Rick Santelli: Rant of the Year

On CNBC

An Austrian Case Against Stimulus

I found the following comment on Austrian Economists Blog the most compelling case against economic stimulus I have seen so far.

There needs to be a in-depth comparison between the market and policy response of the 1921 depression and the Great Depression and what it means for the current crisis. Here it is:

Someone should really point to the 1921 depression for President Obama to study rather than the Great Depression of 1929-1933.

According to J.R. Vernon in "The 1920-21 Deflation: The Role of Aggregate Supply," the one-year deflation of this time is the largest ever recorded: “This is true whether the Department of Commerce [ 1986 ] estimates or the recently provided Balke and Gordon [ 1989 ] or Romer [ 1989 ] estimates are used. These estimates produce one-year deflation figures of 18 percent, 13.0 percent, and 14.8 percent, respectively. The closest competitor is the 11.5 percent deflation recorded for 1931-32, the third year of the Great Depression.” Furthermore, the "ratio of the percentage decline in the GNP deflator for 1920-21 to the percentage decline in real GNP is 2.6 using the Department of Commerce figures, 3.7 using the Balke and Gordon data, and 6.3 using the Romer data." But "the ratios of the percentage decline in GNP prices to the percentage decline in real GNP for 1930-31, 1931-32, 1932-33, and 1937-38, the other Great Depression years in which real GNP declined, were 1.0, 0.9, 1.2, and 0.3, respectively, all well below the 1920-21 figures."

According to the monetarist story, the sharp deflation of the Great Depression is the dis-equilibrating factor which the Fed did not fix by counteracting with aggressive money supply inflation. The Austrians, however, saw the sharp deflation as the equilibrating factor to the great inflation of the 1920s.

Whatever the take on whether the deflation was "good" or "bad," both schools seemed to agree that what really mattered was how prices reacted to the change in the money supply. Monetarists (and Keynesians) seemed to believe that prices were "sticky" downward, especially wage rates. Therefore, in a sharp deflation, a monetarist wouldn't trust the market to adjust nominal wages down fast enough to keep up with the deflation, so the policy response should be to "reflate" the money supply back up to the pre-deflation levels to avoid massive unemployment.

For example, using the figures for the 1921 deflation, real wages would be in the range of being 15%-22% higher after one year if the nominal wage rates didn't decline at all. The sudden increase in the real wage would not be a product of higher productivity, so therefore would not be sustainable, and for such a large amount in a short period of time, firms would have to lay off workers quickly to remain profitable.

Austrians also recognize this fact about deflations and wage rates, but instead argue that wage rates will fall to reflect the fall in the money supply. There will be unemployment for a time because a worker's wage is not like the price of wheat, meaning there is some stickiness downward, but not enough to be economically destructive. Furthermore, since Austrians believe that the inflation is the dis-equilibrating factor, reflation will just sow the seeds for the next bust in the economy, so it is better to swallow the bitter pill of temporary unemployment and move forward on a sustainable path after that rather than endure chronic boom-bust cycles caused by the inflation-deflation-reflation-inflation-etc. cycle.

Now that the severity of the 1921 deflation has been shown to be greater than the Great Depression deflation and that a severe deflation forces markets and policymakers to adjust quickly to reassert a sustainable economic path, let’s compare how the market and the government reacted to the 1921 depression and to the Great Depression. In any account that I have seen of the 1921 depression, even though the deflation was the sharpest ever seen, wage rates fell to accomadate the deflation and the depression was over before the government could even do anything. In fact, it is noted that under the Harding administration, the response was to lower taxes and government expenditures and to not hector businesses into keeping wages high, against the “wisdom” of then-Commerce secretary Herbert Hoover. Hoover laid the groundwork for such meddling by having many conferences and committees study how to get out of the depression (the President's Conference on Unemployment being the lead conference). Unfortunately for Hoover (and fortunately for the economy), all his hard work was for naught because the economy had fixed itself too quickly.

But as President, Hoover would be able enact the policies for the Great Depression that he dreamt up for the 1921 depression. Chapters 7-12 of Murray Rothbard’s “America’s Great Depression” detail his numerous interventions to keep nominal (and thus, real) wages high during a sharp deflation as well as prices in general for crops and other products. And the bite of government steadily increased during his term, as reflected on page 347 of the book:

1929 – 14.3% of gross private product, 15.7% of net private product
1930 – 16.4% of gross private product, 18.2% of net private product
1931 – 21.5% of gross private product, 24.3% of net private product
1932 – 24.8% of gross private product, 28.9% of net private product

Lots have said that the Hoover administration was a repudiation of the laissez-faire approach to dealing with an economic downturn, particularly one of the size of the Great Depression. By reading the chapters noted above and looking at the increasing burden of government during the Hoover administration, it is safe to say that laissez-faire wasn’t found wanting because it isn’t anywhere to be found at all. Hoover, “the Great Engineer,” had by his words in 1921 and his actions in his presidency was the antithesis of laissez-faire. In fact, Rexford Tugwell, leading advisor to Franklin Roosevelt, said "The ideas embodied in the New Deal legislation were a compilation of those which had come to maturity under Hoover's aegis... We all of us owed much to Hoover."

But, there are some who might look at the data and say that, yes, Hoover was a proto-New Dealer, but that he didn’t do enough. But by looking at the 1921 depression, we can see that the laissez-faire reaction did not lead to chronically high unemployment, unlike the Great Depression years of 1929-1940, when unemployment hit 24.9% in 1933 and the best unemployment numbers afterwards were at about 14% for 1937 and 1940. If “doing something” is better than “doing nothing,” then the “Hoover-didn’t-do-enough” crowd would have to explain why the “do-nothing” policy of Harding was a success (at least in the relative sense, but also in the absolute sense) and Hoover’s “did-something-but-not-enough” policy was a complete failure, rather than the reverse. I do not see how a completely unrestrained Keynesian prescription could have solved the 1921 depression in substantially less time than the laissez-faire policy.

If President Obama wishes to come out of this recession as quickly as the 1921 depression, he should adopt the policies of Harding and not those of Hoover-Roosevelt. But we know that he won’t because he, like 99.99% of Americans, has no knowledge of the 1921 depression, its wise remedy, and its good results. Unfortunately, he will choose the policies of persistent stagnation/depression that should have been discredited long ago by doing a simple comparison case study.

(by Logan Boettcher - a commenter at AustrianEconomists.typepad.com )

No Mercy!

Market Knoweth No Bounds To Its Fury :

1929-1932 chart is of the Dow Jones Industrial Average, as it collapsed 90%. That level of crash, if it were to occur now, will bring the DJIA down to about 1400. In otherwords, another 80% down from today's levels. That is an implausible scenario, if not impossible.

Rest of the charts are that of S&P500, which goes back only till 1957. It is a much broader index, more representative of the entire market. DJIA contains only 30 of some of the largest companies in the U.S., where as S&P 500 contains 500 of some of the largest companies in the U.S.

The tech crash at the earlier part of this decade happened over a period of 2.5 years.

On a positive note:
1. Dollar index staged a spectacular rally.
2. Option ARMs reset will be moderated by the collapse in interest rates, at least for now.

Big Three Update:

Executives at the Big Three flew into Washington in their corporate jets, carrying a tin cup
All three CEOs - Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler - exercised their perks Tuesday by flying in corporate jets to DC. Wagoner flew in GM's $36 million luxury aircraft to tell members of Congress that the company is burning through cash, asking for $10-12 billion for GM alone.

Writes IOUSA team:

“We have to face reality,” admitted Senate Majority Leader Harry Reid. Not the reality that an automaker bailout is a bad idea… but the reality that no one outside of Washington supports it.

Congress will recess until the week of Dec. 8, so members can go home, collect bribes, patronize their constituents, sleep with young aides and so on. When they return, the “Big Three” will present their case -- make one last stand -- and maybe, just maybe, this thing will be over.

