Cruise to Frugality Island for 401K Lemmings
401K Donors to Wall Street on Cruise Ship "Affluent Society" in Stormy Fiat
Currency Waters
About this page see: About "Cruise to
Frugality Island". While triumph of financial masturbation over productive
economic activities is funny and tragic at the same time, we can do nothing about
it. A good fairy of economic growth has expired and perversion replaced the real
thing. There is an amazing gullibility and ineptitude of both buy side “money managers”
in mutual funds and 401K investors who were burned twice in a decade and still are
desperately reaching for yield. Like the hero of the story
The Roads We Take banker Shark Dodson
aptly said "Bolivar cannot carry double." And it is 401K investors that will
be shot.
Collapse of 2008 was not the first, nor it will be the last. Not nobody can stop
another collapse: there was ideological capture of the society but neo-classical
economy which directly serves the interests of financial oligarchy. And in addition
the financial industry has money to buy politicians and to rule the system. We have
financial elites who have bought the politicians, all the politicians. And not just
them but the judges too. That's why there has been no genuine and effective reform,
and no real recovery. And that's why there is clear and present danger of another
financial market collapse.Labor is too small and too weak to stop finance. The
national borders which in "good old times" would have limited and increased the
speed of collapse of a financial bubble are now replaced by the "global village",
which makes the limits of finance expansion way larger. Another important factor
is the elite willingness to fork over the borrowed money to finance during the crisis
(like the trillions that were given to the banks in 2008-2009).
At the same time industrial products lost importance. Finance, as a gambling
machine, doesn’t need industry, health care or agriculture. They operate the global
casino and the money are chips in the games that are played, a new deus ex machina.
New type of perpetuum mobile. They forgot that none exists. But there way
too many willing accomplices of this scam including in the highest levels of government.
In many ways the economic die have been cast by the USA elite and
resulting political risks are coming to the front door.
Mark Twain said that history is rhyming with the past rather than
repeating it. It might well be that current events rhymes with the 1930s with its
political upheavals. Wage moderation, tax breaks for the wealthy and union-busting
does not work.
During difficult times a lighter look on the whole situation is very important.
See Financial Skeptic Humor.
Archives:
Among selected Youtube hits on this topic I would recommend the following:
Delayed Reverberations of Financial Blogs Forums ;-)
|
“The US economy desperately needs less of our
bloated, unproductive and increasingly parasitic banking system …
The banking system has become an agent of destruction for the gross domestic
product and of impoverishment for the middle class.”
David Stockman,
Ronald Reagan’s former director
of the Office of Management and Budget.
FT Alphaville
|
| Government by organized money
is just as dangerous as Government by organized mob.
FDR, 1936
|
May 12, 2012 | Reuters
JPMorgan Chase & Co lost $15 billion in market value and a notch in its credit
ratings on Friday while a chorus of regulators and politicians reacted to its
surprise $2 billion trading loss by demanding stiffer oversight for the banking
industry.
The loss by one of Wall Street's most respected banks embarrassed chief executive
Jamie Dimon, a leader lauded for steering his bank through the fallout from
the 2008 financial crisis without reporting a loss.
"We know we were sloppy. We know we were stupid. We know there was bad judgment,"
Dimon said in an interview with NBC television to be broadcast on "Meet the
Press" on Sunday.
He said it wasn't clear whether the bank had broken any laws or violated
any rules. "We've had audit, legal, risk, compliance, some of our best people
looking at all of that."
The loss also invited regulatory scrutiny for a man who had all but led the
charge to limit it, criticizing the so-called Volcker rule to ban proprietary
trading by big banks.
The New York Times reported that the Securities and Exchange Commission has
opened a preliminary investigation into JPMorgan's accounting practices and
public disclosures about the trading loss.
On Friday, Securities and Exchange Commission Chairman Mary Schapiro told
reporters: "It's safe to say that all the regulators are focused on this."
The debacle sparked new fears about big banks and prompted Dallas Federal
Reserve Bank President Richard Fisher, who has called for the breakup of the
top five U.S. banks, to say he is worried the biggest banks do not have adequate
risk management.
The fallout extended across much of the banking sector, with shares of some
of Wall Street's top names declining on Friday. Among others, Citigroup dropped
4.2 percent, Goldman Sachs fell 3.9 percent and Bank of America slipped 1.9
percent.
JPMorgan was far away the worst performer, however, falling 9.3 percent on
a day when some 212 million of its shares traded, the most volume in its history.
Fitch Ratings cut JPMorgan's debt ratings a notch and put all of the ratings
of the bank and its subsidiaries on negative ratings watch.
WFTAsaid:
For the past 30 years I’ve managed to eke out a living selling
fertilizer (not the organic variety that Jamie Dimon was peddling
yesterday,) so I’ve never needed to be a financial genius, but a “hedge”
by definition cannot lose money. It is a defensive measure used to
protect a gain, or to insure in an outcome. It may limit upside if the
event you were defending against doesn’t happen, but it never, ever
loses money.
When the financial press allows the CEO to use the word “hedge” to
explain a $2 billion loss other than in a sentence like, “Our failure to
hedge resulted in a $2billion loss,” our financial press does us a
disservice.
jake chase:
First of all, Keynes identified the problem in 1923 in his Treatise on
Probability. There is a big difference between uncertainty and risk. Trading
involves uncertainty. You have positions which inevitably are correlated
in ways nobody can predict. That is why banks should not be gambling, particularly
when they are using deposits as capital and the Fed as an insurance company.
Why do they do it? Because in the short run they can capture profits which
are then extracted as bonuses. It is unbelievable that toadying academics
still do not understand this, particularly Bernanke who is the poster child
for this species.
LeonovaBalletRusse
jc, “the difference between uncertainty and risk” — and why this distinction
is crucial — is demonstrated by Dr. Gerd Gigerenzer:
Dr. Gerd Gigerenzer, Director, Max Planck Institute for Human Development,
makes the distinction clearly and succinctly in his presentation at the
INET Plenary Conference in Berlin: “Paradigm Lost: Economics + Politics”
on Thursday, 12 April 2012 (day one), during the session entitled: “What
Can Economists Know? Rethinking the Foundations of Economic Understanding.”
It’s “pay dirt” at
http://www.ineteconomics.org
enouf
It’s all intentional; for-profit cognitive dissonance
chitown2020:
Chris Whalen spoke about the lack of banking regulators to want to deal
with breaking up the BIG BANKS. Chris said the FDIC is willing to do it
and it will have to be done. This needs to be done before they clean everyone
out. http://maxkeiser.com/
LeonovaBalletRusse:
They’re ADDICTED to “hot, fast money” that goes with the “primo tail”
risk, the cocaine, with Crystal on the side.
Dr. Gabor Mate will tell you why they canNOT be cured. The pols are addicted
also, hence they are enabling co-conspirators, forcing the People to be
enablers against our will. Think: crack cocaine system on the street, for
How It Works: from plantation owners to manufacturers to brokers to pushers
to hustlers dealing, doing, and dying in the gutter. “Uncle Sam” embezzles
whatever “money” is required from the People’s accounts, and provides the
Praetorian Guard to keep the system locked down. Full-circle payout to the
1% comes from every level of the Private Plantation Prison rackets.
London has cut its deal with China, so “The Opium Wars” are meant to
run their course in the Homeland. London says: “It’s your night in the barrel.”
decora:
The problem with ‘oops, lets fix the math’ solutions is that they
dont address the problem, which is that a large part of the system is basically
a con. i.e. nobody cares if the models are accurate – the point is not to
be accurate, the point is to get other people to think its accurate long
enough to milk them for a few billion dollars, and then run off and say
‘oops sorry, but i didnt break any laws’.
think about the guys running bear stearns, specifically Alan Greenberg,
who loved to tell everyone about his reputation for memos regarding the
saving of paperclips.
he works on the street for decades, him and jimmy cayne riding to work
together every day for years and years. then comes the rise of the computers,
and the derivatives. do you think he understands all this stuff? CDS, MBS,
CDO, CDPC, etc etc? obviously he doesnt understand it. but he doesnt need
to.
he understands the con. he understands the game. he understands that
he can make huge amounts of money off the backs of other people. Bear Stearns
was the investment bank where the boiler rooms went when they needed a pipe
to the market. They have been playing this type of game for decades. you
dont need to understand the fundamentals in order to run the con – because
the con is not about fundamentals or math or calculus or gaussian curves.
the con is about people and their beliefs and expectations. the con is about
the well spoken guy in the armani suit.
the con existed before computers and formulas and risk models, and it
will exist long after these companies that will cease to exist when their
own cons blow up. the game itself is never ending. only from time to time,
does a society try to organize itself so that the leaders are not the same
people who are the con artists. the US used to be such a place, but it is
slipping.
Max Keiser Interviews Chris Whalen on the Banks, And Accounting at Wells
Fargo
This is an interesting discussion. I have enormous respect for Chris Whalen,
bearing in mind that he is very much a member of the banking community and this
must by its very nature affect his priorities if but a little.
And of course, Max is always Max, and always interesting. When he shifts
his schtick into low gear (pun intended) he is an excellent interviewer. I wonder
if Comedy Central could handle his style. He burned out the BBC fairly quickly
when he called for bankers to be sent to the guillotine. Hunter Thompson drives
the Shark to Wall Street. Or perhaps more like Lenny Bruce, for those who remember
him, the older crowd like me.
Although I think most of what he says is quite to the point, I don't necessarily
agree with Chris when he complains that on one hand that the Fed has not done
enough to reform the banks, but on the other hand he suggests the Fed raise
rates so that the unreformed banks can make more money on their interest rate
carry trades, even if it harms the real economy.
I think a strong enough reform of the banks, the real banks, would help reduce
their need for outsized returns, and take them off the Fed feedbag. And Chris
alludes to that glancingly later on when he talks about JPM. Max hits that point
hard, but Chris just doesn't seem to get it quite yet. And Chris defers somewhat
to Jamie D. but unleashes on Jon Corzine. Corzine won't be buying any rating
services anytime soon.
The Fed interest rate policy is a blunt instrument, and it does definitely
penalize savers. But there are other ways to deal with that than by simply raising
rates overall to help subsidize the banks, given the extraordinarily weak recovery
in the real economy, which at the end of the day is what public policy should
be all about. And of course Chris makes no reference to the intense bank lobbying
that helped to weaken Dodd-Frank and the Volcker Rule and make them more complex
and less effective. I seem to recall Yves Smith taking him to task on that,
and she was right.
But overall it is good. His opinions on Wells Fargo are rather blunt and
could be an eye opener to some. The American banking system is still a snakepit,
and it makes we grind my teeth a bit when the triumphalists on Bloomberg television
compare the US 'success' in financial recovery to other nations.
Here is the original source for this excerpt titled provocatively ""I
Steal Therefore I Am."
Again I apologize for having to direct viewers to Russia Today to obtain
this information about the US financial system, but there is a decided lack
of frank discussion like this in the American media, except perhaps on Comedy
Central and a few isolated outposts on PBS.
Keiser
Report I Steal, Therefore I Am (E286) interview starts at 13:48
jeffrey678 said...
"Shock Doctrine" by Naomi Klein
Klein believes that neo-liberalism belongs among "the closed, fundamentalist
doctrines that cannot co-exist with other belief-systems ... The world as
it is must be erased to make way for their purist invention. As Klein sees
it, the social breakdowns that have accompanied neo-liberal economic policies
are not the result of incompetence or mismanagement. They are integral to
the free-market project, which can only advance against a background of
disasters.
Klein seems to suggest that these disasters are manufactured as part
of a deliberate policy framed by corporations with hidden influence in government.
Her more considered view, which is also more plausible, is that disaster
is part of the normal functioning of the type of capitalism we have today:
"An economic system that requires
constant growth, while bucking almost all serious attempts at environmental
regulation, generates a steady stream of disasters all on its own, whether
military, ecological or financial.
The appetite for easy, short-term profits offered by purely speculative
investment has turned the stock, currency and real estate markets into
crisis-creation machines, as the Asian financial crisis, the Mexican
peso crisis and the dotcom collapse all demonstrate.
http://www.guardian.co.uk/books/2007/sep/15/politics?INTCMP=SRCH
Mike said in reply to jeffrey678...
How is neoliberalism = free markets? It is corporatism. It is amazing
that people butcher the English language and suggest that laissez-faire
economics is not analogous to corporatism.
Mark A. Sadowski said in reply to Mike...
Neoliberalism supports the privatization of nationalized industries,
deregulation, and enhancing the role of the private sector in modern society
without regard for the market failures that might have made nationalization,
regulation and an enhanced role for the public sector preferable in the
first place. Laissez-faire policies pursued naively inevitably lead to corporatism.
river said...
Palley doesn't actually come out and say it, but I suspect that he falls
into the "progressive" camp in his beliefs. Just based on simple intuition
(which I realize can be misleading, but is very hard to ignore)of a simple
minded engineer, this explanation seems to be the best to me (and one I
have argued for a while on this board, but didn't have an advocate with
any credentials that thought the same thing (Steve Keen, Yves Smith, Barry
Ritholtz and now Thomas Palley the main exceptions).
The only reason for a person like me to make an argument about this issue:
"The critical insight is that each perspective carries its own policy
prescriptions. Consequently, the explanation which prevails will strongly
impact the course of economic policy. That places economics at the center
of the political struggle as it influences which explanation prevails."
"As of now, the economics profession is split between the hardcore and
softcore neoliberal positions. However, that can change under the pressure
of an ugly reality that produces mass political demand for change, as happened
in the Great Depression of the 1930s which provided an opening for Keynesian
economics. The only certainty is change will be politically opposed as powerful
elites and orthodox economists have an interest in preserving the dominance
of the existing paradigm by ensuring their explanation of events prevails."
Goldilocksisableachblonde said in reply to Mark A. Sadowski...
I would characterize most of the NGDP-targeting advocates as well to
the right of the type of shared-prosperity progressives that Palley describes.
Whether conservative , libertarian , whatever ,
they're members of one of the two economic porn groups who've collaborated
over the last several decades to systematically dismantle what had been
a perfectly good economic system.
Monetary stimulus was a useful tool for Roosevelt in a way that it isn't
today , because he had implemented and would continue to implement policies
that ensured that its beneficial effects were widely-shared and thus effective
, i.e. , the transmission mechanism actually had a transmission.
I think Bernanke realizes this , as revealed by his repeated hints that
fiscal policy would be a more direct method to attack unemployment. Why
would he want to carry the legacy of the Fed chair who was the best ever
at pissing up a rope ?
I share the view expressed in this piece by Dan Alpert re : Krugman vs
Bernanke :
http://www.economonitor.com/danalperts2cents/2012/04/25/earth-to-paul-krugman/
Mark A. Sadowski said in reply to Goldilocksisableachblonde...
"Monetary stimulus was a useful tool for Roosevelt in a way that it isn't
today , because he had implemented and would continue to implement policies
that ensured that its beneficial effects were widely-shared and thus effective
, i.e. , the transmission mechanism actually had a transmission."
Monetary stimulus doesn't need fiscal stimulus as a transmission to work.
(FDR actually did relatively little fiscal stimulus). And the idea of shared
prosperity is hardly contradictory with monetary stimulus (By strengthening
unions, instituting a minimum age and making taxes more progressive FDR
did both).
"I think Bernanke realizes this , as revealed by his repeated hints that
fiscal policy would be a more direct method to attack unemployment."
Bernanke is merely trying to shift the responsibility to someone else
(as is Draghi). He is a born consensus seeker (look at his history as department
chair at Princeton). As long as Hawks dominate the BOG he will go along
with them. You're just reading you own motives into someone elses. Remember,
Bernanke is a Republican.
"I share the view expressed in this piece by Dan Alpert re : Krugman
vs Bernanke :"
Alpert's views are self contradictory to the point of being totally incoherent.
He argues that cheap labor is leading to increased AS (which should lower
inflation) and then argues that monetary stimulus is increasing commodity
price inflation (which would be symptomatic of decreased AS). Which is it?
Both arguments are thin as rice paper. How could a positive AS shock
in the developing world affect our ability to attain full employment? We
always have the ability to depreciate our currency through monetary stimulus
to keep our trade deficits in check. How can the monetary policies of the
advanced world inflate global commodity prices? They can't. It's all about
the fact that supply for these commodities is relatively inelastic and demand
in the developing world is soaring. China now consumes over 40% of the earth's
steel, cotton and copper and is the world's third largest consumer of oil,
which is subject to peak oil. Twenty years ago China wasn't even a blip
on the world's commodity radar screen. Now it is the elephant in the world's
commodity markets.
Cameron Hoppe said...
I don't think any of the three should be ignored. However, the real explanation
to lies in the pursuit of status and power. WWII was a shared goal, and
it was fought mainly by working class and poor men. This is not a dig against
middle class and rich guys: it was a low-tech total war requiring full mobilization.
The majority of men were working class or poor.
It had the effect of putting working class and poor men in a position
of status. It put them in a position to be admired. They were universal
heroes for life.
That all changed in Vietnam. The heroism demanded of those who fought
was just as great, but they were regarded coolly by wealthy chicken-hearts
and sometimes berated by some who opposed the war. Even WWII veterans were
known to show disdain for those who went to Vietnam, regarding it as something
other than a "real war".
This is not the whole story, but it is integral to the present dynamic,
IMHO. Capitalism is inherently unstable in that today's debt is always to
be paid for via tomorrow's growth. However, it doesn't matter too much what
sectors see growth and which workers or rentiers see their income and wealth
increase. So long as there is growth, capitalism
survives.
For me, the dynamics of increasing inequality, periodic financial crises
coupled with public bailouts of corporate executives, and the rise of apathetic
trade can only be understood in the light of primate status dynamics. A
person making $1 million+ per year may consciously think he or she wants
more money. What the earner really desires is more power, more status, more
reproductive opportunities for one's self or offspring.
It's easy to justify a drive for money and wealth. Most people can understand
it because they don't have enough to meet the real needs of their present
and future. It's impossible to justify a constant grab for eternal power
for oneself and progeny. But it is exactly what we are witnessing. Economists
and everyone else should call it what it is.
PaulS:
There has been much discussion about the Depression/World War II analogies.
Many such as Krugman argue that it was the extremely high deficit spending
during World War II which lifted the US out of the Great Depression. However,
there were two parts to the US economic mobilization, and the spending was
only one of the two. The other part is the War Production Board. The War
Production Board was a huge act of central planning to marshal the nations'
resources towards war. It completely reallocated resources to this end.
And arguably this reallocation had as much to do with creating the prosperous
postwar economy as did the spending.
This is why it is not a contradiction to say that the 30s unemployment
was structural, and at the same time say that the government was able to
improve the unemployment picture. To the extent that 30s unemployment was
structural, it was the central planning which upended the structure and
created a better fit between workers and the economy.
While these two parts of the economic intervention during the War, the
planning and the spending, certainly both contributed to the economic recovery,
it is only the spending which has really been talked about in public, according
to the orthodoxies. The central planning of the WPB certainly is not. As
mentioned in the post, polite economists don't talk about central planning
at all.
Mark A. Sadowski:
The main problem with your thesis is that unemployment had already fallen
to 6.0% (counting FERWs as employed) by 1941 and real GDP was already back
to trend although war spending was minimal and the War Planning Board had
not even been created yet since we were not at war.
WW II didn't end the Great Depression because the New Deal already had.
Edward Ericson Jr.:
The post WWII role of what Andre Gunder Frank called "military Keynesianism"
arguably played a role both in the pre-1980s "virtuous cycle" and its less
virtuous aftermath.
It's hard to put 4-8 percent of your imputed GDP into an utterly unproductive
endeavor and not produce first order economic distortions.
Jes sayin'.
ezra abrams:
Quote:
"... 1945 - 1975 the U.S. economy was characterized by a “virtuous
circle” Keynesian model built on full employment and wage growth tied
to productivity growth"
I guess being the world's super power, no competition for industrial
stuff from japan and china, low oil etc had nothing to do with it. If all
you have is a hammer... I'm always amazed at how little effort economist
put into getting something other then a hammer (tools from phd time) to
study problems. Of course, if things like military might creating low oil
[prices] were responsible for some of the growth, then people might question
the high status afforded to the math driven economist
In
"NBER's Martin Feldstein Bashes The Deplorable US Economy, Says Bernanke Has
Engineered Another Stock Bubble," Zero Hedge highlights some less-than-upbeat
commentary from a Bloomberg TV interview with economist Martin Feldstein:
Feldstein on the U.S. economy:
"We are not doing very well. The economy is just coming
along at a snail's pace. The first quarter numbers that we just got last week
were not very good at all. The GDP number was 2.2%. That was a disappointment,
but you know, it was all automobiles. 1.6 out of the 2.2 was motor vehicle production.
So, people were catching up after not being able to buy them the year before.
So, this is a very weak economy. The payroll employment numbers, we are going
to get some new ones in April. Let's hope they are better than March where it
fell by half. The stock market is, I think, responding to the Fed. I
think the real danger is that this is a bubble in the stock market created by
low long-term interest rates that the Fed has engineered."
On the danger of a bubble in the stock market:
"The danger is, like all bubbles, they burst at some point.
Remember, Ben Bernanke told us in the summer of 2010 that he was going to do
QE2 and then ultimately they did Operation Twist. The purpose of that was to
make long-term bonds less attractive so that investors would buy into the stock
market. That would raise wealth and higher wealth would lead to more
consumption. It helped in the fourth quarter of 2010 and maybe that
is what is helping to drive consumption during the first quarter of this year.
But the danger is you get a market that is not with the reality of what
is happening in the economy, which is, as I said a moment ago, is really not
very good at all."
I'll be danged -- another economist (see:
"No Punches Pulled") who is not afraid to speak the truth.
dryfly:
Rob Dawg wrote:
You have to be more specific. Do you want a healthy economy
or a wealthy banking system?
I was at a bar in Houston last week in a rather 'interesting
neighborhood' - on Telephone Rd for those who know the region - eating bbq
and listening to karaoke in Spanish [you got shouted down if you sang in
English - really hilarious - everyone quite drunk including yours truly].
Was talking to a laborer on the stool next to me and we were discussing
the economy [he actually got it better than many I've talked to at white
collar bars]. I told him they had to make the
choice - save the banks or save the economy, they couldn't save both. They
decided and the rest of us were screwed. The guy said that explains it better
than anything I've heard anywhere so far. Ten minutes later
the bar wench brought me a full pitcher pro bono. True story.
scone:
Duke wrote:
I would say that the primary impact of stabilizing prices
is that they will set a ceiling on interest rates.
Yep. And if the Bernank tries to raise interest rates, it raises
the cost of gummit borrowing at just the wrong time. However, the Bernank
might raise interest rates just a bit, over several years, to scare the
pants off the potential buyers: "buy now before interest rates go up!" That
would cause little feeding frenzies to keep the real stakeholders (big builders,
stock market, NAR) happier, even as prices dribble slowly down in real terms.
So I'd think there's a chance of 1/4% increases starting somewhere around
2014, not before. The cover story on that will be "the economy is recovering,"
of course.
cdresearch:
Until someone can rationally explain to me how the long-term jobs situation
(declining employment/population ratio, more temp/low-paying jobs, reduced
benefits, global wage arbitrage, aging demographics, technology displacement,
etc.), understated inflation, and an average home price to median household
income of nearly 4 to 1, in an artificially tanked mortgage rate environment
(unsustainable), could possibly add up to a "bottom" in, or "stabilizing"
house prices, I'll just stick with the view that we still have further to
slide.
Doc Holiday:
Re: " I think we should start asking what the economic impact of
stabilizing house prices will be."
==> No possible way is there a recovery within sight. No one is looking
at the increasing shadow inventories and including the population over 65
... there is a massive hangover and there will be a flood of inventory that
will slow any predicted bullshit recovery ... mark your grave with this!
==> Nonetheless, the NAR cheerleading and the upbeat economist will continue
to have happy fantasies, and connect those thoughts to the total bullshit
that the recession was over in 2008
Comrade Troyski:
Housing is 90% consumption and rising prices on existing inventory serves
to impoverish people -- the new buyers -- in a totally zero-sum manner.
While housing is certainly wealth -- that which provides utility for
us -- more money flowing into and out of housing is not capital-accreting,
since housing is only partially a capital good (again, that zero-sum thing,
for housing to appreciate, somebody down the road is going to have to pay
more for the same or less amount of hard wealth).
As mp stated last week, there's an entire macro situation looming mostly
behind the scenes now. People don't really understand that all taxes, in
the end, come out of rents (and housing), even though they do kinda figure
out that home prices are set by disposable incomes.
What's the tax situation going to look like this decade and next? If
we actually start pensioning off the baby boomers there's going to be 80
million of them by 2030 -- and 80 million x $30,000 is $2.4T/yr in pension
burdens. This is going to be an immense wealth transition to a senior-based
economy, with major winners and losers.
Even aside from that, we're going to need to somehow reverse the Bush
tax cuts -- just Obama's preferred policy won't reduce the deficit more
than $100B/yr or so, and we've got a $1.4T/yr deficit as of now. That money
reducing disposable incomes would be immensely deflationary to housing.
I don't expect interest rates to rise from here, given the general dire
prospect workers still face. And even if interest rates rise somehow, I
fully expect the Fed to step in and preserve the low-rate environment, since
anything else would cause our $10T mortgage debt bubble to completely pop.
Debt Outstanding Domestic Nonfinancial Sectors - Household, Home Mortgage
Sector (HHMSDODNS) - FRED - St. Louis Fed
azurite
Comrade Troyski wrote:
What's the tax situation going to look like this decade and next?
If we actually start pensioning off the baby boomers there's going to
be 80 million of them by 2030 -- and 80 million x $30,000 is $2.4T/yr
in pension burdens. This is going to be an immense wealth transition
to a senior-based economy, with major winners and losers.
There is also a growing need for replacement of essential infrastructure
like water & sewer plants & transfer/distribution systems. Assuming rates
start to increase now/ within the next few years (as is planned in the town
I live in)--sewer & water rates & fees, that is--that is in part a transfer
from the older generation who may be paying the bulk of those increased
rates (although anyone who pays rent or owns will pay a portion) but may
not live long enough to get their money back, so to speak, via use of the
replaced systems.
sum luk
"Until someone can rationally explain to me how the long-term jobs situation
(declining employment/population ratio, more temp/low-paying jobs, reduced
benefits, global wage arbitrage, aging demographics, technology displacement,
etc.), understated inflation, and an average home price to median household
income of nearly 4 to 1, in an artificially tanked mortgage rate environment
(unsustainable), could possibly add up to a "bottom" in, or "stabilizing"
house prices, "
.... I'd like to offer the theory that it can't get a lot worse, but
I'm concerned the upcoming election and the failure to even address the
impending fiscal cliff - will prove me wrong.
josap:
cdresearch wrote:
an average home price to median household
income of nearly 4 to 1, in an artificially tanked mortgage rate environment
(unsustainable), could possibly add up to a "bottom" in, or "stabilizing"
house prices,
In my area house prices are 2 to 1, for a good family home. Less for
a condo or townhouse. Ratio of 3 to 1 if you want upscale burbs.
sum luk
poic wrote:
Are you interested in my loss-diversification newsletter?
from:
http://blogs.telegraph.co.uk/finance/philipaldrick/100016977/greece-is-at-the-epicentre-of-a-new-euro-crisis-and-its-chaos-will-spread/
Contagion risks are back with a vengeance. With Greece edging towards
the euro exit gates, pressure is building in familiar territories. Yields
on Portuguese sovereign debt have spiked even more rapidly than those on
Greek debt. Spanish and Italian borrowing costs are creeping up. The markets
are pointing to another imminent euro crisis. And, once again, Greece is
at the epicentre.
Doc Holiday
How many years (more likely decades) will it take to paper-over the Multi-Mega-Lotto
Trillion Dollar Black Hole from the Housing Collapse?
Not going to happen in our lifetime, mark your gravestones by it!
Former Idealist:
Sovereign strategic defaults. Only a sucker would pay their debts.
Doc Holiday
wrote on Tue, 5/8/2012 - 11:10 am
(in reply to...)
poic wrote:
Until someone can rationally explain
Several things have to line up, e.g., shitloads of really stupid people
and a tsunami of cheap and easy money from Asia, which will probably happen
when Romney steals the election, and then we see an instant replay of the
Bush Ownership Society with no strings attached, except for having China
totally take over every asset in America and all our allies... blah, blah
... actually, even if Obama gets re-elected, refer to Plan A, where China
takes over America...
Realistically, there will be shitloads of really stupid people that believe
a recovery is under way
cdresearch
wrote on Tue, 5/8/2012 - 11:09 am
(in reply to...)
Sebastian wrote:
Given only the negatives, it's impossible to explain.
I didn't preclude anyone from using "positives" to rationally explain
a sustainable housing bottom, and yet, to be rational and comprehensive,
one must successfully address the key issues that I raised. I zeroed in
on the most critical variables that must be solved if we are to create a
true bottom, and a genuine and sustainable housing recovery. But so far,
I have not heard of any reasonable solutions to these variables.
sum luk
wrote on Tue, 5/8/2012 - 11:09 am
(in reply to...)
josap wrote:
And next week it will be Spain or maybe France now.
They just keep taking turns on center stage.
.... I dunno. They're doin a good job of makin it sound serious this
time. You might wanna read this:
http://blogs.telegraph.co.uk/finance/philipaldrick/100016977/greece-is-at-the-epicentre-of-a-new-euro-crisis-and-its-chaos-will-spread/
cdresearch
wrote on Tue, 5/8/2012 - 11:11 am
(in reply to...)
1 currency now -yogi wrote:
For the record, price
are only worth tracking relative to other prices.
I agree.
glimmerman
wrote on Tue, 5/8/2012 - 11:13 am
If potential sellers think prices will fall further, then they will rush
to sell and list their homes right away. But if potential sellers think prices are
stabilizing, and may even increase, they are more willing to wait for a better market
or to sell when it is most convenient.
You do realize there was a seminal study about the 90s housing bust that contradicts
your assertion?
http://www.andreisimonov.com/Microstr_PhD/GenesoveMayer.pdf
Housing markets exhibit a number of puzzling features, including
a strong positive correlation between prices and sales
volume and a negative correlation between prices and time on the
market. Sales volume can fall 50 percent or more from peak to
trough in a real estate cycle. Although the most dramatic examples
along these lines are in local markets,1 a strong positive
correlation between aggregate prices and trading volumes has
also been documented at the national level in the United States,
Great Britain, and France [Ortalo-Magne and Rady 1998; Stein
1995].
azurite
wrote on Tue, 5/8/2012 - 11:14 am
(in reply to...)
ac wrote:
BTW for context I made that comment because she was talking about Romney
who has these grandiose plans for beefing up military spending because somehow
that doesn't count as government spending.
The sad thing is there are a lot of independents out there who support Romney
because they see him as the "deficit cutting" candidate.
That was the reason for my "framing the discussion" reply. DoD budget is sacred
cow--its unaudited spending/budget is almost always placed outside of any discussion
of budget cuts and is now, by Ryan, et al, being explicitly removed from the discussion
of gov't functions whose budget can be cut.
Hard for me to understand why people can see replacement of crumbling/collapsing
infrastructure they use everyday as less important than yet another sure to run
over budget, take twice as long to develop as originally estimated, weapon that
isn't particularly useful or even necessarily wanted by the military, as more important
then safe water or safe bridges.
But so it seems.
cdresearch
wrote on Tue, 5/8/2012 - 11:14 am
(in reply to...)
sum luk wrote:
I'm concerned the upcoming election and the failure to even address the impending
fiscal cliff - will prove me wrong.
Certainly by now we must have learned that politicians will do their best to
avoid tackling serious problems. It's not a good election strategy.
Consumer borrowing increased $21.3 billion in March to $2.54 trillion. This
is the largest monthly increase since November 2001. Revolving credit (credit
cards) and non-revolving credit advanced in March, with the latter posting the
larger gain.
The level of outstanding consumer credit is only 1.6% short of the peak ($2.58
trillion) registered in 2008. Consumer borrowing is back in full swing, but
will it continue to advance?
The latest Senior Loan Officer Survey shows an increased willingness to lend
to consumers (Chart 3). The improvement in the attitude of bankers and the sharp
increase in the demand for consumer loans (see Chart 4) are factors supportive
of further growth in consumer borrowing.
The opinions expressed herein are those of the author and do not necessarily
represent the views of The Northern Trust Company. The Northern Trust Company
does not warrant the accuracy or completeness of information contained herein,
such information is subject to change and is not intended to influence your
investment decisions.
May 07, 2012 |
Economist's View
Chris Blattman makes the case for more research on industrial policy:
The case for industrial policy (a paper and a rant), by Chris Blattman:
A
new paper, where some very good economists look at data from Chinese
medium and large firms:
…sectoral policy aimed at targeting production activities to one
particular sector, can enhance growth and efficiency if it made competition-friendly.
…if subsidies are allocated to competitive sectors… and allocated
in such a way as to preserve or increase competition, then the net impacts
of subsidies, tax holidays, and tariffs on total factor productivity
levels or growth become positive and significant.
“You can’t pick winners” is the knee-jerk retort to the mention of anything
that even rhymes with industrial policy. I would call it the triumph of
ideology over evidence, except that even “ideology” feels like a generous
term. Lazy thinking might be a more accurate description. Some have given
the question a great deal of thought, but most have not.
I’m not suggesting that ... governments can pick winners (probably they
can’t). Nor am I forgetting that industrial policy is easily politicized
and distorted (as surely it is). So what am I talking about?
I’ll make two claims. The first: industrialization is the most important
and essential process of development. ... The problem? We have little to
no idea how to do that. And many of the tools in the current policy tool
box are deeply flawed.
Some take this as evidence economists and researchers should focus on
other things. This brings us to the second part of my argument, where I
make the opposite claim: there is no more important or promising frontier
of knowledge. The fact that we know so little, and the tools are so poor,
suggests (to me) that the marginal gains from more research are huge. there
is no more important place for scholars to spend their time. ...
When my students run rushing in the direction of micro-poverty programs,
or randomized trials, I steer them away. Yesterday’s research and policy
frontier is tomorrow’s old news. What is the next frontier? I would put
money on industrial development and, with it, a new breed of industrial
policy.
Some of the most interesting development research is coming from people
swimming ahead of this wave: Eric Verhoogen, Nick Bloom, David Atkin, David
McKenzie, Dani Rodrik, Ricardo Hausman, the authors of this post’s paper,
and a slew of others. I haven’t seen the same swell in political science,
but surely it will come.
Alex Smith:
Don't forget that the US government had industrial policy back in the
19th century - railroads, 20th century - highways. 21st century - green
energy?
cm:
What about "defense"? Looks like a winner to me ...
Tao Jonesing:
The government has had an industrial policy for almost three decades
now that has made the FIRE sector the clear winner at the expense of the
manufacturing sector.
While we don't have an explicit industrial policy, we do have one that
is de facto.
"The German’s and the ECB are not demanding any sacrifices from
European elites. They explicitly target the working class and government
workers’ wages and oppose any increased taxation of the wealthy.
The Berlin Consensus is a road map to ever greater inequality."
Bill Black
"Thank God the US opted for bailouts and not handouts...People
in economic distress should suck it up and cope."
Charlie Munger
I will not mince words with this. I see a world on the brink of war, for all
the same old reasons. It will take many forms political and financial, at first
civil and then regional. If this does not resolve the situation then the conflict
will expand and continue by other means.The elites' price for peace will
be a world without borders, or at most three or four spheres of influence, under
their direct control and planning.
