Monday, August 31, 2009

Greg Mankiw Ignores the Price Model...

...and then seems to be confused with how to ration spots in his Econ seminar. Writes Mankiw:

I am teaching a Harvard freshman seminar this semester (in addition to ec 10), and one of my first tasks is to choose the 15 students. About 200 applied. That means that getting into my seminar is about as hard as getting into Harvard--except that you first have to get into Harvard before you can even apply!

Having spent much of yesterday reading through the applications, I fully recognize how difficult and somewhat random such admissions processes are. I could fill almost the entire seminar with kids with perfect SAT scores (2400), but I won't, as there is more to life than test scores. I am looking also for passion about the subject, interesting life experiences, and a balance among the group of students to promote good discussion. But judging that from a few brief essays is very, very hard. To those students I do not pick: I am sorry, and it is my loss as well for not having the opportunity to get to know you better.
So what exactly would be the problem with Mankiw instituting an auction and opening the course up to the highest bidders? And how can you really believe this guy when he talks about prices as signals, when he refuses to use the system himself? Then again, may be he won't talk about prices as rationing signals.

Economics Blogs as a Whole New Art Form

“The people that are blogging are part journalist, part economist, part agitator, and we’re seeing a whole new art form, if you will, develop right before our very eyes,” says Robert E. Litan, Kauffman Foundation vice president of research and policy.

What Would a Federal Reserve Audit Show?

WSJ explains:

The GAO’s oversight of the Fed system is limited to areas outside of monetary policy. That includes everything from bank supervision to consumer issues to payment systems. The Fed’s annual report covering the calendar year 2008 listed seven completed GAO reports and eight projects underway. Fed Vice Chairman Donald Kohn testified this summer that the GAO, as of June 29, had 19 projects underway involving the Fed, including 14 launched at the request of Congress.

The GAO can’t review most of the Fed’s monetary policy actions or decisions, including discount window lending (direct loans to financial institutions), open-market operations and any other transactions made under the direction of the Federal Open Market Committee. It also can’t look into the Fed’s transactions with foreign governments, foreign central banks and other international financing organizations. (The GAO in 1993 produced this report on its limitations. The Federal Banking Agency Audit Act of 1978 put other parts of the central bank’s operations under GAO purview, as they had been for a decade until 1933.)

The Federal Reserve Board’s Office of Inspector General retains an outside auditor — a private accounting firm — to review the Board’s financial statements and compliance with laws affecting those statements. Deloitte & Touche LLP served as the outside auditor of the Fed Board in 2007 and 2008. The Board selects outside auditors to audit the 12 regional reserve banks.

H.R.1207, called the Federal Reserve Transparency Act of 2009, simply directs the Comptroller General (who heads the GAO) to complete an audit of the Federal Reserve system — the Board and reserve banks — before the end of 2010 and report his findings to Congress.

Mr. Paul, in an interview, said he expects the audit to detail who the Fed lends to, how much it lends and what agreements it has made with foreign central banks and financing organizations. While the bill only seeks a one-time audit, he said he wants the Fed to be audited at least annually with the report — and details of its transactions — disclosed publicly.

And Paul starts battling the diluting and takeover of the bill by Big government advocates. WSJ again:

The bill has attracted 282 House lawmakers as co-sponsors, or almost two-thirds of the chamber. It’s expected to receive a vote in some form by October. Mr. Paul said in the interview that Mr. Frank, the Financial Services Committee chairman, is leaning toward incorporating the provision into broader legislation overhauling financial regulation. But, Mr. Paul added, “when you have that many cosponsors, there might be an opportunity to actually bring it straight to the floor.”

A companion measure in the Senate, S.604, is called the Federal Reserve Sunshine Act of 2009 and includes language nearly identical to the House version. The bill, written by Sen. Bernard Sanders of Vermont, has 23 co-sponsors.

U.S. Holdings of Foreign Securities Collapsed at Year-End 2008

At year-end 2008, the recession clearly destroyed equity value of foreign equities held by Americans and American corporations.

Preliminary data from an annual survey of U.S. portfolio holdings of foreign securities at year-end 2008 was released today.

The survey measured U.S. holdings at year-end 2008 of approximately $4.3 trillion, with $2.7 trillion held in foreign equities, $1.3 trillion in foreign long-term debt securities (original term-to-maturity in excess of one year), and $0.3 trillion held in foreign short-term debt securities. The previous such survey, conducted as of year-end 2007, measured U.S. holdings of $7.2 trillion, with $5.2 trillion held in foreign equities, $1.6 trillion in foreign long-term debt securities and $0.4 trillion held in foreign short-term debt securities.

The survey was undertaken jointly by the U.S. Department of the Treasury, the Federal Reserve Bank of New York and the Board of Governors of the Federal Reserve System.

Pay People Not to Work...

..and they won't

Florida has borrowed $45 million to pay the unemployed and officials estimate that it will borrow $1.2 billion by the end of the year for such payments.

Florida is the 19th state to borrow money to keep unemployment benefits flowing after the trust fund ran dry.

Will There Be Another Milton Friedman?

Tyler Cowen writes:
Dan Klein, guest-blogging at AustrianEconomists, poses the question and says no, there will not be a classical liberal advocate of comparable stature. At least not anytime soon:

With the postwar re-awakenings, bold thinkers defied the cultural ruts of their times. They rediscovered pieces of the liberal understanding. Mises, Hayek, Friedman, Buchanan, Tullock, Rothbard, Kirzner, Alchian, Sowell, Coase, Bauer, Simon and Demsetz developed new statements of parts of liberal wisdom. Because it had been dead and buried, it now seemed fresh and original. They earned status as epic figures by fresh pioneering and academic kudos. But what they formulated and taught to all of us was the low-hanging fruit of all that had been forgotten. I’m not saying that everything they teach had been taught 150 years prior. But a lot of it had, and the basic verities pretty much all had....

I don’t think that a clone of Milton Friedman could today become Milton Friedman. To get on in Econ he’d have to do a lot more math, and identify with “normal scientists.” Back in the day, Hayek, Coase, and Buchanan could eschew math and still end up with Nobel prizes. Not today. Normal scientists won’t embrace you academically if you don’t seem like their kind. You would have to become their kind. You wouldn’t develop liberal vision and motivation. Or, if you did you wouldn’t become first among your peers at a top department (even, that is, if you had the endowments of a Milton Friedman).

The culture generally is becoming more fragmented, because of technology. But technology is making the academic discipline more integrated and monolithic, even at the international level. There is no “freshwater” vs. “saltwater” and so on. It is like the baseball player market, one big pyramid.The top departments are alike and the rest strive to maintain their standing in the pyramid. Regardless of academic standing, how is the modern clone of Milton Friedman to cut a figure? The low-hanging fruit has been plucked and digested by the liberal movement. A new young brilliant dynamo could write a nice book like Free to Choose or Road to Serfdom, but who would care? It’s all available in another dozen books that have appeared since 1960.


There is more at the link and of course you can see the link to David Hume's ideas about the posts of honour being filled. I agree with Dan.
Klein and Cowen are so caught up in the government captured university education structure that they can not see the revolution in front of them. And this is after Cowen writes a pretty damn good book that, in part, points to the way the internet is changing the processing of information.

Any students out there thinking about economics should dismiss this talk from two pretty bright guys who suffer from near Stockholm syndrome thinking, about what can and can not be done as far as breakthrough thinking in the framework of clasical liberal economics. It will happen, but like the way Mises did, it will be done from outside the traditional full university sponsored setting.

Anybody who can write a sentence like this, or agrees to it:

I don’t think that a clone of Milton Friedman could today become Milton Friedman. To get on in Econ he’d have to do a lot more math, and identify with “normal scientists.”
is simply a wimp who fears to talk truth to power.

WhatReallyHappened.com Gets It

They write:

This sounds like Barney Frank wants to hijack Ron Paul's audit of the Fed to make sure only some of the Fed gets audited.

Actually, the audit will probably be directed in such a fashion that the result of the audit will call for even more regulation.

The Intensification of the Great Depression

UCLA economist Lee E. Ohanian writes in a new paper:
I develop a theory of labor market failure for the Great Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.
The downturn in the economy during the 1930's was started as a result of the boom-bust money manipulations of the Federal Reserve. However, Ohanian is spot on in understanding that the downturn was intensified and extended as a result of such policies as the attempt to prop up wages during the downturn.

Alert: Geithner Press Conference Saturday

After more global plotting, Secretary of the Treasury Tim Geithner will hold a press conference at the conclusion of the G-20 meeting of Finance Ministers.

The conference will be held at Queen Elizabeth II Conference Centre in the Churchill Auditorium Broad Sanctuary, London.

The press conference will be held at 4:30 British Srandard Time.

On "Acid Test"

Where does the term "acid test" come from?

In order to figure out what they are buying, a jeweler or broker will drop a bit of acid on the exposed metal of a piece of jewelry, often after making a chink in the surface with a file or sharp tool. Thus, the term "acid test".

Unlike base metals, precious metals, including gold, do not corrode easily. Thus, base metals will fizz or bubble when immersed in acid, while precious metals would remain unaffected.

It's a Bull Market for Pawn Brokers

The demand for cash is very high.