Kashkari in the Hot Seat:



During last week's congressional testimony about the 700 billion TARP program, one of the congressmen asked Kashkari if he is a chump. With millions watching them on TeeVee, congressmen were just swinging for the bleachers. Despite what Kashkari wants you to believe, neither he nor Hank Paulson could care less about the home owners.

Status Quo Update:

President Elect Obama is likely to pick President of the New York Fed, Timothy Geithner, for the post of the Treasury Secretary. Boyish looking Timmy has been part and parcel of the NY banking establishment for the last 20 years, wheeling and deeling for the bankers, even as an epic credit bubble was ballooning in his backyard. If there is a shining beacon of unchange anywhere, Timmy is where you are likely to find it.

In another act of unchange, Democrats have decided to keep Neocon Joe Lieberman at helm of Senate Committee on Homeland Security and Governmental Affairs.

Fed Acts Irresponsibly, Again!

The root cause of the current financial crisis was a lose monetary policy pursued by the Federal Reserve for most part of this decade. What is their solution to the current crisis? More of the same. Americans have been borrowing and consuming too much, and saving and investing too little. So here comes Fed with an incentive to save - a drop in interest rate to 1%. That should give a shot in the arm to the saving habits of Americans!

The solution for an indebted society, as far as the bureaucrats at the Fed goes, is to get them into debt some more. Talk about insanity

Here is the FOMC statement.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.

Did Laissez-Faire Cause the Great Depression?

The enemies of the free market often quote Andrew Mellon, the treasury secretary under Hoover as evidence that President Hoover's hands off approach is what prolonged the great depression.

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. . . . [That] will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people"

However, using the above quote as evidence of laissez-faire is distortion of the truth. In fact, President Hoover was too much of an activist to sit on his hands and let the markets work. Until the crash of 1929, the general policy of the federal government to an economic crisis was a relatively hands-off approach. However, Hoover wanted to bail out the failing enterprises. Here is what he said during one of his campaign speeches in 1932 on this matter.

"we might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. . . . No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. . . . For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered. . . . They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world. Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for . . . “the common run of men and women.” Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom. . . . We determined that we would not follow the advice of the bitter end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction."

Again from Hoover's memoirs...

"We developed cooperation between the federal, state, and municipal governments to increase public works. We persuaded employers to “divide” time among their employees so that as many as possible would have some incomes. We organized the industries to undertake renovation, repair, and, where possible, expand construction."

"I determined that it was my duty, even without precedent, to call upon the business of the country for coordinated and constructive action to resist the forces of disintegration. The business community, the bankers, labor, and the government have cooperated in wider spread measures of mitigation than have ever been attempted before. Our bankers and the reserve system have carried the country through the credit . . . storm without impairment. Our leading business concerns have sustained wages, have distributed employment, have expedited heavy construction. The Government has expanded public works, assisted in credit to agriculture, and has restricted immigration. These measures have maintained a higher degree of consumption than would otherwise have been the case. They have thus prevented a large measure of unemployment. . . . Our present experience in relief should form the basis of even more amplified plans in the future."

Rhetoric is one thing and reality is another. Reality was a Keynesian's delight. Huge deficit spending by the Hoover administration. The following is from America's Great Depression by Murray Rothbard(PDF format).

Federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931—excluding government enterprises, it rose from $3.1 billion to $4.4 billion, an enormous 42 percent increase. In short, in the midst of a great depression when people needed desperately to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product (from 18.2 percent to 24.3 percent of the net private product). From a modest surplus in 1930, the Federal government thus ran up a huge $2.2 billion deficit in 1931.And so President Hoover, often considered to be a staunch exponent of laissez-faire, had amassed by far the largest peacetime deficit yet known to American history. In one year, the fiscal burden of the Federal government had increased from 5.1 percent to 7.8 percent, or from 5.7 percent to 8.8 percent of the net private product.

Hoover's (not FDR) Glass-Steagal

One thing Hoover was not reticent about: launching a huge inflationist program. First, the administration cleared the path for the program by passing the Glass–Steagall Act in February, which (a) greatly broadened the assets eligible for rediscounts with the Fed, and (b) permitted the Federal Reserve to use government bonds as collateral for its notes, in addition to commercial paper.

Does the following sound familiar?

During 1932, President Hoover greatly stepped up his one man war on the stock market, particularly on shortsellers, whom he naïvely and absurdly persisted in blaming for the fall in stock prices. Hoover forgot that bulls and bears always exist, and that for every bear bet there must be an offsetting bull, and also forgot that speculation smooths fluctuations and facilitates movement toward equilibrium. On February 16, Hoover called in the leaders of the New York Stock Exchange and threatened governmental coercion unless it took firm action against the “bears,” the shortsellers. The Exchange tried to comply, but not aggressively enough for Hoover, who declared himself unsatisfied.

Having warned the Exchange of a Congressional investigation, Hoover induced the Senate to investigate the Stock Exchange, even though he admitted that the Federal Government had no constitutional jurisdiction over a purely New York institution. The President used continual pressure to launch the investigation of what he termed “sinister” “systematic bear raids,” “vicious pools . . . pounding down” security prices, “deliberately making a profit from the losses of other people.” Beside such demagogic rhetoric, constitutional limitations seemed pale indeed. Secretary of Commerce Lamont protested against the investigation, as did many New York bankers, but Hoover was not to be dissuaded. In answering the New York bankers, Hoover used some unknown crystal ball to assert that present prices of securities did not represent “true values.”

Federal Home Loan Bank, a Hoover creation

President Hoover, we remember, had wanted to establish a grandiose mortgage discount bank system to include all financial institutions, but the rejection of the scheme by insurance companies forced him to limit compulsory coverage to the building-andloan associations. The Federal Home Loan Bank Act was passed in July, 1932, establishing 12 district banks ruled by a Federal Home Loan Bank Board in a manner similar to the Federal Reserve System.
$125 million capital was subscribed by the Treasury, and this was subsequently shifted to the RFC.

It didn't end there...

Measures such as Federal and state and local public works, worksharing, maintaining wage rates (“a large majority have maintained wages at high levels” as before), curtailment of immigration, and the National Credit Corporation, Hoover declared, have served these purposes and fostered recovery. Now, Hoover urged more drastic action, and he presented the following program:
(1) Establish a Reconstruction Finance Corporation, which would use Treasury funds to lend to banks, industries, agricultural credit agencies, and local governments;
(2) Broaden the eligibility requirement for discounting at the Fed;
(3) Create a Home Loan Bank discount system to revive construction and employment measures which had beenwarmly endorsed by a National Housing Conference recently convened by Hoover for that purpose;
(4) Expand government aid to Federal Land Banks;
(5) Set up a Public Works Administration to coordinate and expand Federal public works;
(6) Legalize Hoover’s order restricting immigration;
(7) Do something to weaken “destructive competition” (i.e., competition) in natural resource use;
(8) Grant direct loans of $300 million to States for relief;
(9) Reform the bankruptcy laws (i.e., weaken protection for the creditor). Hoover also displayed anxiety to “protect railroads from unregulated competition,” and to bolster the bankrupt railroad lines. In addition, he called for sharing-the-work programs to save several millions from unemployment.

Did I mention Smoot-Hawley or Hoover Dam?

It should be obvious that the Keynesian "improvements" at best did nothing to help the situation during the depression, and at worst worsened the depression. 10 years after the crash of 1929, the unemployment still hovered around 20%.

Now, let's look at the Japanese experience. We all have heard the expression Japan's lost decade - 1990s. Is that description really accurate? Japanese stock market recently hit the 1982 levels just last week. So it is more like 3 lost decades. Japanese followed the advise of the Keynesian and Monetarist economists. They started running huge deficits and public works programs ( Keynesian ) and dropped interests rate to effectively zero and printed money like it was going out of style ( monetarist ) and yet 20 years after the crash in Japan, the economy still sputters. The public works program has put the entire country under a think layer of concrete ( Isn't it amazing that the evironmentally friendly Keynesians would put whole nation under layer of concrete, to stimulate consumption? ), and yet it had no stimulatory effect.

