Here's my Top 10 links from around the Internet at 10 am in association with NZ Mint.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
A Europe special today
1. ECB is Europe's last hope - Ambrose Evans Pritchard is always worth reading at The Telegraph.
Here's his summary of the issues facing French President Nikolas Sarkozy and German Chancellor Angela Merkel as they meet over the next few days to decide the fate of the Euro.
Ambrose reckons the European Central Bank is a crucial factor in the equation.
It is currently doing all the heavy lifting that the European politicians (and voters) won't.
Ambrose thinks the ECB should print like there's no tomorrow.
The Germans are sensitive about this.
But they also don't want to bail out the Greeks et al.
It leaves the ECB as the only entity with the firepower.
And the power.
Which creates some interesting tensions of its own.
Here's Ambrose:
Northern League leader Umberto Bossi accused the ECB of "trying to blow up the Italian government." Mr Trichet is moving into dangerous waters dictating budgets to sovereign parliaments. It matters enormously whether citizens have political "ownership" over austerity, or whether it is imposed by outside forces.
His former colleague Otmar Issing fears that Europe is becoming a deformed union where officials run roughshod over nations and fiscal power lies beyond democratic control. Such encroachments have "brought war" in the past, he said.
HSBC's chief economist Stephen King said the ECB must print money a l'outrance in "exactly the same" way as the Fed. "At the heart of the problem is the ECB's unwillingness to be seen 'monetizing' government debt. Yet if the alternative to QE is the collapse of the euro or a descent into depression, then massive expansion of the ECB's balance sheet seems a small price to pay."
Such views are rarer in Germany but at last making themselves heard. Kantoos Economics said the ECB has been "extremely tight" and lost sight of its essential purpose. "It is therefore an important cause of the current mess."
"European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing," he said.
2. Good on him - Warren Buffett tells his rich mates to pay their tax
While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
3. Common European fiscal policy - James Neuger writes well at Bloomberg about the debate brewing over Europe having a common fiscal policy, which means European bond issuance, to go with its common monetary policy.
The question of “eurobonds” or “fiscal union” -- toxic language in northern countries like Germany -- will force itself onto the agenda once the retooled rescue fund is in place as soon as next month.
The trigger will be a European Commission feasibility study of jointly sold eurobonds, seen by a growing number of economists as the only way of guaranteeing to the markets that countries such as Italy won’t go bust. Unprecedented bailouts by governments and the European Central Bank have so far failed to stamp out the crisis that is menacing the region’s core members.
“No single currency has ever survived without some form of debt mutualization,” said Simon Tilford, chief economist at the London-based Centre for European Reform, a research institute focused on European integration. “There’s an increasing recognition that that is the only way of stabilizing the euro zone.”
4. The hunt for loopholes - Bloomberg reports that Chinese property buyers are 'fake' divorcing their wives to get around rules on third mortgages. Bubble anyone?
Frank He said he faked a divorce from his wife of 10 years to skirt China’s ban on third mortgages and obtain a bank loan for a third property, a 12 million yuan ($1.9 million) suburban villa.
“My wife and I love each other, but as long as we can get the mortgage from the bank for the deal, we’ll take it,” said He, a 40-year-old manager at a chemical company. The forged document, which cost the Shanghai couple 20,000 yuan, helped them get a loan amounting to 60 percent of the purchase price, he said.
Chinese homebuyers and developers are finding loopholes as they come under pressure from government policies to curb gains in residential prices, such as limits on the number of properties owned. Builders are refraining from cutting prices, offering free parking lots and attics instead, as they face higher borrowing costs after Standard & Poor’s downgraded their outlook in June.
“These are actually price cuts in disguise,” Sun Mingchun, Hong Kong-based economist at Daiwa Securities Capital Markets, said in an interview. “Developers are reluctant to offer discounts and are playing games with the government.”
5. Finally she has had enough - The Daily Mail reports Ruth Madoff has dumped Bernie Madoff after 52 years of marriage.
According to Madoff's biographer, Mrs Madoff has not visited her 73-year-old husband since their son Mark committed suicide in December.
'Ruth has not seen Bernie since Mark's suicide and I think the remnants of the family will now pull together,' said Diana Henriques, author of 'Bernie Madoff: The Wizard of Lies'.
