PRAGMATIC CAPITALISM Mon 2010-08-23 19:11 EDT

SAY IT AIN'T SO JOHN....

TPC

I am saddened to say that John Hussman is worried about inflation and default in the USA. I guess the inflationistas and defaultiastas have made a substantial mid-season pick-up. Unfortunately, however, Mr. Hussman makes all the same claims that have driven these worrywarts astray for so many years. Specifically, Mr. Hussman is now discussing the inevitable ``collapse'' of the U.S. dollar due to Quantitative Easing...There is substantial historical evidence showing that QE is nothing more than an asset swap and has little to no impact on the real economy, inflation rates or currencies. Japan is again the best historical precedent...there is a long-term threat of inflation or that we have attempted to paper over many of our mistakes, however, there is very strong evidence showing that QE will not be the cause of a collapse in the dollar...

ain't; John; PRAGMATIC CAPITALISM; says.

Sat 2010-08-07 20:18 EDT

Wall Street's Big Win | Rolling Stone Politics

Matt Taibbi

...Obama and the Democrats boasted that the bill is the "toughest financial reform since the ones we created in the aftermath of the Great Depression" -- a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn't specifically involve radically undoing the Depression-era laws...What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy -- and then decided that it didn't have the stones to wipe out our country's one --dependably thriving profit center: theft...Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws -- commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark -- were reversed...Republican and Democratic leaders were working together with industry insiders and deep-pocketed lobbyists to prevent rogue members like Merkley and Levin from effecting real change...Geithner acted almost like a liaison to the financial industry, pushing for Wall Street-friendly changes on everything...Without the Volcker rule and the --Lincoln rule, the final version of finance reform is like treating the opportunistic symptoms of AIDS without taking on the virus itself. In a sense, the failure of Congress to treat the disease is a tacit admission that it has no strategy for our economy going forward that doesn't involve continually inflating and reinflating speculative bubbles...

Rolling Stone political; Wall Street's Big Win.

Thu 2010-08-05 19:31 EDT

Nassim Nicholas Taleb: The Regulator Franchise, or the Alan Blinder Problem

Nassim Nicholas Taleb

...former regulators and public officials who were employed by the citizens to represent their best interests can use the expertise and contacts acquired on the job to benefit from glitches in the system upon joining private employment...the more complex the regulation, the more bureaucratic the network, the more a regulator who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise...

Alan Blinder Problem; Nassim Nicholas Taleb; Regulator Franchise.

Mish's Global Economic Trend Analysis Tue 2010-08-03 12:11 EDT

Should China Dump Dollars for Commodities? What about the "Nuclear Option" of Dumping Treasuries? Can Global Trade Collapse?

Michael Shedlock

Every time there is a little blip by China in its purchasing or holding of US treasuries, hyperinflationists come out of the woodwork ranting about the "Nuclear Option" of China dumping treasuries en masse. Such fears are extremely overblown for several reasons...[Michael Pettis argues] the real problem is exactly the opposite of what most are ranting about: ``The problem facing the US and the world is not that China may stop purchasing US Treasury obligations. The problem is exactly the opposite. The major capital exporting countries -- China, Germany, and Japan -- are desperate to maintain or even increase their net capital exports, which are simply the flip side of their trade surpluses.'' ...If consumers decide to stop buying goods from China there is almost nothing China can do about it...Chinese exporters are already under severe price pressures...pray tell what is stopping a collapse in global trade? Nothing as far as I can see. It all depends on consumer attitudes. Certainly Bernanke and Congress will do their best efforts to get banks to lend and consumers to spend, it is by no means a certainty the Fed will succeed...consumer attitudes towards spending and debt will determine the global trade imbalance math...The result may be a collapse in global trade, not an inflationary event to say the least.

China Dumps dollar; Commodities; dumped Treasury; global trade collapsed; Mish's Global Economic Trend Analysis; nuclear option.

