Tue 2010-10-12 16:01 EDT

billy blog >> Blog Archive >> Iceland ... another neo-liberal casuality

...For a real world example of the benefits of adopting a floating, sovereign, currency we can look to Argentina....At the time of the 2001 crisis, the government realised it had to adopt a domestically-oriented growth strategy. One of the first policy initiatives taken by newly elected President Kirchner was a massive job creation program that guaranteed employment for poor heads of households. Within four months, the Plan Jefes y Jefas de Hogar (Head of Households Plan) had created jobs for 2 million participants which was around 13 per cent of the labour force. This not only helped to quell social unrest by providing income to Argentina's poorest families, but it also put the economy on the road to recovery. Conservative estimates of the multiplier effect of the increased spending by Jefes workers are that it added a boost of more than 2.5 per cent of GDP. In addition, the program provided needed services and new public infrastructure that encouraged additional private sector spending. Without the flexibility provided by a sovereign, floating, currency, the government would not have been able to promise such a job guarantee. Argentina demonstrated something that the World's financial masters didn't want anyone to know about. That a country with huge foreign debt obligations can default successfully and enjoy renewed fortune based on domestic employment growth strategies and more inclusive welfare policies without an IMF austerity program being needed. And then as growth resumes, renewed FDI floods in...sovereign governments are not necessarily at the hostage of global financial markets. They can steer a strong recovery path based on domestically-orientated policies -- such as the introduction of a Job Guarantee -- which directly benefit the population by insulating the most disadvantaged workers from the devastation that recession brings...

Billy Blog; blogs Archive; Iceland; neo-liberal casuality.

China Financial Markets Tue 2010-08-03 14:48 EDT

The capital tsunami is a bigger threat than the nuclear option

...China's ``nuclear option'', which has generated a great deal of nervousness among investors and policy-making circles in the US, is a myth, and what the US should be much more concerned about is its diametric opposite -- a tsunami of capital flooding into the country...All the major capital exporting countries...are eager to maintain and even increase their capital exports. But the balance of payments must balance, and all that exported capital must be imported somewhere else...As net capital exporters try desperately to maintain or increase their capital exports, and deficit Europe sees net capital imports collapse, the only way the world can achieve balance without a sharp contraction in the capital-exporting countries is if US net capital imports surge. And at first they will surge. Foreigners...will buy more dollar assets, including USG bonds, than before...the US trade deficit will inexorably rise as Germany, Japan and China try to keep up their capital exports and as European capital imports drop...This tsunami will bring with it a corresponding surge in the US trade deficit and, with it, a rise in US unemployment. It will also force the US Treasury to increase the fiscal deficit as more of the jobs created by its spending leak abroad...in the past massive capital recycling has usually been very good for asset markets. Might we see a surge in the US asset markets, at least until next year when Congress starts getting tough on the trade deficit?...

bigger threat; capital tsunami; China Financial Markets; nuclear option.

Sat 2010-07-24 16:13 EDT

Disequilibria: A Constant State Of Instability >> The Shadow Banking System

RueTheDay

What we saw from mid-2007 through early-2009 was a run on the shadow banking system. There were two primary channels by which the shadow banking system operated: the Money Market/Commercial Paper Channel and the Repo Channel...we have largely unregulated [money market funds (MMMFs)] taking deposits (largely withdrawable on demand and usually checkable) and making the equivalent of loans, in other words, acting as banks. Except that the MMMFs were not subject to much in the way of prudential regulation beyond some broad parameters that dictated what investments they could buy, did not have access to FDIC deposit insurance, and did not have lender of last resort access to the Fed's discount window. They were a disaster waiting to happen...Repos also became a very popular mechanism for raising funds in the pre-crisis days, with MMMFs becoming large buyers of repos (lenders) and the broker dealers becoming both buyers and sellers (borrowers and lenders)...during the crisis...the classic maturity mismatch situation...concerns about the quality of commercial paper...triggered by the collapse of Lehman...Without the traditional protection of deposit insurance and lender of last resort financing by the Fed, it turned into a full blown panic...Any meaningful financial reform must bring the shadow banking system out of the shadows. It must be treated as banking, and its institutions regulated as banks...

constant state; Disequilibria; instability; Shadow banks Systems.

naked capitalism Mon 2010-07-19 17:07 EDT

Is the SEC Settlement Really a Win for Goldman?

