have been busy with this, that, everything else, plus upgrading 4 apple macs to os x lion, alone with engaging with all the software / services that must be
cheers, tj
some recent communications
From: J
Sent: Sunday, April 29, 2012 7:30 AM
Subject: Re: The Trap is not anywhere but everywhere except gold - sunday sermon
agreed that it is too early to implement a Gold Standard currency, because i am not yet ready :0)
for i have neither accumulated enough gold for my gold standard savings nor am i sufficiently pre-positioned in platinum for the next 'trade of the decade' post dead-certain zero-state monetary-reset of the paper regime
reset of the paper regime could, should, ought to and probably will happen between 7-14 years from now as the new kingdoms rise and old empires fall, and once so inflected, the rest of the script may follow, namely Gold Standard currency to restore cratered confidence, eulogize vaporized savings and give rise to a new new but ancient and eternal unit of exchange
in the sorry mean nasty time, a private, organic, sustainable and eco-friendly gaming of the gOLD sTANDARD by way of puts / calls, paper-trade-this and mineralized-savings-that is plenty enough fun.
most of the "for the people by the people against other people" crowd neither understand nor care about what money they have or have borrowed, could not be less fussed about a private enterprise stealing them blind day in and nights out, and haven't a clue of the dynastic scheme of rule-by-making-ever-sillier-laws designating some kids to remain the privileged few and tee-ing up other kids to be either cannon fodder and/or tax serf and/or or student debt slave.
the kernel of the eventual work-out shall likely have much to do with the truth that the ostensibly rule-by-legitamacy-of-election governments successively constituted by never-fear-revolving-door political class backed by unholy unity of money+law+arms do not and never would fear the supposed universal suffrage electorates, and so the alleged political legitimacy never stops, cannot be challenged, until disaster. as the script plays, the always-legitimate is not answerable by way of performance.
i fear the political experiment created on the landscape of genocide-enabled new world has run its course, is now toxically deformed, and must, as in inevitably and inexorably, play out the last chapters per no-way-out discipline as doors are shut, loop-holes plugged, cavities probed, and more lists are listed.
it is a safe bet that most jurisdictions shall tee-up cashless society before succumbing to a reign of Gold Standard. it is also a reasonable wager that the former would lead to the latter, and not so much the other way around.
imagine we are the limited partners of a hedge fund that does not allow withdraw, and the managing partners are always elected from one of few who in turn ordain new managing partners out of a small group of groupies, even as the ordained few are hailed by universal suffrage of the ever poorer limited partners willingly suffering from 2 & 20 without highwater marking. what a fund, let us not invest, and instead opt out.
recommendation: getgold while it is at cheapest than ever before, nominal pricing not withstanding, as all are relative.
sunday sermon ends.
cheers, j
From: W
Sent: Saturday, April 28, 2012 10:33 PM
Subject: RE: The Trap is not in usa but in spain - speech by robert wenzel to ny fed
A gold-linked system would prevent the devaluation of the currency and thus the massive debts outstanding. Not an option at this time. The problem with the Fed is corporate governance. The Fed is perceived as a public agency but is in fact a private corporation 100% owned and basically controlled-at the FOMC level which is what matters-by the banksters. The Fed gives lip service to the general interest but,like other corporations, only really serves the interests of its private owners. The US is a mess because the political system is controlled by the same well-funded special interest puppetmasters on both sides of the aisle. Meaningful change can only occur after a crisis leading to popular revolt.As currently structured the govt leviathan is incapable of reforming itself.
From: D
Subject: Re: The Trap is not in usa but in spain - speech by robert wenzel to ny fed
I think gold backed sovereign currency has a lot of serious issues unless there is constant repricing of the currency vs gold and in the end constant repricing would not be any real change from the current system. However it seems like international transactions could be done with gold and that would be an improvement over current system although current system is in such a state that an improvement is easy to come by. As currency is linked to politics there is a distressing lack of rational though behind it's deployment.
It seems the odds of Ron Paul getting elected are still remote but higher than anyone expected because he really does have an chance although it is a slim one. Jim Sinclair seems to be saying Ron Paul would rush through implementation of drastic reforms in a ham fisted way. Any time you hear Ron Paul talk about how the transition should be done it seems like a rational and thought out approach. Anyway a lot of it would have to go through congress so it is not like a massive reorganization of US government is likely anytime soon. I mention this because it seems Jim Sinclair is talking his book more lately and what he said about Ron Paul is one example of statements that do not add up.
