From ‘AAA’ To ‘LOL’
Readers suggested a topic on the debt fallout. “I’m now seeing more and more economists say that we should try to inflate our way out of some our federal/state/local/corporate/financial/personal debt overhang. Usually, 4.0% to 6.0% inflation for several years is mentioned, as if it could be fined tuned this way. That would also allow real cuts in wages without nominal cuts and the associated drama.”
“Comparing deleveraging through inflating away debt or a spiral of bankruptcies as part of Great Depression II, who wins and who loses, and which makes sense? If it has the choice, should the U.S. choose the Andrew Mellon route — liquidate, liquidate, liquidate — or the modern equivalent of dumping the gold standard?”
A reply, “If interest rates can be held at 0% while doing this it would be a real neat trick. Problem is people would adapt to this and who knows what werid side effects would show up? underground economy? people trading in Gold, Government officials accepting bribes, all the good third world stuff.”
Another said, “Because real cuts in wages are a good way to decrease debt levels…..Right.”
One asked, “When is the dollar going to lose its reserve status in the world? At the rate the FED is going to prop up bubbles it can’t be too far off.”
“And what effect will it have on Americans? Might be hard to pay off all this debt if creditors won’t accept dollars and the treasury has to convert to another form of currency.”
A reply, “In my opinion the first thing you need to do is identify what currency will become the dollar’s successor once greenback loses its status as the world’s reserve currency.”
“And the nominees are: Uhhhh…. let me get back to you on that.”
One said, “‘I don’t have to outrun the bear, I just have to outrun YOU.’ Says Bucky to the Euro.”
And finally, “Once again, the slogan of the United States should be: ‘We Suck Less!’”
The New Zealand Herald. “When Standard & Poor’s downgraded the debt of the United States last week, the US joined just two other countries with an AA+ rating: Belgium and New Zealand. The rating agency’s move put US creditworthiness below 18 AAA ranked countries and territories from Australia to Liechtenstein.”
“For the United States to be ranked alongside two minnows in world affairs whose combined population is less than Florida’s, prompted considerable derision. The country had gone from ‘AAA’ to ‘LOL,’ one talkshow host quipped.”
The New York Times. “It will take more than a debt downgrade and two years of ultra-low interest rates to knock the dollar from its perch as the world’s reserve currency. Despite multiple setbacks, the dollar remains the lingua franca of global commerce and the currency of choice for foreign central banks. The Federal Reserve’s commitment to keep interest rates exceptionally low until mid-2013 is bound to start another storm of international protest, and with good reason. Low rates make dollars much less appealing to hold and drives investors to alternatives like the Swiss franc and the Japanese yen.”
“Even though it has lost more than a third of its value in the last decade, global savers have filled their central bank mattresses with the stuff. According to the International Monetary Fund, 61 percent of the world’s $5.3 trillion allocated currency reserves are in dollars, little changed from the previous two years.”
“Reserve currency reigns do not end overnight. The previous champ, sterling, ceded its title over a period of decades. This time around, there is still no other currency that could take the dollar’s place. The euro, once the leading contender, is under siege, while the Chinese renminbi is still pegged to the dollar. Plans to create a reserve currency basket have not gained much traction.”
“Still, recent actions have clearly hurt the dollar more. And it is the bleeding from a thousand cuts, both inevitable and self-inflicted, that will eventually cost the dollar its dominance.”
The Voice of Russia. “According to Chairman of Kazakhstan’s National Bank Grigory Marchenko, the current crisis has revealed huge imbalance in the global economy. ‘The global economy is affected by the instability of the US market but there’s no getting away from that because it’s only the American market that can offer something for the global economy. Even though many countries are not happy about the dollar as reserve currency, trillions of assets are in dollars and the US is the only liquidity market for them. Standard & Poor’s downgrade triggered panic. People began to invest huge resources in US stocks thereby moving back to what preceded the downgrade. There are, in fact, no other reserve currencies to rely on.’”
“As economists are struggling to define the current trend, Polish analyst and politician Leszek Balcerowicz blames the crisis on the faulty policies of governments and central banks in recent years. ‘A number of governments pursued wrong economic strategies, which resulted in excessive spending and credit boom. But the boom was followed by recession. Anti-crisis strategies are to blame too, causing huge budget deficits in the US, Britain and a number of other countries. There can be no quick way out, such as boosting expenditures amid budget deficit or introducing low interest rates. Judging by the past three years, a short-term stimulation of economic growth is inefficient.’”
The Hindustan Times. “As gold prices touched record levels as a safe investment tool after the US credit-rating downgrade, a quiet debate is gaining currency: With the dollar losing its sheen, is the world moving back to a ‘gold standard’ system — 40 years after it was abolished? A number of countries have increased the proportion of gold in their reserves during the last few years, triggering the debate among central bankers and policy makers whether a return to ‘gold standard’ is realistically possible.”
“Even in the US, the state of Utah has made gold the legal tender, which may be adopted by 13 other states in that country. World Bank chief Robert Zoellick also feels that perhaps time has come to ‘consider employing gold as an international reference point.’”
The Globe & Mail. “It was mid-August of 1971 when U.S. President Richard Nixon took to the airwaves in a televised address to drop a bombshell on the international financial system: He was severing the final link of the U.S. dollar to gold.”