Tom Adams and Yves Smith

...Conventional wisdom in the financial media is that the settlement announced by the SEC over its lawsuit on a Goldman 2007 Abacus CDO is a home run for Goldman. But a closer reading suggests that Goldman's victory is qualified, and the enthusiastic press response is in large measure due to the firm's skillful manipulation of perceptions...it is hard to see how anything in the settlement, if affirmed, would be negative for private parties considering lawsuits against sellers of CDOs...we imagine potential CDO investors will be mightily encouraged that Goldman ended up returning the full amount of investment to the one true third party investor in the deal -- IKB...An investor considering bringing an action against a bank that sold them a CDO that failed (meaning virtually all 2006 and 2007 ``mezzanine'' CDOs) would probably be encouraged that a bank was required to pay such a large amount for making inaccurate statements about the true nature of the CDO...Plaintiffs who sue CDO sellers have good reason to be optimistic...The settlement thus tarnishes the popular myth that the subprime shorts were insightful outsiders who executed ``the greatest trade ever''...the SEC has demonstrated that investors in such a CDO can win a recovery as a result of such inaccurate statements.

Goldman; naked capitalism; SEC Settlement Really; Wins.

New Economic Perspectives Fri 2010-07-02 17:26 EDT

Europe's Fiscal Dystopia: The ``New Austerity'' Road to Neoserfdom

Michael Hudson

Europe is committing fiscal suicide -- and will have little trouble finding allies at this weekend's G-20 meetings in Toronto. Despite the deepening Great Recession threatening to bring on outright depression, European Central Bank (ECB) president Jean-Claude Trichet and Prime Ministers from Britain's David Cameron to Greece's George Papandreou (president of the Socialist International) and Canada's host, Conservative Premier Stephen Harper, are calling for cutbacks in public spending...It is a self-destructive logic. Exacerbating the economic downturn will reduce tax revenues, making budget deficits even worse in a declining spiral. Latvia's experience shows that the response to economic shrinkage is emigration of skilled labor and capital flight...A half-century of failed IMF austerity plans imposed on hapless Third World debtors should have dispelled forever the idea that the way to prosperity is via austerity. The ground has been paved for this attitude by a generation of purging the academic curriculum of knowledge that there ever was an alternative economic philosophy to that sponsored by the rentier Counter-Enlightenment...

Europe's Fiscal Dystopia; Neoserfdom; new austerity; New Economic Perspectives; Road.

Tue 2010-06-01 16:23 EDT

billy blog >> Blog Archive >> In the spirit of debate ...

Bill Mitchell

Readers of my blog often ask me about how modern monetary theory sits with the views of the debt-deflationists (and specifically my academic colleague Steve Keen). Steve and I have collaborated in the last few days to foster some debate between us on a constructive level with the aim of demonstrating that the common enemy is mainstream macroeconomics and that progressive thinkers should target that school of thought rather than looking within...hopefully, this initiative will broaden the debate and bring more people up to speed on where the real enemy of full employment lies...The modern monetary system is characterised by a floating exchange rate (so monetary policy is freed from the need to defend foreign exchange reserves) and the monopoly provision of fiat currency. The monopolist is the national government. Most countries now operate monetary systems that have these characteristics...the monetary unit defined by the government has no intrinsic worth...The viability of the fiat currency is ensured by the fact that it is the only unit which is acceptable for payment of taxes and other financial demands of the government.The analogy that mainstream macroeconomics draws between private household budgets and the national government budget is thus false. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts)... Taxation acts to withdraw spending power from the private sector but does not provide any extra financial capacity for public spending...As a matter of national accounting, the federal government deficit (surplus) equals the non-government surplus (deficit). In aggregate, there can be no net savings of financial assets of the non-government sector without cumulative government deficit spending...contrary to mainstream economic rhetoric, the systematic pursuit of government budget surpluses is necessarily manifested as systematic declines in private sector savings...Unemployment occurs when net government spending is too low. As a matter of accounting, for aggregate output to be sold, total spending must equal total income (whether actual income generated in production is fully spent or not each period). Involuntary unemployment is idle labour unable to find a buyer at the current money wage. In the absence of government spending, unemployment arises when the private sector, in aggregate, desires to spend less of the monetary unit of account than it earns. Nominal (or real) wage cuts per se do not clear the labour market, unless they somehow eliminate the private sector desire to net save and increase spending. Thus, unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save...Unlike the mainstream rhetoric, insolvency is never an issue with deficits. The only danger with fiscal policy is inflation which would arise if the government pushed nominal spending growth above the real capacity of the economy to absorb it...government debt functions as interest rate support via the maintenance of desired reserve levels in the commercial banking system and not as a source of funds to finance government spending...there is no intrinsic reason for...