San Diego Jewelry Buyers reports a steady increase in immediate cash loans on luxury collateral, such as fine jewelry, gold coins, rare timepieces, and large carat diamonds.

According to Carl Blackburn, president of SDJB:
Since the second quarter of 2009, when we increased our loan limits on qualified collateral, we have seen a notable increase in 25-50k loans, on everything from high grade vintage watches and large estate diamonds, to rare jewel-studded writing instruments and custom made fine jewelry" says Blackburn.The credit crunch has been especially hard on many high net worth entrepreneurs in San Diego.And fortunately we've been in the position to help many small businesses maintain their liquidity after they've been turned down by banks or other institutional lenders who continue to tighten their purse-strings.

Shanghai Index Smashed

It's in "official" Bear Market territory.

The Shanghai Composite Index dropped 6.7 percent, the most since June 2008.

It has declined 23 percent to 2,667.75 since Aug. 4, more than the 20 percent drop that is the common definition of a bear market.

China’s index is the worst performer this month among 89 benchmark indexes tracked by Bloomberg globally.

Stockpile Incandescent Light Bulbs, Now

Government regulations are getting more absurd and irritating by the day, causing a continued drop in the standard of living for us all.

If you travel a lot, you will notice that most hotel lobby and conference room temperatures are at near shivering levels. This is because there are federal government regulations that mandate the low temperatures in hotel common areas, "to kill off bad bacteria." Of course, the low temperatures also kill off good bacteria and annoy most guests, but this is a great trade off as seen through the eyes of a bureaucrat who wants to exercise some power.

The newest irritation, that will now impact all Americans, is in The Energy Independence and Security Act of 2007. It will effectively phase out incandescent light bulbs by 2012-2014 in favor of compact fluorescent lamps, or CFLs.

Howard Brandston in WSJ writes on this latest anti-human legislation:
We are not talking about giving up a small luxury for the greater good. We are talking about compromising light. Light is fundamental. And light is obviously for people, not buildings. The primary objective in the design of any space is to make it comfortable and habitable. This is most critical in homes, where this law will impact our lives the most.
I posted on this back in July. A similar ban is going into effect in the Euro countries, and you are getting huge stockpiling of incandescent light bulbs in Europe.

The justification for this mad legislation is that it will "save" energy. But, the decision to "save" energy is made every day by consumers. Most consumers don't travel by private jets. In part, because of the fuel cost (along with other costs) are too high. The price signal is that everyone can not fly by private jet.

F.A. Hayek taught us ages ago that prices are signals to the relative scarcity of goods. If we really needed to "save" more energy because supplies of energy are dwindling, we would be signalled by higher prices that would cause us to seek alternatives, that's how the free market works.

With this new light bulb legislation madness, though, incandescent light bulbs are to be replaced with compact fluorescent lamps that actually cost more. So they do not only provide poorer lighting, but the price signal, by their being more expensive, would normally signal to the consumer not to buy them, since their higher price means the components of compact fluorescent lamps are in greater demand in other sectors of the economy.

In short, this is economically ignorant legislation. And I'm sure that the inventor of the compact fluorescent lamp, being GE, who is one of the biggest lobbyists in the history of mankind, is just a coincidence, and that just because GE brings good thing to GE, it has nothing to do with this absurd legislation.

You can, though, fight GE on this one, and protect your eyesight, by stockpiling incandescent light bulbs now, before the bought and paid for GE Congress makes even this move illegal.

Paul: Yes, A Vote Is Coming

There have been some reports over the weekend that indications Barney Frank will allow a vote on Ron Paul's "Audit the Fed" Bill were inaccurate. Now comes word from Paul himself that Frank appears ready to allow such a vote. Here's Paul's view via WSJ:

Rep. Ron Paul said he has a commitment from the chairman of the House Financial Services Committee, Barney Frank, to advance the Texas Republican's legislation opening the Federal Reserve to broader federal audits.

In an interview Friday, Mr. Paul said Mr. Frank agreed to allow a vote on the bill and to work on language that would allow the Government Accountability Office, the investigative arm of Congress, to audit the Fed's monetary-policy operations. While details are unresolved, the discussions increase the likelihood that some version of Mr. Paul's bill will pass the House.
.
"Barney told me, 'It's going to come. You're going to get what you want,' " Mr. Paul said. "We're going to have some hearings and we'll get a vote."

A spokesman for Mr. Frank said the Massachusetts Democrat shares the goal of increasing transparency at the Fed. But he hasn't inked specific language and "wants to be sure that some parts of the Fed are adequately protected," the spokesman said...In the interview, Mr. Paul -- whose book, "End the Fed," will be published next month -- said he doesn't want the audits to interfere with monetary policy.

But he said he wants to know more about the Fed's dealings with foreign central banks, foreign governments and individual firms. "I want to know who they're loaning the money to," he said.


(Thanks to Lori for her link to those questioning the early reports)

Disney to Buy Marvel for $4 Billion

Comics worth $4 billion, who knew?

Marvel controls rights to 5,000 comic characters, including Iron Man, Spider-Man and Captain America.

Phony Government Bank Bailout "Profits"

The NYT headline blares:
As Big Banks Repay Bailout Money, U.S. Sees a Profit


NYT continues:

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.


If you take a "stake" in an outhouse, then put $10 billion in cash inside the outhouse by using all kinds of methods from direct infusions to "trades" where you allow the outhouse traders an edge, surprise the outhouse is going to climb in value.

These profits are as phony as the lying Barack Obama.

Sunday, August 30, 2009

Does the Plunge Protection Team Manipulate the Gold Price?

Ron Paul thinks so. Here's more from Chapter 3 of Ron Paul's soon to be published (Spt. 16) book, End the Fed:

Central banks in recent years have been selling constantly, and I’m strongly suspicious that the President’s Working Group on Financial Markets—the “Plunge Protection Team”—participates in the gold market as well to keep the price suppressed.

As recently as November 2008, Bernanke admitted to me in a Financial Services Committee hearing that the only time gold is discussed with other central bankers is for the purpose of selling—never to consider its merit in serving as a reserve for a
new currency agreement
.

Ron Paul On the Smartest Fed Chairman and Gold

As I posted earlier, Chapter's 1 and 3 of Ron Paul's new book, End the Fed, are available for free, here.

While Chapter 1 is pretty much an introduction to the book without a lot of detailed analysis, Chapter 3 is full of awesome anecdotes from Ron Paul's life. Here's Paul on the Fed chairmen, and gold:

Being in Congress in the late 1970s and early 1980s and serving on the House Banking Committee, I met and got to question several Federal Reserve Board chairmen: Arthur Burns, William G. Miller, and Paul Volcker. Of the three,I had the most interaction with Volcker. He was more personable and smarter than the others, including the more recent board chairmen Alan Greenspan and Ben Bernanke.

In my second tour of congressional duty starting in 1997, I had the opportunity to quiz them. In 1980, a major piece of banking legislation, the Monetary Control Act, was passed; many considered it a prelude to the savings and loan crisis in that decade. I expressed my concern to Chairman Volcker at a hearing that reserve
requirements would be lowered to zero and the Federal Reserve could buy any
asset, including foreign debt.

Volcker invited me to a private breakfast to dissuade me from my interpretation. Lew, my chief of staff, went with me to the breakfast. Interestingly, we arrived early and were talking with Volcker’s aide when Volcker arrived. Before acknowledging Lew or me, he quickly went to his aide and asked,“What’s the price of gold?”

At the time, the price of gold was soaring, and there was deep concern about inflation and the dollar’s value on the international exchange markets. I believe central bankers are always looking at the price of gold, because they know what many of us know: in the long term, the best gauge for the soundness of a currency is the
gold price.

How to Read Human Action

At the Mises Circle event that I attended in San Francisco on Saturday, I talked for a bit with some Google employees who have formed a reading group. They are now working their way through, Ludwig von Mises' book, Human Action.

As I have said before, in my view, Human Action is the most important book ever written in the field of economics. If you master this book, you will have the equivalent of a black belt in economics. That said, Mises was a scholar in the old school tradition. Human Action is filled terminology, and with references to various historical events, that almost any student with simply a basic American college education is not going to be familiar with. That's why when the Google group told me they had not heard of Mises Made Easier by Percy Greaves, I realized it was time for this post.

You can not possibly get a full understanding of Human Action without Mises Made Easier by your side. Greaves explains all the references in Human Action that Mises makes from terminology to historical footnotes.

This is how I tell people to read Human Action:

First read through Mises Made Easier, so that you get a sense for the terminology and historical background that Mises references. Then get yourself a copy of Robert Murphy's Human Action Study Guide.

Read the first chapter of Murphy's study guide, then read the first chapter in Human Action, then go back and re-read Murphy's chapter. Do this for all the remaining chapters. Read a Murphy chapter, read the Human Action chapter and read the Murphy chapter again. Reading Murphy's guide will ensure that you won't miss anything, since Mises packs significant insights into every paragraph, if not sentence. Murphy catches most of them and explains them in easy to understand language.

Saturday, August 29, 2009

Following David Rubenstein's Money

NYT reports:

...employees from more than two dozen investment firms, including well-known firms like Blackstone Group and Carlyle Group, contributed more than $1.97 million to the campaigns of various officials — governors, would-be governors and treasurers, among others — who could have influenced which firms won lucrative contracts to manage public pension fund money.

