Job Numbers Become Instant Campaign Fodder

 Back to the basics, Unemployment Catastrophe  No Responses »
May 062012
 

For Mr. Romney, who has treated previous job reports somewhat gingerly, the latest numbers elicited a searing tone, one that critics said edged into hyperbole. Speaking on the campaign trail in Pittsburgh, Mr. Romney said the economy ought to be adding 500,000 jobs a month — a growth rate the United States has achieved only five times in the last 50 years — and that any unemployment rate above 4 percent was a cause for concern.

In an open letter to Mr. Obama, published in The Plain Dealer a day before his rally at Ohio State University in Columbus, Mr. Romney wrote, “I have a simple question for you: Where are the jobs?”

Mr. Obama reacted to the bad news Friday much as he absorbed the better-than-expected job reports in January and February: accentuating the positive elements while conceding it was not enough. The economy, he noted, created 130,000 private sector jobs, while the unemployment rate dropped to 8.1 percent from 8.2 percent.

“That’s the good news,” the president said at Washington-Lee High School, after meeting with college-bound seniors. “But there are still a lot of folks out of work, which means we’ve got to do more.”

Then he pivoted swiftly to a looming increase in borrowing costs for student loans, which would cause interest rates on these loans to double, to 6.8 percent from 3.4 percent. Last week, the House passed a bill, 215 to 195, to maintain the rate for one year, but required that the $5.9 billion cost be offset by ending the Prevention and Public Health Fund contained in the health care law.

The president has threatened to veto the measure but he is not likely to be given the chance. Senate Democrats say they will bring their own bill to the floor for a procedural vote as early as next Tuesday. That bill would pay for the cost of the loan rate extension by closing some tax loopholes used by high-wage earners.

“My message to Congress is going to be, ‘Just saying no to ideas that will create new jobs is not an option,’ ” Mr. Obama said in Arlington, Va. “There’s too much at stake for us not to be all rowing in the same direction.”

White House and campaign officials said Mr. Obama spoke often about the broad economy, but filled in his canvas with concrete ideas and policy proposals. Mr. Romney, they said, has not done that, and the remedies he has proposed are the kinds of tax breaks and rollback of regulations that deepened the financial crisis of 2008.

“A robust recovery continues to elude the White House”.

Posted by Brian Schuettler at 4:25 pm  

EXODUS

 A Time To Repent, Back to the basics  No Responses »
Apr 072012
 

In the first month, on the fourteenth day of the month between the two evenings is the Lord’s Passover. And on the fifteenth day of the same month is the feast of unleavened bread unto the Lord; seven days ye shall eat unleavened bread. In the first day ye shall have a holy convocation; ye shall do no manner of servile work. And ye shall bring an offering made by fire unto the Lord seven days; in the seventh day is a holy convocation; ye shall do no manner of servile work. (Leviticus 23:5)

http://upload.wikimedia.org/wikipedia/commons/8/87/Haggadah_14th_cent.jpg

14th century Haggadah

An argument in favor of the Hebrew reduced form ישוע Yeshua, as opposed to Yehoshua, is the Old Syriac Bible (c. 200 AD) and the Peshitta preserve this same spelling but using the equivalent Aramaic letters . Yeshu /jeʃuʕ/ (Syriac does not use a ‘furtive’ pathach so extra /a/ is not used) is still the pronunciation used in the West Syriac dialect, whereas East Syriac has rendered the pronunciation of these same letters as Išô‘ /iʃoʔ/. These texts were translated from the Greek, but the name is not a simple transliteration of the Greek form because Greek did not have an “sh” [ʃ] sound, and substituted [s]; and likewise lacked and therefore omitted the final ‘ayin sound [ʕ]. It can be argued that the Aramaic speakers who used this name had a continual connection to the Aramaic-speakers in communities founded by the apostles and other students of Jesus, thus independently preserved his historical name. Alternatively, Talshir (1998) suggests that Aramaic references to the Hebrew Bible had long used Yeshua for Hebrew names such as Yehoshua Ben Nun.[30] So the possibility of Jesus having been Yehoshua remains.

 

TO MY JEWISH BRETHREN: HAPPY PASSOVER!

They had heard him speaking to both of them about his “exodus” to Jerusalem.

Jesus’ exodus to Jerusalem – how mysterious are these words! Israel’s exodus from Egypt had been the event of escape and liberation for God’s People.

What would be the form taken by the exodus of Jesus, in whom the meaning of that historic drama was to be definitively fulfilled?

The disciples were now witnessing the first stage of that exodus – the utter abasement which was nonetheless the essential step of the going forth to the freedom and new life which was the goal of the exodus.

The disciples, whom Jesus wanted to have close to him as an element of human support in that hour of extreme distress, quickly fell asleep. Yet they heard some fragments of the words of Jesus’ prayer and they witnessed his way of acting. Both were deeply impressed on their hearts and they transmitted them to Christians for all time.

Jesus called God “Abba”. The word means – as they add – “Father”. Yet it is not the usual form of the word “father”, but rather a children’s word – an affectionate name which one would not have dared to use in speaking to God. It is the language of the one who is truly a “child”, the Son of the Father, the one who is conscious of being in communion with God, in deepest union with him.

If we ask ourselves what is most characteristic of the figure of Jesus in the Gospels, we have to say that it is his relationship with God. He is constantly in communion with God. Being with the Father is the core of his personality. Through Christ we know God truly.

“No one has ever seen God”, says Saint John. The one “who is close to the Father’s heart … has made him known” (1:18).

Now we know God as he truly is. He is Father, and this in an absolute goodness to which we can entrust ourselves.

The evangelist Mark, who has preserved the memories of Saint Peter, relates that Jesus, after calling God “Abba”, went on to say: “Everything is possible for you. You can do all things” (cf. 14:36). The one who is Goodness is at the same time Power; he is all-powerful. Power is goodness and goodness is power. We can learn this trust from Jesus’ prayer on the Mount of Olives.

Before reflecting on the content of Jesus’ petition, we must still consider what the evangelists tell us about Jesus’ posture during his prayer.

Matthew and Mark tell us that he “threw himself on the ground” (Mt 26:39; cf. Mk 14:35), thus assuming a posture of complete submission, as is preserved in the Roman liturgy of Good Friday. Luke, on the other hand, tells us that Jesus prayed on his knees. In the Acts of the Apostles, he speaks of the saints praying on their knees: Stephen during his stoning, Peter at the raising of someone who had died, Paul on his way to martyrdom. In this way Luke has sketched a brief history of prayer on one’s knees in the early Church.

Christians, in kneeling, enter into Jesus’ prayer on the Mount of Olives. When menaced by the power of evil, as they kneel, they are upright before the world, while as sons and daughters, they kneel before the Father. Before God’s glory we Christians kneel and acknowledge his divinity; by that posture we also express our confidence that he will prevail.

Jesus struggles with the Father. He struggles with himself. And he struggles for us.

He experiences anguish before the power of death.

First and foremost this is simply the dread natural to every living creature in the face of death. In Jesus, however, something more is at work. His gaze peers deeper, into the nights of evil. He sees the filthy flood of all the lies and all the disgrace which he will encounter in that chalice from which he must drink.

His is the dread of one who is completely pure and holy as he sees the entire flood of this world’s evil bursting upon him.

He also sees me, and he prays for me.

This moment of Jesus’ mortal anguish is thus an essential part of the process of redemption. Consequently, the Letter to the Hebrews describes the struggle of Jesus on the Mount of Olives as a priestly event. In this prayer of Jesus, pervaded by mortal anguish, the Lord performs the office of a priest: he takes upon himself the sins of humanity, of us all, and he brings us before the Father.

Lastly, we must also pay attention to the content of Jesus’ prayer on the Mount of Olives. Jesus says: “Father, for you all things are possible; remove this cup from me; yet not what I want, but what you want” (Mk 14:36).