It's today's must read I reckon. He recommends a complete cleanout and an end of the Too Big To Fail culture on Wall St.
He also wants the return of the 1933 Glass Steagall Act.
Can it be true that the trillions of dollars we spent bailing out Wall Street only restored the deeply flawed status quo, instead of bringing about the fundamental system overhaul we needed?
One of the unintended consequences of the rescue of the banks in 2008 was to restore many of the most heinous aspects of Wall Street’s culture, thus exponentially increasing the inherent risks in the system. Indeed, while Main Street continues to suffer from high unemployment and plunging home prices, the financial industry is dancing a jig after paying itself about $150 billion in compensation in 2010.
7. How the rich are hoarding - The WSJ reports on how many rich investors in America are not investing in the stock market and instead are virtual hoarders.
After taking big risks and big losses in 2008, wealthy investors have become the Cassandras of the financial world, hunkering down with cash, gold, farmland and other haven investments. Their "fear portfolios" largely protected them from last week's market gyrations, when the Standard & Poor's 500-stock index spiked up and down more than four percent a day for four days straight.
Yet they are also imposing a national price. Recoveries are often led by the investing and risk-taking of the wealthy, and the rich have traditionally been more optimistic about the economy than everyday investors. Yet current surveys show the rich are among the most pessimistic about the economy. Rather than investing in stocks or companies that can create jobs, they are betting on continued volatility and slow growth by hoarding cash, gold and other safety assets.
"If the wealthy run into the proverbial bunker, then the economy will falter," said Mark Zandi, chief economist at Moody's Analytics, a division of Moody's Corp. "A loss of faith in our economy can quickly become self-reinforcing and self-fulfilling."
8. Capitalism is destroying itself - So says Nouriel Roubini here in a WSJ video interview in a resoundingly Marxian fashon. Good on him.
Here's Roubini:
Karl Marx had it right. At some point, Capitalism can destroy itself. You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That's what has happened. We thought that markets worked. They're not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else's income and consumption. That's why it's a self-destructive process.
9. What's wrong with Europe - Satyajit Das is also a good read on the European crisis over here at Naked Capitalism.
Stephen Jen, a currency strategist and former economist for the IMF, captured the essence of the problem: “The creditors are becoming the debtors ….The burden of support in the euro zone will become even more concentrated on Germany and France.” This will ultimately affect the credit ratings of these countries, causing financial problems if the contingent liabilities were triggered.
If the new plan fails to arrest the problems, Europe’s peripheral economies will be affected first, with problems spreading to Spain and Italy and perhaps Belgium. Increasingly, it would affect the stronger countries like Germany, France and the Netherlands. Rather then containing contagion, the EU plan risks spreading the crisis to the stronger members of the Euro-zone.
10. Totally Stephen Colbert on the Mitt Romney comment about corporations being people.
(Updated with cartoons)
88 Comments
#1. It was a bit of surprise and a disappointment to see that the recent ECB purchases were to be sterilised, rather than funded through QE. The Gremans may be a bit sensitive about it (QE), inflation is a big bogeyman for them, but they would also be sensitive about an overvalued currency once they were in the dole queue. So Merkel has the interesting challenge of convincing them to accept QE.
Cheers
JK
"Ben Bernanke Pledges To Screw Your Grandmother For At Least Two More Years"
http://www.marketoracle.co.uk/Article29890.html
The reality since Ben Bernanke announced his QE2 policy in August 2010 is:
- Unleaded gas prices are up 45%.
- Heating oil prices are up 46%.
- Corn prices are up 71%.
- Soybean prices are up 26%.
- Rice prices are up 13%.
- Pork prices are up 31%.
- Beef prices are up 25%.
- Coffee prices are up 38%.
- Sugar prices are up 48%.
- Cotton prices are up 13%.
- Gold prices are up 42%.
- Silver prices are up 115%.
- Copper prices are up 23%.
note: this is since August last year! and Bollard is telling you we don't have inflation in NZ..go figure.
Yes Wolly, core is still stable at <2% ish.
and these prices above in the US are apparantly dropping back because its cpi and not core.
Gas is down here...Gas will be coming down in the US as well.....oil is $82 a barrel...
I get chicken breast at $16 a kilo it was $19~21....