The contributions by executives such as Stephen Schwarzman, a Blackstone co-founder, and David Rubenstein, who co-founded Carlyle, were completely legal.

But for some, the donations to officials such as Alan Hevesi, the former New York comptroller whose aides recently pleaded not guilty to corruption-related fraud charges, will raise questions. Some of the donations would no longer be allowed under policies that the investment firms have since put in place.

USA Today found that Mr. Rubenstein contributed $48,000 since 2002 to Mr. Hevesi’s election campaigns. Mr. Schwarzman; his wife, Christine; and Pete Peterson, another Blackstone co-founder, gave a total of $30,000 to Mr. Hevesi and two other candidates who ran in 2002 to succeed H. Carl McCall as New York comptroller, the newspaper said.

All of the firms in USA Today’s analysis were mentioned, but not charged, in connection with so-called pay-to-play investigations by the Securities and Exchange Commission and the office of New York state’s attorney general, Andrew M. Cuomo.
Rubenstein lives in Washington D.C. Why would he be donating to the campaign of the New York state Comptroller, other than for access?

Asked about the Carlyle contributions, a Carlyle spokesman, Christopher Ullman, told USA Today that they “were given by Carlyle employees on their own behalf and were properly disclosed to the public.” He added that the firm now has a $300 limit on contributions to state or local officials.

What this new limit means is that Carlyle will go out and hire a middleman "adviser" that will get them the access, and it will be the middleman "adviser" that will make the contributions. Money flow to power points, like water going down hill, is not stopped by a rock in the way, water and aggressive operators will find a way around it.

Healthcare Plan is Also Negative for Jobs

The two main health care reform bills that Con­gress is currently debating each include some form of "play-or-pay" employer mandate: America's Afford­able Health Choices Act of 2009 (H.R. 3200) and the Affordable Health Choices Act. The House "Blue-Dog compromise," a version of H.R. 3200, also includes a play-or-pay employer mandate.

They force all employers to offer health insurance or pay a tax to the federal government. This will impact between 95 million and 105 million work­ers, and 509,000 to 1.4 million employers, including up to 1 million small businesses, according to D. Mark Wilson.

The mandates will cost businesses at least $49 billion per year and put 5.2 million low-wage workers at risk of unemploy­ment or reduced working hours, Wilsom estimates.. The prospect of fewer job opportunities in the future will put another 10.2 million workers at risk of slower wage growth and cuts in other benefits. Up to 382,000 low-wage unskilled workers are likely to lose their jobs

Here's One Way to Get Buyers for Treasury Securities...

Force money market mutual funds to buy them.

NYT's Joe Nocrea writes:

The Securities and Exchange Commission, meanwhile, is proposing new rules for money market funds: stricter limits on the kinds of securities they can hold, for instance, and new liquidity requirements. There is even talk of a “liquidity facility” to help the industry though another crisis of the list for safety
You just know that a top rank for safety is going to go to Treasury securities. There will be some type of risk index, which will result in every money market mutual fund buying certain amounts of Treasury securities to meet the risk index requirements.

In the column, Nocrea actually proposes the correct solution. Let the markets take care of money markets and let the funds trade around par, but not necessarily at par.

Friday, August 28, 2009

Rep. Frank: House Will Pass Ron Paul’s ‘Audit the Fed’ Bill This Year

,Congressman Barney Frank (D-MA) has told a Massachusetts town hall that Congressman Ron Paul’s (R-TX) bill to audit the Federal Reserve bank will clear his chamber by October.

Over half of the House members have signed on to the bill, H.R. 1207.

“Here’s what we plan to do: I want to restrict the powers of the Federal Reserve in a number of ways,” he said. “First of all, they will be the major losers of power if we’re successful, as I believe we will be, setting up that, uh, financial product protection committee.”

The financial product protection committee Frank is referring to is probably the Consumer Protection Financial Agency, where it is rumored that Obama will name Elizabeth Warren to head. Trust me, if you have to choose between Bernanke and Warren, take Bernanke every time. Warren does not understand item one about economics and has never seen a regulation she didn't like. Then ,of course, there are her ties to ACORN.

Here's the difference between Bernanke and Warren. Bernanke doesn't want to destroy the country, he wants to loot it. Warren wants to destroy it.

As I have pointed out a number of times before, Ron Paul has the best of intentions but, he is playing with fire here.

If the left gains control of this Bill, and it appears they might, they will do to the financial sector what they are doing to healthcare.

“The Federal Reserve is now charged with protecting consumers,” continued Frank. “They were supposed to do sub-prime mortgage restricted … Congress in 1994 gave the Federal Reserve the power to adopt rules to ban bad sub-prime mortgages. … They have the power to ban credit card abuses. They have the power to do most of it. They, under Greenspan, did nothing.

“Under Bernanke, they started to do things, but only after Congress started, when I became chairman of the [House Financial Services Committee], we began to act on these things: Sub-prime mortgages, credit cards, overdraft … And after we started, the Fed did. So, that’s why one of the reasons why in the new consumer protection agency we will take away from the Federal Reserve the power to do consumer protection.”

Frank added that Congress will reverse an action by the Democratic Congress of 1932 that gives the Fed authority to lend money at will.

“Under section 13.3 of the Federal Reserve Act, they can lend money to whoever they want,” he said. “We are going to curtail that lending power. We are going to put some constraints on it.”

He concluded: “Finally, we are going to subject them to a complete audit. I’ve been working with Ron Paul, the main sponsor of that bill …” Several in the audience applauded. “He believes that we don’t want to have the audit appear as if it is influencing monetary policy because that would be inflationary … One of the things that will show you is what the Federal Reserve buys and sells. That will be made public, but not instantly. If it were instant, you would have a lot of people trading off that and it would have too much impact on the market. Again, Ron agrees with that. So, we will probably have that data released after a time period of several months — enough time so it won’t be market sensitive.”

I am afraid if this bill passes, Ron Paul's work will have only begun, since he is going to have to steer this away from those who seek to gain control of the Fed so that they can print money for their own set of cronies.

Here's the video of Frank's remarks:


U.S. Mint Issues New Nationwide Call for New Artists

The United States Mint is inviting artists from throughout the United States to apply for participation in its Artistic Infusion Program.

The new invitations seek up to six associate designers who will join the current AIP designers under contract with the program. Applications will be accepted on a rolling basis beginning September 1, 2009. There will be three deadlines (November 9, 2009; March 8, 2010; and July 6, 2010), after which the artists who have applied will be valuated for selection to the AIP. Applicants are encouraged to apply as early as possible prior to the deadline for which they wish to be considered.

In the past, AIP artists have submitted successful designs for high-profile coins, such as American Eagle Platinum Coins and the First Spouse Gold Coins. (Under the First Spouse Gold coin program, 24 karat one-half ounce gold coins are in the process of being issued to honor each First Spouse of the United States.)

What I'd like to see is an artist who designs a gold or coin that has a secret hidden profile of Ludwig von Mises or Ron Paul in it, that is pointed out only after it is minted and in the hands of the public.

BTW, so far the following First Spouse Gold Coins have been released:

Martha Washington
Abigail Adams
Thomas Jefferson's Liberty
Dolley Madison
Elizabeth Monroe
Louisa Adams
Andrew Jackson's Liberty
Martin Van Buren's Liberty
Anna Harrison

ECRI: No Double Dip Recesion

Here's a big contrast to my view.

A weekly measure of future U.S. economic growth slipped in the latest week, though its yearly growth rate surged to a 38-year high that suggests chances of a double-dip recession are slim.

The Economic Cycle Research Institute said its Weekly Leading Index for the week to Aug. 21 fell to 124.4 from a downwardly revised 124.9 the prior week, which was originally reported at 125.0.

But the index's annualized growth rate soared to a 38-year high of 19.6 percent from a downwardly revised 17.4 percent the prior week, a number which was originally 17.5 percent.

"With WLI growth continuing to surge through late summer, a double dip back into recession in the fourth quarter is simply out of the question," said ECRI Managing Director Lakshman Achuthan, reinstating the group's recent warning to ignore negative analyst projections

The ECRI numbers track a group of variables in the economy. They obviously don't put heavy weight on money supply, since the halt in money supply would have crashed this leading indicator a month or two ago.

How does the WLI work?

"It objectively measures the key drivers of the economy like credit,inventories and profits, "says an ECRI paper.

There are two problems with this kind of tracking in the current environment. First, these things tend to move up because of earlier money supply growth. What they may be detecting now is feedback from the Sept. 08 money printing (M2 nsa) into early 2009 that ranged in the neighborhood of 15% annualized.

Second,the increasing profits they are tracking are the profits that have occurred to a significant degree in the investment banking sector through manipulated trading that occurred with the help of the government which was attempting to sneak even more money into this sector.

But all of this has stopped. ECRI is just picking up the vapor trail. As to why Achuthan sticks his neck out in these unusual times to say a double-dip in the fourth quarter is out of the question, I have no idea, other than he is watching his upticking numbers and thinks they can't reverse. It happens to a lot of econometricians who watch numbers without theory behind them.

