Tuesday, August 31, 2010

Helicopter Ben Bernanke: Sorcerer, Mad Scientist, or Financial Tool?

Items of Interest:
Fed Chairman Ben Bernanke has become a multifaceted character in the Shakespearean drama that is the US economy.

David Goldman / Inner Workings:
Japan-Style Stagnation? You Should Be So Lucky -- The question we discussed was not whether America would suffer a “Japan-style stagnation,” but whether America would be lucky enough to sustain a Japanese style stagnation...

...we laughed at the miseries of the liberal establishment. Federal Reserve Chairman Ben Bernanke seems authentically perplexed; he followed the instructions to the letter, mixing the eye of newt with the tongue of bat, and adding $2 trillion in securities to the witches’ brew–but nothing seems to have happened. He sits up night in his tower studying ancient manuscripts: was it a she-goat or a he-goat that he is supposed to sacrifice on a moonless night?

And we felt some sympathy for the Tea Party types who want to march on Frankenstein’s castle and burn it down. If they ever have the misfortune to get into power, they will discover how much of the problem stems from the sloth, complacency, ignorance and incompetence of ordinary Americans. We’ve had the financial ride of our lives during the past fifteen years courtesy of the rest of the world, and now it’s over. We have to learn how to export again–and that is not going to be easy.

/The Economic Collapse:
Helicopter Ben Bernanke Says Everything Is Going To Be Okay -- But Bernanke insists that this time is different. This time the Federal Reserve really has got a handle on things. During his remarks at Jackson Hole, Bernanke said that the Fed will adopt “unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

Unconventional measures?

Could that be a thinly veiled way of saying that Helicopter Ben and his pals will do as much “quantitative easing” as they feel is necessary to keep the economy moving forward?

Unfortunately, most Americans have absolutely no idea what quantitative easing is.

Basically, when quantitative easing takes place the Federal Reserve creates money “ex nihilo” (out of thin air) and uses that money to buy stuff like U.S. government bonds and mortgage-backed securities. By pumping money into the economy like this, the hope is that banks will start lending more and people and businesses will have more money to spend...
Robert Wenzel / economicpolicyjournal.com:
The Case for Ben Bernanke as Mad Scientist -- The opportunity for Federal Reserve Chairman Ben Bernanke to stargaze in the clear skys of Jackson Hole, Wyoming and to bond with a horse whisperer has done Bernanke some good.

The speech he just delivered, in the land where Dick Cheney roams, was almost John Wayne like in its frankness. Perhaps, after his visit with the horse whisperer, he considers himself a cowboy. Whatever he may think of himself ,though, clearly the label "mad scientist", with the emphasis on "mad" fits best...
International Business Times:
So Much For The Bernanke Put -- The whole idea of creating another trillion dollars of bank reserves might be pointless anyway since there already is about $1.2 trillion sitting at the Fed now doing nothing but collecting 0.25% (and a mountain of dust)...
Wikipedia: Greenspan Put
John Crudele / NY Post:
Bernanke's song & dance act in Jackson Hole -- That, in a nutshell, is Ben Bernanke's problem right now -- all he has is words...

But here are the words from Jackson Hole that I find most curious.

Listed second among Bernanke's "policy options" last week is "modifying the [Fed's] communications."

Bernanke is suggesting that the central bank "ease financial conditions through its communication, for example, by modifying its post-meeting statement."

In other words, Bernanke now wants to use different words after the Fed's policymaking committee meets...
Marshall Auerback / The Daily Beast:
Don't Trust the Fed -- It is clear that Bernanke and Co. think that monetary policy is the main game in town. Unfortunately, this misguided faith in the Fed just ensures the perpetuation of bad policies that help our financial elites, but do little for Main Street.
Don't get fooled by Bernanke -- When the time comes to write Ben Bernanke's biography, I already have a great title. How about "Behind The Curve"? ...

Friday, August 27, 2010

Banana Ben

Banana Ben Bernanke
Items of Interest:

We live in a Banana Republic ruled by Ben Bernanke. His royal decisions hold sway over every facet of our economic lives. The markets hold their breath every time El Comandante Ben speaks.