Appeasement will only serve to inflame their lust for power and dreams of
domination. They see themselves as moving from victory to victory. The tide
of reform is being turned aside by special interests, compromise is viewed as
ideological impurity, and legitimate protests are met by not by recognition
and justice but by indifference and repression. This will not stand.
"The technetronic era involves the gradual appearance of a more controlled
society. Such a society would be dominated by an elite, unrestrained by
traditional values. Soon it will be possible to assert almost continuous
surveillance over every citizen and maintain up-to-date complete files containing
even the most personal information about the citizen. These files will be
subject to instantaneous retrieval by the authorities...In the technotronic
society the trend would seem to be towards the aggregation of the individual
support of millions of uncoordinated citizens, easily within the reach of
magnetic and attractive personalities effectively exploiting the latest
communications techniques to manipulate emotions and control reason."
Zbigniew Brzezinski, Between Two Ages: America's Role in the Technotronic
Era, 1970
In fairness to Brzezinski, the above quotes in context seem more a forecast,
and a threat to be feared rather than a prescription to be followed.
April 23
Hugh Pickens
writes "Ron Fournier and Sophie Quinton write in the National Journal that
seven in 10 Americans believe that the country is on the wrong track; eight
in 10 are dissatisfied with the way the nation is being governed, only 23 percent
have confidence in banks, and just 19 percent have confidence in big business.
Less than half the population expresses "a great deal" of confidence in the
public-school system or organized religion. 'We have lost our gods,' says Laura
Hansen.
'We've lost it—that basic sense of trust and confidence—in everything.'
Humans are coded to create communities, and communities beget institutions.
What if, in the future, they don't? People could disconnect, refocus inward,
and turn away from their social contract. Already, many are losing trust. If
society can't promise benefits for joining it, its members may no longer feel
bound to follow its rules. But history reminds us that America's leaders can
draw the nation together to solve problems. At a moment of gaping income inequality,
when the country was turbulently transitioning from a farm economy to a factory
one, President Theodore Roosevelt reminded Americans, 'To us, as a people, it
has been granted to lay the foundations of our national life.' At the height
of the Great Depression, President Franklin Roosevelt chastised the business
and political leaders who had led the country into ruin. 'These dark days will
be worth all they cost us if they teach us that our true destiny is not to be
ministered unto but to minister to ourselves and to our fellow men,' said FDR.
'Restoration
calls, however, not for changes in ethics alone. This Nation asks for action,
and action now.'"
daem0n1x: Re:Thanks, media
Don't forget the indoctrination being performed for decades on the minds
of people:
- Society owes you nothing;
- if you fail, it's your own fault;
- Don't blame others for being treacherous, just be smarter than them;
- Your coworker is not your friend, he's after your job;
- Anything has value only if it has commercial value;
- Merciless competition is the natural way, live with it;
- If you're not rich, you're useless scum;
- . . .
This is not the way our brains were programmed to work. Without a sense
of community, we drown in misery. Without trust, there's no community. The
USA is a few steps ahead of Europe in this stupid individualistic mentality.
Don't expect your country to go anywhere with this.
May 1, 2012 |
The Kremlin StoogeAlexander Mercouris:
Here is an interesting article by Edward Luce of the Financial Times written
for the British magazine the New Statesman in which senior members of the
US military including the retiring Chief of the Joint Chiefs of Staff tell
him that the greatest danger to the US is its debt burden.
http://www.newstatesman.com/international-politics/2012/04/%E2%80%9C-number-one-threat-facing-america-its-debt-burden%E2%80%9D
What is most remarkable about this article is that the analysis of the
US’s problems comes from serving members of the US military. Their essential
points are
1. That the US has at most until 2021 before it entirely loses what room
it still has to manoeuvre or to shape events in its own interests;
2. That the US defence burden is unsustainable and the diversion of resources
it involves is undermining the US economy beyond the point of recovery;
3. That the US needs to cut its defence spending radically, withdraw
from most of its foreign bases, end its various wars and seek a rapprochement
with its major potential adversaries (China but also Russia and Iran), which
would logically involve recognising their regional interests and abandoning
the effort to meddle in their domestic affairs;
4. That the US should use the funds saved from the cuts in the defence
budget to reinvest heavily in its economy and in its science and education
base.
It goes without saying that I agree entirely with this analysis. It also
goes without saying that I think that there is absolutely no chance what
it proposes will be carried out.
marknesop:
“It also goes without saying that I think that there is absolutely no chance
what it proposes will be carried out.”I think the decision will be forced
upon the country’s planners, for lack of viable alternatives. The quite
understandable pride Americans feel for their huge military will allow it
to go on for a while even in the face of decay in other institutions in
order to maintain it, but it can’t last. As Kirill has pointed out before,
sites that feature “shadowing” of government economic data suggest parameters
like unemployment and household income gains are actually much worse than
they are portrayed. More and more acknowledgement is coming out that the
recovery is really not recovering and the U.S. economy is pretty close to
stagnation.
Rather than encouraging moderation, the situation merely reminds the
warhawks how little time they have, and increases their belligerence in
their haste to get the job done while their will can still be imposed. It’s
a strange concept to think that Russia and China might save the west from
making a terrible mistake that might leave its legacy irretrievably tarnished.
Maybe. And I don’t suppose they will want to do it for nothing, either.
Former Idealist :
march construction spending ... +0.1% ... briefing.com consensus expected
+0.5% ... february revised to -1.4% from -1.1%.
Numbers so miniscule don't have any meaning to anyone other than those
talking their book.
Former Idealist:
So banksters are slow to kick out homeowner slugs and fast to put them
in a new car. Sebastian gives the all clear signal.
Bought a new O-ring for the pool. Same O-ring I buy every spring, $9.99
every year the past 10. This year, $16.99. Ben has blown it again and the
collapse will be massive.
These are the good old days.
Sebastian: (in reply to adornosghost ...)
I agree, the ponzi game has more players.
Exactly. Any ponzi scheme is doomed to ultimate failure right from the
very start, yet they can go on for long lengths of time. IMO, we should
keep that in mind when attempting to forecast when it's all going to go
pear-shaped.
Sebastian
Finance_Fan:
KarmaPolice wrote:
Auto workers no longer have that old-time safety net | Marketplace
from American Public Media
Quotable:
"Retiree health care benefits are out. So are generous pension plans.
And he says wages are half what they once were, down to around $17 an
hour. The one bright spot? You can buy a decent house in Detroit for
$40,000."
This seems reasonable. Don't you think?
coming to most counties & states soon imho
km4:
Guest Post- Where's The Collateral- | ZeroHedge
Put these two factors together and you get a global economy dependent
on debt borrowed against phantom collateral and an American economy
in which only the top 10% have credible collateral and income to leverage
into more debt. In a sane system, when the collateral vanishes, so too
does the debt (writedowns, write-offs, bankruptcy, take your pick).
In an insane system, then phantom collateral supports ever greater mountains
of debt.
How long do you reckon the insane system we have now will last?
The collateral is phantom, but the interest
payments are very, very real.
sum luk:
km4 wrote:
There is no reason to panic over our debt now
A TALE OF TWO DIVERGENCES | PRAGMATIC CAPITALISM
ResistanceIsFeudal:
shill wrote:
Operation Twist: New York Fed purchases $4.733 billion in Treasury
coupons.
not merely a twist, it's also a squeeze!
For anyone who has never been ‘kettled’ it is when the police at a protest suddenly
close ranks and refuse to let anyone leave. You suddenly find you are held against
your wishes. The police will not explain why, and they won’t allow any exceptions.
You suddenly have no control over what is happening,
and no discussion is permitted. A decision made by someone you have never seen now
exerts complete and total control over your life. We are all in that
position now.
We Are All Kettled Now30 Mar 09
For anyone who has never been ‘kettled’ it is when the police at a protest
suddenly close ranks and refuse to let anyone leave. You suddenly find you are
held against your wishes. The police will not explain why, and they won’t allow
any exceptions. You suddenly have no control over
what is happening, and no discussion is permitted. A decision made by someone
you have never seen now exerts complete and total control over your life.
We are all in that position now.
So vast is the debt our government has burdened us with that this one fact
will now determine most of the politics of the next decade. Other hopes and
desires – the wish for better schools, a better health service, better care
for the elderly - will wither in the shadow of the debt repayments. If we are
forced to pay back from taxes all the vast sums that have been sucked out of
public spending and given to the banks, the country will not recover for a generation.
The economic ‘plans’, forced on us without debate, are all based on the banks
returning large parts of the money they have taken from us. This means, whether
we like it or not, we all have to hope that the banks make profits as quickly
as possible. We have all been ‘kettled’ into having to hope and work for the
largest possible growth in world trade and finance. We have to hope that the
rich get richer, and quickly. The lords of finance and their servants in politics
decided this for us.
There never was any discussion or debate of possible
alternatives when the financial crisis began. It was declared,
and universally agreed (always a bad sign) that the problem was liquidity, not
solvency. That meant the only answer ever proposed was to provide liquidity
at all costs. Liquidity being our money to cover the massive losses they had
incurred. This, we were told, wasn’t really a cost at all, but ‘an investment’.
An investment which would pay back all the loaned, borrowed and printed money
long before the debts came due through reinflated levels of growth and asset
value.
That was, and is, their only plan. And so absolute is the certainty in the
minds of all concerned that none of them can even conceive of looking beyond
the closed circle of that logic. No counter-argument is allowed or taken seriously.
No warning signs are read as such.
Their so-called ‘free market’ has seized control and locked us in to a course
of action in which democratic choice has been foreclosed. The growing realisation
that this is what is happening will bring about increased anger. The smug reaction
to anger is to label it ‘mindless’. The mindless anger of the ignorant who don't
understand the necessary steps being taken by those who know better. That is
the boiled down assumption of all our leaders, all the economic experts and
most economic journalists.
The truth is quite different. People like me are angry because exactly the
same people who, in 2008, assumed they knew how to run the global economy still
assume they, and only they, know what must be done now. And their prescription
is as simple as it is arrogant: put it back they way it was.
We are told that the debts accrued by those in charge must be paid by us rather
than honoured by them. No debate.We are told we must get lending back to
the old levels. No debate.
We are told we must get the consumer consuming again rather than saving. No
debate.We are told that we must agree and complete the Doha round of global
free trade liberalization. No debate.
To be robbed is one thing: to be condescended
to by the people who robbed you is another altogether.
That is why many people like me are angry. We are
angry because the financial elite are shoving their ideology down our throats.
We are angry because we might have wanted to have a say. We are
angry because we had different ideas that were never even considered.Here
we are at the point in history when many of us are looking at the imminent threats
of climate change and oil scarcity, clearly seeing the dangers of unbridled
growth, and yet at this point democratic choice has been kettled. No debate.
And that is why this crisis is no longer just
about lack of confidence in the markets: it is now about the legitimacy of our
governments. The entire political class has been captured by
the same ideology. They all, to one extent or another, believe ‘the market’
is going to save us. No other solutions have even been allowed into the debate.
We shouldn’t waste our time arguing over which party is most to blame. All
the parties and the economists and the City boys all agreed, and they still
do. In their minds the banks had to be bailed out and their losses made ours.
We were taken to war without discussion and on false pretences; the same has
happened with this financial crisis. So enough of who is to blame: they all
were and are.
They all believe in a system that says we must create demand and then feed
it with debt. This necessarily involves increasing demand by the creation of
yet more debt. It always crashes and always will. That is how their system works.
If we allow it to be the solution, it will create another crash and another.
Each time the rich will reap profits on the way up and rape the public purse
on the way down. It's win, win for them and lose, lose for us.
Plus ça change!
Debt Generation - By David
Malone
Bill O'Reilly is really dangerous right wing demagogue, a vicious psychopath
and sex addict. Psychopath hired by Rupert Murdoch to brainwash gullible public
which watch Fox. These manipulative psychopaths should really be taken out of any
powerful positions. The fact that those guys are psychopaths doesn't mean they're
not good at what they do. Psychopaths/sociopaths have X-ray vision for other's weaknesses..
If corporations are people, Rupert Murdock empire needs to be imprisoned to safeguard
the public.
Video Cafe
Earlier this month we were treated to Rep. Allen West throwing around the
“communist” insult for his fellow House
members in the Progressive Caucus. As Ed Schultz reported here, now West
has found himself being
uninvited to speak at a Florida NAACP event. Not long after West's remarks,
Fox host Bill O'Reilly and Lou Dobbs decided to follow West's example, calling
former
Labor Secretary and professor Robert Reich a communist for some of his statements
during an interview on The Daily Show earlier that week.
This Monday evening on MSNBC, Ed Schultz gave Robert Reich a chance to respond.
REICH: It's like being back in the 1950's, this communist witch hunt
that suddenly has been launched. And the irony Ed is that there are not
even many communists left in the world today. It would be one thing if we
were back in the 1950's, but there's not a Communist threat.
What are these conservatives, these righke Bill
O'Reilly – they have nothing else to say. They have nothing else to do.
They don't have arguments. They don't have logic. They don't have any analysis.
What do they have? They don't have facts. What do they have? They just simply
have the same old epithets and slurs they've been using for the last sixty
years. […]
And for Bill O'Reilly to say that simply because I a suggesting that
it is a role for government to invest in schools and infrastructure and
basic R&D, that makes me a communist? Bill O'Reilly,
you don't know what you are talking about. You have absolutely no sense
of history. You have no understanding of government. You have no understanding
of our society. Debate me, head to head, person to person, like a man! Or
a woman.
As Reich noted, he's told O'Reilly he's willing to debate him anywhere, any
time, name the place and O'Reilly won't do it. Reich also slammed the Republicans
for wanting to take us back to the “dark ages” in America where anyone had even
a modicum of economic security. Reich said he hadn't seen anything like the
extremism we're seeing from the right in the modern ages and expressed his hopes
that not only President Obama is reelected but that the Democrats get the Congress
back from these extremists as well.
daganium — Okay...4/24/12 8:37am
As Reich noted, he's told O'Reilly he's willing to debate him anywhere,
any time, name the place and O'Reilly won't do it.
I wish these corporate media hacks would drop this one.
This is their way of seeing who has the largest penis: They constantly
challenge each other to debates that they know will never happen.
All Reich had to say is O'Reilly is a Rupert
Murdock puppet who literally quotes into a studio monitor pre-written Roger
Ailes' talking points.
That the perfect summation of the character O'Reilly plays on TV.
Say that & you are not forced to start measuring dick sizes.
Say that & O'Reilly is accurately framed for the harmful, hateful, worthless
buffoon he is.
Then you move on to the next topic.
--------------------------------------------------------------------------------
When Fascism comes to America, it will be wrapped in excess body fat
& carrying a misspelled sign.
appnzllr — They don't know 4/24/12 6:01pm
They don't even know what communists are - or what they were. They just
throw around these insults.
Kreskin —
The
Vietnamese and Chinese 4/24/12 7:16pm
The Vietnamese and Chinese communists are among our best friends , just
ask the US chamber of commerce ."they have nothing else to say. They
have nothing else to do. They don't have arguments. They don't have logic.
They don't have any analysis. What do they have? They don't have facts.
What do they have? They just simply have the same old epithets and slurs
they've been using for the last sixty years." Reich really nailed it
.
--------------------------------------------------------------------------------
"The poor have sometimes objected to being governed badly; the rich
have always objected to being governed at all."
Different Anonymous — 4/24/12 7:24pm
I try not to see a Koch under every bed, but I have to believe this is
an outgrowth of the John Bircher wing who have somehow managed to move from
the fringes of fringe politics to center stage. Commie this and commie that
was their stock and trade back in the day, and now since there are no good
so-called booger man names around any more to slur their enemies with -
that or their brains have so ossified that they really are back in the '50s
- they are back to regurgitating their old favorite, the communists.
Good on Reich for calling out O'Reilly though.
It's
hard...
The Glenn Beck ... — 4/25/12 12:36pm
...to improve on Reich's response to BillO, so I won't.
I will point out, however, that during the interview with Stewart, Reich
called for an end to corporate personhood (corporate Constitutional rights)
and the doctrine that money is speech (the Buckley v Valeo decision). We saw
Pelosi attacked for her support for an amendment to this effect on Fox (The
Five), so I can't help but wonder if the right wing echo chamber is starting
to tune into this
movement and beginning their propaganda in an attempt to marginalize this
growing effort across the nation that
even many Republicans support.
Pitiful...
Deniseindana point — 4/25/12 5:19pm
I watched the interview on The Daily Show and thought that Robert Reich is
probably one of the most intelligent individuals around now. It is now the 'in'
thing for the conservative right wingnuts to resort to name-calling instead
of discussing anything on an intelligent level. Reason: they could not carry
their weight in a true debate. C'mon, we all were bored to tears by the endless
debacles referred to as debates among the recent GOP contenders. There was no
debate ever; they were merely excuses to attack and criticize our President.
Neither O'Reilly nor Dobbs are stupid people, but this behavior can only be
compared to 5th grade level schoolyard bullying...Reich still comes out on top!
Janet Tavakoli takes the gloves off and tells it like it is in the cover story
in the May 2012 issue of Research Magazine.
You'll have to read it here, because I doubt you would hear this in any of
the mainstream media.
I hate to apply the overused term 'expert,' but Janet is a highly credentialed
expert in financial derivatives with years of practical experience. That does
not mean that everything she says is necessarily right, but it certainly has
credibility.
Someone asked me why would someone who is in the financial industry, and
has benefited from their expertise in derivatives, speak out like this?
Have we really sunk that low that we cannot believe that some people could
ever wish to speak the truth as they see it from moral principles, even against
their short term material advantages? No wonder we are so easily taken in by
lies, because that is what we want to hear. We are a lost generation.
This straight talk is a good spice to add to the somewhat bland
presentation on the financial crisis last night from PBS Frontline.
It's all about fraud and the subsequent cover up and ongoing bailouts. Its
the credibility trap, and it continues to undermine the recovery and
the real economy today.
The cover story is that these are just well meaning and extremely bright
people who did their best, but a few people got carried away, and well, you
know, things just happen.
Just like MF Global, right?
Finding the Culprits
Derivatives expert Janet Tavakoli takes a hard look at what — and
who — caused the financial crisis.
By
Jane Wollman Rusoff
April 25, 2012
...Now Tavakoli sees another huge financial crisis looming.The University
of Chicago MBA has traded, structured and sold derivatives at firms including
Merrill Lynch, PaineWebber and Westdeutsche Landesbank; and she had earlier
stints at Bear Stearns and Goldman Sachs. Research recently talked
with her about red flags and preventive solutions.
You write that, in the past three years nothing has been fixed
but that we must hold Wall Street responsible for the fraud that resulted
in the financial crisis. What should be done?
We need to have investigations. But with the pushback and all the lobbying,
what they’ve been counting on is that the statute
of limitations for some of these frauds is expiring. So if
you don’t file complaints, you may not be able to.
Members of Congress are enabling the lack
of punishment and covering up great misdeeds in our financial system — and
they’re doing it with no fear of consequences — i.e., being voted out of
office, in which case they could find themselves the subject of investigation.
What do you mean: “covering up”?
Many people are covering up for cronies who
have a lot of money sloshing around. We threw money into the financial system
with no accountability and thus made the problem worse. Our system has been
completely infiltrated and bought off. Things aren’t changing because Big
Money doesn’t want it to change.
What other indications are there of a cover-up?
The MF Global dog-and-pony show. The attitude toward bundlers like Jon
Corzine [the firm’s ex-CEO], who is a big bundler for the Obama campaign,
is that the guy can do no wrong. This was before he even testified.
People who are raising big money for campaigns get off with no real investigation.
In the Sarbanes-Oxley age, for MF Global to say they were unaware of
what they were doing beggars belief. And yet there has been no indictment.
Is President Obama part of the cover-up?
Yes, in that he’s enabled it. He’s left people
in place who crashed the global financial system in the first place:
[Treasury Secretary] Tim Geithner and [Federal Reserve chair] Ben Bernanke.
Obama had told us: “You can’t keep doing things the same way and expect
different results.” So he’s been quite a hypocrite.
Who else is in the cover-up?
Mary Schapiro was appointed [by President Obama] to head the SEC. She
was formerly head of FINRA, the antichrist of investor advocacy! Yet she
was chosen SEC [chair] because the regulators are captive by and serve the
people they’re supposed to be regulating. They do not serve investors .
In a way, Obama has been the anti-regulator
because he didn’t put people in the regulatory agencies, the Fed or the
Treasury who would investigate and fix things that are wrong in our global
financial system.
If he’s re-elected, then presumably, things will continue in
this same way?
Yes.
What if a Republican is elected President?
Who else is not in the pocket of
Big Money interests! (Ron Paul - Jesse)
So, no matter who’s President, these crimes — if you want to
call them crimes — will be perpetuated?
Yes. And we do want to call them crimes!
They are crimes.
What should Obama do now to help Americans?
He has a lot of resources at his disposal, one main one being moral suasion
— he’s got the pulpit. When there was a crisis, Reagan, Carter, Bush went
on television and explained what needed to be done.
We haven’t seen that kind of leadership from President Obama. If anything,
the American people have been told things to make them think [conditions]
aren’t really as bad as they are: inflation isn’t as bad as you think because
an iPad is cheaper now — nonsense like that.
So the public is being poorly informed?
Yes. Therefore, financial advisors need to be doing fundamental
analysis of investments and not [only] be reading the Wall Street Journal
or, God forbid, watching CNBC. (Don't look for any appearances on CNBC or
Bloomberg TV, Janet - Jesse)
In other words, FAs should do their own research and figure things
out for themselves.
Yes. Sadly, you’re on your own. That’s part of how we got into
this mess: We lost the art of rolling up our sleeves and looking for opportunities.
On Internet TV, you stated that we’re “absolutely vulnerable
to a repeat [crisis] because the fraud went unpunished and we printed money
like crazy to bail us out of the last one.” That’s scary.
But the fact is we’ve bailed people
out and had no consequences for them. So it emboldened them to turn around
and behave in the same way. Look at banks like JP Morgan: Shortly after
the crisis, they thumbed their nose at the idea of trying to separate speculation
from the rest of the bank. So if you don’t have restraints on behavior,
you’ll see it repeated. And now we’ve made it worse. It’s
like handing a drunk driver who got into a crash the keys to a bigger, faster
car together with a bottle of vodka.
In every area of finance where we bailed people out, you see
the same wrongdoers volunteering to help fix the situation. That’s pretty
funny: They weren’t trustworthy before, and they’re not trustworthy now.
But what about the investigations that already have been held?
They’re all for show, and people
end up with a slap on the wrist for minor issues. Investigators
should be looking instead at the interconnected fraud that infected the
mortgage lending market. And there is still a lot today, especially fraud
on borrowers. If you go to the root of the problem and choke off the money
supply, you stop the fraud in its tracks.
But the banks say they lost money.
The fact that a bank lost money isn’t an indication that they
were a victim as opposed to being a perpetrator.
A classic problem with control fraud is that the parasites destroy
the host — in this case, the host being the bank and the parasites being
the bank employees. If you were the victim of a control fraud by the people
who worked in your own bank but meanwhile, you were collecting huge bonuses,
you overlooked the control fraud within your own institution.
Why haven’t the apparently guilty been punished?
We haven’t seen the felony indictments that these people richly
deserve because our regulators and investigators are captive — and Congress,
more than ever, has been lobbied, courted and bought off by Wall Street.
More than any time in the past, you’ve seen these big-money interests protected
by Congress.
Is there an alternative to bailouts, such as those of the financial
crisis?
Yes. Troubled financial entities should be restructured, old
shareholders should be wiped out and we should return Glass-Steagall.
What should have been done in the case of, say, AIG?
Bankruptcy declared, and then [the government] says: “We’ll back-stop
your contracts for now, but we’re going to investigate all those fraudulent
credit derivative contracts and ‘claw’ money ‘back’ from your counterparties
— like Goldman Sachs and Credit Suisse — if need be.” So there’s a controlled
demolition. You’re not just handing money out with no consequences....
Read the rest
here.
We had a little follow through today as the market shook off the weak US
GDP number and the continuing problems in Europe.
Next week on Friday is the April Non-Farm Payrolls report.
It is well worth listening to this interview on the US economy by
Richard Yamarone on King World News.
There will be no sustainable recovery until the system is reformed. Stimulus
will not work because it is being applied to a broken system that is misallocating
wealth and resources.
But austerity is even worse. Promoting austerity without significant
economic reforms is quackery. It benefits those who took the most during the
fraud of the financial bubble and its associated frauds, and punishes the innocent
and the victims.
[Apr 25, 2012] Exile on Wall Street: One Analyst's Fight to Save the Big Banks
from Themselves by Mike Mayo
"The crisis didn't occur because of something that banks did. No, it was the
natural consequence of the way banks are, even today."
"The crisis didn't occur because of something that banks did. No, it was
the natural consequence of the way banks are, even today." That little sentence
in the middle of Mr Mayo's introduction to the book is perhaps the clearest
statement of intent that one can expect from any author who sets out to write
a book on a subject that he knows better than the back of his own hand.
Mike Mayo doesn't need an introduction to most "sophisticated" investors
in the equity markets, far less anyone who has been a fund manager responsible
for managing a portfolio of US banking stocks. He is perhaps one of the most
distinguished equity analysts in financial market history; a person with one
eye on market strategies and the other on bankers' integrity.
In a funny way, Mayo is also a victim: specifically of Michael Lewis (also
reviewed below) who short-changed him famously in The Big Short by heaping accolades
on the equity analyst Meredith Whitney for her brilliant call on Citigroup while
largely ignoring Mayo, who had made the same call, only earlier (ie before Whitney)
and with more market impact. Going through the rest of his history and other
calls of stumbling US financial institutions - the former Bank One, Keycorp
and so on, it is indeed difficult to fault the predictions of Mayo.
As one goes through the book, it becomes clear that Mayo was a rank outsider
who worked diligently and steadily to move up the corporate ladder on Wall Street;
an exception that isn't immediately obvious to anyone who isn't deeply familiar
with the industry and its recruiting practices that focus on Ivy League schools
and family connections. After being rejected for many a job, Mayo describes
going to work for the Federal Reserve.
Perhaps he should have spent a bit more time examining the intricacies of
the Fed bureaucracy and the lack of capabilities amongst its staffers (barring
a few) but Mayo then moves on to Wall Street where his career takes him through
UBS, Lehman, Prudential Bache and Deutsche Bank (in the book; I understand that
Mayo then went to work for Credit Agricole in the US but he doesn't mention
that in the book for understandable reasons). Using arcane financial models
initially but then moving closer to the "story", ie the actual care and diligence
of the banks amidst a stunning growth in their asset bases, Mayo starts outlining
the structural failings of the banks.
He could have added that the pressure to perform on quarterly earnings was
another big factor in banks focusing excessively on the short-term; essentially
sacrificing their long-term viability at the altar of analyst expectations but
he misses that particular angle (perhaps on purpose, seeing where he has been
located for much of his career).
Other than that, I found his take on banks' management style refreshingly
candid to the point where a number of CEOs evolve from their PR-burnished cardboard
images (Jamie Dimon for example) to something altogether more human and likable.
Even his bete noire in the book, Vikram Pandit of Citigroup, comes across not
so much as a schoolyard bully but as someone who is fundamentally decent albeit
with an over-protective or controlling inner circle.
A side note for Asian investors and readers: the context of Mayo complaining
about access to banks' management would be thoroughly unfamiliar in a region
where companies and banks are managed as personal fiefdoms and only lip service
ever given to corporate disclosure and transparency. Reading through the publication
I couldn't help but feel that Asians would be happy to have the kind of problems
that Mayo has outlined in his book.
Mayo describes in detail the conflicts at the heart of investment analysis
wherein the needs of profitable bankers to effect deals (equity calls, rights
issues, bond buybacks) exceeds the more sedate commission-driven world of turnover
that is dictated by the accuracy and strength of analyst recommendations.
Perhaps he could have actually explained the differences through a financial
model in his book; but what does come through is the conviction of how good
analysts are easily waylaid by their own franchises for a quick buck and anyone
who doesn't play along is punished and cast out.
His long-running feuds with the likes of Citigroup and JPMorgan aside, Mayo
comes across as a decent person with terrific insights into the now hopelessly
arcane world of the big banks. Towards the end of the book, he relates how his
wife, a doctor, keeps him grounded by telling him to "now take out the trash"
whenever he comes back home gloating about his work achievements.
Reading that bit though made me think: from the perspective of a decent chunk
of people exposed to the world of finance directly or indirectly, the need of
the hour is to have leaders in place who are capable of standing up to the big
banks and pushing through strong improvements in transparency and risk management.
Whether it is the Fed, the European Central Bank, the Bank of England or
the Bank of Japan or indeed the International Monetary Fund/Bank of International
Settlements and other truly global organizations involved in high finance; Mayo
may well be the most suitable person to stare down the CEOs of the world's top
100 banks.
I say give Mayo the chance to actually supervise the top 100 banks in the
world. The results may prove a fitting epilogue to his book when updated a few
years from now.
Bailout Nation (with post-crisis update), by Barry Ritholtz and Aaron Task
To be fair, Bailout Nation deserved better than to be reviewed a full two years
after its publication. I did start reading it, but coming across more compelling
works at the time dropped the book for a later date; little was I to know that
the "later" would be two years. Perhaps because of that intervening period that
has been rich in both explaining the effects of the financial crisis and the
role played by various agencies in effectuating this result, the review is also
perhaps more critical than it may have been if I had written it when the book
was first published.
A compendium of tales that strings together the ever-increasing trend towards
the socialization of losses in the United States, the book starts well with
pre-bailout history of the US, the effects of launching the Federal Reserve
(Fed) and the slow trend towards governments getting more involved in business
with the attendant moral hazard.
Specifically, I loved the "intermezzo" between the various chapters as well
as the tongue-in-cheek guide to funding the unfundable such as national healthcare
(clue: launch a hedge fund). These ready reckoners are well worth the price
of the book.
Where the book fails is in layout that reminds one of a hyperactive sports
reality program on television where the televised action is all-too-often interrupted
by the cameras panning back to the commentators for their expert views. That
layout or book structure is in my opinion unsuitable for any serious book on
the financial crisis, particularly because the books were written in the aftermath
of the crisis rather than as a predictive fable written before the crisis.
Dude, we know how it all ended: what we wanted to read was how the machinery
got jammed.
The corollary criticism of the book - like some of the others here - is that
the authors are so obviously skimping on details or thorough analysis. Now,
I have been in front of book editors and am well aware that they like to use
a "name" (like Ritholtz) to sell the merchandise but also advise alongside that
the material is kept simple enough that the casual airport browser would want
to pick it up and also recommend it to their friends.
If Ritholtz did get such advice in writing his book, he would have been better
off ignoring it completely; for the result in Bailout Nation is tantalizing
glimpses of what the author knows (or knew beforehand) albeit without sufficient
details to get readers focused on the key points.
An example is the chapter entitled "Tech Wreck", wherein the authors examine
the causes for the tech bubble. Writing some 10 years after the fact, Ritholtz
would have had ample time for detailed analysis - which he doesn't present.
For example, he makes the statement that the "Y2K" bug increased tech spending
by companies and banks, and led to a sharp drop in orders immediately thereafter;
in effect bursting the dot-com bubble.
This is a point that has been repeatedly made by a number of people and the
only way for Ritholtz to stand out would have been to show the actual trends:
a break up firstly of total capital expenditure as a percentage of corporate
revenues (clue: they rose massively in the second half of the 1990s), broken
down between tech and non-tech (clue: tech spending was significant) and within
tech, between normal upgrades, online expansion and Y2K.
It is in the analysis of tech spending that the actual story of the dot-com
bubble is to be found, but since Ritholtz misses the opportunity to explain
the point, he misses the opportunity to stand outside the crowd. Another such
example is in the chapter on Bear Stearns, wherein the author makes a number
of sweeping points in terms of comparisons with other situations such as the
collapse of Lehman Brothers and AIG, but fails to complete the analysis by explaining
exactly what those differences were.
In spite of the relentless cheerleading by Wall Street "strategists" and
other alleged experts, many Americans have refused to play along with the "it's
a bull market" song.
A chart at Zero Hedge, which has for some time been chronicling the exodus
by small investors from the U.S. equity market, reveals in colorful detail just
how disinterested they have been:
An article in the New York Post,
"No-Confidence Vote: Main Street Shunning Markets," offers a few explanations
as to why individuals have been unwilling to jump on the train, including the
fact that so many are, as the British slang expression goes,
skint:
“I think most people are taking money out of these funds because they either
need the money to live — because they’re out of work or underemployed — or they’re
supporting their kids, who are out of college and not getting jobs,” Mogavero
said. “There is also a fear factor about the economy that is causing them to
keep money in the bank and out of the markets.”
Still, given my inherent cynicism -- yes, it's true -- I can't help but think
that the view
espoused by an Instapundit reader, who is apparently a professional money
manager, ironically enough, represents a more accurate assessment of what's
been going on:
Professional financial market activity is also way down these days. The drop
in volumes is damning. The Fed’s financial repression – forcing market yields
below inflation – is one reason. The tsunami of administration diktats is another.
And the Chinese-style theft of customer account capital by John Corzine and
JP Morgan is the last nail in the coffin. The economics of investing make little
sense, and even if you can thread the needle of profitability, you risk having
your property seized by regime buddies. Why do anything with your money but
stash it under the mattress, or try to get it offshore?”
"The big banks are buying up what they call fixed income instruments
(bonds and other debt backed paper) and at the same time offering CDS insurance
on the same. Just like they bought and sold protection on mortgages..."
This is a fairly good description of why the policies of Bush and Obama have
failed to effect an economic recovery.The policy of 'saving the banks' first
and foremost, and of stuffing them with cheap money in the hopes that they will
stimulate the real economy with loans, is a cruel hoax.
Cheap money is hot money and it seeks high beta returns. It does not seek
investment with returns over long periods of time. And in an environment of
lax regulation and little deterrence for abusive financial practices, one sets
up a scenario ripe for fraud and another, more chilling, financial collapse.
And the problem is not in the US alone. Europe and the UK are following similar
practices, of serving the financial elites first, and the people very little
or not at all.
There will be no sustainable recovery until the banking system is reformed,
and balance is restored to the economy. Growth, not austerity, is the way out
of the wilderness. But that growth is only achievable if the corruption that
brought down the system in the first place is corrected and the real economy
restored to some sort of natural order and sensible priority.
The hot money seeks out speculative returns, and when it cannot find them,
it creates them. And that is the well spring of fraud, and of many of the corrosive
economic problems facing our world today.
The problem is complicated because most of the western political leaders
are complicit, by action or acquiescence, in the financial corruption that holds
their nations by the throat, and allows the very few to prosper enormously at
the expense of the people in general. The leadership is caught in a credibility
trap. They are unable and unwilling to reform the system, and promote a renewal
and change might bring them down with it as well as the corruption that feeds
them with money and power.
"...The problem (one of them at least) is that while our leaders are banking
on growth to save us, the banks are not. They are banking instead, on fear.
Our leaders keep thinking if they ‘save’ the banks then the banks will
help save us by investing in growth. They fail to understand that ‘invest’
is really not something high up on the global bank’s ‘to do’ list. I
spoke at length recently to bankers in The City who deal in investing in
raising money for Small and Medium businesses. They were unequivocal – it
is getting harder not easier to raise money for such investment. The big
banks and big funds are looking for short term speculative returns not slow
investment returns.When you have large and growing losses from bad
debts you cannot and will not recoup and recover on the basis of wise but
slow investment returns. The worse your previous debt mountain is,
the greater the pressure to pursue exactly the sort of high-risk speculation
that got you in trouble in the first place. If it is a choice
between investing in Spanish factories or buying Spanish debt or selling
CDS on that debt, the ‘smart’ bonus seeking money goes for the latter every
time.