Coffee same price about $6.50 plus or minus a bit.
Sure there is inflation in some things but its not overall and its not sticking right now....
regards
YOU can afford coffee....wow....real coffee?....you lucky bugger...inflation here is running between 3 and 6% depending on how you measure it...even at 3.2% it exceeds Bollard's rulebook but then who goes by the rules these days.
Your savings are being eaten by debasement every bloody year.....why!
This will give you a nice warm feeling on a winter day.....
"The 12 lawmakers appointed to a new congressional supercommittee charged with tackling the nation's fiscal problems have received millions in contributions from special interests with a direct stake in potential cuts to federal programs, an Associated Press analysis of federal campaign data has found.
The newly appointed members -- six Democrats and six Republicans -- have received more than $3 million total during the past five years in donations from political committees with ties to defense contractors, health care providers and labor unions. That money went to their re-election campaigns"
Steven Pearlstein accuses corporate lobbyists in America of destroying its version of capitalism. Fair enough. HT Rob via email.
For the past 30 years, there has been a steady financialization of the American economy in which the interests of so-called shareholders have become the single-minded focus of large corporations, to the virtual exclusion of the interests of customers, employees and the society at large.
Early on, some of your predecessors were willing to put up a fight against the Wall Street cabal, but in time they bought you off with exorbitant perks and pay packages that nearly rival their own. This occupation of Main Street by Wall Street was confirmed again last week as anonymous traders and hedge fund managers went on a riotous spree, wielding false rumors and high-frequency computerized trading to loot pension and retirement accounts and rob consumers and real investors of whatever confidence they had left.
http://www.washingtonpost.com/business/economy/steven-pearlstein-blame-…
Here's George Soros saying Berlin needs to dictate to Europe on the need for Euro bonds...
I'm not sure I like the idea of Berlin dictating things to Europe...
http://www.spiegel.de/international/europe/0,1518,780189,00.html#spRedi…
In a SPIEGEL interview, billionaire investor George Soros criticizes Germany's lack of leadership in the euro zone, arguing that Berlin must dictate to Europe the solution to the currency crisis. He also argues in favor of the creation of euro bonds as a way out of the turbulence.
Yeh, well what do you expect from a billionaire with delusions of grandeur?
"I shall not spell it [the mission for his foundation network] out here because it would interfere with my flexibility in carrying it out-there is a parallel here with the problem of making public pronouncements when I was actively engaged in making money-but I can state it in general terms: to foster the civil society component of the Open Society Alliance."
http://www.feasta.org/documents/feastareview/sorosreview.htm
In the age of global banking it is not possible to force the Glass Seagull banking act ( 1933 ) upon USA domiciled banks alone . Unless everyone plays by the same rules , unfair advantage is gifted to others ... such as the European banks , whose nefarious tactics caused the American banks to lobby Bill Clinton to repeal Glass Seagull in the first instance . Some solid international banking agreements are necessary .
... whew ... need a gummy bear after that little rant ... succilicious gummy , ahhhhhhhh !
You're right there Gumbo, unless the rules are the same everywhere (which is unlikely) Corporation can just move around to wherever has the laxest rules. It's a legislative race to the bottom and it's destructive.
Ten years ago I was a fan of globalisation, but now I see more costs than benefits.
I walked past a bank half an hour ago and saw a 50 year old crying and pleading with a bank employee. It seems like a sign of the times. Gave me a shiver. I've never seen that before.
So my question is, we've liberalised our economy to hitch ourselves to a global economy on the rise. What if, as it appears, the global economy is circling the drain? How can we tell when it's time to un-hitch?
What Roger! You blasted socialist, with your regulations and rules, why can't we leave it to the market? What's wrong with that approach? I thought I read somewhere that true unfettered capialism - which surely must include unfettered banking, servicing said unfettered capitalism - has never been tried? Can't think where I read that, or who wrote it, Roger .... ?
" Un-fetid capitalism " , I said .. the sort that doesn't stink because the pollies & the rich guys are in bed together .
... talk to Mark " Tribeless " Hubbard if you want a lecture on unfettered capitalism .
The Gummster has always maintained the need for simple & robust regulations , a level playing field , for all participants to play by .
That is the current system , crony-capitalism .
.. wanna balance the US government's budget ? .
