accounts.They all think that the government has to tax and/or borrow "money", before it has any to spend. Never stopping to think where the people it taxed or borrowed from, got such "money" in the first place.
Politicians and the IFS peddle the same myth. Liars and fakers the lot of them. Stick with the accountants.
Oct 04, 2015 | marketrealist.com
May 15, 2015 | Market Realist
Oil price nosedive could trigger a crash in the junk bond markets
According to Sean Hanlon's December 16, 2014, article Oil's Price Decline Weighs On High Yield Debt in Forbes, US energy companies borrowed heavily using the junk bond market to finance hydraulic fracking operations. However, this occurred when oil prices were above the $100 per barrel level, resulting in an economically viable business model.
With the nosedive in oil prices in the latter half of 2014, the ability of these energy firms to retain their profitability was called into question-including their ability to service the payments on their high-yield debt.
... ... ...
As seen in the above graph, the prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) declined with the fall in oil prices. With the looming uncertainty over oil prices, the times ahead are probably not bright for the high yield bond market.
Credit default swaps and a correction in high yield bonds
In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field.
Credit default swaps (or CDS) are analogous to insurance contracts. The buyer of the CDS makes periodic fixed payments to the seller of the CDS, who receives these premiums and in exchange, compensates the buyer in the event of a default involving the underlying reference entity.
ProShares launched the ProShares CDS North American HY Credit ETF (TYTE) and the ProShares CDS Short North American HY Credit ETF (WYDE) in August 2014. Although TYTE offers investors a long exposure to North American high yield bonds, WYDE offers a short exposure to the same. For instance, investment in WYDE could hedge a portfolio of high yield bonds against a drop in prices. The decreased prices typically result from increasing defaults by energy firms due to falling oil prices.
In the final part of this series, we'll discuss Carl Icahn's view on the energy sector. The analysis specifically focuses on the outlook for oil companies such as EOG Resources (EOG), Exxon Mobil (XOM), Phillips 66 (PSX), and Valero Energy Corporation (VLO). Phillips 66 and Valero are oil refiners, EOG Resources is independent and lacks downstream operations, and Exxon Mobil is an integrated company.
EOG Resources has an 8.2% weight in the iShares US Oil & Gas Exploration & Production ETF (IEO). Phillips 66 has a 7.2% weight in IEO, and Valero has a 4.9% weight in IEO. EOG is also part of the iShares US Energy ETF (IYE), with a 3.1% exposure.
Oct 03, 2015 | Econbrowser
"When so many think the numbers are manipulated to some nefarious end, it is no wonder that empirical observations carry so little weight in informing thought on how the economy works."
Oct 03, 2015 | 24-7 Wall St.
We cover insider buying every week at 24/7 Wall St., and we like to remind our readers that while insider buying is usually a very positive sign, it is not in of itself a reason to run out and buy a stock. Sometimes insiders and 10% owners have stock purchase plans set up at intervals to add to their holdings. That aside, it still remains a positive indicator.
Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. He purchased 2,042,928 shares at a price of $47.14 apiece. The total for the buy came to a massive $96.3 million. Not stopping there, Icahn purchased an additional 1,503,313 shares at $48.30. The total for second buy was a whopping $72.6 million.
ALSO READ: September Worst Month in History for Energy MLPs: 3 Bargains Right Now
Oddly enough, as Icahn was buying millions of shares of Cheniere Energy, the CEO of the company was selling. He parted with a total of 100,000 shares at between $46.25 and $50.42 per share. The total for the sale came to $4.8 million. It was also the only one major company that reported insider selling last week. Cheniere shares ended trading on Friday at $50.50, and it is pretty easy to assume that Icahn's high-profile purchase was viewed as very positive.
Oct 03, 2015 | Bloomberg Business
The world's biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.
Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.
Oct 03, 2015 | www.oil-price.net
As you can see, Bakken is the star of the region. So, who wants to point that the Emperor has no clothes? In other words, the higher-than-normal rate of depletion of fracked wells?
Well, what is depletion? Depletion is a naturally occurring phenomenon. All non renewable resources undergo reduction over a period of time. Oil and gas aren't exempted from this equation, either
... ... ...
Fracked wells age very fast. The initial production is very high so is the rate of depletion. The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies should replace forty to forty five percent of the current production each year to maintain/increase production. For now at least, the number of wells and cost of production can keep pace with profits because of the higher oil prices. But what happens when the price comes down?
The depletion rates will make the wells unviable and the search of oil will continue elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines.
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Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you.
Oct 03, 2015 | Bloomberg Business
Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.
Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.
U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since June last month as China's slowing economy and the highest Russian output in two decades signaled the global glut will linger.
"The U.S. producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't going to have much impact, especially given the slowing global economy."
... ... ...
Russian oil output rose to a post-Soviet record last month as producers took advantage of the weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in June, according to data from the Energy Ministry's CDU-TEK unit.
... ... ...
Investors pulled $393 million in September from United States Oil Fund, the largest U.S. exchange-traded product that tracks crude futures, the biggest withdrawal since April.
See also:
- Producers Reduce U.S. Rigs Drilling for Oil to Five-Year Low - Bloomberg Business, Oct 2, 2015
- Oil Bust Hits the Sand Industry - Bloomberg Business, Oct 2, 2015
- Oil Producers Moving to Balance Production, Demand - Bloomberg Business, Oct 2, 2015
- Oil Tanker Rates Soar Above $100,000 a Day as China Hiring Jumps - Bloomberg Business, Oct 2, 2015
Oct 03, 2015 | finance.yahoo.com
New orders and production both fell sharply and a measure of hiring also declined, according to the ISM, a trade group of purchasing managers. All three measures still barely remained in expansion territory.
U.S. manufacturers are getting hit by slower growth in China, the world's second-largest economy, and a stronger dollar, which makes U.S. goods more expensive overseas. The 15 per cent rise in the dollar's value in the past year has also made imports cheaper compared with U.S.-made goods. Oil and gas drillers are also cutting back on their orders for steel pipe and other equipment in the wake of sharply lower oil prices.
Oct 03, 2015 | November 18, 2014
One of the surest signs that a bubble is about to burst is junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as "safe". So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk.
This pretty much sums up today's fixed income world. And if past is prologue, soon to come will be a brutally rude awakening. Most of the following charts are from a long, very well-done cautionary article by Nottingham Advisors' Lawrence Whistler:
Junk yield premiums over US Treasuries are back down to housing bubble levels...
... ... ....
As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads.
... ... ...
The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. This will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around.
Bruce C
The whole "shale oil" theme is a "scam". The original investors fell for the very same thing that continues to be rehashed, so they engineered a way to unload it onto the "relatively dumb" money. That's where we are now. After those new INSIDE investors/suckers realized that projected resources were not the same as extractable ones (at certain price levels) and that current production rates were subject to (downward) change (because the whole process is basically insane and extreme) it only makes sense that more funding could only be obtained by issuing bonds (equity was extracted in the "first round" when new wells geysered, etc.)
But don't laugh too hard, yet. Between a totally foolish and pathetic Congress, a totally full of shit President, a desperate national central bank, and "TBTF" philosophy in general, this construct may well be supported way beyond its "natural" life.
History is a fascinating spectrum of human nature. There doesn't seem to be any limits to the lows or the highs, and especially the durations of effort and "pragmatism" to advance certain agendas and IDEALS. That's not always "good" or "bad", and it is definitely hard to know in real time.
socalbeachdude
John, you are 100% correct in your article, particularly with your conclusion that this "will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around."
Frank DiGiovanni
Funny.. Your website is about the demise of the dollar.. Than its about oil stocks who have plunged along with oil due to a strong dollar
.. Seems you are just looking for negatives..digriff > Frank DiGiovanni
While you are assuming the strong dollar is the cause of the oil prices I would say "the last guy to drown in the pool is technically the best swimmer (dollar) but did still drown in the end".
Frank DiGiovanni > digriff
Point is .. You have been complete incorrect on the dollar.. Then write negatively on oil.. You are just a negative person.. Currency value is all relative to other currency; have to have winners and losers.. Not everybody drowns. You seem foolish with such a comment..
Oct 02, 2015 | OilPrice.com
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I took the Weekly Energy Review and averaged it into monthly average. As you can see it differs greatly from both the Monthly Energy Review and the Petroleum Supply Monthly. However for last July and August it agrees pretty closely with the Monthly Energy Review. And it says [USA] production dropped just over 200,000 barrels per day from August to September.
This is the weekly data, since December from the Weekly Petroleum Status Report. It has U.S. production dropping every month since June.
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I thought the below article said a lot about Russia.
Russian Oil Producers Head for Tax Showdown Amid Output Warnings
Russia's Energy Ministry estimated last week that oil output would be stable until 2035 at a level of about 525 million metric tons a year, or 10.5 million barrels a day, as investment in new projects offset declines at older fields. If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday.
"In a lower capex environment, the output decline at mature Russian fields may reach some 5 percent already next year," Alexander Nazarov, oil and gas analyst at OAO Gazprombank, said by phone. "New projects won't be able to cushion the total decline."
They are saying that if they get enough investment in new projects to offset declines in their old fields, then they can keep production flat for the next 20 years. Otherwise they are headed lower. Their old fields will be declining at about half a million barrels per year. I don't think even if they do get the tax breaks they can come up with that much new oil. And most certainly they cannot do it for 20 years.
Oct 02, 2015 | OilPrice.com
... ISIS attacks in Libya could have a much more direct impact. On October 1, ISIS militants attacked one of Libya's main oil ports, Es Sider. The port is under the control of the recognized government and has been closed since December 2014, preventing Libya from reviving oil exports. One guard at Es Sider was reportedly killed but the attack was repelled. Still, Libya has been torn apart by conflict, and the two warring factions are at a stalemate, with a security vacuum across most of the country.
Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era.
Oct 02, 2015 | economistsview.typepad.com
Economist's View
Dean Baker:
Job Growth Weakens in September:... ... ...
The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.
... ... ...
On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.
Mike Sparrow:
This looks like a adjustment to the ADP's 2015 mean more than anything else. That is the trouble with the birth/death model. It misses turning points and this mid-cycle correction started in January. Yet, they kept NFP elevated in many of the next 7 months outside March which was another mess(created by the weather that time). ADP was much more tamed and consistent.
The good news is, it looks like the global economy may have bottomed in September and China's move to more consumption balance is panning out a bit, which will help growth there. Though the multi-national boom is over as investment driven growth necessarily reduces in these countries. Monthly wages also accelerated.
anne said in reply to Mike Sparrow...
I think the ADPs are better than the NFPs, though on a wet field field hockey in tricky and who knows which school will win. Anyway, Go ADPs! I was a midfielder.
am said...
Correct take off by DB that this weak report makes rate rises this year difficult to justify. Chair Yellen identified weakness in the labour market in her last report. This latest monthly labour report shows that that weakness continues.
DB concentrates on the weak stats for the prime age groups of men and women and states that it is clearly not retirement related. If he has any analysis on older cohorts continuing in employment longer than normal and impacting on the 25-54 cohort employment rates then I would appreciate a link.
anne said in reply to am...http://data.bls.gov/pdq/querytool.jsp?survey=ln
January 4, 2015
Employment-Population Ratio, 2000-2015
2000 ( 81.5) *
2001 ( 80.2) Bush
2002 ( 78.8)
2003 ( 77.9)
2004 ( 78.1)2005 ( 78.5)
2006 ( 79.2)
2007 ( 79.5)
2008 ( 78.5)
2009 ( 74.5) Obama2010 ( 73.9)
2011 ( 73.8)
2012 ( 74.9)
2013 ( 75.2)
2014 ( 75.9)September
2015 ( 76.5)
* Employment age 25-34
am said in reply to anne...
Thanks again.
It is clear that there is a structural change in employment. It may also be partly demographic but it is more than that hence I say structural.
cm said in reply to JohnH...
You can only offshore jobs that can actually be performed offshore. Not to deny offshoring which has been rampant in tech and various industries where services/labor can be delivered over the internet, but the probably more significant factors overall have probably been automation and computer/IT enabled "self service" i.e. pushing work off to the customer/client or just cutting the service level - e.g. "self help" web FAQs instead of printed manuals and phone support, or phone support (offshore or not) who basically read from the same documents/scripts you can search on the internet for yourself.
cawley said in reply to JohnH...
While I want to be cautious in thinking that I speak for anyone else, I would guess most of the QE supporters on this blog fully recognize that there are other factors besides interest rate/fed policy.
In fact, I would hazard (tho I may be wrong) that most of them would have preferred stronger fiscal policy.
Maybe I'm just projecting my own view which is that fiscal policy would have been preferable. Unfortunately, it was not happening. Clearly the republicans weren't in the mood - at least as long as there was a non white muslim atheist socialist communist dictator from the other party in the House f/k/a White. To me, it doesn't seem like Obama had a sufficient appetite either - altho some argue that didn't matter.
That being the case, monetary policy was pretty much the only game in town. Is it a panacea? Hell no. Has it been enough to get the economy back to full employment? Obviously not. Is it possible there are/will be some pernicious unintended consequences? Maybe, but I would argue they are second order concerns compared to employment and probably manageable.
But I've got no reason to think that withholding QE would have resulted in better fiscal policy - or any other change that would have improved employment. And I tend to think that the counterfactual consistent with no QE and the same fiscal policy would have been even worse employment.
Peter K. said in reply to JohnH...
"Strong dollar, weak dollar. It doesn't seem to matter. "
You're just a nihilist. Facts and theory don't matter. Dean Baker:
"In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011."
New Deal democrat said in reply to pgl...
Fred C. Dobbs said...This downshifting in the employment numbers was foreseeable, and foreseen:
http://bonddad.blogspot.com/2015/10/told-you-so-weakening-job-growth-edition.html
It is party strong US$, partly oil patch collapse, and part pass-through from last year's stall in housing starts.
What the Terrible September Jobs Report Means for theFred C. Dobbs said in reply to Fred C. Dobbs...
Economy http://nyti.ms/1Vsx2rO via @UpshotNYT
NYT - Neil Irwin - Oct 2The September jobs numbers are easily the worst of 2015 so far. They offer an unpleasant combination of a bad overall headline, bad details and bad timing, amid a volatile and unsettling time in global markets.
The weak numbers offer some vindication for those Federal Reserve officials who preferred to hold off on interest rate increases last month to ensure the economy was on sound footing before tightening the money supply. They also give reason to worry that those wild market swings in August were less random fluctuations and more an indication that something deeper is wrong with the global economy - not so much that the stock market drop in August caused weak September jobs numbers, but that there is an underlying economic fragility causing both.
The question now is whether it means anything - whether the United States economic expansion, which seemed set to roar into 2015, is slowing in some meaningful way. We don't know that yet, and it would be a mistake to leap to that conclusion. But that possibility became quite a bit more plausible after the September numbers popped onto economists' computer screens.
As always, it is a useful exercise on jobs report Fridays to take a deep breath and remember that this is but one set of indicators, with a large margin of statistical error, that will be revised repeatedly. But the fact that the latest jobs numbers are consistent with another report, from the Institute of Supply Management, earlier this week that suggested United States manufacturing slowed to a standstill in September doesn't do anything to help an economy-watcher maintain that zen perspective.
The new numbers are poor on pretty much every level. American employers added a mere 142,000 jobs last month, far below the analyst forecast of 201,000 or the average over the last year of 229,000. Revisions pushed July and August numbers down substantially. The unemployment rate was unchanged at 5.1 percent.
This is usually the point in one of these stories where we would list the silver linings - the countervailing details that suggest it isn't as bad as all that. This report doesn't really offer any. Average weekly hours fell. Average hourly pay was unchanged. The number of people in the labor force fell by 350,000, and the number of people who reported having a job fell by 236,000.
We don't even have a major snowstorm or other weird weather event to blame, nor a strike in a major industry, nor some outsize shift in the results from one category of employer that might suggest an aberration.
The most positive angle I could come up with, with credit to the anonymous Twitter user @modestproposal1, is the possibility that with the unemployment rate scraping relatively low numbers, we should expect the rate of job creation to slow simply because the pool of potential workers is dwindling.
That said, that theory doesn't match up with the stagnant hourly pay and data in the survey of households suggesting people may be leaving the work force. ...
modest proposal @modestproposal1
Remain cognizant that job growth may naturally slow as we approach full employment and will instead be interpreted as economy slowingThe pool of skilled/trained
workers dwindles; those who remain
are simply not worth hiring?
Sep 30, 2015 | Zero Hedge
many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As Bloomberg reports, the former bustling "man-camps" of towns like Williston, ND are now desolate with hundreds of skeletons or wood & cement as predictions that fracking would sustain production and a robust tax base for decades have failed completely.
... ... ...
Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. As Bloomberg reports, after struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion.
Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them.
"We are overbuilt," said Dan Kalil, a commissioner in Williams County in the heart of the Bakken, a 360-million-year-old shale bed, during a break from cutting flax on his farm. "I am concerned about having hundreds of $200-a-month apartments in the future."
The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. The process forces water, sand and chemicals down a well to crack rock and release the crude. Predictions were that fracking would sustain production and a robust tax base for decades.
Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official.
Everyone levered up on this "no-brainer"...
The camps were supposed to be an interim solution until subdivision and apartment complexes could be built.
Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding.
and many remain delusional...
"We didn't build temporary housing on purpose because we viewed North Dakota as a long-term play," said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate developments.
"We think the local production of oil is here to stay. Yes, prices have dropped, but it's a commodity and commodities fluctuate. There is always a risk."
Fracking's success has created another glut...
As the migrant workers leave, their castoffs pile up in scrap yards such as TJ's Autobody & Salvage outside Alexander, about 25 miles (40 kilometers) south of Williston. More than 400 discarded vehicles crowd its lot, including souped-up pickup trucks and an RV with rotting potatoes and a dead mouse in the sink.
"I wake up and RVs are in my driveway," said owner Tom Novak. "It's insane; there are empty campers everywhere."
HedgeAccordingly
welp.. was only matter of time..
IMF raises red flag about Canada's 'overheated' housing marketbluskyes
It's a golden age for the repo game
bluskyes
Oil has been boom/bust forever...
Unfortunately most are no longer from agrarian roots, and have no concept of living within one's means, and storing away excess in times of feast - for the times of famine that inevitably follow.
Sep 30, 2015 | Economist's View
Education is not the only cause of inequality, but it's part of the problem:
Are American schools making inequality worse?, American Educational Research Association: The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association.Anonymous -> Anonymous...Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide.
Using data from the 2012..., researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ...
"Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics and Education at Michigan State University. "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students."
In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...
"Because of differences in content exposure for low- and high-income students in this country, the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools are the great equalizer, helping students overcome the inequalities of poverty, is a myth."
Burroughs, a senior research associate at Michigan State University, noted that the findings have major implications for school officials, given that content exposure is far more subject to school policies than are broader socioeconomic conditions.
do you think schools in China/India have funding on the level you are implicitly arguing for? As Eva Maskovich is showing in NYC - it takes better teachers, not more money.pgl -> Anonymous...
I live in NYC
"According to Success Academy Charter Schools founder and President Eva Moskowitz".
Ah yes - the charter school crowd. As in Mayor Bloomberg's push for privatizing our public education system. They have a lot of really dishonest ads attacking our new mayor. So you are with these privatization freaks? Go figure!
Anonymous -> kthomas...I am an Asian immigrant who came to the US to pursue the American dream. My education allowed me to run circles around most students at the university. I ended up with triple major and a post grad degree. So, go ahead. call the rigorous schooling horrifying all you want. It is silly to raise kids in an ultra sheltered environment. The jobs are going to go where qualified highly productive people who want less money are. Then they will have to face reality anyway. We can sit here and argue about it all we want. The truth is that kids in Asia can do the job I started with sitting there better for a fraction of the cost here. And this is a job requiring advanced degrees.
Anonymous -> Anonymous...
And you can add Eastern Europe to Asia. The competition is going to degrade our standard of living as it has whether we like it or not.
DrDick -> Anonymous...Sorry, but this is pure BS. We are talking about the presence of AP, foreign language, and advanced math classes. Having new textbooks and enough textbooks for all students, class sizes, laboratory equipment for science classes, and building maintenance, among many other very significant differences.
https://edtrust.org/press_release/funding-gap-states-shortchange-poor-minority-students-of-education-dollars-2/
https://www.washingtonpost.com/news/local/wp/2015/03/12/in-23-states-richer-school-districts-get-more-local-funding-than-poorer-districts/
Anonymous -> DrDick...
yes. they spend on things that count. instead of hockey rinks and olympics standard gyms for toddlers.
DrDick -> Anonymous...
None of which are characteristic of public schools. Have you ever even visited reality? Charter schools suck up a much greater share of available public resources and further starve the schools serving the poor and minorities, as happened in Chicago. Unlike you, I believe in fact based decision making.
EMichael -> Tom aka Rusty...
few anecdotes
geez
" The new school year has been marred for many students all over the country by severe budget cuts, shuttered schools, and decimated staff. Philadelphia, where students went back to school Monday, is seeing some of the most extreme effects of these budget cuts.
Nine thousand students will attend 53 different schools today than they did last fall after 24 were closed down. Class sizes have ballooned in many schools, with parents reporting as many as 48 students in one classroom. Meanwhile, the district laid off 3,859 employees over the summer.
A new policy also eliminates guidance counselors from schools with fewer than 600 students, which is about 60 percent of Philadelphia schools. Now one counselor will be responsible for five or six schools at once. Arts and sports programs have also been sacrificed.
Philly's new barebones regime was implemented after Gov. Tom Corbett (R) and the Republican-dominated legislature cut $961 million from the basic education budget, or 12 percent overall. Federal stimulus funds cushioned schools from state cuts for a couple of years, but they are now dwindling.
The district is struggling to fill a $304 million deficit. In order to open schools on time, the state gave an extra $2 million in funding and the city borrowed $50 million. Corbett is also withholding a $45 million state grant until teachers unions agree to concessions of about $133 million in a new labor pact. The district plans to sell 31 shuttered school properties. "
http://thinkprogress.org/education/2013/09/09/2588691/philly-schools-budget-cuts/
pgl -> Anonymous...
I love how the Aussies do the terminology:
"All Australian private schools receive some commonwealth government funding. So they are technically all "Charter" schools although the term is not used in Australia."
Charter schools are precisely what Milton Friedman recommended. He has the integrity to call this privatization. Anonymous does not. Funded by taxpayers but these schools are for profit entities.
Anonymous - have the courage to admit your agenda next time.
ilsm -> pgl...
Charter schools are like privatized arsenals, all cost cutting, profit and no performance.
US privatized the arsenals starting after WW I when a lot of "qui tammers" got to send arms to the Brits.
How long before the charter industry complex has enough unwarranted influence to ruin education?
djb -> Anonymous...
the charter schools cherry pick the best students and they don't deal with problem kids
this I known, they do poorly especially in new York city
as pgl said it is the fact that schools are fund locally that is the problem
to use a favorite right wing phrase
public education is an "unfunded mandate"
it should be paid for by the federal government
then all the mostly right wing politician could use property tax for divide and conquer politics
and funding can go where it is needed
djb -> djb...
then all the mostly right wing politician could NO LONGER use property tax for divide and conquer politics
DrDick -> pgl...
I think this is the primary issue. The schools in my hometown of 30K, national headquarters for Phillips Petroleum with a major research facility at the time, were excellent and most students went to college. Elsewhere in Oklahoma, students from similar sized towns were barely literate when they graduated. The primary reliance on local funding guarantees perpetuation of inequalities and the failure of the poor. This is exacerbated in larger communities by differential funding and resources allocated to schools within the district. When I lived in Chicago, Lincoln Park High School, in an affluent neighborhood, had world class programs. Meanwhile, schools on the predominately black west side and south side were literally falling apart with peeling lead paint and asbestos insulation falling on the students (along with occasional pieces of the cielings).
Sep 29, 2015 | telegraph.co.uk
TheBoggart
"The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging
market corporate defaults"blueba • 7 hours ago
Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress.
We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. Then a few more small transfers and the the big "crisis" of 2007-8 which is ongoing and where close to a trillion in assets were consolidated in the hands of oligarchs.
First load on the debt with money created out of thin air by banks, then foreclose after the phony "bubble" bursts. Then walk away Scott free with the assets.
The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world.
Sep 28, 2015 | The New York Times
In Alaska, Shell's announcement that it would suspend drilling in the Chukchi Sea after a test well showed less promise than hoped for was one more blow to a state where energy-tax revenues - which pay for most of the budget - are drying up as prices and production have fallen. More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. The Trans-Alaska Pipeline that made the state rich after its completion in the 1970s is pumping only a quarter of its oil capacity.
"It's tough times," said Kara Moriarty, the president of the Alaska Oil and Gas Association, who said that rumors of layoffs in the next few weeks or months, in both the corporate offices of oil companies in Anchorage and in the drilling fields, were flying everywhere. "It's an incredibly sobering day," she added.
Sep 28, 2015 | The New York Times
As oil prices have continued their steady decline this year, rig after rig has been shut down, costing thousands of jobs in the United States. Yet major oil producers have been loath to pull the plug on their most ambitious projects - the multibillion-dollar investments that form the backbone of their operations.
Until now. On Monday, Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic - a $7 billion investment - in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.
... ... ...
The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force. Companies also have retreated from less profitable fields in places like the North Sea, West Africa, and some shale prospects in Louisiana and North Dakota.
American oil companies have decommissioned more than half of their drilling rigs over the last year, and production is beginning to drop in the United States...
... ... ...
With demand dwindling, the current market of 94 million barrels a day has roughly two million barrels in surplus supply.
Steve Projan
This decision was not based on the test results of a single well but the current glut of oil and its depressed price and renders the expensive to get arctic oil a poor investment, for now. But I'll bet that Shell isn't giving back its lease. The (short term) losers are the Alaskan citizens who are addicted to oil money that is rapidly running out (heavens these takers might actually have to pay taxes rather than getting a check from the government).
At least for today a modest, although probably short term, win for the environment.
rexl, phoenix, az. 1 hour ago
Just think what is going to happen when the price of oil goes back above one hundred dollars per barrel.
Sep 28, 2015 | Econbrowser
U.S. exports of goods and services to China in 2014 were $167 billion, only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere, this development alone has already subtracted about 0.3% from U.S. GDP.Of course, lower commodity prices will force layoffs for oil companies and miners but leave more money in the hands of consumers. However, additional spending from that channel has been more modest than many of us were anticipating.
Tom Warner, September 27, 2015 at 1:22 pmChina's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet.
I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, which was to some extent driven by wrong hopes that the Saudis would accommodate higher US output by cutting theirs. The global knock-on effects are mainly among oil producers, many of which didn't pass on the oil price drop to their domestic consumers, and many of which have reacted to falling oil prices by increasing their net energy exports.
But the general tone of caution about China I agree with. The main effect from China globally has been to reduce prices of building materials and metals, especially iron ore.
BC, September 27, 2015 at 5:58 pm
Tom, WRT to China's oil imports, take a look at China's oil production, consumption, imports as a share of consumption, net imports of oil, the extent to which China is storing/hoarding oil as a share of consumption, and electricity consumption, and the aggregate suggests that the Chinese economy is growing at a fraction of the reported 7% real rate.
JBH, September 28, 2015 at 9:03 am
Tom: The main effect from China has been to wreak havoc on EM economies. Simultaneous with the reversal of the US dollar carry trade, this has caused an increasing number of EMs to tilt toward recession. EMs (ex China) have the largest ppt contribution to global growth this recovery.
When the locomotive slows, the train slows. EM currencies are plunging. To support them, monetary policies are being tightened. Much EM corporate and sovereign debt is denominated in dollars. Hence the need to support currencies to service debt and stave off default.
Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. Since 2014:Q1, the net export contribution to real GDP has been minus 0.6%. Another leg down coming. The daisy-chain from EMs to the US is multi-stemmed real and financial. Growing fissures in the financial system are the worry. US QEs went into the stock market and via the carry trade into EM debt. All this is unwinding, as it was always going to. Promises to become known the Great Unwind.
BC, September 27, 2015 at 1:23 pm
What must be understood is that China's "miracle" was not an organic process but one "made in the USA" (and in part Japan), in that US supranational firms have invested (via offshoring in search of labor arbitrage) trillions of dollars since the 1980s-90s, resulting in a scale and rate of growth per capita in China that otherwise would not have occurred.
US and Japanese FDI peaked in 2011-13 and began contracting in the past year or so, not coincidentally when China's "exports" (largely from US and Japanese firms' production of components, intermediate goods, and finished goods) and goods-producing sectors began to contract.
Since 2013, China's labor force has been contracting. Along with reported wage growth, contracting production, M1 and M2 growing 9-13%, and money supply at ~195-200% of GDP, China's productivity is growing no faster than ~1%. Then, at a population growth rate of 0.5%, in aggregate, China's real potential GDP per capita hereafter is effectively 0%, which is the post-2007 average trend rate (new normal of secular stagnation) for the US, EZ, and Japan.
This outcome was never in doubt, as it was implied by the precedent of the middle-income trap, excessive debt to GDP, and the demographic drag effects China is now experiencing, as is occurring for the countries that make up 70-75% of world GDP.
Moreover, under these conditions, it should be no surprise that growth of trade has peaked and begun contracting, as the US-China "trade" flows made up the largest share of global "trade" for what I refer to as the Anglo-American imperial trade regime, which is not unlike that of Britain from the 1870s-80s to WW I.
Now with the onset of the cumulative, self-reinforcing effects of Peak Oil, record debt to GDP coinciding with unprecedented asset bubbles to GDP, hyper-financialization of the economy (net flows to the financial sector absorbing all output), population overshoot, climate change, low labor share, decelerating productivity, extreme wealth and income inequality, decelerating money velocity, and fiscal constraints, the world faces the new normal/neutral of global secular stagnation, which is likely to be further entrained by another global deflationary recession and bear market possibly underway.
Tweaking tax, fiscal, and monetary policies under the foregoing conditions will make little difference. The assumptions and policies that were deemed appropriate during the inflationary and reflationary regimes of the Long Wave will be rendered ineffective or irrelevant during the current debt-deflationary regime. The primary causes of the malaise are demographics, low labor share, too much debt, overvalued assets hoarded by the top 1-10% at zero velocity, and extreme inequality exacerbating the effects on capital formation and productivity (and growth of profits) from low labor share and excessive debt.
Until debt is forgiven sufficiently and labor share/purchasing power increases (by higher wages or lower or no regressive taxation on earned income) for the bottom 80-90%, the secular stagnation will persist and its effects worsen until a crisis that risks the collapse of the mass-consumer economy and of the institutions that depend on growth of the economy per capita.
It's "different this time", but apparently most eCONomists don't know it, don't know why it's different and the implications, or they aren't paid to tell us.
Steven Kopits, September 27, 2015 at 3:06 pm
BC, September 28, 2015 at 6:49 amFor those interested, please find the first edition of my China Tracker here: http://www.prienga.com/blog/2015/9/27/china-tracker-sept-2015
The evidence suggests that China most likely has been suffering the side-effects of an over-valued yuan since Q3 2014. Such a situation would benefit importers and consumers and hurt exporters and producers. And it has.
For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession.
On the other hand, the Chinese have resisted devaluing the yuan in line with the won, yen or Euro, and so China's competitiveness has substantially eroded, and that's clearly visible in capital flows, exports, and industrial production. In principle, if China devalues, the demand for Nikes and oil should ease off a bit, and exporters should be revitalized.
I would add that China's private debt-to-GDP ratio is very high, indeed, at levels associated with financial crisis in many other countries historically. However, the proximate issue in China is the exchange rate. We would get a better sense of the state of the underlying economy once that issue is addressed.
Find more in the Tracker.
Jeffrey, I suspect that the "Limits to Growth" (LTG) to global real GDP per capita from Peak Oil, falling GNE, population overshoot, etc., will force a decline in demand for oil imports in China and India as trade slumps and real GDP per capita decelerates to 0%.
India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s, i.e., peak industrialization. India is 40-45 to 80+ years too late to industrialization, and China's growth has peaked and will decelerate to ~0% real per capita.
- http://www.thehillsgroup.org/
- http://www.thehillsgroup.org/depletion2_018.htm
- https://app.box.com/s/npygb8t139jm69yjcz5nhzm8ygibd5pd
- https://app.box.com/s/0hroqkg7zym2us8em4k55a36affs4xmc
The oil/commodities cycle is contracting, implying $20-$30 oil in the years ahead.
- https://app.box.com/s/s0wyvm4xh7kvd4fxcwyxx3mfevtf8yub
- https://app.box.com/s/8rqnbk0mqgctg7vlt04su71711vumjs9
- https://app.box.com/s/6aju2cctaq9wxck2y6xwxdfbqidq95op
- https://app.box.com/s/u3icgvx6wbcddnijynhx257dshzm1dyr
That fits with the ongoing decline per capita for US oil production (now at the level of the late 1940s) as the log-linear US oil depletion regime inexorably continues. Despite the fastest 5- and 9-year rates of US oil production since 1927-30, the shale boom/bubble is but a blip for the long-term US oil depletion regime per capita.
At the long-term trend rate of US oil depletion, US oil production per capita will have declined by 50% since 1970 by no later than the early 2020s; however, the 50% threshold could occur sooner were another global deflationary recession to occur, which appears increasingly likely. In fact, as little as a decline in US oil production to 8-8.2Mbd in the next 3-5 years will achieve the 50% decline per capita. I suspect that we will see the 50% per-capita threshold exceeded before 2020.
And we know what the implications are for when the US reaches and sustains 50% oil depletion per capita. The structural effects have already begun to occur with real GDP per capita since 2007-08 averaging barely faster than ~0% for the US, EZ, and Japan, and now for China's real potential GDP. No amount of QE, ZIRP in perpetuity, and unprecedented asset bubbles can reverse the inexorable US depletion regime and its effects of real GDP per capita.
- https://app.box.com/s/jemdqkdd23257oummtpjwl6348wigdlx
- https://app.box.com/s/pfdk6c7a9g9n5i0e3s5txnej16q7biav
Neither will wind and solar (renewable energy or RE) make much of a difference during the remaining oil depletion regime's descent. In fact, growth of wind and solar has likely peaked with the price of oil and will follow the oil cycle into negative growth in the years ahead. In effect, given Peak Oil and LTG, we cannot afford to grow real GDP per capita AND build out RE to necessary scale AND maintain the fossil fuel infrastructure indefinitely hereafter. Something has to give and it will be growth of real GDP per capita and the RE build-out.
As a result, we are likely to experience a last-man-standing contest between the West and China for the world's remaining vital resources of finite planet Earth.
Jeffrey J. Brown, September 28, 2015 at 4:15 am
Jeffrey J. Brown September 28, 2015 at 3:48 pmThrough 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014 (complete data not yet available from EIA). GNE fell from 46 MMBPD (million barrels per day) in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.
Here are the mathematical facts of life regarding net exports:
Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.
In addition, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.
For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).
Jeffrey J. Brown September 28, 2015 at 6:57 amMinor correction: In 2013, India's total petroleum liquids production + other liquids production was 25% of total liquids consumption, China's was 42%.
Steven Kopits September 28, 2015 at 12:23 pmInteresting article on Saudi Arabia:
The collapse of Saudi Arabia is inevitable
http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679
Steven Kopits September 28, 2015 at 7:32 amHere's a bit I wrote on oil prices and Arab unrest. Interestingly, unrest seems more correlated with high oil prices, rather than low prices.
Keep in mind, the Saudi fiscal model went to hell after 1983, and particularly after the big oil price drop from Feb. 1986–and this at a time when they were pumping only 3 mbpd. And yet the monarchy survived.
It's not entirely clear that low oil prices lead to revolution.
http://www.prienga.com/blog/2014/12/1/arab-unrest-linked-to-oil-price-spikes-not-price-collapses
And by the way (speaking of being quoted), I should be on NPR's Marketplace again tonight.
BC September 28, 2015 at 1:08 pmDo you ever have a cheery day, BC?
Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together.
Ricardo September 28, 2015 at 4:56 amThanks, Steven, but what's "normal" WRT inventories going forward? Do your data account for tanker oil storage?
- http://www.bloomberg.com/news/articles/2015-09-17/even-a-slowing-china-is-oil-s-best-defense-against-deeper-slump
- http://money.cnn.com/2015/06/04/news/economy/china-oil-supertanker-opec/
China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11.
What if "normal" for 2011-14 is well above the trend rate of growth of demand hereafter?
What is the source of your data? Thanks.
Cheers!
Steven Kopits September 28, 2015 at 8:36 amThe Professor wrote:
"I've long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies. A downturn in China will affect some businesses much more than others. If specialized labor and capital do not easily move to other sectors, that can end up having significant multiplier effects.
Professor,
Thank you once again for a bit of reason in your analysis. Krugman as the leaders of the far-left Progressive economists leads so many astray with his ultra-aggregate economics.
Excellent article!
"Demand out of China [for Apple iPhone 6s] looks white-hot," Ives said.
http://news.yahoo.com/apple-reports-record-sales-iphone-6-6s-plus-124914752–finance.html
Doesn't really scream recession, does it. It sure screams over-valued currency, though.
Sep 27, 2015 | johngaltfla.com
September 27, 2015 | Shenandoah
And in turn, Remove the United States as a Superpower in the Middle East
On post super blood moon Monday, Vladimir Putin will be meeting with President Obama to discuss the ISIS crisis in the Middle East. There are many within the U.S. media who are promoting this meeting as some strange idea that the Russians are about to ask the Americans for help against ISIS. While there might be a small gnat's hair bit of truth to this, in reality, Putin is about to dictate terms and the United States is ill prepared to deal with the consequences.
In 2014, I penned a piece reflecting the true reason ISIS was created so that the Arabian sheikdoms could establish pipelines through Iraq and Syri a to permanently shift Europe's dependency on Russian oil and natural gas over to their own private market where they can re-assert control over the world market price. The problem is that Russia failed to see the US, British, and Arab point of view and offered what they thought was enough support to block ISIS from overthrowing Bashir Al-Assad and keep this dream from becoming reality.
... ... ...
The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC as of Friday, 9/25 ):
This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the West's Middle East petro partners.
... ... ...
The Middle East is aflame right now and the economic situation along with terrorist Islamist ideologues have exported their problems into Europe with a massive migration of millions of refugees from Syria, Jordan, Libya, and Iraq. Mixed within these people are numerous terrorist operatives as was promised by ISIS and Al Qaeda years ago but ignored by the naive European Union. The future problems this will create are another story but the question has been promoted by some in the United States asking why the Arab nations of the Arabian Peninsula have not taken any of the refugees. That answer is obvious; their economies and domestic political situations are so tentative and fragile that an influx of millions of new residents would probably tip nations like Kuwait and Saudi Arabia closer to full blown civil war within their own borders.
... ... ...
The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. By later on this year and early next year their should be sufficient forces on the ground in Syria and Iraq to push the ISIS militants into a meat grinder, eventually cutting them off from their northern forces somewhere in north central Iraq. Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed.
Meanwhile in the southern part of Iraq, ISIS will be left unchecked for a short duration and eventually pushed into Saudi Arabia and the GCC states, to let the sponsors of this terrorist army deal with the problems they funded and created. The brilliance of this strategy by the new alliance of Egypt, Russia, Iran, Iraq, and Syria (which may soon include Jordan) is obvious; the return of the malcontents who will feel betrayed by the House of Saud and other various sheikdoms of the region will create domestic instability and as a result the destruction wrought on Iraq's oil infrastructure will now become a GCC problem.
Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a "peace keeping" role is viable, usurping the U.S. hegemony in the region.
The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russia's, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace.
Sep 27, 2015 | marknesop.wordpress.com
marknesop, September 25, 2015 at 12:34 pm
Kiev professes itself "satisfied" with the gas price negotiated in the deal, in which the fact that Ukraine's gas supply will be entirely paid for by Europe is spun as a victory for Naftogaz and Demchysin personally, after he wrestled Russia into submission and made them drop their prices.marknesop, September 25, 2015 at 3:22 pm"As customers, we're interested in a lower price". Dear God, you could laugh until you died. As customers who have to beg our boss for money because we're broke, we're interested in at least the appearance of being in control of something. Anything.
Ha, ha, ha!! If you were thinking "Nord Stream II in Ukrainian Perspective" could be summarized as "Wahhhh!!! I Went Crazy And Now Russia Won't Talk To Me!" crackpottery, you would be right.Standout points are (1) Raising transit fees is normal procedure when transit volumes drop, and (2) Ukraine's transit system will register a net loss if transit drops below 40 BCm a year. The volume in 2015, while Ukraine is still being used as a transit country, is expected to top out at 51 BCm.
I would say the writing is on the wall there, and the message does not…ummm…look positive for Ukraine. You pissed in the pickles one time too often. Notably, however, although some of the reduced transit volume is due to Europe taking less gas, a stronger limiting factor is more gas being sent through Nord Stream. You can see why Europe was desperate to stop South Stream, and why it is now trying out a tough-guy approach as if it can force Russia to continue using Ukraine as a transit country, to a background of despairing wails from Ukraine.
Sep 26, 2015 | economistsview.typepad.com
Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.
- Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.
- Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...
There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?
Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...
A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...
The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.
But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.
So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.
reason
"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."
That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!
reason
"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."
Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.
Sep 26, 2015 | Zero Hedge
The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.The millions in upfront fees, along with their lack of conscience in bribing Moody's and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child's play compared to the last six years).
... ... ...
Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled "exotic" mortgages to dupes who weren't capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.
Once the Wall Street machine runs out of people with the financial means to purchase a home or buy a new vehicle, they turn their sights on peddling their debt products to financially illiterate dupes. There is a good reason people with credit scores below 620 are classified as sub-prime. Scores this low result from missing multiple payments on credit cards and loans, having multiple collection items or judgments and potentially having a very recent bankruptcy or foreclosure. They have low paying jobs or no job at all. They do not have the financial means to repay a large loan. Giving them a loan to purchase a $250,000 home or a $30,000 automobile will not improve their lives. They are being set up for a fall by the crooked bankers making these loans. Heads they win, tails the dupe gets kicked out of that nice house onto the street and has those nice wheels repossessed in the middle of the night.
The subprime debacle that blew up the world in 2008 was created by the Federal Reserve, working on behalf of their Wall Street owners. When interest rates are set by central planners well below levels which would be set by the free market, based on risk and return, it creates bubbles, mal-investment, and ultimately financial system disaster. Did the Fed, Wall Street, politicians, and people learn their lesson? No. Because we bailed them out with our tax dollars and have silently stood by while they have issued $10 trillion of additional debt to solve a debt problem. The deformation of our financial system accelerates by the day.
The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. With real median household income still 6.5% BELOW 2007 levels, 7.3% BELOW 2000 levels, and about equal to 1989 levels, the only way the ruling class could manufacture a fake recovery is by ramping up the printing presses and reigniting a housing bubble and an auto bubble. They even threw in a student loan bubble for good measure.
... ... ...
The entire engineered "housing recovery" has had a suspicious smell to it all along. The true bottom occurred in 2009 with an annual rate of 4 million existing home sales. An artificial bottom of 3.5 million occurred in 2010 after the expiration of the Keynesian first time home buyer credit that lured more dupes into the market. The current rate of 5.31 million is at 2007 crash levels and on par with 2001 recession levels. With mortgage rates at record low levels for five years, this is all we got?
What really smells is the number of actual mortgage originations that have supposedly driven this 35% increase in existing home sales. If existing home sales are at 2007 levels, how could mortgage purchase applications be 55% below 2007 levels? If existing home sales are up 35% from the 2009/2010 lows, how could mortgage purchase applications be flat since 2010?
New home sales are up 80% from the 2010 lows, but before you get as excited as a CNBC bimbo over the "surging" new home sales, understand that new home sales are still 60% BELOW the 2005 high and 25% below the 1990 through 2000 average. So, in total, there are 1.5 million more annual home sales today than at the bottom in 2010. But mortgage originations haven't budged. That's quite a conundrum.
As you can also see, the median price for a new home far exceeds the bubble highs of 2005. A critical thinking individual might wonder how new home sales could be down 60% from 2005, while home prices are 15% higher than they were in 2005. Don't the laws of supply and demand work anymore? The identical trend can be seen in the existing homes sales market. The median price for existing home sales of $228,700 is an all-time high, exceeding the 2005 bubble levels. Again, sales are down 30% since 2005. I wonder who is responsible for this warped chain of events?
AlaricBalth
This FRED chart I have posted, which corresponds with the effective Fed Funds Rate chart in the article, will show exactly what a daunting problem the the US and the Federal Reserve is being forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money, each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next. The labor force participation rate is a measure of the share of Americans at least 16 years old who are either employed or actively looking for work. If money demand is high, it could be a sign of a robust economy, with the usual corresponding inflationary pressure.
As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless the Fed has a plan to increase the LFPR, people are not going to be spending money they just do not have.
Demographically, this is not going to happen. Baby boomers will still be retiring at a rate of 10,000 per day and manufacturing is never coming back to the US until we are a third world country with a cheap labor force.
This is not an issue that can be fixed by political promises. So no matter which political party is in control, this will not be repaired with platitudes. This is a structural macro-economic phenomenon which is caused by demographics and poor long term fiscal planning.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Vst
TeethVillage88s
Anyone have this video?
Elizabeth Warren Video, Late Night with Steven Colbert, 23 Sept 2015.
Defends Dodd-Frank and gave stats to prove the value of CFPB formed, like 650,000 complaints handled, and many changes forced on corporations.
Edit: Looks like CBS didn't release the segment of Elizabeth Warren only, so you have to go through whole show or just the 2:00 minute segment that only shows her saying she is not running for President.
Shame on CBS, as usual.
http://www.cbs.com/shows/the-late-show-with-stephen-colbert/video/jUNG_y...
Apparently I don't have the computer configured to play it anyway.
FreedomGuy
I do not think Wall Street and your local bankers or mortgage brokers are the bad guys here. Frankly, they look at the rules and try to make a living in the mortgage business. They are not angels but neither are they demons and I do not think they purposely write bad business.
I think the Wizard of Evil behind the curtain is first and last the government including a GSE like the Fed. They set this stuff up. You know you can load up Freddie and Fannie with smelly stuff and off-load risk. They hold rates near historic lows so people can buy more.
This drives prices and all the flipping crap and related stuff I hate.
I am in the middle of this. Being an avid reader of ZH I have become a proper pessimist. I did a cash-out refi and am paying off virtually all other loans...or more properly moving them to the tax deductible home loan. I was going to rent and move north because of work but after lots of research, breathtaking price increases and a few other cautions I decided to sit it out.
I am going to see what the economic terrain looks like in 6 months or more.
The thing is you have to play the game as it is, today, not as you think it should be.
marts321
Don't hate the player, hate the game.
TeethVillage88s
Check out the growth of Holding companies.
Financial Business; Credit Market Instruments; Liability, Level
2015:Q1: 14,104.57 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, TCMDODFS,Holding Companies; Credit Market Instruments; Liability, Level
2015:Q1: 1,380.52 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, CBBHCTCMDODFS,
https://research.stlouisfed.org/fred2/series/CBBHCTCMDODFSU.S.-Chartered Depository Institutions; Credit Market Instruments; Liability, Level
2015:Q1: 669.90 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, CBTCMDODFS,Now, we know that in 2007 the Biggest Wall Street banks wanted access to Deposits in the USA. So maybe I don't have the date, could have been planned from Lehman Request date to become a Deposit Bank while an Investment Bank.
So today we have Holding Companies that are allowed to have Deposits while doing commercial and investment work and proprietary trading... and now are 30% Bigger after all the Bailouts and transfer of Taxpayer and Retirement Funds to them.
Holding Companies have Doubled Liability since 3QTR 2007
Wow
TeethVillage88s
Too Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC
I'm not sure how you can isolate or focus your condemnation or fault.
- - Private & Public Pensions, Retirement Funds, Deposit Insurance, The Fact that our Wall Street Banks are Borg connecting to AI Technology,... and Complexity is increasing at an Exponential Rate meaning Risk is Exponential as well
- - Big Concern -- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999 = $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011 = $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)
- - Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion. (Risky)
- - 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)
- - 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion
Edit: This applies, $8.16 Trillion in US Deposits
Total Savings Deposits at all Depository Institutions
2015-09-07: 8,164.3 Billions of Dollars (+ see more)
Weekly, Ending Monday, Not Seasonally Adjusted, WSAVNS,
https://research.stlouisfed.org/fred2/series/WSAVNSdizzyfingers
"Sociopaths" (psychopaths) rise to the top. They are not like others. http://www.healthguidance.org/entry/15850/1/Characteristics-of-a-Sociopath.html
EndOfDayExit
To all hysterical critics of the FED, what do you suggest they do instead? The rich can do nothing, sit it out, the poor meanwhile will starve and die (and probably riot before they die).
The poor need jobs. Now almost at any cost, because those jobs are few and far in between as we are competing with China. So they do ZIRP, NIRP whatever, something, anything to at least marginally force the rich to spend. For, if people do not spend there will be even less jobs…and less tax revenue collected for the government to run and distribute around… and it all starts going downhill.
The FED is just trying to keep the system at the higher spending point. It does not seem to work very well, but the next option is a direct confiscation and redistribution of assets (to keep those poor jobless souls content). Nobody gives a f* about inequality until it becomes a riot-provoking problem itself. Ugly as it is there is actually logic in what the FED is doing.
Batman11
The globalists rush to take the profits in the good times but run and hide in the bad.
Where is the profit in sorting out the bad times? In the bad times national institutions, Governments and Central Banks, get left to sort out the mess loading the costs onto national tax payers.
When things go wrong nationalism rises as each nation is left to fend for itself. We should know how it works by now, this isn't the first time.
- 1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase
- 1929/2008 - Wall Street crash
- 1930s/2010s - Global recession, currency wars, rising nationalism and extremism
- 1940s/? - Global war
We are nearly there with the Middle East on fire and the two nuclear super-powers at each other's throats.
Maybe next time we will know better, third time lucky.
mianne
Cherry picker, I agree with you : " All our government up here has to do is get out of NATO, disband our version of the CIA, divorce Homeland Security, duty and tax all imports to the hilt, keep our water, electricity and natural resources to ourselves and manufacture our own products... Then you can have all the wars you want in the middle east and we will watch it on television without worrying about whether to be part of the murder brigade or not."
But as for ourselves, as governed by the totalitarian EU whose representatives are non elected by people, but were chosen by the international finance tycoons ( our elected presidents deprived of any power by the supranational non elected entity, US- OTAN driven European Union), we are just powerless slaves .
However we won the referendum ( 52 % ) against the content of the Maastricht-Lisbon European Constitution, but they do not take it into account, submitting us to the ignominious treaty . Democracy ?
Sep 20, 2015 | www.usatoday.com
While everyone is watching the oil bust, there is another bust going on - one for natural gas.
Before there was a boom in oil production in the United States, there was the "shale gas revolution." That is where we all became familiar with terms like "fracking." And the Marcellus, Haynesville, and Barnett Shales were famous long before the Bakken or Permian.
The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals and causing a major switch from coal to natural gas in the electric power industry. Aside from a few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million Btu (MMBtu) or lower since the financial crisis of 2008.
But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania, West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009, to a record-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over several years when prices were extremely low.
Much of that has to do with the huge innovations in drilling techniques, including fracking and horizontal drilling, which allowed for production to remain profitable despite the downturn in prices. But some of the credit also goes to drillers searching for more lucrative natural gas liquids and crude oil. Dry natural gas is produced in association with oil. With oil prices extremely high, especially in the period between 2010 and 2014, drillers continued to produce natural gas even if they were looking for oil.
So only after oil prices busted did natural gas production start to slow down. In fact, while the markets are eagerly watching for declines in oil production, few are noticing that natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years.
It is no surprise that the Eagle Ford will represent the largest losses, with a decline of 117 million cubic feet per day expected in October. That is because oil is a much more prized commodity in South Texas, so the decline is largely attributable to disappearing crude oil rigs.
While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom.
MORE:
- Environmental groups target fossil fuel production on federal lands
- Oil industry influence waning amid oil price slump
- For Canadian oil sands, It's adapt or die
OilPrice.com is a USA TODAY content partner offering oil and energy news and commentary. Its content is produced independently of USA TODAY.
Sep 25, 2015 | www.bradford-delong.com
Cervantes said: September 14, 2015 at 11:23 AMWell, I'm just a medical sociologist, so what do I know, but my bank essentially pays zero interest on deposits and charges 4.5% interest on mortgages. So they seem to be in a perfectly good place as far as I can tell.BruceJ -> Cervantes: September 14, 2015 at 11:48 AM
Beat me to it. My savings interest rate is 0.1%. The bank's (actually a credit union) current 30-year mortgage rate is 4.125%, inflation right now is 0.2%. (so in real world terms I'm losing money daily on my "savings").By my admittedly non-R-programmed mere fingermath calculations they're making 412.5- 3=409.5 basis points on those loans, comfortably above their 300 point bar. They may not be maximizing their profits, but they're making them, and playing safe to boot.
And so long as the 0.01% have a stranglehold on profits and wages, inflation isn't going anywhere, except, of course, for yachts and Picassos.
Of course so long as the 0.01% have that stranglehold, not much of anything is going anywhere.
jorgensen said: September 14, 2015 at 12:13 PM
I do not understand Brad's faith in the magical ability of inflation to stimulate the economy.Jerry Brown said: September 14, 2015 at 01:57 PM
To the extent that commercial bankers are able to exploit their very special access to the Federal Reserve, they are most certainly rentiers. At least if I am understanding that term correctly.Michael Finn said: September 14, 2015 at 03:55 PM
`Brad, I don't think you get that a lot these people are not rational. These are people who think that as soon as inflation starts up then the entire bill of treasuries that the Fed has will come due.They actually do believe in Glenn Beck and the rest of the psychos. A man that I knew who owns several million ft^2 of timber that got rid of it because he thought inflation was coming. He liquidated everything he had and I haven't seen him since.
These people are probably not the majority of their clients but they are definitely the LOUDEST.
Graydon said: September 14, 2015 at 06:41 PM
They certainly are part of the rentier class. They didn't used to be, and they shouldn't be, but iron and gold they are today.Banks make their money on fees; the interest rate spreads are a mere bagatelle. This is a consequence of deregulation more than it's a consequence of electronic transaction technologies.
It's pretty darn near the power to tax; banks get a cut of the entire economy because they get at least a couple percent every time money changes hands. (Look at Square's pitch to merchants -- a consistent two-point-something percent rate for clearing credit card transactions. The bank version goes up to 10%.)
As long as that's true, the zero lower bound is annoying, but it doesn't really affect profitability. Profitability is guaranteed by the existence of an economy.
Graydon -> Graydon: September 14, 2015 at 06:45 PM
And I note that it purely doesn't matter what the fees are as long as the banks don't significantly vary among themselves as to what the fees should be.That is, there isn't a market for commercial banking services. There's an ostensibly informal cartel.
Max Rockbin -> BruceJ: September 14, 2015 at 11:11 PM
I'm with you guys. This article makes no sense. What loans (of any kind really) is he seeing banks make at <3%? Even a 5/1 ARM (with points) is over 3% and most loans are fixed rate anyway.reason said: September 15, 2015 at 12:19 AM
JorgensenI do not understand your magical faith in inflation arriving without stimulation.
kbis said: September 15, 2015 at 01:13 AM
Well I'm not very sure that commercial banks are intermediaries. Not anymore. They have a far bigger role in the financial landscape: money creation. There's no intermediation involved here, just leveraged money creation on the basis of the fractional reserve.
That's a huge role, one that private off-bank lenders cannot do.bakho said: September 15, 2015 at 05:26 AM
The Fed's "official" reasoning:"The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling--a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term. "
I don't know why they think a higher inflation rate would make it harder to make long term decisions.
bakho said: September 15, 2015 at 05:31 AM
Here's Stanley Fisher:
"It is important to keep inflation low enough so that people need not pay it any attention. At 2 percent annual inflation, a dollar loses half its value in about 36 years; at 4 percent inflation it takes about 18 years. When you start getting up to 4 percent inflation you begin to see signs of indexation coming back and a whole host of the inefficiencies and distortions. A 4 percent target a mistake."Rob said: September 15, 2015 at 05:33 AM
"And commercial banks really do not want to sock their depositors with unexpected fees"BWAHAHAHAAHAHA!
Wow Brad that is a good joke there! Of course banks use unexpected fees. Lock in with a bank is real. do you want to go and change your autopay every month? Banks compete for deposits on rates and "free" checking and then hit customers after lock in.
bakho said: September 15, 2015 at 05:52 AM
Two percent inflation might work if fiscal stimulus would reliably fill the output gap during steep recessions. Fiscal policy has proved unreliable and prone to making matters worse with austerity policy.Current policy seems to be driven by failed models and misinformation.
Should the Fed make policy based on ideal fiscal policy? or the ugly reality of misguided fiscal policy?
What are the odds of a candidate from the Clown Car stepping into the driver's seat for fiscal policy?bakho said: September 15, 2015 at 06:07 AM
From Money, Banking and Financial Markets. By Laurence BallInflation and the Savings and Loan Crisis
In the early 1960s* U.S. inflation rates averaged less than 2 percent per year. This situation appeared stable, so people expected low inflation to continue in the future. However, inflation rose rapidly in the lace 1960s and 1970s. Because actual inflation over this period was higher than expected, ex post real interest rates were lower than ex ante rates. In real terms, lenders received less from borrowers than they expected to receive when they made the loans.Losses to lenders were greatest for long-term loans, especially home mortgage. In 1965, the nominal interest rate on 30-year mortgage was less than 6 percent. This rate was locked in until 1995. Because inflation was expected to be less than 2 percent, the ex ante real interest rate was positive. However, the inflation rate averaged 7.8 percent over the 1970s, implying negative ex post rates.
Negative real interest rates on mortgages were a great deal for homeowners. But they caused large losses for banks that specialized in mortgages, such as savings and loan associations. These losses were one reason for the so-called S&L crisis of the 1980s, when many savings and loans went bankrupt.
The preceding case study illustrates a general point: uncertainty about inflation makes it risky to borrow or lend money. This is true for bank loans, and also when firms borrow by issuing bonds. In both cases, borrowers and lenders agree on a nominal interest rate but gamble on the ex post real rate. Borrowers win the gamble if inflation is higher than expected, and lenders win if inflation is lower than expected.
Can borrowers and lenders avoid this gamble? One tool for reducing risk is inflation-indexed bonds. This type of bond guarantees a fixed ex post real interest rate. Unlike a traditional bond, it does not specify a nominal interest rate when it is issued. Instead, the nominal rate adjusts for inflation over the life of the bond, eliminating uncertainty about the real rate."
After a decade of telling the markets that the interest rate would be 2%, the Fed does not want to change to a 4% target. ARMs and a move to 15 year largely solved the mortgage problem. However if the Fed wants tight control of the inflation rate, they can't do much about the unemployment rate unless fiscal policy cooperates. Fiscal policy has been not only uncooperative but in many cases in opposition to monetary policy.
jorgensen -> reason: September 15, 2015 at 08:11 AM
I don't want or expect inflation. I see no benefit flowing from inflation.Altoid -> jorgensen: September 15, 2015 at 09:51 AM
If you have assets or non-fixed income, or if you're projecting returns from a capital investment, a slow and steady rise in the number that expresses the value means people can behave as though they expect larger numbers in the future. Expecting numbers that will grow, they're more likely to spend today's money on consumption goods and capital assets like houses, and more likely to make capital investments because they can project that the number used for today's investment will breed numbers that grow over whatever period they're planning for. Because people use nominal figures for almost everything in ordinary life, not real inflation-adjusted values, this tends to work.About 15 or so years ago the Guardian had an economic columnist, Will something iirc (Will Self? don't really remember at this point), who explained this very well. Its prime virtue is that it works in a modern economy to make people feel better and act in ways that add to measurable GDP. It's a utilitarian, not a moral, view.
bakho -> jorgensen: September 15, 2015 at 10:59 AM
Inflation requires wage inflation meaning both wages and prices go up.
Deflation means downward pressure on sticky wages and sticky prices. Sticky wages mean that wages, do not deflate, instead, reduction in hours worked and increase in unemployment result. Sticky occur as businesses cannot sell below cost of production for long: price deflation leads to business failure. You want your economy managed so that relative wages and prices reset in the non-sticky direction: upward. This avoids recessions, high unemployment and broad business failure.
Inflation must be high enough that an economic shock can be absorbed by upward relative price reset. Inflation - deflation is a continuum. All economists agree deflation should be avoided for obvious reasons. A rate of inflation that is too low is only marginally less bad than deflation.jorgensen -> Altoid: September 15, 2015 at 11:34 AMAn economic policy designed to trick the middle class into over spending and under saving (by confusing nominal and real gains) is a recipe for long run disaster.To some extent since 2007 we have been reaping the consequences of that policy as carried out since 1980.
jorgensen -> bakho: September 15, 2015 at 11:39 AM
I'm in private business. In my world overall wages and prices are adjustable downward at a rate of at least two percent a year. High cost employees retire or rotate out to other jobs. Companies with high cost structures re-organize or go bankrupt and are replaced by companies with lower cost structures. There is enough natural churn in the market that downward stickiness is at worst a short term phenomenon. We are 8 years into this downturn. Downward stickiness is not the problem.To believe that downward sticky wages are so big a problem as to justify inflation you have to believe that there are a material number of workers who are materially over-paid at the moment and whose real wages should be cut but who do not have the bargaining power to protect themselves from inflation.
jorgensen -> jorgensen: September 15, 2015 at 11:41 AM
sorry I should have added: If you believe in downward sticky wages then you should be able to identify the groups of workers whose real wages should be cut and could effectively be cut through inflation.Thomas More said... September 15, 2015 at 03:33 PM
As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects.Bankers act perfectly rationally, but in ways DeLong and Krugman et al. do not expect. A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk.
Consequently your typical banker finds it much more profitable to engage in control fraud today rather than the old boring business of making sensible loans at low interest to customers who are likely to pay the money back. Identifying good credit risks in a depressed economy takes a lot of work, and the result even if successful is low profits -- a squeezed profit margin of circa 300 basis points or less, as DeLong points out. But why settle for a measley 0.3% or 0.2% or less profit, when you can make 20% or 30% or 60% profit with no economic risk and no real risk of being indicted?
The way you make 20% or 30% or 60% as banker in 2015, obviously, is to buy up large numbers of foreclosed liar-loan houses and apartment buildings and then rent them out. Since most people can't afford a home today because they're got rotten credit and are burdened down with debt from the financial crash, rents are inflated in 2015. The bankers then aggregate speculative financial instruments based on these inflated rents and the inflated valuations of the homes and apartment buildings they've bought, and issue those speculative financial instruments as investment vehicles to a gullible public and other financial institutions desperate for decent returns on their investment capital. These bogus junk-quality financial instruments made up of shares in aggregated foreclosed properties generate income which is then used to buy more overvalued foreclosed properties which can be rented out in inflated prices, which then generate more bogus securities which then generate more income...and so on. In short, you get a vicious cycle and a real estate bubble 2.0, but this time based on buying and renting out foreclosed properties with money borrowed from investors based on fraudulent securities. As opposed to real estate bubble 1.0 -- which was based on buying and selling mortgages for newly-built homes with money borrow from investors based on fraudulent securities like CDOs etc.
Bankers in 2015 are behaving perfectly rationally and they understand with pellucid clarity the interests of their class. They simply are doing so in ways that neoliberal technocrats like Brad DeLong can't fathom, because bankers in 2015 are continuing the very profitable control fraud of real estate bubble 1.0...but by slightly different means (renting foreclosed properties, rather then mortgaging newly built properties). The bankers correctly deduce that there is no financial or criminal penalty for this kind of control fraud, since neither Bush nor Obama showed the slightest interest in prosecuting bankers for their role in robosigning fraud in real estate bubble 1.0. And when the whole ponzi scheme goes bust this time, the government will step in and bail the banks out. In the meantime, the bankers are making bank (all puns intended) on all those fees and that sweet, sweet income stream generated from all those fake liar-loaned forelosed properties being rented out.
So why wouldn't a banker choose to make 20% or 40% or 60% by spewing out liar-loan investment instruments based on foreclosed overvalued properties that are supposedly going to rise in value limitlessly while the rents increase every year without bound? Why would a banker ever settle for a mere 300 basis points return?
Brad DeLong, like so many neoliberal economists, is book-smart, but not street-smart when it comes to these matters.
Richard said: September 15, 2015 at 03:39 PM
Graydon: I'm sorry, you're wrong. Banks make their money off of the spread, loans, and markets. Fees are a negligible amount of income.Brad:
One: banks are long duration/fixed income assets. Most mortgages are fixed rate mortgages. What happens to the value of a fixed rate loan when inflation or interest rates move up? What about mortgage production?
Two: bank executives are rich. There's no reason personally for them to cheer for inflation.That said, yes, an upward sloping yield curve is a commercial banker's best friend.
In any case, I haven't seen much sentiment about rates one way or the other. Commercial banks, from what I've see, are fairly subdued about rates. The increase in regulation is another matter.
Altoid -> jorgensen: September 15, 2015 at 08:15 PM
So, the business world has no problem with deflation because, even though there's a consistent and ongoing squeeze between what's paid at the front end for something and what can be realized at sale time later as the secular nominal price level falls, the difference can always be made up by cutting labor costs?I'm having trouble understanding what the desired state is: deflation, or neither deflation nor inflation but neutrality? If neutrality is the target, we know how to dampen inflation-- by raising interest rates the requisite amount. In times of deflation, how do we move out of that toward neutrality without mirror-image negative interest rates that make people pay to hold cash? Isn't there an asymmetry? What happens then?
ezra abrams -> Richard...
Richard, methinks it is you who is wrong on fees
http://www.nubank.com/downloads/ep_4qtr2004_part3_DeYoung_Rice.pdfbut maybe above is outdated, see
http://www.wsj.com/articles/banks-fee-bonanza-dries-up-1409699980
Sep 25, 2015 | www.nakedcapitalism.com
abynormal September 24, 2015 at 8:12 pm
"This is the best recovery in all recorded history." Lambert
Is GS preparing to Sacrifice the next Lehman (at zh find it yourselves')
short list:
It goes without saying that courtesy of HFTs and China's hard landing, a 5% drop in commodities could happen overnight.So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:
** Commodity prices drop another 5%
** The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
** Waterfall cascade of margin and collateral calls promptly liquidates Glencore's trading desk and depletes the company's cash, leaving trillions of derivative contracts in limbo. Always remember: the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those "physical" commodities are.
** Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
** Fed and global central banks are called in to come up with a "more powerful" form of stimulus
** The money paradrop scenario proposed by Citigroup yesterday, becomes realityToo far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.
**********************************************
i did a 4th course on Hunger http://marketwatch666.blogspot.com/2012/11/hunger-4th-course.html (scroll down to bold red, can't miss the Glen history that we WILL NOW BE BACKSTOPPING)
A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most."craazyboy September 24, 2015 at 8:22 pm
abynormal September 24, 2015 at 9:33 pm" If a counterparty liquidates, net exposure becomes gross,"
This is the really, really important concept. Whenever someone mentions our $600 Trillion in global derivatives, Wall Street pipes up and says that is NOMINAL. It NETS out to ZERO (minus fees).
But yeah if the chain breaks, it is really two halves, $300 Trillion a piece. Which I think someone recently estimated is 1.5 times the dollar value of the planet. (just the $300T half) Which has me wondering where the regulators went to accounting school. But I never took accounting, so maybe it's me that's mixed up.
i forgot most of my Glencore 411 is in the comments following the post…i don't think the swiss are prepared for this 'issue'
craazyboy September 24, 2015 at 10:37 pm
Yeah, I see you've been following this fine company for some time now. Sure, they are bigger than Swissistan. What's to worry?
craazyboy September 24, 2015 at 8:55 pm
Just read the full ZH article.
The only thing I'd point out is our sophisticated financiers always say don't wait for the rating agency downgrade – because they are always last to make a move.
Other than that, sounds about right.
Other thing I remember in 2008 was Goldman increased broker margin requirements maybe a month or two before Lehman.
abynormal September 24, 2015 at 9:19 pm
ck back i got a post waiting with a link that's unfriendly…don't know why IT'S THE BIS DOT ORG…my netbk should blow up any sec
Sep 25, 2015 | www.zerohedge.com
Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators".
Today we have corporate monoliths which are literally orders of magnitude larger than any remotely "optimal" size, with the ultimate and most-obvious examples being those hideously bloated financial behemoths which we now know as "the Big Banks". How ridiculously too-big have the Big Banks gotten?
Even the most-ardent admirer of the Big Banks in the entire media world, Bloomberg, couldn't stop itself from openly salivating about how much "profit" could be had, just by beginning to chop-down the financial fraud-factory which we know as JPMorgan Chase & Co.:
JPMorgan Chase & Co, the biggest U.S. bank by assets, would be worth 30 percent more if broken into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.'s KBW unit said.
