The Next Two Years in the Financial Asset Markets – Emperadores en Fueg
by ilene - February 16th, 2011 3:07 pm
Courtesy of Jesse’s Cafe Americain
As Ozzie Osbourne says, "All Aboard!" lol
The good news is that it will not be as straight down as this.
Keep your hands and head inside the train at all times.
Don’t worry. Trust in Ben and Tim.
And meanwhile in the Mideast…
Note: Most people think of stocks as the be all and end all of dollar financial assets. In the case of a burst of inflation or a hyperinflation, the equity market will soar for a time, although its gains will be illusory. So stocks are an insurance but not so much as you might expect if that is the outcome. Try not to get in front of it, as phony as you might think it may be. But the stock market is of much less consequence as compared to the bonds and currency markets. It is the three card monte to the bond and currency numbers rackets. The stock markets are the pretty lights and buildings that the tourists stare at while the carnies pick their pockets.
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| "Higher and Higher. What Could Go Wrong?" |
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| "What a Beautiful View At the Top. We’re the King of the World." |
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| "Who Could Have Foreseen This? Remain Calm. All Is Well." |
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| "Mommy!" |
And if the Fed should make a mistake, the efficient electronic trading markets are designed to be self-correcting.
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Geithner Politicizes the Fed, Warns Congress to Not do the Same; Idiocies and Ironies; Economist James Galbraith Unfit to Teach
by ilene - November 22nd, 2010 4:37 pm
Mish discusses how Geithner Politicizes the Fed, Warns Congress to Not do the Same; Idiocies and Ironies; Economist James Galbraith Unfit to Teach. – Ilene
Courtesy of Mish
The hypocrisy of treasury secretary Tim Geithner would be stunning except for the fact hypocrisy from Geithner is pretty much an every day occurrence.
Geithner is blasting Congress for politicizing the Fed, while doing the same thing himself. To top it off, the Fed itself is politicizing the Fed by interfering and commenting on Fiscal policy while bitching about Congress commenting on monetary policy.
Please consider Geithner Warns Republicans Against Politicizing Fed.
U.S. Treasury Secretary Timothy F. Geithner warned Republicans against politicizing the Federal Reserve and said the Obama administration would oppose any effort to strip the central bank of its mandate to pursue full employment.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt” this weekend. “You want to be very careful not to take steps that hurt our credibility.”
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt today and in a meeting with U.S. senators earlier this week.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
Bernanke Comments on Fiscal Policy
Flashback, October 4, 2010: MarketWatch reports Bernanke calls for tougher budget rules
In a speech delivered at the annual meeting of the Rhode Island Public Expenditure Council and devoid of comments on monetary policy, Bernanke said that fiscal rules might be a way to impose discipline, particularly if those rules are transparent, ambitious, focused on what the legislature can control directly, and are embraced by the public.
“A fiscal rule does not guarantee improved budget outcomes; after all, any rule imposed by a legislature can be revoked or circumvented by the same legislature,” Bernanke said,
…
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German Finance Minister calls Fed “Clueless”; G20 Showdown with China; Why Geithner’s “Non-Plan” is Nothing but Hot Air
by ilene - November 7th, 2010 5:32 pm
German Finance Minister calls Fed "Clueless"; G20 Showdown with China; Why Geithner’s "Non-Plan" is Nothing but Hot Air
Courtesy of Mish
Outside the blogosphere and into realm of high ranking government officials, it is rare to hear words like "clueless" to describe the Fed. That such talk is now occurring shows just how upset the rest of the world is at Bernanke’s policies.
Reuters reports US Policy ‘Clueless’: German Finance Minister.
Europe needs to strengthen economic governance and agree on a permanent crisis resolution mechanism, all the more so given current U.S. economic weakness, German Finance Minister Wolfgang Schaeuble said on Friday.
France and Germany should maintain their leadership role in Europe, Schaeuble said, especially in order to harmonise its economic policy and bolster stability given current economic uncertainties.
These are being worsened by reckless policy in part from the the United States, Schaeuble said, sharpening his criticism of the Federal Reserve’s program to buy an additional $600 billion worth of U.S. government bonds. Pumping more money into the economy will not solve the country’s problems, he said, adding that the world needed U.S. leadership that was currently lacking.
"With all due respect, U.S. policy is clueless," Schaeuble said. "(The problem) is not a shortage of liquidity. Late on Thursday, Schaeuble said Germany would take up this point critically with the United States both bilaterally and at next week’s G20 summit of industrialised and emerging nations.