Ben S. Bernanke / Board of Governors of the Federal Reserve System:
The Economic Outlook and Monetary Policy  — The annual meeting at Jackson Hole always provides a valuable opportunity to reflect on the economic and financial developments of the preceding year, and recently we have had a great deal on which to reflect. A year ago, in my remarks to this conference …
Justin Fox / Ezra Klein:   Ben Bernanke owns your mortgage
Sewell Chan / New York Times:   Bernanke Signals Fed Is Ready to Prop Up Economy
Daniel Indiviglio / The Atlantic Online:   Bernanke Opens His Toolbox for All to See
Ben White / The Politico:   Bernanke vows ‘appropriate’ steps
Chad Stone / Off the Charts Blog:   New GDP Figures Show Recovery Not Yet on Solid Footing
Catherine Rampell / Economix:   Bernanke to Markets: Chill Out, We're Ready
Jacob Goldstein / NPR Topics:   3 Ways The Fed Could Boost The Economy
Stephen Gandel / The Curious Capitalist:   How Much Ammo Does the Fed Have Left?
Pete Davis / Capital Gains and Games blogs:   Bernanke Stands Ready
Michael Krieger / ZeroHedge.com:
The Elites Have Lost The Right to Rule -- At the end of the day everyone knows that those who can create the money and credit have the ultimate power over any political system. Therefore, at the top of the economic power of the world is the Federal Reserve and at the top of that is Ben Bernanke.

Banana Ben absolutely wants to do a massive QE2 program. The only thing holding him back is gold is near an all time high. What he wants is gold much lower and stocks much lower to give him cover...

He is scared to do it here and he is right to be scared because such a reaction would be the end of the Fed right then and there. The Fed will be gone anyway within a few years in my opinion but it’s going to fight hard to survive and if you want to make money in this market you need to understand that. The most powerful institution in the world is fighting for its survival. Never forget that.

So what is he going to do? I believe that the Fed and government are doing a lot more than people think to manipulate all markets behind the scenes. After all, they have publicly announced their manipulation in many other ways so does it make any sense whatsoever to assume they aren’t doing a plethora of other things behind the scenes? Of course not. I think that with the Fed in a bind they will accelerate and become ever more aggressive in behind the scenes games. This will make markets even more volatile and extraordinarily challenging. This is financial war make no mistake about it...
The US Government Matches Every Dollar In Tax Revenue With A Dollar In New Debt -- Thus between foreigners, and the Fed, the US consumer's traditional contribution to funding the US economy has been diluted by half... in other words QE will be a necessary staple until such time as the Fed is prepared to go the repudiation/hyperinflation route).

P.S., and a scary thought, if representation is somewhat equivalent to taxation, or, its modern equivalent, deficit funding, does this mean that the seven Fed Board Members have a greater right of representation than all of American society combined? It sure seems that way.
Financial Sprockets:
Doomed to Fail: A Federal Reserve Captive to Ponzi Finance -- Absent power to extend the life of Ponzi finance nurtured by an array of ever more exotic credit securities, the Federal Reserve is at a crossroad. The problem is not that the Fed has run out of bullets. Rather the problem is they are running out of time for trust and confidence
Business Insider:
The Federal Reserve Wants To Hide 'Bad Lemon' Banks For Another Three Months  -- The Federal Reserve has asked a U.S. appeals court to delay disclosure of emergency lending provided to banks during the crisis...
The Full Incredible Dimensions of the Sovereign Debt Crisis: Morgan Stanley Let's It Rip -- The most truthful, well reasoned report, from inside elite Wall Street... Governments will default. It is only a matter of how and when...


Thursday, August 26, 2010

Fed Retreat .... please

End the Fed by Ron Paul

Key Federal Reserve officials and invited guests are currently meeting in Jackson Hole, Wyoming at the Kansas City Fed's Economic Symposium. Sometimes called a retreat this annual Fed meeting is an important gathering of the cabal that controls how much your money, the US dollar, is worth.

The big question again is how much will the Fed debase the greenback as the risk of a double dip recession has increased.

Having this small group of elitists decide who to punish (savers) and who to help (bankers) turns democracy and capitalism on its head. I don't suppose any widows and orphans are represented. You can bet there are no "savers" there, plain working folks who would just like to put their hard earned money in a hopefully safe savings account or money market fund and earn a decent and fair interest rate for their savings.