HTJackKrupansky-and-NicholasKaster

Limited Free Access to Ron Paul's New Book

Chapter's 1 and 3 of Ron Paul's new book, End the Fed, are available for free, here.

The book is scheduled for publication Sept. 16.

S&P Faces 'Scary' Correction

You can get carried by looking at technical stock data, but if you use it only to understand what is going on as far a supply and demand factors, and bullish/bearish sentiment indicators, they can be pretty good guides to what is going on.

Bill McLaren does a pretty good job of sticking to such details on a recent appearance on CNBC. I'm not sure the date of September 5 should be taken any more seriously than any other day, for a market break in Sept. or Oct., but the rest of his analysis on the stock market in the short term appears solid.

On a medium term basis, I doubt we will get the strong move out of the downturn that he expects, before the Bear Market reasserts itself, but let's take one move at a time.

McLaren also makes some interesting remarks about the dollar. Clearly, you have to factors working on the dollar now. International players are trying to bail, while Bernanke's new tight money policy is limiting new dollar supply. That's why McLaren is seeing the tug-of-war in the dollar chart. Could we be in for a surprise short-term dollar rally in September? Very possible. Indeed, if it does occur, it could be spike like to the upside.

The video of McLaren's interview is here.

Tale of an Interview

I was recently interviewed by a writer for a major mutual fund organization. (You would recognize the name.)

He started by asking me my view on the overall economy. I started to explain to him that Bernanke has not been printing any money and that I expected a severe break in the stock market and economy. I told him there were very specific reasons why these breaks often occur in the September-October period.

He replied, "I need the glass half full angle. This needs to be an upbeat story."

Me: "The glass is completely empty."

We struggled for awhile and the best I could do was say some nice things about gold stock mutual funds in the long term.

Then we went off record and he said, "You know I think you are right. I agree with you. Is it really true that they aren't printing money?"

I replied, "Yes."

"Do you think those in government know what might happen, a crash and all?", he asked me.

I said, some do.

In an all most exasperated voice, "Why do they go along with these manipulations, if they know it is wrong?"

I replied, "They are like you, when you asked for the glass half full story. They know, like you do, that if you don't give the boss what he wants you are going to be gone. Like for you, truth doesn't play into it, whether you have a job next week does."

The Smallest Bank in America

Step into a time machine.



ViaMarkPerry

The Bear Trap....

Appears to luring in most of the investment newsletter industry. These guys are mostly trend followers. If something occurs for more than two days in a row, to them it is a major trend.

The proportion of bearish newsletter writers dropped to 19.8 % in the week ended yesterday from 23.1 percent in the period that ended Aug. 18, according to a report by Investors Intelligence. This means 80% of the investment newsletter industry is advising investors to buy, during a period when Bernanke isn't printing any money! Amazing.

US ‘Problem’ Bank List Hits 15-Year High

The number of US banks at risk of failure is at a 15-year-high while the Federal Deposit Insurance Corporation fund protecting depositors is at its lowest level since 1993, according to the FDIC.

This will mean even more money that Bernanke will have to pump into the system to prop them up, so that they become attractive for Carlyle Group and company to swoop in and buy on the cheap.

The number of “problem banks” has risen from 305 to 416 during the second quarter, the FDIC said. The FDIC does not name the lenders on the “problem list” but said that total assets of that group had increased from $220 billion to $299.8 billion in the three months through June.

Mets Owner May Have Lost as Much as $700 Million in Madoff Scam

Fred Wilpon, the owner of the New York Mets, will be forced to sell the baseball franchise as soon as 2010 after incurring heavy Bernie Madoff-related investment losses, according to Erin Arvedlund, author of "Too Good to Be True."

"You can quote me. It's a matter of when. It could be as soon as next year," Averlund told MarketWatch's Jon Freidman.

Averlund wrote a piece for Barron's way back in 2001 suggesting that there were questions about Madoff's trading activities that weren't being properly disclosed by him.
Upload File
She estimates the Wilpon family may have lost as much as $700 million on Madoff-related investments.

A Mets spokeswoman said on Thursday by e-mail to Marketwatch:
The numbers speculated continue to be inaccurate. We refute what has been reported. As we have said on numerous occasions, losses incurred by the Sterling Partners do not and will not affect the day-to-day operations and long-term plans of the Mets organization. The team is not for sale in any respect." Wilpon's Sterling company controls the Mets franchise.
With a bit of psuedo accuracy, Forbes has put the value of the Mets at $912 million.

Thursday, August 27, 2009

Krugman Dreams of Zombies

Keith Kelly writes and asks me to comment on this Krugman gem, All the President’s Zombies. In the column, Krugman bad mouths the Reagan years and those who would prefer Reagan to Obama. Writes Krugman:

Washington, it seems, is still ruled by Reaganism — by an ideology that says government intervention is always bad, and leaving the private sector to its own devices is always good. Call me naive, but I actually hoped that the failure of Reaganism in practice would kill it. It turns out, however, to be a zombie doctrine: even though it should be dead, it keeps on coming.
D.C. ruled by Reaganism? Yeah right, just what I was thinking, Nancy Pelosi, Barbara Boxer, Barney Frank, Harry Reid, they are all channeling Reagan.

In truth, there was some good and some bad during the Reagan years, but Krugman really thinks it was all free market, and falsely portrays it as such. When he is attacking Reagan, what he really means to attack is free markets--a big difference.

What thrived in the Reagan years is where the free market thrived, i.e., in the new industries where government regulations didn't exist or were minimal. These industries continued to thrive under Clinton and the Bushies: the personal computer industry, the cell phone industry and the internet.

It is hard to believe but, Klueless Krugman most certainly wrote his idiotic piece using the tools that the free markets developed. The personal computer, the internet, and, heaven forbid, maybe he even conducted a Google search. Then he probably called his yoga instructor wife, on a Blackberry or iPhone, telling her, in her state of ohmm (How else could you live with the guy?), how he just single handedly destroyed the Reaganites.

Hey, I'm all for taking away from Krugman all the tools recetnly developed by the free markets. Let's take away his personal computer, the internet, Google search and cell phones. Let's give him pre-Reagan stuff, hell let's go pre-Nixon, a rotary phone, a typewriter and carbon paper.

But, let's also put him first in line for what he wants, a government planned life. Yes, let's give him the three government planned flu shots. One. two, three, right in his butt.

Is August Amateur Month in the Market?

Hans Palmstierna sends along this note:

Just stumbled upon another article from ZeroHedge, about how there are construction workers sitting at Starbucks who now think they are day-traders. I wonder if fundamentals are going to crack the entire stock market in half ... in September. Wouldn't an epic downturn fit ever so neatly in time if you compare it to other bear market rallies?

http://www.zerohedge.com/article/calling-gamblers-anonymous

I can't believe there are huge numbers now trading the market. Whatever their size, though, they are an important factor in the current strength in the market. They will eventually run out of money, and without Fed pumping it's downhill from there.

This kind of man on the street talk reminds me a lot of a mini-version of what was going on in the real esate market when I wrote about it in 2004.

The Shell Game - How the Federal Reserve is Monetizing Debt

Lori Smith has emailed a research report by Chris Martenson that details some of the methods being used by the Fed to keep the Treasury market auctions looking strong.

Here's Martenson's Executive Summary (My comments in italics):

•The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.

Rather than calling this plugging the gap. I would say the Treasury by its borrowings are crowding out the private sector. Further, any Fed purchases of gvt debt are distorting away from (and robbing) the private sector.

•Non-US demand for the dollar must remain high, or the dollar will fall.

Can't argue here. This is pretty close to a tautology.

•Demand for US assets is in negative territory for 2009.

True.

•The TIC report and Federal Reserve Custody Account are reviewed and compared.

This is an important comparison by Martenson. Growth in TIC (for 12 months ending May '09) shows plus $50 billion, BUT the Fed custody account (where the securities are held) shows growth of $277 billion. Why the difference? His conclusion: interest on securities held by foreign central banks must have been $135 billion.

•The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.

Here he shows that the Fed is buying up gvt agency paper being sold by foreign countries, where the foreign countries then move into Treasury securities.

•The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.

By buying agency securities the Fed can report less Treasury securities that it is printing up new money for. But in actuality the agency paper it is buying is also being monetized with the money in the hands of foreign countries, who then by the Treasury securities.

An even more significant point is that rather than buying huge new net amounts of U.S. gvt securities, Martenson's report shows that foreign countries have been simply doing swaps (from agency to Treasury paper). Bottom line: Treasury security buying from non-Federal Reserve sources is much weaker than it appears, because of this shell game. Once the foreign countries run out of paper to swap, the amount of paper the Fed is actually buying will become more obvious.

The full Martenson Report is here.

Did Paulson Tip Off Wall St Insiders that Bernanke Was Cutting Rates?

NyPo's John Crudele is suspicious:

What has been of particular interest to me is whether Paulson contacted his friends at Goldman after a lunch with Federal Reserve Chairman Ben Bernanke on Thurs., Aug. 16, 2007. That day Wall Street seemed to get wind of the idea that the Fed was planning to do something big, and stock prices rallied strongly at the very end of that trading session.

The very next morning Bernanke cut interest rates, the first of many such moves.
Goldman/Paulson activities from the day Paulson took the oath of office as Treasury Secretary to the day he left needs to be investigated.