“Monday, August 15 will mark the 40th anniversary of Mr. Nixon’s historic announcement that the U.S. would no longer honour a pledge to foreign governments to redeem U.S. dollars for gold, which was then trading on the open market for what now seems like the ridiculously low price of about $40 (U.S.) a troy ounce.”
“His decision ushered in the modern era of floating exchange rates and paper-money currencies that today dominate the global marketplace. The decision to cut the bond between the dollar and gold marked the end of the road for the global monetary system that had been set up in the closing days of the Second World War. The system worked well until the mid-1960s, when it started to fray after the U.S. flooded the world with too many dollars to help finance its domestic social programs, the Vietnam War, and its global military spending.”
“The U.S. was facing a chronic trade deficit. Investors and other governments began to worry that the United States wasn’t as good as its word to redeem dollars for gold at $35, causing a run on the U.S. gold reserve, a flight out of dollars and the eventual collapse of the arrangement. But his actions have prompted intense debate ever since. Some economists of a conservative bent lament that the formal end of the gold standard placed the world in uncharted territory with paper currencies that have no intrinsic value. Governments are now free to print up these so-called fiat currencies at will.”
“The critics contend that the lack of a gold standard, with its tighter control on the amount of new money in circulation, has led to greater financial instability, more inflation and persistent imbalances in trade accounts. ‘It is the lack of any credible monetary rule, the loss of a gold anchor, and the growing discretion of central banks issuing pure fiat monies that have wreaked havoc on the global monetary order,’ said James Dorn, monetary analyst at the Cato Institute.”
‘the growing discretion of central banks issuing pure fiat monies that have wreaked havoc on the global monetary order’
This is what I was getting at when I said the recent debt ceiling debate didn’t “cause” the downgrade. It may have highlighted the political aspect, but these pressures have been building for decades. How many “crises” has the Federal Reserve “saved” the world from now? They help create bubbles and then use the inevitable collapse as an excuse to expand their intervention and power.
I’m not saying a gold standard is the solution. But how about some semblance of restraint? We learned that the Fed loaned out $12-16 trillion last year, only because Sen. Sanders put a rider in a bill. That $12 trillion in “your” currency folks, not Yen or Rubles. How the heck is this sort of thing tolerated?
All this while you earn how much on your savings?
There is no reason to worry about monetary restraint at this point. The debts can in no way be fully discharged within a debt based monetary system. A government will not restrain itself(see any examples?) Why is the swiis franc so strong? Because the people are the government and take their governance seriously.
Within the collapsing USA it is best to focus on what you can control. Convert you US denominated assets into precious metals and foodstocks in order to deal with the national economic suicide underway. Get your garden underway. Make certain you have defensive weapons and ammo.
What little you can do should be done post haste.
“A government will not restrain itself(see any examples?) Why is the swiis franc so strong? Because the people are the government and take their governance seriously.”
So…Switzerland would be an example, no?
“We learned that the Fed loaned out $12-16 trillion last year, only because Sen. Sanders put a rider in a bill. That $12 trillion in “your” currency folks, not Yen or Rubles. How the heck is this sort of thing tolerated?”
I’d feel a lot better if less of the returns on the Fed’s lending ended up in Wall Street coffers, and a lot more of the returns got spread out to the provinces (e.g. California). People are hurting out here, while Megabank, Inc continues paying out multi-million dollar bonuses funded by rock bottom borrowing rates from the Fed which are only available to its best whosesale customers (or should I say, owners) on a highly-discriminatory basis.
Something else to ponder:
The Fed loans out money at near-zero percent rates to Megabank, Inc which they can turn around and use as (near) free gambling chips. Since there is no risk premium in Megabank, Inc’s borrowing rate, they can afford to take gambles which lead to inflated stock prices and calamitous crashes like the one that rocked the global asset markets just last week — heads they win, tails Main Street loses. Those without access to the cheap loans get to see their assets plummet in value and get wiped out when Wall Street’s foolish gambles turn to bust.
Wouldn’t it be a lot better if lending from a government-run central bank did not favor too-big-to-fail oligopoly banks with rock-bottom rates that encourage foolish, money-losing gambles? And isn’t there a law against lending discrimination?
P.S. Like their real-world counterparts, financial earthquakes tend to have lots of big aftershocks. We’re probably not safely out of the jaws of this bear market just yet.
Saturday, August 13, 2011
Wall Street aftershocks felt in California’s economy
By Dale Kasler
Wall Street’s scary losing streak could put a dent in California’s fragile economic recovery.
In some ways, it already has.
The huge downturn in the stock market, punctuated by Monday’s near-record fall, is costing the state’s public pension funds billions of dollars. It’s putting a strain on tax revenues – and could throw the just-passed state budget out of whack.
The aftershocks are being felt on the street level, too. Some real estate purchases are being postponed or canceled. Financiers are wondering if they’ll be able to fund promising new tech companies.
Even businesses that are expanding are doing a double-take of sorts as they try to fathom Monday’s 634.76-point drop in the Dow Jones average, the worst sell-off in nearly three years. Monday was the first day of trading after Standard & Poor’s downgraded the U.S. credit rating.