On Sat, Apr 28, 2012 at 12:52 AM, W wrote:
I can see the weakness of having the fed but if abct is the right way, why hasn't it been adopted? If libertarianism is the right way, why isn't Ron Paul elected president. so we close the fed and replace w/ a gold standard and it solves all problems?
On Apr 27, 2012, at 8:27 PM, r wrote:
sorry to duplicate your efforts-and I agree it is a must read...
On Apr 27, 2012, at 6:13 PM, J wrote:
just in
this speech was delivered to the NY Fed. the other day by Robert Wenzel. It is a MUST read:
http://www.economicpolicyjournal.com/2012/04/my-speech-delivered-at-new-york-federal.html
At the invitation of the New York Federal Reserve Bank, I spoke and had lunch in the bank's Liberty Room. Below are my prepared remarks.
Thank you very much for inviting me to speak here at the New York Federal Reserve Bank.
Intellectual discourse is, of course, extraordinarily valuable in reaching truth. In this sense, I welcome the opportunity to discuss my views on the economy and monetary policy and how they may differ with those of you here at the Fed.
That said, I suspect my views are so different from those of you here today that my comments will be a complete failure in convincing you to do what I believe should be done, which is to close down the entire Federal Reserve System
My views, I suspect, differ from beginning to end. From the proper methodology to be used in the science of economics, to the manner in which the macro-economy functions, to the role of the Federal Reserve, and to the accomplishments of the Federal Reserve, I stand here confused as to how you see the world so differently than I do.
I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality.
Please allow me to begin with methodology, I hold the view developed by such great economic thinkers as Ludwig von Mises, Friedrich Hayek and Murray Rothbard that there are no constants in the science of economics similar to those in the physical sciences.
In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed..
There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.
And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist. It is as if one were to assume a constant relationship existed between interest rates here and in Russia and throughout the world, and create equations based on this belief and then attempt to trade based on these equations. That was tried and the result was the blow up of the fund Long Term Capital Management, a blow up that resulted in high level meetings in this very building.
It is as if traders assumed a given default rate was constant for subprime mortgage paper and traded on that belief. Only to see it blow up in their faces, as it did, again, with intense meetings being held in this very building.
Yet, the equations, assuming constants, continue to be published in papers throughout the Fed system. I scratch my head.
I also find curious the general belief in the Keynesian model of the economy that somehow results in the belief that demand drives the economy, rather than production. I look out at the world and see iPhones, iPads, microwave ovens, flat screen televisions, which suggest to me that it is production that boosts an economy. Without production of these things and millions of other items, where would we be? Yet, the Keynesians in this room will reply, “But you need demand to buy these products.” And I will reply, “Do you not believe in supply and demand? Do you not believe that products once made will adjust to a market clearing price?”
Further , I will argue that the price of the factors of production will adjust to prices at the consumer level and that thus the markets at all levels will clear. Again do you believe in supply and demand or not?
I scratch my head that somehow most of you on some academic level believe in the theory of supply and demand and how market setting prices result, but yet you deny them in your macro thinking about the economy.
You will argue with me that prices are sticky on the downside, especially labor prices and therefore that you must pump money to get the economy going. And, I will look on in amazement as your fellow Keynesian brethren in the government create an environment of sticky non-downward bending wages.
The economist Robert Murphy reports that President Herbert Hoover continually pressured businessmen to not lower wages.[1]
He quoted Hoover in a speech delivered to a group of businessmen:
In this country there has been a concerted and determined effort on the part of government and business... to prevent any reduction in wages.
He then reports that FDR actually outdid Hoover by seeking to “raise wages rates rather than merely put a floor under them.”
I ask you, with presidents actively conducting policies that attempt to defy supply and demand and prop up wages, are you really surprised that wages were sticky downward during the Great Depression?
In present day America, the government focus has changed a bit. In the new focus, the government attempts much more to prop up the unemployed by extended payments for not working. Is it really a surprise that unemployment is so high when you pay people not to work.? The 2010 Nobel Prize was awarded to economists for their studies which showed that, and I quote from the Noble press release announcing the award:
One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.[2]
Don’t you think it would make more sense to stop these policies which are a direct factor in causing unemployment, than to add to the mess and devalue the currency by printing more money?
I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost “demand”. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%.