Wed 2010-07-21 10:26 EDT

Professor Jamie Galbraith's testimony to Deficit Commission | Angry Bear

1. Clouds Over the Work of the Commission. ... 2. Current Deficits and Rising Debt were Caused by the Financial Crisis. ... 3. Future Deficit Projections are Generally Based on Forecasts which Begin by Assuming Full Recovery, but this Assumption is Highly Unrealistic. ... 4. Having Cured the Deficits with an Unrealistic Forecast, CBO Recreates them with Another, Very Different, but Equally Unrealistic Forecast. ... 5. The Only Way to Reduce Public Deficits is to Restore Private Credit. ... 6. Social Security and Medicare "Solvency" is not part of the Commission's Mandate. ... 7. As a Transfer Program, Social Security is Also Irrelevant to Deficit Economics. ... 8. Markets are not calling for Deficit Reduction; Now or Later. ... 9. In Reality, the US Government Spends First & Borrows Later; Public Spending Creates a Demand for Treasuries in the Private Sector. ... 10. The Best Place in History (for this Commission) Would be No Place At All.

Angry Bear; deficit Commission; Professor Jamie Galbraith's testimony.

Minyanville Fri 2010-07-16 14:43 EDT

Intel Shows the 'Financialization' of Corporate America

Peter Atwater

To quote the company's own earnings headline: "Intel Reports Best Quarter Ever."While not taking anything away from the company's ability to deliver I'd strongly encourage readers to look at Intel's (INTC) balance sheet. To these eyes it's filled with financial assets...few have paid attention to what I term the "financialization" of corporate balance sheets, in which productive manufacturing assets have been increasingly replaced by various financial instruments, derivatives, and goodwill...because so much of corporate balance-sheet space is now a function of credit and market risk, financialization has created much tighter correlations to financial institutions than many currently think...And with corporate balance sheets more and more laden with financial instruments, it isn't just going to be product innovation that drives what earnings are ahead for companies like Intel.

Corporate America; Financial; Intel shows; Minyanville.

billy blog Fri 2010-07-02 18:17 EDT

A total lack of leadership

Bill Mitchell

Another G20 talkfest has ended in Toronto and the final communique suggests that the IMF is now back in charge...The line now being pushed is, as always, structural reform of product and labour markets -- which you read as deregulation and erosion of worker entitlements...They buy, without question the notion that ``(s)ound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt.'' But what constitutes ``sound fiscal finances'' is not spelt out. It is all fudged around what the bond markets will tolerate. But what the bond traders think is a reasonable outcome for their narrow vested interests is unlikely to be remotely what is in the best interests of the overall populace...A sovereign government is never revenue constrained because it is the monopoly issuer of the currency and so the bond markets are really superfluous to its fiscal operations. What the bond markets think should never be considered. They are after all the recipients of corporate welfare on a large scale and should stand in line as the handouts are being considered. They are mendicants. It is far more important that government get people back into jobs as quickly as possible and when they have achieved high employment levels then they might want to conclude the fiscal position is ``sound''...The G20 statement is full of erroneous claims that budget surpluses ``boost national savings'' when in fact they reduce national saving by squeezing the spending (and income generating capacity) of the private sector -- unless there are very strong net export offsets...The on-going deflationary impact on demand that persistently high unemployment imposes is usually underestimated by the conservatives...

Billy Blog; leadership; total lack.

Mish's Global Economic Trend Analysis Wed 2010-05-19 15:00 EDT

Retail Sales Rise: Where? Let's Take a Look; Expect Nothing Less Than Panic

Michael Shedlock

...To understand why the Advance Retail Sales report is completely bogus, we must first analyze the Census Bureau Methodology...The published numbers are based on "same store sales". Think about all the companies that have gone bankrupt. Take Circuit City for an example. Gone. The doors are closed. Some of those shoppers went to Best Buy where same store sales rose. Also remember that Best Buy and many other chains closed weak stores. The result: same store sales went up again. Government methodology for reporting retail sales is based on sampling stores in existence. It does not factor in stores not in existence but recently were. Nor does it handle closed stores when the chain is still doing business. Government reporting of retail sales is fatally flawed. To understand what is going on, all one has to look at actual tax data. Heard any rosy numbers from states about sales tax collections?

