On the Peterson Institute for International Economics Monitor, Mohsin S. Khan sits down with Steve Weisman and argues that both India and Pakistan have much to gain by putting aside their hostilities and increasing economic cooperation and trade. Please read Benefits of More Trade Between South Asian Rivals.
On the U.S. EconoMonitor, Robert Reich looks at the composition of the Senate Finance Committee and questions why so much power for deciding the future of health care is concentrated in six senators (three Republican and three Democrat) hands. See Why the Gang of Six is Deciding Health Care for Three Hundred Million of Us .
Aug 292009
“When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know”
-Matthew Winkler, the editor-in-chief of Bloomberg News.
>
I would have been surprised if it went the opposite way.
“Federal Reserve must make records about emergency lending to financial institutions public within five days because it failed to convince a judge the documents should be exempt from the Freedom of Information Act.
Manhattan Chief U.S. District Judge Loretta Preska rejected the central bank’s argument that the records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions. The collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression,” according to the lawsuit that led to yesterday’s ruling.
The Fed has refused to name the borrowers, the amounts of loans or the assets put up as collateral under 11 programs, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued Nov. 7 on behalf of its Bloomberg News unit.”
The only way this has been historically been allowed is when it imoacts National Security . . .
>
Source:
Fed Must Release Reports on Emergency Bank Loans, Judge Says
Mark Pittman and Karen Gullo
Bloomberg, Aug. 25 2009
http://www.bloombergs.com/apps/news?pid=20601087&sid=afi7TJiJFys0
Stanford Professor John Taylor has suggested that monetary policy could be summarized in terms of a simple rule, lowering interest rates when output is too low and raising them when inflation is too high. A number of academic papers have investigated this rule from the perspective of describing what the Federal Reserve has historically done. In a new paper co-authored with Federal Reserve economist Seth Pruitt and Office of Immigration Statistics economist Scott Borger, I take a look at what monetary policy rule the market perceived the Fed to be following over different historical periods.
Our basic idea is that, back in the days before we ran into the zero lower bound on interest rates, if there was a major surprise in a macroeconomic news release, you would see a big change in fed funds futures prices. For example, when the BLS announced on March 8, 1996 that nonfarm payrolls increased by 705,000 workers in February (wouldn’t we love to see another report like that one about now!), the interest rate associated with the August fed funds futures contract jumped from 5.01% to 5.25%. That response reflected a market belief that the development would cause the Fed to choose a higher interest rate than it otherwise would have.
We then built simple forecasting models for how news like this would alter a rational forecast of future inflation and output growth and ask, if market participants were revising their expectations in a way consistent with those forecasting relations, and if they thought that the Fed would respond to those future fundamentals according to a Taylor Rule, what parameters for the Taylor Rule are most consistent with the observed response of fed funds futures prices?
Our estimates are similar to those derived from more conventional econometrics, and suggest that, since 1994, the market believed that monetary policy was consistent with the Taylor Principle, raising the nominal interest rate more than 1-for-1 with an increase in inflation. Output targeting, particularly over the 2000-2007 period, appears to have been assigned secondary importance by the market.
One of the advantages of our approach is that we are also able to come up with estimates for the degree of inertia in perceived monetary policy. For example, while the August 1996 contract experienced a 24-basis-point jump on March 8, the May contract only moved 10 basis points. Since we can describe how the March 8 news should have altered a forecast for both May and August inflation, we can come up with direct measures for how long the market expected it would take the Fed to adjust interest rates fully in response to the news.
We document two important changes in the perceived policy rule over time. After 2000, the market believed that the Fed would eventually have a stronger response to inflation than it had prior to 2000, but also that the Fed would take longer to implement those changes, responding to news more sluggishly than it had before 2000.
We study the consequences of these changes using a simple new-Keynesian model. We find that the first change (a stronger long-run response to inflation) would be something that would have made output less variable, whereas the second change (a smaller immediate response) would have made output more variable. According to these simulations, increased Fed inertia undid some of the benefits it could have otherwise obtained with its anti-inflation policies.
Our conclusion is that the measured pace at which Greenspan increased interest rates over 2004-2005 may have been counterproductive, and that economic performance might have been improved if the Fed instead had raised interest rates more quickly to the higher warranted levels.
