2010 EPJ Economist of the Year



Murray Rothbard

Murray Rothbard has been named, post-humously, the 2010 EPJ Economist of the Year, specifically for his work surrounding  power elite and their influence on government.

In this day and age of the internet, it is relatively easy to track and report on the comings and goings of bankers, such as Lloyd Blankfein at Goldman Sachs and Jamie Dimon at JPMorgan, as they trek to the White House and Treasury for power influence sessions. And, it is relatively easy to see and understand how they operate and dole out cash to themselves, but anyone, who read Rothbard years ago, would have been aware and understood back then.

For example, Murray Rothbard wrote in 1984 (more than 25 years ago!), my emphasis:

Businessmen or manufacturers can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism.

Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout.

Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.

In 1992, Rothbard wrote (My emphasis):

What is less well-known is that this Big Business – Big Finance – Big Labor – Big Intellectuals and Media alliance has been going on for a long time: certainly since the New Deal. It is little known, for example, that such crucial New Deal statist "reforms" as the Social Security Act and the Wagner Act of the mid-1930s were put into place by a powerful and malevolent alliance of left-technocratic New Deal ideologues, and powerful Big Business leaders: notably John D. Rockefeller, Jr.'s Industrial Relations Counselors and its successors, and W. Averill Harriman's Business Advisory Council of the Department of Commerce...

We can rest assured that the power elite, the crucial special interest groups we have been analyzing, have no sentimental attachment to party labels. Republican? Democrat? Who cares, so long as they are under control by the "right" people. "What's good for the ______ " is the overriding consideration, and you can fill in the blank with any one of these power elite groups.

This analysis is, of course, important to help us understand what is going on now. In 2009, Lew Rockwell wrote (My emphasis):

Good for Ron [Paul] for stirring these two establishment mullahs to oppose him. But forget their official arguments, which are always a smokescreen in the state-bankster world. Remember that Greenspan was a J.P. Morgan (i.e., Rockefeller) economist before he ascended to the Fed. Now he works for hedge funds and big banks in NYC. Volcker was vice chairman of Rockefeller’s Chase Manhattan Bank before his apotheosis. Now he runs the J. Rothschild investment bank on Wall Street. Power-elite analysis is what we need. As Murray Rothbard always said, look to where high state officials come from, and where they go after their terms in office. This is criticized as conspiracy-theorizing, since men like Greenspan and Volcker are guided only by their view of the common good. Hah! Who lines their pockets, and what are their goals? That is what we always want to know for actual political science, let alone Fed analysis...

And so, as the power-elite take over more of the economy and become bolder in stuffing their own pockets with billions, it is important to understand that this is nothing new and that Murray Rothbard understood the power-elite influence on government, decades ago.

As we head into the year 2011, with Ron Paul now in charge of overseeing the beating heart of the power elite's core, as chairman of the House Subcommittee on Monetary Policy, it is important to understand what Rothbard taught, that the power elite have been influencing government for a long, long time, and they are not used to outsiders demanding an audit, poking around and understanding what they are up to. The battle that Ron Paul is taking on, when he takes on the power elite's piggy bank, the Federal Reserve, will be of epic proportions.

It is the writings of Rothbard, more than anyone else, that help us understand the power elite machinations that allowed them to take billions. And in the year ahead, it is the teachings of Rothbard that will help us understand the battle that Congressman Ron Paul has taken on.

In these particular times, there is no economist who comes close to deserving the 2010 EPJ Economist of the Year Award as much as Murray Rothbard. Rothbard's writing are significant in many, many areas, but right now, what he has taught us about the power elite, should be front and center.

2010 Economics Book of the Year

Stricly Confidential: The Private Volker Fund Memos of Murray N. Rothbard, Edited by David Gordon

This collection of 40 previously unpublished Rothbard papers provides a glimpse of the broad range of Rothbard's scholarship. From political theory to foreign policy, literature and, of course, economics, Rothbard had unique insights and views across a broad spectrum of the social sciences and beyond.

For economists, Rothbard's fascinating comments on Hazlitt (positive) and his major league takedown of the conspiratorial book, Keynes at Harvard, are worth the price of the book, alone.

Economics Video of the Year Award

Fear the Boom and Bust: A Hayek versus Keynes Rap Anthem



Creative Director John Papola

Creative Economist Russ Roberts

Music produced by Jack Bradley at Blackboard3 Music and Sound Design.

Music composed and performed by Richard Royston Jacobs.

Performed by Billy Scafuri and Adam Lustick.

Unexpected Insight of the Year Award

Unexpected Insight of the Year Award goes to Brad DeLong who confessed to having suffered from Greenspanism, i.e. buying into the trappings surrounding the Federal Reserve and thus falling into the belief that the Fed knows what it is doing. Wrote DeLong:

[Larry Summers] (and I) were trapped by belief in what I might as well call "Greenspanism."...Once we had concluded that the Federal Reserve had the tools and the competence to absorb financial shocks, the jaws of the trap snap shut...

But "captured" is the wrong word. "Trapped" is much better. And not trapped by the efficient market hypothesis. Trapped, instead, by confidence in modern central banking...these intellectual commitments are certainly fueled by too-close attention to and admiration for central bankers...

At the time of DeLong's post, I wrote:

Wow! I feel I have accidentally overheard the confession at St. Patrick's Cathedral of a dying man.

Since I spend a lot of time in Washington D.C., I meet a lot of economists who might be called what DeLong calls "trapped." It is not that they are not bright, most of them are. It is, as DeLong points out, that they are "fueled by too-close attention to and admiration for central bankers." I would add that the admiration goes beyond that for central bankers. It goes on to include admiration for anyone who may have a pass to the West Wing of the White House (or admiration for anyone who may know someone who may have a pass to the West Wing.)

This type of admiration, Greenspanism, if you will, blocks the mind and shrinks the balls. I have never before seen anyone who has suffered from it openly confess to the affliction, or admit that such an affliction even exists.

It should give every Washington D.C. economist, and beyond, pause to think and reflect on whether their support for some institutionalized government way of thinking may be some form of Greenspanism.

Gene Callahan Award for Absurd Argumentative Style

This year we have co-winners of the  Gene Callahan Award for Absurd Argumentative Style. The award this year is shared by Paul Krugman and Megan McArdle.

As part of the award, they will each be provided with a photo of Callahan thinking:

Gold Hater of the Year

This year's Gold Hater of the Year Award goes to Nouriel Roubini. For comments like this:

When you had a traditional gold standard, boom and bust with severe swings in economic activity were the norm—really big ones. It was only once we moved to fiat money that central banks were able to smooth the business cycle, and make it less volatile, as we did during the financial economic crisis.

There are many fundamental problems with any variant of a gold standard A fixed exchange regime, even if it is not a gold standard… that world just doesn't work. Because in that world, monetary policy by definition instead of being countercyclical becomes procyclical.

In his book, Crisis Economics, Roubini says some nice things about Austrian economics, but he really needs to understand what the business cycle is all about. Start here, Nouriel.

For his belief in fiat money, Roubini will receive as his award Ten Million (2008) Zimbabwe dollars:

Lloyd Blankfein as the New John Gotti?

Well, well, whenGoldman Sachs Chairman and CEO Lloyd Blankfein isn't spreading propaganda that he is "doing God's work", he thinks he is the new John Gotti.

EPJ's Taylor Conant spotted this in the new book, Superclass:

Recalling a situation in which [Timothy Geithner when he was president of the New York Fed] had to manage a crisis in the derivatives market, he said, "What we did is, we got the fourteen major firms in a room down the hall here with their primary supervisors, a group of the largest global institutions and their supervisors from five countries. And we said to them, 'You guys have got to fix this problem. Tell us how you are going to fix it and we will work out some basic regime to make sure there are no free riders to give you comfort, so you know that if you move individually everybody else will move with you.' And there is nothing written, no guidance, no regulation, no formal process. We did it without a formal request to us. We told everybody we were going to do it but we were not asked to do it."

