- The US Federal Reserve’s Policy of printing
money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy. - Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to "credit easing". "We hope there will be a change in monetary policy as soon as they have positive growth again," he said.
- "If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so
Boomergeddon
by ilene - October 29th, 2010 2:11 pm
Book Review: Boomergeddon
Courtesy of JOHN RUBINO of Dollar Collapse
The trouble began in the early 1980s, when we baby boomers entered our 30s and began molding the world in our own image. You can graph the spreading darkness from that point, as US debt, the number of government employees, the trade deficit and virtually every other measure of societal pathology inflected upward. Our generation, says James Bacon, a Virginia writer and magazine publisher, will go down in history as the one that ended the American empire — along with the retirement dreams of pretty much everyone everywhere.
Full disclosure: I’ve known Jim Bacon ever since I wrote for one of his magazines back in the 1980s. He was one of my favorite editors, both because he had a light touch and because he almost always saw the real story behind the noise and opinion. So I expected his new book, Boomergeddon to be both easy to read and incisive, and he’s succeed on both counts. Here’s a representative excerpt from the intro:
When you wake up 20 years from now, shaking your head of thinning white hair (those of you who have hair), groping for your bifocals, and feeling all out of sorts because your “golden” years have become as shopworn as cheap costume jewelry, you’ll know whom to blame. Just look in the mirror and take a long hard look at the miscreant who failed to save enough money, despite abundant warnings that retirement would be very, very expensive. Then head to East Capital Street, N.E./ Washington, D.C., where you can accost any member of the 535 members of Congress who, through successive decisions more short-sighted than your own rheumy eyeballs, racked up mountains of debt, presided over the disintegration of the United States retirement safety net, and ruined whatever shot you had at living an old age where the words “happy,” “carefree” and “solvent” applied.
Bacon’s main point early on is that the system has devolved to the point where it no longer matters who’s in charge. Each major party is run by a ruling class of lobbyists, bureaucrats and professional politicians who are beholden to a set of interest groups that demand higher spending and increased money printing. Each side blames the other for the mounting problems, so elections tend to be alternating landslides, as opposition candidates demonize incumbents, are given a chance to…
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The Age of Mammon
by ilene - August 30th, 2010 12:09 am
"Never have so few, done so little, and made so much, while screwing so many." Jim Quinn
Courtesy of Jim Quinn of The Burning Platform
The Age of Mammon
“Financiers – like bank robbers – do not create wealth. They merely distribute it. While the mob may idolize holdup men in good times, in the bad times it lynches them. What they will do to the new money men when their blood is up, we wait eagerly to find out.” - Mobs, Messiahs and Markets
As our economy hurtles towards its meeting with destiny, the political class seeks to assign blame on their enemies for this Greater Depression. The Republicans would like you to believe that Bill Clinton, Robert Rubin, Chris Dodd, and Barney Frank and their Community Reinvest Act caused the collapse of our financial system. Democrats want you to believe that George Bush and his band of unregulated free market capitalists created a financial disaster of epic proportions. The truth is that America has been captured by a financial class that makes no distinction between parties. These barbarians have sucked the life out of a once productive nation by raping and pillaging with impunity while enriching only them. They live in 20,000 square foot $10 million mansions in Greenwich, CT and in $3 million dollar penthouses on Central Park West.
These are the robber barons that represent the Age of Mammon. The greed, avarice, gluttony and acute materialism of these American traitors has not been seen in this country since the 1920′s. The hedge fund managers and Wall Street bank executives that occupy the mansions and penthouses evidently don’t find much time to read the bible in their downtime from raping and pillaging the wealth of the middle class. There are cocktail parties and $5,000 a plate political “fundraisers” to attend. You can’t be cheap when buying off your protection in Washington DC.
Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also. No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You…
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The Low-Interest-Rate Trap
by ilene - August 20th, 2010 12:41 am
The Low-Interest-Rate Trap
Courtesy of John Rubino of Dollar Collapse
Pretend for a second that you recently retired with a decent amount of money in the bank, and all you have to do is generate a paltry 5% to live in comfort for the rest of your days. But lately that’s been easier said than done. Your money market fund yields less than 1%. Your bond funds are around 3% and your bank CDs are are down to half the rate of a couple of years ago. Stocks, meanwhile, are down over the past decade and way too volatile in any event. If you don’t find a way to generate that 5% you’ll have to start eating into capital, which screws up your plan, possibly leaving you with more life than money a decade hence.