Note that there is not one word in the article indicating that there couldn't be a lot more profit to be made, by then smashing those pieces into much smaller pieces still. This article simply pointed to the instant profit of 30% which would be available just by beginning to chop-down this obscenely large behemoth, and in the simplest manner possible.
Why would "smaller" be much more valuable, in our forward-looking markets, in the case of smashing JPMorgan down-to-size (or at least beginning that process)? Obviously a major portion of that profit quotient would have to be derived from greater efficiency. Smaller is better.
However, pointing out that even the greatest admirer/biggest cheerleader of the Big Banks has observed how we would all be better off if the Big Banks were smaller is only a start. We then come to the heinous propaganda which the cheerleaders (including Bloomberg) have dubbed "too big to fail".
This is a very simple subject. "Too big to fail" is a pseudo-concept which is entirely antithetical to any economic system which even pretends to adhere to the principles of "free markets". Free markets demand that insolvent entities fail, it is the only way for such free markets to heal, when weakened by the misallocation of assets (such as in the case of insolvent enterprises). No business, or group of businesses could ever be "too big to fail".
There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality.
Understand that our own, corrupt governments embarked upon this criminal insanity long after the equally criminalized government of Japan already proved that too-big-to-fail was a failed policy. Not only could there never be an argument in favor of this criminality, our governments knew it would fail before they ever rubber-stamped this systemic corruption.
But all of these arguments against the insanity of perverting and skewing our economies in favor of Big Business, and against Small Business pale into insignificance compared to the principal condemnation of too-Big Business: the economic "cannibals" known as monopolies and oligopolies.
For readers unfamiliar with these terms because the Corporate media and charlatan economists try to pretend that these words don't exist, a brief refresher is in order. As most readers know, a monopoly is where a single enterprise effectively controls an entire market or sector. While a "monopoly" may be desirable when playing a board-game, in the real world these parasitic entities do nothing but blood-suck, from any/every economy they are able to "corner".
However, the majority of people, even today, are at least partially familiar with the evils of monopolies, thus the ultra-wealthy Oligarchs rarely attempt to perpetrate their systemic theft via these corporate fronts. Instead, they perpetrate most of their organized crime via oligopolies.
An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition.
These corporate fronts cooperate as closely as possible in systemically plundering economies. How do monopolies/oligopolies rob from us? The "old-fashioned" way for these blood-suckers to do so was via simple price-gouging. When you have complete control over a sector/market, you can charge any price you want.
However, not surprisingly, the Little People tend to notice when the Oligarchs use their corporate fronts to engage in simple price-gouging. They actually begin to notice the general evil which oligopolies/monopolies represent, and that is "bad for business" (i.e. crime).
Instead, the Oligarch Thieves of the 21st century engage in their robbery-by-corporation in a different, more sophisticated/less-visible manner: via corporate welfare. What other crime can monopolies and oligopolies perpetrate, with overwhelming success? Naked extortion.
As previously explained; "too-big-to-fail" (and now even "too big to jail") is nothing but the most-obvious and most-despicable form of corporate extortion (or simply economic terrorism): give us all the money we want, or we'll blow up the financial sector. Small banks could never perpetrate such a crime (terrorism).
But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks.
Typically, the extortion which precedes even more Corporate welfare, occurs in this form: give us everything we want, or we will close our factory/business, and you will (temporarily) lose those jobs. Here we don't need to imagine this in the hypothetical, as we have a particularly blatant example of such Corporate extortion/welfare, courtesy of U.S. Steel:
U.S. Steel Canada Inc. is threatening to cease operations in Canada by the end of the year if an Ontario Superior Court judge rejects its request to stop paying municipal taxes, halt payments into pension funds, and cut off health care and other benefits to 20,000 retirees and their dependents. [emphasis mine]
... ... ...
kanoli
Like most of Jeff Nielson's rants, this one is nonsensical. If small business hires more people to produce the same product or service as a big business, they cannot do so at the same or lower price unless they are paying a lower wage.
The problem with big business isn't that it is big - it is their tendency to lobby government for regulations that stifle small business competitors.
If politicians were not for sale, it wouldn't matter whether a business is big or small. Neither would have undue influence on the law.
The problem is regulatory democracy where all laws are constantly subject to fiddling by an elected legislature.
Element
In practice a balanced mix of all sized businesses are necessary in a planetary civilization that trades products globally. Getting the mix 'right' and not having big business get away with preventing competition, or of govt throttling to skim and micro-control is most of the deleterious effect on business, and on human beings in general.
Unfortunately humans have been trained to like Logos, and to buy 'wants' accordingly.
iDroned on a bit,
2c
newnormaleconomics
Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state.
The current state of the evolution of "capitalism" is its advanced, late-stage, financialized, globalized phase.
With Peak Oil, population overshoot, unprecedented debt to wages and GDP, Limits to Growth, climate change, a record low for labor share, decelerating productivity, OBSCENE wealth and income inequality, and increasing geopolitical tensions, growth of real GDP per capita is done, which means that growth of profits, investment, and capital formation/accumulation is done, which in turn means "capitalism" is done.
... ... ...
Sep 25, 2015 | The Barrel Blog
•Capital spending for 2016 will be lower than in 2015 - which itself has been 35%-40% below last year and could actually come in steeper in relative cuts than that, given that some operators have further slashed 2015 outlays and may still do so.
... .,. ...
Said Barclays in a report on conference takeaways: "If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America.
..."
Sep 25, 2015 | Economist's View
Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.
Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...
There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?
Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...
A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...
The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.
But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.
So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.
reason
"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."
That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!
reason
"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."
Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.
RC AKA Darryl, Ron said in reply to reason...
YEP!
What politicians can get away with is an artifact of the limited toolset that the electorate has to express its informed will. We need a well educated democracy and the democratic part of that requires Constitutional electoral reforms (e.g., gerrymandering, campaign finance). A bit of the educational aspect of a voting actually democratic republic would naturally work itself out with a more engaged and empowered electorate participating ACTIVELY.
With the system as it is then it takes a shock wave through the electorate for them to throw the bums out, but there is no follow through. There is a failsafe reaction function, but no more than that except on specific social issues that get overwhelming support where politicians can move with the electoral majority at zero cost while reactionary politicians can triangulate and pander some votes from the minority opinion of those too old or set in their ways to participate in the social sea change.
ilsm said in reply to RC AKA Darryl, Ron...
The threat is "faith voters", dogma developed by billionaires' propaganda to plunder the world.
DrDick said in reply to reason...
Krugman is far too kind to the businessmen. The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust.
DeDude said in reply to reason...
Exactly; what we need is a detailed debate on each specific regulation. What it intends to accomplish, whether that could be accomplished in a less burdensome way, and whether the accomplishment is sufficient to justify the burden. However, that is not something that can happen in the 15 second soundbite that appears to be the attention span of the average voter.
Lee A. Arnold said in reply to Second Best...
Second Best: "Markets work if allowed to self regulate."
No. Never happened, except in local instances. For self-regulation you need proper prices, and for proper prices you need proper supply and demand.
For proper supply you need perfect competition, so there must be numerous competitors entering the same market, and this requires, among other things, almost no intellectual protection.
For proper demand, you need perfectly informed consumers, and this is not only impossible, but it is getting far far worse, because the complexity of the world is increasing.
The problem with state regulation is that it also falls prey to the same objections, although at a slower rate. We use votes not prices, but the same imperfection of information and lack of flexibility causes problems with the voting system.
When you combine this problem with the increase in inequality (which was masked temporarily by World War II and the subsequent spurt of blue-collar jobs productivity), we are headed into an accelerated amelioration of the market system by greater public ownership.
RC AKA Darryl, Ron said in reply to Lee A. Arnold..."Peanut butter does not kill people, people kill people."
[If you can read a opening sentence like that and not recognize it as satirical parody, then you might want to look around to find the sense of humor that you lost. When the will of the people is no more than a euphemism for dollar democracy then parody, satire, sarcasm, and a healthy dose of cynicism are called for.]
JF said in reply to RC AKA Darryl, Ron..
Lee A Arnold - Think Jonathan Swift and his piece about the way to reduce subsidies for the orphaned poor infants, it is to reduce their number so we feel good about the fact that we help the few poor infants left alive.
I reacted a few times to Second Best's comments before I recognized the satire.
But I also have used his comments as a way to bring out the more logical, real-world of facts and rationality - so commentary helps either way. I suppose that serves 2nd Best's interests too.
JF said in reply to JF...
I believe the Jonathan Swift recommendations are the preferred republican-party approach to Social Security too. Really need fewer claimants, that will solve the accounting problems.
RC AKA Darryl, Ron said in reply to Second Best...
"Peanut butter does not kill people, people kill people. Car emissions do not kill people ... high drug prices do not kill people ... people do."
[This is an economics blog. You cannot be that "subtle (???)" and expect people to recognize your satire. Maybe there is a humorous math equation that economists can understand. I guess economics graduate school is so boring that most people lose all sense of humor. I am glad that Krugman has kept his.]
Richard H. Serlin said...
"Then there's for-profit education, an industry wracked by fraud - because it's very hard for students to assess what they're getting - that leaves all too many young Americans with heavy debt burdens and no real prospect of better jobs. But Mr. Bush denounces attempts at a cleanup."
And worse, wasting their incredibly valuable and rare young years, quite possibly their only chance before age and children make it extremely hard, not getting an education. Such a big thing. You don't do it when you're young, with the power and freedom and lack of dependents of youth, the opportunity may easily be gone forever. Such a brutal cost these predators and their Republican allies extract.
RC AKA Darryl, Ron said in reply to Richard H. Serlin...
https://en.wikipedia.org/wiki/College_tuition_in_the_United_States
Cost shifting and privatization
One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.[10] In 2011, for the first time, American public universities took in more revenue from tuition than state funding.[9][11] Critics say the shift from state support to tuition represents an effective privatization of public higher education.[11][12] About 80 percent of American college students attend public institutions...
bakho said...
Economics Professors of the "free market" bent for years have indoctrinated youth with the misguided notion that "regulations are bad" and market methods, no matter how RubeGoldberg, are always better. " You don't need to regulate pollution, just put a tax on it," as an example. Even cap and trade would not work without stiff emissions regulations.
Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model.
ilsm said in reply to bakho...
Sanctity of the "market"......
I got a jar of this snake oil here too!
The market they sell is the one that runs in Honduras
Tom aka Rusty said...
A couple of random observations:
Last time I looked about 150 Dodd-Frank regs had not been written yet, some of the key ACA regs are three years late.
Obama-ites have written some of the most complex, convoluted regs of the past 40 years, the health EMR regs have practically guaranteed a windfall for IT companies and a failure for EMR/EHR.
No mention of the Obama-Holder "too big to prosecute doctrine."
The new overtime regs will likely be in the "driving thumb tacks with a sledge hammer" mode.
But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go!
pgl said in reply to kthomas...
Rusty wants us to believe he is the only one who understands health care so he is a persistent critic of ObamaCare. But now he wants to pretend he's the expert on financial markets too? Seriously? Dodd-Frank is complicated only because the Jamie Dimons of the world milk every opportunity to game financial markets. If Rusty thinks letting Jamie Dimon evade any financial market regulation is a good idea - he is the most clue person ever.
DrDick said in reply to pgl...
He was just trying to do us a favor and demonstrate exactly what is meant by "knee-jerk opposition to regulation ."
JF said in reply to Tom aka Rusty...
Have you ever looked at the multi-party derived hedging instruments in play now - they can hardly get more complex, and indeed most didn't understand them when they were made, and these are still complex now.
So I have to say, that the 'marketplace' makes Krugman's point about complexity. It comes from humans cunningly doing stuff that serves their interests at the time as they see it. Not always wisdom at work here.
But it is complex, and so regulation of such complexity, if the generally applicable rules seek some fairness (classes of people are usually affected differently) and stands a test of due process too - the regulations will also need to be complex. The complexity came first, the regulations come afterwards (after society learns of the stupidity the hard way).
Railing about this is a form of misleading sophistry, a rhetorical device to reverse the causality.
We can think with more foresight and regulate before the stupid complexity arises, but it does take a rational policy making environment for this exploration, discussion and policy-making to occur with good foresight - I am waiting for the new Congress in 2017.
If the Warren-Sanders people have any influence then, we may see a whole lot less complex financial system (it's a riot when you think how the Efficient Market Hypothesis, a theoretical justification for the marketplace's range of instruments in fact led to more complexity, less real efficiency and effectiveness, and ossification of the system when it needed to be resilient but stable as a well-behaved system can be).
We will probably be better off after the 2017 debates. After all, this community of actors are only intermediaries on behalf of real productive outcomes truly needed by society - right, they are just intermediaries? How much inter-mediation does the economy need?
david s said...
The Obama Administration has been friendlier to corporate America than W's was.
http://theweek.com/speedreads/454963/matt-taibbi-bush-far-tougher-than-obama-corporate-america
im1dc said...
While it was Ronald Reagan and his Republican Party that called for deregulation not much was done until Alan Greenspan, then Chairman of the Federal Reserve, gave federal deregulation his blessing in speeches from NY to Aspen to California in which he said "the market" will reign in excesses and regulate itself b/c of competition acting egregiously would create.
Oopsie, Old Alan got it ALL WRONG again!
I thought a little history would help in this thread.
likbez said...
My impression is that regulation always reflects the needs of who is in power today. One the key ingredients of political power is the ability to push the laws that benefit particular constituent. And to block laws that don't.
If we assume that financial oligarchy is in power today, then it is clear that there can be no effective regulation of financial services and by extension regulation of derivatives. And if on the wave of public indignation such regulation is adopted, it will be gradually watered down and then eliminated down the road.
And you can always hire people who will justify your point of view.
In this sense neither Milton Friedman nor Greenspan were independent players. They sold themselves for money and were promoted into positions they have for specific purpose. I am not sure the either of them believed the crap they speak or wrote.
Sep 24, 2015 | www.resilience.org
The EIA also had US domestic oil production up by 19,000 b/d last week to 9.14 million and output in the lower 48 states flat at 8.65 million b/d. Analysts are not sure what these numbers mean. Some say they could indicate that the decline in production is slowing from what the EIA has been forecasting. However, some note that if there is any indication of production actually increasing, we would quickly see oil prices down in the $30s.
... ... ...
The financial press continues to highlight the woes of the global oil industry as it tries to contend with falling oil prices. Waterford International, one of the world's largest drilling contractors, failed in an attempt to borrow $1 billion from Wall Street because of its sagging stock price. ConocoPhillips is trying to sell off its Canadian assets. Total SA sold a 10 percent share in a $15 billion oil sands mine for $234 million and Wood Mackenzie says the world's oil companies have now cut $220 billion in planned investments. Wood Mackenzie also says that if oil prices stay below $50 a barrel, some $1.5 trillion worth of investments will be curtailed over the next few years. If these predictions come to pass it is difficult to foresee how world oil production can stay anywhere near current levels.
... ... ...
In the Middle East, the Libyan peace talks look like they are going to collapse. The Russian military buildup in Syria continues with more tanks, attack helicopters and aircraft arriving daily. While Moscow says it is in Syria to fight ISIL, the insurgents threatening Assad's power base in northwest Syria are made up of groups backed by Turkey, the US and the Gulf Arabs, with most of ISIL's forces hunkered down in the northeast to avoid the continuing US arterial bombardment.
Another cholera epidemic has broken out in Iraq where the sanitation and water systems continue to deteriorate. Temperatures in Iraq reached 122o F. in July and August which did not help the situation. The flow of middle class Iraqis to Europe is increasing. It becomes increasingly difficult to see how Iraq can continue to increase or even maintain its oil production given the numerous problems it is facing.
Sep 24, 2015 | Post Carbon Institute
Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil production and 88% of the shale gas production in the U.S. Department of Energy's Energy Information Administration (EIA) reference case forecasts through 2040. It utilizes all available production data for the plays analyzed, and assesses historical production, well- and field-decline rates, available drilling locations, and well-quality trends for each play, as well as counties within plays. Projections of future production rates are then made based on forecast drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas production is found to be unsustainable in the medium- and longer-term at the rates forecast by the EIA, which are extremely optimistic.
This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA's forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA's reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.
Sep 24, 2015 | Zero Hedge
Wow, talk about a nice fit! The following image describes a speed wobble when going too fast on a bicycle.
froze25Paulson should most definitely be in prison. I was no fan of Lehman, but what happened to them was nothing short of a criminal conspiracy.
Thorny XiRopeADopeHe's suffered so much though.
http://www.forbes.com/sites/morganbrennan/2012/06/05/billionaire-john-pa...
Debt-Is-Not-MoneyHank not John.
John is the colossal failure that could not come up with a good trade idea on his own if his life depended on it.
Not if_ But WhenI was fascinated that Bear Stearns was the first to go as Bear was the only large company that failed to respond to the Fed's calls when LTCM almost brough down the house in 1998.
Well, you know........he also lied to Congress. (but that's small potatoes).
KnuckleDragger-XVery true, let them fall and then bailout the rest. Well played Goldman.
Bay of PigsLehman had to die to save GS since GS were actually in more trouble......
What ever happened to Douche Bank anyway?
Edit: Damn, good ole Marty beat me to the punch.
Deutsche Bank – the New Lehman Brothers?Divine Windthe greatest control fraud in history, the 2008 seizure of the u.s. government's financial/regulatory apparatus by wall street's banks and trading houses to recapitalize themselves and avoid prosecution for their enormous crimes, is tremendously evil. it will never be prosecuted or its errors corrected until the psychopaths at the head of our society are neutralized.
only 9-11 can do this. it is the crime that is clear-cut, unambiguously wrong, provable, without a statute of limitations (treason/murder/kidnapping), sufficiently inflammatory (very important) and really comprehensive in its list of perps, especially after the fact (the editors of the new york times don't actually have to go to jail; just most people have to think they should).
https://www.youtube.com/watch?v=OsoY3AIRUGA.
https://www.youtube.com/watch?v=0GNww9cmZPo
http://www.luogocomune.net/site/modules/sections/index.php?op=viewarticl...
mind by mind. do your part.
HardlyZeroBullish for PMs, right?
NoDebtAfter MF Global, it is not clear how the markets are safe for buyers, sellers, brokers, banks, etc.
But as always, have your physical setup and safe first before going out to see what's going on.
"If a counterparty liquidates, net exposure becomes gross [emphasis added by me], and suddenly everyone starts wondering where all those "physical" commodities are."
For those who may not quite grasp this, it means all your "hedging" against falling prices is null and void and you are left with full-in-the-face long exposure PLUS entities dealing in the physical commodity can suddenly be looking down a long tunnel of "failure to timely deliver" on contracts they've signed.
But, then again, 2016 is the last year for a lame duck president... traditionally a very good year to "clean house" and get the government to bail you out.
Sep 24, 2015 | store.counterpunch.org
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This week, Eric has an in depth conversation with economist Michael Hudson, author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Eric and Prof. Hudson discuss the evolution of finance capital from its humble parasitical beginnings to the comprehensive global network of economic tapeworms and barnacles that it is today. They examine neoliberal terrorism, how debt is used as a weapon, and the disastrous effects of the financialization of the real economy. Hudson outlines the relationship between the parasites and their bloodsucking policies of austerity, providing insight using the example of Latvia, where he witnessed first hand the smash-and-grab nature of such prescriptions. Plus, Eric and Michael touch on Obama as Wall Street errand boy, the importance of left economic organizing, and much much more.
Musical interlude from the exciting new band GospelbeacH, and intro and outtro from David Vest.
Sep 24, 2015 | www.zerohedge.com
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
The ongoing oligarch theft labeled an "economic recovery" by pundits, politicians and mainstream media alike, is one of the largest frauds I've witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.
Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery," which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here's an excerpt:
Families' savings not where they should be: That's one part of the problem. But Mills sees something else in the recovery that's more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.
According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.
It's not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. "People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences," Mills says.
Of course, it's not just "alternative financial services." Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a "recovery."
From Time:
With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.
Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.
Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic-a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.
So now we know what has kept meager spending afloat during this pitiful "recovery." A combination of "alternative loans" and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.
Don't forget to send your thank you card to you know who:
* * *
For related articles, see:
- The Oligarch Recovery – Study Shows Real Wages Have Plunged for Low Income Workers During the "Recovery"
- The Oligarch Recovery – Low Income Americans Can't Afford to Live in Any Metro Area
- The Oligarch Recovery – Renting in America is Most Expensive Ever
- Another Tale from the Oligarch Recovery – How a $1,500 Sofa Costs $4,150 When You're Poor
- The Face of the Oligarch Recovery – Luxury Skyscrapers Stay Empty as NYC Homeless Population Hits Record High
- Census Data Proves It – There Was No Economic Recovery Unless You Were Already Rich
- Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery"
Sep 24, 2015 | economistsview.typepad.com
Economist's View
Paul Marshall, chairman of London-based hedge fund Marshall Wace, in the FT:Central banks have made the rich richer: Labour's new shadow chancellor has got at least one thing right. ... Quantitative easing ... has bailed out bonus-happy banks and made the rich richer. ...It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person's bank account..., it might have been fairer.
Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. ...
QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.
Sep 24, 2015 | www.resilience.org
In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA's AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism.Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA's projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production data from key shale gas and tight oil plays.
Key Conclusions
After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important, substantive questions:
- The EIA's 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.
- The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.
- At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.
- These assumptions-low prices, continued growth through this decade, and a gradual decline in production thereafter - are belied by the geological and economic realities of shale plays. The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices.
- Perhaps the most striking change from AEO2014 to AEO2015 is the EIA's optimism about the Bakken, the projected recovery of which was raised by a whopping 85%.
- As it has acknowledged, the EIA's track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below ground fundamentals- the geology of these plays and how well they are understood-don't change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA's projections for the major tight oil plays have shifted up or down significantly.
- Why is there so much difference at the play level between AEO2014 and AEO2015?
- Why does Bakken production rise 40% from current levels, recover more than twice as much oil by 2040 as the latest USGS mean estimate of technically recoverable resources, and exit 2040 at production levels considerably above current levels?
- How can the Niobrara recover twice as much oil in AEO2015 as was assumed just a year ago in AEO 2014?
- What was the thinking behind the wildly optimistic forecast for the Austin Chalk in AEO2014 that required a 78% reduction in estimated cumulative recovery in AEO2015?
- How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period?
America's energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy can't be overstated. It's for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIA's rosy projections at face value but rather to drill deeper.
Sep 21, 2015 | economistsview.typepad.com
ilsm -> RC AKA Darryl, Ron...
Gosar was educated by the "Jesuits" (they are a minority of Jesuits today) who brought you the Inquisition. Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone".
Religious freedom is not the practice of bigotry and intolerance.
Gosar would be best served listening to the Pope. He needs the truth.
... ... ...
Sandwichman said...
"...market-based environmental policies such as carbon pricing..."
"...the fact that environmental problems are caused by market distortions rather than by markets per se..."Who will teach the economists?
Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes.
And this is not Catholic theology -- it is economics as practiced by some of the most perceptive economists of the 20th century who must be ignored because... MARKETS 'R' US! Too bad, because I get the sense that Nordhaus's heart is in the right place even if his economic theory is in the wrong century.
Sandwichman...
"...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."
[Priceless!]
Sandwichman -> RC AKA Darryl, Ron...
Credit to Joan Martinez-Alier, paraphrasing Karl William Kapp, "Externalities are not so much market failures as cost-shifting 'successes'."
Kapp, Karl William (1971) Social costs, neo-classical economics and environmental planning. The Social Costs of Business Enterprise, 3rd edition. K. W. Kapp. Nottingham, Spokesman: 305-318
Sandwichman -> Sandwichman...
K.W. Kapp:
"Environmental problems are being forced today into the conceptual box of externalities first developed by Alfred Marshall. In my estimation this concept was not designed for and is not adequate to deal with the full range and pervasive character of the environmental and social repercussions set in motion by economic activities of producers or the goods produced and sold by them to consumers. I agree with those who have criticized the use of the concept of externalities as empty and incompatible with the logical structure of the static equilibrium theory."
Sandwichman -> Sandwichman...
From "Social Costs of Business Enterprise" by K. W. Kapp. pp. 69-70:
http://www.kwilliam-kapp.de/documents/SCOBE_000.pdf
How the principles of business enterprise favor the emergence of the social costs of air pollution
"The initial concentration of industrial production in a few centers, as indeed the location of industries in general under conditions of unlimited competition, will take place in accordance with private cost-benefit calculations. Once established, the industry widens the market for a host of other industries; it offers employment and income opportunities to labor and capital; it provides a broader tax base for the emerging urban communities and the necessary public services. The locality becomes generally more attractive for additional investments, enterprise and labor and urban settlement. It is this expansionary momentum which serves to 'polarize' industrial development in certain 'nodal' centers, which soon gives rise to secondary and tertiary spread effects in the form of increasing outlets for agricultural products and consumers' industries in general. In the light of traditional economic theory the process seems to proceed in harmony with the principle of social efficiency. For, after all, internal economies combine with external economies (in the narrow Marshallian sense) to make it appear rational to concentrate production in centers which are already established and offer some guarantee that the necessary social overhead investments (in roads, schools, communication) can be shared by a larger community. What is overlooked is that the concentration of industrial production may give rise to social costs which may call for entirely new and disproportionate overhead outlays for which nobody may be prepared to pay. Thus by concentrating on the analysis of internal and external economies, and by stopping short of the introduction of the concept of social costs of unrestrained industrial concentration, traditional theory lends tacit support to the overall rationality of cumulative growth processes, no matter what their socially harmful effects may be. After all, what could be more 'rational' than to exploit to the fullest extent the availability of internal and external economies? As long as social costs remain unrecognized and as long as we concentrate on costs that are internal to the firm or to the industry we shall fail to arrive at socially relevant criteria.
"It may be argued that, while the neglect of social costs may contribute to the cumulative growth process it still would not explain the incomplete and inefficient process of combustion which gives rise to the emanation of pollutants into the atmosphere. For obviously, if air pollution is a sign of inefficient and incomplete combustion of coal or oil the question arises why would business enterprise permit such waste to continue? The answer is simply that what may be technologically wasteful might still be economical considering the fact that not only social costs can be shifted with impunity but, above all, that discounted private returns (or savings) obtainable from the prevention of the technological inefficiency and social costs may not be high enough to compensate for the private costs of the necessary abatement measures. The fact that the resulting pollution of the atmosphere may cause social costs far in excess of the costs of their abatement is not, and indeed cannot, be normally expected to be considered in the traditional cost-benefit calculations of private enterprise."
Sandwichman -> Sandwichman...
More K. W. Kapp:
"My central thesis was and has remained that the maximization of net income by micro-economic units is likely to reduce the income (or utility) of other economic units and of society at large and that the conventional measurements of the performance of the economy are unsatisfactory and indeed misleading. To my mind, traditional theoretical inquiry was neither guided nor supported by empirical observations and available data. I tried to show that micro-economic analysis ignored important relationships between the economy (wrongly viewed as a closed system) and the physical and social environment and that these intrinsic relationships gave rise to negative consequences of the economic process. It was and is my contention that the nature and scope of economic theory is too narrow. This restriction has affected economic theory at its foundation: i.e., at the stage of concept formation (e.g., costs and returns), in the choice of criteria of valuation and aggregation (in terms of money and exchange values) and hence in the delimitation of the scope of the inquiry. Not only the dynamic interconnection of the economy with the physical and social environment and the impact which the disruption of the environment has upon the producer (worker) and consumer but also the relationship between human wants and needs and their actual satisfaction have remained outside the scope and preoccupation of economic theory. Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.
"This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development. In fact, the whole procedure "alienates" economic analysis from what I consider to be one of its most important objectives, namely the appraisal of the substantive rationality (Max Weber) of the use of society's scarce resources. Critics of the traditional approach from Marx and Veblen to Myrdal and more recently H. Albert and W.A. Weisskopf have pointed out that the restriction of the analysis is the result of specific analytical preconceptions as well as hidden value premises. In short, the critics have argued that the restriction of economic analysis reflects a subtle dogmatism on the part of its practitioners."
GeorgeK -> Sandwichman...WSJ
Updated April 19, 2013 6:27 p.m. ET"One of the great policy bubbles of our times has been cap and trade for carbon emissions, and on Tuesday it may have popped for good. The European Parliament refused to save the EU's failing program, which is the true-believer equivalent of the pope renouncing celibacy.
The Parliament in Strasbourg voted 334-315 (with 63 abstentions) against propping up the price of carbon credits in the EU Emissions Trading System. The failed proposal would have delayed the scheduled sale of 900 million ETS permits over the next seven years, thereby suppressing supply. After carbon traders realized they weren't getting more artificial scarcity, they drove the price of emissions permits down by 40% at one point on Tuesday."....
Maybe Mr Nordhaus miss this little gem when he was "researching" his article
anne -> GeorgeK...
http://www.wsj.com/articles/SB10001424127887324030704578426520736614486
April 19, 2013
Cap and Trade Collapses
Even the European Parliament rejects carbon price-fixingilsm -> Sandwichman...
The author does not think greed and failed distribution are market distortions.
Sandwichman -> ilsm...No. Nordhaus appears to believe that general equilibrium describes a tendency of economies rather than a feature of abstract mathematical models. After all, didn't Arrow and Debreau "prove" its existence (given certain implausible assumptions)?
The mathiness fetish began long before Lucas and his bogus "critique." Only a profession that was desperately eager to "pay no attention to the man behind the curtain" could have fallen for such a blatant display of OzWizardry.
Sandwichman -> Sandwichman...
I repeat:
"Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.
"This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development."
david -> Sandwichman...
I always find it very hard to get over this fundamental objection. And wonder why I think I should.
DrDick -> ilsm...
Why would he? They are the very heart and soul of capitalist markets.
anne said...September 18, 2015
Pope Francis' fact-free flamboyance
By George F. Will - Washington PostPope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert's indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak - if his policy prescriptions were not as implausible as his social diagnoses are shrill.
Supporters of Francis have bought newspaper and broadcast advertisements to disseminate some of his woolly sentiments that have the intellectual tone of fortune cookies. One example: "People occasionally forgive, but nature never does." The Vatican's majesty does not disguise the vacuity of this. Is Francis intimating that environmental damage is irreversible?
[ A wildly offensive essay from a typically offensive writer, but so much so as to be deserving of reading at least for the idea that environmental damage, damage to life as such, is inevitably and necessarily reversible. ]
Sandwichman -> anne...
Yuck. There is a reason I don't read George Will. He is a political pornographer whose intended audience is composed of post-adolescent crypto-fascists.
Sandwichman -> Sandwichman...
"[William F.] Buckley is survived by his hip satirical novelist son Christopher, his pale imitation of its former self magazine, and George Will's wardrobe and middle initial."
http://gawker.com/361402/william-f-buckley-crypto-fascist-is-correcting-usage-in-heaven
cm -> Sandwichman...But in reference to your first comment in this post, there is a market for his writing, so ...
DrDick -> cm...
There is a market for underage prostitutes as well. That does not mean that we should encourage it.
Sandwichman -> Sandwichman...
Wikipedia: "A shill, also called a plant or a stooge, is a person who publicly helps a person or organization without disclosing that they have a close relationship with the person or organization."
Ben Groves said...
Follow the actual policy and reject the dialect. There has been almost no move against what is called "Climate Change". The "deniers" try to mutter dialectical nonsense there has been this great move, but they are lying. Look at the Rockefeller fortune split. While Jay has moved David's fortune to supporting moves to combat climate change, the Rockefeller Foundation has consistently financed denier bullshit globally and they own most of the money. Thus, the climate denier is a globalist. Why? Because global capitalism can't run without oil and specifically, cheap oil in the developed world for them to make profit.
If you want to enmass a battle against "climate change" (a word the deniers existed), you must use fear and nationalism. This is the weakness in the current response. When you don't use fear and nationalism, it creates a emasculated response and people don't drift to Beta's. Alpha response in politics cannot be underestimated. It is how the neocons suck in the fools and what they learned watching 100 years of anti-capitalism in action (especially the Cuban revolution, with mega alpha males Fidel and Che).
ilsm said...
From the start the carbon cabal has created immense externalities which governments have responded with coddling them with subsidies and defending their foreign "assets".
From wars (US since WW II), to support of corrupt royals and ruthless dictators, to cadmium in the livers of ungulates, to blighted cities and to massive degradation of the public health.
While the right wing is defending the soccer Mom's SUV!
The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years.
The Pope is being Jeremiah!
Sep 21, 2015 | www.resilience.org
The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. Only four years ago KKR & Co. and a group of other investors spent $7.2 billion in buying Samson. According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down.Moody's and Goldman's were out last week with pessimistic forecasts about the outlook for the oil industry over the next two years. Moody's says that earnings from the global oil and gas industry will decline by 20 percent this year and only recover modestly in 2016. Goldman's says the the current crude surplus may keep prices low for the next 15 years and reiterated that it could take prices as low as $20 a barrel to clear the oil glut which is threatening to overrun storage capacity.
The US Secretary of Commerce noted last week that interest in acquiring new drilling rights in the Gulf of Mexico is dropping due to low oil prices. This year the auction of drilling rights in the Western Gulf of Mexico yielded only $22.7 million as compared with $110 million last year. High-cost off shore drilling is in a lot of trouble with participants scrambling to mothball drilling rigs and fleets of support ships and to defer new equipment that was ordered during the boom years.
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Lost in all the furor over oil prices and declining production is that US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas which fell on Friday to $2.60 per million BTU's in NY. These prices have led to an increase in demand for gas by the power companies and the ongoing construction of several export terminals for LNG.
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In the meantime, the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. Tehran has announced that new types of oil contracts aimed at attracting foreign investment to the country's oil industry will be announced soon. Trade delegations from France and the UK are scheduled to visit Tehran soon.
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Down in Iraq, the government is trying to cope with lower oil prices by increasing exports. The latest plan calls for shipments of Basra crude to increase by 26 percent next month. In the meantime, Baghdad has warned the foreign oil companies working in the country that it will not have much money to pay them for their drilling efforts in the coming year so they should cut back on capital expenditures.
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There is unlikely to be much change in the oil situation unless there is some type of foreign intervention to contain the Islamic State or stop the refugee flow into the Mediterranean.
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The Saudis are starting to feel the impact of lower oil prices as the kingdom faces the biggest financial deficit in decades. Steps to cut spending are underway and the privatization of state-owned companies and elimination of fuel subsidies are likely. The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices.
Recent data shows that the Saudis are holding their own in efforts to maintain market share. In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump.
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Russia's economy continues to deteriorate. Moscow's labor minister said that real incomes in Russia are expected to contract by 5 percent this year. Efforts to ramp up domestic substitutes for food and goods previously imported from the West are going slowly and it may be years before they are implemented. To offset growing budget deficits, the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production which is still doing well thanks to the greatly devalued ruble and large export sales which have combined to leave oil export revenues largely unchanged when measured in rubles.
Work on the "Turkish Stream" pipeline which Moscow is planning to build to move natural gas to the EU while bypassing Ukraine has not begun. Delays have moved completion of the project into 2017.
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China's diesel exports may surge to a record in the coming months as refinery output increases while domestic demand growth for the fuel slows. The nation's diesel shipments might have risen to a record last month, topping the previous high in June of 670,000 tons, and may climb to 1 million tons a month in the fourth quarter. (9/14)
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Uganda/Kenya: Low crude prices have thrown the future of East African oil projects into doubt. With oil prices languishing below $50 a barrel, there's little incentive for companies such as Tullow Oil Plc, Africa Oil Corp., China's CNOOC Ltd. and France's Total SA to keep investing. (9/16)
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Gasoline consumption: U.S. motor gasoline use has been rising after reaching an 11-year low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years also have contributed to the rise in gasoline use. (9/16)
Sep 21, 2015 | Kiplinger
Then the Federal Reserve announced its decision to keep its benchmark interest rate at rock-bottom levels, citing concerns about the health of the global economy. Those worries promptly sent oil prices sliding, with WTI trading near $45 per barrel.
More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. Any sort of sustained price rally looks unlikely until global supply is dialed back from its current high level. Even though U.S. production is slipping a bit, output remains strong in the Middle East and Russia.
Sep 21, 2015 | OilPrice.com
The crude complex is ripping higher after Friday's lambasting, encouraged higher by signs of a tightening market and further closing of short positions in the latest CFTC data. As the below chart illustrates, hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June:
Sep 21, 2015 | OilPrice.com
Global oil demand also continues to rise. The IEA again revised its demand projection for 2015 upwards, with consumption expected to grow by 1.7 mb/d, a five-year high. "The market's not as oversupplied as we think it is," David Pursell, managing director at Tudor Pickering Holt & Co., told Bloomberg in an interview.The long-term picture shows even stronger signs of bullishness. For example, it is unlikely that Iraq will be able to reach its ambitious production targets for the future, and because energy forecasters like the IEA are counting on Iraq to make up a large share of global production growth in the coming decades, the failure to reach those targets could leave the world short of supply. The same can be said for Brazil. In June, Petrobras acknowledged it will be unable to meet its production goals as well. The several million barrels per day lost between just these two countries alone mean that the long-term supply picture looks a lot tighter than we once thought.
But it goes beyond Iraq and Brazil. Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average.
Other market watchers concur. "The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage," Commerzbank concluded in another report. Lower production over the longer-term could send oil prices up.
However, it is short-term market conditions that dictate the huge gyrations in crude oil prices. And for now, based on the positions of oil speculators, prices may have bottomed out.
By Nick Cunningham of Oilprice.com
Sep 21, 2015 | ourfiniteworld.com
September 15, 2015Thomas Simon, September 15, 2015 at 7:19 am
@CalifornuiaLiving you are right about the California economy booming. Record tourism, agriculture, fossil fuels, high tech, etc. all have been strong. Problem is drought , wild fires, and climate change have significant impact on the future. Also wage stagnation in non-elite worker sector is a deepening problem. And high tech sector is starting to feel the pinch as markets are less and less supportive of deja vu innovation.
The reality of ocean acidification, coastal marine life die off due to heat caused algae bloom and potential sea rise from Arctic ice melting are no longer deniable. This is is not doom and gloom – this is as you I am sure can recognize required input for planning how to adjust oir at the east manage the risk.
What I appreciate from Gail is her careful analytical models that provide data points to monitor as part of the risk assessment and adjustments that any pragmatist must consider.
kimgerly, September 14, 2015 at 5:28 pm
@CaliforniaLiving. Here you go. RE's only at 20% in California. http://energyalmanac.ca.gov/electricity/total_system_power.html
Massive EV rollout is only good in tandem with a MASSIVE increase in installed renewable energy systems technologies. It will take decades to do this based on today's generation mix. And based on the escalation of the 'undesirables' and 'indifference' of Mother Nature, I'm predicting there will be A LOT more pain in the near future.
Better if the leadership trains and educates the populous to conserve, leave these bad habits of hyper-consumption in the past, and to PREPARE. to RESPOND. and ADAPT., because Mother Nature is not going to wait.
BTW: I'm a renewable energy engineer.
kimgerly, September 14, 2015 at 7:16 pm
The way I see it is hyper-consumerism will be the bane of (wo)mans' and other species' existence.
However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. And so, why would those of us in the scientific/engineering realm expect the lay person to get onboard when we, although I try my best not to, spew in language that goes over most peoples' heads. More storytelling is needed…
On top of the fact that we have leaders who don't understand thermodynamics, so they make BAD policy. Right, I blame a great deal on leadership who is failing to plan and not the sheeple.
But it's happened before and it is quite likely happening again. And so it goes…
CL, September 15, 2015 at 1:14 pm
@Kimgerly
I agree with you that "illiterate general public" is a major problem in setting the world on a correct course and Gail with this blog is part of that problem. There is one simple proven way to get the public to learn what is needed to point them in the right direction. It is though the tax code. The government needs to taxes the public on the actions that are damaging our environment and give credits to behavior that improves our environment. The one thing the public understands is money. I'm sure the fools will come after me. When they read this post. Telling me I'm obstructing their freedom that is destroying mother earth.
I also don't buy your statement that " leaders who don't understand". There is one party that gets it and another that refuses to at knowledge the situation protecting it's special interest ( oil companies for one ). This site lead by Gail is part of that special interest infrastructure. I have yet to see since she fell out of favor at TheOilDrum. A solution to anything. It's always Fear, Collapse, Fear and more Collapse.
Obama gets it – https://www.youtube.com/watch?v=C23e_-5BdZM
PleaseExplain, September 15, 2015 at 1:25 pm
Please Gail, let us know the last time you offered a solution ? You've been calling for collapse for five years and it hasn't happened. When do you admit your wrong ?
PleaseExplain, September 15, 2015 at 2:56 pm
I'm sick of reading your negative doomsday scenario and disinformation that this site pushes on the public for special interest. That's who I am.
BC, September 15, 2015 at 3:25 pm
- https://app.box.com/s/pfdk6c7a9g9n5i0e3s5txnej16q7biav
- https://app.box.com/s/jemdqkdd23257oummtpjwl6348wigdlx
US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita.
EV sales are plunging with the crash in the price of gasoline and coincident with a global recession that likely began in late 2014 to earlier this year.
Growth of wind and solar energy production overall and as a share of total energy production has likely peaked for the cycle and will decelerate to 0% or negative in the years ahead, as occurred in the 1990s.
Gail Tverberg, September 15, 2015 at 6:54 am
Yes, we do have a population problem.
Gail Tverberg, September 15, 2015 at 6:45 am
It would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems.
Sep 21, 2015 | naked capitalism
This has led to a new emerging relationship between the Saudis and Russia, where negotiations between Russia and OPEC emerged over the possibility of coordination of oil production levels. OPEC hinted that it was open to coordinated production cuts with non-OPEC members in its latest bulletin report, saying that "if there is a willingness to face the oil industry's challenges together" then the future would "be a lot better." Russian officials held meetings with their counterparts from OPEC, fueling speculation of some sort of accommodation.Despite positive language from the negotiators, the talks so far have not amounted to much. Rosneft's Igor Sechin seemed to rule out such a scenario on September 7 in comments to the press, in which he said that Rosneft can't operate the way OPEC can. It would be difficult for Russia to cut back on its production, even if that meant some chance of higher prices. Russia's economy is hurting, and it needs to sell every barrel that it can.
Although there won't be a deal on oil output, Saudi Arabia and Russia made more progress on discussions regarding the purchase of Russian nuclear power plants and military equipment, a likely wake-up call to the U.S. and UK, the Saudis' longtime military suppliers. Still to be determined is whether this is a new alliance or merely a show of Saudi independence.
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The EIA reports that in the last five years, the U.S. 'shale oil revolution' has enabled the U.S. to more than halve its oil imports, making it far less dependent on imports from OPEC, and significantly changing the terms of the relationship.
There is a lively ongoing argument in the world press about the possibility of the nuke deal leading to an entente between the U.S. and Iran, or even the possibility of an actual alliance.
Hardcore opponents of the deal claim that Iran is already in a quasi-alliance with the U.S. in the fight against ISIS in Iraq. And, although both countries hotly deny any intent to form an alliance, there are many in the region who believe that perhaps 'the ladies doth protest too much'.
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As reported by Nick Cunningham, on these pages, the recently announced agreement with European oil companies to extend Gazprom's Nordstream gas pipeline into Germany was a clear sign that the EU is willing to do business with Russia again; this despite the Ukraine crisis, which in the face of Middle Eastern conflicts, seems to be fading into the background.
Selected Skeptical Comments
Vince in MN, September 21, 2015 at 6:39 am
39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping.
EoinW, September 21, 2015 at 8:58 am
Bill Smith September 21, 2015 at 10:17 amIn my lifetime, the Middle East has had two problems: Wahabbism and Zionism. We've been on the wrong side of both. One can count on western leaders to always be on the wrong side.
If Putin appears the voice of reason, what does that make Obama? He often seems like a housewife reacting to the dramatic conclusion of his favourite soap opera…with a new episode to follow tomorrow. Almost want to write – same Bat time, same Bat channel – it's so cartoonish.
The refugee crisis has made Merkle seem almost like a compassionate human being. But we know she only cares about keeping the EU going on her watch and she can see what a threat the refugee crisis is to EU unity. How worse will that threat be when Ukrainian refugees start coming? Better make nice with Russia!
likbez September 21, 2015 at 11:22 am"Saudis offer to Israel to allow flyovers of Saudi territory in case an attack on Iran" This has been reported on and off for several years.
The "sudden military alliance between Israel and Saudi Arabia" seems overblown. There have been very scattered reports of intelligence cooperation in the past but that is it.
Of course FARS reports stuff like this:
"20 Israeli officers and 63 Saudi military men and officials were killed"
EoinW -> likbez, September 21, 2015 at 12:32 pm"39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping."
I would agree. It is clear for me that the quality of reporting about Russia is on the level of presstitutes from WashPost.
Also it is unclear that is the USA game plan as for Iran and what this article tries to communicate does not look plausible. It might well be that the USA wants to spread their bets by including Iran into the cycle of vassals (the USA does not need allies, only vassal states) but I think Iran elite still remembers years of crippling sanctions pretty well to jump into Uncle Sam embraces. The deal is needed mainly to put additional pressure on oil prices and if it achieves its goals and Russia crumbles, Iran will be thrown under the bus by US neocons very soon and without any hesitation.
It also looks like SA leadership wants some kind of rebalancing of relations with Russia as after Egypt to rely on US neocons is simply stupid. They proved to be pretty treacherous folks and promises given are not worth the paper they were printed on.
But if we assume that neocons dominate the USA foreign policy in foreseeable future, then the key policy in Middle East will be usual "divide and conquer" policy like we saw in Iraq, Libya and Syria. And bloodshed financed from usual sources (is not ISIS the USA and friends creation ?) will continue.
What is interesting is that SA never managed considerably increase their oil exports as their internal consumption grows more rapidly then extraction. They just refused to drop the volume of their exports. Probably with tacit approval of the USA. So it looks like drastic oil price drop is mainly financial markets play (derivative and futures games) - and that means that one plausible scenario is that this is another attempt to hurt Russia and depose Putin, even by taking a hit for own shale industry and decimating Canadian oil sands. Lifting sanctions from Iran is just the second step of the same plan.
If Vietnam can forget over 2 million murdered by Americans and cozy up to Washington then it must be possible to find elites in any society(even Iran) who will sell out for the right price.Paul Tioxon September 21, 2015 at 12:34 pmmark September 21, 2015 at 12:59 pmA Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. Not completely unsurprising, but unusual in that the only constant in the social order is change and the people making sense out of the change have to look ahead to consequences real and unintended from political decisions that impact global energy production, particularly oil. The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons.
The failure of the Project for A New American Century as a bid for a unipolar, unilateral Militaristic American Hegemony has resulted in a shift back to the International as opposed to Global relations. The institutions of the Post WWII world, The United Nations, the IMF and the World Bank, with the emphasis on diplomacy as opposed to nation to nation warfare is being resurrected in the Iranian Nuclear Non-Proliferation Treaty. What has been nearly completely absent is the naming of the UN Security Councils permanent members, the victors of WWII were united in staring down Iran until they produced the desired results, namely, giving up on pushing its way into the nuclear power club. The re-establishment of normal diplomatic relations with Cuba is a corroborating development. Russia has worked with the US in Syria to eliminate the chemical warfare stockpiles of Syria as well as patiently worked to conclude a successful Iran re-approachment.
Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. And the war party demanded that a better deal could be had, what, they could get it for us WHOLESALE! Nuclear Non Proliferation was what was at stake and the UN Permanent Security Council Members were all present to negotiate the re-integration of Iran into the United Nations.
Presidents Obama and Putin are more allied than not and the structure of an inclusive international social order are being worked out without the lies of the Bush family´s war party plans. The USA is not falling apart at the seams because other nations are finally enriching themselves, thus putting them beyond the simple command and control of Neo-con warlords. The USA is relatively weaker not due to being hood winked or conquered but because other nations have risen in their own capacity to direct self determination. Iran is welcomed to do so, just not with nuclear weapons. That is a good thing, in the eyes of the Iranians and the rest of world.
Praedor September 21, 2015 at 1:35 pmInteresting article about the people that worked on this over the years.
"Who made the Iran deal happen? Here are some of the people behind the scenes.
PRI's The World"http://www.pri.org/stories/2015-07-14/who-made-iran-deal-happen-here-are-some-people-behind-scenes
I DO so hope it leads to a completely new alignment in the ME. I am sick to death of "Iran the great evil" bullcrap.
It has always struck me as purely a childish temper tantrum on the part of the USA because the Iranian people had the GALL to toss out OUR murderous dictator and actually run their own country for their own people. Who do they think they are?
How DARE they use THEIR oil for THEIR country rather than to serve Western oil company bottom lines and provide the US with oil that, by rights, belongs to it. Because America! That and the fact that the Iranians held some US neocolonials/neoliberals hostage for a year-ish. That's unacceptable! Americans can do anything they want to whomever they want, damnit!
The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). Imagine what Iran and even the ME could have been by now if Mossedegh had been allowed to stay in rightful power? Iran would be a true beacon of liberty and freedom and modernity in the heart of the ME. Israel doesn't even come close. They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death.
Sep 21, 2015 | Zero Hedge
We hinted at the key features of this unprecedented conversion in June, when we wrote the following:... by now everyone knows that the artificially suppressed, "hedonically-modified" and seasonally-adjusted inflationary readings is what has permitted the Fed to not only grow its balance sheet to $4.5 trillion but to keep rates at 0% for 8 years. Because "how will the economy recover if there is no broad inflation", the Keynesian brains in the ivory tower scream, demanding more, more, more easing just to push inflation higher.
There is only one problem with this: it is all a lie - just ask any average American whose cost of living has soared in the past decade.
Still, with reality diverging so massively from the government's official data, reality just had to be wrong somehow.
Turns out reality was right all along, as revealed by the latest "State of the Nation's Housing" report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent - that most fundamental of staple costs - things have never been worse.
According to the report, for American renters 2013 marked another year with a record-high number of cost burdened households - those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.
It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had "severe cost burdens, paying more than half of income for housing." The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.
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And since there is an unprecedented demand for rental units across the US (as the "owning" alternative has become inaccessible), the median asking rent not only soared at an annual rate of over 6%, it has never been higher, with the Census Department recently reporting that the Median US asking just hit an all time high $803.
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What is odd is that according to the BLS, rent inflation is far less: at just 3% in the most recent print. One wonders what seasonal adjustments American renters should use to make their monthly paycheck smaller, the way the BLS perceives it. Still, at 3.6% this is the highest annual rent inflation since 2008.
And herein lies the rub: because it is not so much what the real, honest inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately, while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last week, real income is now back at 1989 levels!
And here is the punchline:
"in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."
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Furthermore, rent inflation isn't going anywhere - in fact, it will only get worse: "as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter's monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels."
Hype AlertHousing and healthcare are severely under reported on inflation. How healthcare can triple and not set off flashing red lights on inflation is unreal.
Never One Roach
I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% the past several years despite soaring food, health costs, utinilites, etc.
AGuy
"I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% "
Simple: many still work while collecting SS. Some have part-time jobs (aka Wallmart) others maintained their full time jobs. If you look at the employment chart, Employment for those 55 and older has risen considerably. I believe employment for the 70+ group has also increased.However, many 65+ have a lower cost of living. (ie no mortgage payments, no college loans, lower healthcare -on Medicare, etc). They can afford to take on one part time job to meet ends since they have SS.
Consuelo
"The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters."
All well & good in the context of officialdom's lies and deceit, but there's just a ~tiny~ bit of clarification needed here...
Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood in reality. You don't 'own' ~anything~ until that last mortgage payment is made - assuming you're not a $cash buyer. And even then, try skipping a property tax payment... And didn't we just find out a few years back, the real meaning of 'home ownership' to the ball & chain tied schlub paying (or not) his mortgage...?
WTF_247
Wage growth has lagged most other costs for at least a decade or more. Inflation and other cost increases are compound functions. The correction will take care of itself. Healthcare and rent are taking more and more of peoples $$ You can only stretch it so far - at some point there is no more money.
Either incomes will rocket up OR housing, including rent, will crash huge. You cannot get renters to pay for something they have no money for. No one is going to rent and choose not to eat or to eat ramen noodles permanently. You cant even get rid of health insurance now or the IRS comes after you - no matter how much it increases each year (estimated 15-20% increase next year). You can get 1 roommate, then 2. But most cities limit the number of renters based upon the number of bedrooms - this only goes so far.
The solution is to stop working or only work a bare minimum - get benefits. Section 8 housing. EBT. Free healthcare. Welfare benefits.
Something is wrong in the US when a working mother making 29k has a better standard of living that someone making 69k per year. If anyone thinks this is not lost on the population as a whole, they would be mistaken. As costs keep going up it is more lucrative to NOT fight anymore. Let the govt pay for it.
novictim
Tyler! "Missing Inflation" is not a mistake or a misunderstanding or an accounting glitch.
Inflation really is low. People have insufficient money.
Do not confuse asset inflation with real inflation. Stock overvaluations and real estate over-evaluations do not create real inflation because prices drop when people sell. Assets are self correcting and non-inflationary.
adr
I shouldn't have to worry about affording somewhere to live with the job I have, yet because of where the job is I have to.
The entire Northeast is fucking insane.
Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400.
I posted a three bedroom ranch that was renting for $3200 a month a little while ago. What do millionaires rent shitty 1950s ranch homes in a hick town?
Then you have property taxes. Up 100% in five years in almost every town even though assessments are actually down. I saw a home listed with a 2009 value of $364k and property taxes of $2800 a year. The current assessed value is $289k but taxes are $5200.
How are you supposed to live?
Sep 20, 2015 | Zero Hedge
JustObservingFed To Main Street: Screw YouUsuriousThat is nothing new. That has been the official policy for a few decades.
A troika of the military, Wall Street and spooks run the land of the free.
Who cares about Main Street except pandering politicians before elections?
The Fed Won: America's 0.1% Are Now Wealthier Than The Bottom 90%Who rules America?
The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.
Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.
http://www.zerohedge.com/news/2014-11-11/fed-won-americas-01-are-now-wea...
BoNeSxxxUSURY redistributes wealth from the bottom to the top......
Atomizer' I wonder how the Bank of International Settlements feels about this latest move?'
I am pretty sure they are aboard... The tail does not wag the dog
Jeb Bush And Mr. Slim connection:
Election 2016: Jeb Bush Got $1.3M Job At Lehman After Florida ...
numbers
This guy is fucking clueless. Anybody who thinks higher rates will help main street is delusional. I'm sure that higher rates will help the Fed meet its 2% inflation target. Right. I think there was a Fed Chairman who proved what higher rates do to inflation and economic activity. Yes, I believe his name was Paul Volcker.
As for the 5.1% UE rate. Anybody who believes that is the real UE is clueless and has never even heard of the LFPR. We have an LFPR that was last seen in the 1970s but we are supposed to believe clowns like St. Cyr when he says the UE is really 5.1%
Yup, higher rates will have the average consumer stampeding through bank doors to borrow money to buy homes, cars, appliances, everythng they couldn't afford to buy with rates at zero. Yeah, right.
besnook
polo007it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back.
austerity economics is a great euphemism for depression.
http://news.goldseek.com/GoldSeek/1442494200.php
Try making up for a past mistake and make another? That's playing from behind, if you will, and it's not out of the question if you know the Fed's history:
- Not a single post-war recession has been predicted by the Fed a year in advance, according to former U.S. Treasury Secretary Lawrence Summers; and
- Neither of the last three recessions were recognized until they were already under way.
Incompetent or ulterior motives for policy?
Regardless, here we are with expectations ramped up for a rate hike, as the rest of the world is easing.
What's notable for investors is that since the 2008 crash, we have not been able to achieve new market highs without central bank stimulus. Full stop.
But it's only a quarter point…
According to a study released by McKinsey Global Institute in February of this year, global debt has increased by $57 trillion USD since 2008. With such an enormous amount liquidity in the system (M1 money supply near lifetime highs) financial markets are increasingly becoming nothing more than a currency game; and the currency game is a relative one. I print, you print, they print, but who's printing more and where is capital flowing in and out of? Within this context, a quarter-point rate hike would be much more than simply symbolic.
As we have seen since late 2012, the rise in the U.S. dollar has had major implications on global markets, whether it be currencies, commodities or interest rates. A rate hike would equate to further USD strength and will accelerate the deflationary spiral we have witnessed over the past few years. Raising rates into a slowdown could also place the U.S. firmly on a path to recession in 2016.
Conversely, no rate increase does not meet the expectations set by the Fed and will re-inflate commodities in the immediate term. Arguably, it pulls forward the possibility of QE4 as well.
So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus.
As always, government remains the No. 1 risk to financial markets, and I will change my views as the facts change.
"The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008)
Sep 16, 2015 | Zero Hedge
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.
What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.
I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.
Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.
– From the excellent article: The Banking Criminals Exposed
My prediction is that bankers will be jailed in the next economic/financial crisis. Lots and lots of bankers.
It may seem to many that those working within this profession will remain above the law indefinitely in light of the lack of any accountability whatsoever since the collapse of 2008. It may seem that way, but extrapolating this trend into the future is to ignore a monumentally changed political environment around the world. From the ascendancy of Donald Trump and Bernie Sanders here in the U.S., to Jeremy Corbyn becoming Labour leader in the UK, big changes are certainly afoot.
I have become convinced of this change for a little while now, but we won't really see evidence of it until the next collapse. However, something I read earlier today really brought the point home for me. Rowan Bosworth-Davies recently attended the 33rd Cambridge International Symposium on Economic Crime and provided us with some notes in an excellent piece titled, The Banking Criminals Exposed. Here are a few excerpts:
Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.
This Symposium has indeed become an icon among other international gatherings of its knd and over the years, it has proved to be highly influential in the driving and development of international policy aimed at combating international financial and economic crime.
What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.
I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.
Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.
Speaker after speaker addressed the implications of the scandalous level of PPI fraud, whose repayment and compensation schedules now run into billions of pounds.
Some speakers struggled with the definition of such activity as 'Mis-selling' and needed to be advised that what they were describing was an institutionalized level of organised financial crimes involving fraud, false accounting, forgery and other offenses involving acts of misrepresentation and deceit.
One of the side issues which came out of this and other debates, was the general and genuine sense of bewilderment that management in these institutions concerned, (and very few banks and financial houses have escaped censure for this dishonest practice) have walked away from this orgy of criminal antics, completely unscathed. The protestations from management that these dishonest acts were carried out by a few rogue elements, holds no water and cannot be justified.
In the end, I sat there, open-mouthed while evidence against the same old usual scum-bag financial institutions, was unrolled, and a lengthy list of agencies, all apparently dedicated to dealing with fraud and financial crime, lamely sought to explain why they were powerless to help these victims.
This was followed by a lengthy list of names of major law firms, and Big 5 accounting firms who were willing to join with these pariah banks to bring complex and expensive legal actions against these victims, bankrupting them, forcing them from their homes, repossessing properties they had worked for years to create, while all the time, the regulators and the other agencies, including to my shame and regret, certain spineless police forces, stood by and sought to justify their inaction.
At one stage, we were shown how banks ritually and deliberately take transcripts of telephone calls made between complainants and the bank, and deliberately and systematically go through these conversations, re-editing them and reproducing them in a format which is much more favourable to the bank.
For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organised crime. Many otherwise more conservative attendees expressed their grave concern and their repugnance at the way in which so many of our most famous banking names were now behaving. It is becoming very much harder to believe that the banks will be able to rely on the routine support they have traditionally enjoyed from most ordinary members of the public.
The election of Jeremy Corbyn to the leadership of the labour Party means that banking crime and financial fraud will now become an electoral issue.
But now, the new Labour leadership will focus the attention of the electorate on the relationship between the Tory party and their very crooked friends in the City, and the degree of protection that the Square Mile gangsters and their Consiglieri, their Capos, and their Godfathers will become much more identifiable. Bank crime will now become much more identifiable as a City practice and their friends in the Tories will be seen as being primary beneficiaries.
Things are moving in the direction of justice. At a glacial place for sure, but moving they are.pot_and_kettle
When they're swinging from lamp posts lining Broadway and Water St,
*then * I'd call it progress.Til then, same old same old...
11b40
There were over 1,000 felony prosecutions that came out of the Savings & Loan fiasco in the 80's, with a 90% conviction rate.
But, to your point, these were not the big Wall Street Bankers. Mostly just your local common banker thief and his cronies, with a few politicians thrown in for good measure. No big fish were prosecuted during the Depression era, either.
vincent
A reminder of how JPM saved its own ass in 2008. Worth bookmarking....
The Secret Bailout of JP Morgan
Ulludapattha
Dream on, Mike. Just who will jail the banksters? They own the governments of USA, Canada, and Western Europe. Not a chance in my lifetime.
GCT
Politicians and the judicial branch are in the banks pockets. I will believe it when I see it to be honest. I have yet to see real bankers or for that matter politicians go to jail. As long as the big fines are paid nothing will change. Must be nice to create money from nothing to pay these fines and fucking your customers over at the same time.
Fahque Imuhnutjahb
Wishful thinking. If any justice is to be meted out then the "little people" will have to take it upon themselves.
And by little people I mean the plebes, not dwarves; but the dwarves are welcome to help, unless of course
some of them are little bankers, then they're not welcome, but the rest are. Glad we got that cleared up.
Sep 08, 2015 | Economist's View
JohnH -> to pgl...
pgl still hasn't demonstrated the iron economic law that says that inflation increases must necessarily be passed along to labor, not stolen by capital.
The precedent of productivity increases stolen by capital over the past 40 years is not encouraging, but there are economists like Janet Yellen who still disingenuously are that productivity increases get passed along! And despite the evidence, pgl chooses to believe her!
mulp said...
But printing more money just forces the exiting money to be spent paying workers slower and slower.
The national economic policy selected by We the People is clearly:
DO NOT PAY WORKERS TO BUILD ANYTHING.
The Fed does absolutely nothing to require that the money it creates pays workers to build anything.
Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow.
We the People understand that paying labor to build new assets will crater the prices of all the inflated asset prices, eg, creating the kind of excess supply we see in fossil fuels which will cause cratering prices, profits turning to losses, and the asset price bubble popping in a big way.
The 21st century has proved to me that I was totally wrong to believe in monetary theory based on the arguments and data of Milton Friedman, and that led me to reexamine the policies of FDR in the face of a populist Congress.
Insight one: deep crisis is required to motivate We the People.
Insight two: the only way to create a better economy is to pay more workers to work more
Insight three: the only way to pay more workers more to work more is for taxes taking money from those who have money which is basically everyone in the upper half who will then demand benefits NOW for all their taxesDoing the liberal thing to prevent massive poverty in 2008 was the wrong thing. Democrats should have made demands that Bush and Republicans would totally refuse to agree to, so all the money market funds experienced runs and 50% of the depository banks got taken over by the FDIC, and half the businesses in the US stopped paying workers because they could get their cash in their banks because the banks were taken over by the FDIC. And in 2009, Democrats should have kept increasing demands and demanding ever higher tax hikes every time Republicans fought to block Democratic budget bills keeping the economy sinking deeper and deeper making more and more people poor.
The ideal outcome of 2009 would have been corporate tax rates of 50% on business profits of 5% ROIC or lower and 90% on all profits in excess of 5% ROIC, but with 100% deduction for all capital investment excluding buying existing corporations or partnerships. And 90% income tax rates in excess of twice the median income, excluding buying tax exempt infrastructure construction bonds or investing in energy efficiency capital assets.
Or a carbon tax that was set to rise every year until tax revenue was zero with all the tax revenue used to repay Federal debt.
Tax dodging is the biggest incentive to pay workers to build stuff that lasts and that is productive.
The Fed can't do anything but prevent the required crisis to force the required political change.
Or cause the crisis that will create change.
The Fed needs to jack up interest rates to, if nothing else, increase the Federal deficit rapidly by increasing the interest costs.
One of two things would happen: Republicans would win in 2016 and crash the economy by massive spending cuts driving tens of millions into poverty, homelessness, etc.
Or taxes rates would be greatly increased to reduce the deficit but the high tax rates would make hiring workers the cheapest way to cut taxes due and get some benefit.
If I were in the Fed I'd be calling for a 1% hike every year (.25% a quarter) for the next three years.
likbez said...
The USA now reminds me the USSR in a sense that government figures are not using open verifiable methodology. Some thing that those metrics became yet another "number racket". Some measures like inflation and GDP are definitely politicized.
That gives an impetus for sites like http://www.shadowstats.com
Those people who operate using pure government statistical figures without questioning their error range are just another brand of highly paid charlatans. And their papers and articles should be viewed as exercise in "tail wags the dog"
Actually that can be viewed as another dimension of mathiness.
For example government announced that GDP is 3.7%. And everybody jumps in admiration. And nobody asks what was GDI released for this period. Suckers...
Peter K. said in reply to likbez...
"The USA now reminds me the USSR in a sense that...
Republicans are dynamic scoring in order to massage the numbers to that their favored policies look better?
likbez said in reply to Peter K....
My point is the USA now reminds the USSR with its tendency to "beautify" economic data.
Think about all those birth-death adjustments, substitution of U6 with U3 (concepts of "discouraged workers" and "marginally attached workers"), redefining full employment metric (which no longer means 40 hours a week employment), hedonic adjustments/substitutes, "managing" inflation by changing the way it is calculated, price anomalies that bump GDP up, like tremendously overpriced military hardware, etc.
Please don't throw the baby out with the bathwater
Dan Kervick
"Finally, why the huge fear over a little bit of inflation rather than huge fear over higher than necessary unemployment?"
It is a good question, and frankly I have trouble believing that people like Fisher actually *are* worried about a little bit of inflation. Fisher set out his fuller position over a year ago, and I doubt it has changed much:
http://www.dallasfed.org/news/speeches/fisher/2014/fs140716.cfm
He's mainly afraid that the Fed might blow a bubble, and he's afraid that the independence of the political Fed is being compromised by it's being dragged into service to compensate for the lack of fiscal and regulatory action by Congress.
I would suggest that, on the second point at least, everyone should get used to the fact that central bank policy is inevitably a response to politics. That's because central bank policy is always based on general economic conditions, and general economic conditions are always to a substantial extent a function of government policy. So central bank policy has to be responsive to government policy. Tough cookies for all of those believers in an "independent" central bank. There is no such thing as an autonomous "economy" that is independent of political choices.
Other not fully acknowledged factors driving the recent debate are equally political. The Fed is worried that if normalization is delayed, then some time next year the Fed will *have to* reverse course, one way or another. If that takes place after the parties have chosen their nominees and the political race is in full gallop, the Fed will be accused of intervening (in some way, on behalf of someone) in the campaign, and will become a political football. (As far as I'm concerned that would be great, because the US central banking system needs radical reform - but the Fed guys wouldn't like it.)
The other thing they are obviously worried about is a recession. If the US experiences a recession for any reason over the next 18 months, and the Fed is still stuck down close to the zero bound, then it will not be able to exert a substantial stimulative impact - at least not without radical new measures like helicopter money. Again, that's something that wouldn't both me personally, but Independent Fed establishmentarians would freak.
John said...
You're an econ prof, no?
In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation.
Zero Hedge
This makes one wonder if the wiz kid is a proxy for the Fed... Where is does one come up with billions of $$$ for this purchase program?
http://www.aipac.org/~/media/Event%20Forms/2012/Northeast%20Region/NY%20...Search for Mara & Jeffrey Talpins.
Also check for Sachs.
His hiring of Richard Tang is a pretty good clue and it seems his strategy changed around the same time.......spidey sense is tingling on this one for sure.......he's a proxy but not sure for who exactly at this point.
pods"This makes one wonder if the wiz kid is a proxy for the Fed..."
He is a donor to both political parties... but the links as to a proxy for the Fed will be harder to find
http://individual-contributors.insidegov.com/d/c/Jeffrey-Talpins
Not that tough:
http://lmgtfy.com/?q=Jeffrey+Talpins+AIPAC
pods
FreddieYale, Goldman, Bernanke (How well do you have to know someone to "test their patience"? A: pretty fucking well.)
This is a set-up. He's not buying billions of Treasuries with his own money. This fucker is a front/cut-out. He is doing the dirty, er "God's" work. Someone has to buy this Chinese paper, or else yield contagion screws the pooch. Where is he getting the money? Bernanke knows.
... ... ...
Just like Citadel and Ken Griffin and a few other HFT trading front companies. They all are run by Fed, Goldman et al.
RopeADopeHow the hell does a fund make money by accumulating low yield bonds? Where is the source of capital to purchase all this? I can't imagine hes managed to get that much OPM (Other People's Money).
By using multiple lenders and not letting them find out that collateral has already been overpledged by 700%. It is the LTCM model after all.
A glaring example of what counts as math these days, and who's a whiz at it, lol. If a math genius loves US Debt, so should you!
-Argenta
VinceFostersGhostAmen.
maths whizz my arse.
Compared to all our youth learning Common Core math.....everyone is a math whiz.