The natural will of the man Jesus recoils in fear before the enormity of the matter. He asks to be spared.

Yet as the Son, he places this human will into the Father’s will: not I, but you. In this way he transformed the stance of Adam, the primordial human sin, and thus heals humanity.

The stance of Adam was: not what you, O God, have desired; rather, I myself want to be a god.

This pride is the real essence of sin. We think we are free and truly ourselves only if we follow our own will. God appears as the opposite of our freedom. We need to be free of him – so we think – and only then will we be free.

This is the fundamental rebellion present throughout history and the fundamental lie which perverts life. When human beings set themselves against God, they set themselves against the truth of their own being and consequently do not become free, but alienated from themselves. We are free only if we stand in the truth of our being, if we are united to God.

Then we become truly “like God” – not by resisting God, eliminating him, or denying him. In his anguished prayer on the Mount of Olives, Jesus resolved the false opposition between obedience and freedom, and opened the path to freedom. Let us ask the Lord to draw us into this “yes” to God’s will, and in this way to make us truly free. Amen.

From : BENEDICT XVI’s HOMILY FOR HOLY THURSDAY 2012

Posted by Brian Schuettler at 10:38 am  

The Age of the Shadow Bank Run

 Back to the basics, Banks - Crisis Discussion, Creditors Caveat, Derivatives Reform, Devaluation, Having Fun With Derivatives, HEY AMERICA-STICK 'EM UP!, Insolvency, Lending Crisis, Let's Call What It Is - DEPRESSION, Moral Hazard, No Bank Is Indispensable, Patience is a virtue...Delusion is a vice, Read and Weep Entries, Regulatory Failures, Risk Management Strategies, TARP fruit loops, The American Financial Oligarchy, The Big Fat Greek Question, The Consequences of Greed, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Great American Heist, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, Unintended Consequences, We Are All Cooked, We Need Open Derivative Models, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Mar 282012
 

Since the end of World War II, economists have generally thought that runs on banks were dead, at least as a phenomenon in advanced nations. In the United States, for example, bank deposits are insured by the Federal Deposit Insurance Corporation, and, as a last resort, the Federal Reserve can back deposits by printing money.

The new complication is that bank deposits are no longer the dominant form of modern short-term finance. The modern bank run means a rush to withdraw from money market funds, the disappearance of reliable collateral for overnight loans between banks or the sudden pulling of short-term credit to a troubled financial institution. But these new versions are in some ways still similar to the old: both reflect the desire to pull money out of an endeavor — and to be the first out the door. And both can set off a crash.

These newer forms occur in the so-called shadow banking system, involving short-term financial credit not guaranteed by the deposit insurance umbrella. According to the Federal Reserve Bank of New York, shadow banking accounts for about $15 trillion in assets — more than the traditional banking system. But as recently as 1990, the shadow-banking total was much lower, at less than $4 trillion. The core problem is that the growth of short-term credit has been outracing our ability to protect it, and since 2008 most investors have realized that these shadow-banking transactions are not risk-free.

On top of this problem is the market for derivatives. The quantity of open derivatives amounts to trillions, and these positions are another source of short-term credit risk. So a need for sudden payouts could also prompt a run on a financial institution.

It now seems that the 21st century will resemble the 19th and early 20th centuries, with periodic panics and runs on financial institutions, perhaps followed by deflationary collapses. In the euro zone, these problems have plagued banks and entire countries, like Greece and Portugal. The “country as bank” is a new and not entirely reassuring catch phrase, and it shows that the problem goes beyond the private sector.

If a central bank is deft enough, it can avoid deflation by using loans and monetary policy to guarantee the liabilities of run-prone institutions. That worked reasonably well in 2008, but in the long term such a policy sets up the system for even more danger, by subsidizing bank risk-taking and precarious financial structures.

Another problem is that ending those central bank guarantees isn’t always easy. The European Central Bank has stemmed a financial collapse for now, but only by lending large amounts to banks at 1 percent for a three-year window. And yet the euro zone has entered a recession, so it’s unclear when troubled European banks can return to private capital markets. The central bank may end up taking over much of the allocation of capital.

The arrangement also assumes that economic growth will pick up fairly quickly in the euro zone — hardly a certainty. And there is little market discipline to force European banks to clean up their balance sheets or to exercise caution for the future. So the system remains extremely vulnerable.

Another feature of this new order is that more and more financial transactions will be collateralized with the safest securities possible: United States Treasuries. Demand for them will remain high, and low borrowing costs will ease our fiscal problems. Still, the resulting low rates of return serve as a tax on safe savings, encourage a risky quest for yield and redistribute resources to government borrowing and spending. It isn’t healthy for the private sector when investors are so obsessed with holding wealth in the form of safe governmental guarantees.

THIS entire package of problems seems to be part of “the new normal” — it’s not going away anytime soon.

Some economists, like Ricardo J. Caballero of the Massachusetts Institute of Technology , have called for extending governmental guarantees well beyond traditional bank deposits. That would check the problem, but at what cost? In a larger financial crisis based on insolvency, our government would face intolerable financial burdens, as happened in Ireland when its government guaranteed bank debts.

A broader government guarantee would also spread the moral-hazard problem to an even larger class of financial transactions, raising the odds that the guarantee will someday have to be paid out. In any case, bailouts for creditors are already politically unpopular, and are unlikely to be expanded.

In short, no promising financial path is before us. It’s good that the American economy seems to be recovering, and this may shove some problems into the future. But banking and finance remain a mess at their core. Welcome to the 21st century.

 

Tyler Cowen is a professor of economics at George Mason University.
The Age of the Shadow Bank Run – Tyler Cowen, New York Times

Posted by Brian Schuettler at 7:53 pm  

Which Party Is Better for US Economy? Neither!

 Back to the basics, Coming Social Unrest  No Responses »
Mar 032012
 

So, what conclusions can we draw? On unemployment, for example, Mitt Romney has been claiming that, as a former businessman, he knows how to create jobs. (How? So far, he’s kept that a secret.) But the spreadsheet says that, over the past half-century, the unemployment rate has fallen under Democratic presidents and risen under Republicans. This remains true even if you assume a one-year lag in the time it takes for a president’s policies to take effect.

Which party’s presidents have done better with the most important statistic, which is GDP — basically the size of the economy? Incredibly, it’s a tie! Applying a one-year lag, the Democratic presidents surge ahead by a minuscule 0.01 percent. Inflation? A straight comparison shows that Democrats have done a better job, but the one-year lag gives lower inflation to the Republicans.

Republicans win on lower taxes — no surprise there — but lower spending (the stat I’d been dreading) goes to the Democrats. Put it all together and neither party has anything like a monopoly on economic virtue, even when defined in strictly conservative terms. I’m sorry for this anticlimactic result, but numbers don’t lie.

Which Party Is Better for US Economy? Neither! – Mike Kinsley, Bloomberg

Posted by Brian Schuettler at 5:45 pm  

The Snowball of Empire

 Back to the basics, Bilderbergers 1 USA 0, Coup d'etat in America, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Oil Question, Truth In Charity, Unindicted Co-Conspiritors, Who owns Congress-Still!  No Responses »
Feb 192012
 

The snowball began its first cycle in 1899 when on February 4 of that year the United States began a war against the Philippines. Two days later the Senate voted to annex the country despite the islanders’ opposition. That country would not be returned to its people until 1934.

Not 20 years later, in 1917, America decided to enter World War I, forgoing Jefferson’s plea to avoid entangling alliances, and, as a result, lost roughly 116,000 men, and millions of dollars, in the war.[1]

The snowball kept rolling with World War II, perhaps the only just war of the century, but as a result, our role in world affairs dramatically changed and NATO was formed in 1949. NATO was the ultimate entangling alliance — forever ensuring our seat at the table of any just or unjust future war.