Billy Blog; blogs Archive; Debate; Spirit.

Sat 2010-05-22 21:16 EDT

CFEPS Research - L. Randall Wray

L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City, a Senior Research Associate at the Center for Full Employment and Price Stability [CFEPS]...A student of Hyman P. Minsky while at Washington University in St. Louis where he earned his Ph.D. in economics (1988)...Professor Wray has focused on monetary theory and policy, macroeconomics, and employment policy. He is currently writing on modern money, the monetary theory of production, social security, and rising incarceration rates (Penal Keynesianism). He is developing policies to promote true full employment, focusing on Hyman P. Minsky's "employer of last resort" proposal as a way to bring low-skilled, prime-age males back into the labor force. Wray"s research has appeared in numerous books and journals...

CFEPS Research; L. Randall Wray.

Mish's Global Economic Trend Analysis Tue 2010-05-18 16:29 EDT

Canaries in Coalmine: China, Asia, not Participating in Euro Bailout Lovefest; Beginnings of China Credit, Real Estate Bust

Michael Shedlock

Is China a canary in the coalmine of an impending global slowdown, or is China simply overloved as a beacon of growth as it was in 2008? I think it's both. China's property and infrastructure bubbles are massive; that is for certain. Moreover, China's biggest export trading partner is Europe, just as Europe is headed for numerous austerity programs. While it's doubtful the European austerity programs bring deficits down to where they are supposed to be, those programs will for a while cause a decline in European spending along with much social unrest. Can China take a double whammy like this without overheating? I think not. And China will have to show things down, whether it wants to or not. ... The "China Story" that most of the world is in love with is nothing more than excess credit finding a home in malinvestments just as happened in the US.

Asia; Begins; canaries; China; China credit; coalminer; Euro Bailout Lovefest; Mish's Global Economic Trend Analysis; participated; real estate bust.

zero hedge Tue 2010-04-27 07:50 EDT

Janet Tavakoli: "President Obama - Bring Back Black"

William K. Black, a regulator during the dark days of the Savings & Loan Crisis, gave the most sensible testimony about the financial crisis heard in Washington so far.* Fraud thrives and spreads in a regulatory free, highly paid, criminogenic environment. Cheaters prosper driving honesty out of the market...It's time to bring back Black and resolute regulators like him. Our proposed "financial reform" bill is a sham, and the health of our society and our economy is at stake...

Black; bringing; Janet Tavakoli; President Obama; Zero Hedge.

Jesse's Café Américain Wed 2010-04-07 19:03 EDT

King World Interview with Andrew Maguire the Silver Market 'Whistleblower'

Jesse

"The Biggest Fraud in the World" I do not know what to think about this, except to just offer it up to you for your own information. I am disappointed, however, that only the blogs, and almost no one in the mainstream media, have bothered to cover this story and to speak to the principals, and to either debunk them, support them, or even consider what they have to say. This really is like the Harry Markopolos story, trying to get a hearing on the Madoff ponzi scheme, and being repeatedly ignored, intimidated, and discouraged in every way possible by the establishment, and even fearing for his life... I have now listened to this tape five times, carefully. It is a bombshell. This has to be dealt with, one way or the other. Bring it out into the light of day, and let the facts be known. This is either the equivalent of the fictionalized testimony on the order of the Salem Witch trials, or one of the most damning accusations of malfeasance in office against quasi-governmental agencies, and probably US officials, since Teapot Dome...

Andrew Maguire; Jesse's Café Américain; King World Interview; silver markets; Whistleblower.

THE PRAGMATIC CAPITALIST Tue 2010-03-09 18:04 EST

GURU OUTLOOK: PAOLO PELLEGRINI

TPC

This week's Guru Outlook brings you Paolo Pellegrini. Although he is not the most well known of investment gurus Pellegrini has built quite a name for himself in recent years...He says we are essentially papering over the problems with more debt. We are simply adding more debt to a debt-laden world while China adds more exports to a saturated market. He says the problems in Europe are a harbinger of these continuing issues. Thus far the massive stimulus has been successful in jumpstarting the global economy, but is nothing more than a temporary respite from the longer-term structural problems that remain...

GURU OUTLOOK; Paolo Pellegrini; pragmatic capitalists.

