naked capitalism Mon 2010-03-29 13:48 EDT

Thinking the Unthinkable: What if China Devalues the Renminbi?

Marshall Auerback

Conventional wisdom holds that the Chinese are due (as in overdue) for a revaluation of their currency, the renminbi...We question whether a revaluation is the right answer for them, and more important, whether the Chinese themselves see a revaluation as a plus. The government has engineered an enormous increase in money and credit in the past year. In fact, it seems to be as great as 5 years' growth in credit in the previous Chinese bubble. The increase in money and credit is so great and so abrupt that you tend to get a high inflation quite quickly even if there are under utilised resources. Add to this the fact that China simultaneously is providing massive fiscal stimulus...Inflation can take off and thereby begin to ERODE the competitiveness of Chinese exports. Nouriel Roubini pointed out this issue in 2007: if China didn't revalue, inflation would do the trick regardless. A continued high rate of inflation relative to its trade partners would push up the price of goods in home currency terms, which in turn translates into higher export prices. This might be the real reason why China is so reticent to revalue its currency. The Americans might go crazy if the Chinese devalued, but if the inflation is high enough, they might have to do it, as it will severely erode their terms of trade and cause their tradeables sector to collapse.

China Devalue; naked capitalism; renminbi; Think; unthinkable.

The Money Game Fri 2010-03-19 12:38 EDT

Kenneth Rogoff's Sovereign Debt Warnings Are So Wrong, It's Like He's Living In A Different Time Period

Marshall Auerback

We've persistently taken the view that there is no economic doctrine, no magic number, which would imply a firm external constraint as far as public spending goes, when dealing with a sovereign government issuing debt its own floating rate, non-convertible currency. At some point, we may indeed have a resource constraint, or an inflation constraint, but not a national solvency issue. Yet the hysteria surrounding fiscal policy has moved from the realm of rational debate and metamorphosed into a matter of national theology...A sovereign government is never hostage to the dictates of financial capital because it no longer faces the external constraint that was always present under a gold standard regime. A nation that adopts its own floating rate currency can always afford to put unemployed domestic resources to work. Its government may issue liabilities denominated in its own currency (for interest rate maintenance reasons or to offer its savers an interest-bearing alternative to cash), and will service any debt it issues in its own currency...

different time periods; Kenneth Rogoff's Sovereign Debt Warnings; lively; Money game; wrong.

zero hedge Tue 2010-03-09 17:59 EST

Is The Federal Reserve Insolvent?

...For a refined analysis of what would happen in that moment of clarity when the world realizes the world's biggest bank is broke, we turn to a presentation by Chris Sims, given before Princeton University, titled "Fiscal/Monetary Coordination When The Anchor Cable Has Snapped."...discusses precisely the issues were are faced with today: namely a monetary policy that has run amok, seignorage, exploding excess reserves, the impact of these on "power money", and, in general, a Fed balance sheet that is increasingly reminiscent of a drunk, rapid and schizophrenic bull in a China store...the only way to deal with a mark-to-market of the Fed currently is to embrace monetization. It is no longer a question of semantics, of who promised what: it is the only mechanical way by which the Fed can dig itself out of a capital deficiency. With GSE delinquencies exploding, and with the Fed (and Congress) singlehandedly facilitating imprudent lender policy by allowing ever more borrowers to become deliquent without consequences, the MBS delinquency rate will likely hit 10% over the next 6-12 months. At that moment, someone will ask the Fed: "what is the true basis of your capital account?" And when the Fed is forced to justify a valid response, is when monetizaton will begin...

Federal Reserve Insolvent; Zero Hedge.

Jesse's Café Américain Tue 2010-03-09 17:51 EST

Russia Continues to Build Its Gold Reserves Ahead of the SDR Discussions

Jesse

Thanks to friend Dave at Golden Truth for this updated chart.As you know, Russia, India, China and some of the BRIC-like countries will continue to push hard for a gold and silver content in the new formulation of the SDR this year. The US and UK are vehemently opposed...One cannot have a common currency with uncommon fiscal policies and laws. While there is some room for discretion, it is sorely tried in changing economic conditions and social attitudes...This is why a one world currency, except for international trade only and at the discretion of trading partners, is so dangerous. One cannot maintain their sovereign freedom when someone else controls the supply of their money: either you cheat or you submit. All serious economists understand this; too few of the voting public do...This is the fallacy of the US dollar as the reserve currency for the world. It 'worked' as even Mr. Greenspan noted, as long as the US dollar was able to demonstrate the objective stability of an external gold standard relative to other currencies. That lasted for a few years, and the rest is foreign policy and currency wars. The time for its replacement is long past. The BRIC's understand this, and are playing their hands accordingly...

building; gold reserves; Jesse's Café Américain; Russia continues; SDR Discussions.