I also must scratch my head at the view that the Federal Reserve should maintain a stable price level. What is wrong with having falling prices across the economy, like we now have in the computer sector, the flat screen television sector and the cell phone sector? Why, I ask, do you want stable prices? And, oh by the way, how’s that stable price thing going for you here at the Fed?
Since the start of the Fed, prices have increased at the consumer level by 2,241% [3]. that’s not me misspeaking, I will repeat, since the start of the Fed, prices have increased at the consumer level by 2,241%.
So you then might tell me that stable prices are only a secondary goal of the Federal Reserve and that your real goal is to prevent serious declines in the economy but, since the start of the Fed, there have been 18 recessions including the Great Depression and the most recent Great Recession. These downturns have resulted in stock market crashes, tens of millions of unemployed and untold business bankruptcies.
I scratch my head and wonder how you think the Fed is any type of success when all this has occurred.
I am especially confused, since Austrian business cycle theory (ABCT), developed by Mises, Hayek and Rothbard, has warned about all these things. According to ABCT, it is central bank money printing that causes the business cycle and, again you here at the Fed have certainly done that by increasing the money supply. Can you imagine the distortions in the economy caused by the Fed by this massive money printing?
According to ABCT, if you print money those sectors where the money goes will boom, stop printing and those sectors will crash. Fed printing tends to find its way to Wall Street and other capital goods sectors first, thus it is no surprise to Austrian school economists that the crashes are most dramatic in these sectors, such as the stock market and real estate sectors. The economist Murray Rothbard in his book America’s Great Depression [4] went into painstaking detail outlining how the changes in money supply growth resulted in the Great Depression.
On a more personal level, as the recent crisis was developing here, I warned throughout the summer of 2008 of the impending crisis. On July 11, 2008 at EconomicPolicyJournal.com, I wrote[5]:
SUPER ALERT: Dramatic Slowdown In Money Supply Growth
After growing at near double digit rates for months, money growth has slowed dramatically. Annualized money growth over the last 3 months is only 5.2%. Over the last two months, there has been zero growth in the M2NSA money measure.
This is something that must be watched carefully. If such a dramatic slowdown continues, a severe recession is inevitable.
We have never seen such a dramatic change in money supply growth from a double digit climb to 5% growth. Does Bernanke have any clue as to what the hell he is doing?
On July 20, 2008, I wrote [6]:
I have previously noted that over the last two months money supply has been collapsing. M2NSA has gone from double digit growth to nearly zero growth .
A review of the credit situation appears worse. According to recent Fed data, for the 13 weeks ended June 25, bank credit (securities and loans) contracted at an annual rate of 7.9%.
There has been a minor blip up since June 25 in both credit growth and M2NSA, but the growth rates remain extremely slow.
If a dramatic turnaround in these numbers doesn't happen within the next few weeks, we are going to have to warn of a possible Great Depression style downturn.
Yet, just weeks before these warnings from me, Chairman Bernanke, while the money supply growth was crashing, had a decidedly much more optimistic outlook, In a speech on June 9, 2008, At the Federal Reserve Bank of Boston’s 53rd Annual Economic Conference [7], he said:
I would like to provide a brief update on the outlook for the economy and policy, beginning with the prospects for growth. Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly. Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so. Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.
I believe the Great Recession that followed is still fresh enough in our minds so it is not necessary to recount in detail as to whose forecast, mine or the chairman’s, was more accurate.
I am also confused by many other policy making steps here at the Federal Reserve. There have been more changes in monetary policy direction during the Bernanke era then at any other time in the modern era of the Fed. Not under Arthur Burns, not under G. William Miller, not under Paul Volcker, not under Alan Greenspan have there been so many dramatically shifting Fed monetary policy moves. Under Chairman Bernanke there have been significant changes in direction of the money supply growth FIVE different times. Thus, for me, I am not at all surprised at the current stop and go economy. The current erratic monetary policy makes it exceedingly difficult for businessmen to make any long term plans. Indeed, in my own Daily Alert on the economy [8] I find it extremely difficult to give long term advice, when in short periods I have seen three month annualized M2 money growth go from near 20% to near zero, and then in another period see it go from 25% to 6% . [9]
I am also confused by many of the monetary programs instituted by Chairman Bernanke. For example, Operation Twist.
