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This coverage from CNN on the AIG emails released earlier today just sounds like more of the same Wall Street-Washington cronyism that the nation is already sick of hearing about.
If there is one man in the nation's capitol who maybe isn't too unhappy about Treasury Secretary Tim Geithner being in the news today, it's probably Fed Chairman Ben Bernanke who delivered a speech titled Monetary Policy and the Housing Bubble over the weekend, a topic that continues to generate a lot of discussion at mid-week, little of it positive.
In what clearly appears to be an attempt to work backwards from a conclusion (based on its contents, a better title for the speech would have been "Monetary Policy was not Responsible for the Housing Bubble"), the Fed chairman demonstrates an incredible lack of understanding about the financial and political world in which he lives and exhibits some disturbing character flaws that have not been on display before to this degree, namely, a dangerous reliance on economic models and a disingenuous use of the English language to sway public opinion.
So as not to repeat what others have already written about a speech that, one day, will probably rival (if not exceed) in ignominy the Fed chairman's "helicopter speech" from early in the last decade, a brief recap of others' observations is in order.
But, before even that, it is worth noting that, in a sign of how quickly things may be changing for the central bank chief, Google now finds more matches when the current Fed Chairman's name is combined with the word "failure" than when using the former Fed Chairman's name:
What Bernanke seems to be overlooking in his exoneration of ultra-low rates was the impact they had on the world’s Bond managers — especially pension funds, large trusts and foundations. Subsequently, there was an enormous cascading effect of 1% Fed Funds rate on the demand for higher yielding instruments, like securitized mortgages (Yes, I laid all this out in the book).Barry then supplied a ten step causation timeline that began with low yields and ended with a collapsed credit system, touching upon mortgage backed securities, ratings agencies, and derivatives along the way, reinforcing the point that step one was "lower interest rates", not "beef-up regulation", what we know now is a recipe for disaster.
Bernanke makes the extraordinary claim that regulatory and supervisory policies would have been effective means of addressing the run up in housing prices. What makes this claim so extraordinary is that it completely ignores the fact that regulatory and supervisory policies weren’t just ineffective at popping the housing bubble—they were actively fueling it.The claim that better regulation will prevent this from happening next time (or, now, since rates are even lower today than in 2003), reminds me of former Fed chief Alan Greenspan's oft-cited remedy for restoring American competitiveness in the world when queried on the subject during Congressional hearings - better education.
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This is why Bernanke’s view is so disturbing. He urges “stronger regulation” but shows no awareness of the culpability of regulations for the bubble. Or, more charitably, he only acknowledges that the regulatory response was inadequate rather than wrong headed.
Bernanke takes great pains to rebut criticism that the funds rate was well below where the Taylor Rule, developed by Stanford economist John Taylor, suggested it should be following the 2001 recession. The Taylor Rule uses actual inflation versus target inflation and actual gross domestic product versus potential GDP to determine the appropriate level of the funds rate.It shouldn't be too surprising that the co-creator of the Taylor Rule wasn't too happy about all of this. According to this Reuters report, Taylor said, “The evidence is overwhelming that those low interest rates were not only unusually low but they logically were a factor in the housing boom and therefore ultimately the bust” .
Substitute forecast inflation for actual inflation, and the personal consumption expenditures price index for the consumer price index, and -- voila! -- monetary policy looks far less accommodating, Bernanke said.
With respect to the magnitude of house-price increases: Economists who have investigated the issue have generally found that, based on historical relationships, only a small portion of the increase in house prices earlier this decade can be attributed to the stance of U.S. monetary policy. This conclusion has been reached using both econometric models and purely statistical analyses that make no use of economic theory.
To demonstrate this finding in a simple way, I will use a statistical model developed by Federal Reserve Board researchers that summarizes the historical relationships among key macroeconomic indicators, house prices, and monetary policy ... For our purposes, the value of such a model is that it can be used to predict the behavior of any of the variables being studied, assuming that historical relationships hold and that the other variables in the system take on their actual historical values.
