Jesse's Café Américain Sat 2010-09-25 09:55 EDT

FOMC: Sound the Bell. School's In, Suckas

Jesse

...What the Fed cannot do is breathe vitality into a zombie economy, and provoke a sustained recovery not tied to some sort of credit bubble. That is why stagflation remains the most likely outcome until the nation obtains the will and the determination to reform the financial system and restore a balance to trade and the real economy through a commitment to sound and practical public policy not driven by self-serving economic quackery. The dollar and bonds are made stronger through a vibrant underlying economy with the ability to generate taxable income and real returns to their holders. But in the meanwhile the special interests will be served. A profound deflation and hyperinflation remain as possibilities for the future, but they will most likely be seen on the horizon in advance of their arrival as the result of some exogenous event or catastrophic failure. So far, not a glimpse...

bell; FOMC; Jesse's Café Américain; school's; sounds; SUCKAS.

Clusterstock Sat 2010-09-04 11:16 EDT

Your Textbooks Lied To You: The Money Multiplier Is A Myth

The following comes from an excellent new paper from the Fed. The paper describes the myth of the money multiplier and is an absolute must read for anyone who is trying to fully understand the current environment. It turns much of textbook economics on its head and describes in large part why the bank rescue plan and the idea of banks being reserve constrained is entirely wrong: ``Simple textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations. Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons...bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks...''

ClusterStock; Money Multiplier; myth; textbook lying.

naked capitalism Tue 2010-08-24 20:02 EDT

Boston Fed's New Excuse for Missing the Housing Bubble: NoneOfUscouddanode

It is truly astonishing to watch how determined the economics orthodoxy is to defend its inexcusable, economy-wrecking performance in the runup to the financial crisis...From the Wall Street Journal Economics blog: Should economists and policy makers have identified the housing market bubble before it burst? The answer is most likely no, says the Federal Reserve Bank of Boston, because economic theory was not up to the challenge... Yves: This recitation is truly embarrassing, in that the writers clearly see this abject failure as completely reasonable, as opposed to compelling evidence that the discipline is not qualified to provide policy advice. What could be more damning than admitting that economics was incapable of seeing the blindingly obvious?...

Boston Fed's New Excuse; housing bubble; missing; naked capitalism; NoneOfUscouddanode.

Mon 2010-08-23 11:11 EDT

Hussman Funds - Valuing Foreign Currencies: Currency is both a means of payment and a store of value. [2000-09-22]

John P. Hussman, Ph.D

Any currency is both a means of payment and a store of value. So when you try to determine what it's worth, you have to consider both what it can buy in terms of goods, and what it can earn if you hold it as an asset. An exchange rate is just the price of a currency...If you look at a currency as a means of exchange...you can get a reasonable idea of the "long term" tendency of the currency by tracking the movements of price indices in two countries. This is what traders refer to as the "Purchasing Power Parity" (PPP) value of the exchange rate...But PPP is only a tendency that holds loosely over the long term. Over the short term, there's another important factor: interest rates...anytime long term interest rates, after inflation (i.e. real interest rates) are expected to be higher in the foreign country than in the U.S., the foreign currency will be above PPP...

2000-09-22; currency; Hussman Funds; meaning; payment; store; valued; Valuing Foreign Currencies.

naked capitalism Fri 2010-08-06 19:34 EDT

Auerback: The Real Reason Banks Aren't Lending

Marshall Auerback

...there is a widespread belief that government fiscal stimulus has run up against its ``limits'' on the grounds of ``fiscal sustainability'' and the need to retain ``the confidence of the markets''. Consequently, goes this line of reasoning, as private credit conditions improve the private sector must pick up the baton of growth where the public sector leaves off. If this proves insufficient, there is room for an expansion of monetary policy via ``quantitative easing``...The premise is that the central bank floods the banking system with excess reserves, which will then theoretically encourage the banks to lend more aggressively in order to chase a higher rate of return. Not only is the theory plain wrong, but the Fed's fixation on credit growth is curiously perverse, given the high prevailing levels of private debt...credit growth follows creditworthiness, which can only be achieved through sustaining job growth and incomes. That means embracing stimulatory fiscal policy, not ``credit-enhancing'' measures per se, such as quantitative easing, which will not work. QE is based on the erroneous belief that the banks need reserves before they can lend and that this process provides those reserves. But as Professor Scott Fullwiler has pointed out on numerous occasions, that is a major misrepresentation of the way the banking system actually operates...We would like to see the Obama Administration at least begin to make the case that fiscal stimulus, whether via tax cuts or direct public investment, is still required to generate more demand and employment...deficit cutting per se, devoid of any economic context, is not a legitimate goal of public policy for a sovereign nation. Deficits are (mostly) endogenously determined by the performance of the economy. They add to private sector income and to net financial wealth. They will come down as a matter of course when the economy begins to recover and as the automatic stabilizers work in reverse...