This is not the first time an Operation Twist was tried. an Operation Twist was tried in 1961, at the start of the Kennedy Administration [10] A paper [11] was written by three Federal Reserve economists in 2004 that, in part, examined the 1960's Operation Twist
Their conclusion (My bold):
A second well-known historical episode involving the attempted manipulation of the term structure was so-called Operation Twist. Launched in early 1961 by the incoming Kennedy Administration, Operation Twist was intended to raise short-term rates (thereby promoting capital inflows and supporting the dollar) while lowering, or at least not raising, long-term rates. (Modigliani and Sutch 1966).... The two main actions of Operation Twist were the use of Federal Reserve open market operations and Treasury debt management operations..Operation Twist is widely viewed today as having been a failure, largely due to classic work by Modigliani and Sutch....
However, Modigliani and Sutch also noted that Operation Twist was a relatively small operation, and, indeed, that over a slightly longer period the maturity of outstanding government debt rose significantly, rather than falling...Thus, Operation Twist does not seem to provide strong evidence in either direction as to the possible effects of changes in the composition of the central bank’s balance sheet....
We believe that our findings go some way to refuting the strong hypothesis that nonstandard policy actions, including quantitative easing and targeted asset purchases, cannot be successful in a modern industrial economy. However, the effects of such policies remain quantitatively quite uncertain.
One of the authors of this 2004 paper was Federal Reserve Chairman Bernanke. Thus, I have to ask, what the hell is Chairman Bernanke doing implementing such a program, since it is his paper that states it was a failure according to Modigliani, and his paper implies that a larger test would be required to determine true performance.
I ask, is the Chairman using the United States economy as a lab with Americans as the lab rats to test his intellectual curiosity about such things as Operation Twist?
Further, I am very confused by the response of Chairman Bernanke to questioning by Congressman Ron Paul. To a seemingly near off the cuff question by Congressman Paul on Federal Reserve money provided to the Watergate burglars, Chairman Bernanke contacted the Inspector General’s Office of the Federal Reserve and requested an investigation [12]. Yet, the congressman has regularly asked about the gold certificates held by the Federal Reserve [13] and whether the gold at Fort Knox backing up the certificates will be audited. Yet there have been no requests by the Chairman to the Treasury for an audit of the gold.This I find very odd. The Chairman calls for a major investigation of what can only be an historical point of interest but fails to seek out any confirmation on a point that would be of vital interest to many present day Americans.
In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children. [14] Yet, America’s gold is off limits to seemingly everyone and has never been properly audited. Doesn’t that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?
In conclusion, it is my belief that from start to finish the Fed is a failure. I believe faulty methodology is used, I believe that the justification for the Fed, to bring price and economic stability, has never been a success. I repeat, prices since the start of the Fed have climbed by 2,241% and there have been over the same period 18 recessions. No one seems to care at the Fed about the gold supposedly backing up the gold certificates on the Fed balance sheet. The emperor has no clothes. Austrian Business cycle theorists are regularly ignored by the Fed, yet they have the best records with regard to spotting overall downturns, and further they specifically recognized the developing housing bubble. Let it not be forgotten that in 2004, two economists here at the New York Fed wrote a paper [15] denying there was a housing bubble. I responded to the paper [16] and wrote:
The faulty analysis by [these] Federal Reserve economists... may go down in financial history as the greatest forecasting error since Irving Fisher declared in 1929, just prior to the stock market crash, that stocks prices looked to be at a permanently high plateau.
Data released just yesterday, now show housing prices have crashed to 2002 levels. [17]
I will now give you more warnings about the economy.
The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out.
Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat.
Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats.
Footnotes
[1] amazon.com
[2] nobelprize.org
[3] ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
[4] amazon.com
[5] economicpolicyjournal.com
[6] economicpolicyjournal.com
[7] federalreserve.gov
[8] economicpolicyjournal.com
[9] http://www.economicpolicyjournal.com/2008/07/super-alert-dramatic-slowdown-in-money.html
[10] frbsf.org
[11] federalreserve.gov
[12] huffingtonpost.com
[13] federalreserve.gov
[14] newyorkfed.org
[15] fednewyork.org
[16] economicpolicyjournal.com
[17] http://www.nytimes.com/2012/04/25/business/economy/survey-shows-us-home-prices-still-weak.html
Special thanks to the following, who helped me research and collect data for this paper: Stephen Davis, Bob English, Jon Lyons, Ash Navabi, Joseph Nelson, Nick Nero, Antony Zegers
From: C
Sent: Saturday, April 28, 2012 9:03 AM
Subject: Re: The Trap is not in usa but in spain
Who you goin to call?
Where you going to hide?
Nowhere.