expectations; Let's take; looking; Mish's Global Economic Trend Analysis; panic; Retail Sales Rise.

mcclatchydc.com: Politics Thu 2010-05-06 14:10 EDT

Financial bill has big loophole for Wall Street, expert warns

A Columbia University expert in securities law urged Congress Tuesday to patch "a fundamental hole" in financial regulatory revamp measures by imposing a legal requirement that investment banks act in the best interests of their clients. "Conflicts of interest played a key role in causing and intensifying the 2008 financial crisis," law professor John Coffee told a panel of the Senate Judiciary Committee chaired by Pennsylvania Democratic Sen. Arlen Specter...

Big Loophole; com; experts warn; financial billed; mcclatchydc; political; Wall Street.

Fri 2010-03-19 20:42 EDT

Breaking the chain: The antitrust case against Wal-Mart

Barry C. Lynn (Harper's Magazine, July 2006)

...It is now twenty-five years since the Reagan Administration eviscerated America's century-long tradition of antitrust enforcement. For a generation, big firms have enjoyed almost complete license to use brute economic force to grow only bigger. And so today we find ourselves in a world dominated by immense global oligopolies that every day further limit the flexibility of our economy and our personal freedom within it...what should concern us today even more is a mirror image of monopoly called ``monopsony.'' Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer. Not all oligopolists rely on the exercise of monopsony, but a large and growing contingent of today's largest firms are built to do just that...today we have one of the best illustrations of monopsony pricing power in economic history: Wal-Mart...Wal-Mart has grown so powerful that it can turn even its largest suppliers, and entire oligopolized industries, into extensions of itself...the firm is also one of the world's most intrusive, jealous, fastidious micromanagers, and its aim is nothing less than to remake entirely how its suppliers do business, not least so that it can shift many of its own costs of doing business onto them. In addition to dictating what price its suppliers must accept, Wal-Mart also dictates how they package their products, how they ship those products, and how they gather and process information on the movement of those products...Rather than speed up the random motion and serendipitous collisions that have for so long propelled the American economy, Wal-Mart and other monopsonists are slowly freezing our economy into an ever more rigid crystal that holds each of us ever more tightly in place, and that every day is more liable to collapse from some sudden shock. To defend Wal-Mart for its low prices is to claim that the most perfect form of economic organization more closely resembles the Soviet Union in 1950 than twentieth-century America...

Antitrust case; break; chain; Wal-Mart.

Sun 2010-02-28 13:39 EST

America's Future: My Baseline Scenario | Ian Welsh

1) employment is not going to recover to pre-great recession levels for at least a generation, maybe more, in terms of % of people employed. The late Clinton economy is the best you or I will see in our working lives. 2) Politics will continue to be dominated by monied interests and that dominance will increase, rather than decrease. They will use their power to fight over the shrinking pie, rather than to increase it, and will make any real systemic restructuring of the economy essentially impossible. 3) a right wing ``populist'' will get in after Obama. Since the only sort of stimulus they can do is war stimulus, they will pick a war with someone. Who, I'm not sure. In economic terms they will have all the wrong solutions to various real problems... Americans will put off cutting the military, I think, till they've gutted virtually everything else. I expect the military will probably win the fight against financial interests when the moment comes, though we'll see...

America s future; Baseline Scenario; Ian Welsh.

Fri 2010-02-26 16:37 EST

Wall Street's Bailout Hustle : Rolling Stone

MATT TAIBBI

...The nation's six largest banks -- all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry -- set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007..."What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer...A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble? The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients...a brief history of the best 18 months of grifting this country has ever seen...

Rolling Stone; Wall Street's Bailout Hustle.