Tractors for Stockbrokers, Maseratis for Farmers

Says Jim Rogers...

Peter Schiff Interview On Glenn Beck Radio

Part I



Part II

Greenspan's Flaw

Alan "Serial Bubble Blower" Greenspan, being an early admirer of Ayn Rand was for a Gold standard and hard money. In 1966, he wrote an essay titled "Gold and Economic Freedom". Ironically, went on to become a Central Banker. He supervised the biggest expansion of credit and money out of thin air backed by nothing.

Early Greenspan was not a free-marketer in the Friedmanite mold, instead, he was even more rooted in free market in the Misesian mold.

His whole life became a lie, the moment he became and advisor to President Richard Nixon.
Recently, Fox business interviewed Mr. Bubbles, where Alan, in a moment of honesty, revealed that he still believes in Gold standard. His 19 years at the helm of the politbureau, was a complete lie, he was doing something he never believed in.

Watch it here for yourself - the admission comes at 6 minutes and 35 seconds into the video.



In addition, in the above video, Greenspan asserted that he never discussed with his mentor Ayn Rand, the proper role of central banks in an economy; thats something really hard for me to believe.

Mike "Mish" Shedlock has a very interesting take on all this...

Only the free market can judge risks. The failures are not of the free market,
the failures happened because we did not have a free market.
Instead we had
governments sponsorship of the GSEs, government sponsorship of the ratings
agencies, micro management of interest rates by the Fed, fractional reserve
lending compounded by Greenspan himself authorizing sweeps of checking
accounts.
Sweeps permitted nearly every penny of money that is supposed to be
available on demand to be lent out. Money that you think is in your checking
account is simply not there. It has been lent out.

Here is congressman Ron Paul on Neil Cavuto discussing Greenspan's lies.

Motley Fool: Why Oil Prices Will Rise Again

Back in July, around the time the oil price peaked, common consensus went
along the lines of ...
The world is running out of oil.
World demand for oil is high and only going to get higher still in the years and decades ahead.
Most of the world's cheap oil has already been discovered.
Oil exploration companies increasingly have to drill for oil in more and more
difficult places. This adds to the cost of exploration and in the event of a
discovery, the cost of extraction. Either the price of oil stays high and goes
even higher, so that it makes these new discoveries economical for the oil
companies, or the oil stays in the ground. Given the increasing demand and the
world's complete reliance on the naturally depleting natural resource called
oil, it has to come out of the ground.
Oil was seen as a natural hedge for the falling U.S. dollar.

Click the subject line for the link to the Motley Fool article

Government Solutions

In trying times like this, we need some real inspiration :)

Poll: Whither Price Of Oil?

Admission of Guilt! A Reply to Mish

Mish over at the Global Economic Analysis asks the following in the comments section:

“Can I ask a question?

With oil at $84 ....
Where is Oil Shock?

Mish
Like this comment?
link to the post

Oil Shock was indeed wrong. Yes, I called the bottom at $90 for oil. It was indeed the bottom until Oil declined one more time. Yes, so far it about 7% below that price. I still have called a perfect bottom in gold. Dollar index is about 2% higher than my prediction top.

Australian Dollar cliff dived yesterday, partly due to the unwinding of the carry trade. Just two months ago, the Ozzie was at near parity with the USD, but today you could buy 1 Ozzie for 64 cents U.S. Do you think Australian economy is fundamentally a lot weaker than the U.S economy? Do you think what happened to Iceland and Australia are impossible to happen here?

Much of the strength in dollar index is due to the weakness of Euro, it is not an indication of Dollar strength. Euro is a doomed currency. I heard somebody put it as the Deutsche Mark + some parasites, and that is very true.

Was my bottom and top calls based on any specific formula? No. It was just rhetoric meant to say that inflation is still in play. Did I strongly believe in my prediction? Yes I did. Did I know that for 100% sure that Oil will bottom at $90.00, and Gold at $750? No I did not.

As for all those deflationary derivatives worth 500 trillion floating around, it is all hogwash. Derivatives can go to zero and 80-90% of them do, even in a bull market. Have you read stats on options? Most of them go to zero? If one were to really believe that those derivatives are part of the money supply, what do you think the price of a refrigerator full of groceries would be?

Is there an unwillingness to lend right now? Yes. But all the debt will be monetized away, and some more will be accumulated by the local, state, and federal governments and monetized.

Stop kidding yourself. Oil at $84 is a lot higher than were it was, when Mish started denying that inflation was non-existent, go back, he has a lot of charts and graphs starting from 2005 to prove his point.

Mish has been consistently wrong for many years with his predictions, and yet he needs a great deal of credit for predicting the crisis very accurately as it unfolded. There were a lot of guys predicting shallow recessions, muddle throughs etc. But Mish could see a lot further than those others; he predicted a deeper recession. He was just a little early. Mish is still wrong about deflation.

Real wealth is ability to produce real goods, and that is one area that American economy lacks clearly. Yes, America has a lot of productive capacity, but no where close the purported size of the economy. So, what really is backing our dollar? yes,a lot of productive capacity, and a lot more of hot air.

Bail Out: What the Media didn't report

People protesting against the bail out. Why was this not reported in the MSM?

Inflation or Deflation?

Mish at Global Economic Analysis is still convinced that we are headed for deflation. I am not so sure. Here is why:

What will be the effect of all the deficits that the local, state, and Federal governments will be running. The fact that we are entering this recession/depression from a period of high levels of deficits, don't give me much confidence in deflationary theory.

All the Keynesians and Monetarists infesting the government wouldn't want government to shrink, people wouldn't want it either. What will that do to the dollar?

What if the Chinese and Japanese governments use their dollar reserves to stimulate their economies? What impact will it have on the dollar?

I also believe, that it's not just subprime borrower, but our whole country is broke. How could that be good for us as a borrower? How can that be good for the dollar? Do you think, given the conditions, it will be easy for the deficit spending government to knock on the door of People's Bank of China, Bank of Japan or Saudi Arabian Monetary Agency, and get approved for credit as we frequently as we will need them?

The fact that no player in the market wants to buy the subprime loans is telling. It is worthless. Who would want to buy the currency ( increasingly backed by failed mortgages ) of a country that is essentially bankrupt?

There is no doubt that the credit turmoil in America will have it's ripple effects across the rest of the world, but does it change the fact that we still are the subprime borrower ?

Addendum 10/04/08 12:04AM pacific:

Another way to look at USD as a CMO backed by the worst mortgages in America. A mortgage backed currency called Assignat was once tried in france. It led to hyperinflation and a collapse.

Peter Schiff versus Diane Swonk ( 06/13/06)

Loose Money And the Roots Of the Crisis

Judy Shelton writes for the WSJ

If capitalism depends on designating a person of godlike abilities to manage demand and supply for all forms of money and credit -- currency, demand deposits, money-market funds, repurchase agreements, equities, mortgages, corporate debt -- we are as doomed as those wretched citizens who relied on central planning for their economic salvation.

Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year's crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives. We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan.

Bail-Out: What's the alternative?

Comrades,

I was asked by a couple of readers, what the alternative to the bail-out is. The concerns are well placed. If the credit dries up, even good businesses will suffer, it will affect their day to day operations, ability expand, and make good on payments including salaries.

By taking away the bad debts from the books of the banks, one is not only rewarding bad behaviour, but also ignoring the fundamental problem - the cartelization of credit. It is a bad system; it is pyramiding of credit; and it creates a set of winners and losers, not according to their merits and demerits, but according to their ability or inability to pervert the system.

