Wed 2010-08-04 20:48 EDT

Janet Tavakoli: Stranguflation: Deflation and Inflation Where it Hurts America Most

Janet Tavakoli

The U.S. is suffering from high unemployment combined with too much consumer debt in a weak economy...our bloated financial sector has been sucking the life-blood out of the U.S. economy for years, and recent decisions insure it will continue to feed off taxpayers, while the host economy struggles for life...The bailouts were a perversion of capitalism and the principles upon which The Republic was founded. This was the result of influential interested parties reaching into the U.S. Treasury with no accountability. Capitalism doesn't call for bailouts, instead investors take losses. Shareholders in failed financial institutions should have been wiped out, debt holders would have had to accept discounts combined with debt for equity swaps, and financial institutions would have then been recapitalized without taxpayers footing the bill. Instead banks lobbied for relaxed accounting and ineffective "financial reform." No one, including bank managers, can tell how much capital is truly needed, and taxpayers' ongoing heavy subsidies give these financial institutions the appearance of stability.

deflation; hurting America; Inflation; Janet Tavakoli; Stranguflation.

Tue 2010-08-03 14:34 EDT

Rajiv Sethi: The Economics of Hyman Minsky [2009-12-03]

There has been a resurgence of interest in the economic writings of Hyman Minsky over the past few years, and for good reason...Minsky's theoretical framework combines a cash-flow approach to investment with a theory of financial instability...expectations of financial tranquility are self-falsifying. Stability, as Minsky liked to put it, is itself destabilizing...An essential feature of Minsky's financial instability hypothesis is that a long period of sustained stability gives rise to changes in financial practices which are not conducive to the persistence of stable growth...A sustained period of stability gives rise to optimistic expectations and a rise in speculative financing...if a large number of investments which are prompted by the availability of speculative finance are found to be inept, so that immediate cash flows are significantly lower than expected, then the need for short-term refinancing becomes acute while at the same time banks are less willing to roll over existing debt. A sharp rise in short-term interest rates occurs which can lead to present value reversals, a rush towards liquidity, a plunge in the prices of illiquid assets, both real and financial, and a corresponding drop in new investments...described as a credit crunch, a state of financial distress, or a financial crisis...

2009-12-03; economic; Hyman Minsky; Rajiv Sethi.

Credit Writedowns Fri 2010-07-30 15:30 EDT

Subversive Economists

The economic research staff at the Federal Reserve Bank of New York has been busy. Last week we wrote about the New York Fed's Staff Report No. 458 , which discussed the shadow banking system in the United States. Today we refer to two other new reports: Staff Report No. 457 , entitled ``Resolving Troubled Systemically Important Cross-Border Financial Institutions: Is a New Corporate Organizational Form Required?'', and Staff Report No. 463 , ``The Central-Bank Balance Sheet as an Instrument of Monetary Policy.'' After reviewing them, we are left to conclude that these three papers demonstrate that the research staff at the New York Fed is perhaps the most subversive group of working economists currently on the government payroll....The combination of these three papers seems to suggest that the Federal Reserve is conducting a serious re-evaluation of its traditional role in the new financial landscape. No. 458 acknowledges that the shadow banking system is huge, but largely beyond the regulatory reach--and backstopping help--of the Fed. No. 457 suggests that the complexity of a large, modern financial institution is not only a challenge for managers, but is also a challenge for regulators. It is a cri de coeur for simplicity. And No. 463 breaks new ground by explicitly including central bank balance sheet management as a part of the monetary policy model...

credit writedowns; Subversive Economists.

Wed 2010-06-09 18:39 EDT

billy blog >> Blog Archive >> The comeback of conservative ideology

Bill Mitchell

Today I have been writing about the resurgence of the conservative ideology...Ever hear the term Ruthanasia? You should have because she is still at it berating us about the wrongs of fiscal policy and the need for radical reform. Ruth Richardson was New Zealand's minister of finance from 1990-93...As an historical episode ``Ruthanasia'' followed ``Rogernomics'' as increasingly radical reform programs that were inflicted on the New Zealand population from 1984 onwards -- for the next few decades...Unemployment became a policy tool (for disciplining inflation) rather than a primary policy target. The inflation-first monetary stance (and undemocratic reforms of the central bank) combined with a harsh fiscal policy contraction to drive up unemployment and significantly reduce per capita income...Successive right-wing governments (which not only included the conservatives but also the Lange Labour Party government which started it all) used the concept of a "strategic deficit". David Stockman, the budget director under President Reagan, was the person to coin this term which is taken to mean using a budget deficit as a "political weapon". The strategy was to hand out huge tax cuts to allegedly "incentivise" (the word that was used at the time) private entrepreneurs even though there has never been any convincing research evidence to suggest that there are major losses of activity arising from taxation. The resulting deficits were then paraded as evidence of the need for dramatic public spending cut backs...The experience of New Zealand during those years of being ruthanased by the free market zealots should serve as a warning to all of us...

