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Archives of December 2010
The Economic Incompetence Of The Political Class
Charles W. Kadlec, www.forbes.com, 12/06/2010
The sovereign debt crisis now threatening Europe, as well as major American states and cities, discloses the sheer incompetence of a political class that has over-promised, under-delivered and squandered vast amounts of their citizens’ wealth.
Greece, Ireland, Spain, Portugal, California, Illinois, Los Angeles and Chicago are simply the poster children for what happens when elected officials engage in reckless and irresponsible management of their economies, their banking system or their respective government’s public finances.
Greece’s debt stands at 144% of its gross domestic product, the highest in Europe. Ireland’s debt is 70% of GDP, due in large measure to the liabilities it assumed when it bailed out the Irish banking system. The just-announced European loan of 50 billion euros to Ireland is equal to nearly 50% of its GDP. Within the next year, Italy will have to borrow 20% of its GDP just to refinance its maturing debt. Read more»
“The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, again and again, to lower the gross market rate of interest by means of credit expansion.There is NO means of avoiding the final collapse of a boom brought about by such credit expansion.”
Ludwig Von Mises, Human Action, 1949
“Trader Dan” Commentary
Dan Norcini, www.jsmineset.com,m 12/03/2010 [Excerpt]
The payrolls number that was released this morning served as the initial catalyst that sent the US Dollar sharply lower and generated a wave of fund-related buying into the commodity complex once again.
It would appear that the market focus of today shifted off of the woes in Europe with its sovereign debt crisis and back onto the abysmal state of the US economy. Same story – no jobs. The market is sending a signal to the clueless Administration and current Congressional makeup (which will be changing next month) that its policies are utterly wrongheaded. They are too wedded to ideology however to take the steps necessary to bring about an improvement. Combine that with what seems an almost hopeless paralysis to deal with the worsening US fiscal condition and the Dollar was taken out to the woodshed where it had the stuffing beaten out of it…
Moral Hazard, Thy Price is $3.3 Trillion
Reilly and Winkler, online.wsj.com, 12/02/2010
Sunshine doesn’t hurt after all. Bank shares leapt Wednesday despite the Federal Reserve’s detailed disclosure of who got $3.3 trillion of emergency lending during the crisis. That is hardly what investors might have envisaged, given dark warnings from the Fed that such disclosure could endanger financial institutions. The central bank released the data only because of a provision in the Dodd-Frank financial-overhaul bill.
True, it will take time for investors to comb through all the gory details of about 21,000 transactions by multiple emergency Fed lending facilities. And some details may leave firms with egg on their face: Goldman Sachs, which insisted it would have survived the crisis without government assistance, tapped one special Fed facility 84 times to borrow nearly $600 billion in overnight money. Morgan Stanley tapped the facilities more than 200 times.
Doug Noland’s Credit Bubble Bulletin
www.prudentbear.com, 12/03/2010
November 26 – Bloomberg (Brian Faler): “Senate Republicans have endorsed a call for a constitutional amendment requiring the government to balance its budget after Tea Party candidates made erasing the deficit a rallying cry throughout the U.S. election campaign. While the calls may be urgent, even Washington’s leading deficit foes say it will take decades to balance the books. A proposal by the heads of President Barack Obama’s debt commission to cut the budget by $4 trillion wouldn’t wipe out the deficit for more than 25 years. Representative Paul Ryan, who’s in line to become chairman of the House Budget Committee, predicts it will take a half-century… ‘This budget is screwed up so badly you can’t balance it in the immediate future,’ said Ryan… Senator Dick Durbin of Illinois, the Senate’s No. 2 Democrat, said the problem is ‘pure demographics. Boomers are showing up old and sick and, as a consequence, costs are dramatic.’”
Kicking the Can
Doug Noland [with "limited time to write, again..."], www,prudentbear.com, 12/03/2010
…[S]uccumbing to market demands, the ECB yesterday (again) postponed the initiation of its “exit strategy” to at least April 2011. The markets triumphed yet again in a skirmish with policymakers – and celebrated with a big, emboldened rally.
We’ve been witnessing further evidence of the seductiveness of Bubbles… Policymaking works to inflate stock prices, and then policymakers take comfort that buoyant markets are a confirmation of the adeptness of their policies. Is it not apparent that the big winner here is financial speculation?
…[W]ith the post-Greek crisis global focus on structural debt issues – the U.S. is in the process of becoming a major focal point…I fully expect that after market ebbs and flows…the markets will inevitably discipline Washington. Read more»
Taxpayers, Who Has Your Back?
Howard Penney, finance.fortune.cnn.com, 12/01/2010
After the fact, the International Monetary Fund has conceded it could have done better in predicting Ireland’s property and banking crash that led to last weekend’s announcement of a $113 billion bailout. Nearly $30 billion of that total is being provided by the IMF, of which the USA is the largest contributor with a 17.67% quota. The balance is coming from the European Union.
Money: Sound and Unsound
Mark Thornton, www.mises.org, 12/03/2010
Edited transcript of a Mises Circle speech given on November 13, 2010, in review of Joseph Salerno’s Money: Sound and Unsound.]
Joseph Salerno, my friend and colleague at the Mises Institute, published a book this year entitled Money: Sound and Unsound. The book consists of 26 chapters, which were based on articles he wrote in publications around the globe. The common purpose of all the articles is to explain the principle of sound money to an audience of nonspecialists.
The principle of sound money consists of two things: The first is the affirmation of the market’s ability to choose and maintain money and all the enormous benefits this has provided to society. The second is the opposition to government meddling in money and all the negative consequences it has on society.
The book does a marvelous job of presenting all the important theoretical debates on money. There are of course some complex historical episodes that are beautifully disentangled, particularly with regard to the Great Depression. The book is filled with analysis of policy, including some of the very best discussions of inflation and deflation. Finally, in terms of moving forward, the book contains several important essays on the gold standard and how to implement it.