The main cause of the banking crisis is the inability of the borrowers to repay their debts.Too much credit shoved down the throat of undeserving borrowers is what caused the crisis; more of the same isn't going to solve it. The bubble also created a glut in housing and related industries, malinvestmets as Austrian Economists would call it; and that needs to be purged.

Bailing out the banks will not reverse the tightening of the credit standards. 20% downpayment will be the standard, one would hope. More over, the option-ARMs are still adjusting, which means housing prices will continue to sink, leading to further pressure on the banks. Commercial real estate, credit cards and autoloans are under stress, as we speak. So this staggering 700 billion price tag is only just the beginning.

Further more, Fed is injecting staggering amounts of credit into the banking system, with out any Congressional approval I might add. Fed's balance sheet is chock full of bad loans. The bail-out bill was intended to provide the power to the treasury to do targeted operation to permanently take the bad debt off the balance sheet, rather than general injection of new credit into the system.

Last but not least, there will be opportunity costs to the bail-out. By diverting real resources, either through taxation or through inflation, the government will be taking capital resources away from successful companies and directing it towards failed enterprises.

Chart: Monetary base

The regulators have a decision to make, whether they want to prolong the agony of pulling off a band-aid.

Contrary to popular belief, the current group of goons managing the economic policy are not freemarketers. Which is why I have often said time and again that Milton Friedmanites are Keynesians in drag. Keynes is a fabian socialist whom most leftwing economists worship openly, and their right wing counterparts worship secretly. Sure, they all talk-up a good game.

Finally, if bureaucrats and politicians are such supermen/superwomen, who could solve any real crisis in the economy ( a creation of these very people ) by waving a magic wand, shouldn't we just transfer the responsibily of planning the economy ( as to how many pencils and lipsticks to be produced per year ) to these very same superdudes and superdudettes? In other words, comrades, shouldn't we all embrace Marxism?

Why did Keynesians and Monetarists Get It All Wrong?

Bailout marks Karl Marx's comeback ( click to read the whole article )

In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.

Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar
interventions following the burst of the dot-com bubble in 2001.

“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.

Blast From The Past

Peter Schiff on Neil Cavuto:



All these fools, who didn't see the crisis coming, are claiming they can solve the problem with 700B. Not counting all the bad debt that the Fed has already accumulated already, this 700B will be just the start. THere is a commercial real estate collapse still ahead of us, So is it with all the Alt-A, Option-ARM and then prime mortages.

The guy with the long hair apparently is on monetarist/supply-side kool-aid and Mike Norman is a Keynes cultist.

Peter Schiff versus Art Laffer:


Here is another one - Debate with Art Laffer. "Libertarian" Art Laffer's expertise will be sought by the GOVERNMENT to "solve" the current crisis.

Art Laffer said Economy is working beautifully, because of good monetary policy, good economic policy, good trade policy etc. He and his supply-side statists have no right to blame democrats or the government for the current crisis. He quotes GOVERNMENT produced lies, damn lies and statistics to "buttress" his statements.

Peter Boockvar: Let The Market Fix The Crisis

Peter Boockvar makes a case against the bail out of the plutocrats.

Fed Seize WAMU & Bail Out In Shambles

Bail Out In Shambles:

Plutocrats, by that I mean the punters on Wall Street and the plunderers in D.C. have underestimated the will of the general public. Protests are breaking out all over the country, especially in D.C. and on Wall Street. Congressmen and Senators have their phone lines, fax lines and email inundated with calls, faxes and emails from their constituents.

An email from Manhattan: "I just walked by the New York Stock Exchange. Hundreds of demonstrators have gathered to protest the government's bailout of Wall Street. Several were holding placards that read "Stop the bailout! Read The Road to Serfdom by FA Hayek. Read mises.org " They were also handing out copies of Ron Paul's 2003 speech introducing his bill to eliminate subsidies to Fannie Mae and Freddie Mac. ( from blog.mises.org/blog )

Republicans have grown cojones ( pardon my French ) and decided to not go along, at least for now. Even if that is just a political stunt, if it really works, there is still hope for the rest of us mere mortals.

WAMU No More:
In the mean time, in an instance of biggest retail banking collapse in history, the Feds have seized the operations of Washington Mutual. A deal has been struck to transfer most of the operations to JP Morgan Chase.

Your Daddy's Financial Crisis?

The best case scenario for a way out of the current mess, at least as this amateur sees it, is a 1970s style high inflation decade. If the bail out goes through, there is a real possibility of a currency collapse. America is addicted, not just to foreign oil, but to foreign credit.

If bank collapses cascade, that in itself is negative for confidence in the dollar. Shrinking government revenues at local, state and federal level is enough incentive to run the printing presses. When push comes to shove, some form of bail out will happen anyway. But 700 billion price tag is a staggering start, not counting all the bad paper that the Federal reserve has already accumulated.

In conclusion, daddy's Financial Crisis is the best possible scenario. Let's hope that it doesn't get any worse.

Oil Shock is here!

"Inflation is always and everywhere a monetary phenomenon" - Milton Friedman.

It is not the price of things that is going up, it is the value of money going down. See the chart. (Money supply in green and Gasoline price in Red). Price of gasoline futures are up a good 14 cents, just today.

I believe there is enough evidence to suggest that peak oil is here. But the mainstream public or the financial markets have not bought it completely. There has not been any serious declines in global oil production. Given that scenario, peak oil alone could not possibly explain the current prices.

Oil is bubbling according to the "experts", at the moment. It would seem as though it will climb until it breaks the back of the U.S economy. Prices are likely to be higher 2-3 years from now, regardless of whether it goes down in the near term. Peak Oil come to mind. An attack on Iran and all bets are off.

Bernanke's "strategy" of bailing out crooks through inflation, is clearly not working. Benny is not as fortunate as his predecessor - when greenspan expanded money supply, the price of stocks, bonds and housing (later on) went up. Now, real tangible things have a lot of catching up to do.

Art Laffer Owes a Penny to Peter Schiff

Art Laffer is a Nobel Prize winning economist and father of Supply side economics. Peter Schiff is a investment advisor/Broker with an Austrian perspective on Economics.

Monetary Deja Vu

Ron Paul Asks Tough Questions - 11/08/07

House finance committee testimony of Fed Chairman Bernanke

The Bubble Man

Enjoy the music.

David Walker on Fiscal Responsibility ( lack of it )

Credit Bubble Update - 08/26/07

'Notional' value - like trying to nail down Jell-O

It's hard to think of anything more discretionary, non-vital or even downright unnecessary than a BlackBerry.

Oh sure, they're convenient. Your spouse can e-mail you a to-do list and you can't pretend you didn't get it. You can settle bar bets on the spot with a quick Google search. You can thumb away on the putting green like a big shot. Sometimes you even get work done with it.


Drowning in debt? Lifeguard is credit counseling service

The good news for the Consumer Credit Counseling Service is it's hiring like crazy.

The bad news is, it has to do that.

overwhelmed by desperate homeowners across the country teetering on the brink of foreclosure as the subprime mortgage industry implodes.


Indian outsourcers start to feel subprime fallout

Ripples from the U.S. subprime mortgage crisis have reached India's back-office outsourcing sector, where mostly smaller firms are feeling the pinch as U.S. companies cut back or stop some spending on services.

Already struggling with a stronger rupee and rising wages, the fear for outsourcers is that the subprime woes will spread, although larger players such as Infosys Technologies say this could open up new opportunities.


Sub-prime mortgages catalyst for freefall

For a while there, it seemed like the fair-weather types on Bay Street, and elsewhere in the financial world, had it right. We could all sit back, put our feet up and relax.

The tempest that convulsed the world's capital markets in late July and early August would be short-lived. Even those of us who were enjoying family vacations when the turbulence hit could hardly overlook the alarming reports on TV and radio newscasts and the startling headlines that appeared on the front pages of our newspapers.


