Entrepreneurs: The Real “Peace Prize” Winners

 Small Business-Bedrock of America, Small Cap Stocks, Smaller Can Be Better, The End of American Capitalism As We Know It? - Discuss, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism  No Responses »
Nov 072009
 

We live in ludicrous times of rewarding good appearance for evil action. President Obama is awarded the Nobel Peace Prize while his war efforts intensify. But those who are true promoters of peace need attention, for they will never likely receive such ostentatious recognition for their noble efforts. Such individuals are those who take risks in a world of uncertainty, and who save or borrow capital to start a business. Such entrepreneurs promote peace by serving the customer better than the next entrepreneur through voluntary transactions in the market, rather than commanding bureaucracy in government.

As part of my entrepreneurship courses, I have students who want to start their own business listen to new entrepreneurs discuss their background, their reasons for starting the business, and of their effort to establish the business. Students usually find these speakers fascinating and inspiring, but also come away with a sense of the enormous amount of effort, capital, risk, and uncertainty that is involved in starting a business. Many of these students decide they no longer want to start their own business. They realize that entrepreneurs, too, have a boss: the customer. Mises put it this way: “Ownership of the means of production is not a privilege, but a social liability.”

[VIEW THIS ARTICLE ONLINE]

Posted by Brian Schuettler at 10:59 am  

Robbing Peter to pay Paul

 A State of Distress, The Democrats Blew It Again, The Inherent Disorder of Empires, The New American Socialism, The Suffering Poor, THEY ARE ALL THE SAME, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unindicted Co-Conspiritors, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Oct 312009
 

As political pressure has reduced the price tag of expanding coverage to below $1 trillion over ten years, many observers assumed Democrats would react by trimming financial assistance for the middle class–that is, people making between twice and four times the poverty line, or between $44,000 to $88,000 for a family of four.

The assumption was that if Democrats had to make tough choices about what to cut, they’d protect the the poor and most vulnerable. After all, they’re Democrats.

But now it appears that assumption may be wrong–or, at least, not entirely right.

Are Democrats Taking Money From the Poor to Help the Middle Class?! Jonathan Cohn

Posted by Brian Schuettler at 10:00 am  

Thinking through central bank independence

 Federal Reserve-Discussion, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The New American Socialism  No Responses »
Oct 252009
 

I have a column in Financial Express today on the rationale for independence of the central bank, and how this is operationalised in democracies.

The rationale for central bank independence

The starting point of modern thinking on monetary policy is the issue of central bank independence. Watching the world across the centuries, a pattern has been found that non-independent central banks distort monetary policy to support the incumbent political party. When elections are approaching, rates tend to be dropped. This makes households feel a bit happier and more inclined to vote for the incumbent. This threatens the fairness of elections. And after elections, it tends to kick off higher inflation. Non-independent central banks are thus associated with election-induced fluctuations. Instead of monetary policy being a force for stability, it becomes (to some extent) a source of shocks for the economy, and of unfairness in elections.

Major countries have chosen a remarkable solution: politicians relinquish control over the central bank. This is a truly rare feature in public administration. In almost all other elements of government, democracies work by holding politicians accountable in elections, and giving politicians the reins in public administration. In this one area, the world has done something unusual.

This requires accountability mechanisms

Two issues follow hard on the heels of independence. First, independence goes with a narrowing of the functions of the central bank. There is no economic case for having independence from politicians for functions such as running the payments system, regulating or supervising financial markets or banks, running a bond exchange and depository, manning a system of capital controls, etc. The rationale for independence is limited to one specific problem: that of setting the short-term interest rate of the economy. Hence, giving RBI independence requires narrowing down its functions to the core where economic logic suggests independence. All other functions need to be placed in conventional agencies, with control in the hands of accountable politicians.

The second issue is that of accountability. The standard route of accountability through elections is being eschewed in this unique problem. But a central bank cannot be handed over to a set of unelected officials with no accountability. This would induce abuse of power, where the agency will focus on its own interests at the expense of the country.

The solution involves transparency, predictability and inflation targeting. The agency must be fully transparent about everything that it does. It must use rules rather than discretion, so as to limit the extent to which discretionary power is wielded by unelected officials. They must write down a monetary policy rule, discuss this in public, and live by it. The third element of accountability is inflation targeting. Independent central banks must have a quantitative monitorable target. Setting an inflation target for the medium term binds the agency to achieving a goal, as opposed to arbitrary exercise of power without accountability.

Commen sense and monetary economics come together

All this reasoning is rooted in the basic hygeine of good public administration. Once we accept the starting premise — that central bank independence is desirable — then careful thinking about public administration leads us to the remaining conclusions: narrow the functions placed in an independent central bank to only those where independence is required (i.e. setting the short-term interest rate), have full transparency, have a monetary policy rule, and require inflation targeting.

In historical sequence, the above reasoning led the way in monetary policy reform. It was a bit later that the best monetary economists started closing their models by putting in an inflation targeting central bank. They found it works very well. So in this strategy for monetary policy reform, we have a happy consensus between the common sense of good administrators and the state of the art of monetary economics. The central banks of the bulk of OECD GDP are now de facto or de jureDe jure inflation targeting is particularly important in countries with weak institutions, where the behaviour of an agency that is not tied down by law can be more erratic. inflation targeting, and the emerging markets with high standards of governance have also made the switch.

Indian monetary policy reform

The Indian monetary policy debate is about the key ideas of the successor to the RBI Act of 1934, which was drafted by the British in the 1920s. The authors of this act never envisioned the conditions of 2009, either in terms of the Indian economy, or our knowledge of monetary economics. In this debate, RBI staff are interested parties and have to recuse themselves.

Operationalising inflation targeting involves addressing many practical problems. A focus on these practical problems is premature. All these practical problems can be solved – as has been done myriad times in other countries – once the principle is accepted. The existence of these practical problems does not invalidate the basic strategy.

One periodically encounters criticism of low inflation as the prime goal of monetary policy. However, anyone who proposes that inflation targeting is not the answer has to come up with an alternative accountability mechanism, for no democracy can have an independent central bank without accountability. In addition, advocates of novel schemes have to explain why India should be a guinea pig for something not found in good countries.