The brokerage Carmel whose study I have quoted is a good example. On
page 9 of their study they say,
We began buying Spain CDS in Q4 2011…[with a coupon of] 3.5% of notional
per annum –effectively an option premium on the default of Spain.
Should the Spanish crisis flare up in 2012 as we expect, we can
generate a 300% return on the annual premium.
300%! Investing in small and medium businesses or a potential 300% speculating
on Spanish default. You choose.Banks are banking on fear and the volatility
fear causes. They are not banking on or helping to support growth. They
will do the politically necessary minimum and no more. The big banks
are buying up what they call fixed income instruments (bonds and other debt
backed paper) and at the same time offering CDS insurance on the same. Just
like they bought and sold protection on mortgages..."
Read the rest of this blog from 'Golem XIV' in the UK
here.Also see his essay
"We
Are All In This Together."
This may also be a good time to read or re-read this essay of mine,
Currency Wars: The Anglo-American Century. What is happening in the
western world is no accident, anymore that the rise of tyrants and the destruction
of freedom are accidental.
Mar 27, 2012 | Newsmax
The critical question over the next decade isn’t “where will my returns be
highest?” but “where will I lose the least money?”
That, according to economist and investor Marc Faber, is the scenario facing
investors today.
As the author of the Gloom, Boom, and Doom Report, Marc Faber is a well-known
contrarian, earning celebrity status because of his ominous predictions.
So his pessimism during a recent appearance on CNBC wasn’t surprising for
a man whose nickname is “Doctor Doom.” What was surprising was the level of
“wealth destruction” he sees in the not-too-distant future.
Faber stated, “I think somewhere down the line
we will have a massive wealth destruction. That usually happens either through
very high inflation or through social unrest or through war or credit-market
collapse.”
"Well, absent that exorbitant privilege of insiders, all we can do is trade
to avoid the losses, and learn to recognize trends, and play them with some discipline..."
The trick in trading is not to 'predict' in advance which way the metals
will break in the short term, or any market for that matter. I have seen plenty
of guys waste their trading accounts and their time trying to find 'the perfect
system.'
Believe me, if there was such a system, you would not find it. And especially
you would not find it on a publicly available site.
The best system is to sit as the house, and make money no matter which way
the market goes, and have plenty of advantageous knowledge of the order flows
to boot. The US markets are all about the asymmetrical dispersion and control
of knowledge. And HFT has taken it to a literally inhuman degree.
Well, absent that exorbitant privilege of insiders,
all we can do is trade to avoid the losses, and learn to recognize trends, and
play them with some discipline.
Right now gold and silver are not trending, they are consolidating and winding
up before they begin another move. I can argue the reasons for a move either
way, and unless you are Ben Bernanke and ready to show your hand honestly I
am not particularly interested in what you have to say, because you just don't
know. And neither do I. This is not a 'natural market.'
But we can hope to find the trend as it begins again, miss part of it, but
be sure to hop on board and take it for a ride. For most people, they have neither
the time nor the inclination to do this for the short term, and probably even
for the intermediate term. They just feed the trading letters and system creators
and of course the brokerage firms.
Chat boards are a nice way to spend the time you may have on your hands in
socializing, if you have nothing more pressing, but they offer little in the
way of constructive trading advice. To paraphrase
Dr. Greg House, traders lie. And most amateurs become bitter with their losses.
Misery loves company.
Don't get me wrong. Fundamentals still matter in the longer term, and in
the lesser covered stocks one can always find the undercovered gem or two, if
you have the stomach for the risk and can wade through all the price manipulation
and naked short selling that is tolerated, especially north of the US border.
So for now I am long bullion and short stocks, in a pretty robust hedge.
I have taken the profits out of miners but am still willing to flip a trade
in the case of some unusual deviations from trend. And they certainly happen.
Sometimes you just have to wonder.
I am waiting to see which way the market breaks and if stocks continue to
move with the metals or if there is a divergence developing. My 'bias' if I
have one is to see the metals bounce and rally up to the top of the larger symmetrical
triangles, but that is a 60-40 proposition at best. I mean, the market is being
rigged, or isn't it? And if it is, probabilities are being written by other
than 'the invisible hand' of supply and demand.
I am not trading nearly as frequently or aggressively as in the past because
a) I am getting older b) these markets are almost ridiculous. Its like playing
cards with the little girls.
If I put in a order for a few thousand shares, the liquidity from a large
offered set of multiple positions evaporates instantly and I close on maybe
100 shares. If I offer to buy above market but below ask I get ten 'friends'
appearing instantly along with my bid.
There is little genuine liquidity in the equity market. It is mostly a sham,
a flash crash waiting to happen unless the ESF intervenes which I am sure they
will. At the first sign of real trouble it will collapse like a house of cards.
As for gold and silver, price discovery is buried under a mountain of paper
and faux trades. With 100:1 leverage and naked positions dominating the
trade, its a bit of game in the short term at best, and not a particularly honest
one at that.
Don't exhaust yourself chasing rainbows here. Sometimes the best trade is
to stay out of the short term scrums, the wash and rinse cycles, and just ride
the macro trends, ignoring the day to day noise. And judging by the shrinking
volumes and low open interest, quite a few people are fine with that decision.
The pit crawlers had best start studying origami and advanced airplane design
to while away their empy hours, with only phony computer generated order flows
and Fed buying programs to light up their screens.
A Message on the Need to Reform the Financial System -- From Herbert Hoover
This speech was given by Herbert Hoover as the country was caught in the
depths of the Great Depression 6 December 1932, as he was leaving office, largely
perceived as a failure.
I have sympathy for Hoover and rightfully so. For many years I saw his portrait
every time I would visit the headquarters of the IEEE in New York City. I read
about his magnificent acts of logistical organization and the relief of suffering
in the European famines. He was an accomplished and talented person.
And yet he failed, or at least has been judged a failure as President, because
of a timidity and unwillingness to act, boldly and in a timely manner. He was
constrained by bad advice, and an ideological bent that prevented common sense
action from moving the country forward. Afterwards in his Memoirs he
blamed the advice he received from his Treasury Secretary, Andrew Mellon, the
great liquidationist, who had been appointed by Warren Harding in 1921, and
who throughout the 1920's preached the gospel of tax cuts for the wealthy to
stimulate growth.
"Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate…
it will purge the rottenness out of the system. High costs of living and
high living will come down. People will work harder, live a more moral life.
Values will be adjusted, and enterprising people will pick up from less
competent people."
This speech could be given with little alteration by Barack Obama today, although
I am sure he would add quite a bit more flair.
The Too Big To Fail Banks are still with us, but even larger and more dangerous
and powerful. Obama himself, despite pledges to the contrary, is taking large
amounts of funds from the corrupt campaign process.
Instead of acting quickly to correct the causes of the financial collapse,
he expended most of his early political capital on a healthcare plan that, despite
some genuinely beneficial changes, serving to increase the control and reach
of a few private healthcare monopolies by requiring all people to purchase insurance
from them.
Fed policy still serves the few and is largely opaque in its dealings, becoming
even more powerful as regulator.
And the markets are dominated by even fewer players, and tainted by a major
scandal in which over a billion dollars was stolen from the customers.
Corporate profits are excellent and the very wealthy few are making enormous
strides in increasing their wealth. And yet the bulk of the nation suffers from
fear and uncertainty.
The people's vehement objections to the bailout, marked by faxes, calls and
emails in their millions, were ignored.
Yes, Obama faces a rigid and uncompromising opposition in the Congress, which
achieved its House majority during his term I might add, but he still has broad
Presidential powers, including the ability to direct the enforcement activities
of the regulators and the Justice Department.
And not one major participant in the fraud has been indicted and prosecuted.
Instead, the perpetrators and beneficiaries of the fraud have crafted the words
for the very reforms which they have opposed and weakened every step of the
way. And the regulatory agencies continue to hand out wristslap fines for egregious
market frauds that continue to add to the deterioration of the confidence of
average market participants.
If the US had a Parliamentarian system, Prime Minister Obama would have most
likely already been ushered out the door.
Am I being too harsh? He promised much, and achieved little, and broke almost
every major pledge he had made to his constituency in his zeal to curry favor
with those who would have nothing to do with his mandate. In this he is more
Chamberlain than Hoover, who at least acted on his principles that were unfortunately
mistaken as he later admitted.
When he writes his memoirs I will be shocked if the current President does
not paint a picture of magnificent accomplishments, and for the shortcomings,
blame everyone but himself and his inability to execute on principle.
President Obama will undoubtedly provide a good case study for the failure
in leadership in a crisis for future historians.
"There are three definite directions in which action by the government at
once can contribute to strengthen further the forces of recovery by strengthening
of confidence. They are the necessary foundations to any other action, and
their accomplishment would at once promote employment and increase prices.
The first of these directions of action is the continuing reduction of all
government expenditures, whether national, state, or local. The difficulties
of the country demand undiminished efforts toward economy in government
in every direction. Embraced in this problem is the unquestioned balancing
of the Federal Budget. That is the first necessity of national stability
and is the foundation of further recovery. It must be balanced in an absolutely
safe and sure manner if full confidence is to be inspired...
The second direction for action is the complete reorganization at once
of our banking system. The shocks to our economic life have undoubtedly
been multiplied by the weakness of this system, and until they are remedied
recovery will be greatly hampered.
The third direction for immediate action is vigorous and whole-souled
cooperation with other governments in the economic field. That our major
difficulties find their origins in the economic weakness of foreign nations
requires no demonstration...
Banking Reform
The basis of every other and every further effort toward recovery is
to reorganize at once our banking system. The shocks to our economic system
have undoubtedly multiplied by the weakness of our financial system.
I first called attention of the Congress in 1929 to this condition, and
I have unceasingly recommended remedy since that time. The subject has been
exhaustively investigated both by the committees of the Congress and the
officers of the Federal Reserve System.
The banking and financial system is presumed to serve in furnishing the
essential lubricant to the wheels of industry, agriculture, and commerce,
that is, credit.
Its diversion from proper use, its improper use, or its insufficiency
instantly brings hardship and dislocation in economic life. As a system
our banking has failed to meet this great emergency.
It can be said without question of doubt that our losses and distress
have been greatly augmented by its wholly inadequate organization. Its inability
as a system to respond to our needs is today a constant drain upon progress
toward recovery. In this statement I am not referring to individual banks
or bankers. Thousands of them have shown distinguished courage and ability.
On the contrary, I am referring to the system itself, which is so organized,
or so lacking in organization, that in an emergency its very mechanism jeopardizes
or paralyzes the action of sound banks and its instability is responsible
for periodic dangers to our whole economic system."
Herbert Hoover,
Annual Message to Congress, 6 December 1932
A report by the organization, "The Price of Prisons," states that the cost
of incarcerating one inmate in Fiscal 2010 was $47,421 per year. "In states
like Connecticut, Washington state, New York, it's anywhere from $50,000 to
$60,000," he said.
Yes - $60,000 a year. That's a teacher's salary, or a firefighter's. Our
epidemic of incarceration costs us taxpayers $63.4 billion a year.
The explosion in incarceration began in the early 1970s - the political response
to an explosion in urban violence and increased drug use.
"So 'Tough on crime,' 'three strikes, you're out,' 'Let 'em rot, throw away
the key' - all that stuff resulted in more mandatory sentencing, longer and
longer sentencing," said Jacobson.
Anton Valukas: There was evidence which would show that that's not accurate.
The president of Lehman Brothers told us that in fact he had conversations with
Dick Fuld about this and documents were shared with him which would reflect
the Repo 105 transactions and how they were being used. Richard Fuld's view
on that was that he has no knowledge of it. You have other evidence that he
did. A jury would have to decide who's telling the truth.
But so far there has been no jury to hear the evidence. Despite Valukas'
findings -- and the supporting documents and testimony to back them up -- the
Securities and Exchange Commission has not brought any charges of any kind against
former Lehman executives. For the past few months, we've made numerous requests
to interview the SEC's head of enforcement. All of those requests have been
declined.
Steve Kroft: The Securities and Exchange Commission has not brought a case.
Anton Valukas: No, they have not.
Steve Kroft: Does that bother you?
Anton Valukas: I'm not permitted to be bothered by that. You know, my job
was to set out the facts, lay it out. They have to make their own prosecutive
decisions.
There is one plausible explanation why SEC hasn't has not gone after top
Lehman executives. As it turns out, some of Lehman's most egregious accounting
shenanigans took place right under the noses of government regulators.
Steve Kroft: How closely was the SEC monitoring Lehman Brothers during this
time?
Anton Valukas: They were on premises. They were talking to the Lehman people
daily. They officed there.
It was not widely known at the time, but during the last six months of Lehman's
existence, teams of officials from the SEC and the Federal Reserve took up residence
inside the firm to monitor its precarious financial situation. They were inside
the building when Matthew Lee wrote his letter to Lehman executives alleging
unlawful accounting practices, and they were there when the practices took place.
Valukas says the SEC also knew that Lehman was being less than truthful when
it said it had enough assets to survive the crisis. But that and other damaging
information was never disclosed to investors who continued to pump billions
of dollars into the firm.
Steve Kroft: Should it have been disclosed?
Anton Valukas: Absolutely.
Steve Kroft: Isn't the government, the SEC in this case, the people who were
supposed to protect the investors?
Anton Valukas: Yes.
Steve Kroft: Aren't they charged with informing investors?
Anton Valukas: Yes.
Steve Kroft: Why didn't they do it?
Anton Valukas: They may not have had the expertise necessary to understand
the material they were receiving. They were getting the material. Whether they
understood it is another question.
The very fact that government regulators were inside the company with access
to its books and records would complicate any prosecution of Lehman officials.
Until four months ago, David Kotz was the SEC's inspector general. Over the
previous four years, he issued more than 100 reports about major deficiencies
in the way the SEC did its job.
Steve Kroft: If the SEC knew about some of these problems at Lehman Brothers
and they weren't disclosed, doesn't that make it difficult for the SEC enforcement
division to come back and bring action against Lehman Brothers? They were there;
they saw it.
David Kotz: Yeah. I think that that's definitely an impediment to a potential
case. And, certainly, if you go before a jury, the defense lawyers can make
a big point about the fact that, "You were there. You knew about it. Why didn't
you do anything at the time? Now, you're coming after them."
In fact, former Lehman CEO Richard Fuld seemed too be trying out that defense
when he testified before Congress in 2008.
This is Joe Stiglitz' presentation at the INET conference in Berlin last week.
Only under a fiat currency trade system can these large deficits and surpluses be
created, in the same manner as the debt bubbles, and asset bubbles. Some of today's
problems are indeed because the US is acting as the 'deficit of last resort' because
it owns the world's reserve currency. This is known as
Triffin's dilemma.
"We always want to keep in mind what the function, the purpose, of the economy
is. The purpose of an economy is not producing GDP. It is increasing the
welfare of citizens, and it is increasing the welfare of most citizens.
And the American economic system has failed, and failed very badly. Most
Americans today are worse off, most American households have lower real
income adjusted for inflation than they had fifteen years ago."
Joe Stiglitz made an aside about half way through his talk about mercantilism
at INET Berlin this month that is worth noting. I like the way he frames the
problems and his fresh look on the situation but do not favor many of his suggested
cures, especially the notion of something that sounds dangerously like central
planning by a financial elite. I think that is something that needs much more
work, but that is a discussion too often impeded by denial, misdirection, and
diversion.Although he initially addresses his talk to America, he goes on
to include other countries, especially Germany. I would add the UK, among others
including China, which is a disaster in the making.
I start the tape of his talk at 13:25, so you can hear the basic question
and the simple truth that so many have overlooked. The American economic system
has failed the public, and that failure has its roots in the 1990's, accelerating
at the turn of the century into the financial collapse. It is a story of deceit,
corruption, and betrayal.
And the majority of the people, who have suffered the most from this injustice,
are being asked to suffer even more for a system that does not benefit them
and actually works against them. And they are asking, 'is it worthy of our support?'
And history indicates that they will provide an answer that may be unpalatable
for those who benefit the most from the current unsustainable arrangement, who
are enriched by the misery of others.
I cannot say it more simply or more emphatically, that the gaming of the
system by the monied interests, marked by but not wholly due to the repeal of
Glass-Steagall, the trade agreement with China without a floating exchange rate,
and the Bush tax cuts for the wealthy while initiating aggressive war on multiple
fronts, have set the American economy on a spiral of demise and eventual self-destruction.
What has institutionalized this demise and made it pernicious is the corruption
of American power and distortion of thought by big money, and the short term
selfishness and self-interest of the status quo. That is what I call
the credibility trap.
The point must be made, that the system did not fail because our economic
models were no good, that our financial leaders were simply mistaken, that the
political powers were pursuing the right path but that things went wrong in
ways that no one could have foreseen, and that even now, the thought leaders
and spokesmodels for the monied interests are hard at work concealing and deceiving
and misleading, feeding the rotten system that has brought us to where we are
today.
It was never a mistake. They knew, but it was easier to go along or do nothing,
being either craven or compromised. It was always about easy money, and the
fraud.
Giving even more money to the Banks, and asking the people to pay for it,
in the hope that it will eventually trickle down to the people from whom it
has been stolen is not a policy, and not even a policy failure. It is an obscenity.
I sense we are in the negotiation phase, in which the powerful monied interests
want to be let off with a wrist slap, and no admission of guilt. And of course
for change to come slowly, maximizing their returns.
The powerful think that they are the system, the economy and the government,
and that it exists to serve them. And so any change must suit their needs, first
and above all. But a prideful greed and will to power can never really contain
itself, as it can never be truly satiated. It always craves just a little more.
The existing US dollar trade regime dominated by global corporations and
banks, backed by widely deployed military power, is not sustainable. We are
entering the next phase of this unfolding crisis, and some countries are already
there, in which we will see growing domestic unrest and repression, and regional
trade wars and alliances, in the evolution of the ongoing currency war.
Reform will come, one way or the other. The writing is on the wall.
For in that universal call,
Few bankers will to heaven be mounters;
They'll cry, "Ye shops, upon us fall!
Conceal and cover us, ye counters!When other hands the scales shall hold,
And they, in men's and angels' sight
Produced with all their bills and gold,
'Weigh'd in the balance and found light!'
Jonathan Swift, The Run on the Bankers
Bob Dawg:
Rajesh wrote:
The report of the week is Industrial Production. This is one of
the indicators that NBER uses to decide recessions. It has been flat
for two months. I expect a small uptick over the next few months but
it will start falling once the global economy weakens enough to start
impacting exports. We are already seeing inventory builds, even a slow
down in sales growth could trigger an inventory cycle.
My opinion is that capacity utilization is hopelessly out dated through
drift and survivor bias. It was never tested in such a long recession. Much
like the misallocation of houses we have manufacturing capacity of the wrong
type, wrong place and idle so long as to be useless.
km4
The Mother Of All Infographics: Visualizing America's Derivatives Universe
| ZeroHedge
Top 5 US banks held 95.7%, or $221 trillion of the entire US derivative
universe (which in turn is just a modest portion of the entire $707 trillion
in global derivatives as of June 30, 2011).
April 21, 2012
Hugh:
Re Lynn Parramore’s post, the three great issues of our times are kleptocracy,
wealth inequality, and class war. You can guage how serious economists are
by whether they are discussing these issues and giving them the centrality
they deserve. However, from the little that I can see, Soros and the INET
people have not come to grips with any of them. They may talk a little about
wealth inequality but the other two are left untouched and unaddressed.
Yet without an understanding of how the three are connected, no realistic
description of the events of the last 35 years is possible.
Remember these are supposed to be the experts, and not just any experts,
but the best and most insightful. The construction of kleptocracy has been
going on, as I said, for 35 years. The housing bubble blew up 5 years ago,
the meltdown hit 4 years ago, and yet these cutting edge economists have
not taken even the first step to putting together what happened.
So my questions are these: How much longer are we expected to wait for
them to come to terms with the systemic failure of their discipline? How
can we look to them for leadership or understanding when they remain so
obstinately behind the curve? And at what point should we start writing
them off as irrelevant and/or just more elite distraction and obfuscation?
craazyman:
You’re pretty much right on Hugh, although kleptocracy predates the financial
crisis by a few thousand years. During which time they called it all sorts
of things as long as the money flowed. Anyway.
I’m still hopeful I’ll get a 1 million grant from INET to study money’s
relationship to group psychoanalysis, constructing of the ego and soul projection.
If I don’t get 1 million, I’ll take half a million. and if not half a million,
I’ll take a quarter of a million, but no less than $100,000.
If I don’t get even 100G, I’ll write them all off as yackers who can’t
bring themselves to the point of action.
-Profeser Delerious Tremens, University of Magonia, Institute for Contemporary
Analysis, Department of Financial Speculation and Teleology, PO Box 8, Magonia
Kevin de Bruxelles:
Your concepts are vague; for example are we to believe that 35 years
ago kleptocracy just rose from nowhere? It didn’t exist before? Sure you
are correct, there is indeed class war going on, but what are the actual
tools and processes that are leading to the demolition of the working and
middle classes?
The problem is that with the Left / Right political ideological divide
there are certain critiques that are sacrilegious to make and thus force
people to avoid delving in too deep and instead stick to the use of such
vague terms (on both sides, the Right blames “socialism”). There are “sacred”
political ideas linked to each ideological box. For example on the Left
one sure way to become declared a heretic is to criticize anyone poorer
or darker skinned than you; on the Right I suppose it would be the opposite!
But the sacred nature of these ideological boxes tend to help people to
avoid the true picture. So I will go on to point out a few on the Left which
is not to mean there are not just as many on the Right.
For example, one of the most obvious forms
of class warfare in America is the process of globalization.
The working classes are facing a pincer movement extraordonaire; the outsourcing
of high-wage jobs to third world countries combined with the insourcing
of low-wage third world labor to take the jobs that cannot be moved. The
Left will moan about Neo-Liberalism in very vague terms but this job and
labor migration is the Neo-Liberals most powerful weapon against the working
classes. But because the Left has to be “for” immigration and “for” more
jobs for Third world people, terms are kept real vague.
As to the rising of kleptocracy, all elites
and states are to some extent kleptocratic, why did things
get so much worse 35 years ago? One must really start at the beginning with
an explanation of why states (and therefore elites) exist in the first place.
It’s actually very simple. States rose from agricultural societies who suffered
from raiding by hunter gatherers, pastoralists or other agricultural societies.
In the simplest of terms, people will always
choose a fixed bandit / parasite over a roving bandit / parasite.
And that is because the fixed parasite is more
dependent on the survival of the host than the roving parasite is.
Of course what often happens is that the people get a weak fixed parasite
(state) and end up getting raided anyway by bandits.
Watch Kurosawa’s “Seven Samurai” to see this dynamic explored in its
most fundamental form.
All governments and their associated corporations
are thieves and therefore kleptocrats. The key is to make sure your elites
are fixed bandits and not the roaming type; this minimizes the amount of
parasitic activity they can indulge in.
In the post WW-2 era, states and corporations were dependent on their
citizens / workers since these were, at least indirectly, also the consumers
of these corporation’s products as well. This was a clear example of a fixed
bandit / parasite. Things are not perfect, corruption certainly exists,
but at a tolerable level. With the process of Neo-Liberal Globalization,
national elites and corporations have emancipated themselves from their
nations and societies by destroying the link between employee / customer.
The employees are off in some God-forsaken sweat shop in China while the
customers are either also overseas or the locals ones are supported by temporary
credit instead of jobs. This other key ingredient of Neo-Liberalism, anti-Nationalism,
is also strongly supported by many on the Left who dream of a global family
of man living in perfect harmony and humming “Imagine” together even though
this idea conflicts with every ounce of knowledge about human nature. In
a nation-less global society, the Wealthy few are free of any borders and
their parasitic destruction of the local peasantry has no limits.
The elites have become roaming bandits and
thus why kleptocracy is now such a problem.
Neo-Liberal Globalization has not struck Europe as a whole as hard as
it has the Unites States although it certainly has done some damage. The
idea of having a strong manufacturing base is still not laughed at on the
continent and although there is a huge amount of third work immigration
that is hitting the welfare systems hard, this process has not lowered wages
for the working classes as much as in the US. But still factories are getting
shipped off to China, especially in southern Europe. On the other hand Europe
is going through a painful transition from individual smaller nation states
to an eventual European nation state in order to compete on an economic
global battlefield of larger national groupings (US, Russia, China, India,
Japan, etc).. But European nations, especially in the north, despite all
the recent troubles, are still thriving social democracies which represent
an affront to Neo-Liberals everywhere. So what shock troops are the Neo-Liberal
elite throwing into Europe? American right-wingers? Hell no, they know that
would never work. Instead they are attempting to take Berlin with their
most destructive of all forces, the American Left, led by of all people
the ultimate roving bandit parasite George Soros!
After all what have the American Left accomplished post WW2 in the States.
Pretty much nothing. Universal Healthcare? No way! Free pre-school for all?
Not even on the agenda! Five weeks vacation? Barely holding on to two! Affordable
universities? No chance! Paid parental leave? The feminists say NO! Rejuvenation
of Urban America? Detroit! Gini scores in the high 20’s or low 30’s? Nope,
high 40’s! Keeping GMO’s out of the food stock? As if! Public Transportation?
That’s for sissies! And the list could go on.
Yes on the other hand the American Left have assured some modest welfare
payments, Section 8, food stamps, aid for dependent children, etc, for some
of the victims of the globalization and immigration policies that they cheerlead
so hard.
The American Left, whether knowingly or unknowingly, often through their
naïve good intentions, have supported Neo-Liberal economic policies and
have been rewarded with token victories in the various Identity Politics
arena. They are Neo-Liberalsm’s ultimate Fifth Column and now they are being
let loose on Europe.
But why would anyone on the Left in Europe, with all they have accomplished
post WW2, want to listen their congenital loser cousins from across the
pond? Would American baseball players listen if Europe suddenly decided
to send lots of baseball coaches to America to teach how to properly play
the game? Or might these Americans ask what the hell Europeans know about
baseball? To be honest, American Leftists have accomplished on a relative
basis even less than European baseball players.
So along with the Krugman types, they send in the MMT clowns as well.
These are the guys who promise a government job for everyone to help provide
political cover for the offshoring and inshoring that is destroying the
working classes. But ask them if these jobs are limited to US citizens and
they will not answer. The idea that you can have open borders with neighboring
poor countries and an increasing welfare state for everyone is insane. Obviously
all a guaranteed job would mean is an increase in the flow of poor immigrants
into the US to take these jobs and an increase of the outflow of productive
jobs to China as these temporary jobs, if they ever happened would just
serve to sooth increasing tensions that if not dealt with could someday
threaten these Neo-Liberal policies.
So now they insist that unproductive countries in Europe introduce a
two currency system, the Euro for rich people and whatever useless currency
for local peasants. No they don’t say it like that but do you really think
Greek hotels are going to stop charging in Euros? In Iceland they still
charge in Euros or Dollars. They only pay their employees in an increasingly
worthless local currency. Yes there are serious issues with the Euro but
would the US ever try to solve its unemployment problem by paying people
in Pesos?
What Europe does need to do is continue its move towards Federation by
supporting productivity with the welfare state while at the same time attacking
parasitism – both by Rentier and Lumpenproles. They need to use the advantages
given to them by the wise Social Democratic decisions of the past and to
reject all attempts to impose American Left Identity politics. The Southern
Europeans have to become more like their northern brothers by importing
more Social Democracy and to avoid falling into the trap of pathetic American
victimolgy where bad results are never the consequence of previous unwise
decisions.
Hugh:
It’s asking a bit much to expect me to encapsulate the history of kleptocracy,
wealth inequality, and class war in a single comment, and not a particularly
long one at that.
You include in the American left Establishment liberals, faux progressives,
even neoliberals. I do not. As you point out, just because someone uses
a label does not mean it is any sense accurate or applicable.
I have written a lot about these three great themes here over the past
year or so. You ask why I and others start the clock on kleptocracy 35 years
ago in the Carter Administration when kleptocratic elements have been around
throughout human history. I often use the example from psychiatry. A psychiatrist
once was presenting to an audience various psychiatric disorders and running
through the symptoms which characterized them. This created a certain amount
of discomfort in the audience because many could identify many of the elements
being discussed in themselves or in people they knew. Finally, someone raised
their hand and made this point. The psychiatrist took the question completely
in stride, and said simply, “Just because you have the trait, doesn’t mean
you have the disease.” Well, that’s the way it is with kleptocracy, wealth
inequality, and class war. There have been many times in history when we
have had the trait but now we have the fullblown disease.
And the reason we fix the onset of kleptocracy to the Carter Administration
is that he was the first of the conservative Democratic corporate Presidents.
He was anti-union in deregulating industries like the airlines and trucking.
The usury laws were repealed under him. And perhaps most importantly there
were the actions of Paul Volcker at the Fed.
Volcker did not just ruthlessly wring inflation out of the economy. He
set in place a dogma that all wage increases were to be taken as inherently
inflationary and combatted at all costs. It is not with Reagan
but with Carter that the wages of American workers go flat. Volcker took
no similar action against investors. Indeed under Reagan supply side economics
became a cover for the shift of the US economy from one that was worker
based to one which was investor or rentier based, with all the transfer
in wealth this implied. Money to workers = bad.
Money to rentiers = good.
In the past, there have been countervailing trends. There has been real,
popular opposition. But in the last 35 years, this has not happened despite
80% of Americans living on just 7% of the country’s wealth, despite the
housing bubble bust and the meltdown, and despite the brazen conduct of
our elites since, accelerating rather than cutting back on their looting.
Sometimes, things really are different. We are currently living in such
a time.
jsmith:
That there’s a lot of words to say
that the left doesn’t exist in America nor hasn’t since the turn of the
20th century.
In nearly half of your tome, you bemoan
the inability of the “left” in America to get anything done and then you
criticize them for being to idealistic.
Hello!!!
There has never been a real American
left since WWII.
Anything that can be described as
“left” in America since the war has basically been warmed over neo-fascism
similar to that envisaged by members of the European Social Movement (ESM)
whose vision of Europe looked much like what the EU does today – states
subservient to a centralized economy that straddles communism and capitalism
– ie., the privatization of profit, the socialization of risk. See link
to National Party of Europe below.
Remember in the US that McCarthy guy
and how people’s lives were destroyed over suggestions by some that they
had socialist tendencies?
How the FBI, CIA and police were used
to infiltrate and destroy any of the more radical leftist groups in the
1960s?
No, no, sir, let’s cut the crap.
Neoliberalism is a virulent form of
capitalism that effectively neuters and co-opts any political party it touches
as it seeks to establish an inverted totalitarian society, one in which
neoliberalism as economic system is installed above the power of party politics.
Neoliberalism is an economic system,
not a political one.
One must remember, economics trumps
politics in our world now. Politics is just to keep the masses mollified
and disunited.
THAT is why Greek and Spanish “socialists”
can vote for austerity policies that contradict every Marxist tenet.
THAT is why the “left” in America
has been so week.
The post-war “left” in America has
not ever been “left”.
To say so just continues to keep the
populace confused which is exactly what the elite want. People unable to
use terms correctly such as “communism”, “socialism”, “left”, “right”, have
a much smaller chance in uniting against the totalitarian structure because
they can’t even agree on terms.
Much better to stop trying to attribute
blame to one side or the other and much more worthwhile to attribute blame
to the system which – if you ARE going to do for accuracy’s sake – actually
springs from the hard right and not the hard left.
I mean, ask yourself, of the two –
right or left – who had more power and money in Western Europe and the US
to really affect policy?
Not many billionaire Bolsheviks, huh?
In general, one can say that the US
is a kleptocracy.
Specifically, one should say that
it is an inverted totalitarian society with neoliberal economic policies
as the central tenets.
To see where many of the ideas for
this “liberalism” came from check out the neofascist National Party of Europe
from the 1960s and look at their aims. Then compare them to the EU today.
http://en.wikipedia.org/wiki/National_Party_of_Europe
Also, see the Italian Social Movement.
Gianfranco Fini, the current Head of the lower house of Italian Parliament
and Deputy Prime Minister under Berlusconi was the leader of the THAT fascist
party up until 1995.
http://en.wikipedia.org/wiki/Italian_Social_Movement
I mean, the elite couldn’t have gotten
that clever so as to disguise their designs in confusing terms and thus
avoid engendering reminders amongst the populace as to earlier totalitarian
regimes, could they?
What, you thought 21st century fascists
would goosestep down The Mall?
I tell y
EmilianoZ :
Another classic, thought-provoking post by Kevin. It’s great to see he’s
still (sporadically) haunting this blog that DownSouth seems to have deserted
permanently.
I’ll just ask this. Now that the credit based consumption is over, don’t
our parasites need workers with good wages to buy their products? Or are
they counting on the emerging middle class in China or wherever to take
up the slack?
It is, I think, undeniable that kleptocracy intensified these last few
decades. It’s a bit like the global warming debate. Even skeptics don’t
deny the warming anymore. It’s the causes that are still under dispute.
Is it the sun? Is it man-made? Similarly the intensification of kleptocracy
seems well-documented. But the causes can still be debated. Kevin’s local/roaming
parasites’ explanation is one of the best I’ve seen. You can probably find
a few others in Yves Smith’s Econned. There’s another one I read I dont
remember where. It says that the beginning of the end for the middle class
was the implosion of the Soviet Union at the end of the 80ies. Until then
the American 1% didn’t treat its peasants too badly. But as soon as the
USSR was kaput they could say there’s no alternative and started treating
the populace as they always wanted to.
Identity politics will never cease to amaze me. Here you have 2 political
parties that rationally should never exist as mass parties since they represent
the interest of so few. And yet you have the poor of both parties hating
each other’s guts. I wish I had an explanation.
The Republicans are every bit as pro-globalization as the Democrats.
Bizarrely, the Ds seem to have accepted the mantle while the Rs seem to
get away with it.
Richard Kline:
What I found particularly interesting about the original story of dubious
Pentagon propaganda shops (link below), which led to some jejeune harassment
as mentioned in the linked piece, was the sums of money involved. I didn’t
read this article—USA Today does _investigative journalism_? Who knew?—but
I recommend reviewing it in its entirety.
By what was reported, the warhats have sourced upward of $500M in really,
really mediocre propaganda on Iraqis, Afghanis, and surely quite a few other
foreign national masses trying to make those there think *cough* we’re good
for them and their activist neighbors aren’t. And of course the Pentagon
can’t come up with any kind of accounting for how the money was spent, or
even who was hired and paid. Does that sound like a money-skimming bonanza
to you? Sure does to me. The reported methods used don’t have steep costs
in those venues: leaflets, a few news reports, bus ads, promote a few ‘feel
good’ concerts. Stuff like that. For half a billion. The article focuses
on one particular contract shop with no prior experience and _no SW Asian
national amongst its principals_ which nonetheless is supposed to be operating
at least minimally functional PR shops by remote control in-country in those
places. But of course no one can SAY just how the money is being used.
. . . And that’s what’s interesting, to me. Of course, these phantom
contractors can simply be pocketing fat chunks of dough with heft kickbacks;
that would be the natural trajectory of cost-plus money with no accounting.
But the real opportunity in this is for the money to be skimmed _by the
brass_ for propadangda, just not in the areas putatively budgeted. Like
in the ol’ US of A. That would be, of course, 100% illegal. And being illegal,
one would never see a formal budged code and appropriation line for that.