Sep 07, 2015 | The Guardian
okisthislongenough 7 Sep 2015 06:39
Nothing more -- they have collectively destroyed the diligent savers, pensioners and even the value of small taxed gifts to children.
To many central bankers are interested in their own existence, hang the rest who rely on a perceived value that they under right in Fiat currencies.
kimdriver -> miceonparade 6 Sep 2015 16:07Agreed. It's all a con trick.
Sometimes con tricks can be justified, but this one is so piss poor, and has such adverse consequences (the inflation of the price of financial assets, not through the injection of money but through the lowering of long term interest rates and the desire for yield).
Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy.
Just a con trick.
soundofthesuburbs 6 Sep 2015 15:54Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.
After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.
When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.
The end result 2008.
With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.
Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.
The broad brush effect has blown bubbles everywhere.
miceonparade 6 Sep 2015 15:14Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.
That is correct. All central banks can do is swap assets with banks. That is not economically stimulative. Changing the composition of bank portfolios does nothing to get money to people to spend. They still have to borrow it, and who wants to borrow right now in order to invest in an economy in which nobody is spending? The answer lies in fiscal policy. The treasury must increase net spending to get money directly in the hands of people so they can spend it and turn it into somebody else's income (and so on).
And the market gyrations of recent weeks have been a reminder of a lesson the world learned in the crisis of 2008 and beyond: central banks are not the omniscient puppet masters of the global economy they seemed before the crash. Instead, in resorting to trillions of dollars' worth of quantitative easing, they may have conjured up forces they can barely control.
Central banks have little effect on economies. But that also means that quantitative easing won't have conjured up any forces beyond their control. It's just a fruitless exercise in changing the composition of bank holdings. Unsurprisingly, no reasons are given for this assertion in the article.
soundofthesuburbs soundofthesuburbs 6 Sep 2015 12:07The BIS directors:
Mark Carney, London
Agustín Carstens, Mexico City
Jon Cunliffe, London
Andreas Dombret, Frankfurt am Main
Mario Draghi, Frankfurt am Main
William C Dudley, New York
Stefan Ingves, Stockholm
Thomas Jordan, Zurich
Klaas Knot, Amsterdam
Haruhiko Kuroda, Tokyo
Anne Le Lorier, Paris
Fabio Panetta, Rome
Stephen S Poloz, Ottawa
Raghuram Rajan, Mumbai
Jan Smets, Brussels
Alexandre A Tombini, Brasília
Ignazio Visco, Rome
Jens Weidmann, Frankfurt am Main
Janet L Yellen, Washington
Zhou Xiaochuan, BeijingThe banking cartel that runs the world.
soundofthesuburbs 6 Sep 2015 12:03
Central banks are independent. Independent of their nations best interests.
But the heads of all major Central Banks are directors of the Bank of International Settlements in Switzerland (including China). Our policy makers are the same the world over and they reside in the BIS in Switzerland. The policy is to prop up the global banking system and stock markets.
Dunbar1999 6 Sep 2015 10:16
The common-sense relationship between lending and borrowing seems to have been lost since computer programs started working out profit-and-loss equations to ten decimal places in micro-seconds for the benefit purely of agents -- middlemen, or facilitators Ordinary people with even a little cash to spare used to be able to lend it, probably to a bank; and then the bank would lend it to someone else who would pay the bank enough for the use of the money to enable the bank to pay the lenders. About 3 per cent over the general rate of inflation was generally agreed to be fair, I believe, for years and years. But now that the act of lending money (to a bank, lets say, i.e. saving) gets a lot less back than what inflation actually costs the saver, it makes more sense for millions of people with a bit of spare cash to put it where they think they'll get a bit more back -- like a posher house, maybe. Or stock in a snazzy new tech company. And then economists start worrying about asset bubbles, and things get out of whack and start going to hell in a handbasket. I have never understood why professional economists, especially those labeled in America "freshwater" economists, never seem to have studied psychology along with all those charts and equations. There are actually real people living their daily lives in every part of every economy, after all.
burgermeister 6 Sep 2015 09:43
I suspect, for many normal people, the 2008 crash was a wake-up call. Too much private debt and not having any spare money lying around for an emergency is no way to live when the economy can change on a whim.
We've certainly been tightening our belts here since the Tories got in, stockpiling spare cash in an easy-access savings account (on top of existing investments) and making over-payments on the mortgage. I have no faith at all in this recovery or in the government to provide a decent safety-net if it all goes tits-up so this consumer's spending will not be doing what the economy wants it to.
NWObserver -> MattyTwo 6 Sep 2015 08:56
Gold is merely another token of wealth, although not something that can be created out of thin air. The true source of wealth is the ability and willingness to create it out of the resources available in nature and those who possess it are the best positioned to ride out the storm. Of course, also holding time-tested tokens of wealth like gold can't hurt either.
But those who think creating tokens of wealth in endless supply can make them skim the wealth produced/owned by the others and do so forever will get a harsh dose of reality.
candidliberal 6 Sep 2015 08:46
Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market.
Social market Europe will have to liberalise substantially to return to anything approaching old patterns of growth - only Germany has managed this if under now dusty Schroeder reforms from the late 90s.
Shakerman 6 Sep 2015 08:46
According to legend, the location of Wall Street, the New York financial district, was chosen because of the presence of a chestnut tree enormous enough to supply tally sticks for the emerging American stock (stick) market.
There was a time when the English government created money debt free using wooden (Tally) sticks.
As Ellen Brown points out in her book "The Public Bank Solution" when debt based money was forbidden in Medieval England, despite the Black Death and other scourges that had to be contended with, the economy itself seems to have provided quite easy living conditions.
Introduced by King Henry I (son of William the Conqueror) to thwart the debt creating money changers, wooden tallies were wooden sticks with notches cut in them and then split length-ways.
One half of such a stick, which was given to the party advancing funds, had a handle and was called the "stock", while the other half was called the "foil".
The "foil" was the origin of the term "the short end of the stick."
The term "stock" has evolved to describe shares in publicly listed corporations today.
Thorold, Rogers, a nineteenth century Oxford historian, wrote that during this time (Middle Ages) when money was not created bearing debt, "a labourer could provide all the necessities for his family for a year by working 14 weeks."
Fourteen weeks is only a quarter of a year and so for the rest of the time some men worked for themselves, some chose to study and some fished or engaged in other leisure activities.
Indeed some helped to build the cathedrals and churches that appeared all over England during that time – massive works of art that were built mainly with VOLUNTARY labour.
Over one hundred thousand pilgrims had the wealth and leisure to visit Canterbury and other shrines yearly.
William Cobbett, author of the definitive "History of the Reformation," wrote that Winchester Cathedral "was made when there were no poor rates; when every labouring man in England was clothed in good woollen cloth and when all had plenty of meat and bread."
Money was available for inventions and art, supporting the Michelangelo's, Rembrandt's, Shakespeare's and Newton's of the period.
windwheel 6 Sep 2015 07:42
'weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease' Wow! Has the author not heard of the Permanent Income Hypothesis? Is he not aware that Technology is changing unpredictably - we don't know what sort of education and training is worth investing in, let alone which Companies have a robust business model - as is Demographics - with the result that Uncertainty has increased and, assuming the Ellsburg effect holds, expected Permanent Income must have declined more than proportionately?
What is this guff about Central Bankers having been considered omniscient gods prior to 2007? Greenspan mania had nothing to do with Monetarism but was about American exceptionalism and Randian animal spirits.
Britain is differently placed and may well see some tightening even if the Market continues to misunderstand what Hu is up to.
NicholasB 6 Sep 2015 06:58
The Shanghai Stock Market is still up on the year. Don't get carried away by the hype. There was a stock market bubble and it burst. This is not a sudden collapse of the Chinese economy.
JaneThomas 6 Sep 2015 05:42
That tree is such a metaphor- like a version of the story of King Midas who received his wish and turned everything into gold, including his child.
'"A piece of bread," answered Midas, "is worth all the gold on earth -- Oh my child, my dear child I" cried poor Midas, .wringing his hands.'
A real forest is worth all the gold on earth.
Perhaps a better sculpture would be this one- http://www.sculptor.com.au/#!/zoom/cay5/imagebv0
andydav 6 Sep 2015 05:23
the problem is in europe and america people are not buying therefore in asia the maker's of the product have to downsize .The problem is not in Asia but the lack of buyer's in america and europe .So why do people not buy.Simple they don't have a jobs no saving's
johnbig 6 Sep 2015 04:32
Central banks can do nothing more to insulate us from an Asian winter
I did hear of an intelligent proposal from a Labour politician, which was supported by several respected economists. It was called People's Quantitative Easing to be used for investment in infrastructure. Perhaps though we should not spend a much as the Ł200bn already channeled through the banks
someoneionceknew 6 Sep 2015 04:18
The way out of depression is fiscal policy. All this rubbish about central banks is a distraction. They don't have the tools to lift aggregate demand.
The European Central Bank proudly announced on Friday that it is erecting a 17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork intended to "convey a sense of stability and growth"
A cruel joke. The Stability and Growth Pact is a suicide cult. Macroeconomic madness.
Sep 05, 2015 | Zero Hedge
The final important observation germane to our current circumstances is that when market prices turn down, margin debt levels drop like a rock. Think about leverage. It works so well when the price of assets purchased using leverage rise. Yet leveraged equity can be eaten alive in a declining price environment. Forced liquidations are simply price insensitive selling. Of course, this will only occur after prices have already dropped meaningfully enough to either force margin calls, or cause margined investors to liquidate simply in order to remain solvent or limit loss. We have certainly seen a bit of this in recent weeks.Why is all of this talk about margin debt important?
In Part 2: The Criticality Of Monitoring Margin Debt Closely From Here we explore how ever higher levels of margin debt represent tomorrow's heightened price volatility in some type of a stressed market environment, whether that be a meaningful correction or outright bear market.
Both are an eventuality, the only question is When?
Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
nmewnnmewn, that is what the pit boss says at a casino.
When the odds are in the houses favor or it's a rigged game, why not loan money to the suckers at the table.
Casino markers can be issued to just about anyone who requests one. It is a zero-interest line of credit that is intended to make gambling easy and accessible to everyone. A gambler fills out an application for the line of credit, and pursuant to NRS 205.130, a gambler is given 30 days to pay back the debt.
BullyBearish"nmewn, that is what the pit boss says at a casino."
Exactly my friend, its all in how one interprets the question being posed.
"What have you got to lose? ;-)"
CREDIT==invented by Banksters to enslave the weak
Insurrexion
ThroxxOfVronFuck you Brian.
This article is more bullshit marketing to sell more bullshit.
The fucking fear of raising interest rates is an acknowledgment that the Fed has supported a phoney recovery that no one believed in anyway.
The taper tantrum was the first wheel removed. The interest rate rise will be the second wheel removed. Ending the Fed will be the last wheel removed.
Love, Alexa
"At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."
- How much debt is on the books of corporations that was used for share buybacks?
- Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?
- How much leverage is in the Interbank Repo Market?
- How much leverage is in the Derivatives Market?
Yeah, yeah, yeah, I know. Ok: net it out and tell me how much.
Sep 05, 2015 | Economist's View
The summary "Deflation and money" by Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, and Hiroshi Iyetomiof says:Deflation and money, Vox EU: Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.The conclusion:
...all in all, the results we obtained have confirmed that aggregate prices significantly change, either upward or downward, as the level of real output changes. The correlation between aggregate prices and money, on the other hand, is not significant. The major factors affecting aggregate prices other than the level of real economic activity are the exchange rate and the prices of raw materials represented by the price of oil. Japan suffered from deflation for more than a decade beginning at the end of the last century. More recently, Europe faces a threat of deflation. Our analysis suggests that it is difficult to combat deflation only by expanding the money supplybakho said in reply to pgl...
Monetary policy weak is at the ZLB. Fiscal and regulatory can have much stronger effects and complete swamp monetary like a tidal wave to a ripple.
Exchange rates and other economic shocks have more effect than monetary policy at the ZLB.Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones.
bakho said in reply to pgl...
Efficiency standards backed by a carbon tax would be much more effective that a carbon tax alone.
Efficiency standards work for electric appliances and prevent a races to the bottom.pgl said in reply to bakho...
True. It seems Carly and Jeb! do not want to regulate but rather to encourage innovation by giving subsidies to rich people. Not only is this Republican reverse Robin Hoodism on steroids - it will not has as much effect as a tax combined with regulations.
Simply put - conservatives should not be listened to as their agenda is not economic efficiency but rather making the Koch Brothers ever richer.
Peter K. said...
As a thought experiment I would wonder what bakho's re-education course would look like.
There is this paper, but could it be it says the same thing as those graphs which show the large increases in the monetary base would just sit there with at the Zero Lower Bound because of the liquidity trap?
The inflationistas were wrong that all of that monetary policy would cause runaway inflation.
But considering what needed to be done to move long-term interest rates, was it really large enough?
David Beckworth's blogpost in today's links suggests the Fed did what they wanted to do.
http://macromarketmusings.blogspot.com/2015/09/revealed-preferences-fed-inflation.html
And maybe part of that was to offset the unprecedented fiscal austerity we say after Obama's stimulus ran out. (And that stimulus was pretty much canceled out by 50 little Hoovers.)
If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe.
Maybe fiscal policy works better and more directly but if it is blocked or even reversed with austerity, monetary policy shouldn't be ruled because it is supposedly ineffective.
Maybe Friedman and Schwartz's maximalist claims aren't true, but that doesn't mean one should flip to the opposite extreme.
Bernanke says in a speech that Tobin suggested that the Fed could have mitigated the Great Depression by lowering long-term rates.
Peter K. said in reply to Peter K....
"What is the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton, when the unemployment rate was lower than today?"
Peter K. said in reply to Peter K....
"The inflationistas were wrong that all of that monetary policy would cause runaway inflation."
When confronted they always say that once the economy normalized, all of those reserves will go rushing out into the economy causing inflation.
But the Fed says it will use Interest on Excess Reserves to manage that outflow.
Peter K. said in reply to Peter K....
"If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe."
I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity.
Paine said in reply to Peter K....
Egmont Kakarot-Handtke said...Very agreeably presented
But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag
Deflation? Uupps, price theory, too, is wrong
Comment on 'Deflation and Money'The current economic situation is a clear refutation of both commonplace employment and quantity theory. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.
The correct formula for the market clearing price in the simplified consumption good industry is given here
https://commons.wikimedia.org/wiki/File:AXEC41.pngRoughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumption goods industry. The formula follows from (2014, Sec. 5).
The more differentiated and therefore better testable formula is given here
https://commons.wikimedia.org/wiki/File:AXEC39.pngThe crucial message is that the wage rate is the numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases deflation occurs (the rest of the formula kept constant).
For the rectification of the naive quantity theory see (2011) (I)/(II).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL http://ssrn.com/abstract=1895268.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.Patrick said in reply to Egmont Kakarot-Handtke...
"if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"
That certainly has the ring of truth to it.
The paradox of productivity?
Jason Smith said...
The relationship between money and prices is more complicated than a simple linear relationship can capture:
http://informationtransfereconomics.blogspot.com/2015/03/japan-inflation-update.html
spencer said...
Despite deflation in Japan, over the last five years real per capita GDP growth has been greater than in the US.
Of course you have to be careful of these types of comparisons when the Japanese population is actually falling.
anne said in reply to spencer...
https://research.stlouisfed.org/fred2/graph/?g=1LK4
August 4, 2014
Real per capita Gross Domestic Product for United States and Japan, 2010-2014
(Indexed to 2010)
[ These last 5 years real per capita GDP has increased by 5.6% in the United States and 3.6% in Japan. ]
Peter K. said in reply to spencer...
Good point. This is why I am skeptical when I read people claim that Japan's extraordinary monetary policy has had no effect.
And even if Japan has done more than before courtesy of Abe and Yoda Kuroda, they also mitigate it with contractionary policy like by raising consumption taxes.
The latest from Robert Reich begins with:What Happened to the Moral Center of American Capitalism? : An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.Peter K. said...It is ironic that at a time the Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – we are experiencing a far more significant crisis in public morality.
We've witnessed over the last two decades in the United States a steady decline in the willingness of people in leading positions in the private sector – on Wall Street and in large corporations especially – to maintain minimum standards of public morality. They seek the highest profits and highest compensation for themselves regardless of social consequences.
CEOs of large corporations now earn 300 times the wages of average workers. Wall Street moguls take home hundreds of millions, or more. Both groups have rigged the economic game to their benefit while pushing downward the wages of average working people.
By contrast, in the first three decades after World War II – partly because America went through that terrible war and, before that, the Great Depression – there was a sense in the business community and on Wall Street of some degree of accountability to the nation.
It wasn't talked about as social responsibility, because it was assumed to be a bedrock of how people with great economic power should behave.
CEOs did not earn more than 40 times what the typical worker earned. Profitable firms did not lay off large numbers of workers. Consumers, workers, and the community were all considered stakeholders of almost equal entitlement. The marginal income tax on the highest income earners in the 1950s was 91%. Even the effective rate, after all deductions and tax credits, was still well above 50%.
Around about the late 1970s and early 1980s, all of this changed dramatically. ...[continue]...
Krugman speculated it started when sports fans began discussing star baseball players' salaries. CEOs went Galt and asked why not us also?Workers are just inputs like fixed capital nothing more.
What's good for GE and Goldman Sachs - profits - is good for America.
DeLong asks the more central question. When did business leaders decide that growth, aggregate demand and full employment wasn't in the interest of their companies?
In the 1950 and 1960s they were in favor of a high-pressured economy. That changed.
Maybe it was the 1970s and "take this job and shove it."
Peter K. said in reply to Peter K....
They also forget about the Great Depression as it faded from memory.And the Cold War ended. Would they risk Western nations like Greece and Spain going to the other side because of sky high unemployment? No they'd govern them with military dictatorships.
Ben Groves said in reply to Peter K....
US investment/capital markets were semi-nationalized from WWII into the mid-70's. The whole basis was to fight the Nazis then Soviets. The economic crisis of the mid-70's, detente and excessive growth beyond cohort changed things. For all the 79-89 hype, the cold war died with that global economic crisis of the 1970's as the Soviet Union never recovered and China bailed.Business view was that the pre-WWII order needed to be restored. I think many people mistake the 50's and 60's as "normal", but they weren't. They were a time of war.
Peter K. said in reply to Ben Groves...
"War is the health of the state."We need an invasion from aliens.
mulp said in reply to Ben Groves...
Well, given the US has been at war since Reagan, elected because Carter would not go to war, how do you explain the punishment of workers to reverse the glorifying of workers from the 30s through even the 70s??It was not war that made the period before 1980 better over all, but the understanding that consumers could only spend as much as they were paid, and the problem for a corporation seeking to grow was making sure all the other corporations paid their employees well.
By the end of the 80s, the iconic corporations of the 60s in terms of growth and loyalty to employees were criticized by free lunch MBAs for sticking with the old ways of treating employees as assets because they were being creamed by competitors who treated employees as liabilities. Eg, IBM was badly managed because it was not screwing its workers like Dell, HP was doomed because it was not firing all its US factory workers and contracting with Asia factories.
You see, the MBAs were teaching that US workers are liabilities to replaced with the cheapest non US workers and the US consumer needs to be mined for ever more dollars of spending. And if consumers were not spending enough, the problem was they were taxed too much, so the calls for tax cuts to put money in consumer pockets so consumers could shop 24 by 7.
Before 1980, everything was zero sum. If you want that $1000 car or boat, you had to first earn $1000, unless the manufacturer float you a loan with a threat of the repo man. That meant manufacturers needed every consumer to have a job. And every dollar paid to workers came back to them in consumer spending. And government was the same way - if you wanted better roads, you first had to agree to taxes to pay for it.
After 1980, the idea economies were zero sum were thrown in the trash can. Want something, borrow and spend. Republicans would get government out of the way of the loan sharks. The loan sharks became bank owners and got rid of their enforcers, turning that over to Congress. Think of all the debt you can not shed but that government collects by force by the IRS and attaching your Social Security benefit.
Once consumers could borrow and spend, workers are now purely liabilities. Get rid of them.
In the real world, the ivory tower of business and economics is not able to be applied 100% or even 20%, but that even 20% of the connection between payroll and business sales is lost means an ever deepening pit of debt.
Federal debt declined from before the end of WWII as a burden on GDP until Reagan and then it grew as if the US were waging a war larger than the Korean war or Vietnam war or WWI or maybe the Civil war.
With the exception of the Clinton years which were not free of war, the budget has looked like a major war was going on.
DrDick said...
The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete.Paine said in reply to DrDick...
Sweet bobbybakho said in reply to DrDick...
Indeed. Greedy "Malefactors of Great Wealth" don't become wealthy by fair play. Nothing obtained by workers was ever got without a fight. Many bloody union battles over dead bodies won worker's rights. Once the unions lost power, workers went backward.mulp said in reply to bakho...
And union leaders were all choir boys....raping their members like priests.
As a liberal, I can play the game of name calling, character assassination, etc.
How do you think it is that there are capitalists with loyal workers? Do you think there are capitalists who understand that economies are zero sum and that you can't have customers wealthier than employees are wealthy?
I see lots of worker advocates who seem to think that every worker can be paid $1000 and only pay $500 for everything produced.
Paine said in reply to mulp...
Reading this is like chewing glueDrDick said in reply to Paine ...
Which he was obviously huffing while writing it.Paine said in reply to Paine ...
A system is not judged by its functioning components but by its malfunction components and the emergent failures of the system of components
U know thatSocial production systems often grow and develop
they re not zero sum !
They produce a social surplus when functioning wellThat social surplus gets ex appropriated by an exploiter class in class systems
The primary producers may add 1000 in value and receive only 600 of that value as compensation
Suggesting radicals or at least some radicals want more then one hundred percent of the social product for the producers themselves is blatant Tom foolery
bakho said in reply to mulp...
"How do you think it is that there are capitalists with loyal workers?"The same way plantation owners had "loyal slaves". Loyalty lasted until Sherman's boys came and said, "You are free and if you show us where the silverware is hid, we'll split it with you."
Loyalty only goes as far as the next better offer.
anne said...
Assuming there was at least a superficial acknowledgement of a "moral center of American capitalism," that surface acceptance was methodically worn away from the 1970s on. An early sign of the wearing away and the need to turn away from a moral center of capitalism came with this article in 1970:http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
September 13, 1970
The Social Responsibility of Business is to Increase its Profits
By Milton Friedman - New York TimesThe carefully cultivated "Chicago Boys" not long after the article in the New York Times even gained a country to play with, Chile.
anne said in reply to anne...
http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.htmlJuly 23, 2015
If you don't know what I'm talking about, the term "Chicago boys" was originally used to refer to Latin American economists, trained at the University of Chicago, who took radical free-market ideology back to their home countries. The influence of these economists was part of a broader phenomenon: The 1970s and 1980s were an era of ascendancy for laissez-faire economic ideas and the Chicago school, which promoted those ideas....
-- Paul Krugman
Paine said in reply to anne...
A charming little toad that MiltySwallow him and die of his poisons
Paine said in reply to Paine ...
Street value of milty's elixir: Oligopolistic Corporate free range capitalismSandwichman said...
1. The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)2. Slavery was extolled by Southern slaveowner aristocratic "ethics and theology" as the pinnacle of bible-based Western Civilization.
3. After defeat of the Confederacy, the neo-Confederate heirs of the old slaveowner plutocrats rewrote history to deny that the South fought the Civil War to retain slavery.
4. The big lie of "Lost Cause" neo-Confederacy is the secret sauce of the Republican Party "Southern strategy" emulated by the "centrism" of the Democrats.
5. What happened to the "moral center" of American Capitalism?
6. Just what "moral center" are you referring to, Bob?
Sandwichman said in reply to Sandwichman...
John Cairnes, 1862:"in spite of elaborate attempts at mystification, the real cause of the war and the real issue at stake are every day forcing themselves into prominence with a distinctness which cannot be much longer evaded. Whatever we may think of the tendencies of democratic institutions, or of the influence of territorial magnitude on the American character, no theory framed upon these or upon any other incidents of the contending parties, however ingeniously constructed, will suffice to conceal the fact, that it is slavery which is at the bottom of this quarrel, and that on its determination it depends whether the Power which derives its strength from slavery shall be set up with enlarged resources and increased prestige, or be now once for all effectually broken."
Ben Groves said in reply to Sandwichman...
Don't forget about 1600's Amsterdam. That was the kickstarter for finance capitalism. William the Orange exported it to the Brits and the rest is history. The link between the 2 is indeed "bible based".Sandwichman said in reply to Sandwichman...
James Henley Thornwell:"The parties in this conflict are not merely abolitionists and slaveholders - they are atheists, socialists, communists, red republicans, jacobins, on one side, and the friends of order and regulated freedom on the other. In one word, the world is the battleground - Christianity and Atheism the combatants; and the progress of humanity at stake."
Ben Groves said in reply to Sandwichman...
Thornwell was a Rothschilds bagman fwiw. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the Rothschilds business interests.That is why quotes never workout. You create a dialect when it is all personal motive. Not all socialists were against slavery. Many thought it was better than capitalist production cycles.
anne said in reply to anne...
Not all socialists were against slavery. Many thought it was better than capitalist production cycles.[ I am waiting for the documentation of the many socialists who thought.... ]
Paine said in reply to anne...
Socialist is a very eclectic catch all term AnneSome socialist by self description probably believed in human sacrifice
Oh ya that was us Stalinists
anne said in reply to Paine ...
http://economistsview.typepad.com/economistsview/2015/09/what-happened-to-the-moral-center-of-american-capitalism.html#comment-6a00d83451b33869e201b7c7c9199f970bSeptember 4, 2015
Ben Groves said in reply to Sandwichman...
Not all socialists were against slavery. Many thought it was better than capitalist production cycles.
[ I know precisely what I have been asking for. I am still waiting for the documentation of the many socialists who thought.... ]
anne said in reply to Ben Groves...
Thornwell was a ----------- bagman for what it's worth. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the ----------- business interests.[ Again, where is the documentation, the "----------- bagman" documentation, to what I consider simply calumny? ]
Sandwichman said in reply to Ben Groves...
Wikipedia:James Henley Thornwell (December 9, 1812 – August 1, 1862) was an American Presbyterian preacher and religious writer from the U.S. state of South Carolina. During the American Civil War, Thornwell supported the Confederacy and preached a doctrine that claimed slavery to be morally right and justified by the tenets of Christianity.
"Thornwell, in the words of Professor Eugene Genovese, attempted "to envision a Christian society that could reconcile-so far as possible in a world haunted by evil-the conflicting claims of a social order with social justice and both with the freedom and dignity of the individual."
Sandwichman said in reply to Sandwichman...
The "cornerstone speech"https://en.wikipedia.org/wiki/Cornerstone_Speech
"The ideas entertained at the time of the formation of the old Constitution," says the Vice President of the Southern Confederacy [Alexander Stephens],
"...were that the enslavement of the African race was in violation of the laws of nature; that it was wrong in principle, socially, morally, and politically. Our new government is founded on exactly opposite ideas; its foundations are laid, its corner-stone rests, upon the great truth that the negro is not equal to the white man; that slavery-subordination to the superior race-is his natural and moral condition. This our Government is the first in the history of the world based upon this great physical, philosophical, and moral truth. It is upon this our social fabric is firmly planted, and I cannot permit myself to doubt the ultimate success of the full recognition of this principle throughout the civilized and enlightened world.... This stone which was rejected by the first builders 'is become the chief stone of the corner' in our new edifice."
Sandwichman said in reply to Sandwichman...
Harry Jaffa: "this remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy."But not just the Jim Crow South, also the enduring white supremacy that permeates and dominates the American (incarceration nation) political discourse under code word dog whistles like "law and order" and orchestrated abhorrence of "political correctness".
Where is the "moral center" of a cesspool whose "cornerstone" is hatred? Ask Dante.
Mike Sparrow said in reply to Sandwichman...
True, but accepting Jim Crow allowed the capitalists to expand down south slowly but surely. By 1950 the south was becoming industrialized and Jim Crow was under attack. Their agriculture had been automated. Jim Crow just delayed history.The problem I think people have with white neo-confeds is not so much "black slavery", but that white's were basically being starved and living standards reduced by the same system. The 1% of white's made it big with a global system at the expense of country. The anti-confeds are basically in a race war against what they see as foreign invasion. While the neo-confeds think they are protecting white "traditions" that really aren't really traditional to the white population as a whole. It is a good reason why socialists who patriot nationalism and organic unity can't unite with them. What they view as "white" is different. It leads toward political divide and conquer.
Paine said in reply to Mike Sparrow...
Jim crow delayed southern developmentOnly if you abstract from the northern social formation that hatched and husbanded it. For 100 years
Much as the slave system was husband by unionist northerns for 80 yearsPaine said in reply to Paine ...
One could talk of a moral core to capitalists like thadeus Stevens
But the north ended reconstruction not because of southern white resistance
But because nothing more was need at that time and level of development
Of the north and of the unionPaine said in reply to Paine ...
The Grant years were like a sign in the sun and a sign in the moonThe sympathetic nations of Ameriika would remain in mortal struggle
Race Injustice would rule to the horizon of time and space
Paine said in reply to Paine ...
We would and will live side by side and yet turn away from each other
One side in torment the other in wrathSandwichman said in reply to Sandwichman...
I think it would be useful to cite the whole paragraph of Harry Jaffa's comment on the cornerstone speech. Who was Harry Jaffa, anyway? Some politically correct Marxist America hater? Jaffa was the guy who wrote Barry Goldwater's 1964 Republican nomination acceptance speech. You know, "Extremism in defense of liberty is no vice; moderation in pursuit of justice is no virtue." That's who."This remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy. From the end of Reconstruction until after World War Il, the idea of racial inequality gripped the territory of the former Confederacy-and not only of the former Confederacy-more profoundly than it had done under slavery. Nor is its influence by any means at an end. Stephens's prophecy of the Confederacy's future resembles nothing so much as Hitler's prophecies of the Thousand-Year Reich. Nor are their theories very different. Stephens, unlike Hitler, spoke only of one particular race as inferior. But the principle ot racial domination, once established, can easily be extended to fit the convenience of the self-anointed master race or class, whoever it may be."
Paine said in reply to Sandwichman...
The battle between the declaration of independence and the constitutionSandwichman said in reply to Sandwichman...
A MEASURING ROD FOR TEXT-BOOKS"The Committee respectfully urges all authorities charged with the selection of text-books for colleges, schools and all scholastic institutions to measure all books offered for adoption by this "Measuring Bod" and adopt none which do not accord full justice to the South. And all library authorities in the Southern States are requested to mark all books in their collections which do not come up to the same measure, on the title page thereof, "Unjust to the South."
Reject a book that says the South fought to hold her slaves.
Reject a book that speaks of the slaveholder of the South as cruel and unjust to his slaves.
Sandwichman said in reply to Sandwichman...
"How the Negroes Lived Under Slavery"Life among the Negroes of Virginia in slavery times was generally happy. The Negroes went about in a cheerful manner making a living for themselves and for those for whom they worked. They were not so unhappy as some Northerners thought they were, nor were they so happy as some Southerners claimed. The Negroes had their problems and their troubles. But they were not worried by the furious arguments going on between Northerners and Southerners over what should be done with them. In fact, they paid little attention to these arguments."
What's a "coffle"? http://tinyurl.com/pkdxuvq
anne said in reply to Sandwichman...
Excellent series of posts.anne said in reply to Sandwichman...
http://www.nytimes.com/2014/10/05/books/review/the-half-has-never-been-told-by-edward-e-baptist.htmlOctober 4, 2014
A Brutal Process
By ERIC FONERTHE HALF HAS NEVER BEEN TOLD
Slavery and the Making of American Capitalism
By Edward E. BaptistFor residents of the world's pre-eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy. Recently, however, the history of American capitalism has emerged as a thriving cottage industry. This new work portrays capitalism not as a given (something that "came in the first ships," as the historian Carl Degler once wrote) but as a system that developed over time, has been constantly evolving and penetrates all aspects of society.
Slavery plays a crucial role in this literature....
Eric Foner is the DeWitt Clinton professor of history at Columbia.DrDick said in reply to Sandwichman...
As Sydney Mintz showed, capitalism was founded on and made possible by slavery.Paine said in reply to DrDick...
Marx sounds this theme powerfully in his chapter in Kap I
on primitive or primal accumulationSandwichman said in reply to Paine ...
Sounded the theme... but then failed to develop it. Maybe it was too obvious in those days, soon after the Civil War and before the "measuring rod" of neo-Confederate censorship rewrote history.anne said in reply to Sandwichman...
http://www.common-place.org/vol-10/no-03/baptist/April, 2010
Toxic Debt, Liar Loans, and Securitized Human Beings
The Panic of 1837 and the fate of slavery
By Edward E. BaptistEarly in the last decade, an Ayn Rand disciple named Alan Greenspan, who had been trusted with the U.S. government's powers for regulating the financial economy, stated his faith in the ability of that economy to maintain its own stability: "Recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps. These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago."
At the beginning of this decade, in the wake of the failure of Greenspan's faith to prevent the eclipse of one economic order of things, Robert Solow, another towering figure in the economics profession, reflected on Greenspan's credo and voiced his suspicion that the financialization of the U.S. economy over the last quarter-century created not "real," but fictitious wealth: "Flexible maybe, resilient apparently not, but how about efficient? How much do all those exotic securities, and the institutions that create them, buy them, and sell them, actually contribute to the 'real' economy that provides us with goods and services, now and for the future?" ...
chris herbert said...
I don't think Capitalism has much to do with morality. Capitalists employed 8 year olds and a workweek of 60 hours at subsistence pay was the norm. Even today, look what American capitalists do to their employees in the Far East! Adam Smith figured that capitalism improved people's lives unintentionally. Not much of a moral statement, that one. That's why capitalism fails so miserably if not tightly regulated. Democracy, on the other hand, has pretty well defined moral foundations; Liberty, rights, equality etc. etc. Social democracies, in my opinion, have a stronger tether to the moral side of Democracy than we currently have here in the U.S. Our moral tether was shredded by the political right turn accomplished in the 1980s under Reagan. A similar degradation began in the U.K. about the same time under Thatcher. Oddly enough, that 30 plus year period between the end of WWII and 1980, was a period of strong progressive policy making. Pro labor laws, steeply progressive tax rates, voting rights, sensible retirement funding and Medicare for the elderly were all products of that time period. Maybe it was all an anomaly. A brief period of egalitarian ideals that created a middle class and produced a manufacturing hegemon. No longer. We are a military hegemon now. We are no longer a Democracy either. Most people haven't realized it; most especially working men and women who freely give up their rights and protections by voting for Republicans. We have the government we deserve. We are the most entertained and least informed citizens of any of the rich countries.Paine said in reply to chris herbert...
Exploitation has a moralityAll that exists must be torn apart
Rest is sin
The future is blocked only by the presentFaust
Peter K. said...
Off topic but everyone's favorite subject: monetary policy.http://macromarketmusings blogspot.com/2015/09/revealed-preferences-fed-inflation.html
Friday, September 4, 2015
Revealed Preferences: Fed Inflation Target Edition
by David BeckworthOver the past six years the Fed's preferred measure of the price level, the core PCE, has averaged 1.5 percent growth. That is well below the Fed's explicit target of 2 percent inflation. Why this consistent shortfall?
Some Fed officials are asking themselves this very question. A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: "central bankers aren't sure they understand how inflation works anymore". The article goes on to highlight some deep soul searching being done by central bankers in the Wyoming mountains. It is good to see our monetary authorities engaged in deep introspection, but let me give them a suggestion. Dust off your revealed preference theory textbooks and see what they can tell you about the low inflation of the past six years.
To that end, and as a public service to you our beleaguered Fed officials, let me provide some material to consider. First consider your inflation forecasts that go into making the central tendency consensus forecasts at the FOMC meetings. The figures below show the evolution of these forecasts for the current year, one-year ahead, and two-years ahead. There is an interesting pattern that emerges from these figures as you expand the forecast horizon: 2 percent becomes a upper bound.
....
So rest easy dear Fed official. No need for any existential angst. According to revealed preferences, you are still driving core inflation--which ignores supply shocks like changes in oil prices--it is just that you have a roughly 1%-2% core inflation target corridor rather than a 2% target. So even though you may not realize it, you are doing a bang up job keeping core inflation in your target corridor."
Peter K. said in reply to Peter K....
Our Neo-Classsical single equilibrium friend Don Kervack says the economy "naturally" healed itself despite unprecedented fiscal austerity, a trade deficit and strong dollar.I don't buy it. Economics isn't broken. Politics is.
The center-left party for the job class should be calling up the Fed and asking "WTF?"
SomeCallMeTim said...
In the mid-1970s, at some universities economics was still called 'political economy', micro began with consideration of equity vs. efficiency, and the legitimacy of countercyclical social programs wasn't so widely questioned.Was there a loss of nerve, at least in the U.S., following the Vietnam War, the 1973 oil shock, and the following recession that led to a quantum shift in generosity of spirit / belief in children exceeding their parents material well-being (or as politicians would later put it, voting one's fears instead of one's hopes)?
Second Best said...
http://www.counterpunch.org/2015/08/21/the-plague-of-american-authoritarianism/The Plague of American Authoritarianism
by Henry Giroux
Authoritarianism in the American collective psyche and in what might be called traditional narratives of historical memory is always viewed as existing elsewhere.
Viewed as an alien and demagogic political system, it is primarily understood as a mode of governance associated with the dictatorships in Latin America in the 1970s and, of course, in its most vile extremes, with Hitler's poisonous Nazi rule and Mussolini's fascist state in the 1930s and 1940s. These were and are societies that idealized war, soldiers, nationalism, militarism, political certainty, fallen warriors, racial cleansing, and a dogmatic allegiance to the homeland.[i] Education and the media were the propaganda tools of authoritarianism, merging fascist and religious symbols with the language of God, family, and country, and were integral to promoting servility and conformity among the populace. This script is well known to the American public and it has been played out in films, popular culture, museums, the mainstream media, and other cultural apparatuses. Historical memory that posits the threat of the return of an updated authoritarianism turns the potential threat of the return of authoritarianism into dead memory. Hence, any totalitarian mode of governance is now treated as a relic of a sealed past that bears no relationship to the present. The need to retell the story of totalitarianism becomes a frozen lesson in history rather than a narrative necessary to understanding the present
Hannah Arendt, the great theorist of totalitarianism, believed that the protean elements of totalitarianism are still with us and that they would crystalize in different forms.[ii] Far from being a thing of the past, she believed that totalitarianism "heralds as a possible model for the future."[iii] Arendt was keenly aware that the culture of traditionalism, an ever present culture of fear, the corporatization of civil society, the capture of state power by corporations, the destruction of public goods, the corporate control of the media, the rise of a survival-of-the-fittest ethos, the dismantling of civil and political rights, the ongoing militarization of society, the "religionization of politics,"[iv] a rampant sexism, an attack on labor, an obsession with national security, human rights abuses, the emergence of a police state, a deeply rooted racism, and the attempts by demagogues to undermine critical education as a foundation for producing critical citizenry were all at work in American society. For Arendt, these anti-democratic elements in American society constituted what she called the "sand storm," a metaphor for totalitarianism.[v]
Historical conjunctures produce different forms of authoritarianism, though they all share a hatred for democracy, dissent, and human rights. It is too easy to believe in a simplistic binary logic that strictly categorizes a country as either authoritarian or democratic and leaves no room for entertaining the possibility of a mixture of both systems. American politics today suggests a more updated if not different form of authoritarianism or what some have called the curse of totalitarianism. In this context, it is worth remembering what Huey Long said in response to the question of whether America could ever become fascist: "Yes, but we will call it anti-fascist." [vi] Long's reply indicates that fascism is not an ideological apparatus frozen in a particular historical period, but as Arendt suggested a complex and often shifting theoretical and political register for understanding how democracy can be subverted, if not destroyed, from within.
(more at link above)
Anonymous said...
1) Gut all regulation in the name of free markets.
2) Sprinkle with the fairy dust of zero or negative real interest rates.
3) Let it rip.I mean the moral fiber of society. this had a big hand in it.
Anonymous said in reply to Anonymous...
If anyone thinks incentives have nothing to do with deteriorating moral fiber, you are delusional.ezra abrams said...
Is this the same RR who crossed a picket line at huff post, or someplace like that ?
cause ya know, his views are just so critical...
as my dad use to say, a scab never has to worry bout getting by, he can always steal from blind mens cupsand liberals wonder why blue collars hate hi falutin people
anne said in reply to ezra abrams...
Where is the precise reference to this nastiness?Since Robert Reich provides his essays to any publication through a Creative Commons license, I cannot imagine how he could have crossed any picket line. Any essay by Reich can be used on any Internet site.
Returning now to the nastiness....
ilsm said...
Thuglican Jesus, thuglican God......Factitious values based on thuglican God ordained "lesser people" should be property and the 98% exploited for the chosen .01%.......
See Sandwichman at Angry Bear.
cm said...
I suspect the moral center has been declared as a cost center, and not only yesterday.
And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'"
Sep 03, 2015 | Jesse's Café Américain
"Andrew Jackson was compelled to fight every inch of the way for the ideals and the policies of the Democratic Republic which was his ideal. An overwhelming proportion of the material power of the Nation was arrayed against him. The great media for the dissemination of information and the molding of public opinion fought him. Haughty and sterile intellectualism opposed him. Musty reaction disapproved him. Hollow and outworn traditionalism shook a trembling finger at him. It seemed sometimes that all were against him- all but the people of the United States."
Franklin D. Roosevelt
The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.
And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'
... ... ...
Economist's View
pgl said...
JohnH said in reply to pgl...
That paper that Matty Boy Bot obviously did not read is quite good. A highlight:"Two years after a 1 percentage point increase in the short-term interest rate, real house prices are estimated to decline by over 6%, while real GDP per capita declines by nearly 2%. This implies a ratio of 3.3 in terms of the decline in house prices for a 1% decline in the level of output after two years. Looking at a longer time horizon of three or four years (not shown in the figure), the ratio rises to about 3˝. Although imprecisely estimated, inflation also responds negatively to a monetary policy shock after a two-year lag."
Once our favorite gold bug recovers from his chocolate coin hangover I wonder if he was unpack this. After all his recommendation of tight money does lower inflation. Cheers! And the fall in nominal interest rates is less so his 80 year old girl friend sees a rise in her real interest rates. Cheers!
But real housing prices fall. That's bad for home owners - right? JohnH still says cheers as he is under the illusion that this actually benefits the banks. EMichael by now is going WTF?
And real GDP per capita falls. That is really bad - right? Not to fret. JohnH will find some data source to manipulate and tell us that people actually benefit from a fall in real income per person.
More evidence to manipulate. Cheers!
pgl said in reply to JohnH...Of course, interest rates affect houses prices. Well, duh!
The problem is, that house prices have been going up mostly in wealthier neighborhoods, reflecting the Fed's focus on driving the wealth effect for top incomes, which is supposed to trickle down, but hasn't.
The second problem is that low interest rates haven't driven new housing starts, which is where you get real, direct economic impact--construction jobs.
IMO this is just another superfluous study that does nothing to address the real problem of Fed policies not trickling down.
You have evidence for all your assertions. Of course you do - your 80 year old girl friend lives in the hood.JohnH said in reply to pgl..."just another superfluous study". One you could not cherry pick and misrepresent so it is "superfluous"!
pgl treats the self-evident findings of this report as if they were some kind of divine revelation, which in fact they probably are for him.JohnH said in reply to JohnH...After all, this is the same pgl who spent weeks trying to convince me that low interest rates have no effect on stock prices, although even the Fed admits as much.
Of course, pgl's campaign to convince me that interest rates don't affect stock prices came on the heels of his campaign to convince me that Obama didn't propose cutting Social Security... His rationale? Congress didn't pass his proposal; therefore Obama didn't propose it! You have to love pgl's contorted logic.Anonymous said in reply to JohnH...And this is the idiot who is convinced that the Fed is doing a great job. Of course, pgl's probably a Mets fan (who haven't won anything in a decade), so his standard of success is clearly
bizarre.With the Fed, like with the Mets, there's always next year!
for these people, Fed only effects housing and asset prices on the way up and not on the way down. pgl probably works for CNBCPaine said in reply to Anonymous...House LOTS are very much assets. So housing markets are coosite markets both asset and durable productpgl said in reply to JohnH...It's the asset component that needs to be regulated by the state
See my comments agreeing with Dean Baker. Low interest rates increased P/E ratios. Do you know what a P/E ratio even is? Price of stock over earnings per share. And you are stupid enough to write:Anonymous said in reply to pgl..."pgl's campaign to convince me that interest rates don't affect stock prices".
Oh that's right. You are campaigning for stupidest man alive. Well, you won - hands down!
This is a stupid comment from a novice. When stocks go down, interest rates go down. When you say low interest rates increase PE ratios, you have no idea what you are talking about. Japan has had rock bottom interest rates and low PEs for decades. At the end of 2008, we had 2% bond yield; 0% fed funds and very low PE. Why? ask yourself. You are nothing but a novice. Armed with this kind of logic, you would lose a fortune in the stock market in no time.pgl said in reply to Anonymous...LOL! Let us known when you are teaching finance so we can tell the undergrads to run. Run far away! But yea - there is something here JohnH never got. Shift of an investment demand schedule versus shift along an investment demand schedule. Oh wait - you don't quite get this either. Idiots to the left of me. Idiots to the right of me.pgl said in reply to Anonymous...Did you know that during the 2001 recession the P/E ratios of stocks like Cisco doubled? Surprised I bet. Oh yea - Cisco's market valuation fell by 60% but then its earnings fell by 80%. Do the math - we'll wait a few days for you to do so.Paine said in reply to Anonymous...Of course the finance has something to do with how valuations respond to permanent versus temporary changes in earnings. We'll still be here in 10 years when you finally figure that one out.
By then you good buddy JohnH may have read Finance for Dummies.
Not a novicePaine said in reply to Paine ...
He's a side walk superintendent with a phd in textbookery and some information please almanac
Fat of the land factsNothing more ridiculous then an academic on wall street [payroll]...
Sep 01, 2015 | Noahpinion
Comments from Economist's View Links for 09-01-15
RogerFox said...
'Non-intuitive Neo-Fisherism - Noahpinion'
"So when the Fed lowers interest rates, it prints money in order to do so. But in a Neo-Fisherian world, that makes inflation fall ...."
That has been the counter-intuitive observed phenomenon in the wake of QE3 - why?
IMO it has to do with locking up ALL the QE$, all $4-trillion of it, at the Fed as 'excess reserves', and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation.
Stop paying and start charging banks to keep such reserves and see what happens to inflation and asset prices - that would be informative, and dramatic IMO.
Anonymous said in reply to RogerFox...Everytime, they announced a new QE, nominal yields on 10 year bonds rose and vice versa. That is evidence that we are living in a neo-Fisherian world.
QE-1 was formally adopted in March 2009, when the U.S. T-Bond yield was 2.53%, but by the end of QE-1, in March 2010, the yield had moved up to 3.83%, for a rise of 1.3% points. When the Fed launched QE-2 in November 2010 the T-Bond yield was 2.62%, but 3.16% when QE-2 was ended in June 2011 – a rise of 0.5% points. QE-3 began at the end of 2012, when the T-Bond yield was 1.76%, by the end of QE, it was 2.4%.
Peter K. said in reply to Anonymous...Anonymous said in reply to Peter K....Everytime inflation expectations dipped, they did a new QE and inflation expectations went back up.
Peter K. said in reply to Anonymous...Yes. Another way to say the same thing. Question is isn't that neo Fisherian?
Looks paleo-Keynesian to me, anonymous, whoever the fuck you are.
The dipping of inflation expectations means the market expects less aggregate demand going forward.
The central bank does a little stimulus.
The market sees that and expects higher inflation going forward.
JohnH said in reply to Peter K....
Every time they did a new QE, stock prices rose. Asset inflation was right on target to serve the vast majority of stockholders ... the 1%.
Peter K. said in reply to JohnH...
So what? You want asset price deflation so that the economy tanks?
How can we decouple the two? Usually the stock market goes up as the economy grows. Sorry.
JohnH said in reply to Peter K....
Usually the stock market goes up when the economy grows. Exactly! But this time around the stock market goes up when the real economy flat lines...which is pretty good proof that the Fed's low interest rates were used for speculation, not productive investment.The 1% figured out how to game a system that was already rigged in their favor.
As a result monetary policy must be changed to discourage abuse and encourage productive investment, which is what ultimately drives job creation.
pgl said in reply to Anonymous...
a neo-Fisherian world? There is no neo-Fisherian world. The economists who have read these neo-Fisherian rants see them as just that - insane rants. Next discussion - what is it like to live in a world where trees grow sideways and the earth is flat.
EMichael said in reply to RogerFox...
"and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation."
Any chance you know what that interest rate is?
Any chance you think banks would not do this if they had real options to earn a higher interest rate?
RogerFox said in reply to EMichael...
Any banker who can't earn better than 0.25% on marginal AUM should be fired. Banks keep funds at the Fed because that was part of the deal for the Fed to buy them out of their largely worthless MBS stuff, and save them from the MTM-insolvency they were in up to their kosher necks.
EMichael said in reply to RogerFox...
So, can you tell me how much of the MBS purchases were owned by banks?
In terms of the ability of bankers, they do need borrowers.
EMichael said in reply to RogerFox...
BTW, if you can find out which MBSs the FED bought I would love to see it.
OTOH, there are some things I know for sure.
1) Prior to QE in 2009, US depository institutions owned about a third of agency MBSs, or $1.3 Trillion.
2) It is not possible that those banks owned only "worthless MMS stuff".
pgl said in reply to RogerFox...
Go to the income statement and balance sheet of JPMorgan Chase. A return on its assets. Yes banks do better. A lot better. But how would you know? This is accounting 101 - way over your head.
EMichael said in reply to RogerFox...
Anonymous said...Oh, before I head out to lunch.
I would love to see the conversation between the FED and Jamie Dimon where they tell him that now that all of his toxic MBSs are gone, you still have to keep excess reserves with the FED.
kthomas said in reply to Anonymous...As Bernanke outlined over the years, monetary policy success is to be measured, in good part, by stock prices. Welcome to the hell created by Bernanke, Ms Yellen.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews
http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm
Why not cut to the chase and tells about how wealthy youve become trading in Gold?
Share with us your financial wisdom.
And Im thinking, as well, you are drawing false conclusions from former Chairman Bernanke. Perhaps you did not read any of this material, as pgl suggests.
I also detect a subtle woft of anti-semitism in this post. It has an odor.Anonymous said...
The great unresolved question in central banking today is: Should monetary policy be used to foster financial stability, even at the expense of achieving other macroeconomic goals such as inflation and employment?
It is completely un symmetric. Always one way. ok to boost house prices, never to restrain them. why don't they leave regulation to boost prices? or regulation to say interest rates are too broad a tool to use in a situation?
meanwhile, they will never use regulation.
Second Best said...
RC AKA Darryl, Ron said...Will Americans Become Poorer? - Martin Fedlstein
'Gordon argues that the major technological changes that raised the standard of living in the past are much more important than anything that can happen in the future. He points to examples such as indoor plumbing, automobiles, electricity, telephones, and central heating, and argues that all of them were much more important for living standards than recent innovations like the internet and mobile phones.'
---
Plastics are also highly underrated in the contribution to living standards. Plastics show up in 90% of seabirds that eat them and die which makes more room for humans to consume plastics in peace and quiet, free of noise pollution from screeching seabirds.
RE: A Tale of Two Theories
[We must choose between Larry Summers' sec stag theory and the hard money supply side theory of the BIS which is a repulsive idea. Thankfully though secular stagnation theory came about during the Great Depression from the works of Keynes and Alvin Hansen. So, I guess that I can stomach Summers given that consideration. There may be a bit more to it though, but I don't have another lifetime to become an economists and put together a better theory.
The BIS is not entirely wrong about structural issues not getting addressed by purely demand side policies, but it was supply side policy going way back to Schumpeter and the consolidation of firms and wealth for efficient and innovative monopolies and capital formation that created this huge mess and now they suggest more supply side economics will get us out of it. We got more supply side with Reagan (and Thatcher in the UK) and that just made matters worse.]
Peter K. said in reply to RC AKA Darryl, Ron...
Your pet theory appears to be about monopoly (influenced by Sweezy?) while mine is about insufficient demand and more specifically an insufficient monetary-fiscal mix.
Maybe the reality is a mix of both?
The BIS is the Death Star/Sauron's Eye of bad economic theory. All of the trolls regurgitate their theories in one form or another.
Summers's idea is that we can't have full employment without bubbles. What if hadn't deregulated the financial sector and cut taxes on capital gains?
If Larry were Fed Chair, I bet he would be telling us "sorry we can't have rising wages because that would give us bubbles which would cause downturns and unemployment. We will have to raise rates even though there is labor market slack." Circular reasoning and a Hobson's choice.
James Hamilton et al have a paper which is sited to counter the secstags theory. During the housing bubble, supposedly, the large trade deficit and high oil prices were subduing demand such that the Fed was in a fix as the housing bubble blew. It had rates at the right price.
If oil prices had been lower and there was no trade deficit, then the Fed could have had higher interest rates and no housing bubble.
Seems like Summers is saying the same thing in a way. Better fiscal policy and no secstags.
Thanks to Kervick, I'm moving away from the fiscalist position to more of a monetarist or fiscal-monetarist agnositic mix.
There are no secstags because the Fed didn't exhaust its powers or employ all of its tools. It hit the ZLB and then employed the weakest possible QE just to avoid deflation. It's no wonder people believe QE doesn't work.
Reply Tuesday, September 01, 2015 at 05:38 AM
RC AKA Darryl, Ron said in reply to Peter K....
Understood. I'm could say I am moving to fiscal-monetarist gnostic mix but I have been there all along. Either if done wrong in context can defeat the other. An unflinching bold application of both in tandem are necessary for rapid results.
Reply Tuesday, September 01, 2015 at 06:13 AM
Peter K. said in reply to RC AKA Darryl, Ron...
Ah but do you believe an unflinching bold application of monetary policy would work?
I don't know. It hasn't been tried.
No I believe it may be sufficient if combined with other robust regulatory measures - all things anathema to a Republican Congress:
stronger financial regulations
financial transaction taxes
stronger anti-monopoly and anti-trust policies
stronger safety net
stronger workers rights
etc.given all of those things a robust monetary policy could provide tight labor markets and wage gains without Kervack's politburo's picking winners and losers in the economy.
Reply Tuesday, September 01, 2015 at 06:35 AM
RC AKA Darryl, Ron said in reply to Peter K....
Granted - eventually. If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy. No interest loans at long terms to households might not even have been enough unless defaults were easy on households. Sending out checks free of debt is fiscal policy regardless which agency sends them out.
Under ordinary circumstances then monetary policy is entirely sufficient. I am not sure that any cognizant being says otherwise.
Reply Tuesday, September 01, 2015 at 08:59 AM
Peter K. said in reply to RC AKA Darryl, Ron...
"If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy."
Again, I don't know if I agree with you. It hasn't been tried.
With short term rates, the Fed says "we'll lower the rate to .25 percent..."
With long term rates and MBS they said "we'll do QE and buy a certain amount each month" and we'll see what happens.
What if they said, "we'll buy enough to lower long term rates and mortgages" to .5 percent?
We don't know because they didn't try.
Reply Tuesday, September 01, 2015 at 10:23 AM
RC AKA Darryl, Ron said in reply to Peter K....
"Your pet theory appears to be about monopoly (influenced by Sweezy?)"
[My pet theory is of my own design and monopoly is just part of it. I am for tax preferences on dividends and interest earnings, and penalizing levels of taxation on capital gains for assets held less than one year. That would do more about the BIS complaints on how well money is invested than tight fiscal and monetary policy, but BIS would not like the public investment aspect that goes along with the other part of my pet theory. Increased oligopoly enabling mergers were just one aspect of the capital gains tax preference, especially since the dividends tax credit was permanently rescinded in 1954. The entire gamut of the financialization of non-financial firms has troubled me from my earliest understanding of it in high school in the 60's. It just kept getting worse as time passed.
Who is Sweezy? ]
Reply Tuesday, September 01, 2015 at 08:54 AM
RC AKA Darryl, Ron said...
RE: Whither inflation?
[I must leave this to pgl to tackle. Is the goal of monetary policy to lower output? I guess that is one way to get inflation, but I doubt that it would do anything for real wages.]
Reply Tuesday, September 01, 2015 at 04:42 AM
Peter K. said in reply to RC AKA Darryl, Ron...
"But in 2008, interest rates hit zero. The broom handle could not move. The conventional view predicted that the broom will topple. Traditional Keynesians warned that a deflationary "spiral" or "vortex" would break out [if the Fed didn't take extraordinary measures which it did including recommending Obama's fiscal stimulus]. Traditional monetarists looked at QE, and warned hyperinflation would break out."
Fixed. Cochrane is a dishonest ideologue who enjoys expensive bottles of wine with the likes of villians like Republican Paul Ryan and hedge fund manager Clifford Asness. Let them eat cake!
http://www.slate.com/blogs/browbeat/2011/07/12/so_what_if_paul_ryan_drank_a_350_bottle_of_wine_.html
Reply Tuesday, September 01, 2015 at 05:50 AM
Peter K. said in reply to Peter K....
Oh he does admit he was being dishonest later on in the post:
"Maybe the Fed is so wise it neatly steered the economy between the Great Deflationary Vortex on one side with just enough of the Hyperinflationary Quantitative Easing on the other to produce quiet. Maybe the great Fiscal Stimulus really did have a multipler of 6 or so (needed to be self-financing, as some claimed) and just offset the Deflationary Vortex.'
Reply Tuesday, September 01, 2015 at 05:53 AM
pgl said in reply to Peter K....
Great Fiscal Stimulus? WTF? OK, there was that 2009 thing where Cochrane said the multiplier was zero as he never understood his own Ricardian Equivalence proposition. Now he says it is 6? Talk about malleable opinions. Cochrane is insane.
Reply Tuesday, September 01, 2015 at 06:17 AM
RC AKA Darryl, Ron said in reply to Peter K....
We still drink way more beer than wine in my part of the country. I have a bottle of port on my bar that has been there since last year and I have not had any other wine at all this year. But I agree with the article in that all of those people are assholes regardless of what they are drinking.
But I know that pgl really loves Cochrane, loves as in can resist screwing with him. Too mathy for me, but framing the idea of raising interest rates to increase inflation while lowering output as an economic solution does not pass the sweat shirt test (H. Pat Artis's euphemism for reality check).
Reply Tuesday, September 01, 2015 at 06:44 AM
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...
can't resist - oops
Reply Tuesday, September 01, 2015 at 06:45 AM
Peter K. said in reply to RC AKA Darryl, Ron...
Agreed. Maybe he'd a have a problem with lowering output if it hurt profit margins.
Reply Tuesday, September 01, 2015 at 06:47 AM
Peter K. said in reply to Peter K....
This is what DeLong has a tough time understanding. He's too naive or something. Or things have changed with the financialization of the economy.
Businesses and business leaders should want more demand for their products and services. They *should* want full employment and full output.
And yet the creditors and bankers really run things. Inflation is more of problem for them. And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity.
Reply Tuesday, September 01, 2015 at 06:50 AM
Peter K. said in reply to Peter K....
DeLong points out that in the post-war golden years business leaders were for full employment and full output.
I tend to believe it was because of the Cold War. Would Europe risk sky high unemployment in the Spain, Greece, Italy etc. now if the Cold War was still on? They'd risk those countries falling under the control of the Communists.
Reply Tuesday, September 01, 2015 at 06:53 AM
RC AKA Darryl, Ron said in reply to Peter K....
"DeLong points out that in the post-war golden years business leaders were for full employment and full output.
I tend to believe it was because of the Cold War..."
[Yep, Paine has mentioned that fairly often. Maybe it is just a way that commies like Paine can take credit for the post war boom in the free world :<) - LOL}
Reply Tuesday, September 01, 2015 at 09:06 AM
Dan Kervick said in reply to Peter K....
Well CEOs have managed to increase their own compensation dramatically over the past several decades with less than full employment. The chronically under-employed workforce keeps labor costs down and the return to capital high; and the shareholders reward the CEO for treating the firm as a dividend farm, not a long term project. And if they do need to boost output, they can always hire poor people in other countries in the global supply chain. So from their point of view, why should they do anything differently?
Reply Tuesday, September 01, 2015 at 06:44 PM
RC AKA Darryl, Ron said in reply to Peter K....
"...And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity."
[Yep to that and all you said before it.]
Reply Tuesday, September 01, 2015 at 09:02 AM
pgl said in reply to RC AKA Darryl, Ron...
Cochrane seems to know a bit of finance although sometimes he gets a little sloppy. I love it when finance types think they are also masters at macroeconomics. Modigliani and Tobin could walk in both worlds but Cochrane could not hold their shoes in either.
Reply Tuesday, September 01, 2015 at 08:56 AM
RC AKA Darryl, Ron said in reply to pgl...
Understood. Commenting on Cochrane's piece was all in fun. Even I got the problem with increasing the output gap in his model of interest rate increases; not good for full employment.
Reply Tuesday, September 01, 2015 at 09:09 AM
Peter K. said in reply to Peter K....
"Traditional monetarists looked at QE, and warned hyperinflation would break out."
Actually monetarists like Scott Sumner predicted it wasn't enough to do the job.
Goldbugs predicted runaway inflation.
Cochrane is wrong again.
Reply Tuesday, September 01, 2015 at 06:57 AM
pgl said in reply to RC AKA Darryl, Ron...
I started to read John Cochrane's insane modeling but as usual it made me sea sick. He has a habit of making easy things hard. The stated twin goals of monetary policy are to avoid accelerating inflation and to get us as close to full employment as possible. While one can argue that obtaining the latter jeopadizes the former, I don't see any real tradeoff at the moment. Expected inflation has been incredibly low for many years now and the output gap is still really high. I know some FED members are freaking out over INFLATION but I suspect they hate too much of that chocolate candy at Jackson Hole. Cochrane? Apparently he's been putting away too much of that expensive wine.
Reply Tuesday, September 01, 2015 at 06:15 AM
RC AKA Darryl, Ron said in reply to pgl...
Since Cochrane appears quite sanguine about lowering output then that implies he does not really care much about employment either.
I know that Cochrane is one of your favorite snack foods along with Taylor, the two too conservative Johns.
Reply Tuesday, September 01, 2015 at 06:33 AM
pgl said in reply to RC AKA Darryl, Ron...
Cochrane is a New Classical type. Shorter version of their school - what recession? After all - the market is perfectly efficient and always clears in their ivory tower world.
Reply Tuesday, September 01, 2015 at 08:57 AM
RC AKA Darryl, Ron said in reply to pgl...
Yep. I place neo-classical economics next to "natural law" (meaning social laws - not science laws) in the circular filing cabinet.
Reply Tuesday, September 01, 2015 at 09:12 AM
ilsm said in reply to RC AKA Darryl, Ron...
Cochrane leaves a lot to the imagination, sensitivity to assumptions etc.
Then there is the main issue with Social Sciences validation and accrediting the models.
While the fresh water school depends on belief resulting in epistemic closure.
Reply Tuesday, September 01, 2015 at 03:19 PM
Anonymous said...
Shiller's CAPE debate:
Saying that high PEs are fine because they just mean lower expected returns is like saying a blind man's eyes are fine just means he sees less than other people. Low expected returns do not come in 2%, 2%, 2%... kind of stream. They go down a lot and go up a lot. In 99-2000, people said high PE just meant low future returns. Yes, S&P had a zero return over almost a decade. But it had two huge drawdowns in the middle. Bernanke said the same of house prices in 2006 - they will be zero for a while. Yes, average is zero. does not mean you will go there in a straight line.
Reply Tuesday, September 01, 2015 at 04:43 AM
RC AKA Darryl, Ron said in reply to Anonymous...
Yep! There are more troubles here than can be covered by Shiller's CAPE and Dick Serlin's robots are not likely to fix them either.
Reply Tuesday, September 01, 2015 at 05:51 AM
pgl said in reply to Anonymous...
Hey is one thing a lot of us keep trying to tell Anne. There is not a single P/E ratio that is the right number for all times. This ratio depends on fundamentals with one of the fundamentals being the cost of capital. And I thought everyone knew by now that interest rates are currently a lot lower than they were in the 1980's.
Reply Tuesday, September 01, 2015 at 06:18 AM
Peter K. said in reply to pgl...
Isn't that what Dean Baker was saying also?
http://www.cepr.net/blogs/beat-the-press/robert-shiller-s-case-for-a-stock-bubble
"The other reason why the current PEs in the stock market might be justified is that interest rates are well below their historic averages. With the nominal rate on 10-year Treasury bonds at just over 2.0 percent and the inflation rate around 1.6 percent, the real interest rate is roughly 0.5 percent. This compares to a long-period average in the range of 2.5-3.0 percent.
With the alternatives to holding stock offering returns that are far lower than they have in the past, it makes sense that people would be willing to accept a much lower return on their stock. The current PE should still allow a premium in the range of 4.0 percentage points relative to bonds, which is roughly the long period average. Of course if we had reason to expect that the real returns on bonds would rise sharply in the near future, then this argument would not carry much weight, but there does not appear to be any good story as to why real bond yields should be headed much higher in the near future."
Reply Tuesday, September 01, 2015 at 06:22 AM
pgl said in reply to Peter K....
Deano has this exactly right. Of course they are the idiots like JohnH who just claimed that Dean and I are saying lower interest rates have no effect on stock prices. Hmm - P/E ratios are defined as stock prices relative to earnings per share. So someone should ask JohnH how a P/E ratio is supposed to rise if P does not change. Oh that's right - his 80 year granny girl friend has no earnings (E).
Reply Tuesday, September 01, 2015 at 09:00 AM
JohnH said in reply to Peter K....
pgl still can't admit that he tried to convince me that high stock prices (and the wealth of the 1%) were not fueled by low interest rates.
pgl was so desperate to defend historically low interest rates, that he lied about their most obvious effect--higher asset prices and wealth redistribution upwards.
Question is, why is pgl so zealous about defending the gains of the 1%?
Reply Tuesday, September 01, 2015 at 09:59 AM
pgl said in reply to JohnH...
Find the comment where I allegedly made this statement. Either you are lying (which you often do) or you failed to get what I was really saying. Maybe it was the latter given how incredibly stupid you are.
Reply Tuesday, September 01, 2015 at 11:47 AM
RGC said...
Low-Income Workers Have Nowhere Affordable To Live, New Report Shows
Even the most affordable metropolitan areas in the country are beyond the reach of millions of American families.
Daniel Marans
Reporter, The Huffington Post
Posted: 08/27/2015 07:34 AM EDT
Low-income workers and their families do not earn enough to live in even the least expensive metropolitan American communities, according to a new analysis of families' living costs published Wednesday.The analysis, released by the left-leaning Economic Policy Institute, is an annual update of the think tank's Family Budget Calculator that reflects new 2014 data. The Family Budget Calculator is a formula designed to determine the income "required for families to attain a secure yet modest standard of living" in 618 different communities across the country that the U.S. Census Bureau defines as metropolitan areas. The formula uses data collected by the government and some nonprofit groups to measure costs of housing, food, child care, transportation, health care, "other necessities" like clothing, and taxes for families of 10 different compositions in these specific locales.
The updated Family Budget Calculator shows that even the most affordable metropolitan areas in the country are beyond the reach of millions of American families with incomes above the official federal poverty level. The official federal poverty level for a family of two parents and two children in 2014 was $24,008, according to the EPI. But the least expensive metropolitan area in the country for this family type is Morristown, Tennessee, where a family needs an income of $49,114, according to the Economic Policy Institute's budget calculator.
The Economic Policy Institute also estimates that minimum-wage workers -- who almost universally earn less than the federal poverty level -- lack the income needed to make an adequate living in any of the communities surveyed, even if they are single and childless. The think tank notes that this includes minimum-wage workers living in cities or states with a higher minimum wage than the federal minimum of $7.25 an hour, or $15,080 a year for a full-time worker.
Even families with incomes closer to the middle of the earnings spectrum lack the means to maintain an adequate standard of living. The nation's median household income was $51,939 in 2013 -- the most recent year in which data were available -- not much higher than the cost of living in the relatively inexpensive Morristown.
The median household income nationwide is also significantly less than is needed to live in the metropolitan area of Des Moines, Iowa, which is the median in costliness for a family with two parents and two children among the communities included in the Economic Policy Institute's budget calculator. A family of that makeup in Des Moines requires an income of $63,741 to live adequately.