The Market-Perceived Monetary Policy Rule by James Hamilton
Fresh off my vacation, I have jury duty tomorrow, but today I got a jump on my fun reading for the courthouse – Traders, Guns, & Money, the anecdote-packed overview of derivatives by Satyajit Das, a prolific consultant, author, and commentator on the topic. Das says that his book “does not attempt to make a case for and against derivatives” (p. xiii), and it’s true that he does point out some of the useful, value-creating functions of derivatives. But this passage (p. 41) is probably more typical, and one I thought deserved being typed out:
We needed ‘innovation’, we were told. We created increasingly odd products. These obscure structures allowed us to earn higher margins than the cutthroat vanilla business. The structured business also provided flow for our trading desks. The more complex products were stripped down into simpler components that traders hedged. …
New structures that clients actually wanted were not that easy to create. Even if somebody came up with something, everybody learned about it almost instantaneously. They reverse-engineered the structure and then launched identical products.
In Das’s account, derivatives can be used to unbundle risk – but market competition makes unbundled risks look an awful lot like commodities. So the answer instead is bundle those risks back together into complex products that (a) customers can’t understand and (b) can earn high margins, at least temporarily. Das concludes his tutorial on inverse floaters this way (p. 50): “Greenspan had been right – risk had truly been unbundled. We had just packaged it right back up and shoved it down the eager throats of the wealthy taxpayers of Orange County.”
Which brings me back to something Mike Konczal (last week’s guest blogger – as my daughter would say, “Round of applause!”) discussed a while back – why do so many “innovative” financial products included embedded options? In Mike’s words, “When I was discussing this prepayment penalty theory with a very smart person from a hedge fund, he told me that selling people embedded options is always deviously clever because people don’t understand that they are buying them, and often don’t understand their value.” That sounds to me like the same thing Das is saying.
By James Kwak
Fun with Derivatives by James Kwak
by Bill Bonner at the Daily Reckoning
Ouzilly, France
Damned if he does; damned if he doesn’t
This week, Ben Bernanke got the nod for another stint as head of the world’s most important central bank. Yes, he completely misunderstood the implications of the hugely negative US trade balance, believing that America did the world a favor by spending its “global saving glut.” And, yes, he missed the approach of the biggest financial disaster in three generations. Then, when it arrived, he mistook it for a routine recession, until finally, panicked by the collapse of Lehman Bros., he insisted that Congress pass a $750 billion spending bill – or “we may not have an economy on Monday.”
But except for things that really matter, he’s been a pretty good Fed chief. Besides, he has the right credentials. He was a professor of economics at Princeton and holds a Ph.D. from MIT – just like the most recent Nobel Prize winner in economics, Paul Krugman.
The United States has just averted the Second Great Depression, say the papers. “What saved us?” asks Krugman in a recent New York Times editorial. “Big government,” is his answer. Specifically, the big government of Ben Bernanke.
But the ghost of Milton Friedman haunts the central bank. Bernanke borrowed a phrase from Friedman, saying he’d even “drop money from helicopters,’ if necessary, to prevent deflation. This led to one of the surest trades of the Bubble Era was the so-called on the ‘Bernanke Put.’ Investors thought they could count on him. Buy stocks. If they went down, Ben Bernanke would make sure you didn’t lose. He’d add liquidity until the market bounced back. But the Bernanke Put trade went bad in ’07. The market fell. Ben Bernanke added liquidity. But so far, stocks have yet to regain 50% of what they lost. Meanwhile, consumer prices are falling. And yet, he does not drop money from helicopters. Why not?
Few people would have more authority on the subject than the group gathered at the Beverly Hilton in Los Angeles earlier this year. Michael Milken, the Junk Bond King, gathered them thither and picked up the tab for Gary Becker, Myron Scholes, and Roger Myerson…each of their names is preceded by ‘Nobel Prize winner.’ With that kind of brainpower on hand, you’d think you could come up with a good explanation. But the best they could do was a simple analogy. Gary Becker (Nobel awarded ’92) took the Friedman line; he argued that by putting out the little forest fires, the recessions of the ’90s and the early ’00s, the feds inadvertently created the conditions for an even greater conflagration. Instead of burning off the underbrush, the tinder built up until a huge blaze was inevitable. And in a speech honoring Friedman, Bernanke accepted Friedman’s criticism of the Fed in the ’30s. Yes, Bernanke admitted, the Fed made mistakes; but we won’t do it again, he said. The burden of today’s rumination is that he was wrong; he will do it again.