“I don’t know how big this is; I don’t know how pervasive it is,” said Winters restaurant executive John Pickerel, owner of the Buckhorn Grill chain. “When we went through this (market crash) in 2008, it was immediate and abrupt.”
…
“The huge downturn in the stock market, punctuated by Monday’s near-record fall, is costing the state’s public pension funds billions of dollars.”
Is this really a good time for state pension funds to gamble in the stock market?
It is mandatory given promised pensions are based on a rate of return on the pension fund of 8%.
Of course tax payers are expected to make up the difference, so in effect we are all on the hook for a very big debt at 8% interest rates.
IMO the downgrade was a reflection on the political aspect of our debt and not the ability to pay. There is not much doubt in many’s minds that the Tea Party’s B.S. during the debt limit “debate” was a crucial factor in USA’s downgrade.
Case in point: Why would the USA ever be downgraded? Because we couldn’t pay our debts? How could we not ever pay our debts? We have the world’s reserve currency no? I mean we print the money that our debt is based in. So how could we not ever pay our debts? The only reason we would not pay our debts would be a political stunt incident as we just witnessed.
The reason we were downgraded was because the world saw that politically the USA was so messed up that paying back our debt could be politically threatened in the future. Yes. The Tea-Party was greatly responsible for our downgrade.
And I thought of another way to change the thinking of the Tea-Party spaceballs to help America. (OK they are not all spaceballs, just a lot of them)
They like to say “prayer” and “pray” a lot and they pray for a bunch of stuff. So when they are ragging on Obama or the “socialists” say something like. “I’m just praying that Americans can come together as Americans and the nutball left and the spaceball right can realize that we are all Americans so we quit fighting each other”.
Because you said “pray” they will listen to you more. They like pray.
I have noticed that if I purchase something large on a credit card, my credit score takes a pretty big hit. It makes sense that debt to income and percentage of debt utilized are a big part of the credit scoring model.
Any individual or business who is gaming their debt, taking out new loans to pay old ones (know any large countries doing this?) because they are unable to pay their obligations without doing so is on very shaky ground credit rating wise and probably a good candidate for bankruptcy in the future if they do not get their financial house in order.
Worse, it does not take a rocket scientist to see our economy is generally in very bad shape and that even if tax rates are raised substantially, tax revenues will continue to fall as general economic activity falls. In other words if we had a bright business outlook and the people and businesses that make up our economy were prospering, so it follows the tax revenues would also have a bright outlook.
Frankly the US is lucky I am not “taxed” with the duty of setting the US credit rating, because my report would be quite scathing indeed and there would not be any A’s at all.
Think about it. At some level you know either through true default or through inflation we HAVE to default.
“IMO the downgrade was a reflection on the political aspect of our debt and not the ability to pay. ”
And you are correct, Rio. Clearly, the Republican’s absolute refusal to raise any taxes, although thrilling to those schooled by the Kochtopus, doesn’t much impress those who have a passing familiarity with mathematics:
U.S. credit downgrade is really about politics, analyses show
By Daniel Lippman and Adam Sege | McClatchy Newspapers
WASHINGTON — In Great Britain, riots have devastated portions of the nation’s capital and spread to other major cities, leaving the government reeling. In France, the banks are wobbling, buffeted by rumors that they aren’t creditworthy and stock price declines that have cost shareholders billions.
But both countries maintain their pristine AAA credit ratings, even as the United States has been downgraded by one major rating agency and two others warn that they might do the same.
What do analysts see in France and England that they’re not seeing here? And just what, for that matter, distinguishes a AAA country from a second-best AA+?
Reading the assessments that the rating agencies have produced in recent months on other countries with AAA ratings shows it really is about confidence in the countries’ politicians. France and Great Britain get it, according to the assessments, which ordinarily aren’t available publicly, but which two major credit rating agencies made available to McClatchy. The United States does not.
Standard & Poor’s, in its Aug. 2 report downgrading its assessment of the United States’ ability to pay its debts, said that the wide gap between Republicans and Democrats on issues of tax policy and spending made it worry that little will be done to confront the country’s burgeoning indebtedness.
Britain faces largely the same economic situation as the United States. Both countries face significantly more government debt than most AAA-rated countries: Last year, general government debt equaled 78.7 percent of the U.S. economy, according to S&P, while in Britain, it equaled 75.2 percent of the economy.
But Britain has held its AAA rating from S&P, largely because S&P thinks that efforts the government proposed last October to cut the deficit will be implemented, even in the face of opposition such as massive student protests late last year over tuition hikes.
“In our view the U.K. government has strong administrative capacity to achieve the expenditure control and revenue-raising laid out in its fiscal consolidation plan,” S&P analysts wrote in December, referring to Britain by the initials for United Kingdom.
On this side of the Atlantic, however, the deadlock between U.S. political parties over the best path to deficit reduction troubles analysts. President Barack Obama and most Democrats want revenue increases included in a debt-reduction package, but most Republicans support a spending cuts-only approach.
‘not the ability to pay’
The US govt obligations are now around $100 trillion. Divide that by the population and get back to us.
$100t / 300m = $1/3 bn = $333,333 per capita (gulp!)…
I had to recheck that calculation, and now I feel depressed.
$1/3
bnm — Now I feel much better!The US govt obligations are now around $100 trillion. Divide that by the population and get back to us.