Posted by Brian Schuettler at 9:47 am  

The Truth About Jobs That No One Wants To Tell You

 A Growing List Of One Term Presidents, A State of Distress, A Time To Repent, Coming Social Unrest, The Disappearing Car Makers, The excellent adventures of Ben Bernanke, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe  No Responses »
Oct 032009
 

Unemployment will almost certainly in double-digits next year — and may remain there for some time. And for every person who shows up as unemployed in the Bureau of Labor Statistics’ household survey, you can bet there’s another either too discouraged to look for work or working part time who’d rather have a full-time job or else taking home less pay than before (I’m in the last category, now that the University of California has instituted pay cuts). And there’s yet another person who’s more fearful that he or she will be next to lose a job.

In other words, ten percent unemployment really means twenty percent underemployment or anxious employment. All of which translates directly into late payments on mortgages, credit cards, auto and student loans, and loss of health insurance. It also means sleeplessness for tens of millions of Americans. And, of course, fewer purchases (more on this in a moment).

Unemployment of this magnitude and duration also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues weilding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets. It’s already started. Next year is a mid-term election. Be prepared for worse.

So why is unemployment and underemployment so high, and why is it likely to remain high for some time? Because, as noted, people who are worried about their jobs or have no jobs, and who are also trying to get out from under a pile of debt, are not going do a lot of shopping. And businesses that don’t have customers aren’t going do a lot of new investing. And foreign nations also suffering high unemployment aren’t going to buy a lot of our goods and services.

And without customers, companies won’t hire. They’ll cut payrolls instead.

Which brings us to the obvious question: Who’s going to buy the stuff we make or the services we provide, and therefore bring jobs back? There’s only one buyer left: The government.

Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.

Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.

When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. I didn’t even know what a debt was, but it kept me up at night.

My father was right about a lot of things, but he was wrong about this. America paid down FDR’s debt in the 1950s, when Americans went back to work, when the economy was growing again, and when our incomes grew, too. We paid taxes, and in a few years that FDR debt had shrunk to almost nothing.

You see? The most important thing right now is getting the jobs back, and getting the economy growing again.

People who now obsess about government debt have it backwards. The problem isn’t the debt. The problem is just the opposite. It’s that at a time like this, when consumers and businesses and exports can’t do it, government has to spend more to get Americans back to work and recharge the economy. Then – after people are working and the economy is growing – we can pay down that debt.

But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.

The Truth About Jobs That No One Wants To Tell You by Robert Reich

Posted by Brian Schuettler at 9:26 am  

Fed Rejects Geithner Request for Study of Governance, Structure

 Monetary Policy - Discussion, The Arrogance of Power, The Democrats Blew It Again, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism, Time For A New Third Party, Unindicted Co-Conspiritors  No Responses »
Sep 232009
 

Sept. 21 (Bloomberg) — The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.

The Obama administration proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”

U.S. lawmakers have also called for a review of the Fed’s power and structure, saying Fed Chairman Ben S. Bernanke overstepped his authority as he bailed out creditors of Bear Stearns Cos. and American International Group Inc. while battling a crisis that led to $1.62 trillion in writedowns and losses at financial firms.

No Work Done

While the report requested by the Treasury hasn’t been formally scrapped, no work has been done on the project, which was due Oct. 1, the people said. Treasury spokesman Andrew Williams declined to comment, as did Fed spokeswoman Michelle Smith.

The central bank is performing its own reviews of possible operational changes following the financial crisis. Fed Governor Elizabeth Duke is leading an internal study of the roles of the directors that serve on each of the boards at regional Fed banks.

“The institution is trying to keep a low profile,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and the former director of Division of Monetary Affairs at the Fed Board. “To publish a report now invites comment on that report.”

‘Associated Costs’

The Senate passed 96-2 a nonbinding budget amendment in April supporting “an evaluation of the appropriate number and the associated costs” of the district banks. The measure was sponsored by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Alabama Senator Richard Shelby, the senior Republican on the panel.

House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, has also called for more scrutiny of the central bank, saying last year he aims to probe how the 12 regional Fed presidents are appointed and their role in setting interest rates. The Fed banks are semi-private entities, each overseen by a nine-member board of directors.

Legislation in both houses of Congress would allow for audits by the Government Accountability Office of the central bank’s monetary policy and other operations. Bernanke opposes the measure, which was introduced in the House by Representative Ron Paul of Texas, a Republican. Frank has scheduled a committee hearing on the issue for Sept. 25.

Lessons Learned

Along with the study by Duke, the Fed is reviewing how to overhaul supervision based on lessons learned from the financial crisis.

The Treasury interest in a Fed structural review partially stems from the administration’s proposal to make the central bank the lead regulator for the largest, most inter-connected financial institutions.

Fed Governor Daniel Tarullo, an Obama appointee, is working on changes to the supervisory process that are preparing the central bank for a larger role in tracking risks across the financial system.

Tarullo is focusing on bank-to-bank comparisons and quantitative scenario testing of bank portfolios. The Fed is currently examining the vulnerability of banks with assets under $100 billion to falling commercial real estate values.

Congressional leaders have balked at the notion of giving the Fed more power and are leaning toward vesting authority over capital, liquidity and risk-management practices of big banks in a council of regulators.

Supervisory Council

“There will be a council,” Frank told Bloomberg Television Sept. 14.

The review led by Duke followed the resignation in May of Stephen Friedman as New York Fed chairman because of ties to Goldman Sachs Group Inc. Friedman is a director on Goldman Sachs’s board.

Goldman Sachs became a bank holding company in September 2008, a change that would have normally barred Friedman from continuing to serve in his New York Fed post. Officials gave him a waiver so he could remain in the job, which has mostly an advisory role.

Friedman, chairman of Stone Point Capital LLC, said at the time of his resignation that he had complied with all the Fed’s rules and his service on the board was “mischaracterized as improper.”

Some analysts said a Fed revision of the role of directors is overdue.

“Allowing local bankers to play a leading role in selecting reserve bank presidents is the most worrying aspect of the current system,” Lou Crandall, chief economist at Wrightson ICAP LLC, wrote to clients in July.

District bank presidents are nominated by committees made up of people whose institutions the nominees may have supervised.

“The conflicts of interest inherent in the current system are glaring,” Crandall said.