"These fourteen firms," he continued, " accounted for something like 95 percent of all the activity in this market. The Fed, the SEC, the FSA, the Swiss, and the Germans were there. And those were the principals, and each firm brought three people, they had an executive committee of four firms that ran, almost weekly at the beginning, a conference call among the other firms. And the best thing about the process was that it was efficient, there was nothing written except letters from the firms laying out their commitments... [chairman and CEO of Goldman Sachs] Lloyd Blankfein jokingly called them 'the fourteen families,' like in The Godfather...

How To Create New Jobs - For Real

Start the New Year off right, with what is sure to be an insightful and informantive interview with Walter Block.

Block is a Professor of Economics at Loyola University in New Orleans, a Senior Fellow at the Ludwig von Mises Institute and the author of the classic book Defending The Undefendable.

Block will explain why the focus on creating jobs is the wrong focus. Instead the focus needs to be on production, for which 'jobs' are needed.

He will also discuss why the minimum wage should be abolished, and why  Public Employee Unions, have created a gigantic threat to our economy TODAY that is going to affect your quality of life very soon.

The broadcast will take place tomorrow, January 1st, at 1PM CT on RepublicBroadcasting.org.

U.K. Think Tank Sees Only 20% Chance of Survival for Euro

In a list of top 10 predictions for 2011, the Center for Economics and Business Research , a U.K.-based think-tank, gave the euro a slim one-in-five chance of surving, reports WSJ.

The organization sees further debt problems in Spain and Italy as the catalyst for a new downturn.

Douglas McWilliams, the CEBR’s chief executive said in a statement that the specter of a full-fledged break-up can’t be completely ruled out. “I suspect that what will break up the euro will be the failure of most of the countries to take the tough medicine necessary to make their economies competitive over the longer term,” he said.

Stick versus Hammer Robbery

Of course, this is nothing compared to what Hank Paulson pulled off.

Chinese Business Sentiment Index Falls

An index measuring the operating conditions for Chinese companies fell for a third month amid the government's anti-inflation campaign, according to a Marketet News International reportFriday.

The China Business Sentiment Survey released by the MNI, a wholly-owned subsidiary of Deutsche Borse Group, showed the index at 62.08 in December from November's 64.14 and October's 65.03.

Rand Paul: "Audit the Fed" Will Be My First Senate Bill

David Weigel at Slate reports that Rand Paul has sent an email out to the Campaign for Liberty list, where he writes:

As I write you today, I’m preparing for my swearing-in on January 5 and putting the finishing touches on what will be an aggressive agenda for 2011, beginning with my plan to cut $500 billion from the budget. And, of course, I will be working closely with my Dad to pass a full-scale Audit of the Fed. In fact, it will be the first bill I introduce in the Senate. To accomplish our goals, Dad and I are going to need a strong grassroots presence to keep the pressure on.

The Extremely Bullish Case for Silver (And a Warning)

Lately, there have been some great videos put out on the economy and various investments. Many of these videos then lead you to web sites and offers to sign up for free emails that lead you to investments that are everything but what the discussion in the video is about. The below video puts out a great overview of the extremely bullish case for silver. I have no idea what the producers of this video are promoting at their website or via their email. Viewer beware. If you want to buy silver coins, you don't need a web site or email telling you about other investments, just buy the silver coins put out by the Treasury.

My Favorite Economics Data Page

Okay, here's a late Christmas gift.

One of the best resources for data about the economy is the St Louis Federal Reserve Data resource, Federal Reserve Economic Data (FRED). I see lots of links to charts from this site and the data is extensive. It is great for deep historical data and Fed monetary data, but for a quick overall snapshot of the economy, the Treasury has an awesome page. Their Data and Charts Center is the best single web page resource on the economy. From that page you are only one or two clicks away from any recent economic data. Click on he Monitoring the Economy link and you will know what I mean, and of course the interest rate data is extensive.

Merry Christmas!

Why Mish is Wrong About Unemployment

Mish Shedlock has a long series of charts where he attempts to explain why the U.S. will add only 127,000 new jobs per month in 2011.

Here's why he is wrong.

First and foremost, there is no fundamental reason for long term unemployment. Markets clear, when they are allowed to do so. If businessmen are concerned about unknown health costs and other impediments, it doesn't mean they won't hire workers, it just means they will bid a lot less for workers. For example (and yes I know there are minimum wage laws, but just for example), if no one else is bidding $1.00 per hour for workers, I will. I'm sure I can make a profit by paying workers $40 per week. But, pay in the U.S. will never drop anywhere close to $1.00 per hour in a free market, because the marginal productivity of workers in the U.S. is much, much higher.

As businessmen understand this risk, they are getting around the risk of unknown health costs and other taxes by hiring through temporary agencies. In other words the market has come up with a solution, long-term temporary help. The long-term temp sector will boom in 2011.

But, the real impediment to reducing unemployment is unemployment insurance. If you pay people not to work, they don't. Unemployment benefits are running out for 99ers, so there is the beginning of a stop to this nonsense.

Most important, climbing unemployment was the result, in the first place, of the business cycle. We are now headed into the manipulated boom phase which will stop the unemployment increases. It will also cause those who have only casually been looking for work (because of unemployment benefits) to suddenly see higher pay offers.

Despite the elaborate charts that Mish is putting out for his analysis, he is pretty much just trend following.  He is saying, look unemployment hasn't gone up, so it won't go down. The only place he provides analysis for increasing unemployment, and he is correct, is among government workers, because of the budget problems across federal, state and local governments.

But, overall the dynamics are shifting:

The downturn is over so the number of new unemployed will decline

Unemployment benefits are starting to run out for some.

The Fed printing is resulting in a manipulated boom, which will cause capital goods sector employers to start bidding up for workers, causing many of those on unemployment to finally get back to work.

For businessmen concerned about heath tax risk and other tax risks, the market has figured out a solution that almost all businessmen are now aware of, long-term temporary workers.

It's very difficult to forecast exact numbers in a complex economy like the United States, but trends are a little clearer to see. Pessimistic forecasts for unemployment appear to way off for 2011. The employment picture is going to improve dramatically in 2011 with unemployment at some point significantly under 9%.

Skype Could Be Designated Illegal in China

China will crack down on what it called illegal Internet telephone providers, according to a circular from the Chinese government seen on Friday that could potentially affect Internet calling service Skype, reports Reuters.

The statement, from the powerful Ministry of Information and Industry Technology, did not mention any carriers by name. The circular, dated Dec. 10, did not say what amounted to illegal services and did not name any VoIP providers it considered to be breaking the law.

According to Reuters, Skype has been growing in popularity among Chinese individuals and businesses to make cheap or free international phone calls.

Peter Boettke on Ludwig von Mises

Russ Roberts in recent days finished an EconTalk interview with Pete Boettke about Ludwig von Mises.

I happen to think Mises was the greatest economic thinker of the 20th century. Boettke never comes out and says that, but he does list Mises achievements in monetary theory, in explaining the problems with calculation in a centrally planned economy and Mises use of the deductive method of analysis to generate a complete theory of economics.

Boettke throughout the interview also mentions a number of Mises books, and organizations where the books are available. However, it must have slipped Boettke's mind that the largest collection of economic books written by Mises (and also many books written by Mises students, such as those of Rothbard and Hayek, and many, many others books written by those who either influenced Mises or were influenced by him) are available at the Mises Institute.  A collection of 29 Mises books, for example, are available at the Mises Institue, here. 

The Boettke interview is here.

The biography of Mises that Boettke mentions is Mises: The Last Knight of Liberalism by Guido Jorg Hulsmann. Boettke also mentions Murray Rothbard's Man, Economy and State, which he calls a masterful work.