Why do you care about this? You’ve said many times it will never be paid back. And I agree.
“There is not much doubt in many’s minds that the Tea Party’s B.S. during the debt limit “debate” was a crucial factor in USA’s downgrade.”
What percentage of folks subscribed to the TEA party agenda in the last election? These yokels didn’t just pop up in Congress on their own. Add to the few who think taxes are too high those other traitors who think the debt is too high and you’ve got something maybe some genius at S&P can figure out also.
Not that I believe what I just said; personally I think there is a plan to hole the hull of the SS Euro. This would be the false flag.
“I’m now seeing more and more economists say that we should try to inflate our way out of some of our federal/state/local/financial/personal debt overhang. Usually 4.0% to 6.0% inflation for several years is mentioned, as if it could be fined tumed this way.”
It it were declared that 4.0% to 6.0% of everyone’s wealth held in whatever form would be confiscated or taxed away every year for several years then there would be a huge outcry throughout the land and people would storm Washington D.C. - if not is person at least by the ballot box.
But by using inflation instead of direct confiscation the end result would be the same but the blame could be finger-pointed away just as the blame for everything else done by Washington is finger-pointed away.
Supposidly this mess was to bring to us “Interesting Times”, but so far the Times has been just plain Nuts.
‘just plain Nuts’
Let’s consider some things. As I said yesterday, we’re numb to all this anymore. I can remember when it would have been considered financial suicide for the Federal Reserve to buy US treasury bonds. Now they openly debate how much and for how long!
The currency reserve status can’t possibly last forever, but look at what’s happened since the stock and housing bubbles; waves of liquidity, AIG, TARP, auto makers! What’s next, furniture stores? It didn’t have to go down this way, but the PTB have gone crazy with the printing presses. And look at the $12 trillion the Fed conjured up; most of it to international entities, including a Libyan bank? Who gave the Federal Reserve this mandate?
I came to the conclusion long ago that this “reserve currency status” was the biggest financial curse to ever be visited on this country. Along with it came “the worlds policeman” and “the worlds economic engine.” None of this has benefited the citizens.
“Who gave the Federal Reserve this mandate?”
I’m assuming that’s a rhetorical question, the Federal Reserve is a private central bank, an entity unto itself and gives itself its own mandates. But for those who may not know how that came about, here’s an excerpt for Wikipedia, for a little history lesson:
“The head of the bipartisan National Monetary Commission was financial expert and Senate Republican leader Nelson Aldrich. Aldrich set up two commissions—one to study the American monetary system in depth and the other, headed by Aldrich himself, to study the European central banking systems and report on them.[24] Aldrich went to Europe opposed to centralized banking, but after viewing Germany’s monetary system he came away believing that a centralized bank was better than the government-issued bond system that he had previously supported.
In early November 1910, Aldrich met with five well known members of the New York banking community to devise a central banking bill. Paul Warburg, an attendee of the meeting and long time advocate of central banking in the U.S., later wrote that Aldrich was “bewildered at all that he had absorbed abroad and he was faced with the difficult task of writing a highly technical bill while being harassed by the daily grind of his parliamentary duties”.[25] After ten days of deliberation, the bill, which would later be referred to as the “Aldrich Plan”, was agreed upon. It had several key components, including a central bank with a Washington-based headquarters and fifteen branches located throughout the U.S. in geographically strategic locations, and a uniform elastic currency based on gold and commercial paper. Aldrich believed a central banking system with no political involvement was best, but was convinced by Warburg that a plan with no public control was not politically feasible.[25] The compromise involved representation of the public sector on the Board of Directors.[26]
Aldrich’s bill met much opposition from politicians. Critics were suspicious of a central bank, and charged Aldrich of being biased due to his close ties to wealthy bankers such as J. P. Morgan and John D. Rockefeller, Jr., Aldrich’s son-in-law. Most Republicans favored the Aldrich Plan,[26] but it lacked enough support in Congress to pass because rural and western states viewed it as favoring the “eastern establishment”.[2] In contrast, progressive Democrats favored a reserve system owned and operated by the government; they believed that public ownership of the central bank would end Wall Street’s control of the American currency supply.[26] Conservative Democrats fought for a privately owned, yet decentralized, reserve system, which would still be free of Wall Street’s control.[26]
The original Aldrich Plan was dealt a fatal blow in 1912, when Democrats won the White House and Congress.[25] Nonetheless, President Woodrow Wilson believed that the Aldrich plan would suffice with a few modifications. The plan became the basis for the Federal Reserve Act, which was proposed by Senator Robert Owen in May 1913. The primary difference between the two bills was the transfer of control of the Board of Directors (called the Federal Open Market Committee in the Federal Reserve Act) to the government.[2][21] The bill passed Congress on December 23, 1913,[27][28] on a mostly partisan basis, with most Democrats voting “yea” and most Republicans voting “nay”.[21]”
Woodrow Wilson should go down in the history books in utter disgrace, along with Aldrich, Owen, et al. Along the lines of Hitler and his cronies such as Goering, Himmler, etc.
“Aldrich went to Europe opposed to centralized banking, but after viewing Germany’s monetary system he came away believing that a centralized bank was better than the government-issued bond system that he had previously supported.”