Slide 6 illustrates the application of this procedure to the federal funds rate and housing prices over the period from 2003 to 2008. In the left panel of the figure, the solid line shows the actual history of the federal funds rate. The shaded area in the figure is constructed using the results of the statistical model; it shows the range of possible outcomes that would be considered "normal" for the federal funds rate, assuming that the other six variables included in the model took their actual values during the years 2003 through 2008. Values of the federal funds rate that fall in the shaded area are relatively "close to" (technically, within 2 standard deviations of) the corresponding forecast values. In line with our earlier discussion, the left panel of the figure suggests that, although monetary policy during the period following the 2001 recession was accommodative, it was not inconsistent with the historical experience, given the macroeconomic environment of the time.In short, since the models prepared by the Fed economists indicate that short-term rates were at the right level, they had to have been correct. Moreover, the models still don't show a housing bubble and, therefore, it can't be the fault of the economists that they missed it, the very idea that "correct" monetary policy was somehow involved in the financial crisis now probably being viewed as preposterous and, perhaps, a running joke amongst the central bank's deepest thinkers.
The right panel of the figure shows the forecast behavior of house prices during the recent period, taking as given macroeconomic conditions and the actual path of the federal funds rate. As you can see, the rise in house prices falls well outside the predictions of the model. Thus, when historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment.
House prices began to rise in the late 1990s, and although the most rapid price increases occurred when short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone.Now, this is a common little trick that many writers (including myself) use when they want to state something emphatically but, in their heart of hearts, might not really believe it and, more importantly, don't want to go that far out on a limb anyway for fear of it coming back to haunt them. Some people are masters at this and, sometimes, you really have to pay close attention to little words that are inserted into sentences, such as the word 'alone' above.
You can read a full account of the recently released AIG emails in this story at the New York Times, at the bottom of which is a link to the documents themselves, but what you see below is the key section regarding the New York Fed's actions in late-2008 after AIG officials wanted to disclose in regulatory filings that they had been paying counterparties such as Goldman Sachs and Merrill Lynch full value for CDOs (collateralized debt obligations).
Near the top of President Barack Obama's To Do list for 2010 should be finding a new Treasury Secretary. It's hard to see how Tim Geithner is going to recover from recent revelations about his role in the AIG bailout that saw counterparties like Goldman Sachs paid 100 cents on the dollar when, during that time, everyone else was getting a major haircut. From Bloomberg:
The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.The translation of the key words in the first paragraph - "withhold details" - when combined with those in the second paragraph - "Goldman Sachs", "100 cents on the dollar", and "credit-default swaps" - is relatively straightforward - "Geithner", "step", "down".AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.
Following the realization that rising asset prices may not be the cure-all they were once believed to be in funding all sorts of future spending comes yet one more amusing way to look at the dour prospects faced by many private sector workers in their aspirations toward a life of leisure in their golden years (from the Tom Toles collection at the Washington Post).
Someday, years from now, the nation will undoubtedly look back and wonder what they could have possibly been thinking when, in the present era, public sector workers were permitted to retire with generous benefits at a relatively early age.
TOP STORIES
China central bank surprises with yield hike - Reuters
Fed Minutes Show Division on Emergency Steps - NY Times
State Tax Revenue in U.S. Drops Most Since 1963 - Bloomberg
2009 Review & 2010 Preview: Bailouts Have Costs - McHugh, TBP
CMBS delinquencies pass 6 pct for first time - Reuters
Does Boycotting Big Banks Make Sense? - Slate
Jobs bill on Senate docket - CNN/Money
Let’s Get Fisical - Gross, Pimco
Here's another graphic that I've been meaning to whip up for a while now, one that takes those messy stacked area charts and does a simple snapshot of the Federal Reserve's balance sheet from early in 2009, when the financial crisis was at its peak, to the end of 2009.
Recall that it was in late-2008 when the Fed's balance sheet first ballooned from about $900 billion to over $2 trillion when all manner of emergency lending programs were launched. For the last few months of 2008, most of the newly created assets were categorized as "Other" until things settled down a bit early in 2009.
The moral of the story here is that, a once pristine balance sheet filled with Treasuries was transformed into a jumble of assets that no one else wanted. Then, over the last eleven months, it changed back into a more tidy collection of Treasuries and mortgage related assets that, apparently, nobody else really wanted - at least not at the price that the Fed paid.
There's a pretty good chance that, in the period ahead, Austrian Economics will have its best decade in a hundred years. Why? Because, absent a solid economic recovery, the problems with mainstream economic thinking will continue to lay themselves bare for all to see and the odds of a solid economic recovery that doesn't come with an even bigger asset bubble than the last one are looking pretty slim right about now.