Fed Rejects Geithner Request for Study of Structure – Bloomberg

Posted by Brian Schuettler at 9:24 am  

It’s Unemployment, Stupid!

 A Growing List Of One Term Presidents, A State of Distress, A Time To Repent, Back to the basics, China and the Treasuries - A Dependency Relationship, Coming Social Unrest, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Deflation-Inflation-Stagflation, Even the Terminator Can't Help California, Figures don't lie but Liars can figure, Important Skills - No Apprentice Programs, Is The Market Rally Real?, New Jersey Recovery?, Obama's Hypocrisy, Our phony middle class, Political Chaos, TARP fruit loops, The Arrogance of Power, The Democrats Blew It Again, The Disappearing Car Makers, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism, The Sorry State Of American Manufacturing, The Suffering Poor, Time For A New Third Party, Unemployment Catastrophe, Wage Deflation, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!  No Responses »
Sep 212009
 

Pittsburgh protesters demand G20 do more for jobs
Forbes
“We’re not going to accept a jobless recovery,” said Larry Adams, a postal worker who came from Jersey City, New Jersey, for the protest. …

Posted by Brian Schuettler at 11:05 am  

“the short period of American triumphalism, where we dominated the global scene. That period is over”.

 A Growing List Of One Term Presidents, The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Inherent Disorder of Empires, The New American Socialism, The Sorry State Of American Manufacturing, Time For A New Third Party, Unemployment Catastrophe, US Trade Imbalance, We Are All Cooked, We Have Become Beggars To The World, Who owns Congress-Still!  Comments Off
Sep 042009
 

Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’
By Michael McKee

Sept. 4 (Bloomberg) — The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said.

“It’s not clear that the U.S. is recovering in a sustainable way,” Stiglitz, a Columbia University professor, told reporters yesterday in New York.

Economists and policy makers are expressing concern about the strength of a projected economic recovery, with Treasury Secretary Timothy Geithner saying two days ago that it’s too soon to remove government measures aimed at boosting growth.

Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn — an occurrence that economists call a “W-shaped’ recovery.

“There’s a significant chance of a W, but I don’t think it’s inevitable,” he said. The economy “could just bounce along the bottom.”

Stiglitz said it’s difficult to predict the economy’s trajectory because “we really are in a different world.” He said the crisis of the past year was made worse by lax regulation that allowed some financial firms to grow so large that the system couldn’t handle a failure of any of them.

Big Banks

“These institutions are not only too big to fail, they are too big to be managed,” he said.

Finance ministers and central bankers from the Group of 20 nations meet in London Sept. 4-5 to lay the groundwork for a summit in Pittsburgh later this month, where leaders will consider measures to overhaul supervision of the financial system…

With so much excess capacity, the American economy faces a short-term threat of disinflation and possibly deflation, Stiglitz said. Wages may even decline, given recent high productivity and the likelihood of an extended period of high unemployment, he said.

Longer term, he said the Fed’s aggressive monetary policy will mean inflation becomes the greater threat. “With the magnitude of the deficits and the balance sheet of the Fed having been blown up, it’s understandable why there are anxieties about inflation,” he said.

While the Fed says it has the tools to deal with it, there are still concerns, Stiglitz said. Because monetary policy takes six to 18 months to have its full effect, the central bank will have to begin withdrawing monetary stimulus on the basis of forecasts.

The Fed’s record on its economic forecasts isn’t enough to reassure investors and, as a result, the U.S. currency may suffer, he said.

Dollar ‘Weakness’

“Whether or not they’re able to do it, the uncertainty today about whether they can do it can contribute to the weakness of the dollar,” Stiglitz said. “That’s one of the reasons there is increasing interest around the world in discussing alternatives to the dollar system.”

Stiglitz, who is a member of a United Nations commission that will study the global financial system and currency regimes, said “the logic is compelling” for a new global currency.

The current system creates instability, weakens global confidence, and is fundamentally unfair to developing countries that are in essence lending the U.S. trillions of dollars and bearing the risk, he said.

“In most quarters, there is a feeling we should move away from the dollar system. The question is do we do it in an orderly way, or a chaotic way,” Stiglitz said. “The size of the deficit and the size of the balance sheet of the Fed have just increased the anxiety and the desire that something be done.”

While some think it would hurt the U.S. to no longer be able to borrow cheaply in dollars, “that era is over,” he said. “We’re moving to a more multi-polar world.”

Between the fall of the Berlin Wall and the collapse of Lehman Brothers was “the short period of American triumphalism, where we dominated the global scene. That period is over,” Stiglitz said.

Posted by Brian Schuettler at 12:08 pm  

Zombie GM Stock is Proof Humans Are Not Rational

 The Disappearing Car Makers, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism, Want To Buy A Car?  No Responses »
Aug 292009
 

I have mentioned this in the past, but its one of those absurdities that refuses to die:

“Whether it’s a matter of ignorance or greed, people are still buying General Motors stock, even though the company and the government have warned that the shares will someday be worthless.

Investors are picking up millions of shares every day, thinking they’ll profit from what is really a hodgepodge of outdated factories and a pile of debt left behind when the new General Motors Co. exited bankruptcy court protection. Instead, they could end up losing money very quickly. The price of the shares, currently under $1, has ratcheted up or down as much as 50 cents in one day.

On Thursday, investors traded 13.9 million shares, and the stock closed at 85 cents, down 4.1%. The old GM stock had a higher trading volume than big, viable companies like retailer CVS Caremark, banker Capital One Financial Corp and consumer products maker Procter & Gamble.”

Irrational seems to be the standard (and we didn’t even have to write a book to prove it).

Don’t come crying to me when they halt GM trading on a permanent basis.

Posted by Brian Schuettler at 9:32 am  

Food for Thought

 The Arrogance of Power, The Austrian School of Economics, The Economics of Schumpeter, The End of American Capitalism As We Know It? - Discuss, The Inherent Disorder of Empires, The New American Socialism  No Responses »
Aug 082009
 

From the Mises Institute:

Obama and the Economy by Llewellyn H. Rockwell, Jr.