No luck for the thrifty. The Fed's little bankster gathering will scheme up ways to plump up bank profits at the expense of the frugal. The Federal Reserve System that has been lashed to backs of American consumers is a serial debaser of wealth and prosperity.

There is a growing number of "End the Fed" voices (note: most economists have been "bought" by the Fed). Yes, it is time for the Federal Reserve to retreat, all the way to the dust bin of history, and be replaced by something that does not promote bubbles, busts, and inflation.


End the Fed by Ron Paul

Wall Street Journal:
Ins, Outs of Jackson Hole Fed Meeting

Huffington Post:
Priceless: How The Federal Reserve Bought The Economics Profession

Criticism of the Federal Reserve

- New Fed Proposal To Bankrupt America: Government Guarantee Of Entire ABS Market
- Michigan Says Enough To Fed: Takes Matters Into Own Hands...
- Why The Fed's Upcoming Jackson Hole Economic Symposium Could Have Wide-Ranging Implications
- St. Louis Fed Explains Why The Fed Has Cornered Itself Between Deflation And (Hyper) Inflation
- The Longwave Group On Why The Fed Must Be Abolished
- Sprott Calls The Fed "A Ponzi Scheme"
- How The Federal Reserve Bailed Out The World 

Robert P. Murphy / Ludwig von Mises Institute:
The Fed as Giant Counterfeiter - An Old-Fashioned Monarch With a Printing Press

Matt Taibbi / Rolling Stone:
Wall Street's Big Win

The Johnsville News:
The Great Con Job - Dylan Ratigan Exposes the Bankster Fed Con Job

Bill Fleckenstein: 
Cost of this time down: Stagflation
Greenspan's Bubbles

Seeking Alpha:
Close Down the Federal Reserve


Discussion: Did President Woodrow Wilson say or write the following?
"I am a most unhappy man. I have unwittingly ruined my country...", after signing the Federal Reserve into existence in 1913

Tuesday, August 24, 2010

Existing Home Sales Plummet

Items of Interest:

Sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest level since May 1995.

The number of homes on the market increased only slightly but the large drop in sales was enough to push inventory levels up to 12.5 months. A normal market has an inventory level of less than six months.

July Existing-Home Sales Fall as Expected but Prices Rise — Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of Realtors...
Felix Salmon:   America stops buying homes
Dina Elboghdady / Political Economy:   Sales of previously occupied homes plunge
Megan McArdle / The Atlantic Online:   Home Sales Plunge In July
Stephen Gandel / The Curious Capitalist:   The Not-So-Bright Spot in the Gloomy Housing Report
Christine Hauser / New York Times:   Wall Street Hit Again, This Time by Housing Data
James Ledbetter / Moneyblog:   Why Is Anyone Surprised at Plummeting Home Sales?
Katie Allen / Guardian:   US home sales in record July slump
Barry Ritholtz / The Big Picture:   Exisiting Home Sales Plummet 27.2%
Catherine Rampell / Economix:   Existing Home Sales Swan Dive
Daniel Indiviglio / The Atlantic Online:
How Bad Was July's Plummet in Home Sales?
David Goldman / Inner Workings:
Dave’s New Top Ten Reasons to Fade the Economy -- Why are all these terrible things happening? In a May 2009 essay entitled “Demographics and Depression,” I warned First Things readers that the great economic headwind of our time was demographic:
Our children are our wealth. Too few of them are seated around America’s common table, and it is their absence that makes us poor. Not only the absolute count of children, to be sure, but also the shrinking proportion of children raised with the moral material advantages of two-parent families diminishes our prospects...

Saturday, August 21, 2010

Keynes the Killer, Bond Bubbles, and Old Russia

 Items of Interest:

Michael Pento / Real Clear Markets:
Dr. Keynes Killed the Patient -- Right now, economic quackery - in the form of Keynesianism - has overtaken Washington.