Billy Blog; blogs Archive; comeback; Conservative ideology.

The Wall Street Examiner Sat 2010-05-22 19:56 EDT

Imagine There's No Credit Market: Another Look At German Controls

...Thus, when people speak of "rescuing the credit markets" they really mean to say rescuing the liquidity providers who failed to assess lending risks so profoundly they can't make required payments. When people talk of German restrictions killing the credit markets, they really mean killing the middle-men (which may or may not have a deleterious effect on government borrowing). German restrictions on certain types of equity and credit transactions are not aimed at reduced government borrowing. They are aimed at reducing the amount (and means of capture) of profit "earned" by middle-men in the transaction- profits, mind you, as per our model, in the case of government borrowing, come either as a result of the money's original owner getting less interest than a direct deal would generate, the government paying more interest (which only comes from higher tax revenues) than a direct deal would generate, or some combination thereof. ...liquidity providing actions of "credit market" middle-men has run amok. As per J.S. Mill, that credit markets are exerting a distinct and independent influence of their own means they are out of order. With increasing frequency, credit is mispriced or unwisely extended and liquidity, the raison d'être of these people, dries up when it is needed most. Yet the middle-men who fail in their tasks expect to be rescued from their failures, and given even more ways to profit from lending other people's money, while the pool of available savings shrinks. ...In one sense I'm quite happy about all of the financial sector bail-outs governments have provided these credit-market middle-men. Before the bail-outs, one had to argue that finance was like a tax on monetary exchange, now this point is clear, finance is, in fact, a tax- and a growing one at that.

credit markets; German-Controlled; imagine; looking; s; Wall Street Examiner.

Wed 2010-05-19 11:40 EDT

Community Development Job Guarantee

CofFEE - Centre of Full Employment and Equity

The Centre of Full Employment and Equity has developed a sustainable path to full employment, which it calls the Job Guarantee program. A major focus of our work is on articulating this program - explaining how it works, the urgency of it, and the reasons why it is the only way to achieve full employment with price stability, a combination that has evaded most economies in the last 25 years. Under the Job Guarantee policy, the government continuously absorbs workers displaced from private sector employment. The Job Guarantee employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure. CofFEE's latest work in this area has been developed into a proposal for a Community Development Job Guarantee (CD-JG) focussing on the long-term unemployed (people who have been unemployed longer than 12 months) and youth unemployed. These two groups have been targeted because of the severe economic and social costs that result as the period of unemployment lengthens, or when unemployment occurs at the beginning of a person's working life...

Community Development Job Guarantee.

Wed 2010-05-19 11:39 EDT

The Job Guarantee Program

CofFEE - Centre of Full Employment and Equity

The Centre of Full Employment and Equity has developed a sustainable path to full employment, which it calls the Job Guarantee program. A major focus of our work is on articulating this program - explaining how it works, the urgency of it, and the reasons why it is the only way to achieve full employment with price stability, a combination that has evaded most economies in the last 25 years. This is the Job Guarantee program resource page and you can read all about the solution to unemployment in the documents contained here...

Job Guarantee Program.

Jesse's Café Américain Thu 2010-05-06 13:44 EDT

Control Frauds HyperInflate and Extend Bubbles Maximizing Damage - A Control Fraud at Work in the Silver Market Short Positions?

Jesse

Here is a working paper by William K. Black about 'control frauds' and how they relate to the most recent credit crisis in the United States, a breakdown of stewardship that has placed the rest of the world's financial sector at risk as well...``Control frauds'' are seemingly legitimate entities controlled by persons that use them as a fraud ``weapon.'' A single control fraud can cause greater losses than all other forms of property crime combined. This article addresses the role of control fraud in financial crises. Financial control frauds' primary weapon is accounting. Fraudulent lenders produce exceptional short-term ``profits'' through a four-part strategy: extreme growth (Ponzi), lending to uncreditworthy borrowers, extreme leverage, and minimal loss reserves...