-- Meg Tilly, Body Snatchers
From: R
Date: Fri, 27 Apr 2012 12:08:47 -0700
Subject: Re: The Trap is not in usa but in spain
the Dutch gov collapsed
the Romania gov collapsed
Spain is in pain
coalition gov in Greece unlikely
France unknown
Merkel power challenged
GDP missed
Market did not even blink?
On Fri, Apr 27, 2012 at 8:26 AM, H wrote:
Ah yes, the 'enarques' - I think I will help to popularize this term. As the man says, they think they 'can order nature around'.
We once again see the most pernicious effect of abandoning gold: it has opened the door to socialist central planning on a grand scale, supported by an ever shrinking percentage of wealth generators. Now that the debt bubble has burst, we are entering a state of warfare: the highway robbery of the etatistes is now more palpable to all. I've just written a blog post on financial repression in Italy (should be published in the next few hours). What Monti is doing in Italy now is incredible. There should eventually be an open revolt if he continues along this path.
On Fri, Apr 27, 2012 at 1:56 AM, A wrote:
A 75% income tax rate is surely going to mean plenty more top class footballers going to play for UK/Spanish/Italian clubs………
“The French are a free people, who will not allow their future to be determined by the pressure of markets or finance.”
-French presidential candidate François Hollande, Ecole Nationale d’Administration (ENA), class of 1980, April 19, 2012
Hollande expressed an ardent belief of every ENA graduate (popularly known as énarques, a popularity not often witnessed beyond the campus gates.) Economics professors from Harvard, Princeton, and Oxbridge also dismiss markets. They went so far as to claim all markets identify the right price all the time, thus avoiding the need to understand them. Markets are there to be used: a means to institute public policy. Such policies are imposed by the ruling few.
The Bretton Woods gold standard constrained the ambitions of superior persons. When President Nixon defaulted on the United States’ gold payment obligation in 1971, he opened the floodgates to Policy Making without Consequences.
In Debt and Delusion: Central Bank Follies That Threaten Economic Disaster (1999), Peter Warburton wrote: “It is easy to forget that, as recently as in the 1960s, the government budgets of the OECD countries were in approximate balance and that net issues of debt were comparatively rare. The outstanding stock of debt in public hands was a meager $800 billion at the end of 1970….While Italy, Ireland, and Belgium were already experimenting with deficit finance in 1970, the USA avoided its first budgetary lapse until 1975.”
The developed world (OECD countries) recorded their last balanced budget in 1973, with 12 of the 18 countries in surplus. Rising oil prices was the primary culprit for the 1973 blemish. Discovering markets were no longer constrained by the gold fulcrum; politicians, government bureaucrats, and academic opportunists conducted their social experiments with greater liberty. Previously, governments could only spend so much before the markets said “enough.” Coming to understand their new dispensation slowly, then in a hurry, the technocrats found the costs of their experiments on populations could be absorbed by the rising tide of debt. Restraint in policy reformation, as in most every other human endeavor, was fading in the western world.
Government debt has accumulated year-after-year, akin to regulations imposed from Brussels and Washington. The comparison is not gratuitous. Impositions; crony handouts; and abstract, social improvement programs that should have been quarantined in the Ph.D graveyard; carry costs. According to the OECD, the government net financial liabilities had risen to 52.2% of GDP in Germany by 2010. In France, the figure was 58.9%; in Austria, 44.0%; in the Netherlands, 34.4%. Since budgets had been in balance, these numbers rose from approximately zero in 1970.
The percentage of debt-to-GDP might be likened to a dependency ratio of the bureaucracies. They have been more than willing to use the bond markets to finance their indulgences, but now are turning against them. Other European politicians and Brussels bureaucrats have also blustered about and interfered in stock, bond and credit-default swap markets. (The U.S. énarques have imposed their pricing model in every market, another terminally ill construct.)
Gideon Richman was skeptical of Hollande’s resolve in the April 24, 2012, Financial Times. Of Hollande’s demand for French freedom from the markets: “Which is all very well, unless you need to borrow billions from those vile markets to meet your campaign promises, such as the creation of 60,000 new jobs for teachers (a key constituency for the Socialist Party.)”