This was in 1910, just before the collapse of the Austro-Hungarian empire, and the onset of three decades of war in German-speaking nations. Great timing!
“three decades of war in German-speaking nations. Great timing!”
Hmmm. Seems central banks and war go hand in hand, eh?
Want peace in our time? Eliminate central banks.
“…when it would have been considered financial suicide for the Federal Reserve to buy US treasury bonds. Now they openly debate how much and for how long!”
It wasn’t so much a suicide as a homicide — of the market mechanism which once made long-term Treasury yields an effective indicator of where (private / non central banker) bond market participants believed future inflation was headed. This is definitely a New Era, folks, and one that makes it hard to use traditional market indicators to figure out where this is going.
Nowadays one should probably look outside the box for other inflation indicators which are not quite as subject to central bank intervention (e.g. gold prices). However, it is worth reflecting that current news reports indicate that central banks have joined the ranks of the world’s gold investors, as discussed in this timely article:
Review | SATURDAY, AUGUST 13, 2011
Golden Years: A Very Different Standard
By ROBIN GOLDWYN BLUMENTHAL
Back on the gold standard, 40 years ago in the U.S., the metal could be had for $35 an ounce. As gold soars above $1,800 an ounce, central banks, ironically, can’t get enough of bullion.
…
“But by using inflation instead of direct confiscation the end result would be the same but the blame could be finger-pointed away just as the blame for everything else done by Washington is finger-pointed away.”
You might want to ponder the relationship between this long-term U.S. inflation graph and the historical timing of major U.S. wars. Inflation was high around the times of WWI, WWII and after the Vietnam War. Recently it has been relatively low (certainly well under 10%), but I have no crystal ball to tell where it goes from here.
“Usually, 4.0% to 6.0% inflation for several years is mentioned”
Uh … hasn’t that been already happening for the past 10 years?
I’m thinking what they really mean is ~20% annual inflation.
Maybe I should buy mac-n-cheese futures?
With CDs paying 1%, even 6% inflation is a disaster.
6% inflation would indeed be a disaster. Unfortunately, some moron assumed that if money was only created through credit rather than introducing currency there would be no risk of inflation. The cure for our problems to to call “the doctor” (long running BBC series), who will travel back in time and prevent all the debt from being issued to begin with, thus preventing your choice of a deflationary collapse or an inflationary one…
My point is we don’t get to make easy choices any more. One way or another your money will be taken from you. It may be through inflation, or it may be taken when you can no longer work and have to spend what little you have left on food and housing, or it may be the FDIC will stop paying out on busted banks and you will simply lose your money, but one way or another we are in big trouble and need to face that fact.
4% to 6% inflation, unless the tax tables are updated, will result in more taxes paid.
This is how the FedGov has gutted the middle class for the past 60 years.
“…two minnows in world affairs whose combined population is less than Florida’s…”
Austria and Lichtenstein are two very wealthy minnows. Austria’s average household income in 2009 was €28 849 ($41,095 at current exchange rate) while Lichtenstein has the world’s 2nd highest per-capita GDP and no external debt.
A Swiss guy once told me that the Swiss keep their money in Lichtenstein.
“World Bank chief Robert Zoellick also feels that perhaps time has come to ‘consider employing gold as an international reference point.’”
Isn’t gold already an international reference point of sorts? The only changes I would suggest would be to make all major currencies freely convertible into gold, and to pass into international law (e.g. through treaty) an agreement to maintain convertibility, accessibility, etc through times good and bad. Then anyone who got fed up with their home country government’s financial (mis)management would be free to convert as much of their savings into gold as they needed to feel safe.
“The only changes I would suggest would be to make all major currencies freely convertible into gold”
Aren’t they already freely convertible? You can buy gold with any major currency, no?
“World Bank chief Robert Zoellick also feels that perhaps time has come to ‘consider employing gold as an international reference point.’”
GOTCHA, ya feckin’ globalist cucaracha! That’s the plan, isn’t it, you pond scum? A “global” gold standard, just as Bill Still’s Secrets of Oz laid out. Now the BS starts.
I used to be an avid gold bug, but after seeing that documentary, a “global” gold standard is exactly what you DON’T want. Because who do you think is going to have all the gold?
What we want is a debt-free, government issued fiat currency. NOW!
Feck you, Zoellick.
“Because who do you think is going to have all the gold?”
Central banks, which can electronically print paper and buy as much as they wish at the current market price.
This is why the gold bugs are completely off base when they assert paper (or its electronic equivalent) is worthless compared to gold. The central bankers can buy as much gold as they wish, then regulate the value of the (electronic) paper by dumping gold at opportune points in time, increasing the relative value of the paper.
PREEEEcisely!
Some economists seem to already grasp this.
Gold bugs run the risk of being the global bubble economy’s next group of knife-catching bag holders.
Nouriel Roubini: Invest in Cash
8/12/2011 3:11:12 PM
In a clip from a longer interview with WSJ’s Simon Constable, Nouriel Roubini explains his investment strategy: invest in cash. “Better to be safe than sorry,” he says.
The one element missing from Roubini’s analysis: What will central banks do to try to offset the fundamentals he cites, and why will they or won’t they work as planned?