The rest, as they say, is history. The snowball has been rolling full speed ahead ever since, creating an empire that is both all encompassing and pervasive.

Korea, the Soviet Union, Vietnam, Iran, Iraq, Pakistan, Somalia, Bosnia, Kosovo, Iraq again, and Afghanistan: the United States has had military personnel in (or engaged with) all these countries at one point or another throughout the past 50 years, and today is responsible for over 600 military bases in 40 countries across the world.[2]

As the Department of Defense states, “the United States military is currently deployed to more locations than it has been throughout history.”[3]

The snowball, which started out as a flake, has now reached Leviathan status and is on a downward slope growing larger and larger with every revolution. The empire of the United States now touches every country, directly or indirectly, in the entire world.

The Snowball of Empire
by Nico Perrino on February 17, 2012

Posted by Brian Schuettler at 1:40 pm  

What If Obama & Krugman Tried to Run a Business?

 A Picture Is Worth A Thousand Words, Back to the basics  No Responses »
Feb 052012
 

We must keep in mind that the purpose of business is to serve the interests of the work force, not the consumers to whom we will eventually try to sell our products. After all, in the recent Atlantic cover story, “Making It in America,” we were confronted with the tragic story of an auto-parts factory in North Carolina that was so efficient that the factory floor seemed to run itself, with workers an afterthought. The implications of this are so alarming that we must be bold about trying to reverse it.

The writer of The Atlantic piece, Adam Davidson, declared, “It’s tempting to look to the owners of Standard Motor Products and ask them to help [low-skill worker] Maddie out: to cut costs a little less relentlessly, take slightly lower profits, and maybe even help solve America’s jobs crisis in some small way.” So Davidson yielded to the temptation: “I tracked down the people who run Standard to put this possibility to them,” he says.

Davidson is the host of an economics program called “Planet Money” on NPR, “has won every major award in broadcast journalism” and “has traveled to many countries to study the global economy,” according to his bio. So he obviously knew a lot about business before he ever set foot in this horrible worker-unfriendly factory.

It seems reasonable to assume he knows more about business than the average Democratic politician, such as DNC Chair Debbie Wasserman Schultz, who recently said, “We applaud success, but [Romney’s] record, which he’s hung his candidacy on, of being a corporate raider, and of essentially coming into communities, devastating the local economy, shutting down plants, deliberately bankrupting companies and shipping jobs overseas is not one that voters are embracing.”

Sounding a similar note, a Nobel Prize winning economist said that Romney and Bain were, by being so ruthless about wringing out inefficiency,  “helping to destroy the American middle class.”

Our factory is the antidote to all of this heartless, rapacious, greedy capitalism. Alas, it will never sell any products, because our lovingly-made, middle-class nourishing solar panels with a conscience cost many times more than Chinese-made competition. At the end of his article, Davidson discovers to his surprise that Standard Motor Products is run by perfectly nice people (its CEO is graced with an unimpeachable mark of virtue–his dream was to be a reporter for The New York Times) who are simply unable to pay their workers more lest their prices rise above what their customers will pay, causing their business to fail. And yet: with nothing on their conscience but profit, they continue to employ Americans.

Meanwhile our imaginary solar-panel factory joins the moonscape of abandoned property in Detroit. Putting workers before profit, it turns out, leaves you with neither.

What If Obama & Krugman Tried to Run a Business? – Kyle Smith, Forbes

Posted by Brian Schuettler at 5:47 pm  

Most U.S. Manufacturing Jobs Gone for Good

 Back to the basics, Bilderbergers 1 USA 0, The Sorry State Of American Manufacturing, Unemployment Catastrophe, Unintended Consequences  No Responses »
Feb 052012
 

Yet “a small business trying to grow its market share is not going to have a decision driven by a tax break,” he continued. “It’s not the cost of labor. The issue is components. Our Buttkicker requires steel, aluminum, copper, a circuit board, chips and resisters, plugs and power adapters. . . These components still come from China. We’ve lost the infrastructure for a lot of these parts,” he said.

Meanwhile, manufacturing firms that are trying to compete with Chinese firms say they are being undermined by unfair trade practices. U.S.-based solar manufacturers last October filed a trade complaint against China-based firms for dumping solar cells on the U.S. market at below their cost of production, which they can do because of substantial government subsidies. The International Trade Commission issued a preliminary ruling in their favor earlier this week.

“Twelve U.S. companies have gone out of business or experienced significant layoffs in the past year,” said Tim Brightbill, an attorney at Wiley Rein, which filed the complaint on behalf of SolarWorld in Portland, Ore., and six other domestic manufacturers.
“Over 2,000 manufacturing jobs are gone.”

But America’s love affair with cheap goods made overseas extends even to this high-tech industry, which is having its domestic subsidies pulled away after repeated assaults on Capitol Hill. A coalition of solar installers and manufacturers, some of whom have their own operations in China, oppose the imposition of trade sanctions on China.

And it’s not hard to understand why. Solar installer sales are surging based on cheap Chinese solar cells. “Oversupply is good for you and me,” Danny Kennedy, founder of California-based installer Sungevity, said shortly after the complaint was filed. “We are doing what we are meant to be doing, which is to make solar cheap and affordable.”

Most U.S. Manufacturing Jobs Gone for Good – M. Goozner, Fiscal Times

Posted by Brian Schuettler at 5:19 pm  

Fannie Ignored 2006 Warnings About Widespread Mortgage Abuses

 A Moral Question - Not A Political One, Back to the basics  No Responses »
Feb 052012
 

…and possibly so did Newt Gingrich

From Naked Capitalism:

Gretchen Morgenson of the New York Times reports on an ugly bit of mortgage market history: that Fannie Mae was told in 2006 to address the derelict behavior of its servicers and foreclosure mills yet chose to do pretty much nothing about it.
Read the Rest…

Posted by Brian Schuettler at 5:06 pm  

The Most Important Economic Chart Of The Year

 A Picture Is Worth A Thousand Words, Analysis & Commentary, Back to the basics, Bond Market, Creditors Caveat, Deflation-Inflation-Stagflation, Devaluation, Economic Analysis Isn't Science, European Union?  No Responses »
Dec 262011
 

courtesy of Spiegel Online:

This chart illustrates the end of euro complacency. Investors once acted as though the euro eliminated not just currency risk but sovereign credit risk. All nations–from Greece to Germany–could borrow at the same low rates. No longer. As the financial crisis enters its fifth year, markets are again distinguishing between strong nations and weak.

I subsequently discovered that I am not alone in choosing this chart. The BBC has a version of this as the first entry in its survey of top graphs of the year (with commentary by Vicky Pryce of FTI Consulting), and Desmond Lachman of the American Enterprise Institute included it in Derek Thompson’s survey of top graphs over at the Atlantic.

P.S. For the United States, I think Brad DeLong is right: behold the shortfall in nominal U.S. GDP.

 

The Most Important Economic Chart Of The Year by Donald Marron

Posted by Brian Schuettler at 10:16 am  

Time To Move To Cash?

 Analysis & Commentary, Back to the basics, Cash Is King!  No Responses »
Nov 272011
 

Is it time to exit the stock market and move to cash?

What looks like the most logical move for stock investors may not end up being the best move. We have a situation in Europe that is teetering on the brink of full-blown crisis that would likely result in a global financial contagion. Such an outcome would be decisively negative for stocks. Thus, moving fully from stocks to cash might almost appear like a no brainer.

But making such a decisive move amplifies a particular element of risk in your portfolio. It is policy risk. And it is measured by the actions or lack thereof by global fiscal and monetary policy makers in addressing the various crises that arise along the way. Just as the lack of any policy action is a downside risk, the execution of aggressive policy action is a profound upside risk for stocks. Therefore, while waiting for policy action that never comes can be perilous, it can be equally crushing to exit the stock market just as unexpectedly aggressive policy action sends the stock market soaring.