Posted by Brian Schuettler at 8:54 am  

Some Fear N.Y. Fed Too Influenced by Wall Street – Washington Post

 Political Chaos, REITs, The End of American Capitalism As We Know It? - Discuss, The Geithner Resignation Watch, The Importance of Strategic Planning, The Joy of Being A Bank, The New American Socialism, Who Guarantees the Guarantor?-You Do!  No Responses »
Jul 242009
 
New York Fed President William C. Dudley served 10 years as Goldman Sachs's chief economist.

New York Fed President William C. Dudley served 10 years as Goldman Sachs’s chief economist. (By Kevin Clark — The Washington Post)
By

Washington Post Staff Writer Monday, July 20, 2009

NEW YORK — The low-slung cubicles wrap around the ninth floor of a building three blocks from Wall Street, each manned by a young staffer staring at flashing numbers on a flat-screen computer monitor and working the phones to gather the latest chatter from financial markets around the world.

It could be any investment bank or hedge fund. Instead, it is the markets group of the Federal Reserve Bank of New York, which has been on the front lines of the government’s response to the financial crisis. Federal Reserve and Treasury Department officials make the major decisions, but the New York Fed executes them. The information gathered there provides crucial insights into the financial world for top policymakers. But the bank is so close to Wall Street — physically, culturally and intellectually — that some economic experts worry that the New York Fed puts the interests of the financial industry ahead of those of ordinary Americans. “The New York Fed sticks out as being not just very, very close to Wall Street, but to the most powerful people on Wall Street,” said Simon Johnson, an economist at MIT. “I worry that they pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively.” Even some former insiders at the Fed say the bank does not pay enough attention to the fundamental flaws in the country’s financial system or to the risks associated with bailing out financial firms — for instance, the chance that banks will be encouraged to take more unwise gambles. These experts worry that the New York Fed has adopted the mindset of a trading floor: well attuned to ripples in financial markets but not to long-term trends and dangers. Last month, for instance, Wall Street bond traders wanted the central bank to ramp up its purchase of Treasury bonds, which would help the traders by driving up prices. But Fed officials in Washington and around the country concluded that such a move would be counterproductive in the longer run, in contrast to some New York Fed staffers, whose views more closely mirrored those on Wall Street. New York Fed employees “play a very valuable role, day in, day out, with detailed contacts with the big financial firms,” said William Poole, a former president of the Federal Reserve Bank of St. Louis who is now at the Cato Institute. “What I think is missing is a longer-run perspective. They tend to be sort of short-term in their outlook, which is true of a lot of the financial firms. Traders have a horizon of a few hours or a few weeks, at most.” The New York Fed’s home is a fortresslike building, with bars securing the windows on lower floors. Its main lobby resembles a Gothic cathedral: dim, quiet, with stone walls, as if to inspire a mix of fear and awe. Like the other 11 regional Federal Reserve banks, the New York Fed is a curious mix of public and private, part of a system Congress created in 1913 to avoid concentrated power in Washington or New York alone. Its board of directors is composed of bankers, businesspeople and community leaders, who select the bank president with approval from Fed governors in Washington. Banks in New York, Connecticut and parts of New Jersey own shares in the New York Fed, though its profits are returned to the U.S. Treasury. The man in charge is a soft-spoken economist named William C. Dudley, who took over as president in January, replacing Timothy F. Geithner when he became Treasury secretary. With a proclivity for button-down Oxford shirts and rumpled suits, Dudley does not fit the mold of a Wall Street executive. He has won fans across the Federal Reserve System for a collaborative style, as well as a talent for explaining complicated problems in the financial world and drawing up solutions to them. It is his résumé that alarms some critics, who see an example of a too-cozy relationship between financial firms and their lead regulator. One of several bank officials who have worked in the private sector, Dudley was at Goldman Sachs for two decades, including 10 years as chief economist, before joining the New York Fed in 2007. Some Fear N.Y. Fed Too Influenced by Wall Street – Washington Post
Posted by Brian Schuettler at 10:21 am  

We’ve Wiped Out All The New Jobs Of The 21st Century

 A Growing List Of One Term Presidents, A Picture Is Worth A Thousand Words, A State of Distress, Back to the basics, Coming Social Unrest, Deflation-Inflation-Stagflation, Our phony middle class, PANDEMIC, Patience is a virtue...Delusion is a vice, The End of American Capitalism As We Know It? - Discuss, The Global Economy, The Importance of Strategic Planning, The New American Socialism  No Responses »
Jul 102009
 

What’s the best way to express just how bad the job market is? You could look at the soaring unemployment rate, or perhaps the ever-shortening work week. How about this: Total nonfarm payrolls, notes economist James Hamilton, are now back to where they were in mid 2000, and in a few months they’ll certainly be back to pre-2000 levels. 21st century job creation: gone.

All Jobs Created in the 21st Century Are Now Gone – Clusterstock

Posted by Brian Schuettler at 10:18 am  

The end of the recession will merely be the start of a long, painful journey, says Edmund Conway.

 Important Skills - No Apprentice Programs, Insolvency, Integrity and Responsibility, Let's Call What It Is - DEPRESSION, Negative Cash Flow, No Bank Is Indispensable, Our phony middle class, Patience is a virtue...Delusion is a vice, The Importance of Strategic Planning, The New American Socialism, The Sorry State Of American Manufacturing, Truth In Charity  No Responses »
Jul 092009
 

t’s a game of far more than two halves: more tactical than cricket, more stomach-churning than boxing and more complex than bridge. Throughout a magnificent summer of sport, one competition has lasted longer than any other, and generated the most heated debate. Its goal? To guess when the recession will end.

Every week, it seems, has brought new economic indicators, good or bad. Indeed, the whole thing has recently descended into farce: first, economists were tripping over themselves to declare that we were heading for a “V-shaped” recovery, in which we soared out of the downturn at speed. Then they realised that the economy had contracted in the first three months of the year at the fastest rate since, most probably, the 1930s (the quarterly figures don’t go back that far), and started talking about “double dips”.

When Recovery Comes, It Won’t Feel Like It – Ed Conway, Daily Telegraph

Posted by Brian Schuettler at 8:30 am  

American Socialist State

 Coup d'etat in America, History of Finance, It Is Nice To Be Part of the Elite!, Libertarianism - the Debate, Our phony middle class, Political Chaos, The New American Socialism  No Responses »
Jul 072009
 

President Obama’s visit to Moscow this week may turn out to be a very good thing. Forget all this jibber-jabber about nuclear disarmament.