In his weekly commentary, Congressman Ron Paul (R-Texas) again asks the simplest of questions such as, "How can more easy money fix the problems caused by easy money"?
Keynesianism Delivers a Decade of ZeroWhile Austrian Economics is not the cure for all our economic ills (and the path to adopting such an approach in the U.S. would likely come with a degree of pain that would be far too much for any politician to bear), it does seem to make more sense than the present system with each incremental trillion dollars that is spent in trying to prop up the 20th century economy that seemed to work so well - right up until the beginning of the 21st century.This past week we celebrated the end of what most people agree was a decade best forgotten. New York Times columnist and leading Keynesian economist Paul Krugman called it the Big Zero in a recent column.
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It was encouraging that he admitted that blowing economic bubbles is a mistake, especially considering he himself advocated creating a housing bubble as a way to alleviate the hangover from the dotcom bust. But we can no longer afford to give prominent economists like Krugman a pass when they completely ignore the burden of taxation, monetary policy, and excessive regulation.
Afterall, Krugman is still scratching his head as to why “no” economists saw the housing bust coming. How in the world did they miss it? Actually many economists saw it coming a mile away, understood it perfectly, and explained it many times. Policy makers would have been wise to heed the warnings of the Austrian economists, and must start listening to their teachings if they want solid progress in the future. If not, the necessary correction is going to take a very long time.
The Austrian free-market economists use common sense principles. You cannot spend your way out of a recession...
I must confess, over the last day I've had a hard time keeping my browser away from the page that lists the Top 100 Authors at Seeking Alpha for reasons that should be obvious in the image below (see this item from yesterday for details).
Over about the last 18 hours, Peter Schiff has come from out of nowhere to take the number three spot and both John Lounsbury and yours truly both passed Cliff Wachtel and are now gaining rapidly on Joseph Shaefer and Don Dion. Is that the same Don Dion that I kept receiving mail from through Fidelity Investments?
We haven't heard too much about the Plunge Protection Team lately, that is, until the folks at TrimTabs talked to the folks at Marketwatch yesterday and this report was filed:
The unusual circumstances that led the U.S. market to rally powerfully in 2009 might be explained by secret government moves to buy stocks, according to Charles Biderman, the founder and chief executive of TrimTabs, a research firm that tracks liquidity flows in the market.There were net outflows from U.S. stock funds since March of last year as investors plowed hundreds of billions of dollars into bond funds, one of the many troubling aspects of the recent stellar performance of equity markets that becomes all the more puzzling after former Fed chief Alan Greenspan recently cited the rise in stock market capitalization as one of the major factors in the nascent economic "recovery"."We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said in a statement Tuesday.
The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds.
"We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?"
The Federal Reserve or the Treasury, Biderman said, could have easily manipulated the stock market by purchasing $60 to $70 billion worth of futures of the S&P 500 on a monthly basis.
TOP STORIES
Promise to Trim Deficit Is Growing Harder to Keep - NY Times
TrimTabs suggests government manipulated stocks - MarketWatch
GMAC May Post $10 Billion Annual Loss After U.S. Takes Control - Bloomberg
On kleptocracy and the sense that we have a one-party system - Credit Writedowns
The shortlist for worst takeover of the century - Telegraph
Schwarzenegger readies California budget plan - Reuters
Paul Volcker: The Lion Lets Loose - BusinessWeek
Cramped on Land, Big Oil Bets at Sea - WSJ
So this makes two rather shocking screen grabs in one day today - the last one about jumping from the low 40s to number 11 in the Top 100 authors at Seeking Alpha and what you see below from Business Insider which, as I discovered about half way through the screen grab process, can be embedded here just by copying a little code.
Gee... where have I seen this chart before?
When the chart was first spotted, I was anxious to see how they were going to credit the source (me), but there's no mention of anyone other than John Carney and Kamelia Angelova in the original item at Business Insider, hence my tone right now.It's not exactly clear what's going on over at Seeking Alpha, but word came this morning that there's been a rather dramatic increase in the number of readers who are now following me, so much so that I've jumped from around 40 to 12 11 in the list of Top 100 Authors.
Apparently they now recommend authors when readers register with them and, for some reason, my name has been coming up a lot. The last time I checked, I was closing in on 1,000 followers, but now it seems that I'm getting dozens of new followers every hour.
Since the screen grab above about ten minutes ago, there are six new followers for me, but none for the gentlemen above me, so, I may soon crack the top ten, which would be neat.