The primary challenge in managing policy risk is that it is difficult to measure. This is due to the fact that it is highly dependent on the whims of human behavior and decision-making. On what day, if ever, does German Chancellor Angela Merkel suddenly decide that Eurobonds may actually be a good idea? At what hour, if at all, does the European Central Bank opt to announce that they will engage in quantitative easing through the large scale asset purchases of the bonds of at risk sovereigns across the eurozone? And at what moment, and to what scale, does U.S. Fed Chairman Ben Bernanke decide to begin pulling the trigger on QE3? While investors can spend their days reading various tea leaves, there’s no telling exactly when during times of crisis that policy makers may finally be compelled to act if at all. This leaves stock investors on a constant tight rope since the two outcomes associated with policy action and policy inaction are so widely divergent. Stay in the stock market that receives no policy support and suffer further declines, or exit the stock market that suddenly receives policy support and miss a dramatic rally. Frustrated stock investors have to look no further than the afternoon of October 4 to see how swiftly the market can shift, seemingly without any reason whatsoever other than the policy response – Operation Twist in this case – that often only becomes apparent in retrospect.

So what is an investor to do? All signs out of Europe indicate that it’s time to get out of stocks and get to the sidelines. But we could wake up on any given day and the stock market is suddenly soaring behind some extraordinary (or perceived to be extraordinary) policy response from the ECB, eurozone leaders and/or the Fed. So what is the answer? It’s not necessarily about choosing between stocks or cash. Instead, it’s about hedging your stock positions with allocations that include cash.

It should not be a question of stocks OR cash in the current environment. Instead, the answer is stocks AND cash along with a variety of other complementary positions that are designed to withstand crisis and have the potential to perform when stocks are under extreme pressure. This way, stock investors can more effectively manage against policy risk so that they can participate if stocks suddenly rise due to aggressive policy action but are also protected if stocks continue to fall.

Time To Move To Cash? by Eric Parnell

Posted by Brian Schuettler at 8:27 am  

Prepare For Europe Collapse Before New Year

 A Changing Europe, A Moral Question - Not A Political One, Back to the basics, Bond Market, CDOs, Collateral Damage, Coming Social Unrest, Consumption Ran the Old Economy, Decapitalization, Deflation-Inflation-Stagflation, Deleveraging, Devaluation, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, European Union?, Fiat Currency, Financing Terrorism, Having Fun With Derivatives, History of Finance, IMF Issues - Discussion, Insolvency, Integrity and Responsibility, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, It's the Tribes, It's Your Turn to Cry FOR ME, Let's Call What It Is - DEPRESSION, No Bank Is Indispensable, PANDEMIC, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, PIIGS Default?, Political Chaos, Read and Weep Entries, Smaller Can Be Better, Strategizing Suppy Chain Links, Subsidiarity, The Big Fat Greek Question, The Consequences of Greed, The Currency Wars Officially Begin, The Financial Elite, The Global Economy, The Importance of Strategic Planning, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The Suffering Poor, The Ticking Euro Bomb, This self-serving arbitrariness, Time For A New Third Party, Unemployment Catastrophe, Unindicted Co-Conspiritors, Unintended Consequences, Wage Deflation, Watch The China Market, We Are All Cooked, We Need Open Derivative Models  No Responses »
Nov 122011
 

It’s official: The European Financial Stability Facility (EFSF) plan announced at the EU summit on October 27th is essentially dead prior to arrival.

As a consequence, Angela Merkel and Nicolas Sarkozy appear to be betraying signs of throwing in the towel on the Euro project as it exists today. They appear to be actively contemplating ways to engineer an orderly breakup of the Euro.

As financial market participants gets wind of their intentions – albeit tentative – expect financial markets to accelerate the unfolding of events. The entire Euro edifice could collapse before the New Year.

EFSF Chief: The Insurance Plan Is Dead Prior To Arrival

When the Chief of the EFSF is pessimistic about the capacity of the EFSF to be leveraged to an extent that is adequate to the task at hand, then you might as well kiss the whole thing goodbye.

In a little noted article in Thursday’s FT, Klaus Regling, head of the EFSF essentially admitted that the plan agreed upon at the EU summit on October summit to use the EFSF as collateral for a first-loss insurance scheme is essentially dead.

As I predicted would occur in an article of mine several weeks ago entitled “Europe’s Inane Idea: Fake Brady Bonds,” the EFSF chief has acknowledged that there is no interest on the part of investors to purchase PIIGS bonds with a first-loss guarantee of only 20%.

Regling believes that a first-loss guarantee of 30% may be required to garner any interest.

Personally, I have serious doubts that there would be sufficient interest. Any issuance that actually requires a 30% loss guarantee in order to be viable simply has an implicit default risk profile that will be unable to garner sponsorship of sufficient size.

Since there are only about 250 billion euros available for the EFSF first-loss insurance scheme, that means that, even assuming 30% were sufficient, the mechanism would only be adequate to cover about 800 billion euros worth of debt issuance by Italy and Spain — and any other euro area country that needed funding.

It has been estimated that roughly two trillion euros of funding are needed to simply merely meet projected roll-over and fresh financing needs through mid 2013. Therefore, the 800 billion projection is totally insufficient to the task at hand.

If $800 billion in guarantees are all that Europe can come up with, Europe would probably better off wasting precious resources on this scheme at all.

That is why the EFSF first-loss guarantee proposal seems to be dead on arrival. The plan is totally insufficient, and therefore is unlikely to be implemented at all.

I believe that this realization is thoroughly discouraging the Eurocrats that are charged with structuring the EFSF insurance facility and selling it to investors. These Eurocrats are relaying their pessimism back to Merkel and Sarkozy in real time. This in turn, is prompting Merkel and Sarkozy to begin to contemplate “exit strategies.”

Imminent Fiasco

Because Merkel and Sarkozy are unwilling or are unable to support the only viable option available to them that is to fund bond purchases via the ECB, they appear to be engaging in preliminary speculations regarding a possible exit plan. The problem is that there is no viable exit plan that would not entail a total economic and financial disaster.

It will be impossible for Merkel, Sarkozy and other European leaders to prepare an exit strategy without their intentions being leaked to the press. Financial markets will therefore unravel any and all plans that they contemplate before they can even commit them to paper.

As soon as markets realize that the original EFSF scheme is being abandoned and that the entire Euro project will be restructured, the Euro will be crushed, the European banking system will become insolvent and global financial markets will freeze up.

Merkozy Musings

Sarkozy is already openly musing about a “two-speed” Europe. He envisions a group of countries that will quickly move towards tight fiscal and economic integration and another group of countries that will remain fiscally and monetarily independent.

Sarkozy has stated that he believes that a tight federation is impossible for a large group of economically, politically and culturally disparate countries. The implication is that the group of 16 nations that currently comprise the Euro is probably too large to be manageable.

At the same time, Merkel is already dreaming about a “New Europe.” Exactly what Germany’s Chancellor means by this is ambiguous. However, it is clear that Merkel has in mind much tighter fiscal and economic integration. In this regard Merkel must know that several current Euro members may be unable or unwilling to join in such a tight federation.

The problem with Sarkozy’s and Merkel’s musings is that they are completely irrelevant and even counterproductive to the current task at hand. The issues that they are touching on were issues that needed to have been resolved at the inception of the Euro. At this point, the question is how the damage can best be undone, not to debate what should have been.

Conclusion

Merkel and Sarkozy will soon learn that an orderly break-up of the Euro is not possible. Even the slightest hint that a breakup is being contemplated will cause a global financial disturbance that is so great that any perceived benefits of a break-up will be completely overwhelmed by the costs that will be imposed by the market.

Prepare For Europe Collapse Before New Year by James A. Kostohryz


Posted by Brian Schuettler at 10:58 am  

Most of you understand this.