There is no better reminder than the former Soviet Union for how the fantasies of a few collectivist zealots can turn into unending nightmares for its people — and for how a state-run economy ends up with no economy at all.

If we’re lucky, a little Russian history on this trip will turn into a welcome wake-up call for Mr. Obama.

It’s not that Mr. Obama is some radical who carries a warm nostalgia for the Soviet Union from his university days. He’s way too young and too smart for that.

But the president believes in the state, certainly more than any other recent American president. He believes the state must actively intervene in the economy and that the state can bring about a better future. And it seems he believes it is his destiny to lead the state to that future.

In that way — and others — Obama reminds me of Vladimir Lenin, the founder of the Soviet state.

CNBC’s Jim Cramer made the Obama-Lenin comparison back in February. And the more I’ve thought about it, the more it holds.

lenin0706_E_20090706121627.jpgAssociated Press

A painting made during the Russian Revolution, showing Vladimir Lenin surrounded by revolutionaries, date unknown.

Of course, Obama is a reformer, not a revolutionary. And he’s certainly no communist.

But just like Lenin, Obama is a supremely self-confident leader — an intellectual heavyweight and a clever political tactician — an elitist moralizer and a populist champion. And just like Lenin, Obama carries the true-believers’ righteous fervor for “change.”

I was thinking of Lenin as I watched the president’s Rose Garden remarks on energy and innovation last Thursday.

After his eight minutes in front of the teleprompter, the president turned to walk away, and a reporter blurted out a question, “Mr. President, do you have a message for the small businesses on health and economy?”

The president should have just walked away. But it was as if he couldn’t stop himself as he launched into a rambling, haughty answer that I found…well, a bit scary.

It was scary because it demonstrated that Mr. Obama — almost half a year in office — still has no grasp of the everyday realities faced by America’s small businessmen. They can’t make payroll, but the president is directing them to buy LED lightbulbs and urging them to contact “clean energy” CEOs.

And it was scary because it showed that the president is still possessed by an unshakable conviction in the power of the state over the individual and of the future over the past.

As he put it in the Rose Garden, we have to change the health-care system. We have to change how we use energy. We have to change how we “train our young people.” “We are not folks who are scared of the future or look backwards. We always meet the challenges by moving forward.”

Political clichés? Of course.

But the president seems to actually believe his clichés. And some of his Rose Garden remarks could have been lifted from Lenin’s speeches circa 1918 – the same hectoring tone and the same mockery of opponents who long for the “status quo”.

Even Mr. Obama’s call to move “forward.” “Forward!” in fact was one of the Soviets’ favorite slogans.

The good news for those of us who are a little freaked out by Mr. Obama is that even Lenin did an about-face after the utter failure of his initial hard-left economic policies.

By early 1921, faced with the ruin and famine wrought by nationalization of the economy, the Bolsheviks re-instituted a quasi-capitalist economy with its New Economic Policy. Ironically, the NEP was aimed to help small businessmen — the very same people that the Obama economy so desperately needs nowadays.

Lenin called the NEP taking “one step backward to take two steps forward.” While he’s in Moscow, President Obama may want to ask someone at the Kremlin, just what Lenin meant by that.

Editor’s Note: Mr. Newmark was a student in Moscow in 1984, worked with George Soros on Russian economic reform in 1988-89 and ran the Goldman Sachs Moscow office from 1992-1994.

Why Barack Obama Is Like Vladimir Lenin – Evan Newmark, Deal Journal

Posted by Brian Schuettler at 9:16 am  

 Permalink  AIG and all that....., The End of American Capitalism As We Know It? - Discuss, The Financial Elite, The Joy of Being A Bank, The New American Socialism, Who Guarantees the Guarantor?-You Do!  No Responses »
Jul 012009
 

How a Loophole Benefits GE in Bank Rescue

Industrial Giant Becomes Top Recipient in Debt-Guarantee Program

General Electric Co. CEO Jeffrey Immelt, center, is applauded by Michigan Gov. Jennifer Granholm during a news conference Friday, June 26, 2009, in Birmingham, Mich. Immelt announced GE will build a $100 million manufacturing technology center in Michigan that will eventually employ more than 1,100 workers. At right is Ed Montgomery, President Barack Obama's director of recovery for auto communities and workers. (AP Photo/Carlos Osorio)

General Electric Co. CEO Jeffrey Immelt, center, is applauded by Michigan Gov. Jennifer Granholm during a news conference Friday, June 26, 2009, in Birmingham, Mich. Immelt announced GE will build a $100 million manufacturing technology center in Michigan that will eventually employ more than 1,100 workers. At right is Ed Montgomery, President Barack Obama’s director of recovery for auto communities and workers. (AP Photo/Carlos Osorio) (Carlos Osorio – AP)

ProPublica and Washington Post Staff Writer
Monday, June 29, 2009

General Electric, the world’s largest industrial company, has quietly become the biggest beneficiary of one of the government’s key rescue programs for banks.

How a Loophole Benefits GE in Bank Rescue – Washington Post

Posted by Brian Schuettler at 9:03 am  

Socialized Medicine Through the Eyes of a Recipient

 A Growing List Of One Term Presidents, Coming Social Unrest, Health Care Crisis-The Discussion, Our phony middle class, The New American Socialism  No Responses »
Jun 262009
 

President Obama’s public health plan, if passed by Congress, would drive America inevitably towards a single-payer system in which all health-care payments are made by “the government,” that is, the taxpayers.

My family and I, originally from England, have experienced the single-payer system first-hand. Our experience teaches that it would radically change the standard of American medicine-for the worse.

National Health Through a Recipient’s Eyes – Diana Furchtgott-Roth, RCM

Posted by Brian Schuettler at 6:07 am  

The Dollar’s New Best Friend

 China and the Treasuries - A Dependency Relationship, Our phony middle class, The Global Economy, The Importance of Strategic Planning, The New American Socialism, The Sorry State Of American Manufacturing, US Trade Imbalance, We Have Become Beggars To The World  No Responses »
Jun 262009
 

Last Tuesday, Brazil, Russia, India, and China–the so-called BRIC nations–met in Yekaterinburg, Russia, for what was supposed to be an anti-American gabfest. The main agenda item for the first formal meeting of the four largest developing economies was the future of the dollar. In recent months, Beijing and Moscow have led a global charge against the greenback, and Brasilia has been a willing co-conspirator in the effort. The BRIC post-summit communiqué referred to the world’s currency problems but, to the surprise of observers, did not attack the dollar head on.