Foreclosure fallout: Rescue scams

Jennifer Falke and her family had been in their Columbus, Ohio, home for nearly 12 years when they hit a rough patch in 2006. Falke was out of work and fell behind on the mortgage.

Falke said a flood of mailings and flyers then arrived at her door promising help from foreclosure rescue companies claiming to act as an intermediary between her and her lender to keep her from losing her home.


Moody's cuts 120 subprime RMBS tranches from 2005

Moody's on Wednesday cut the ratings on 120 subprime residential mortgage-backed securities tranches, citing higher-than-anticipated delinquency rates of first-lien subprime mortgage loans securitized in the second half of 2005.

The action affects over $1.5 billion of securities.


Ben Bernanke Walks the Line

Much of what Ben Bernanke spends his days doing oscillates between the incomprehensibly arcane and the unspeakably dull. Lately, though, the Federal Reserve chairman has a stark, even exciting task at hand. He's been imitating Jimmy Stewart in It's a Wonderful Life and trying to halt a bank run.

While Stewart's George Bailey had to make do with his powers of persuasion and his honeymoon fund to save the Bailey Building and Loan, Bernanke has the full faith and credit of the U.S. government behind him. The Fed can effectively print U.S. dollars at will. It can even, as Bernanke famously suggested in 2002, drop them out of helicopters, if that's what it takes.


Realtor numbers thin during slump

Victoria Rodriguez was not only a thriving real-estate agent in recent years, she was honored as one the area's top-selling real-estate agents four years in a row.

That was in the boom time, and that spigot shut down to a trickle nearly two years ago.


Mortgage Mess Hurts Main Street, Beyond

The walls are bare, the closets are empty, and Connie and Timothy Pent and their two teenage children are living out of boxes as they wait for a dreaded knock at the door of their three-bedroom house in Ocala, Fla.

They've fallen behind in payments on a their home loan, and their lender told them in July that foreclosure was imminent.

Credit Bubble Update - 08/11/07

Japanese Stocks Drop on Concern Subprime Losses Will Spread

Japanese stocks dropped, joining a global sell-off, after BNP Paribas SA halted withdrawals from funds that owned subprime loan-backed securities.

Declines by lenders and brokerages including Mitsubishi UFJ Financial Group Inc. pushed the Topix index to an eight-month low. Exporters such as Canon Inc. declined on concern mortgage losses will lead to tighter lending conditions and slower global economic growth.


WaMu's shares decline on mortgage woes

Washington Mutual was among a group of U.S. mortgage companies whose stock fell Friday as demand for loans and sources of new money dried up.

The shares of Seattle-based Washington Mutual, the largest U.S. savings and loan, lost 81 cents, or 2.2 percent, to $35.95.

Shares of Countrywide Financial, the biggest U.S. mortgage lender, fell 2.8 percent, while MGIC, the No. 1 mortgage insurer, fell 13 percent.


German Prosecutors Probe Suspects Over IKB's Subprime Losses

German prosecutors opened a formal probe against several people in connection with IKB Deutsche Industriebank AG, the German lender facing a bailout over subprime mortgage losses.

The Dusseldorf prosecution office is investigating whether they may have breached their fiduciaries duties at IKB, Peter Lichtenberg, a spokesman for the office, said in an interview. He declined to identify the suspects or say how many people are under investigation.


Yen Heads for Weekly Gain Against Major Currencies on Credit

The yen headed for a weekly gain against the 16 most-traded currencies as widening credit-market losses prompted investors to unwind carry trades.

The Australian and New Zealand dollars and Norway's krone fell the most against the yen as traders paid back loans in Japan used to fund investments in higher-yielding assets elsewhere. The Bank of Japan joined central banks in Europe and the U.S. in providing cash to ease a credit crunch as a stream of news on subprime mortgage losses roiled the market.


Gold futures close with gains on safe-haven buying

Gold futures rallied Friday, as traders recognized the metal's allure as a safe haven amid worsening credit market troubles that prompted a fresh injection of cash by several central banks.

"Suddenly, the world is realizing that gold is still a safe haven asset," said James Moore, metals analyst at TheBullionDesk.com. "We've seen pretty substantial losses in equity markets."


Shares plunge after ECB pumps a record €95bn into markets

Shares slumped again on both sides of the Atlantic today after the European Central Bank was forced to inject a record 95 billion euros (£65 billion) into money markets as mounting global credit jitters sparked an abrupt scramble for cash by financial institutions.

The unprecedented emergency action by the Frankfurt-based ECB outstripped even the scale of its intervention on the day after the September 11, 2001, terrorist strikes on the US, when it pumped in 69 billion euros of liquidity to stabilise credit markets.


BNP Freeze Causes Carry Trades to Plunge and Central Banks to React in Liquidity Squeeze

There is no denying the fact that the subprime problems have now gone global. This morning, France’s largest bank, BNP Paribas SA announced that they were freezing withdrawals from three of their investments funds following the “complete evaporation of liquidity.” For BNP, this may not be a big deal because the three funds represent only 1.6 billion out of the 356 billion euros that they have under management, but for the rest of the world, this is huge.

Credit Bubble Update - 07/18/07

Dollar sinking against other currencies

The dollar is sinking to new lows against the currencies of the major U.S. trading partners — good news for multinational companies and investors in international funds, but not for U.S. tourists and importers.

The Federal Reserve's trade-weighted exchange index has hit its lowest point since the Fed created the index in 1973. The index reflects the dollar's value relative to the currencies of seven major U.S. trading partners.


U.S. tech trade deficit tops $102 billion in 2006; California still first in tech exports

The U.S. technology industry imported more computers, high-tech components and consumer electronics in 2006 than it exported, resulting in a record $102 billion (€74 billion) trade deficit in the sector, according to a new report due out Tuesday.

Total tech imports hit $322 billion (€233.66 billion) in 2006, up 9 percent from the prior year, according to the report from the tech industry's largest trade group, AeA. The U.S. imported more high-tech goods from China than any other nation.


Subprime weakness erodes higher-rated ABX indexes

Investor anxiety over the U.S. housing downturn is spreading to the highest-rated mortgage securities, upsetting the expectations of some that the crisis in the subprime bond market would be contained.

Weakening credit quality in the $575 billion U.S. subprime mortgage market is eroding the value of "AAA" securities, heightening anxiety among investors and raising the cost of insuring that debt against default.


Danger signals on road to global prosperity

The stand-off between Britain and France over the top job at the International Monetary Fund lifts the lid on how these things work. Alistair Darling was done up like a kipper by Nicolas Sarkozy, who united every EU country bar Britain behind the former French finance minister, Dominique Strauss-Kahn.

It goes without saying that Darling had right on his side. The idea that the Fund is a European fiefdom, with the MD chosen not through an open and transparent process but as a result of a deal cut in Brussels is indefensible. But there is a bigger issue at stake.


Foreclosure auctions go silent

100% mortgages leave little profit potential for flippers; more bad news for housing
On a late June afternoon, Laurence Kallen stepped to the podium in the Randolph Street office that serves as his cramped auction house. Mr. Kallen had 11 foreclosed Chicago properties to sell and 10 bidders in attendance. The auction lasted 10 minutes. He didn't get a single bid.

Credit Bubble Update - 07/08/07

A Mortgage-Securities Hedge Fund Suspends Payouts

In another sign that troubles in the mortgage market are spreading, a prominent hedge fund that specializes in bonds backed by home loans has suspended redemption requests by investors.

The Horizon ABS Fund managed by John Devaney, a well-known trader of asset-backed securities who is based in Florida, said yesterday that it made the decision to block withdrawals after one investor who accounted for about a quarter of its $650 million in assets sought to leave the fund.