G20 Showdown
The Financial Times reports China tees up G20 showdown with US
China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul.
Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.
“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”
China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest
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Bold-Faced Lies of the Day from Geithner, Bernanke
by ilene - November 6th, 2010 10:38 pm
Bold-Faced Lies of the Day from Geithner, Bernanke
Courtesy of Mish
How can anyone take blatant liars seriously? How can anyone not know Bernanke and Geithner are blatant liars?
I have not figured out the answer to those questions but I can point out another round of lies from both Geithner and Bernanke.
Bernanke’s Lie of the Day
MarketWatch reports Fed chairman: Increasing inflation not a goal
Some Fed critics have accused the bank of pursuing an inflationary strategy by adding trillions of dollars of credit into the nation’s financial system. The Fed itself seemed to suggest inflation was too low in a policy statement two months ago.
Yet Fed Chairman Ben Bernanke said Saturday that the central bank’s decision this week to purchase $600 billion in Treasury bonds is solely aimed at keeping U.S. interest rates low so the economy can grow.
“We are not in the business of trying to create inflation,” Bernanke said at a forum in Georgia to discuss the role of the central bank in the U.S. economy.
Bernanke said prior actions indicated monetary policy was “insufficiently stimulative.” He said the possibility of deflation, or falling prices, has posed a bigger threat.
Of course the Fed is in the business of producing inflation. It is their first and foremost goal, just as it is in Japan. Consequences, such as asset bubbles be damned.
Bernanke belongs on the cover of Mad Magazine with his "What me Worry?" attitude about asset bubbles. He could not spot a housing bubble even though it was obvious to practically everyone on the planet except the other members of the Fed, real estate agents, and home builders.
Geithner’s Lie of the Day
Bloomberg reports Geithner Says U.S. Won’t Use Dollar to Gain Economic Advantage
Treasury Secretary Timothy F. Geithner said the U.S. won’t use the dollar as a trade weapon and he repeated his support for a “strong dollar” that plays a central role in the global economy.
“We will never use our currency as a tool to gain competitive advantage,” Geithner told reporters today after a meeting of finance ministers from the Asia-Pacific Economic Cooperation group in Kyoto, Japan.
The Treasury chief said he believes the dollar, euro and yen are roughly in alignment with each other, and he said American policy makers understand the “special responsibility” the U.S. has for the world economy. “I’m happy
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Currency Wars: Debase, Default, Deny!
by ilene - October 29th, 2010 3:18 am
Currency Wars: Debase, Default, Deny!
Courtesy of Gordon T Long of Tipping Points
In September 2008 the US came to a fork in the road. The Public Policy decision to not seize the banks, to not place them in bankruptcy court with the government acting as the Debtor-in-Possession (DIP), to not split them up by selling off the assets to successful and solvent entities, set the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar through undisciplined fiscal policy, the US ignited an almost riskless global US$ Carry Trade and triggered an uncontrolled Currency War with the mercantilist, export driven Asian economies. We are now debasing the US dollar with reckless spending and money printing with the policies of Quantitative Easing (QE) and the expectations of QE II. Both are nothing more than effectively defaulting on our obligations to sound money policy and a “strong US$”. Meanwhile with a straight face we deny that this is our intention.
It’s called debase, default and deny.
Though prior to the 2008 financial crisis our largest banks had become casino like speculators with public money lacking in fiduciary responsibility, our elected officials bailed them out. Our leadership placed America and the world unknowingly (knowingly?) on a preordained destructive path because it was politically expedient and the easiest way out of a difficult predicament. By kicking the can down the road our political leadership, like the banks, avoided their fiduciary responsibility. Similar to a parent wanting to be liked and a friend to their children they avoided the difficult discipline that is required at certain critical moments in life. The discipline to make America swallow a needed pill. The discipline to ask Americans to accept a period of intense adjustment. A period that by now would be starting to show signs of success versus the abyss we now find ourselves staring into. A future that is now significantly worse and with potentially fatal pain still to come.