Crudele also catches a curious comment from current Treasury Secretary Geithner:
And, in an interview with the Journal, Tim Geithner claimed the government never did anything to benefit Goldman.

But then he also admitted that Washington had been "forced to do extraordinary things and, frankly, offensive things to help save the economy."

Nobody bothered to ask about those "offensive" things and whether they had anything to do with Goldman.

The Evil Ezekiel Emanuel

There is no other way to put this. Ezekiel Emanuel is probably the most dangerous man on earth. He wants to decide whether you live or die, "for the good of society." He thinks there are too many new drugs coming on the market. He has the ear of the President and his brother sits next to the President as chief of staff.

If you lump all the mad scientists that have been put on the big screen by Hollywood, you are still not going to come up with the mad, totally insane ideas of Ezekiel Emanuel.

To support my contentions, I bring to your attention an Op-Ed written in today's WSJ by Betsy McCaughey. She is chairman of the Committee to Reduce Infection Deaths and a former lieutenant governor of New York state.

Is Ezekiel against doctors doing their damnedest to help the patient in front of him? You bet he is. Here's McCaughey:
Dr. Emanuel is part of a school of thought that redefines a physician’s duty, insisting that it includes working for the greater good of society instead of focusing only on a patient’s needs. Many physicians find that view dangerous, and most Americans are likely to agree.
Does Ezekiel want to be the decider of what your healthcare will consist of, instead of you? You bet he does. McCaughey, again:
The health bills being pushed through Congress put important decisions in the hands of presidential appointees like Dr. Emanuel. They will decide what insurance plans cover, how much leeway your doctor will have, and what seniors get under Medicare.
Is Ezekiel tight with Obama? Oh yeah. McCaughey:
Dr. Emanuel, brother of White House Chief of Staff Rahm Emanuel, has already been appointed to two key positions: health-policy adviser at the Office of Management and Budget and a member of the Federal Council on Comparative Effectiveness Research. He clearly will play a role guiding the White House's health initiative.
Is all this stuff about "savings from cutting waste, enhancing prevention and wellness, installing electronic medical records and improving quality of care" just a scam propagated by Obama to get Ezekiel in as the decider? You bet is is. Ezekiel has pretty much said so himself. McCaughey:
Dr. Emanuel says that health reform will not be pain free, and that the usual recommendations for cutting medical spending (often urged by the president) are mere window dressing. As he wrote in the Feb. 27, 2008, issue of the Journal of the American Medical Association (JAMA): "Vague promises of savings from cutting waste, enhancing prevention and wellness, installing electronic medical records and improving quality of care are merely 'lipstick' cost control, more for show and public relations than for true change."

True reform, he argues, must include redefining doctors' ethical obligations. In the June 18, 2008, issue of JAMA, Dr. Emanuel blames the Hippocratic Oath for the "overuse" of medical care...
Does Ezekiel believe that doctors thinking only about their patients is a problem? Oh yeah. McCaughey:

In numerous writings, Dr. Emanuel chastises physicians for thinking only about their own patient's needs. He describes it as an intractable problem: "Patients were to receive whatever services they needed, regardless of its cost. Reasoning based on cost has been strenuously resisted; it violated the Hippocratic Oath, was associated with rationing, and derided as putting a price on life. . . . Indeed, many physicians were willing to lie to get patients what they needed from insurance companies that were trying to hold down costs." (JAMA, May 16, 2007).
Does Ezekiel propose designing mad equations to decide who lives and who dies? You bet he does. McCaughey:

In the Lancet, Jan. 31, 2009, Dr. Emanuel and co-authors presented a "complete lives system" for the allocation of very scarce resources, such as kidneys, vaccines, dialysis machines, intensive care beds, and others. "One maximizing strategy involves saving the most individual lives, and it has motivated policies on allocation of influenza vaccines and responses to bioterrorism. . . . Other things being equal, we should always save five lives rather than one.

"However, other things are rarely equal—whether to save one 20-year-old, who might live another 60 years, if saved, or three 70-year-olds, who could only live for another 10 years each—is unclear." In fact, Dr. Emanuel makes a clear choice: "When implemented, the complete lives system produces a priority curve on which individuals aged roughly 15 and 40 years get the most substantial chance, whereas the youngest and oldest people get changes that are attenuated.

Dr. Emanuel concedes that his plan appears to discriminate against older people, but he explains: "Unlike allocation by sex or race, allocation by age is not invidious discrimination. . . . Treating 65 year olds differently because of stereotypes or falsehoods would be ageist; treating them differently because they have already had more life-years is not."

The youngest are also put at the back of the line: "Adolescents have received substantial education and parental care, investments that will be wasted without a complete life. Infants, by contrast, have not yet received these investments. . . . As the legal philosopher Ronald Dworkin argues, 'It is terrible when an infant dies, but worse, most people think, when a three-year-old dies and worse still when an adolescent does,' this argument is supported by empirical surveys." (thelancet.com, Jan. 31, 2009
Does Ezekiel want to cut down on the use of new treatments? Oh yeah. McCaughey:

To reduce health-insurance costs, Dr. Emanuel argues that insurance companies should pay for new treatments only when the evidence demonstrates that the drug will work for most patients. He says the "major contributor" to rapid increases in health spending is "the constant introduction of new medical technologies, including new drugs, devices, and procedures. . . . With very few exceptions, both public and private insurers in the United States cover and pay for any beneficial new technology without considering its cost. . . ."
Ezekiel is one sick mother fucker, who wants to mess with all of us. And the president is conning the American people to get his madness as the law of the land.

Bottom line, Ezekiel looks at the world as though there is just one lump sum of money to be divvied up for healthcare, instead of the potential for individuals to make individual choices based on individual circumstances as to how much healthcare to buy. No one decides how to divide up a lump some amount for the purchase of designer jeans, ice cream or high definition televisions. Markets for things in demand tend to expand over time. Ezekiel wants to destroy this expansion in the world of healthcare.

The rich are most often the ones that spend the most for new technologies. Once a new technology enters the market via spending by the rich, others work on improving it, prices drop dramatically, quality improves dramatically and the masses enjoy the benefits of a product that was once only designed for the very rich. I offer as proof the dramatic decline in prices and the dramatic improvement in quality of calculators, cell phones, televisions and personal computers.

I want every rich fart, with six days to live, to spend every last penny he has on on new medical technologies to keep him breathing even for an extra day. The money he spends for a few extra breaths, will eventually mean new sleek cheap products that will improve the health for the rest of us. That's what America is about, unless, of course, Ezekiel becomes America's Evil Decider. Then it's over, we will then be headed into the Dark Death Age of healthcare.

Inside A High Frequency Trading Firm

Scott Patterson at WSJ does a nice job of profiling how one of the largest high frequency firms operates:
One of the biggest players in the hot area of high-frequency trading is one of the least known.Getco LLC, a private company with fewer than 250 employees, often accounts for 10% to 20% of the daily trading volume of many U.S. stocks, the company has said, including highly traded names such as GeneralElectric Co., Oracle Corp. and Google Inc....

Unlike traditional Wall Street firms, the company holds relatively few securities by the time markets close for the day. Nor does it use much leverage, or borrowed money, to amplify the effects of its trades.

Since it constantly buys and sells, it can move in and out of hundreds of millions of dollars' worth of securities every day with a relatively small amount of capital. It favors shares that are the most heavily traded.

During the trading day, it can lose money if it accumulates large positions and the market suddenly moves against it, a risk it works to minimize by trading quickly in and out of markets, as well as through hedging strategies.

For example, if Microsoft shares are trading in range of $24.09 and $24.12, an investor may place an order to sell Microsoft for no less than $24.10. On the other side of that trade could be Getco with an order to buy at $24.10. Getco likely also will have an offer to sell Microsoft for $24.11.

If the trade works, Getco will make money on that tiny spread.Sometimes they don't; the challenge then is to get out as quickly as possible. In this case, if it accumulates a large amount of Microsoft stock at $24.10, however, it will stop buying and offer to buy and sell at lower prices.
This is what Goldman Sachs would like you to think they are doing. However. I suspect that, although this is some of what they do, there is also some kind of line that gives Goldman a peek at trades before anyone else sees them

Bernanke Gets to Experience Phony Money Creation, Up Close

While Fed Chairman Ben Bernanke has a day job printing money by writing checks out of thin air that he shovels to Goldman Sachs and JPMorgan Chase, which then dilutes the value of the money in everyonelse's pocket, Bernanke reportedly doesn't like anyone diluting his personal checking account funds.

His wife, Anna, had her pocketbook stolen in a Starbucks by a tool, Lee Reid, of a "master criminal". Sounds just like Bernanke so far, doesn't it, "master criminal" and all?

Reid starts writing checks on the Bernanke account. Sort of like Bernanke writing checks on the "People's Bank", the Federal Reserve. Reid then apparently even does some kind of reserve injection maneuver. Just like Bernanke! Here's Newsweek, which broke the story, explaining this maneuver:

Reid deposited two fraudulent $900 checks into K.N.'s bank account—one of them from the Wachovia account of "Ben S. Bernanke and Anna Bernanke." Having inflated K.N.'s account with the fraudulent check from the Bernankes, Reid simultaneously cashed two other fraudulent $4,500 checks that were made out to
K.N. from a third victim, according to federal prosecutors. When all was done, he appears to have walked out of the bank with $9,000.
Since he alerted his bank, Bernanke didn't lose any money. So how is he handling the situation?