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A State of Distress, “the Greenspan doctrine”, Back to the basics, Bilderbergers 1 Germany 0, Bilderbergers 1 USA 0, Coming Social Unrest, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Decapitalization, Devaluation, Dismal Science-Ignorant Scientists?, FDR, Fiat Currency, Figures don't lie but Liars can figure, Former Economist, FREEDOM, Goldman: Underwriter or Undertaker?, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, It Is Nice To Be Part of the Elite!, It Is Supposed to be a Republic!, IT'S ALL ABOUT POWER AND MONEY, Let's Call What It Is - DEPRESSION, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, TARP fruit loops, The American Financial Oligarchy, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Great American Heist, The Growing American Fascist State, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, Unindicted Co-Conspiritors, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Nov 052011
 

One of the things that I suspect has brought many of you to Naked Capitalism is the hard lesson that conventional wisdom in finance and economics has been very costly to ordinary citizens around the world. If you had believed the prevailing world view of early 2007, that markets were efficient and bad actors would of course be found out and shunned, that were were in the midst of a Great Moderation and could expect to enjoy continued prosperity, punctuated by shallow recessions, and that financial innovation was a boon and therefore to be encouraged, you had an ugly awakening. The global financial crisis imposed tremendous costs on investors and society at large, via unemployment, a housing bust, plunging tax revenues, cuts in government services and increasing political discord.

Yet no one in power before the crisis has been punished or even suffered much. In fact, 2009 and 2010 Wall Street bonuses exceeded the record levels of 2007. As former IMF chief economist Simon Johnson described in a May 2009 Atlantic article, the US instead suffered a quiet coup, with the top end of the financial services industry becoming more concentrated, more powerful, even more concentrated and more firmly in charge of the political apparatus.

Most of you understand this. It’s awfully hard not to notice that we have a two-tier system of justice, in which the major financial firms get to flout the law and violate their own contracts, yet are able to get their agreements enforced against seemingly everyone, from credit card, mortgage, and student debt borrowers to municipalities who entered into risk-laden swaps they didn’t understand to nations like Greece, where a clearly insolvent borrower cannot get a deep enough restructuring out of fear of triggering payouts on credit default swaps. But complexity, leverage, and opacity have been the big banks’ best friends in executing this program of looting. You’ve come here to get educated so you won’t be so easily taken next time.

So the lies that the elite financiers have peddled appeared to be free, when in fact, many of them were sold via clever messaging and lobbying.
Read the Rest…

At Naked Capitalism

Posted by Brian Schuettler at 9:24 am  

“forgive us our debts, as we forgive our debtors”: an American year of Jubilee

 A Growing List Of One Term Presidents, A Moral Question - Not A Political One, Back to the basics, Collateral Damage, Coming Social Unrest, Consumption Ran the Old Economy, Coup d'etat in America, Deflation-Inflation-Stagflation, Economic Analysis Isn't Science, History of Finance, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, Moral Hazard, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, Political Chaos, Political Implications, TARP fruit loops, The American Financial Oligarchy, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Judeo-Christian Political Coalition, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unintended Consequences, USA Is the New Japan, Wage Deflation, We Are All Guilty, We Have Become Beggars To The World  No Responses »
Oct 312011
 

The American financial system seems ultramodern in its complexity, but it is actually ancient in the brutal ways wealth asserts power over others. The earliest societies were torn by conflicts between lenders and borrowers, the rich versus the poor. They were compelled to fashion hard rules and put restraints on lending to curb the cruelties and promote a moral minimum for social justice. Nearly every country and culture embedded these values in religious tenets that governments enforced. Anthropologist David Graeber asserts provocatively in his book Debt: The First 5,000 Years that the power struggles over debt were probably the starting point for developing civilization’s moral codes. The arguments typically began when kings or landowners lent some of their surplus wealth to peasant farmers, then took away the debtors’ property if they failed to repay the loans. In olden days, the creditor would seize the debtor’s livestock and vineyard, perhaps even his children to be enslaved as household servants, until the debts were repaid. If the failure of borrowers persisted, the wealthy lenders would wind up owning all the property, with the peasants reduced to tenant farmers on the land they had once owned. The negative cycle stopped when the peasants could no longer borrow because they had nothing left for lenders to claim in default. Economic life at that point was frozen or depressed, no longer functioning. In a rough sense, this resembles what happened to our economy in the financial crisis. Debtors were tapped out, up to their eyes in debt, and creditors recognized that they could not lend to them anymore without losing their money. In modern economies, no one takes away their children, but they do seize homes and cars and other assets. The ancient Hebrew society worked out a solution for recurring debt crises—you can find it in the Bible. Every seven years (in some interpretations, every fifty) the cycle of debt accumulation was erased by a declaration of general forgiveness. This was called the year of jubilee, and Christianity embraced the same moral principles (“forgive us our debts, as we forgive our debtors”). Property was returned to the original owners, and children and slaves were freed. Everyone was redeemed. The economy was freed to start over again. Graeber thinks Judaism’s reform laws were probably influenced by the Babylonians, who issued “clean slate” edicts when excessive debt accumulation threatened social crisis. Graeber notes that nearly every society, ancient and modern, shares moral confusion about debt, with contradictory attitudes. On the one hand, “Paying back money one has borrowed is a simple matter of morality.” On the other hand, “Anyone in the habit of lending money is evil.” Americans share this ambivalence. Here is what Americans can learn from the ancients: severe inequality of wealth and income is not just a question of morality. Inequality is the fundamental source of the disorder that leads to financial crisis and chokes off the economy. Ancient religious principles like the limits on interest rates were a practical way of maintaining balance in economic life. Taking away those rules—as US politicians did when they repealed prudent regulations of banking and finance—in effect authorized the growing inequality that eventually leads to chaos. Modern economists and their supposed “science” generally ignore the ancient wisdom. Most would probably dismiss the connection as folklore. Some economists study inequality and what drives it. Others study financial fragility and macroeconomic volatility. But the two subjects are seldom addressed as underlying cause and effect. Gross concentrations of money at the top help explain why the system eventually stalls out. This is a basic insight that ought to inform the agenda for recovery. Inequality matters.

Economists Michael Kumhof and Romain Rancière wrote a breakthrough paper for the IMF that made the connection between inequality and financial crisis. “The crisis,” they wrote, “is the ultimate result, after a period of decades, of a shock to…two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population.” The 5 percent, broadly speaking, lend to the 95 percent, and in so doing gain still greater wealth and power. The shock comes when the creditor class suddenly realizes that the borrowers are drowning in debt and cannot possibly absorb any more. At that point, financial assets connected to consumer debt are dumped and prices crash, much as they did in 2007. The authors add, “To our knowledge, our framework is the first to provide an internally consistent mechanism linking the empirically observed rise in income inequality…and the risk of a financial crisis.” It took three decades of lopsided borrowing to produce the breakdown, Kumhof and Rancière explain, but the ominous trend was evident for years. In the early 1980s the 95 percent had debts equal to about 65 percent of their income. By 2006 that figure had risen to 140 percent. They were devoting so much of their paychecks to making payments on old debt—credit cards, equity lines and mortgages—there was nothing left to make the payments on new debt. Defaults and bankruptcies were already swelling. The collapse came when creditors grasped the danger and started selling off their mortgage bonds and loans to consumers. It seems odd that the financial interests, with their brilliant analysts and high-speed computers, didn’t see the nature of the crisis until it was breaking over their heads. They may have been blinded by the fabulous wealth they were harvesting. Kumhof and Rancière point out that the same ominous combination—a run-up of debt accompanied by gaping inequality—preceded the crash of 1929. Greed may inspire optimism. But why did ordinary debtors fall into this trap? The standard line is that they, too, were blinded by greed, eager for consumer pleasures they couldn’t afford. This is true for some, but the explanation libels most working people. Wage stagnation started in the 1970s and spread widely in the Reagan era. Typically, as incomes faltered, families faced two bad choices—either go deeper into debt or surrender their middle-class standard of living. Naturally, most people tried to hang on to what they had. The responses to this crisis are well-known. People worked more—women and teenagers entered the workforce, family members took two or three jobs. And they borrowed more, paying the bills with credit cards. In these terms, average families were making heroic efforts to maintain their standard of living. They were doomed to fail unless dramatic economic reforms improved their lot. University of California economist Clair Brown predicted nearly two decades ago in her landmark study of American consumption that sooner or later working people would have to retreat to lower levels of consuming. Working harder and borrowing more had sustained them for twenty years, but neither of these remedies was repeatable. At some point the merry-go-round would have to stop. The retreat is now in full flight. Homeownership has declined by 1.1 percent over the past decade. Wages are stagnant or falling. Foreclosures are tearing through communities, and falling home prices are destroying family equity. Americans, as Whalen says, are experiencing the reverse New Deal.