In addition, the updated Family Budget Calculator found that Washington, D.C., is the most expensive metropolitan area in the country for a family to raise children. A family with two parents and two children requires $106,493 to maintain an adequate living standard in the D.C. metropolitan area. Following D.C., the most expensive metropolitan areas for a family of the same makeup were Nassau-Suffolk, New York (Long Island); Westchester County, New York; New York City; Stamford-Norwalk, Connecticut; Honolulu; Poughkeepsie-Newburgh-Middletown, New York; Ithaca, New York; San Francisco; and Danbury, Connecticut.
The Economic Policy Institute argues in a paper accompanying the release of the updated data that its Family Budget Calculator more accurately reflects people's actual living needs than traditional measurements like the federal poverty level, which does not account for the myriad geographic differences in living costs. (The federal government only provides separate, statewide poverty measurements for Alaska and Hawaii.) Critics have long argued that the federal poverty level formula, which was created in the 1960s, is outdated, significantly undervaluing the costs of essential goods like health care for contemporary families.
The more recent Supplemental Poverty Measure developed by the U.S. Census Bureau tries to account for more current expenses and geographic differences in housing, as well as income from new benefit programs. But the Economic Policy Institute says that the measure still does not weigh child care costs sufficiently, or account for local variability in expenses other than housing.
The Economic Policy Institute hopes the new figures strengthen the case for policies that augment the incomes of workers, particularly on the lower end of the earnings spectrum.
"Wage growth has been stagnant for most workers for decades and, as a result, there is a mismatch between what workers are paid and what it takes to live and support a family," said Elise Gould, senior economist at the Economic Policy Institute, in a statement. "We need a variety of policies to boost wage growth, which includes a higher minimum wage, stronger overtime rules, collective bargaining rights, and enforcement of labor standards as well as the pursuit of a full-employment economy."
Reply Tuesday, September 01, 2015 at 05:00 AM
Death B. Y. Humidity said in reply to RGC...
"
; Poughkeepsie-Newburgh-Middletown, New York
"
~~Daniel Marans~If you like cucarachas, you will simple love Honolulu.
Reply Tuesday, September 01, 2015 at 05:28 AM
JohnH said in reply to RGC...
And pgl continues to insist that current economic policy, presided over by the Fed, is just great! And that it's trickling down to workers!
But ordinary Americans get it, even if ivory tower 'economists' don't--a new Quinnipiac University Poll shows that by more than 7 to 1, Americans are "dissatisfied" with the way things are going in this country, including 41 percent who are "very dissatisfied."
http://finance.yahoo.com/news/two-polls-show-exactly-why-190000376.htmlReply Tuesday, September 01, 2015 at 10:06 AM
pgl said in reply to JohnH...
So many lies today and your 80 year old girl friend still refuses to have sex with you? Try Viagra. Oh wait - she is waiting for you to bring home the bacon. Which means you won't get laid until her 100th birthday!
Reply Tuesday, September 01, 2015 at 11:48 AM
JohnH said in reply to RGC...
After seven years of an economic quagmire, presided over by the Fed, it's amazing that the Fed has any credibility left at all.
I'm reading increasing numbers of articles that consider the Fed to be a laughing stock...
Reply Tuesday, September 01, 2015 at 10:10 AM
Peter K. said in reply to JohnH...
So you obsolve Congress's fiscal austerity of any blame. They brought the deficit down from 10 percent to 2.3 percent and lo and behold, no confidence fairy.
The Fed's QEs offset that to a degree, otherwise we'd have deflation, declining incomes and growing unemployment.
Reply Tuesday, September 01, 2015 at 10:27 AM
pgl said in reply to Peter K....
That's what chocolate coin JohnH wants - declining incomes and growing unemployment. He seems to think this will get granny all hot and bothered!
Reply Tuesday, September 01, 2015 at 11:50 AM
RC AKA Darryl, Ron said in reply to RGC...
Maybe metropolitan American communities are hoping that gentrification can cure urban blight.
Reply Tuesday, September 01, 2015 at 10:30 AM
RC AKA Darryl, Ron said...
RE: Picasso: the price of everything
[Best for the classic quote at the end:]
...There is, of course, a danger of confusing high prices with aesthetic value; as Oscar Wilde put it, of knowing 'the price of everything and the value of nothing'.
[Oscar Wilde has often been quoted in discussions of economics and economists. This is the first time that I ever read it used with respect to art.]
Reply Tuesday, September 01, 2015 at 05:59 AM
Peter K. said...
Obama and the National Labor Review Board and Clinton.
"We're really digging out of a 40-year hole," Mr. Mishel said. "The Clinton years were ones where they more triangulated between business and workers rather than weigh in on the side of workers."
One area where I believe Krugman and DeLong aren't on the up and up - for whatever reason - is the history of the Clinton years. Here's another example of where the Clinton years don't look so good and Obama looks better in comparison.
Krugman had a column about paleoliberalism making a comeback not long ago. In reality it was never gone. The Clintonoids moved the Democrats to the right.
Reply Tuesday, September 01, 2015 at 06:00 AM
Peter K. said in reply to Peter K....
That's why I supported Obama over Hillary and support Bernie over Hillary. If Hillary is elected hopefully she has moved to the left along with the Democrats but I wouldn't hold my breath.
It's possible that she'll do better than her Senate career would suggest. Finance is New York's local business and she was being cautious in order to run for President.
Reply Tuesday, September 01, 2015 at 06:04 AM
JohnH said in reply to Peter K....
Yeah, it only took a lame duck Obama seven years to realize that workers needed some help. Now there was change you could believe in...
It's amazing that there are still Democrats who can't admit that Obama is just another neo-liberal tool.
Peter K. said...
Noah Smith and the neo-Fisherians.
Seems like Cochrane ignores fiscal policy. The Republican Congress hit the economy with unprecedented austerity. There was the sequester and debt ceiling clown show. The deficit went from 10 percent to 2.3 percent. Bernanke and the Fed complained regularly about fiscal headwinds. It's no wonder the Fed never managed to hit their 2 percent inflation target ceiling, given that all they tried was a few weak QEs.
Whenever inflation expections dipped, they did a QE, and they went back up. That's it. They weren't trying to raise inflation quickly. They are paranoid about inflation getting out of hand and becoming "unmoored."
Nothing surprising to me about inflation's behavior. Look at the employment-population ratio.
Perhaps it's surprising that we didn't hit sustained deflation early on in the financial crisis, but perhaps the markets believed the Fed would get things back on track relatively quickly.
That is they believed in the Fed's long-term inflation / implicit NGDP target and in the ability of the Fed to manage the economy.
Reply Tuesday, September 01, 2015 at 06:18 AM
anne said...
http://krugman.blogs.nytimes.com/2015/08/31/the-china-debt-zombie/
August 31, 2015
The China-Debt Zombie
By Paul KrugmanMatthew Klein notes that Very Serious People are now worried that China's troubles, which have caused it to switch rather suddenly from a buyer of Treasuries to a seller, will cause U.S. interest rates to spike. He rightly finds this unconvincing. What he doesn't note is we're looking at another instance of an economic zombie in action.
For the new concern about China is, in economic terms, the same as the old concern – that the Chinese could destroy our economy by cutting off funding, either for political reasons or out of disgust over our budget deficits. This always reflected a fundamental failure to understand the economic logic, as was pointed out many times not just by yours truly * (and much earlier here ** ) but also by people like Dan Drezner. *** But scare stories about our supposed financial dependence on China just keep shambling along, propounded by people who don't even realize that there are other views, let alone that they're talking nonsense.
* http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/
** http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/
*** http://belfercenter.ksg.harvard.edu/publication/19622/bad_debts.html
Reply Tuesday, September 01, 2015 at 06:24 AM
anne said in reply to anne...
http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/
March 15, 2010
China's Water Pistol
By Paul KrugmanDean Baker * gets upset by this line in today's very useful Keith Bradsher article: **
"China is the biggest buyer of Treasury bonds at a time when the United States has record budget deficits and needs China to keep buying those bonds to finance American debt."
As I said, this was a very good article about China; the debt line was probably inserted because it's considered obligatory to say this in any article about US-China relations. As it happens, however, while it's part of what everyone knows, it's also completely false.
Why don't people get this? Part of the answer is that it's really hard for non-economists - and many economists, too! - to wrap their minds around the Alice-through-the-looking-glass nature of economics when you're in a liquidity trap. *** Even if they've heard of the paradox of thrift, they don't get the extent to which we're living in a world where more savings - including savings supplied to your economy from outside - are a bad thing.
Also, and I think harder to forgive, is the way many commentators seem oblivious to how we got here. Yes, we have large budget deficits - but those deficits have arisen mainly as the flip side of a collapse in private spending and borrowing. Here's what net borrowing by the US private and public sectors looks like in the Fed's flow of funds report:
[Private and public net borrowing, 2003-2009]
The US private sector has gone from being a huge net borrower to being a net lender; meanwhile, government borrowing has surged, but not enough to offset the private plunge. As a nation, our dependence on foreign loans is way down; the surging deficit is, in effect, being domestically financed.
The bottom line in all this is that we don't need the Chinese to keep interest rates down. If they decide to pull back, what they're basically doing is selling dollars and buying other currencies - and that's actually an expansionary policy for the United States, just as selling shekels and buying other currencies was an expansionary policy for Israel **** (it doesn't matter who does it!).
As Dean nicely puts it, "China has an unloaded water pistol pointed at our heads." Actually, it's even better: China can, if it chooses, throw some cold water on us - but it's a hot day, and we would actually enjoy it.
* http://prospect.org/article/nyt-spreads-nonsense-china-buying-us-debt
** http://www.nytimes.com/2010/03/15/business/global/15yuan.html
*** Near zero short term Treasury interest rates
**** http://krugman.blogs.nytimes.com/2010/03/14/israel-china-america/
Reply Tuesday, September 01, 2015 at 06:24 AM
anne said in reply to anne...
http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/
October 18, 2013
The China-Debt Syndrome
By Paul KrugmanMatthew Yglesias notes * an uptick in Very Serious People warning that China might lose confidence in America and start dumping our bonds. He focuses on China's motives, which is useful. But the crucial point, which he touches on only briefly at the end, is that whatever China's motives, the Chinese wouldn't hurt us if they dumped our bonds - in fact, it would probably be good for America.
But, you say, wouldn't China selling our bonds send interest rates up and depress the U.S. economy? I've been writing about this issue ** a lot in various guises, and have yet to see any coherent explanation of how it's supposed to work.
Think about it: China selling our bonds wouldn't drive up short-term interest rates, which are set by the Fed. It's not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up.
It's true that China could, possibly, depress the value of the dollar. But that would be good for America! Think about Abenomics in Japan: its biggest success so far has been driving down the value of the yen, helping Japanese exporters.
But, you say, Greece. Well, Greece doesn't have its own currency or monetary policy; capital flight there led to a fall in the money supply, which wouldn't happen here.
The persistence of scaremongering about Chinese confidence is a remarkable thing: it continues to be what Very Serious People say, even though it literally makes no sense at all. As Dean Baker once put it, "China has an empty water pistol pointed at our head."
* http://www.slate.com/blogs/moneybox/2013/10/17/china_bond_purchases_stop_being_wrong.html
** http://krugman.blogs.nytimes.com/2013/10/03/phantom-crises-wonkish/
Reply Tuesday, September 01, 2015 at 06:25 AM
Peter K. said...
http://krugman.blogs.nytimes.com/2015/09/01/multipliers-what-we-should-have-known/
Multipliers: What We Should Have Known
by KrugmanSEPTEMBER 1, 2015 9:19 AM
There's a very nice interview* with Olivier Blanchard, who is leaving the IMF, in which among other things Olivier says the right thing about changing one's mind:
"With respect to outside, the issue I have been struck by is how to indicate a change of views without triggering headlines of "mistakes,'' "Fund incompetence,'' and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a "mistake'' in the way people think of mistakes, e.g., mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful."
Indeed. There are a lot of people out there whose idea of a substantive argument is "you used to say X, now you say Y" - never mind the reasons why you changed your view, and whether it was right to do so.It's important not to fall into the trap of being afraid to let new evidence or analysis speak.
One thing I would say, however, is that on this particular issue the Fund should have known better. Olivier says that the evidence "turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts", but didn't we know that? I certainly did.
And let me also beat one of my favorite drums: the prediction that multipliers would be much larger in a liquidity trap came out of IS-LMish macro (or, to be fair, New Keynesian models) and has been overwhelmingly confirmed by experience. So this was yet another victory for Keynesian analysis, the success story nobody will believe.
-------------------
* http://www.imf.org/external/pubs/ft/survey/so/2015/RES083115A.htmReply Tuesday, September 01, 2015 at 06:24 AM
Peter K. said in reply to Peter K....
John Cochrane doesn't give an honest assessment of the Keynesian side of the argument. He pulls a Don Kervack and presents a straw man in order to knock it down.
"Keynesians predicted a deflationary vortex!"
And then when conservatives are confronted with what they actually said in the past, they dishonestly change their story. Kervack does the same thing.
Reply Tuesday, September 01, 2015 at 06:26 AM
pgl said in reply to Peter K....
Cochrane goes on and on about nothing. Kervack goes on and on about nothing. Twins separated at birth?!
Reply Tuesday, September 01, 2015 at 09:01 AM
Peter K. said in reply to Peter K....
"in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. "
Or rather monetary policy *will not* offset the negative effects of budget cuts.
Fixed.
Reply Tuesday, September 01, 2015 at 06:45 AM
anne said in reply to Peter K....
http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/
November 10, 2009
Depression Multipliers
By Paul KrugmanBarry Eichengreen and Kevin O'Rourke have lately been scoring a series of research coups, based on the combination of historical perspective and a global view. Most famously, they showed that on a global basis the first year of the current crisis was every bit as severe * as the first year of the Great Depression.
Now they and collaborators have a new piece on policy effects, ** especially fiscal multipliers.
The background here is that there are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions - and except in Japan,these haven't prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. We didn't have a really big fiscal expansion until World War II; and WWII isn't a good experiment because the surge in defense spending was accompanied by government policies that suppressed private demand, such as rationing and restrictions on investment. ***
What E&R do here is use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s - fiscal expansions that can be regarded as exogenous to the economic situation, since they were
"driven above all by Hitler's rearmament programmes and other nations' efforts to match the Nazis in this sphere, and by one-off events like Italy's war in Abyssinia."
What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time. Yes, fiscal expansion is expansionary.
* http://www.voxeu.org/index.php?q=node/3421
** http://www.econ.berkeley.edu/~eichengr/great_dep_great_cred_11-09.pdf
*** I really, really don't understand why this point has been so hard to get across.
Reply Tuesday, September 01, 2015 at 06:48 AM
Peter K. said...
A Public Service Announcement: The Bureau of Labor Statistics Budget
by Dean BakerPublished: 31 August 2015
The sequester put in place as part of the 2011 budget agreement is continuing to bite, as most areas of discretionary spending are seeing their budget cut in real terms. One of the areas slated for the biggest proportional cuts in the Bureau of Labor Statistics (BLS). Ready to head for the barricades?
Okay, I know that the data produced by the BLS doesn't sound especially sexy. After all, we aren't talking about children going hungry or pregnant women being denied medical care. But on a per dollar basis, I would argue that BLS funding is among the best investments out there.
The purpose of the data collected by the BLS is to let us know how the economy is doing. Based on the data it produces we can know who is getting ahead and who is falling behind. We can know whether college degrees are really paying off, or paying off equally for everyone. We can know how long people spend being unemployed after losing a job or how much less they are likely to make when they find a new job.
Yes, we all have common sense understandings of these issues. We have friends, neighbors, and co-workers all of whom have experiences in the labor market, dealing with health care insurance, planning for retirement. These impressions are valuable, but sometimes our impressions are wrong. Our immediate circles of contacts may not be typical. The data from BLS lets us get beyond these impressions to get a fuller picture of the economy.
This matters hugely for important policy decisions. Right now there are many people who are anxious to have the Federal Reserve Board raise interest rates to slow the economy and the pace of job creation. The key factors in whether this makes sense are the pace of inflation, the pace of wage growth, and the extent of unemployment or various forms of under-employment.
We should want the best possible data on all of these items. It would be an enormous tragedy if the Fed raised rates and prevented hundreds of thousands of workers from getting jobs, and millions from getting pay increases, because it thought the inflation rate was higher than it actually is.
The BLS budget in 2015 was about $90 million less in real dollars than the 2010 budget. (That's roughly 0.002 percent of the total federal budget.) The BLS is looking at still further cuts in 2016. Suppose it would take another $100 million a year to keep BLS funded adequately. If a mistaken Fed decision on interest rates costs us just 0.2 percent in GDP growth, it would imply a loss of $36 billion in GDP and mean roughly 300,000 fewer people have jobs. (It probably also means some number of children are going hungry and pregnant women are being denied health care.)
If it sounds far-fetched that the Fed may make a wrong decision because of bad data, consider the fact that the consumer price index (CPI) overstated the inflation rate that would be shown using current methods by roughly 0.5 percentage points annually in the early and mid-1990s. This means that if the current BLS methodology showed a 2.0 percent rate of inflation, the methodology used to construct the CPI in the early and mid-1990s would have reported the inflation rate as 2.5 percent.
The Fed did in fact raise interest rates from 3.0 percent to 6.0 percent over the period from February of 1994 to March of 1995. This proved to be unnecessary, since inflation remained well-contained and the Fed eventually lowered interest rates in the second half of 1995. It's hard to say whether the wrong data on inflation contributed to the Fed's mistaken rate hikes. The problems with the CPI were known at the time and hopefully the Fed was able to adjust for them, but we can't know for sure if they did.
There is a real cost to mistaken policy decisions. While the folks at Fed and other policy making bodies are perfectly capable of making bad decisions even when they have the right data, we should want to do everything we can to avoid preventable mistakes. This means ensuring that they have good data, which means giving the BLS the money it needs to do its job.
One last point, this is not a partisan issue. There are plenty of economists across the political spectrum who support full funding for BLS. We all like to think that our arguments are based on data, but we can't know that is the case if the data are not available.
--------------------------------
Republicans: We're not scientists, but we just defund data collection so that the scientists are unable to do their science which may contradict our preferred policies.
Reply Tuesday, September 01, 2015 at 06:41 AM
pgl said in reply to Peter K....
Bruce Bartlett has never forgiven Newt Gingrich for starting this trend in 1995. This is why we like the last honest conservative - Bruce that is!
Reply Tuesday, September 01, 2015 at 09:02 AM
Dan Kervick said in reply to Peter K....
Always one of the easiest ways for reactionary forces to ward of social challenges, class conflict and criticism: destroy the data so that people can't figure out how bad things are.
Note that Republicans have also had an obsession with the US Census. They don't want Americans to understand America.
A couple of years ago, some interesting studies were carried out on public perceptions of inequality. It turns out that until they are presented with the actual data on economic distribution in the US, Americans tend to have a much rosier perception about how equal the US is than is actually the case.
Apart from these cases were the politicians are trying to make the existing data worse, there are also important kinds of data which we need but do not yet collect. We're still in the dark ages when it comes to putting together a complete social inventory and accounting of all forms of private wealth, so that we know who owns what and where the stuff that is owned is located.
Reply Tuesday, September 01, 2015 at 09:53 AM
pgl said in reply to Dan Kervick...
Uh Dan? It is the Census - not BEA - that reports on income inequality measure. FYI!
Reply Tuesday, September 01, 2015 at 11:52 AM
Dan Kervick said in reply to pgl...
Yes, I know. But it doesn't collect that data nearly as frequently, and has no straightforward and reliable methods for combining the inequality data with the other economic measurements that the BEA does routinely.
When the BEA reports on the growth of national income, Americans should be able to pull out right away information on what that growth looks like across income deciles. We deserve to know what an aggregate 3.7% growth quarter looks like for most Americans.
Reply Tuesday, September 01, 2015 at 01:19 PM
anne said...
http://krugman.blogs.nytimes.com/2015/09/01/gravity/
September 1, 2015
Gravity
By Paul KrugmanNow that's fun: Adam Davidson tells us * about trade in the ancient Near East, as documented by archives found in Kanesh - and reports that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.
But what does the seemingly universal applicability of the gravity equation tell us? Davidson suggests that it's an indication that policy can't do much to shape trade. That's not where I would have gone, and it's not where those who have studied the issue closely ** have gone.
Here's my take: Think about two cities with the same per capita GDP - we can relax that assumption in a minute. They will trade if residents of city A find things being sold by residents of city B that they want, and vice versa.
So what's the probability that an A resident will find a B resident with something he or she wants? Applying what one of my old teachers used to call the principle of insignificant reason, a good first guess would be that this probability is proportional to the number of potential sellers - B's population.
And how many such desirous buyers will there be? Again applying insignificant reason, a good guess is that it's proportional to the number of potential buyers - A's population.
So other things equal we would expect exports from B to A to be proportional to the product of their populations.
What if GDP per capita isn't the same? You can think of this as increasing the "effective" population, both in terms of producers and in terms of consumers. So the attraction is now the product of the GDPs.
Is there anything surprising about the fact that this relationship works pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing in accord with their comparative advantage - England does cloth, Portugal wine. And these models suggest that how much countries trade should have a lot to do with whether they are similar or not. Cloth exporters shouldn't be selling much to each other, but should instead do their trading with wine exporters. In reality, however, there's basically no sign of any such effect: even seemingly similar countries trade about as much as a gravity equation says they should.
Calibrated models of trade have long dealt with this reality, somewhat awkwardly, with the so-called Armington assumption, *** which simply assumes that even the apparently same good from different countries is treated by consumers as a differentiated product - a banana isn't just a banana, it's an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes. The new trade theory some of us introduced circa 1980 - or as some now call it, the "old new trade theory" - does a bit more, and possibly better, by introducing monopolistic competition and increasing returns to explain why even similar countries produce differentiated products.
And there's also a puzzle about both the effect of distance and the effect of borders, both of which seem larger than concrete costs can explain. Work continues.
Does any of this suggest the irrelevance of trade policy? Not really. Changes in trade policy do have obvious effects on how much countries trade. Look at what happened when Mexico opened up starting in the late 1980s, as compared with Canada, which was fairly open all along - and which, like Mexico, mainly trades with the US:
[Graph]
So what does gravity tell us? Simple Ricardian comparative advantage is clearly incomplete; the process of international trade is subtler, with invisible as well as visible costs. Not trivial, but not too unsettling. And gravity models are very useful as a benchmark for assessing other effects.
* http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html
** https://www2.bc.edu/~anderson/GravitySlides.pdf
*** http://wits.worldbank.org/wits/wits/witshelp/Content/SMART/Demand%20side%20the%20Armington.htm
Reply Tuesday, September 01, 2015 at 06:54 AM
anne said in reply to anne...
http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html
August 29, 2015
The V.C.s of B.C.
By ADAM DAVIDSONOne morning, just before dawn, an old man named Assur-idi loaded up two black donkeys. Their burden was 147 pounds of tin, along with 30 textiles, known as kutanum, that were of such rare value that a single garment cost as much as a slave. Assur-idi had spent his life's savings on the items, because he knew that if he could convey them over the Taurus Mountains to Kanesh, 600 miles away, he could sell them for twice what he paid.
At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man's donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-Adad claimed he never knew how many textiles he had been given. Assur-idi spent the subsequent weeks sending increasingly panicked letters to his sons in Kanesh, demanding they track down Sharrum-Adad and claim his profits.
These letters survive as part of a stunning, nearly miraculous window into ancient economics. In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal. Through a series of incredibly unlikely events, archaeologists have uncovered the comprehensive written archive of a few hundred traders who left their hometown Assur, in what is now Iraq, to set up importing businesses in Kanesh, which sat roughly at the center of present-day Turkey and functioned as the hub of a massive global trading system that stretched from Central Asia to Europe. Kanesh's traders sent letters back and forth with their business partners, carefully written on clay tablets and stored at home in special vaults. Tens of thousands of these records remain. One economist recently told me that he would love to have as much candid information about businesses today as we have about the dealings - and in particular, about the trading practices - of this 4,000-year-old community.
Trade is central to every key economic issue we face. Whether the subject is inequality, financial instability or the future of work, it all comes down to a discussion of trade: trade of manufactured goods with China, trade of bonds with Europe, trade over the Internet or enabled by mobile apps. For decades, economists have sought to understand how trade works. Can we shape trade to achieve different outcomes, like a resurgence of manufacturing or a lessening of inequality? Or does trade operate according to fairly fixed rules, making it resistant to conscious planning? ...
Reply Tuesday, September 01, 2015 at 06:56 AM
Dan Kervick said in reply to anne...
One trading region, at one moment in history, based on "GDP" estimates from fragmentary records. From this, an economic law is abducted and proposed.
There is the science of economics for you.
Reply Tuesday, September 01, 2015 at 09:57 AM
RC AKA Darryl, Ron said in reply to Dan Kervick...
A lot of economics is an art, particularly surrounding financialization and globalization, and the primary practice of that art is equivocation. The science act in this case is a shell game. Under which shell is the arbitrage?
Mineral resources, water, and land exist where they do, but the industrial revolution produced the means for sufficient skilled labor to reside almost anywhere.
Reply Tuesday, September 01, 2015 at 10:51 AM
pgl said in reply to RC AKA Darryl, Ron...
"In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal."
Dan K. is mad that the BEA for not reporting on GDP data back then. And he insists that they should have been reporting on income distribution during the Roman Empire as well.
Reply Tuesday, September 01, 2015 at 11:55 AM
pgl said in reply to Dan Kervick...
FYI for the clueless one. GDP accounting was only invented in the 1940's. And you expect the BEA is report on information from centuries ago.
Reply Tuesday, September 01, 2015 at 11:53 AM
Dan Kervick said in reply to pgl...
You're confused. I said nothing about the BEA in this comment. I talking about *economists* using limited data to propose grand laws.
Reply Tuesday, September 01, 2015 at 01:21 PM
anne said...
http://www.cepr.net/publications/op-eds-columns/the-china-panic
August 31, 2015
The China Panic
By Dean BakerOne of the benefits of the massive inequality in the distribution of wealth is that the vast majority of us can sit back and enjoy the show when stock markets go into a worldwide panic, as they have been doing for the last couple of weeks. In spite of what you hear in the media, fluctuations in the stock market generally have little direct or indirect impact on the economy.
This means that if you don't have a lot of money in the stock market, you don't have much to lose. And, according to data from the Federal Reserve Board, three quarters of households have less than $36,000 in the stock market, including their 401(k)s.
But the markets have been putting on quite a show, so it is worth asking what is going on. At the most basic level, it seems evident that China's market had a very serious bubble. Its main index had increased by more than 150 percent from June of 2014 to its peak in June of this year. While it's possible that China's market has hugely undervalued in 2014, it seems more likely that this rise was bubble-driven. This means that people were buying into the market because they saw it going up, not because they had done an assessment of the future profit prospects for Chinese companies and decided that they were worth two-and-half times as much as they had been worth a year earlier.
Bubbles inevitably burst. At some point there are no longer people willing to pay too much for stock, houses, tulips, or whatever. That seems to have been the story in China, where many new investors were buying into the market on credit. At some point they have trouble borrowing further and the upward spiral goes into reverse. The clumsy efforts of China's government to stop this correction proved largely futile.
The next question is why did the fun spill over to Europe, the United States, and the rest of the world's stock markets? Most of these markets are high by historic standards, but they are not obviously experiencing bubbles. To use one common metric, Robert Shiller's ratio of the S&P 500 to trailing ten years' earnings peaked at just over 26 to 1 in June. This is higher than the long term average of 15 to 1, but well below the peak of 44 to 1 in the late 1990s bubble. There would be a similar story with most other major markets.
Furthermore, in the late 1990s there was an obvious investment alternative. Ten-year U.S. Treasury bonds paid a nominal interest rate of over 5.0 percent which translated into roughly a 2.5 percent real rate at the time. Currently 10-year Treasury bonds are paying a bit over 2.0 percent interest, which translates into a real interest rate of roughly 0.5 percent. Given these fundamentals, there is no reason to expect sharp declines in the U.S. and other major markets, but nothing says that they can't be 5–10 percent below current levels.
But there are some stories for the real economy that do go along with the stock market turbulence. First, China is going through a process of adjustment where it goes from growth led by investment and exports to growth led by domestic consumption. The stock market run-up was helping this transition as people increased their consumption based on bubble-generated wealth. The plunge in prices will hurt this process, but it is important to remember that stock prices are still almost double their level of last summer.
While predictions of a collapse of the Chinese economy will almost certainly be proven wrong, it is likely to be on a slower growth path going forward. This is a major factor in the falloff in commodity prices, most notably oil, the price of which has dropped below $40 a barrel. This drop in oil prices will exacerbate the economic troubles of major oil exporters like Russia and Venezuela.
However, the drop in commodity prices could have even more far-reaching effects. The economies of Canada and Australia have also been driven to an important extent by booming commodity exports. These economies recovered much more rapidly from the 2008 crash than most other wealthy countries. Part of this story is that that house prices in both countries quickly returned to bubble levels.
The price of a typical home in Canada is 13 percent higher than in the United States despite the fact that its per capita income is more than 20 percent lower. In Australia, with an average income that is 93 percent of the U.S. level, the median house price is almost twice the U.S. level. It's pretty hard to tell a story where this gap is justified by the fundamentals of the market. After all, neither country is notably short of land (not that this explanation generally makes sense).
It may turn out to be the case that the plunge in commodity prices will be the factor that will teach homebuyers and potential homebuyers in these countries the arithmetic they need to recognize the bubbles in their markets. If that proves to be the case, then we may see the unraveling of these bubbles, and that will not be a pretty picture.
Unlike stock, middle income people do have a real stake in the value of their house. If prices in these countries were to fall to U.S. levels, it would imply a massive loss of wealth. This will almost certainly lead to a large drop in consumption and in all probability a serious recession....
Reply Tuesday, September 01, 2015 at 08:00 AM
RC AKA Darryl, Ron said in reply to anne...
Ouch! THANKS!
Reply Tuesday, September 01, 2015 at 10:56 AM
anne said...
http://www.cepr.net/publications/op-eds-columns/the-china-syndrome-bubble-trouble
August 31, 2015
The China Syndrome: Bubble Trouble
By Dean BakerThe financial markets have been through some wild and crazy times over the last two weeks, although it appears that they have finally stabilized. The net effect of all the gyrations is that a serious bubble in China's market seems to have been at least partially deflated. After hugely over-reacting to this correction, most other markets have largely recovered. Prices are down from recent peaks, but in nearly all cases well above year ago levels.
But the stock market is really a side-show; after all back in 1987 the U.S. market fell by almost 25 percent for no obvious reason, with little noticeable effect on the U.S. economy. The more serious question is what is happening with the underlying economy, and there are some real issues here.
China's economy had become a major engine for world growth just as the U.S. economy had been a major engine for world growth in the last decade. While predictions of an economic collapse in China will almost certainly prove wrong (many China experts have a long history of such predictions), it does seem likely that its growth going forward will be considerably slower than it has been in the past.
This will be bad news for exporters of oil and other commodities, the price of which were being sustained by the rapid growth in China. But a slowdown in China will also be bad news for the United States and other rich countries who were expecting that continued strong growth in China would boost their net exports, thereby lifting their weak growth rates.
Over the longer term it is reasonable to expect that China will continue to move from large trade surpluses to trade deficits or at least near balanced trade, the movement will likely be in the other direction in the immediate future. This means that trade with China will be a factor slowing growth in Japan, Europe, and the United States for the immediate future.
While we can be unhappy with China for slowing our growth, the important point to remember is that we do still possess the keys for more rapid growth. After all, the problem is simply a lack of demand in the U.S. and world economy. We can create more demand by having the government spend money or give out tax cuts. Larger deficits will boost the economy.
If the private sector isn't prepared to spend, the government can increase demand by repairing and improving the infrastructure, increased funding for health care, child care, and education, or subsidizing wind, solar, and other forms of clean energy. With interest rates at extraordinarily low levels and no signs of inflation anywhere in sight, there is no economic barrier to spending in these and other areas. Such spending would both help to make up the demand gap resulting from our trade deficit, thereby creating jobs, and also increase our economy's longer term potential and the country's well-being.
The only obstacle to such spending is political. This spending would mean larger budget deficits and our politicians are scared of talking about budget deficits.
The current economic situation is more than a bit absurd. Essentially, we have a worldwide shortfall in demand. Countries that have their own currencies, like the United States, United Kingdom, and Canada could deal with their own shortfalls simply by running larger budget deficits. But for political reasons these countries don't want to run large budget deficits. Instead, they are praying that their trading partners will increase their budget deficits, which will increase net exports and lead to more economic growth.
If the path to increase growth and employment remains blocked for political reasons, we should always remember that we can look to increase employment by going the opposite direction of decreasing supply. This can begin with work sharing, the policy of encouraging companies to reduce work hours rather than lay off workers. This was the key to Germany's low unemployment rate even at the worst points in the recession.
And, we can look to measures such as mandated paid sick days, parental leave, and vacation, which have the effect of reducing the average number of hours worked in a year. These are all policies that can be implemented without running large budget deficits. Furthermore, since the reduced labor supply is likely to tighten up the labor market, it could lead to stronger wage growth. And, these measures will provide for a better balance between work-life and family life.
The best part is that these policies may be more politically feasible than other approaches....
Reply Tuesday, September 01, 2015 at 08:00 AM
RC AKA Darryl, Ron said in reply to anne...
THANKS! Dean is the best.
Reply Tuesday, September 01, 2015 at 11:00 AM
Peter K. said...
http://uneasymoney com/2015/08/31/economic-prejudice-and-high-minded-sloganeering/
Economic Prejudice and High-Minded Sloganeering
by David Glasner
Published August 31, 2015In a post yesterday commenting on Paul Krugman's takedown of a silly and ignorant piece of writing about monetary policy by William Cohan, Scott Sumner expressed his annoyance at the level of ignorance displayed people writing for supposedly elite publications like the New York Times which published Cohan's rant about how it's time for the Fed to show some spine and stop manipulating interest rates. Scott, ever vigilant, noticed that another elite publication the Financial Times published an equally silly rant by Avinah Persaud exhorting the Fed to show steel and raise rates.
Scott focused on one particular example of silliness about the importance of raising interest rates ASAP notwithstanding the fact that the Fed has failed to meet its 2% inflation target for something like 39 consecutive months:
"Yet monetary policy cannot confine itself to reacting to the latest inflation data if it is to promote the wider goals of financial stability and sustainable economic growth. An over-reliance on extremely accommodative monetary policy may be one of the reasons why the world has not escaped from the clutches of a financial crisis that began more than eight years ago."
Scott deftly skewers Persaud with the following comment:
"I suppose that's why the eurozone economy took off after 2011, while the US failed to grow. The ECB avoided our foolish QE policies, and "showed steel" by raising interest rates twice in the spring of 2011. If only we had done the same."
But Scott allowed the following bit of nonsense on Persaud's part to escape unscathed (I don't mean to be critical of Scott, there's only so much nonsense that any single person be expected to hold up to public derision):
"The slowdown in the Chinese economy has its roots in decisions made far from Beijing. In the past five years, central banks in all the big advanced economies have embarked on huge quantitative easing programmes, buying financial assets with newly created cash. Because of the effect they have on exchange rates, these policies have a "beggar-thy-neighbour" quality. Growth has been shuffled from place to place - first the US, then Europe and Japan - with one country's gains coming at the expense of another. This zero-sum game cannot launch a lasting global recovery. China is the latest loser. Last week's renminbi devaluation brought into focus that since 2010, China's export-driven economy has laboured under a 25 per cent appreciation of its real effective exchange rate."
The effect of quantitative easing on exchange rates is not the result of foreign-exchange-market intervention; it is the result of increasing the total quantity of base money. Expanding the monetary base reduces the value of the domestic currency unit relative to foreign currencies by raising prices in terms of the domestic currency relative to prices in terms of foreign currencies. There is no beggar-thy-neighbor effect from monetary expansion of this sort. And even if exchange-rate depreciation were achieved by direct intervention in the foreign-exchange markets, the beggar-thy-neighbor effect would be transitory as prices in terms of domestic and foreign currencies would adjust to reflect the altered exchange rate. As I have explained in a number of previous posts on currency manipulation (e.g., here, here, and here) relying on Max Corden's contributions of 30 years ago on the concept of exchange-rate protection, a "beggar-thy-neighbor" effect is achieved only if there is simultaneous intervention in foreign-exchange markets to reduce the exchange rate of the domestic currency combined with offsetting open-market sales to contract – not expand – the monetary base (or, alternatively, increased reserve requirements to increase the domestic demand to hold the monetary base). So the allegation that quantitative easing has any substantial "beggar-thy-nation" effect is totally without foundation in economic theory. It is just the ignorant repetition of absurd economic prejudices dressed up in high-minded sloganeering about "zero-sum games" and "beggar-thy-neighbor" effects.
And while the real exchange rate of the Chinese yuan may have increased by 25% since 2010, the real exchange rate of the dollar over the same period in which the US was allegedly pursuing a beggar thy nation policy increased by about 12%. The appreciation of the dollar reflects the relative increase in the strength of the US economy over the past 5 years, precisely the opposite of a beggar-thy-neighbor strategy.
And at an intuitive level, it is just absurd to think that China would have been better off if the US, out of a tender solicitude for the welfare of Chinese workers, had foregone monetary expansion, and allowed its domestic economy to stagnate totally. To whom would the Chinese have exported in that case?
Reply Tuesday, September 01, 2015 at 08:09 AM
Peter K. said...
http://jwmason.org/slackwire/is-capital-being-reallocated-to-high-tech-industries/
Is Capital Being Reallocated to High-Tech Industries?
by J.W. Mason
Posted on September 1, 2015Readers of this blog are familiar with the "short-termism" position: Because of the rise in shareholder power, the marginal use of funds for many corporations is no longer fixed investment, but increased payouts in the form of dividends and sharebuybacks. We're already seeing some backlash against this view; I expect we'll be seeing lots more.
The claim on the other side is that increased payouts from established corporations are nothing to worry about, because they increase the funds available to newer firms and sectors. We are trying to explore the evidence on this empirically. In a previous post, I asked if the shareholder revolution had been followed by an increase in the share of smaller, newer firms. I concluded that it didn't look like it. Now, in this post and the following one, we'll look at things by industry.
In that earlier post, I focused on publicly traded corporations. I know some people don't like this - new companies, after all, aren't going to be publicly traded. Of course in an ideal world we would not limit this kind of analysis to public traded firms. But for the moment, this is where the data is; by their nature, publicly traded corporations are much more transparent than other kinds of businesses, so for a lot of questions that's where you have to go. (Maybe one day I'll get funding to purchase access to firm-level financial data for nontraded firms; but even then I doubt it would be possible to do the sort of historical analysis I'm interested in.) Anyway, it seems unlikely that the behavior of privately held corporations is radically different from publicly traded one; I have a hard time imagining a set of institutions that reliably channel funds to smaller, newer firms but stop working entirely as soon as they are listed on a stock market. And I'm getting a bit impatient with people who seem to use the possibility that things might look totally different in the part of the economy that's hard to see, as an excuse for ignoring what's happening in the parts we do see.
....
Reply Tuesday, September 01, 2015 at 08:11 AM
Peter K. said in reply to Peter K....
Part of the backlash Mason mentions and links to.
http://www.newyorker.com/magazine/2015/08/24/the-short-termism-myth
AUGUST 24, 2015 ISSUE
The Short-Termism Myth
BY JAMES SUROWIECKIIn recent years, it's become a commonplace that American companies are too obsessed with the short term. In the heyday of Bell Labs and Xerox PARC, the argument goes, corporations had long time horizons and invested heavily in the future. But now investors care only about quarterly earnings and short-term stock prices, so companies skimp on R. & D. and waste hundreds of billions propping up their stock with share buybacks. This "tyranny of accountants" has damaged both the long-term prospects of companies and the U.S. economy as a whole.
The latest public figure to embrace this diagnosis is Hillary Clinton. In a speech a couple of weeks ago, she unveiled a solution: changing the capital-gains tax in order to encourage investors to hold stocks longer. Right now, there are only two capital-gains categories: anything held for less than a year is short-term; anything longer is long-term. Clinton's plan, which would apply only to investors in the highest tax bracket, would expand the definition of short-term to include any investment held for less than two years, and it would create a sliding scale of rates. For every extra year (up to six) that you keep a stock, you pay a lower rate.
The political appeal of the plan is clear. It targets wealthy investors, is friendly to executives, and is aimed at getting companies to spend more money. Unfortunately, it almost certainly won't work. The simplest reason for this is that the plan would affect only a small slice of the market. Len Burman, a tax expert at the Urban Institute, told me, "The plan's unlikely to have a major impact on stock prices, since most of the money in the market is controlled by institutions that don't pay capital-gains taxes, like endowments and pension funds." Burman also made the point that pushing people to hold stocks they would rather sell is hardly conducive to productive investment. "Even if short-termism is the problem, locking people into unprofitable transactions for long periods of time doesn't really seem like a great solution," he said.Aside from these practical problems, the plan rests on two common but ultimately questionable assumptions. The first is that corporate decision-makers care only about the short term. The second is that it's the stock market that makes them think this way. These assumptions are widely shared and long-standing, in both business and academe. A famous report from the Council on Competitiveness in the early nineties concluded that, compared with Germany and Japan, the U.S. was greatly underinvesting in the future. In 2005, the C.E.O. of Xerox, Anne Mulcahy, described the pressure from Wall Street for short-term profits as "a huge problem," and, in a survey of executives that same year, more than half said they would delay valuable new projects in order to boost short-term earnings.
That sounds pretty bad. Yet when you actually look at the numbers the story gets more complicated. There is reason to think that some companies are investing too little in the future. As a whole, though, corporate spending on R. & D. has risen steadily over the years, and has stayed relatively constant as a share of G.D.P. and as a share of sales. This year, R. & D. spending is accelerating at its fastest pace in fifty years and is at an all-time high as a percentage of G.D.P. Furthermore, U.S. companies don't spend notably less on R. & D. than their international competitors. Similarly with investors: their alleged obsession with short-term earnings is hard to see in the data. Several studies in the nineties found that companies announcing major R. & D. investments were rewarded by the markets, not punished, and that companies with more institutional investors (who typically have shorter time horizons) spent more on R. & D., not less. A 2011 Deutsche Bank study of more than a thousand companies found that those which spent significantly more on R. & D. than their competitors were more highly valued by investors. And a 2014 study of companies that cut R. & D. spending in order to meet short-term earnings goals found that their stocks underperformed after earnings had been announced-hardly what you'd expect if the market cared only about the short term.
Of course, there's no shortage of investors who are myopic. But the market, for the most part, isn't. That's why companies like Amazon and Tesla and Netflix, whose profits in the present have typically been a tiny fraction of their market caps, have been able to command colossal valuations. It's why there's a steady flow of I.P.O.s for companies with small revenues and nonexistent earnings. And it's why the biotech industry is now valued at more than a trillion dollars, even though many of the firms have yet to bring a single drug to market. None of these things are what you'd expect from a market dominated by short-term considerations.
To the extent that companies are underinvesting in the future, the blame lies not with investors but with executives. The pay of many C.E.O.s is tied to factors like short-term earnings, rather than to longer-term metrics, which naturally fosters myopia. That 2014 study of companies that cut R. & D. spending found that the executives responsible saw their pay rise sharply, even though the stock didn't. If Clinton really wants to deal with short-termism, she'd be better off targeting the way executive compensation works, instead of the way capital gains are taxed. Ultimately, the solution to short-termism isn't on Wall Street. It's in the executive suite.Reply Tuesday, September 01, 2015 at 08:12 AM
Peter K. said...
http://www.avclub.com/article/stephen-colberts-second-week-guests-includes-berni-224697
Bernie Sanders will be on Colbert's show in the second week.
What are Sanders's views on monetary policy? He should have attended the Fed Up counter conference. Just as he should have attended black lives matter protests.
If his views on monetary policy are like Kervick's I'll be voting for Hillary.
Reply Tuesday, September 01, 2015 at 08:29 AM
Peter K. said in reply to Peter K....
Corbyn has some sophisticated, cutting edge ideas about macro policy. Here's Richard Murphy, not to be confused with the Austrian Robert Murphy.
http://www.taxresearch.org.uk/Blog/2015/08/30/corbynomics-four-weeks-on/
Corbynomics Four Weeks On
....
So, what of the most contentious one, People's Quantitative Easing? Let's break this down. For ease I will use The Economist again, but will refer to the many others who have made similar points.
First, the debate on investment has been welcomed, from the Economist, to the FT, to the Guardian and in the blogosphere: indeed, one of the criticisms is I have not made it strongly enough. As the Economist says:
"As a percentage of GDP, Britain's government investment is the seventh-lowest of 26 countries tracked by Eurostat (though it is higher than in some big economies, like Germany) and lower now than during the financial crisis."
The first success of this policy has been to put this issue back into debate.
Second, the idea of a National Investment Bank has been pretty widely welcomed. The Economist said:
"To increase investment he wants to set up a "national investment bank", which would, under government direction, spend on roads, houses and green energy. Nothing wrong with that."
Many agreed.
Third, the argument on Bank of England independence has been shown to be a red-herring. All QE has been Treasury approved: the idea that the BoE had operational control of this policy cannot be supported by any evidence.
Fourth, it has been agreed, by Chris Giles in the FT and Larry Elliott in the Guardian for example, that PQE would have made sense in 2012 when stimulus was needed. In other words, PQE could have directed funds to the real economy more effectively then than actually happened at that time. Their argument is that PQE is, however, no longer relevant because we were now growing and they assume that will continue to be the case. Technically, the case was won at that point: the argument that PQE might work was over when it was conceded it was all down to timing.
Fifth, the argument that it is not legal has lost all head wind: it's been effectively authorised in the UK and my design is Article 123 of the EU compliant. I have made clear I would expect some of the bond sales from the NIB, at least, to be held by the public, especially by pension saving institutions.
Sixth, some technical arguments on cost have been resolved: it is agreed that PQE would create new central bank reserves on which it has been conventional to pay bank rate interest, but as Adair Turner ha argued, that is just convention: there is no need to do so. Funding via PQE will then be cheaper than bond funding of the same investment and this matters when a significant part of UK gilts are owned overseas.
Seventh, the inflation argument got silly. The Telegraph turned up with the Zimbabwe argument, on cue. The fact that PQE is either clearly intended to stop if there is a risk of inflation because full employment is achieved, or would be countered (in that case only) by tax was not noticed by them. That's just indication of the poverty of their thinking. There is no serious argument on this point: PQE is another tool in the armoury to create inflation when we do not have it, and need it.
Eighth, along came China. A week after I told the FT that another recession was likely and tools to deal with it would be needed China tried to deliver one. Now, of course, we have no clue what will happen as yet on that front, but markets are down and will stay down in my view, whilst people are very worried about what will happen if the Fed and BoE are daft enough to raise rates. Whether or not they do the risk of long term export of both recession and deflation from China itself via the emerging markets looks very real indeed. In other words, the need for a new fiscal tool when all monetary options have now failed became very starkly apparent and the prescient adoption of PQE by Jeremy Corbyn began to look like a good move: even the Telegraph seemed to note that.
Ninth, Mark Carney admitted monetary policy is near enough dead yesterday. He has said real interest rates of more than 1% (that means 1% over inflation) look unlikely for a long time to come. Thirty years ago real rates could be vastly higher: they have fallen 4.5% in real terms over that period, he says. The impact is significant. He is effectively saying that the room to manage the economy using interest rates has largely disappeared. With QE also largely discredited for creating asset price hikes, fiscal policy is now the only game in town. PQE is fiscal policy, but of course not the only fiscal policy. That is why it may well be important. What else is anyone going to use when the next crisis comes when no one else has suggested anything new: they just declare the cupboard bare?
Tenth, discussion of modern monetary theory has increased as a result, and that has clearly upset those dedicated to bond financing and / or central bank control of monetary policy. This is not an academic debate: it is about whether or not unelected people and bond markets control the choices governments make. PQE is not just a technical issue: it is about making clear who is in control, and I am emphatic it must be politicians accountable to parliament who are. PQE is intended to achieve that goal. No wonder that this has become a key point of contention. This is not about economics at all, per se: it is about the politics of power and in whose interests the economy is run. Difference here is not an issue of right or wrong: it is about belief. Many have not spotted this: I make it explicit.
And last, not everyone agrees on this issue. But haven't you heard the one about asking two economists for an opinion and you will get three answers?
So, to summarise on PQE I suggest we've got somewhere near the following position:
1) Austerity can be opposed and PQE has fuelled that debate.
2) Investment is widely acknowledged to be needed. PQE delivers it.
3) A National Investment Bank is needed: PQE can help fund it
4) Private investors should not be excluded from these ideas: my suggestions on linking the NIB to pension saving as well as PQE should ensure that is possible. It also means the legality question goes away.
5) Questions of Bank of England independence have been raised but those doing so are going to have a much tougher time defending their case in future
6) Whether PQE is a policy only for recession is to be resolved: I certainly think it may have more use in that scenario but stress I do not think the state fills in the gaps left by the private sector. Sometimes it has to meet need and the curtail the private sector at the same time if social priorities are to be met. PQE and higher taxes can achieve that goal simultaneously. Those making the timing argument ignore this altogether and that is their mistake in my opinion.
7) The cost issue remains out there, although I am not sure why.
8) The bond preference issue is interesting, but is most often (but not always) used by those who have opposed their use for deficit funding, and so is in too many cases disingenuous. It also ignores the cost issue and the leakage out of the UK economy whilst still supporting the view that we are constrained by bond markets. We are not, and PQE indicates that fact. I fully admit that part of PQE is about changing narratives and power relationships and think that important.
I stress: I hope it is clear that I am listening and I do note the points made. But I also think PQE is still, very firmly, on the agenda after all that. It will change (it has already in some ways) but I can't see it going away.
No doubt omissions will be pointed out. But please keep to the arguments: I am bored by the rest.
Reply Tuesday, September 01, 2015 at 08:38 AM
im1dc said...
US ECONOMIC INDICATORS - 1h ago
"US construction spending rises 0.7% in July, reaches highest level in 7 years - @USATODAYmoney"
Reply Tuesday, September 01, 2015 at 08:31 AM
im1dc said...
FORD MOTOR COMPANY - 1h ago
"Ford senior economist Yong Yang says Chinese economic slowdown's effect on US is 'likely modest' - @NathanBomey"
see original on twitter.com
Reply Tuesday, September 01, 2015 at 08:32 AM
pgl said in reply to im1dc...
Ford has never been able to sell their cars to the Chinese before. Why start now?
Reply Tuesday, September 01, 2015 at 11:56 AM
im1dc said...
US ECONOMIC INDICATORS - 1h ago
"Dow Jones average sinks 300* points in early trading following weak China manufacturing data - @AP"
*323 points as I type this
Reply Tuesday, September 01, 2015 at 08:34 AM
im1dc said in reply to im1dc...
I don't think the China Data had anything much to do with this mornings weakness. It is more probable that this weekends bullish statements by FedRes member Stanley Fischer and other Interest Rate Hawks that put the notion of a September interest rate hike in play again caused market bulls to sell instead of buy in an effort to jiggle their portfolios with more cash and less exposure to volatile equities in a raising interest rate environment.
That's just me thinking out loud.
Reply Tuesday, September 01, 2015 at 08:39 AM
pgl said in reply to im1dc...
Yep - Stanley Fischer took some chocolate coins from JohnH, ate them, and then made JohnH happy by talking about higher interest rates. Stock values down - JohnH applauds, real GDP down - JohnH applauds. Inflation may fall - JohnH's 80 year old girl friend is getting all happy.
Reply Tuesday, September 01, 2015 at 11:58 AM
im1dc said...
A major trading partner of the US is and will be buying less from us for awhile
I do not understand the FedRes rush to raise Interest Rates under weaker global economic conditions given that the USA is doing well but obviously has limited upside until a global economic drivers return.
CANADA - 3h ago
"Canada slumps into technical recession after 2nd consecutive quarterly contraction of GDP - @CBCAlerts"
Reply Tuesday, September 01, 2015 at 08:44 AM
pgl said in reply to im1dc...
Canada does buy more from us than China. This is worrisome.
Reply Tuesday, September 01, 2015 at 11:59 AM
im1dc said...
Update re EL NIŃO
Growing up in SF Bay Area EL NIŃO was a friendly force of nature. Will have to wait and see if that friendly force has returned or not.
EL NIŃO - 3h ago
"El Nińo weather conditions to strengthen before the end of 2015, UN weather agency says - @Reuters"
Reply Tuesday, September 01, 2015 at 08:47 AM
pgl said in reply to im1dc...
Let it rain!!!
Reply Tuesday, September 01, 2015 at 11:59 AM
im1dc said...
US Construction up, car sales not so much
So the pendulum swings to neutral?
HONDA - 2m ago
"Honda US sales down 6.9% in August; Honda Division down 7.5%, Acura down 1-1% - @Automotive_News"
Reply Tuesday, September 01, 2015 at 08:59 AM
im1dc said in reply to im1dc...
US auto sales top expectations in August - expect this to be to due fleet sales not individual sales as with Honda
AUTO INDUSTRY - 31m ago
"US auto sales top expectations in August; Fiat Chrysler sales rise 1.7%, Ford 5.4%, General Motors slips 0.7% - @forbes"
read more on forbes.com
Reply Tuesday, September 01, 2015 at 09:49 AM
im1dc said...
Everyone reading these emails will see Hillary Clinton and her team as the best of the best in DEM policy, realpolitik, and analysis, and therefore the best person for President in 2016.
The import of Tumulty's article is that it fully comports with and lends substantial real-time inner circle proofs to Ron Suskind's "Confidence Men" take of the first term of the Obama presidency. I hope you all read it when I recommended it earlier this year.
Hillary Clinton and her team have been and are far better analysts, strategists, and Policy makers than President Obama and his team were through 2011.
Read the emails for yourself:
"Within Clinton's circle, resentments against Obama persisted for years"
By Karen Tumulty...September 1, 2015...10:00 AM
"Within Hillary Clinton's inner circle, resentment over her defeat by President Obama in the bitter 2008 Democratic primary festered well into his presidency, as evidenced by a string of e-mails from one of her most frequent correspondents, who often passed along unflattering reports about Obama.
In the latest trove of her emails, released late Monday night, Clinton confidant Sidney Blumenthal frequently makes subtle and not-so-subtle digs..."
Reply Tuesday, September 01, 2015 at 09:32 AM
Fred C. Dobbs said...
Between Iraq and a Hawk Base
http://nyti.ms/1JzngLJ
NYT magazine - ROBERT DRAPER - SEPT. 1GOP presidential candidates struggle to craft a foreign
policy that can please the gung-ho and win in 2016 -
without overpromising military force.The first sign that the Republican Party's 17 presidential candidates might have trouble explaining what a conservative foreign policy should look like - beyond simply saying that it should not look like Barack Obama's - emerged on May 10. That's when the Fox News host Megyn Kelly asked Jeb Bush a rather predictable question about the Iraq war: ''Knowing what we know now, would you have authorized the invasion?''
Bush said yes. Shortly after that, he said that he had misheard the question; later, that the question was hypothetical and thus unworthy of an answer; and finally, upon further review, that he in fact would not have authorized the invasion. The jittery about-face suggested that Bush had spent little, if any, time digesting the lessons of the war that defines his older brother's presidency.
The shadow that George W. Bush's foreign policy casts over Jeb Bush's quest for the White House is particularly prominent. But it also looms over the entire G.O.P. field, reminding the candidates that though Republican voters reject what they see as Obama's timid foreign policy, the public has only so much appetite for bellicosity after more than a decade spent entangled in the Middle East. At some point, even the most conservative of voters will demand an answer to the logical corollary of Megyn Kelly's question: How does a president project American strength while avoiding another Iraq?
Among the many advisers recruited to help Jeb Bush answer that question is Richard Fontaine, the president of the Center for a New American Security, a policy group based in Washington. Fontaine was a senior foreign-policy adviser for Senator John McCain's 2008 presidential campaign, where he first learned that winning over voters was a radically different task from those he navigated during his career in the Bush administration. ''Diplomacy is about minimizing differences,'' he told me. '' 'Pol Pot and the Pope - surely there's something they can agree on.' A political campaign is exactly the opposite. It's about taking a minor difference and blowing it up into something transcendent.''
Watching Jeb Bush flub the Iraq question confirmed a theory about that war and its unheeded lessons that Fontaine had been nurturing for several months. In February, he co-wrote an essay in Politico Magazine arguing that Congress should not authorize Obama to use military force against ISIS until it had done the kind of due diligence that Congress utterly failed to do before authorizing Bush to invade Iraq in 2002. In response to the essay, Fontaine said, many of his peers acknowledged to him ''that there actually hasn't been a lot of thinking on this from the entire foreign-policy establishment other than the knee-jerk 'Well, we're never gonna do that again.' ''
Fontaine, who is 40, Clark Kentish in appearance and wryly self-deprecating in conversation, has been doing quite a bit of thinking on the matter of Iraq. He worked in the State Department as well as the National Security Council during the first year of the Iraq war before signing on as McCain's foreign-policy aide in 2004. Over the next five years, he and McCain traveled to Iraq 10 times. His boss had been one of the loudest advocates of toppling Saddam Hussein and then one of the most candidly chagrined observers when the war effort began to crumble before his eyes. ''We'd been running this experiment from 2003 to the end of 2006 of trying to make political changes in Iraq and hoping this would positively influence the security,'' Fontaine recalled. ''It only got worse and worse. Things got to the point where there was no political or economic activity in the country, because the violence was so bad.''
The troop surge in 2007 succeeded in stabilizing the country. By then, however, Americans were weary of military aggression. In 2008, they elected president a one-term U.S. senator who had consistently opposed the war in Iraq and vowed to end it so he could devote most of his attention to a foundering economy. Four years later, the electorate awarded Obama a second term, with the same priorities in mind. Exit polls showed that 60 percent of voters regarded the economy as the predominant issue in 2012, while a mere 4 percent cited foreign affairs as their chief voting issue.
Three years later, this has changed - especially for Republican voters, who, according to several polls, now say national security rivals the economy as a foremost concern. Several factors explain this. While the economy has continued to improve, the Obama administration has watched with seeming helplessness as ISIS dominates swaths of Iraq and Syria while beheading American hostages; as Iran threatens to make good on its nuclear ambitions unless the United States agrees to lift sanctions; as Vladimir Putin reasserts Russian primacy by invading the Crimean Peninsula; and as China spreads its influence across Asia and Africa. These and other developments have revived concerns that the United States has become dangerously weaker under a Democratic president, one whose first secretary of state happens to be the apparent favorite for that party's presidential nomination.
The swaggering rhetoric of Donald Trump, the current Republican front-runner, seems deftly calibrated to reflect the mood of a G.O.P. base spoiling for fights abroad. According to a Quinnipiac University poll in July, 72 percent of registered Iowa Republican voters (where the first contest for presidential delegates will be held early next year) favor sending American ground troops into Syria and Iraq to fight ISIS. In August, Quinnipiac found that 86 percent of all Republicans opposed the Iran nuclear deal. ...
Reply Tuesday, September 01, 2015 at 09:40 AM
Fred C. Dobbs said in reply to Fred C. Dobbs...
Why the 2007 surge in Iraq actually failed http://www.bostonglobe.com/opinion/2014/11/17/why-surge-iraq-actually-failed-and-what-that-means-today/0NaI9JrbtSs1pAZvgzGtaL/story.html?event=event25 via @BostonGlobe
Alex Kingsbury - November 17, 2014"We had it won, thanks to the surge. It was won." - John McCain, Sept. 11, 2014
The goals of the Iraq surge were spelled out explicitly by the White House in Jan. 2007: Stop the raging sectarian bloodletting and reconcile Sunnis, Shiites, and Kurds in the government. "A successful strategy for Iraq goes beyond military operations," then-President George W. Bush said.In light of all that has happened since that announcement, it is jaw-dropping to still hear the surge described as a success. Yet the myth of its success is as alive as it is dangerous. It's a myth that prevents us from grappling with the realities of the last effort in Iraq, even as we embark on another.
To believe in the myth of the surge is to absolve Iraqis of their responsibility to resolve their differences. It gives the US government an unrealistic sense of its own capabilities. And it ignores the roots of the conflict now stretching from Damascus to Baghdad. ...
For Americans, the myth of the victorious surge is so seductive because it perpetuates an illusion of control. It frames the Iraq War as something other than a geostrategic blunder and remembers our effort as something more than a stalemate. What's more, it reinforces the notion that it's possible to influence events around the world, if only military force is deployed properly. It's a myth that makes victory in the current Iraq mission appear achievable.
Dispelling the myth of the successful surge begins by measuring it against its own metrics for success: violence and reconciliation.
There is far too little written on the Iraqi perspective, but their evaluation of the surge is illustrative: In 2008, only 4 percent of Iraqis said additional US forces were responsible for the decline in violence. They know their own country well.
Violence in Iraq began to decline before the surge started. Civilian deaths peaked in July 2006, at more than 3,250 per month, a full six months before the surge policy was even announced. This was the result of many factors, including the completion of the ethnic cleansing of Baghdad's neighborhoods. Some 80 percent of the casualties in the Iraqi civil war pre-surge occurred within 30 miles of Baghdad. ...
Reply Tuesday, September 01, 2015 at 10:46 AM
ilsm said in reply to Fred C. Dobbs...
The Iraq surge [like Vietnam versions] was as successful as US "victory" in Tet '68 and the next year Tet II.
Neither made it so the Iraqis would be nice to each other.
Bombing and trillions from poor kids and the elderly cannot make it so US boys can do it for them when they want ISIS.
Reply Tuesday, September 01, 2015 at 05:07 PM
anne said...
http://techscience.org/a/2015081104/
August 11, 2015
Larger Issuers, Larger Premium Increases: Health insurance issuer competition post-ACA
By Eugene Wang and Grace GeeAbstract
The Patient Protection and Affordable Care Act (ACA) has substantially reformed the health insurance industry in the United States by establishing health insurance marketplaces, also called health exchanges, to facilitate the purchase of health insurance. The ACA has increased transparency in insurance pricing and in issuer pricing behavior. Using 2014 and 2015 Unified Rate Review (URR) data, this study examines changes in health insurance premiums made by individual health insurance issuers in 34 federally facilitated and state-partnership health insurance exchanges.
Results summary
Our study shows that the largest issuer in each marketplace had a 75% higher premium increase from 2014 to 2015 compared to other same-state issuers. On average, the largest issuers raised rates by 23.9%, while the other issuers only raised rates by 13.7%. Moreover, the largest issuers' premium increase affects a larger proportion of plans and do not seem justified from the standpoint of incurred claims-to-premium ratio. Projected Index Rate from the rate review process is used as a summary of an issuer's premiums across different plans and Projected Member Months as a proxy for on-exchange market share. Our findings suggest that even after the Affordable Care Act, the largest on-exchange issuers may be in a better position to practice anti-competitive pricing compared to their same-state counterparts.
Reply Tuesday, September 01, 2015 at 09:43 AM
im1dc said...
ISIL will not like this nor will Turkey, Iran, Iraq, SA, Emirates, et. al., Islam Consersatives
"Fragments of World's Oldest Koran May Predate Muhammad"
by FoxNews.com/Science...Sep 1, 2015...09:10 AM ET
"British scholars have suggested that fragments of the world's oldest known Koran, which were discovered last month, may predate the accepted founding date of Islam by the Muslim prophet Muhammad.
The Times of London reported that radiocarbon dating carried out by experts at the University of Oxford says the fragments were produced between the years 568 A.D. and 645 A.D. Muhammad is generally believed to have lived between 570 A.D. and 632 A.D. The man known to Muslims as The Prophet is thought to have founded Islam sometime after 610 A.D., with the first Muslim community established at Medina, in present-day Saudi Arabia, in 622 A.D.
"This gives more ground to what have been peripheral views of the Koran's genesis, like that Muhammad and his early followers used a text that was already in existence and shaped it to fit their own political and theological agenda, rather than Muhammad receiving a revelation from heaven," Keith Small of Oxford's Bodleian Library told the Times.
The two sheets of Islam's holy book were discovered in a library at the University of Birmingham in England, where they had been mistakenly bound in a Koran dating to the seventh century. They were part of a collection of 3,000 Middle Eastern texts gathered in Iraq in the 1920s.
Muslims scholars have disputed the idea that the Birmingham Koran predates Muhammad, with Mustafa Shah of the University of London's School of Oriental and African Studies telling the Times: "If anything, the manuscript has consolidated traditional accounts of the Koran's origins."
The first known formal text of the Koran was not assembled until 653 A.D. on the orders of Uthman, the third caliph, or leader of the Muslim community after Muhammad's death. Before that, however, fragments of the work had circulated through oral tradition, though parts of the work had also been written down on stones, leaves, parchment and bones. The fragments of the Birmingham Koran were written on either sheepskin or goatskin.
Small cautioned that the carbon dating was only done on the parchment in the fragments, and not the actual ink, but added "If the dates apply to the parchment and the ink, and the dates across the entire range apply, then the Koran - or at least portions of it - predates Mohammed, and moves back the years that an Arabic literary culture is in place well into the 500s."
Reply Tuesday, September 01, 2015 at 09:45 AM
Fred C. Dobbs said in reply to im1dc...
A Find in Britain: Quran Fragments Perhaps
as Old as Islam http://nyti.ms/1VtMTns
NYT - DAN BILEFSKY - JULY 22, 2015LONDON - The ancient manuscript, written on sheep or goat skin, sat for nearly a century at a university library, with scholars unaware of its significance.
That is, until Alba Fedeli, a researcher at the University of Birmingham studying for her doctorate, became captivated by its calligraphy and noticed that two of its pages appeared misbound alongside pages of a similar Quranic manuscript from a later date.
The scripts did not match. Prodded by her observations, the university sent the pages out for radiocarbon testing.
On Wednesday, researchers at the University of Birmingham revealed the startling finding that the fragments appeared to be part of what could be the world's oldest copy of the Quran, and researchers say it may have been transcribed by a contemporary of the Prophet Muhammad. ...
Birmingham Qur'an manuscript dated
among the oldest in the world
http://www.birmingham.ac.uk/news/latest/2015/07/quran-manuscript-22-07-15.aspx
Reply Tuesday, September 01, 2015 at 10:03 AM
im1dc said...
A look at today's business climate. Doesn't seem to shout 'time to raise interest rates' to me.
http://money.cnn.com/2015/09/01/investing/stocks-plunge-china/index.html?section=money_latest
"Uh-oh! Dow falls 400 points on more China fears
CNN" - 2 hours agohttp://www.wsj.com/articles/china-boosts-efforts-to-keep-money-at-home-1441120882
"China Boosts Efforts to Keep Money at Home"
Wall Street Journal - 22 minutes ago"Dollar Tree Shares Fall as Sales Forecast Trails Estimates" Bloomberg - 1 hour ago
and
http://www.wsj.com/articles/ism-manufacturing-index-falls-to-51-1-in-august-1441116755
"ISM Manufacturing Index Falls in August"
Wall Street Journal - 51 minutes agoReply Tuesday, September 01, 2015 at 09:54 AM
Fred C. Dobbs said...
Specialists see no criminal
trouble for Clinton in e-mail flap http://www.bostonglobe.com/news/nation/2015/08/31/legal-specialists-see-criminal-trouble-for-clinton-thus-far/aSX8r2PtvCdCz26sDVpqaK/story.html?event=event25 via @BostonGlobe
Ken Dilanian - AP - September 1, 2015WASHINGTON - Specialists in government secrecy law see almost no possibility of criminal action against Hillary Rodham Clinton or her top aides in connection with now-classified information sent over unsecure e-mail while she was secretary of state, based on the public evidence thus far.
Some Republicans, including leading GOP presidential candidate Donald Trump, have called Clinton's actions criminal and compared her situation to that of David Petraeus, the former CIA director who was prosecuted after giving top secret information to his paramour. Others have cited the case of another past CIA chief, John Deutch, who took highly classified material home.
But in both of those cases, no one disputed that the information was highly classified and in many cases top secret. Petraeus pleaded guilty to a misdemeanor; Deutch was pardoned by President Bill Clinton.
By contrast, there is no evidence of e-mails stored in Hillary Clinton's private server bearing classified markings. State Department officials say they don't believe that e-mails she sent or received included material classified at that time. And even if other government officials dispute that assertion, it is extremely difficult to prove anyone knowingly mishandled secrets.
''How can you be on notice if there are no markings?'' said Leslie McAdoo, a lawyer who frequently handles security-clearance cases.
The State Department posted 4,368 documents totaling 7,121 pages online Monday night.
Parts of several e-mails, however, have subsequently been declared classified.
On Monday, the State Department released a batch of about 7,000 e-mails - the largest such release to date. Those include about 150 that have been partially or entirely censored because the State Department determined they contain classified material.
Department officials said the redacted information was classified in preparation for the public release of the e-mails and not identified as classified at the time Clinton sent or received the messages. All the censored material in the latest group of e-mails is classified at the ''confidential'' level, not at higher ''top secret'' or compartmentalized levels, they said.