Jesse's Café Américain Thu 2009-12-17 09:56 EST

Treasury Cancels Plans to Sell Citi Stake After Failed Equity Offering Stings Shareholders

Jesse

The shareholders of Citigroup should be furious at the greedy and reckless actions of Citi's management in diluting their shares in order to obtain a freer hand in granting themselves fat bonuses. Tonight's equity offering failed to bring in a sufficient price, serving up a significant 20% discount to existing holders of the stock...Technically, Citi can pay back the TARP money from the proceeds. I wonder if they have the gall to do that and pay themselves bonuses this year to boot, which is the basis for this exercise in dilution in the first place. This shows the farce that the Obama financial reforms really are. Nothing has changed except that big bank losses were transferred to the public debt.

Failed Equity Offering Stings Shareholders; Jesse's Café Américain; Sell Citi Stake; Treasury cancels plans.

Wed 2009-12-16 15:41 EST

Steve Keen's DebtWatch No 31 February 2009: ``The Roving Cavaliers of Credit'' | Steve Keen's Debtwatch

``Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner-- and this gang knows nothing about production and has nothing to do with it.'' [Karl Marx] Marx's analysis of money and credit, and how the credit system can bring an otherwise well-functioning market economy to its knees, was spot on. His observations on the financial crisis of 1857 still ring true today...

31 February 2009; credit; Roving Cavaliers; Steve Keen's Debtwatch.

Thu 2009-11-19 10:14 EST

Business & Technology | Part two | WaMu: Hometown bank turned predatory | Seattle Times Newspaper

David Heath

What few people knew was that bank executives crafted a radical new business strategy in 2003 that was intended to boost profits. The new WaMu used huge sales commissions and misleading marketing to hawk risky and overpriced loans to borrowers. In short, WaMu became one of the nation's biggest predatory lenders. The strategy eventually failed, not only bringing down Washington Mutual but deceiving borrowers, costing thousands their homes. In particular, the bank promoted as its "signature loan" a complex product known as the option ARM. This adjustable-rate mortgage, much like a credit card, gave borrowers the choice of making low minimum payments. But that option didn't cover the interest and only dug them deeper into debt.

business; Hometown bank turned predatory; part; Seattle Times Newspaper; Technology; WaMu.

Jesse's Café Américain Fri 2009-10-23 09:53 EDT

The US Needs to Get Less Competitive

Jesse

The hobgoblin that is often used by the Wall Street banks is that if this or that reform is introduced, it will lessen their competitiveness, and their craftiest and most clever employees will leave the country to work for foreign banks. Is that supposed to be a threat? That sounds like a plan. And let them deduct the price of a one way coach class ticket... It is time for a real change, in most cases bringing back what was taken apart over the past twenty years...[jesse's reform proposals]

competitions; Jesse's Café Américain; needed.

zero hedge Fri 2009-10-23 09:05 EDT

Fitch Expects CMBS Loss Severity To Rise Markedly Next Year

As anyone who has spent even a day looking at securitization tranching or CDS trading will tell you, there are two critical components to any investment that involves risky fixed income: cumulative loss probability and loss severity...artificial delays in bringing the CRE market to fair value in terms of delinquencies and REOs going to foreclosures will simply result in much lower eventual recoveries...the temporary reprieves granted to many leveraged securities will come back to bite investors when defaults eventually pick up again, however with the result being loss rates which will be much higher than default expectations.

Fitch Expects CMBS Loss Severity; Rise Markedly; years; Zero Hedge.

Jesse's Café Américain Fri 2009-10-23 08:54 EDT

Preparing for the Next Crash: Now Is the Time

Jesse

The Extinction of Ethics in Finance -- The Fallout, by Greg Simmons: ...I could probably write an entire thesis about the utter abandonment of morality by today's so-called investment community. I mean, does everybody have to cheat each other to make a dollar? The subject literally brings into question the human thread that binds our social fabric together...

Crash; Jesse's Café Américain; prepared; Time.

zero hedge Sun 2009-10-11 16:45 EDT

Interview With A Mad Hedge Fund Trader

...Mad Hedge: Stay away from natural gas. The volatility will kill you. If you are a masochist, then buy it only when it's cheap, on big dips, in the $3/MBTU range. In the last three years, thanks to the new ``fracting'' technology used in oil shales, we have discovered a 100 year supply of natural gas sitting under the US, and the producers have not been able to cut back fast enough. So now we have a supply glut, and we are almost out of storage. This is what took us down from $13 to $2.40 in 18 months. The lack of hurricanes has not helped demand either. Producers have been cutting back like crazy, trying to balance supply and demand, with a breakeven point of $2. They need a cold winter to help bring things back into balance. If the industry gets organized, then gas can become the 20 year bridge we need, until energy alternatives kick in. That makes me a big supporter of the ``Pickens Plan.''

interview; Mad Hedge Fund Trader; Zero Hedge.

naked capitalism Sun 2009-09-13 15:35 EDT

Is economic boom around the corner?