American consumers are trying their best to deleverage. In terms of the story, the patient is actually trying to lose weight. But the government is blocking deleveraging and trying to boost consumption. They are forcing food down the patient's throat. According to the Flow of Funds Report, households reduced debt at a 2.4% annualized rate ($330 billion) during Q1 of 2010. Meanwhile, the federal government was piling on debt at an 18.5% annual rate ($1.44 trillion). Since every dollar of government debt is a promise to tax the private sector in the future with interest, this public spending spree effectively negated the Herculean efforts of the private sector to return to a sustainable path.

That's where the arrogance of Washington is really apparent. Scores of millions of American consumers have made the decision that reducing their debt burden is in their best interests right now. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. By leveraging up the public sector, they have used their power to confiscate our savings. In short, they are forbidding us from following the common sense path to fiscal health...

Rather than allowing the American people to get back on our feet, Washington is stuffing us with even more debt. It's almost as if the feds are daring our foreign creditors to pull the plug. As a consequence, I predict that just as Dr. Keynes killed his patient, Keynesian economics will kill our economy.

At the beginning of the Clinton administration in the early 1990s, adviser James Carville was stunned at the power the bond market had over the government. If he came back, Carville said: I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody. - WSJ

Bond Bubble

So are bonds the toxin that Dr. Keynes is injecting into the body of the American economy to kill it? Someone please tell me: Is there, or is there not a "Bond Bubble"?

Paul Krugman
Appeasing the Bond Gods -- The Freakish Cult of the Austerity Apostles ... the austerians: the bond vigilantes may be invisible, but they must be feared all the same...

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland...


Still confused?
Apparent synthetic wealth has artificially and temporarily been created through the production of paper. Whether Federal Reserve IOU notes (the dollar) or guaranteed certificates of confiscation (treasury notes & bonds), it needs to never be forgotten that these are paper. It is not wealth. It is someone else’s obligation to deliver that wealth to the holder of the paper based on what that paper is felt to be worth when the obligation is required to be surrendered. It must never be forgotten that fiat paper is only a counter party obligation to deliver. Will they? Unfortunately, since fiat paper is no longer a store of value, it is recklessly being created to solve political problems. What you will inevitably receive will be only be a fraction of the value of what you originally surrendered. -- Gordon Long, Tipping Points
Forget your present worries. Let's go to a land far away and long ago.

Russia in color, a century ago -- With images from southern and central Russia in the news lately due to extensive wildfires, I thought it would be interesting to look back in time with this extraordinary collection of color photographs taken between 1909 and 1912. In those years, photographer Sergei Mikhailovich Prokudin-Gorskii (1863-1944) undertook a photographic survey of the Russian Empire with the support of Tsar Nicholas II. He used a specialized camera to capture three black and white images in fairly quick succession, using red, green and blue filters, allowing them to later be recombined and projected with filtered lanterns to show near true color images. The high quality of the images, combined with the bright colors, make it difficult for viewers to believe that they are looking 100 years back in time - when these photographs were taken, neither the Russian Revolution nor World War I had yet begun...

A group of Jewish children with a teacher in Samarkand, (in modern Uzbekistan), ca. 1910.

View of the Nikolaevskii Cathedral from southwest in Mozhaisk, Russia in 1911

Tuesday, August 17, 2010

Chinese Ghost Cities

How can the Chinese afford to build empty cities? Something is very rotten in the Middle Kingdom.

Holly Krambeck / blogs.worldbank.org:
Rise of the Chinese Ghost Town -- In Chenggong, there are more than a hundred-thousand new apartments with no occupants, lush tree-lined streets with no cars, enormous office buildings with no workers, and billboards advertising cold medicine and real estate services – with no one to see them.

As my colleagues and I wandered, on–foot, down the center of Chenggong’s empty 8-lane boulevards and dedicated bus lanes, never seeing a single person, we marveled about the fiscal and political conditions that would have to exist to create something like this...

Thursday, August 12, 2010

Atlanta Housing Mob Scene

The breadlines of the Depression era seemed like they were a little better organized. What was the thinking behind this mess in Atlanta?

Couldn't the housing application (a piece of paper) been put on the internet as a .pdf for anyone to download and printout?

Crowds swarm at Tri-Cities Plaza in East Point, Georgia on Wednesday morning as people try to get a public housing application.