.. take out the tax exemptions that the lobbyists have won ( bribed for ! ) over the years .. they currently total $US trillion annually , trillion with a " t " .
Budget balanced , easy peasy ....
..d'yer reckon either party has the kahunas to go down this path ? ... the pollies & businessmen are too busy playing with each others bribes , baubles & balls .
That's the beauty of the current situation though Gummy....there will be no broadly agreed upon simple and robust regulations because there will always be a country who will undercut their neighbour.....its as if capitalism is not unfetterred but international law is......
The problem I see is that the only way we will get change is when the parasites finally kill their host......
The Gummster has always maintained the need for simple & robust regulations , a level playing field , for all participants to play by .
….. as a profound supporter of capitalism, put a catalogue together, how capitalism could work - Roger. So, we can have at least a debate and not empty words.
No worries right!
"90 European banks which recently went through the (so-called) stress test organized by the European Banking Authority need to roll a total of €5.4 trillion1 (!) of debt over the next 24 months."
Robert Peston at the BBC makes some good points about Eurobonds and how they may ultimately cost Germany its AAA rating...\
http://www.bbc.co.uk/news/business-14526257
The period of transition to the Germanization of Europe would probably condemn Spain, Italy and even France to years of painfully low growth at best, and endemic recessions at worst.
But the problem for Germany is that if it were not to demand credible institutionalised prudence on the part of other member states, Germany would (almost inevitably) be stripped of its AAA credit rating just as soon as a euro bond became a German liability - and that would be a humiliation that German voters would probably not tolerate.
"Robert Peston at the BBC makes some good points about Eurobonds and how they may ultimately cost Germany its AAA rating...\"
Yes theoretically it should as the load is spread......or bear the burden of facing a complete collapse should event overtake them.....
I would bet the Germans are busy instigating talks with those they wish to remain ..about those teetering on being ......let go.
At some future point I'm sure there will be phrases like.." Vot else could ve do...Ve had run out ov options"
FYI London house prices slump HT Hugh via email
http://www.bloomberg.com/news/2011-08-14/london-house-prices-plunge-as-…
"Commonwealth Bank of Australia customers have struck back over Kiwi chief executive Ralph Norris's decision last November to push through a super-sized interest rate rise on mortgages.
The controversial rate hike has resulted in a near-halving of Norris's pay packet last financial year with the nation's highest paid bank boss now in the middle of the pack when it comes to executive remuneration.
CBA's latest annual report reveals the soon-to-retire Norris was paid A$8.6 million, including incentives, in the year to end-June. This was well down from A$16.1 million from a year earlier." stuff.co
How the hell do they expect Ralph to survive on just A$8.6million....
More here from Ambrose on the revolting Germans
Nein to ze eurobonds
German Chancellor Angela Merkel's coalition partners are threatening a withdrawal from government if she agrees to eurobonds or any form of fiscal union to prop up southern Europe.Oliver Luksic, the FDP's Saarland chief, told Bild Zeitung the survival of Germany's coalition was now rests on the handling of this issue. "Eurobonds are a sweet poison that leads to more debt, rather than less. Should the government endorse a common European bond and with it take the final step towards a long-term debt union, the FDP should seriously ask whether the coalition has any future."
Here's a comment in the latest blurb from
"Warren Buffet believes US Treasuries should be
rated AAAA (if there was such a rating). He believes
the US government will always pay (or, at least, refinance
and rollover) these debts . . . but his investment strategy
avoids bonds and favours equities as he also knows the
government will allow inflation to steadily erode the real
value of this debt. Only real assets, like equities, provide
protection from inflation over the longer term.
Governments will do anything to avoid openly defaulting
upon their debt . . . and just as certainly will “default by
stealth”, using inflation and devaluation to reduce its real
value."
Tell me the ongoing debasement of the Kiwi$ is not the same thing!
Not just Warren buffet....Barton Biggs: rich ppl have to pay their share....
The U.S. needs to invest in a massive public works program, and rich people and corp's should pay more taxes. In the Big Interview, Barton Biggs, of Traxis Partners, shares his views with the WSJ's Simon Constable.
http://asia.wsj.com/video/barton-biggs-us-needs-massive-stimulus/2E47FB…
MMT is a dangerous game of dice and not even wrong.