“Inflation is always and everywhere a monetary phenomenon,” said Friedman. But deflation doesn’t seem to be a monetary phenomenon at all. Despite huge inputs of new money from the Fed, prices are still going down. The Fed’s balance sheet more than doubled in the last 18 months. It will probably double again – to $4 trillion – before Bernanke’s next term is over.
|
Friedman won a Nobel Prize for his work. And he drew around him a community of scholars that won so many Nobel Prizes they ran out of room in the University of Chicago trophy cabinet. But it only makes you wonder about the Nobel committee. Friedman’s acolytes won their prizes for elaborating a series of mathematical proofs for things that were either self-evident or self-evidently absurd. Most of them were later shown to be wrong, irrelevant or misleading. Modern Portfolio Theory, Black-Scholes Option Pricing Model, Dynamic Hedging – the farther afield the scholars went, the more they lost touch with home. The more scientific their work became, the more it resembled alchemy or phrenology.
Friedman’s work itself was flawed in the same way. The general principle was correct – that the government that governs the markets least governs best. But when he got into the mechanics of ‘monetarism,’ he got lost. He believed that if the Fed kept its eye on the money supply; the free market would take care of everything else. But the free market didn’t take of everything, at least not as people hoped. Economist Murray Rothbard explained why in 1971. You cannot expect the free market to function perfectly if you leave in the hands of the government the power to control money. Either markets are free or they aren’t, was Rothbard’s point. If they’re not free, you can’t blame freedom when they fail.
But free market economists are now blamed for everything. The free- market Chicago boys are out. The MIT crowd is in. And investors are buying the Bernanke Put again, confident that the Fed chief will keep pushing money into the system and stocks will continue rising. But Ben Bernanke, for all his bluster, is a victim of the trade. Everyone knows what he is up to. They can’t help but look ahead and see where it leads.
As soon as Bernanke starts his helicopter engines, bond buyers get out their missiles; the Chinese – the biggest single customer for US debt – have warned that they will shoot him down. What can Bernanke do? He is damned if he doesn’t. But even more damned if he does. He can’t guarantee increases in either CPI or stocks. All he guarantees is that Big Government will play a larger role in the economy…and that Milton Friedman’s history of the Great Depression will turn out to be prophecy:
“The Fed was largely responsible for converting what might have been a garden-variety recession… into a major catastrophe…”
Ultimately, Bernanke does what his predecessors at the Fed did in the ’30s…and what the Japanese did in the ’90s. He hesitates. He makes mistakes.
And he wonders why he took the damned job in the first place.
Aug 262009
A Public Choice Primer
Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations, has an excellent primer on public choice in the August 3 edition of Forbes, “The New PC.” Shlaes is also the author of the 2007 book, The Forgotten Man: A New History of the Great Depression. Shlaes, who will be featured in the upcoming issue of Religion & Liberty, writes, “Government reformers view themselves as morally superior, but that is an illusion. They are just like private-sector operators, who do things that are in their own interest, not society’s…
Demographic Bomb – the movie that says demography is destiny
Andrea Mrozek | 18 August 2009
What should we make of a movie claiming the human family is headed for decline? Read more…
| Bond Bears Dumping Two-Year Treasuries Defy Fed Rate History Bloomberg … simply because there’s no inflation,” said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. … |
Misleading Or False Claims Rampant in Health Debate
You’ve heard competing versions of what the various health care proposals would actually do if they become law. A close look at the rhetoric around this summer’s hot issue shows a wide range of claims that are misleading or flat-out wrong.
Ever wanted to know why bubbles are round? Or how bubbles can help architects solve problems? A new exhibition at the Phaeno Science Museum in Wolfsburg, Germany, is taking the childhood pursuit of bubble blowing to the next level. An exhibition called BubbleMania will answer all those questions and more. Visitors will have the opportunity to blow giant bubbles, attend a scientific lecture on bubbles and watch a “bubble magician” at work, making necklaces out of bubbles and even blowing square bubbles. The exhibition opens on August 27.