New Deal 2.0 Tue 2010-03-09 17:23 EST

Wall Street's War Against Consumers and Labor Heats Up

Michael Hudson

...Throughout the world, scaling back the 20th century's legacy of progressive taxation and untaxing real estate and finance has led to a public debt crisis. Property income hitherto paid to governments is now paid to the banks. And although Wall Street has extracted $13 trillion in bailouts just since October 2008, the thought of raising taxes on wealth to pay just $1 trillion over an entire decade for Social Security or health insurance is deemed a crisis that would lead Wall Street to shut down the economy. It is telling governments to shift to a regressive tax system to make up the fiscal shortfall by raising taxes on labor and cutting back public spending on the economy at large. This is what is plunging economies from California to Greece and the Baltics into fiscal and financial crisis. Wall Street's solution - to balance the budget by cutting back the government's social contract and deregulating finance all the more - will shrink the economy and make the budget deficits even more severe. Financial speculators no doubt will clean up on the turmoil.

0; consumer; labor heats; new dealing 2; Wall Street's War.

Fri 2010-02-26 16:26 EST

Risk taking, regulatory capture and bailouts: The doomsday cycle | vox - Research-based policy analysis and commentary from leading economists

Peter Boone and Simon Johnson

Over the last three decades, the US financial system has tripled in size, as measured by total credit relative to GDP (see Figure 1). Each time the system runs into problems, the Federal Reserve quickly lowers interest rates to revive it. These crises appear to be getting worse and worse -- and their impact is increasingly global. Not only are interest rates near zero around the world, but many countries are on fiscal trajectories that require major changes to avoid eventual financial collapse. What will happen when the next shock hits? We believe we may be nearing the stage where the answer will be -- just as it was in the Great Depression -- a calamitous global collapse. The root problem is that we have let a `doomsday cycle' infiltrate our economic system...

Bailout; commentary; doomsday cycle; leading economists; regulatory capture; research-based policy analysis; risk take; Vox.

Mon 2010-02-08 17:08 EST

The Bernanke Disaster: The Road to Debt Peonage

Michael Hudson

...On the political front, his reappointment is being cited as yet another proof that the Democrats care more for bankers than for American families and employees. As a result, it will do what seemed unfathomable a year ago: enable GOP candidates to strike the pose of FDR-type saviors of the embattled middle class. No doubt another decade of abject GOP economic failure would simply make the corporate Democrats appear once again to be the alternative. And so it goes... For Bernanke, the current financial system (or more to the point, the debt overhead) is to be saved so that the redistribution of wealth upward will continue...Meanwhile, the government is permitting corporate tollbooth to be erected across our economy -- and un-taxing this revenue so that it can be capitalized into financialized wealth paying only a 15 per cent tax rate on capital gains...Financial and fiscal policy thus reinforce each other in a way that polarizes the economy between the financial sector and the ``real'' economy.

Bernanke Disaster; DEBT peonage; Road.

Jesse's Café Américain Wed 2010-02-03 16:09 EST

On Monetary Inflation and M3

Jesse

...Within a relatively pure fiat currency system the conditions of inflation and deflation, and the broad range in between, are largely the result policy and fiscal decisions, constrained for the most part only by the acceptability of the bond and the dollar and the tolerance of the people...The acceptability of the dollar and the bond by the world is the limiting factor on the ability of the Fed and Treasury to create money, managing its supply, by whatever means direct and indirect, by action or allowance, in a fiat currency.

Jesse's Café Américain; M3; monetary inflation.

Thu 2010-01-07 20:04 EST

Hard times at the Washington Post

Dean Baker

The Washington Post is a newspaper with a proud legacy. It has done much important reporting over the years, most famously its coverage of the Watergate scandal that resulted in the resignation of Richard Nixon. Unfortunately, it seems to have abandoned its journalistic standards. In its last issue of the decade, it published as a news piece an article by the Peter Peterson Foundation-funded Fiscal Times. This compromised the Post's journalistic integrity to the extent that readers can no longer take it seriously.

hard times; Washington Post.