That’s a good interview with Roubini. Some of this points: Karl Marx was right, capitalism can destroy itself as wealth shifts from labor to capital. The stimulus should have been bigger. The economic mess is George W. Bush’s fault, Obama just inherited it.
The following interview with Mark Cuban is good too.
Of course Obama inherited a royal mess ,one of the biggest in history .
I just can’t see how a jobless recovery is possible .
“What we want is a debt-free, government issued fiat currency. NOW!”
Wouldn’t that be what the Zimbabwean dollar is? Just printed up,with no offsetting debt? Seems like it would lead to hyperinflation.
Thanks a lot, Tricky Dick!
Between going off the gold standard and deregulating the banking sector back to Wild Wild West standards, it seems safe to say Republican zealots will earn history’s credit for dismantling the U.S. financial system.
‘But a new study concludes that there were some very negative unintended consequences to the U.S. going off the gold standard. Since 1971, “we have seen almost 30 periods of hyperinflation worldwide,” says a research report issued in July by Erste Bank. A gold standard “practically enforces a balanced budget,” the report continues. Wouldn’t that be nice?’
Perhaps something akin to BitCoin? Issue a given number of encrypted currency tokens using military grade 2048 bit code and only allow the creation of new ones when each of the worlds leaders agree to input their part of the secret code etc…
I did a bit of math on the gold standard and concluded there is somewhere in the region of 1/2 a quadrillion dollars in debt and currency in the world.
A total of 165,000 tonnes of gold has been mined of which a good percentage still exists.
At today’s value it would have a value of some 10 trillion USD.
Thus by this standard to go back to gold we would need to value gold at some $100,000 an ounce.
Somehow this does not seem probable or likely without confiscating all the currently held gold.
What I’m really curious about is where this idea is coming from that the monetary system was any more stable under the gold standard than it is under the current one. There were depressions/credit crises about every 10 years in the 19th century, they often started in the US and spread to Europe, and the reason the Great Depression is called that is it was the biggest of a long series of depressions.
The Gold Standard only regulated the ratio of gold to physical notes and coins - bank deposits expanded independently, just as they do now.
.. the US joined just two other countries with an AA+ rating: Belgium and New Zealand…
…“For the United States to be ranked alongside two minnows in world affairs whose combined population is less than Florida’s, prompted considerable derision.
PB, you’re reading to fast.
Pundits are puzzling over what could possibly cause the next leg down in the Great Recession.
Hint: Think federal spending cuts in the aftermath of the debt ceiling “agreement.” MSAs like San Diego and DC, which are heavily dependent on federal spending, are going to get hammered in revenue flows and employment terms.
Wall Street aftershocks felt in California’s economy
By Dale Kasler
Published: Tuesday, Aug. 9, 2011 - 12:00
…
“There has to be a driver for a recession (to occur), and I don’t see where the driver is,” said Chris Thornberg of Los Angeles consulting firm Beacon Economics.
…
Common Sense
Aftershock to Economy Has a Precedent That Holds Lessons
Associated Press
Works Progress Administration workers in 1937. Premature tightening of monetary policy after the Depression was blamed for the recession that followed it.
By JAMES B. STEWART
Published: August 12, 2011
…
The events of the last few weeks — gridlock in Washington, brinksmanship over raising the debt ceiling, Standard & Poor’s downgrade of long-term Treasuries, renewed fears about European debt and a dizzying plunge in the stock market — bear an intriguing resemblance to some of the events of 1937-38, the so-called recession within the Depression, with a major caveat: it was a lot worse back then. The Dow Jones industrial average dropped 49 percent from its peak in 1937. Manufacturing output fell by 37 percent, a steeper decline than in 1929-33. Unemployment, which had been slowly declining, to 14 percent from 25 percent, surged to 19 percent. Price declines led to deflation.
“The parallels to what is happening now are very strong,” Robert McElvaine, author of “The Great Depression: America, 1929-1941” and a professor of history at Millsaps College, said this week. Then as now, policy makers were struggling with how and when to turn off the fiscal stimulus and monetary easing that had been used to combat the initial crisis.
Are we at similar risk today? David Bianco, chief investment strategist for Merrill Lynch Bank of America, told me this week that “the market is collapsing faster than any fundamentals would warrant.” The possibility that the United States faces a recession as bad as 1937’s seems far-fetched. Nonetheless, Mr. Bianco notes that the market is now pricing in an 80 percent chance of recession, one likely to be more severe than in 1991. (He said Merrill Lynch places the odds at 35 percent.) He noted that there had been only three instances when such a steep market decline was not followed by recession: 1966, 1987 (after the October stock market crash) and 1998 (after the implosion of Long Term Capital Management.) “Confidence is shaken and rapidly falling,” he said, a problem worsened by falling stock prices.
…
Best financial headline story, ever. Got stox?
Best Video
Stephen Colbert’s evisceration of the New York Post’s Dow cover
After the New York City tabloid runs a bafflingly ribald front-page headline, the late-night comedian gets the last laugh
posted on August 11, 2011, at 3:34 PM
“Somebody’s little girl.”
Colbert’s comic genius is a great palliative to the troubled times we face.
‘Best financial headline story, ever’
I thought From ‘AAA’ To ‘LOL’ was pretty good…
Are stox currently cheap or expensive? I guess it depends on what day of the week you decide to buy.