Aug 252009
What Health Co-ops And Seinfeld Have In Common
By John Edgell
North Dakota’s Kent Conrad, the moderate, unassuming Senate Finance Committee member and Budget Committee chairman, is in the spotlight these days.
The Public Option – A Perspective from Acton Institute
Imagine You Are a Doctor By Hunter Baker
Hunter Baker examines the push for the “public option” — the creation of a government backed insurance system — as part of health care reform. “Simply because it is possible that a majority may be found who think this scheme is a good idea,” Baker writes, doctors “may lose all the benefits” of offering their services in a free economy.
Most Downloaded White Papers
- Mobile Companies Finish First: Why Being Out Is In
Sponsored by Runzheimer International - 8 Steps to Immediately Reduce Workforce Costs
Sponsored by SuccessFactors - Getting Ready for International Financial Reporting Standards (IFRS)
Sponsored by Epicor Software
Labor Related Compliance Risk is Growing
Sponsored by Kronos
Wage and hour compliance is one of the most difficult and persistent problems for employers to interpret and apply. Don’t get caught off guard. Get expert advice from Paul DeCamp, former Administrator of the Department of Labor’s Wage and Hour Division. In this white paper, DeCamp discusses the latest labor litigation trends and elaborates on his “five steps” to help minimize wage and hour litigation risk.
The New Mortgage Fraud: Kick ‘Em When They’re Down By Kelsey VanOverloop
The mortgage fraudsters are back, but this time they’re preying on people struggling to keep their homes out of foreclosure. Kelsey VanOverloop looks at how the “Foreclosure Rescue” come-on works and what homeowners can do to avoid the serious consequences of dealing with an unethical lender. Read more »
Fed Chairman Ben Bernanke, like most mainstream economists, has an irrational fear of deflation — whether it is understood as falling prices or a contracting money supply. I have coined the term “apoplithorismosphobia” for this psychological malady. In contrast, average Americans love deflation whether it’s at Wal-Mart, in the Cash for Clunkers program, or from the tax credit for first time home buyers. Austrian economists love most forms of deflation too,
and we think it is the ultimate cure for economic crises.
The Cash for Clunkers program has been a great success with the American people; they are eagerly taking advantage of the opportunity to liberate taxpayer money by trading in their old clunker cars for new, fuel-efficient cars. Given that the program was only $1 billion in scope, it’s remarkable how much positive publicity it has received. Now that the original money is running out Congress is talking about expanding the program by $2 billion. Who wouldn’t want $4,500 in exchange for a $500 clunker?
The Clunkers program is, in effect, price deflation for a big-ticket item in the family budget. It has encouraged people to look for deals and buy new cars. It has been a tonic for the hard-hit automobile industry and car dealers across the country. Of course, there are inefficiencies, as in any government program. Cash for Clunkers falls prey to Bastiat’s broken-window fallacy; a few hundred thousand perfectly serviceable vehicles will be destroyed for no good reason. It also skews expenditures towards cars and away from more valuable purchases.
The tax credit for first-time homeowners is another popular government program that acts like deflation on a large item in the family budget. A two-income family with up to $150,000 in income who has not owned a home for the last three years can earn a tax credit of up to $8,000 on the purchase of an $80,000 house. This is a liberation of taxpayer money, using it towards something that has value rather than merely giving it away to the corrupt friends of government.
“The key thing is that the price of producer goods has to fall faster and farther than consumer goods for the correction process to proceed.”
The tax credit for the price of a home is de facto deflation for home buyers. It helps people who avoided buying overpriced homes with irrational mortgages during the housing bubble and who now want to take advantage of lower prices. By artificially increasing demand, it also helps troubled homeowners to sell their homes.
Of course there are inefficiencies here as well. The government program is encouraging home buying now, when prices could still go much lower. The program is also encouraging people to take on debt, despite that taking on too much debt is at the heart of this economic crisis. The housing bubble was the result of the Federal Reserve tricking people into housing malinvestments, and now the government is trying to use the tax code to trick them into more malinvestments.
The Cash for Clunkers program and the tax credit for first-time home buyers have been popular programs, with a marginally positive impact on the housing and automobile industries. Nonetheless, they represent a proverbial drop in the multi-trillion dollar bucket known as stimulus and bailout. They do not really solve the economic crisis.