"It's fair to say he was not pleased," Newsweek quotes one close associate of Bernanke.

Hey, just like the people who are not pleased with Bernanke's act and want to end the Fed.

Wednesday, August 26, 2009

Ambrose Evans-Pritchard on Bernanke's Troubling Side

He doesn't get "intertemporal misallocation", says Evans-Pritchard:
It is this twin-sided nature of Bernanke that raises nagging questions about his reappointment as chairman of the Fed. He has admitted errors: it was wrong to think the sub-prime crisis could be contained. But he has yet to acknowledge that his economic ideology is deeply flawed.

Bill White, former chief economist at the Bank for International Settlements, said the error of the central banking fraternity over past 20 years has been to cut real interest rates ever lower to keep the game going. This has lured the world into a debt trap. The effect is to keep drawing prosperity from the future – until the future arrives.

"It does the job for a while but moves in interest rates have to be ever more violent to achieve the same effect. My worry is that we may have reached the point where the policy ceases to work altogether.

"These imbalances come back to haunt you, and that is where the world now is. People have been induced to bring forward purchases by taking on debt and there has been a massive expansion in corporate investment," he said.

Economists call this critique "intertemporal misallocation". It is a favourite of the Austrian School. It plays almost no role in the "New Keynesian"thinking of Bernanke.

His reflex is to see any fall in demand as an outside shock to be corrected by extra stimulus. What he does not accept is that the adrenal glands of the economic system have been depleted by perpetual credit stimulus, giving the world a form of Addison's Disease...

Bernanke's theoretical model is clearly wrong – since he was blind-sided two years ago – and must lead him into fresh error. The risk is that he will mismanage the Fed's "exit strategy"... He.. also seems to think he has basically licked our Great Recession of 2008-2009. Has he really?
The full Ambrose Evans-Pritchard column is here. Warning, if you read the full Evans-Pritchard column, it's clear that he doesn't get all the implications of the intertemporal misallocation problem, either,as he writes that he fears that Bernanke will not turn on the monetary spigots soon enough. If he really understood intertemporal misallocation theory, he would know that the downturn is the cleansing process from the misallocations, and that propping up the misallocations is the last thing an economy needs.

Evans-Pritchard thus recognizes that Bernanke doesn't get intertemporal misallocation theory, but neither thus Evans-Pritchard.

Tyler Cowen Is So 1914ish

George Mason University economics professor and occasional NYT contributor, Tyler Cowen, offers a commentary for NYT on what's ahead for Bernanke:
I was glad to see Mr. Bernanke reappointed but he faces a daunting task.Basically the Fed pumped a lot of liquidity into the economy to sustain the banking system. So far all that new money has not caused inflation because banks have sat on much of it rather than lending it out and stimulating expenditures.

His biggest challenge will come when the economy starts to recover and the new money starts to be translated into inflationary pressure on prices. What will he do?

Will growth fade away once the stimulus money is spent? That will be a hardcall to make.

Most likely he will try to withdraw a lot of that new money from the system, so as to keep inflation within a manageable range. That is indeed the right plan but it’s an open question as to whether the Fed gets the timing right. If they withdraw money too quickly, we could see a “double dip” recession. If they wait too long, inflation may rise to unacceptable levels and then the subsequent required monetary tightening could cause a double dip recession as well.
Tyler, this isn't 1914, the first year of Fed operation. Your man, Bennie, has all kinds of new "tools". He is particularly fond, at the moment, of his tool that allows him to pay interest on reserves. His thinking is that he won't have to withdraw reserves, as you suggest he will. He will just pay interest on excess reserves at a rate that will entice banks not to loan money against the reserves. It's all laid out by New York Fed economists, Todd Keister and James McAndrews, in their paper Why Are Banks Holding So Many Excess Reserve? (Pdf).

Tyler, you were glad to see him reappointed? You don't even know what the hell he is doing.

Whacko Logic in La La Land, or Shakedown?

An investmnent group wants to open an upscale bar on the edge of Skid Row, in downtown Los Angeles. The United Coalition East Prevention Project is objecting.

UCEP argues that area residents, many with addiction problems, don't need a new bar in the area. Say what?

Attorney and restaurateur Charles Lew and his investors envisioned an upscale bar for the nearby luxury apartments and lofts. Lew crystalized the situation best:
To say that a high-end lounge selling $12 drinks is going to contribute to someone on Skid Row, I can't even reach and correlate the two. Really at the end of the day the loser in this, I think, is the downtown area.

Obama's Economic Forecast



ViaCNBC

More Questions for President Obama

From Robert Ringer:

None of the criminality of the Obama administration would be possible without the explicit (or, at the very least, implicit) approval of the media. Can you imagine a presidential press conference where, instead of asking Der Fuhrbama about his dogs or his latest beer summit, they asked him questions such as:

"You told Joe the Plumber that you believe in spreading the wealth around. Since the Constitution doesn't allow you to do that, from whom did you acquire the moral authority to take people's earnings by force and arbitrarily hand them to others?"
"You are on video in 2003 saying that you believe in a single-payer healthcare system. Why are you now telling the American public that you merely want a 'government option' added to our existing system? Were you lying in 2003, or are you lying now?"

"How do you reconcile the fact that, within a short space of time, you said that the Medicare system is a perfect example of how well government programs can work, then turned right around and said that Medicare is broke?"

"Why would you appoint an avowed communist, Van Jones, as "green czar?" Did you know that he was a communist before you appointed him? Was he properly vetted? Since communism seeks to destroy capitalism, isn't his appointment a clear indication that you would like to destroy capitalism?"

"Throughout your life, you have, by your own admission, associated most closely with people like Frank Marshall Davis (another communist), Reverend Jeremiah Wright (an advocate of "black liberation theology"), Bill Ayers (a convicted terrorist who stills says that he wished his group, the Weather Underground, would have done more), and Marxist professors (in college). Given these associations and your extreme liberal voting record in the Senate, weren't you being disingenuous with the American public when you tried to position yourself as a mainstream American in the last presidential election campaign?"

"Who, exactly, writes these thousand-page bills that keep getting rammed through Congress on short notice, and why do you not insist that all congressmen and women read them before voting on them?"

"Most of what you have done since you gained office is in violation of the Constitution. The Tenth Amendment specifically states that "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." In other words, the federal government has no powers other than those specifically granted to it by the seven Articles of the Constitution. Knowing this to be so, how do you justify violating the Constitution on a daily basis?"

"Since thousands of creditable scientists throughout the world say that global warming either does not exist or, if it does exist, it is not manmade, why are you determined to push through a cap and trade bill that will kill American businesses and jobs, dramatically raise taxes, and increase the cost of energy?"

"Why is Tom Daschle, whose tax problems were apparently so severe that he withdrew his nomination for Secretary for Health and Human Services, still coming to the White House and giving you advice on a regular basis while at the same time working for the law and lobbying firm of Alston & Bird and giving advice to UnitedHealth, the nation's largest health insurance company?"

Robert Ringer's full column is here.

Yale's Econ Ph.D. Program Summer Math Camp

None of this will help you understand economics or help you make accurate economic forecasts, but it will help you get good grades, in say, a Gary Chamberlain class.

2009 Math Camp Syllabus, topics include linear algebra (lecture notes), real analysis (notes), calculus with one variable (notes), multivariate calculus (notes), convex analysis (notes), optimal control theory (notes), and dynamic programming (notes).

Problem Set 1
Problem Set 2
Problem Set 3
Problem Set 4
Problem Set 5
Problem Set 6
Problem Set 7
Problem Set 8
Problem Set 9
Problem Set 10
Problem Set 11

Main website for Yale's Economics Ph.D. Summer Math Camp.

ViaMarkPerry

Chanos Tipped Off G7 Finance Ministers to the Looming Financial Crisis

They didn't listen.

So why is it government should have more regulatory power?

Here's famed short-seller Jim Chanos via Paul Waugh explaining what went down with the G7 ministers:
"It was the April 07 G7 Finance ministers meeting in Washington. It was a rotating chair and the Germans were rotating the meetings. And at the time if you recall the Germans were quite concerned about hedge funds and private equity as being a future source of problems in the market place.

"And Bob Steel, who was the Under-Secretary to the Treasury, who was fighting these German efforts at the time, felt that it would be helpful if two hedge fund managers came down and address the finance ministers and central bankers on the last day. So I was invited along with Paul Singer, who has gone public now, he was the other manager.

“Paul got up and proceeded to give a tour de force presentation on the coming crack-up in structured finance, how all these structures were very unstable and triple A [the ratings given to the securities] was not going to be triple A..."

The meeting was just five months before the run on Northern Rock and more than a year before Lehman Brothers collapsed.

Chanos and Singer pointed out that HSBC had announced that January that its US sub-prime loans were going bad at 'an alarming rate'.

“So there were some canaries in the coal mine by April 07 and Paul pointed them out,”


"I then segued into my presentation which told the assembled regulators that in fact if Mr Singer was correct and I believed he was, that the problem would not be hedge funds it would be the regulated banks and brokers who were leveraged 30-1, many of which held glowing, toxic radioactive pieces of securitisation which they could never sell.