Thu 2010-01-07 19:54 EST

Conversation with John Rubino <<; Phil's Favorites -- By Ilene

John Rubino is the co-author, with GoldMoney's James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998)...``This is the end of a long era and the beginning of another that is not going to be nearly as nice.''...go to a coin dealer and buy some gold and silver coins and then store them in a safe place. And gold and silver mining stocks will go up if the dollar goes down...Clean tech is interesting...which of the twenty different possible clean tech sectors do you want to focus on first? ...The best of them is called smart grid....

conversations; Ilene; John Rubino; Phil's Favorites.

The Full Feed from HuffingtonPost.com Thu 2010-01-07 19:46 EST

D+7: Shock and Awe

Dennis Santiago, CEO, Institutional Risk Analytics

..the burning question, of course, is "will moving your money have an effect?" And by effect, I don't mean making a momentary political statement. I mean making a structural difference to the country's financial system. The answer is yes, and here's how..if the public shifts a small fraction of the nation's core deposit base into these institutions it magnifies the stabilizing effect on this portion of the financial system. That's provided the receiving bank is already in good shape, of course, and isn't saddled with other problems. That's why the listing tool we created for the MoveYourMoney campaign only shows the best of breed, to our best ability to identify who they might be. I

7; awed; com; D; full Feeds; HuffingtonPost; shocks.

Thu 2010-01-07 19:04 EST

Andy Xie: Why China and Japan Need an East Asia Bloc

By promoting ideas that lean toward Asia, DPJ's leadership is signaling that Japan wants less dependence on the United States. This position offers a hope for the future to Japanese people, whose economy has been comatose for two decades. Closer integration with Asian neighbors could restore growth in Japan...The best approach would be for China and Japan to negotiate a comprehensive FTA that encompasses free-flowing goods, services and capital. This task may appear too difficult, but recent changes have made it possible. The two countries should give it a try.

Andy Xie; China; East Asia Bloc; Japan needs.

Credit Writedowns Tue 2010-01-05 19:27 EST

The collapse of commercial real estate

The long-coming commercial real estate bust has arrived in the U.S. and elsewhere, a result of sky-high prices met by a severe downturn. Prices could only work in a best-case economic scenario and large busts are now coming (see my posts on Stuyvesant Town and Capmark Financial).

Collapse; commercial real estate; credit writedowns.

Calculated Risk Wed 2009-12-30 11:11 EST

Housing Leads the Economy, Existing Home Sales are Irrelevant

CalculatedRisk

...Residential investment is the best leading indicator for the economy. Residential investment will not recover rapidly because of the large overhang of existing vacant housing units. Existing home sales are largely irrelevant for the economy. ...The key to reducing the overall inventory is new household formation (encouraging renters to become owners accomplishes nothing in reducing the overall housing inventory). And the key to new household formation is jobs. And usually the best leading indicator for jobs is residential investment.

Calculated Risk; economy; Existing-Home Sales; housing Lead; irrelevant.

zero hedge Mon 2009-12-28 15:12 EST

Quantitative Easing Has Been A Monetary Failure; Persistent Deflation Means More Fed Intervention Coming Soon

As more and more pundits discuss the spectre of inflation, with gold flying to all time highs which many explain as an inflation hedge, not to mention stock price performance which is extrapolating virtual hyperinflation, the market "truth" as determined by Fed Fund futures and options is, and continues to be, diametrically opposite...Bernanke is very likely about to unleash Quantitative Easing 2: If the $1.7 trillion already thrown at the problem has not fixed it, you can bet that the Chairman will not stop here. Furthermore, as the Fed has the best perspective on the economy, which is certainly far worse than is represented, the Fed has to act fast before things escalate even more out of control. Which is why Zero Hedge is willing to wager that not only will the agency/MBS program not expire in March as it is supposed to, but that a parallel QE process will likely begin very shortly. The end result of all these actions, of course, is that the value of the dollar is about to plummet: when Bernanke announces that not only will he not end QE but that he will launch another version of the program, expect the dollar to take off on its one way path to $2 = €1. And when that happens, look for global trade to cease completely. In its quest to continue bailing out the banking system and rolling the trillions of toxic loans it refuses to accept are worthless (for if it did, equity values in the banking system would go, to zero immediately), the Fed will promptly resume destroying not only the US middle class, but the entire system of global trade built through many years of globalization. Look for America to end up in an insulated liquidity bubble in a few short years, trading exclusively with its vassal master: the People's Republic of China.