Posted by Brian Schuettler at 11:30 am  

Ron Paul Can Win

 Back to the basics  1 Response »
Aug 302011
 

If it is true that the studied neglect of data to hold tight to a paradigm is the best evidence that the paradigm is about to collapse, then the massive and highly subjective neglect of all things Paulian is specific evidence that the country is moving in Paul’s direction.

Of course, none of this means that Paul will definitely win. But it does mean that a bet against him by a politician is foolhardy and by a journalist is dishonest.

It is worth returning to Churchill’s career for an even more delicious example: just days before he became the great wartime leader, his career had been written off as that of a kook, and he was being discussed as someone who had extreme ideas and whose thinking did not reflect the mood of the nation. The House of Commons was abuzz with his decline and imminent fall.

And then, rather suddenly, something he had been saying for many years — that there was something rotten in the state of Germany — became so obvious that it could no longer be avoided. Once the nation saw that he had been right all along, he became the leader of the free world in very short order. His career changed. Britain changed. The world changed. No one had seen that coming, either. In fact, everyone thought they knew what was coming: the kook was about to disappear into political backwaters, if not the political wilderness.

Do I even need to draw the parallel?

If Paul wins, it won’t be because he is the kind of candidate Americans have always gone for. It will be precisely because Americans have collectively decided on a dramatically new way of doing business — a new political and economic paradigm — and then he’ll not only have ceased to be a long shot; he’ll be the only shot.

Ron Paul Can Win

 

Posted by Brian Schuettler at 6:10 pm  

A Standard for All Nations

 A Gold Standard, Back to the basics, Deflation-Inflation-Stagflation, Devaluation, Dismal Science-Ignorant Scientists?, Dollar Musings  4 Responses »
Aug 212011
 

DeGaulle On the Fiat Reserve Currency

 

Advantages

  • Long-term price stability has been described as the great virtue of the gold standard.[16] Under the gold standard, high levels of inflation are rare, and hyperinflation is nearly impossible as the money supply can only grow at the rate that the gold supply increases.[17] Economy-wide price increases caused by ever-increasing amounts of currency chasing a constant supply of goods are rare,[17] as gold supply for monetary use is limited by the available gold that can be minted into coin.[17] High levels of inflation under a gold standard are usually seen only when warfare destroys a large part of the economy, reducing the production of goods, or when a major new source of gold becomes available.[17] In the U.S. one of those periods of warfare was the Civil War, which destroyed the economy of the South,[18] while the California Gold Rush made large amounts of gold available for minting.[19]
  • The gold standard limits the power of governments to inflate prices through excessive issuance of paper currency.[17] It provides fixed international exchange rates between those countries that have adopted it, and thus reduces uncertainty in international trade.[17] Historically, imbalances between price levels in different countries would be partly or wholly offset by an automatic balance-of-payment adjustment mechanism called the “price specie flow mechanism.”[17]
  • The gold standard makes chronic deficit spending by governments more difficult, as it prevents governments from inflating away the real value of their debts.[20] A central bank cannot be an unlimited buyer of last resort of government debt. A central bank could not create unlimited quantities of money at will, as there is a limited supply of gold.[17]

Disadvantages

Gold prices (US$ per ounce) from 1968 to 2010, in nominal US$ and inflation adjusted US$.
  • The total amount of gold that has ever been mined has been estimated at around 142,000 metric tons.[21] This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit (M2).[22] Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, would result in a significant increase in the current value of gold, which may limit its use in current applications.[23]
  • Deflation rewards savers[24][25] and punishes debtors.[26][27] Real debt burdens therefore rise, causing borrowers to cut spending to service their debts or to default. Lenders become wealthier, but may choose to save some of their additional wealth rather than spending it all.[28] The overall amount of expenditure is therefore likely to fall.[28]
  • Mainstream economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns.[29] Following a gold standard would mean that the amount of money would be determined by the supply of gold, and hence monetary policy could no longer be used to stabilize the economy in times of economic recession.[30] Such reason is often employed to partially blame the gold standard for the Great Depression, citing that the Federal Reserve couldn’t expand credit enough to offset the deflationary forces at work in the market.[31]
  • Monetary policy would essentially be determined by the rate of gold production.[32] Fluctuations in the amount of gold that is mined could cause inflation if there is an increase, or deflation if there is a decrease.[32][33] Some hold the view that this contributed to the severity and length of the Great Depression as the gold standard forced the central banks to keep monetary policy too tight, creating deflation.[23][34]
  • Although the gold standard gives long-term price stability, it does in the short term bring high price volatility.[33] In the United States from 1879 to 1913, the coefficient of variation of the annual change in price levels was 17.0, whereas from 1943 to 1990 it was only 0.88.[33] It has been argued by, among others, Anna Schwartz that this kind of instability in short-term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt.[35]
  • James Hamilton contended that the gold standard may be susceptible to speculative attacks when a government’s financial position appears weak, although others contend that this very threat discourages governments’ engaging in risky policy (see Moral Hazard).[34] For example, some believe that the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency after unusually easy credit policies in the 1920s.[34]
  • If a country wanted to devalue its currency, a gold standard would generally produce sharper changes than the smooth declines seen in fiat currencies, depending on the method of devaluation.[36]
  • Mainstream economists believe that a low, steady rate of inflation is ideal for an economy because it incentivizes people to purchase consumable goods now rather than later. This low, steady rate of inflation is most easily achieved with a fiat currency system in which the monetary authority is free to regulate money supply. [37]
  • It is difficult to manipulate a gold standard to tailor to an economy’s demand for money, providing practical constraints against the measures that central banks might otherwise use to respond to economic crises.[38]
Posted by Brian Schuettler at 10:14 am  

Non-Objective Law Is Smothering the Recovery

 A State of Distress, “the Greenspan doctrine”, Back to the basics, Consumption Ran the Old Economy, Coup d'etat in America, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, Greenspan is kind of stupid, HEY AMERICA-STICK 'EM UP!, History of Finance, Investment in Infrastructure Is A Win/Win, Investment Strategies, Is Goldman Sachs Evil?, Is The Market Rally Real?, It starts with a foundation, Our phony middle class, Patience is a virtue...Delusion is a vice, Pig-Headed Economic Policy May Still Lead to Disaster, TARP fruit loops, The American Financial Oligarchy, The End of American Capitalism As We Know It? - Discuss, The Great American Heist, The Growing American Fascist State, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory  No Responses »
Jul 102011
 

Howard Gold recently noted that the economy’s failure to thrive is a refutation of the work of two dominant 20th-century economists: John Maynard Keynes and Milton Friedman.

