Europe’s Punishment Union

Very quickly, there has been much loose talk about EU fiscal union. What was agreed at 4AM this morning is nothing of the sort. It is a “Stability Union”, as Angel Merkel stated in her Bundestag speech. Chalk and cheese.

“Deeper economic integration” is for one purpose only, to “police” budgets and punish sinners.   Read more»

Money and the European Credit Crisis

“I believe strongly that the Credit recovery and tepid U.S. economic recovery came at an extremely high price:  dynamics that ensure the eventual loss of “moneyness” for U.S. government Credit,  the heart of our monetary system.”

It would be reasonable – and it sure is tempting – to dedicate this week’s CBB to a skeptical look at Europe’s latest plan for Credit crisis resolution.  I would not be without plenty of company.  So I’ll instead go in a different direction.  This week I found my thoughts returning back about 12 years to my earliest Bulletins.  Inspired by the great Austrian economist Ludwig von Mises, my introductory article discussed the need for a contemporary Theory of Money and Credit.  Not only was modern economics devoid of monetary analysis, there were critical changes unfolding within U.S. Credit that were going completely unappreciated.

Importantly, Credit creation was gravitating outside of traditional bank lending channels and liability creation.  Fannie, Freddie and the Federal Home Loan Bank system had evolved into major risk intermediaries and Credit creators.   Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes:

M2 (narrow) “money” supply increased $6.3bn to $9.629 TN.  “Narrow money” has expanded at an 11.2% pace y-t-d and 10.2% over the past year…

October 28 – Bloomberg (Anna-Louise Jackson and Anthony Feld):  “Restaurants are poised to raise prices as Americans become accustomed to more expensive food at grocery stores.  U.S. consumers paid 2.6% more at eateries in September than last year, while food prices at supermarkets were 6.2% higher, according to the Bureau of Labor Statistics’…”   Read more»

Bill Meyer Show on KMED with Will on 10/27/2011

We talk the Euro/Greece bailout, and the hundreds of trillions of bucks in financial bets, known as derivatives. Our banks are working to get we taxpayers to back them up if they screw up. More open phones later in the hour.

Save the Stock Markets – Destroy the Consumer

While money managers, talking heads and other assorted various market pundits are wildly cheering the actions of the Europeans who have agreed to a plan for papering over the Greek bond, Italian bond, Spanish bond, Portugal bond, and heaven only knows what other country’s bond problem, I cannot help but shake my head in wonder at such incredibly shortsighted “wisdom”.   Read more»

Bank of America Bosses Find Friend in the Fed

One of the reasons so many Americans are ticked off at the Federal Reserve is a lingering sense that it puts big banks’ interests above those of ordinary taxpayers. The news that the Fed is taking Bank of America Corp. (BAC)’s side in a dispute over where to park some of the company’s holdings only reinforces that impression.   Read more»

Washington D.C. Now Wealthiest Metro

“Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.  The U.S. capital has swapped top spots with Silicon Valley… with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.  The figures demonstrate how the nation’s political and financial classes are prospering as the economy struggles with unemployment above 9% and thousands of Americans protest in the streets against income disparity, said Kevin Zeese, director of Prosperity Agenda… ‘There’s a gap that’s isolating Washington from the reality of the rest of the country,’ Zeese said. ‘They just get more and more out of touch.’”

Doug Noland’s Credit Bubble Bulletin

Selected Notes

October 21 – Bloomberg (Scott Lanman and Jennifer Oldham):  “Federal Reserve Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil. The central bank should also give ‘careful consideration’ to Chicago Fed President Charles Evans’s proposal to tie the near-zero interest-rate pledge to specific levels of unemployment and inflation, Yellen said…”

October 21  – Reuters:  “Ever larger euro zone rescue packages risk causing more damage than the crisis they are trying to extinguish, European Central Bank policymaker Juergen Stark said on Friday ahead of a weekend summit aimed at tackling the bloc’s debt crisis.  ‘The financing that is provided is just to buy time, but to buy time to what end? (With) ever larger packages, there is a risk that water damage is much larger than damage done by the fire,’ he told a conference…”   Read more»

Mortgage Madness

“Does the Fed still not appreciate the damage wrought from distorting market pricing mechanisms, incentivizing speculation and cajoling savers into risk assets?  Do we really want to continue with this “tiered” marketplace that incentivizes mortgage lending and speculating at the expense of capital investment?”

“We’ve arrive at a troubling late-stage of historic Credit, financial and speculative excess.  The stakes have become incredibly high, and a speculation-rife marketplace has, strangely enough, turned comfortably numb playing this precarious game of chicken with global policymakers.”

“…I fear global market dynamics and Fed policymaking are propagating the worst-case scenario for the U.S. government finance Bubble.”   Read more»

Blame the Fed for the Financial Crisis

The Fed fails to grasp that an interest rate is a price, the price of time. Attempting to manipulate that price is as destructive as any other government price control.

To know what is wrong with the Federal Reserve, one must first understand the nature of money. Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers. Its particular usefulness is that it helps facilitate indirect exchange, making it easier for us to buy and sell goods because there is a common way of measuring their value. Money is not a government phenomenon, and it need not and should not be managed by government. When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster.   Read more»