'Crash Taxes' the Latest Scam to Take Your Money (It's One the IMF Hasn't Even Thought of)

At least 50 cities in California have adopted so-called crash-tax laws allowing local governments to seek reimbursement from insurance companies for the costs of sending public emergency crews to accident scenes. The fees can amount to hundreds or even thousands of dollars. If insurers don't pay, cities can hire collection agents to seek payment from the motorists involved, reports LaTi.

And it's spreading, says LaTi:

It's gaining momentum nationwide as cash-strapped communities seek a way to offset budget cuts

This month, New York Mayor Michael R. Bloomberg proposed charging drivers there as much as $490 when firefighters respond to an accident or a vehicle fire, beginning July 1. A public hearing is set for January.

So let me see if I understand this correctly: The government taxes in the first place for the "services" they provide, but they have blown that money, so they are going to charge you separately for the services they provide.

Bottom line: The emergency response sector seems to be another sector that should be left to the private sector seeing as individuals are paying for the responses anyway.

Dodd-Frank Means 122 New Ways to Influence Regulators

Bloomberg analyst Cady North reports that the Dodd-Frank Act  created 122 councils, advisory committees, other panels and mandatory consultations.

In a video clip, North seems to be a bit nonplussed about the entire situation, perhaps she hasn't seen Casino Jack yet.

Bottom line: This is a nightmare that will create an edge for those who know how to operate in and around Washington D.C. It will make it more difficult for newcomers and those without the connections. Overall, it will continue to sap strength from the economy and lower the standard of living for all of us.

Venezuela Devalues Currency

Venezuela has devalued its currency for the second time this year.

The government will lower the exchange rate on so-called essential goods such as food and medicine by 40 percent to 4.3 bolivars per dollar on January 1. Ouch.

This brings this exchange rate in line with its other fixed foreign exchange rate.

This is certainly a major indication severe money printing in Venezuela. Indeed, price inflation, at 27%, is the highest among 78 countries tracked by Bloomberg.

Venezuela is clearly in the race to become the next Zimbabwe.

The Christmas Tree Indicator

Sandhill Christmas Trees here sells fewer than 5,000 firs in a typical holiday season but this year it sold nearly 6,000, many as last-minute deliveries to retailers who had underestimated demand. Sandhill's success mirrors that of tree farms across the U.S., reports WSJ.

WSJ continues:

Precise numbers won't be available until late winter, when the National Christmas Tree Association completes its annual survey. But after two flat seasons, tree-farm associations in the biggest-producing states say members are estimating an industry-wide sales jump in the mid- to high single digits over a year ago, with some growers reporting larger gains.

"At times during the season, we had growers reporting increases of 20% to 40%," said Brian Ostlund, executive director of the Pacific Northwest Christmas Tree Association, whose territory includes Oregon, the nation's largest producer of Christmas trees.

Bottom line: Money is coming out of people's pockets. The extreme desire to hold cash is history.

Brad DeLong Speculates on Ron Paul's First Move as Head of the Monetary Policy Subcommittee

 He links to this story:

In this year, before Christmas, king Henry sent from Normandy to England, and commanded that all the moneyers that were in England should be deprived of their members; that was the right hand of each, and their testicles beneath. That was because the man that had a pound could not buy for a penny at a market. And the bishop Roger of Salisbury sent over all England, and commanded them all that they should come to Winchester at Christmas. When they came thither they were taken one by one, and each deprived of the right hand and the testicles beneath. All this was done within the twelve nights; and that was all with great justice, because they had fordone all the land with their great quantity of false money which they all bought.


The Anglo-Saxon Chronicle, p. 221 (year 1125).

(Edited, with a Translation, by Benjamin Thorpe, Vol. II

(London: Longman, Green, Longman,and Roberts, 1861)

Blame the SEC for Mobbed-Up Stock Scamming

A reputed Gambino crime-family associate who headed a $20 million stock scheme admitted this morning that he wagered some of his proceeds in illegal gambling operations, reports NyPo.

Michael Scarpaci, 34, pleaded guilty to racketeering tied to his roles in an Internet sports-betting ring and high-stakes poker games.

He agreed to serve up to 30 months behind bars in addition to the five years he faces for running the bogus "Gryphon Financial" investment firm, which duped investors through a "boiler room" located in a Staten Island strip mall.

There is a lot of mob activity on Wall Street, more than most realize, especially in the penny stock market. The reason for this is pure and simple. There are so many regulations that it makes it very difficult for a legitimate businessman to raise money at the penny stock level. Because of all the regulations it becomes to expensive and you can only do it by cutting the legal edges.The only ones willing to take this risk and break the law are the mobbed-up guys. Since these characters aren't afraid to ignore the SEC, they are also very likely willing to ignore your complaints, once they have your money.

The solution is to eliminate the SEC, and free up the small cap markets so that legitimate businessmen can access that market. The mob wouldn't have a chance against legitimate businessmen who could tell their story, without the hassles of the huge regulatory environment that the mob just ignores.

Whenever the government super regulates an industry, the bad guys move in. Another example, is the street drug business. If street drugs weren't illegal, you would literally have grandmothers selling the drugs as clerks out of store front operations. In California, for all practical purposes marijuana can be purchased legally, if you have a "medical need." Street store marijuana shops are opening up everywhere. Instead of weed being sold by gang bangers in edgy neighborhoods, the stores have clerks that look no different from those you see in other shops.

Super regulation simply attracts those who are willing to ignore the laws, and who are willing to shoot it out if they have to. These guys play an entire different ball game.

That the SEC regularly busts so many mob related operators is indication alone that the securities regs are so intense that it is keeping the good guys out and attracting those who will ignore the regs. If the SEC was abolished tomorrow, the entire nature of the penny stock business would change. 

Khodorkovsky Gets 6 More Years in a Siberian Slammer

After days of reading the guilty verdict, a Russian judge has handed down a sentence in the latest Mikhail Khodorkovsky trial.

Moscow Judge Viktor Danilkin gave Kohodorkovsky the max, 6 more years. The former-billionaire has been in jail since 2003. His release date is now in the year 2017.

Many view the charges as payback by Putin for the anti-Putin political activities Khodorkovsky attempted before he was arrested.

Consider this a battle of Russian titans, with Putin mopping the floor and using Khodorkovsky as the mop.

The Most Popular Charts of 2010...

The most popular charts in 2010 at Economist Magazine:

The Ominous Blizzard Protest in NYC that Will Keep Bernanke Printing Money

The New York Sanitation Department intentionally slowed the NYC blizzard clean-up in protest against budget cuts, according to NyPo.

Outgoing Gov. David Paterson called this morning for a criminal investigation into allegations that a slowdown by budget-squeezed plow operators contributed to the city’s unplowed streets, following the recent blizzard.

NyPo reported today that a group of guilt-ridden sanitation workers confessed their protest plot to City Councilman Dan Halloran. The workers were protesting recent job cuts and cutbacks, the councilman and other sources told NyPo.

Miles of roads remained unplowed as of last night.

Gov. Paterson, who lives in Harlem, said the snarl has left New Yorkers “scratching their heads” since the city handled a similar storm so well last year.

But this is a sign of a much bigger problem than clearing snow from the streets of NYC.

It is a very ominous sign for the country. Don't think this won't cause Ben Bernanke to sit up and take notice.

City budgets are in such disarray that the "IMF treatment" is one step away from being implemeted in cities and states across America, like it has in Greece, Ireland and many Third World countries. And U.S. government workers won't like it anymore here, than the Greeks or Irish overseas.