What happened? Beijing, apparently, stopped the other nations cold. The Chinese called the tune at the Moscow meeting–their economy is almost as large as the other three combined–and so the surprisingly nonconfrontational tone of the BRIC official statement mirrored Beijing’s recent climbdown on the currency issue.

The Chinese government in the last few weeks seems to have radically changed its tune on this issue. In March, Zhou Xiaochuan, the head of China’s central bank, called for the replacement of the dollar as the world’s reserve currency in a widely reported text released to the public. In May, however, Beijing officials took a different tack, going out of their way to talk about the dollar’s unique status.

Beijing: The Dollar’s New Best Friend – Gordon Chang, Weekly Standard

UPDATE:  1:28 PM EDT

China Reiterates Call for New World Reserve Currency

FROM BLOOMBERG:

June 26 (Bloomberg) — China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.

“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.

The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.

President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London. U.S. Treasuries were little changed with the 10-year yield at 3.53 percent.

‘Unlikely’ Shift

“It’s extremely unlikely the dollar will be replaced as the reserve currency,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “A currency needs to be internationalized and that requires a fully convertible capital account, which China doesn’t have. The second is that it needs to be adopted.”

At the end of 2008 the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the IMF in Washington.

On June 13, Russian Finance Minister Alexei Kudrin reassured investors of the country’s confidence in the greenback by saying it was “still early to speak of other reserve currencies.” Brazilian Finance Minister Guido Mantega said on June 10 the government’s decision to switch some reserves into IMF bonds wasn’t aimed at weakening the dollar.

Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show.

Diversifying Holdings

China has started to pare its holdings, trimming them by $4.4 billion to $763.5 billion in April, the first monthly reduction since February 2008, according to U.S. Treasury Department data. Figures for May have yet to be released.

“There may be signs here of tensions mounting between the PBOC’s economic concerns over China’s holdings of dollars and the Chinese government’s diplomatic reasons for doing so,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, wrote in an e-mail.

Russian President Dmitry Medvedev, Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva called for a “more diversified” monetary system to reduce dependency on the greenback at a June 16 meeting in the Russian city of Yekaterinburg. In May, China and Brazil began studying a proposal to move away from the dollar and use yuan and reais to settle trade instead.

Group of 20

Group of 20 leaders on April 2 gave approval for the IMF to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the agency uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest. This month, Russia and Brazil announced plans to buy $20 billion IMF bonds, while China said it is considering purchasing $50 billion.

“Special drawing rights of the IMF should be given full play, and the international body should manage part of its members’ reserves,” the central bank report said.

IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take the “revolutionary” step of making SDRs a reserve currency over time.

SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.

Widening the Basket

The value of SDRs are based on a basket of currencies, shielding them from swings in a single currency. One SDR is valued at $1.54. China is proposing the basket be broadened. The current weighting is: 44 percent for the dollar, 34 percent for the euro and 11 percent each for the yen and the pound. It doesn’t include the yuan.

The dollar’s dominance of global finance buffeted developing nations last year. Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all but the safest, most easily traded assets, such as Treasuries and the dollar. A shortage of the U.S. currency forced central banks to pump reserves into their economies.

“The excessive reliance on the credit of several sovereign currencies have added to the extent of risks and crises,” the central bank report said. “A currency with stable value in the long term is required.”

Last Updated: June 26, 2009 08:35 EDT

Posted by Brian Schuettler at 5:49 am  

No Exit: FOMC Remains on Hold

 The Economics of Schumpeter, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Importance of Strategic Planning, The New American Socialism  No Responses »
Jun 262009
 

THE FEDERAL RESERVE IS NOT PROVIDING HINTS about any exit strategy from its policy easing.

Following its two-day policy meeting, the Federal Open Market Committee Wednesday reaffirmed its rock-bottom 0%-0.25% federal-funds rate target and its plans to purchase up to $1.75 trillion of Treasury, agency and mortgage-backed securities.

But for bond-market vigilantes looking for Bernanke & Co. to set a timetable to begin to reverse their policy of aggressive credit easing, it was a disappointment. Treasury yields ticked higher.

Since the FOMC’s previous meeting on April 29, the Fed’s policy-setting panel noted, “Conditions in financial markets have generally improved in recent months,” a nod to the sharp rallies in the equity and corporate fixed-income markets, both investment-grade and high-yield.

The Committee also noted, “The prices of energy and other commodities have risen of late.” That was a reversal from the observation at previous meetings that “inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.” In other words, the dreaded D word, deflation.

But the FOMC was quick to add this time: “However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.”

Indeed, by pointing out that “economic activity is likely to remain weak for a time,” the monetary authorities clearly signaled their policy stance remains on hold for “an extended period.” The panel’s vote on the policy action was unanimous, as it was at the April meeting.

While the Fed did not lay out any exit strategy for its current program of aggressive easing to combat the worst credit contraction since the Great Depression, it left itself some wiggle room to reassess its program of securities purchases.

“The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted,” a slightly more definite and less-conditional tone than it took in the previous statement.

That could be significant should the central bank decide to alter the mix of its securities purchases, which currently are projected to consist of $1.25 trillion of agency MBS and $200 billion of agency debt purchased by the end of the year and $300 billion by autumn. Given the rise in mortgage rates, the Fed might want to tilt more to MBS purchases to try to bring down the cost of loans for home purchases and refinancings, which have been flagging in recent weeks.

Even with the Fed’s acknowledgement that “the pace of economic contraction is slowing” — a far cry from a recovery — the financial futures markets continue to put better than two-to-one odds on a rate hike by year’s end.

The December fed-funds futures contract puts a 69% probability on a half-point hike in the current funds target at the Dec. 15-16 FOMC meeting, unchanged from Tuesday, Dow Jones Newswires reports. The February 2010 contact fully prices a half-point hike for the Jan. 26-27 meeting.