However, they do provide a good illustration of how deflation addresses the crisis. As malinvestments from the bubble are liquidated, the economy begins the correction process. The value of the malinvestments plummets. The values of loans backing these investments falls, and the money supply contracts as banks reduce lending. The price of capital and labor falls, and entrepreneurs discover new profit opportunities to redeploy the capital and labor that had been misdirected by the Federal Reserve’s boom or bubble. As the price of goods falls, potential consumers become actual buyers.
The key thing is that the price of producer goods has to fall faster and farther than consumer goods for the correction process to proceed. If money and credit are deflating, the process will be faster. If the Federal Reserve and other forms of government “stimulus” curtail the deflation of producer goods (e.g., by auto and financial bailouts), then the process will be slower and more painful.
Since deflation is the cure for the economic crisis, why is Ben Bernanke so afraid of it? Is his apoplithorismosphobia really just a psychological ailment? Is the collective of mainstream economics just misinformed or stupid? I do not know for sure, but when the situation is explained to an intelligent person, they usually suspect it involves some kind of political payoff for the bankers and the politicians.
Americans Want ‘Freedom to Pay Too Much for Inferior Health Care’
US President Barack Obama has lost his messianic status in the row over health care reform, say German media commentators. The debate reveals the downside of America’s ideological aversion towards government: Americans are ready to put up with an inferior health service in the name of freedom, it seems.
State transportation officials say uncertainty about future funding is forcing them to foreswear ambitious new projects in favor of simple maintenance and repairs. [Read More]
“FBI director Robert S. Mueller III announced Monday that the entire manpower of his increasingly disillusioned agency has been diverted into a massive nationwide search for some semblance of genuine, concrete truth,” The Onion reports. “ ‘After years of investigating all the things people do to one another, from murder to mail fraud, every agent at the bureau’s disposal has been reassigned to track down something — anything—that could still be considered pure and true,’ the world-weary Mueller said. ‘If some inkling of truth is out there, the FBI will find it.’ The existential hunt, under way across all 50 states, is the largest initiative launched by the FBI to date. So far, nearly 8,000 federal agents have been mobilized to search for the intangible concept, with several units being deployed to watch the setting sun, walk barefoot through fields of grass, and ‘listen — truly listen’ to the laughter of children in hopes of tracking it down.” See, also, an Onion Interactive Graphic: “How Do Drugs Cross The Border?” Source: CQ Homeland Security
Aug 202009
From RGE Monitor:
In H2 2009, as the economy bottoms out from a record contraction (the worst in the last 60 years), adjustments, such as slower inventory destocking, will occur, while policy measures such as “cash for clunkers” will boost auto production and induce continued spending brought on by the stimulus. According to RGE Monitor, these factors will likely bring U.S. real GDP growth back to positive territory in Q3 2009. However, the NBER is not likely to call the end of the recession until at least late 2009 or early 2010. In addition to GDP growth, the NBER looks at four variables in making recession calls: real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production and payroll employment. While all of these indicators might perform better in H2 than in H1 2009, they are likely to remain in contraction or register sub-par growth. With the labor market now a leading indicator for the recovery in private consumption and the wider economy, trends in payrolls will definitely influence the NBER’s call.
Financial Crisis Called Off
by James Howard Kunstler
Saratoga Springs, New York
Whew, what a relief! Everybody from Ben Bernanke and a Who’s Who of banking poobahs schmoozing it up in the heady vapors of Jackson Hole, Wyoming, to the dull scribes at The New York Times, toiling in their MC Escher hall of mirrors, to poor dim James Surowiecki over at The New Yorker, to – wonder of wonders! – the Green Shoots claque at the cable networks, to the assorted quants, grinds, nerds, pimps, factotums, catamites, and cretins in every office from the Bureau of Labor Statistics to the International Monetary Fund – every man-Jack and woman-Jill around the levers of power and opinion weighed in last week with glad tidings that the world’s capital finance system survived what turned out to be a mere protracted bout of heartburn and has been reborn as the Miracle Bull economy. Our worries over. If you believe the claptrap. Which I don’t.