Unemployed Americans, the casualties of the financial crisis wrought by the banks, witness the same banks declaring record earnings while these banks refuse to lend. When the banks once more are caught with their fingers in the cookie jar with falsified robo-signing mortgage title fraud, they again look for the compliant parent to look the other way. Meanwhile the US debt levels and spending associated with protecting these failed…
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Bill Black On Foreclosuregate
by ilene - October 25th, 2010 10:00 pm
Bill Black On Foreclosuregate: Calls For The Immediate Termination Of Bernanke, Geithner And Holder
Courtesy of Tyler Durden
Bill Black, who will soon, together with Neil Barofsky, be a guaranteed shoe-in for the POTUS/VP position (both as independents, of course), was on the Ratigan show today, following on his op-ed from last week (here and here) calling for the long-overdue nationalization of Bank of America, and discussing the rampant fraud at the heart of mortgage gate. And contrary to ongoing lowball estimates from the like of JPM and Goldman, Black provides numbers about the bank liability that are simply stunning: "Credit Suisse says that by 2006 49% of all mortgage originations were liars loans. When independent folks study fraud, it is in the 80-90% fraud range. That means there were millions of acts of fraud. Those loan frauds occurred because the banks created incentive structure for the loan brokers to bring them the absolute worst of the worst loans, and to lie on the application forms… These frauds came from the banks, and they propagated through the system through a series of echo epidemics…This fraud spread through the system and that’s why we have a crisis in foreclosures. This stems from the underlying fraud by the lenders in mortgage loans to the tune of well over a million cases a year by 2005."
Furthermore, Black points out the glaringly obvious, that the Fed should not be in charge of any investigation into mortgage fraud, due to its "massive" conflict of interest, to the tune of $1.5 trillion in MBS/agencies held on the Fed’s books, which would be immediately null and voided if rampant MBS fraud is indeed uncovered. Which is precisely why the entitlement of the Fed as supreme regulator (as inspired by the financial generosity of the Wall Street lobby) as part of Frank-Dodd was the one single most destructive decision ever made, and equivalent in many ways with electing America’s very own tyrannical despot, whose only interest is making the multi billionaires, into trillionaires, and leaving everyone else in the cold through the eliminating of the savings class and the destruction of the reserve currency.
And it goes much further… to the very top of the US ruling oligarchy in fact. Which is why, as we have claimed from day one, nothing less than a complete reset of the entire kleptocratic system…
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Raise Rates, Cowards
by ilene - October 21st, 2010 7:42 pm
Raise Rates, Cowards
Courtesy of Joshua M. Brown, The Reformed Broker
Here’s the deal, FOMC – I’m going to give you the intellectual cover you need to do what many people believe is impossible right now. I’m going to help you get the jelly out of your spines. Bear in mind that what I’m about to hit you with is coming from both street smarts and Street smarts; I ain’t the professor of nothing.
Benji, your "I’m a student of the Depression" rap is totally rate-arded at this point. No one’s going to call you Hoover, you can stop now.
What should you do? Pay close attention, because I choose my words very carefully and I never repeat myself…
The Move:
The Fed Funds target rate needs to go to 1% immediately. It should happen out of nowhere, not during one of your regularly scheduled FOMC slumber parties. That’s how China rolls, nobody gets advance notice of nothing. No jawboning, no telegraphing. It just IS.
The Perception:
The statement should be something to the effect of "now that the recovery has firmly taken hold…" Anyone who’s raised themselves up in the business world understands the concept of "Fake it til you Make it" and a lot of economic activity is based on perception and confidence. Your woe-is-me rate policy gives me all the confidence of an airline pilot wearing two different shoes.…
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Screwflation Nation – Ben and Tim are at it Again!
by Phil - October 21st, 2010 8:29 am
Strong dollar? Hahahahahahahahahahahaha….
That is was the answer to a question I had this summer when I met with an unnamed Treasury official whose name might rhyme with Jimothy. The unnamed official nearly fell off his chair laughing when I said "So, does the US still have a strong dollar policy?" It was meant as a joke. I was sitting at Treasury with Yves Smith, John Lounsbury and a couple of other writers on Aug 16th, with the dollar at 82.5, down from 88.7 in May. I mentioned in my Aug 17th post that, based on my meeting at Treasury: "we’re certainly not going to be expecting a "strong dollar" policy." At the time, I summed up the meeting for Members saying:
I would say that Geithner’s view of the economy is about the same as John Cleese’s view of the dead parrot: "This bird wouldn’t go "voom" if you put a million volts through it!" I agree, Krugman agrees, the Dallas Fed agrees, Bernanke agrees – this is a $15Tn, 300M person economy that is at a virtual standstill.
Unnamed Official makes the very good argument that we are like a business with debt but good cash flow and Global lenders are currently lining up to give us more cash (low TBill rates, low corporate borrowing cost, strong demand for bank capital raises). Why don’t we do what a normal business does and borrow money to expand?