Yet, the overall outlook for Fed policy remains unchanged among economists.

The Fed Offers No Hints on an Exit Strategy – Randall Forsyth, Barron’s

Posted by Brian Schuettler at 5:43 am  

Optimism Is Contagious

 Death of the Dollar, History of Finance, The End of American Capitalism As We Know It? - Discuss, The New American Socialism  No Responses »
Jun 242009
 

Diane Francis, Financial Post Published: Monday, June 22, 2009

American opponents to President Barack Obama’s announced reregulation of the financial sector are billing the issue as capitalism versus socialism or even communism.

It is not the case. This is not the economic version of the Cold War, and the search for a new architecture does not mark the death of capitalism.

In fact, free enterprise was nearly murdered by Wall Street, AIG and other reckless financial institutions. They did not meet their defined responsibilities. They bent the law to bypass rules governing their behaviour. Many of them abandoned traditional banking and got into the gaming business. And they brought the world to the brink in the fall.

The role of government is appropriate in the financial sector because of its importance to sustaining a healthy capitalist system. Banks, brokers, insurers and others are licensed by the government to benefit society by being astute gatekeepers to success. They deploy their own capital and savings from the public honestly by investing in worthy individuals and entities that will create wealth, then repay their loans.

Government’s role is necessary because these institutions, in turn, exist as a result of deposits from the public and shareholders’ money. They have a fiduciary obligation to responsibly use other people’s money for the benefit of all. The rules dictate who, what and how they lend or insure, as well as how they leverage.

But what Wall Street and the others did was lend, or insure, obscene amounts of money to inappropriate entities for inappropriate reasons without any market discipline. There were no clearing houses for the trillions in derivatives they created, no markets for them, no pricing mechanisms, no leverage restrictions, no capital allocation and no transparency or proper accounting.

They were not players in a free-enterprise system, but were gamblers rigging the system for their own benefit.

America’s financial punters sank the legitimate and regulated credit system. They collected upfront fees and played fast and loose with credit instruments; witness estimates that the notional value of credit default swaps and other risky “derivatives” could total up to US$600-trillion, or 10 times the world’s GDP.

Last fall, Washington was told by AIG and Lehman Brothers that the world had gone bust. Thanks to trillions in bank bailouts, and shotgun marriages, total collapse was averted.

Months later, there are positive signs. Consumer confidence has a pulse, at long last, though this has yet to translate into spending. Some 53 million people have lost their jobs worldwide and governments are in hock to the tune of trillions. Innocent victims include the world’s poorest nations and their citizens, including those who ran their fiscal and monetary houses in a responsible way.

Wall Street’s recklessness, and in some instances criminality, has destroyed credit, which continues to afflict third-party, real-economy businesses from Detroit (which already had problems) to retailers and most others.

The fix will take years, require international co-operation and wasn’t the fault of government or the rest of us. So the next time some Wall Streeter or financial-sector apologist is blabbing about how reregulation will kill capitalism, just remember it was capitalists, so-called “champions” in pinstripes, who nearly destroyed free enterprise by driving it into a wall.

Posted by Brian Schuettler at 5:01 am  

G8 signals the end of the financial crisis, but what caused it?

 AIG and all that....., Analysis & Commentary, If I Only Knew It Was This Easy!, Integrity and Responsibility, It Is Nice To Be Part of the Elite!, Management-Discussion, No Bank Is Indispensable, Our phony middle class, TARP fruit loops, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Joy of Being A Bank, The New American Socialism, Those Quarky Accounting Rules, Who Guarantees the Guarantor?-You Do!  No Responses »
Jun 172009
 

The weekend G8 communiqué, coming after four months of stabilisation in most financial markets, seemed to mark the official end of the financial crisis. If so, what lessons should be learnt for economic and financial policies in the months ahead? The history of the crisis in the next few paragraphs may not be the standard version presented by most commentators and economists, yet recent events suggest it to be a plausible account of what went wrong.

The blunders that produced last autumn’s financial crisis had nothing to do with the supposedly inflationary monetary policies of Alan Greenspan, or the fiscal profligacy of Gordon Brown, or with Mervyn King’s lack of practical market experience, or Hu Jintao’s mercantilist approach to currencies and exports. All these and many other factors contributed to the vulnerability of the world economy, but none of them would have been enough to cause its near-collapse last autumn. For that we can blame the unforced errors of a man almost forgotten since he slipped quietly out of office at the beginning of this year: Henry Paulson, the former US Treasury Secretary and ex-chairman of Goldman Sachs.

To understand how a localised financial problem in one segment of the US mortgage market turned into a near-collapse of the global financial system we need to recall Mr Paulson’s astonishing misuse of mark-to-market accounting standards to expropriate the shareholders of Fannie Mae and then to bankrupt Lehman Brothers. What made matters even worse was his inability to understand the systemic consequences of what he was doing. Anyone who doubts the importance of individuals in economic history should recall that the single worst day of last autumn’s entire financial crisis, as measured by the widening of risk spreads on interbank credit, was September 23. That was the day Mr Paulson appeared before the Senate Finance Committee to explain what he wanted to do with the $700 billion he had requested from Congress. This was the moment when everyone realised the world’s most powerful economic official did not know what he was doing.

Once the key role of personalities and financial policies is recognised, it is hardly surprising that things began to improve almost as soon as Mr Paulson was replaced by a competent Treasury Secretary, Tim Geithner. A collapse of share prices on Wall Street triggered by the Lehman bankruptcy in September ended the very day after President Obama responded to attacks on Mr Geithner’s personal probity by offering his unqualified support. A week later, the suicidal mark-to-market accounting regulations were dismantled. And it is no coincidence that the financial crisis, at least in America and Britain, effectively ended that week. From that point onwards, the US Government found itself collecting tens of billions of dollars in repayments from supposedly insolvent banks. Far from being forced to nationalise almost every bank and running out of money with which to refinance toxic assets, as predicted by panic-mongering Nobel Laureate economists, the US Treasury now finds itself almost embarrassed by the hundreds of billions of dollars it has budgeted for supporting a banking system that no longer needs state support.