"The German finance minister who was chairing the meeting thanked me politely and then thanked Paul and said 'so what do you think about Hedge Funds?'“

So despite having received this stark warning, the only response from the politicians was 'yeah, yeah but what about tightening up regulation on you guys?'

Mr Chanos, founder of Kynikos Associates, said that immediately after the presentation, the G7 ministers issued a statement continuing to insist that their economies were strong and made no mention of the warnings. Check out the G7 Communique of the time - you won't find a clearer example of the complacency of world politicians and regulators.

“We were completely and officially ignored,” said Chanos.

GE (Through Manipulation of Gvt) Brings Good Things to GE

"GE is lobbying to become the biggest rent seeker this country has ever seen," Steve Milloy, a pro-free market investor at the Free Enterprise Action Fund, tells Timothy Carney.

Rent seeking is expenditure of resources in order to bring about an uncompensated transfer of goods or services from another person or persons to one's self as the result of a “favorable” decision on some public policy.

Milloy provided Carney with a leaked email to make his case:
"The intersection between GE's interests and government action is clearer than ever," General Electric Vice Chairman John G. Rice wrote in an Aug. 19 e-mail to colleagues.

Rice was calling on his co-workers to join the General Electric Political Action Committee. "GEPAC is an important tool that enables GE employees to collectively help support candidates who share the values and goals of GE."

The full letter suggests that "share the values and goals of GE" really means "support policies that profit the company."..

"On climate change," Rice wrote, "we were able to work closely with key authors of the Waxman-Markey climate and energy bill, recently passed by the House of Representatives. If this bill is enacted into law it would benefit many GE businesses."

Most of all, Waxman-Markey would profit a GE joint venture called Greenhouse Gas Services, which deals in greenhouse gas credits, products that have value only if a cap-and-trade bill like Waxman-Markey passes.

The leaked e-mail shows how tightly GE connects PAC contributions and lobbying efforts. "Our Company is heavily impacted by a number of issues pending in Washington this fall," Rice wrote.

GE spent more on lobbying in the second quarter of this year than did any other company, according to federal lobbying files.

Carney's full column is here.

The Swiss Bank to Trust

Holman Jenkins writes:

UBS kept large offices and staffs in the U.S. It maintained the world's largest trading floor in Stamford, Conn. This was unrealistic if the bank was simultaneously promising Swiss secrecy to its customers, for it made the bank a soft target for U.S. political and legal pressure.

The Swiss bank to trust in the future will be one whose assets and personnel are safely tucked behind Swiss mountains and a Swiss government adept at playing on the self-interest of other nations. UBS's sin was trying to market Swiss secrecy
cheaply and widely—too cheaply and widely for others to tolerate. Let's hope we
never need them again as we have in the past. But just in case, let's also hope
the Swiss have learned to manage the franchise better.

BlackBerry versus iPhone

Walt Mossberg breaks it down.

New Home Sales Up; Prices Down

Housing inventory is being cleared.

Sales of new one-family houses in July 2009 were at a seasonally adjusted annual rate of 433,000, according to the Commerce Department.

This is 9.6% above the revised June rate of 395,000, but is 13.4%, below the July 2008 estimate of 500,000.

Both the median sales price and the average sales price were down in July. The median price fell to $210,100, from $210,400. Two months earlier it was $221,000. The average price dropped to $269,200. In June it was $276,900.

The seasonally adjusted estimate of new houses for sale at the end of July was 271,000. This represents a supply of 7.5 months at the current sales rate. The supply rate peaked in January 2009 at 12.5 months.

The climb in sales was strongest in the NorthEast up 32% (Washington DC perhaps?). Sales were down 7.6% in the Midwest and up 1% in the West.

Senator Edward Kennedy Dies at 77

The man who had no clue why he wanted to be president....or why minimum wage laws increase unemployment, has died.

Given his stature in Congress...the policies he promoted have probably done more to screw the average black teenager, than any other American.

Good riddance.

“Goodbye to America"

Wegelin & Co., the Swiss private bank, said Tuesday that it was pulling out of the United States amid stricter measures against tax dodgers, The Associated Press reported.

“Goodbye to America,” the bank said in a letter to investors, which cited increased regulatory requirements for foreign banks and planned changes to the estate tax as the reasons for its pullout.

ViaNick

Naomi Wolf Six Months Into Obama

Last time I posted on Naomi Wolf was back in November, 2008.

Someone along the line, I think a commenter at Bob Murphy's blog labeled her a leftist, and pretty much that was that. She was clearly anti-Bush, and from the left, but I also saw her speak in Los Angeles and got the sense that she was an honest broker.

Now that President Obama has roughly six months under his belt in the White House, I decided to check in on her blog to see if she was caught up in the Obama adoration, or if she saw passed it.

She doesn't blog much, but when she does, they are well worth reading.

Her second most recent post is from July, but it is her report from a visit to Guantánamo. The entire post is well worth reading. It is a guided tour of Guantánamo. It is like nothing else you will ever read. Here's one excerpt:

As the military handlers made pleasant jokes about the heat, I took in a low-tech vision of Hell. This was the site of the first scenes from Guantánamo, where men sweltered in kennel-like cages. These were the cages themselves: about 50, each about 8ftx12ft, an aisle down the centre for guards to move in, a slab of corrugated iron on top of each cell, and a pipe with a funnel at groin level, in which to urinate; open to the elements; no walls, no true shade. Concrete floors. There had been buckets for defaecation, MC1 Dwight told us; but the prisoners had thrown the faeces at the guards. There was a communal shower, now crumbling — but the prisoners had not liked to shower in groups, naked...

...we went in the afternoon, to Camps 5 and 6 — hulking state-of-the-art maximum-security prison...

At the end of the hall I opened a door. Before me was an unused cell, packed halfway to the ceiling with hundreds of cans of Ensure, the liquid nutrient used in force-feeding. (Jen Nessel, of the Centre for Constitutional Rights, had told me that 24 detainees were being force-fed daily, in restraining chairs, because they were on hunger strike.) Lieutenant Fulghum came to get me, annoyed. “No one is supposed to go this far down the hall,” he snapped. I asked if anybody was on hunger strike. “We are not allowed to say. The medical staff handles that,” Lieutenant Fulghum said...

Outside, all around us, we saw a facility — one scheduled to be closed by December 2009 — under massive new construction: dozens of labourers were digging, surrounded by the grinding noise of building. A facility that Congress thinks it is discussing the “how” of closing — and that the President has claimed for six months is already slated for closure — was metastasising under our very eyes. When I asked about this I was told that the money had been allocated already and so it would be more expensive to stop construction than to keep it going. Through that open causeway of construction, the detainees in their central cage caught sight of us.

A sharp, sudden roar arose from the knot of men who spotted us. One of the prisoners looked straight at me and, his face twisted with an emotion that I could not read, screamed: “Go! Go!”

“Why are they saying ‘Go?’” I asked.

The handler looked at me. The Muslim men in the cage were being managed by guards who were mostly African American, and who shouted in colloquial English to get their attention: “Yo! 289! Stop that!” “They learn English from the guards,” he explained. “They aren’t saying ‘Go’.”

What they had screamed out to us — across the greatest possible distance — was: “Yo!”...



Here's an excerpt from her most recent post, made last week and titled, The Bush in Obama:
... six months after he ordered an end to torture and CIA “black sites,” and promised to close Guantánamo within a year, Obama seems to be re-branding Bush’s worst excesses. He has brought in planeloads of journalists to Guantánamo Bay to show them a “safe, transparent, and humane” facility that now offers fresh baklava and video viewing from a shackled loveseat. But the roughly 240 detainees remain incarcerated without having been charged with any crime, and will still not get a fair trial, even under Obama’s proposed military commissions. After all, the prosecutor, the judge, and the “panel” are all to be US government employees.

Furthermore, Obama’s Justice Department has invoked Bush’s argument that the State Secrets Act bars evidence about torture from being disclosed, which means that anyone who was tortured can never appear in court. Moreover, Obama has sought to suppress hundreds of photographs depicting sexual assault in US-run prisons, and has done nothing to roll back the Patriot Act.

Tuesday, August 25, 2009

The Decline in Chart Form



Peter Schiff Unbound

I just came across this interview of Peter Schiff by Robert Ringer. Ringer is a long-time free market advocate, who has a number of best selling free market books to his credit.

This interview is 45 minutes long which in and of itself makes it unique. Usually Schiff clips are just a few minutes and he is battling some clueless soul, with an anchor who eats up even more of the time.

In this interview, you get a much more detailed sense for Schiff's thinking on a wide variety of topics. What's best is that because Ringer is a fellow traveler, Ringer doesn't interrupt with inane questions. Schiff is free to provide extended thoughts. The first few minutes contain Schiff's usual investment spiel, which you have probably heard in a dozen clips, after that the interview really picks up into new areas. The interview is here.

Ben Bernanke's PhD Thesis Advisor at M.I.T. Was...

Stanley Fisher, the central banker who unexpectedly just raised Israel's central bank rate.

Ben Bernanke’s Prepared Remarks

...made at the President's renomination annoucement:

Thank you, Mr. President.