Presidential candidate François Hollande, as is true of Federal Reserve Chairman Ben Bernanke, believes he can order nature around. Both have lived inside the fishbowl their entire adult lives. Hollande was an ENA classmate of Dominique de Villepin: poet, biographer of Napoleon, and former Prime Minister of France; and of Ségoléne Royal, the losing Socialist candidate (to Nicholas Sarkozy) in the 2007 presidential race. Hollande and Royal went so far as to produce four children together as tribute to the class of ’80. Their allegiance was so fervent they never stopped to get married. (As happens in the best of classes, they barely speak today.)
From the halls of the ENA to the Eccles building, it is inconceivable that 30 years – really a century or more – of social uplift, advancement, and progress – is in the hands of the markets. We read: “Euro Crisis Back Again.” Where had it gone? The bad debt grows and can only be smothered by ever-larger quantities of ECB loans, since commercial banks either will not or can not lend.
The énarques (the class as a type, not only the French) are entirely responsible. They imposed the ECB and euro by preventing referendums in most European countries. They instituted the policies from which it is now impossible to retreat. This is true in the United States, too.
All channels of the European banking system now flow through the ECB. Jim Bianco ( Bianco Research) told me it is not possible for the ECB to reduce its control of the plumbing. The ECB cannot back away from its pivotal, interbank lending position, since it would be immediately apparent which banks were trouble banks – better banks would only lend to worse banks (if at all) by charging a higher rate of interest. A run on the bad banks would follow. The banks and official channels cannot announce phony rates, because of the legal trouble banks now face from charges that they fixed LIBOR rates.
Bernard Connolly, the economist who foresaw the End before the Beginning: that is, before the ECB was founded, wrote in the The Rotten Heart of Europe: The Dirty War for Europe’s Money (1995):
“As we have seen, German monetary leadership in Europe has been simultaneously embraced in France, if only by the Vichy tendency in the French elite, as necessary expiation for past sins (suffering being inflicted on ordinary people, who do not matter, not on the elite themselves) and bitterly resented. By hamstringing the ability of the French governments to act on behalf of the French people – or, to put it more realistically, by giving them an excuse for not so acting – that embrace has destroyed political legitimacy in France. It has contributed to a contempt for democratic politics so profound, among both rulers and ruled, that the survival of the Fifth Republic may be brought into doubt in the next few years, ‘Europe’ or no ‘Europe.’”
Over the last few months, governments have been pushed out of office in Ireland, Greece, Portugal, Spain, Italy, and now (on April 23, 2012) in the Netherlands. In each case, the standing government was unable to persuade the voters that it stood for the people rather than being subservient to or in league with the bureaucrats in Brussels. The uncomprehending “policy makers” (it is significant that Bernanke loves to refer to himself under that label, rather than as an economist) have dug their own grave.
I met with Bernard Connolly recently in New York. He believes the fate of France is now in Germany’s hands. As for Southern Europe, the banking systems will collapse, governments will lose whatever legitimacy they still retain, with war and bloodshed to follow.
<image001.gif>
From: H
Sent: 27 April 2012 00:42
Yes, I know this is now the official line. It was adopted after politicians began to exert enormous pressure on the BoJ - with the most recent incident the failure of the Diet to confirm a new governing board candidate on account of the fact that he was deemed 'too hawkish'.
But this to and fro between the government and the BoJ has been going on for quite a while now. Shirakawa gave an extensive interview after the earthquake last year where he laid out his philosophy in great detail. I was struck by how extremely hawkish he sounded. He simply does not believe that anything can be solved by means of inflation (in particular he explained why the BoJ thought it would be a very bad idea to create more monetary stimulus following the earthquake).
I would almost call him the anti-Bernanke if not for the fact that Jens Weidmann is already the anti-Bernanke. :)
Anyway, my feeling is that Shirakawa is a bit afraid that if he stays firm, then the BoJ might lose its formal independence again, an outcome he surely dreads. So he's begun to go with this 'grandiose announcements' policy that is then followed by inaction, or only very halfhearted action.
Several explanations suggest themselves:
1. there is an institutional memory of the post WW2 hyperinflation episode, which was extremely painful.
2. the BoJ already holds asset worth one third of GDP. All this accumulation of assets has obviously not had any positive long term effect. It could not stop the credit bust from unfolding.
3. there is a danger - and I'm sure Shirakawa is acutely aware of it - that the confidence underpinning the JGB market and by extension the yen is lost if the BoJ gets too aggressive. He often mentions he does not want to create the impression that the BoJ is funding the government.
Meanwhile, every Japanese finance minister has the same nightmare: in this nightmare, he holds a copy of the Nihon Keizai Shimbun in his hands, and on the title page it says: 'JGB yields soar above 3% in frenzied trading'.