Did you ever notice how Wall Street’s shills try their best to encourage young, inexperienced investors to catch themselves falling knives? I note that any young Japanese investors following similar advice circa 1990 would still be down 75% or so as of 2011, especially if they were all in.
WARNING: THE STOCK MARKET DOES NOT ALWAYS GO UP.
Market turmoil shouldn’t faze young investors
If you’re young, now is the time to start building your nest egg by investing in the stock market.
If you’re young, now is the time to start building your nest egg by investing in the stock market.
Jonathan Chevreau, Financial Post · Aug. 13, 2011 | Last Updated: Aug. 11, 2011 5:34 PM ET
A disturbing trend in recent media coverage of the current stock-market meltdown is a growing indifference by younger people to saving and investing. True, those in their late 20s can look back at their first decade in the workforce as one that fraught with market volatility. Already, they’ve experienced the Tech Wreck of 2000, the 1929-like Crash of 2008, a subsequent jobless recession that appears to be their generation’s version of the Dirty Thirties, and now to top it all, we’ve had the stomach-churning losses of August 2011.
Yet I can say with all frankness, as I occasionally do to younger colleagues in the newsroom, that I envy them the chance to buy quality high-yielding stocks at these kinds of bargain prices. I recall my first financial advisor telling me that “If you’re not done buying yet, why would you want stocks to go up?”
…
I regret not starting in the stock market in my mid 20s. I started at age 30. There were a lot of nattering nabobs in the 80s just like I see on HBB who said the stock market is rigged for only rich people.
What convinced me otherwise is when I found that a guy I knew in High School had $1 million worth of stock options from Apple Computer in his late 20s in the late 1980s.
I don’t listen to the crowd against Wall Street. Pure bunk. They ignore the findings of “The Millionaire Next Door” by Stanley and Danko, who said most millionaires in the US are small business people in average houses driving Fords and wearing clothes they bought at Sears.
What the HBB drooling socialists see instead are the wretched excesses by the limousine socialists from Hollywood and they project that image onto every multi millionaire.
Class envy sucks.
A million dollars ain’t what it used to be.
20 years ago the stock market wasn’t driven by supercomputers making billions of fractional second trades to scrape meat off the bones.
The stock market WAS a good investment for the average guy. It isn’t any more. If you think you’re smarter and quicker than GS and JPM’s billion dollar computers, you jump right in there and see what happens.
What the HBB drooling socialists see instead are the wretched excesses by the limousine socialists
We know what you got Bill. You told us. You brag about it like you’re cool. But a lot of the “drooling socialists” have a hell of a lot more money than you. The difference is they know math and history.
Given all the “huddling” that goes on these days between the Fed Chairman and WH personnel, can the Fed truly be considered to be an “independent central bank”?
I can’t help but wonder if it might ultimately occur to the PTB at some future point that markets function much better sans official meddling. Beyond enforcing a rule of law to stamp out fraud, markets best fulfill their potential role in the economy when they represent the democratic economic votes of many small individual investment decisions, rather than heavy-handed, command-and-control market distortions of financial oligopolists or government interventionists.
Obama, Bernanke and economic team huddle amid market turmoil
By Sam Youngman - 08/10/11 05:35 PM ET
President Obama and his economic team met Wednesday with Federal Reserve Chairman Ben Bernanke as volatility continued to haunt the markets.
Obama, Bernanke, Treasury Secretary Tim Geithner, National Economic Council Chairman Gene Sperling and White House chief of staff Bill Daley huddled in the Oval Office “to discuss the economy and global recovery,” the White House said in a statement.
…
“can the Fed truly be considered to be an “independent central bank”?
More to the point, can the US truly be considered a sovereign nation?
Who’s zooming who? (HT, Aretha Franklin)
“Anti-crisis strategies are to blame too, causing huge budget deficits in the US, Britain and a number of other countries.”
Take it from a Polish economist. Have any U.S. economists yet commented on the wisdom of blowing a hole in the budget for the sake of short-term stimulus?
Nouriel Roubini: Karl Marx Was Right 8/12/2011 3:05:39 PM
In a clip from a longer interview with WSJ’s Simon Constable, Dr Nouriel Roubini claims Karl Marx was right about capitalism self-destructing. While the U.S. is not there yet, he believes there is considerable danger facing the United States.
In its purest form capitalism will ultimately concentrate 100% of the wealth in the hands of one individual. At the turn of the century our leadership saw this and implemented antitrust laws breaking up monopolies and leading to an era of prosperity.
Today, monopolies and cartels are back in a big way, and I doubt we have the political capital to change anything until a large percentage of the US goes without food for at least several days at a time at which point it will all burn to the ground and start over…
“In its purest form capitalism will ultimately concentrate 100% of the wealth in the hands of one individual.”
Are you assuming the one capitalist is some kind of a slave master? Why would anyone else do anything whatsoever unless they somehow got paid?
Will a bowl of rice a day suffice?
It will if you are sufficiently hungry and thus you will accumulate no money or wealth and your consumption would be akin to electricity used by a machine….
I know not quite that simple as the companies will need customers, but without controls pure capitalism does tend to concentrate wealth in the hands of a very few.
Companies made due in the Middle Ages with very few customers.