I would like to express my gratitude to President Obama for the confidence he has shown in me with this nomination and for his unwavering support for a strong and independent Federal Reserve.

It has been a particular privilege for me to serve with extraordinary colleagues throughout the Federal Reserve System. They have demonstrated remarkable resourcefulness, dedication, and stamina under trying conditions. Through the long nights and weekends and the time away from their families, they have never lost sight of the critical importance of the work of the Fed for the economic well-being of all Americans. I am deeply grateful for their efforts.

I especially want to thank my own family — my wife Anna and our children, Joel and Alyssa. Without their support and sacrifice I could not undertake this task.

The Federal Reserve, like other economic policy makers, has been challenged by the unprecedented events of the past few years. We have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable economic and financial environment in which opportunity can again flourish, and in which Americans’ hard work and creativity can receive their proper rewards.

Mr. President, I commit today to you and to the American people that, if confirmed by the Senate, I will work to the utmost of my abilities — with my colleagues at the Federal Reserve and alongside the Congress and the Administration — to help provide a solid foundation for growth and prosperity in an environment of price stability.

Thank you.

Afghanistan Is About Oil Pipelines and Western Domination of the Energy-Rich Caspian Basin

Writes Eric Margolis:

American generals have intensified warnings that the military situation in Afghanistan is rapidly "deteriorating" and are calling for yet more troops in addition to the recent major manpower increase authorized by President Barack Obama. Sixty-eight thousand US combat troops, 40,000 NATO soldiers, and 75,000 mercenaries are apparently not enough...

The Western powers have marketed the Afghan War to their voters by claiming it is all about democracy, women’s rights, education and nation building. President Barack Obama claims the US is in Afghanistan to fight Al-Qaida. But Al-Qaida barely exists. Its handful of members long ago decamped to Pakistan.

This war is really about oil pipeline routes and Western domination of the energy-rich Caspian Basin.
The full Margolis column is here.

CBO Expects a 24% Increase in Gvt Outlays and a 17% Decrease in Revenues

Now that's how you get an exploding deficit

The federal budget deficit for 2009 will total $1.6 trillion, according to the Congressional Budget Office. This will result in it being equal to 11.2% of gross domestic product (GDP). This will be the highest percentage of GDP since World War II.

The dramatic expansion of the deficit in 2009 (up from 3.2 percent of GDP in 2008) results from a projected rise in outlays of 24 percent (the largest percentage increase since 1952) and a drop in revenues of 17 percent from last year’s levels (the largest percentage drop since 1932).

Those changes have largely been the result of the severe economic downturn and the Keynesian fiscal policy response of the Bush and Obama administrations.

On the basis of tax collections through July 2009, CBO expects federal revenues to decline by more than $400 billion from last year’s total. Revenues are projected
to be 14.9% of GDP, nearly 300 basis points below the 2008 level.

Although the CBO anticipates declines in almost all sources of revenue,the decrease is largely attributable to the drop in receipts from individual income taxes (which are expected to fall from 8.1 percent of GDP to 6.5 percent) and corporate income taxes (which are estimated to decline from 2.1 percent of GDP to 1.0 percent).

Fed Loses Suit Over Lending Programs’ Transparency

The Federal Reserve has not disclosed the names of the financial institutions it has lent billions to through special programs launched in the midst of the financial crisis.

Bloomberg News sued the Fed for more details on these loans: which companies had received them and how much they’d received. In a ruling Monday in U.S. District Court in Manhattan, Judge Loretta Preska sided with Bloomberg. The Fed’s main argument that it couldn’t release the names of its borrowers because it would signal a bank’s weakness to the market, didn’t fly with the judge.

The judge gave the Fed five days to turn over its documents, but it could appeal the decision. An appeal seems likely, given that last month the Fed won a similar suit brought by Fox News (before a different judge), reports ProPublica.

Ex-Wives May Pounce on Secret UBS Bank Accounts

Some guys can't catch a break.

Suspicious ex-wives are hot on the heels of the names released by Switzerland to the US government of those hiding Swiss bank accounts, according to a report from Time Magazine.

UBS has agreed to give up the account details of as many as 4,450 Americans.

The individuals in question are suspected by the Internal Revenue Service of tax evasion. But some believe that the accounts could have aslo been used to hide cash not just from the tax man.
If the names are released to the public, the account holders could see a flurry of lawsuits from ex-wives, creditors and business partners on suspicion of hidden money, lawyers told Time.

ViaMarketWatch


AP on Obama's Attempt to Drown Out Negative Deficit News

Here's AP:

Figures released by the White House budget office foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May. Moreover, the figures show the public debt doubling by 2019 and reaching three-quarters the size of the entire national economy...

The grim administration projections came on a day of competing economic news. The Congressional Budget Office, which has predicted less economic growth than the White House in the past, was also scheduled to announce revised budget projections on Tuesday.

Obama himself may have drowned out the rising deficit news with the announcement Tuesday that he intends to nominate Ben Bernanke to a second term as chairman of the Federal Reserve. The Bernanke news could neutralize any disturbance in the financial markets caused by the high deficit projections.

"Stay Away from My Kids"



ViaKathrynMuratore

Obama: The Charming Liar

President Obama attacked from the Left:




(ViaBobMurphy)

Ben Bernanke: The Man Most Likely to Destroy American Capitalism

Paul Farrell riffs off of a recent piece by William Greider in Nations magazine, and goes after Ben Bernanke in a brutal and precise manner reminiscent of a drone attack. I'm not 100% in agreement with these two, but they make enough solid points that those points should be considered. Farrell writes:

At last week's annual Jackson Hole meeting of Fed execs, Boss Ben Bernanke's braggadocio about saving the world from another Great Depression had the feel of an egomaniacal dictator trying to cement his legacy in history.

Any good behaviorist would tell you Bernanke's got some dangerous biases isolating him from reality (remember two years ago when he was denying the meltdown). His brash claims and radical, secretive policies present a grave danger to American capitalism and democracy.

In fact, Bernanke now appears to be America's (and the world's) most dangerous man, far more dangerous than Hank Paulson and the "Goldman Conspiracy" ever was...

Why worry? Because the danger really is imminent. The same clueless Congress that did nothing when Paulson and the Goldman Conspiracy nearly bankrupted America is now about to give Bernanke's out-of-control "Happy Conspiracy" even more power, and another bigger chance to destroy our capitalism....

The past year, the Fed has flooded the streets with money, distributing trillions of dollars to banks, financial markets and commercial interests. ... People and politicians are shocked ... confused ... angered."

Where did the Fed get those trillions? They "printed it, out of thin air. That is what central banks do. Who told the Fed governors they could do this? Nobody, really -- not Congress or the president." The Fed "does not submit its budgets to Congress for authorization and appropriation. It raises its own money, sets its own priorities," keeps Congress and the American people in the dark.

Wall Street bankers own the Fed, it's their private club. They "collaborate closely on Fed policy...

Congress is now "demanding greater transparency." Bernanke says "no," an audit would amount to "a takeover of monetary policy by the Congress." What a dictator. Greider quotes the Constitution: "The Congress shall have the power to coin money [and] regulate the value thereof." He adds that the Constitution "does not grant the president or the Treasury secretary this power. Nor does it envision a secretive central bank" acting as a megaphone for a president's political ideology.

Bernanke's powers go far beyond anything Paulson demanded last year. And he's now fighting a turf war because the "Happy Conspiracy" needs secrecy: no audits, no supervision, no transparency, no oversight, and zero accountability to taxpayers. Why? That way they can steal from the American people at will.

Greider's big warning: Recently Obama made a monumental mistake when he "proposed to make the central bank the supercop to guard against 'systemic risk' and set its own regulations. Obama's proposal gives the central bank even greater power" but does "not propose any changes in the Fed's privileged status."...

If Congress continues neglecting its constitutional responsibilities and gives Bernanke supreme dictatorial powers over the "Happy Conspiracy," Greider says "a new superclass of 40 or 50 financial giants will emerge as the born-again 'money trust' that citizens railed against 100 years ago. But this time, it will be armed with a permanent line of credit from Washington. The Fed, having restored and consolidated the battered Wall Street club will doubtless also shield" companies like GE "against failure."

The Fed will "dominate everything from the top down" if Bernanke is anointed absolute dictator over the "Happy Conspiracy." Obama's misguided proposal will "foster even greater concentration of financial power."

Every "large company left out of the protected class will want to join by growing larger and acquiring the banking elements needed to qualify." And "most enterprises in banking and commerce will compete with the big boys at greater disadvantage, vulnerable to predatory power plays the Fed has implicitly blessed."...

...you're on notice that the man most likely to destroy American capitalism is Ben Bernanke and his "Happy Conspiracy" of Wall Street bankers that own our Federal Reserve Banks.
Here's the rest of Farrell's column. When reading it, keep in mind that Farrell and Greider, while understanding what the Fed is up to, don't really want to abolish the concept of a central bank. They want to "democratise" the Fed or create a new type of central bank that is more responsive "to the people." They don't seem to get that it is any central fiat money creating force that will always be the focus of evildoers who want to control it. The only real solution is to end the Fed and return to a 100% gold backed currency, since gold can't be printed at will.