Still, the increasing amounts of blacked-out information from Clinton's e-mail history as secretary of state will surely prompt additional questions about her handling of government secrets while in office and that of her most trusted advisers.
The Democratic presidential front-runner now says her use of a home e-mail server for government business was a mistake, and government inspectors have pointed to exchanges that never should have been sent via unsecured channels.
Reply Tuesday, September 01, 2015 at 09:56 AM
im1dc said in reply to Fred C. Dobbs...
NPR this morning said it more simply this way, Hillary Clinton's emails were not Classified until well AFTER she read them, not when she read them, thus there is no there there for Boehner and the Boys of the Incompetent GOPster Hater Inner Circle to use against her.
Nor for FOXNews, Rush Limbaugh, Mark Levine, Savage et. al., although that will not stop them all from claiming otherwise or for Republican Congressmen blaming her, calling her a traitor, and unfit for the presidency.
The Republican Party's Propaganda Spin machine does not let facts stand in the way of their rhetorical smears, hate speech, or nonsensical idiotic diatribes.
Reply Tuesday, September 01, 2015 at 11:03 AM
Fred C. Dobbs said in reply to im1dc...
So you would say it's ok for the
most senior State Dept official
to ignore rules that require e-mail
activity to be conducted on servers
under government control.Ok, fair enough. Such bad judgment
should not preclude being president.Or maybe it's mandatory to hold the office.
Reply Tuesday, September 01, 2015 at 12:28 PM
im1dc said in reply to Fred C. Dobbs...
Perhaps bad official administrative judgment for junior officials and those not running for president one day, however no rules were broken and no classified emails sent or received.
If Hillary Clinton had departed from prior SoS behavior her own State Dept would have told her to use the .gov server or the White House, which did know about but chose to ignore her use of her own email account, would have enforced the administrative rule to use .gov.
But FAR more importantly as SoS she knew her emails would become political football if she were to run for president so she kept them away from the prying eyes of her foes.
I think her decision to use her own email server and keep absolute control over her personal correspondence, so prying eyes of foes could not see, was both politically smart and shows elite Presidential temperament, i.e., 'badges, I don't need no stinkin' badges'.
Reply Tuesday, September 01, 2015 at 01:12 PM
ilsm said in reply to Fred C. Dobbs...
Fred I was a US gumint guy for years (overlapped Hil's time at State) never heard of any rule about not using my home computer.......
Bad judgment seems to be a required trait of thuggie presidents since Nixon.
Wonder where the e-mails of Iran Contra went?
Oh yeah North was a Marine not techie.
Reply Tuesday, September 01, 2015 at 05:12 PM
Fred C. Dobbs said in reply to im1dc...
Clinton private email violated
'clear-cut' State Dept. rules - March 2015
http://www.politico.com/story/2015/03/state-department-email-rule-hillary-clinton-115804The State Department has had a policy in place since 2005 to warn officials against routine use of personal email accounts for government work, a regulation in force during Hillary Clinton's tenure as secretary of state that appears to be at odds with her reliance on a private email for agency business, POLITICO has learned.
The policy, detailed in a manual for agency employees, adds clarity to an issue at the center of a growing controversy over Clinton's reliance on a private email account. Aides to Clinton, as well as State Department officials, have suggested that she did nothing inappropriate because of fuzzy guidelines and lack of specific rules on when and how official documents had to be preserved during her years as secretary. ...
http://www.state.gov/documents/organization/88404.pdf
Reply Tuesday, September 01, 2015 at 07:32 PM
anne said...
http://www.cepr.net/blogs/beat-the-press/washington-post-ed-board-federal-reserve-board-cultists
September 1, 2015
Washington Post Editorial Board: Federal Reserve Board Cultists
It's always dangerous when followers of an insular cult gain positions of power. Unfortunately, that appears to be the case with the Washington Post editorial board * and the Federal Reserve Board Cultists.
The Federal Reserve Board Cultists adhere to a bizarre belief that the 19 members (12 voting) of the Federal Reserve Board's Open Market Committee (FOMC) live in a rarified space where the narrow economic concerns of specific interest groups don't impinge on their thinking. According to the cultists, when the Fed sits down to decide on its interest rate policy they are acting solely for the good of the country.
Those of us who live in the reality-based community know that the Fed is hugely responsive to the interests of the financial sector. There are many reasons for this. First, the twelve Fed district banks are largely controlled by the banks within the district, which directly appoint one third of the bank's directors. The presidents of these banks occupy 12 of the 19 seats (5 of the voting seats) on the FOMC.
The seven governors of the Fed are appointed by the president and approved by Congress, but even this group often has extensive ties to the financial industry. For example, Stanley Fischer, the current vice-chair, was formerly a vice-chair of Citigroup.
The third main reason why the Fed tends to be overly concerned with the interests of the financial sector is that its professional staffers are often looking to get jobs in the sector. While jobs at the Fed are well-paying, staffers can often earn salaries that are two or three times higher if they take their expertise to a bank or other financial firm. As economic theory predicts, this incentive structure pushes them toward viewpoints that often coincide with those of the industry.
The net effect of these biases is that the Fed tends to be far more concerned about the inflation part of its mandate rather than the high employment part, even though under the law the two goals symmetric. If the Fed tightens too much and prevents hundreds of thousands or even millions of workers from getting jobs, most of the top staff would not be terribly troubled and it is unlikely anyone would suffer in their careers. On the other hand, if they allowed the inflation rate to rise to 3.0 percent, it is likely that many top officials at the Fed would be very troubled.
There is very little basis in economic research for maintaining that a stable 3.0 inflation rate is more costly to the country that having 1 million people being needlessly unemployed, but the view coming from the Fed is that the former is much worse than the latter. The Fed cultists at the Washington Post and elsewhere want us to just accept that this is the way the world works. It's not surprising that some folks don't quite see it that way.
-- Dean Baker
Reply Tuesday, September 01, 2015 at 10:38 AM
im1dc said in reply to anne...
"Federal Reserve Cultists"
Loved every word of Dean Baker's glimpse behind the curtain at the Federal Reserve.
He is 100% SPOT ON.
Reply Tuesday, September 01, 2015 at 10:54 AM
im1dc said...
NYMEX Crude Oil off 7%
http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic
"Crude Oil - Electronic (NYMEX) Oct 2015"
NMN: CLV5
$45.67...Change -3.53... -7.18%
Market still open
Reply Tuesday, September 01, 2015 at 10:50 AM
im1dc said in reply to im1dc...
@ 2:36p
"Oct. oil drops $3.79, or 7.7%, to settle at $45.41/bbl on Nymex"
Lost most of its gain from Monday.
Reply Tuesday, September 01, 2015 at 11:39 AM
im1dc said...
Dow Indu close 16,058 -470 ... 2.84%
The squirrels were putting up nuts for winter's storms.
Reply Tuesday, September 01, 2015 at 01:16 PM
Fred C. Dobbs said in reply to im1dc...
(Thank you sir, may I have another.)
Kevin Bacon - Animal House
https://youtu.be/qdFLPn30dvQ'The stock market's losses in August may be foreshadowing more declines in September, if history is any guide. ...
In the 11 instances since 1945 when the S&P 500 fell more than 5% in August, September returns were negative 80% of the time, averaging a decline of 4%, said Sam Stovall, U.S. equity strategist at S&P Capital IQ.' ...
History points to more pain on Wall Street
in September http://on.mktw.net/1PH9N61Reply Tuesday, September 01, 2015 at 03:47 PM
im1dc said...
How to capture pervasive scientific fraud in the Health Care Industry in an econ model?
"Amgen finds data falsified in obesity-diabetes study featuring grizzly bears"
By Jonathan D. Rockoff...Sept 1, 2015...12:23 p.m. ET
"A scientific paper that had captured widespread attention because its subjects were massive grizzly bears was retracted on Tuesday after one of the authors was said to have manipulated some of the data.
The paper attracted news coverage around the world after its publication in August 2014 in the journal Cell Metabolism, which put on its cover an image of a grizzly bear clutching a fish between its jaws.
The paper discussed how grizzly bears' metabolisms adjust to hibernation, and the key role of a certain fat protein, which offered a clue to a new kind of treatment for diabetes. Biotech Amgen Inc. was working on the bear research to get a better grip on the biology behind diseases like obesity and diabetes.
But Amgen AMGN, +0.71% said it discovered late last year, in reviewing the computer files of one of its researchers, that some experimental data cited in the Cell Metabolism paper had been changed in a way the company said made some of the results look stronger.
Amgen and its collaborators at Washington State University and the University of Idaho said they quickly asked Cell Metabolism for a retraction. The journal then reviewed the matter, resulting in the paper's retraction."
Reply Tuesday, September 01, 2015 at 01:25 PM
im1dc said...
Boston Fed agrees with me, do not raise in September
"Fed's Rosengren: Global Economic Weakness Argues for Rate Rise Caution"
'Boston Fed president says global weakness makes reaching 2% inflation more difficult'
By Michael S. Derby...Sept. 1, 2015...2:45 p.m. ET
"NEW YORK-Federal Reserve Bank of Boston President Eric Rosengren said Tuesday that global turmoil argues in favor of being cautious about starting the process to normalize monetary policy, in a speech that emphasized central-bank interest-rate increases likely would come at a slow pace.
"Indications of a much weaker global economy would at least increase the uncertainty surrounding policy makers' economic growth and inflation forecasts," and that could affect how officials should proceed in boosting the Fed's target off its current near zero levels, Mr. Rosengren said in a speech given to an economists' group here..."
Reply Tuesday, September 01, 2015 at 01:35 PM
im1dc said...
It is official, Mickey D's is rolling out breakfast all day1
http://www.wsj.com/articles/mcdonalds-set-to-offer-all-day-breakfast-1441134058
"McDonald's Set to Offer All-Day Breakfast"
'National rollout marks company's biggest initiative in 6 years, will require menu changes'
By Julie Jargon...Sept. 1, 2015...3:00 p.m. ET
"McDonald's Corp. is embarking on its biggest operational change in years as it tries to juice flagging sales, with plans to offer breakfast items all-day at its more than 14,300 U.S. restaurants starting Oct. 6.
The move to all-day breakfast, which McDonald's has been testing since March, was approved in a vote by franchisees last week and affirmed on Tuesday by a franchisee leadership council, the company said..."
Reply Tuesday, September 01, 2015 at 01:37 PM
ilsm said in reply to im1dc...
Lovin' it...... (not me my cardiologist!)
Reply Tuesday, September 01, 2015 at 05:14 PM
im1dc said...
Well it isn't secret anymore WaPo...what the hell is wrong with the MSM?
Fight against Islamic State militants - 1h ago
"CIA, US special operations forces launch secret campaign to hunt terrorism suspects in Syria - @washingtonpost"
Read more on washingtonpost.com
Reply Tuesday, September 01, 2015 at 02:54 PM
im1dc said in reply to im1dc...
"U.S. Makes Secret ISIS Drone Program"
Turns out to be a Drone program. Drone programs are all secret until they kill someone.
Reply Tuesday, September 01, 2015 at 03:09 PM
ilsm said in reply to im1dc...
Sending US spooks to hunt former Protege's.
Reply Tuesday, September 01, 2015 at 05:16 PM
im1dc said...
Due to crude oil's low prices jobs go missing in the USA, 500 in Houston, TX all good paying jobs in the oil sector
http://www.fox26houston.com/home/14925423-story
"By: Carolina Sanchez...Sep 01 2015...02:40PM CDT
"ConocoPhillips announced on Tuesday that it expects to cut 10% of its global workforce.
The largest percentage of the layoffs will be in North America.
Currently, the global company employs around 18,000 people.
ConocoPhillips employs 3,753 workers in Houston. The expected reductions will be more than 500 of our Houston employees.
In a statement the company said it took several steps to strengthen its position but ultimately decided workforce reductions were needed.
Read part of the statement below:
"We have taken several significant steps as a company to strengthen our position, including reducing our capital spending and future deepwater exploration program. However, the workforce reductions are necessary to become a stronger, more competitive company."
Reply Tuesday, September 01, 2015 at 02:59 PM
im1dc said...
Original thinking or wishful thinking?
http://www.thedailybeast.com/articles/2015/08/31/petraeus-use-al-qaeda-fighters-to-beat-isis.html
"Petraeus: Use Al Qaeda Fighters to Beat ISIS"
by Shane Harris & Nancy A. Youssef...08.31.15...9:00 PM ET
'To take down the so-called Islamic State in Syria, the influential former head of the CIA wants to co-opt jihadists from America's arch foe.'
"Members of al Qaeda's branch in Syria have a surprising advocate in the corridors of American power: retired Army general and former CIA Director David Petraeus.
The former commander of U.S. forces in Iraq and Afghanistan has been quietly urging U.S. officials to consider using so-called moderate members of al Qaeda's Nusra Front to fight ISIS in Syria, four sources familiar with the conversations, including one person who spoke to Petraeus directly, told The Daily Beast..."
Reply Tuesday, September 01, 2015 at 03:07 PM
Fred C. Dobbs said in reply to im1dc...
Could be he's looking for a
job as a jihadist commander.Can the US Use al Qaeda Fighters to Defeat ISIS? David Petraeus Has a Plan http://www.thefiscaltimes.com/2015/09/01/Can-US-Use-al-Qaeda-Fighters-Defeat-ISIS-David-Petraeus-Has-Plan
Reply Tuesday, September 01, 2015 at 05:04 PM
ilsm said in reply to im1dc...
A new surge from the guy who sold the last mistake.
Like arming VC to fight NVA!
Reply Tuesday, September 01, 2015 at 05:17 PM
ilsm said in reply to ilsm...
Hahhhh!, Haaaqaa!
No regrets!
US already doing this recruiting Sunnis to fight Sunnis ISIS.
They have a few hundred 'recruits'.
Obama already tried it to quiet Iraq down to get out: guns and money to Sunni tribes in Mosul, Tikrit and Fallujah. All of it ended up going to ISIS.
I sold my war bonds in the 80's seeing how Reagan was tossing money out the door in cargo planes.
No regrets there.
Reply Tuesday, September 01, 2015 at 05:21 PM
im1dc said in reply to im1dc...
OK, it is a bad idea!
Reply Tuesday, September 01, 2015 at 06:52 PM
anne said...
September 1, 2015
The 3 month Treasury interest rate is at 0.03%, the 2 year Treasury rate is 0.70%, the 5 year rate is 1.48%, while the 10 year is 2.17%.
The Vanguard Aa rated short-term investment grade bond fund, with a maturity of 3.1 years and a duration of 2.6 years, has a yield of 1.83%. The Vanguard Aa rated intermediate-term investment grade bond fund, with a maturity of 6.4 years and a duration of 5.5 years, is yielding 2.77%. The Vanguard Aa rated long-term investment grade bond fund, with a maturity of 22.3 years and a duration of 13.1 years, is yielding 4.09%. *
The Vanguard Ba rated high yield corporate bond fund, with a maturity of 5.3 years and a duration of 4.3 years, is yielding 5.60%.
The Vanguard unrated convertible corporate bond fund, with an indefinite maturity and a duration of 5.9 years, is yielding 1.79%.
The Vanguard A rated high yield tax exempt bond fund, with a maturity of 16.2 years and a duration of 6.3 years, is yielding 2.87%.
The Vanguard Aa rated intermediate-term tax exempt bond fund, with a maturity of 8.7 years and a duration of 4.9 years, is yielding 1.78%.
The Vanguard Government National Mortgage Association bond fund, with a maturity of 6.5 years and a duration of 4.3 years, is yielding 2.22%.
The Vanguard inflation protected Treasury bond fund, with a maturity of 8.5 years and a duration of 8.1 years, is yielding 0.27%.
* Vanguard yields are after cost. Federal Funds rates are no more than 0.25%.
Reply Tuesday, September 01, 2015 at 04:55 PM
anne said...
http://www.multpl.com/shiller-pe/
Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2015
(Standard and Poors Composite Stock Index)
September 1, 2015 PE Ratio ( 24.27)
Annual Mean ( 16.62)
Annual Median ( 16.01)-- Robert Shiller
Reply Tuesday, September 01, 2015 at 04:55 PM
anne said...
http://www.multpl.com/s-p-500-dividend-yield/
Dividend Yield, 1881-2015
(Standard and Poors Composite Stock Index)
September 1, 2015 Div Yield ( 2.19)
Annual Mean ( 4.40)
Annual Median ( 4.34)-- Robert Shiller
Reply Tuesday, September 01, 2015 at 04:55 PM
im1dc said...
5 months in a row
Hong Kong - 41m ago
"Hong Kong retail sales decline for 5th month amid fewer tourist arrivals and stock market turmoil - @SCMP_News"
Read more on scmp.com
Exemplary of The Guardian's forecasting where Russia is concerned – and The Guardian never met a Russian it didn't hate, unless they were an oligarch expat, a political dissident or a member of Pussy Riot – is this gem by The Guardian's "Economics Editor", Larry Elliott;"Russia Has Just Lost the Economic War With the West".For those who don't remember when the west's economic war against Russia started, it actually kicked off with a skirmish, in which the USA stopped service in Russia to holders of Visa and Mastercard at certain sanctioned banks in Russia, back in the spring of 2014. Customers found that their cards did not work and their accounts were frozen. Russian media promptly pointed out that American credit-card companies "had a record of bowing to political decisions from Washington"; the government imposed a security deposit fee equal to two days worth of transactions in Russia, which would cost the companies $1.9 Billion (Visa) and $1 Billion (Mastercard), and Morgan-Stanley issued a report which suggested the two credit-card giants would be better off terminating their operations in Russia, where they together had 90% of market share. For his part, the Russian president announced that Russia would develop its own national payment system and greatly reduce its dependence on western credit-card companies.
It's hard for me to see that as a western victory. Visa and Mastercard squealed like pigs, Russia introduced a prototype domestic card (Mir) which Mastercard signed on to co-brand, and Mastercard and Visa both humbly signed on to Russia's national payment system, which moves processing to Russia. This results in a huge loss of financial control for the western-based cards, and a bigger one is coming when Russia introduces its national replacement for SWIFT, the Society for Worldwide Interbank Financial Telecommunication. Western regulatory authorities have long been accustomed to using SWIFT to read other countries' financial mail, and a few years back, the USA pressured the supposedly non-partisan system to shut out Iran. It's unlikely America would have tried that with Russia – especially since European courts ruled that it was illegal – but a couple of big-mouthed American senators started hollering for it to be done, and that was enough.
You would think Larry Elliott would have learned something from that, but it is apparent that he did not. He had all summer and autumn to form an assessment of how things were lining up, and he guessed wrong.
"The west knows all about the vulnerability of Russia's economy, its creaking factories and its over-reliance on the energy sector. When the introduction of sanctions over Russia's support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true."
Is that so? Well, at least one insight in that passage was accurate – the damage caused to the U.S. shale industry was considerable. Have a look at this comical piece in The Economist, which is almost as big a failure at presenting the world as it actually is as The Guardian; the anonymous author hedges his analysis so hard that his regular reversals make the reader dizzy. Goodrich Petroleum's debts are six times the size of its market-value equity – but it says it has ample liquidity and may sell some stuff. At the start of 2015, it looked like the slaughter among the frackers would be horrific – but only 5 companies actually went bankrupt. The Saudis (treacherous dogs all) have failed to put Houston out of business – but big services companies such as Halliburton have fallen into losses and small ones are on life support.
Here's another, in which The Economist does not make the link: the United States has increased its oil production to 13% of global output – but it supplies only about half its own consumption. It puts a happy face on this by describing its increase in production as far larger than its increase in consumption. That is indeed a bit of good news, but the USA still consumes more daily oil output than something like the next four nations combined (figures are from 2011), and about 20% of the world's output.
The global economy is faltering as the World Bank lowers its projections for growth. Saudi Arabia, originally a partner in the effort to crush Russia's economy, has continued to flood a glutted oil market that is now oversupplied by 800,000 barrels per day, and shows no sign of letting up. Meanwhile, Saudi Arabia and Russia inked 6 new trade agreements in June, one of which will see Rosatom operate up to 16 nuclear reactors in Saudi Arabia.
The USA put its head together with its Saudi partners, and worked out a scheme whereby OPEC would administer a short, sharp shock to the energy markets which would tip Putin out of bed – colour revolution successful at last, America gets to pick a new government, we've got momentum, baby! But that's not the way it worked out at all. Who benefits from a weaker ruble? The resource exporters who are a main source of revenue for the Russian government. Putin remains as popular with Russians as he has been since his introduction to upper-echelon politics.
Meanwhile, in Europe, Russian sanctions coincided with perfect growing conditions and consequent overproduction to kick the British dairy industry in the slats. The Russian dairy market, by contrast, is surging, with some varieties of artisan goat cheese selling for $14.00 a pound at the supplier level. German cars and car parts exports to Russia fell more than 27% between January and August 2014. The Russian food ban is "a nightmare" for French farmers. Even mighty Apple saw its smartphone sales cut in half in 2014 – although, despite the crisis, Russian smartphone sales overall were up 39%. American car brands joined the plunge as car sales in Russia tanked; however, the ruble began to regain strength in the first quarter and was the best-performing of more than 170 currencies tracked by Bloomberg – bear in mind that this is in the face of deliberate efforts to force it down. The tumble in car sales slowed in July as government incentives began to have an effect – but the gains were all felt by Lada and Asian brands, and the only American car to even get on their scoreboard was the Chevrolet Cruze. Expect western brands across the board to continue to suffer, as market replacement continues apace.
Let us not gild the lily: the economic war against Russia hurt, and for a day or two there was reason for western optimism that their attempt to backstab Putin out of office would bear fruit. But it didn't, and Elliott's brainless rah-rah cheerleading for Washington was torpedoed by Russian resolve and resilience. The west now has the global opponent it thought it wanted, but market replacement and a rejection of western institutions within Russia signifies a decisive turning away from the west that will not easily be reversed, if ever. Vladimir Putin could run over a pensioner with his car on election day and still cruise to victory without breaking a sweat. None of the west's goals of economic warfare against Russia have been realized. Not one.
It's still too soon to say whether Russia will weather the storm Washington deliberately set in motion. But there is every reason to be optimistic if you are Russian, and no reason at all to be optimistic if you are one of Barack Obama's foreign-policy drones. And John Kerry might as well just run off a cliff, because he has been an even worse Secretary of State than Hillary Clinton was – a benchmark I did not ever think to see surpassed, never mind so quickly.
As a recent Russia Insider article warned, there's no surer way to lose the next war than to live in delusion about your own strength.
Oddlots, August 26, 2015 at 8:31 pm
Hard to pick a favourite line but I think mine is this: "Of course America makes mistakes – grievous ones, which are scrutinised sharply in its political system and media."
Comical. Errr… Haven't seen much evidence of that for quite awhile friend.
This guy barely has the intellectual ability to run a golf club though his prejudices would make him welcome in any of them.
Warren, August 27, 2015 at 3:55 am
Lucas is an odious sanctimonious hypocrite. He merely preaches to people who share his prejudices.
ucgsblog, August 24, 2015 at 6:48 pm
Just reread this:
"The west knows all about the vulnerability of Russia's economy, its creaking factories and its over-reliance on the energy sector. When the introduction of sanctions over Russia's support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true."
Dang. Oh, oh. Where do I even start? First, I know a few US oil traders; they're in it for long term profit. They didn't want the risks and don't give two shits about Ukraine. It's why you don't see them lining up to donate to Ukraine. Second, in order to kill US shale, the Saudis drove down the price, after informing Russia of their actions. Third, it's not US shale that's currently driving up the prices, it's Saudi Arabia, and, yep, Russia. US shale is crying "uncle, uncle!" On top of this, the oil price effectively busted Obama's green energy legacy, or as a commentator said: "da, ne vezet cheburashke, ne vezet!" Student loans also busted his education legacy, he's going to be an all around failure. Ouch!
But none of what I said makes that comment stupid. Not a thing. What makes said comment absolutely asinine, is that by claiming that the Oil Wars were started by US and Saudi Arabia to hurt Russia, and by additionally claiming that said Oil Wars are continued to be ran by US and Saudi Arabia to hurt Russia, those idiots effectively gave Russia a powerful weapon to hurt the US financially, and because Obama got pwnd on the Iranian Deal, (Bob Gates' words, not mine,) the Saudis want to answer to Russia, which is why they're signing energy deals with Russia like there's no tomorrow.
To be absolutely blunt: the US media gave Putin a proverbial gun to shoot themselves with, while claiming that they're actually holding said gun to Putin's head. When the proverbial shot goes off, hilarity will ensue.
As if this wasn't enough, in order to keep US shale somehow functioning, low cost loans are being made, and the current demand is a must. Low cost loans will only work by keeping the interest rate at 0.1%. What does that mean? It means that the "poorly performing" Russo-Chinese currencies have done something that I thought would be impossible a few months ago: they checked the dollar's aggressive stance. Yes, the dollar is still a power to be reckoned with, but the US can no longer lead with the dollar; rather, the US must wait until Russia and China attack the dollar, which they won't do.
Furthermore, demand is dropping. Supply is increasing. US shale is slowly but surely going bankrupt. In order to prevent that, US must keep interest rates low, meaning that the dollar's effectiveness is checked, which, according to Elliot, is Obama holding a proverbial gun to Russia's head. As if this wasn't enough, there's still the potential Greek Switch, which could lead to the collapse of the Euro. Add the rise of Nationalist Parties in Europe, and you'll see the shift towards Russia, thus giving Putin the Lisbon to Vladivostok trade route. Combine that with the Silk Route, as well as India and Pakistan's dispute being solved peacefully by the SCO… do I really need to keep going here? And remember, according to Elliot, the US has the proverbial gun, so Putin better give Crimea back, pronto!
marknesop, August 24, 2015 at 9:17 pmCertainly a much more optimistic forecast, what?? I wonder if Russia actually does know this, and it is calculated, or is it just a series of big dominoes falling over one by one? It's certainly true that Saudi Arabia and Russia are a lot chummier than you would expect, given that the former is supposed to be part of a deal to screw the latter. And you are correct that the further out on the limb U.S. shale goes to prove to the world that it's still unhurt, the further the drop will be when the fiction can't be maintained any longer.
I don't really wish the USA any harm – although I despise its government and more or less its entire political class – and I hope there's no collapse like that because it would hurt a lot of decent people who didn't do anything worse than believe in The American Dream. Not to mention our economic fate is inexorably tied to yours. But the global economy does appear to be unraveling – for the second time in our lives – right before our eyes. Whose economy is hurting, Mr. President?
That's a hell of an analysis. And it's always easier to spot a trend if you're looking for it. So let's see if you're right – if you are, you're a visionary, because nobody who feels they're authorized to talk about it sees a picture like that. I don't dispute that some in the back room see things starting to come apart, but of course they won't say that. Running panics the troops.
ucgsblog, August 25, 2015 at 6:31 pm
Thank you! Russia doesn't know this, but simply reacts in the best possible way possible. It's like racing a track for the first time, you don't know where it turns, but when it does, you do the best you can, and eventually, someone is going to have the record time, and someone else will ask: "did they know?" Nope, they simply adapted, and when it comes to resurging and adapting, Russia's numero uno.
In terms of US shale, it's not so much that it's going to collapse, but rather, that the capitalization of US shale will hold back the dollar. The problem with the US political class is rooted in the two party system, which reduces political debates to "my side yay, your side boo" type of arguments. These in turn rely more on messaging power, i.e. dollars, which enables those with the money to work the electoral college to play a hefty role in elections. If we simply abolished the electoral college… that'd be an improvement, but Republicans and Democrats jointly oppose that.
I'm coming from the trend that was first displayed when Russo-Chinese leaders called the SCO a "success beyond our wildest dreams". That's my perspective. It's hilarious to see others suggest that Russia and China will break apart, and even paid analysts are getting pissed off at the bullshit they have to write, which is why you get articles with "Russia is China's junior partner… Russia and China treat each other as equals…" where any analyst reading that knows that the writer was very pissed off at the editor.
As far as panicking the troops, the truth's that there's massive divestment from internationalism and more and more people are pushing for the Moneyball Model. By the time the rout hits, poor saps like Julia Ioffe will look around and go "waaa!" but no one will be there to defend them. And then those whom they fucked in the 1990s will have their vengeance in a trollish way. As for me, I'll be deciding which brand of popcorn to buy. We have more varieties in California than almost anywhere else, it's a tough, tough choice. BTW, I'm open to suggestions.
Guy, August 24, 2015 at 10:37 pm
Something i would like to add. There's one more point that i think everyone has overlooked. Fact that the US dollar is backed by other peoples traded oil means that the US is effectively relying on that traded oil to support it's currency. International trade, commodities and the shuffling of paper are what keeps the dollar afloat. If the price of oil drops by let's say $10, the demand for dollars to buy that oil also falls by $10 across the entire spectrum of the oil market. This amounts to a direct attack on the dollar price as if a country had dumped that many dollars. Now we're seeing Chinese trade slow down, also a reduction in demand for dollars, and the're going out of their way to defend their markets which also involves dumping of dollars.
ucgsblog, August 25, 2015 at 6:33 pmThank you! And you're right that both of those processes hurt the dollar; where we might disagree is a matter of scale. I think that it hurts the dollar slightly, akin to an artillery barrage to prevent a charge, but leaves the unit in cohesion. I'm unsure if you share that view, or if you think that it does extensive damage to the dollar/unit.
Guy, August 25, 2015 at 9:40 pm
Well if it really did do extensive damage on it's own would think that it would be more visible by now. I think the damage i not visible due to the fact that people won't necessarily dump their dollars just because they don't immediately need them to buy oil. But your analogy is absolutely correct. I think in the long term this will prevent the fed from printing too much more and facilitate de-dollarisation by freeing that capital up to be invested in other assets, perhaps not dollar denominated. It all depends on where the extra capital goes. If it goes back into more trade or assets that require dollars then there would be no effect. However on it's own the quantity that we're talking about is rather immense. This effect will become more pronounced when China opens up it's own gold and commodities exchange because this allows the freed up capital to be funneled elsewhere.
Regarding your views on the oil market i think you would be interested to read my analysis below. Ehhh.. it's somewhere down there, not sure how i can link to it. My views are that US shale will be allowed to die so that the companies can be bought up for penny's on the dollar by predatory hedge funds and restarted once the price rises again and the crash in oil prices is solely orchestrated by US banks which have the capital and leverage to short it on the paper market.
karl1haushofer, August 25, 2015 at 12:14 am
But generally low oil benefits the West (because they are net importers) and hurts Russia (because they are a major exporter). The losses in US shale industry is not a doomsday scenario for the US economy. The cheap imported oil more than compensates for that. The shale industry can always be restarted once the oil price goes up again (whether it happens in a year or after ten years).
Russian economy has always been dependent on oil prices though. The fall of Soviet economy started after the oil price collapsed in the 1980's. The two biggest GDP drops of Russian economy happened when the oil price bottomed in 2008-2009 and in 2015.
So the writer is right that low oil price hurts Russia while the West mainly benefits from it.
karl1haushofer, August 25, 2015 at 12:27 am
The biggest question for Russia is that if the period of low oil price lasts for a decade how can Russia cope with it. Easy oil money is not flowing to the economy anymore. Russia needs to find new (and harder, more difficult) ways to earn money and generate wealth. They have no other choice if they want to keep the country intact (since economically weak Russia would become an easier target for disintegration by the West).
Guy, August 25, 2015 at 12:45 am
It won't be priced low for decades. The cure for low oil prices is low oil prices. Eventually high cost suppliers will go bankrupt, keep in mind that countries such as Venezuela and even Saudi are struggling. The US most likely won't save it's shale producers. It will use this opportunity to cannibalism them and then yes restart production when oil prices have gone up, however this doesn't impact the fact that they will stop production in the short term, which is already putting hundreds and thousands of people out of jobs.
The recent hiccup by China saw $250billion wiped off the EU markets. Even if they go into a death spiral Russia is far less affected by this than the EU, US, Japan Etc… due to it's limited exposure to the global financial system. From what i can see THEY DEFINITELY WILL FOLD FIRST. IMO this also strengthens Russia's position vis a vis China.
Lastly no ones going to be sitting still and twiddling their thumbs for decades. While i do feel that more could be done in some sectors, the initiative is there to reorient the economy.
ucgsblog, August 25, 2015 at 6:41 pm
No one is saying that it's a doomsday scenario for either economy, but one has to look at the greater picture. If Putin was truly worried about the price of oil, he would've screwed over the Iranian Deal, which would've increased oil price. He didn't. It's more complex than a-good and b-bad.
Russia needs to divest from oil. Badly. The fall of the oil price is forcing the Russian economy to do that, when the Russian economy can take the damage. Think of it as having a great workout – yes, it'll hurt, but you need to go through the pain to make the gain. Russia needs the low price oil pain to divest. And Russia can take said pain.
Similarly, the US also needs more green energy development, but the low prices of oil is hurting said development. The US economy isn't recovering as fast as it should. So while Russia's hitting the gym, US is slouching around, if we are to use my comparison. Which one is going to be better off in the long term?
The Soviet Economy was stagnating, not falling. The USSR fell due to propaganda damage from within, not economic damage, i.e. the combination of Perestroika and Glasnost. The EU is repeating said mistake with Open Borders and Austerity.
As thus, the writer's right in the short term. But most analysts don't care about the short term. If we did, we'd be working in shorting stocks. We care about the long term, where the effect is the exact opposite.
That said, thank you for your responses Karl!
Warren, August 25, 2015 at 2:52 am
So How's That Economic War on Russia Faring? #Russia pic.twitter.com/KQVeVAwBHy
- Russia Insider (@RussiaInsider) August 24, 2015
Warren, August 25, 2015 at 2:55 am
Londongrad: TV comedy shows London through eyes of its Russian inhabitants
Russian comedy detective series centres around a 'fixing' agency set up to troubleshoot problems for rich Russians in London
http://www.theguardian.com/world/2015/aug/21/londongrad-portrait-of-london-russian-inhabitants
"When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."
"In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."
economistsview.typepad.com
The conclusion to "Leveraged bubbles," by Ňscar Jordŕ, Moritz Schularick, and Alan Taylor:
... In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.Posted by Mark Thoma on Tuesday, September 1, 2015 at 09:25 AM in Economics, Financial System | Permalink Comments (8)
Double Capitulation said..."bursting of credit boom bubbles is significant and long lasting.
In the past decades, central banks typically have taken"
~~Ňscar Jordŕ, Moritz Schularick, and Alan Taylor:~Did Kurt Vonnegut once quip
"Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?
Imprecisely, yet left us with a memorable hint of both his genius and fed governor's stupidity.
djb said...
Peter K. -> djb...of course if wages kept up with productivity, there would not have been as much of a bubble because people could have paid more, and borrowed less
but I doubt BIS was worried about that particular issue
mulp -> djb..."This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles."
Likewise I don't the believe the BIS is big on tighter regulation of the banks. As Krugman and others have pointed out, the BIS is always for raising rates but switches rationals. Sometimes it's about inflation, sometimes bubbles.
Arne said...We need a Fed that sets as policy buying long term debt that funds new infrastructure projects that are required by Federal regulation to pay prevailing aka higher wages.
If in 2010, the Fed had bought $3 trillion in bonds for such projects as building the NE HSR, for all the cities fixing their century old water and sewer systems, California's HSR, bonds for replacement bridges with tunnels as option, rerouting rail to eliminate grade crossings to speed for freight and truck traffic, then the Fed could have done what Republicans have done up until the Republicans decided to punish all the We the People for electing Obama.
Any debt issued that does not build new capital assets requiring American labor, ie, debt paying labor costs, is totally worthless to the economy.
Other than for some existing constant wealth redistribution purposes - during 2008-2011 savers were protected against having their wealth taken from them and given to the borrowers who had long ago spent it.
Is there some data on the extent to which asset price rises are credit fueled or not. My memory (which does not qualify as a data source) says that the housing bubble was much more so than the dot-com bubble.
Blissex said...mulp -> Blissex..."When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."
So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)
"In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."
If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.
Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.
Not very hands-off at all.
Are you questioning creating wealth by price inflation of decaying asset which are churned in pump and dump?
Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?
Wealth. Creating wealth. Wealth effect. Capital gains. Money in your pocket.
Signs of free lunch economic smoke and mirrors.
Wealth is created by paid labor or hard labor by the owner of the created wealth. But paying labor costs as a virtue is not something an economist is allowed to say in the post Reagan victory world.
Aug 29, 2015 | GEFIRA
Commentators are linking the current market turmoil to problems in China. Our team sees the oil price as the main driver behind the market route. Low oil prices are positive for consumers and it will lower production costs for numerous industries. However it will also lower the investments in energy such as sustainable energy and oil producers will see their high profits turn into losses. Low oil prices have devastating effects on the financial sector that is involved in lending to the oil industry and in the trade of oil related derivatives. World oil production is about 90 million barrels a day, representing a cash flow of about nine billion dollars a day which comes down to three trillion dollars a year. With the oil price 40 to 50% lower, this flow is also cut by 40 to 50%. This amounts to 10% US GDP. Compare it with the 0.5% growth we are now missing in China, we prefer to keep our eyes on the oil price. These extreme moves can not be without consequence.
Many oil producers receive a fixed price for their oil as they covered their production with price insurance in the form of derivatives. With the current oil price, we just guess insurance providers paid out about 35 dollars a barrel to compensate the losses of the producers. Only for the US shale production this amounts roughly to 120 Million dollars a day. Somehow the financial sector has to cover these loses.
Comments from Zero Hedge
adrThe problem, as with everything, was the financialization of oil.
Had oil not been turned into the latest greatest leveraging scheme by Wall Street, it probably never would have gone north of $40 in the first place.
Rebalancing and true price discovery is needed. Oil needs to settle at $45 a barrel and allow this price to filter all the way through the supply chain. $45 still represents a 100% increase to the price of oil at the close of the 20th century.
The USA can have $1.65 gasoline. Shipping rates can come down and perhaps the economy can truly mend.
Aug 30, 2015 | Bloomberg Business
Here's one key takeaway from the Commerce Department's report on gross domestic product Thursday in Washington: Gross domestic income climbed at a 0.6 percent annualized rate, well short of the rebound in growth.
* The increase in GDI last quarter followed a 0.4 percent advance in the first three months of the year, marking the weakest back-to-back gains since mid-2012
* The 3.1 percentage-point gap between GDI and GDP, which climbed at a 3.7 percent rate, was the largest in favor of GDP since the third quarter of 2007
* While GDI and GDP should theoretically match over the long run, they can diverge from quarter to quarter. There has been a debate about which is more accurate, with some Federal Reserve researchers finding incomes give better signals
Aug 30, 2015 | Bloomberg Business
The federal government today released two very different estimates of the U.S. economy's growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.
That's a big discrepancy for two numbers that should theoretically be the same, since they're two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you're happy. If you believe the GDI number, you're thinking the U.S. is skating close to a recession.
The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding-and in this case, that's probably closer to the truth than either number alone.
There is no name for the new hybrid data series, which was described rather prosaically as "the average of real GDP and real GDI." President Obama's Council of Economic Advisers nicknamed it gross domestic output in a July issue brief. Here's what it wrote:
GDP tracks all expenditures on final goods and services produced in the United States, whereas GDI tracks all income received by those who produced that output. Conceptually the two should be equal because every dollar spent on a good or service (in GDP) must flow as income to a household, a firm, or the government (and therefore must show up in GDI). However, the two numbers differ in practice because of measurement error.
Aug 29, 2015 | jessescrossroadscafe.blogspot.com
"I believe myriad global "carry trades" – speculative leveraging of securities – are the unappreciated prevailing source of finance behind interlinked global securities market Bubbles. They amount to this cycle's government-directed finance unleashed to jump-start a global reflationary cycle.The basic diagnosis is correct. But the nature of the disease, and the appropriate remedies, may not be so easily apprehended, except through simple common sense. And that is a rare commodity these days.I'm convinced that perhaps Trillions worth of speculative leverage have accumulated throughout global currency and securities markets at least partially based on the perception that policymakers condone this leverage as integral (as mortgage finance was previously) in the fight against mounting global deflationary forces."
Doug Noland, Carry Trades and Trend-Following Strategies
Like a dog returns to its vomit, the Fed's speculative bubble policy enables the one percent to once again feast on the carcass of the real economy.
'And no one could have ever seen it coming.'
Once is an accident.
Twice is no coincidence.
Remind yourself what has changed since then. Banks have gotten bigger. Schemes and fraud continue.
What will the third time be like? And the fourth?
Do you think that Jamie bet Lloyd a dollar that they couldn't do it again?
Should we ask them to please behave, levy some token fines, watch the politicans yell and posture in some toothless public hearings, let all of them keep their jobs and their bonuses? And then bail them out, wind up the old Victrola, and have another go at the same old thing again?
Maybe we can vote for one of their hired servants, or skip the middlemen and vote for one of the arrogant hustlers themselves, and hope they get tired of taking us for a ride before we all go broke.
This policy we have now is the trickle down stimulus that the wealthy financiers have been sucking on with every opportunity that they have made for themselves since the days of Andrew Jackson. Whenever the ability to create and distribute money has been handed over by a craven Congress to private corporations and banking cartels without sufficient oversight and regulation, excessive speculation, financial recklessness, and moral hazard have acted like a plague of misery and stagnation on the real economy.
"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank.I believe all of the above is entirely possible. Because we still have an unashamed cadre of quack economists and their ideologically blind followers blaming the victims, prescribing harsh punishments for the weak, laying all the blame on 'government' and not corrupt officials on the payrolls of Big Money, and giving the gods of the market and their masters of the universe a big kiss on the head, and expecting them to just do the right thing the next time out of the natural goodness of their unrestrained natures the next time. What could go wrong with that?You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!
You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out."
From the original minutes of the Philadelphia bankers sent to meet with President Jackson February 1834, from Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels
Genuine reform. It's too much work, and too much trouble.
Related: Comprehensive Tally of Banker Fraudh/t Jesse Felder for the chart
Aug 29, 2015 | Jesse's Café Américain
The action was a bit heavy in the metals today, as the Powers-That-Be quietly attempted to restore confidence and a sense of well-being and recovery after the somewhat disconcerting equity market plunge of Monday.
There was intraday commentary here about some interesting Goldman Sachs activity in an otherwise exceptionally sleepy week at The Bucket Shop.
People often ask me for a possible motive as to why central banks might care about gold and silver. Willem Middelkoop does a decent job of briefly explaining why in the first pictorial below. It is all a part of the confidence game, when a series of bad decisions place a strain on one's full faith and credit.
The goal of the financial class is to keep the music going, and the public out there on the floor dancing so they don't have time to think.
Still out there bottom watching.
Have a pleasant weekend.
Qualis dominus talis est servus.Stocks came in weakly, but managed to rally in the last hour to closely largely unchanged.
As is the master, so is the servant.Titus Petronius
The GDP revision for 2Q yesterday was a bit much.
The conversation on financial tv today was replete with interviews from that moveable feast of finance, from the rarified world at Jackson Hole, where the black swans of monetary policy return every so often to molt old forecasts and acquire new ones that are certain to work better than the last seven years of the same old thing.
Mostly it is just the usual nonsense. Alan Blinder had some interesting and surprisingly realistic things to say. Most of the others were just mouth breathing the talking points about our exceptional and improving economy which will allow the Fed to raise interest rates.
The research paper from the Fed asserting that the US is relatively immune (ok they said insulated) from global currency and economic shocks because of the position of the dollar as the settling currency of choice for international invoices was-- interesting. Why is it that so many economic, and especially monetary, theories feel so comfortable inhabiting an alternate universe where trees are blue and pigs can fly?
And as a particularly astute reader observed, if this is actually true, is there any wonder why the rest of the world would resent the dollar hegemony if it grants that sort of power to the single nation that controls it? That they are able to wreak havoc on the rest of the world, exporting malinvestment and willfully fraudulent financial instruments, without having to endure any consequences?
Well it doesn't work so nicely as that, but yes they do resent it for other reasons, and they have been doing more than resenting it for some time now. And that is the basis for the 'currency war' that these jokers still do not understand. They think it is only 'currency devaluations' which, along with tariffs, was the tactic of choice in the last currency war in the 1930's.
But the one that left me gaping was the tendentious conversation this afternoon on Bloomberg about how fragile China and its markets are. And as evidence they cited the 'obvious interventions' in their stock market this week, wherein the Chinese markets slump, but then miraculously recover in the last hours of trading. They are obviously doing this so the leadership will not be embarrassed for their 70th commemoration of the end of WWII next week. Which by the way, the US is gracelessly boycotting.
Knock, knock, hello? Is self-awareness or unintentional irony at home?
Is there any doubt that we have been seeing the exact types of intervention by a powerful unseen hand in our own stock markets this week, on steroids, after the Monday flash crash? Does that mean that our economy is fragile and doomed as well?
Do these people actually believe what they are saying, or is this just some clumsy attempt to try to reassure our public that if their public gets into trouble there is no need to panic because, wait for it, we are so much better, more wisely and so much more virtuously blessed to be led by those archangels of benevolent wisdom in Washington and New York.
One can only wonder.
Have a pleasant weekend.
[Aug 29, 2015] Here's Why The Markets Have Suddenly Become So Turbulent
Aug 29, 2015 | Zero Hedge
Submitted by Charles Hugh-Smith via PeakProsperity.com,When stock markets are free-falling 10+% in a matter of days, it's natural to seek some answers to the question "why now?"
Some are saying it was all the result of high-frequency trading (HFT), while others point to China's modest devaluation of its currency the renminbi (a.k.a. yuan) as the trigger.
Trying to finger the proximate cause of the mini-crash is an interesting parlor game, but does it really help us identify the trends that will shape markets going forward?
We might do better to look for trends that will eventually drag markets up or down, regardless of HFT, currency revaluations, etc.
Five Interconnected TrendsAt the risk of stating the obvious, let's list the major trends that are already visible.
1. The China Story is OverAnd I don't mean the high growth forever fantasy tale, I mean the entire China narrative is over:
- That export-dependent China can seamlessly transition to a self-supporting consumer economy.
- That China can become a value story now that the growth story is done.
- That central planning will ably guide the Chinese economy through every rough patch.
- That corruption is being excised from the system.
- That the asset bubbles inflated by a quadrupling of debt from $7 trillion in 2007 to $28 trillion can all be deflated without harming the wealth effect or future debt expansion.
- That development-dependent local governments will effortlessly find new funding sources when land development slows.
- That workers displaced by declining exports and automation will quickly find high-paying employment elsewhere in the economy.
I could go on, but you get the point: the entire Story is over. (I explained why in a previous essay, Is China's "Black Box" Economy About to Come Apart? )
This is entirely predictable. Every fast-growing economy starting with near-zero debt and huge untapped reserves of cheap labor experiences an explosive rise as the low-hanging fruit is plucked and the same abrupt stall and stagnation when the low-hanging fruit has all been harvested, leaving only the unavoidable results of debt-fueled speculation: an enormous overhang of bad debt, malinvestment (a.k.a. bridges to nowhere and ghost cities) and policies that seemed brilliant in the good old days that are now yielding negative returns.
2. The Emerging Market Story Is Also DoneEmerging currencies and markets have soared on the back of the China Story, as China's insatiable demand for oil, iron ore, copper, soy beans, etc. drove global demand to unparalleled heights.
This demand pushed prices higher, which then pushed production (supply) higher, as the low cost of capital globally enabled marginal resources to be put into production with borrowed money.
Now that China's demand has fallen off-by some accounts, China's GDP is actually in negative territory, despite official claims that it's still growing at 7% annually-commodity prices have crashed, taking the emerging markets' stock and currency markets down. (Source)
Here is a chart of Doctor Copper, a bellwether for industrial and construction demand:
Here is Brazil's stock market, which has declined 54% in the past 12 months:
These are catastrophic declines, and with China's growth story over, there is absolutely nothing on the global horizon to push demand back up.
3. Diminishing Returns on Additional DebtThe simple truth is that expanding debt has fueled global growth. Though people identify China as the driver of global demand for commodities, China's growth is debt-driven. As noted above, China quadrupled its officially tracked debt from $7 trillion in 2007 to $28 trillion as of mid-2014-an astonishing 282 percent of gross domestic product (GDP). If we add the estimated $5 trillion of shadow-banking system debt and another year's expansion of borrowing, China's total debt of $35+ trillion is in excess of 300% of GDP-levels associated with doomed to default states such as Greece and Spain.
While China has moved to open the debt spigot in recent days by lowering interest rates and reserve requirements, this doesn't make over-indebted borrowers good credit risks or more empty high-rises productive investments.
Borrowed money that poured into ramping up production in emerging nations is now stranded as prices have plummeted, rendering marginal production intensely unprofitable.
In sum: greatly expanding debt boosted growth virtually everywhere after the Global Financial Meltdown of 2008-2009. That fix is a one-off: not even China can quadruple its $35+ trillion debt to $140 trillion to reignite growth.
Here is a sobering chart of global debt growth:
4. Limits on Deficit-Spending (Borrowed) Fiscal StimulusWhen the global economy rolled over into recession in 2008, governments borrowed money by selling sovereign bonds to fund increased state spending. In the U.S., federal borrowing soared to over $1 trillion per year as the government sought to replace declining private spending with public spending.
Governments around the world have continued to run large deficits, piling up immense debts since 2008. The global move to near-zero yields has enabled governments to support these monumental debt loads, but even at near-zero yields, the interest payments are non-trivial. These enormous sovereign debts place some limits on how much governments can borrow in the next global recession-a slowdown many think has already started.
Here is a chart of U.S. sovereign debt, which has almost doubled since 2008:
As noted on the chart: what structural inadequacies or problems did governments fix by borrowing gargantuan sums to fund state spending? The basic answer is: none. All the same structural problems facing governments in 2008 remain untouched in 2015. These include: over-indebtedness, bad debts that haven't been written down, insolvent banks, soaring social spending as the worker-retiree ratio slips below 2-to-1, externalized environmental damage that has yet to be remediated, and so on.
5. Central Bank Stimulus (Quantitative Easing) as Social Policy Has Been DiscreditedIn the wake of the Global Financial Meltdown of 2008-2009, central banks launched monetary stimulus programs aimed at pumping money into the economy via bank lending. The stated goals of these stimulus programs were 1) boost employment (i.e. lower unemployment) and 2) generate enough inflation to stave off deflation, which is generally viewed as the cause of financial depressions.
While it can be argued that these unprecedented monetary stimulus programs achieved modest successes in terms of lowering unemployment and pushing inflation above the zero line, they also widened wealth and income inequality.
Even as these programs made modest dents in unemployment and deflation, they pushed asset valuations to the moon-assets largely owned by the few at the top of the wealth pyramid.
Here is a chart of selected developed economies' income/wealth skew:
The widespread recognition that the benefits of central bank stimulus mostly flowed to the top of the pyramid places political limits on future central bank stimulus programs.
The 2008-09 Fixes Are No Longer AvailableIn summary, the fixes for the 2008-09 recession are no longer available in the same scale or effectiveness. Expanding debt to push up demand and investment, rising state deficit spending, massive monetary stimulus programs-all of these now face limitations. This means the central banks and states have very limited tools to reignite growth as global recession trims borrowing, investment, hiring, sales and profits.
What Ultimately Matters: Capital FlowsIn Part 2: What Happens Next Will Be Determined By One Thing: Capital Flows, we'll look at the one dynamic that ultimately establishes assets prices: capital flows.
I personally don't think the world has experienced a period in which capital preservation has become more important than capital appreciation since the last few months of 2008 and the first few months of 2009. Other than these five months, the focus has been on speculating to obtain the highest possible yield/appreciation.
This suggests to me that the next period of risk-off capital preservation will last a lot longer than five months, and perhaps deepen as time rewards those who adopted risk-off strategies early on.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
A_MacLarenthunderchiefSure would be nice if the the Tylers would post up a real discussion about the Markets vs the Real Economy, policy failures and problems aren't resolved with the same thinking that created them.
Except the Central Wankers aren't really interested in the real economy, only the fictious one that wears the mask of financial markets.
https://www.youtube.com/watch?v=lA0BbDe2RL4
Are we experiencing the Great Recession of 2015 or merely a painful paradigm shift in how the global economy is run? Many in the West quickly blame China for mismanagement of its economy and currency. This may or may not be true, but this is only a small fraction of a much bigger story. Has anything been learned since the financial crisis of 2008?
CrossTalking with Mitch Feierstein, Stephen Keen, and Mark Weisbrot.
Last week, 28 billion pulled out of the Market.
28 billion pumped in by the PPT, to keep the market from accelerating into margin calls and panic.
Ready, set, go on Monday. .Anyone else want out while the fed props this crap up a little longer?
junction
The markets are turbulent because people with insight are pulling their money out of the market, flight capital in the face of a fast spreading global war. Obama's ISIS is now out of control, there is a mass migration from war zones in the Middle East and North Africa and, worse of all, jihadists are pouring into Western Europe and America. Smiling, friendly jihadists like the guy who wanted to kill everyone on that French train. I wonder if, behind that smile, Obama also is a jihadist? Nah, he is a NWO follower through and through.
Stroke
B2uWhat Ultimately Matters: Capital Flows.....
Sounds like somebody's been reading Martin Armstron's blognovictim"We will not have any more crashes in our time."
- John Maynard Keynes in 1927polo007...he said, assuming that his sound policies would be followed to the letter.
That the fiscal policies of Keyenes have been ingored in favor of monetary policy that just feeds asset bubbles lets Keynes off the hook.
I might add that Keynes believed in cutting deficits and increasing taxes in prosperious years and the opposite in down years. No one can say that his policies have been followed in the least.
Temerity Traderhttp://www.barrons.com/articles/quantitative-easing-redux-1440826605
Quantitative Easing Redux?
Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference.
By Vito J. Racanelli
August 29, 2015
If a "rate hike" is Wall Street's obsession this year, the effective opposite, "quantitative easing," gets much less mention after three mammoth rounds of central-bank asset buying, or quantitative easing, in the past few years. But what's that we hear? Another thing the Fed's Dudley said last Wednesday was, "I'm a long way from quantitative easing. The U.S. economy is performing quite well."
Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference. "It will take less than a 20% decline in U.S. stock prices for the Fed to begin discussing a new round of quantitative easing," says Darren Pollock, a portfolio manager with Cheviot Value Management.
On several occasions in recent years, a Fed official has stepped in with easing statements following market routs. The Fed knows it can't let the stock market fall without backpedaling on its tough monetary talk, Pollock says. It must try to keep stock prices from plummeting and pulling down consumer confidence, which could affect the economy.
Stocks recovered big-time last week, but remain vulnerable. Should the market fall some more, Pollock says, "It may force the Fed to do a U-turn and speak of a willingness to provide more stimulus-like QE."
The Fed won't let all the effort and money invested in propping up the economy since 2008 go to waste. It won't stand at the plate and strike out looking. The Yellen put lives.
If the Fed bankers are so f***ing omnipotent, then they would NEVER let the markets drop at all. Why should they? It just makes the highly trained and obedient lemmings, get fearful and panic. The Dow tumbled almost 3,000 points from its recent Fed-enabled all time-high. Why did they not stop it, and stop EVERY fall, at -250 or so? Why did they not stop the last big decline to below 7K? Everyone would remain blissfully ignorant and living happily ever after in their personal 'Matrix'. If the Fed wound up owning 50% of the entire market float, who cares so long as millions of 401K's go up?
Or, are these falls engineered conspiracies only designed to allow the wealthy to put billions in cash to work, before the next Fed pump begins? Maybe. At any rate, if the "growth" story is really dead and millions more immigrants just accelerate the decline of America, than more debt to hide the mess will fail. Entitlements will have to be cut, sowing the seeds of more anger in the entitled masses.
In the end, Mr. Market will tame and humble even the arrogant Fed bankers and the multitudes who worship them.
I Write Code
CHS swings, and misses.
QE as social policy was never more than an academic's vaporous apparition, like the succubus scene in Ghostbusters.
Here's my take on the "China Story", which is they've now stolen all the manufacturing they can and now, for the first time in twenty years, can no longer grow by mere theft (of course I mean "theft" in a good way, they work smart and hard to "steal" manufacturing from the US and Europe, it's the vulture capitalists at *our* end who are the criminals).
And, maybe their vaunted central planners didn't see this coming and they smashed through the wall and over the cliff. Oops.
But y'know, it's not a disaster for all that, just an overshoot that requires a correction. It's not like China is about to dry up and blow away.
TeethVillage88s
Charles Hugh Smith has done twice as well as I could have done here.
I like what he explained about China for instance. I'm still reading through it, think this would be great to forward to the DNC, RNC, and Congressmen.
The Federal Reserve Created our Banking System.
I think it is fair to place the blame on the FED and to end the FED on this basis... while stressing the S&L Crisis, the Deregulation, and the 2008 Global Financial Collapse which surely might have triggered a war with Europe. And the fact that the US TBTF Banks are much bigger than European Banks since the crisis even though the are responsible for poor stewardship of the World Reserve Currency and for Toxic Paper spread to pension funds world wide.
Of course the solutions will be more controversial than this article that lays out part of the problem or symptoms.
Solutions are like the Third Rail.
tall sarah
The multiple rounds of QE and ZIRP put the markets and the economy on a course for failure. There were four trends in place before the Great Depresion and FED POLICIES cemented those trends in place for this time period.
1. the rich got richer- thanks to QE/ZIRP
2. investing turned to speculation- on steroids thanks to QE/ZIRP
3. soaring market credit- thanks to QE and ZIRP
4. lagging business investment- stock buybacks are at all time highs since tracking began in 1990. Stock buy backs are not a business investmet. They are a disinvestment. A stock buy back is a loud and clear signal that there is no reason to invest in the business because economic conditions are not present that would allow the business to recoup those monies.
The FED is the ultimate cause of all our woes as everyone at this site knows. Spread the word to those who do not. Preaching to the choir will not bring the end to the FED.
Berspankme
Don't forget to mention that US and EU enables China's corruption to continue by providing a safe place for money laundering. Asset prices in US are dramatically effected by China and other EM's corrupt practices
[Aug 27, 2015] Smoke and Mirrors of Corporate Buybacks Behind the Market Crash
"...What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term."
.
"...Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation."
.
"...HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.
.
So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring."
.
"...What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce."Michael Hudson, the author of Killing the Host: How Financial Parasites and Debt Destroy Global Economy, says the stock market crash on Monday has very little to do with China and all to do with shortermism and buybacks of corporations inflating their own stocks - August 25, 2015
... ... ...
And this is what most of the commentators don't get, that all this market runoff we've seen in the last year or two has been by the Federal Reserve making credit available to banks at about one-tenth of 1 percent. The banks have lent out to brokers who have lent out to big institutional traders and speculators thinking, well gee, if we can borrow at 1 percent and buy stocks that yield maybe 5 or 6 percent, then we can make the arbitrage. So they've made a 5 percent arbitrage by buying, but they've also now lost 10 percent, maybe 20 percent on the capital.
What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term.
Now, it's amazing how today's press doesn't get it. For instance, in the New York Times Paul Krugman, who you can almost always depend to be wrong, said the problem is there's a savings glut. People have too many savings. Well, we know that they don't in America have too many savings. We're in a debt deflation now. The 99 percent of the people are so busy paying off their debt that what is counted as savings here is just paying down the debt. That's why they don't have enough money to buy goods and services, and so sales are falling. That means that profits are falling. And people finally realize that wait a minute, with companies not making more profits they're not going to be able to pay the dividends.
Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation.
PERIES: Michael, explain how buybacks are actually causing this. I don't think ordinary people quite understand that.
HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.
So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring.
PERIES: Michael, Lawrence Summers is tweeting, he writes, as in August 1997, 1998, 2007 and 2008, we could be in the early stages of a very serious situation, which I think we can attribute some of the blame to him. What do you make of that comment, and is that so? Is this the beginnings of a bigger problem?
HUDSON: I wish he would have said what he means by 'situation'. What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce.
So the real situation is in the real economy, not the financial economy. But Lawrence Summers and the Federal Reserve all of a sudden say look, we're not really trying–we don't care about the real economy. We care about the stock market. And what you've seen in the last few years, two years I'd say, of the stock runup, is something unique. For the first time the stock, the central banks of America, even Switzerland and Europe, are talking about the role of the central bank is to inflate asset prices. Well, the traditional reason for central banks that they gave is to stop inflation. And yet now they don't want, they're trying to inflate the stock market. And the Federal Reserve has been trying to push up the stock market purely by financial reasons, by making this low interest rate and quantitative easing.
Now, the Wall Street Journal gets it wrong, too, on its editorial page. You have an op-ed by Gerald [incompr.], who used to be on the board of the Dallas Federal Reserve, saying gee, the problem with low interest rates is it encourages long-term investment because people can take their time. Well, that's crazy Austrian theory. The real problem is that low interest rates provide money to short-term speculators. And all of this credit has been used not for the long term, not for investment at all, but just speculation. And when you have speculation, a little bit of a drop in the market can wipe out all of the capital that's invested.
So what you had this morning in the stock market was a huge wipeout of borrowed money on which people thought the market would go up, and the Federal Reserve would be able to inflate prices. The job of the Federal Reserve is to increase the price of wealth and stocks and real estate relative to labor. The Federal Reserve is sort of waging class war. It wants to increase the assets of the 1 percent relative to the earnings of the 99 percent, and we're seeing the fact that this, the effect of this class war is so successful it's plunged the economy into debt, slowed the economy, and led to the crisis we have today.
PERIES: Michael, just one last question. Most ordinary people are sitting back saying well, it's a stock market crash. I don't have anything in the market. And so I don't have to really worry about it. What do you say to them, and how are they going to feel the impact of this?
HUDSON: It's not going to affect them all that much. The fact is that so much of the money in the market was speculative capital that it really isn't going to affect them much. And it certainly isn't going to affect China all that much. China is trying to develop an internal market. It has other problems, and the market is not going to affect either China's economy or this. But when the 1 percent lose money, they scream like anything, and they say it's the job of the 99 percent to bail them out.
PERIES: What about your retirement savings, and so on?
HUDSON: Well, if the savings are invested in the stock market in speculative hedge funds they'd lose, but very few savings are. The savings have already gone way, way up from the market. And the market is only down to what it was earlier this year. So the people have not really suffered very much at all. They've only not made as big of gains as they would have hoped for, but they're not affected.
... ... ...Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
'Did Socialism Keep Capitalism Equal?'
"...The basic fact is that there is no question that when the Soviet system fell, and the USSR fell apart, and the Warsaw Pact and COMECON all ceased to exist, and communist parties fell out of power, the upshot was that Gini coefficients in all of these nations, as well as in China as well. What is not always talked about, although I have authored some papers with coauthors on this, now out of date, is that the rate of increase in inequality in these transition (really formerly transition) economies has varied enormously."
"...So, my speculation that one reason why we have seen higher price/earnings ratios in many western stock markets since 1990 has simply been indeed that the risk of nationalization has been removed. It was never that serious in the US, but it was still there in the background. But after the fall of Soviet communism, this perceived risk really went to basically zero. Upshot, a permanent jump in those price/earnings ratios, although maybe in some nations this will change. "
economistsview.typepad.comBranko Milanovic:
Did socialism keep capitalism equal?: This is an interesting idea and I think that it will gradually become more popular. The idea is simple: the presence of the ideology of socialism (abolition of private property) and its embodiment in the Soviet Union and other Communist states made capitalists careful: they knew that if they tried to push workers too hard, the workers might retaliate and capitalists might end up by losing all.Now, this idea comes from the fact that rich capitalist countries experienced an extraordinary period of decreasing inequality from around 1920s to 1980s, and then since the 1980s, contradicting what a simple Kuznets curve would imply, inequality went up. It so happens that the turning point in 1980s coincides with (1) acceleration of skill-biased technological progress, (2) increased globalization and entry of Chinese workers into the global labor market, (3) pro-rich policy changes (lower taxes), (4) decline of the trade unions, and (5) end of Communism as an ideology. So each of these five factors can be used to explain the increase in inequality in rich capitalist countries.
The socialist story recently received a boost from two papers.
I am not sure that this particular story can alone explain the decline in inequality in the West, and certainly it is a story that one hears less often in the US than in Europe, as the United States believed itself to be sufficiently protected from the Communist virus (although when you look at the repression in the 1920s and McCarthyism in the 1950s, one is not so sure). But even Solow's recent mention of the changing power relations between capitalists and workers (the end of the Detroit treaty) as ushering in the period of rising inequality is not inconsistent with this view. In a recent conversation, and totally unaware of the literature, an Italian high-level diplomat explained to me why inequality in Italy increased recently: "in then 1970s, capitalists were afraid of the Italian Communist Party". So there is, I think, something in the story.
The implication is of course rather unpleasant: left to itself, without any countervailing powers, capitalism will keep on generating high inequality and so the US may soon look like South Africa. That's where I think differently: I think there are, in the longer-term, forces that would lead toward reduction in inequality (and that would not be the return of Communism).
Posted by Mark Thoma on Saturday, August 22, 2015 at 11:52 AM in Economics, Income Distribution | Permalink Comments (65)
doug
Is the implication unpleasant? Inequality will remain high unless the forces that aim to curb it reclaim some amount of social power; discursively, this will look like "socialism becoming more popular again," but put in these broader terms, the argument is almost tautological-- power will remain unequal if power remains unequal.mulp -> dougSocialism is based on a free lunch economic theory...What we have today in the US is basically free lunch economics that idiots call capitalism, but that is really pillage and plunder, monopoly rent seeking, with capital asset destruction to create monopoly power, and most important, government crony lending to consumers to pay for profits while trying to eliminate all workers to eliminate all labor costs.
The ideology is pervasive in the optimism that everyone else that works will be replaced by robots and the authors will be one of the elites getting paid to explain how great it is that there are no workers and how fantastic wealth has produced massive growth in consumer spending to generate Jeb!'s 4% GDP growth forever.
In free lunch economics, the ideal economy has profit equal consumer spending equal GDP and labor cost equal zero.
This replaced the dismal science economics of the era which created the middle class American Dream.
What was dismal is GDP was limited to the wages paid all the workers.
What was dismal was profits were pretty much zero every where and capitalists were rewarded with returns on their money they paid workers to build productive capital assets which came from paying workers enough to buy what the capital assets plus labor produced.
What was dismal was needing to have savings, steady income, to get a loan to buy an asset that cost more to build than the loan amount.
What was dismal was having to pay taxes to have the educated workers corporations needed, having to pay taxes to have the roads, rail, water, energy, air travel, etc workers and corporations needed for a growing economy.
Free lunch economics calls for replacing everything dismal with the invisible hand full of cash which will pay whatever price you charge for the stuff you produce without paying workers.
Workers might be suffering with low incomes, but if they can't or won't borrow and spend, the capitalist rent seekers suffer.
Mitt Romney, Jeb!, and Trump promise a free lunch - they will produce lots of paying customers buying a lot more GDP to produce high growth WITHOUT PAYING WORKERS A PENNY MORE by getting the dismal Obama out of the way who is blocking tax cuts that will put money in your pocket to spend, and blocking loans to buy the food and vacation you want on the stupid requirement you have income and assets.
DrDick -> mulp
Obviously you have no understanding of communism or socialism, but that is just a small part of a much longer list. Capitalism is the embodiment of "free lunch economics", at least for the rich. Communism/socialism just rewards productive workers, not capitalist parasites. Reply Saturday, August 22, 2015 at 04:36 PMProcopius -> mulpActually, socialism is based on a "just deserts" social theory. Under capitalism, the owner of capital has power to distribute gains from an enterprise that employs both capital and labor. Under socialism, the owner of capital is the government, which is supposed to be more responsive to the needs of the people. In practice than hasn't worked out well, but that doesn't prove it couldn't. Capitalism works a lot better when there's some government intervention as a countervailing power, especially when they adopt policies permitting the organization of laborers, which has been seriously eroded since Reagan and Volcker.ilsm -> mulp
Socialism received only violent answers, because socialist free lunch for the masses is always better than the hoarding endemic to cappitalism as practiced by the fasicsts.Violence breed violence and dictators.
The billionaires started it.