Control Frauds HyperInflate; controls Fraud; Extend Bubbles Maximizing Damage; Jesse's Café Américain; Silver Market Short Positions; working.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

zero hedge Mon 2009-12-21 19:54 EST

Cautionary Observations From A Chronological Analysis Of The S&P 500 Balance Sheet

...In essence the entire S&P is one big High Yield credit, and would likely be rated in the B2/B area by the rating agencies (assuming these had any credibility). As such, the cost of debt of the combined S&P if it were a standalone company would be around 7.5-8.5%. That it is currently much lower due to the Fed's intervention in the interest rate market is an aberration: look for cost of debt (and, by implication, overall capital) to spike broadly over the next several years, as normalcy (hopefully) returns. ...Both the return on assets (EBITDA/total assets) and return on equity (EBITDA/Shareholders' Equity) has plunged...companies are scrambling to beef up the asset side of their balance sheets even as debt continues to be a major threat. The problem, however, as this brief exercise has shown, is that incremental assets are of lesser and lesser quality (even assuming no major goodwill impairments in the future), and the actual cash they generate continues eroding.

Cautionary Observations; Chronological Analysis; P 500 Balance Sheet; s; Zero Hedge.

Calculated Risk Wed 2009-11-25 11:38 EST

Fannie Mae: $18.9 Billion Loss, Requests Another $15 Billion

CalculatedRisk

Press Release: Fannie Mae Reports Third-Quarter 2009 Results Fannie Mae (FNM/NYSE) reported a net loss of $18.9 billion in the third quarter of 2009, compared with a loss of $14.8 billion in the second quarter of 2009. ... Third-quarter results were largely due to $22.0 billion of credit related expenses, reflecting the continued build of the company's combined loss reserves and fair value losses associated with the increasing number of loans that were acquired from mortgage backed securities trusts in order to pursue loan modifications. ... As a result, on November 4, 2009, the Acting Director of the Federal Housing Finance Agency (FHFA) submitted a request for $15.0 billion from Treasury on the company's behalf.

15; 18; 9; Calculated Risk; Fannie Mae; losses; requesting.

Bruce Krasting Thu 2009-11-19 10:52 EST

FHFA's DeMarco Speaks - Ouch!

Bruce Krasting

FHFA's Acting Director Edward DeMarco provided written testimony to the Senate today. I would give his presentation a B+. There is little room for optimism in this story. Mr. DeMarco did not gloss that fact over. A few snips from that speech: -From July 2007 through the first half of 2009--combined losses at Fannie Mae and Freddie Mac totaled $165 billion. In the first half of 2009, Fannie Mae and Freddie Mac together reported net losses of $47 billion. -Since the establishment of the conservatorships, the combined losses at the two Enterprises depleted all their capital and required them to draw $96 billion. The combined support from the federal government exceeds $1 trillion. -The short-term outlook for the Enterprises remains troubled and likely will require additional draws...

Bruce Krasting; FHFA's DeMarco Speaks; Ouch.

Bruce Krasting Sat 2009-10-10 12:57 EDT

FHFA's DeMarco Speaks

Bruce Krasting

FHFA's Acting Director Edward DeMarco provided written testimony to the Senate today...From July 2007 through the first half of 2009--combined losses at Fannie Mae and Freddie Mac totaled $165 billion. In the first half of 2009, Fannie Mae and Freddie Mac together reported net losses of $47 billion. Since the establishment of the conservatorships, the combined losses at the two Enterprises depleted all their capital and required them to draw $96 billion. The combined support from the federal government exceeds $1 trillion. The short-term outlook for the Enterprises remains troubled and likely will require additional draws...

Bruce Krasting; FHFA's DeMarco Speaks.

Jesse's Café Américain Thu 2009-10-08 16:28 EDT

Gold: Until the System Is Reformed and Trust Is Restored

Jesse

Gold has obviously broken out of a big inverse Head and Shoulder formation, possibly an ascending triangle if you prefer that for reliability. In combination, as they often are, this is a powerful sign of buying pressure, accumulation and a sharp rise in price...despite the obvious efforts of the monied interests to disparage it publicly while accumulating it privately, is rising because the US dollar is being used badly, is being weakened by the failing schemes of a corrupt combination of the government and financial interests...gold is telling us...the era of the US Dollar as the world's reserve currency is over...

gold; Jesse's Café Américain; reform; restore; Systems; trust.

zero hedge Mon 2009-09-21 15:41 EDT

Federal Reserve Accounts For 50% Of Q2 Treasury Purchases

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases. This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs...