But think along with me now, brothers and sisters? Which is more important
for the permanent war economy: a) dumbass, low-return PR by known to be
ineffective methods amongst foreign populations who know very well not to
trust us, or b) high-return domestic US media monitoring and plants to shore
up eroding domestic morale in support of grotesque and unending neo-colonialist
enterprises? $500M isn’t a lot of money in Military Land, but siphoning
20-30% of that for a good bang-for-buck media fidgeting in the US would
be extremely worth the money. Couldn’t do it by folks in uniforms; too much
risk of being caught. But by contractors hiring foreign contractors hiring
domestic contractors through several shells of fronts; why that’s routine
on the cloak-and-pixel front.
Food for thought . . .—but it’s a certainty that the warhats keep track
of what’s said domestically and by whom. Domestic morale is the most important
asset in a long-term, ‘low intensity’ conflict, and this is understood by
strategic planners. They’d be stupid not to fight the war on this front
too, so one must assume they are. Here may be the kind of funding skim opportunity
it takes to operationalize that element of strategy.
http://www.usatoday.com/news/military/story/2012-02-29/afghanistan-iraq-military-information-operations-usa-today-investigation/53295472/1
Paul Tioxon
Considering that the current EuroZone crisis elicits much condemnation
over the its very existence to the point of seeing it as some sort of ploy
to enslave periphery nations under the jack boot oppression of it Teutonic
betters, perhaps this thought can reframe the crisis. It is not the fault
of the Euro and treaties binding nations together that is the problem, but
the collapse of capitalism, the transnational New World Order that originates
the problem, then finds fault with nation states for failing to compensate
for the transnational discontinuity on a scale and of a type that the Euro
was not placed into this world to accommodate.
Like the gold bugs that want a metal to back up the paper, some analysis
want a nation to back up the paper. However, Europe as a whole is trying
to accommodate itself into a new social, political and economic order simultaneously
and this does not fit into the neat categories of economists and the people
who love them. The world is driven by more than money and economics is not
the master theory to understand what is going on globally. So, holding the
Euro and The EuroZone responsible for the crisis by not immediately resolving
it and calling for its dissolution and the rise of nationalism of its elemental
states spits in the face of social unity and precipitates an unknown amount
of new and potentially deadly inter state conflict. All to save a buck,
er a Euro. The Austerity Technocrats are not going to manage their way through
this without the politicians and people working through an amenable and
egalitarian resolution. I offer for your serious viewing pleasure, an informed
guide to an equitable solution.
http://www.youtube.com/watch?v=MsVzMe7lCUA
The above link is a not too long interview with Prof Nancy Fraser.
You can view the lecture she gave, preceding the interview at the following
link, so you can follow the interview with some more depth.
http://www.youtube.com/watch?v=HKzPxVyVM3Q&feature=relmfu
Prof Nancy Fraser, Henry A. and Louise Loeb Professor of Political and
Social Science and Department Chair at the New School for Social Research
in New York, delivers her keynote speech titled ‘Crisis of Capitalism, Crisis
of Governance: Re-reading of Karl Polanyi in the 21st Century’ at the University
of Warwick’s Critical Governance conference.
Jim Haygood:
‘Bottom line: The Fed’s excess reserves are not inflationary. As Greg
Ip noted in 2009, “Reserves have not been a relevant constraint on bank
lending for decades, if ever. Bank lending is constrained by customer demand
and by capital.” Forget about excess reserves. The Fed’s easing simply doesn’t
have a lot of influence in a world of overleveraged households lacking in
credit demand.’ — Ed Harrison
Currently, the 12-month change in M2 is a robust 9.8%, while the expansion
of M1 transaction accounts has quickened to an eye-popping 17.4%.
http://federalreserve.gov/releases/h6/Current/
Apparently, low velocity has been offsetting these alarming rates of
monetary expansion to keep prices muted.
When folks can earn a reasonable interest rate, they are diligent about
quickly putting cash to work in interest-bearing accounts. Velocity rises.
But currently, with short rates near zero, holding cash or non-interest
bearing deposits has no opportunity cost. Velocity stagnates.
So, when the Fedsters finally are obliged to begin hiking their policy
rate, accompanying rises in velocity will potentiate the large expansions
in raw money supply, causing old-fashioned, nasty inflation in the mid single-digit
range.
With the central planners currently frozen into a fetal, thumb-sucking
ZIRP posture, it may take until 2014 or 2015 for inflation to appear. But
it will, I assure you.
Madcap central banksters who have roughly tripled their balance sheets
in the past five years could be compared to the Coyote in Road Runner cartoons:
The Coyote could stop anytime — if he were not a fanatic. (Repeat: “A
fanatic is one who redoubles his effort when he has forgotten his aim.”
— George Santayana).
http://en.wikipedia.org/wiki/Wile_E._Coyote_and_Road_Runner
When interest rates finally start to rise like a Saturn V rocket at mid-decade,
the Acme monetary dynamite will go bang in their fool faces. But will the
pseudo-science of economics declare surrender? Dream on! They’re tenured!
Literary Critic:
Let’s not forget YoY CPI (jiggered up already) is running at 3.5%
I’m getting a little tired of econ types that refer to this as “nothing”
or “temporary”.
Especially with a return on savings of near zero, meaning your purchasing
power is disappering at a 3% clip.
You could invest in the asset market of your choice, but prices are distorted,
so that makes you a bagholder someday.
Unless you can invest in a quantum computer hooked to the internet backbone
and win the HFT game.
April 21, 2012
Chunga's Revenge :
I’ve been told that if you count the USA’s burgeoning prison population
as “unemployed” (something that’s not done now), we are in virtual lockstep
with eurozone unemployment levels.
Jim Haygood:
Good point. Not only are those in the 2.5 million-strong Gulag unemployed,
they are also several times more costly to maintain than those receiving
unemployment benefits.
Spend another 5% of GDP on the military — most of it wasted on global
domination — and after a few decades, you’re frickin’ poor, not to mention
more unequal.
The Washington D.C. metro area sports the most educated and affluent
urban population in the country. But they just ain’t very damned smart.
Tyranny of Consumption:
Prisoners are also being used to turn out office furniture, in other
words, “Justice” has created an underclass of slaves. “Sweatshop labor is
back with a vengeance. It can be found across broad stretches of the American
economy and around the world. Penitentiaries have become a niche market
for such work. The privatization of prisons in recent years has meant the
creation of a small army of workers too coerced and right-less to complain.”
Needless to say Banksters like Wells are ‘all over that’. – fraser/freeman
Crazy Horse:
The analysis of the role of the imperial military in distorting both
national priorities and employment should be brought to the forefront. Go
to San Diego, Norfolk, Bremerton and a hundred other cities and you will
find one dominant employer– the war machine– which supports the fast food
restaurants and shopping malls that spread out from it.
If the US had a military system the size of Canada’s, rather than as
big as the entire rest of the world it would certainly be a different society.
Why, we might even have to spend money on infrastructure that is sustainable
rather than designed to blow up,create dead bodies and Shock & Awe, and
be instantly obsolete.
scraping_by:
Reading Andrew Bracevich’s The Limits of Power, and he makes much the
same point. The cost of the military to support the American Empire is a
drain on the economy, though his view is it’s the cost of the American economy.
That is, America’s outsized use of world resources, especially oil, is supported
and defended by the military, who drain the American economy.
Others have noticed the Empire is a self-referential system, since the
resources to fight the foreign wars come from foreign countries. The rest
of us just have to pay for the round trip.
It’s not easy to say if this large-scale armed robbery is a net gain
or not. The costs are, indeed, more than those measured in dollars.
LeonovaBalletRusse :
JH, Hannah Arendt is quoted in YouTube video: “A Brief History of Neoliberalism
by David Harvey 1/5″ (ProFreeSpeech on Jul 17, 2007) — 2007! —
“Imperial adventures abroad and tyranny at home go hand in hand.”
David Harvey remained perplexed after writing “The New Imperialism.”
He followed through with “A Brief History of Neoliberalism.”
So, Hannah’s Totalitarianism “by any other name smells as sweet” to the
global 1%? Obama “knows his place” as “Commander in Chief” of the Global
Imperial Military and Polizei. As for “pepper spray” table to face, think
TABASCO Empire profits from salt to peppers to oil in a Closed DNA System
at AVERY Island, Louisiana; together with the Global Oil/Oil Services “Trust”
and BP/Shell in the Gulf of Mexico paving the way for Louisiana’s de-population
in favor of O&G profits unencumbered–a long-term goal of BIG “All your land
is belong to us” privateers). The RUIN of water/land the People’s livelihood
are INTENTIONAL, from drilling to fracking, making “Lebensraum” for the
.01%.
The People and Land of the Gret Stet of “Resource-Cursed” Louisiana are
but SACRIFICES to the gods of private profit and their high priests in the
“Privatized States of America.” Louisiana Land is their Inner Temple. Next?
As a British professor has said of Sociopaths/Psychopaths in Power: They
don’t care about us. Why should we care about them?
William K. Black, Michael Hudson, Steve Keen point the way to go in reality,
if civilization for the 99% is to continue to exist. The complete capture,
via financial “coup d’etat” (Joseph Vogl at INET 2012), of NationState Governments
by the 1% (.01% + .99% Agents du jour) — in order to seize Global “Lebensraum”
(of land, water, air, energy, human energy) for .01% DNA in perpetuity —
must come to a dead stop.
The Mad DNA Wars for Private Possession of Finite Resources on Earth,
following the model of Infinite Growth/Resource Extraction Capitalism by
the !%, must end by deliberate human choice. That is, if the “unintented
consequences” of Fukushima Fallout don’t accomplish the mission of the 1%
first. Are we waiting for the denouement?
jake chase:
The system survives because most people believe
its corruption and dysfunction can be overcome by their own individual effort.
By the time they realize that it can only be overcome by good luck, they
are too old for collective effort.
Propaganda and celebrity are the keys to
keeping the whole thing going. Television pumps out nothing
else 24-7. Had television existed in the Nineteenth Century there would
never have been a union movement.
polistra:
Jake: There isn’t an award for “Explaining The Universe In 73 Words”,
but if it existed, you would have won it!
Most concise statement of our current problems I’ve ever read.
Aquifer:
Last part of part 3 says it in a nutshell – Dems, as well as Reps, are
now controlled by finance and “old” Dem constituencies go along because
finance has means to defeat Reps!
What a trip – anything to defeat Reps, including shooting yourselves
in your feet and other parts of your anatomy (which is why I suppose, Viagara
has taken off – it’s natural counterpart has been put in the shredder ….)
Amazing to me how easy it is to distract folks from the real issue –
finance, and refocus it on a political party – when both major parties are
tools of the self same finance industry …. Never underestimate the power
of team sports …
Well, folks, to me the answer is a bit obvious, altogether now:
http://www.jillstein.org/
04/18/2012
"You apparently can survive betting against bull market irrationality if
you meet three conditions. First, you must allow a generous Ben Graham-like
“margin of safety” and wait for a real outlier before you make a big bet. Second,
you must try to stay reasonably diversified. Third, you must never use leverage."...It
is the classic failing of value managers (and poker players for that matter)
to get impatient and bet too hard too soon. In addition, GMO was not always
optimally diversified. We are generally more cautious (or, if you prefer, “more
experienced”) now than in 1998 with respect to, for example, both patience and
diversification, and at least we in asset allocation always stayed away from
leverage. The U.S. growth and technology bubble of 2000 was by far the biggest
market outlier event in U.S. market history; we had previously survived the
65 P/E market in Japan, which was perhaps the greatest outlier in all important
equity markets anywhere and at any time.
These were the most stringent tests for managers, and we were 2 to 3 years
early in our calls in both cases. Yet we survived, although not without some
battle scars, with the great help that we did, in the end, win these bets and
by a lot. Hypothetically, resisting the temptation to invest too soon in 1931
may have been a tougher test of survival in bucking the market. Luckily we,
and all value managers, were not around to be tempted by that one.
"It appears that retail has seen right through the once in a lifetime opportunity,
and is withdrawing money from stocks at the fastest pace ever, irrelevant of what
the myth formerly known as the "market" actually does." It seems like individual
investors are evolving from foolishly trying to "make big profits" to wealth preservation.
For those who failed to wise up there is generational opportunity to lose your shirt
to a rigged market...
The week ended April 11th is when equities finally rolled over. Which is
why those curious how retail fund flows did in the past week will not be very
surprised: if individual investors avoided stocks like Bernie Madoff Asset Management
on the way up, there is no reason why they should change their mind on the way
down. Sure enough, in the past week, $1.5 billion
was withdrawn from domestic equities. I
Instead, cash, solely with the aim of capital preservation enter taxable
bond funds, as it has for the past 3 years now.
With the latest redemption, total 2012 flows to date are over $25 billion, or
more than double the comparable amount in 2011.
It appears that retail has seen right through
the once in a lifetime opportunity, and is withdrawing money from stocks at
the fastest pace ever, irrelevant of what the myth formerly known as the "market"
actually does.
Looks like it's time to start looking for somewhere
else to peddle those Treasuries -- but then, when hasn't it been?
Soc Gen's FX head Kit Juckes:
A cosy relationship has formed over the years whereby the resistance
to allow currencies to appreciate too much in Japan and China has fuelled
appetite for US assets, which in turn has allowed the US to run a huge deficit
(with gradually falling Treasury yields). This is changing, and not (yet)
in a good way.
Here are the current account balances he is referring to. Japan and China's
combined current account has deteriorated significantly over the last few years
and continues to head lower:
Also, why risk-on/risk-off will continue to be the norm:
Capital flows don't match up to current account flows -- and don't need
to -- but since the global recession, the decline in the US deficit has
mirrored the fall in the China/Japan surplus. The "big story" hasn't been
on that side of the equation, but rather, about the increased flow of capital
out of the US in response to seriously unattractive domestic yields, and
the periodic breaks in that outflow that trigger dollar strength
and 'risk off' moments across asset markets. The chart below shows
the lurch back into capital repatriation into the US in 2008/2009, but other
than that, it?s been a very one-way flow.
As
Tyler Durden noted earlier, "the truth is that in this new normal only beta
matters (the more lever the better), and the only beta that matters is that
generated by relative USD strength/weakness." Observe:
Juckes sees the eurozone (Germany) presiding over the largest surplus provided
the euro "escapes the weight of the threat to its existence," and reduced import
demand due to austerity in many of the EMU countries running deficits will contribute.
He concludes:
The image that comes to mind is of a puzzle where the pieces no longer
fit easily together. In the end they will, but the way that happens will
affect asset prices. The big price-insensitive buyers of dollars will be
less important. That won't move US yields up much while rates are zero and
QE (whether sterilised or not) is taking place. But Treasury yields are
at the end of their 30-year bull market. As long as rates are anchored
by the Fed and the US is running a large deficit without automatic demand
for US assets from China and Japan, it isn't helpful for the dollar ...
And sadly, the 'risk on-risk off' gyration will go on as US investors seek
positive real returns where they can.
In many ways the economic die have been cast. We are now moving into the stage
where political risk starts to assume a bigger role. I begin my book with some comparisons
with the 1930s and I believe those comparisons remain valid. Mark Twain talked of
history rhyming rather than repeating, and today’s rhyme is clearly with the 1930s.
I call it [the present crisis]
the destruction of shared prosperity hypothesis. This view is not
represented in mainstream economic discussions because it challenges the fundamental
theoretical foundations of mainstream economics which are shared by both hardcore
Chicago School (freshwater) and softcore MIT School (saltwater) neoliberal economics.
April 18, 2012 | nakedcapitalism.com
Philip Pilkington: At the beginning of your book From
Financial Crisis to Stagnation you refer to the
2008 crisis as a ‘crisis of bad ideas’. Could you please briefly explain why
you refer to the crisis in this way?
Thomas Palley: A central and critical element of my book is its emphasis
on the role of economic ideas in generating the crisis. This feature fundamentally
distinguishes it from mainstream explanations that tend to represent the crisis
in terms of surprise events and economic shocks (e.g. black swans).
My book starts with the fundamental idea that economies are made, not found.
The way economies are organized and function is significantly the product of
social choices, not the product of nature. Over the past thirty years we (society)
have embraced a set of economic ideas that shaped economic arrangements – including
the pattern of income distribution, the power of corporations and finance relative
to labor, and the way in which the economy generates demand.
This shaping of economic arrangements was obviously driven by political forces
acting on behalf of corporate and financial
elite interests, but economic ideas also played a critical role. First, the
ideas of mainstream economists provided justification for the re-shaping of
the economy in ways that elite interests wanted. Second, mainstream economists
put forward additional ideas that were picked up and incorporated into the policy
project of corporate and financial elites. Third, the monopoly capture of economic
discourse by mainstream economics served to exclude other competing economic
ideas from making it on to the policy table, into classrooms, and into the public
debate.
The implication of this view is the crisis is at a deep level the product
of a flawed economic policy paradigm derived from a set of flawed economic ideas.
Escaping the crisis means replacing that policy paradigm and the ideas from
which it derives. That is a massive challenge involving both a political contest
and an intellectual contest. We need to win both. One without the other will
be useless. It is no good winning the political
contest if you simply replace Tweedledum (hardcore neoliberals) with Tweedledee
(softcore neoliberals). Likewise, it is no good winning the intellectual
contest if you do not win the political contest to implement different economic
policy ideas.
PP: In the book you distinguish between two sorts of alternative approaches
to the crisis. One you term ‘Textbook Keynesianism’ and the other you term ‘Structural
Keynesianism’. Could you briefly delineate the differences between the two approaches?
Also, should it be understood that the two approaches overlap with different
schools of economic thought?
TP: Textbook Keynesianism and structural Keynesianism both emphasize
the significance of total (aggregate) demand for the determination of economic
activity. That is what makes both of them forms of Keynesianism.
However, textbook Keynesianism sees the microeconomic structure of the economy
as intrinsically healthy. If demand falls off, all that is needed is for policy
to step in and temporarily fill the demand gap until private sector demand revives.
That is the logic behind temporary fiscal stimulus and temporary easy monetary
policy.
Structural Keynesianism argues that the economy’s underlying income and demand
generating process can be structurally flawed. For instance, income distribution
can become badly skewed, creating a permanent shortfall of demand. In that case,
private sector demand will not revive and the solution is structural remaking
of the economy’s income and demand generating process.
Textbook Keynesianism can be identified with neo-Keynesianism (what
Joan Robinson less politely called bastard Keynesianism). It
identifies the principal macroeconomic problem as price and wage rigidity. This
way of thinking gradually morphed into so-called New Keynesianism, which means
textbook Keynesianism and New Keynesianism overlap. However, we should be clear
that New Keynesianism has little to do with Keynes’ original logic and it is
more a theory of market imperfections in the spirit of Arthur Pigou, Keynes’
great rival.
Structural Keynesianism links with the work of Michal Kalecki who joined
Keynes’ insights about aggregate demand with Marx’s insights about class conflict
and income distribution. That means structural Keynesianism
overlaps with Marxist sociological and economic analysis. However,
classical Marxism views capitalist economies as destined to crisis because of
a falling rate of profit. Structural Keynesianism does not.
PP: In the book you discuss various mainstream theories of the recent
collapse. Without going into too much detail perhaps you could say something
about the mainstream explanations of the crisis?
TP: In principle there are two alternative competing mainstream explanations
of the crisis.
- The first is the hardcore neoliberal perspective, which can be
labelled the “government failure hypothesis”. In the U.S. it is identified
with the Republican Party and with the economics departments of Stanford
University, the University of Chicago, and the University of Minnesota.
- The second is the softcore neoliberal perspective, which can
be labelled the “market failure hypothesis”. In the U.S it is identified
with the Obama administration and half of the Democratic Party. In Europe
it is identified with the Third Way. Among economics departments it is identified
with those such as Harvard, Yale and Princeton.
The government failure hypothesis maintains the crisis is rooted in the U.S.
housing bubble and its bust. That bubble was due to failures of monetary policy
and government intervention in the housing market. With regard to monetary policy,
the Federal Reserve pushed interest rates too low for too long in the prior
recession. With regard to the housing market, government intervention via the
Community Reinvestment Act and Fannie Mae and Freddie Mac, drove up house prices
and encouraged homeownership beyond peoples’ means. The neoliberal perspective
therefore characterizes the crisis as essentially a U.S. based phenomenon.
The market failure hypothesis maintains the crisis is due to inadequate financial
regulation. First, regulators allowed excessive risk-taking by banks. Second,
regulators allowed perverse incentive pay structures within banks that encouraged
management to engage in “loan pushing” rather than “good lending.” Third, regulators
pushed both deregulation and self-regulation too far. Together, these failures
contributed to financial misallocation, including misallocation of foreign saving
provided through the trade deficit. The market failure hypothesis is therefore
slightly more global than the government failure hypothesis, but it views the
crisis as a purely financial phenomenon.
PP: Your interpretation of the present crisis is a little different,
right? Could you explain it briefly please?
TP: Yes, my interpretation is different – very different.
I call it the destruction of shared prosperity hypothesis.
This view is not represented in mainstream economic discussions because it challenges
the fundamental theoretical foundations of mainstream economics which are shared
by both hardcore Chicago School (freshwater) and softcore MIT School (saltwater)
neoliberal economics.
My argument is that around 1980 the U.S. adopted
a fundamentally flawed economic paradigm. From 1945 through to
the mid-1970s the U.S. economy was characterized by a “virtuous circle” Keynesian
growth model built on full employment and wage growth tied to productivity growth.
The political triumph of Ronald Reagan enshrined
a new economic paradigm that abandoned full employment and severed the link
between wages and productivity growth.
The new paradigm was fundamentally flawed.
-
One flaw was that it relied on debt and asset
price inflation to fuel growth instead of wages.
-
A second flaw was the model of globalization
which created an economic gash in the form of leakage of spending on imports
(the trade deficit), leakage of investment spending offshore,
and leakage of manufacturing jobs offshore. These twin flaws created a growing
demand gap.
That is where finance enters the picture as its role was to fill the demand
gap. Financial deregulation, regulatory forbearance, financial innovation, financial
mania, and plain vanilla financial fraud kept the economy going by making ever
more credit available, However, as the economy cannibalized
itself by undercutting income distribution and accumulating debt, it needed
ever larger speculative bubbles to grow. The house price bubble
was simply the last and biggest bubble and was effectively the only way around
the stagnation that would otherwise have developed in 2001.
The house price bubble delayed the onset of stagnation
but at a cost. When it burst it created a
financial crisis because of the
scale of financial excess. Moreover, it also makes it harder to escape stagnation
now because of the scale of debt burdens and the extent of destruction of credit-worthiness.
PP: Your interpretation seems to make a lot more sense than the competing
theories, which appear to me reductionist. Why do you think that your colleagues
– especially your left-leaning colleagues – are missing the bigger picture?
TP: Thanks, Philip. That is a very good and difficult question. It
is key to understanding why the crisis has so far generated little change in
economics and economic policy.
There are many mainstream (orthodox) economists who have progressive values
but they miss the big picture because their theory cannot accommodate it. Moreover,
they can’t abandon their theory for a host of psychological and sociological
reasons. At the psychological level it would involve a devastating admission
that they have been wrong; that they’ve been teaching their students a lot of
nonsense for thirty years. At the sociological level it would mean giving up
the trappings of power and pay that go with their current intellectual monopoly
because the paymasters of the system would quickly replace them with others.
That said, many mainstream economists are starting to admit income distribution
has played a role in fermenting the crisis (you have to be willfully blind not
too see it). Consequently, they are busy trying to incorporate income distribution
into their narrative. However, they do so in a way that leaves their core theory
about markets and market efficiency unchanged. Unfortunately, journalists and
the general public cannot see this and are taken in by this tactic. One of the
contributions of the book is it unmasks these obfuscations by showing how these
stories don’t stack up and are inconsistent with the evidence.
Finally, this discussion shows why it is very important the general public
be capable of distinguishing between “values” and “analysis”. If not, people
risk being fooled by the rhetoric of progressive values that provides cover
for policies that are actually conservative.
PP: In the book you provide a very clear description of what actually
occurred in the financial market in 2008. Reading
it I thought that a lot of people – myself included – have never really put
the pieces together in their own minds. Maybe you could summarise the key events
briefly?
TP: The mechanics of the crisis within the U.S. financial system are
actually quite simple and can be understood as a six step process.
-
Step one was the build-up of toxic loans over several years.
-
Step two was when loans eventually started turning sour with the bursting
of the house price bubble in 2007, causing loan losses.
-
Step three was the destruction of bank equity caused by mounting loan
losses. This process began in the so-called “shadow banking system” and
then moved into the Wall Street investment banks and the established commercial
banking sector.
-
Step four was the resulting threat of bank defaults triggered by equity
destruction.
-
Step five was the rush to cash spurred by the threat of default. That
caused a liquidation trap as agents tried to sell financial assets to raise
cash, which deepened the extent of asset price declines and caused further
equity losses.
-
Step six was the run in the commercial paper market immediately after
the collapse of Lehman brothers (September 2008) whereby banks and financial
institutions became unwilling to lend to each other. That put every bank
(including Goldman Sachs) on the verge of default, prompting the Federal
Reserve to step in and de facto take over the commercial paper market by
acting as lender of last resort.
PP: In the book you mention the commodities bubble that blew up in
the 2008 financial crisis a number of times. Many commodities – oil included
– are nearly back at their 2008 levels. Do you think that this could be due
to speculation? If so, why on earth are the US government allowing this?
TP: I firmly believe speculation is a
significant part of the run up in commodity prices, particularly oil.
Over the last decade there has been tremendous change in the character
of commodity market participants. In the past, the market consisted of producers,
end-users, and traders intermediating between these groups. Now, the market
has been invaded by financial investors in the form of
pension funds, endowment managers, hedge funds
acting on behalf of high net worth individuals, investment bank entities trading
on their own account, and exchange traded funds (ETFs) for ordinary punters
who want to speculate on commodities. This transformation
represents the ‘financialization’ of commodity markets and it has resulted in
a tsunami of money chasing commodities as a speculative investment vehicle.
After causing a bubble and a bust in 2008, it has again pushed up oil prices.
The fingerprints of speculation are all over
the oil market: large one day price spikes and plunges that cannot possibly
be explained by changes in economic fundamentals; high prices
in the face of large and growing inventories; storage in unconventional forms
like idle super-tankers; and investment banks like Goldman Sachs purchasing
oil storage capacity in places like Cushing, Oklahoma.
Why have the Federal Government and Congress done little about this? Two
reasons.
-
First, Wall Street, the banks, and oil companies
are big beneficiaries from these developments and they (as everyone knows)
are some of the most powerful vested political interests.
Money talks in politics and they have the money.
-
Second, economists have been disastrous on
this issue, continuously denying the role of speculation.
The depth of this denial is evidenced by the fact that even the often
critical and insightful Paul Krugman has consistently denied the role of
speculation. This provides yet another example of the role of bad economic
ideas in the destruction of shared prosperity.
PP: Many economists and politicians seek to blame the Fed for the
housing bubble and the financial crisis. In your book you say that this is misleading.
Why do you think this?
TP: In my view the Fed is both to blame and not to blame for the crisis.
The Fed is to blame because it strongly supported
the over-arching neoliberal economic program that is the ultimate cause of the
crisis. Its support for the neoliberal program is most evident
in its support for financial deregulation, support for self-regulation, and
opposition to regulation of financial innovations such as derivatives. Had the
Fed not held these beliefs and done its job properly, the excesses of the sub-prime
market and the house price bubble would likely have been significantly prevented.
Alan Greenspan was the booster-in-chief but almost every member of the board
of governors and the roster of economists working in the Fed deserve blame.
They all sung from the same song book and were deaf to other music saying inflation
targeting was not enough and needed to be accompanied by tough oversight and
balance sheet regulation.
However, the Fed is not to blame for pushing interest rates too low and holding
them there too long, which is the charge levelled by neoliberal economists like
John Taylor of Stanford University. After the recession
of 2001 the economy was stuck in jobless recovery and showed signs of falling
back into recession. This was despite significant stimulus provided via the
Bush tax cuts and Iraq war. From the point of view of escaping stagnation, the
Fed did the right thing.
Unfortunately, most of the public discussion has focused on the Fed’s interest
rate policy after the 2001 recession. It should be focused on the neoliberal
economic thinking that still permeates the Fed. Though there has been some change
in attitude toward regulation, the Fed’s fundamental thinking about the economy
remains unchanged. This failure to go after deep failures of understanding is
part of the mechanism that protects the policy establishment, and it explains
why the people in charge of the Fed (and other central banks like the Bank of
England and European Central Bank) are the same people who failed so disastrously
before the crisis.
PP: Regarding the economic thinking about the broader causes of the
crisis you are particularly critical of the ‘savings glut hypothesis’ that has
become popular, especially with the Federal Reserve Chairman Ben Bernanke. My
impression from the book is that you see this as ad hoc economic thinking that
seeks to avoid the real issues. Would I be right in saying that and could you
briefly outline what is wrong with the savings glut hypothesis – which, in my
reading, is as pervasive on the left as it is on the right?
TP: In my view the savings glut hypothesis is nonsense economics.
Looking at it from the big picture, you see it is just another in a series of
explanations of the US trade deficit by mainstream economists. My book shows
clearly how these explanations evolve to fit the political moment rather than
to explain the phenomenon. And the enduring common feature of all these explanations
is they avoid blaming globalization as the cause of the problem or having any
downside.
That is absolutely staggering. Mainstream economists blind themselves to
the most obvious explanation, and that is a pattern that repeats over and over
again in other areas of economics. And because the explanation is so obvious
and simple you can never write about it in journals which are fixated on complexity.
The story about the emperor’s new clothes really does apply for much of modern
economics.
With regard to the saving glut hypothesis, it ignores the fact that the US
trade deficit has been rising for 30 years, long before China emerged on the
scene. And there is much other evidence and argument against it – but that is
in the book.
PP: The book ends on a slightly pessimistic note. It appears that,
given the entrenched dominant policy paradigm governments are likely not to
begin the process of economic rebalancing. Do you see any light at the end of
the tunnel? Are there any social or political forces you think might move the
policy debate forward, both in the US and worldwide?
TP: You are right. I am pessimistic which is why the book predicts
stagnation. And by the way that prediction was made in 2010 when the book was
written, so it has already been proven right. I had great difficulty finding
a publisher because 2010 was the time of “green shoots” and “V-shaped” recovery
and there was widespread denial about the systemic nature of the crisis. Princeton
University Press who published my prior book turned it down.
I am guided by Gramsci’s aphorism regarding pessimism of the intellect and
optimism of the will. My intellect tells me that as of now there is no significant
political force for progressive change that moves the political and policy debate
in the direction I would like to see it go. At best, we are muddling through
in a way that contains the economic crisis at its current level. Moreover, if
anything, the risks are to the downside from contraction in Europe, risks of
trouble in China, slowing growth in emerging market economies, and the prospect
of fiscal drag in the US.
In many ways the economic die have been cast. We are now moving
into the stage where political risk starts to assume a bigger role. I begin
my book with some comparisons with the 1930s and I believe those comparisons
remain valid. Mark Twain talked of history rhyming rather than repeating, and
today’s rhyme is clearly with the 1930s.
That said I am an optimist of the will. Why else write a book that contains
a map for change of economics, politics and economic policy. One has to be an
optimist if one believes in constitutional democracy, and I do.
Thomas Palley is has served as the chief economist for the US – China
Economic and Security Review Commission. He is currently Schwartz Economic Growth
Fellow at the New America Foundation. His latest book From Financial Crisis
to Stagnation is available at a 20% discount
here [Select country location (top right hand corner) & enter code "palley2012"
at checkout]Interview conducted by Philip Pilkington
DiSc :
Amen to that. I am also of the opinion that the problem is a departure
from post-war equality-enhancing policies. Wage moderation, tax breaks for
the wealthy and union-busting does not work.
No quantitative easing, LTRO, or austerity measure will get us out of
the crisis, and no stimulus spending for that matter. We need to go back
to strong unions, welfare programs, and progressive taxation, and we need
to tackle tax evasion and fiscal paradises.
I believe in German-style social-democracy, or at least what it used
to be in the ’70s, but even in “socialist” Europe there is no believable
political party or trade union that advocates anything remotely resembling
that.
Middle Seaman
Even if we assume that Palley offers a new model for understanding the
current financial system, the real question is whether he offers different
solutions to the financial crisis than are offered by previous models. From
this interview, haven’t read the book, Palley’s model doesn’t offer solutions
we haven’t discussed in public before.
Many of us support less debt, especially when we borrow from the non-rich
and give the borrowed money to the rich. Many of us believe that wage stagnation
and retreat and massive unemployment, a form of wage retreat, cause huge
moral, societal and finance damage. All that was true even in FDRs days
when he wanted to propose the 2nd bill of rights.
A model is worthy if it sheds light on unseen before elements. Palley’s
model doesn’t do it although his intentions are excellent.
fresno dan
April 18, 2012 at 5:31 am
“Many of us support less debt, especially when we borrow from the
non-rich and give the borrowed money to the rich”
I have never seen it said better.
jake chase:
Nice to know there are two economists (Steve Keen being the other) who
may understand what is really going on in the economy. I am not certain
economics has any relevance except as it contributes to propaganda on behalf
of elite interests. I suppose this guy will be drummed out of the Flat Earth
Econmic Society. Hope he has a guaranteed income (or is tenure the same
thing?)
Dan B:
“My intellect tells me that as of now there
is no significant political force for progressive change… At
best, we are muddling through in a way that contains the economic crisis
at its current level. Moreover, if anything, the risks are to the downside
from contraction in Europe, risks of trouble in China, slowing growth in
emerging market economies, and the prospect of fiscal drag in the US.”
A thoughtful interview. However, we’ll suffer as long as we think restarting
real growth is the answer. Energy, water, climate, etc., are now imposing
limits to growth. Future generations will ask how we could not make the
connection -it’s much like Simmelweiss being ridiculed and ostracized for
proposing to his fellow MDs in Vienna that they should wash their hands
between contacts with patients.
Ramanan:
“There are many mainstream (orthodox) economists who have progressive
values but they miss the big picture because their theory cannot accommodate
it. Moreover, they can’t abandon their theory for a host of psychological
and sociological reasons. At the psychological level it would involve
a devastating admission that they have been wrong; that they’ve been
teaching their students a lot of nonsense for thirty years. At the sociological
level it would mean giving up the trappings of power and pay that go
with their current intellectual monopoly because the paymasters of the
system would quickly replace them with others.”
:-)
Susan the other:
“They (mainstream economists) all avoid blaming globalization” for the
mess we are in. Instead they all talk about the imbalances caused by things
like “savings gluts.” Does Palley imply (or does he imply the opposite?)
that if we all just spent all our money buying and selling that global growth
would be maintained and money would saturate the world with prosperity like
the ocean stream? Or is Palley saying we are willfully simplistic and out
of balance in the most fundamental way – we don’t have any jobs – aka: we
don’t have an economy at all. That perhaps we should have been more self
sufficient nationally? Or is he saying that 4 decades of “inflation” have
so destroyed money as a means of exchange or investment it has become meaningless?
And we are going to have to start over.
But never fear, soon the globalizers will commoditize unemployment and
trade it just a photon faster than the speed of light. Thereby turning back
time.
JurisV :
Another superb interview Mr Pilkington!