“Never has so much been concentrate by so little and done nothing”
MMT’ers have come along and told us that "Printing money" through deficits is "never a problem" as long as you have your own currency and the economy is running below capacity. It sounds like the way out of this mess right? Well no, it isn’t. It’s just not that simple. In order to believe in this hypothesis you have to first subscribe to the idea that somehow “this time it’s different”. Where have I hear those four toxic words before? It’s not enough to suspend disbelief but you have to believe the US can satisfy all three criteria simultaneously. In my opinion, MMT is the same sort of misguided thinking that got people into trouble with CDO’s. It’s nice to think that the country will never faultier in a deficit situation as long as it can print its own money. But history has shown us time and again that ANY abuse to any currency system is fraught with dangerous misplaced thinking. Let me take the MMT argument piecemeal and dissect it point by point.
Deficit Spending
Anyone that owns a house understands defect spending. Depending on your location and salary as soon as you sign any mortgage will immediately have a debt 8-10 times your personal GDP. You probably $30,000 in debt on your credit cards too. Yet the world isn’t ending as long as you employed. If you lose your income you essentially lose the credibility to repay the loans and the bank comes to collect. So a country being 80, 90 or even 100% Debt-to-GDP may not mean the end of the finical world. Technically, on paper, the US can buy its way out of debt. In fact, a majority of the debt is payable to its own citizens. Only about 40% of the current debt is payable to foreign countries. But countries like the US taking on more and more debt with almost no long term plan of action to elevate that debt do risk being increasingly marginalized by the bond market. If the bond market loses confidence that they are going to get repaid then the interest on the debt will start the rise and make it even more expensive to borrow money. MMT suffers from the fact that you cannot engage in deficit spending into perpetuity without fiscal restraint. At some point the bond market is going to turn on the US and it will be forced to monetize its own debt. This will delay the inevitable and kick the can down the road however this will bring on a whole host of other issues eroding confidence in the US. The lack of confidence and the loss in credibility is what has started the inflation cycle.
Owning your own currency
This is probably the strongest MMT argument and the only area that I somewhat agree with them on. The US has a strong dollar. It is the only reserve currency in the world. It essentially holds a monopoly of the printing press. So every country has to have a steady supply of USD to do business with each other. Even North Korean goes to great lengths to smuggle counterfeit super notes into northern China to exchange for the luxury goods in needs. Counterfeiting is the destroyer of confidence. Since money is simply the confidence in future purchasing power, the US spends billions fighting counterfeiting. However, the largest counterfeiter in the world right now is the FED; It’s printing money out of thin air and engaging the very behavior that the Secret Service are trying so hard to fight. Money printing at any level and on any scale will erode confidence and create inflation. The USD still has an edge though.
The USD is also a strong proxy in oil. When the US when off the gold standard in 1971 everyone though the USD was a now a 100% fiat currency. That isn’t technically true, at least on paper. You see someone was smart enough to price oil in USD’s effectively backing the USD in oil. If you want oil you have to trade in USD. So the reserve currency status coupled with the fact that the USD is backed by an oil proxy makes it a safe haven in the time of crisis. Confidence can be lost here too. Other countries can start trading oil in other currencies and other countries can via for reserve currency status. However the last time a country tried that, Iraq, the US invaded. Iran has now started trading oil in other currencies so it will be interesting to see if the US allows that to go on for much longer. The bottom line is that if the US loses its grip on Oil or it monopoly of a reserve currency the inflation bug will hit. Right now the Oil/Reserve status/USD triangle is the damn holding the inflation flood back but how long can this go on? Probably longer than most people realize since this is ONLY area where the US can run the clock and stall. That is important for a number of reasons that I will go into later.