Bounader Lahcen
Hello,Carol -> Bounader Lahcen
I find your idea very interesting, but it is hard to generalize this story. In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism. Firstly, in a socialist economy there is no motivation to work hard and progress and this fact involves a huge gap between workers and the leadership of ,say, a state-owned firms. Secondly, when there is no motivation no progress, the stagnation would be in place and in this particularly case we can't talk about inequality because all people are in a bad situation (poverty). Finaly, socialism in my view is not efficient and the history said his word by the abolition of socialism.Yep, we see all those lazy Scandinavians and French etc swanning around lacking motivation to work which is why they are more productive than US workersanne -> Bounader Lahcen
In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism...[ What country would serve as a specific example and in what way would there be more inequality in that more socialist country than in the United States? The United Kingdom, Australia, Canada, Germany, France, Netherlands, Japan
anne -> anne
In some cases, I would say that it is socialism that creates more inequalities in society not the capitalism[ I still cannot think of an example. ]
Procopius -> anne
I suspect he's thinking of the former Soviet Union and such Eastern European countries as Albania. I don't know how we could compare the inequality in those places with the current U.S. Certainly there was great inequality, but it was based on family connections, party connections, and personal ability to bullshit. I don't see how that's different from what we're living with now, and the capitalist system uses government power to deflect wealth to the elite as much as the former "socialist" countries did. Reply Saturday, August 22, 2015 at 07:15 PMBen Groves -> Bounader LahcenIt depends on whether liberal or conservatives run socialism. Liberals would try to make it universal Christian melting pot. Conservatives would make it Pagan tribal and war against other tribes.Many leftists over the years have a very conservative streak.
ilsm -> Ben Groves
Logical fallacies.DrDick -> Bounader LahcenAnother refugee from the John Birch chapter of the Chamber of Commerce. Do you have any idea what you are talking about?Ben Groves -> DrDick
I am the anti-Bircher. Birchers are rich, wall street scum trying to destroy the country. I despise Propertarianism. Lets remember, the split between the Democrats wasn't just necessarily the low income religious people, but from the elitist, secular types who saw the Democratic turn toward Affirmative Action and Forced Buses as racial treason. They may have been even ones that turned a blind eye toward years of Civil Rights, saying the time to move on had come. The 70's "reforms" were just to much. They saw the party backing away from Populism and instead, using special interest to keep their seat of power in the 70's to cultural groups. Hubert Humphrey very much warned us against that, yet, they did. I always saw the people attracted to AA and forced busing as "Progressive Republicans" hiding as Democrats. It is the deep injury in the Democratic Party that has never been shown to the public or healed. Their mentality and cheap parlor tricks were very Republican historically(which modern Republicans still use to support neo-conism, propertarianism and other wealthy schemes). Reply Saturday, August 22, 2015 at 09:38 PMDrDick -> Ben GrovesWTF? Do you have any idea what you are talking about? Having you been taking history lessons at Stormfront?ilsm -> Bounader Lahcen
Actually, basic science thrived in Soviet sphere. Reply Sunday, August 23, 2015 at 04:53 AMilsm -> Bounader LahcenStart with fallacy and go down from there. Reply Sunday, August 23, 2015 at 04:55 AManne
https://twitter.com/vijayprashadVijay Prashad @vijayprashad
The links between @jeremycorbyn and Genghiz Khan. Be very afraid. https://markfiddaman.wordpress.com/2015/08/21/6-links-jeremy-corbyn-doesnt-want-you-to-know-about/ …
anne -> anne
http://krugman.blogs.nytimes.com/2015/08/04/corbyn-and-the-cringe-caucus/August 4, 2015
Corbyn and the Cringe Caucus
By Paul KrugmanI haven't been closely following developments in UK politics since the election, but people have been asking me to comment on the emergence of Jeremy Corbyn as a serious contender for Labour leadership. * And I do have a few thoughts.
First, it's really important to understand that the austerity policies of the current government are not, as much of the British press portrays them, the only responsible answer to a fiscal crisis. There is no fiscal crisis, except in the imagination of Britain's Very Serious People; the policies had large costs; the economic upturn when the UK fiscal tightening was put on hold does not justify the previous costs. More than that, the whole austerian ideology is based on fantasy economics, while it's actually the anti-austerians who are basing their views on the best evidence from modern macroeconomic theory and evidence.
Nonetheless, all the contenders for Labour leadership other than Mr. Corbyn have chosen to accept the austerian ideology in full, including accepting false claims that Labour was fiscally irresponsible and that this irresponsibility caused the crisis. As Simon Wren-Lewis says, ** when Labour supporters reject this move, they aren't "moving left", they're refusing to follow a party elite that has decided to move sharply to the right.
What's been going on within Labour reminds me of what went on within the Democratic Party under Reagan and again for a while under Bush: many leading figures in the party fell into what Josh Marshall used to call the "cringe", basically accepting the right's worldview but trying to win office by being a bit milder. There was a Stamaty cartoon during the Reagan years that, as I remember it, showed Democrats laying out their platform: big military spending, tax cuts for the rich, benefit cuts for the poor. "But how does that make you different from Republicans?" "Compassion - we care about the victims of our policies."
I don't fully understand the apparent moral collapse of New Labour after an election that was not, if you look at the numbers, actually an overwhelming public endorsement of the Tories. But should we really be surprised if many Labour supporters still believe in what their party used to stand for, and are unwilling to support the Cringe Caucus in its flight to the right?
* http://www.theguardian.com/commentisfree/2015/aug/03/jeremy-corbyn-new-labour-centre-left
** http://mainly macro.blogspot.com/2015/07/corbyns-popularity-and-relativistic.html Reply Saturday, August 22, 2015 at 12:09 PM
anne -> anne
http://www.independent.co.uk/voices/comment/with-hundreds-of-thousands-of-new-supporters-labour-is-on-the-verge-of-something-big--what-a-complete-disaster-10454504.htmlAugust 14, 2015
With hundreds of thousands of new supporters, Labour is on the verge of something big – what a complete disaster!
Having loads of young voters engage with your party must be terrifying
By MARK STEELIt's easy to see why those in charge of the Labour Party are so depressed. They must sit in their office crying: "Hundreds of thousands of people want to join us. It's a disaster. And loads of them are young, and full of energy, and they're really enthusiastic. Oh my God, why has it all gone so miserably wrong?"
Every organisation would be the same. If a local brass band is down to its last five members, unsure whether it can ever put on another performance, the last thing it needs is young excited people arriving with trombones to boost numbers and raise money and attract large audiences. The sensible response is to tell them they're idiots, and announce to the press that they are infiltrators from the Workers' Revolutionary Party
anne -> anne
The sheer nuttiness of the Labour elite's fear of Labour's Jeremy Corbyn, tells me that from conservative to so-called liberal political parties through the West the operating ideas and policies are startlingly similar and actually conservative. How nice to have alternative social-economic ideas in political play to limit conservatism.anne -> annehttps://twitter.com/ggreenwaldGlenn Greenwald @ggreenwald
Lady Boothroyd joins Lord Falconer in warning about the gauche leftist hordes regrettably allowed to vote for Corbyn http://www.theguardian.com/politics/2015/aug/23/labour-heading-scrapheap-if-elects-jeremy-corbyn-betty-boothroyd …
anne -> anne
http://www.theguardian.com/politics/2015/aug/23/labour-heading-scrapheap-if-elects-jeremy-corbyn-betty-boothroydAugust 23, 2015
Labour heading for scrapheap if it elects Jeremy Corbyn, says Betty Boothroyd
Former Speaker of the Commons claims the leadership frontrunner's hard-left supporters are peddling same 'claptrap' that gripped the party in the 1980s
By Rajeev Syal - Guardianlilnev
Capitalism conquered socialism. Now it's in the process of conquering democracy.ilsm -> lilnevViolent capitalismDrDick -> ilsm
Is there any other kind? Henry Ford mounted .50 caliber machine guns on the roof of the Rouge plant.Carolyn KayFrom the book I'd write, if I could ever find a publisher:"Human greed can, and often does, go too far by treading on the needs and rights of others. In addition, the human need for security and the illusion of certainty tends to encourage the leaders of businesses to collude to set prices, carve up markets, and combine forces by merging their companies. Totally unfettered, the end result of capitalism would be one big company that made and sold everything everywhere, and that kept competitive businesses from existing-by force, if necessary. If you were to want something not made by this master conglomerate, named something like MicroMax, perhaps, you would not be able to get it."
http://bit.ly/Q3zdMU
Reply Saturday, August 22, 2015 at 12:41 PMpaine
The corporate titans won the kold war with the nixon-mao pact. Soon social democracy became a nuisance not a bulwarkNiq
no motivation to work in socialism?This comes I think from an argument about alienation but really makes no sense at all. After all, the vast majority of the workforce in modern capitalist societies have no meaningful ownership over their companies or what they produce.
Incentives are an issue of policy (whether it be corporate policy or whatever) We don't live in a world of billions of small business owners we live in a world of huge collective organizations that use some form of centralized planning.
If people need to have a stake to have a work ethic, then support collectivization of private industry (which is communism). Reply Saturday, August 22, 2015 at 01:37 PM
Procopius -> Niq
I think you're misunderstanding. The people who say that there's no motivation to work under socialism are thinking of CEOs of massive international corporations, who claim that the only reason they work is because they are paid millions of dollars a year.ilsm -> NiqThey think that if people weren't forced into the "vast reserve army of the unemployed" on the verge of starvation, they's spend all their time watching reality shows on the electric teevee machine.
Only greed motivates!ilsm -> ilsm
Keeping your country from third world status is not a motivator.The billionaires are fuill of it, but better comply or the US police equipped with MRAPs will take it out on you. Reply Sunday, August 23, 2015 at 05:00 AM
Dan Kervick
It's not just that socialism made capitalism more equal. Its presence in the intellectual-political mix produced a variety of mixed economy alternatives to capitalism which were adopted throughout the developed world. A large number of everyday and widely supported economic institutions and innovations originated in the thought of the socialists.In many countries, everyone seems to understand that the economic system they live under reflects a fusion of capitalist and socialist ideas, and so they call it "social democracy", "democratic socialism" or what have you. Americans have traditionally insisted for deep-seated ideological reasons on using the term "capitalism", come what may, and are in permanent denial about the socialist elements of their own system.
One thing the arrival of socialist ideas helped do was prevent the pre-capitalist or nascent capitalist societies of early modern Christian Europe from evolving into full-blown total capitalist barbarisms under the pressure of industrialization. Socialism and other, older forms of religious and humanitarian thought worked together to prevent the infernal machinery of capitalism from devouring everything. Reply Saturday, August 22, 2015 at 01:41 PM
anne
Brank Milanovic adds:http://glineq.blogspot.com/2015/08/did-socialism-keep-capitalism-equal_52.html
August 22, 2015
Did socialism keep capitalism equal?
I think the fundamental question that these and similar papers ask is the following: does capitalism contain "automatic stabilizers" that would curb the rise of inequality before it goes over the top; or do "stabilizers" always have to be revolutions, wars and economic crises? I do not think that we have an empirical answer to it. Reply Saturday, August 22, 2015 at 01:48 PM
anne -> anne
Naomi Klein, I suspect, would argue that conservatives have a purpose in and have become adept at using social upheavals to force movement away from social-democratic institutions. Reply Saturday, August 22, 2015 at 01:51 PMSecond BestEminent domain powers of the ruling oligarchy, deeply embedded inseparably in markets and government, also eliminate private property. Predatory socialism is disguised as capitalism, otherwise known as privatized gains and socialized losses.The top 1% has accumulated assets over $60 trillion including 49,000 families with assets over a billion dollars. Corporations contribute the lowest percentage of tax revenue in history, 1% of GDP.
The socialist-capitalist dichotomy is naive at best, anything but countervailing forces. Reply Saturday, August 22, 2015 at 01:54 PM
ilsm -> Second Best
The new Dudes.Naziism: "privatized gains and socialized losses."
No Krugge or "civil" Nazi was brought to Nuremburg.
Krugges abide! Reply Sunday, August 23, 2015 at 05:03 AM
It wasn't just communism. There were many countervailing forces: populism, the social gospel, democratic socialism of various kinds, labor movements, and political progressivism, not to mention the conservatism of older economic elites whose status was based primarily on land. What's novel about our situation is the scarcity of organized opposition to unfettered capitalism. Obviously that may change, but I'm impressed with the ability of the system to quickly co-opt its enemies. Reply Saturday, August 22, 2015 at 02:18 PMRichard Lee Bruce Econ PhCThe turn around in income distribution for the United States was in 1973, long before the fall of communism. The percentage of income going to the top one percent was declining until 72 or 73.The percentage falling below the poverty threshold was falling until 1973, and has not gotten back to the 73 level in the 42 years since then.
So 1973 was the inflection point. Of course 1973 was also the year that Roe was decided.
Abortion, Roe, the sexual revolution, and other social issues drove a wedge between religious voters and the Democratic Party. The Religious vote had been liberal, progressively it became conservative and Republican.
Religious voters have high voter turn out. Voting is a religious duty. So we particularly see the results in off year elections.
The religious are also far more fertile, so there influence grows, as they and their numbers grow.
On the other hand many factors are important and the article has mentioned one of them. Reply Saturday, August 22, 2015 at 03:30 PM
Paine -> Richard Lee Bruce Econ PhC
But after the Nixon Mao pactThe turning point of no return
Eric377 -> Paine
Thanks. I think determining what happened would be very difficult. The increase in competition from non-Detroit manufacturers was pressuring the dollar value of the added value. It is only value to the limit that customers buy the product. When GM and Chrysler sought protection about 40 years after 1970, the claims on the value of these firms by the UAW members and retirees were a very large contributor to the unsustainable situations they found themselves in. The Detroit treaty effects lasted much longer than the 1970s, but there was a lot less value to share relative to expectations.Ellis -> Eric377In other words, the workings of capitalism drives down wages.Redwood Rhiadra
"I think there are, in the longer-term, forces that would lead toward reduction in inequality (and that would not be the return of Communism)."There is such a long term force, of course. It is called climate change, which will make everyone equal by either killing them all, or, at best, what few survivors remain will be reduced to a Stone Age subsistence lifestyle.
Not exactly a rosy scenario. I'd like a solution that leads to more equality *without* the complete collapse of human civilization. Unfortunately, I don't actually see one. Reply Saturday, August 22, 2015 at 05:33 PM
Paine -> Redwood Rhiadra
Quietism till the rapture then ? Reply Saturday, August 22, 2015 at 06:00 PMI think there are four bits of information which support the socialism kept capitalism equal hypothesis. They are massive land reforms in Japan, Taiwan, South Korea and Italy. In each case the reform was enacted by conservatives ranging from center right to far right. In the cases of S. Korea, Taiwan and Italy there were very strong communist threats to the current government. In Japan there was a strong communist party and a militant socialist party.I think few doubted that the aim of the reformers was mainly to settle the issue. In fact, I think the pattern is that anti-communist egalitarianism actually works
http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.htmlThis lead to the, to me, shocking fact that, while leftists (such as myself) hated Chiang Kai-Shek, Taiwan achieved rapid growth with an anomalously equal income distribution (compared to other countries with similar per capita incomes).
Notably sincere socialists didn't always manage so well. I think (as argued in the linked post) that an eagerness to settle the class conflict permanently tends to promote effective policy. Reply Saturday, August 22, 2015 at 06:56 PM
ilsm -> Robert Waldmann
Gimo?He was Mao's supply officer while the Birchers legislated huge arms support.
Once Mao got to the Yantgze Chiang's mask fell away.
Taiwan is about equally split today between Chiang fasicst, Formosans who see Chinese no better than Japanese and leftists favoring union.
Someday the enough fascists will be jailed for corruption
anne -> Robert Waldmann
I think there are four bits of information which support the socialism kept capitalism equal hypothesis. They are massive land reforms in Japan, Taiwan, South Korea and Italy. In each case the reform was enacted by conservatives ranging from center right to far right. In the cases of S. Korea, Taiwan and Italy there were very strong communist threats to the current government. In Japan there was a strong communist party and a militant socialist party[ Important argument, with which I would agree. Worth further writing about.
anne -> Robert Waldmann
https://research.stlouisfed.org/fred2/graph/?g=1APtAugust 4, 2014
Real Gross Domestic Product for China, Japan, Korea and Taiwan, 1954-2011
(Percent change)
https://research.stlouisfed.org/fred2/graph/?g=1APwAugust 4, 2014
Real Gross Domestic Product for China, Japan, Korea and Taiwan, 1954-2011
(Indexed to 1954) Reply Sunday, August 23, 2015 at 05:33 AM
anne -> Robert Waldmann
https://research.stlouisfed.org/fred2/graph/?g=1FXyAugust 4, 2014
Real Gross Domestic Product for China, Italy and Spain, 1953-2011
(Percent change)
https://research.stlouisfed.org/fred2/graph/?g=1FXzAugust 4, 2014
Real Gross Domestic Product for China, Italy and Spain, 1953-2011
(Indexed to 1953) Reply Sunday, August 23, 2015 at 05:42 AM
anne -> Robert Waldmann
In fact, I think the pattern is that anti-communist egalitarianism actually works:http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.html .
This lead to the, to me, shocking fact that, while leftists (such as myself) hated Chiang Kai-Shek, Taiwan achieved rapid growth with an anomalously equal income distribution (compared to other countries with similar per capita incomes)
[ Do write more on this matter. ]
anne -> Robert Waldmann
http://rjwaldmann.blogspot.com/2007/05/land-reform-in-venezuela-my-personal.htmlMay 17, 2007
Land Reform in Venezuela
By Robert WaldmannMy personal thought is that it's about time. This article is interesting but I think it is slanted against the land reform which is described as "brutal and legal" because
"The violence has gone both ways in the struggle, with more than 160 peasants killed by hired gunmen in Venezuela, including several here in northwestern Yaracuy State, an epicenter of the land reform project, in recent years. Eight landowners have also been killed here."
Sounds to me that the resistance to land reform is roughly 20 times as brutal as the land reform effort. The disproportion between quotes of supporters and opponents is much less extreme.
The part that irritated me (and makes an alternative title "why do people hate economists") is that "economists" appear to be all opposed to land reform.
"Economists say the land reform may have the opposite effect of what Mr. Chavez intends, and make the country more dependent on imported food than before
. Agricultural economists say the government bureaucracy, which runs a chain of food stores, is also rife with inefficiencies." Finally economists get a name:"Carlos Machado Allison, an agricultural economist at the Institute for Higher Administrative Studies in Caracas."
anne -> anne
http://www.nytimes.com/2007/05/17/world/americas/17venezuela.htmlMay 17, 2007
Clash of Hope and Fear as Venezuela Seizes Land
By SIMON ROMERO Reply Sunday, August 23, 2015 at 06:34 AMOne basic fact and one speculation.The basic fact is that there is no question that when the Soviet system fell, and the USSR fell apart, and the Warsaw Pact and COMECON all ceased to exist, and communist parties fell out of power, the upshot was that Gini coefficients in all of these nations, as well as in China as well. What is not always talked about, although I have authored some papers with coauthors on this, now out of date, is that the rate of increase in inequality in these transition (really formerly transition) economies has varied enormously.
So, the last measured Gini in the Soviet Union was .26, with Czechoslovakia around .20, and Maoist China at .16. Yes, these were probably too low due to non-counting of in-kind perks to nomenklatura elites, but, frankly, these generally were not all that great, and there were not that many privately held fortunes, given the lack of private ownership of capital. And if anybody does not think that Ginis in the US and other maraket capitalist nations are not understated, well, think about how much high income people hide their incomes and their wealth.
So, today US and China and Russia all have Ginis around .40. Much of western Europe and East Asia are in the upper 20s to mid-30s. But certain eastern European nations have maintained quite low Ginis, such as the Czech and Slovak Republics and Slovenia, and some other reasonably democratic and not overly corrupt of those nations, with Ginis still holding in the mid 20s. Big surprise that those that have maintained more equality have also generally done much better on many measures than those that have had their Ginis soar as corrupt new elites have seized control of the means of production.
So, my speculation that one reason why we have seen higher price/earnings ratios in many western stock markets since 1990 has simply been indeed that the risk of nationalization has been removed. It was never that serious in the US, but it was still there in the background. But after the fall of Soviet communism, this perceived risk really went to basically zero. Upshot, a permanent jump in those price/earnings ratios, although maybe in some nations this will change.
Ben Groves -> Barkley Rosser
Capitalism can continue on as long as the government bails it out. When it doesn't bail it out, you get depressions, collapse into socialism and tribalism. When there is nothing left for you, you bare arms and slaughter the decadent.ilsm -> Ben GrovesAs long as greed exceed charity in the popular view.anne -> Barkley Rosser
So, today US and China and Russia all have Ginis around .40. Much of western Europe and East Asia are in the upper 20s to mid-30s[ When possible set down the reference link to the database being used:
http://data.worldbank.org/indicator/SI.POV.GINI ?
http://www.lisdatacenter.org/lis-ikf-webapp/app/search-ikf-figures ? ]
Ben Groves
The US for example was a moderate fascist country from 1933-80 when the government ran investment cycles through public investment and using high marginal tax rates to literally force the wealthy to invest nationally. Then it became a Oligopoly slowly over time from 1983 onward, when the state began to disinvest and capital concentration took off by the 90's.Another big part that went into that was the end of military spending and north sea oil findings. In 1979, everybody was bleak. The Soviet Union was going to last for the foreseeable future, keeping spending high. The world was running out of oil. That all changed by 1981. The Soviet empire was turning into a joke and its Afgan follies were looking bad. The North Sea oil finds helped spur the cheap economy oil onward. The "rich" became cool again. So the political theme was to allow them more latitude. Lets don't forget, businesses were pumping assets into foreign countries even in the 60's. One of them was China well before 1997. The final end of the cold war tripe pushed that on steroids.
So we live in a world without any real military threats outside "terrorists" (which itself is suspicious in their financing) and global capital flows. No longer is investment seen as the path toward happiness, but consumption. Real PCE replaced industrial production as "the" bean counter boosting valuations for the wealthy with credit expansion its chariot.
ilsm -> Ben Groves
Today the US spends more on war in real $ than when it had 500K engaged in Vietnam blowing up nationalists at decent profit per body count, with a good number a tripwire against the 40000 tanks the soviets had parked facing west.
naked capitalism
By Steve Horn, a Madison, WI-based Research Fellow for DeSmogBlog and a freelance investigative journalist. He previously was a reporter and researcher at the Center for Media and Democracy. Originally published at DeSmogBlog.Emails released on July 31 by the U.S. State Department reveal more about the origins of energy reform efforts in Mexico. The State Department released them as part of the once-a-month rolling release schedule for emails generated by former U.S. Secretary of State Hillary Clinton, now a Democratic presidential candidate.
Originally stored on a private server, with Clinton and her closest advisors using the server and private accounts, the emails confirm Clinton's State Department helped to break state-owned company Pemex's (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create.
The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio.
The Trio
David Goldwyn, who was the first International Energy Coordinator named by Secretary of State Hillary Clinton in 2009, sits at the center of the story. As revealed by DeSmog, the State Department redacted the entire job description document for the Coordinator role.
Goldwyn now runs an oil and gas industry consulting firm called Goldwyn Global Strategies, works of counsel as an industry attorney at the law firm Sutherland Asbill & Brennan, and works as a fellow at the industry–funded think tanks Atlantic Council and Brookings Institution.
The emails show that, on at least one instance, Goldwyn also used his private "[email protected] " (Goldwyn Global Strategies) email address for State Department business.
It remains unclear if he used his private or State Department email address on other instances, as only his name appears on the other emails. But Cheryl Mills, a top aide to Secretary Clinton at the time, initiated the email that he responded to on his private account.
Aug 08, 2015 | Zero Hedge
For all the talk of how the financial world nearly ended in the aftermath of first the Lehman bankruptcy, then the money market freeze, and culminating with the AIG bailout, and how bubble after Fed bubble has made the entire financial system as brittle as the weakest counterparty in the collateral chain of some $100 trillion in shadow liabilities, the truth is that despite all the "macroprudential" planning and preparations, all the world's credit, housing, stock, and illiquidity bubbles may be nothing when compared to the oldest "glitch" in the book: a simple cascading error which ends up taking down the entire system.
Like what happened in the great quant blow up August 2007.
For those who may not recall the specific details of how the "quant crash" nearly wiped out all algo and quant trading hedge funds and strats in a matter of hours if not minutes, leading to tens of billions in capital losses, here is a reminder, and a warning that the official goalseeked crisis narrative "after" the fact is merely there to hide the embarrassment of just how close to total collapse the global financial system is at any given moment.
The following is a true story (courtesy of b3ta) from the archives, going all the way back to 2007:
I.T. is a minefield for expensive mistakes
There's so many different ways to screw up. The best you can hope for in a support role is to be invisible. If anyone notices your support team at all, you can rest assured it's because someone has made a mistake. I've worked for three major investment banks, but at the first place I witnessed one of the most impressive mistakes I'm ever likely to see in my career. I was part of the sales and trading production support team, but thankfully it wasn't me who made this grave error of judgement...
(I'll delve into obnoxious levels of detail here to add color and context if you're interested. If not, just skip to the next chunk, you impatient git)
This bank had pioneered a process called straight-through processing (STP) which removes the normal manual processes of placement, checking, settling and clearing of trades. Trades done in the global marketplace typically have a 5-day clearing period to allow for all the paperwork and book-keeping to be done. This elaborate system allowed same-day settlement, something never previously possible. The bank had achieved this over a period of six years by developing a computer system with a degree of complexity that rivalled SkyNet. By 2006 it also probably had enough processing power to become self-aware, and the storage requirements were absolutely colossal. It consisted of hundreds of bleeding edge compute-farm blade servers, several Łmulti-million top-end database servers and the project had over 300 staff just to keep it running. To put that into perspective, the storage for this one system (one of about 500 major trading systems at the bank) represented over 80% of the total storage used within the company. The equivalent of 100 DVD's worth of raw data entered the databases each day as it handled over a million inter-bank trades, each ranging in value from a few hundred thousand dollars to multi-billion dollar equity deals. This thing was BIG.
You'd think such a critically important and expensive system would run on the finest, fault-tolerant hardware and software. Unfortunately, it had grown somewhat organically over the years, with bits being added here, there and everywhere. There were parts of this system that no-one understood any more, as the original, lazy developers had moved company, emigrated or *died* without documenting their work. I doubt they ever predicted the monster it would eventually become.
A colleague of mine one day decided to perform a change during the day without authorisation, which was foolish, but not uncommon. It was a trivial change to add yet more storage and he'd done it many times before so he was confident about it. The guy was only trying to be helpful to the besieged developers, who were constantly under pressure to keep the wretched thing moving as it got more bloated each day, like an electronic 'Mr Creosote'.
As my friend applied his change that morning, he triggered a bug in a notoriously crap script responsible for bringing new data disks online. The script had been coded in-house as this saved the bank about Ł300 per year on licensing fees for the official 'storage agents' provided by the vendor. Money that, in hindsight, would perhaps have been better spent instead of pocketed. The homebrew code took one look at the new configuration and immediately spazzed out. This monged scrap of pisspoor geek-scribble had decided the best course of action was to bring down the production end of the system and bring online the disaster recovery (DR) end, which is normal behaviour when it detects a catastrophic 'failure'. It's designed to bring up the working side of the setup as quickly as possible. Sadly, what with this system being fully-replicated at both sites (to [cough] ensure seamless recovery), the exact same bug was almost instantly triggered on the DR end, so in under a minute, the hateful script had taken offline the entire system in much the same manner as chucking a spanner into a running engine might stop a car. The databases, as always, were flushing their precious data onto many different disks as this happened, so massive, irreversible data corruption occurred. That was it, the biggest computer system in the bank, maybe even the world, was down.
And it wasn't coming back up again quickly.
(OK, detail over. Calm down)
At the time this failure occurred there was more than $12 TRILLION of trades at various stages of the settlement process in the system. This represented around 20% of ALL trades on the global stock market, as other banks had started to plug into this behemoth and use its capabilities themselves. If those trades were not settled within the agreed timeframe, the bank would be liable for penalties on each and every one, the resulting fines would eclipse the market capital of the company, and so it would go out of business. Just like that.
My team dropped everything it was doing and spent 4 solid, brutal hours recovering each component of the system in a desperate effort to coax the stubborn silicon back online. After a short time, the head of the European Central Bank (ECB) was on a crisis call with our company CEO, demanding status updates as to why so many trades were failing that day. Allegedly (as we were later told), the volume of financial goodies contained within this beast was so great that failure to clear the trades would have had a significant negative effect on the value of the Euro currency. This one fuckup almost started a global economic crisis on a scale similar to the recent (and ongoing) sub-prime credit crash. With two hours to spare before the ECB would be forced to go public by adjusting the Euro exchange rate to compensate, the system was up and running, but barely. We each manned a critical sub-component and diverted all resources into the clearing engines. The developers set the system to prioritise trades on value. Everything else on those servers was switched off to ensure every available CPU cycle and disk operation could be utilised. It saturated those machines with processing while we watched in silence, unable to influence the outcome at all.
Incredibly, the largest proportion of the high-value transactions had cleared by the close of business deadline, and disaster was averted by the most "wafer-thin" margin. Despite this, the outstanding lower-value trades still cost the bank more than $100m in fines. Amazingly, to this day only a handful of people actually understand the true source of those penalties on the end-of-year shareholder report. Reputation is king in the world of banking and all concerned --including me-- were instructed quite explicitly to keep schtum. Naturally, I *can't* identify the bank in question, but if you're still curious, gaz me and I'll point you in the right direction…
Epilogue… The bank stumped up for proper scripts pretty quickly but the poor sap who started this ball of shit rolling was fired in a pompous ceremony of blame the next day, which was rather unfair as it was dodgy coding which had really caused the problem. The company rationale was that every blaze needs a spark to start it, and he was going to be the one they would scapegoat. That was one of the major reasons I chose to leave the company (but not before giving the global head of technology a dressing down at our Christmas party… that's another QOTW altogether). Even today my errant mate is one of the only people who properly understands most of that preposterous computer system, so he had his job back within six months -- but at a higher rate than before :-)
Conclusion: most banks are insane and they never do anything to fix problems until *after* it costs them uber-money. Did I hear you mention length? 100 million dollar bills in fines laid end-to-end is about 9,500 miles long according to Google calculator.
* * *
And here is Zero Hedge's conclusion: the next time you think all those paper reps and warranties to claims on billions if not trillions of assets, are safe and sound in some massively redundant hard disk array, think again.
exi1ed0ne
Ha. Keep offshoring IT jobs to kraplocastan and fucking over your competent IT staff with furloughs, pay freezes, and no training you cheap cunts. I've seen this time and again over 25 years in IT and it fucks over everyone who tries to cheap out, but at least there are handy scapegoats in IT putting 18 hour days to fix it. Fucking assholes eat their seed corn all the time just to eek out quarterly numbers.
Zoomorph
A fat finger may cause a few days of downtime, but it's unlikely to bring the whole system to an end or cause irreparable damage. These systems are designed to survive all kinds of disaster scenarios including some amount of human error.
Jul 30, 2015 | stumblingandmumbling.typepad.com
ON CORBYNOMICS
Jeremy Corbyn's economic policy deserves more attention than it's getting.
It seems to me that this comprises two necessarily related elements. One is higher corporate taxes: he wants to "strip out some of the huge tax reliefs and subsidies on offer to the corporate sector" - which he claims to be Ł93bn a year. This would depress investment, by depriving firms of some of the means and motive to invest. However, this would be offset by "people's quantitative easing" - a money-financed fiscal expansion:
The Bank of England must be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects.
This amounts to what Keynes called a "socialisation of investment":
It seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. (General Theory, ch 24)
This is a response to a genuine problem - low capital spending. The share of business investment in GDP has (in nominal terms) been trending downwards since the mid-70s.
Quite why this has happened is unclear: I suspect it owes more to fundamental problems of a lack of monetizable investment opportunities than to short-termism, but this doesn't much matter for current purposes. Corbyn's view seems to be that, if private enterprise won't invest, the public sector should.
I don't have much problem with the diagnosis here. But I do with the remedy, for three reasons.
First, how exactly will the public sector investment projects be chosen? One reason why the Bank of England didn't conduct QE through the corporate bond or equity markets was that it didn't think it had the expertise to pick companies. So how can it appraise energy and digital projects?
One answer to this is to have a National Investment Bank. But again, where will its expertise be drawn from? I fear this is a form of managerialism - a faith in central managers.
The second question is: who will do the actual investing? There's a case for the state to invest in infrastructure. But we also need corporate investment, to raise private sector productivity.
It's possible that the higher aggregate demand created by people's QE will stimulate private sector investment via accelerator mechanisms. Maybe high expected demand will overcome higher corporate taxes. Or maybe not.
My third problem is raised by David Boyle: where are the mutuals? Corbyn's world seems to comprise just two actors: the state and capitalist corporations. There seems insufficient emphasis upon decentralized forms of economic control, be they Robin Hahnel's participatory planning, Roemerian market socialism or workers' control.
Granted, Corbynomics might be a building block towards these. But as it stands, it looks to me like replacing one set of bosses with another - which isn't as egalitarian as it could be.
Nevertheless, Corbyn is at least asking the right question - how to stimulate investment - which is, sadly, more than his rivals are doing.
July 30, 2015 | Permalink
Matthew Maloney | July 31, 2015 at 10:20 AM
Dangerous. Chris brings up Hayek's central proposition - centralised decision makers can't make optimal decisions. I'd imagine a government investment bank would start pumping money into political crony type projects, millitary rubbish and other aristocrat welfare measures. Not a good idea. Better to cut taxes for the middle class, and raise it on the rich.
economistsview.typepad.com
Jul 21, 2015 | Zero Hedge
"I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."
Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.
In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.
Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.
Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.
As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.
Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.
During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.
Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.
In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.
A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.
Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.
Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.
It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.
THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED
Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.
At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.
The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.
Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.
The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.
When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.
Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.
The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.
Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.
Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.
THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES
According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."
Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."
The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."
In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.
Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.
Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.
As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.
After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."
"It's a wonderful idea," Friedman told him. "You must do it!"
Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"
He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.
Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.
In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."
*****
Source: The Great Deformation by David Stockman
falak pemaHahaha, for the FIRST time I see a post here on ZH where the "profoundly erroneous monetarist doctrine" of Milton Friedman gets blamed for what follows : the greatest monetary sin of the West (after the gold exchange standard according to Jacques Rueff).
The Friedmanite floating rate regime is what started the instability in the world monetary casino and yes the futures market did the rest.
Yipeeee, we have it right there. The monetary SIN laid out here at ZH and it had NOTHING to do with Keynesian plays. The Casino was a PURE product of the CHICAGO school so dear to Hayek. Who approved the supply side "liberalisation" of Reaganomics that followed.
ZH has vindicated that very important piece of the puzzle in the global financial time line of our present age.
Now Keynes's ghost can rest in piece. Monetarism will have to carry its own Cross on its Golgothan march.
The Delicate GeniusI think there may be a middle you're excluding...
falak pema
hxcMay be a middle called Nixonian petrodollar anchoring. But that did not change the Casino mantra. It just anchored "our money your problem" to Saud's Oil guzzler.
All that did was to suck the Oil into the fiat bonanza world.
Something the Sauds don't appreciate anymore as the Fiat pile is making Pax Americana fragile and it cannot zero hedge its support of Sunni Saudi hubris. It has to HEDGE with IRAN...now having showed its resilience after 40 years of confronting the USA.
C'mon Genius don't just mumble in your libertarian beard, put up or shut up.
Not all monetarists are chicagoan. They became book cookers for Keynesian discretionary policy... Hence NK's, New Classicals, "market monetarists," et cetera. Friedman's been reduced to the guy in the back room, wearing a green visor and rigging up Keynes' insane monetary system.
Check it out
MASTER OF UNIVERSE
falak pemaAgreed, but only because you know more than I do when it comes to Economics, and because I always thought that cocksucker Freidman, and the Chicago School, were crooked snakes-in-the-grass all along. And frankly, Z/H does kind of beat on Keynes a bit too much sometimes, but the SOB is dead, so who cares anyhow. Historiography has a nothing to do with reality in this day and age, methinks.
1946 Keynes dies. 1965 De Gaulle starts talking about "exorbitant privilege" and US hubris.
At the end of the 60s the London Gold club that tries to bridge French concerns about US spending profiglacy (Vietnam war, great society) and US balance of trade deterioration, collapses. Harold Wilson caves in to "gnomes of Zurich" and London loses pivotal role with a devalued Ł.
By 1969 the French have put the fear of God up Nixon when a french gunboat arrives reclaiming French gold deposited in NY. SO...1971 and Nixon makes the plunge.
You can say what you like about Keynes. He had nothing to do with Nixon/Johnson's spending spree which made gold revoke inevitable. It was not his philosophy which was ŕ la mode in 1969 but the Chicago school.
MASTER OF UNIVERSE
From what I have read about Keynes he was appropriately characterized as 'brilliant'. Of course, no amount of Keynesian Stimulus could have shut down the Bear Stearns bear raid, or the Lehman Bros. Chapter 11. Ergo, the downfall of Freidman's orthodoxy was bound to occur as soon as Glass-Steagall deregulation provided the leverage via the FCC. Since the exemption on leverage for Bear Stearns it took five years to melt down to a systemic Worldwide intractable problem. Keynes was right about CB intervention, but he had no way of knowing that certain fundamentals would be altered beyond logic of failsafe.
p.s. thanks for going into detail on history. I always appreciate historical background given my background in Experimental Psychology/Personality/Biography/Historiography and Sociology.
withglee
Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar.
Oh really? What would you have done ... with the street price of gold at over $70, the official price at $35, and the French choosing to be compensated in gold rather than dollars, as they were supposedly the same thing.
What would you have done?
knukles
Another reason the Chitown Loop banks were not supportive of Melamed's currency futures ideas was that the Harris primarily was at the time "the" Bulge Bracket Big Swinging US Based Dick of the cash and forward 4X markets as well as one of the largest financers of the futures businesses on the CME and CBoT. They saw Leo not as a product extension, but a threat to their dominance.
withglee
When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold,
With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim.
armageddon addahere
most-interesting-frog-worldEverybody acts like Nixon closing the gold window was the beginning of something. It wasn't. It was the end. At that point the US had been spending money like water overseas for everything from the Marshall Plan, Volkswagens and Japanese transistor radios to the Korean and Vietnam wars. There was a net inflow of gold during the depression and WW2, but after that there was a steady outflow all through the fifties and sixties.
The whole world wanted American dollars, and a lot of it got turned in for American gold. The gold was nearly gone. At the rate it was going, the last ounce would leave Fort Knox in less than two years. They had no choice but to end the convertability of gold - sooner or later. Nixon's only choice was to take action and make a smooth transition or let everything go to hell at once.
"The Great Deformation by David Stockman" ... This is the most remarkable treatise on economic history ever written. If you haven't read it you are still in the dark.You will continue to see many excerpts from this book on ZH ... and well deserved.
David Stockman should be given a Nobel Prize for Economics ... for exposing Economics as the insanity it is and fully captive to politics.
economistsview.typepad.com
More from Paul Romer on "mathiness" -- this time the use of math in finance to obfuscate communication with regulators:Using Math to Obfuscate - Observations from Finance: The usual narrative suggests that the new mathematical tools of modern finance were like the wings that Daedalus gave Icarus. The people who put these tools to work soared too high and crashed.In two posts, here and here, Tim Johnson notes that two government investigations (one in the UK, the other in the US) tell a different tale. People in finance used math to hide what they were doing.
One of the premises I used to take for granted was that an argument presented using math would be more precise than the corresponding argument presented using words. Under this model, words from natural language are more flexible than math. They let us refer to concepts we do not yet fully understand. They are like rough prototypes. Then as our understanding grows, we use math to give words more precise definitions and meanings. ...
I assumed that because I was trying to use math to reason more precisely and to communicate more clearly, everyone would use it the same way. I knew that math, like words, could be used to confuse a reader, but I assumed that all of us who used math operated in a reputational equilibrium where obfuscating would be costly. I expected that in this equilibrium, we would see only the use of math to clarify and lend precision.
Unfortunately, I was wrong even about the equilibrium in the academic world, where mathiness is in fact used to obfuscate. In the world of for-profit finance, the return to obfuscation in communication with regulators is much higher, so there is every reason to expect that mathiness would be used liberally, particularly in mandated disclosures. ...
We should expect that there will be mistakes in math, just as there are mistakes in computer code. We should also expect some inaccuracies in the verbal claims about what the math says. A small number of errors of either type should not be a cause for alarm, particularly if the math is presented transparently so that readers can check the math itself and check whether it aligns with the words. In contrast, either opaque math or ambiguous verbal statements about the math should be grounds for suspicion. ...
Mathiness–exposition characterized by a systematic divergence between what the words say and what the math implies–should be rejected outright.
Posted by Mark Thoma on Wednesday, July 29, 2015 at 10:52 AM in Economics, Financial System, Methodology | Permalink Comments (2)
Jul 19, 2015 | Economist's View
pete said...
I always loved Boulding's somewhat critical review of Samuelson, discussing the limits of the mathematicization of economic theory. Of course Samuelson was the tip of the iceberg, and since then many overconfident economic mathematicians have led to very serious financial problems. I had one stats professor who called a complex theory on the blackboard "graffiti."pgl -> pete...http://www.jstor.org/stable/1825768?seq=1#page_scan_tab_contents
Samuelson did not do math for math's sake. He figured out first what the real world issue was and then used math to help explain his insights.likbez -> pgl...You need to distinguish "math" from "mathematical masturbation", or as they are now more politically correctly called "mathiness".Many economic works that use differential equations belong to the latter category ;-). A lot of pitiful clowns pretending to be mathematicians do not even bother to understand what is the precision and error bounds of the input data. As in "garbage in, garbage out".
This is probably a unique case when mathematic equations are used to support particular political ideology. Support via "scietification" (as in Church of Scientology) of essentially political statements. Especially about unemployment and poverty.
anne -> anne...
All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.
[ Keynesian ideas have worked? Influential among policy makers in general or not, Keynesian ideas have worked. ]
pgl -> anne...
Keynesian theory explains what happened. But what happened was the our policy makers failed to do the right thing. Had they listened to Keynes - the recoveries would have been much faster.
likbez -> pgl...
"Had they listened to Keynes - the recoveries would have been much faster."
This was impossible. There is such thing as "Intellectual capture". As Keyes noted
"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."
Jun 15, 2015 | Economist's View
Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.
- Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.
- Rival inputs are things that can only be used by one person or firm at a time. Think of nails.
- The income earned by both rival and non-rival inputs has to add up to total output.
Okay, given all that setup, here are three statements that could be true.Pick two.
- Output is constant returns to scale in rival inputs
- Non-rival inputs receive some portion of output
- Rival inputs receive output equal to their marginal product
Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.
Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...[There's a lot more in the full post. Also, Romer comments on Vollrath here.]
Paine
Excellent
Lots of conclusions are per determined by simple assumptions like constant returns to scale
If by scale we mean replication of the existing production system on a larger scale
Where say we triple every plant and highway etc
The model nicely captures the reality of a static production system
Where all factors are expandable even if at a costThis is a very narrow notion of scale effects
If for example markets for oust expand and a different technique is optimal
Then there's a dynamic transition
Where residuals emerge.anne -> Paine ...
I assume this is the reference which the writer is too inconsiderate to mention:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html
June 13, 2015
Are ideas really non-rival?
By Nick RowePaine -> anne...
Rowe thinks he is making a great joke
But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct
No matter how carefully these atoms are defined they remain figments
That one can conjure like epicycles
Example
Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us
Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero
To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...
Paine -> Paine ...
My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible
Nothing fits this description exactly. And almost is as bad as not at all.
Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not
anne -> Paine ...
All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors
[ I understand and am pleased. ]
Sandwichman said...
Four-fifths of the "Economy" is a Complete Waste of Time
"There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"
"Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"
Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.
"As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"
Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.
Name one.
Carry on, growth theorists.
anne -> Sandwichman...http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html
June 6, 2015
The Chimerical Analogies of Growth and Distribution
http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.htmlJune 14, 2015
Four-fifths of the "Economy" is a Complete Waste of Time
-- Sandwichman
Sandwichman -> Sandwichman...
1. "growth is a concept whose proper domicile is the study of organic units..."
2. "The belief that society is an organism is an old but fanciful notion."
3. ?
4. Growth!
Sandwichman -> anne...
"the meaning of per capita growth in China over these last 38 years of 8.6% yearly"
It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.
Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.
Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.
Sandwichman -> anne...
A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.
When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.
Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.
anne -> Sandwichman...
Can't we just forget about the confounded aggregate and get on with promoting the good?
[ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]
anne -> Sandwichman...
Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?
Paine -> anne...
Sandwichman -> Paine ...We need a welfare index. And that greatly increases the degree of difficulty over a simple output index
anne -> Sandwichman..."If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.
http://www.theatlantic.com/past/politics/ecbig/gdp.htm
And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."
Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":
"Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."
I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.
The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.
http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html
June 14, 2015
Some Kind of an Index -- No Normative Connotations
-- Sandwichman
Julio -> Sandwichman...
A question for you folks in this subthread:
"In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."
Proposition: That myth underlies our world.
Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.
Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?
Julio -> Sandwichman...
Aggregate is not the same as average.
The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.
But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?
We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.
A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.
Sandwichman -> Julio...
"is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"
No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.
The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.
A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.
anne -> Sandwichman...
The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....
[ Agreed. ]
anne -> Sandwichman...
The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.
Sandwichman -> anne...
anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...
NYTimes.com
Gavyn Davis has a good summary of the recent IMF conference on rethinking macro; Mark Thoma has further thoughts. Thoma in particular is disappointed that there hasn't been more of a change, decrying
the arrogance that asserts that we have little to learn about theory or policy from the economists who wrote during and after the Great Depression.
Maybe surprisingly, I'm a bit more upbeat than either. Of course there are economists, and whole departments, that have learned nothing, and remain wholly dominated by mathiness. But it seems to be that economists have done OK on two of the big three questions raised by the economic crisis. What are these three questions? I'm glad you asked.
As I see it, it makes sense to think of what happened in terms of three phases.
First, a buildup of vulnerability, with rising leverage and an increasingly fragile financial system.
Second, the acute phase of crisis, with bank runs or their functional equivalent, collapsing liquidity, and more.
Then a long period of depressed employment and activity, which still isn't over.
The questions then are how and why each of these things can/did happen. I think of these as the Minsky question - why do economies grow vulnerable over time ; the Bagehot question - why does all hell break loose now and then; and the Keynes question - how economies can stay depressed, and how such depressed economies work.
On the Keynes question, it's true that we haven't had a radical change in thinking, but that's mainly because the old thinking still works pretty well. That is, the answer for people asking who would be the new Keynes turns out to be that Keynes is the new Keynes. Or maybe that's Hicks - anyway, IS-LMish analysis worked well, and the economists who made fools of themselves were those who rejected the time-tested approaches.
What is new is that we have had a flowering of empirical work, and have much more econometric evidence on monetary and especially fiscal policy, price behavior, and more than we used to. Look, for example, at Nakamura/Steinsson's survey, or at the Blanchard work on multipliers in the euro area. So this is a happy story: the existing framework worked fairly well, and is now buttressed by a lot of really good empirical evidence.
On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. But it wasn't very hard to fix these problems, or at least apply workable patches. Once you realized that repo was the new bank deposits, the basic crisis framework was already there; and there was already enough existing analysis of balance-sheet constraints and all that to make creation of a somewhat messy, inelegant, but usable set of models quite easy.
And here too we have seen a flowering of empirical work, e.g. Mian and Sufi on household debt.
Where we have not, as far as I can tell, made much progress is the Minsky question. Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy? I have views, but I have to admit that there isn't a lot of either fresh thinking or hard evidence here.
Why is Minsky still mostly missing? Partly because asking how we got here may be less urgent than the question of what we do now. But also, I'd guess, because it's hard. Bubbles, excessive leverage, and all that probably have a lot to do with the limits of rationality, and behavioral economics doesn't provide anything like as much guidance as it should.
Still, I'm relatively positive in my assessment of the state of macroeconomics. Against mathiness and political ideology, the gods themselves contend in vain, but that's not a problem with the models
kbaa, The Irate PlutokratIt is good to see Krugman write in opposition to 'mathiness', economists' misuse of mathematics to justify their pet theories. And his suggestion that 'behavioral economics doesn't provide anything like as much guidance as it should' is probably as close to an admission as we are ever likely to get from an academic economist that it's human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.
Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.
NB For those who have never studied Calculus, "Euler" is pronounced "oiler", but there's no connection with the price of oil or any other commodity, and don't let any academic economist try to tell you otherwise.
WSJ.com
Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.
This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."
Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories-I have conducted such research myself-tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.
Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.
Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.
Economist's View...in the WSJ two days ago, there was an opinion piece with the title "After Five Years, Dodd-Frank Is a Failure," and the sub-header "The law has crushed small banks, restricted access to credit, and planted the seeds of financial instability."
There is a problem with small banks. Here's an email I received earlier this year (last March, in response to an article of mine at CBS MoneyWatch on the decline in the number of small banks and how that could harm smaller buinesses):
Mr. Thoma,I am a regular reader of your columns, and lean more to the left than virtually any banker I know, but I have to tell you that you are on to something with the decline in the number of small banks, and regulations. As the Chairman of a small bank in [state omitted], the shear amount of regulations that have come out since the banking crisis started are incredible. I know of banks in the area which have simply had to hire a full time staff person to help with compliance. Our bank has had to hire the CPA firm [omitted] to have them come in once a quarter to help us keep up with the compliance. Obviously, this crimps our profits, as does the ZLB which we have had to deal with for six years now, through no fault, at all, of our own.Don't get me wrong, I understand why all these regulations have been put in place, but unfortunately for us, most of these have little to do with our small bank. They seem to be designed to keep the behemoths out of trouble, and we got dragged along. There needs to be a different set of rules for banks under a certain size. Banks like ours, who keep all our loans in house, and aren't a threat to the economy as a whole, have never been ones to "screw" our customers, or write "bogus" loans, and sell them. Our loan losses since 2008 have been minimal to say the least, because we try very hard to make loans that are going to be repaid. Our total losses over the last six or seven years are not any worse than, and probably, better than they were before the banking crisis arrived.We, as a board of the bank, have talked on numerous occasions in the last few years on what to do about this problem, and have brought it up with the federal regulators at our last two exams, but have really gotten no where as far as coming up with any ideas on what to do to try and alleviate these burdens on small banks. Any suggestions, or publicity regarding the issue, would be greatly appreciated.The point I'm trying to make is this. There are two choices when trying to fix a financial system after a crisis. The first is to move fast while the politics are supportive, and put as many of the needed rules and regulations in place as possible. Then, over time, *carefully* adjust the rules to overcome unforeseen problems (while resisting attempts to rollback needed legislation, a delicate balance). The second is to proceed slowly and deliberately and "consider the regulatory moves carefully" before implementing legislation. But by the time this deliberate procedure has been completed, it may very well be that the politics have changed and nothing will be done at all. So I'd rather move fast, if imperfectly, and then fix problems later instead of waiting in an attempt to put near perfect legislation in place and risk doing very little, or nothing at all.
RC AKA Darryl, Ron said...
For starters, Glass-Steagall.Then put a high tax on capital gains and an even higher tax on short term capital gains partially offset by lower taxes on interest and dividends. Rather than regulate corporate buyouts and derivatives then just tax them to death. Fire sale buyouts are done at a capital loss so would continue unaffected to rescue the good wood left in insolvent firms.
RC AKA Darryl, Ron said in reply to pgl...
https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States...From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively...
*
[Starting with a high tax rate then I kind of like that. Make the tax rate on capital gains so that either the 5 year exclusion is on parity with current long term capital gains rates or even parity with the 10 year effective tax rate if we give them inflation adjustment to the basis. SSA annual COLA inflation index works fine for me. If the rich want chained CPI then let them share in the losses benefits :) ]
pgl
The thing that gets me is that the issues with lax regulation of financial institutions were basically clear 80 years ago and were crystal clear 30 years ago. And fixing them would not require complex regulations. Real capital adequacy rules, avoiding conflicts of interest, addressing the issue of adverse selection even as we give deposit insurance, and avoiding too big to fail are all things any good economist knows about and how to address. And with Dodd and Frank being center stage after the financial crisis - this could have gotten done. Ah but the political interests of the megabanks did not want this done so they undermined the efforts. Of course we also see some stupid taxi service known as Uber playing this game too. But that is more of a personal rant as I'm really beginning to get sick of their dishonest attacks on my mayor.bakhoThat is what happened. As much as was done happened right away.DeDude said...
Now it is being rolled back.Yes we need to loosen up on the small banks. There is naturally less concern for banks below a certain size. It should be possible to say that banks below size X who does not do any of risky transactions Y,Z and W do not need to comply with certain regulations. We give regulatory relief to other small businesses; fair enough to also do it with the banks. However, this is a difficult process since the regulators are likely to resist "deregulation" as much as the big banks are resisting regulations.
Jul 21, 2015 | Zero Hedge
"I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."
Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.
In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.
Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.
Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.
As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.
Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.
During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.
Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.
In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.
A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.
Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.
Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.
It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.
THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED
Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.
At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.
The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.
Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.
The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.
When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.
Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.
The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.
Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.
Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.
THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES
According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."
Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."
The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."
In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.
Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.
Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.
As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.
After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."
"It's a wonderful idea," Friedman told him. "You must do it!"
Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"
He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.
Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.
In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."
*****
Source:
[Jul 20, 2015] Which Is A Bigger Act Of Faith - Owning Gold Or Stocks?
07/19/2015
The WSJ has released yet another gold hit piece calling it a "pet rock' and gold bugs "subjects of a laboratory experiment on the psychology of cognitive dissonance" just one day after the PBOC reveals it has added the biggest amount of gold in history in order to "ensure security." But the biggest irony is that none other than Citigroup made a far bolder case that it is not the ownership of gold but of stocks that is the ultimate act of faith: "investors remain united in their faith in the central banks – if not for their ability to create growth, then at least in their ability to push up asset prices. And yet the limits of that faith are increasingly on display." So who is right?
Financial_skeptic/ Casino_capitalism/ Systemic_instability*/ Stagnation/
[Jul 19, 2015] How The Fed And Wall Street Are Eating Their Seed Corn
Jul 19, 2015 | Zero Hedge
Submitted by Mark St.Cyr,When it comes to the stock market these days the overriding theme you hear from the financial media is "You've got to get in." Another is, "Buy on the dips and average in." Or, "You can't profit if you aren't in it" and more. So many more it would fill its own multi-volume set. However, there was some truth to many of those quips just a few years ago. Today, the amount of hidden reality to the actual destruction of one's wealth is far more factual than any will let on. Let alone reveal.
I hear and speak to a lot of entrepreneurs who are absolutely mystified by not only the rise in the markets since the financial crisis in 2008. Rather, what many just can't wrap their heads around is: "If the markets are a reflection of the economy. Then how in the world did we get up here?" That line of thought I rendered down to be the overwhelming theme when discussing the current state of business affairs throughout the economy. This confusion is coming from a group of people who at one time would seek out Wall Street aficionados for insight or expertise. Today, they tend more to distrust what they hear. For what they lack in stock market expertise – they make up in spades with an acutely precise B.S. meter honed by years of business acumen. And many confirm today; it's off the charts far more than they can ever remember. So much so, as to avoid stepping in any of it – they just avoid it all together.
At one time entrepreneurs were not only sought out by Wall Street, rather, entrepreneurs did the same in kind. Before the advent of 401K plans and more it was entrepreneurs with the sale of their business, or profits from something else that fueled many a brokerage firms bottom line. And in many cases that relationship did well for both sides. There was true expertise needed to help one navigate the pitfalls of exactly how and where one was to put their money to work (usually a substantial amount such as after a business sale etc.) in relative safety as to finance the remainder of one's years. Today, not only in much of that expertise gone – so too is the safety.
There's probably no better example of this than what transpires at any bank branch today (those that are left that is). Opening a checking or savings account? You used to be incentivized to do so. But what this initial transaction is really designed for today is more along the lines of "a soft opening" to ask…"So, do you have a 401K account elsewhere?" Then the sales pitch is on by some seemingly just out of grad school quota seeking "financial adviser" with an array of pamphlets, jargon, and sales phrases anyone with any financial sense can see through. "Index this… diversify that…dividend paying yields " and on and on. Along with whatever might be the latest tagline from the financial shows.
This is the true face of Wall St. today. As much as Wall St. would like to think of itself as it was in the glory days of a Gordon Gekko – that image is long gone. Today, what most people see is nothing more than some recent college grad trying desperately to say anything that might convince one to switch 401K accounts as to possibly make this months quota. For if not they too will have to join the hordes of recently dislocated tellers they once worked with. And the numbers show this to be true because not only is the vast majority not switching – they aren't even staying, let alone "getting in."
Let's use a few scenarios that are emblematic to the challenges facing the likes of both the recently cashed out entrepreneur as well as a recent retiree of any sorts. I'll use the dollar amount of $3,000,000.00 ($3MM). To some this may seem high, to others it's not all that great. However, for many entrepreneurs it's an amount easily understood as well as feasible. I also use if because it's a representative amount even Julian Robertson of Tiger Management™ has used to describe the dilemma many entrepreneurs find themselves in with navigating today's financial morass.
(The following of course is over simplified, I mean it as such. However, the questions, answers, as well as premise can not be over stated as to their importance.)
The "buy and hold" strategy. Sounds great, makes perfect sense – unless you can't hold. Retirement for many means just that: no more working to generate income. Income is now derived via their stock holdings. If one doesn't sell (e.g., their stocks) – there's no money to eat. Better to "stay and hold" in one's business and take their chances rather than try to "cash out" and place their livelihoods (i.e., money) in someone else's hands. Especially what constitutes as today's "investment adviser."
"Buy stocks that pay out dividends!" Again, sounds great and seems to solve the problem of the above. Problem is, in a stock rout, what's the first thing companies cut? Dividends. You had just better hope and pray the companies that do cut – aren't the ones you were sold. Or, you're now cut out. But not too worry, they say skipping a meal or two here and there is healthy. And that's what you'll need to remember when there's no food on the table because – there's no "dividend" in the mailbox. I'll also add: it's probably safe to assume in another financial rout, the "financial adviser" that sold you those "dividend" plays is no longer employed themselves. So calling them for further "advice" might be more challenging than it is frustrating.
"Buy the dips!" Sure, there's only one problem. If there is a "dip" doesn't that mean the markets lost value? So if one didn't sell at the heights where is the money to buy on the dip? And if one is selling on the high to fund retirement as to eat and pay bills: That money is now gone. There is no money to now "buy the f'n dip!"
"A stock market correction of 20% to 30% is a gift to buy great companies that are now on sale!" No. A 20% to 30% market correction is a loss of $600,000.00 to just shy of $1,000,000.00 of ones net worth. More than likely a "net worth" that was to be "worth" food to eat, and pay living expenses.
"If you're nervous about the markets just be diversified." This line means squat. Diversified as in what? Other markets? Other vehicles? Lot of good that did during the financial crisis of '08 when everything was going down and coming apart together. And if one believes the markets to be more stable today, and better fortified to withstand another such calamity, even one only half as extreme – I have some beautiful oceanfront property here in Kentucky I'd love to sell you. Cheap!
Don't like the "markets?" Don't worry – you can be safe in bonds. Only problem? Today they pay next to nothing. The bigger problem? Tomorrow they may charge you. All while having to be willing to accept: if you want out sooner than later – it's gonna cost you a plenty if that sooner is at the wrong time. But don't worry. It's not like you need to eat or pay bills anytime sooner or later, right?
Want to keep your money as safe as possible? "Keep it in liquid instruments such as C.D.'s or savings accounts here at our bank." Unless of course it's over $100K. Then depending on the bank not only might you have to pay for the privilege, if they deem you have too much they might ask you to take your money elsewhere. Why? Easy. Your "cash" is now a hindrance that needs to be protected as well as accounted for. And that's not what a "bank" is in business for any longer. Silly you for thinking "bank" today means anything what "bank" meant in the past.
"Don't like banks? Put you're money in a money market!" Right. Only problem there is after the financial meltdown of 2008 where it was shown a great deal of distress was caused by funds needing to keep 1 for 1 notional values in their cash accounts, it's now been deemed that pesky thing of trying to preserve someones cash balance was just too hard. So a new rule was implemented where this pesky detail is no longer relevant. Now if your "cash" value in a money market account resembles an equation of cents on the dollar rather than a dollar for a dollar – oh well; it is 2015 after all. And the times – they have a changed. I'll bet you didn't even get a toaster when you opened that six or seven figured account. So there should be no need to whine about not having any bread to cook in it. After all it's no longer even clear when you may gain or regain access to it (if there's anything left) in another market rout. For any doubts on this just look to the bottom of your latest statement. it's written right there in black and white. (Just have your 10X magnifying glass at the ready is all I'll say.)
I could go on and on, yet I believe, you get the point. Ask just one of the above scenarios to what constitutes a "Wall St. maven" today and I'll bet dollars to doughnuts you'll hear more back peddling or more evasive, jargon laced, mumbo-jumbo – it will have you questioning humanity itself let alone just financially.
What both Wall Street in general as well as the Federal Reserve has wrought is a market so adulterated, so anemic, and so mistrusted the euphemistic "money on the sidelines" has more in common with nursery rhymes than it does with anything reality based. There is no money on the sidelines. Nobody wants "in" to this market. Anyone with half a brain and a modicum of common sense wants out – and the outflow numbers show it still to be true.
"Buying the right index, diversification, and thinking like a billionaire" is not only nonsensical in today's marketplace. It can cause one a whole lot of pain when one is unable to fully comprehend as well as separate euphemisms for real world panic and dismay. All one needs to do is look east to see just how well that type of thinking is doing in China today. For "bubbles" no matter the culture when it comes to one's money "pop" the same way: First panic – then distrust – then the repeating of another euphemism that sometimes lasts for generations: Never trust a bank or the markets. Never, ever, ever!
[Jul 11, 2015] Gold Daily and Silver Weekly Charts - Some Group Is Sitting On These Markets
Jul 11, 2015 | jessescrossroadscafe.blogspot.com
"Gold is looking like the dog that just did not bark -- but not uniquely so. Most safe-haven assets are looking distinctly lackluster, including the VIX index. Either 5,000 years of safe-haven buying has just become bunk, or there is a desire to portray what is evidently a financial and economic crisis as nothing to be concerned about."At least in my judgement, the precious metal markets are being consistently rigged.Ross Norman, Sharps Pixley
"In keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."
Aleksandr Solzhenitsyn, The Gulag Archipelago
I believe the reason that they are being rigged is that the financiers have convinced the political class that this is a necessary action in order to prevent a panic, a run on the dollar and the bonds, and a seepage of critical funds into an unproductive investment as compared to equities for example.
We are just defending what is ours, right? And what is ours is the global dollar hegemony.
This is really just another excuse for looting, picking both the global public pockets and the Treasury's.
This sort of thing seems to happen periodically, at least once per generation, and the system generally has to get washed out badly, and then reform may come. You can see a clear trend back to the early Reagan years for this particular dalliance with the overreach and madness of the moneyed interests.
Protracted market rigging tend to distort supply profoundly. And there should be no doubt that the distortions and excesses of our current round of economic quackery have caused an historic imbalance of wealth and power. And the rigging of the gold and silver markets have badly affected the ability of supply to meet demand.
Oh well. Interesting times.
Have a pleasant evening.
[Jul 10, 2015] Are Big Banks Using Derivatives To Suppress Bullion Prices
Jul 9, 2015 | Zero Hedge
Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,We have explained on a number of occasions how the Federal Reserves' agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts ("naked shorts") on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in "paper gold" is created, and this increase in supply drives down the price.
This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts ("open interest') can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.
In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.
For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.
Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world's reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington's ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.
It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.
OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.
The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.
During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.If these were long positions hedging the banks' Comex shorts, why did the price of gold and silver decline?
More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.
The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.
If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.
Pinto Currency
The price is set in London where they trade 200 million oz spot every day.
It is a paper spot market fraud.
http://www.safehaven.com/article/36534/lbma-data-points-to-gold-and-silver-default
SafelyGraze
supply and demand still set the price as PCR points out, the demand is not for physical hugs,
mark dice and a handful of chocolate bars"you can't eat chocolate!"
SafelyGraze
spoiler:
Oldwood
I thought Kyle Bass told us that there was no way near enough physical to cover paper gold. This would mean that they are simply printing gold to push "supply" up and prices down. On the other side we have stocks and with exception to splits or IPOs, they aren't making more, but companies are buying them up which decreases supply and with a little QE stimulus, pushes prices up. To me it all looks manipulated, but I'm sure they are only trying to make us all rich.
Captain Debtcrash
As shown in China, manipulation eventually always fails. Any manipulation of gold and silver will too. Those that say zero is the correct allocation to gold and silver these past weeks are using it as evidence that it doesn't even serve as a safe haven, exactly what a manipulator would want.
BaBaBouy
Its A Dirty Stinking Putrid Trading World For GOLD SILVER And Now Also Most Other Commods...
[Jul 04, 2015] Yanis Varoufakis accuses creditors of terrorism ahead of Greek referendum
Like any neoliberal country Greece is a divided country with 20% of population representing "fifth column of globalization" and benefiting from it and 80% suffering from it.
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"...Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value."
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"...Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?
"
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"...The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal."
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"...The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss."
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"...The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs."
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"...Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.
"
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"...Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.
The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down."
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"...No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks! "Jul 04, 2015 | The Guardian
Banksterdebtslave -> conor boyle 4 Jul 2015 11:15
Yes it should have been, by letting the banks go under as per Iceland. Or were too many people (living in vacuums ?) unprepared to deal with the short term pain ? Now it seems the world of people must suffer to service the Banks' bad debt.....what good slaves we are! The Emperor has no clothes!
Duncan Frame -> Brasil13 4 Jul 2015 11:10
Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value.
W61212 -> Brasil13 4 Jul 2015 11:08
Careful what you wish for. From the EC
'In 2013 the EU recorded a trade surplus in goods (more than double the surplus registered in 2012). The EU also has a surplus in commercial services trade.
The EU is the biggest foreign investor in Brazil with investments in many sectors of the Brazilian economy. Around 50% of the FDI flows received by Brazil during the last 5 years originated in the EU.'This debacle with Greece demonstrates the EU can't run itself and yet it has huge holdings with Brazil and has recently reversed to a trade surplus in to Brazil, a nation with huge natural, industrial and human resources of its own. Brazil exports mainly agricultural and mining products to the EU and imports manufactured products. See the imbalance? Brazil exports primary products and imports finished products made elsewhere and those jobs are elsewhere. See the problem?
http://ec.europa.eu/trade/policy/countries-and-regions/countries/brazil/
GordonGecko 4 Jul 2015 11:07
There's only one letter difference but choice for the Greeks is to become either the new Ireland (and suffer self-inflicted austerity for decades to come) or the new Iceland (by tearing up the rule book and starting again).
I hope they watch this before voting;
usufruct -> Laurelei 4 Jul 2015 11:07Germans (for the most part) are not Nazis or terrorists, and should not have to take the blame for this crisis. They are, however, dupes, like people living under capitalism everywhere. They are willing to let the international banksters and their political cronies in the European parliament run their lives and create whatever mischief they believe is in their interest.
ToddPalant -> Scaff1 4 Jul 2015 11:06Tell us suckers then, about how Ukraine, a run down country that was just made worse by regime change. From bad Yanukovich to much worse American puppet and idiot Poroshenko plus a catastrophic war. Tell us about Lybia and bad Qaddafi, who in his life time killed 3-4000 people and the much worse UK-France that caused at least a 100000 dead with their pet invasion at the behest of our friends from across the Atlantic.
May be you need to dust your mirror.
Duncan Frame -> Laurelei 4 Jul 2015 11:05Terrorists primary aim is to promote fear rather than harm. That's far more effective in getting their way. You close the banks you show the public what you're capable of.
Saaywar Montana -> thisisafix 4 Jul 2015 11:04
Their economies are naff. Spain and Italy are the two countries most likely to join Greece in a new union. Portugal and Ireland are too far gone but Ireland has been rebelling. Once people see a progressive union to compete with the rubbish EU then these countries will gain support for joining a new southern European union.
These countries are not out of the water and won't get out of it either. Austerity will do what it does and the people will rise up. It's inevitable. The EU doesn't have a monopoly on unions lol.
Greece, as did every other country, got left with the bill of the private banking sector. Yes, it was their fault for running a deficit but a significant proportion of the debt owed by the Greek gov is bank bailouts.
It's the same here. The UK paid Ł700bn to private banks to make sure they didn't fail. The deficit has nothing to do with that. so around 50% of the debt is a mixture or deficit spending and capital investments made by the government.
Robape Laurelei 4 Jul 2015 10:57
Financial terrorists, just interested in the bottom line, not countries.
elcomm W61212 4 Jul 2015 10:56
When fascist governments get in trouble at home they start wars to distract people. It's not that far out.
Duncan Frame Laurelei 4 Jul 2015 10:56
Yes everything's exceptional. 2008 was the biggest economic collapse since the great depression. And Greece was the most exposed country. No difference.
Alfie Silva karlmiltonkeynes 4 Jul 2015 10:55
My mistake, I thought you were intelligent.
It is common knowledge that only around 10% of bailout monies went to the real economy. You are correct indeed in that creditors got a haircut, mainly hedgefunds and most foreign banks by 2015 had reduced their exposure to Greece. The issue today is sovereign debt. Do you realise that sovereign debt is the senior collatoral for Eurozone banks?
So we are back to banks again Mr Banker.