Ambrose Evans-Pritchard - Finance and business comments Thu 2010-01-07 19:00 EST

Global bear rally of 2009 will end as Japan's hyperinflation rips economy to pieces

The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honoured lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises -- the final error that triggered the implosion of Lehman, AIG, and the Western banking system. As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st Century Depression -- more akin to Japan's Lost Decade than the 1840s or 1930s, but nothing like the normal cycles of the post-War era. The surplus regions (China, Japan, Germania, Gulf ) have not increased demand enough to compensate for belt-tightening in the deficit bloc (Anglo-sphere, Club Med, East Europe), and fiscal adrenalin is already fading in Europe. The vast East-West imbalances that caused the credit crisis are no better a year later, and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy. Our long purge has barely begun.

2009; Ambrose Evans Pritchard; Business Comment; ending; finance; Global Bear Rally; Japan's hyperinflation rips economy; pieces.

zero hedge Tue 2010-01-05 20:24 EST

Guest Post: Apocalypse Not: The Dollar

The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously. The data does offer reasonable assurance that it won't happen anytime soon. Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames. Why doesn't it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?

Apocalypse; Dollar; Guest Post; Zero Hedge.

zero hedge Mon 2009-12-28 15:57 EST

What Came First: The Federal Reserve Or Economic Bubbles? A Brief History Of The Federal Reserve's Creation

A fantastic history of the reasons for, and the creation of, the Federal Reserve, courtesy of Murray Rothbard and our friends at Mises Institute, with the article originally appearing in Quarterly Journal of Austrian Economics, Vol. 2, No. 3 (Fall 1999), pp. 3--51. It is also reprinted in A History of Money and Banking in the United States and as a monograph. This is a must read for anyone who is curious why the Federal Reserve (with or without Goldman) is the sole organization responsible for not only perpetuating the interests of a select few of financial oligarchs, but in essence shaping monetary, fiscal, financial and political policy in the entire developed world.

Brief History; CAME; economic bubbles; Federal Reserve; Federal Reserve's Creation; Zero Hedge.

naked capitalism Mon 2009-12-28 14:50 EST

A look back at the debate on the role of monetary and fiscal stimulus in depression

Edward Harrison

...regarding stimulus and the role of government in a debt-deflationary environment...does fiscal or monetary stimulus work?...the real debate about whether or not to try fiscal stimulus revolves around the role of government and its limitations. Ideologues on one side see government as a parasite which interferes with the free market. On the other side, ideologues see government as the only way out of a crisis of this magnitude. The key sticking point is not just the size of government, but also its effectiveness -- the political will to effect change rather than to favor constituents...So, how has this worked out in practice? Not so well.

Debate; Depression; fiscal stimulus; looking; Monetary; naked capitalism; role.

naked capitalism Mon 2009-12-21 15:58 EST

Obama's demand that fat cats lend is no ode to Samuelson

Edward Harrison

...to-do about President Obama's fat cat remarks and his meeting with bankers exhorting them to lend...we are getting a bunch of populist rhetoric which is pure politics to induce banks to lend recklessly and save the economy when basic economics would tell you that there is a deficit of lending capacity and demand for credit. It is the absurd kabuki theater of depression economics...David Rosenberg...sees something altogether more cynical -- an orchestrated campaign to shame and bully banks into going against their fiduciary responsibility and lending irresponsibly again!...Easy money is not the solution, it is the problem. Jobs are the solution...fiscal policy is more effective than monetary policy in a depressionary environment. Quantitative easing is overrated.

fat cats lend; naked capitalism; Obama s demands; Ode; Samuelson.

zero hedge Thu 2009-11-19 10:36 EST

Bob (Janjuah) Is Back... And He Is Pissed

Near term I think the battle will be between Central Bankers, who deep down, and I think privately at least, FEAR bubbles, FEAR failure and FEAR FORCED abandonment if current policies are persisted with too long and/or added to, vs Fiscal Authorities, who by definition want short-term fixes (there is after all an election cycle in the UK & in the US next yr). This is like a rumble in the jungle between the VOLCKER-ites and the GREENSPAN-ites, with GREENSPAN representing the Fiscal Authorities (he was after all surely the most politicised central banker ever). Are the Volcker-ites up to a fight? I think so. I hope so. Kevin feels and I FEAR however that they aren't/they won't. In which case MORE policy and then, very soon thereafter DISASTER, will follow. In this rumble the inevitable outcome is deflation and multi-yr austerity.

Bob; Janjuah; piss; Zero Hedge.

Ambrose EvansPritchard Finance and business comments Thu 2009-11-19 10:33 EST

It is Japan we should be worrying about not America

Ambrose Evans-Pritchard

Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world's secondlargest economy has been able to borrow cheaply from a captive bond market feeding its addiction to Keynesian deficit spending - and allowing it to push public debt beyond the point of no return.

Ambrose EvansPritchard Finance; America; Business Comment; Japan; Worries.