50; Federal Reserve Accountable; Q2 Treasury Purchases; Zero Hedge.

The Economic Populist - Speak Your Mind 2 Cents at a Time Mon 2009-09-21 14:33 EDT

Fed accounts for 50% of treasury purchases

There once was a time when the Federal Reserve abhorred the idea of monetizing debt. That day is long over. In the second quarter, the most recent for which data is available, the Fed bought $164 billion out of the $339 billion in net new Treasurys sold. In the mortgage-backed debt markets, the Fed has been buying upward of 80% of the bonds issued by agencies such as Freddie Mac and Fannie Mae. ZeroHedge helps to put this number into perspective: the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

50; economic populist; Fed Accountable; Mind 2 Cents; speaking; Time; Treasury purchases.

Wed 2009-09-16 19:19 EDT

Why Default on U.S. Treasuries is Likely | Library of Economics and Liberty

Jeffrey Rogers Hummel

Almost everyone is aware that federal government spending in the United States is scheduled to skyrocket, primarily because of Social Security, Medicare, and Medicaid. Recent "stimulus" packages have accelerated the process. Only the naively optimistic actually believe that politicians will fully resolve this looming fiscal crisis with some judicious combination of tax hikes and program cuts. Many predict that, instead, the government will inflate its way out of this future bind, using Federal Reserve monetary expansion to fill the shortfall between outlays and receipts. But I believe, in contrast, that it is far more likely that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal. Treasury default considered likely.

default; economic; liberties; libraries; likely; U. S. treasuries.

ClubOrlov Wed 2009-08-26 15:25 EDT

Local food: success is 100% possible

kollapsnik

This is a guest post from Tim, a city planner from sunny Moncton, NB. Tim has spent some time looking into the viability of local, small scale agriculture, and has come up with some results that give us every reason to be optimistic regarding our ability to feed ourselves through our individual and neighborhood-scale efforts, even as the systems of large-scale, industrial agriculture and food delivery unravel due to a combination of high input costs, epic droughts brought on by accelerating climate change, and a shortage of credit caused by the financial collapse. The remaining challenge is start doing it quickly enough: this summer, that is. "Russian households (inclusive of both urban and rural) collectively grow 92% of country's potatoes on their garden-plots, the size of which is typically...

100; ClubOrlov; local food; possible; Success.

Tue 2009-04-21 00:00 EDT

Hussman Funds - Weekly Market Comment: Wishful Thinking - April 20, 2009

``The current bounce was fueled by a combination of deteriorating but less bad than expected economic reports (therefore counting as upside surprises), as well as what can only be considered misleading and semi-fraudulent earnings reports from distressed financial companies''

2009; April 20; Hussman Funds; weekly market comments; wished think.

Mon 2009-04-06 00:00 EDT

Bill Moyers Journal . Transcripts | PBS

ex-banking regulator William K. Black calls fraud: ``make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.''

Bill Moyers Journal; PBS; Transcript.

Tue 2008-09-23 00:00 EDT

Y Combinator To Offer Standardized Funding Legal Docs

Y Combinator To Offer Standardized Funding Legal Docs; open source legal documents for venture capital

Offer Standardized Funding Legal Docs; Y Combinator.

Tue 2008-06-17 00:00 EDT

The Institutional Risk Analyst: The Vigorish of OTC: Interview with Martin Mayer

The Vigorish of OTC: Interview with Martin Mayer; former DTCC CEO Jill Considine; Jerry Corrigan; Keating Five; "a lot of what is called innovative is simply a way to find new technology to do what has been forbidden with the old technology"; "Banks globally have been miserable failures when it comes to combining investment and commercial banking"

Institutional Risk Analyst; interview; Martin Mayer; OTC; Vigorish.

Thu 2008-03-27 00:00 EDT

Winter (Economic & Market) Watch >> Gonna Be a Mad Max Revolution?

Winter (Economic & Market) Watch >> Gonna to be a Mad Max Revolution? "Historically food inflations and famines combined with corrupt, irresponsible government has been the spark to storming the palace gates and insurrection."

economic; Gonna; Mad Max Revolution; Market; watch; winter.