It's that time of the year again - time to look back at the first of the year to see how yours truly did with his Predictions for 2009 and see if there was any improvement over the previous year, a feat that shouldn't be too hard to accomplish given the year that 2008 was.
Here's a recap of the last three years of annual prediction reviews:
1. Another Bad Year for HousingGrade: A
Once again, more pain in housing seems inevitable with liar loans and option ARM products reaching their critical years. If it already hasn't, that second home/investment property that seemed like such a good idea back in 2004 will turn into a nightmare in 2009.
As was the case last year, only real estate sales types will be predicting a rebound for home prices in 2009 though home sales will probably make a lasting bottom. Late-2009 and 2010 will be the time to start looking to buy property again, but there will be no need to hurry - contrary to what real estate sales types tell you, prices are not headed back up anytime soon. They may not go too much lower in 2010, but, except for places like Washington D.C. where the bailout business is booming, prices will be mostly flat through 2011 or 2012.
Next year, housing prices will fall another 10 percent nationally, based on the year-over-year change to the 20-city S&P Case Shiller Home Price Index for October 2009 (this report gets released at the end of December and showed an 18 percent decline last week.) It seems that home price declines have to ease up. For example, based on their current trajectory, by the end of next year the median home price in Los Angeles would be below $200,000, down from a high of $550,000 in 2007.
2. The Dollar Will Go DownGrade: C+
The trade weighted U.S. dollar rose in 2008, but that was an anomaly. There are many bad currencies in the world (most of them are bad, actually, the pound now probably the worst) but the greenback will have a hard time looking good on a relative basis after big negative GDP numbers are reported along with even bigger job losses.
The source of most of the world's financial market troubles over the last year or so will finally be appreciated by those who've been buying U.S. Treasuries and, despite the best efforts of the big players at the Comex, many of these people will buy gold instead.
By year-end, the U.S. Dollar Index will be at 70, after dipping into the 60s briefly, and economists will again marvel at how the trade deficit is shrinking due to higher U.S. exports, helping the U.S. economy to recover.
3. Broad Equity Markets will RiseGrade: B
The Dow and the S&P 500 Index will gain 10 percent and most investors will be happy about this, not realizing that it would have to repeat this performance for the next four or five years to make up for the losses seen in 2008. It won't.
Foreign stocks will do much better than U.S. stocks - up about 20 percent on average by year end - and stocks in China will rise 30 percent. Here too, most investors will fail to appreciate the cruel nature of large declines and advances expressed in percentage terms - this will leave Chinese stocks 55 percent below where they began 2008 (i.e., before last year's 65 percent decline).
Gold and silver mining stocks will outperform all other equities in 2009 (this process is already well underway) and many retail investors will add gold stocks to their portfolio for the first time only to sell in a panic during the first correction.
4. Short-Term Interest Rates Will Stay at ZeroGrade: B+
Short-term interest rates in the U.S. will end the year where they began - at zero.
Instead of the Fed funds rate, the new metric that will be used to gauge what the Federal Reserve is doing will be the Fed's balance sheet. Now at $2.2 trillion, this will grow to over $4 trillion by year-end, by which time the weekly H.4.1 report will become a major news event.
Ben Bernanke aged five years over the last twelve months - over the next twelve months he will only age two years.
5. Energy Prices Will ReboundGrade: A-
After dipping below $30 a barrel in the spring, the price of crude oil will rise to $100 by the time Hurricane season is over (hey, there's no election in '09) and end the year at $85.
Just when people were getting used to $1.50 gasoline, taking advantage of dealer incentives to buy Suburbans and Escalades again, the price at the pump will be back up over $3 and they won't be happy about it.
6. Gold and Silver Will SoarGrade: A
The price of silver will double before ending the year at around $20 an ounce and gold will again surpass the $1,000 mark, finishing the year at $1,150. Inventory at the SPDR Gold Shares ETF will increase to over 1,000 tonnes and there will be 10,000 tonnes of silver in the iShares Silver Trust ETF. We still won't be sure whether the ETFs really have the metal, but no one will care.
An increasing number of retail investors will buy gold and silver for the first time and they'll sell in a panic during the first correction they encounter. They'll look back and think, "Precious metals are no more volatile than that S&P500 Index fund I sold last year. Why did I sell in a panic again? Maybe I should just invest in Hummels."