If anything is going to cause Bernanke to continue to print money, it's the fear that state and local governments won't be able to pay their bills. Such finance problems lead to cutbacks, intensifying protests and eventual riots. Bernanke pretty much knows this. He warned as much in Fed speak back in October. He is likely to continue printing, and destroy the value of the dollar so that cities and states have plenty of cheap dollars with which to pay off their huge debt burdens.

Pending Sales of U.S. Existing Homes Rose 3.5% in November

The number of contracts to buy previously owned homes rose in November far more than Keynesian forecasts.

The index of pending resales increased 3.5 percent after jumping a record 10 percent in October, the National Association of Realtors said. The median forecast in a Bloomberg News survey of Keynesian economists  called for a 0.8 percent rise in November.

Bottom line: The November to March housing sales number can be distorted by all kinds of factors, so they are not the best indicators of housing trends, but the fact the Keynesians low-balled the number that actually came in points to two factors that are indicative of these guys:

1. They don't understand how monetary policy impacts an economy.

2. They are simply a bunch of econometric trend following sheep.

Chicago PMI Surges To Highest Level Since July 1988

Keynesian economists have just been destroyed.

The consensus view among them was that the Chicago PMI would contract 3.0% in December from the November level of 62.5 to 61.0.

Instead, the Chicago PMI climbed to 68.6 in December, an unprecedented surge and the highest reading since July 1988!

From the ISM report:

Production reached its highest levels since October 2004;

New Orders improved to 2005 levels;

Priced Paid accelerated to its highest point since July 2008.

Here's Goldman's take via ZH:

BOTTOM LINE: Chicago purchasing managers' index jumps to a 22-year high as indexes of orders, production, and employment all post gains from already-strong levels. 

Keep in mind, this is the Chicago PMI and not the National PMI, which is due out later, and it probably has a lot to do with the commosity boom, but the recession is clearly history in the Midwest, and the Fed manipulated BOOM is on.

The Keynesian econometric trend followers are always the last to know.

The Division of Labor: Tower Climbers

Just watching this video is super intense. I can't imagine actually doing it.



(Thanks2Frank)

Jobless Claims at 2 1/2 Year Low

This is going to really make Paul Krugman squirm, since he was on the Rachel Maddow Show just last week calling for a massive new stimulus program. Not only will he be proven wrong about the coming overall inflation, but he will be proven wrong about the direction of the economy.

Well, it's a manipulated recovery, but he doesn't understand the difference.

Initial unemployment claims declined by 34,000 to 388,000 in the week ended Dec. 25, the first time the figure has dropped below 400,000 since July 2008, according to the BLS.

Keynesian economists surveyed by Dow Jones Newswires had expected claims would fall by just 2,000.

In another recent report, the BLS said that here were 3.4 million job openings on the last business day of
October. This was a job openings rate increase over the prior month of 2.5 percent.

Gold in Rare Diamond Top Formation

Chart watcher extraordinaire, Abigail Doolittle of Peak Theories Research has spotted a rare diamond top formation in the price chart for gold. This formation, Doolittle writes, is generally a bearish signal. In this instance, though, she thinks it could be a bullish sign for gold in the short term and medium term.

It's worth paying attention to Doolittle. There are many technical analysts who get caught up in what can only be considered voodoo technical theory. Doolittle seems to focus on chart patterns that truly reflect different supply and demand factors that can ultimately be explained in terms of human action.

A diamond top pattern appears to be a period when buyers and sellers are pretty evenly matched. It would take strong new buying to push a price higher out of such a range. Thus, the reason that it is generally a bearish pattern. However, with good old Ben Bernanke arriving on the scene with new money, such a new source of buying is very possible, indeed, likely.

Thus, I think Doolittle has this one nailed, with her thinking that gold is headed for an upside breakout from this formation. Her full report is here.

A Mother Gas Find Discovered in Waters Off Israel

A huge gas field has been discovered in the waters off Israel. It contains 16 trillion cubic feet of gas, according to Houston-based Noble Energy, who reported the latest test results yesterday. It is the world's biggest deepwater gas find in a decade, and, according to WSJ, it could take care of all Israel's energy needs for 100 years and turn Israel into an energy exporter.

Naturally, such a transformation could potentially alter the geopolitical balance of the Mideast, giving Israel a new economic advantage over its enemies, writes WSJ.

Speculation through out the year about the discovery has sent the the energy index of the Tel Aviv Stock Exchange up 1,700% in the 2010. Now, the confirmation of latest test results are likely to intensify the activity on the exchange.

The gas field called, Leviathan, is roughly 84 miles off Israel's northern coast and more than three miles beneath the Mediterranean's seabed. Noble began drilling its first exploratory well in the field in October.

Naturally,  everyone appears to want to get in on the coming money flow.

The Israeli government started considering changing its 1950s-era energy royalties and tax regime, to boost the government's take of any gas find from 20% to 60%.

Earlier this year, Finance Minister Yuval Steinitz said he was considering changing terms retroactively—meaning the government could extract better terms on previously assigned leases, according to WSJ. Noble and Israeli oil executives went on the offensive.

Nobel hired high-level negotiators, including the U.S. State Department and former President Bill Clinton, to lobby against any change.


Israeli neighbor, Lebanon has also staked out its own claim to offshore gas. They plan to start auctioning off exploration rights in their waters in 2012.

According to WSJ, Iran, Israel's arch-nemesis and Hezbollah's chief backer, has also weighed in. Tehran's ambassador to Lebanon, Qazanfar Roknabadi, last month claimed that three-quarters of the Leviathan field actually belongs to Lebanon.
Uzi Landau, the Israeli infrastructure minister, denied the claim and warned Lebanon that Israel wouldn't hesitate to use force to protect its gas rights.

NYC Government Three Days After the Snowstorm

Mayor Bloomberg tweets:

Yesterday we hired 700 workers, and today we hired 1,200 more to dig out bus stops and crosswalks.

The Bernanke Money is Flowing: John Hancock Building Bought for Just Under a Billion

Dealbook reports:

The John Hancock Tower, a 62-story glass skyscraper in Boston’s Back Bay, was one of the first real estate trophies to run into trouble when the speculative property boom abruptly ended two years ago.

With the market in free fall, Normandy Real Estate Partners and Five Mile Capital Partners bought the building at a foreclosure auction 18 months ago for $660.6 million, or about half of what it sold for in 2006.

At 4 p.m. on Wednesday, Normandy and Five Mile officially sold the Hancock Tower to Boston Properties for $930 million...

Wednesday’s deal reflects the current optimism coursing through the industry. Commercial buildings have recovered some of their value, and investors are looking to buy solid properties with good cash flow. Commercial mortgage securities also look healthier — although many experts warn of the billions of dollars of loans coming due in the next couple of years.

Jamie Dimon's Meetings with the Head of the New York Fed

JPMorgan head Jamie Dimon has been meeting fairly regularly with William Dudley, former-Goldmanite and current president of the NY Fed.

EPJ's own Bob English digs into these "catching-up" sessions, which English discovers occur, coincidentally of course, roughly four weeks before a major Fed monetary policy move.

The full report by English is here.

More on TSA Shipping Madness: Blocks Chocolate Shipment into U.S.

Taken from the comments:

I can (furiously) confirm that the United States aka "land of the free and home of the brave" has cravenly returned the annual Christmas care package I send to my family in Iowa from my home in Austria. No apologies forthcoming – except from the already overworked AUSTRIAN postal authorities, who had to bring my big box back to my door. My "crime"? I sent the chocolates and other goodies one day too late and got caught by the TSA's cunning plan to inconvenience & infuriate millions of law-abiding citizens, in order to frustrate a couple of nutjobs. (And no, I do not get a refund of the $70-some dollars in postage on the box, but thanks to American "ingenuity" I do have the privilege of spending the equivalent of $250 to try and ship it again according to TSA's whimsical regulations (like no bomb weighs less than 499 grams ... brilliant!)) I have no more words, only disgust....