Palley’s explanations are very clear, helped my growing understanding
— and I share his pessimism about our times rhyming with the 1930′s. I also
was impressed with how much his views rhymed with, what I felt was pretty
much a majority sentiments in the recent INET conference:
1. The current economic models are “Science Fiction” — Dirk Bezemer.
They don’t now, but must include “money”, banking, and capital flows across
borders to be even minimally useful.
2. Any new Paradigm has to focus on “reducing injustice –Prof Amartya
Sen . He also said to make the distinction between “justice and injustice.”
He said “reducing injustice” would be a more appropriate focus.
3. GDP (and its growth) should not be the economic focus; rather it must
be focused at the root on human beings. So focus on improvement in “human
welfare.” — Joseph Stiglitz
4. One of the results on the financial crisis
has been to produce a growing “Democracy Deficit.” — many
speakers and discussants mentioned this.
5. ETHICS…… The moderator in the Amartya Sen session had a good discussion
in responding to several questions on ethics. He said (and I’m paraphrasing)
“New Economic Thinking” needs to, in part, go back to the ideas of the “Old
Thinkers” ! He mentioned David Hume and Adam Smith who he said had much
to say about ethics and its importance.
6. Understanding the historical record in Economic thought and theory
was brought up time after time. The years after the rhyming 30′s saw an
understanding of Economics with Fisher, Keynes, Shumpeter, Minsky that spoke
to ethics, morality, justice in Economic Theory — and ultimately to the
welfare of the human inhabitants of THE MARKET !
A positive note: The moderator of the session in which Dirk Bezemer presented,
in his summary said that this INET conference (the third one) had ideas
and conversations that were radical compared to the one just two years ago
in Cambridge. The current crisis is forcing the economics community to question
the established Pillars and re-evaluate fundamental assumptions.
A pessimistic note: POWER… The
financial community and their political supporters have amassed an incredible
amount of Power in the last decades along with wealth. They are not going
to easily relinquish that power. Andrew Haldane said that the burgeoning
“revolution” in economic thinking has to keep coming up with facts supporting
a new narrative so that those in politics can use those as “weapons”. I
think Haldane was being overly optimistic. Things are going to get a lot
worse for the middle class before we see any hints of the necessary “pitchforks
and torches” argument.
JurisV says:
oops… I forgot to list the mention of regulation, regulation, regulation
that was also said to be imperative in any system that has even a hint of
being effective.
And having just now read Fred’s comment above — I have to say that my
pessimism is overwhelming. If we closely look at the historical record —
it’s excruciatingly difficult to be very optimistic of achieving rational
progress over any extended period. And not just in economics.
Chris Wroth :
Thank you for a terrific interview. May I offer Mr. Palley an optimistic
ray of hope? If someone (?!!) is able to convince Ireland to offer Mosler
bonds, the subsequent success of that issue could push MMT to the front
of the conversation. After all, look what happened after Iceland started
listening to Michael Hudson. There is always hope.
Paul Tioxon:
The change from the New Deal to the rotten
deal for the middle class, is still not quite apparent from
this interview, but then, I’d have to read the whole book. But let me say
this based on what Philip has teased out of the author. I believe I understand
and agree with the big concept you are trying to articulate. From the virtuous
cycle of mass production, mass consumption, America liberated a massive
middle class. It was the wages of the big businesses that gave the middle
class the new moniker, consumer, which drove more businesses and more prosperity
into more corners of American society than ever before. Low Unemployment
and wage growth equaled more consumption of finished goods keeping factories
humming, tractor trailers rolling, and shopping center parking lots jammed.
But it took wages, rising income on the part of the massive middle class
to do all of this.
As capital escaped first to Europe via the Marshall Plan and then to
Japan, slowly what was made and sold in America became first made somewhere
else and secondly, the profits were harbored somewhere else. The increasing
incomes based on increasing productivity leaked elsewhere. The differential
in wages of course had not escaped the capitalist, who pocketed the difference
and kept it offshore. The trade imbalance grew, without Chinese or Korean
savings glut, it grew with American capital’s glut.
So, the wages stagnated and then given the death
by a thousand cuts. Cuts in benefits, cuts in pensions, cuts in public services
that were once nominal in cost, now unaffordable. Such as quality public
education, low or free college tuition.
And all of this has to be justified. The
economics profession is little more than pseudo-scientific justification
for political domination by those who use money and its debt as social control.
Even among the other 2 pillars of social science, sociology and political
science, simple analysis of how to win elections has replaced serious research
into policy alternatives. That, and menial counting of misery without any
political access to reduce the suffering recounted in a thousand studies
of unemployed, the poor and criminals the new
names of the citizens formerly known as consumers, voters, and labor.
Citizen AllenM:
fried wrote:
AllenM,
could you expand on this. I know it is a favorite of yours, and I assume
you mean destruction of assets...or acknowledging the dead loans that
clutter TBTF bank balance sheets. Am I rite?
I am talking about a surplus of capital that matches (or exceeds- and
I am betting on exceeds) the surplus of labor reflected in the unemployment
rate.
That surplus (to go real old school economics) is reflected in the paltry
low risk returns, and even moderate high risk returns. Further, when you
look at in terms of Miller Modigliani life cycle analysis, you find the
savings rate of the under 60 crowd is insufficient to purchase the assets
of the retired folks, causing the eventual valuation of those assets in
real terms to decline. In other words, as we print money, because we don't
stimulate enough to get nominal wages to rise, let alone real wages, we
find that domestic savings is insufficient to maintain asset valuations
as they are transferred between generations. Right now, thanks to the Euro
panic, we have healthy capital inflows disguising this imbalance, but if
we had to rely solely on domestic savings we would be in trouble.
In other words, while capital loves austerity, because they think everything
will be cheaper and they will be richer, a modern fiat state has to vote
against austerity because labor ultimately votes and will eventually rebel
against capital over time.
This, of course, ignores a bunch more supporting analysis, but is the
short form.
Someday this war's gonna end...
Comrade Alexei Mikhailovich:
Citizen AllenM wrote:
Further, when you look at in terms of Miller Modigliani life cycle
analysis, you find the savings rate of the under 60 crowd is insufficient
to purchase the assets of the retired folks
I thought that was the reason why we gave Chindia access to our markets?
They'd buy whatever my generation couldn't.
REBear
gruntled wrote:
Ironic, isn't it?
In multiple ways. How can public policy that led to banks/government
agencies easing credit not fiscal irresponsibility?
GDD9000:
gruntled wrote:
Ironic, isn't it? "Easy of credit" can be the cause and the
cure at the same time.
Sure, if you have an unlimited CB balance sheet, and you want bigger
and more spectacular busts one after another. Um, wait, yeh, that's
pretty much what we're doing. Each crisis worst than the former, each
response more aggressive, each result leaving us more divided, bifurcated
and teeming with those left behind. I'm wondering how they think they
can continue along this path without major league backlash eventually.
Citizen AllenM:
Comrade Alexei Mikhailovich wrote:
I thought that was the reason why we gave Chindia access to
our markets? They'd buy whatever my generation couldn't.
Sure, but when they lower their savings rate, their capital uptake
will preclude continued subsidization of our markets by capital reinvestment.
That exorbitant privilege is going to take a hit too, and I sort of
follow Eichengreen wrt the timing, because the Chinese are now committed
to starting to develop their own consumer economy, which will require
more wages (goods) paid in China, and profits to fall for especially
local Chinese companies. The Central Committee is, I think, going to
squeeze capital hard to appease labor over the next five years.
Many balls in the air, and it is guess to see which one falls first.
Rajesh:
burnside wrote:
'Germany' isn't driving austerity
The questions isn't simply austerity or no austerity. Certainly,
government spending has to be curtailed. But a more traditional IMF-style
austerity is cutting government spending while devaluing the currency.
The cheaper currency is a source of growth that counteracts some of
the bad effects of cutting spending.
But the German position is cutting spending
and no devaluation, which as we have seen in Greece just leads to bigger
deficit ratios because GDP falls faster the deficit.
There is also a fetish about reaching 3% deficit by 2013. This is
an entirely arbitrary target, as slower glide path in cutting government
spending would certainly be more productive. Spain is not Cinderella
and its carriage doesn't turn into a pumpkin at midnight.
convexity:
Bingo. Agree 1000% Retirees have to sell their assets to fund retirement.
Who will buy when the labor force is poorly paid and is a fraction the
size of the retired population; especially at the retiree wishing prices?
Repeat: Retirees have to sell their assets
to fund retirement.
Rajesh
Mr Slippery wrote:
What will be trigger for the vassal states to lose faith in the
the political ability of the US to solve its problems?
Sanity in economic policy abroad? That seems like a very unlikely
development at this time.
convexity:
Jefferies Describes The Endgame: Europe Is Finished | ZeroHedge
from 2011:
- shows EU banks avg leverage 69:1 versus US banks 22:1 now
- French bank assets 4X French GDP
- Fiscal irresponsibility
Rajesh:
burnside wrote:
Is it an ideological campaign?
Neo-mercantilism: the belief that nations can become wealthy
by using non-tariff trade barriers to accumulate reserve assets (sovereign
bonds)
an update of
Mercantilism: the belief that nations can become wealthy by
using tariff trade barriers to accumulate reserve assets (gold)
Rajesh:
yuan wrote:
it will not have the benefit of a relatively democratic political
system.
But it does have the benefit of a well equipped army that has shown
a willingness to kill civilians
yuan:
Rajesh wrote:
But it does have the benefit of a well equipped army that
has shown a willingness to kill civilians.
This is bullish...right?
Citizen AllenM:
LL, the answer to that is do you feel lucky? If you feel lucky and
have no cancer or other bad luck get you before 78- waiting is absolutely
the best course until full retirement, and waiting until 70 pays even
better. On the other hand, no money, no job, no nothing and 62- early
it is.
That is not to say there are not some more exotic options available
re spousal benefits, but most are in the simple boat.
SSI is totally exotic to most folks, and well, paying for it is going
to be a bit of a strain after the fake bonds are sold, but hey, Greenspan
promised that it would continue, he just told everyone I have no idea
how much it will buy, and my guess is it will buy groceries.
That is it -- buy groceries and pay your cell phone bill, and maybe
the internet.
Now, greyboomers, plan on that!
Convexity gets it, and now a few more do too -- bring on the euthanasia
of the rentier!
The working class has been in the pot for quite a while, time for
some company!
And anyone who whines about the deficit can soon enjoy higher taxes
to save the dollar, now do you feel better?
Someday this war's gonna end...
robj :
convexity wrote:
"Achilles Macris, hired in 2006 as the CIO's top executive
in London, led an expansion into corporate and mortgage-debt investments
with a mandate to generate profits for the New York- based bank,
three of the former employees said. Dimon, 56, closely supervised
the shift from the CIO's previous focus on protecting JPMorgan from
risks inherent in its banking business, such as interest-rate and
currency movements, they said."
Risk on...no need for risk management as Fed will cover all losses.
There is much talk about the "London Whale" in JPMC's London trading
group, who is taking huge derivative positions against the hedgies.
Purportedly.
Citizen AllenM:
Interesting, I have a very interesting take on this one.
I think Jamie D is using those big swinging
bets taken at the bottom in 2008 to spin out profits to smooth his earnings.
It sort of reminds me of Rigged Online or the GE model. Having huge
unrealized profits allows them to write huge insurance against it to
spin out even more cash while leaving the original positions unbooked.
In other words, he is using those big unrealized profits to pad his
executive compensation through increasing profits, and he will retire
and be gone just before they run out, and JPM Chase reverts to a pumpkin
of a big bank.
Smaaarrrrrttttt, I like it. So, buy until Jamie D gets out, then
sell it down.
Nobody says he is a fool.
Someday this war's gonna end...
convexity:
JPMorgan Chase Knew MF Global All Too Well - Bank Think Article - American
Banker
"JPM could have been also feeling a bit skittish about being a beneficiary
of inappropriate commingling. Its own broker/dealer recently committed the sin
of not segregating customer funds in the U.K.
JPM and its auditor PricewaterhouseCoopers – also MF Global’s auditor
– recently admitted to UK regulators that for at least seven years, about $23
billion of JPM clients' assets had been inappropriately commingled. JPM was
fined 33.3 million pounds."
convexity :
A list of all bank executives noted in the article:
Diane Genova, deputy general counsel for JPM's investment bank
"Genova told lawmakers she asked MF Global General Counsel Laurie
Ferber and Deputy Counsel and Chief Compliance Officer Dennis Klejna to
put in writing that funds transferred from customer segregated accounts
to cover the shortfall did not belong to customers. Genova testified that
Ferber and Klejna verbally assured her that the transfers complied with
the rules regarding protection of customer funds, but that JPM never received
a signed letter."
Plausible deniability!
"JPM had a history with Dennis Klejna. He was the head of compliance
at Refco when that firm failed. "
"Klejna was not criminally charged over his involvement in the Refco
fraud, but he did sign a consent order with the Department of Justice and
paid $1.25 million in disgorgement of his IPO gains. Then he went to work
in the same job for MF Global."
Time to stop talking generically and point out names of individuals involved...
some investor guy:
CalculatedRisk wrote:
there is no **current **private market for peripheral debt
I'm going to step into the middle of this debate. You can find that you don't
have a private market for new debt for a number of reasons, including:
1. The interest rates are too low. This is one of the big reasons
you don't have much private MBS in the US now.
2. Position limits. Most of the people who would normally buy the
debt already have as much as they want. It's not that they dislike it. The people
who really really really should have position limits in the EU don't. Banks
should have limits on the amount of sovereign debt they own, on a per country
basis. Local banks buying lots of the debt of their home country makes things
worse when you have a problem.
3. There is a huge perceived default risk. If the interest rates are
high enough, you would expect to get investors. Ultimately, you do. However,
much like foreclosures competing with new construction, the people who bought
Spanish debt when it was more highly rated often are letting it mature and not
buying more. Some others are dumping it below par. The type of people who invest
in AAA sovereigns are not usually the same ones who do distressed debt. It takes
time for them to adjust.
4. Headline risk. This is the complimentary problem to the BS statement
"nobody could have known" about what would happen with the housing bubble. People
who are full of crap don't want to know. People who are idiots really don't
know. The people who do know are ignored, and later, the other groups will pretend
they never existed. For Headline Risk, because problems or alleged problems
are quite well known, it is supposed to be a very risky bet to buy such bonds,
and a dumb one. The smart people might have a very different opinion. They might
see that certain maturities or issuers have far less risk (some governments
issue with several different ultimate forms of obligations or obligors). I got
the downpayment for my house by betting against scared stupid bond investors
in 2008/09. Somebody else might be doing this on Spain.
5. A perception that it's not a normal market, and you don't just have
the usual risks. A perception that people will mess with the rules. That
makes a lot of typical analysis hard or impossible. After Greece, lenders and
bondholders are quite justified in wondering whether they will get an especially
good or bad deal for political reasons.
merchants of fear:
The nonchalant and maybe aloof response about the wreckage of a decade
of securitization blowing up this bubble might indicate it will happen again
or is happening again as the public isn't tuned in and the folks at HCN
(small sample) who are tuned in seem to think it's nothing to worry about
now... as this process continues moving into new lending areas...
Arthur_500 :
There is circumstancial evidence that the austerity measures of 1937
coincided with a stalemate in the recovery but there is little to suggest
a cause and effect relationship. A great deal of other things were taking
place at this time, not the least of which was the United States had the
majority of the Gold and the Gold Standard had failed. In addition, there
were great problems in Europe which resulted in reduced exports and great
fear for businesses regarding future prospects overseas.
Employment is a factor of production. As equipment continues to replace
repetitive work it becomes an economy to develop new ideas and technologies.
We can have zero unemployment tomorrow if we go back to the labor proactices
of the 1950's. Few would want that, especially those who use computers.
Inflate Away
Fiscal "austerity" in the 1930's, as evidenced by federal budgetary outlays:
1934: $6.5b
1935: $6.4b
1936: $8.2b
1937: $7.6b
1938: $6.8b
1939: $9.1b
Federal Budget Receipts and Outlays
So, a decrease of $600 million in federal government outlays in 1937
was enough to cause a second depression? Hmmm. As you can see, the $6.8b
in 1938 was still $400m more than in 1935.
Counterpointer:
Good article. Second to last para could do with filling out a bit further.
Q: what did the Spanish banks do with the LTRO money?
A: bought Spanish sovereign bonds, because apparently the problems were
all going away.
So, if you bought the Spanish short end at 2.5% yield in the February
LTRO, it's now at 3.5% give or take a tick, and going higher.
That's not going to be pleasant or sustainable even over the next quarter.
A bit like dumb French banks buying up Greek debt for reasons of solidarity
with the country, Sarko, various regional hallucinations of state power
etc. Ooh, turns out yields go up too, even after the most ardent proclamations
from political leaders.
These banks are not too big to fail. But they're certainly too stupid
to exist.
C
"National and global “wealth” would appear to be the most extensive criminal
fraud ever perpetuated — the perpetuation being advanced by the byzantine structure
and elaborate but completely false economic theories which keep the common person
from understanding just how political the entire system is, at its heart. Central
banking makes organized religion look positively honest by comparison. "
Petey Wheatstraw Says:
April 14th, 2012 at 10:43 am KidDynamite:
Something is absolutely foul in this picture.
Being that he banks are/were arguably insolvent prior to the Fed’s
foray into QE, one has to ask where all of the excess reserves on the Fed’s
balance sheet came from, if not the Fed itself?
The commonly held and promoted (but, I believe, false) belief that private
capital is the only capital, and that the Fed is merely the conduit to a
money supply based on said capital, begs the question: exactly where did
that capital originate? What private store of capital was used to replenish
the banks after their ruinous credit-fest?
National and global “wealth” would appear
to be the most extensive criminal fraud ever perpetuated
— the perpetuation being advanced by the byzantine
structure and elaborate but completely false economic theories which keep
the common person from understanding just how political the entire system
is, at its heart. Central banking makes organized religion look positively
honest by comparison.
I believe we are currently in the Mother of All Bubbles — a bubble that
encompasses everything financial: banking, stocks, bonds, currencies, wages,
prices, and commodities. The whole shooting match. When it bursts, it will
burst politically. The shockwave alone will make heads explode.
I see lots of complacency, even here at TBP. Not a good sign.
James Cameron:
I believe we are currently in the Mother
of All Bubbles — a bubble that encompasses everything financial: banking,
stocks, bonds, currencies, wages, prices, and commodities. The whole shooting
match. When it bursts, it will burst politically. The shockwave alone will
make heads explode.
—
Jesus, this is how I start out my Saturday morning. :)
Mar 23, 2012 | CNBC
Bullish sentiment among the most active clients of Charles Schwab hit its
highest level since the current bull market began, according to a recent survey
by the firm.
The jump in optimism from this group may signal the less active crowd will
soon follow, propelling the rally to a fourth year, market analysts said.
Fifty-one percent of individual investors who trade frequently are now bullish,
according to the Charles Schwab Active Trader Sentiment Survey, the highest
level since they began surveying these clients in April 2008.
John Melloy is the Executive Producer of Fast Money. Before joining CNBC,
he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage
team.
Commentary: There is too much bullishness and complacency
The stock market’s long-awaited correction appears to have begun.
I say this because the market’s successful assault on Dow 13,000 brought
a number of eager bulls out of the woodwork — so much so, in fact, that even
though the Dow Jones Industrial Average has now fallen back to just above that
13,000 level, there is a lot more bullish sentiment than existed just two weeks
ago.
That’s worrisome from a contrarian point of view.
Consider the average recommended stock market among a subset of short-term
stock market timers tracked by the Hulbert Financial Digest (as measured by
the Hulbert Stock Newsletter Sentiment Index, or HSNSI). After the Dow’s initial
failure in late February and early March to burst through the 13,000 level,
this average dropped by March 9 to as low as 17.6% — which meant that the average
market timer was keeping more than 80% of his equity portfolio out of the market.
Today, even though the Dow is less than 1% higher than where it stood then,
the HSNSI stands at 42.1%. So a tiny net increase in the market has led the
average market timer to increase his or her equity exposure by 25 percentage
points.
That’s not reminiscent of the veritable Wall of Worry that bull markets like
to climb.
This stock market rally is by-and-large a Ponzy scheme fueled by HFT and Fed's
money...
Here is a fascinating
Chris Martenson interview with Charles Biderman.
This interview highlights the Ponzi-like, artificial nature of the current
stock market rally.
It reminds me very much of the 2003-2007 bull market that ended in tears.
I have included a chart of what I called at the time 'The Great Reflation' at
the end.
Charles Biderman: The Problem with Rigged Markets
Friday, March 30, 2012"Even Wile E. Coyote had to come back down to earth
sooner or later", says Charles Biderman, founder of TrimTabs Investment
Research. In his opinion, the prices of stocks and bonds - enabled by excessive
financialization of our economy and central bank money printing - have been
defying gravity for a dangerously long time.
If we continue to do all we can to preserve the status quo -- to maintain
"phony" asset price levels as Charles calls them -- at best we will restrict
overall growth and handicap the economy.
The problem isn't so much the unfairness and malinvestment evident in
a rigged market. As Charles shrewdly asks: what happens when the market
becomes un-rigged?
We've never experienced the unwinding of an entirely manipulated financial
system, so we can't predict for sure. But at this point, a painful collapse
of our markets and loss of the US dollar as the world's reserve currency
seem entirely plausible...
Read the rest
here.
"This bodes poorly for the sustainability of the recent upward trend in equities."
This is a liquidity driven market with very weak fundamentals. Which makes summer
correction more probable.
As far as other views, a couple caught my eye this morning. The first
was from
spencer at Angry Bear:
The index of hours worked has been raising a red flag about the numerous
other signs of stronger employment and an acceleration of economic growth.
They are not showing the recent improvement that other employment data
have been reporting Recently, unit labor cost has been rising faster
than prices, implying margin pressure and very weak profits. To sustain
profits growth, firms have to reestablish stronger productivity growth.
The weakness in March employment is a strong indicator that business
is trying to rebuild productivity growth and profits growth.
This bodes poorly for the sustainability of the recent upward trend in
equities. Another issue is what does this mean for monetary policy? I think
Ryan Avent (via Brad DeLong as the Economist server appears to be down
at the moment) captures the general spirit:
This report will be widely analysed within the context of this year's
political elections, despite the fact that the single most important
influence on employment growth now and over the next four years will
be the stance of monetary policy. As this report is consistent with
recent Federal Reserve forecasts, indicating that the Federal Open Market
Committee is satisfied with present employment trends, policy is unlikely
to change in reaction to anything released today
The data is sufficiently disappointing as to not alter the view of the
doves, and notably Federal Reserve Chairman Ben Bernanke, that there is
no need to tighten policy in the near future, leaving the 2014 timing intact.
Thinking about the trends as noted above, there is no reason on the basis
of this report to believe that a significant deterioration in the outlook
has or is about to occur, and thus no reason to expect this will nudge the
FOMC toward another round of QE. This I find unfortunate because, as I noted
earlier, the longer the Fed continues to operate policy along the post-recession
growth trend the more likely it is that this will indeed become the new
trend for potential output.
Burk
This also makes the case that resuming fiscal stimulus should certainly
be on the table, to anyone with eyes to see.
Edward Lambert:
There is so much more that has to be balanced in the economy beyond fiscal
stimulus which by itself is not likely... (taxes, wages, unions, non-competitive
markets, lack of public goods, economic inequalities...) The economy is
sick and won't get back to 100% healthy on a sustainable basis if these
imbalances continue, even with a sizable fiscal stimulus. It's all a matter
of getting marginal social benefits to equal marginal social costs and we
are so far from doing that.
anne:
This bodes poorly for the sustainability of the recent upward trend in equities.
-- Tim Duy
[I have no possible idea where stock prices are going, but from an historical
perspective stocks are not inexpensive:
http://www.multpl.com/
January, 2012
Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2012
(Standard and Poors Composite Stock Index)
April 5 PE Ratio ( 23.31)
February PE Ratio ( 21.64)
Annual Mean ( 16.42)
Annual Median ( 15.82)
-- Robert Shiller]
anne:
http://www.multpl.com/s-p-500-dividend-yield/
January, 2012
Dividend Yield, 1881-2012
(Standard and Poors Composite Stock Index)
April 5 Dividend Yield ( 1.96)
March Dividend Yield ( 2.02) *
Annual Mean ( 4.33)
Annual Median ( 4.27)
* Vanguard yield after costs
-- Robert Shiller
comma1:
Who can replace Bernanke? Are there less rentier focused people out there
that could replace Bernanke? Charles Evans. Anyone else? Is there anybody
who noticed this crisis building?
Darryl FKA Ron:
"Who can replace Bernanke?"
Do you really think it would matter? Can one lone gun do what our elected
government will not? Yes, blame the Fed, because they do not have to be
elected by the people. How far can you push on a string?
"Is there anybody who noticed this crisis building?" Lots of people saw
it coming. Certainly the betting mob over at Goldman Sachs that was hanging
on to credit default swaps waiting since 2005 saw it coming. The Fed chair
that retired early in 2006 probably saw it coming. The new younger Fed chair
that had written his doctoral thesis on the Great Depression probably saw
it coming. Dean Baker saw it coming. Mike Stathis saw it coming. Hell, I
even saw it coming loosely as return to recession by 2004 and then by 2006
as a major financial system collapse and prolonged recession.
What could anyone have done during the Bush administration (or probably
any other in the last forty years or more) to rein in Wall Street investment
banks from there CDO/MBS and derivative bets feeding frenzy while so much
money was exchanging hands. That would have take credibility and courage
that did not exist because you can easily take measures in a crisis that
are dozens of times more extreme than what you could politically survive
undertaking against the flow of Wall Street financial rewards regardless
of the risks considerations. The stop light cannot go up until the dead
are counted.
comma1:
We each have a part to play, and Mr. Bernanke or his replacement has
a bigger role than most.
To point at Congress and say they aren't acting so I won't act, is the
same mentality that gave us CDS's and the housing bubble in the first place.
It is herd mentality. Bernanke is afraid of the herd. Someone with the courage
of their convictions may not be. Who would that person be?
Aaron:
Our national debt has increased from 10 to 16 trillion dollars between
2008 and 2012, and we have been very little positive to show for this massive
debt increase. So far, infrastructure spending and not cutting social security
has had a beneficial effect on the economy. The administration put money
into the economy, and interest rates never rose to crowd out private investment,
so it’s been like free money up to now. However, we really don't seem to
have gotten that much for the 6 trillion, and at some point interest rates
will rise, and we'll have to pay the back what we owe. After you add all
the negative impact on the economy when we go from receiving benefits to
paying cost it may not seem worth the price.
Maybe the Democrats's plan is like one of those net present value problems
where you look at the plan and decide if it's worth doing based on the timing
of the cash flows, and the cost of capita. I doubt that anyone at the Whitehouse
or the FED is doing this type of analysis. And I doubt they are evaluating
competing plans to find the one with the highest return. I favor broad-based
tax cuts, cuts, liberalizing regulation, and explicitly reversing economic
policy such as preventing drilling and building pip lines where the policy
lowers economic growth. However, I suspect that for ideological reasons
the current administration will keep pushing marginal infrastructure projects
and abusing the social security system to push some spending money to the
middle class and minimize the payout to those controlling new job creations
in the economy.
Observer:
" ... and at some point interest rates will rise, and we'll have to
pay the back what we owe."
I don't see any evidence that anyone ever intends to pay it back. The
most aggressive plans on offer just reduce the rate of debt increase.
The "Grand Bargain" discussed some months ago was typically characterized
as reducing the deficit by $4 billion; it would have been more accurate
to characterize it as increasing the debt by $6 trillion (rather than $10
trillion).
I looked for the Stein quote to check the wording, and found this Krugman
from 2003:
"Academic economists often cite Stein's Law, a principle enunciated by
the late Herbert Stein, chairman of the Council of Economic Advisers during
the Nixon administration. The law comes with various wordings; my favorite
is: ''Things that can't go on forever, don't.'' Believe it or not, that's
a useful reminder.
For we're now led by men who think that macho posturing makes Stein's
Law go away. On issues ranging from budgets to foreign policy, they insist
that we can sustain the unsustainable. And when challenged to explain how,
they engage in magical thinking.
The prime example I have hammered on in this column is, of course, the
federal budget. Realistic budget projections say that current policies aren't
remotely sustainable. For example, a month ago a joint report of the Committee
for Economic Development (a business group), the bipartisan Concord Coalition
and the Center on Budget and Policy Priorities concluded that under current
policies, federal debt would rise by $5 trillion over the next decade. And
then baby boomers will start collecting benefits, and our debt will really
explode.Such explosive growth in debt can't go on forever, and it won't.
Yet our current leaders and their apologists insist that the problem
will magically solve itself. Last year's deficit came in slightly below
forecasts, and we've had one quarter of good economic growth -- see, we'll
grow out of the deficit!
But we won't, and there will eventually be a day of reckoning. As Bill
Gross of Pimco, the giant bond manager, says, ''Sooner, perhaps later, our
Asian creditors will wake up and smell the coffee.'' (Yes, the federal budget
and the value of the dollar now depend on huge purchases of Treasury bills
by the governments of Japan and China.) When they do, he predicts ''higher
import costs, a cutback in spending on cheap foreign goods, rising inflation,
perhaps chaotic financial markets, a lower standard of living.''
Something to look forward to."
http://www.nytimes.com/2003/11/04/opinion/this-can-t-go-on.html
Charlie Baker
"...the inflation hawks on the Fed -- the people who see inflation ahead
even though there are no signs at all of an impending inflation problems
-- are standing in the way."This is true, but there's plenty of blame
to go around. Over 500k government jobs lost due to fake concerns about
the deficit. Team Obama's failure to fully assess the impact of the downturn.
Geithner's "save the banks first" policy. Fact-free discourse in our legislative
branch. An untethered, fully indemnified financial system given free reign
to resume looting.
So the short answer to the question "Will Policymakers Respond?" is "not
really." They will give us word salad, of course, but words like deleveraging,
disinflation, inequality, and lack of demand won't be on the plate.
For those who like pictures better, once again, from Calculated Risk,
the scariest chart in the world:
http://1.bp.blogspot.com/-95b2uGl5Mi0/T37yVzzRHDI/AAAAAAAAMt0/Ge4w8MaPv5c/s1600/EmployRecAlignedMar2012
"I don't expect this to 'stick' especially in stocks. These moves have the appearance
of perception management and the usual trading desk antics."... "Wall Street is
desperate to hand this rally off to the retail buyers. Without volume it cannot
continue without becoming increasingly unstable. "
April 03, 2012 | Jesse's Café Américain
SP 500 and NDX Futures Daily Charts - Desperately Seeking Buyers for the
Bernanke Bubble
The FOMC minutes precipitated a drop in the markets.Gold and some of the
miners were hit hard, with silver, bonds and stocks down to a lesser extent.
The US dollar rallied.
The rationale was that there would be no QE and that perhaps the FED would
raise rates. Given the recent data from income tax receipts and wages this appears
to be more a fantasy than a sound fiscal policy.
I don't expect this to 'stick' especially in
stocks. These moves have the appearance of perception management and the usual
trading desk antics.
The spokesmodels were rather eager to twist this into an endorsement by the
Fed of 'the recovery' and did the segway to 'buy stocks.'
Bernanke and the Fed have given themselves over to the monied interests.
They are no true regulators, and serve only themselves.
But the same could be said of those who have taken the oaths of regulators,
who sit idly by while the people are cheated and their savings are stolen.
Wall Street is desperate to hand this rally off to the retail buyers. Without
volume it cannot continue without becoming increasingly unstable.
Jesse's Café Américain
Financial analyst Reggie Middleton is
interviewed on a range of topics by Max Keiser.
- Fed bought 61% of new Treasury debt issuance distorting markets
- Higher oil prices are due to monetization of the currency and not increased
demand
- Higher education has all the characteristics of a debt bubble
- Big name investment banks are taking advantage of their clients in order to
make short term financial goals
- JPM and other TBTF banks have forged partnerships with governments to public
detriment
- Facebook IPO is good for Mark Zuckerberg but not for shareholders, Wall St.
marketing
TODAY is my last day at the Empire.
'I no longer have the pride, or the belief'
After almost 12 years, first as a summer intern, then in the Death Star and
now in London, I believe I have worked here long enough to understand the trajectory
of its culture, its people and its massive, genocidal space machines. And I
can honestly say that the environment now is as toxic and destructive as I have
ever seen it.To put the problem in the simplest terms, throttling people
with your mind continues to be sidelined in the way the firm operates and thinks
about making people dead.
The Empire is one of the galaxy's largest and most important oppressive regimes
and it is too integral to galactic murder to continue to act this way. The firm
has veered so far from the place I joined right out of Yoda College that I can
no longer in good conscience point menacingly and say that I identify with what
it stands for.
For more than a decade I recruited and mentored candidates, some of whom
were my secret children, through our gruelling interview process. In 2006 I
managed the summer intern program in detecting strange disturbances in the Force
for the 80 younglings who made the cut.
I knew it was time to leave when I realised I could no longer speak to these
students inside their heads and tell them what a great place this was to work.
How did we get here? The Empire changed the way it thought about leadership.
Leadership used to be about ideas, setting an example and killing your former
mentor with a light sabre. Today, if you make enough money you will be promoted
into a position of influence, even if you have a disturbing lack of faith.
What are three quick ways to become a leader? a) Execute on the firm's 'axes',
which is Empire-speak for persuading your clients to invest in 'prime-quality'
residential building plots on Alderaan that don't exist and have not existed
since we blew it up. b) 'Hunt Elephants'. In English: get your clients - some
of whom are sophisticated, and some of whom aren't - to tempt their friends
to Cloud City and then betray them. c) Hand over rebel smugglers to an incredibly
fat gangster.
When I was a first-year analyst I didn't know where the bathroom was, or
how to tie my shoelaces telepathically. I was taught to be concerned with learning
the ropes, finding out what a protocol droid was and putting my helmet on properly
so people could not see my badly damaged head.
My proudest moments in life - the pod race, being lured over to the Dark
Side and winning a bronze medal for mind control ping-pong at the Midi-Chlorian
Games - known as the Jedi Olympics - have all come through hard work, with no
shortcuts.
The Empire today has become too much about shortcuts and not enough about
remote strangulation. It just doesn’t feel right to me anymore.
I hope this can be a wake-up call. Make killing people in terrifying and
unstoppable ways the focal point of your business again. Without it you will
not exist. Weed out the morally bankrupt people, no matter how much non-existent
Alderaan real estate they sell. And get the culture right again, so people want
to make millions of voices cry out in terror before being suddenly silenced
As 79 million of my fellow Baby Boomers retire over the next 20 years, federal
spending related to Social Security and Medicare benefits will skyrocket. Let's
see which Congressmen and Senators want to campaign on reducing the entitlements
of the "entitled" generation. By the way, for an excellent article on current
and future entitlement spending, see [
the U.S. economy is likely to avoid slipping back into a recession in the next
12 months as moderate strength in domestic demand offsets weaker foreign demand.
Although a recession is likely to be avoided, U.S. growth will not be sufficient
to bring down the unemployment rate significantly, which, in the context of
moderating inflation, could prompt another round of Federal Reserve asset purchases,
i.e., quantitative easing (QE).
The Federal Reserve will keep the federal funds rate near zero and the ECB
will continue to lower its policy interest rate. Central banks in developing
economies will ease their policies aggressively.
Sluggish global economic growth and the sovereign-debt problems in the eurozone
are likely to keep global investors¡¦ risk aversion at a relatively high level.
According to mainstream commentary, a tax cut and/or government spending
increase is supposed to result in faster economic growth.