Atlanta Constituion:
Housing crisis reaches full boil in East Point; 62 injured -- Thirty thousand people turned out in East Point on Wednesday seeking applications for government-subsidized housing, and their confusion and frustration, combined with the summer heat, led to a chaotic mob scene that left 62 people injured...

Wednesday's deluge of people seeking low-income vouchers in East Point demonstrated just how desperate the need for affordable housing has become in metro Atlanta, officials said. Some 15,000 Georgians currently are accommodated with Section 8 housing, with thousands more on waiting lists. Housing openings have been difficult to find anywhere, including rural areas...

East Point: No Need to Camp Out For Public Housing Applications
The Ed Show / MSNBC.com:

Photos From the Depression: Part II

 Bread line, New York
via Zero Hedge / Gordon Long:
What made America great is now Killing her!

There are currently 40.8 million people on food stamps in the US

Saturday, August 7, 2010

Lost Decades

Items of Interest:

A decade here a decade there pretty soon it adds up.

National Inflation Association:
'Japan: America's Lost Decade' -- The National Inflation Association is pleased to announce that it has released a video report about Japan's "Lost Decade" of deflation and how it relates to the U.S. economy. 'Japan: America's Lost Decade' is the most comprehensive video ever produced about Japan's deflationary crisis of the 1990s. It proves that America is more likely to experience hyperinflation this decade and not deflation like Japan...

Bull Source:
Japan: America’s Lost Decade -- According to NIA, the breaking point for the US economy will occur when Japan, our second largest creditor, stops funding US debts. NIA believes the US will enter into hyperinflation rather than deflation, as the US has entered this decade from the complete opposite position that Japan did during its “Lost Decade.”...

Zero Hedge:
Japan Redux: A Video Case Study Of The Upcoming U.S. Lost Decade -- Whether one believes in inflation or deflation, one thing is certain: in many ways the current US experience finds numerous parallels to what has been happening in Japan for not one but two decades. While major economic, sociological and financial differences do exist, the key issue remains each respective central bank's failed attempts to reflate its economy...

Neil Irwin / The Washington Post:
Aughts were a lost decade for U.S. economy, workers -- The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.

It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism -- there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.

There has been zero net job creation since December 1999...

The Economy’s Lost Decade -- To hell with Japan, we have already had our lost decade — or at least so says the Washington Post. And, it was more than just the stock market that lost ground over the past 10 years...

Tim Swanson / Ludwig von Mises Institute
Why not make it three lost decades?

NY Times:
Japan’s Big-Works Stimulus Is Lesson -- Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery...

Will the US Repeat Japan's Mistakes? -- The US economy "may become enmeshed in a Japanese-style deflationary outcome within the next several years."

The Fed is mulling over its options for dealing with an outbreak of deflation...

David Goldman / FirstThings.com:
Fed Proposals to Counter “Deflation” Are Misguided -- America’s demographic profile has a disturbing resemblance to Japan’s at the beginning of the 1990s,the beginning of its famous “lost decade.” Its population had just began to age dramatically. Over the decade, the elderly dependency ratio rose from 17 percent to 25 percent. As the Japanese aged, their appetite for savings naturally and rationally grew, and they had to save more and more as their stock portfolios and home values crashed. But the more they saved, the worse the economy did...

Lost Decade (Japan)

Gary Shilling: America’s Lost Decade

Stratfor / RealClearWorld:
Japan's Lost Decade Revisited -- Finally, Japan emerged from this extended period of financial and economic distress — though only for a brief time — during the premiership of Junichiro Koizumi (2001-2006), a reformer who attempted to privatize government agencies, cut wasteful programs, rein in Japan’s budgets and map out a plan for reducing the country’s bloated national debt. With the U.S. and global economy booming from 2003 to 2007, Koizumi’s Japan saw consecutive years of growth for the first time since 1997 (though at an unimpressive rate of around 1 percent). Koizumi’s reforms were a start, but in comparison to the size of the country’s problems they were humble. He did little more than slow Japan’s descent. Though he shrank budget deficits during his term, he did not manage to bring them back down even to 1995-1996 levels, and national debt continued to grow (though at a much reduced rate)...