Wikileaks Released Cable: Five Percent Climb in Yuan Coming Against Dollar in 2011

A top economist at the state-run China Construction Bank told US officials that the yuan could appreciate by five percent against the dollar next year, according to leaked diplomatic cables, according to AFP.

The bank's chief economist Hwa Erh-cheng also predicted a three percent rise in the value of the yuan against the dollar this year. So far the yuan has risen 3.05 percent.

Tracking the Dodd-Frank Regulatroy Fright Show

There are so many new regulations that will be coming out of the Dodd-Frank Act that the St Louis Fed has set up a separate section of its web site to track them all. The St Louis Fed, by way of introduction, writes:

Track the progress of more than 200 proposals and rules that will be written by various federal agencies as part of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The nightmare begins, here.

Blizzard Slows After Holiday Shopping by a Cool Billion

The  blizzard in the U.S. Northeast this weekend resulted in an estimated day after Christmas loss in sales of $1 billion, according to research firm ShopperTrak.

The money not spent because of the blizzard is likely to find its way into the economy in coming days or weeks, but it is likely to be somewhat of a drag on sales number for the week.

The Insider Show Arrests Continue

A California woman has been arrested on charges of leaking secrets about technology companies to hedge funds, reports Reuters.

Winifred Jiau, 43, was charged with one count of securities fraud and one count of conspiracy, said U.S. Attorney Preet Bharara for the Southern District of New York. Jiau faces up to 20 years in prison on the securities fraud charge.

Prosecutors said that from 2006 to 2008, Jiau leaked inside information, including earnings, about multiple publicly traded companies including Marvell Technology Group Ltd and Nvidia Corp to hedge funds, in exchange for more than $200,000 of payments.

The chill over Wall Street intensifies as a bunch of ego maniac government attorneys continue to press on with headline arrests for non-crimes.

Krugman as Poster Boy for Monetary Fiction

This may all be just one big coincidence. But take a look at Paul Krugman's latest post, Monetary Fiction.

He posts the cover to a 1987 book called Monetary Fiction. Doesn't the guy in the Sheik's garb look an awful lot what like what Krugman must have looked liked before the gray started setting in?

Retail Sales Distortions

Retail sales fell 4.1 percent in the week ending on Christmas Day, according to research firm ShopperTrak, largely because December 26 fell on a Sunday this year and was not included in Christmas week sales, reports Reuters. The day after Christmas is becoming a big sales day.

The distortions will continue this week becasue of the bad weather on the East Coast. Nevertheless, ShopperTrak said it still expects sales for the November and December holiday period to be up 4 percent compared with a year earlier.

Improving Employment Conditions

More firms said they plan to hire full-time, permanent workers in 2011 than did this year, according to data released by job site CareerBuilder.com.


Almost one-quarter of employers — 24% — said they plan to hire full-time, permanent workers in 2011. That compares with 20% in 2010, and 14% in 2009.
Seven percent of employers said they plan to decrease workers in 2011, down from 9% this year and 16% last year, according to the survey. Meanwhile, 58% expect no change in the level of staff, and 11% are unsure.

Hiring for part-time and temporary workers is also gaining, according to CareerBuilder.com. In the next 12 months, 13% of firms said they expect to hire part-time employees, up from 11% this year and 9% last year.


Among firms that expect to increase full-time, permanent workers in 2011, here are the top sectors: sales, information technology, customer service, engineering, technology, administrative, business development, marketing, research/development, and accounting/finance.


Keep in mind that this is before Bernanke's money-printing manipulated "recovery" becomes even more clear. Expect the data to get even better...and then the inflation.

An Inflation Update from Indiana

A reader emails:

Robert,


Just wanted to drop a line and update you on inflation in my state of Indiana (I live in Brownsburg, just west of Indianapolis). I can tell you ever since I have been reading/subscribing to your site that I have been keeping a real close eye on prices of things. Indiana is considered a very low cost of living state, but prices here are dramatically going up. I am a business owner of a very small distributor of motor oil and other car related products. So I will give you the skinny of what is going on with my prices on the wholesale/retail level...

Just this year, here is how my pricing has gone up due to raw materials/shipping....

From Jan - July, my price on 4-1 gal jugs was $77.40 and case of quarts was $59.25. August to now, price is $79.40 and $60.75 for previous mentioned. ...

Here are some more examples of prices going up. Sausage dogs at a gas station in the area have gone up from $1.39 to $1.59. Beer prices on 18 packs of Miller Lite (what I buy) used to be $9.99 on sale, now $11.99 on sale. AT&T U-Verse, our tv company, just sent a letter to us last week saying our bill was going up 5%.

Figured I would just drop a line ... Keep up the good work and love the EPJ Daily Alerts. My portfolio is well positioned due to your Daily Alerts.

Alfred Kahn: Hero Economist Dies

Alfred Kahn, the man, who, as head of the Civil Aeronautics Board, pretty much single handidly deregulated pricing and route decisions in the airline industry, has died. Kahn, an economist,was 93.

The deregulation he brought about resulted in plummeting airline prices and the advent of low-cost air carriers such as Southwest Airlines.

Prior to Kahn's deregulation, during the Jimmy Carter presidency, the government approved all flight routes and prices for most tickets (Sort of like what the FCC is trying to do now to the internet with the cleverly named, "net neutrality")

The CAB earned a reputation for bureaucratic complacency; airlines were subject to lengthy delays when applying for new routes or fare changes, which were not often approved. World Airways applied to begin a low-fare New York City to Los Angeles route in 1967; the CAB studied the request for over six years only to dismiss it because the record was "stale." (It was almost as arrogant as today's TSA)

But Kahn was an eccentric and fighter. He had a bad back, and once spoke to a conference of 60 utility lawyers while lying flat on a table.

The CAB was formed under FDR in 1940 and Kahn's deregulation push resulted in it's abolishment.

Hedge Fund Manager: Homes Are a Screaming Buy

Just yesterday I wrote in the EPJ Daily Alert:

When properties can be had that are cash flow positive and if they are decent properties, and you can lock in current interest rates long term, within a year or two you are going to be sitting pretty with any real estate you buy now.

Now, we have an interesting presentation by Pershing Square hedge fund manager Bill Ackman with his bullish analysis on the housing market. My emphasis is more on Bernanke's money printing but Ackman's analysis is sound. Bottom Line: When a market crashes the way the housing market has, you almost always have fundamentals turn in favor of buyers.

Here's Ackman's power point presentation via Buisness Insider.

A German Tea Party?

Nouriel Roubini writes:

In Germany, widespread voter antipathy toward eurozone bailouts has led political analysts to warn that a tea-party-style anti-euro movement could gain popularity and enjoy electoral success.

New York City Workers Gone Insane

First, we had fire department workers respond twice to people stuck on a subway car for 9 hours in 15 degree weather telling the stuck passengers that they couldn't do anything for them.

Now we have this insane video of a NYC tow truck destroying a suburban van while it tried to tow a snow removal vehicle.

Asked about the incident at a press conference, Mayor Bloomberg, who wants to control what you eat, seemed nonplussed and said anyone who suffered property damage should file a claim with the city.

Fortunately, the destroyed car turned out to be a government car, owned by the city Department of Housing Preservation and Development, only God knows what those people are up to, so it's probably a plus for the citizens of the overregulated, undeserved city. It's really is time that a lot of city government be placed back in the hands of the private sector, totally cut off from government.

(Warning contains graphic language)



(Thanks2MikeNelson)

Lyle Gramley Spots the Fed Manipulated Growth in the Economy...

Former Fed Governor Lyle Gramley just told Bloomberg News that the economy is improving and so the Fed isn't going to have to add more stimulus (After QE2).

He is right about the economy, which means he must be a pretty good data watcher. The bulls on the economy still remain few, but he also sees no uptick in inflation and doesn't think unemployment will drop to more than 9%.