Why indeed? And that is just what has been happening as the dollar has dropped another 7.8% in the 66 days since that meeting as we borrow our assets off while the Fed keeps things looking good buy sucking up whatever junk the Treasury decides to print. Kudos to Doug Kass for taking my "Inflation Nation" concept to the next level and coining the very apt phrase "Screwflation," which he explains:
Screwflation, like its first cousin stagflation, is an expression of a period of slow and uneven economic growth, but, its potential inflationary consequences have an outsized impact on a specific group. The emergence of screwflation hurts just the group that you want to protect — namely, the middle class, a segment of the population that has already spent a decade experiencing an erosion in disposable income and a painful period (at least over the past several years) of lower stock and home prices.
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Debating the Flat Earth Society about Hyperinflation
by ilene - September 13th, 2010 5:05 pm
Debating the Flat Earth Society about Hyperinflation
Courtesy of Mish
Over the past few weeks, many people have asked me to comment on John Hussman’s August 23, 2010 post Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar.
Most wanted to know how that article changed my view regarding deflation. It didn’t.
Several others went so far as to tell me that Hussman was calling for hyperinflation. They were point blank wrong.
Here is the pertinent section from Hussman’s September 6, 2010 post The Recognition Window.
A note on quantitative easing
One of the things I’m increasingly dismayed to learn is that no matter how much detail, data, and qualification I might include in these commentaries, my conclusions will often be summed up by writers or bloggers in a single sentence that often bears no relation to my point. For instance, my view that quantitative easing will trigger a "jump depreciation" in the dollar has evidently placed me among analysts warning of hyperinflation and Treasury default (a club whose card is nowhere in my wallet).
To clarify once again – I emphatically do not anticipate inflationary pressures until the second half of this decade. As I’ve repeatedly emphasized, the primary driver of inflation – historically and across countries – has been growth in government spending for purposes that do not expand the productive capacity of the economy.
Quantitative easing does not pressure the dollar by fueling inflation. It has a much more subtle effect (but one that can be expected to be amplified if fiscal policy is long-run inflationary as it is at present). Normally, equilibrium in capital flows between countries is achieved through changes in interest rates. As a result, countries with greater capital needs or higher long-run inflation tendencies also have higher interest rates. If interest rates can adjust, exchange rates don’t have to. But notice what quantitative easing does: by sitting on long-term bond yields (and creating a negative real interest rate differential versus other countries), quantitative easing prevents bond prices from acting as an adjustment factor, and forces the burden of adjustment on the exchange rate.
While some observers have noted that the value of the Japanese yen did not deteriorate dramatically over the full course of quantitative easing by the Bank of Japan – from its beginning until it was finally wound down
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THE UNFORTUNATE MATH BEHIND OUR ECONOMIC PLIGHT
by ilene - September 9th, 2010 5:04 pm
Pragcap argues that the U.S. is in a balance sheet recession, not a gov’t debt crisis, and not a banking crisis (Geithner, Bernanke and Paulson all misdiagnosing the problem). And it won’t end till 2012 at the earliest. – Ilene
THE UNFORTUNATE MATH BEHIND OUR ECONOMIC PLIGHT
Courtesy of The Pragmatic Capitalist
Few will argue against the fact that the U.S.
The following chart shows 30 years of US GDP along with potential output. The blue line represents actual GDP while the red line shows potential GDP. This represents what economists call the output gap.
(Figure 1)
At the current levels we are running an output gap of just over $1.2T. This merely means that the U.S. economy would be producing $1.2T more in total GDP if we did not have so much idle capacity.
The math behind the U.S. economic growth of the last 100 years is fairly straight forward. Economists describe GDP in mathematical format as follows:
Y=C+I+E+G
Y = GDP
C = Personal Consumption Expenditures
I = Fixed Private Investment
E = Net Exports/Imports
G = Government Consumption Expenditures
While all four components matter to the economy the C component (at roughly 71%) is the coaching staff, offense and defense of this football team. Let’s just call the other three components “special teams” – important, but far less so in the grand scheme of things. What’s happened to this crucial component of the U.S. economy in the last three years has been remarkable to say the least. There has been a dramatic stagnation in personal consumption expenditures (PCE). If we take a look at the historical data it’s truly incredible. PCE grew at an average rate of 7.5% for almost 50 straight years. Even more incredible is that this growth has been almost entirely uninterrupted.
(Figure 2)
(Figure 3)
When the Nasdaq bubble imploded, American balance sheets were cracked, but not shattered. Slowly, they began to come back. But as we all know now a far more nefarious bubble was brewing. One based on pure
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(