Richard Koo / Entrepreneur.com:
Lessons from Japan's lost decade: why America's experience may be worse. -- Japan's GDP never fell in spite of the massive drop in asset prices and massive increase in private-sector debt repayment because the government borrowed and spent the increased savings and debt repayment that represented the leakage to the income stream. With the government actively putting this sum back into the income stream through its fiscal policy, there was no reason for the GDP to contract. In other words, Japan proved to the world that, even if real estate prices decline by 87 percent and the private sector is obsessed with debt minimization instead of profit maximization, it is still possible to keep the GDP from falling as long as the government puts in an appropriate-sized fiscal stimulus from the beginning and maintains that stance until private-sector balance sheets are repaired...
Denver Post:
Captured: America in Color from 1939-1943 -- These images, by photographers of the Farm Security Administration/Office of War Information, are some of the only color photographs taken of the effects of the Depression on America’s rural and small town populations. The photographs are the property of the Library of Congress and were included in a 2006 exhibit Bound for Glory: America in Color...

Grand Grocery Company. Lincoln, Nebraska, 1942.

Thursday, August 5, 2010

Evidence of Deflation and Fed Whoredom

 Items of Interest:

You must know that prices are on a downward skid when a john offers a hooker $10 and a box of Tastykakes for her services.

Michelle Sahn / Asbury Park Press:
Police: Man seeking sex offered undercover cop $10 and box of Tastykakes -- ASBURY PARK - Police arrested 19 men who they say solicited an undercover officer, including one man who offered her $10 and a box of Tastykakes in exchange for a sex act.

All 19 men from Monmouth and Ocean counties were charged with solicitation of prostitution. They offered the undercover officer amounts ranging from $10 to $100 in exchange for a sex act, police said. City police set up the detail around 11 a.m. Friday, and it ran until 5 p.m. that evening, with most of the arrests made between noon and 2 p.m. and 4 and 5 p.m., said Detective Capt. Anthony Salerno...
Todd Harrison / Minyanville:
The Main Event: Inflation vs. Deflation -- Federal Reserve Bank of St. Louis President James Bullard shot a warning over the bovine bow last week, offering the US is at risk of falling into a Japan-like deflationary trap...

William Greider / The Nation:
Deflation, Not Deficit, Is the Real Threat

Pimco's El-Erian Sees 25% Chance of U.S. Deflation, Double-Dip Recession

Wall Street Journal:
Pimco's Chief Exec El-Erian Says US On "Road To Deflation"

Deflation Downer - Pe Titan Moelis to Give Back $750m

Wall Street Journal:
Defending Yourself Against Deflation

Josh Lipton / Minyanville:
Protecting Your Portfolio Against Deflation -- Investors don't seem worried about a deflationary death spiral, but given the fears of some at the Fed, it's prudent to consider the risk...
All is not lost. Washington's Federal Reserve whores still come at a higher price.

Nassim Nicholas Taleb / Huffington Post:
The Regulator Franchise, or the Alan Blinder Problem -- The story is as follows. Last year, in Davos, during a private coffee conversation that I thought aimed at saving the world from, among other things, moral hazard, I was interrupted by Alan Blinder, a former Vice Chairman of the Federal Reserve Bank of the United States, who tried to sell me a peculiar investment product. It allowed the high net-worth investor to go around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near unlimited amounts. The investor would deposit funds in any amount and Prof. Blinder's company would break it up in smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In other words, it would allow the super-rich to scam taxpayers by getting free government sponsored insurance. Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.
I blurted out: "isn't this unethical?" I was told in response, "We have plenty of former regulators on the staff," implying that what was legal was ethical...
naked capitalism:
Taleb Calls Out Alan Blinder for Questionable Ethics -- This may all seem to be so “dog bites man” in America so as to no longer elicit any outrage. The famed regulatory revolving door, and all the benefits that former officials and their new private sector masters gain from a legally permitted but socially destructive form of trading of insider know how is now considered business as usual in the US...

Tuesday, August 3, 2010

Greenspan: Fed works for banks, hedge funds, and speculators. Not for ordinary citizens.