Spare capacity
As an engineer I deal in inefficacies all the time. I strive to make things more efficient on an hourly basis. So when people mention “Spare Capacity” to me my immediately thought is driving out inefficiencies in any process. Here is the problem; there is a fundamental law of the universe that says you can only be so efficient. Car engines have a limit on their efficiency much the same way the economy does. Car engines lose 70-80% of its efficiency though noise, heat, friction, and air resistance. So I’m a firm believer in the “Inefficient market hypothesis” and that the very natures of markets are inefficient. I would go so far as to state the very existence of a market proves there are inefficiencies and that any market will takes advantage of those inefficiencies for gain. The entre reason people start business is because they feel they can ether take advantage of the inefficiency of a competitor or find a niche others have missed and exploit it. So I would argue that noise, heat, and resistance are fundamental constants in any market and you would be hard pressed to drive them completely out of the process. If you could make a market 100% efficient then it will dissipate within its own Hawkins Radiation. I think this happens in real life as paradigm shifts happen and people stop buying and selling within outdated markets and shit to others. These efficient markets never truly evaporate but the structure is now set for perpetuity. An example of this would be antique dealing. The markets are small enough to be set, the know quantities are generally known, and the values are known. They’re very little in the way of surprises. Sure there are outliers to this, of course, but it’s only an example.
So does the US have more capacity? I would argue that it may have some capacity left but that every dollar driven toward efficiency gains will be meet with diminishing marginal utility, friction, resistance, and noise. I would say that as a modern super power the US is probably the second most efficient manufacture on the planet next to Japan (which is why Japan can limp along in a zombie banking structure but more on that later).
Despite what popular opinion might be the US is still a manufacturing powerhouse. Over 60% of products purchased by the US are still manufactured in the US. So the problem isn’t manufacturing, per say, the issue is the way stuff is manufactured in the US. In the relentless drive for efficiency, businesses are pressed to reduce costs. There are only two areas the companies can cut costs 1) Employment costs and/or 2) production costs. I make a distinction between the two because one doesn’t necessarily drive the other and vice versa. I would say the US as a whole is starting to push the barrier of production efficiencies. The US is very effective and automated production and delivery. So the only real cuts left to make is in the payroll side. So the efficiency gains in this area have come from the paradigm shift in the employment process over the last 20+ years. Companies like Wal-Mart and Manpower now drive the new employment process in the US. In the pursuit in squeezing profits Wal-Mart leans on it suppliers to shift manufacturing oversees and manpower has become the employer of choice for company’s looking for “off book” employees. Companies are now hiring employees though a third party employment services, en mass, to avoid unions and other cost drivers. These are driving employment cycles whereas employees become more and more expendable. In essence employment becomes a revolving door in the US. If you want to speak about “uncertainty” in the market just talk to someone that has been unemployed for more than 12 months. There is very little job security these days, in fact, as employees become “skilled” they are let go at risk. A new batch of employees are then hired and re tooled. Also, companies are using employment services to learn everything about a potential employee. So not having an unstained pool of long term skilled labor coupled with the company knowing every aspect of an employee’s life has created information asymmetry and has created the employment equivalent of a Market for Lemons. All of this leads to a problem that the drive to reduce employment cost has rapidly approached the asymptote of employment efficiency. There is still a ways to go till it hits 70-80% but this will lead to unexpected market vicissitudes.
With employment instability, increased low-wage employment prospects, low employment mobilization, and an asymmetrical employment quality process will drive the middle class to ruins. We will see and spike rotational employment and the days of people working 20, 30, or 40+ years at a single company will be a relic of the past. Only to be talked about and cherished as “it was better when” conversations. Before you paint this as some type of pro-union rant I should tell you that I’m not pro union and that unions did have too much power in the mid 20th century. But the pendulum has swung too far the other way and the environment has returned to an early 1900’s pro-corporate. The very environments were unions were forged with blood and violence. I feel unions have become a necessary stop gap against the absolute and unrelenting corporate environment. Maybe there will be a corporate bill of rights that defines the rights of living humans OVER those of fictitious persons.
So what is going to happen?
The bottom line is that the US no longer has the credibility for defect spending there isn’t much capacity left in the economy without permanent damage to the middle class. On the bright side, the US will be able to shore up the USD by hiding behind its reserve currency status for the foreseeable future (i.e. 10-20 years) However, the US is banking sector and the reserve currency status of the USD are both going to experience Japanification. It won’t be totally dead but it won’t be completely alive ether. If will be an undead reserve currency market. There will be enough confidence in the underlying numbers (i.e. GDP, CPI, etc.) to keep the US limping along. Optimism will drive markets but in reality the strong numbers people are desperately waiting for will never transpire.