Keynes was the great advocate of massive government spending as an economic “stimulus,” which President Obama tried as his first act in office, and which failed to produce the expected “multiplier effect” that was supposed to boost the economy. So this was a failure of the economics of the left. But what about Friedman? While Friedman is usually remembered as one of the great economic defenders of the free markets–which in some ways, he was–he was also one of the chief advocates of monetarism, which promoted the notion that the central planners at the Federal Reserve could manipulate the economy by adjusting the money supply. And as Gold points out, Fed Chairman Ben Bernanke was a self-confessed adherent of Friedman’s theories. So along with the Keynesian stimulus, we got an even bigger monetary stimulus from the Fed, and we got it twice: QE1 and QE2. Yet this also failed to produce the expected multiplier effect.

There is some legitimate mystery as to why. I have inveighed against all forms of bailouts and stimulus, arguing that every dollar pumped into the economy by the government eventually destroys more than a dollar of private economic activity. But the key word is eventually. Money pumped into the economy by the Fed usually goes into “bubbles” of malinvestment, putting the capital to an unproductive use (like building houses that people can’t afford) and creating destructive inflation over the long term. But we would still expect that a tsunami of cheap credit from the Fed would create some short-term credit expansion, even if we have to pay for it later on.

Yet this credit expansion hasn’t happened. The Fed has extended the banks trillions of dollars in easy money, but this hasn’t produced a commensurate expansion of lending. Why not?

The answer is a larger refutation of the theories of monetarist stimulus. The Great Recession demonstrates that the money supply is not the ultimate driver of the economy. The ultimate driver is very simple: has the government created a safe climate for investment?

The Obama administration and the Democratic Congress have done the opposite. They have created a hostile climate for investment, and they have done so through one measure that is directly smothering the economic recovery: the Dodd-Frank financial reform bill. Dodd-Frank has injected a lethal dose of uncertainty into the very heart of the financial sector–and we’re only halfway through the worst of this effect.

The problem is not any specific provision of Dodd-Frank. The problem is the lack of specific provisions. Despite being more than 2,300 pages long, which would be more than enough space to spell out a comprehensive system of regulation in exacting, concrete detail, this is not what Dodd-Frank did. Instead, as the New York Times noted last year when it passed, the bill “is short on the details necessary for enforcement. Enactment has set off a scramble by financial regulators to write the rules needed to put the bill’s broad framework into practice.”

“Richard Murray, chairman of the US Chamber of Commerce’s Center for Capital Markets and Competitiveness, says the burden placed on regulators is unprecedented. ‘It’s a law comprised of goals and objectives much like the preliminary blueprints for the design of a very complex building,’ he said at a July 27 chamber conference on the bill.

“He noted that the law calls for 530 rulemakings, 60 studies, and 90 reports to Congress. ‘The wiring and the piping and the internal decor that will become financial regulation will emerge from that process,’ he said.

A financial consultant quoted in the article described the bill as a “blank slate,” while another provided the best analogy: we’re in “the eye of the storm”: “We have been through a great amount of legislative work…. Now we have to wait for the regulations.”

A year later, we’re still there. Just last week, House Democrats were urging regulators to speed up work on giving actual meaning to the Democrats’ vaporous legislation. This probably won’t help because “much of Dodd-Frank remains tied-up with regulatory agencies that must abide by a standard process laid out by the Administrative Procedures Act, which mandates a string of proposal requirements, commentary periods, and economic impact analyses before new regulations go into effect. Agencies like the Consumer Financial Protection Bureau, FDIC, and Office of the Comptroller of the Currency still need to finalize half of the approximately 387 rules needed to execute Dodd-Frank-related provisions.”

So it will be at least another year at the least before bankers and investors find out what laws they are living under. And it gets worse: the provisions that are yet to be decided are not minor details but go the very heart of the financial industry.

Dodd-Frank formalized the institution of “too big to fail” for companies that are considered large enough to pose a “systemic risk” to the financial sector. In return, these companies are subjected to stringent new requirements intended to prevent them from failing. But it is still not clear which companies will be regarded as “systemically important” and which will not, so hundreds of big financial firms are living under the cloud of restrictive regulation. And to make things worse, Federal Reserve Governor Daniel Tarullo suggested a few weeks ago that systemically important banks should have their capital requirements raised from 7% to as much as 14%.

That’s just a wee, tiny little detail that nobody has quite worked out yet.

Capital requirements are the heart of the investment banking business. They determine, directly and mathematically, how much credit bankers can extend. A 7% requirement means that if your bank has $700 million in its own assets, you can lend up to $10 billion of your depositor’s money. But if the capital requirement is raised to 14%, you can only lend $5 billion. Double the capital requirement and you halve the credit.

And what happens if regulators can’t make up their mind, so no one can tell whether their capital requirements will be doubled or not? Everyone sits on their extra cash, just in case. No wonder the economy is just lying there, flopping and gasping like a fish in the bottom of a bass boat.

Dodd-Frank is a monument to the modern practice of anti-legislation. This has been the pattern of the left’s expansion of the regulatory state for decades, but the Obama administration and Democratic leaders in Congress have raised it to an art form. They pass giant, 2,000-page epics which still manage not to spell out any concrete details. What does the legislation do, instead? Mostly, it lays out an organizational chart of regulators and then empowers these unelected bureaucrats to dictate all of the actual details.

Dodd-Frank is not legislation but the abdication of legislative power. In effect, Congress has given up writing laws and instead vested that power in unelected bureaucrats appointed to executive-branch agencies.

Some details may never be fleshed out. One analysis of Dodd-Frank concludes:

“You will soon find that the regulations themselves are secondary to the new measuring stick called ‘unfair or deceptive acts or practices.’ Under the new environment, being in compliance with regulatory requirements is only a piece of the puzzle. That’s the black and white piece so to speak. You will also have to meet the grey matter test of unfair or deceptive acts or practices…. No matter how you slice it, just about any particular act or practice can fall within the grey area of someone’s interpretation.

Why create a system of such mind-boggling, stultifying uncertainty? I will evoke the “Law of Intended Consequences.” They did it on purpose. The goal of Dodd-Frank was to shift the blame for the financial crisis to the private sector. As the analysis I just quoted notes: “The battle cry for unfair and deceptive acts and practices is born from the mortgage crisis as many consumer and community groups cried foul play after the mortgage bubble burst.” In other words, don’t blame the mortgage bubble on the politicians who agitated for easy credit and for the reckless expansion of Fannie Mae and Freddie Mac–you know, a couple of guys named Dodd and Frank. No, blame the banks, and then come up with a system to punish those wicked bankers and bring them more fully under the government’s yoke.

That the goal is to exact revenge on the bankers is given away by a nasty little “clawback” provision that allows the government to seize the previous two years of a banker’s pay if he is deemed to be “responsible” for an institution’s failure. It’s an excellent way to increase the risks and decrease the rewards of going into the banking business. Yet when a banker sets out to make decisions about how to run his business successfully, he never knows when a regulator will choose to change his capital requirements or decide that his acts or practices are unfair or deceptive. So if the goal was the bring bankers under the control of bureaucrats, mission accomplished.

But this is not a good way to revive the economy or ensure the nation’s financial health. By overturning the rule of law, Dodd-Frank’s non-legislation legislation has created crippling uncertainty in the heart of the financial sector, neutralizing the Fed’s monetary stimulus and smothering the economic recovery.

Non-Objective Law Is Smothering the Recovery – Robert Tracinski, RCM

Posted by Brian Schuettler at 7:07 pm  

THE WORLD FROM BERLIN

 A Changing Europe, A State of Distress, Analysis & Commentary, Back to the basics, Beer Here!, Bilderbergers 1 Germany 0, Collateral Damage, Coming Social Unrest, Patience is a virtue...Delusion is a vice, PIIGS, PIIGS Default?, Political Chaos, Political Implications  No Responses »
Apr 102011
 

‘Euro-Zone Leaders Need the Courage to Tell the Truth’

A day after Portugal formally requested aid from the European Union to help ease ongoing debt problems, Madrid on Friday insisted that it was “out of the question” that Spain would be next. German commentators aren’t so sure, and say that it’s time for European leaders to reveal the true extent of the problems.