Fed Intervention Coming; Monetary Failure; Persistent Deflation Means; Quantitative Easing; Zero Hedge.

naked capitalism Tue 2009-10-27 12:18 EDT

Guest Post: Capitalism, Socialism or Fascism?

George Washington of Washington&apos;s Blog

What is the current American economy: capitalism, socialism or fascism? ...Nouriel Roubini writes ``We're essentially continuing a system where profits are privatized and...losses socialized.'' Nassim Nicholas Taleb says ``the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren.'' Nobel prize winning economist Joseph Stiglitz calls it ``socialism for the rich'' ...leading journalist Robert Scheer writes: ``What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ``financial fascism'''' ...Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because ``the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social'' ...one of the best definitions of fascism -- the one used by Mussolini -- is the ``merger of state and corporate power`` ...Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the causes of the S&L crisis and other financial meltdowns...[Looting is the] common thread [when] countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust...Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations ...Whether we use the terminology regarding socialism-for-the-giants (''socialized losses''), of fascism (''public and social losses''), or of looting (''left the government holding the bag for their eventual and predictable losses''), it amounts to the exact same thing. [kleptocracy] Great comments, including Joseph: Three core ideas characterize the myth of our society: 1. Free market; 2. Capitalism; 3. Democracy. The conceptual error that people make is to think that they are compatible, or indeed represent aspect of the same thing. In fact they are all deeply antagonistic towards each other. It is the miracle of post-war society that we managed to hold them in balance for so long. That balance has now been destroyed. A simple example of the contradiction, and the one that the over-socialised right finds most confusing, is the contradiction between capitalism and the market. Capitalism is a system of ownership; the market is a system of distribution. The perfect world for the capitalist is one in which they are price setters in terms of the commodities they produce and labour they employ -- ie a state of monopoly. Each individual capitalist seeks the destruction of the market. What has occurred over the past year is not corruption; it is the triumph of capitalism. The market and democracy have been defeated. Not socialism, not fascism,...

capitalism; Fascism; Guest Post; naked capitalism; social.

Jesse's Café Américain Thu 2009-09-17 09:39 EDT

"It has now become clear that this was no ordinary crash."

Jesse

Here is an informative piece on the banking crisis in Iceland...in all banking collapses of this sort, fraud and duplicity are always at the heart of it, as larceny is in most great fortunes through history. Investigating Icelandic banking collapse, Icelandic economist Jon Danielsson believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatize the banks in the early 1990s...the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree...Central banking IS an old boy's network. It is the best and biggest network of all. In this one, you actually get to print money...

becomes clear; Jesse's Café Américain; ordinary crash.

Jesse's Café Américain Sun 2009-09-13 12:21 EDT

Signs of an Approaching Decline in US Equities That Could Be Quite Impressive

Jesse

There is a strong correlation between this US equity rally and the Fed monetization of debt, which indicates a 'hot money' flow into US stocks but with thin volumes from a significant market bottom. This points to 'technical price trading' by the financial sector, also known was price manipulation, or trading stocks like commodities. Continued heavy insider selling from those with the best forward view of the real economy is a clear sign of a top. No one can trust what the Fed or the Administration are saying about an economic recovery, as much now as ever. Obama's administration is no reform government ...We will not be surprised if there is a significant decline, first to a pullback of about 7 to 10 percent. Then we will see if the market can rally on renewed dollar devaluation and if not, then another major slide to test lower levels.

Approaching Decline; Equities; impressive; Jesse's Café Américain; signed.