This is also why the finance ministry of Japan should actually be renamed the ministry of dreadful dreams.
On Thu, Apr 26, 2012 at 10:54 PM, S wrote:
Ur absolutely right about japan: they’re not doing what they’re saying.. this is very un-Asian.
The fear of failure/embarrassment is what drives our culture.. so I cant imagine boj not following thru.
Shirakawa stated on april 18th:
"If the Japanese economy is to extricate itself from deflation and return to a path of sustainable growth under price stability, it requires both policies aimed at enhancing growth potential and supporting monetary stimuli," Shirakawa said.
"This is why the BOJ is fully committed to continuing powerful monetary easing through various measures," including keeping interest rates virtually at zero and continuing to buy assets until 1 percent consumer inflation is in sight, he said.
From: H
Sent: Thursday, April 26, 2012 1:10 PM
Subject: Re: The Trap is not in usa but in spain
Don't get me wrong: my point here was merely that if one wants to be long anything, there are probably better choices than the banks.
As to whether the current downturn in China will reverse quickly, color me skeptical. I think there is at the moment very little stomach for another round of indiscriminate monetary pumping in China. Just reading between the lines of various official statements to that effect - I admit I may well be mistaken.
Regarding Japan, I would point out that the BoJ's current policy is 'announcement only'. They have increased their 'QE' target three times - but they have not even reached the target of the FIRST announcement yet. In the last reporting month true money supply growth in Japan reversed sharply into negative territory again (this info is slightly dated, February). It remains to be seen if they are really serious about inflating (that said, I am actually long Japanese stocks at the moment).
Now, it is true that the US economy looks better than either Europe's or most emerging markets right now. No doubt about it. The question to my mind is whether one can really rely on 'decoupling'. Usually that has been revealed as a mistake after some time lag (just remember past market and economic cycle tops in recent years, they are always staggered).
The only things I really like with little reservation at the moment are treasury bonds and gold. I think both are very unloved right now, in spite of fairly positive price action in the former case and a routine consolidation in the latter. I already penned a little pro-bond screed yesterday, so there is little that needs to be added to that. Mind, I'm now merely stating my view of the relative merits of trades for the near to medium term.
I have some reservations in principle about buying government bonds - what is so irksome is that the income one derives from them is the garnered by coercion instead of voluntary exchange. It would be far better if most investors were to invest in productive endeavors.
Things are what they are though - we want to preserve capital and if possible actually add to it, in the face of the depredations of central bankers and governments everywhere. So one must adapt. Gold is after all also not productive per se - he who buys gold is really saying: I want to exercise a demand for real money, because I fear what is coming down the pike.
On Thu, Apr 26, 2012 at 9:40 PM, S wrote:
The hussman/Rosenberg analysis of finding something bad in every number is not helpful.
In any number, I can find find details which support my thesis on either side of the bull or bear argument.
But what’s the macro trend? usa trending higher, europe trending lower; japan/china one major QE announcement from a bull market.
From: H
Sent: Thursday, April 26, 2012 12:24 PM
Subject: Re: The Trap is not in usa but in spain
While I agree in principle with your thought - Spain's banks are in a far worse situation than US banks at present - the reported earnings of US banks are a complete sham when looked at more closely. Basically it is nothing but accounting tricks. For illustration purposes, here is Hussman from this Monday:
Banks continue to report seemingly pleasant earnings, as long as one doesn't look under the hood at the drivers of those reports. Two drivers have been particularly important this quarter. One is the further reduction of reserves against future loan losses, which shows up as a positive contribution to bank earnings. For example, a decline in loan loss reserves was the source of about one-third of the earnings reported by Citigroup. The other driver is something called a "debt valuation adjustment" or DVA. You might recall that as a result of European credit strains last year, investors sold off the bonds of major banks. In the world of bank accounting, the debt was therefore cheaper to retire, so - I am not making this up - the decline in the value of the bonds was booked as earnings. Of course, the value of bank debt has recovered somewhat since then, as investors have set aside concerns about Europe (which we doubt is a good idea). One might expect that since banks booked DVA as a contribution to earnings last year, we would see the opposite effect this quarter. But one would be wrong. As Peter Tchir noted last week, "Morgan Stanley no longer includes DVA in its 'continuing operations' headline number. It was a loss of $2 billion this quarter. With 2 billion shares outstanding, that would have wiped out the gain. What bothers me, is that in Q3, when it was a gain of $3 billion, it was part of continuing ops." It was the same story at Bank of America, prompting one analyst to observe "one-time items are to be ignored when negative, and praised when providing a 'one-time benefit.'"