This means he is also a Keynesian and outside of being a good data watcher, he is clueless about the economy. Inflation is headed to double-digit levels given the amount of money Bernanke is printing and the declining demand to hold cash. Further, as unemployment insurance runs out for 99ers and Bernanke prints money, hiring will start to pick up in the capital goods sector of the economy.

But as a former Fed official and Keynesian, Gramley getting 1 out of 3, at this early stage, isn't bad.

Here's the clip.

(Thanks to M)

The Truth About Chinese Ghost Cities: The Chinese Speak

EPJ's Taylor Conant is poking around the rumors of Chinese ghost cities.

His first report containing emails from Chinese students is here.

Why It's Time for You to Keep an Online a List of Clueless Gift-Givers

File Under "Entrepreneurs to the rescue."

Wapo explains:

Undoubtedly, the Thread and Bobbin Sewing Kit that Aunt Mildred sent from Amazon.com for Christmas will never see a stitch. The Stallion Stable Music Box might have looked pretty on the computer screen, but under the tree's flickering lights, it is frightful. The polka-dot nightgown has never been a good idea, even with free shipping.
These gifts sent via some warehouse many miles away are not only unwanted, but also a multimillion-dollar headache: They have to be repacked, labeled, dropped off and shipped back to Amazon's Island of Misfit Toys. Then a new present has to be packed, labeled and shipped again. Efficient, the process is not.

Amazon is working on a solution that could revolutionize digital gift buying. The online retailer has quietly patented a way for people to return gifts before they receive them, and the patent documents even mention poor Aunt Mildred. Amazon's innovation, not ready for this Christmas season, includes an option to "Convert all gifts from Aunt Mildred," the patent says. "For example, the user may specify such a rule because the user believes that this potential sender has different tastes than the user." In other words, the consumer could keep an online list of lousy gift-givers whose choices would be vetted before anything ships.

Amazon Job Posting Before It Launched

Just a little less than 20 years ago, August 1994. The job listing was on a an old Usenet posting. The company then called (pre-launch) Abracadabra. Notice the job includes "meaningful equity position".

Out of curiosity, I just asked Jeff Tucker, when Mises Institute launched their site. Jeff tells me that it was 1995, right around the same time as Amazon.


Click on ad for larger view




(ViaBusinessInsider)

NYC Price Inflation Watch

Parking meter prices controlled by the city of New York aren't exactly free market prices, but the city still can't raise meter rates at will. They have to pay some attention to demand, which means it is always interesting when the city thinks it can get away with rate hikes.

On January 3, 2011, NYC will begin to change some meter rates.

In Manhattan south of 86th Street, where passenger and commercial parking rates at muni-meters are $2.50 per hour, rates will increase to $3 per hour.

Throughout the City, where passenger parking rates at metered locations are 25¢ for 20 minutes, rates will increase to 25¢ for 15 minutes.(Mark this second change as a stealth price hike--not changing the price but changing the quantity supplied)

Has Obama Set a Trap? The Coming Revival of The Single-Payer Option

The government shouldn't be involved in healthcare, or healthcare insurance at all. However, Larry Elkin takes a look at current court challenges to the Affordable Care Act and finds they may lead smack dab into a Single-Payer Option-RW 

By Larry M. Elkin, CPA, CFP®

If the government wants me to pay for a service – let’s use health care as an example – it can tax me, and then decide how and when I can use the service. I pay a lot of tax money for Medicare and Medicaid, though I do not qualify for those benefits.

Maybe this is fine with me; maybe it isn’t. I can express my feelings here or at the ballot box. It would do me no good to attack the system in court, because the courts long ago decided that the government can tax me to provide services, even services that are used only by other people.

If the government wants to expand Medicare to cover everyone in the country, it could do that, too. It would undoubtedly cost more, so I would undoubtedly pay more. That’s the so-called single-payer option that many Democrats hoped would be part of the recent health care overhaul. This idea did not get off the ground, in large measure because American doctors do not wish to work solely for the U.S. government, and private health insurers do not wish to be put out of business.

So Congress required, instead, that beginning in 2014 virtually all Americans who are not otherwise covered must purchase private insurance. Backers of the health care reform did not see this as a problem. Congress could have forced all of us into a single, nationalized health insurance program; instead, it gave us a bit more freedom to choose, by allowing us to select among what are supposed to be multiple plans meeting certain minimum standards. We’ll see soon enough – maybe – how well this works in the real world.

But the insurance requirement has emerged as the loose thread that could unravel the entire health care deal. This delights a lot of people who opposed the overhaul in the first place. Some want to keep the system we have had until now; others want a new reform package that concentrates more on controlling costs and less on universal coverage.

Virtually none of them want the other possible outcome of a successful challenge, which would be a revival of the single-payer idea.

Earlier this month, a Virginia federal judge became the first to rule part of the Affordable Care Act unconstitutional: specifically, the mandate that all citizens purchase insurance or face penalties. Citing the Commerce Clause of the U.S. Constitution, Judge Henry E. Hudson ensured that higher courts will have dissenting opinions to consider. And it is virtually certain that, sooner rather than later, the new health care reform law will make it to the Supreme Court.

Two issues are at play here: the constitutionality of the law, and its wider economic implications. The former is a close enough question that the courts could go either way, and have so far; in addition to this decision, there have been two federal court decisions upholding the law’s constitutionality, and 12 more cases thrown out altogether. Another challenge to the law, backed by 20 states’ attorneys general, is making its way through a federal court in Pensacola, Fla.

It will be interesting to see how the Supreme Court decides. There are other situations in which government mandates the purchase of private services. In Manhattan, restaurants and office buildings are required to hire private haulers to remove their trash. The system produced a lot of mob-dominated corruption years ago, and a lot of court action that followed, but, as far as I know, nobody has challenged its constitutionality.

Opponents of the insurance mandate claim it oversteps the government’s power by forcing Americans to buy a product just by dint of existing. This distinguishes the law from, say, requirements for auto insurance, as citizens have the choice not to own a car. But the naysayers may be missing the bigger picture.

It boils down to the way insurance works. Collectively, we can’t have insurance if people only buy it after they know they need it. Either everyone shares the risk (and the expense) or premiums become unaffordable. If the Affordable Care Act is ultimately found unconstitutional, we will be left with only the public option to address the policy goal of universal coverage.

The irony, then, is that those who are challenging the Affordable Care Act as it stands are the very people who could drive us to a public option in the end. Those who supported the public option may just need to sit back and wait until the challengers’ court victories suddenly seem a lot less victorious. What remains to be seen is how close they get to the top of this uphill legal climb before they realize what’s waiting for them at the summit.

For more articles on financial, business, and other topics by Larry Elkin, view the Palisades Hudson newsletter, Sentinel, or subscribe to my daily opinion column, Current Commentary.

Is Housing about to Turn into a New Bull Market?

Based on Ben Bernanke money printing, I think the 2011 housing market will be much stronger than most expect. Here's the take from a major Orange County, California homebuilder, who isn't looking at the picture from a macro economic perspective, but from a within the industry perspective, during an interview with the Orange County Register:

Dan Young, president of Irvine Co.’s Irvine Community Development Co. homebuilding business.

Us: What’s your Orange County outlook for 2011

 Dan: 2011 will be significantly better than 2010 was, and 2010 has been very good for us.

Us: What will be the 2011 drivers of real estate change for condos, good or bad? Why?

Dan: Slow but steady job growth, the beginning of the final clearing of the distressed housing market and the public’s recognition of a housing shortage due to a dearth of new home building the last four years. Other drivers include continued low interest rates, very attractive new home pricing and new home design.

Us: OK. We love numbers. How much — in percentage points — will the median selling price of an Orange County home change in the coming year. What’s one thing that might alter that prediction — up or down?