Alan Greenspan the patron saint of easy moneyAlan Greenspan the patron saint of the banksters and easy money

Graham Summers / gainspainscapital.com / ZeroHedge.com:
The Most Wrong Thing I’ve Ever Heard -- I’ve written about our esteemed former Fed Chairman enough times for people to know my views of the man. However, the Maestro recently let loose a statement on MSNBC that absolutely MUST be read by anyone who wants to understand the general philosophy at the Federal Reserve as well as why the US economy is so screwed up.

Greenspan said:
"if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here." (on MSNBC’s Meet the Press).

The above statement is simply extraordinary given its source. This statement confirms what we have all suspected deep down all along: that Greenspan and the Ben Bernanke (the latter was Greenspan’s protégé) believe that the US economy’s focus is financial speculation.

In 1970, the financial industry only accounted for 10% of S&P 500 earnings. By 2003, this percentage had swelled to 31%. Put another way, by the turn of the century the financial industry accounted for nearly $1 out of every $3 in corporate profits.

Greenspan and the Fed instituted policies that helped facilitate this. They:
  • Left interest rates below the rate of inflation, punishing savers and forcing them to speculate in riskier assets
  • Told Congress to push back regulation allowing Wall Street to leverage up
  • Urged the regulators to ignore derivatives and other financial products that they themselves knew were dangerous and out of control
  • Thrown TRILLIONS of dollars at Wall Street
  • Didn’t give a hoot about incomes falling or the deterioration of other economic metrics that impacted ordinary citizens everyday lives
Greenspan’s admission also tells us why his successor, Ben Bernanke has chosen to combat the Financial Crisis by implementing policies that largely benefit Wall Street (the speculators) and punish Main Street (ordinary citizens). After all, if your primary focus is making sure that the markets stay up, who are you REALLY helping, the retiree with the 401(k) or the hedge fund trader who speculates aggressively using leverage?

Folks, this is the REAL “New Economy” Greenspan touted in the ‘90s: financial speculation...

Meet the Press transcript for August 1, 2010 --
MR. GREGORY: Interest rates, how long before they start coming up? Do they need to stay low?

MR. GREENSPAN: Well, the problem there implies that the government has control over those rates, meaning the Federal Reserve and the Treasury Department, in a sense. There is no doubt that the federal funds rate, that is the rate produced by the Federal Reserve, can be fixed at whatever the Fed wants it to be, but which the government has no control over is long-term interest rates, and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment, there is no sign of that, basically because the financial system is broke and you cannot have inflation if financial system is not working...

MR. GREGORY: Dr. Greenspan, the Associated Press reported on a survey this week of economists, and we'll put a portion of it up on the screen. "A bleaker outlook for the economy into 2011. The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend, employers hesitant to hire." That's according to an AP survey of leading economists.

"The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before." The current Fed chairman, Bernanke, said the outlook is "unusually uncertain." A little bit of newer generation Fed speak there. Does that mean--do you think that means the economy gets worse before it gets better?
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MR. ALAN GREENSPAN: Maybe, but not necessarily. I think we're in a pause in a recovery, a modest recovery. But a pause in the modest recovery feels like quasi recession. Our problem, basically, is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it and are carrying what consumption there is. Large banks, who are doing much better, and large corporations, whom you point out and the--and everyone's pointing out, are in excellent shape. The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic unemployment, long-term unemployment, that is pulling the economy apart. The average of those two is what we are looking at, but they are fundamentally two separate types of economy.

MR. GREGORY: If you add in the housing crisis, which remains a crisis, do you think it's possible that we get this double-dip recession that a lot of people fear?

MR. GREENSPAN: It is possibly if home prices go down. Home prices, as best we can judge, have really flattened out in the last year. And while it is true that most economists expect a small dip from here, largely as a consequence of the ending of the tax credit, the data don't show that at this particular stage. If home prices stay stable, then I think we will skirt the worst of the housing problem. But right under this current price level, maybe 5, 7 or 8 percent below is a very large block of mortgages which are underwater, so to speak, or could be underwater, and that would induce a major increase in foreclosures. Foreclosures would feed on the weakness in prices, and it would create a problem. So that--it's touch and go...

MR. GREGORY: Dr. Greenspan, the Dow, an important barometer, as you've said before on this program, because there's real money there, there's real wealth. Are we out of the woods in the sense that Dow 10,000-plus you think is here to stay?