All this goes to show is how completely the people in charge of things in the United States have lost their minds. They seem to think this mass exercise in pretend will resurrect the great march to the Wal- Marts, to the new car showrooms, and the cul-de-sac model houses, reignite another round of furious sprawl-building, salad-shooter importing, and no-doc liar-lending, not to mention the pawning off of innovative, securitized stinking-carp debt paper onto credulous pension funds in foreign lands where due diligence has never been heard of, renew the leveraged buying-out of zippy-looking businesses by smoothies who have no idea how to run them (and no real intention of doing it, anyway), resuscitate the construction of additional strip malls, new office park “capacity” and Big Box “power centers,” restart the trade in granite countertops and home theaters, and pack the turnstiles of Walt Disney world – all this while turning Afghanistan into a neighborhood that Beaver Cleaver would be proud to call home.
America loves the word “recovery” as only a catastrophically sick society can. “In recovery” is the new universal mantra of loser individuals and loser nations. Everybody in the USA is in recovery. Even Michael Jackson (he may have given up on somatic activity but, on the plus side, as the Rotarians love to say, he’s quit using drugs for once and for all, and the magazines have stopped publishing photos of him taken after 1990, when he turned himself into something out of the Hammer Films catalog).
To sum it all up, the US economy is in recovery. Paul Krugman says that we’ll soon realize that Gross Domestic Product (GDP) is growing. He actually said that on the Sunday TV chat circuit. Not to put too fine a point on it, but I would really like to know what you mean by that Paul? Do you mean that the Atlanta homebuilders are going to open up a new suburban frontier down in Twiggs County so that commuters can enjoy driving Chrysler Crossfires a hundred and sixty miles a day to new jobs as flash traders in the Peachtree Plaza? Do you mean that the Home Equity Fairy is going to wade into the sea of foreclosure and save twenty million mortgage holders currently sojourning in the fathomless depths with the anglerfish? Do you mean that all the bales of deliquescing, toxic “assets” hidden in the vaults of Citibank, JP Morgan, Bank of America, et al, (not to mention on the books of every pension fund in the USA, and not a few elsewhere) will magically turn into Little Debbie Snack Cakes on Labor Day weekend? Do you mean that American Express and Master Card are about to declare a jubilee on accounts in default everywhere? Do you mean that General Motors will produce a car that a.) anyone really wants to buy and b.) that the company can sell at a profit? Are you saying we get a do-over, going back to, say, 1981? Did we win some cosmic lottery that hasn’t been announced yet? What’s growing in this country besides unemployment, bankruptcy, repossession, liquidation, gun ownership, and suicidal despair? In short, are you out of your mind, Paul Krugman?
The key to the current madness, of course, is this expectation, this wish, really, that all the rackets, games, dodges, scams, and workarounds that American banking, business, and government devised over the past thirty years – to cover up the dismal fact that we produce so little of real value these days – will just magically return to full throttle, like a machine that has spent a few weeks in the repair shop.
This is not going to happen, of course. It is permanently and irredeemably broken – this Rube Goldberg contraption of swindles all based on the idea that it’s possible to get something for nothing. And more to the point, we’re really doing nothing to reconstruct our economy along lines that are consistent with the realities of energy, geopolitics, or resource scarcity. So far, our notions about a “green” economy amount to little more than blowing green smoke up our collective behind. We think we’re going to build “green” skyscrapers! We’re too dumb to see what a contradiction in terms this is. The architects are completely uninterested in the one thing that really is “green” – traditional urban design – and most particularly the walkable neighborhood. That’s just too conventional, not special enough, lacking in star power, not enough of a statement, boring, tedious, so not cutting edge! We blather about high-speed rail, but you can’t even get from Cleveland to Cincinnati on a regular train – and what’s more amazing, nobody is really interested in making this happen. All we really care about is finding some miracle method to keep all the cars running.
What we’ve been seeing is nothing more than a massive pump-and-dump operation in the stock markets, most of it executed by programmed robot traders, with the trading nut provided by taxpayers current and future. These shenanigans add up to new risks and fragilities so extreme that the next time a grain of sand catches in the exquisite machinery they will sink the USA as a viable enterprise. We will end up discrediting not just capitalism, but also the idea of capital per se, that is, of deployable acquired wealth. As this occurs, of course, events on the ground will give new meaning to the term “reality television.”
Regards,
James Howard Kunstler
for The Daily Reckoning