Thus, according to mainstream commentary, changes in the cyclically-adjusted
federal deficit should be negatively correlated with changes in GDP.
That is, a tax cut and/or an increase in government spending resulting in
a larger cyclically-adjusted federal deficit should be associated with faster
GDP growth.
Almost 50 years of U.S. data show no significant relationship, i.e., a very
low correlation coefficient, between changes in government deficits and changes
in GDP.
SkiCougarRe: globaleconomicanalysis.blogspo...
Yes, but things are getting better says CNBC on a daily basis.
When gas prices climb another 50 cents to dollar by memorial day, it's going
to hit the US like a hammer that not even QE3 or Twist 2 can stop. I do think
the next recession for the US starts before 2013. We'll see if the president
can hold it off until he can get re-elected.
Relax, in the short term of Q1, inventory buildup will be good for GDP numbers.
Bernanke pushes on a string long enough, people may stockpile even more inventory,
or just enough for Republicans to keep the House and Obama to keep the White
House. Everything ends nicely for everybody already in power.
It's just the rest of us that have to pay for it.
Firemane:
black dog wrote:
But while ‘econometeorology’ has been an interesting sidebar to jobs
growth of the past several months, what we are really seeing is economists
seeking to explain a significant one percentage point drop in the unemployment
rate with more modest actual GDP growth ...
I can explain it, (not that anyone cares about my opinion).
"Normal" recession works like this:
1) Unemployed total climbs by about 2 million over a 9-18 month period while
GDP goes negative for a couple of quarters.
2) GDP turns positive, and the 2 million unemployed get re-employed over
roughly the same time frame they got laid off (9-18 months).
3) If GDP growth is "strong", then "recovery" (re-hiring the lost workers),
turns into "expansion" - and unemployment rate can continue down.
What happened in 2007-present.
- Unemployed total climbs by about 2.7 million over 18 months from
March of '07 to Sept of '08 - (fairly normal recession).
- At point where "normal" recession would end and "recovery" would
begin, instead we had the financial shock of Sept '08.
- The response to the financial shock was from Sept '08 to Oct '09,
total unemployed climbed by an ADDITIONAL 6 million.
- Since late '09, we have had a "recovery" from the "normal" recession
- effectively gaining back the initial 2.7 million lost jobs - a tad
slower than normal - but that's understandable given the economic shock
added job losses for an extra year.
The reason unemployment can drop despite low GDP growth is because this
is a "recovery" of jobs lost, (and IMO, the majority of the 6 million lay
offs after the financial shock were not "required" layoffs). It is my belief
that the economists as a group are not differentiating between "expansion"
and "recovery".
All of this happening right at the cusp of the Baby Boomer Exodus just
makes the waters that much murkier in attempting to judge what is really
happening. The "panic" firing of 2009 breaks normal recession recovery rules.
The Boomer Exodus into retirement breaks the historic unemployment comparisons.
If not for the Exodus, the peak unemployment would've been well over 11%
and the current would be well over 9%. But, we have had the Exodus, so it
is what it is.
To greatly oversimplify - at the end of 2007, we had an economy X-size
- and it employed 146 million people. ZERO net growth over the next 4 years
should (in theory) support 146 million jobs. Instead, we have 142 million
jobs, AND an economy that is somewhat larger.
Technically, in regards to employment, you do not have "expansion" until
you have exceeded the total employment figure from before the recession,
you have recovery. While inflation and wages are variables that muck this
up - GDP (allegedly) takes inflation into account. In short - you don't
"need" excessive GDP growth to simply recover what you lost -- you only
"need" solid GDP growth to move beyond where you were before.
Former Idealist:
"Normal" recession works like this:
I'm so sick of this recession being called
a "balance sheet recession" when it was an OFF balance sheet recession,
and still is.
Inflation is not growth.
sum luk:
Former Idealist wrote:
Inflation is not growth.
Economist's View- No Sign of an Inflation Problem
Oman wrote:
If not for the Exodus, the peak unemployment would've been well over
11% and the current would be well over 9%. But, we have had the Exodus,
so it is what it is.
While we rail at Bernank, for reflating asset prices, this still will help
the exodus continue. Seems completely overlooked sometimes. I think if you could
have an honest answer from him this would be his rational.
I think, but don't know, that he realizes it helps the banks; but, he sees no
viable alternative. Get the BB out with some assets; and, meke room for the
next generation.
Traders fear a major case of déjà vu this spring, where investors pocket
their profits, and really do go away. The "sell in May" phenomena occurred in
the past two years, after stocks peaked in April.
However, some analysts expect a less severe sell off this year and mostly
agree a pullback is overdue. Last year, the S&P 500 lost 21.6 percent between
May 2 and Oct. 4. "Everything suggests it," said Binky Chadha, Deutsche Bank
chief global strategist.
"Pull backs are normal, and in the sense the length of this really smooth
ride up is unusual. I think there's been very limited participation in this
rally. So, it's very likely the pull backs will get bought. On the basis of
history, we're due for a pull back," he said.
LPL Financial chief market strategist Jeffrey Kleintop says, in a note, that
the sell off this year could be more shallow because of two positives that weren't
there last year. One is that central banks around the world are now cutting
rather than hiking rates, and the second is that housing is showing signs of
life.
The negatives include concerns about China slowing down, a European recession,
election uncertainty, the end of the Fed's "operation twist" program.
Kleintop said there are ten things he's watching to see if a spring sell
off is in the offing.
The Fed tops his list. In the past two years,
the Fed's quantitative easing programs came to an end in spring or summer
and stocks sold off until the next program was announced.
Last' year's "operation twist" was announced in
September, and stocks began to take off on their current run in October.
That program expires in June, and traders are watching the Fed's April meeting
for a reading on whether the program will end, be extended or replaced with
something else.
Also on his list are economic surprises, which if you watch the Citigroup
economic surprise index it appears it may be retreating from a peak in February.
Consumer confidence is another indicator, and its close to highs now but will
be watched to see if it turns lower.
Earnings revisions will also matter. In the first quarter of 2010 and 2011,
earnings estimates moved higher as earnings reports looked better, but in the
second half guidance disappointed as the number of upward revisions declined.
This year, he says the same may occur.
The yield curve is another guide.
The spread between the 2-year and 10-year Treasury ,
currently about 1.80, could indicate
concern about he economy if it continues to narrow, or flatten.
A big flash point for stocks has been
oil prices.
Kleintop notes that's oil in 2010 and 2011 was up $15 to $20 a barrel from the
start of February, two months before the market began to sell off. This year,
oil was already high and it is up only about $10 since the beginning of February.,
but a further surge would be worrisome.
Kleintop also watches LPL's financial current conditions index, which peaked
around 240 to 250 in April of the past two years. This year it reached 249 already
and has fallen to 232.
The VIX, the CBOE's volatility index, is another
widely watched signal. On Wednesday, it was up almost 10 percent,
but it is still at very low levels around 17. Kleintop said
the low reading in the VIX could be suggesting that
investors are complacent and could be surprised by a negative event.
Weekly jobless claims, reported Thursday morning,
are another important indicator for the stock market. Viewed
as one of the most consistent measures of employment activity, weekly claims
have been holding at the 350,000 level, but in early 2010 and 2011, they stopped
improving in April.
With rising gasoline prices,
inflation expectations is another concern. The University of Michigan survey
showed a rise in inflation expectations in March and April in 2010 and 2011.
This year inflation expectations also jumped, reaching 4 percent in March, Kleintop
noted.
Future generations will look back and ask themselves, 'How could they not see
what was happening? Were they blind?'The Fed is not the only problem here,
but a key enabler. White collar crimes and fraud flourished amongst the robber
barons even in the days of the gold standard. It just was not as convenient,
as easy, to defraud the people en masse through the debasement of the
currency.
The Fed has merely proven to be as vulnerable as the regulators and the Congress
to the power of the monied interests. If the political campaign process had
not been corrupted by money, if the fairness doctrine in the media and Glass-Steagall
in banking had not been overturned by the mindless impulse to cast aside the
best of the laws, many of the problems we have today would not be so great.
These fellows creates crises, and then 'save us' from them, while lining
their own pockets and perpetuating the swindle for their less publicly visible
puppet masters.
There is little doubt in my own mind that Greenspan knew exactly what he
was doing, and made his fateful decision after a meeting with Robert Rubin in
the 1990's shortly after his famous 'irrational exuberance' speech. What was
said, what was promised or threatened, I cannot say. But the change in direction
became clear. It became open season on the voices of reason and restraint in
Washington.
What Clinton hatched, Bush brought to full fruition, particularly with his
tax cuts, stock bubble, and unfunded wars. And when the Great Reformer came
to Washington in the midst of the collapse, he brought back the very advisors
who had helped to create the problem in the first place and betrayed the mandate
of those who had elected him, prosecuting no one.
And in the aftermath of the financial collapse, the first popular reform
movement that rose up in anger against the bailouts, The Tea Party, was quickly
turned into a corps of willing tools that turned on the weak and the least among
us, the very victims of a corrupt system, in their petulant pride and misdirected
anger.
I only fear that the Fed, and some of the perpetual outsiders of history,
will be made the scapegoats by the real culprits when the time of reckoning
comes, and that genuine reform will be thwarted once again as it has been so
many times in the past. Their hypocrisy and shamelessness knows no bounds.
NYT
Who Captured the Fed?
By DARON ACEMOGLU and SIMON JOHNSON
March 29, 2012, 5:00 am...But in the light of the crisis of 2008 and
its aftermath, we have to ask: Has our central bank fallen back under the
influence of special interests?
...At the dawn of the republic, Thomas Jefferson railed against the risks
posed by government backing for concentrated power in the financial sector.
President Andrew Jackson fought to abolish the Second Bank of the United
States in the 1830s, the leading private bank of his day, which helped manage
public finances and the banking system. Consequently, there was nothing
resembling a central bank in the United States for much of the 19th century.
The Federal Reserve System, created in 1913, was a uniquely American
compromise, trying to balance public and private interests. Banks controlled
the boards of the 12 regional Feds – with big Wall Street firms holding
great sway over the New York Fed, which had a disproportionate influence
within the system as a whole — and still does.
This version of the system presided over a crazed and highly leveraged
stock market boom in the 1920s and the catastrophic collapse of credit in
the early 1930s, while protecting the big Wall Street firms.
...Unfortunately, as the United States and other countries learned after
1945, clever politicians can use central banks to manipulate the business
cycle, boosting output growth and cutting unemployment ahead of elections.
Richard Nixon, for example, famously pushed the Fed to ease monetary policy
when it suited him.
...Increasingly, however, it seems that technocratic policy-making is
just a myth. We have come full circle, and the Wall Street banks are calling
the shots again.
Crucially, the idea that politics is just about electioneering misses
the point. Politics is about getting what you want, not just through the
ballot box but by persuading people in public office to take actions that
help you. So declaring the central bank independent doesn’t move it outside
the orbit of politics.
Monetary policy has an impact on inflation, output and employment. But
it also has a major impact on stock market prices. Any central banker raising
interest rates is reducing stock market values and thus eroding the bonuses
of top bankers and other chief executives.
Those people will lobby, asserting that higher interest rates will undermine
the economy and cause us to plummet into recession, or worse.
In principle, the Fed could stand up to the bankers, pushing back against
all specious arguments. In practice, unfortunately, the New York Fed and
the Board of Governors are quite deferential to financial-sector “experts.”
Bankers are persuasive; many are smart people, armed with fancy models,
and they offer very nice income-earning opportunities to former central
bankers.
We have lost track of the number of research notes from major banks pleading
for easier credit, lower capital requirements, delay in implementing financial
reforms or all of the above.
In recent decades the Fed has given way completely, at the highest level
and with disastrous consequences, when the bankers bring their influence
to bear – for example, over deregulating finance, keeping interest rates
low in the middle of a boom after 2003, providing unconditional bailouts
in 2007-8 and subsequently resisting attempts to raise capital requirements
by enough to make a difference.
As the American economy begins to improve, influential people in the
financial sector will continue to talk about the need for a prolonged period
of low interest rates. The Fed will listen.
This time will not be different."
Read the entire article
here.
29 March 2012What makes the attached essay on the US banking system so striking
is not so much what is being said, since others have said it before, but rather,
who is saying unequivocally that the status quo in the US banking
system presents 'a clear and present danger' to the national economy.
"More than three years after a crippling financial crisis, the American
economy still struggles. Growth sputters. Job creation lags. Unemployment
remains high. Housing prices languish. Stock markets gyrate. Headlines bring
reports of a shrinking middle class and news about governments stumbling
toward bankruptcy, at home and abroad.Ordinary Americans have every right
to feel anxious, uncertain and angry. They have every right to wonder what
happened to an economy that once delivered steady progress.
They have every right to question whether policymakers know the way back
to normalcy. American workers and taxpayers want a broad-based recovery
that restores confidence. Equally important, they seek assurance that the
causes of the financial crisis have been dealt with, so a similar breakdown
won’t impede the flow of economic activity.
The road back to prosperity will require reform of the financial sector.
In particular, a new roadmap must find ways around the potential hazards
posed by the financial institutions that the government not all that long
ago deemed “too big to fail”—or TBTF, for short.
In 2010, Congress enacted a sweeping, new regulatory framework that attempts
to address TBTF. While commendable in some ways, the new law may not prevent
the biggest financial institutions from taking excessive risk or growing
ever bigger.
TBTF institutions were at the center of the financial crisis
and the sluggish recovery that followed. If allowed to remain unchecked,
these entities will continue posing a clear and present danger to the U.S.
economy.
As a nation, we face a distinct choice. We can perpetuate TBTF, with
its inequities and dangers, or we can end it. Eliminating TBTF won’t
be easy, but the vitality of our capitalist system and the long-term prosperity
it produces hang in the balance.
Harvey Rosenblum, Choosing the Road to Prosperity: Why We Must End
Too Big To Fail - Now, Dallas Federal Reserve Bank
Harvey Rosenblum is the Dallas Fed’s executive vice president and
director of research.
Read the rest
here.
The perpetuation of the status quo is favored by the monied interests on Wall
Street and the very powerful New York Fed which has always been their house
bank.It is also supported by the politicians and advisors of both parties
who have become addicted to taking Wall Street money, both as campaign contributions,
as well as highly paid sinecures and consulting fees when they leave office.
The Banks must be restrained, and the financial system reformed, with balance
between individuals and the corporations restored to the economy, before there
can be any sustained recovery.
sam
Of course Ben Shalom Bernanke is talking up aggregate demand. He wants another
round of QE. The banking cartel wants another QE. And the stock market wants
another round too.
kind of like flair bartenders pouring shots directly into an alcoholic's
gaping mouth...of course, anyone who has ever gotten drunk and sick knows
that the shit can hit the fan pretty quickly and all of a sudden and then
you find yourself throwing up all over floor.
And in other news, the US national debt looks like it's heading towards
$16 trillion by election day.
ken melvin
It's a new economics, the old models don't apply. It's not about mismatches
nor demand, it's all about offshoring and automation.
Tyler
I reject "foresight" being mentioned in the same sentence as "Greenspan"
unless the sentence goes, "During his time as Fed chairman, Alan Greenspan
exhibited the exact opposite of foresight."
bakho
All societies that achieve an increase in productivity through process improvement
or from trade will have a need for less labor or the ability to provide
more goods and services. There are several ways to address excess labor.
1. Allow unabated Unemployment Hell for a lost generation of workers who
form a societal underclass.
2. Distribute the leisure time among everyone with shorter work week.
3. Have BigG as employer of last result employ people to provide additional
goods and services.
Cheap Labor Republicans and conservatives really like #1.
Dean Baker and the Sandwichman really like #2 but that solution may be
too "French" for the US.
#3 is a resurgence of New Deal and Great Society Policies that are viciously
attacked by conservatives and poorly defended by too timid, easily cowered,
post-partisan Democrats.
Under the current Do-Nothing Congress, we have the default which is Unemployment
Hell.
Ellis
Actually, I think companies are squeezing more work out of fewer people.
So are government agencies. Just ask the school teachers who are now faced
with much bigger class sizes, while hundreds of thousands of teachers are
forced onto the street. Don't economists and government officials read the
newspapers or speak to actual people who are not upper class?
Edward Lambert
Savings rate is going down again... demand will not return like it once
was... based on easy credit...
The only way to recover demand according to the long-term trend is by raising
wages and/or providing better puclic goods and services (including health
care).
Lafayette
ALAS{The only way to recover demand according to the long-term trend
is by raising wages and/or providing better puclic goods and services (including
health care)}
There is yet another way: Putting people presently on UI back to work.
Raising wages is the devil's handiwork. Why did WalMart become America's
favorite shopping center? Because it realized long, long ago that Americans
want to save a buck - and they don't give a damn who produces the product
they think they want or need.
BigAuto, by its incessant renegotiation of both Comp & Ben, priced itself
out of the market - aside from the fact that it was producing too many lemons.
It's health-care benefits were particularly onerous and, I once saw reported,
added 1200/1500 dollars per car.
What can we learn from that experience? That if the US had a National
Health Care system, the costly insurance policies that impact the Benefits
Package would be far less expensive and the cost would not need to be recuperated
from end-product's market price.
Thus making our goods/services both domestically and internationally
more competitive. So, why are the Supremes (this day) pondering the present
palliative of a universal HC system that might succeed in offering more
people coverage but will not reduce overall costs?
Why can we not come to our senses in Congress and pass a bill that does
incorporate a Public Option (offered by the Federal Government) and thus
reduce the costs to small and medium-sized companies?
Because BigInsurance does not WANT a Public Option that will reduce drastically
their profit levels.
It's all about profits and not Health Care. Alas.
mmckinl
"Are the Losses Permanent?"
Well the Japanese have been struggling for over two decades. And that
is the model the "powers that be" have chosen.
Krugman and others argued for the "Swedish Model" of writing down bad
debt but that never happened and there has been quiet on the Krugman front
since.
Instead of writing down bad debt they just changed the accounting rules
from mark to market to "mark to make believe".
The banksters and the Fed conceal the losses while using stealth bail
out techniques and accounting gimmicks like marking to market their own
outstanding bonds to stem the tide of red ink.
Once again here is the graph for the Japanese scenario:
http://economistsview.typepad.com/.a/6a00d83451b33869e2016764240899970b-popup
This is what we are in for plus the drag even implosion of peak oil driven
higher oil prices. As I write this RBOB is $3.41 and regular gas in Chicago
is over $4.50.
It's only going to get worse ... higher oil prices and eventually another
economic tailspin or stagnation and a muddling economy.
I'll repeat what I posted earlier ...
"My suspicion is that the Japanese model was adopted by the US and Europe
because of "peak oil". Suppressing growth reduces oil use.
They know that any kind of growth will push oil to prices that will economically
be even worse than stagnation.
They also know that that admitting to peak oil is admission of the limits
to growth and the death knell of private bank fractional reserve banking."
mmckinl
Peter K ~"The talk of peak oil and fractional reserve banking sounds like
paranoia to me."
Then you don't understand that the creation of private bank fractional
reserve banking leveraged debt is of future promises that can not be kept
with the end of growth ... or how our money is created.
Leveraged debt in the face of the limits to growth is a Ponzi Scheme.
The arrival of peak oil whereby transportation and food production prices
skyrocket increasingly sucks out disposable income crashing the peripheral
economy.
Lafayette
"as we transit from the Industrial to the Information age"The products
that we use are industrial production outputs, including the IT hardware.
Software (information processing) collects, stores, retrieves and analyzes
data. The devices, media, and network to do this are industrial products.
The software or knowledgeware, may facilitate communications (such as social
networking or on-demand entertainment), operations reseach, accounting,
other scientific research, and (as we are becoming increasingly aware) market
demographics and advertising. Software does not provide the things we need
it, but it can make the provision more efficient. It can also keep us entertained
and distracted while the world around us crumbles. If you do not have food
or shelter, then you would know that you really need it. If you did not
have FaceBook then you might not really know you needed it, because indeed
you don't. We have always needed food and shelter. Transportation became
necessary as humanity moved away from self provision subsistence. There
is no service economy nor information age. We will remain in the industrial
age until we go back to the stone age.
I entered the IT industry in 1968, before it became fashionable. Now
that it has become fashionable the general understanding of its relationship
to the economy is still abysmal. Only in the finance industry does IT actually
play its much lauded role so independent of non-IT industrial production,
an we know how much good that has done us. BTW, I count agriculture as industrial
production as industrial agriculture produces most of our consumption.
Darryl FKA Ron
Besides code monkeys offshore easier now than steel.
Lafayette
IT'S THE INEQUALITY{We have always needed food and shelter.}
Yes and this was displayed in a more holistic form by Maslow in his Hierarchy
of Needs (in the early 1940s, btw):
http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs
However we may tweak an economy, we are nonetheless responding to that
hierarchy of needs.
Information Technology is a "great facilitator" and has become a central
part of our economy, regardless of where one might want to classify its
applications. The technology is used across the board because, as you say,
it provides for our needs more efficiently than whatever came before.
And we can expect it to continue to do so. What we do not understand
is the need to keep up in parallel with the technology by means of our intellectual
capacities in the form of skills/talents.
We should have learned by now that any manufacturing that requires nimble-fingers
in sweat-shops will be sub-contracted to the Far East. Which means our people
must realize that "brain" is replacing "brawn", though not entirely. Meaning
brawn-work will still exist (namely in construction) but it is brain-work
that will feed the larger part of our nation's citizens.
And we are not taking seriously enough the fact that capital (business
investment) is necessary but not sufficient. Far more important is brain-work
(labor input) set to business tastal. But, that is - I submit - very, very
far from becoming a commonly understood and accepted notion.
MY POINT?
It's all so very simple (to me): We've gone overboard in the blind rush
for capital (aka exaggerated riches), without understanding that the process
exacts a choice between Return on Capital and Return on Labor.
An economy can optimize both, but maximizes only one or the other - and
ours has been maximizing Income Disparity. Which is why confiscatory taxation
(above a certain level of both marginal and capital gains income) is necessary
for us, as a nation, to stop incentivizing the accumulation of exaggerated
riches.
It's the Inequality, stupid. No personal offense intended, but a lead-in
to the title of this link here at Mother Jones:
http://motherjones.com/transition/inter.php?dest=http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
(Be sure to punch "skip the message" that may come up on a blank-page)
Darryl FKA Ron
" but it is brain-work that will feed the larger part of our nation's citizens."
Nope, it is industrial agriculture. Some of the brain-work folks just can
make enough money to eat more and/or better than some brawn-work people.
Food is still grown on farms. Computers will not change that. Computers
can optimize the distribution channels for lowering energy use and even
help with managing irrigatio and pesticides. But infomation technology is
just optimizing tool in a system rather than a productive system in itself.
Wealth distribution effects have to do with our focus on short term windfalls
via speculation and monopolization. Consolidating mergers and IP rents are
thieves. Together they have enabled global labor arbitrage to advance at
a rate faster than structural replacement of employment. The resulting interdependence
in the global economy will put all nations at risk due to over-specialization
that cannot be maintained against the pressure of peak oil. The miracle
of trade goes mostly to the middle men.
Lafayette
It seems then that you forgot that it takes money to buy food.All the
advances in agriculture for the past fifty-years have come from brain-work,
not brawn-work. A tractor is just a tractor.
But by means of intensive farming, we need fewer farmers - so those in
surplus should go drive taxis?
Not quite the best solution, is it?
Darryl FKA Ron
My point is that there is only so much ratio of IT brain work to productive
work that we can expect, unless we can expect an economy based only on financial
intermediation and social networking. There is a lot of brain work, more
or less IT-wise, in traditionally brawn work endevours of production that
may in part be done by machines so long as we have the energy resources.
That can still be the case if we go back to mules and grass for power sources.
Intelligent use of scarce resources can be knowlegde intense. At some point
in the future our currency will fall to its trade balanced value again,
whether because standards of living align globally, transporation fuels
become too expensive, or our competitors help it along by shorting their
own dollar reserves. Then the relative values of capital markets, financial
intermediation, marketing, and production of goods will realign themselves.
At such time we will be in great poverty of the means of production.There
is plenty of knowledge necessary to live in the world besides IT. We should
have all of it (e.g., biology, civil engineering, machinists, horticulturists,
- everything). Even running a machine with skill is a type of knowledge
or leading a mule or plumbing. Computers are just a tool. The information
age may dazzle, but Maslowe still rules our lives. Money is just a store
of value from labor expended and resources taken from the ground. At some
point the value of the money that we print can only equal the value of our
labor and resources.
Lafayette
{My point is that there is only so much ratio of IT brain work to productive
work that we can expect, unless we can expect an economy based only on financial
intermediation and social networking.}Why? Just go to Taiwan and see
what is happening. It has very little arable land and yet it does just fine
- with a lot of brainwork, that is.<
Darryl FKA Ron
Taiwan's economic model would not scale well. It is compact and they are
a net exporter, which makes their economy dependent on global economic conditions,
but is necessary because of how much they must import to support the densely
packed population. Transportation costs would be less of a problem in such
a small space. They manufacture techonology hardware, but I see that they
do have a large service sector. Much of that is finance and financial intermediation
is working for them now given the growth in manufacturing in other Asian
countries.My opening argument was about the "Information Age" which is
an incorrect assessment of both global and national economies. It is a wrong
way of looking at the world, just like treating everything as just a matter
of finance. Everyting is just a matter of everything. You can do some barter
and benefit by it, but every interdepency is a dependency and vulnerability.
Size and population density matter when it comes to economic advantages
or even alternatives.
Lafayette
{My opening argument was about the "Information Age" which is an incorrect
assessment of both global and national economies. }I beg to differ.
The transition applies to the world, but it starts with developed economies.
And to think it is not happening is to suffer from a heavy dose of nostalgia.
Worse yet, if we do not make an effort to enhance brain-work skills and
talents, then we drop so far back in the race that eventual catch-up becomes
impossible.
Don't intellectualize the menace, because that's a cheap cop-out. Leave
that to rank economists. History tells us that economies grow and die, leaving
just the debris of societies in their wake.
The US as a modern example of the Roman Empire? Of Egypt? Or dynastic
China? Or the United Kingdom?
As an outcome, it is more than just possible - it has become probable.
Darryl FKA Ron said in reply to Zlati Petroff...
"You think you or anyone else would have done much better?"Well yeah,
a lot of people could have done better, even myself. But to get to someone
that was well documented on forecasting all of the events of 2008 I am stuck
with a guy that is a bit crazy and really likes to blow his own horn. But
his pitch is legit. I saw his CSPAN Book TV road show of "America's Financial
Apocalyse" in 2006. That is how I knew what was going to happen, although
it had already been clear to me in 2004 that our recovery was based on a
bubble bound to burst. If you ignore the anger (he has been black-balled
by most of the media since he had worked over two years trying to get Bernanke
to meet with him), the Stathis is highly illuminating. He discusses the
same issues that paine, mmckinl, myself and others discuss here; he just
wrote a book on them which was published in 2006 before most people had
ever heard of a credit defautl swap.
Darryl FKA Ron
BTW, when I saw Stathis on BookTV in 2006 he was really a decent guy. Being
rejected by the Bush administration and then black-balled by the media after
his predictions came true has turned him into a very different person than
he was before. What is most interesting is how effective the MSM and the
rest of the establishment has been in suppressing knowledge of his forewarnings,
but the change in Mike's demeanor has helped make it easy for them to ignore.
Most people think he is just a crank and a crackpot.
beezer
If you really value employment that pays livable wages and benefits, it's
going to happen only if that desire manifests itself politically.Economically,
in my opinion, creating wealth does not create employment that pays livable
wages and benefits. It may create jobs, but left to themselves, those who
create great wealth for themselves would just as soon pay only subsistence
wages. At least that's what happened historically until workers organized
and changed the power (political) landscape.
This nation has forgotten this identity and assumed instead that livable
wages and benefits naturally flow from wealth creation. That would be no.
We should slap on import duties both to balance trade and to force manufacturing
production back into our domestic economy. Will more production jobs in
America raise wages and income and thus raise the cost of goods and services?
That's a yes because manufacturing jobs are more easily unionized and
labor costs will increase the cost of goods. One important nuance here.
The cost of goods will not increase, dollar for dollar, with wage increases.
Anymore than the cost of goods decrease, dollar for dollar, with wage declines.
Anyone who doubts Ben Bernanke's willingness to put the monetary pedal to
the metal should read the text of his speech today at the National Association
for Business Economics Annual Conference.
He argues that buying demand for products and services remains predominantly
a cyclical problem, not a secular problem. That's a fancy way of saying: "If
we just add a bit more stimulus to the U.S. economy, we can find 'escape velocity'
and achieve a sustainable path to economic recovery." In other words, "QE3,
here we come!"
This is a significant milestone that validates a recent shift in the willingness
of institutional investors to reassume risk-taking. Many Wall Street strategists
and economists have been raising their year-end S&P 500 price targets
(from 1,330 at December to now nearly 1,400), and many bearish-leaning hedge
fund investors have begun to capitulate and buy equities as well.
In fact, Bloomberg reports today that hedge funds, woefully trailing
the returns generated by the S&P 500 Index since September, are buying stocks
at the fastest pace in two years! They have no choice but to try and catch up
with the market's rapid ascent.
Of course, a note of caution is warranted. For one, when every investor turns
bullish, there are no marginal buyers left to purchase stocks (and gauges of
hedge-fund bullishness and retail investor bullishness are nearing levels that
traditionally signal interim market tops).
J6P is always the one that pays the consequences;
here and everywhere throughout the world.
ac:
km4 wrote:
The Fed has promised to provide unlimited amounts of dollars to the
ECB, should circumstances require it. It boggles the mind.
It shouldn't.
This is simply history repeating itself for the nth time.
We knew exactly what, how and why it would happen.
We still continue along the path to destruction that history dictates
we will take.
What should interest and confound people is total absence of any kind
of free will at the aggregate level.
ac
This could be the year the Fed becomes irrelevant if gas prices keep
going up.
Nobody's going to be asking for another round of QE if oil is $200/oz.
The thing I hope the Bernanke understands:
The congress will throw him under the bus the moment it becomes convenient.
Once inflation gets out of control every politician on both sides is
going to go on and on about how they thought they were doing the
right thing but were misled by the Bernanke.
If things go wrong this man is going to be the scape goat for everything
bad that happens in the next 10 years.
Cinco-X
ac wrote:
The bubbles will continue until the collapse of the political
and monetary systems creating them.
Bubbles are not a necessary byproduct of a fiat currency....it's just
that they're seemingly too enticing to avoid...
glimmerman
Ride the Bernanke bubble - The Cody Word - MarketWatch
You see the common outcome of all those interpretations? That we’re likely
to continue seeing the stock market bubble right before our eyes because
traders, investors, economists, grandparents, Goldman Sachs and even the
unemployed and broke know that money is likely to chase stocks — tech stocks
and other growth stocks in particular, because where else can you hope to
catch the kind of gains that you’re likely to need to overcome the loss
of value of your money as Bernanke continues to pump new money into the
pockets of the worst banks.
ac:
km4 wrote:
Ben is worse than catering to the 1%
That's the real political danger for the Fed now -- more and more people
are beginning to notice that every thing the Fed does seems to make the
1% richer and richer at the expense of everybody else.
Again, it is historically well-established that fiat currencies
and easy money turn economies into giant casinos where the casino bosses
get filthy rich at the expense of everybody else.
Nobody should be surprised that this is happening.
The reason this is allowed to continue is because the alternative is
too terrifying to contemplate.
Cinco-X
ac wrote:
Again, it is historically well-established that fiat currencies and
easy money turn economies into giant casinos where the casino bosses
get filthy rich at the expense of everybody else.
Nobody should be surprised that this is happening.
The reason this is allowed to continue is because the alternative
is too terrifying to contemplate.
Good post..
ic:
"an implicit admission that Main Street benefits, as well, though
not on the scale of the 1% "
It's a sad fact that real, structural, change doesn't occur without real
pain being inflicted on Main Street.
J6P is always the one that pays the consequences;
here and everywhere throughout the world.
Weeping Willow:
Eric wrote:
No more decaying ETF/ETNs for me.
I never touch those things. I'm patient, with a time horizon longer than
3 minutes, so there are alternate ways. Even things as simple as longer-dated
OTM strangles are better, IMO, just have to watch the volty smile.
Having seen multiple trips down to very low teens on VIX, I have no reason
to believe this is an implied volatility bottom, either. But ya have to
start somewhere...
ac:
glimmerman wrote:
He argues that buying demand for products and services remains
predominantly a cyclical problem, not a secular problem. That's a fancy
way of saying: "If we just add a bit more stimulus to the U.S. economy,
we can find 'escape velocity' and achieve a sustainable path to economic
recovery." In other words, "QE3, here we come!"
I guess you could say we found escape velocity
in 2003-2006, but in the end what good did it do?
Ultimately you can boil everything down to this:
We're still doing exactly what we did 10 years ago.
glimmerman:
Crude oil eases higher on Bernanke's comments By Forexpros
Oil prices gained traction after Fed Chairman Ben Bernanke stated that
further monetary accommodation is needed to bring about big gains in the
U.S. jobs market, which he described as “far from normal,” despite a recent
improvement.
The comments helped fuel speculation that further quantitative easing
from the central bank may be coming, weakening the U.S. dollar.
scone:
Ben has got the markets in Pavlov's dog mode.
He doesn't actually have to implement QE3, all he has to do is convince
the markets he is ready, willing and able to do it. In fact,
I think he'd rather talk the talk and get the markets to move up, rather
than walk the walk and take the backlash.
barfly wrote:
but the damage will have been reduced somewhat for the majority
That may be so, but that doesn't mean that there weren't other ways of
managing a "soft landing" that didn't include massive subsidies for the
TBTF banks, AIG, et al.
Or the painful consequences of the bubble, etc.could've been more evenly
distributed. Less bankster risk socialized. Particularly since it looks
as though, w/the mortgage "settlement" and HARP2 it looks as though the
bank subsidies/bailouts are continuing, with again, the TP paying.
It wasn't an either/or situation, however L. Summers & Bernanke chose
to frame the situation.
sm_landlord:
dryfly wrote:
I hate to be a pest but I think people - even people here - don't
grasp just how much 'work' has changed and how slow organizations like
gov't, schools, capital markets & institutions like the fed are to understand
this. And it isn't just in mfg - its in every aspect of services and
goods design, manufacture, logistics, marketing and servicing.
You might enjoy this:
American manufacturing has gone, and with it goes our future - latimes.com
Cinco-X
sm_landlord wrote:
American manufacturing has gone, and with it goes our future - latimes.com
While there is no doubt a problem, this article is full of histrionics
and bad ideas...while the percentage of our workforce that works in manufacturing
(and farming for that matter) has decreased, we still have a huge manufacturing
base. Furthermore, punitive tariffs and government managed industrial policies
will make us and the rest of the world poorer, not richer...I repeat again
that the problem is the tax structure, and how it rewards companies for
exporting production and profits....
Comrade Troyski
ac wrote:
Once inflation gets out of control every politician on both sides
is going to go on and on about how they thought they were doing the
right thing but were misled by the Bernanke.
without wage inflation there can be no inflation, just reallocation.
There's plenty of fat rents to get sliced in this economy. Couple of
trillion in health care, about the same in ground rents.
dryfly
Comrade Troyski wrote:
Foxconn now pays ~$300/mo. It still costs a US employer more for
a US worker just to clock in every morning.
They are automating like a beast over there now [China] - I know people
involved. Capital has opened a new front against labor - the Eastern Front.