Duncan Frame ID13579 4 Jul 2015 10:53
I don't have to excuse giving voice to the victims of those in power to you or anyone else. And it seems to me Tsipras is taking the same line. You confuse the Greek people with the people who actually profited from that debt. Why should they be forced to starve on the back of decisions over which they had influence?
usufruct -> HoorayHenrietta 4 Jul 2015 10:44Like Americans and most other people around the globe, the German people have allowed the international banks to pull the wool over their eyes. There is no reason for taxpayers to bail out the banks as we are still doing here in the U.S. For the past six years my wife and I have been paying down mortgages on real estate hoping to reestablish equity in properties whose value was gutted by cavalier banksters on Wall Steet. A few clicks to gamble away the hard work of millions! These people should be arrested and tried for their crimes. In a fair court they would be sent away for life.
Chris Hindle 4 Jul 2015 10:42'Yanis Varoufakis accuses creditors of terrorism.'
So what is wrong with that? Financial terrorism is a much more protracted and painful process to the victims than sudden violence, but the end result is the same.
The Vermin Who Would Be Kings have discovered they no longer need the fuss and expense of maintaining a standing army of occupation, far simpler to get countries/continents/ the world in deep debt (via bent politicians making private bankster debt into sovereign debt - just like they did in Greece ) and exert control through that.
BTW the UK has some Ł9 trillion in foreign debt (much of which is the bad debts of the City - and the highest of any stand-alone country on earth) So now you know what next months austerity drive is all about
InjunJoe -> degardiyen 4 Jul 2015 10:24
The "slovakian tax payer" will not be paying to maintain the Greek standard of living,
but to shore up the ECB, the IMF and the private lenders to Greek banks, as 90% of the "bail-out" goes to serving interest. Haven't you been reading the news?Duncan Frame -> karlmiltonkeynes 4 Jul 2015 10:20
That's weird because at the same time the banks collapsed in 2008 the deficit went up from 57% to 82%, lots of people lost their jobs or had to take pay cuts. I'm sure it was just a coincidence.
LeftToWrite -> ID6487190 4 Jul 2015 10:17
Yeah the EU has shown itself to want a compromise. All those nice compromised offers it made. Yep we all remember those.
Compromise means both sides giving ground, not one side accepting everything the other demands. Use a dictionary next time.
For once a nation is standing up to EU bullying and we have ignorant fools like you turning it the other way in an attempt to change the narrative.
LeftToWrite 4 Jul 2015 10:11
How can the Troika have fucked up this badly? It seems they forgot that Greece is actually a construct that represents the people who live there, and you can't just impose misery after misery on a people without expecting them to finally have enough. Even if they vote yes, all it does is postpone that that time when they will have had enough.
Honestly, this has shown the true greed at the hearts of Merkel et al, and by extension the people they represent. Save the French and German banks, fuck over the Greek people. If people think anti German rhetoric in Greece is extreme now, decades of resentment is about to follow.
שוקי גלילי Steve Collins 4 Jul 2015 10:09duke_widin -> dniviE 4 Jul 2015 10:06 01You probably meant to say "when you ask for it back from someone ELSE, who didn't actually get your money". Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?
Sorry: its Wednesday 8th, I wrote Tuesday ;-))
email from Green Party Brussels office.
TTIP and ISDS - Call to action by Keith Taylor MEP!Breaking news! We've just been informed that the postponed vote on the European Parliament resolution on TTIP has been put on the agenda for Wednesday 8th July.
MEPs will be voting on the resolution as a whole, but also on a whole array of amendments to the text.
Among these is a compromise amendment on the investor-state dispute mechanism, or ISDS. The compromise amendment suggests replacing ISDS courts with some kind of 'new' system, but there is no further explanation or details. As long as there is any system in place for investors to sue governments, as the compromise calls for, it is still ISDS. The fact that the Parliament's President is trying to spin this as something different by giving it a new name does not change anything.
The compromise amendment has been agreed by the largest groups in the European Parliament: the centre-left Socialists & Democrats (which includes the UK's Labour MEPs), the centre-right European People's Party, and the European Conservatives and Reformists group (which includes the UK's Conservative MEPs) and the Alliance of Liberals and Democrats (which includes the UK's Liberal Democrat MEP).On Wednesday, all MEPs will get a chance to vote on this amendment and the resolution as a whole.
The Greens are calling on citizens, trade unions, NGOs, towns and regions and businesses to speak out and contact their elected representatives and hold them to account on this attempt to privatise justice and infringe democratic rights.
How you can help
This is our last chance to make sure that damaging ISDS provisions are not given the green light by the European Parliament. MEPs need to know the full force of public opinion on this threat to our national laws and our democratic rights.
Contact your other MEPs before Wednesday asking them to oppose TTIP and the Investor State Dispute Settlement (ISDS).
- use Write To Them to email your MEPs directly with your own concerns
- use the 38 Degrees campaign to send a quick template email
- call your MEPs in Brussels to let them the reasons you're opposed
- spread the word! Share your concerns on social media, tweet your MEPs, encourage your friends and family to contact their MEPs, use Greens/EFA resources to campaign.
Message from Keith"I've been extremely heartened to receive so many emails from constituents voicing their opposition to ISDS and the TTIP proposals in the last few weeks. It's clear that there's a powerful and growing democratic movement to protect our laws, our public services and our regulatory standards from potential devastation.
The decision to postpone the vote on TTIP earlier in the month stinks of political parties running scared of the huge public opposition to TTIP.
TTIP represents a monumental power grab by corporations and it must be stopped in its tracks.The sudden re-scheduling of this vote means we are now short on time to make our voices heard. The Greens need all the help we can get to spread the word and put pressure on other MEPs to do the right thing and represent the views and interests of their constituents."
You can keep up-to-date with the Greens/EFA campaign and what the Greens are doing in the European Parliament via their TTIP campaign website and their twitter feed.Thank you for your support.
Best wishes,
LeftToWrite ID105467 4 Jul 2015 10:14To bail out German banks, get your facts straight before posting nonsense.
Kalandar 4 Jul 2015 10:14
Propoganda galore from the mainstream media but its fooling no one, except perhaps themselves.
ID345543 4 Jul 2015 10:04
This Is Why The Euro Is Finished
The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal.
Ninetto owl905 4 Jul 2015 10:03
The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss.
NeverNotHereTV gsxsure 4 Jul 2015 09:59
Syriza does not want "free money". They want a fraction put toward economic growth, and then payments as a meaningful fraction of that growth. It is simple enough.
Alfie Silva 4 Jul 2015 09:50
Please can anyone explain to me why we are letting the bankster cabal turn European against European?
The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs.
Finnbolt 4 Jul 2015 09:49
"Debt relief was "politically highly toxic for many eurozone member states"."
Here you have the problem. The creditor state governments are responsible to their voters and many have said that their taxpayers will not finance the Greeks and money lent will be paid back in full.
Syriza says they have a mandate from the Greek people to force other euro countries to continue financing them and take a haircut. In other words, lose most of the money lent to Greece.
EU is a collection of nation states with pretensions of a federation. One of the pretensions about to be busted is a transfer union, meaning taxpayers in richer countries tranferring part of their wealth to poorer countries.
APSAPS 4 Jul 2015 09:49A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market. Despite the bailout, July 1998 monthly interest payments on Russia's debt rose to a figure 40 percent higher than its monthly tax collections. Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan so that the government was forced to rely on presidential decrees. On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.
Sounds very similar.
Oh, wait, maybe some referendum could have helped?
Insomnijazz hertsman 4 Jul 2015 09:48Nah - these are just lies for the gullible to swallow.
Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.
Instead they chose the worst option: bailing out the bank shareholders by assuming responsibility for their risky lending, but refusing to then pay the price for their political cowardice and shifting the blame onto a largely guiltless Greek population which has already suffered hugely from the economic devastation.
Brent1023 4 Jul 2015 09:46Debt relief not on the table.
It comes down to the Greek people or the banksters. Who needs a bailout more?
The EU has sided with the banksters.
Not just in Greece but in Ireland, Spain, Portugal.
Only Iceland was able to force banksters to swallow their losses.
Everywhere else bankster fraud was rewarded with a 100% bailout.
Should be renamed the European Bankster Union.
Surprising that the UK does not want it - it also bailed out its banksters.NWObserver sunnytimes 4 Jul 2015 09:39
The creditors are not looking to get their money back. Debt is the leverage being used to destroy the social and public infrastructure in the country.
So their worst nightmare is Greeks voting 'No', staying in default and surviving or prospering while remaining in the Eurozone. Then they will not be able to use the same fear tactics against another EZ country. They are psychopaths out to destroy, not creditors looking to get their money. So if Greeks vote 'No' , they will spare no effort to destroy Greece, beginning with the continuation of the liquidity freeze. However, there are some simple steps that Greece can take to end the liquidity freeze and I think they have already taken them.
Gottaloveit 4 Jul 2015 09:28
Read this article from 2010 by Michael Lewis and get a glimpse of what a mess Greece is
http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010
The people of Greece are not finished paying penance yetW61212 Fritz72 4 Jul 2015 09:28
Albrecht Ritschl: During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a "haircut" in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990....but we were also extremely reckless -- and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany's resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.'
Enough said now?
W61212 hhnheim 4 Jul 2015 09:21
North2011 kizbot 4 Jul 2015 09:04Don't worry. The nappy business is doing well in Brussels...
EU sources: possible extra Eurogroup on Monday and EU leaders Summit on Wednesday #Greferendum via GR media http://www.dimokratiki.gr/04-07-2015/pithano-ektakto-eurogroup-ti-deftera-ke-sinodos-korifis-tin-tetarti/ …
They are pissing in their pants the lot of them...
rafela Bogoas81 4 Jul 2015 09:00Austerity didnt work. In the last five years the economy shrinked by 19%. Unemployment rose to 27%. Tsipras wanted more debt relief. The IMF report sustain that an improvement is impossible without debt relief.
sunnytimes 4 Jul 2015 08:58German people are industrious and inventive. They play by the rules. Unfortunately they are also rather naive and believe generally what the state tells them. In history the role of such people has always been to pay the bills.
GuillotinesRUs 4 Jul 2015 08:45Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.
I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.
The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down.
U77777 -> CassiusClay 4 Jul 2015 08:40
Austerity isn't the answer - but when you have put yourself into the situation that the Greeks have, it is part of the solution. A small part and nothing like the media like to portray, but something has got to give.
As for electing Tsipras and varoufakis......Seriously, stop drinking. They're a bunch of cowboys with some well intended principles and a load of rather deluded ideas. Worse still, neither of them have actually come up with anything like a constructive plan how to stimulate the economy and help Greece stand on its own 2 feet again
Dimitris Chloupis -> sylvester 4 Jul 2015 08:39Any sensible Greek realizes without deep reforms no economy is going forward. This is not even debatable in my country. We already reduced public sector by 500.000 employes thats a juicy 50%. High pensions of the past are long gone. The result is that now it costs 6 billion to pay for wages in public sector and another 5 billion to pay for pension, total 10 billion. But we need another 10 billion for paying back loans each year. This year alone we paid back 25 billion !!!
Tax evasion should be our next focus, its not reasonable for an economy that makes 200 billions per year to need loans . There is a will to fix all that, because the alternative is far worse.
Of course the same can be said about Germany , why a country that make 3.1 trillion euros per year has a 80% debt ? Tax evasion of course ;) Time to open those swish bank accounts , but does Germany want that ? How many vested Greek interest are connected with German vested interest ?
Denying corruption is to deny the foundation of modern economies.
W61212 -> RussBrown 4 Jul 2015 08:39
I made a point earlier about the birth of a new Brussels based dictatorship which controls all EZ 'national governments', which are national governments by name only, ergo Syriza has to go for straying from the script. Brussels has already proven it would rather deal with corrupt Greek politicians by doing so in the past
Continent Renato -> Timotheus 4 Jul 2015 08:37
Inequality of opportunity in the Eurozone is now so great -- young people in Greece have an unemployment level of 60% and the rate is 33% in the austerity "success story" of Portugal
The systems are different. Northern countries have the dual education system, i.e. only about 10 p.c. of the youth go to college/university, and 90 p.c. go through a 3 or 4 year education "learning by doing".
In addition, the "dirty work" in Greece (farming/harvest/construction) is done by temporary migrants from Macedonia, Albania, Romania, Bulgaria because the Greek parents wanted their children to have a better life and sent them to universities without an employment market for so many acdemics. Many of them land in a job with in the bloated govt.
sunnytimes 4 Jul 2015 08:36
The true parasites are the bond markets of London and New York. The create nothing. All they do is swap pieces of paper with ech other all day long, skimming every transaction. The UK and US have run trade deficits or decades, that is by definition they produce less than they consume. Time to tear down this edifice of debt and get back to a capital-based economy.
LeftOrRightSameShite FOARP 4 Jul 2015 08:35
Greece already has been bailed out
No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks!
Bit thick really innit!
RussBrown 4 Jul 2015 08:35
Myth 1 - Greece do nothing to solve the problem (they have had years of austerity)
Myth 2 - Germany is bailing out the Greeks. The money that goes to Greece goes straight back into the German Banks. But by making it impossible for business to run in Greece the businesses move their resources to Germany and pay taxes their in a massive transfer of wealth from a poor EU country to the richest. This is a capitalist scam and all of lot on here shouting their propaganda should be ashamed of yourselves. The rich bankers are using you to justify the destruction of the poor!
[Jun 12, 2015] IMF to Alexis Tsipras: Do you feel lucky, punk?
Notable quotes:
"... Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". ..."
"... If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. ..."
"... What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table... ..."
"... The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them! ..."
"... Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers? ..."
"... A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. ..."
"... "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU. What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU) ..."
"... Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts. ..."
Jun 12, 2015 | The Guardian
Hristos Dagres 12 Jun 2015 11:50
Basically, the IMF should officially admit their fatal errors in the development of the first MoU that "saved" Greece [well, we all know now that the first plan was nothing more than an attempt to save euro and the French-German banks that was cunningly presented as a token of "European solidarity" - in reality, they didn't give a sh..t about Greece].
These "errors" were immediately identified by other members of the IMF board, like Brazil, Argentina, China and .... Switzerland, according to the IMF documents presented by WSJ
[http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/ ]
I believe that Christine should pick up her pieces and crawl back to the table - and this time she should present a plan that will restore the damage done.
Or else, they should not get a single euro back - and we should start negotiating with the BRICS for a fair plan to restructure our economy.
MachinePork 12 Jun 2015 11:30
Make no mistake about it a Greek default is a calamity for the global financial system. Debt on the periphery is in the trillions. It is carried on the books in banks and treasuries at face value only because national administrators understand – with the blessing of the automatons at BIS -- what it would mean if this crap was subjected to a proper stress test or marked-to-market.
At stake in this battle is the entire global financial system. Should a NATO government summon the cheek to opt out of the prevailing international credit system, issue debt-free capital, invest in its people, grow exports and prove to succeed; the entire compound interest earning, system of rent-making privilege would collapse. My sense is the kingdom of Finance, its banking lords and its lickspittles in policy will never let this happen.
God bless the Greek people. This is going to get messy. They should be commended for their bravery in the face of endless threats of financial serfdom for intransigence.
The international debt monkey is a doppelgänger. He looks so inviting at first glance but is more than prepared to reach back and lob a compound interest bearing shit bomb your direction in a bid to save privilege in the global financial zoo.
Maria Christoulaki 12 Jun 2015 10:43
Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". What do you think that Greeks are? all these articles except of bulling show a racism against us. You must ask an excuse for this article which offends both our prime minister and the Greek people, who voted him.
mgtuzairodtiiasn asiancelt 12 Jun 2015 09:08
It is funny! The German bankers stole your money, and you still believe that all this money went to the Greeks. This money went from the German banks to the German enterprises. Because they gave bribes to win contracts for useless military equipment. For example, Greece bought 4 submarines that doesn't need. Even today, only one has been delivered, because there were major design faults, although the German company has received the money. Regarding the loans of the previous years, do you believe that the total amount of the Greek debt was to expire in just 3 years? Obviously, the gang that rules EU today, gave 240 bn Euros to banks of Germany, France, Netherlands etc, and used Greece as a scapegoat to hide this fraud. Wake up!
mgtuzairodtiiasn Angkor 12 Jun 2015 08:55
Firstly, negotiation is not that you agree to what the institutions require. Secondly, you are right. The Greek economy and society have been carried many parasites until now.
Remember the German companies like Siemens, Ferrostaal, ThyssenKrupp which gave bribes to many politicians and Media owners. Or Hochtief, which still has not paid 500 mn Euros of VAT to the Greek state. It is time to get rid of all this parasites.
elenits -> Anton Brasschaat 12 Jun 2015 07:57
"Loans" imposed by IMF against its mandate = Odious debt.
Greeks shouldering 340 bn of EU, ECB, IMF "loans" to shore up foreign malinvesting banks = Odious debt
Loans to Greece that were not used by Greeks = Odious debt
IMF breaking its own rules to loan without debt restructure = Odious debt
This is without considering ECB acting outside its mandate, i.e. politically, from Feb 2015 by illegally cutting Greece from bond markets and out of QE.
elenits -> asiancelt 12 Jun 2015 07:49
If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. The 10% Greece was allowed to keep paid for the interests on these "loans" - topped up with money screwed out of the Greek taxpayers.
Apropos the IMF they acted illegally against their own rules by lending to a first world country [not a "developing" country] and by accepting a greek program that did not include debt restructure, i.e. the same German, French and Dutch banks having to accept some losses.
There is no such thing as "risk" anymore for banks, corporations or the 1%. Risk and poverty is only for ordinary people like yourself.
dawisner -> Constantine Alexander 12 Jun 2015 07:30
Constantine, as an American expat living in Greece for the past 21 years now (I was married in Thessaloniki in 1988), I, too, have frequently lamented how many armchair experts appear in these chat rooms. I published an e-book last year (Still at Aulis) with a view toward trying to explain to the casual observer how complex the local situation can be, and how worthy and hard-working my Greek peers often are. Keep up the good work.
seaspan -> Anton Brasschaat 12 Jun 2015 05:50
French and German banks were generously bailed out of any risk by "taxpayers" from the EU, including Greeks.
And Greek leverage is honesty: they have a clear understanding of current economic reality, and a better plan to payback their debts to Euro taxpayers. Anyone who says different is suspect as to their interests and intentions.
It isnt Syriza you should be questioning if you are sincere about your concern for the taxpayer. It is the financial advisers and ideologues backing austerity you should question. Are they merely driven by their egos and reputations as pro austerity hawks? Afraid for their secure positions as Yes Men in financial institutions?
And anyone in the negotiating process who has loyalties to Russia should be severely scrutinised, since Putin's interests are for a failure in negotiations, for a Grexit, all toward a long term desire of an EU breakup.
It could come down to questions of treason why there is no negotiated settlement,,, if such a word is applicable to the EU project...
Constantine Alexander -> Renato Timotheus 12 Jun 2015 05:43
My life's experiences - including beginning work at 8 years of age; 3 years military service; professional activities including U.S. investment banking, employment development in Eastern Europe (e.g. job creation at a Belarus agricultural production facility which is still thriving), 10 years devoted to my passion for wildlife conservation projects with worthy BirdLife Int'l NGO partners (not as you coyly suggested as a result of "untoward" behaviour); and having a doctor threaten to refuse to perform my father's surgery unless he receives a 10,000 euro cash bribe in addition to his customary doctor's fee and the hospital costs - have shaped my perspective on the factors that contribute to or undermine civil society.
If Greece exits the euro, the resulting cost of vital goods will soar due to the country's heavy reliance on imports. This will hit the middle class and the poor much harder than the current austerity measures -- most of which have not been implemented by any Greek gov (e.g. opening up business sectors to competition, privatization of debt-ridden public institutions, tax collection which has for decades suffered due to customary and widespread bribery demanded by tax officials, privatization of public assets).
The long term solution lies in the govt starting to do what most of us have to do - we prioritize spending based on worthiness and needs (food, health, education, etc), keep a reserve for contingencies, and spend in relation to our incoming revenue. But rather than contributing to long term stability and security for the country which benefits everyone's work activities, the society insists upon short term benefits (e.g. public sector hiring for my children, tax evasion) that it clearly cannot afford. The broader issue is not lender's conditions vs. austerity relief, but rather a way of organizing govt and society which, in the Greek model, has gotten way out of hand due to low interest rates for excessive borrowing by a series of governments. We'll see how the story unfolds.
PyrosT -> Enoch Arden 12 Jun 2015 05:32
destroyed economy was not an alternative to the IMF "help", it was its result, carefully planned and systematically implemented. It was in a way a remarkable achievement of IMF: to inflict a greater damage to the Soviet economy than WW2, with the help of the local compradors.
IMF will not do anything about your or anyone elses local corrupt elites or lack of governance. That is not within their mandate or nature.
If you think that it is possible to convert a centrally planned soviet style (the core of it to boot) to anything resembling a market economy without major disruption.
Even East Germany, despite the endless billions thrown into it, went through a period of high unemployment and hardships.
But I guess it is easier to "blame the IMF". Yes the interventions will almost always lower your GDP - for a quite simple reason that the previous GDP is probably bloated with G (government spending) and any significant restructuring always causes some depression. And yes, it typically isn't a "walk in the park". And some measures are probably misguided, inadequate or ineffective.
But...
Why does a country asks for the IMF help in the first place? Because it is sporting unsustainable policies? Sometimes it could even correct itself, but having an outside partner makes some policies easier to deploy.
DANIELDS 12 Jun 2015 05:10
Yesterday briefing by G.RICE of IMF
...Greek pension system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.......Terrible errors? reported to justify killing policies of troica and imf......Here is Greek butjet.
http://www.minfin.gr/?q=en/content/state-budget-execution-january-march-2015
......For pensions 6,3 billion eur.GDP OF 2014 179 bill euros and for pensions goes ONLY 3.5% OF IT.
This the big obstacle of negotiations.10% of GDP is 18 billion euros .3.5% is only 5.4 billions.They are killers of a country with false reports.
Angkor Renato -> Timotheus 12 Jun 2015 04:53
Renato on your checklist for Greece's solution to its current problems, a few questions:
1. Default. Well that's a given. It's going to happen anyway whether the Greeks want it to or not.
2. Secure Russian and Chinese support for the new currency
How will Greece secure Russian and Chinese support for its new currency? Aren't they going to do a credit check and find out that the Greeks don't honour their loans? They're bound to find out and its pretty unlikely that they'd be silly enough to line themselves up to be stiffed by the Greeks. They are not mugs you know.3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments. Why stop at Germany and Luxembourg? Poland was part of Germany (the Governor Generalate) during WWII. As were Austria (the Anschluss), and the Czech Republic and Slovakia (the Munich Agreement). Why not seize all of the property owed by the nationals of those countries as well? It only seems fair. Also Italy had a role in the invasion of Greece in WWII. In fact the Germans would never have invaded but for the Italians botching the job. Shouldn't you be stiffing the Italians as well?
4. Massive drive to attract British and Russian tourists to a cheaper Greece. A few questions here. First the Russians. Where will their tourists come from given the parlous state of their economy? And why would they go to Greece now that they have lovely Crimea, the Pearl of the Black Sea, back in their hands? Now for the British. What has Greece got that a British tourist would want that Magaluf doesn't have? Don't say culture because Greece has little of it (and the Italians do it better anyway) and British tourists don't want it. If they wanted Greek culture they'd go to the British Museum where it's been sitting for the last 200 years.
5. Threaten to join the SCO, if NATO starts conspiring for a military coup. Don't you think that the SCO's dialogue partners, Turkey, may have something to say about that? Nothing kind, of course. That would be a bit too much to expect of the Turks when talking about Greek matters.
zchabj6 -> JimVxxxx 12 Jun 2015 04:37
The debt jubilee is a very old idea, mentioned in biblical times, but has also had plenty of implementation in medieval and later times where every 10 years or so all debt is wiped out and debt issuing starts again.
This was essentially to stop debt slavery where one class monopolizes resources and lends it out to others to do work for the asset owners to do nothing but live off of the interest on the loans, which is caustic to society.
As for no compound interest. It essentially is my own idea, based on say religious texts that ban interest or usury on loans because of the negative debt slavery consequences.
But the question is, who would then lend to business and people, where is the incentive? So there could be fixed interest on the original sum and no more, unlike today where you pay interest on the intiial sum and the interest on that.
And if you miss payments and there are delays to paying, interest breeds interest, rather than having a known fixed sum of interest to pay back which is much more just.
AER and other formulas are really eating up the entire economic structure, it seems to me there is merit to justice and prosperity too from religious texts, they seem to have a lot of experience in unseating entrenched oligarchs.
REDLAN1 12 Jun 2015 04:29
What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table...
We are meant to presume that this is a negotiating tactic, and that the IMF is Dirty Harry? In the final scene, Dirty Harry goads the perp into going for his gun so that he can legally kill him in self-defence. Although in the first scene where this is used Dirty Harry's gun is empty. So which is it?
Have they got an empty gun, or are they trying to goad Greece into defaulting, so they can blow them away?
REDLAN1 -> galava 12 Jun 2015 03:52
You can do the math yourself for the UK...
http://www.ukpublicspending.co.uk/uk_welfare_spending_40.html
I assume UK public spending on pensions at 8.6% of GDP. This 2% average sounds like nonsense.
Scipio1 -> Angkor 12 Jun 2015 03:27
In terms of purchasing power parity China does have the largest economy in the world. The US GDP is roughly $17 trn and China's is roughly $8trn, but a dollar in China goes twice as far as a $ in the US. Moreover China does not have the same debt levels as the US. US public debt is over 100% of GDP. When you count how rich a country is remember to factor in the LIABILITIES as well as the assets. The US is the world's biggest debtor country and China is the biggest creditor.
The US only enjoys (if this is the right word) its current living standards since it controls the world currency. But this is coming to and end as the BRICS nations are de-dollarizing and setting up their own institutions which circumvent the dollar. Institutions such as the AIIB and the BRICS investment bank.
The world is changing old chap, and of course the Americans don't like it; their dominant position is under threat which is why they are trying to arrest this development by any means - financial, economic, political and military - at their disposable.
Hypatia415 -> Quaestio 12 Jun 2015 03:07
Yes, Greece has been fleeced of so many of its assets. Prescient warnings over time of the world's anarchic banking system wreaking havoc and yet never held to account:
http://www.theguardian.com/business/2010/apr/18/goldman-sachs-regulators-civil-charges
http://www.alternet.org/economy/how-goldman-sachs-may-provoke-yet-another-major-financial-crisisPeregrineSlim 12 Jun 2015 02:47
Leaving the negotiation table is negotiation.
The IMF are not going anywhere. They are just negotiating.
Greece can take heart. They'll do anything for a deal.
ShiresofEngland 12 Jun 2015 02:35
This is the real problem. The IMF should never have been involved in the first place. They should stick to their mandate of only ever loaning money where that debt is sustainable.
For the IMF to walk out that might not be a bad thing, but they should walk out on Merkel and the EU for refusing an OSI, the debt writedown which Greece needs.
It has always been a solvency issue and not a liquidity issue. Until the Troika accept that then no progress can be made.
JimVxxxx -> madrupert 12 Jun 2015 02:35
The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them!
The IMF would argue that they do put people before money; by increasing the competitiveness of a country they are ultimately benefiting everyone who lives there.
JimVxxxx -> zchabj6 12 Jun 2015 02:28
Some interesting points there... the IMF is a bank, just like any other, with a mandate to encourage free-market policies (as far as I know).
The ECB are far better positioned to provide tools which would lessen the impact for individual EU countries facing sovereign debt funding issues, however, it is not explicitly mandated to do so.
I have never come across the term 'debt jubilee' but it sounds fun; perhaps you could explain what it is? Also, how would abolishing compound interest help?
hermanmitt -> piper909 12 Jun 2015 02:22
This entire situation is a foreshadowing of what's to come in a world that allows international banking cabals and corporate investors to dictate policies to sovereign states, regardless of the will of the people as expressed in open elections.
"Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild
This is just the money phase of a process that takes power away from elected government and hands it to a few bankers. The next stage is to hand the management of that power to the few who run the corporations.
That process is now well under way in the form of TTIP.
Q: Ever wondered how something this important could be discussed in secret?
A: Because these elites do not consider ordinary people to be part of the process, so why would they need to consult us.Constantine Alexander 12 Jun 2015 02:16
It is very obvious that many of you who have commented have never lived in Greece. Although I have lived and worked in 5 countries, I was born, raised, served my military service and have returned to work in this country that I have always loved but ... the daily corruption, tax evasion on a massive scale, refusal to honour the terms of ordinary contracts that Greeks willingly sign only to later cherry-pick the terms by which they wish to abide and the inherent sense of always feeling victimized by the rest of the world are not productive features in civil society. Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers?
That figure does not include the tax evasion by the rest of (and the majority of) Greek working people. I am disappointed in the educational system that is ranked lowest in the EU and, most of all, in my fellow citizens who cling to this system of daily corruption and bribe-taking but refuse to recognise this behaviour in themselves. Please stop blaming financial creditors who have a right to request loan conditions (just as we have home loan conditions) that the Greeks could have declined. The financial mismanagement in this country is staggering, so, for those of you who criticize the lenders - don't forget there are two sides to every story and you may not be seeing everything that goes on here.
Renato Timotheus 12 Jun 2015 02:13
I think the solution for Greece is becoming clearer by the day.
1. Default.
2. Secure Russian and Chinese support for the new currency for a period of 2 years or so.
3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments (yes, Luxembourg was a part of Germany in WWII, so it too owes reparations, and many Luxembourg-registered companies have assets in Greece).
4. Massive drive to attract British and Russian tourists to a cheaper Greece.
5. Threaten to join the SCO, if NATO starts conspiring for a military coup.eastofthesun -> Faith Puleston 12 Jun 2015 02:07
it is a country that thinks the EU is a source of income to make up for them not doing their sums at home
I'm thinking that if lenders have the right to enforce policy decisions, then maybe they ought also to bear a share of responsibility. By which I mean that when the IMF was busy throwing money at Greece's erstwhile administrations it must have been well aware of what was happening with its money (including that bled away into corruption), yet it tolerated it; certainly the IMF had more potential say in Greek policy at the time than the current administration.
If the politicians of earlier administrations abused their access to EU funding, they did so knowing that it would ultimately not be them to pick up the bill. Like most elected politicians they needed only a short-term perspective. The lenders indulged this when the money was being spent in the first place, now they're cracking down on the people who inherited the debt - not those who ran it up. (Of course, the lenders inherit the debt too.)
That's the nature of long-term debt. We need to learn that this lending process is dysfunctional - but both parties to the debt are complicit in that. This is why it is incumbent on the lenders to negotiate.
AlexLeo 12 Jun 2015 01:33
A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. Holding a gun to his head - are you speaking to a juvenile delinquent trying to get a message across? Pathetic, Cannot see anyone paying money to read this analysis.
Chris Hindle 12 Jun 2015 01:23IMF to Alexis Tsipras: 'Do you feel lucky, punk?'
Good to see this 'economist' sitting astride the neutral position
I thought everyone realised the Greek people are innocent in all this - that the debts were accrued illegally and probably only as little as 5-10% actually benefitted the Greek people - the rest, inevitably, benefitting Greek bent banksters and politicians.
I wonder if this 'economist' was trained in the dreamworld of neo-classical economicsTo put it clearly - Bollox to the IMF -- People first!
Notaterrorist 12 Jun 2015 01:00
The best writing on this subject (not just a regurgitation of "she said, he said" like the above useless piece of "journalism") is by Ambrose Evans-Pritchard in the Daily Telegraph. Below is what he writes today.
If he is correct, I finally understand Schauble - and to my astonishment agree. Neither Greece nor the Eurozone can function while Greece remains in the Euro. It's time for Grexit and a Marshall Plan.
"Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.
What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)
Mrs Merkel appears to have concluded that "Grexit" is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy."
Quaestio -> MikeBenn 11 Jun 2015 23:00
Why? Because US investment banks were involved in the Greek debt.
Wall St. Helped to Mask Debt Fueling Europe's Crisis
By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
Published: February 13, 2010
The New York TimesWall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.
As worries over Greece rattle world markets, records and interviews show that with Wall Street's help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.
Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November - three months before Athens became the epicenter of global financial anxiety - a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.
The bankers, led by Goldman's president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece's health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.
It had worked before. In 2001, just after Greece was admitted to Europe's monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.
Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street's role in the world's latest financial drama.
As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.
In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.
Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country's liabilities.
Glen Killoran -> Pomario 11 Jun 2015 22:49
Based upon what?
Tourism? Tried that, it allowed the 1950 Greek economy to rocket into the 20's.
Shipping? Too late, that ship has already sailed.
Manufacturing, yeah, Greece will be #1, right after Bangladesh, Vietnam and Cambodia.
Agriculture? Equipment bought with what money, the Drachma? Hmm, that'll be a competitive business model.
Real-estate? Just how expensive do you think homes will be when the local populace is cash poor, in debt, and has no access to credit? Can you say buyers market? It will be the foreign fire sale buyer that buys low, sells high, not the Greeks.
And, all of this assumes the Greek economic model is reformed, and that is what the troika is trying to do right?
Seems to me default is really just the long hard road to reform, if it ever gets there because, there surely no demand for it now.
Mark Richardson 11 Jun 2015 22:46
It is kind of difficult for the new Greek government to give the IMF and its other creditors anything in new austerity measures considering that the Greek unemployment rate is over 25% and the youth unemployment rate is 60%. How much more pain would you be willing to force on your own people if you were a new reform leader considering that this entire crisis was caused when the previous conservative Greek government hid and failed to report half of its entire deficit? I don't see a viable future for Greece that includes having to repay the IMF and other major lenders as any more reforms will just drive the jobless rate and their GDP loss rate higher too.
Basically either the IMF and Germany agree to restructure the Greek debt or Greece will pull-out of the Eurozone, and right after that happens Italy and Spain will be next, which will cause another Great Depression in the major lending countries.
Andrew Paul -> Wood Pomario 11 Jun 2015 22:16
There probably won't be a tourism boom if Grexit triggers a global recession when the EU markets spin into chaos. So why can't they collect tax revenues from the wealthy now and clear up all their problems in the first place?
fflambeau -> Glen Killoran 11 Jun 2015 22:01
I agree that past Greek governments have made huge mistakes. But the main problem is not in pension funds, as you claim, but in military spending. In the 1980's the Greek government spent 6% of its GDP on military expenditures. That is now about 2% of GDP but that is still the second highest of all NATO countries, second only to America.
You seem to miss the point that the current Greek government had nothing to do with the mistakes made by former governments and has done a noble job of righting the ship.
As for your comments about the overly generous nature of Greek pensions, you are off base. Maybe that was the case many years ago, but not in the past couple of years.
fflambeau 11 Jun 2015 21:42
Let's compare the "bailouts" that President Obama worked out with huge Wall St. companies and corporations that failed in 2007-2009. They got enormous funding, trillions of dollars, at virtually no interest and no oversight.
General Motors took $6 billion of its $50 billion bailout and built an automobile manufacturing plant (in Thailand, no less!).
What did the USA's taxpayers make off the billions of dollars it gave GM, at the time the largest corporation in the world? Nothing. In fact, they LOST money.
Reuters and Time both report that the US government LOST money, $11.2 billion, by loaning $50 billion to GM. Source: http://www.reuters.com/article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430
Did the US government put pressure on GM to make them pay back the lost $11.2 billion? Nope.
So those complaining here about giveaways to a lazy Greek people should look at what is really happening in their countries and what the IMF and other international organizations are really doing.
AnhTay 11 Jun 2015 19:10
One possibility is obvious. Greece is prepared to default. They are, quite rationally, waiting to see if they can get a deal with the IMF that would be acceptable as an alternative to default. Even if they cannot, what is the harm in playing out their hand to see if it is possible? There is no point in getting childish about the issue. Negotiations are about business. If Greece chooses to default, so be it. No reason for the IMF to get all gnarly on the point.
fceska -> Bowhill 11 Jun 2015 19:07
That's not the only thing that's wrong. The whole article is completely one-sided. This paragraph for instance:
Up until now, the view in Athens has been that the troika – made up of the IMF, the European Central Bank and the European commission – has been bluffing. The view has been that there is always room for a bit more haggling, always time to cut a better deal that would avoid the need to make the changes to pensions, VAT and collective bargaining being demanded in exchange for fresh financial assistance.
could be rewritten as:
Up until now, the troika – made up of the IMF, the European Central Bank and the European commission – has been of the view that Athens has been bluffing. The view has been that there is always room for a bit more arm-twisting, always time to force a tougher deal that would ratify the need to make the changes to pensions, VAT and collective bargaining which they were demanding in exchange for yet more unsustainable financial assistance.
aretzios -> mariandavid 11 Jun 2015 18:37You have it all wrong. You should read the IMF reports. The IMF actually urged the EU to write-off part of the Greek debt. The IMF felt that it was put in a bad situation, brought in by the EU to manage the problem without any of the tools usually allowed in these situations, such as debt write-off and devaluation. In its 2014 report, the IMF stated that the whole "bailout" deal was not to rescue Greece but to rescue the Euro. Now, knowing that it is not going to get any assistance from the EU, it is putting the pressure on Greece to get its funds from there. I think that the IMF feels trapped in a situation that it was not of its making.
The issue of the pensions is the most galling one. During the 2012 write-down, the EU protected all its assets; the 50 billion euros in Greek bonds held by the ECB were not subject to the write-down. However, all Greek pensions funds were forced (literally forced) to participate. They collected just 17 cents to the Euro (or thereabouts) in the bond exchange. Of course, now the EU claims that there is no money to service the current pensions, thus the pensions need to be reduced! Considering that the average pension is about 600 euros (and living costs in Greece are very much the same as in the UK), one can see how galling this is (and they already have gone down by 40% in the last five years). If you add to this the demanded tax increases, the whole thing almost sounds like a Mafia protection racket.
Even though the IMF is not "impressed" with the concessions that the Greek government has made thus far, this government would not really survive if it brings this package to the parliament. A good number of its MPs would not vote for it and many of its ministers would resign. The resulting turmoil would only deepen the political crisis.
At the end, the EU will find a very anti-EU militant country in its southeast corner with more to follow. Not really good for anybody
[Jun 12, 2015] Jamie Dimon Says He's Unsure If Elizabeth Warren Understands Global Banking System
Jun 12, 2015 | Bloomberg Business
In an April speech, Warren, a former professor, chided "finance guys" who assert she and others can't grasp their business.
"The finance guys argue that if you're never in the club, you can't understand it, but I think they have it backward," she said. "Not being in the club means not drinking the Kool-Aid."
'Finance Guys'
Such bankers are smart, but no smarter than people in many other professions, she said. When their mistakes led to the financial crisis, they "took care of themselves and their bonuses while millions of people lost everything."
Warren led the congressional oversight panel for the Treasury Department's 2008 bailout of the financial system. She also proposed the creation of what eventually became the Consumer Financial Protection Bureau to help shield Americans from predatory financial products after the crisis.
"The problem was never that I didn't understand what the finance guys were doing," she said in April. "The problem was that I understood exactly what the finance guys were doing. I knew it, and they knew it."
[Jun 04, 2015] The Case of the Missing Minsky
"...Talk of inequality muffles the sharper edged conflict between the job class and their employer class in the corporate glass towers "
Jun 01, 2015 | Economist's View
Paine said in reply to Paine ...
The Minsky mess is the whole endogenous pathology. No attack on that and we are sure to face crisis again. And knowing a policy path to fast and full recovery from a Minsky moment
doesn't mean we will follow itPolitical economy not macro has failed us says Simon Templar. Call it class politics going unexposed and I agree. Talk of inequality muffles the sharper edged conflict between the job class and their employer class in the corporate glass towers
[May 23, 2015] The Children of the Abyss
May 20, 2015 | Jesse's Café Américain
"He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."J.H.Newman, The Times of Antichrist
People do not wake up one day and suddenly decide to become monsters, giving birth to unspeakable horrors.
And yet throughout history, different peoples have done truly monstrous things. The Americans were pioneers in forced sterilization and state propaganda. The British invented concentration camps, and were masters of predatory colonization. They even turned a large portion of the capital of their Empire into a festering ghetto through the Darwinian economics of neglect. None have clean hands. No one is exceptional.
What do they have in common? They all take a walk down a long and twisted path, one cold-hearted and 'expedient' decision at a time, shifting responsibility by deflecting the choice for their actions on their leaders.
There is always some crackpot theory. some law of nature, from scientists or economists to support it. What else could they do? It is always difficult, but necessary.
They cope with their actions by making their victims the other, objectified, different, marginalized. And what they marginalize they cannot see. What they cannot see, by choice, is easily ignored.
And so they destroy and they kill, first by neglect and then by more efficient and decisive actions.
They walk slowly, but almost determinedly, into an abyss of their own creation.
But they all seem to have one thing in common. First they come for the old, the weak, the disabled, and the different, in a widening circle of scapegoats for their plunder.
"There is one beautiful sight in the East End, and only one, and it is the children dancing in the street when the organ-grinder goes his round. It is fascinating to watch them, the new-born, the next generation, swaying and stepping, with pretty little mimicries and graceful inventions all their own, with muscles that move swiftly and easily, and bodies that leap airily, weaving rhythms never taught in dancing school.I have talked with these children, here, there, and everywhere, and they struck me as being bright as other children, and in many ways even brighter. They have most active little imaginations. Their capacity for projecting themselves into the realm of romance and fantasy is remarkable. A joyous life is romping in their blood. They delight in music, and motion, and colour, and very often they betray a startling beauty of face and form under their filth and rags.
But there is a Pied Piper of London Town who steals them all away. They disappear. One never sees them again, or anything that suggests them. You may look for them in vain amongst the generation of grown-ups. Here you will find stunted forms, ugly faces, and blunt and stolid minds. Grace, beauty, imagination, all the resiliency of mind and muscle, are gone. Sometimes, however, you may see a woman, not necessarily old, but twisted and deformed out of all womanhood, bloated and drunken, lift her draggled skirts and execute a few grotesque and lumbering steps upon the pavement. It is a hint that she was once one of those children who danced to the organ-grinder. Those grotesque and lumbering steps are all that is left of the promise of childhood. In the befogged recesses of her brain has arisen a fleeting memory that she was once a girl. The crowd closes in. Little girls are dancing beside her, about her, with all the pretty graces she dimly recollects, but can no more than parody with her body. Then she pants for breath, exhausted, and stumbles out through the circle. But the little girls dance on.
The children of the Ghetto possess all the qualities which make for noble manhood and womanhood; but the Ghetto itself, like an infuriated tigress turning on its young, turns upon and destroys all these qualities, blots out the light and laughter, and moulds those it does not kill into sodden and forlorn creatures, uncouth, degraded, and wretched below the beasts of the field.
As to the manner in which this is done, I have in previous chapters described it at length; here let Professor Huxley describe it in brief:-
"Any one who is acquainted with the state of the population of all great industrial centres, whether in this or other countries, is aware that amidst a large and increasing body of that population there reigns supreme . . . that condition which the French call la misere, a word for which I do not think there is any exact English equivalent. It is a condition in which the food, warmth, and clothing which are necessary for the mere maintenance of the functions of the body in their normal state cannot be obtained; in which men, women, and children are forced to crowd into dens wherein decency is abolished, and the most ordinary conditions of healthful existence are impossible of attainment; in which the pleasures within reach are reduced to brutality and drunkenness; in which the pains accumulate at compound interest in the shape of starvation, disease, stunted development, and moral degradation; in which the prospect of even steady and honest industry is a life of unsuccessful battling with hunger, rounded by a pauper's grave."
In such conditions, the outlook for children is hopeless. They die like flies, and those that survive, survive because they possess excessive vitality and a capacity of adaptation to the degradation with which they are surrounded. They have no home life. In the dens and lairs in which they live they are exposed to all that is obscene and indecent. And as their minds are made rotten, so are their bodies made rotten by bad sanitation, overcrowding, and underfeeding. When a father and mother live with three or four children in a room where the children take turn about in sitting up to drive the rats away from the sleepers, when those children never have enough to eat and are preyed upon and made miserable and weak by swarming vermin, the sort of men and women the survivors will make can readily be imagined."
Jack London, The People of the Abyss
[May 21, 2015]Consistent With
May 21, 2015 | Economist's View
Chris Dillow:"Consistent with": ...Peter Dorman criticizes economists' habit of declaring a theory successful merely because it is "consistent with" the evidence. His point deserves emphasis. ...This is a point which some defenders of inequality miss. Of course, you can devise theories which are "consistent with" inequality arising from reasonable differences in choices and marginal products. Such theories, though, beg the question: is that how inequality really emerged?... And the answer, to put it mildly, is: only partially. It also arose from luck, inefficient selection, rigged markets, rent-seeking and outright theft. ...Quite often, the facts are consistent with either theory. For example, the well-attested momentum anomaly - the tendency for assets that have risen in price recently to continue rising - is "consistent with" both a cognitive bias (under-reaction) and with rational behaviour; fund managers' desire to avoid benchmark risk.My point here should be well-known. The Duhem-Quine thesis warns us that facts under-determine theory: they are "consistent with" multiple theories. ...So, how can we guard against the "consistent with" error? One thing we need is history: this helps tell us how things actually happened. And - horrific as it might seem to some economists - we also need sociology: we need to know how people actually behave and not merely that their behaviour is "consistent with" some theory. Economics, then, cannot be a stand-alone discipline but part of the social sciences and humanities...
May 08, 2015 | Zero Hedge
In the coming months, however many hours Clinton spends introducing herself to voters in small-town America, she will spend hundreds more raising money in four-star hotels and multimillion-dollar homes around the nation. The question is: "Can Clinton claim to stand for 'everyday Americans,' while hauling in huge sums of cash from the very wealthiest of us?" This much cannot be disputed: Clinton's connections to the financiers and bankers of this country - and this country's campaigns - run deep. As Nomi Prins questions, who counts more to such a candidate, the person you met over that chicken burrito bowl or the Citigroup partner you met over crudités and caviar?The Clintons and Their Banker Friends
The Wall Street Connection (1992 to 2016)[This piece has been adapted and updated by Nomi Prins from chapters 18 and 19 of her book All the Presidents' Bankers: The Hidden Alliances that Drive American Power, just out in paperback (Nation Books).]
The past, especially the political past, doesn't just provide clues to the present. In the realm of the presidency and Wall Street, it provides an ongoing pathway for political-financial relationships and policies that remain a threat to the American economy going forward.
When Hillary Clinton video-announced her bid for the Oval Office, she claimed she wanted to be a "champion" for the American people. Since then, she has attempted to recast herself as a populist and distance herself from some of the policies of her husband. But Bill Clinton did not become president without sharing the friendships, associations, and ideologies of the elite banking sect, nor will Hillary Clinton. Such relationships run too deep and are too longstanding.
To grasp the dangers that the Big Six banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley) presently pose to the financial stability of our nation and the world, you need to understand their history in Washington, starting with the Clinton years of the 1990s. Alliances established then (not exclusively with Democrats, since bankers are bipartisan by nature) enabled these firms to become as politically powerful as they are today and to exert that power over an unprecedented amount of capital. Rest assured of one thing: their past and present CEOs will prove as critical in backing a Hillary Clinton presidency as they were in enabling her husband's years in office.
In return, today's titans of finance and their hordes of lobbyists, more than half of whom held prior positions in the government, exact certain requirements from Washington. They need to know that a safety net or bailout will always be available in times of emergency and that the regulatory road will be open to whatever practices they deem most profitable.
Whatever her populist pitch may be in the 2016 campaign -- and she will have one -- note that, in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader. Though she may, in the heat of that campaign, raise the bad-apples or bad-situation explanation for Wall Street's role in the financial crisis of 2007-2008, rest assured that she will not point fingers at her friends. She will not chastise the people that pay her hundreds of thousands of dollars a pop to speak or the ones that have long shared the social circles in which she and her husband move. She is an undeniable component of the Clinton political-financial legacy that came to national fruition more than 23 years ago, which is why looking back at the history of the first Clinton presidency is likely to tell you so much about the shape and character of the possible second one.
The 1992 Election and the Rise of Bill Clinton
Challenging President George H.W. Bush, who was seeking a second term, Arkansas Governor Bill Clinton announced he would seek the 1992 Democratic nomination for the presidency on October 2, 1991. The upcoming presidential election would not, however, turn out to alter the path of mergers or White House support for deregulation that was already in play one iota.
First, though, Clinton needed money. A consummate fundraiser in his home state, he cleverly amassed backing and established early alliances with Wall Street. One of his key supporters would later change American banking forever. As Clinton put it, he received "invaluable early support" from Ken Brody, a Goldman Sachs executive seeking to delve into Democratic politics. Brody took Clinton "to a dinner with high-powered New York businesspeople, including Bob Rubin, whose tightly reasoned arguments for a new economic policy," Clinton later wrote, "made a lasting impression on me."
The battle for the White House kicked into high gear the following fall. William Schreyer, chairman and CEO of Merrill Lynch, showed his support for Bush by giving the maximum personal contribution to his campaign committee permitted by law: $1,000. But he wanted to do more. So when one of Bush's fundraisers solicited him to contribute to the Republican National Committee's nonfederal, or "soft money," account, Schreyer made a $100,000 donation.
The bankers' alliances remained divided among the candidates at first, as they considered which man would be best for their own power trajectories, but their donations were plentiful: mortgage and broker company contributions were $1.2 million; 46% to the GOP and 54% to the Democrats. Commercial banks poured in $14.8 million to the 1992 campaigns at a near 50-50 split.
Clinton, like every good Democrat, campaigned publicly against the bankers: "It's time to end the greed that consumed Wall Street and ruined our S&Ls [Savings and Loans] in the last decade," he said. But equally, he had no qualms about taking money from the financial sector. In the early months of his campaign, BusinessWeek estimated that he received $2 million of his initial $8.5 million in contributions from New York, under the care of Ken Brody.
"If I had a Ken Brody working for me in every state, I'd be like the Maytag man with nothing to do," said Rahm Emanuel, who ran Clinton's nationwide fundraising committee and later became Barack Obama's chief of staff. Wealthy donors and prospective fundraisers were invited to a select series of intimate meetings with Clinton at the plush Manhattan office of the prestigious private equity firm Blackstone.
Robert Rubin Comes to Washington
Clinton knew that embracing the bankers would help him get things done in Washington, and what he wanted to get done dovetailed nicely with their desires anyway. To facilitate his policies and maintain ties to Wall Street, he selected a man who had been instrumental to his campaign, Robert Rubin, as his economic adviser.
In 1980, Rubin had landed on Goldman Sachs' management committee alongside fellow Democrat Jon Corzine. A decade later, Rubin and Stephen Friedman were appointed cochairmen of Goldman Sachs. Rubin's political aspirations met an appropriate opportunity when Clinton captured the White House.
On January 25, 1993, Clinton appointed him as assistant to the president for economic policy. Shortly thereafter, the president created a unique role for his comrade, head of the newly created National Economic Council. "I asked Bob Rubin to take on a new job," Clinton later wrote, "coordinating economic policy in the White House as Chairman of the National Economic Council, which would operate in much the same way the National Security Council did, bringing all the relevant agencies together to formulate and implement policy... [I]f he could balance all of [Goldman Sachs'] egos and interests, he had a good chance to succeed with the job." (Ten years later, President George W. Bush gave the same position to Rubin's old partner, Friedman.)
Back at Goldman, Jon Corzine, co-head of fixed income, and Henry Paulson, co-head of investment banking, were ascending through the ranks. They became co-CEOs when Friedman retired at the end of 1994.
Those two men were the perfect bipartisan duo. Corzine was a staunch Democrat serving on the International Capital Markets Advisory Committee of the Federal Reserve Bank of New York (from 1989 to 1999). He would co-chair a presidential commission for Clinton on capital budgeting between 1997 and 1999, while serving in a key role on the Borrowing Advisory Committee of the Treasury Department. Paulson was a well connected Republican and Harvard graduate who had served on the White House Domestic Council as staff assistant to the president in the Nixon administration.
Bankers Forge Ahead
By May 1995, Rubin was impatiently warning Congress that the Glass-Steagall Act could "conceivably impede safety and soundness by limiting revenue diversification." Banking deregulation was then inching through Congress. As they had during the previous Bush administration, both the House and Senate Banking Committees had approved separate versions of legislation to repeal Glass-Steagall, the 1933 Act passed by the administration of Franklin Delano Roosevelt that had separated deposit-taking and lending or "commercial" bank activities from speculative or "investment bank" activities, such as securities creation and trading. Conference negotiations had fallen apart, though, and the effort was stalled.
By 1996, however, other industries, representing core clients of the banking sector, were already being deregulated. On February 8, 1996, Clinton signed the Telecom Act, which killed many independent and smaller broadcasting companies by opening a national market for "cross-ownership." The result was mass mergers in that sector advised by banks.
Deregulation of companies that could transport energy across state lines came next. Before such deregulation, state commissions had regulated companies that owned power plants and transmission lines, which worked together to distribute power. Afterward, these could be divided and effectively traded without uniform regulation or responsibility to regional customers. This would lead to blackouts in California and a slew of energy derivatives, as well as trades at firms such as Enron that used the energy business as a front for fraudulent deals.
The number of mergers and stock and debt issuances ballooned on the back of all the deregulation that eliminated barriers that had kept companies separated. As industries consolidated, they also ramped up their complex transactions and special purpose vehicles (off-balance-sheet, offshore constructions tailored by the banking community to hide the true nature of their debts and shield their profits from taxes). Bankers kicked into overdrive to generate fees and create related deals. Many of these blew up in the early 2000s in a spate of scandals and bankruptcies, causing an earlier millennium recession.
Meanwhile, though, bankers plowed ahead with their advisory services, speculative enterprises, and deregulation pursuits. President Clinton and his team would soon provide them an epic gift, all in the name of U.S. global power and competitiveness. Robert Rubin would steer the White House ship to that goal.
On February 12, 1999, Rubin found a fresh angle to argue on behalf of banking deregulation. He addressed the House Committee on Banking and Financial Services, claiming that, "the problem U.S. financial services firms face abroad is more one of access than lack of competitiveness."
He was referring to the European banks' increasing control of distribution channels into the European institutional and retail client base. Unlike U.S. commercial banks, European banks had no restrictions keeping them from buying and teaming up with U.S. or other securities firms and investment banks to create or distribute their products. He did not appear concerned about the destruction caused by sizeable financial bets throughout Europe. The international competitiveness argument allowed him to focus the committee on what needed to be done domestically in the banking sector to remain competitive.
Rubin stressed the necessity of HR 665, the Financial Services Modernization Act of 1999, or the Gramm-Leach-Bliley Act, that was officially introduced on February 10, 1999. He said it took "fundamental actions to modernize our financial system by repealing the Glass-Steagall Act prohibitions on banks affiliating with securities firms and repealing the Bank Holding Company Act prohibitions on insurance underwriting."
The Gramm-Leach-Bliley Act Marches Forward
On February 24, 1999, in more testimony before the Senate Banking Committee, Rubin pushed for fewer prohibitions on bank affiliates that wanted to perform the same functions as their larger bank holding company, once the different types of financial firms could legally merge. That minor distinction would enable subsidiaries to place all sorts of bets and house all sorts of junk under the false premise that they had the same capital beneath them as their parent. The idea that a subsidiary's problems can't taint or destroy the host, or bank holding company, or create "catastrophic" risk, is a myth perpetuated by bankers and political enablers that continues to this day.
Rubin had no qualms with mega-consolidations across multiple service lines. His real problems were those of his banker friends, which lay with the financial modernization bill's "prohibition on the use of subsidiaries by larger banks." The bankers wanted the right to establish off-book subsidiaries where they could hide risks, and profits, as needed.
Again, Rubin decided to use the notion of remaining competitive with foreign banks to make his point. This technicality was "unacceptable to the administration," he said, not least because "foreign banks underwrite and deal in securities through subsidiaries in the United States, and U.S. banks [already] conduct securities and merchant banking activities abroad through so-called Edge subsidiaries." Rubin got his way. These off-book, risky, and barely regulated subsidiaries would be at the forefront of the 2008 financial crisis.
On March 1, 1999, Senator Phil Gramm released a final draft of the Financial Services Modernization Act of 1999 and scheduled committee consideration for March 4th. A bevy of excited financial titans who were close to Clinton, including Travelers CEO Sandy Weill, Bank of America CEO, Hugh McColl, and American Express CEO Harvey Golub, called for "swift congressional action."
The Quintessential Revolving-Door Man
The stock market continued its meteoric rise in anticipation of a banker-friendly conclusion to the legislation that would deregulate their industry. Rising consumer confidence reflected the nation's fondness for the markets and lack of empathy with the rest of the world's economic plight. On March 29, 1999, the Dow Jones Industrial Average closed above 10,000 for the first time. Six weeks later, on May 6th, the Financial Services Modernization Act passed the Senate. It legalized, after the fact, the merger that created the nation's biggest bank. Citigroup, the marriage of Citibank and Travelers, had been finalized the previous October.
It was not until that point that one of Glass-Steagall's main assassins decided to leave Washington. Six days after the bill passed the Senate, on May 12, 1999, Robert Rubin abruptly announced his resignation. As Clinton wrote, "I believed he had been the best and most important treasury secretary since Alexander Hamilton... He had played a decisive role in our efforts to restore economic growth and spread its benefits to more Americans."
Clinton named Larry Summers to succeed Rubin. Two weeks later, BusinessWeek reported signs of trouble in merger paradise -- in the form of a growing rift between John Reed, the former Chairman of Citibank, and Sandy Weill at the new Citigroup. As Reed said, "Co-CEOs are hard." Perhaps to patch their rift, or simply to take advantage of a political opportunity, the two men enlisted a third person to join their relationship -- none other than Robert Rubin.
Rubin's resignation from Treasury became effective on July 2nd. At that time, he announced, "This almost six and a half years has been all-consuming, and I think it is time for me to go home to New York and to do whatever I'm going to do next." Rubin became chairman of Citigroup's executive committee and a member of the newly created "office of the chairman." His initial annual compensation package was worth around $40 million. It was more than worth the "hit" he took when he left Goldman for the Treasury post.
Three days after the conference committee endorsed the Gramm-Leach-Bliley bill, Rubin assumed his Citigroup position, joining the institution destined to dominate the financial industry. That very same day, Reed and Weill issued a joint statement praising Washington for "liberating our financial companies from an antiquated regulatory structure," stating that "this legislation will unleash the creativity of our industry and ensure our global competitiveness."
On November 4th, the Senate approved the Gramm-Leach-Bliley Act by a vote of 90 to 8. (The House voted 362–57 in favor.) Critics famously referred to it as the Citigroup Authorization Act.
Mirth abounded in Clinton's White House. "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the twenty-first century," Summers said. "This historic legislation will better enable American companies to compete in the new economy."
But the happiness was misguided. Deregulating the banking industry might have helped the titans of Wall Street but not people on Main Street. The Clinton era epitomized the vast difference between appearance and reality, spin and actuality. As the decade drew to a close, Clinton basked in the glow of a lofty stock market, a budget surplus, and the passage of this key banking "modernization." It would be revealed in the 2000s that many corporate profits of the 1990s were based on inflated evaluations, manipulation, and fraud. When Clinton left office, the gap between rich and poor was greater than it had been in 1992, and yet the Democrats heralded him as some sort of prosperity hero.
When he resigned in 1997, Robert Reich, Clinton's labor secretary, said, "America is prospering, but the prosperity is not being widely shared, certainly not as widely shared as it once was... We have made progress in growing the economy. But growing together again must be our central goal in the future." Instead, the growth of wealth inequality in the United States accelerated, as the men yielding the most financial power wielded it with increasingly less culpability or restriction. By 2015, that wealth or prosperity gap would stand near historic highs.
The power of the bankers increased dramatically in the wake of the repeal of Glass-Steagall. The Clinton administration had rendered twenty-first-century banking practices similar to those of the pre-1929 crash. But worse. "Modernizing" meant utilizing government-backed depositors' funds as collateral for the creation and distribution of all types of complex securities and derivatives whose proliferation would be increasingly quick and dangerous.
Eviscerating Glass-Steagall allowed big banks to compete against Europe and also enabled them to go on a rampage: more acquisitions, greater speculation, and more risky products. The big banks used their bloated balance sheets to engage in more complex activity, while counting on customer deposits and loans as capital chips on the global betting table. Bankers used hefty trading profits and wealth to increase lobbying funds and campaign donations, creating an endless circle of influence and mutual reinforcement of boundary-less speculation, endorsed by the White House.
Deposits could be used to garner larger windfalls, just as cheap labor and commodities in developing countries were used to formulate more expensive goods for profit in the upper echelons of the global financial hierarchy. Energy and telecoms proved especially fertile ground for the investment banking fee business (and later for fraud, extensive lawsuits, and bankruptcies). Deregulation greased the wheels of complex financial instruments such as collateralized debt obligations, junk bonds, toxic assets, and unregulated derivatives.
The Glass-Steagall repeal led to unfettered derivatives growth and unstable balance sheets at commercial banks that merged with investment banks and at investment banks that preferred to remain solo but engaged in dodgier practices to remain "competitive." In conjunction with the tight political-financial alignment and associated collaboration that began with Bush and increased under Clinton, bankers channeled the 1920s, only with more power over an immense and growing pile of global financial assets and increasingly "open" markets. In the process, accountability would evaporate.
Every bank accelerated its hunt for acquisitions and deposits to amass global influence while creating, trading, and distributing increasingly convoluted securities and derivatives. These practices would foster the kind of shaky, interconnected, and opaque financial environment that provided the backdrop and conditions leading up to the financial meltdown of 2008.
The Realities of 2016
Hillary Clinton is, of course, not her husband. But her access to his past banker alliances, amplified by the ones that she has formed herself, makes her more of a friend than an adversary to the banking industry. In her brief 2008 candidacy, all four of the New York-based Big Six banks ranked among her top 10 corporate donors. They have also contributed to the Clinton Foundation. She needs them to win, just as both Barack Obama and Bill Clinton did.
No matter what spin is used for campaigning purposes, the idea that a critical distance can be maintained between the White House and Wall Street is naďve given the multiple channels of money and favors that flow between the two. It is even more improbable, given the history of connections that Hillary Clinton has established through her associations with key bank leaders in the early 1990s, during her time as a senator from New York, and given their contributions to the Clinton foundation while she was secretary of state. At some level, the situation couldn't be less complicated: her path aligns with that of the country's most powerful bankers. If she becomes president, that will remain the case.
Medium
When I heard that Ben Bernanke was taking a second advisory role, at PIMCO, as well as his first job out of the Fed, at Citadel, I kind of nearly dropped my morning latte in surprise. If I was PIMCO, I would not be wanting an advisor to Citadel to be coming within a hundred yards of my trading floor.
Why not? Well, the way that PIMCO works, as Felix Salmon explained a few years ago, is very dependent on their ability to execute changes in their view in a very, very efficient manner - quickly, and without too much impact on the market price. Given that, if I was PIMCO, I would be super super paranoid about allowing anyone near me who was also going to be talking to one of the world's sharpest and most aggressive hedge funds.
Obviously, Bernanke is a) a man of pretty unquestioned integrity, b) aware of the clear potential for conflict of interest and c) neither a spring chicken nor a pushover. He will be aware of the danger of having one of his two clients out-traded by the other. So, although I doubt that will stop the Citadel traders trying, he will already be pretty resistant to questions of the following kind:
"So, what do they think up in Newport?"
"What's Andrew Balls saying?"
"Do your other guys like the ten year linked?"
"What's PIMCO holding? Come on, tell me, what have they got? What are we f**king paying you for anyway? Come, you bearded f**k, tell me? No, f**k your Chinese Wall, I've got Ken on my ass here. What are they holding? What are they holding? What are they f**king …" (repeat ad infinitum, some of them can be very persistent and/or aggressive).
In any case, it's unlikely that Bernanke, as an outside consultant, will be reviewing portfolios or directly advising on trades. It's more likely that he'll be a sounding board for general discussions, and/or a brand ambassador, meeting clients of PIMCO for pitch or review meetings. That sounds like less of a problem of conflict of interest, except …
Except that if anything, information about client attitudes to PIMCO is more valuable to a competitor than information about PIMCO's attitude to the market. After all, PIMCO's positions are generally well-known - they're too big and too public for it to be otherwise. But if you ever got a hint that they had received a big redemption or gained a big mandate - well, that would be very useful information indeed because you would know them to be potentially forced buyers or sellers.
At a lower level, traders are always sniffing for information about possible changes of view - whether the holders of a security are confident in their decision and happy to add more, or whether they're doubting themselves and thinking about changing their minds. A fly on the wall at a general sounding board for PIMCO PMs could learn all sorts of useful information simply by being aware of what they were thinking about.
And furthermore, hedge fund traders are in the business of extracting "soft" information and understanding its implications. Being a human antenna for other people's sentiment toward the market is what they do. The best ones - and Citadel doesn't employ many lemons - can make a guess about your positioning and recent performance from the way you say "Good morning". That's why so many of them are poker players, and particularly why they often do well in the big face-to-face tournaments. So the questions that Bernanke really needs to look out for are things like:
"How's California, my man? Still sunny?"
"Jeez, another tour of Asia? Working you pretty hard aren't they?"
"What do you mean you can't do the 15th? Frankfurt *again*?"
"Lighten up, Ben! Looks like someone's been giving you a hard time?"
"Tell me, if we wanted to shift a big block trade in[security] who do we call at PIMCO?"
"Seen the Journal? Brutal. Rather have my performance numbers than PIMCO's huh?"
Even with the best will (and the best poker face) in the world, this dual role looks to me like a possible conduit of information. Bernanke is experienced in keeping his mouth shut, but he's going into a whole new world now, and he's doing so without the benefit of a staff and a press office to protect him. If I was PIMCO, I wouldn't have taken this risk.
Dan Davies is Senior Research Advisor at Frontline Analysts
08 April 2015 | Jesse's Café Américain
"The only vice that cannot be forgiven is hypocrisy. The repentance of a hypocrite is itself hypocrisy."
William Hazlitt
"The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.
By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.
Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."
Janet Tavakoli, Decisions: Life and Death on Wall Street
Gold and silver were pushed back to their assigned round numbers, with gold barely holding above 1200 and silver pushed well below the 17 handle.
Ted Butler has a rather striking piece about the rigging in the silver market which you can read here.
Speaking of silver it appears that Turkey had record imports of silver bullion in March. You can read about that here. I am not sure how significant that is. We can certainly keep an eye on it to see if this is a one time thing or a trend.
Thoughts of silver drachmas and dirhams come to mind, but it is most likely improbably premature. Still, this is a currency war and things seem to be building to a reckoning of sorts. Who can say what desperate people might do to end repression?
Nothing really happened at the Bucket Shop on the Hudson. A few contracts of silver were claimed, and inventory was shoved around the plate in the warehouses. The real action is taking place in the Mideast and Asia.
We have become a coarse and careless people, smugly confident in our 'Exceptionalism.' We are no longer shocked about lies, but instead critique the style and performance of the liars, and try to emulate them in our own professions.
How can we not cringe at some of the more shocking abuses that pass for generally acceptable behavior in public figures these days? And we encourage it, by both our silence and our acceptance.Oh yes, we recoil in horror at any kind of sex, at the human form, with great puritanical umbrage, but stealing and cheating, and abusing the poor and the defenseless in even the most petty and vicious ways is looked upon with admiration, because we are in love with power.
Power is our new golden calf. Even some so-called 'reformers' are falling all over themselves at a chance to move near the circles of power, to have influence, to be seen as connected. All we seem to want is to get paid, to get ahead, to 'win.'Hypocrites!
And the example of our cultural and societal icons are certainly leading to a general corrosion of all morals and civilities. And that is a shame, which eventually will have significant repercussions and consequences for us as a people and a society.
Where will we finally draw the line and come to our senses? How far are we willing to go? How many crimes and abuses, how much theft and torture are we willing to overlook? Why do we allow our society to be defined by sociopaths?
When will we finally look about, and see that we too, despite all our smug superiority, have created our own garden of beasts?
Apr 14, 2015 | Jesse's Café Américain
Suicide is a prohibited form of violence in my own belief, as are all other forms of murder. Therefore I would not hold this type of protest up as an example to anyone.
However, an even worse offense would be to completely ignore the message which this young man delivered, as most of the mainstream media has done in the US.
I did not even know what really happened until I read this article below from Wall Street On Parade today. The police and media referred to it as a 'social protest.'
Before he killed himself, the young man held up a sign that said "Tax the One Percent."
Perhaps an even more pointed message might be 'shut down the loopholes for the Top .01%.' Those who make their money from wages and ordinary income pay fairly significant taxes.
However, the uber-rich have so many loopholes and tax avoidance schemes that they often pay much lower percentage than even those in the lowest income levels. The top .01% use the upper middle class as shields for their antics.
You may read the entire article about this here.