Italease blow-up stokes derivatives fears

A derivative blow-up at the Italian bank Italease has sent tremors through Milan's banking fraternity and exposed the hidden dangers of exotic credit instruments.

The bank has paid off 610 million euros (£419m) in recent days to counter-parties in what amounts to a massive margin call after interest rate rises in Europe caused hedging and derivative losses by clients to mushroom out of control.


Newmont Eliminates Gold Hedges, Creating the World's Largest Unhedged Gold Company, and Announces Strategic Initiatives

Newmont Mining Corporation today announced the elimination of its entire 1.85 million ounce gold hedge position, establishing the Company as the world's largest unhedged gold producer. Newmont also announced plans to monetize components of its royalty and equity portfolio in the next twelve months, resulting in the discontinuation of the Company's Merchant Banking Segment as a separate business unit.


Berlin defends its 'crown jewels'

Germany is drawing up detailed plans to stop strategic assets falling into the hands of "giant locust funds" controlled by Russia, China and Middle East governments.

Finance minister Peer Steinbrück said "telecoms, banks, post, logistics and energy" were among the sectors that would be shielded from sovereign wealth funds, the new state trusts that are fast swamping global asset markets.


Canadian dollar hits high vs. greenback

The Canadian dollar climbed to a 30-year high against the U.S. currency Friday, bolstered by higher oil prices, a strong economy and a looming interest rate hike.

Canada's currency advanced as high as 95.53 U.S. cents Friday, pushing past the 95 U.S. cents mark for the first time since May 1977. It has risen 10.8 percent so far this year.


As 'China effect' reverses, inflation threatens

When the Prime Minister appears on television vowing to "get to grips with inflation", you know that a serious problem is taking shape.

Gordon Brown had the good fortune to be Chancellor over a golden decade as the industrial revolutions of China, India and emerging Asia supplied us ever cheaper manufactures.

In this miracle world, we have had 5pc global growth for five years - the best since the Second World War - without overheating.


Money falls from sky

A German motorist surprised by euro notes swirling in the air around her car hit the brakes and collected a "substantial amount of money" before turning it over to police, authorities in Worms said on Thursday.

A police spokesman in the small western town said the 24-year-old woman saw the money flying through the air in her rear view mirror late on Wednesday. She pulled over and tried to collect all the notes, unsuccessfully.


Subprime risks come home to roost for hedge funds

Bad bets revealed by some hedge funds in recent weeks may mean other funds will be forced to accept the market's deteriorating views on subprime mortgages and report their own losses soon.

Some managers have resisted accepting market views on their assets, claiming declines represent short-term market volatility and not underlying financial value in their subprime bonds, analysts said. Since the bonds trade infrequently, managers' have turned to pricing models that may ignore market sentiment, buoying prices.


Spain selling gold to cover up worsening trade deficit

In an interesting commentary entitled “The Gold of Spain’s Central Bank,” Gerardo del Caz debates the reasoning behind Spain’s massive gold sales, selling off 30% of its reserves (80 tonnes) in just two months. In March of 2004, Spain held eleventh place in the world’s ranking with 523 tonnes, but today has little more than 300 tonnes.


Subprime poor practice risks turning to malpractice

Regulators tread a fine line between the Keystone Cops – galumphing hopelessly after escaping criminals – and Captain Renault in Casablanca. The Financial Services Authority has put paid to the first criticism by warning intermediaries and subprime mortgage lenders before poor practice turns to malpractice. But given the subprime scandal unfolding in the US, the regulator can’t really be “shocked, shocked” to have uncovered market weaknesses.


LBO Loans May Follow Subprime Collapse, Moulton Says

Loans to fund leveraged buyouts may dry up just like subprime mortgages in the U.S., according to Jon Moulton, the British venture capitalist who tried and failed to buy the carmaker MG Rover.

``It's near the top. There are some difficulties beginning to emerge in the debt markets,'' Moulton, who runs the private equity firm Alchemy Partners, told a meeting of the U.K. Parliament's Treasury committee today. ``At some stage no one will be willing to underwrite fresh debt.''

Credit Bubble Update - 06/24/07

US-China trade war would hit hard in Asia-Pacific

AS PRESSURE grows in the US Congress for tougher action against China on trade and currency issues, the rest of East Asia and the Pacific region worries that it will be caught in the crossfire.

A bipartisan Bill introduced in the Senate in Washington earlier this month was designed to trigger tariffs on imports from China if the Chinese currency is not revalued.

SEC Investigating Insider Trading in Credit-Default Swaps

The U.S. Securities and Exchange Commission is examining cases of suspected insider trading in credit-default swaps, expanding the scope of a crackdown on investors' illegal use of confidential information.

``There are investigations looking into that market,'' Walter Ricciardi, a deputy enforcement director at the SEC, said in an interview in New York today. It would be a ``mistake'' to assume U.S. regulators aren't pursuing a case, even if they've never done one like it before, he said.

Subprime Fallout Could Hit Shares

THE long-scheduled meeting of Federal Reserve policy makers is a highlight of the calendar this week, but with no change in rates expected, investors may focus instead on subprime mortgages, where rates have been changing for the worse.

An index that tracks the subprime market hit a low last week as a group of Wall Street banks participated in an attempt to rescue two hedge funds that suffered severe losses in them.


Corporate greed, corruption, and the coming collapse

The U.S. government, once crafted as a system that would serve the interests of the people, has devolved into a system of plutocracy where corporations control both the government and the people. Virtually every government regulatory department, for example, is now run by the corporations it is supposed to be regulating. Just look at the FDA, USDA, FTC, FCC, NRC (Nuclear Regulatory Commission) and most other government regulatory bodies and you'll find a room full of politicians and bureaucrats who utterly disregard the People while prioritizing the financial needs of influential corporations.

Wall Street stumbles as subprime worries reemerge

Stocks tumbled on Friday, wrapping up their worst week since a global sell-off in February amid fears that trouble at two Bear Stearns hedge funds may signal worse problems lie ahead for credit markets.

Investors also were rattled by news that Democrats in the U.S. Congress introduced legislation to end a tax advantage for investment fund managers as well as a jump in volatility ahead of the rebalancing of several important benchmark indexes.


UAE won't rule out dropping dollar peg

The UAE has not ruled out dropping its currency’s peg to the dollar, but would only do so with the support of other GCC nations, the country’s central bank governor said today.

“For the UAE I can say comfortably and surely that we will not move alone and we will move with other GCC countries,” Sultan Nasser Al-Suweidi told reporters, speaking on the sidelines of the annual meeting of the Bank for International Settlements in Switzerland.

China eases overseas share curbs

China’s securities brokerages and fund managers will be allowed to invest in overseas stocks and bonds for the first time as Beijing looks to reduce soaring foreign exchange reserves and provide alternative investments for its citizens.

The China Securities Regulatory Commission issued new regulations on Thursday allowing the country’s 110-odd securities firms and 57 fund management compan­ies to apply for qualified domestic institutional investor (QDII) quotas to invest in offshore securities.


China warns IMF over renminbi

China on Wednesday issued a pointed warning to the International Monetary Fund not to back US pressure for a faster appreciation of the renminbi in a planned review of global exchange rates.

The People’s Bank of China, the central bank, said in a statement on its website that the IMF “should carry out its duties based on mutual understanding and respect”, especially for the views of developing countries.


Watanabe: Japan won't diversify dollar reserves now

Japan would diversify its huge stash of dollar reserves only if the U.S. currency stabilizes, as a premature move could roil financial markets, the country's vice finance minister for international affairs said on Tuesday.

Hiroshi Watanabe, Japan's top financial diplomat, said that for now the world's second-largest economy has no immediate plans to switch the dollars in its reserves for another currency.

Debt, Deficits, Derivatives & Delusions - 06/05/07

Foreclosure Forecast To Top 2 Million Homes

Foreclosures will top 2 million homes in the wake of the nation's worst real estate crisis since the U.S. Savings and Loan scandal, according to the Housing Predictor forecast.