Dan: Really do not have a prediction numbers-wise, but because resales have been strong and the distressed housing inventory has about cleared the market, we expect the median selling price to rise, and rise significantly if the public comes to realize that there is a looming housing shortage because new home development has not kept pace with population growth.

Us: What’s your top worry about the real estate climate for 2011? Why?

Dan: Banks getting back to lending to small businesses, financial issues both at home and abroad and jobs, jobs, jobs.

Us: What will be the real estate surprise we’ll be talking about a year from now? Why?

Dan: The full emergence of the Gen Y buyer, who currently makes up 85% of our new home buyers. The other surprise is that boomers will get back onto the playing field and begin looking for homes again.

Remember, this guy is in the industry, so he isn't about to say things are going to get worse, but his point about Gen Y buyers is interesting, as is his comment on new home designs.

But, bottom line, it will all come down to Bennie and his helicopters.

Steve Wynn Becomes Citizen of Monaco

It's not completely clear why Wynn sought a citizenship from Monaco, but in the past Wynn has warned about the direction in which the United States is heading. Is this a first step in Wynn adopting a multi-flag lifestyle? A few years back I saw him at the Milken Institute Global Conference and at that time he was studying Mandarin.

Here's WSJ with the details:

Wynn Resorts Ltd. confirmed that its chairman, Steve Wynn, has been granted citizenship in Monaco. He will retain his U.S. citizenship, a company spokeswoman said.

The Monegasque citizenship, conferred by the principality's ruler, Prince Albert II, came as a result of Mr. Wynn's agreeing to serve as an outside director for a joint venture between the governments of Monaco and Qatar, the spokeswoman said in a written statement. "His Monegasque citizenship was pursued as a result of this appointment," the statement added.

The statement didn't say what the joint venture would be doing or why Mr. Wynn needed Monegasque citizenship to sit on the board.

The Monaco government's website indicates that a person must give up citizenship in other countries to obtain Monegasque citizenship. When asked about this, the Wynn Resorts spokeswoman reiterated that Mr. Wynn remains a U.S. citizen and taxpayer. She didn't have any immediate comment to other follow-up questions about the matter.

Half of the Emergency Federal Reserve Credit Facility Funds Went to Foreign Banks

File under: The raping of U.S. taxpayers in an effort to bailout foreign banks.

Some of the world’s strongest banks profited from an emergency credit facility set up by the US Federal Reserve to shore up confidence in the global financial system, according to an FT analysis of data released by the Fed.
More than half of lending under the Fed’s term auction facility – the largest of its crisis programmes – went to foreign banks.

In what may be the financial understatement of the year, FT continued:

Details of the varied uses to which they put it may add to political criticism of the Fed.

A Chinese Unemployment Problem Straight Ahead?

Beijing city is set to raise its minimum wage by 21 per cent next year, the second such rise in barely six months, reports FT.

The increase, which will come into effect on New Year’s Day, raises the statutory minimum monthly wage in the Chinese capital to Rmb1,160 ($175) and the hourly rate to Rmb6.7. It comes on the heels of a 20 per cent rise in June.

Every province and municipality in China has announced a rise in its minimum wage this year, with increases ranging from 12 per cent to Beijing’s 41 per cent.

Although stagflation is a monetary phenomena, where price inflation continues but the economy contracts because not enough money is printed to support the previously distorted economy, an increase in the minimum wage IF it is above market wages will only result in higher unemployment and look an awful lot like stagflation.  One can only hope that market wages are above the minimums set, otherwise get ready for climbing Chinese unemployment.

I hasten to add that this is coming on earlier news that China plans to institute price controls. This, of course, will only result in shortages.

Bottom line: China's leadership is clearly as ignorant about basics economics as are most other leaders from around the world, and it will result in hardship for an economy that is just now attempting to climb out of the suffocation from the Mao years.

A Note on Saudi Arabia

Nouriel Roubini writes:

King Abdullah’s recent visit to the U.S. for medical treatment is a reminder that Saudi Arabia is likely to witness a leadership change in the not-so-distant future, and the country’s economic and political development depend on the character of the king's successor.

Is the ECB Cranking Up Its Money Printing?

A trader emails:

This morning the ECB drained 60 billion Euros, rather than 73 targeted.  I never considered their "sterilization" real, since they were replacing bad bonds, for relatively good Euros, but today they seem to have actually printed extra Euros -- unless this is some type of anomaly.

The Subway Sheeple Freeze

This is incredible. Over 400 people, last night, spent over 9 hours stuck on a NYC subway, on an elevated track, in freezing conditions.

According to WaPo, twice, passengers called 911 and the Fire Department of New York responded. Passengers begged the emergency responders to take them away, but they were told they had to stay put.

Are you kidding me? People who know me, know there is no way a firefighter is going to head back to a warm fire station and tell me there is nothing he can do.

More from WaPo:

Tensions in the car began to rise. No one was aggressive, but people were speaking forcefully to the conductor. Some demanded that city transit authorities bus them out. A mother with four children worried loudly that they had no water. Some worried about getting sick.


Men would walk onto the platforms connecting subway cars and urinate onto the tracks. Eventually, the train workers allowed passengers into the bathroom inside the train station. When it turned out that bathroom was heated, it caused a commotion.

"One woman came back and said, 'Oh my God, the bathroom is SO warm,'" Mullen said. She was very excited. But the station had no heated space where the passengers could wait out the storm.

 This is utterly amazing. Folks, with the inflation ahead and the debt crisis ahead, who knows how bad things are going to get. If you are going to depend for government to rescue you, based on their rules, you are going to end up like these sorry subway passengers.

Off the top of my head, I can think of at least 4 ways to get the city to get me off that train, pronto. It might be a good exercise for you to think about how you would handle such a situation, because some day, given the way things are going, you may have to use your wits in such a situation, maybe an even worse situation.

I can see, though, for most people the TSA obedience training is really working. It looks like most will stand for almost any kind of abuse.

Krugman Just Gets Silly

Paul Krugman is out with yet another post, defending his absurd position that rising commodity prices will not eventually translate into rising consumer prices.

There are a few things to note here. First, it appears Krugman has completely ditched his disinflation/deflation talk. He is no longer talking that doozy of a theory. He has moved on to say, Well, it is only commodity prices that are climbing.

The man is becoming a caricature of himself, with each additional post. He runs a volatility chart in an attempt to somehow prove his point, which I guess is that there will be no price increases at the consumer level :

Who the hell ever said that commodities weren't volatile? In fact, if Krugman understood Austrian Business Cycle Theory he would understand that such commodities as copper, nickel, oil and the like are volatile because of the demand for them in the capital goods sector. As Ersan Bocutoglu and Aykut Ekinci, at the current core of Austrian Economic thinking,  put it:

The process [of the current crisis] started with the credit-expansion policy, which caused considerable increases not only in property prices but also in capital goods and stock prices. Commodity price indexes such as energy, industrial-inputs, metals, and the American consumer price index (CPI)... In order to facilitate comparison, the indexes under consideration were arranged on the base year 2001 (2001=100).

From 2001 to 2007, the CPI, and industrial-inputs, energy, and metal prices increased by about 19%, 113%, 117% and 226% respectively. In the same period, an increase of more than 250% occurred in the Global Dow Jones.

The fact that CPI is not acting as a leading indicator during business cycles is well illustrated by the trends given..... Therefore, it would be more appropriate to take real-estate, industrial-inputs, energy, and metal prices as indicators of economic risk.

Bocutoglu and Ekinci don't explain this, but the reason the CPI is less volatile is because the impact of Federal Reserve money printing, both when there is expansion and contraction of the printing, is most significant in the capital goods sector, including on copper,energy etc.