I believe that MMT is essentially running the clock on currency confidence. The great thing about people is that they quickly adapt to any economic situation thrown at them. We have seen this time-and-time again in many failed economies. Economies follow the Theory of Evolution almost perfectly. There is an external event that leads to a fundamental economic shift and then after that event there is relatively short period of rapid diversification and adaptation to that new outside stimulus. You see tis all the time both positive and negative. The Dot Com boom is a great example of the positive and negative shifts. There was rapid diversification (expansion), adaptation, and eventual collapse.
After the event those that have adapted begin cope with the new paradigm. We see this over and over again: Zimbabwe, Argentina, Brazil, Germany, etc. The populations of these economies got on with their day-to-day lives. The problem with these economies is that even though they are functional economies there are far more losers then winners. After the diversification takes place then this begins the long process of the new status quo. This is where Japan is at today. It had a rapid market meltdown and has since experienced a long process of zombie banking once the population adapted to the new paradigm. The reason Japan has avoided the fate of other similar historical economies is that Japan is still very efficient at manufacturing and the workforce is aging faster than it can be adequately replenished. Japan cannot afford employment information asymmetry. Again some will prosper in the new economy others will not. The trick is to get a majority of the population in the “prosperous” side of the equation while minimizing the losers. The US is currently shifting form the majority of people prospering to an economy where vast amounts of people will be left out. There will be outliers since there will always be some segment of the population that ether can’t adapt or can’t cope in the next economy. If we can keep the economy limping long enough then a Zombie banking sector will become the status quo just like Japan. The FED rate will stay at 0% for the foreseeable future. So I don’t foresee a full collapse or default of the US but since there is more money moving to so few winners there will not be enough winners to spend all the money necessary to drive the economic engine of prosperity in the US. Maybe zombie capitalism is eventual evolution of all efficient markets.
"MMT’ers have come along and told us that "Printing money" through deficits is "never a problem" as long as you have your own currency and the economy is running below capacity. It sounds like the way out of this mess right? Well no, it isn’t. "
Today its known we are in a zero bound trap....and for 3 years the US has printed and inflation is where? we actually see dis-inflation....
"As an engineer I deal in inefficacies all the time. I strive to make things more efficient on an hourly basis. So when people mention “Spare Capacity” to me my immediately thought is driving out inefficiencies in any process"
Then I wonder what sort of engineer he is....Spare capacity does not equal in-efficiency, indeed if you improve a process with efficiency you make more spare capacity or use less materials.....
"without permanent damage to the middle class" too late, done and dusted I believe....
BTW what is a MMT'er ?
regards
Even Paul Krugman tears MMT apart...
http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/
neo-vudu economics indeed.
regards
Maybe, maybe not. My problem with the theory is that it is all predicated on growth and places emphasis on utilising labour while avoiding the issue of the scarcity of other resources needed to produce stuff. However before discounting it completely as ill conceived you may want to look at :
http://neweconomicperspectives.blogspot.com/p/modern-money-primer-under…
where several proponents are putting together an explanation of the theory.
I asked Karl Denninger over at market Ticker his thoughts, since i have his e-mail on speed dial, and he had this to say:
“The simplest answer is this:
Two exponential functions, where one exponent is larger than the other, will always run away from one another. Therefore, debt may never grow faster than production, or for any positive rate of interest you will always eventually go broke.
If you attempt to avoid this outcome by printing money, which is what MMT claims can be done, you are simply changing the divisor (the number of dollars) and each must therefore, by simple mathematics, purchase fewer goods and services. This is no more of a solution than it is to take a banana, cut it in half and claim you now have two bananas. In fact, such a claim is a pure act of fraud.”
-- Karl
I’m sorry but “It’s different this time” doesn’t cut it. The economy is a fractal pattern and doesn’t fit nicely in covenant simple hypothesis. It just as silly as stating that the “bereavement probability” accurately describes that risk factor of a CDO…it’s pure BS.
FYI the Australians are worried about the slowing Chinese housing market
ONE of Australia's leading Beijing-based economists is forecasting a sharp correction in China's housing sector before the end of the year.
This could cut commodity prices by 20 per cent or more, and hit the Australian sharemarket.
Polices designed to calm the Chinese market -- which was growing at more than 10 per cent by the end of last year -- have been unleashed by policymakers in the past 12 months.