On Thu, Apr 26, 2012 at 9:05 PM, S wrote:
If I may point out the much bigger problem: Spanish banks and mortgage loans
See economist article attached.
For the past 2 quarters, usa banks have reported great earnings because of marked improvement in their mortgage portfolio. I hear that there is hiring on wall street for mbs traders again. The mortgage underwriting is the most profitable part of every bank in usa: wells fargo, bac, and this improvement is not helping GS.
See ysday’s earnings results for banco Santander and deutsche bank…DOWN.
I’d bet anyone that shorting usa mortgages/banks would be very poorly advised… but shorting european banks should be v well advised.
From: R
Subject: The Trap
The Trap
Ramsey Su April 2012
The complexity of global economics has gone beyond comprehension. It can no longer be explained by any of the mostly western based and now obscure economic theories. Central bankers are in denial, still egoistically believing that their PhD diplomas have given them divine knowledge. Until they realize that they do not have the answer, they will continue down the path of destruction, never pausing to look for better alternatives.
Of all the articles I read recently, these few sentences in Annaly Capital Management's Market Commentary just about summed it all up:
The first quarter of 2012, like the fourth quarter of 2011, was characterized primarily by heavy central bank activity. The Federal Reserve (Fed) continued with Operation Twist, which is currently scheduled to end in June 2012. The ECB completed its second tranche of Long-Term Refinancing Operations (LTRO) in February, and has provided €1 trillion ($1.3 trillion) of liquidity across both tranches. The Bank of England added an additional £50 billion ($80 billion) in February to its existing quantitative easing program, bringing it to a total of £325 ($520 billion). The Bank of Japan recently expanded its asset purchase program to ¥65 trillion ($784 billion) to be completed by the end of 2012, as well as upsizing its “Growth-Supporting Funding Facility” to ¥5.5 trillion ($66 billion) from ¥3.5 trillion.
All together, the four major central banks added over $300 billion of new assets in the first quarter of 2012, and $1.6 trillion over the last year.
These numbers are mind boggling. In less than 5 years, 5 central banks (ECB, BoE, BoJ, PBoC and the Federal Reserve) increased their aggregate balance sheets by about $8 trillion. I "borrowed" this chart from my cyberfriend Bart, who has a chart for everything under the sun. (attached)
nowandfutures.com
This is advanced Ponzian economics. Instead of having to find new suckers to invest new funds, Central Bankers simply print whatever is needed. Keynesian theory is intended to stimulate the future. This is Ponzian because all the created money are used to repay the past, with little future benefit.
I started this email with the intention of trying to determine where we are in the real estate cycle but arrived at the following conclusion. It does not matter whether you are bullish or bearish, nor does it matter what part of the economy you are focusing on. All you have to do is answer two questions:
1. Would (.... state your opinion here.....) these conditions exist without the massive amounts of Central Bank intervention stated above?
2. Would these conditions be sustainable if the Central Banks stop printing?
Pertaining to real estate, I asked myself the two questions. There is no doubt that current conditions are not possible without Fed intervention. Furthermore, these conditions are clearly unsustainable if the Feds are to terminate Operation Twist in June and do not replace it with QE3. Therefore, the leading indicator for real estate is not pending home sales, new home orders, or mortgage applications but rather what Bernanke's next move is.
ANYONE WHO LOOKED AT A FEW MICRO MARKETS AND SOMEHOW DETERMINED HOUSING HAS BOTTOMED NEEDS TO ANSWER THE TWO QUESTIONS.
The fact is that in spite of all the non-stop printing by the major central banks of the world, there is very little to show for.
The fact is the US, the largest economy in the world, is heading towards the "Fiscal Cliff", even Geithner recognized that.
The fact is Euroland has already gone over the cliff. Growth and austerity are mutually exclusive conditions.
China, now the world's second largest economy ........ well, I have no clue what is going to happen there even though the Bo Xilai story reads like a spy novel.
Japan has been living off fiscal deficits. At over 200% debt to GDP, how long before their past savings run out?
In conclusion, the global GDP has as a new line item - "Income from Central Banks". May be John Williams of shadowstats can come up with the real GDP by backing out the central banks numbers. |