Gold matches two-week highs

Gold steadied on Monday after matching the previous session’s two-week highs, and analysts said the metal was likely to trade in a range in the near term.

Silver matched Friday’s five-week peak, while platinum and palladium rose to their highest levels in nearly two weeks before easing.

India trade deficit near double on crude costs

India’s trade deficit nearly doubled in April, the first month of the financial year, from a year ago as costs for imported oil jumped, the government said in a statement yesterday.

CBOT to launch credit default swap futures

The Chicago Board of Trade (CBOT) on Thursday said it plans to launch exchange-traded futures contracts on credit default swaps, in an effort to increase liquidity and transparency in the burgeoning credit derivative market.

Banks sell risky portions of CDOs to public pension funds

U.S. securities companies are hawking the riskiest portions of collateralized debt obligations to public pension funds.

At a sales presentation by Bear Stearns to 50 public pension fund managers in a Las Vegas hotel ballroom, Jean Fleischhacker, a Bear Stearns senior managing director, told fund managers they could get a 20 percent annual return from the bottom level of a collateralized debt obligation, or CDO.

Forcing fast RMB rise will be lose-lose situation

Clutching at yuan revaluation like a magic bullet, the U.S. continues to press China for a major appreciation of the renminbi to narrow the U.S. trade deficit with China.

The renminbi was a focus of the second round of the China-U.S. Strategic Economic Dialogue (SED) in Washington last month.

Foreclosures and subprime crisis still a threat to U.S. economy

Foreclosure filings in the United States were up 62 percent in April of 2007 from the previous year according to an Irvine, California-based RealtyTrac. This glum news was somewhat tempered by the fact that foreclosure activity dipped from March of 2007 by about 1 percent.

Statistics from RealtyTrac showed almost 148,000 filings in March such as default notices, auction sale notices, and bank repossessions. Slowdowns or declines in home values and problems with so-called subprime loans made to borrowers with shaky credit histories are widely credited with fueling the housing slump.

Japanese Interest Rates, China-US Dollar Peg Ensure Cheap Credit Flood

What is really going in the stock market? Is it a melt-up or the prelude to a melt down, or both? While Woolworths (ASX:WOW) pursues Coles (ASX:CGJ) and James Packer retreats from the media business and rushes into the gambling, business, we take a quick step back this Monday to take in the whole freakin’ financial circus.

Debt, Deficits, Derivatives & Delusions - 06/01/07

ATI Funding Says Dollar's Free Fall Creates Once in a Lifetime Opportunity for Overseas Countries

ATI Funding is able to finance foreign companies as well as foreign governments on equipment and construction loans originating from the USA without collateral up to 100% Financing . ATI Funding's new program will also finance US companies exporting US products at rates and conditions never seen before.

SHINE A LIGHT ON THE PLUNGE PROTECTION TEAM

Dear John: Although I admire your quest to get information on the Plunge Protection Team, I'm not sure why you are doing so. Seems to me, if you consider it OK - in the public interest, as you say, - for the PPT to intervene in some emergencies, then you essentially consider it OK to intervene at all times.

Because who determines what a real emergency is? Where do you draw the line? You either believe in a free market or you don't. I.G.

J.P. Morgan Settles Copper Lawsuit

J.P. Morgan Chase & Co. has settled a long-running antitrust lawsuit filed by copper companies who claimed the bank's predecessor conspired with a Japanese trading house to manipulate the copper market in the 1990s.

A trial had been scheduled to begin Tuesday in federal court in Madison but court officials said the companies settled late Friday. The details of the settlement are confidential.

Bill seeks new US approach to currency battles

Senate leaders are close to finalising legislation that they hope will lead to a reversal of long-standing US policy of opposing intervention in currency markets, according to people familiar with the matter.

The Senate bill is to be introduced in the next month and will put pressure on the US Treasury to intervene in global markets if currencies become fundamentally “misaligned”, people invol­ved in the process said.

Italians claim country run by Goldman Sachs

Italians grumble that Goldman Sachs runs their country, much as the Jesuits ran countries during the Counter-Reformation.

Premier Romano Prodi is an ex-Goldman Sachs man, as is central bank president Mario Draghi and the deputy treasury chief Massimo Tononi.

Funds attack banks’ aid for subprime borrowers

Hedge funds are attacking bank decisions that help delinquent US mortgage borrowers remain in their homes in a move that pits some of the country’s richest people against its least well-off.

The dispute centres on derivatives contracts that pay money to investors when bonds backed by subprime mortgage loans – extended to people with past credit problems – run into trouble. The $1,200bn (€890bn) US subprime mortgage bond market has been hit recently by rapidly growing defaults, and hedge funds have profited from the crisis by buying such derivatives.

Banks are lending to private equity at below the interest rate

UK banks are taking the unprecedented step of lending to the private equity and hedge fund sector at below the official UK interest rate.

Experts said it was a sign of City institutions' growing desperation to buy into the booming alternative investments market.

U.S. Bank Loan Risk Falls on First Day of Derivatives Index

A credit-default swap index based on the U.S. high-yield, high-risk loan market rose in its first day of trading as hedge funds and other investors used the contracts to bet on the ability of companies to repay their bank loans.

The LCDX index rose 0.63 to 100.63 as of 4 p.m. in New York, according to London-based Markit Group Ltd., the index administrator. An increase in the index suggests improvement in the perception of credit quality; a decrease signals the opposite.

More home owners are struggling to make house payments

Dawn and Scott Hentschel came within a sliver of losing their home after Scott, a construction worker, was laid off two months earlier than usual last fall.

The couple saw a legal notice in the newspaper and then a note in the mail that said their bank planned to foreclose on the two-bedroom, ranch-style house they bought two years ago.

Foreclosures still raging in Chicago area

Chicago-area foreclosures, which set a record last year, are projected to reach full-blown crisis levels in 2007.

Cook County is on pace to record at least 30,000 and as many as 36,000 foreclosure filings this year, according to Cook County Circuit Court Judge Dorothy Kinnaird, who presides over the Chancery Division, which handles foreclosures. That would mean a 35% to 62% increase from 2006, when 22,248 filings were easily the highest in county history after having risen 36% from the previous year. (The court combines both commercial and home foreclosures, but residential mortgages comprise the vast majority of its cases.)

Subprime loan crisis is hitting Vallejo hard

Vallejo is the Bay Area's version of ground zero for the subprime loan crisis.

A significant number of residents of the largely blue-collar city of 120,000 have taken out subprime loans -- expensive mortgages issued to people with poor credit.

Venezuela Local Debt Tumbles as Protests Extend to Fifth Day

Venezuelan government debt tumbled in local markets as people took to the streets for a fifth day to protest President Hugo Chavez's decision to pull the country's most-watched television network off the air.

Concern that protests will turn violent again led investors to sell dollar- and bolivar-denominated bonds in the local market and move money out of the country, traders said. Police have detained 182 people since May 27, the day that Chavez let the concession granted to Radio Caracas Television expire, Interior Minister Pedro Carreno said last night.

U.S: Subprime Fallout - How Significant is it for Credit Markets?

In a recent speech, Fed Chairman Bernanke made the point that the impact of subprime lending on the credit markets was not significant. This is a welcome note in contrast to many commentators that portray the world in black and white. Subprime lending is having an impact but not the disaster some commentators assert.

Subprime: Correction or Calamity?
How may we gauge the significance of the subprime correction? First, the ABX bond index (top graph) dropped precipitously from 93 in early January to 63 in late February but recently has moved back up to the 76 level. This suggests that the value of these subprime instruments has declined but that the decline is limited and not building momentum towards a total collapse.