Here's a note of insanity:
http://news.ninemsn.com.au/national/8286134/no-concern-over-low-deposit-loans-buswell
"West Australian Housing Minister Troy Buswell is confident a new low-deposit home loan won't put the state on the same path as subprime mortgages in the US.
WA's Bankwest has launched a new home loan exclusively for the state's first home buyers which will require only a three per cent deposit on the value of the property.
Mr Buswell said the low deposit rate, which is well under the normal 20 per cent rate, would help many first home buyers aspiring for home ownership overcome a significant hurdle"
No, BankWest is a subsidiary of Commwealth Bank CBA
Here's a list of shortable stocks. http://www.asx.net.au/data/shortsell.txt
Buswell goes on my ever-longer list of 'idiots'.
What was the problem with the sub-prime? Lack of income. Because?
Exponential growth - the need for - drove the banks there, sooner or later they had to run into a lack of the ability to keep the ponzi going.
I seriously suspect that only physics Professors - Hubbert, Deffeyes, Bartlett, Lloyd, Goodstein, Mubus et al, are going to say what is happening, but that the media - and via them everyone else - are going to stick to the economics patter.
We lose, as a race, if we lose that race.
He;s a Polly of the two major parties in politics....both no matter the country are wedded to growth. Without that neither can offer a solution to problems. It seems even the Green party in NZ has run off a cliff in terms of unsustainable behaviour and pork barel politics.
regards
Haha the "corporations are people" was pretty well done.
The scary thing is there was an element of truth to it, legally at least.
It reminds me of that film "The Corporation" which is well worth watching and a free download, also on Youtube.
Where they note a corporation's directors are legally required to do what is best for the company, regardless of the harm created.
Then they try to figure out What kind of person would a corporation be if it was a person? and conclude it would be clinical psychopath.
http://www.youtube.com/watch?v=wkygXc9IM5U&feature=relmfu
http://www.youtube.com/watch?v=s5hEiANG4Uk&feature=relatedIt will be hectic – news will arrive fast and furious.
There isn’t only instability on financial and economic fronts, in some regions political, social tensions are coming to boiling point.
I see the Dow Jones below 10’000 – Gold above 1’900 and the NZ$ above 0.84 - on Friday the 19th of August.
Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.
Where is the money ???
As forecasted by a few and denied by the masses, including politicians/ policymaker etc. the world enters another recession probably far worse. The rollercoaster down begins - Friday 19th of August 2011.
Next to financial/ economic trouble, worldwide political instability (Middle East) will increase turmoil scenarios.
Natural disasters, e.g. caused by climate change will lead to massive costs for already debt driven societies.
Inequality and unemployment issues, well….. we are just idiots. Hello – history is back.
Is it almost too late - 12:05 ?
http://www.youtube.com/watch?v=EQqDS9wGsxQ
Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.
Growth is over - PM.
10% + NZunemployment will cause massive problem within our society.
PM - cancel current and new overseas infrastructure contracts in the billions and let the NZworkforce do the jobs.
..and PM plan our economic future on 100% sustainability - explained in the video link above.
..and none joints the debate - and nothing changes. We just eat and digest, what stinky bank managers and politicians of all colours are telling us – daily - hourly.
Start your day with some idiocy...have a read of this crap: http://www.voxy.co.nz/politics/its-time-tax-justice-take-gst-food/1273/98403
Wolly, watch the core inflation.....if that starts to rise then we have a problem, otherwise its not a problem, except its showing singd of dis-inflation.....and again, there needs to be more money in ppls pockets, there isnt.....
I think of teh economy as a plane approaching stall speed we have inflation trying to go up but the engine is stuttering due to lack of fuel/energy...when we stall and it looks certain we will, then we dive into a depression....Many I suspect would pray for 4.4% inflation as an alternative to deflation.
regards
Watch what...the data comes from a govt mouthpiece...believe that and you believe in flying pink pigs.
Still I wait for the day a journalist has the guts to ask Bollard or Key to explain why they are allowing inflation to rise!
And if they do get the question out....to cut into the spin and ask why the pair of them are debasing the Kiwi$...to put the pair of them on the spot....they blather on about the need to save but are happy to debase the savings.
Why is Bollard not instructed to keep real inflation between zero and half of one percent...why not?
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