Posted by Brian Schuettler at 9:34 am  

The Future of the American Home

 Back to the basics  No Responses »
Mar 272011
 

Over the past decade, the U.S. housing market has been on a roller coaster ride. Home prices rose at an unprecedented rate during the boom years. They then fell precipitously when the bubble burst. In 2011, prices are expected to decline further, as the market continues to search for a stable bottom. What’s in store for the American home in the years to come?
The Future of the American Home – Daniel Indiviglio, The Atlantic

 

Posted by Brian Schuettler at 2:01 pm  

Renewal

 Back to the basics  No Responses »
Feb 022011
 

The new brand of Midwestern realism has been embraced for years by some regions. For example, non-partisan business and civic leaders in Kalamazoo, Mich., have pushed both educational reform and economic diversification. The region, though hardly booming, has done better than the state overall and is experiencing an entrepreneurial and community renaissance.

Kalamazoo entrepreneurs tend to understand that the key to Midwestern renewal lies with the region’s core competencies and attractions. David Zimmermann, founder of Kalexsyn, a flourishing biotech company, identifies these assets:  Michigan’s resident pool of skilled labor, a low cost of living and a generally community-oriented, family-friendly atmosphere.

Zimmermann says his company, which now employs 30 workers and has revenues of $5.4 million, has surprisingly little trouble attracting younger skilled workers. The median age at the company, he notes, is only 36, and many have come to Kalamazoo from traditional coastal biotech hot spots. This includes several researchers some who originally left the Midwest in their teens and twenties.

“People are looking at the Midwest and crunching the numbers,” Zimmermann says. “Maybe you take a 20% pay cut from San Francisco but you buy a nice house for $200,000. You come out way ahead. We think this a very strong advantage.”

Such a newfound appreciation for the Midwest represents a critical element in expanding the region’s turnaround. With enhanced power in Washington and more common sense government at home, the Midwest could be poised to regain a competitive advantage that has been missing for several generations.

Is the Old, Industrial Midwest Coming Back? – Joel Kotkin, New Geographer

Posted by Brian Schuettler at 6:27 pm  

Fueling Growth

 Back to the basics, The Importance of Strategic Planning  No Responses »
Feb 022011
 

When the government incurs debt, the important factor to consider is what the government does with the money relative to what the private sector would have done with it. If the money would have been used for consumption goods or remained idle in bank accounts, and the government uses it to purchase needed infrastructure instead, then this is better from the perspective of future generations since it enhances the productive capacity that they will inherit. If the private sector would have invested the money instead of consuming it, then from the perspective of future generations it depends upon which type of investment – government or private sector – leads to higher productive capacity for the types of goods and services that they desire. With government goods such as bridges, roads, water systems and so on, the high return to both present and future generations is easy to see and people accept that such spending is both necessary and useful.

Many of us have forgotten what it was like before …
Social Security and Medicare existed, and a
comparison of the two eras makes it clear just how
valuable these services are.

With other goods and services provided by the government, like social insurance, the benefits are harder to measure, and there is more disagreement over how large the benefits are. But many of us have forgotten what it was like before programs such as Social Security and Medicare existed, and a comparison of the two eras makes it clear just how valuable these services are to individuals and to society.

Future generations benefit greatly from having social services infrastructure in place, and in many ways this type of infrastructure is harder to construct than physical infrastructure. Without the efforts of previous generations to build upon, present and future generations would be forced to construct a social services system from the ground up, a costly and timely undertaking, or go without the high value that these services provide.

So far, not much has been said about which generation is asked to pay for the government spending. Doesn’t that matter as well?

When the borrowing is from people within the US, it affects the distribution of income within each generation, and that can produce undesirable changes. But it does not substantially alter the intergenerational effects on productive capacity. To see why, think about the case where the government borrows money today to build badly needed roads and bridges, and then pays it back a generation later. In the current generation, money that would have been used to purchase consumption or investment goods, thereby increasing the sellers’ incomes, is diverted to government expenditures on transportation infrastructure. Thus, this redistributes income to people in the road and bridge construction business.

When the government bonds become due a generation later, there is another redistribution of income as taxes are increased to pay off the debt and money is transferred from taxpayers to the people who inherited the maturing bonds from their parents.

However, the situation is different when the borrowing is partly from the foreign sector. In this case, the first generation will get more income than was borrowed domestically, since some of the new spending is financed from abroad. But the second generation will see some if its income flow out of the country as taxes are raised to pay foreign debt holders. In this case, for the world as a whole it is still a redistribution of income within each generation, but the net result within the U.S.is a transfer of income across generations.

Thirty years ago, only between 10 and 15 percent of the debt was held by the foreign sector, so the redistribution across generations was relatively small. But presently nearly half of our $14 trillion debt is held outside the US, and practically all of the new debt is financed by the foreign sector, so the intergenerational transfer is larger. However, even though the costs to future generations are higher, it’s still quite possible for spending on, say, social or physical infrastructure to provide them with net benefits.

Deficits can impose costs in addition to the intra- and intergenerational effects discussed here, and the costs of deficits can increase rapidly once the debt load crosses the critical threshold where confidence the debt will be repaid begins to fall. For this reason, we do need to get our long-run budget under control. There are places to cut, of course, but we are far behind in our infrastructure needs, and the payoff to both present and future generations is very high for these projects. In addition, our long-run debt problem is mainly a health care cost problem, and this is the problem that deficit reduction must address. It would be a mistake to cut government spending that provides large present and future benefits based upon the false notion that it somehow helps to solve the long-run budget problem, or worse, based upon the fear that such spending will impose significant costs on future generations.

The Right Kind of Spending Can Fuel Growth – Mark Thoma, Fiscal Times

Posted by Brian Schuettler at 6:21 pm  

You can’t win if you don’t try

 Back to the basics, Economic Analysis Isn't Science, Integrity and Responsibility, It Is Supposed to be a Republic!, It starts with a foundation, Jacksonian Democracy  No Responses »
Jan 092011
 

By Nina Easton, senior editor-at-largeJanuary 7, 2011: 1:05 PM ET

FORTUNE — After bidding farewell to 2010, many Americans are suffering from a hangover — but it isn’t from excessive partying. Quite the opposite: The unemployment rate in December fell to 9.4%, but job gains for the month disappointed. Meanwhile public confidence about the nation’s future has fallen to historic lows.

Prospective Republican presidential candidates, emboldened by the dramatic midterm elections, are trying to reverse our collective funk by trumpeting “American exceptionalism” — the idea that a democratic United States is uniquely positioned as a force for peace and prosperity in the world, a bulwark against tyrannical bullies and a model of the citizen wealth that free markets can bring.

That’s fine as far as it goes. But for that to be more than just feel-good rhetoric, candidates (and the public they want to lead) need to come to grips with a more nettlesome characteristic of American exceptionalism: our penchant for taking risks. Risky business got us into the mess we’re in, but embracing that trait that once made us great is precisely what we need to get us out. “Americans in their DNA are risk-takers at heart,” David Smick, founder of International Economy magazine, said in a recent speech. “Yet America has moved from an era of reckless financial risk taking to a situation even more dangerous — no financial risk taking.”

Even President Obama, fond of scolding businesses for taking unnecessary chances, proclaimed in his inaugural speech that “we are a nation of risk-takers.” Alexis de Tocqueville, classic chronicler of that American oddity called democracy, gave a different word to the trait: “restlessness.” And he didn’t consider it a particularly good thing — this “strange unrest of so many happy men” who won’t be content with a fertile farm or prosperous business, but must keep chasing the next horizon, inevitably falling prey to “melancholy.”

America, It’s Time to Start Taking Big Risks Again – Nina Easton, Fortune

Posted by Brian Schuettler at 3:00 pm  
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