The money flow into the consumer sector is later and does not have the same kind of outflow (Thus, less volatile price drops)as does the capital goods sector during a halt in Fed printing. Indeed, during a halt in Fed printing, a new consumption/capital structure is forming in favor of consumption, pushing even more money flow towards the consumer sector, keeping it from declining as much, and becoming as volatile as the capital goods sector does. Krugman doesn't understand this.

Further, he doesn't get (or won't admit) that Fed printing is causing some of the increase in the commodity prices and that this money flow will find its way to the consumer sector. So overall his chart is a silly one to run,and  it is obfuscating. Here is what has really been going on with commodity prices over roughly the same period as his "volatility" chart:

Here's the CPI over the same period.

The two charts do indeed trend the same, the commodities index just trends with much greater extremes. Krugman is simply being very deceptive in his post. He will get more deceptive over coming months as he is going to have to explain away his cluster of botched calls. Not only is he going to be wrong about consumer price inflation, but he is going to be wrong in his forecast of terrible unemployment and in his forecast of an overall anemic economy. The economy is going to "improve" in a manipulated way, thanks to Bernanke, much quicker than any Keynesians expect, and his call for more stimulus, that he made just a week ago on the Rachel Maddow Show, will make even more people wonder who the hell they are giving Nobel Prizes to these days.

Fed Places 70% Per-Security Limit on Treasury Debt Holdings

The Federal Reserve is clearly pigging out on Treasury securities. It has just more than doubled its pant size.

The Fed has announced it is increasing the per-security limit on treasury debt holdings to 70 per cent as part of it's quantitative easing program.

The previous limit was 30 percent.

Bernanke Money Printing is Sure Going to Help Out Top School MBA Grads

This year the MBA who landed the highest annual base salary -- a whopping $350,000 to start -- graduated from the University of Pennsylvania's Wharton School and went into a private equity job with a firm in New York, reports Fortune.

MBAs from at least five U.S. business schools -- Wharton, Stanford, Chicago, Columbia and Northwestern -- report that the highest base salary received by a 2010 graduate was $300,000 or more. Harvard Business School's top grad this year pulled down a $250,000.

Fortune continues, yet, as extraordinary as these sums are, they still fail to capture the total compensation these MBA rock stars got. Once you tote up a signing bonus, a guaranteed year-end bonus, and the reimbursement of relocation expenses and tuition, it's relatively easy for a top-flight MBA to earn in excess of half a million dollars a year in compensation in the first year out of business school.

This year, for instance, nearly four out of every 10 Harvard MBAs who went into private equity received "median other guaranteed compensation" of $155,000 each. Some 9% of Harvard's Class of 2010 took jobs in private equity.

By and large, the highest starting salaries these days are being paid by private equity firms and hedge funds, which recruit far fewer MBAs than the elite consulting firms and investment banking partnerships that buy MBAs by the boatload.

Among the largest private equity players, TPG and KKR are known as the highest paying. Not far behind, according to a recruiter for a top private equity firm, are Blackstone, Bain Capital, Carlyle, Providence, and Apollo.

On the other extreme of the earning spectrum, Wharton reported that the lowest-paid MBA in the class of 2010 received a base salary of $25,000 a year for a job in the "media and entertainment" industry in the Midwest.

Gasparino: Jack Welch Warned Me About Doing Market Moving Stories, "You Are Going to Get Your Brains Blown Out"

It doesn't get much clearer than this, for those of you who don't think corporate execs don't influence reporting at mainstream media.

In an interview on Benzinga.com, Charlie Gasparino, who used to work at CNBC, said that Jack Welch, who was Chairman of GE when they owned 100% of CNBC, told him not to do market moving stories  Gasaprino said:

Jack Welch told me you do not want to do that. You really don't want to move the markets like that because one of these days you are going to get your brains blown out. And I took that to heart.

It seems that Gasparino takes the message from Welch to somehow just mean it's a very dangerous thing to do and doesn't catch the nuance that Welch is attempting to muffle him. But what the hell is a corporate exec, one of the most powerful corporate execs in the world, doing telling a reporter not to break market moving stories?

The clip from the Benzinga interview is here, Gasparino mentioning the warning is at roughly the five minute mark:

NYC Subway Riders Stuck on Train 9 Hours; No Heat

Some New York City subway passengers were stuck overnight in 15 degree weather, with no heat. The dilapidated NYC subway system is an object lesson of what happens under government control of an industry.

Few are aware, but the subways in New York City were once privately owned. There is no way the subway system in NYC would be in the disrepair it is now, if it remained in the hands of the private sector.

It's time to return the subways to the private sector. I am not talking about "privatizing" in the sense that the city oversees and hires private contractors. I am talking about the city getting out of the subway business and auctioning off the lines, so that they are bought and brought into the 21st century.

Within 3 to 6 Months, Smartphone Prices Will Be Down to $75

Smartphones carrying top of the line capabilities way down in price within 3 to 6 months, phone access fees crashing within a year (despite overall climbing inflation), that's what the near future holds. Viva Falling Prices!-RW

By Seth Weintraub

Ever-improving networks and a big hardware announcement that will send handset prices plummeting both point to smartphone growth in 2011 that could totally eclipse anything we've seen before.

Smartphones have been growing at an unbelievable clip over the past year but they still account for only around a third of all phones in the US and an even smaller percentage internationally. In developing countries, the price of smartphones, aside from some 'quasi-smart' Nokias (NOK) are out of reach for all but the elite. India and China each have billion plus populations and growing middle classes, but neither country is even at a 10% market penetration of smartphones.

Globally, market intelligence firm IDC counted 269.6 million smartphones sold this year, compared to the 173.5 million units shipped in 2009.

In 2011, we might see half a billion phones sold worldwide. Smartphones will likely blow by traditional computers next year as the way most of the world gains access to the Internet.

Two major factors will drive this, in tandem: Wireless infrastructure is getting better every day, and hardware is getting cheaper. Cheaper hardware will eliminate the need for subsidies and therefore will improve competition between carriers, and spur them to improve their networks. Google (GOOG) Android head Andy Rubin calls this a 'perfect storm' for smartphone adoption.
A closer look at price: In 2010, the cheapest mainstream Smartphone was just below $200 (unsubsidized by a carrier contract-- the way most of the world buys its phones). Some extremely cheap (but feature rich) Chinese brands have recently fallen to around $150. But based on the hardware announcements we're seeing, including one big player in particular that price will be cut in half:

Read the rest here.

The First 10 Major Cities That Will Run Out Of Pension Fund Money

Projections by Robert Novy-Marx and Joshua Rauh show the average city has $15,000 per household in unfunded pension liabilities. A lot of it is off-balance sheet, hidden from easy public view. Many, many cities are in trouble. Here are the top ten major cities that are in trouble and when they will run out of money:

#1 Philadelphia- Unfunded liability of $9 billion, $16,696 per household, only 4 years before the pension accounts are empty

#2 Chicago- Unfunded liability of  $44.8 billion, $41.966 per household, money runs out in 7 years

#3 Boston- Unfunded liability of $7.5 billion, $30,901 per household, money runs out in 7 years

#4 Cincinnati- Unfunded liability of $2 billion, $15,681 per household, money runs out in 8 years

#5 St Paul- Unfunded liability of $1.4 billion, $13,686 per household, money runs out in 8 years

#6 Jacksonville- Unfunded liability of $4 billion, $12,944 per household, money runs out in 8 years

#7 New York City- Unfunded liability of $122 billion, $38,866 per household, money runs out in 9 years

#8 Baltimore- Unfunded liability of $3.7 billion, $15, 420 per household, money runs out in 10 years

#9 Detroit- Unfunded liability of $6.4 billion, $18,643 per household, money runs out in 11 years

#10 Fort Worth- Unfunded liability of $2 billion, $7,212 per household, money runs out in 11 years

(ViaBusinessInsider)