MR. GREENSPAN: I wish I could answer that one. It's a critical issue because, as you point out and as I've always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect. What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We've come all the way back--maybe a little more than halfway, and it's had a very positive effect. I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about...

Alan Greenspan: "The Financial System Is Broke"

Pragmatic Capitalist:
GREENSPAN SPEAKS, THE MEDIA SITS ON THE EDGE OF THEIR SEATS…. -- This week it was Alan Greenspan, one of the grand orchestrator’s of our financial industry’s deregulation and the most vocal advocate of the virus that is neoliberalism. This man has poisoned our economy for almost 5 decades (and he has admitted that his models were “flawed”) yet we continue to worship at the altar of Greenspan…
Jeremy Warner  / Telegraph [UK]:
Alan Greenspan is making UK weatherman Michael Fish look like a good forecaster -- Alan Greenspan appears to have taken to heart the old adage that "if you can't forecast well, forecast often"...
Tom Keene's Econo Chat with Jim Grant --

Question: You have persistently called for higher interest rates. Why?

Answer: You know, there is a great emphasis now within the Federal Reserve on consumer protection. And I think a nice way to protect the consumer is to give the consumer a rate of return on his or her savings greater than zero. The great paradox to me of the Fed's obsession with consumer protection is that the one thing it can control— that is to say, its own federal funds rate—is stuck very close to zero.

Question: Is it an elite policy? Are they doing it off Ben Bernanke's study of the Thirties, which stressed saving the financial institutions but not savers?

Answer:I am not sure I would call it elite. I think I would call it misplaced. I'm not sure Chairman Bernanke has any greater love for JPMorgan (JPM) than he does for the average saver. Maybe there are only six or eight savers in America left, in which case he is playing to a much bigger constituency on Wall Street.

Monday, August 2, 2010

The GOP Grew Government.com Bubble

Items of Interest:

David Stockman / NY Times:
[director of the Office of Management and Budget under President Ronald Reagan]
Four Deformations of the Apocalypse -- IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase...

it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.

Barry Ritholtz / The Big Picture:
Stockman: How the GOP Destroyed the U.S. Economy -- I have described myself politically as a “Jacob Javits* Republican.” For those of you unfamiliar with the Senator from NY, Javits was a social progressive, a fiscal conservative, “a political descendant of Theodore Roosevelt’s Progressive Republicanism.”

After he “retired” in 1980, the GOP took a very different turn: The emphasis on Fiscal conservatism was lost. Balanced budgets were no longer a priority. In terms of electoral politics, the embrace with the Religious Right was a deal with the devil...

I can sum it up thusly: Whereas the Democrats have no economic policy, the Republicans have a very bad one...'

Doug Mataconis / Outside the Beltway:   David Stockman's Scathing Indictment Of GOP Fiscal Policy
Robert / Angry Bear:   Still Sleazy After All These Years
Jacob Davies / Obsidian Wings:   Why Fiscal Conservatives Should Vote Democrat

Todd Harrison / Minyanville:
The Last Gasp Bubble of Government.com

Pat G. / Think Progress:
Palin Writes Down Cost Of Extending Bush Tax Cuts On Her Hand, But She Still Gets It Wrong  —  Since he was on the campaign trail, President Obama has proposed renewing the 2001 and 2003 Bush tax cuts for the lower- and middle-class, while allowing them to expire on schedule at the end … 
The Huffington Post:
Alan Greenspan: Extending Bush Tax Cuts Without Paying For Them Could Be ‘Disastrous’  —  Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being “disastrous” for the economy. 
Bob Cesca / Bob Cesca's Awesome Blog!:   Alan Greenspan Opposes Bush Tax Cuts...
Kathy Kattenburg / The Moderate Voice:   Exploding Bush Tax Cut Myths
Bruce McQuain / Questions and Observations:   Bush tax cuts - it's not your money, so quit whining
Yves Smith / naked capitalism:   Debunking Bush Tax Cut Myths
William A. Jacobson / Le·gal In·sur·rec· tion:
What Don't You Understand About “It's Not Your Money” 
Fareed Zakaria / Washington Post:   To deal with the deficit, let the tax cuts expire

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