Auerback; Lends; naked capitalism; real reason Bank.

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.

China Financial Markets Thu 2010-07-22 10:17 EDT

Do sovereign debt ratios matter?

Michael Pettis

...No aspect of history seems to repeat itself quite as regularly as financial history. The written history of financial crises dates back at least as far back as the reign of Tiberius, when we have very good accounts of Rome's 33 AD real estate crisis...we have only begun the period of sovereign default. The major global adjustments haven't yet taken place and until they do, we won't have seen the full consequences of the global crisis...there is no threshold debt level that indicates a country is in trouble. Many things matter when evaluating a country's creditworthiness...there are at least five important factors in determining the likelihood that a country will be suspend or renegotiate certain types of debt...With inverted debt, the value of liabilities is positively correlated with the value of assets, so that the debt burden and servicing costs decline in good times (when asset prices and earnings rise) and rise in bad times...Inverted debt structures leave a country extremely vulnerable to debt crises...

China Financial Markets; sovereign debt ratios matter.

Culture of Life News Thu 2010-05-20 16:57 EDT

Imbalances In World Trade Cause Tectonic Shifts In Power

Elaine Supkis

...Very, very soon, China will be the world's #1 oil buyer and shortly after this, the yuan will suddenly displace the dollar as the currency which determines the value of oil deals. Then, the yuan/dollar peg will vanish. And we better prepare for this day: it is INEVITABLE. We will suddenly find out where all those many trillions of US dollars are hidden in various foreign FOREX accounts and then hyperinflation will rage...for the US dollar, not the Chinese yuan...

Culture; imbalances; Life News; Power; World Trade Cause Tectonic Shifts.

Jesse's Café Américain Mon 2010-01-18 09:56 EST

Franklin Roosevelt's First Inaugural Address: A Fitting Reminder For Our Crisis Today

Jesse

...I never read it in full, but like most people just remember the famous quote about fear. It's worth reading this. It shows a mindset in terrible, overwhelming times that was determined to set things right, not to take care of business, but to address the business of the people directly, and not only the immediate concerns of the crisis but the long term problems that caused the financial collapse in meaningful ways...

Crisis; fitting reminder; Franklin Roosevelt's; inaugural addresses; Jesse's Café Américain.

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.

Thu 2009-10-01 17:56 EDT

98489 -- Landmark National Bank v. Kesler -- Leben -- Kansas Court of Appeals

J. J. LEBEN

Landmark National Bank brought a suit to foreclose its mortgage against Boyd Kesler and joined Millennia Mortgage Corp. as a defendant because a second mortgage had been filed of record for a loan between Kesler and Millennia. In a foreclosure suit, it is normal practice to name as defendants all parties who may claim a lien against the property. When neither Kesler nor Millennia responded to the suit, the district court gave Landmark a default judgment, entered a journal entry foreclosing Landmark's mortgage, and ordered the property sold so that sale proceeds could be applied to pay Landmark's mortgage. But Millennia apparently had sold its mortgage to another party and no longer had interest in the property by this time. Sovereign Bank filed a motion to set aside the judgment and asserted that it now held the title to Kesler's obligation to pay the debt to Millennia. And another party, Mortgage Electronic Registration Systems, Inc. ("MERS"), also filed a motion to set aside the judgment and asserted that it held legal title to the mortgage, originally on behalf of Millennia and later on behalf of Sovereign. Both Sovereign and MERS claim that MERS was a necessary party to the foreclosure lawsuit and that the judgment must be set aside because MERS wasn't included on the foreclosure suit as a defendant. The district court refused to set aside its judgment. The court found that MERS was not a necessary party and that Sovereign had not sufficiently demonstrated its interest in the property to justify setting aside the foreclosure. ...The district court properly determined that MERS was not a contingently necessary party in Landmark's foreclosure action. The district court also was well within its discretion in denying motions from MERS and Sovereign to intervene after a foreclosure judgment had been entered and the foreclosed property had been sold. The judgment of the district court is affirmed.