People will start talking about junior mining stocks at cocktail parties - just like internet stocks in 1997. (As noted the last couple years, I'm going to keep saying this until it's true).
7. The U.S. Economy and its Consumer Engine will Hit Rock BottomGrade: A
The personal saving rate will rise to four percent and both layaway programs and Christmas savings clubs will grow in popularity. This won't be good for the U.S. economy which will contract during the first two quarters and post anemic growth rates in the last two.
Much of the Christmas savings money will be raided late in the year as many consumers will think they've served their penance and, with money gushing out of the government and central bank, they will regain their spendthrift ways before year-end making for a spectacular Christmas shopping season as compared to the one that just concluded.
8. Reported Inflation will Dip into Negative TerritoryGrade: A
We'll hear lots of talk about deflation as the overall Consumer Price Index dips into negative territory on a year-over-year basis by mid-year. At this point, we'll all be bathing in a virtual government money shower as policymakers desperately try to avoid the ignominious honor of being the first group to ever cause real deflation within a fiat money system (no, what Japan had was not real, hard-money style deflation - that was just baby-deflation).
The policymakers will succeed.
By the time the leaves start falling, we'll all be talking about inflation again as energy prices rise in what will look like an inverse, smaller magnitude version of what happened last year.
9. Four Million Jobs will be LostGrade: A+
Nonfarm payrolls will decline by three million in 2009 and there will be downward revisions of about one million to prior years' payrolls data as the Labor Department grapples with its birth-death modeling once again, publicly confessing that it has utterly failed to provide any meaningful statistics about the labor market in real time.
Health care will be the only employment sector that adds jobs in 2009.
Teenagers all across the country will become disillusioned after having lived their formative years during the biggest financial bubble in the history of Mankind and then seeing it come to an abrupt end as home equity withdrawals are relegated to the history books. They will actually go out and seek work, though few will find any this year.
10. Websites will not Wise-UpGrade: C
A growing number of websites will continue to annoy readers by automatically playing video clips when the page is opened (didn't we already go through this process about four years ago?). They'll believe their marketing staff that this really is an effective advertising technique, but they will fail to understand just how many readers are leaving, never to return, after having to search so many times for that damn Pause button.
It seems that, among the many and sundry other aspects of life that have deteriorated in one way or another over the last few decades in the good 'ol USA, you can add job satisfaction to the list, at least according to this USA Today report on how workers view their jobs.
It's not clear what part of the California budget crisis prompted the action - higher taxes or spending cuts that have curtailed state services - but, apparently, even San Francisco sea lions have seen fit to flee the state, recently spotted in Oregon according to this report.
Missing Pier 39 Sea Lions Are Found in OregonThen again, maybe it's like the manager of Sea Lion Caves says - the move north has nothing to do with Sacramento, they're just following the fish. Read more...
Posted by Alex in Animal on January 4, 2010 at 1:19 am
Remember the case of the "missing" sea lions of San Francisco’s Pier 39? Well, they have been "found":Link (Photo: Swift Benjamin [Flickr])Marine experts now believe that the Pier 39 sea lions have gone to Oregon. A couple thousand California sea lions showed up off the coast of Oregon with their typical bark that separates them from the growling Stellar sea lions that usually live in Oregon.
Dan Harkins is the Sea Lion Caves general manager. He says: "We’re seeing the sea lions coming up this way from California because of the feeding. If the cold water fish move north to find colder waters, the sea lions have to eat and they follow the fish wherever they go.”
TOP STORIES
Fannie, Freddie, and the New Red and Blue - Taibblog
Americans' job satisfaction falls to record low - USA Today
Bernanke Still Does Not Understand Credit Crisis - The Big Picture
Ben Bernanke's Huge Mistake About The Crisis Will Screw Us All - Business Insider
Why a Business Writer Wishes Wall Street Wasn't Such a Big Story - HuffPost
How Visa, Using Card Fees, Dominates a Market - NY Times
Bankruptcies jump 32% to 1.4 million in 2009 - AP
The Futility Economy - Kunstler, CFN
I'd planned to put this chart up for some time now, ever since it was noticed that, back in late-2007, the total number of government jobs exceeded the total number of goods producing jobs. After the events of the last two years, the gap is now about four million.The Goods Producing category currently includes less than a million workers in mining and logging, about 6 million in construction, and 11.7 million in manufacturing.