It was inevitable too - just a matter of time and economic incentive.
Cinco-X
MAKE NO MISTAKE... INSTITUTIONAL INVESTORS ARE 'ALL IN'
As the old saying goes, you can't have a top until everyone's in...since
many if not most of the bottom 90% own their equities via institutions,
does this mean everyone's in and we're approaching a blowout top? Of course,
I can never take the analysis of Business-Insider too, too seriously....
Comrade Troyski
BarleyReturns wrote:
Bring out the Gimp! 1994 all over for bonds? -- The Buzz
"How the Fed hurts retirees"
fuck these people.
return of capital, return on capital, pick one, assholes
Graph: (Total Credit Market Debt Owed (TCMDO)-Total Credit Market Debt Owed
by Domestic Financial Sectors (TCMDODFS))/Wage and salary disbursements
(A576RC1) - FRED - St. Louis Fed
ac
Fed warned not to keep rates too low for too long
With Fed Chairman Ben Bernanke looking on from the audience... two
experts on monetary policy warned Saturday that the Federal Reserve
should be wary of keeping monetary policy too easy for too long.
You might as well tell a dog not to lick its balls.
[Mar 23, 2012] Vanguard Junk fund (VWEAX) dropped below 200 days average
The rising price of oil is becoming a threat to global growth.
...She said signs of stabilization were emerging to show that policy actions
taken in the wake of the global financial crisis were paying off, that U.S.
economic indicators were looking a little more upbeat and that Europe had taken
an important step forward in solving its crisis with the latest efforts on Greece.
"On the back of these collective efforts, the world economy has stepped back
from the brink and we have cause to be more optimistic. Still, optimism must
not lull us into a false sense of security. There are still major economic and
financial vulnerabilities we must confront," Lagarde said.
The IMF chief cited still fragile financial systems
burdened by high public and private debt persists advanced economies as the
first of three major risks and said euro zone public sector and bank rollover
funding needs in 2012 were equivalent total about 23 percent of GDP.
"Second, the rising price of oil is becoming a threat to global growth. And,
third, there is a growing risk that activity in
emerging economies will slow over the medium term," she said.
This top is as artificial as previous one in 2007. It can be lasting but it
can't be sustained....
We're at the top of the longer term channel. There is still some room in the
short term.Or Ben could just throw caution to the wind and go for bubble
number three.
“The world says: 'You have needs -- satisfy them. You have as much right
as the rich and the mighty. Don't hesitate to satisfy your needs; indeed,
expand your needs and demand more.'
This is the worldly doctrine of today.
And they believe that this is freedom. The result for the rich is isolation
and suicide, for the poor, envy and murder.”
Fyodor Dostoyevsky, The Brothers Karamazov
Mel
It is amazing that we have not found a way to eliminate the petroleum
trade deficit--all that wealth leaving our shores finally led to a lowered
standard of living. Allowing this to continue assures our "Greecedom." This
should not be a partisan issue--it is truly job 1.
km4
debt equals status
American exceptionalism - Wikipedia, the free encyclopedia
splat
km4 wrote:
Congratulations, America, You're In Debt Up To Your Eyeballs!
And we can do better ! With a little push it could be over our heads
!
~splat
Doc Holiday
Baker Hughes: US Working Gas Rigs Drop By 21 In Week; Oil Rigs +3
Externalized Costs
The Office of the Comptroller of the Currency, a major bank regulator,
said on the very day of the settlement announcement that it was giving the
five banks in the deal a pass on $394 million in penalties it would otherwise
have assessed them for shoddy, and shady, mortgage and foreclosure practices.
...
And just last week, the Treasury Department announced that it would pay
BofA and JPMorgan Chase some $171 million in incentives it had withheld
since June because of the banks' shortcomings in dealing with homeowners
under the government's chronically underperforming Home Affordable Modification
Program, or HAMP.
...
Brookings Institution analyst Ted Gayer last week concluded that other carve-outs
will limit the number to 500,000 of the nation's 11 million underwater borrowers.
Among other points, he observes that the five participating banks service
only 55% of all mortgages.
Lowering our expectations for foreclosure settlement - chicagotribune.com
Financial crime has zero downside in America. Even when you get caught,
your civil fine will become a credit eventually and if you are really good
they'll even reward you with incentives you never earned. Brilliant.
Doc Holiday
http://www.marketwatch.com/story/us-trade-gap-widens-sharply-in-january-2012-03-09?reflink=MW_news_stmp
“The U.S. will suck in goods from abroad while others don’t grow and
U.S. exporters will face stagnant conditions overseas, stymieing efforts
to make inroads,” said Robert Brusca, chief economist at FAO Economics,
in a note to clients.
But Bob Baur, chief global economist at Principal Global Investors, noted
that the trade deficit is only 3.7% of U.S. GDP, well below the peak of
5.6% in 2006.
“I don’t see [the trade deficit] going back to 6% of GDP,” especially
with a new trend of companies relocating plants back in the U.S. from China,
Baur said in an interview.
cdresearch
This is a more accurate jobs picture in a nutshell:
How do you add 33 million people to the workforce while the number of
full-time jobs hasn't budged in 12 years and claim "job growth is on a tear"?
First you arbitrarily subtract 20 million people from the workforce. call
them "discouraged" or "marginally attached," whatever, just don't call them
what they really are which is jobless.*
For 64.5% of the populace to have some sort of job as in 2000, we
would need an additional 14.5 million jobs. That's about 6 years of
200,000 jobs added a month, but then the workforce will rise by between
12 and 17 million in those years so you better add 400,000 jobs a month
if you want the participation rate back to 2000 levels.
Bob Dobbs
Mel wrote:
It is amazing that we have not found a way to eliminate the petroleum
trade deficit--all that wealth leaving our shores finally led to a lowered
standard of living. Allowing this to continue assures our "Greecedom."
This should not be a partisan issue--it is truly job 1.
The one percent make a lot of money off the impoverishment of America.
Change the system for the good of the country and you'll upset a lot of
Very Important People.
Doc Holiday
Latin America warned over China slowdown - FT.com
Today, it requires less slaves food and energy to produce
the same amount of economic output. However, thanks to intensive Chinese
use of metals in its recent development, the world is consuming more metals
per unit of GDP output than it did in 1971.
Economists believe this should revert towards the norm as China moves away
from a focus on developing metal-intensive infrastructure and heavy manufacturing
industries.
Per trade deficit - something you will not read in the press:
Manufacturing here in areas we are strong at [ag machinery, power gen equipment,
infrastructure support equipment - etc] is really really tight. If you want
castings for a tractor and your orders aren't already in place and in the queue
then you are going to have a pretty hard time getting them right now - that
is in part why imports are up. They are going back to sources in Asia and looking
for capacity.
But utilization of mfg capacity is still pretty low relatively speaking you
say ... it is in areas affected by construction directly and indirectly [building
supplies and appliances for example]. The capacity utilization in things like
ag, oil patch, power generation - its maxxed out. Has been for awhile.
So you want those kinds of parts or products you might have to import them
even if the lead times are a huge hassle and frequently cost as much or more.
More microwave frozen burrito.
dryfly
Bob Dobbs wrote:
But my dad was union, and my uncles and some of my cousins, and through
them I heard of many abuses. Aside from actual illegal activities, unions
at well-paying plants tended to become private clubs. You "got in" to
the union, and the job, through a relative.
And the mob. The plant I worked at was teamsters circa Jimmy Hoffa -
the company loved them, bribed the local bosses to keep wages lower than
the local would have demanded. They then 'ran it through'.
The irony is the top four union officials in that town were convicted
of felony extortion. The company laughed and laughed ... until a decade
later the top executives were convicted of felony price fixing / collusion.
They were mirror images.
My adviser where I got my masters ran unionized companies prior to academia
[did it well & profitably] used to say "Companies get the unions they deserve."
Bob Dobbs
Weeping Willow wrote:
Let me put it to you this way - knowing what you know about the US
willingness to mount "excursions" - if you ran a smallish country with
a resource very important to the US - would you not want to make sure
you had the ability to protect yourself?
I think I misunderstood at first; of course you would. And of course
you should.
Nukes are a great weapon; as long as none of your enemies have them.
Then they're a lousy weapon. I really have thought that the Iranian nuke
hysteria is really all about taking away Israel's nuclear get-out-of-jail-free
card for good and all.
And I personally worry about the fundamentalists in our own gov't more
than I worry about Iranian fundamentalists and what they might do with a
small bomb or two.
Bob Dobbs
Comrade Janošik wrote:
You forget that American exceptionalism
runs thicker in peoples' veins than blood.
Oh yah, I know. And because of that, if we'd been had by another country
who we couldn't stand up to head to head, it'd be called the Rape of America
of something like that, it would not be allowed to die in the political
culture, and the lust for revenge would be huge and long-lasting. Partly
because "we're special," and something must be done. Iranians think they're
special, too: Persians, after all, empires back thousands of years while
many of our ancestors were painting themselves blue and rushing Roman Legionnaires
with spears.
Doc Holiday
wrote on Fri, 3/9/2012 - 12:13 pm
2 million cameras watching peeps in Jolly England?
YouTube - Bigger Brother: Total surveillance comes to UK
dryfly
Cinco-X wrote:
free marketeers don't want to acknowledge the "total" cost of production,
while limousine liberals don't want to acknowledge to economic cost
of forcing jobs overseas
Limousine liberals don't want to pay for it either - that's their problem.
They all want somebody else to pay so they pay for it in Harbin and Pune.
Cinco-X
dryfly wrote:
Limousine liberals don't want to pay for it either - that's their
problem.
Unfortunately, it's all of our problem, but you are correct, and I'm
just agreeing with you. Cheap goods are almost as irresistible as free money....
barfly
Doc Holiday wrote:
2 million cameras watching peeps in Jolly England?
if some of the films I've seen of the hooliganism and thuggery over there
are even greatly exaggerated, it's still too much -
anti-immigrant sentiment, football fanaticism, drugs and alcohol, no
jobs, no future, piss-poor education
I see no problem with keeping them under surveillance
Former Idealist
ISDA is the big banks.
Of course they will trigger an event just as they did with AIG.
There is money to be made....
Outsider
wrote on Fri, 3/9/2012 - 12:52 pm
Okay. In my Quest for Truth I stumbled on this article
The Rising Power of Financial Blog Zero Hedge - Money 2009 -- New York Magazine
Even talks about us (at CR) there.
There are traders, economists, venture capitalists, financial advisers,
and pajama-clad cranks all vying to explain the complex machinations that
got us into this mess and to critique governmental solutions. Sites like
Naked Capitalism, Seeking Alpha, the Big Picture, Infectious Greed, Angry
Bear, Calculated Risk, and Zero Hedge have hatched communities based on
discontent and disbelief, forming a kind of ragtag insurgency against the
financial Establishment and what they view as its feckless lackeys in the
government and media.
Pajama-clad cranks? I am highly offended. :covering the webcam over with
masking tape:
And:
Such is their power today that the Treasury and Federal Reserve both
circulate “blog watch” e-mails, which are sent to the White House every
day.
pavel.chichikov
Outsider wrote:
a kind of ragtag insurgency
No insurgency - it's all blabber.
pavel.chichikov
Weeping Willow wrote:
Never really thought about it that way - would imply a deeper game
is afoot.
I like that.
It's not called the Samson Option for nothing. If any of those weapons
is used it might mean the end of us all. Ripples would spread out fast.
splat
wrote on Fri, 3/9/2012 - 1:14 pm
(in reply to...)
barfly wrote:
still, laying the blame at the feet of liberals is disingenuous
Agreed. Germany, as an example, should have seen manufacturing completely
disappear. As as it has an 'extreme' ( by US standard ) liberal national
agenda. Environment controls, strong unions, socialized healthcare, cap-and-trade/Indulgences.
~splat
BarleyReturns
The whole CAC thingy
- Interest rates reflect risk
- Time influences outcome
- Interest rates kept low to foster growth
- A CAC event
- Appraise risk
- Interest rates still artifically low
- Misplaced/ineffecient money
- Outcome?
Do long bonds go boom?
5yrs are prolly okay,1yr is would be better...10-30 HA!
Allocation
1. Canada
2. Norway
Any EU - nope
US with a disfuncional you know
By Delusional Economics, who is horrified at the state of economic
commentary in Australia and is determined to cleanse the daily flow of vested
interests propaganda to produce a balanced counterpoint. Cross posted from
MacroBusiness.
The reserves from the ECB’s LTRO stage II operation are making their way
back into the excess reserve facility at the ECB. The overnight holdings were
at an all time record of €820.81bn. As I explained previously, this in itself
isn’t a problem. In fact, unless the reserves are moving to some other non-commercial
bank accounts at the ECB there is little other place they can go. However, what
is the
problem:
…is that the increasing use of the ECB’s marginal lending facility shows
that not all of these parked reserves are actually “excess to market requirements”.
The statistics from
last night
show that for the last 3 days there is still €783 million being rolled over
using the ECB’s margin lending facility. With €0.8trn technically available
for interbank lending it is certainly a concern that there is at least one bank
still having to lean on the ECB for overnight liquidity.
9 Feb 2012 |
Grist
Americans, especially generations X and Y, want shorter commutes, walkability
and a car-free existence. Which means that around 40 million large-lot exurban
McMansions, built primarily during the housing boom, might never find occupants.
Only 43 percent of Americans prefer big suburban homes, says Chris Nelson, head
of the Metropolitan Research Center at the University of Utah. That mean demand
for “large-lot” homes is currently 40 million short of the available stock —
and not only that, but the U.S. is short 10 million attached homes and 30 million
small homes, which are what people really want.
“If we are optimistic that the world is not coming to an end and we’re
going to get out of this economic trough, it’s a good time to consider,
when production does ramp up, how we will be building as a country,” [says
Joe Molinaro head of the National Association of Realtors' smart growth
program.]
See also
Former Idealist:
Bifurcation of oil/gas prices based on our the masters priorities.
Nobody talks about economic freedom anymore...
Rob Dawg:
Antipodes wrote:
Over time, at 4.0 and above you can sometimes distinguish between
the two.
The middle third of the Pacific/North American rift has been quiet. Too
quiet. Too long.
poic:
No problem. I'm only living in a liquefaction zone. Not likely any impact
from a major earthquake.
Comrade Elmer Fudd:
another interesting thing is that there have been a series of small quakes
on the Hayward fault located close together in the Berkeley area over the
last couple of months
[Feb 28, 2012] Buying gas like an investment
December 29, 2011 | Jon Aquino's Mental
GardenMy brother does this interesting thing when he buys gas, similar
to "dollar cost averaging" in investing (i.e., investing the same amount each
month, regardless of whether the price is high or low).
Basically he pays the same amount at the pump on each visit ($20), regardless
of whether gas prices are high or low.
I was trying to think if this has any real benefit, and actually I think
it does. When gas prices are low, $20 will last a long time, which is good.
When gas prices are high, $20 will last a short time, and you will be forced
to retry again soon - so you will have more frequent opportunities to try again
for a lower price. Kind of makes sense.
Compare this to filling the tank to the top every time. You will be visiting
the gas station at a constant time interval, without the automatic adaptation
mechanism described above.
Interesting!
This rally may have legs :-)
If you think Fidelity is always wrong here is the call:
Putting it all together
We have a stock market in a strong up-trend, but showing signs of technical
fatigue against a backdrop of sentiment that has almost caught up to the rally.
The fundamentals are strong, but perhaps they are now reflected in the price.
The ECB has come to the rescue in a big game-changing way, but now the market
seems to have gotten ahead of itself in anticipation of a successful second
LTRO. Meanwhile, the trio of tail risks (Greece, China, and Iran) has not gone
away and, in fact, there is some evidence that investors have become somewhat
complacent. Perhaps it is “gloom fatigue.”
So to answer the questions I posed in the beginning: How much risk is appropriate
in a portfolio? Is it time to derisk, stay put, or add risk? When I put all
the factors together, they tell me that things aren’t bad enough to go into
full hunker-down mode, but they are also not good enough to be fully invested.
The risk-reward is certainly not as good as it was five months ago, when
stocks bottomed amid an extreme of sentiment. Perhaps it is time to take a few
chips off the table.
A shocking statistic jumped out at us. From the article:
Studies conducted by Canadian forensic psychologist Robert Hare indicate
that about 1 percent of the general population can be categorized as psychopathic,
but the prevalence rate in the financial services industry is 10 percent.
And Christopher Bayer believes, based on his experience, that the rate is
higher.
Bayer is a well-known psychologist who provides therapy to Wall Street traders.
This is not a recovery. What we’re witnessing is
a fundamental change in thinking of Americans about their homes...
2/28/2012
GDD9000:
More CR house bottom calling. Too bad the history is meaningless since
the financing regime that created it is never coming back.
I mean, imagine we had no historical data.
Just current house prices. And we looked at the reality of
supply and demand and the ability of current housedwellers to pay for their
current living arrangments, and the ability of wannabees to generate income.
What would you expect would happen to prices. Go up? Really? Mhm.
mp:
For those who are the least bit interested in these sorts of things,
here is a graph of real personal consumption versus payroll employment,
both year-over-year.
As you can see, employment lags consumption and the amount of the lag
depends on the phase of the cycle.
When consumption peaks, employment peaks about 1 year later.
When consumption begins to pick up after a bottom, employment starts
to rise about 6 months later.
If you examine the linked graph, it's for this reason that some of us
think that employment has peaked for this cycle and will soon be turning
down.
As for the stock market, it is at best a coincident indicator; it will
tell you nothing about the real economy until it has already happened.
http://research.stlouisfed.org/fredgraph.png?g=5ln
Lurking Lawyer:
The meme has always been that the stock market is forward looking 12-months.
See how that worked out in August 2007.
GDD9000
12th Percentile wrote:
No argument from me there. But to say there are not conditions
to induce people to borrow to buy housing seems a bit odd to me. Record
low is record low. Plenty of people can qualify to buy with 3.5% down
at a rate of around 4%. Imagine if we said that in the late 90's. It
would sound absurd.
Downpayment. What %? Where does it come from?
Former Idealist
My new business cycle model now includes the bailout cycle (throw caution
to the wind) and the money printing (these things happen) cycle. Side effects
unknown.
Cinco-X:
Former Idealist wrote:
My new business cycle model now includes the bailout cycle and
the money printing cycle. Side effects unknown.
Can you combine them into just a "wealth extraction phase" of the cycle?
mp:
Lurking Lawyer wrote:
The meme has always been that the stock market is forward looking
12-months. See how that worked out in August 2007.
I learned many, many years ago that trading is a sucker's game. All it
does is generate commissions.
I encourage people to watch the economy because
it's easier to read, then do your market analysis.
In other words, "play" the big moves in the
economy.
Comrade Troyski:
CalculatedRisk wrote:
I doubt we will see the 10% to 20% "overshoot" that some people
are predicting ...
Reverse the Bush tax cuts and we'll see some movement on the downside.
California's pension funds are $750B in the hole. Over 30 years that
is $150 per household per month of deferred taxation coming due.
Then there's the $20B state deficit itself. We can cut gov't or raise
taxes, either way that's coming out of land values in the end.
$10 gasoline isn't going to do the housing market any favors, either.
Former Idealist:
Can you combine them into just a "wealth extraction phase" of the
cycle?
I see your point. Hard to pinpoint that one. As food and energy costs
soar, that is immediate extraction. But other than job loss, the massive
tax increases to cover bailouts and flat out printing haven't started yet.
And what is this wealth for which you speak?
Comrade Troyski
Jim A. wrote:
But the oversupply of housing can put
real downward pressure on rents
not to mention the undersupply of disposable income. But you said that
: )
ac
I think this graph helps illustrate the illusory FIRE GDP numbers that
we report.
memmel wrote on Tue, 2/28/2012 - 9:39 am I think the housing market going
forward is going to be very different from the past. I'm calling it bifurcation.
I think a large part of the market will remain rentals for a long time to
come however I believe we are in a rent bubble right now. In the next few
years we should see rents start to decline. This will eventually cause investor
purchasing to slow leading to falling prices for houses suitable for rental.
This coupled with deeply underwater home owners unwilling or unable to
repair their homes will lead to what I call the great rot.
On top of this I think we will be in and out of recession with short
periods of growth for a long time. Exactly what happens will depend on oil
prices. In addition the underlying retirement of baby boomers will become
a huge drag on the economy and housing as they attempt to cash out.
Now on the bright side if you will housing is in general affordable now
for those that have jobs. People will pay what they can pay.
In many cases this means simply they can buy a better house now than
they could a few years ago for the same amount of money.
I think this will also drive bifurcation with buyers holding out for
the best properties and unwilling to touch anything that has problems.
In general I don't expect significant price declines for excellent properties.
Most will hold value however selling a house will be a multi year process.
Weaker sellers will be forced into concessions.
And that's pretty much it for decades. I think rising energy prices will
make living in urban centers viable, younger people will move back into
town and no longer want suburban living. Obviously they have no financial
incentive to get involved with suburban houses.
And thats pretty much it. The great suburban experiment fails and life
goes on.
Tommy Vu:
Anecdotal CONsumer CONfidence report, (Actually aren't all surveys, con-confidence
data anecdotal?).
Talked to a friend of a friend last week. He told me how great things
were, confidence high. Wife closed up business, filed BK that only costs
him $800 a month in payments, underwater by at least 50% in his home, but
that's only $1200 a month. Wished he wouldn't of bought new truck, $700
a month. He works with a friend and I know how much money he makes, wife
works for county so I know her salary. They're one missed paycheck away
from their house of cards tumblin' down, but the dude's stoked and full
of confidence.
Tommy Vu
Optimists point to declining home inventories in relation to sales, but
they’re looking at an illusion. Those supposed inventories don’t include
about 5 million housing units with delinquent mortgages or those in foreclosure,
which will soon be added to the pile. Nor do they include approximately
3 million housing units that stand vacant – foreclosed upon but not yet
listed for sale, or vacant homes that owners have pulled off the market
because they can’t get a decent price for them. Vacancies are up 1m from
2006.
What we’re witnessing is a fundamental change
in the consciousness of Americans about their homes...
ROBERT REICH: Housing Is The Rotting Core Of The Recovery
Pimco Total Return ETF (TRXT), the exchange-traded version of the
$251 billion Pimco Total Return Fund (PTTRX)
that launches early next month.
Gross boosted the proportion of U.S. government and Treasury debt in Pimco’s
$250.5 billion Total Return Fund in January to 38 percent from 30 percent in
December, according to a report placed on the company’s
website. He raised
mortgages to 50 percent, the highest since June 2009, from 48 percent in December.
Newport Beach, California-based
Pimco doesn’t comment directly on monthly changes in its portfolio holdings.
Treasuries with maturities from five to seven years have been the focus of
purchases with longer-term debt unattractive due to risk of a pick-up in inflation,
Gross said in an interview Feb. 3 on “Bloomberg Surveillance” with
Tom Keene and Ken Prewitt.
The
Fund (PTTRX) increased its allocation of Treasury Inflation Protected Securities,
or TIPS, to 8 percent, Gross said that day.
The fund last year gained 4.2 percent, lagging behind 70 percent of its peers,
after Gross missed a rally in U.S. Treasuries and put money into riskier assets,
according to data compiled by Bloomberg.
Gross’s fund recovered and has returned 7.35 percent in the past year, beating
49 percent of its peers, according to data compiled by Bloomberg. It gained
2.13 percent during the past month, beating 97 percent of peers.
Emerging Markets
Meanwhile, Treasuries have lost 0.37 percent in 2012 as of Feb. 8, versus
a gain of 9.8 percent last year, according to Bank of America Merrill Lynch
indexes.
Pimco reduced holdings of emerging-market debt to nine percent, from 10 percent
and cut the bonds of non-U.S. developed nations to 11 percent last month, the
lowest since May, from 18 percent last month.
By Ken Hess | February
2, 2012, 8:00am PST
Summary: There’s money to be made on Facebook’s IPO but is it a long-term
investment? I don’t think so but there’s much to consider.
It’s no secret that I’m not a huge Facebook fan. All you have to do is read
some of my other posts on the topic. I think Facebook’s IPO comes at a time
when Facebook is on its way out–out of our lives and out of our gadgetry–for
good. I believe that a lot of people have discovered that it’s a waste of time
and computing resources. It was cute for a while but now, they’re trying to
rekindle interest in this juvenile phenomenon by issuing this IPO. It’s silly
but it will make megamillionaires and billionaires out of people who aren’t
qualified to deliver pizza. Crazy stuff, that.I think the IPO is a last ditch
effort to breathe life into a failing concern. But, it won’t work. Not for long
anyway. I think people will wake up and say to themselves, “OMG, I have invested
in something that doesn’t really exist except in Cyberspace. I’ve…I’ve…invested
in AIR!”
They’ll wisely pull their money out and Facebook will fall to the wayside.
Goodbye and good riddance.
Although I hate Facebook and I think that the IPO is really just a money
grab for those who own stock, let me add this: If I had stock in Facebook, I’d
sell it as soon as possible and retire comfortably on my ridiculously gotten
gain. Yes, I’d be on the phone to the broker and say, “Show me the money, baby,
I am outta here.”
I don’t trust the stock market. I’ve seen fortunes lost in it. It’s the same
logic that keeps me out of the casinos. Sure, some people win but the losers
far outnumber the winners. I don’t like to lose so I don’t play and I never
bet unless it’s a sure thing–and it never is. But, if I were the guy who painted
that mural at Facebook and today he might be worth $200 million dollars, I’d
take the money and run.
However, there will be people who ride it all the way to the bottom.
I can’t wait to hear the “analysts” discuss Facebook’s meteoric rise and
fall. Everyone will give their roundtable spins as to the whys and hows and
no one will remember this humble prediction. Except for me, that is.
Years ago Zuckerberg had an offer on the table for a couple billion dollars
for Facebook. He didn’t sell it. I would have. He held on. People don’t know
when to let go. Of course, he stands to make billions more now but my guess
is that either he’ll ride it to the bottom and end up with almost nothing or
he’ll wisely bail on it. The smart people involved will use this IPO bubble
as an exit strategy out of a dying animal’s carcass.
My advice is that if you have Facebook stock that you should cash it in because
it will never be worth more than it is right now.
Why? Because it’s a silly social network thing. It’s false, people. There’s
no value in it. It’s a bunch of blips on a computer screen. It’s a false way
to be “social.” It’s the latest MySpace.
Be smart, don’t gamble your underfunded retirement on it. If you get the
twinge to do it, think about Enron, WorldCom and so many others. Also, think
about MySpace. MySpace was “all the rage” a few years ago. Now, you couldn’t
sell it for the electricity it burns up. A few years ago, everyone had a MySpace
page. You had to have one or you didn’t really exist. That’s Facebook.
Facebook and the rest of “social” media is basically a scrolling wall onto
which you “spray” your graffiti. It’s now an acceptable form of communication.
By acceptable, I mean accepted but pointless.
... ... ...
ETFs tracking municipal bonds
defied logic in 2011. Well, at least they proved doubters, Meredith Whitney
among them, wrong on the road to some stellar performances.
Yes, concerns about major budget issues facing scores of U.S. states, cities
and towns were and still are legitimate. However, yield-starved investors put
those concerns on the back burner and did some serious shopping with muni bond
ETFs.
There are no guarantees of imminent declines, but looking at the charts and
indicators of many muni bond ETFs, it’s clear this
group has moved up in a big way and the time might be right for some profit-taking
if not all-out shorting of these ETFs.
The truth is that companies such as Facebook are basically the corporate
world's equivalent of sociopaths, that is to say individuals who are completely
lacking in conscience and respect for others. In her book
The Sociopath Next Door, Martha Stout of Harvard medical school tries
to convey what goes on in the mind of such an individual. "Imagine," she writes,
"not having a conscience, none at all, no feelings of guilt or remorse no matter
what you do, no limiting sense of concern of the wellbeing of strangers, friends,
or even family members. Imagine no struggles with shame, not a single one in
your whole life, no matter what kind of selfish, lazy, harmful, or immoral action
you had taken. And pretend that the concept of responsibility is unknown to
you, except as a burden others seem to accept without question, like gullible
fools."
Welcome to the Facebook mindset.
A commentator on the Guardian suggests that "companies such as Facebook are
the corporate world's equivalent of sociopaths." Might this be true?
While I wouldn't wish to wallow in a definition of sociopathy, I did happen
to ask a couple of Facebook's advertising clients how they found dealing with
the world's most powerful brain child.
"They breathe their own fumes," one executive told me. And he is someone
who gives Facebook rather large sums of money.
It is in this, surely, that Facebook has its power. It tells us all that
in tomorrow's world, everything will be social. If you're not riding in the
social Ferrari, you will be but a mere cipher in the commerce of life. Worse,
you will be a mere individual, someone with absolutely no friends in the playground.
And who would want to be an isolated individual or part of an isolated company?
It's tempting, then to view Facebook's world picture as expressing the mindset
of a sociopath--or even a con man.
The driving force of both is that their world is the only one that matters.
Their own personal joy lies in dragging everyone else into their vortex and
watching as everyone stares rapt in an excitement they can't quite define. There's
a lot of fun in that.
Is there some ultimate meaning and spiritual uplift in the proceedings? Not
so much. Rather, it's the power of the game and the protagonist's power in the
game that matter.
The gullible--that would be us--play along because the game seems to offer
something that we will enjoy: success or approbation, perhaps.
But, in the end, it's rather hard to believe that every move Facebook makes
is the move of a benevolent association or a social revolutionary, instead of
a move by an advertising company.
Who might suspect, in their private hearts, that privacy is not something
that enjoys too much philosophical debate at Facebook HQ? Rather, it's simply
something that stands in the way of selling more adverts. It's an inconvenience
that gets in the way of economic progress.
Because economic progress is far more important than any individual's right
to keep herself to herself. That's not Facebook's fault, some might say. That's
just the world we live in. We've all come to believe that economic progress
matters more than anything.
Naturally, this might all change a little should one of the Facebook management
run into some sort of personal bother that becomes public. But, until then,
let's knock down those privacy walls and make some money.
It is wrong, of course, to suggest that Facebook's management might be isolated
in their apparent views. Google, too, would surely prefer it if you gave it
more and more information so that it can sell more and more--and, cute phrase
this, "better"--adverts.
For Naughton, sociopaths are "individuals who
are completely lacking in conscience and respect for others."
I have a feeling that the people who run Facebook
and Google aren't sociopaths in their private lives -- should they have them.
It's just that when they create one of those social networks we call companies,
a strange group-think takes over.
That strange group-think doesn't so much distort reality as try to create
a new one.
We are now living in the new reality. It's one in which it all has to start
with people. People are products, products are money, and money is power.
Once you have the power, you can even try to tell governments what to do
and what to think. And that's so much fun.
"Reach for yield" is a phrase that never gets old, does it? Whether it's
the "why hold Treasuries when a stock has a great dividend?" or "if this bond
yields 3% then why not grab the 7% yield bond - it's a bond, right?" argument,
we constantly struggle with the 100% focus on return (yield not capital appreciation)
and almost complete lack of comprehension of risk - loss of capital (or why
the yield/risk premium is high). Arguing over high-yield valuations is at once
a focus on idiosyncrasies (covenants, cash-flow, etc.), and technicals (flow-based
demand and supply), as well as systemic and macro cycles, which play an increasingly
critical part. Up until very recently, high yield bonds (based on our framework)
offered considerably more upside (if you had a bullish bias) than stocks and
indeed they outperformed (with HYG - the high-yield bond ETF - apparently soaking
up more and more of that demand and outperformance as its shares outstanding
surged). With stocks and high-yield credit now 'close' to each other in value,
we note Barclay's excellent note today on both the seasonals (December/January
are always big months for high yield excess return) and the low-rate, low-yield
implications (negative convexity challenges) the asset-class faces going forward.
The high-beta (asymmetric) nature of high-yield credit to systemic macro shocks,
combined with the seasonality-downdraft and callability-drag suggests if you
need to reach for yield then there will better entry points later in the year
(for the surviving credits).
Compare the flow of shares outstanding (black line) as increasing demand
for yield drove investors into the high-yield ETF. However, unlike what one
might expect (demand-based price action), prices have not risen significantly
in the last few months (as demand for creation of shares has blown up). The
rally in HYG over the last week or two is notable though as the December/January
seasonals come into play.
The seasonals in high-yield credit are astounding as Barclays points out
and with so many now watching credit markets for signs of stress, the seasonal
front-running and implicit flow has likely reflexively led and confirmed the
risk-on rally. That seasonal strength is about to end.
With interest rates so low, and spreads compressing, high-yield bond all-in
yields have compressed significantly leaving more than 30% of Barclays HY Index
trading above their next Call Price. This means that high yield credit is increasingly
prone to negative convexity concerns. In English this means that as yields fall
(and prices rise) on high yield bonds (which often have a call option embedded
to enable the borrower to repurchase the debt - and perhaps refi at the new
lower rate), then it becomes increasingly likely that the firm would exercise
the call and buy back the debt. This impact is called negative convexity as
it causes the price of the bond to stabilize instead of following up the 'normal'
convexity curve (so will underperform).
The point is that the higher the price of high-yield bonds get, the more
of a negative impact of this callability and the less attractive the bonds become.
The chart above shows that we are already above the levels of the peak in 2007
and are rapidly heading to the peaks in 2011 especially as the Fed flattens
the curve out to 5-7Y (where most HY debt is maturing before this).
If the demand for HYG shares could not pump up
prices, and seasonal are abating, and negative convexity concerns are increasing,
and relative valuation with stocks is not compelling, perhaps the asymmetric
nature of high-yield bond returns will be too much for even the 'reachers' to
bear as we face a series of known and unknown unknowns in the coming months
that will more than less impact credit markets (liquidity and all) first.
RobotTrader
Check out the muni-bond ETF's.
All of them are going completely parabolic.
Dominating the list of 52-week highs today.
http://www.marketwatch.com/tools/marketsummary/screener?exchange=Nyse&report=High52WeekbyPercentGain
2012 is going to be interesting and will be hard to track on the various levels.
Especially several types of bonds such as TIPs and high yield.
hyperpolarizer:
I am a huge Krugman fan, but I think he’s missing something else: why
did household debt get so out of hand in the Bush years? Because salaries
would no longer support accustomed lifestyles, and with the housing bubble,
people found they could take money out of their homes.
Until a solid manufacturing economy returns
to America, that won’t change. The idea that you can run a world-class economy
just by building houses is crazy.
Also, Paul doesn’t get it about China. It’s not (as he claims) about
having the supply chain localized — it’s about docile workers living in
dormitories who can be rousted at midnight to work a 12 hour shift on a
biscuit and a cup of tea.
If anyone thinks that is necessarily the future of manufacturing, they
haven’t been watching France or Germany. A young French friend works in
QA/QC for a machine shop making surgical prosthetics (outside Valence.)
For Christmas all the workers were treated to Champagne and foie gras!
nonclassical:
Kevin Phillips has shown that U.S. has joined historically irrelevant
economies who have exchanged manufacturing base economics for bankers pushing
paper debt around…up from 20% of economy (or so) circa 2001, to over 40%
by 2007.
Bushitters unite! Our first “MBA” president indeed…(“American Dynasty”)
James
Except that France and Germany (and especially the example you provided)
hardly represent the “future of manufacturing,” whatever that is. And the
Chinese model might as well be considered the US model, as that’s the market
it was built to support and which provides its tight-fisted meager funding.