Of course, there were not that many companies back then. I can see a consolidation coming soon where there is only one bank, one auto manufacturer, etc. in the entire country.
“Will a bowl of rice a day suffice?”
LOL. That brings back memories! Remember the rice bubble?
“Today, monopolies and cartels are back in a big way,…”
Sounds like a great time to reinstate the Sherman Antitrust Act. And we could use a good trust buster like Teddy Roosevelt in the White House about now; any takers?
I have a simple proposal to end once and for all the housing market’s threat to financial stability: Get the gubmint off the market’s back, and let private buyers and sellers figure out what home prices should be, based on fundamental factors such as local incomes and rents. This ongoing worry about the housing Sword of Damocles hanging over the U.S. economy’s head is draining confidence and turning us into Japan.
Once housing has bottomed out, our markets will regain their resilience and financial stability will be restored.
Beyond Debt Ceiling, Housing Market Still Greatest Threat to Financial Stability
July 26, 2011 5:21 PM
ABC News’ Amy Bingham reports:
With only one week left before the Treasury Department’s Aug. 2 debt ceiling deadline, fears of another financial meltdown are reverberating through the country. Those are the very fears the Financial Stability Oversight Council are seeking to quell.
The council, which was established under the Dodd-Frank financial reform act, released its first annual report today showcasing how the Dodd-Frank Act has already increased stability in the financial market and identifying areas that are still vulnerable to another financial crisis.
But regardless of what reforms are put in place, Treasury Secretary Timothy Geithner stressed that the number one issue threatening financial markets right now is the debt ceiling.
“The most important thing we can do right now to safeguard financial stability is lift the cloud of default hanging over our economy,” Geithner said in a statement. “As we move forward, however, we must also work to ensure that our regulatory framework keeps pace with the evolving global financial system. This report provides key recommendations that will build on the progress we’ve made through the Dodd-Frank Act and further strengthen the resilience of the financial markets.”
…
If you knew stocks were likely to drop by 50% or so of their value over the next year, wouldn’t it be wise to let the Wall Street bovine brigade enjoy the losses, and wait for a year to get back in after the market bottomed out?
Posted on Sat, Aug. 13, 2011 02:24 AM
Commentary: If only Washington would listen
Frida Ghitis
The Miami Herald
The American people, and the markets, are much smarter than the politicians.
Consider that distasteful spectacle a few days ago, in which politicians drove the nation to the edge of a cliff, threatening to send the country into default. When they raised the debt ceiling at the last minute, the markets were supposed to breathe a sigh of relief. Instead, stock prices — and with them the savings of rich and poor alike — have gone into a tailspin. Next comes the rest of the economy.
It may sound confusing, but it’s actually very simple. Politicians have decided to pull the rug out from under the economy when it had barely stood up after getting beaten to the ground. The single-minded effort to cut the budget deficit at this moment will send us back into recession.
We know exactly what’s going on, because it happened in 1937.
We are preparing for the 75th anniversary of the Great Depression’s double dip by concocting a second wave of the Great Recession.
I’m not arguing the deficits and the mammoth national debt don’t matter. They matter, and they must be cut. But doing it now will cause the economy to contract so much that it will make the deficit, among other important things, much worse.
In 1937, the economy was getting on its feet after the calamity of the Depression. Unemployment had dropped to a still-awful 14 percent, down from the devastating 25 percent of the early 1930s. But President Roosevelt’s policies had cost a bundle and opened a big budget deficit. FDR agreed to slash spending by a hefty 10 percent even while the Fed cut back on lending.
The stock market collapsed, unemployment soared and the economy slipped back into recession. In a few months, the Dow Jones plunged from 187 to 98, a loss of 48 percent. Unemployment climbed to 19 percent.
…
Funny thing about the depression. You had demand, you had supply and yet the monetary machinery needed to keep it all lubricated was gone and the whole system locked up like some terrible cramp.
OK, I am going to throw a wrench into the mix. What if our technology and the Internet sufficiently differentiate the world today from the one in 1929 and while our official currencies may collapse we have the capacity to form our own barter currencies, where money is created ONLY when value is added rather than our existing currency which is created when demand and debt is added.
Think about it. I can program your computer applications. You in turn can fix my roof and PBear might offer cable TV and need some computer work and roofing work (all simplified). The fact is that all we need to complete our contract and make sure we all get what we need is an agreement to do what we said and to get paid with what was agreed. Thus really we only need to know of each others existence. Currency in this case is unnecessary since we have closed the market gap and bypassed the middleman.
The biggest hurdle here is the IRS who despite the fact none of us has any change left, wants to be paid tax for all these transactions in USD.
I think when you start to think outside of the system you can start to think of possibility and a bright future.
I still get this feeling that the loss from the real estate crash and the other casino games that Wall Street was playing was so extensive that all efforts for years now since 2006 has been to recapitalize those losses by taking from any means possible .
This all looks like a really fake economy to me that has objectives that have nothing to do with getting Main street going .
All the actions on the part of the Powers that be reminds me of a hidden agenda and a feeling of a cover up . It’s just that nothing make sense .
I think a lot of weird shit is going on here that we know nothing about .
All of a sudden Obama starts doing things that doesn”t fit his campaign ,as if he was briefed on a hidden situation .
I’m just saying that something is going on here that is smoke and mirrors ,