Edward Harrison of Credit Writedowns

...growth underpinned by high debt accumulation and low savings can continue for a very, very long time. In the United States, by virtue of America's possession of the world's reserve currency, an increase in aggregate debt levels has been successfully financed for well over twenty-five years...it is wholly conceivable that we could experience a multi-year economic expansion on the back of renewed monetary and fiscal expansion...Marc Faber: ``Don't underestimate the power of printing money''...but NDK continues to ``disrespect the power of printing money. There are few transmission mechanisms to get that printed money into the real economy.'' pebird comments (paraphrasing Faber?): The US (and Europe) per capita wealth must be driven down to a global benchmark - that is what globalization means. Which is easier - bringing 800 million Chinese plus 500 million Indian workers up to Western standards or 400 million Western workers down to global standards?

corner; economic boom; naked capitalism.

Bruce Krasting Sat 2009-09-12 12:10 EDT

SSTF Shocker - $6B August Deficit

Bruce Krasting

The Social Security Trust Fund reported an August net deficit of $5.865 Billion. This is the largest monthly deficit in nineteen years...This deficit is now the seventh in the past twelve months. That pace has never been seen before...Social Security is the mother of all systemic risks. Even the debate on this topic brings risk. It will expose an additional $7 trillion unfunded liability. Another reason for holders of dollars to worry.

6B August Deficit; Bruce Krasting; SSTF Shocker.

Jesse's Café Américain Fri 2009-09-04 19:12 EDT

Hong Kong Bringing Its Gold Home From London

Jesse

"In the house of the wise are stores of precious treasure and oil, but a foolish man devours all he has." Proverbs 21:20 The People's Republic of China has been urging its citizens to convert some part of their savings into gold and silver, having recently liberalized the procedures by which individuals can obtain it. Hong Kong has built a new world class bullion vault, and is repatriating its gold reserves from the London Bullion Market Association (LBMA), where some speculate it had been committed for sale many times over. Hong Kong wishes to become its own regional Asia market maker for bullion metals. The rest of the world will rein in the Wall Street financial establishment, because the bankers have demonstrated an inability to manage their financial affairs...

Gold Home; Hong Kong Bringing; Jesse's Café Américain; LONDON.

ClubOrlov Wed 2009-08-26 14:22 EDT

That Bastion of American Socialism...the United States military

kollapsnik

Over the past few months the American mainstream chatter has experienced a sudden spike in the gratuitous use of the term "Socialist." It was prompted by the attempts of the federal government to resuscitate insolvent financial institutions. These attempts included offers of guarantees to their clients, injections of large sums of borrowed public money, and granting them access to almost-free credit that was magically summoned ex nihilo by the Federal Reserve. To some observers, these attempts looked like an emergency nationalization of the finance sector was underway, prompting them to cry "Socialism!" Their cries were not as strident as one would expect, bereft of the usual disdain that normally accompanies the use of this term. Rather, it was proffered with a wan smile, because the commentators could find nothing... ``Since the end of the Civil War, Americans have become accustomed to thinking of war as something that happens elsewhere, to other people. Thus, the news that the US is bombing this or that land, for no adequate reason, killing and maiming numerous civilians, produces in us neither the normal human reaction of revulsion, nausea and disgust, nor the conviction that we must take the fight to our own monstrous leaders, lest we too become monsters. Life under domestic military occupation might bring home some welcome realizations, and start Americans down the long road of atoning for the sins of their forefathers, who have run roughshod over much of the rest of the planet for far too long.''

American social; bastion; ClubOrlov; United States military.

Wed 2008-12-10 00:00 EST

Michael Hudson: The Obama Letdown

Michael Hudson: The Obama Letdown; public infrastructure investment brings vast windfall gains for well-located real estate

Michael Hudson; Obama Letdown.

Sun 2008-07-06 00:00 EDT

Bringing Down Bear Stearns: Politics & Power: vanityfair.com

Bringing Down Bear Stearns, by Bryan Burrough, vanityfair.com

Bear Stearns; bringing; com; political; Power; vanityfair.

Wed 2007-11-21 00:00 EST

Stabroek News

Financial Hypocrisy, by Joseph E. Stiglitz; "capital market liberalization brings instability, but not necessarily growth"; "while the current system may lead to unnecessary instability, and impose huge costs on developing countries, it serves some interests well"

Stabroek News.