Paulson Caused the Financial Crisis – Anatole Kaletsky, Times of London

Posted by Brian Schuettler at 4:58 am  

Forgetting What We Learned

 A State of Distress, Back to the basics, China and the Treasuries - A Dependency Relationship, Coup d'etat in America, Death of the Dollar, Deflation-Inflation-Stagflation, Global Trade, Insolvency, Interest Rates, Let's Call What It Is - DEPRESSION, Libertarianism - the Debate, Negative Cash Flow, Our phony middle class, Patience is a virtue...Delusion is a vice, Political Chaos, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Importance of Strategic Planning, The New American Socialism, The Rand Gene, The Sorry State Of American Manufacturing, Unemployment Catastrophe, US Trade Imbalance, Wage Deflation, We Have Become Beggars To The World  No Responses »
Jun 062009
 

ILLITERACY IN HIGH PLACES

by Paul Craig Roberts

If a person lives long enough, he can watch everyone forget everything they learned.

Everyone includes Federal Reserve Chairmen, economists, Bank of America “strategists,” and even Bloomberg.com.

Federal Reserve Chairman Ben Bernanke thinks he can hold down US long-term interest rates by purchasing mortgage bonds and US Treasuries. Sixty years ago the Federal Reserve understood that this was an impossible feat. After an acrimonious public dispute with the US Treasury, in 1951 the Federal Reserve forced an “Accord” on the government that eliminated the Fed’s obligation to monetize Treasury debt in order to hold down long term interest rates.

President Truman and Treasury Secretary John Snyder wanted to protect World War II bond purchasers by preventing any rise in interest rates, which would mean a decline in the price of the bonds.

The Fed understood that monetizing the debt to hold down interest rates meant loss of control over the money supply. The policy of suppressing interest rates could only work until the financial markets anticipated rising inflation and bid down the bond prices. If the Fed responded by buying more Treasuries, the money supply and inflation would rise faster.

Since Fed Chairman Bernanke announced his plan to purchase $1 trillion in mortgage and Treasury bonds in order to help the housing market with low interest rates, interest rates have risen. When will the Fed remember that printing money does not lower long-term interest rates?

According to Bloomberg (June 3), Bank of America strategists are recommending that investors buy Fannie Mae bonds because the rise in interest rates means the Fed will ramp up its purchases in order to prevent rising interest rates from adversely impacting the struggling housing market. When will financial gurus remember that printing money does not lower interest rates?

Treasury Secretary Geithner is another economic incompetent. He told China that he stood for a “strong dollar,” but that China should let its currency appreciate relative to the dollar, which, of course, would mean a weaker dollar. He simultaneously told China that their investments in US Treasury bonds were safe.

His Chinese university audience, being economically literate, laughed at Geithner. It apparently did not dawn on the US Treasury Secretary that if Chinese money is rising in value relative to the US dollar, the value of Chinese investments in dollar-denominated US Treasury bonds is falling.

Congressional Democrats are proving themselves to be as stupid as the Republicans. According to the Associated Press, the Democrats have reached agreement to appropriate another $100 billion to continue the wars in Iraq and Afghanistan through the end of the year. What are the Democrats thinking? The federal budget for this year is already 50% in the red. Why add another $100 billion to the red ink, which has to be monetized, thus causing inflation, higher interest rates, and a weaker dollar.

The red ink that Washington is generating is a far greater threat to Americans than any foreign “enemies.”

The hubris is extraordinary. A bankrupt government that has to send its Treasury Secretary begging to China thinks it can spend limitless amounts in a futile effort to control the culture, mores, and political system of distant Afghanistan.

Posted by Brian Schuettler at 5:43 am  

Feeling the Squeeze, Exclusive Country Clubs Get the Common Touch

 A Saturday Break, Insolvency, Investment Portfolios, It Is Nice To Be Part of the Elite!, Let's Call What It Is - DEPRESSION, Our phony middle class, The New American Socialism  No Responses »
May 302009
 

Their standing dinner reservation at the country club is for 6:30 p.m., because at least that much never changes. Every Wednesday night, Charles and Mimi Cluss dress in pleated slacks and suit jackets and drive to the manicured playground where Uniontown’s elite have gathered for 101 years. It is like a “second home,” Charles says of the place where he finalized deals for his lumber company and hosted weddings for two daughters. Except on this night in mid-May, he no longer knows what to expect.

Tough times for the country club set. (WashingtonPost)

Posted by Brian Schuettler at 4:11 am  

It’s Official: Worst Recession in Five Decades

 Back to the basics, Coming Social Unrest, Coup d'etat in America, History of Finance, Insolvency, Integrity and Responsibility, Let's Call What It Is - DEPRESSION, Negative Cash Flow, Political Chaos, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Global Economy, The New American Socialism, Those Quarky Accounting Rules, Unemployment Catastrophe, US Trade Imbalance, Wage Deflation, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!  No Responses »
May 272009
 

This recession is now the worst since at least 1958, which is as far back as the index of coincident indicators stretches back.

The Conference Board reported today that the index, which is intended to measure how the economy is doing on an overall basis, slipped a little in April. The decline was smaller than in previous months, and two of the four indicators edged up, which could be taken as a sign that the economy is at least getting worse at a slower pace.

As I noted last month, the index was nearing the 5.6 percent decline that it experienced in the 1973-1975 recession. Now it is down 5.7 percent.

One way to put that into perspective is that the decline so far in this recession is more than the maximum falls combined in the two previous recessions, in the early 1990s and then in 2001.

“..the decline so far in this recession is more than the maximum falls combined in the two previous receptions, in the early 1990s and then in 2001.” (Floyd Norris)

Posted by Brian Schuettler at 8:11 am  

Out Of Control! Welcome to USAWagen

 Political Chaos, The Disappearing Car Makers, The Geithner Resignation Watch, The New American Socialism, Want To Buy A Car?  No Responses »
May 252009
 

In for a dime, in for a dollar. “The GMAC funding is an illustration of how rapidly the government effort to rescue the U.S. auto industry is escalating in cost and scope.” (WSJ)

GM Borrows $4 Billion From U.S. to Push Loans to $19.4 Billion
General Motors Corp., facing rising cash needs before a June 1 bankruptcy deadline, tapped $4 billion more in U.S. aid to push its total to $19.4 billion.

Posted by Brian Schuettler at 5:33 am  
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