Now pretend that you’re running a multi-billion dollar pension fund. You’ve promised the trustees a 7% return and they’ve calibrated contributions and payouts accordingly. But nothing in the investment-grade realm gets you anywhere near 7%. If you come up short, the plan’s recipients won’t get paid in a decade or – the ultimate horror – you’ll have to ask the folks paying in to contribute more, which means you’ll probably be scapegoated out of a job.
In either case, what do you do? Apparently you start buying junk bonds. According to Saturday’s Wall Street Journal, junk issuance is soaring as desperate investors snap up whatever paper promises to get them the yield they’ve come to depend on. Here’s an excerpt:
U.S. companies issued risky “junk” bonds at a record clip this week, taking advantage of keen investor appetite for returns amid declining interest rates and tepid stock markets.
The borrowing binge comes as the Federal Reserve keeps interest rates near zero and yields on U.S. government debt are near record lows. Those low rates have spread across a variety of markets, making it cheaper for companies with low credit ratings to borrow from investors.
Corporate borrowers with less than investment-grade ratings sold $15.4 billion in junk bonds this week, a record total for a single week, according to data provider Dealogic. The month-to-date total, $21.1 billion, is especially high for August, typically a quiet month that has seen an average of just $6.5 billion in issuance over the past decade.
For the year, the volume of U.S.
…
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Consumer Credit: Yuck
by ilene - June 9th, 2010 12:09 pm
Consumer Credit: Yuck
Courtesy of Karl Denninger at The Market Ticker
There’s nothing here that I like:
Consumer credit increased at an annual rate of 1/2 percent in April 2010. Revolving credit decreased at an annual rate of 12 percent, and nonrevolving credit increased at an annual rate of 7 percent.
Yeah yeah.
In dollars, non-revolving loans went from $1.5925 trillion to $1.602 trillion, an increase of $10 billion. But revolving (credit card) debt decreased $8 billion from $846.5 to $838.
The previous values were revised (negatively) as well.
To put this in chart terms in percentages:
Yeah, ok, the rate of change has leveled out in the credit card space and turned up a tiny bit in the non-revolving. But in dollars it looks like this:
Nice little hook there eh?
The consumer continues to say "screw that!" on more spending - especially spending that goes on plastic.
Believe whatever you want about the magic market pumpers, the numbers do not lie, and it appears the stock market is figuring it out too, with RTH (Retail Holders) down to just under 93 from $108 just a couple of months ago, a loss of 14%.
"Here it comes!"
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Fear, loathing, and the federal budget deficit
by ilene - February 12th, 2010 2:52 pm
Do deficits matter? Here, Tim Iacono takes issue with L. Randall Wray’s essay on why they don’t. What do you think? – Ilene
Fear, loathing, and the federal budget deficit
Courtesy of Tim Iacono at The Mess That Greenspan Made
L. Randall Wray looks at the differences between the federal budget and household budgets in this piece at New Deal 2.0 and comes away wondering what all the deficit fuss is about.
Whenever a demagogue wants to whip up hysteria about federal budget deficits, he or she invariably begins with an analogy to a household’s budget: “No household can continually spend more than its income, and neither can the federal government”. On the surface that, might appear sensible; dig deeper and it makes no sense at all. A sovereign government bears no obvious resemblance to a household. Let us enumerate some relevant differences.
1. The US federal government is 221 years old … There is no “day of reckoning”, no final piper-paying date for the sovereign government.
…
2. With one brief exception, the federal government has been in debt every year since 1776.
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3. With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression
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4. The federal government is the issuer of our currency … I don’t know any household that is able to spend by crediting bank deposits and reserves
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5. Some claim that if the government continues to run deficits, some day the dollar’s value will fall … But only a moron would refuse to accept dollars today on the belief that at some unknown date in the hypothetical and distant future their value might be less than today’s value
…
If the speaker claims that government budget deficits are unsustainable, that government must eventually pay back all that debt, ask him or her why we have managed to avoid retiring debt since 1837-is 173 years long enough to establish a “sustainable” pattern?
In the words of Michal Gold of The Big Chill, "I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex".
This is a pretty juicy one…
Surely there is wisdom in that…
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Seeing Through the Fog of Funny Money Policymaking
by ilene - December 11th, 2009 1:11 pm
Seeing Through the Fog of Funny Money Policymaking
Courtesy of Michael Panzner at Financial Armageddon
OK, let’s go through this one more time. Despite what we keep hearing from the politicians and moneymen, things are not getting better. Yes, we have seen the economic equivalent of a dead cat bounce — how could we not, given the trillions that have been thrown at the system — but it is simply not sustainable.