98489; appealing; Kansas court; Kesler; Landmark National Bank; leben.

Wed 2009-09-16 19:21 EDT

Corrosive, stinking Chinese drywall may be radioactive - Los Angeles Times

The final years of the U.S. housing boom and a disastrous series of Gulf Coast hurricanes created a golden opportunity for Chinese drywall manufacturers. With domestic suppliers unable to keep up with demand, imports of Chinese drywall to the U.S. jumped 17-fold in 2006 from the year before. That imported drywall is now at the center of complaints of foul odors seeping from walls. Hundreds of homeowners, most in Florida, have also reported corrosion to their air conditioners, mirrors, electrical outlets and even jewelry. State and federal authorities have traced the problems to Chinese-made drywall but haven't yet fully determined the causes. Some Chinese experts, however, suspect that the culprit is a radioactive phosphorus substance -- phosphogypsum -- that is banned for construction use in the U.S. but has been used by Chinese manufacturers for almost a decade.(china, building materials, defective products, health hazards)

corrosive; Los Angeles Times; Radioactive; stinking Chinese drywall.

Bruce Krasting Fri 2009-09-04 18:30 EDT

Open Letter to FHFA's New Director Edward DeMarco - A Proposal for the Agency REO/Preferred Shares

Bruce Krasting

Let me welcome you to your new responsibilities. You have a very important job. There are a significant number of people in the financial world who lie awake at night worrying about the mortgage lenders you are responsible for. Fannie Mae, Freddie Mac and the FHLBs hold or guaranty $6.3 Trillion in residential mortgages. It is simply not possible for the US to get out of the mess we are in unless these Agencies are stabilized. Should those Agencies fail, all that has been done to heal the US financial sector will have been wasted. In a significant manner, your success or failure will determine the medium term course of the US economy.

Agency REO/Preferred Shares; Bruce Krasting; FHFA's New Director Edward DeMarco; Open Letter; proposed.

Wed 2009-04-01 00:00 EDT

naked capitalism: Now It's Official: Stress Test Results Pre-Determined

naked capitalism; officials; Stress Test Results Pre-Determined.

Tue 2008-08-26 00:00 EDT

The End of the Beginning -- Developments in the Credit Crisis

The End of the Beginning - Developments in the Credit Crisis, by Satyajit Das (Prudent Bear); 2008-05-27; ``limited recognition of the massive de-leveraging of the global financial system that is under way.'' ``The banking systems ability to supply credit is significantly impaired and will remain so for the foreseeable future.'' ``Changes in financial markets will have a significant impact on many companies that now rely on financial engineering rather than real engineering'' Das proposes: ``holdings and values of risky assets held by banks and investment banks must be accurately determined...Risky assets must be valued on a hold-to-maturity basis...Mark-to-market accounting should be suspended...Capital levels should be set on a bank-by-bank basis by regulators...Capital requirements should be eased...government [should] guarantee of all major bank liabilities''

Begins; credit crisis; develop; ending.

Fri 2008-07-04 00:00 EDT

Peak Oil Debunked: 366. FUTURES PRICES DETERMINE PHYSICAL OIL PRICES

"Krugman and Birger are grossly misinformed about the way physical crude is actually priced in the global oil market."

366; Futures Prices Determine Physical Oil Prices; Peak Oil Debunked.

Mon 2008-06-09 00:00 EDT

Hussman Funds - Weekly Market Comment - The Fed's Policy Rule: Regret-Minimax - June 9, 2008

"government spending is a much stronger determinant of persistent inflation trends than money itself."

2008; Fed's Policy Rule; Hussman Funds; June 9; Regret-Minimax; weekly market comments.

Fri 2008-06-06 00:00 EDT

naked capitalism: Should the Fed Be Independent?

Jeffrey Lacker; Fed "increasingly making resource allocation decisions which are political in nature and should arguably be debated and determined in that realm"

Fed; Independent; naked capitalism.

Mon 2008-03-24 00:00 EDT

Hussman Funds - Weekly Market Comment: Why is Bear Stearns Trading at $6 Instead of $2

"unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own"

2; 6; Bear Stearns trade; Hussman Funds; weekly market comments.