The Chinese are merely doing to their workers what American interests are
(so far anyway) unable to do to theirs, in the current day at least. Charles
Dickens or Upton Sinclair anyone? Options? Further automation or move on
to the next third world sweat shop. All for cheap shit that most of us don’t
need anyway shipped halfway around the world by cheap energy paid for by
blood money. American capitalism’s something for nothing mentality is a
powerful illusion, and it seems that all the world’s entranced. And the
magicians performing the sleight of hand like it that way.
max:
And the wealthiest generation in history, having most of it’s wealth
in real estate is preparing to sell for retirement over the next 10-15 years
to a middle class which is disappearing daily.
Not to mention that they have eliminated all the jobs for their childre.
Goodbye housing for a long time to come.
Luke Lea:
@ – “we may see a sustained reversal of household formation rates, and
it may even go as far as leading to larger average household sizes. Extended
families living together used to be not all that uncommon; it may go from
being a sign of desperation to being seen as a smart way to economize and
conferring other benefits (sharing child care duties, for instance).”
http://facingzionwards.blogspot.com/2009/04/future-of-retirement.html
Hugh:
A few days ago someone tweeted ironicaly, to all Democratic commentators,
only good economic news in 2012. Apparently Krugman got the message.
This is a typical Krugman piece where he attacks those crazy Republicans,
sucks up to the Democrats, and treats his mentor Ben Bernanke with kid gloves.
There has still been no serious effort to deal with the roiling morass
of systemic fraud that is the housing market. Housing prices are still twice
their historic (1997) norms. We have this huge overhang of millions of houses,
but Krugman is seeing green shoots everywhere. Of course he does sound a
note of caution, some understandable CYA given the load of BS he has just
dropped on us.
Even if you accept the McKinsey report Krugman cites and I am not sure
why anyone should, one of its highlights is US households “may have roughly
two more years before returning to sustainable levels of debt,” that is
this report says that it will take at least two years before Americans don’t
get out of the water but get their heads above water. It takes more than
squinting to make that look like a green shoot now.
Over 46 million of American are now receiving food stamps.
in 2011 nearly half of the population lived in a household that receives
some form of government benefit, which in turn accounted for 65% of total
federal spending, or $2.5 trillion, and amount to 15% of GDP.
NewThor
This comment is so muddled and confusing, I'm going to guess it's a FOXbot
Algo used to spread profitable piffle.
FOXbot ALGO SAYS....
"REPUBLICAN GANGSTER BANKERS = GOOD
DEMOCRAT GANGSTER BANKERS = BAD"
Ghordius
Confusing? Just *TRY* to have a normal conversation with my UK and US
relatives and you will find out that they think they live in the land of
the free and that the eurozone is a socialist overregulated hellhole where
half of the population is on some kind of government support.
Dr Paul Krugman
I appreciate the work that goes into this blog's technical analysis very
much. But the fact is that if people no longer received assistance from
the government the economy would be in shambles. Unemployment would skyrocket.
GDP would plummet. Then where would we be?
The option is to stimulate growth now and pay for it later. It isn't
like the U.S. is going to stop producing goods, food, and other such products.
After a "push" from stimulus then Americans will be back on their feet and
GDP will rise. Along the way debts will be paid off. It has worked before,
it will work now, and it will work again.
At this point, the people who run America’s private-equity funds must be ruing
the day Mitt Romney decided to run for President. His fellow Republican candidates,
of all people, have painted a vivid picture of private-equity firms—including
Bain Capital, where he worked for fifteen years — as job-destroying vultures,
who scavenge the meat from American companies and leave their carcasses by the
side of the road. Not since the days of “Wall Street” and “Barbarians at the
Gate” have the masters of leveraged buyouts looked quite so bad.Given the
weak job market, it makes sense that the attacks have focussed on layoffs. But
the real problem with leveraged-buyout firms isn’t their impact on jobs, which
studies suggest isn’t that substantial one way or the other. A 2008 study of
companies bought by private-equity firms found that their job growth was only
about one per cent slower than at similar, public companies; there was more
job destruction but also more job creation. And, while private-equity firms
are not great employers in terms of wage growth, there’s not much evidence that
they’re significantly worse than the rest of corporate America, which has been
treating workers more stingily for about three decades.
The real reason that we should be concerned about
private equity’s expanding power lies in the way these firms have become increasingly
adept at using financial gimmicks to line their pockets, deriving enormous wealth
not from management or investing skills but, rather, from the way the U.S. tax
system works. Indeed, for an industry that’s often held up as
an exemplar of free-market capitalism, private equity is surprisingly dependent
on government subsidies for its profits. Financial engineering has always been
central to leveraged buyouts. In a typical deal, a private-equity firm buys
a company, using some of its own money and some borrowed money. It then tries
to improve the performance of the acquired company, with an eye toward cashing
out by selling it or taking it public. The key to
this strategy is debt: the model encourages firms to borrow as much as possible,
since, just as with a mortgage, the less money you put down, the bigger your
potential return on investment. The rewards can be extraordinary:
when Romney was at Bain, it supposedly earned eighty-eight per cent a year for
its investors. But piles of debt also increase the risk that companies will
go bust.
Why the Financial Times Asks All the Wrong Questions to Avoid the Real
Issues
...First and foremost, the business class – like any class – are concerned
not with profits but with power; the former are merely a means to the latter.
They sense that their power comes from their ability to invest as investment
drives a capitalist economy. The less they invest and the more the state invests,
the less social power they will have. Clearly this is a perfectly logical and
consistent idea; indeed, it is almost self-evident in its truth.
Without a major war – and we’re not talking about some piddly little adventure
in Iran – there is no real motivating mechanism to alleviate the business class’
fears in this regard. They would much prefer to sit around idly doing nothing
than give up some of their power. And the fetish of the balanced budget serves
them well to sooth the doubts of the politician who thinks that something should
be done despite such action potentially offending his dining partners. And so
we end up in our present quagmire.
Democratic capitalism, quite simply, is a self-destructive system. In the
present crisis the business class has
rejuvenated their profits through financial chicanery. But,
as I argued on this site the other day, this is probably through the inflating
of a commodities bubble and will likely not last long. Still, even in the event
of this coming to fruition we know from history that the business class will
probably prefer to accept chronically low profits than they will the government
moving in on their turf.
Thus it is likely that the West is heading for
a long period of stagnation and decline. Is this due to capitalism?
In a sense yes, but to put it in these terms is far too abstract. This has as
much, if not more, to do with our political structures and the amount of power
that the business class exercises in modern democracies. It is really a problem,
not of capitalism, but of capitalist democracy.
Is this to say that some non-democratic system is preferable? Certainly not.
Anyone who would give up their liberty for a pay check is reprehensible. Some
will say that we already live in a non-democratic system. I would reply: hold
your tongues lest that come true and all your fantasies become a horrifying
reality.
But even beyond such moral judgments, in reality
the idea that some other system of economic governance might come to replace
our own seems unlikely. Again, this is January 2012, not March 1933. We have
a welfare system that allows people in even the most callous Western states
to avoid starvation. In truth, the structures of power have largely solidified.
Even another financial crisis and a chronic shortfall in profitability are unlikely
to loosen them up much – let alone break them.
These are the real issues that we face as we move into the future. And it
is these that people who try to establish a more functional economic and political
system face, bravely, everyday. But these are issues that the FT – with its
enlightened business class liberal readership – could not raise. Otherwise it
might see its profitability decline long before the next financial crisis. Perhaps
then, rather than flag-waving and posturing, the FT would have been better leaving
well enough alone. Perhaps they should have stuck to what they are good at –
that is, actual analysis – and put away their pom-poms.
Selected comments
Mark P.
This has been mentioned before. But for those who haven’t seen it, check
out Adam Curtis on ‘THE YEARS OF STAGNATION AND THE POODLES OF POWER’
http://www.bbc.co.uk/blogs/adamcurtis/2012/01/the_years_of_stagnation_and_th.html
‘…I want to tell the story of another time and another place not so long
ago that was also stifled by the absence of novelty and lacking a convincing
vision of the future. It was in the Soviet Union in the late 1970s and 1980s.
At the time they called it “the years of stagnation”…
‘Everyone in Russia in the early 1980s knew that the managers and technocrats
in charge of the economy were using that absurdity to loot the system and
enrich themselves. The politicians were unable to do anything because they
were in the thrall of the economic theory, and thus of the corrupt technocrats.
And above all no-one in the political class could imagine any alternative
future.
‘In the face of this most Soviet people turned away from politics and any
form of engagement with society and lived day by day in a world that they knew
was absurd, trapped by the lack of a vision of any other way….
constantnormal:
It would be interesting to see a historical chart with the rise in CEO
compensation superimposed with the decline in dividends, both relative to
earnings. I wonder how strong the correlation would be.
Sechel:
Dividends are very important component when calculating total return
picture of stocks, but as a replacement for fixed income I take issue for
two big reasons, first by investing in stocks vs bonds the investor is taking
on considerably more duration risk, secondly the income stream is less dependable
based on the lower priority in the capital structure. Lastly I wonder about
the wisdom of buying into companies the article mentions such as Verizon
which has huge infrastructure spending requirements or some of the companies
which huge cash overseas that can’t easily be repatriated and used as to
pay cash dividends. Dividend paying stocks should be how one allocates the
majority of their equity exposure(in my view) and not as a replacement for
bonds. After all the risk profiles of the two asset classes are not exactly
the same.
John Kay says that the term "capitalism" is misleading in modern economies:
Let’s talk about the market economy, by John Kay, Commentary, Financial
Times: ...Karl Marx never used the word capitalism. But after the publication
of Das Kapital, the term came to describe the system of business organization
which had made the industrial revolution possible. By the mid-19th century
... individuals or ... a small group of active partners ... built and owned
both the factories and plants in which the new working class was employed...
The economic and political power of business leaders derived from their
ownership of capital and the control that ownership gave them over the means
of production and exchange.
The political and economic environment in which Marx wrote was a brief interlude
in economic history. ... Legislation passed in Marx’s time permitted the
establishment of the limited liability company, which made it possible to
build businesses with widely dispersed share ownership. ...
So the business leaders of today are not capitalists in the sense in which
Arkwright and Rockefeller were capitalists. Modern titans derive their authority
and influence from their position in a hierarchy, not their ownership of
capital. They have obtained these positions through their skills in organizational
politics, in the traditional ways bishops and generals acquired positions
in an ecclesiastical or military hierarchy. ...
People do not know who owns their work tools because the answer does not
matter. If your boss pushes you around, exploits you or appropriates your
surplus value, the reasons have nothing to do with the ownership of capital...,
ownership of the means of production and exchange matters very little.
Sloppy language leads to sloppy thinking. By
continuing to use the 19th-century term capitalism for an economic system
that has evolved into something altogether different, we are liable to misunderstand
the sources of strength of the market economy and the role capital plays
within it.
This is an important point, and it relates directly to the claim by many
that inequality is needed in capitalist economies as an engine of growth.
I think small businesses still operate in something resembling old fashioned
capitalism -- owners putting their own resources at risk to open a new business
-- but big business is another story (and in some cases, such as the financial
industry, too big too fail considerations reduce risk considerably for high
level executives making arguments that this type of risks motivates innovation,
etc. hard to swallow).
In the event of a major crisis, "no country will be spared," Lin said. "The
downturn is likely to be longer and deeper than the last one."
The World Bank warned Wednesday of a possible
slump in global economic growth and urged developing countries to prepare for
shocks that could be more severe than the 2008 crisis.
For the United States, the bank cut this year's growth forecast to 2.2 percent
from 2.9 percent and for 2013 to 2.4 percent from 2.7 percent.
As reasons, it cited the anticipated global slowdown and the on-going fight
in Washington over spending and taxes.
The bank also cut its growth forecast for developing countries this year
to 5.4 percent from 6.2 percent and for developed countries to 1.4 percent from
2.7 percent.
For the 17 countries that use the euro currency, it forecast a contraction,
cutting their growth outlook to -0.3 percent from 1.8 percent.
Global growth could be hurt by a recession in Europe and a slowdown in India,
Brazil and other developing countries, the Washington-based bank said.
It said conditions might worsen if more European countries are unable to
raise money in financial markets.
"The global economy is entering into a new phase of uncertainty and danger,"
said the bank's chief economist, Justin Yifu Lin. "The risks of a global freezing
up of capital markets as well as a global crisis similar to what happened in
September 2008 are real."
Separately Wednesday, the government of Germany — Europe's biggest economy
— announced it had lowered its growth forecast for this year from 1 percent
to 0.7 percent. However, it also predicted growth of 1.6 percent in 2013.
Developing countries that have enjoyed relatively strong growth while the
United States and Europe struggled might be hit hard, Lin said. He said they
should line up financing in advance to cover budget deficits, review the health
of their banks and emphasize spending on social safety nets.
Many governments are in a weaker position than they were to respond to the
2008 global crisis because their debts and budget deficits are bigger, Lin said
at a news conference.
In the event of a major crisis, "no country will
be spared," Lin said. "The downturn is likely to be longer and deeper than the
last one."
The bank's outlook — in its "Global Economic Prospects" report issued twice
a year — adds to mounting gloom amid Europe's debt crisis and high U.S. unemployment.
"It is very likely that most European countries, including Germany, entered
recession in the fourth quarter of last year," said Hans Timmer, the World Bank's
director of development projects.
Investors have cut investments in developing countries by 45 percent in the
second half of last year, compared with the same period in 2010, Timmer said.
The report follows similar warnings about the global economy by its sister
organization, the International Monetary Fund, and private sector forecasters.
Global growth might suffer from the interaction of Europe's troubles and
efforts by China, India, South Africa, Russia and Turkey to cool rapid growth
and inflation with interest rate hikes and other measures, the bank said.
China's expansion slowed to a 2 1/2-year low of 8.9 percent in the three
months ending in December from the previous quarter's 9.1 percent.
As Europe weakens, developing countries could find "their slowdown might
be larger than is necessary to cope with inflation pressures," Lin said.
Developing countries hurt
A global downturn would hurt developing countries
by driving down prices for metals, farm goods and other commodities and demand
for other exports, the World Bank said.
Slower growth is already visible in weakening trade and commodity prices,
the World Bank said.
Global exports of goods and services expanded an estimated 6.6 percent in
2011, barely half the previous year's 12.4 percent rate, the bank said. It said
the growth rate is expected to fall to 4.7 percent this year.
Prices of energy, metals and farm products are down 10 to 25 percent from
their peaks in early 2011, Timmer said.
18 January 2012 | Jesse's
Café Américain
The Rubin Legacy continues on. Change we can believe in.
Hans Nichols does an exceptional job of covering the Washington beat for
Bloomberg.
Bloomberg
Obama Considering Summers for World Bank
By Hans Nichols
Jan 18, 2012 11:47 AM ET
President Barack Obama is considering nominating Lawrence Summers, his
former National Economic Council director, to lead the World Bank when Robert
Zoellick’s term expires later this year, according to two people familiar
with the matter.
Summers has expressed interest in the job to White House officials and
has backers inside the administration, including Treasury Secretary Timothy
Geithner and the current NEC Director, Gene Sperling, said one of the people.
Secretary of State Hillary Clinton is also being considered, along with
other candidates, said the other person. Both spoke on condition of anonymity
to discuss internal White House deliberations.
Lael Brainard, the under secretary of Treasury for international affairs,
is compiling a list of potential candidates to replace Zoellick, who was
nominated to a five-year term that began in July of 2007 by then-President
George W. Bush. By tradition, the U.S. president chooses the leader of the
World Bank while the head of the International Monetary Fund is selected
by European leaders. The nomination is subject to approval by the World
Bank’s executive board.
You may recall the unfortunate tenure of arch-neocon and Iraq war architect
Paul Wolfowitz at the World Bank.
"O, wonder! How many goodly creatures are there here! How beauteous mankind
is!
O brave new world, That has such people in it!"
William Shakespeare, Tempest, Act 5, Sc. 1
In case your domestic financial press fails to deliver this important message
to you so clearly, as the World Bank has done for the rest of the world's leadership.
Hope for the best, and prepare for the worst.
Equities are pricing in a rosy scenario, but the bonds and precious metals
are saying 'beware.'
The western central banks will continue to print money in response to this
financial crisis, both before and certainly after the fact.
'How much' is a policy decision, but the choice seems compelling. Rather
than limiting their printing, they will most likely attempt to manipulate and
mask the perception and awareness of their actions through programs of buying
sovereign debt, engaging in disinformation campaigns, and allowing blatant price
manipulation in the markets by insiders.
The problem with this is that insiders stand to profit enormously while the
public is used and abused rather badly. Power really does corrupt, not all at
once, but in stages, one rationale at a time, with a privileged outlook or groupthink
that comes to be widely separated from the shared reality of the public. And
the opportunity to turn this to pillage is not wasted on the worst elements
of those in the halls of power.
"And remember, where you have a concentration of power in a few hands, all
too frequently men with the mentality of gangsters get control. History has
proven that."
Lord Acton
There are others ways to do this that do not benefit the few at the cost of
the many in such a disproportionate manner.
Financial Times
World Bank warns emerging nations
By Chris Giles in London
January 18, 2012 2:00 am
Developing countries should take steps to plan for a global economic
meltdown on a par with 2008-09 if the European sovereign debt crisis escalates,
the World Bank warned on Wednesday in its latest economic forecasts.
Predicting significantly slower global growth in 2012 than it expected
last summer even if the eurozone muddles through its crisis, World Bank
economists said that if financial markets deny funds to eurozone economies,
global growth would be about 4 percentage points lower than even these figures,
with poorer economies far from immune.
Andrew Burns, head of macroeconomics at the Bank, told journalists in
London: “Developing countries should hope for the best and prepare for the
worst.”
Stressing the importance of contingency planning, he added: “An escalation
of the crisis would spare no one. Developed and developing-country growth
rates could fall by as much or more than in 2008-09.”
The world economy would find it much more difficult to grow out of a
new economic crisis, the World Bank warned, because rich countries had little
monetary or fiscal ammunition available to stem any vicious circle and poorer
countries now have “much less abundant capital, less vibrant trade opportunities
and weaker financial support for both private and public activity [than
in 2009]”...
Read the rest
here.
The Wall Street mantra of stocks for the long run is beginning to get a little
stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P
500 would be 4,000. For this level of accuracy,
she is paid millions. Her 2011 prediction of 1,500 only missed
by 16%.
The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction
from the Wall Street shysters at the outset of the year was 1,333, with the
majority between 1,400 and 1,500. The same Wall Street clowns are now being
quoted in the mainstream media predicting a 10% to 15% increase in stock prices
in 2012, despite the fact we are headed back into recession, China’s property
bubble has burst, and Europe teeters on the brink of dissolution.
They lie on behalf of their Too Big To Tell the
Truth employers by declaring stocks undervalued, when honest
analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully
report that stocks are overvalued and will provide pitiful returns over the
next year and the next decade.
Nov. 22, 2011 | Bloomberg
William Powers, a former portfolio manager at Pacific Investment Management
Co., talks about investment strategy and Pimco's co-Chief Investment Officer
Bill Gross. Powers speaks with Erik Schatzker on Bloomberg Television's "InsideTrack."
(Source: Bloomberg)
Who would have thought that Ron Paul's ideological ally in his quest to take
down the Chairsatan would be none other than the Russian dictator-in-waiting
(or rather, in actuality), Vladimir Putin. In a speech before the of economic
experts at the Russian Academy of Sciences, the Russian prime minister had the
following to say: "Thank God, or unfortunately, we do not print a reserve currency
but what are they doing? They are behaving like hooligans, switching on the
printing press and tossing them around the whole world, forgetting their main
obligations." What appears to have angered the former KGB spy is the end
of QE2. According to RIAN: "Putin's comments came in the wake of the completion
of the US' quantitative easing (QE) 2 program on June 30, in which the Federal
Reserve bought $600 billion worth of its Treasury bonds. The Fed's first round
of QE, which ended in March last year, amounted to less than half the size of
QE2." We can't wait to hear what expletive Putin will usher once Bernanke launches
QE3.
What are the next steps: "The Russian authorities have said they would like
to see a basket of currencies including the ruble replacing the dollar as the
main reserve currency, although most analysts have said a more realistic target
for Russia would be if the ruble became a regional reserve currency for the
CIS." Too bad most analysts are right 9 out of -7 times. And last time we checked
Russia was the
largest
oil producer in the world, which means it can do pretty much whatever it
wants. Which, assuming Russia forms a 21st century axis with China and Germany,
as many have suggested, means that while analysts can downplay the impact of
what Russian ambitions in the monetary arena mean, pretty soon the only reserve
currency in the world will be the one backed not with Tomahawk missiles or printing
presses, but actual, hard assets.
AnAnonymous
Makes you wonder...what does Russia, China, et al do when they realize
all they have is "paper! paper!" and we have their commodities, goods, etc?
It's like the gift that keeps on giving, a treadmill you can never get off
of, unless you want your own economy to implode with massive civil unrest.
Hush! Verboten speech on here. The posters on this site want to maintain
the illusion that the rest of the world has the good in deal in the globalism
stuff and the US citizens the wrong part.
Stating the obvious, that the insane burden of converting paper money into
valuable stuff is left to others while US citizens are allowed in straightforward,
no brainer consumption thanks to the USD is taboo.
The official mantra of the pravda here is that the US is suffering from globalism,
that the US is sacrifying to help the rest of the world.
Each time the US sends a dollar abroad to receive in exchange real wealth
like commodities and goods, the US are not importing wealth, they are exporting
their own.
Such is the US world order. Victimilogy is high in this US world order and
US citizens are perpetual victims. Have been since inception when they were
victims of Indians, negroes, religious persons and royalists.
That is not much courage or insight required to declare: "
'Fasten your seatbelts, it’s going to be a bumpy year!'
Just bumps, or crashes too? That depends critically on whether the Europeans resolve
the crisis they face, and how they go about it if they do. "
Fragile
and Unbalanced in 2012 - Nouriel Roubini - Project Syndicate:
The outlook for the global economy in 2012 is clear, but it isn’t pretty:
recession in Europe, anemic growth at best in the United States, and a sharp
slowdown in China and in most emerging-market economies.
Asian economies are exposed to China. Latin America is exposed to lower
commodity prices (as both China and the advanced economies slow). Central
and Eastern Europe are exposed to the eurozone. And turmoil in the Middle
East is causing serious economic risks – both there and elsewhere – as geopolitical
risk remains high and thus high oil prices will constrain global growth.
...
Restoring robust growth is difficult enough without the ever-present
specter of deleveraging and a severe shortage of policy ammunition.
But that is the challenge that a fragile and unbalanced global economy
faces in 2012. To paraphrase Bette Davis in All About Eve, "Fasten your
seatbelts, it’s going to be a bumpy year!"
Just bumps, or crashes too? That depends critically on whether the Europeans
resolve the crisis they face, and how they go about it if they do.
Darryl FKA Ron:
"it’s going to be a bumpy year!"
In the US economic results will be tallied at the polls on November 6.
Campaign contributions may do less to determine the electoral outcome than
externalities in 2012.
There is nothing to fear from the protectionist noises made by the US Congress.
It is all bluff with no cards. Elites from both parties have long agreed (for
at least 20 years) that free trade must be defended at all costs. It concerns
the future of America.
Historically, free trade has served many prominent Americans well. "Free
trade" was the justification that Warren Delano (and the Brits, of course) used
to push opium on China, and to build
Dilbert the serious wad that eventually supported Franklin Delano Roosevelt's
run for president.
Free trade is also how the American banks were/are going to take over the
world. All who want to do business with America must open their markets to American
style "banking", meaning trading derivatives.
Derivatives - Opium 2.0? After the 2008 financial debacle, derivatives continued
to grow in the United States, and America’s economy has not recovered. In America
today, the derivatives cancer has now grown to over US$700 trillion (by June
of 2011, according to Bloomberg), which is almost 50 times the United States
gross domestic product.
On its face, derivatives are brilliant. As a postindustrial move, derivatives
are not constrained by natural resources, not limited by labor, and restricted
only by the salesmen’s ability to sell. Upside growth looks unlimited, as "derivatives
trading" is based solely on the "ingenuity" of the new-fangled breed of financial
engineers.
The salesmen do not even need to explain (and very often cannot) the convoluted
"contracts". Instead they rely on the age old "trust me" confidence games. The
number of "contracts" is not constrained by anything in the real world. As long
as you can find new suckers (buyers), you are set to profit, so the belief goes.
Like opium, derivatives cost very little to "manufacture"; the profits are
humongous, and it is hugely destructive. In the 1800s, Anglo Americans (Google
"Delano" and "opium") forced opium on China, and in one generation or two caused
China's economy to drop from being the world's No1 or 2, to below No 100.
Just like opium, this time around this new "drug" is also pushed as part
of "free trade". Demands are made on all nations that want to do business that
they must open their banking industry and relevant markets to the derivatives
trade.
Except the difference this time is that it is done backwards. The opium trade
was supposed to plague foreigners, and to be banned domestically. But the swashbuckling
"traders" this time around are so greedy they have no qualms about profiting
from the pain of their own brothers and sisters and even grandmothers - and
they did. The derivatives drug is so potent, it took down the Anglo American
societies and economies before they could kill the Chinese economy.
The cancer appears unstoppable. This month there is serious talk of American
mutual funds adopting derivatives on a large scale, and the US Commodities Commission
is setting rules to make trading derivatives more accessible to the small guys.
The derivatives casino is going to be $1.5 quadrillion in no time.
All of the big banks in America (at least the ones with derivatives exposures,
which is just about every one of them) could fail with or without warning, just
as Lehman Brothers did, because their leverage (exposure vs equity) is often
higher than 50 to 1. If you have an American bank as counterparty on just about
any transaction, you can inadvertently be dragged in, even if your company does
not touch derivatives.
The 2008 derivatives-caused debacle was only a first taste. National policy
that allows sheer gambling involving all of the major financial houses of the
nation, at a level 50 to 100 times GDP is sheer madness.
Derivatives and free trade Why is it that the United States of America will
not back away from free trade?
Hundred billion dollar trade deficits? Chicken feed. What's a few hundred
billion dollars, especially when the profit margins are so low (China exports
to America typically carry 3-5% margins), and America makes up for it in the
huge profits it makes from operating overseas (in 2010 in and from China alone,
American companies made over $100 billion in pure profits).
And then the derivatives profits were going to be pure gravy. Nobody - but
nobody - knows "financial engineering" like Americans, and experience shows
that in derivatives trades, American banks (collectively) almost always wins
(as against the foreigners).
So as long as there is free trade, American banks can swoop in, and skim
the cream off of the top from all central banks and large financial entities
around the globe. As long as "free trade" keeps the doors open, the American
banks were going to make trillions in profits. That's better than having to
invade other nations militarily and collecting war reparations as in the imperialist
days.
You really think there is any chance free trade will be killed?
2008 complicated things a bit. The world witnessed how even 100-year old
financial houses can go belly-up overnight. Lehman Brothers had $60 billion
of derivatives on its books, lost 3% or $2 billion, which wiped out its equity.
What is the significance of that? Three percent of $700 trillion is $21 trillion,
which is more than the total equity of all American financial companies. And
you would never know when it would hit. So for the plan to work, foreigners
must be convinced to open up their markets, in order to feed the meat grinder.
2008 complicated things, as I said. Both Germany and China ordered their
banks to stop gambling in derivatives. Both of their economies recovered. America
bet the farm, and counted on expanding the scope of the casino, betting heavily
that (a) other countries will be forced to open their markets to this contagion,
and (b) the American banks would win.
The $7.77 trillion in subsidies to the American banking industry also complicated
things (Bloomberg expose last week after Freedom of Information Act requests).
Now the foreigners are going to point to that as in violation of World Trade
Organization rules. What other nation's banks can hope to compete against that
level of subsidy? $7.77 trillion is more than all of China's subsidies for all
industries over the last 5,000 years.
"Free trade" for banking is counted on by Washington to be a grand "double
or nothing". So Washington cannot afford to push protectionist trade. Is it
going to be double or nothing? What do you think?
Zhuubaajie is a pen name of a businessman operating out of Hong Kong, who
travels often to the United States.
(Copyright 2011 Zhuubaajie)
Speaking Freely is an Asia Times Online feature that allows guest writers
to have their say. Please click here if you are interested in contributing.
Articles submitted for this section allow our readers to express their opinions
and do not necessarily meet the same editorial standards of Asia Times Online's
regular contributors.
ResistanceIsFeudal:
pavel.chichikov wrote:
You mean half-dead, like a socialist command economy?
I don't like the idea either, but there are levels of economic survival
I'm prepared to accept.
sportsfan:
ResistanceIsFeudal wrote:
. . . there are levels of economic survival I'm prepared to accept.
Beats the hell out of the alternative.
adornosghost:
NOTaREALmerican wrote:
I've been amazed at the professional skills of the can-kickers so
far.
I have been impressed! Buying Treasuries that you issue has astounded
me! But so far so good--- just don't look behind the curtain. Helicopter
Ben has done a incredible job, if one is in a small enough box.
wrote
Outsider wrote:
Could you define catabolic collapse?
Catabolism is the conversion of lean muscle mass to either fat or energy...basically
you end up consuming yourself... .
NOTaREALmerican:
adornosghost wrote:
crashes the 2% growth.
I'm dubious of the 2% growth number as a SINGLE economic number.
If we assume the US is two or three separate economies - with completely
separate populations - then one could grow faster that that others.
I'm thinking the A-list US economy will be ok. The C-list one hasn't
been for ok for decades but the peasants there have never mattered. The
trick will be sucking the life out of the B-list economy to support the
A-list economy.
I think the A-list people have the tools necessary to screw the B-list
dumbasses without them ever knowing what happened. Overall A+B+C = 2% but
A could be more than 2% and only the A-list people matter.
adornosghost:
NOTaREALmerican wrote:
What matters is how it plays out on human time scales. Can the
US transition to a 2nd world economic model. I think it can. And the
A-list people are smart enough to make it happen in THEIR time-frames.
That is the question. It will be a matter of the steepness of the cliff
we will soon go over.
ResistanceIsFeudal wrote on Fri, 12/2/2011 - 1:27 pm (in reply to...)
NOTaREALmerican wrote:
I never knew there was an official website. I always thought it was.
First world: Richest sociopaths Second world: Up-n-coming sociopaths
Third world: Sociopaths wish they could leave.
I assumed: financial economy, real economy, underground economy
Anyone who has ever worked in a large corporation has seen the empty suits
that seem to inexplicably rise to positions of power. They talk a great game,
possessing extraordinary verbal acuity, and often with an amazing ability to rise
quickly without significant accomplishments to positions of great personal power,
and often using it ruthlessly once it is achieved.
Their ruthless obsession with power and its visible rewards rises above the general
level of narcissism and sycophancy that often plagues large organizations, especially
those with an established franchise where performance is not as much of an
issue as collecting their rents.
And anyone who has been on the inside of the national political process knows
this is certainly nothing exclusive to the corporate world.
Anyone who has ever worked in a large corporation has seen the empty suits
that seem to inexplicably rise to positions of power. They talk a great
game, possessing extraordinary verbal acuity, and often with an amazing ability
to rise quickly without significant accomplishments to positions of great personal
power, and often using it ruthlessly once it is achieved.
Their ruthless obsession with power and its visible
rewards rises above the general level of narcissism and sycophancy that often
plagues large organizations, especially those with an established franchise
where performance is not as much of an issue as collecting their rents.
And anyone who has been on the inside of the national political process knows
this is certainly nothing exclusive to the corporate world.
Here is
a paper recently published in the Journal of Business Ethics that hypothesizes
along these lines. It is only a preliminary paper, lacking in full scholarship
and a cycle of peer review.
But it raises a very important subject. Organizational theories such as the
efficient markets hypothesis that assume rational behavior on the part
of market participants tends to fall apart in the presence of the irrational
and selfish short term focus of a significant minority of people who seek power,
much less the top one percent of the psychologically ruthless.
Indeed, not only was previously unheard of behavior allowed, it became quite
fashionable and desired in certain sections of American management where ruthless
pursuit of profits at any cost was highly prized and rewarded. And if caught,
well, only the little people must pay for their transgressions. The glass ceiling
becomes a floor above which the ordinary rules do not apply.
If you wish to determine the character of a generation or a people, look
to their heroes, leaders, and role models.
This is nothing new, but a lesson from history
that has been unlearned. The entire system of checks and balances, of rule of
law, of transparency in government, of accountability and personal honor, is
based on the premise that one cannot always count on people to be naturally
good and self-effacing. And further, that at times it seems that
a relatively small group of corrupt people can rise to power, and harm the very
fabric of a society.
‘When bad men combine, the good must associate; else they will fall one
by one, an unpitied sacrifice in a contemptible struggle.’
Edmund Burke
'And remember, where you have a concentration of power in a few hands,
all too frequently men with the mentality of gangsters get control. History
has proven that.'
Lord Acton
These things tend to go in cycles. It will be interesting to see how this line
of analysis progresses. I am sure we all have a few candidates we would like
to submit for testing. No one is perfect or even perfectly average. But systems
that assume as much are more dangerous than standing armies, since like finds
like, and dishonesty and fraud can become epidemic in an organization and a
corporate culture, finally undermining the very law and principle of stewardship
itself.
'Our government...teaches the whole people by its example. If the government
becomes the lawbreaker, it breeds contempt for law; it invites every man
to become a law unto himself; it invites anarchy.'Louis
D. Brandeis
MF Global, and the reaction to it thus far, is one of the better examples of
shocking behaviour that lately seems to be tolerated, ignored, and all too often
met with weak excuses and lame promises to do better next time, while continuing
on as before.
"These corporate collapses have gathered pace in recent years, especially
in the western world, and have culminated in the Global Financial Crisis
that we are now in.In watching these events unfold it often appears that
the senior directors involved walk away with a clean conscience and huge
amounts of money. Further, they seem to be unaffected by the corporate collapses
they have created. They present themselves as glibly unbothered by the chaos
around them, unconcerned about those who have lost their jobs, savings,
and investments, and as lacking any regrets about what they have done.
They cheerfully lie about their involvement in events are very persuasive
in blaming others for what has happened and have no doubts about their own
continued worth and value. They are happy to walk away from the economic
disaster that they have managed to bring about, with huge payoffs and with
new roles advising governments how to prevent such economic disasters.
Many of these people display several of the characteristics of psychopaths
and some of them are undoubtedly true psychopaths. Psychopaths are the 1%
of people who have no conscience or empathy and who do not care for anyone
other than themselves.
Some psychopaths are violent and end up in jail, others forge careers
in corporations. The latter group who forge successful corporate careers
is called Corporate Psychopaths...
Psychologists have argued that Corporate Psychopaths within organizations
may be singled out for rapid promotion because of their polish, charm, and
cool decisiveness. Expert commentators on the rise of Corporate Psychopaths
within modern corporations have also hypothesized that they are more likely
to be found at the top of current organisations than at the bottom.
Further, that if this is the case, then this phenomenon will have dire
consequences for the organisations concerned and for the societies in which
those organisations are based. Since this prediction of dire consequences
was made the Global Financial Crisis has come about.
Research by Babiak and Hare in the USA, Board and Fritzon in the UK and
in Australia has shown that psychopaths are indeed to be found at greater
levels of incidence at senior levels of organisations than they are at junior
levels (Boddy et al., 2010a). There is also some evidence that they may
tend to join some types of organisations rather than others and that, for
example, large financial organisations may be attractive to them because
of the potential rewards on offer in these organizations."
Clive R. Boddy, The Corporate Psychopaths Theory of the Global Financial
Crisis,
Journal of Business Ethics , 2011
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