The reality is that we’ve just careened through decades of overborrowing and malinvestment, which created an array of dangerous imbalances and undermined our nation’s economic foundations. Now that the party is over, the wreckage is going to weigh on our prospects for years, if not decades.
Unfortunately, those who live in a bubble (i.e., Washington) or who’ve come to depend on them (e.g., Wall Street) have not seen through the fog of funny money policymaking. But as Bloomberg reports in "Americans Grow More Pessimistic on Economy, Nation’s Direction," the average Joe (and Jane) seem to have their eyes wide open when it comes to today’s depressing reality.
[Click on table to enlarge]
Americans have grown gloomier about both the economy and the nation’s direction over the past three months even as the U.S. shows signs of moving from recession to recovery.
Almost half the people now feel less financially secure than when President Barack Obama took office in January, a Bloomberg National Poll shows.
Those concerns have put consumers in a miserly mood as they head to the mall for holiday shopping, with half the country planning to spend less on gifts than last year and few buyers willing to run up credit-card debt for Christmas.
“The recession may be over, but the administration seems to be losing the battle when it comes to winning the hearts and minds of Americans,” says Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This is important because the spending of consumers is the main factor that will turn the economic recovery into a self- sustaining one.”
Obama yesterday addressed anxiety over the economy with a speech proposing new spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient.
Unemployment in November stood at 10 percent, a drop from 10.2 percent in
…
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UK Telegraph: China Alarmed by US Money Printing
by ilene - September 7th, 2009 5:27 pm
UK Telegraph: China Alarmed by US Money Printing
Posted by TraderMark at Fund My Mutual Fund
Considering the source – this is a quite sobering warning to America of what the Chinese are thinking. Nothing surprising as we have seen China up their stake in gold, sign bilateral currency agreements with other countries to avoid the dollar, purchasing hard assets to redeploy out of dollars, move their bond purchases to near term maturities and the like, but you can see in their words both a dismay at what we have done, and what they are slowly planning for in the long term. [Feb 13, 2009: FT.com - China to US: "We Hate You Guys"] [May 21, 2009: China Becoming More Picky About Debt]
Of course, as we have said many times – for now they are stuck with us, because any move to detach from the States or our bond market would destabilize both countries.
Also interesting to note the comments about bubbles in real estate [Aug 13, 2009: WSJ - In China, Land Prices Fan Bubble Fears] and stock market in China. [Jun 29, 2009: China Business News - $170B of Bank Loans Funneled into Stock Market] And unlike CNBC bulls, he reiterates all the world cannot rely on China to save them.
Via UK Telegraph
…
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Creative Destruction
by ilene - August 27th, 2009 3:57 pm
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Excellent, educational article, courtesy of Mish
Creative Destruction
Van Hoisington and Lacy Hunt have figured out what few others have, that excessive debt and falling asset prices have conspired to render the best efforts of the Fed impotent.
Please consider the Hoisington Second Quarter 2009 Outlook.
One of the more common beliefs about the operation of the U.S. economy is that a massive increase in the Fed’s balance sheet will automatically lead to a quick and substantial rise in inflation. [However] An inflationary surge of this type must work either through the banking system or through non-bank institutions that act like banks which are often called “shadow banks”. The process toward inflation in both cases is a necessary increasing cycle of borrowing and lending. As of today, that private market mechanism has been acting as a brake on the normal functioning of the monetary engine.
For example, total commercial bank loans have declined over the past 1, 3, 6, and 9 month intervals. Also, recent readings on bank credit plus commercial paper have registered record rates of decline. The FDIC has closed a record 52 banks thus far this year, and numerous other banks are on life support. The “shadow banks” are in even worse shape. Over 300 mortgage entities have failed, and Fannie Mae and Freddie Mac are in federal receivership. Foreclosures and delinquencies on mortgages are continuing to rise, indicating that the banks and their non-bank competitors face additional pressures to re-trench, not expand. Thus far in this unusual business cycle, excessive debt and falling asset prices have conspired to render the best efforts of the Fed impotent.
With that, we can safely add Hoisington to the small group of people who understand that Belief In Wizards Is Misguided. Continuing with a discussion from Hoisington:
The Complex Monetary Chain
The link between Fed actions and the economy is far more indirect and complex than the simple conclusion that Federal asset growth equals inflation. The price level and, in fact, real GDP are determined by the intersection of the aggregate demand (AD) and aggregate supply (AS) curves. Or, in economic parlance, for an increase in the Fed’s balance sheet to boost the price level, the following conditions must be met:
1) The money multiplier must be flat
…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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