The Government category includes 2.8 million federal employees and almost 20 million state and local workers, just over half of whom work in education.
I don't know whether to laugh or cry...
Ambrose Evans-Pritchard was calling for the sky to fall on the global economy during much of the year last year, figuring the entire world would be drawn down into the deflationary black hole from which there is no escape. It didn't.
He appears to be starting 2010 right where he left off in 2009 based on this commentary in the Telegraph, this time around with the added twist that Japan will someday this year wake up to find itself in the middle of an inflationary supernova, assuming of course that deflation is to inflation as black hole is to supernova.
The part about Ben Bernanke being caught off guard is something that all too many have already forgotten. Is there any reason to think that he'll be any better in seeing the next crisis coming, one that will probably look completely different than the last one, for which the central banks are undoubtedly prepared?The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honoured lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises – the final error that triggered the implosion of Lehman, AIG, and the Western banking system.
As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st Century Depression – more akin to Japan's Lost Decade than the 1840s or 1930s, but nothing like the normal cycles of the post-War era. The surplus regions (China, Japan, Germania, Gulf ) have not increased demand enough to compensate for belt-tightening in the deficit bloc (Anglo-sphere, Club Med, East Europe), and fiscal adrenalin is already fading in Europe. The vast East-West imbalances that caused the credit crisis are no better a year later, and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy. Our long purge has barely begun. That is the elephant in the global tent.
Weak sovereigns will buckle. The shocker will be Japan, our Weimar-in-waiting. This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time. Every auction of JGBs will be a news event as the public debt punches above 225pc of GDP. Finance Minister Hirohisa Fujii will become as familiar as a rock star.It's not all good, apparently, with the important exception of a buying opportunity that will make the prices seen last March look expensive.
Once the dam breaks, debt service costs will tear the budget to pieces. The Bank of Japan will pull the emergency lever on QE. The country will flip from deflation to incipient hyperinflation. The yen will fall out of bed, outdoing China's yuan in the beggar-thy-neighbour race to the bottom. By then China too will be in a quandary. Wild credit growth can mask the weakness of its mercantilist export model for a while, but only at the price of an asset bubble. Beijing must hit the brakes this year, or store up serious trouble. It will make as big a hash of this as Western central banks did in 2007-2008.
According to Wikipedia, Milton Keynes is a town in Buckinghamshire, but he probably meant Milton Friedman - something about money and inflation, most likely.Those stock investors looking for a repeat of the 2002-2003 manufacturing relapse that helped send the U.S. economy hurtling back toward a recession (and share prices along with it) before a War in Iraq interrupted that process will have to wait at least another month as the ISM manufacturing index rose to 55.9 in December, its best reading since April of 2006.
New orders were strong as this key leading indicator rose from 60.3 in November to 65.5 in December. The outlook for manufacturing workers also improved, the employment index rising from 50.8 to 52.0, just below the recent high of 53.1 set in October.
In his most recent commentary at the New York Times, Nobel Prize winning economist and Sunday talk show curmudgeon Paul Krugman says that we're about to make the same mistakes that were made 73 years ago, five years after the depths of the Great Depression, when the entire nation was sure that the worst was behind it.
That 1937 FeelingYes, there are some similarities between economic conditions today and in 1937, but GDP isn't one of them, a point that is demonstrated quite clearly in the chart below.
Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.
While the argument that, today, an early end to the stimulus could send the nation's economy back into a recession (or worse) is well founded, the comparison to 1937 is being far too generous to the current state of affairs in the U.S.The world's tallest building is now open for business in Dubai amid uncertain economic and financial conditions following last year's little debt servicing problem at Dubai World where the government-owned investment company had to be bailed out by Abu Dhabi.
The 160-story structure dwarfs every other skyscraper in the world, so much so that they've taking to calling the Burj Dubai a "super-scraper".
TOP STORIES
Ben Bernanke Won’t Take the Blame for Bubbles - Reuters
Gold is cheap to buy at $1,100/oz: MarcFaber - Commodity Online
For 2010 economy, glass is half empty and half full - Washington Post
No Good Deed Goes Unpunished as Banks Seek Profits From Bailout - Bloomberg
Timothy Geithner Meets Vladimir Lenin - Hussman Funds
State budget pictures bleak as lawmakers head back - AP
Money resolutions to make in 2010 - LA Times
Another year, another bubble - MarketWatch
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