Rather than one young light be extinguished and quickly overlooked by the powerful, perhaps it would be better if a million people were to march on the Capitol, and effective shut it down in protest this Summer. That might get their attention. Alas, the apathy in the people is pervasive, at least for now.
Wall Street On Parade22-Year Old Commits Suicide at Capitol to Send Congress a Message
By Pam Martens: April 14, 2015At approximately 1:07 p.m. on Saturday afternoon, April 11, during the annual Cherry Blossom Festival celebrating springtime in the Nation's Capitol, a 22-year old man took his own life with a gun on the Capitol grounds with a protest sign taped to his hand. According to the Washington Post, the sign read: "Tax the one percent."
Yesterday, the Metropolitan Police Department released the young man's name. He was Leo P. Thornton of Lincolnwood, Illinois. Based on what is currently known, the young man had traveled to Washington, D.C. for the express purpose of making a political statement with his sign and then ending his young life.
The Chicago Tribune reported that "Thornton's parents filed a missing persons report on the morning of April 11 after he never came home from work on April 10, Lincolnwood Deputy Police Chief John Walsh said."
Those are the tragic facts of the incident itself. But there is a broader tragedy: the vacuous handling of this story by corporate media. The Washington Post headlined the story with this: "Rhythms of Washington Return after Illinois Man's Suicide Outside Capitol." The message he delivered to his Congress – tax the one percent – has yet to be explored by any major news outlet in America in connection with this tragedy.
Was the message of Leo P. Thornton of Lincolnwood, Illinois a critical piece of information for this Congress to hear at this moment in American history. You're damn right it was. Outside of Wall Street's wealth transfer system, provisions in the U.S. tax code are the second biggest wealth transfer system to the one percent. Together, these two systems have created the greatest income and wealth inequality since the economic collapse in the Great Depression. They threaten a repeat of the 2008 financial collapse because the majority of Americans do not have the wages or savings to support the broader economy...
April 7, 2015 | nakedcapitalism.com
Lambert here: This post is short and sweet. It's worth reminding ourselves that on some axes of evaluation, Republicans and Democrats are far more alike than different.
By PEU Report. Originally posted on their blog, Private Equity Report.
Holding the public in contempt is a bipartisan effort. Consider the following stories. The first involves Republican Governor Rick Perry of Texas:
Information contained in a blistering state audit shows that at least five of the recipients… which got tens of millions of dollars from the fund - never actually submitted formal applications. At issue are at least five recipients of Texas Enterprise Fund money: Vought Aircraft…
Texas Governor Rick Perry gave Vought, a Carlyle Group affiliate, $35 million for fifteen years. Ten years later it's unclear if Vought provided even one additional new job. Governor Perry's job number is fanciful and the recent audit gives no overall job number. In 2010 Carlyle sold Vought for $1.44 billion but not one penny was returned to Texas taxpayers.
Chicago's Democratic Mayor Rahm Emanuel is as free with taxpayer money for his political benefactors and purposely evasive about those relationships:
Emanuel's administration has for weeks blocked the release of correspondence between his administration and one of the Democratic mayor's top donors, Michael Sacks. The administration has also refused to release details about tens of millions of dollars in shadowy no-bid city payments to some of Emanuel's largest campaign contributors.
Rahm's top donor is a private equity underwriter (PEU):
The CEO of the Chicago private equity firm Grosvenor, Sacks has been described as Emanuel's closest ally in the private sector, and has been called Emanuel's "go-to guy" and his "top troubleshooter."
PEU sponsored politicians are above the law:
Illinois' open records law mandates that communications to and from public officials like Emanuel be made available for public inspection.
Back to how Rahm rewards his donors:
…firms that have received tens of millions of dollars' worth of shadowy "direct voucher payments" (DVPs) from the Emanuel administration have given more than $775,000 worth of campaign contributions to the mayor's political organizations.
Chicago's DVP process is permitted thanks to loopholes in Illinois' procurement law that allow municipal officials to circumvent the traditional contracting process. Unlike standard government contracts, DVP payouts do not require any type of public documentation. Emanuel appointees retain substantial discretionary authority to approve DVPs. The payments are not required to go to the lowest bidder; vendors receiving the payments do not have to list their qualifications and never need to document the services they provide to the city in return for the money. The DVPs appear to have been used for everything from phone service to interest payments to financial firms, but unlike the George W. Bush administration's no-bid contracts, DVP payments do not even require a formal contract, so it is impossible to verify what the money purchased.
No application, no contract and no accountability. It's our PEU world, where politicians Red and Blue love PEU.
Apr 07, 2015 | Zero Hedge
Former employees of federal agencies can often find good (and lucrative) jobs as lobbyists, capitalizing on the connections that they forged while in public service. As OpenSecrets exposes, the numbers of revolving-door-enthusiasts is reminiscent of the Ebola epidemic as this deadly-to-democracy disease spreads from department to department ripping away 'hope and change' wherever it appears. "Revolvers" include those as powerful - and well connected - as secretaries of state and as far from Washington as Peace Corps volunteers... but The Department of Commerce tops the list...
The agencies shown here have employed the greatest number of former lobbyists - or sent the greatest number of former employees to lobbying firms and interest groups.
Agency Number of revolving door people profiled Dept of Commerce 1736 Dept of Defense 1688 Dept of State 1452 Dept of Health & Human Services 1225 White House 1216 Dept of Agriculture 1112 Dept of Army 1080 US House of Representatives 876 Dept of Justice 864 Dept of Energy 840 Dept of Transportation 750 Dept of Interior 700 Dept of Labor 555 Dept of Housing & Urban Development 530 Dept of Homeland Security 520 Dept of the Treasury 444 Dept of Navy 428 Dept of Education 412 Dept of Air Force 312 US Senate 256
Jan 01, 2013 | Jesse's Café Américain
Below is an excerpt from a much longer article which you can read in its entirety here.
It is an interpretation told from a certain perspective, but overall does a fairly decent job of laying out the general boundaries for the currency war that has been brewing in the background since 1971 with the collapse of Bretton Woods.
It is more visible to us now because it started manifesting more overtly in the 1990's and since then has slowly been gaining momentum.
If an analyst does not understand this, even if they do not agree with this particular interpretation, then they have a poor grasp of the major trends that are driving so much financial and political activity in the world today.
And fortunately or unfortunately, gold and silver are deeply involved as the traditional supra-national world currencies.
To put the entire thing in a nutshell, in 1971 the US arbitrarily ended the Bretton Woods Agreement by closing the 'gold window,' and placed the world on an entirely fiat reserve currency which the US controlled. Since the US is making monetary policy to suit its own domestic agenda, and increasingly so over the past twenty years, the stresses that this creates in the world have become unacceptable to many other countries, some of which are in a position to push back against this.
This tension between the dollar and the rest of the world is either going to end in an acceptable and workable compromise, or will result in a split of the world into regions of power and financial influence, most likely three or four. This will be accompanied by conflict on all the usual levels: diplomatic, economic, and military. We are seeing this today.
Compromise is being thwarted by a neo-conservative, militaristic and nationalistic group in the States, with clients in other countries, that view an American hegemony as the natural and highly desirable outcome of the end of the Cold War. However, this is a patriotic cover story for what is essentially a bid for more money and power for a privileged few who have no patriotism and little decency, who serve only themselves and their patrons. To quote Edward Abbey, their motives are 'old as Babylon and evil as hell.'
Whether you agree with this or not does not matter so much, because it is very obvious to those in countries like the BRICs that this is the situation, and they are acting on this, and the US is reacting in response. But from reading the literature of the neoliberal economists and neoconservative politicians, it seems hard to come to any other conclusion based on facts and specific actions which have been taken by the US, the UK, Canada, Germany and Japan.
I do not think it is too much to say that we are experiencing a type of 'world war.' This seems to be the type of settling of differences and adjustments that follow major economics shifts, as we had seen in the first half of the 20th century.
"The Fed effectively acts as the world's central bank, but sets monetary policy only in its own interest. Under the pressure and the orders of financial oligopolies, it fixes interest rates and prints money to suit itself, sending economies across the globe into tailspins...These policies aren't enacted with the express goal of kicking the global South in the stomach, but this outcome is a necessary and predictable result of the domination of the global financial order by a sole country whose interest is to keep its hegemonic status. Other measures are taken precisely toward this end. This latest round of financial warfare has to be seen in the context of financial imperialism in general. Countries struggling for sovereignty are also being hit by sanctions, speculative currency attacks, commodity price manipulation, biased evaluations from US ratings agencies, massive fines on some banks for what the US has deemed inappropriate practices, and the prohibition of certain banks from participating in the international banking system...
Not only does the dollar enable the US empire, but also protecting the dollar's status is a major reason for US imperial wars. American financial and military strength is based upon the fact that the dollar is the world's reserve and international trade currency, creating a global demand for dollars which allows the US to print as many greenbacks as it likes. It then pumps them into the overbloated finance capital system and uses them to fund its criminal wars...
Without this international demand for dollars, the dollar would "correct," and US hegemony would eventually, inevitably, come to an end. Therefore the US pressures and attacks countries that attempt to free themselves from the dollar's yoke, not only because they're guilty of lese majesty, but in order to force the world to maintain the status of the dollar and thus preserve US domination...
Although it has so far been unsuccessful, the idea of rebalancing the world monetary system is extremely threatening to the US, and goes a long way toward explaining recent US wars and warmongering, which may otherwise seem irrational...
The dollar is rallying less because of any supposed US recovery than because of higher global demand for dollars due to investors' risk aversion, in the wake of the Fed pulling the plug on QE. Parenthetically, the US economy is definitely not recovering...
While a stronger dollar will not hurt the consumption-based US economy, the rising dollar and US monetary tightening are about to give the developing world a severe blow..."
Michčle Brand and Rémy Herrera, Dollar Imperialism 2015
"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well.Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."
Tacitus, Agricola
April 17, 2014 | NYTimes.com
Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz professor of entrepreneurship at the M.I.T. Sloan School of Management and co-author of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You."
The global financial crisis that broke out following the collapse of Lehman Brothers in September 2008 was a big shock. This is literally true in terms of the impact on investors and market prices; a wide range of financial variables moved rapidly in unexpected and worrying directions. But what happened was also a shock to the realm of ideas about finance.
Before September 2008 - or at least before 2007, when some of the underlying problems first became more clearly manifest - the prevailing consensus among officials and specialists was that financial innovation was a good thing. In isolated instances, a particular new product might not work out as planned, as happens, for example, with medical innovation. But over all, the consensus went, financial innovation led by the private sector was making the system safer and more efficient.This view was wrong.
In its day, this line of thinking justified the legal and regulatory changes that allowed some banks to become very large and to build up a much more complex range of activities in the 1990s and early 2000s, including through various kinds of opaque derivatives transactions.
In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.
Of course, some bankers knew exactly what they were doing as their companies increased their debt relative to their equity. On average, large complex global banks had about 2 percent equity and 98 percent debt on the liability side of the balance sheet before the crisis, meaning they were leveraged 50:1 (the ratio of total assets to equity).
The good news is that the official consensus was shattered in 2008, and is not coming back. Systemic risk slapped everyone in the face with an undeniable wake-up call.
However, the process of reforming the financial system is still at an early stage. The Dodd-Frank financial reforms of 2010 represent a useful start - including the Volcker Rule's restrictions on excessive risk-taking - and the recently adopted Basel III framework for capital regulation nudges equity requirements higher.
But the world's largest banks will, by one informed estimate, end up - as things currently stand - with about 3 percent equity and 97 percent debt as the average structure of their balance sheet liabilities. In the United States, if the latest leverage rule is implemented and enforced properly, this will become 5 percent equity and 95 percent debt for the biggest eight banks by 2018. While 20:1 is better than 50:1, this is still not enough equity to assure a reasonable degree of financial stability in the foreseeable future.
The argument about finance has now shifted and is much more about whether capital requirements for the largest banks should be increased further. Those opposed to such a move offer three reasons why big banks should not be required to fund themselves with much more equity.
First, some people contend that the crisis of 2008 was a rare accident and Dodd-Frank fixed whatever problems existed. This is completely unconvincing - particularly because many of the same people have spent much of the last four years opposing and delaying financial reform.
Most importantly, it ignores the ways in which incentives and rules have changed since the 1980s. As James Kwak and I asserted in "13 Bankers," the structure of the financial system is quite different now from what it was in 1980. In particular, the largest banks have become much bigger and more able to take on (and mismanage) much more risk.
The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat. This is the view sometimes associated with former Treasury Secretary Timothy Geithner. (Mr. Geithner has a book coming out soon, and it will be interesting to see his current position on this point).
But the impact of any financial crisis is not measured primarily in terms of whether the Treasury made or lost money on specific investments. The criteria instead should be what happened to output and jobs, as well as what the impact was on the country's fiscal accounts. How much more public debt do we have now relative to what we had before - and what kind of lasting negative effects will that have?
Mr. Kwak and I took this on in "White House Burning," putting the recent surge in public debt in the longer-run context of American fiscal policy. No matter how you look at it, the financial crisis was a complete disaster for the real economy and, given the way fiscal politics work in the modern United States, for the budget and for investments in any kind of physical infrastructure and education.
The third counterargument is that large complex financial institutions are needed because they provide some sort of magic for the broader economy. This still seems to be the view of some people at the Federal Reserve Bank of New York, which recently published a set of research papers on the topic.
But the benefits they find are small relative to the potential costs. Anat Admati and Martin Hellwig's "The Bankers' New Clothes" makes the vulnerability of modern banking abundantly clear.
A recent report from the International Monetary Fund finds that the United States and other governments are providing large implicit subsidies to these big banks: The prospect of potential government support lowers their funding costs by about 100 basis points (one percentage point).
Many people are involved in the official sector's rethinking of finance. This is the lasting contribution from books such as Sheila Bair's "Bull by the Horns," Neil Barofsky's "Bailout" and Jeff Connaughton's "The Payoff." In government circles, key decision makers were swayed by officials including Thomas Hoenig and Jeremiah Norton (both of the Federal Deposit Insurance Corporation) and Sarah Bloom Raskin (then on the Board of Governors of the Federal Reserve System; now at the Treasury Department). As chairman of the Commodity Futures Trading Commission, Gary Gensler had an immensely positive impact, both directly on the regulation of derivatives and also more broadly.
The Democratic senators Sherrod Brown of Ohio, Jeff Merkley of Oregon and Carl Levin of Michigan and Ted Kaufman of Delaware (who has since left the Senate), along with David Vitter, Republican of Louisiana, played key roles in shifting opinion. Elizabeth Warren's work, both before and after her election to the Senate from Massachusetts, has also had great influence.
Of all the civil society organizations seeking to promote financial stability, Dennis Kelleher's Better Markets stands out for its major impact through a relentless surge of arguments, comment letters and research. Its report on the cost of the crisis made clear beyond any reasonable doubt that the crisis had profound negative consequences for millions of people.
Many other officials have also shifted their views in important ways. We are not going back to the old ways of thinking about finance, and allowing for changes in these theories is an essential part of any modern economy. Finance needs to be regulated effectively, and large banks should fund themselves with much more equity than is currently the case.
Selected Skeptical Comments
toom, germany 19 June 2014
The basic question is whether financial trickery and juggling can produce wealth? Certainly these tricks produce wealth for the bankers on Wall St. But how about the rest of us?
The answer is "maybe, sometimes". The pension funds profited from 1980 to 2007 and then again after 2010, with help from the Fed. However the wealth increase from 1980 to 2000 was mainly from the export of manufacturing jobs from the US to China. That will never occur again.
So we are stuck with 1% return on investment, unless trickery or some new invention (a new kind of cell phone, or more broadband or alternate energy?) occurs.
jack waymire, sacramento, ca 22 April 2014
Sure 20:1 leverage on balance sheets is better than 50:1 leverage, but the intellectuals are missing the point. Who wins when banks are excessively leveraged? Shareholders? Clients? The U.S. economy? I submit the primary beneficiaries are the executives who run the banks. They make decisions with impunity. Increased leverage increases profits which increase executive bonuses. Shareholders may benefit if company stocks rise in value. Highly leveraged balance sheets create a huge risk for all Americans - except the executives who made the decisions to leverage the balance sheets and get into businesses they barely understand.
Justin, Ohio 18 April 2014
You nail it perfectly. But we need to ask broader question: Is American Dream a myth?
It seems to me American Dream is clearly a form of both myth and illusion and propaganda used by the upper classes to keep the lower classes or the 99% in their place.I'm shocked!, America 17 April 2014
"The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat."
Let's find the person who said that and feed him to the tens of millions of unemployed people.
Jeff Atkinson, Gainesville, GA 17 April 2014
It's pretty simple. TBTF bank managers want to be regulated and paid like hedge fund managers but with a huge edge in the form of implied government assurances for their suppliers of capital. Such assurance can be purchased cheaply with political contributions and post government jobs for regulators.
Robert Baesemann, Los Angeles CA 17 April 2014
Bravo. I was prepared to read a rehash of the Collected Scientific Papers of Jamie Dimon," but this piece is very informative and helpful. The most critical issue on my horizon is the stability of the financial system. What I ask is whether or not the system is as stable as it was in 1998, or is it still teetering the way it was in 2007. In 2008, we observed the failure of Lehman, the rescue of several others (Merrill merged into BofA), and the failure and rescue of two money market funds that failed to make the buck. This seems to have been a global run on the banks which was cut off, but narrowly cut off. If there is a next time, the 2008 experience will only cause the fingers on the triggers to be quicker than they were in 2008. This seems to mean that we are not far removed from the lethally dangerous circumstances of 2008.
Thank you for pointing out the need for better financial regulation. As I recall, under Glass-Steagall commercial banking and investment banking were separate (no Merrill-BofA unions) and commercial bank reserve requirements were set by the FED at 20% to 25% or 4 to 1 or 5 to 1. In those days, commercial banks could not make profits like investment banks, but they could not drage the entire world into Depression. Investment banks were left to deal with people silly enough to gamble on Wall Street rather than Las Vegas. Oh for those halcyon days.
Murray Kenney, Ross, CA 17 April 2014
More equity = less lending. Less lending = less capital, particularly for small and medium sized businesses and for consumers with weak credit histories. Less capital for small and medium sized businesses and moderate income consumers = less economic growth.
That's why European Governments have resisted higher capital levels. They'd rather backstop their banks and treat bank debt as an off balance sheet liability of their governments than acknowledge the problem created by slow economic growth, excess supply, weak demand and low interest rates.
Michael F. Rhodes, Vancouver, Canada 17 April 2014
That is bunk. Financial alchemy has been tried in history (4th century Rome, post-war Germany and Basel risk weights). They don't work. Value creation, not finance creation, drives durable economics. Stop the apologetics. Tell people to work harder.
Manuel Morales, San Juan, Puerto Rico 17 April 2014
Financial illusions may be stronger than they may have ever been.
Professor Johnson writes that the financial crisis was a complete disaster to the real economy. Dennis Kelleher estimates a $12.8 trillion debacle in that same real economy with a negative impact that will be felt for years, if not decades, to come.
The doyens and shamans of 'high finance' have only received timid penalties for the global destruction they triggered while companies in the tangible economy, causing much less damage, are oftentimes chastised much more strongly and receive relatively far stricter punishments.
Regrettably the all-inclusive list of wizards of Wall Street are doing fine, are much alive and vigorously kicking while working compulsively to find 'innovative' and ingenious maneuvers to outfox regulations while moving higher on the 1% list.
The distressed state of affairs caused by the Great Recession may prove not to be the Main Event. Only time will tell.
Bob Feinberg, DC area 18 April 2014
At a recent event in Washington, Mr. Kelleher drastically raised his estimate of the embedded cost of the ongoing crisis due to overvaluation of swap positions of the TBTF banks. No one seems to know what this exposure is, and the prevailing view is that this is minimal because the positions net out.
The people who say this are the same ones who minimized the practices that gave rise to the 2008 episode of the ongoing, permanent crisis. The positions don't necessarily net out unless they are opposing sides of the same trade.
To estimate this exposure at several times the GDP of the US is probably conservative, but no one seems to know. Meanwhile the efforts of the so-called regulators are directed at preventing a so-called "default event" that would require these losses to be recognized.
BB, Orlando 17 April 2014
An excellent article. I completely agree that "Finance needs to regulated effectively and large banks should fund themselves with more equity." However, this is not going to happen until there are major political changes in the United States. The country is not a democracy, but a plutocracy. Wealthy people have benefited immensely by the status quo whereas the middle and lower classes have been devastated. This is because the government and the supreme court are controlled by big business. All elected government officials get in office with big business funding and they will act accordingly. The supreme court has exacerbated this situation by ruling that there should be no limits on campaign contributions. Campaign contributions need to be severely limited so educated, capable people from the middle and lower classes have an equal chance to play a significant role in government. How about a physicist as president(eg Ms Merkel)!.
Only a wealthy person such as Timothy Geithner would have the opinion that the costs of the financial crisis were not huge. He would feel differently if he was standing in the unemployment lines. The current plutocracy wants big profits which mean shipping jobs overseas, lower wages and more unemployment.
Dryly 41, 17 April 2014
Every thing that Professor Johnson says is spot on. Indeed, he is the only major economics professor that has identifies the source of the September 15, 2008 collapse of our financial system for the first time since October of 1929.
He is also the only one who has pointed out that Dodd-Frank didn't fix the problems created by the reversion to the Laissez Faire of Harding, Coolidge, Hoover and Mellon from the "strict supervision" of FDR.
We will once again return to "strict supervision" of finance. The only question is whether we do it before or after the next financial collapse. A wise and prudent nation would do it before but there is insufficient wisdom and prudence at this unfortunate time in American history.
Bob Feinberg, DC area 18 April 2014
Prof. Admati is another relentless leader of this debate. While the calls for stricter regulation of banks have grown louder, the opposition by the industry has hardened, and industry executives and lawyers are still running policy. This industry is, in effect, regulated by its own lawyers. To have meaningful regulation of this dangerous industry would required Transparency, Independence, and Accountability, all of which have been lacking throughout the decades of the ongoing, permanent crisis, and they still are.
Ms B, Buffalo 17 April 2014
Back in the 80's a local savings bank went "big time" around here with fancy deals in Florida and Texas. The deals were put together with the bank as lender with a piece of the ownership/equity as well. They bankers thought it was the cats meow, the cutting edge of sophisticated banking. The deals all tanked and the bank went down. Same nonsense now with different players and an even better means of obfuscation and rent seeking. Today, unfortunately the banksters are above the law and burning town the country has no consequences.
Larry L. Dallas, TX 18 April 2014
Here's a fact about the Oil Boom and the S&L Mess that happened in its midst that few people know:
EVERY SINGLE STATE BANK IN THE STATE OF TEXAS WENT UNDER IN THE AFTERMATH.
The 2008 Crisis was that smaller crisis writ large on the national and global scale. The fact that two idiots from Texas (Armey and Gramm) had a hand in the elimination of the Depression-era financial regulations that eventually led to 2008 just show that idiots are not capable of learning from prior experience.
Mark T, is a trusted commenter New York NY 17 April 2014
This sounds like a valedictory and indeed I hope it is the last post on this topic on which so much has been said (and repeated, and repeated).
One official unwisely unmentioned is Daniel Tarullo who is at the forefront of the push for greater macroprudential regulation. Among authors who should have been mentioned are Viral Acharya who has published a lot on systemic risk, Raghuram Rajan's Fault Lines is essential to understand the role of debt in the political economy of the post-gold-standard Western economies; and no analysis of the crisis is worthy of mention unless it faces up to the role that bank capital regulations played in shaping the portfolios of banks, which one can explore in Friedman's Engineering the Financial Crisis.
The post manages to discuss the financial crisis without once even alluding to the role of the GSE's and their politically driven acquisition of credit risk despite being overleveraged, through use of the implied government guarantee. Nor does it touch on the foreign role in the chase for yield, the connection between the trade deficit and the issuance of debt securities to countries with trade surpluses, or the mismatch between pension promises and pension funding that is one of the major sources of the growth of financial risk over the past two generations. Everything gets laid at the feet of 13 bankers. Unbelievable, yet so convenient, since it allows a whole sector of the elite to ignore the consequences of their policy preferences.
Larry L, Dallas, TX 17 April 2014
The problem with your argument is that same people who wanted to eliminate the Depression-era regulations were also the same people who wanted free trade which offshored a significant of the country's job base (and therefore its tax base and consumer spending capacity).
The result was higher federal deficits (which led to 5-fold increase in the national debt within a generation), higher gov't spending on transfer payments to make up for that lost personal income, a higher trade deficit from all of the imports and the reduced domestic expenditures on everything from education, R&D and infrastructure as a % of GDP.
The very same people who gave us the Financial Crisis were also responsible for the vicious cycle in the real economy.
E.T. Bass, SLC 18 April 2014
More to the point:
A bubble burst. "Bi-partisan" efforts at "home ownership" blew up, due to very highly questionable home mortgages. Which caused Lehman and Govt. Motors to blow up.
Outcome: second worst economic disaster in 100 years.
Today -- the most anti-small business president in history (per N.F.I.B.) who publicly snarls at the U.S. House and the slowest economic recovery in 100 years.
Res ipsa. Entirely predictable.
Steve, Raznick 17 April 2014
To be very clear, very precise, the banks were completely incapable of anything approaching accuracy when it came to the risks they took. Enough with this myth that these are unbelievably intelligent people who having attended a school with name people recognize inculcates them with special powers of divination.
We have 5 financial lobbyists for every congressmen. Just one illustration of how the game is tilted. Those lobbyists do not care about the financial security and welfare of the people. They care only about themselves and thwarting passage of any legislation which creates a sustainable, viable finance industry.
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Last modified: March, 29, 2020
Its a generational thing. Right after WW2, many of the elite had just that epiphany that unless they have the common people behind them, they are toast. But now they are dead or dying, and their grandkids are basically once more thinking that they can go it alone. This because they have not had the required experiences that help develop the wisdom.
What Marx saw long ago, we can see today, and without relegating ourselves to his analysis, come to our own conclusions. Contradictions, summed up well by Lincoln as a house divided against itself cannot stand is just as true today. Millions of guns to protect the citizenry from tyranny have only resulted in a 1/4 million murders and 5 times as many shootings since Jan 1, 2000, some placing people in wheel chairs and other crippling gunshot afflictions, and more and more institutionalized state oppression, economic exploitation and miserable lives propped up in an alcoholic haze until the liver or brain gives out. We have more food than we know what to do with so we throw away almost as much as we eat. And we have eaten ourselves into morbid obesity, diabetes and heart disease. The contradictions abound from the kitchen table to the kitchen cabinet of the White House where there seems to be nothing passed so freely as bad advice.
The Welfare State arose from the sacrifices of the population in giving their sweat, blood and tears to defend their nation during war, to be rewarded for their sacrifices, rewards which were demands for power sharing and more in the paycheck, more benefits and more time to enjoy the life spent in a more prosperous world. It seems to me that Obamacare is not simply in death spiral all of its own making, but even more so, because it is the best attempt capitalism can produce in an America that is the most capitalist of societies down to the marrow its bones. Little competition from the Church or the social relations between nobles and subjects set for in the laws that were disestablished to free markets for commodification and money making. Money making enterprises structured the laws from slavery, to the voting franchise with little from the state to cushion any of the hardships of life in America.
Health care is the largest industry we have. It is approaching 20% of the GNP. I remember the great national freak out in the late 1970s when congress realized it was approaching 10%. Nothing seems to be stopping the costs from spiraling upward and onward. No risk of deflation here where nothing is spared to save a life, operate on some poor little afflicted child, or buy a piece of equipment the size of an office building that shoots a proton beam at cancer, one cancer cell at a time.
When Obama Care becomes a clear burden to even the democrats who can point to it now as some sort of accomplishment, and it is an accomplishment for the people who finally get to see a doctor, get into a hospital, get that operation or diagnosis that saves their lives, when even those accomplishments number in the millions, it will be part of a health care industry for which $Trillions of dollars can no longer be justified or even funded. As that financial collapse approaches, it would be better for politicians to declare the defeat of a program better rolled into one universal single payer system currently operating as Medicare, than try to reform, shore up or the old tried and true public lie, get rid of its waste and corruption.
Declare victory with Medicare as the solution and put everyone into it. The only paper work left should be each person's medical history with diagnosis and healing as the happy ending to the story.
There is a fundamental error in perception in the Western world that is so pervasive that people can't even see it. As a most basic component of a healthy society people need to be able to survive at a local community level without outside support. Only after that is taken care of should people concern themselves with luxuries, inter-community and international relations.
Welfare–not to mention other government services–can appear to have positive impacts if one only looks at their effects in isolation, however I think there is a devastating and pernicious impact on people's ability to form community bonds and have local resilience with things like welfare.
Also, let's also not forget that Americans consume far more of the earth's precious resources than any other group in the world. Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire. Do these recipients of empire benefits have a moral right to share in the loot of empire? Perhaps instead of domestic welfare it would be more ethical for the American empire to provide social benefits for the indigenous peoples who are forced from their lands to work like slaves for the empire's benefit. Although admittedly if the American empire used it's loot for the benefit of the foreign peoples whose lives it destroyed then there'd probably be nothing left to spread around to the military, or to pacify and police the domestic population. So I suppose that's not a serious proposal.
Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire
This is obviously not true. Unless every social democratic country in the world is considered as a piece of the American empire. And even then, I would argue that we can easily afford a generous welfare state with a small shift in priorities away from (globally destabilizing) defense spending to social productive spending on human development.
Obvious to who? America lavishes so much money on its military not only because of corruption, but also because it has the world reserve currency and is a guarantor of the safety of international shipping. These facts are inextricably linked to the America's status as the world hegemon. The empire provides order and structure, and enforces the extraction of resources from the periphery to the center. The bread and circuses are inextricably linked to the empire's military activities and trying to tease them apart will only lead to collapse of the entire system sooner than it will otherwise happen.
"Social Democratic"–now that's an interesting phrase. Did you know that Syria is a democracy, and was an extremely prosperous and well-education nation prior to 2011?
Here's a telling paragraph from the Wikipedia article about Syria:
[Dec 27, 2015] The Sneaky Way Austerity Got Sold to the Public Like Snake Oil
Notable quotes:
"... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."
"... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."
"... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."
"... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."
[Dec 24, 2015] The Fed Has Created A Monster And Just Made A Dangerous Mistake, Stephen Roach Warns
[Dec 24, 2015] European Leaders Cry Foul Against Germany's Support for Gas Pipeline
[Dec 23, 2015] The Big Short Every American Should See This Movie
Notable quotes:
"... Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once. ..."
[Dec 21, 2015] Weak president, neoliberal Obama and housing bubble
Notable quotes:
"... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
"... That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/ ..."
"... You think a rise in stock prices created by a fall in the cost of capital is a bubble. ..."
"... keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this? ..."
"... Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesnt favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didnt cost a dime. ..."
"... It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors cant understand what the Fed is doing, even though they tell you. ..."
"... Thats it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and its the governments fault. ..."
"... Here is how they evaluate models: Good model; one that reaches the right good conclusions. Bad model; one that ends up saying stuff nobody should believe in. ..."
"... Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest. ..."
"... Democrats filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. ..."
"... Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior. ..."
[Dec 20, 2015] Paul Krugman: The Big Short, Housing Bubbles and Retold Lies
Notable quotes:
"... I get the feeling that if doing a film review of The Force Awakens , most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. ..."
"... In market fundamentalist world, markets dont fail. They can only be failed. Though its still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs. ..."
"... The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects. ..."
"... ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what weve called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature. ..."
"... except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure ..."
"... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
"... Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJs lowest priority. Krugmans Democratic proclivities prevent him from stating the obvious. ..."
"... Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obamas hollow presidency that theyll even support a racist demagogue to avoid another empty White House. ..."
"... Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with teaser rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself Greenspan. ..."
"... When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do. ..."
[Dec 19, 2015] The Enduring Relevance of "Manias, Panics, and Crashes"
Notable quotes:
"... Manias, Panics, and Crashes ..."
"... The New International Money Game ..."
"... Manias, Panics and Crashes ..."
"... Why Minsky Matters ..."
"... Manias, Panics and Crashes ..."
"... Manias, Panics and Crashes ..."
[Dec 19, 2015] The Washington Post's Non-Political Fed Looks a Lot Like Wall Street's Fed
Notable quotes:
"... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."
[Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?
Looks like growth of financial sector represents direct threat to the society
Notable quotes:
"... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."
"... Growth of the non-financial-sector == growth in productivity ..."
"... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."
[Dec 13, 2015] Deregulation of exotic financial instruments like derivatives and credit-default swaps and corruption of Congress and government
Notable quotes:
"... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."
"... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."
"... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."
"... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."
"... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."
"... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."
"... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."
"... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."
"... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."
"... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."
"... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."
"... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."
"... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."
"... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."
"... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."
"... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."
"... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."
"... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."
"... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."
[Dec 11, 2015] Why Its Tricky for Fed Officials to Talk Politically
"There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not." Economic and politics are like Siamese twins (which actually . If somebody trying to separate them it is a clear sign that the guy is either neoliberal propagandists or outright crook.
Notable quotes:
"... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."
"... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."
"... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."
"... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."
"... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."
"... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."
"... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."
[Dec 10, 2015] Special Report Buybacks enrich the bosses even when business sags
Notable quotes:
"... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."
"... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."
"... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."
"... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."
"... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."
"... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."
"... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."
[Dec 07, 2015] The key prerequisite of casino capitalism is corruption of regulators
[Dec 07, 2015] Hillary Clinton How I'd Rein In Wall Street
[Dec 04, 2015] The alleged 'decoupling' of GDP from energy
[Dec 04, 2015] German Financialization and the Eurozone Crisis
Notable quotes:
"... Bundenstalt für Finanzdienstleistungsaufsicht ..."
[Dec 04, 2015] Congressional Aid to Multinationals Avoiding Taxes
[Dec 04, 2015] Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II.
Notable quotes:
"... "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term. Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020." ..."
"... Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine . ..."
[Dec 03, 2015] GDP and energy
Notable quotes:
"... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."
"... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."
"... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."
"... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."
[Dec 02, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500
All this neoliberal talk about "maximizing shareholder value" is designed to hide a redistribution mechanism of wealth up. Which is the essence of neoliberalism. It's all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping, similar to one practiced by buyout sharks, but practiced by internal management team. Who cares if the company will be destroyed if you have a golden parachute ?
Notable quotes:
"... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."
"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
"... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."
"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
"... buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."
"... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."
"... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."
"... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."
[Nov 30, 2015] Secular stagnation and the financial sector
Notable quotes:
"... Surely the answer is "risk transfer" ..."
"... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."
"... the FIRE sector in particular, are parasitic on the economy. ..."
"... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."
"... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."
"... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."
"... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."
"... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."
"... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."
[Nov 12, 2015] MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION
Notable quotes:
"... "The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil." ..."
"... Wow, thats an average decline rate of about 18% per year (since 2003). ..."
[Nov 12, 2015] OPEC countries, Russia and International Oil Companies are all losing billions
Notable quotes:
"... It's perhaps more so high yield paper issuance ..."
"... We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red. ..."
[Nov 12, 2015] Excerpts from several articles in Bloomberg and Reuters
Notable quotes:
"... Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said. ..."
"... "But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said. ..."
"... The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha. ..."
"... "The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition." ..."
"... "We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline." ..."
"... "We're near the bottom at $40, and there's a potential upside that's much higher." ..."
[Nov 12, 2015] At the current price level some shale companies may stop completing wells and may stop drilling
Notable quotes:
"... I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole. ..."
"... At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015. ..."
"... I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up. ..."
"... "The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d." ..."
"... Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. ..."
"... In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels. ..."
"... Oil and gas debt held by US banks is over $270 billion, but that would include conventional production. ..."
"... Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA. ..."
"... Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
"... A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017 ..."
[Nov 12, 2015] Monthly legacy shale production declines accelerates
Notable quotes:
"... Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin. ..."
[Nov 12, 2015] Oil Majors Don't Share OPEC's Optimism On Oil Prices In 2016
Notable quotes:
"... Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering. ..."
"... So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price. ..."
"... If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable. ..."
[Nov 11, 2015] Four US Firms With $4.8 Billion In Debt Warned This Week They May Default Any Minute
[Nov 11, 2015] Questions for Monetary Policy
Notable quotes:
"... Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next. ..."
"... The drop in hours worked data in the productivity report is very confusing. ..."
"... I think lower oil prices has lead to a stronger consumption boost than initially thought. ..."
[Nov 11, 2015] Valentin Katasonov - Banks Rule the World, but Who Rules the Banks (II)
Notable quotes:
"... do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. ..."
[Nov 11, 2015] 2 simple charts illustrate why low oil prices are so depressing
[Nov 11, 2015] IEA World Energy Outlook New Hope For Civilization
Notable quotes:
"... In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go. ..."
"... The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance. ..."
"... A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?" ..."
[Nov 11, 2015] Friction is Now Between Global Financial Elite and the Rest of Us
Notable quotes:
"... But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs ..."
"... This means that the fracture in politics will move from left to right to the anti-establishment versus establishment. ..."
"... In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. ..."
"... when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital ..."
"... Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity. ..."
"... Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally. ..."
"... Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power. ..."
[Nov 09, 2015] Supervising Culture and Behavior at Financial Institutions
Notable quotes:
"... Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so. ..."
"... One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?" ..."
[Nov 09, 2015] Peak Oil Open Thread
Notable quotes:
"... Yergin predicts a 10 percent drop in US oil production, April 2015 to April 2016. That's a 960,000 bpd drop and will take us to 8,638,000 bpd in April 2016 if he is correct. ..."
"... U.S. crude output, which surged to the most in more than three decades this year and triggered a price collapse, will retreat by about 10 percent in the 12-months ending April, according to Yergin, vice chairman at IHS Inc. ..."
"... How big a drop do you expect? I think Yergin may be right in this case. The drop in output in the US, along with increased demand at low oil prices will eventually balance the oil market, prices will rise and output will level off and may increase slightly if oil prices get above $75/by the end of 2016. ..."
"... I have no idea when oil prices will get to $75/b, but my WAG is mid 2017 at the latest when World output will be struggling to increase. ..."
[Nov 06, 2015] The Oil Glut Outside Of The U.S. Is Surprisingly Small
One plausible estimate from the discussion: "Unless I see something better to go on, I will go with Core Labs estimates of -10% production in 2016."
Notable quotes:
"... Right now, many investors seem fearful of where energy prices are going but I dont think the situation looks all that bad. While it is possible that events such as Iran exporting large amounts of crude (estimates of which are likely overstated) and Chinas economy collapsing could cause a drop in demand in relation to supply, any scenario outside of these transpiring shows a growingly bullish outlook for oil moving forward. ..."
"... So where is the glut? Probablly only in heads of people that follow the mantras of US mass media machine. ..."
"... It seems a lot of the addition to builds in liquids are from propane. If you look recently at the EIA weekly reports Gasoline , distillate, jet fuel imports to the US have all risen by a large amount compared to last year. ..."
"... In March 2013, the inventory was 393 MM. In March 2015 it was 475 MM. Most of the additional inventory was held in tank farms and underground storage supporting pipeline. ..."
"... It will tell you that US production is only 10% of world production and US spending 20% of world oil. So US is far biggest importer of oil on the world. ..."
"... ...And importers by definition newer have a glut... Obviously imported oil is cheaper and more suitable than domestic. So WTI producers cant find buyers, hence the glut of US oil. ..."
"... The adjustment number is running about 3 MM per week for the last 4 weeks. It is almost always in the positive direction that tells me the error bias is the same. ..."
"... I will stop commenting on weekly EIA numbers because a smart petroleum engineer Gary Long (who compiles these numbers) said that you are dumb if you used his numbers for trades. ..."
"... If you're using the weekly production numbers to do trades on Wall Street, you're dumb,' said Gary Long, a petroleum engineer who compiles numbers for the EIA. 'This is not going to work out for you. Don't do that. We've actually had people call us and be very angry with us because they've lost a lot of money. ..."
"... At 10%, this implies oil production of 8.649 million barrels per day compared to the 9.610 million per day we peaked at. At 20%, we are looking at just 7.688 million barrels per day. This second scenario might be on the optimistic side but it would be incredibly bullish for crude if it does materialize. :) ..."
"... Very likely that oil prices will react to the upside by Q1 or Q2 2016 at the latest...otherwise the world could face a global inventory shortfall of -200 to -300 million barrels by the end of 2016. ..."
"... Global recessions are like the queen of spades in a game of hearts. If someone gives you the queen of spades in 2016, and you are not shooting the moon (short oil), but are long oil in some way, you LOSE... ..."
"... Iraq will lead the decline in Middle east. From peak in June, I believe this a 400000-500000 barrels/day in export. The region is in turmoil. ..."
[Nov 06, 2015] US production might be down by something from 1.5 up to 3 mill bbl/d by end of next year
Notable quotes:
"... monthly low is forecast for June 2016 at 8.77 mb/d. ..."
"... It is interesting that the time lag between capex and production response for conventional production stands around 18 months. Therefore production in the Golf of Mexico is still rising (up 200,000 bbl/d in the last two months alone). This mitigates somehow the decline of shale production. This explains e.g. also the resilience of Russian production, which will in my opinion still rise over the next half year. ..."
"... However, if the oil price stays below $50 per barrel, production will keep falling at roughly 1% per month, which is the average decline of the FED oil and gas production index since April 2015. ..."
"... This scenario implies an at least 1.5 mill bbl/d decline until the end of next year – provided the oil price stays at the current level. My personal view is that US production will be down by more than 3 mill bbl/d by end of next year as there are strong signs of depletion of sweet spots, which accelerate the underlying decline. ..."
"... The projected decline in U.S. production comes primarily from shale plays, and to a much less degree from Alaska and other conventional fields, while production in the GoM is expected to increase. ..."
"... If, as you say, U.S. production drops by 3 mb/d by year-end 2016, that would mean a decline in LTO production by almost 2/3. That is impossible even if shale operators completely stop drilling new wells. According to the estimates I've seen, with no new wells, LTO production in the Bakken and the Eagle Ford would decline by between 30 and 40% within a 12-months period. ..."
"... 3mill bbl/d is a lot and it is the top end of my estimate, yet also conventional production will decline by end of next year. It is just my gut feeling and I guess it has to do something with depletion of sweet spots. ..."
[Nov 06, 2015] Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General
Notable quotes:
"... in another recent report , Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. "Meeting these needs will require all economic energy sources, especially oil and natural gas," it said. ..."
"... You legally aren't allowed to knowingly and purposely hide or distort data you are aware of which may materially affect your shareholders. ..."
"... The issue is based on oil companies selectively releasing data and research in exclusive support of their conclusions, while suppressing or distorting material that didnt fit the narrative. ..."
"... if I want to know about climate change, I dont seek reliable information from oil and gas companies, supermarket tabloids, or members of Congress. ..."
"... These are the United States of America, where corporations have (and use) the power to lie constantly to their detractors and their customers alike. For me to expect anything else would suggest a lack of basic skepticism on my part where the products and activities of the corporate world are concerned. ..."
[Nov 06, 2015] At 45 dollaris a well that produces 300K barrels over lifetime of 20 years will earn 250,000 dollars for the producer each year on a six million dollar investment, or 4.2 percent.
Edited for clarity.
Notable quotes:
"... If an oil company spends six million dollars to complete an oil well that produces 300,000 barrels of oil over a twenty year period and the average price of oil is $45, an income of $13,500,000 is what you will have in twenty years. ..."
"... Net $7.5 million realized in twenty years, $375,000 average annual income for the life of the well. Subtract 18% for royalties, 10% to pay for extraction taxes, costs to operate, hauling it to market. All-in-all 1/3 needs to subtracted on average. In our case this is $125,000 ..."
"... That means a whopping annual profit of $250,000 for the producer each from a six million dollar investment , or a return on the original investment of 4.2%. Not to mention the taxes to be paid at filing time or an accident that can happen during the lifetime of the well. ..."
[Nov 06, 2015] Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere is dying off at exponential rates that will kill us
[Nov 06, 2015] Debt and energy
Notable quotes:
"... I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt. ..."
"... The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at. ..."
"... I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China. ..."
"... The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced. ..."
"... "Would an economy with 25% unemployment be good for them?" Dennis Coyne ..."
"... "There is nothing crappy or fake about the current economy," ~ ChiefEngineer ..."
"... "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com ..."
"... "Do you need a job Caelan ?" ~ ChiefEngineer ..."
[Nov 06, 2015] Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget
Notable quotes:
"... Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget ..."
[Nov 06, 2015] Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production
Notable quotes:
"... Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. ..."
"... Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. ..."
"... If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out. ..."
"... 63 Billion USD went poof in the Enron Collapse. ..."
"... Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive. ..."
"... Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization. ..."
[Nov 06, 2015] Giant Sucking Sound of Capital Destruction in US Oil Gas
Notable quotes:
"... Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3. ..."
"... In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive. ..."
"... he game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction. ..."
"... Banks, when reporting earnings, are saying a few choice things about their oil gas loans ..."
"... Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again. ..."
"... If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down. ..."
"... Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning. ..."
"... Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going? ..."
"... You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. ..."
"... Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster... ..."
[Nov 06, 2015] Who on Wall Street is Now Eating the Oil Gas Losses
Notable quotes:
"... Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves. ..."
"... fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead. ..."
"... Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil ..."
[Nov 04, 2015] Fifty Shades of Tax Dodging: How EU Helps Support Unjust Global Tax Systems
[Nov 04, 2015] Oil Market Needs Another Month to Decide If the Rebound Is for Real
Notable quotes:
"... Production in the U.S. will drop 1 million barrels a day from the peak by early 2016, Vitol SA Chief Executive Officer Ian Taylor said at a conference in London. ..."
"... "Prices have not gone down below $40 a barrel for the last three months so maybe it is at the bottom," Omair said. ..."
[Nov 02, 2015] Foreign Banks Such as Deutsche Using Variant of Lehman Repo 105 Balance-Sheet Tarting Up Strategy
Notable quotes:
"... Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales ..."
"... "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…." ..."
"... Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly. ..."
"... The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105." ..."
"... Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that. ..."
"... In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was. ..."
"... Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense ..."
"... Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media. ..."
"... Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105 ..."
[Nov 02, 2015] Low Oil Prices Could Persist Through 2016
This game became really interesting if prices will remain low for oil all 2016. That's another 200 billion stimulus for the US economy. People are genetically biased against change, because change means potential danger. People are also genetically biased against acknowledging this bias, because they wish to see themselves as being able to cope with both change and danger. Put together, this means that when changes come, people are largely unprepared or underprepared. This little bit of psychology 101 may seem redundant, but it is indispensable if we are talking about the current oil price slump...
Notable quotes:
"... The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016. ..."
"... U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015. ..."
"... ... ... ... ..."
"... However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April. ..."
[Nov 02, 2015] It's Difficult to Make Predictions, Especially About the Future OIl Prices
Initially Statoil was looking for $60 in 2016, $70 in 2017 and $80 in 2018, for planning purposes.
Notable quotes:
"... Mark Hanson, an analyst for Morningstar in Chicago, said the days of huge price cuts are nearly over."I don't think there is going to be meaningful reduction from here," he said. "To use a baseball analogy, you are probably in the seventh or eighth inning." ..."
"... Given that many US oil companies were cash flow negative prior to the price collapse, do you think that US oil companies will be able to increase production in the future without being cash flow negative? ..."
"... As there is a time lag of six to nine months between initial capex decision and actual production, it is in my view premature to have a final say about current emerging capital efficiency. The production numbers we have now are the harvest of the capex in the last quarter of 2014. ..."
"... Range Resources had for example 400 mill capex in 4q14, which came down to just 188 mill in 3q15, when production went up 20% year over year. This is in my opinion not extremely capital efficient , yet is a harbiger of much lower production in the months ahead. ..."
"... "We think that the price level now is too low," Eirik Waerness, chief economist and vice-president at Statoil ASA, said in an interview in Singapore on Thursday. "Some people will stop exploring for oil. With oil prices around $50, you get a stimulus for demand growth. That will tighten the market." Crude is expected to climb to $80 a barrel in 2018 and increase gradually after that as existing supplies get used up, he said. ..."
"... the way this usually works the government will react and change taxes. As increased taxation takes effect production starts to drop. Evidently the Russian government is reluctant to change the current rates to signal it has a reliable tax system which allows investments to proceed with a very long term outlook. But I expect they'll be putting on the squeeze if they haven't done so. ..."
[Nov 02, 2015] Peak Oil Review - Nov 2
Notable quotes:
"... Goldman Sachs continues to talk about the possibility of a major price drop in the next year as global capacity to store more crude and oil products runs out. There have been a number of analyses concluding that this will never happen, however, as there is still much storage space available. ..."
"... It is generally believed that US shale oil production will drop further in the coming year but that it will be offset by increased production overseas. ..."
"... Tehran will officially notify OPEC next month that it plans to increase production by 500,000 b/d and that it expects other OPEC members to cut production by enough to keep the cartel's production below the agreed-upon 30 million b/d ceiling. OPEC has been producing about 1.7 million b/d above this ceiling lately. ..."
[Nov 02, 2015] Interesting to see the large publicly traded companies are selling legacy assets
Notable quotes:
"... Edit: I found the answer. Per a 2013 National Geographic article, all Bakken and TFS wells require water flushing such that when the field is fully developed with 40-45K wells, the field will require in excess of 10 billion barrels of fresh water annually. ..."
"... Throw on top that the companies have added to product gathering and salt water disposal costs by selling of this infrastructure to raise cash, I believe long term ND oil production will be among the hugest cost in the lower 48 on strictly an operating basis. ..."
"... shallow sand, For big oil companies, selling and buying assets is a constant process. They are "optimizing asset portfolio" ..."
"... Sunk-cost fallacy occurs when people make decisions about a current situation based on what they have previously invested in the situation. For example, spending $100 on a concert and on the day you find that it's cold and rainy. You feel that if you don't go you would've wasted the money and the time you spent in line to get that ticket and feel obligated to follow through even if you don't want to. It's is cold and rainy in the oil industry right now. ..."
"... Yes, but if the $30,000/acre price Aubrey McClendon paid is typical, it looks like oil gas asset prices in the Permian Basin are hotter than ever. And this despite the drop in oil prices. ..."
"... Just imagine, McClendon paid over $30,000 per net acre for leasehold working interest, with oil at $45. ..."
[Nov 02, 2015] A lessening of interest in cars
Notable quotes:
"... North American car sales appear to be flat and Europe's sales look like they have declined. Only Asia seems to show significant increases. ..."
"... Here in the US there are at least twice as many registered cars as there are licensed drivers. So there is little necessity to buy new. ..."
[Nov 02, 2015] US Oil Production by State
[Nov 01, 2015] Chevron Takes Drastic Measures, Lays Off Another 7000 Employees
"... And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier. ..."
[Oct 31, 2015] No Real Chance of Another Financial Crisis - Silly
Notable quotes:
"... The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it. ..."
"... But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective. ..."
"... Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be philosopher kings. ..."
"... The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be fragile. In this thinking Nassim Taleb is far ahead of the common economic thought as a real systems thinker. The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within. ..."
"... So Mr. Baker, rather than looking for the bubble, lets say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a new bubble as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way? ..."
"... A new crisis does not have to happen. This is the vain comfort in these sorts of black swan events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain, ..."
"... neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously. ..."
"... If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story... ..."
[Oct 28, 2015] The Full Details Of How Goldman Criminally Obtained Confidential Information From The New York Fed
[Oct 27, 2015] OECD Chief Economist: Its Time To Temper The Frothiness In Markets
[Oct 23, 2015] US. Shale Drillers Running Out Of Options, Fast
Notable quotes:
"... The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs. ..."
"... However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article. ..."
"... Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian. ..."
[Oct 23, 2015] Saudi Arabia Russia, Iran Forge Energy Partnerships
[Oct 23, 2015] Is Russia The King Of Arctic Oil By Default
This is a very expensive oil that Russians now selling at loss. Financial capitalism in action.
Notable quotes:
"... Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). ..."
"... No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields. ..."
[Oct 23, 2015] Economic effects of shocks to oil supply and demand
Notable quotes:
"... Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016. ..."
"... Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues. ..."
"... If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex? ..."
"... Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. ..."
"... But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas. ..."
"... In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. ..."
"So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline? "
So again, the argument for imminent decline is some eventual limit to the amount of hydrocarbons on the entire planet? it is not cherrypicking to emphasize the Haynesville and Barnett as gas plays "peaking" when overall gas production in the US has grown 40%, even in the face of a huge price drop????
"In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil)."
Nope. Lease condensate (~55) is legally considered crude oil. EF 47 is a normal listed form of oil in Platts price lists. Light oil and condensate is used to make gasoline and other products and runs through a refinery. It is easily and routinely blended with heavy oil and is actually needed for that (not just as a diluent for transport but for optimizing the subunits of complex refinery (non complex refineres, e.g. those without cokers or visbreakers or with less cracking actually function better on just light blends to start…the extreme are teakettle refineries).
Condensate and EF crude is withing a few dollars of WTI and correlates with price moves very closely. EF 47 is actually pricier than heavy sour crudes. Talk to any trader, refinery buyer, or even just a microeconomist familiar with looking at substitutes. It is crazy to say that growth of 45+ oil has not affected overall oil prices. Perhaps some small shrinking of spreads between qualities, but often not even a directionality change. The much larger impact though is on the overall supply demand balance for C&C. Does any economist think the goods are sufficiently different to justify a separate P-Q curve for 45- and 45+ oil? [Oh…and the extra funny thing is the peak oil meme of mid 2000s was that we wouldn't find more light sweet!]
P.s. If you really think 45+ isn't oil, then why not agree to remove the export restriction on at least them?
"Following is an essay, which I sent to some industry acquaintances a few weeks ago:"
Your cut and pasting the things on the net (ELM stuff, net export arguments) is almost spammy. Total conversation killer and often ignored by even your compatriots.
Erik Poole Jeffrey J. Brown NonyI don't think it makes economic sense to put lease condensate with NGLs and away from crude. NGLs are more gas like, so you can put them with gas if you want instead of oil or just make a third grouping. [But don't forget them! If you cut the total liquid products to being C&C, they still belong somewhere…have use!]
NGLS are mostly (c2-c4) molecularly pure, separated, gaseous products. [minor amount of C5+ liquid ("plant condensate" obtained at the gas refrigeration separation plant].
Lease condensate is just the associated entrained liquid oil from a primarily gas well. It is obtained at the atmospheric, three phase separator at the wellhead. Similarly, wet gas is separated from predominantly oil streams. Eagle Ford 47 isn't even coming out of "gas wells" (in terms of phase) but single phase liquid oil wells that are very light. Lease condensate and Eagle Ford 47 look like oil, smell like oil, mess up your Nomex coveralls in a similar manner to 30 API oil. They are each that glorious natural product that contains a soup of hundreds of different molecules, of different lengths, aromaticities, branching. Oh and less sulfur (which makes them BETTER oil) but still with some. Lease condensate also tends to be a bit lower API and more variable in composition versus plant condensate (although higher than oil), but still pretty similar.
There is a reasonable argument to exclude NGLs entirely from crude time series or at least C3 and C2 from being lumped in with crude. Ethane in theory competes with naphtha and is an occasional substitute (and some crackers are convertible), but given the glut, prices have diverged and started to follow C1 a couple years ago. And like C1, it is quite difficult to transport across oceans. C3 is more exportable, but still has a pretty different market (mostly heating) than premium liquid petroleum products (mostly transport fuels: gasoline, diesel, jet). [In a sense, C1 is a substitute for oil, but it's a pretty weak substitute!]
So yeah, sure, strip out the NGLs. And throw in the C4 and C5+ with being stripped out, since they are minor…even though ARE mostly used for transport. Either direct gasoline mixing for butane or for C5+ mixed into crude (at refineries or upstream at heavy oil sites) or used as naphtha in crackers (thus competing with a refined liquid stream. But fine keep them all apart.
But keeping condensate (or Eagle Ford 47 oil) apart from other grades of crude makes no sense. That stuff goes through refineries and makes gasoline…a lot of gasoline, which is generally what the refinery is optimized for. (Other products have value and you go for a global optimum, not a local. Like you don't optimize production of RFO and make little gasoline! Diesel and jet have value of course and at times, pricing of diesel can beat out gasoline, but generally gasoline is top in both value. And certainly in volume (typical refinery cracks some product that could have been diesel to make more gasoline). Just look at Platts prices and the correlation of EF47 and DJ condensate versus WTI. It's the same stuff, but slightly different flavors, man. If you look at it on a world basis (where the explosion of light and super light is export-ban trapped on a continent that wants to refine 28 API), the correlations will be even stronger. But I bet even in the US, you find a very consistent correlation: maybe just look at annual average prices for 2008, 2009, 2014 and 2015 YTD. Condensate belongs with crude, from a supply-demand standpoint. Not with NGLs or with NG.
Nony[Oct 22, 2015] Peak Oil is a Function of Oil Price
Notable quotes:
"... The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar. ..."
"... My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way. ..."
"... In hindsight, our view on peak oil was pretty naďve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected. ..."
"... "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like ..."
"... ... ... ... ..."
"... we can say with a pretty high degree of certainty "The world has passed peak $20 oil." ..."
"... That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices. ..."
"... But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe ..."
"... When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up. ..."
"... This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. ..."
"... While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices. ..."
"... At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. ..."
"... What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. ..."
"... Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldnt use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. ..."
"... You are right as far as the EROEI of oil is concerned, but I believe that Joes comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. ..."
"... Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the worlds historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubberts models. ..."
"... One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such. ..."
"... I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the worlds oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like? ..."
"... I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the oceans depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient. ..."
"... Climbing for decades would not make PO bunk , it would only make Hubbert´s estimate a bit more inaccurate and drag the decline out by a generation. ..."
"... But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again. ..."
"... Isnt it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel.... ..."
"... The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and that too is peaking. Next will be peak population. ..."
"... I agree that the issue with Peak Oil isnt that were going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online. ..."
"... If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment. ..."
"... And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you? ..."
"... I think thats going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world. ..."
"... The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups. ..."
"... what you wrote above hit me: Its such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption. ..."
"... Peak oil isnt just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability. ..."
[Oct 21, 2015] Devastating Shale Oil Losses
[Oct 21, 2015] How Much Longer Can The Oil Age Last
Notable quotes:
"... I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking). ..."
"... One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future? ..."
"... including all the costs currently externalized ..."
"... With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list. ..."
"... differently ..."
"... responsible ..."
"... responsible ..."
"... Population will plateau at some point during this century. ..."
"... The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now. ..."
"... It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets ..."
"... First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line. ..."
"... Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade.. ..."
"... Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while. ..."
"... My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change. ..."
"... Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more. ..."
"... The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure. ..."
"... The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives. ..."
"... Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration. ..."
"... Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use. ..."
"... Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story. ..."
"... Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade. ..."
[Oct 21, 2015] US oil output on brink of dramatic decline
Notable quotes:
"... world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. ..."
"... We are about to see a pretty dramatic decline in U.S. production growth, the former head of oil firm EOG Resources Mark Papa, told the conference. ..."
"... U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments ..."
"... The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. Producers are now looking for new cash to survive and they will probably struggle to get it, Ben van Beurden said. ..."
"... Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said. ..."
"... Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever. ..."
"... The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment. ..."
"... But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. I see the United States as a long-term growth producer, he said. If low oil prices prevail - then the correction in oil prices will be much more severe. ..."
[Oct 20, 2015] Crude Tumbles As API Reports Another Huge Inventory Build
Notable quotes:
"... What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today. ..."
"... Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits. ..."
"... ... ... ... ..."
[Oct 19, 2015] Halliburton Cuts More Jobs as Fracking Hit Worst in Downturn
Notable quotes:
"... The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best, President Jeff Miller told analysts and investors Monday on a conference call. This is the segment that we expect to rebound the most sharply. ..."
[Oct 18, 2015] Oil Market Showdown Can Russia Outlast The Saudis
The author is pretty naive assuming the KAS can decide to move oil prices without the USA blessing and the US controlled financial market support of such a move. In a sense it's no longer KAS that determine the oil price, it's Wall street as volume of "paper oil" exceeds "real oil" by several times now. Making oil more like a play in another currency. Also probably some tangible or intangible compensation was promized for KAS for putting pressure on Russia.
[Oct 16, 2015] Wolf Richter Debt Fueled Stock Buybacks Now Eating into Earnings
"... This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser , what we've accomplished in the last year , and our second target , funding for travel to conferences and in connection with original reporting. ..."
"... These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. ..."
"... last thing ..."
"... As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. ..."
"... "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy. ..."
"... But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering ..."
"... It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living. ..."
"... "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering" ..."
"... I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill ..."
"... Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar. ..."
"... 35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip. ..."
"... Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win. ..."
"... Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit? ..."
From Hubris to Disgrace: The End of Finance as we Know it…
Sep 11, 2013 | Asia Times
"The powers of financial capitalism had another 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." - Prof Caroll Quigley, Georgetown University, Tragedy and Hope (1966).
Iraq and Libya have been taken out, and Iran has been heavily boycotted. Syria is now in the cross-hairs. Why? Here is one overlooked scenario.
In an August 2013 article titled "Larry Summers and the Secret 'End-game' Memo," Greg Palast posted evidence of a secret late-1990s plan devised by Wall Street and US Treasury officials to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally. The vehicle to be used was the Financial Services Agreement (FSA) of the World Trade Organization (WTO).
The "end-game" would require not just coercing support among WTO members but taking down those countries refusing to join. Some key countries remained holdouts from the WTO, including Iraq, Libya, Iran and Syria. In these Islamic countries, banks are largely state-owned, and "usury" - charging rent for the "use" of money - is viewed as a sin, if not a crime.
That puts them at odds with the Western model of rent extraction by private middlemen. Publicly owned banks are also a threat to the mushrooming derivatives business, since governments with their own banks don't need interest rate swaps, credit default swaps, or investment-grade ratings by private rating agencies in order to finance their operations.
Bank deregulation proceeded according to plan, and the government-sanctioned and -nurtured derivatives business mushroomed into a US$700-plus trillion pyramid scheme. Highly leveraged, completely unregulated, and dangerously unsustainable, it collapsed in 2008 when investment bank Lehman Brothers went bankrupt, taking a large segment of the global economy with it. The countries that managed to escape were those sustained by public banking models outside the international banking net.
These countries were not all Islamic. Forty percent of banks globally are publicly owned. They are largely in the BRIC countries - Brazil, Russia, India and China - which house 40% of the global population. They also escaped the 2008 credit crisis, but they at least made a show of conforming to Western banking rules.
This was not true of the "rogue" Islamic nations, where usury was forbidden by Islamic teaching. To make the world safe for usury, these rogue states had to be silenced by other means. Having failed to succumb to economic coercion, they wound up in the crosshairs of the powerful US military.
Here is some data in support of that thesis.
The end-game memo
In his August 22 article, Greg Palast posted a screenshot of a 1997 memo from Timothy Geithner, then assistant secretary of international affairs under Robert Rubin, to Larry Summers, then deputy secretary of the Treasury. Geithner referred in the memo to the "end-game of WTO financial services negotiations" and urged Summers to touch base with the CEOs of Goldman Sachs, Merrill Lynch, Bank of America, Citibank, and Chase Manhattan Bank, for whom private phone numbers were provided.
The game then in play was the deregulation of banks so that they could gamble in the lucrative new field of derivatives. To pull this off required, first, the repeal of Glass-Steagall, the 1933 Act that imposed a firewall between investment banking and depository banking in order to protect depositors' funds from bank gambling. But the plan required more than just deregulating US banks. Banking controls had to be eliminated globally so that money would not flee to nations with safer banking laws.
The "endgame" was to achieve this global deregulation through an obscure addendum to the international trade agreements policed by the World Trade Organization, called the Financial Services Agreement. Palast wrote:
WTO members were induced to sign the agreement by threatening their access to global markets if they refused; and they all did sign, except Brazil. Brazil was then threatened with an embargo, but its resistance paid off, since it alone among Western nations survived and thrived during the 2007-2009 crisis.As for the others:
... ... ...
Ellen Brown is an attorney and president of the Public Banking Institute, PublicBankingInstitute.org. In Web of Debt, her latest of 11 books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are WebofDebt.com and EllenBrown.com.
Economist's View 'What to Do with the Hypertrophied Financial Sector'
Anglo-Irish Picked Bailout Number Out Of My Arse To Force Shared Taxpayer Sacrifice Zero Hedge
Big Banks Still Write the Rules Fmr. Inspector General of Bank Bailout
Robert P. Murphy The Scott Horton Show
Bank leverage cycles Galo Nuńo, Carlos Thomas
Another positive feedback loop.
Booms and Systemic Banking Crises
[Oct 14, 2015] The Financial Sector is Too Big
[Oct 14, 2015] Strategist We've Hit 'Peak Negativity' in the Energy Sector
"... a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther. ..."
"... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."
"... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."
"... Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects ..."
[Oct 13, 2015] My comprehensive plan for US policy on the Middle East
"... US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction. ..."
[Oct 12, 2015] Saudi Arabia Halts Government Spending Due To Oil Price Fall
[Oct 12, 2015] Could oil prices really shrink to twenty dollars per barrel
"... When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up, ..."
"... So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking ..."
"... Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production. ..."
[Oct 12, 2015] Oil rig count drops for a 6th week
[Oct 12, 2015] OPEC Crude Little Change - Peak Oil BarrelPeak
"... Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon. ..."
"... It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again. ..."
"... Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not. ..."
[Oct 11, 2015] Series of small earthquakes hit near Oklahoma crude oil storage hub
[Oct 10, 2015] The danger of the succession war in Saudi Arabia
"... That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founders family could find themselves disenfranchised. ..."
"... Todays Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko ..."
"... In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdoms foreign policy for nearly four decades. ..."
"... But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the kings third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabias newly assertive stance in the region, including its military intervention in Yemen. . . . ..."
"... some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him rash and impulsive. And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . . ..."
"... The prince, one of the grandsons of the states founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January. ..."
[Oct 10, 2015] Another Petro-State Throws In The Towel The Last Nail In The Petrodollar Coffin
"... 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF). ..."
"... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. ..."
"... Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle. ..."
"... In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016 ..."
"... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."
"... To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the worlds only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what its taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper. ..."
[Oct 09, 2015] Russian military operation in Syria bolsters oil market, domestic stocks
[Oct 09, 2015] As oil bust takes hold, Eagle Ford workers losing jobs, pawning goods -
[Oct 09, 2015] Oil bust
[Oct 09, 2015] How do consumers respond to lower gasoline prices
[Oct 09, 2015] Goldman Sachs This Oil Rally Is Not Going to Last
[Oct 09, 2015] Bank Of England Tells British Banks To Reveal Their Full Exposure To Glencore And Other Commodity Traders
See Glencore - Wikipedia: "According to an Australian Public Radio report, "Glencore's history reads like a spy novel".[14] The company was founded as Marc Rich & Co. AG in 1974 by billionaire commodity trader Marc Rich, who was charged with tax evasion and illegal business dealings with Iran in the US, but pardoned by President Bill Clinton in 2001.[15] He was never brought before US courts before his pardoning, therefore there was never a verdict on these charges."... "In 2005, proceeds from an oil sale to Glencore were seized as fraudulent, in an investigation into corruption in the Democratic Republic of Congo (Allen-Mills 17 June 2008)" ... "In May 2011 the company launched an IPO valuing the business at US$61 billion[26] and creating five new billionaires.[27] Trading was limited to institutional investors for the first week and private investors were only allowed to buy the shares from 24 May 2011." ... "A BBC investigation in 2012 uncovered sale documents showing the company had paid the associates of paramilitary killers in Colombia. In 2011, a Colombian court had been told by former paramilitaries that they had stolen the land so they could sell it on to Glencore subsidiary Prodeco, to start an open-cast coal mine; the court accepted their evidence and concluded that coal was the motive for the massacre. Glencore refuted the allegations" ... ""In Ecuador, the current government has tried to reduce the role played by middle men such as Glencore with state oil company Petroecuador" due to questions about transparency and follow-through, according to Fernando Villavicencio, a Quito-based oil sector analyst." ... A visual Relationship Map of Glencore executive board and stakeholders with their connections.
[Oct 09, 2015] Is russian oil production peaked ?
[Oct 09, 2015] Troubles with refinanciang in shale industry
[Oct 09, 2015] WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Aint Buying It)
"... output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees lower for longer suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed. ..."
"... at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez. ..."
"... ..."
[Oct 09, 2015] Problem of toxic water disposal in shale industry
"... An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer. ..."
"... If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone". ..."
"... Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil. ..."
"... He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry. ..."
"... I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old. ..."
"... I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff. ..."
"... So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%. ..."
"... Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense. ..."
[Oct 09, 2015] Possible super spike in oil prices
"... CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand. ..."
"... In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market. ..."
"... Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me. ..."
"... I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct). ..."