Debt, Deficits, Derivatives & Delusions - 05/21/07

Yen on record low against euro

The yen hit a record low against the euro on Monday, with sellers of the low-yielding currency encouraged by regional stock markets' calm reaction to China's surprise move to widen the yuan's trading band and raise interest rates.

Group of Eight finance ministers avoided discussing the yen's weakness at a weekend meeting, which market players also took as a green light to push up high-yielding currencies.

S.Korea's trade deficit with Japan rises to 10 bln USD in first four months this year

South Korea's trade deficit with Japan rises to 10.06 billion U.S. dollars in the first four months of this year, compared with 8.35 billion U.S. dollars during the same period of 2006, said a report of the Korea International Trade Association (KITA) on Monday.

The housing bubble's silver lining

THE ONCE-buoyant housing market is clearly in trouble. Last year, housing prices around the country fell for the first year since the Depression. In Southern California, one of the epicenters of the housing and housing-credit bubble, the pain has been acute. Local subprime lenders such as Ownit Mortgage Solutions in Agoura Hills and New Century Financial in Irvine have filed for bankruptcy protection. MortgageDaily.com estimated that 12,000 mortgage jobs have been cut in California since January 2006. Foreclosure rates are rising.

Saudi Arabia's gold demand up 7 per cent

Gold demand in Saudi Arabia was up by 7 per cent in the first quarter (Q1) of 2007 as against the same period last year and further increase is expected due to customs tariff reduction, according to the report issued by the regional office of the World Gold Council (WGC) on gold demand in the Middle East, the Gulf region and worldwide.

The Trade Deficit and Foreign Confidence in the U.S. Economy

If foreigners lose confidence in the U.S. economy and are less willing to hold dollar denominated assets, the supply of dollars in the global banking system will exceed demand and the exchange value of the dollar will fall...

Debt, Deficits, Derivatives & Delusions - 05/15/07

Trade deficit jumps with hike in oil imports

The trade deficit rose to the highest level in six months as a big jump in oil imports offset a narrowing of the politically sensitive deficit with China.

The gap between what the United States imports and what it sells to the rest of the world rose to $63.9 billion in March, up 10.4 percent from the February level, the Commerce Department reported Thursday.

A Sea of Debt

Warren Buffett has famously quipped “it’s only when the tide goes out that you learn who’s been swimming naked.” Well, the great sea of liquidity currently swamping the global financial system will eventually ebb, and many, many people will be caught without a bathing suit.

Every new generation believes that it is special, and not subject to the lessons of history, or the laws of economics. Until things go terribly wrong of course. Then historical parallels are crystal clear, in hindsight.

U.S. finds benefits in weakness of dollar

U.S. companies have been doing business abroad for a long time, but overseas markets have never been more important.

This year, for the first time, Standard & Poor's expects the 500 big companies in its benchmark stock index to generate more than half of their sales in foreign countries.

Housing costs taking their toll of society

One of the unplanned but most intractable legacies of the Blair decade is the distortion of any normal or sustainable relation between house prices and people’s incomes. If that link is not already broken it is certainly stretched to the limit.

The rate of price inflation may be slowing, just, but remains obstinately high.

Corporate restructuring: living in the bubble

The last 12 months has seen around 23% of UK listed corporates issuing profit warnings, the highest annual count since the impact of 9/11, SARS and the foot and mouth outbreak.

Underlying inflation is above the government’s target of 2%, broader price inflation measures are forecast to remain above 3% and interest rates have increased three times since August 2006 and are widely expected to continue to rise further in 2007. The prognosis further afield is not that great either as continental Europe is forecast to show only modest (sub 2%) GDP growth in the major economies.

Auction draws more than 1,200 bidders on Southern California houses, condos

The bidding on foreclosed homes was so fast and furious that Candace and Curtis Friedman were still feeling an adrenaline rush as they were escorted out of the auction to sign a purchase agreement.

“You don't have a lot of time to think,” said Curtis, a stay-at-home dad from El Cajon. “It's the fastest $200,000 we ever spent. It's over before you know what happened.”

Debt, Deficits, Derivatives & Delusions - 05/10/07

Zimbabwe: Country Reaches Official Hyperinflation Level

Official silence on Zimbabwe's latest inflation figures is being ascribed by Harare-based investment professionals to the authorities' embarrassment that the internationally accepted hyperinflation level has now been reached.

What is the real solution to America's trade deficit?
The US Congress seems more determined than ever to tighten the noose on China. The issue is trade policy – and the legislative response to America’s outsize bilateral trade deficit with China. The way things look today, bipartisan support for such efforts is deep enough to assure veto-proof passage of tough trade sanctions on a broad array of Chinese products shipped to the US. I continue to believe this could be a policy blunder of monumental proportions. By going after China, the US Congress is playing with fire.

Bank of America's Lewis Calls for Lending `Sanity'

Bank of America Corp. Chief Executive Officer Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria.

``We are close to a time when we'll look back and say we did some stupid things,'' Lewis said, speaking at a lunch at the Swiss-American Chamber of Commerce in Zurich. ``We need a little more sanity in a period in which everyone feels invincible and thinks this is different.''

MONEY! MOOLA! CREDIT! CASH!

"Sarkozy must have won the elections," Elizabeth deduced.

Americans, meanwhile, are nowhere near elections, yet there too the politicians are hogging time on the big screen. People can't seem to take their eyes off of it - except to tune in to the Dow, of course, which hit yet another high on Friday.

Buffett On Derivatives: 'A Fool's Game'

Warren Buffett, the billionaire investor and long-time chairman of Berkshire Hathaway Inc. (BRK.A), is a man who speaks his mind. I'm not sure whether he's always been that way, or whether it is his exceptional wealth or his age -- or both -- that emboldens him to cut through Wall Street B.S. like a hot knife and expose the bloody truth about the foibles of modern finance.

Moneybox's Gross Goes Counterintuitive, Claims Bubbles Are Good

Every asset bubble leaves a new collection of bubble literature in its wake.

Some of the books go on to become classics: John Kenneth Galbraith's ``The Great Crash,'' for example. Others (``Dow 36,000'') are remembered for their curiosity value. Still others are just plain curious, as in, what was the author thinking?

The IRS, Amero And The Battleground For Liberty

"Taxation follows public debt, and in its train wretchedness and oppression." Thomas Jefferson to Samuel Kerchival, Monticello, 1816

I have been deluged with requests to cover IRS indictments or injunctions filed against individuals, i.e., last month the U.S. Department of Justice moved against Bob Schulz and his We the People Foundation; see court filing here. [Go to www.newswithviews.com to read from the original article, All the links from this article.] Many wonder why I didn't do my annual April 15th slave day column. So many wonder what has happened to the "tax movement." The IRS is systematically picking off individuals who fully understand the fraud being perpetrated against the American people and shipping them off to jail. Wonderful, decent Americans like Dr. Tom Clayton, is now serving a prison sentence because we have a federal judicial system that is so rotten, it shames the stench of rancid meat. Those who haven't done a lick of real research will shrug off that comment because ignorance is bliss and it's easier just to get down on your knees and welcome the chains of bondage and slavery than to stand up and fight for what's right. Reminds me of the theme song from an old western, "Rolling' rollin' rollin' Keep them cattle going. Raw-hide."

Living with derivatives: Riskier financial systems

The Reserve Bank of India (RBI) in its latest Annual Policy Statement has finally given the green signal for the introduction of credit derivative swaps, a kind of credit derivative instrument.

Ironically, the move comes just as there is renewed debate worldwide among regulators about the implications of the rapid growth of derivatives for the safety of the financial system. So how should the central bank proceed? Are there any takeaways, any research findings RBI could keep in mind as we enter what has so far been virtually uncharted territory?

Asia's real worry could be falling dollar

Although Asian finance ministers have just agreed on a new contingency measure to defend their currencies, their real concerns appear to be a plunge in the US dollar rather than a rise in their own units.