Thursday, November 12, 2009

November 12 2009: Downgrading America, one loan at a time

William Henry Jackson The Markets 1890
Portales of the Mercado de San Marcos, Aguascalientes, Mexico

Ilargi: This is not TV. You don't have to be just an observer on a couch, you can very much be part of it.

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Ilargi: The title for this piece comes from an article on HousingWire, New S&P Slogan Contest. The suggested slogans were disappointing except for the one I picked, which is too good not to use, and which I think is extremely fitting, but more as a description of the overall US housing and banking situation, rather than of S&P in particular.

The following deserves far more attention than it's been getting so far. I’ve posted some of it in recent days, but I think it works better as a whole.

The first time I paid attention to Michael White was on May 14 2009, see Them's Fighting Words. I was impressed back then with the fact that White, a Chicago mortgage broker, was loudly and explicitly calling on people to NOT buy homes, and sell if they could. My words then:
Mike White, a mortgage broker in Chicago, explains in Our American Homes. They All Fall Down - Much Further that a simple math extrapolation of the Case/Shiller index indicates that US home prices will fall 45% more from their current prices, and 62% in total peak to trough. A broker who advises people to rent, maybe there's still hope.

Lately, in a series called "Price trends/War of the Worlds", White has been expanding on what he said back then. He is collecting data series in order to get a better, more rounded, picture of what we can expect housing prices to do. Here's a summary of the graphs and conclusions he's gathered so far.

Property Values Set to Fall 43% From Current Depressed Level


If you use a 20-year time horizon, and assume prices will return to the trend line, then our residential property bubble will bottom after values fall over 40% from current levels (see above (c) aka “(Y) – (Z)” aka “Loss Today to Bottom”). I make no predictions. I do watch numbers. The chart shows a catastrophe of falling real estate values loaded up on top of our current catastrophe in real estate values.

No one would question these numbers absent The War of the Worlds. The War of the Worlds is the United States Government versus aggregate borrower income. Uncle Sam is funding every new mortgage – high, low and in between (see chart below: the blue and red are government-backed loans). It takes very little imagination to see the world of real estate prices vaporizing without government support. If that support was lost, values would crash down faster than a big rock dropped into a shallow puddle.

While the federal government has deep pockets, at some point the persons who take out the mortgages will have to pay them. At that point the market should follow the pattern described above by the trend line. Reality bites. Prices for real estate are ultimately determined by our income, and if the trend represents a match of income and price, then the trend line is the picture of our future.

Property Values Set to Fall 49% From Bubble Peak to Long-Run Average

Property Values Set to Fall 49% From Bubble Peak to Long-Run Average

I will continue to work with all data sets until I have a more complete picture of property values. Please send your suggestions about the best information. We will put it all together. Maybe we will see the future. What we know today based on the best information is that values will fall a total of between 49% to 60% from the bubble top to the trend. Still ahead is a fall in property values of between 20% to 43%.

Conservative Property Index Predicts We Are Less Than Half Way Through Fall

property price index fhfa 1991 forward by

The total projected fall from Federal Housing Finance Agency (FHFA) data shows a peak-to-trend fall of 27%. Values on this index have fallen 11% from the high. The index predicts prices will fall an additional 18% from their current levels. The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% and 60% predicted by Case-Shiller.

Based upon the three data sets reviewed, we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. After averaging the three indexes, we may estimate a total fall of 45% from the bubble high. Looking ahead from today, property values will fall a total of between 18% to 44%. The average of the three data sets says we still have 27% to fall from current levels.

Values Have Dropped Less Than 25% of the Fall Required To Reach Trend

property price index FHFA 1975 to 2009 by

Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home. The good news according to the leading data series issued by the United States government is that prices have only fallen 6 percent. If you are a homeowner, you are wealthier than you knew. The bad news is you still have three dollars to lose for every one dollar which has already been lost.

The total projected fall from the Federal Housing Finance Agency (FHFA) “All Transactions Index”, which begins in 1975, shows a peak-to-trend fall of 27%. Since prices are 6% lower by this measure, prices must still fall an additional 23% from today for prices to revert to trend. The assumption built into these estimates is that prices in the years 1975 to 1999 advanced at a typical rate. A trend line was generated to the present based upon that 25-year period. The chart depicts the divergence of the trend established from 1975 to 1999 and the actual prices recorded from 2000 to 2009.

The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% to 60% predicted by Case-Shiller. Based upon the four data sets reviewed in the last few weeks (see summary below), we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. The average of the four indexes projects a total fall of 41% from the bubble high to the trend bottom. Looking ahead from today, the average of the four indexes predicts that property values will fall 26% from our current price levels.

Yes, it's fascinating to see the differences between the data. And it's even more fascinating to see the averages that are the result of combining them:

I don’t want to add much more to Michael White’s conclusions and graphs, except perhaps to point out a detail that deserves repeating. While projected peak to trend price decreases range from the FHFA (34 years), 27%, to Case-Shiller (22 years), 60%, the fall from the peak to today is already 48% of the total in the latter, but only 22% of the total in the former.

And then of course there's always still this to deal with, in the words I used in May 14’s Them's Fighting Words.
What Mike ignores in his simple model is that even Robert Shiller himself, as I often have, has predicted that because of the huge and rapid movement in prices, they are bound to violently swing way below the bottom the index seems to point to. That is what I’ve always maintained, and it confirms my prediction of an 80%+ loss.

In the past few years, there have been quite a few graphs like the one of the Case/Shiller index, with data based on historical price ranges, and it always seemed very simple to me that prices would have to come back to the trendline. And then break it downward, as least as much as it had broken it on the upside.

We're nowhere near an end, a house price bottom. In fact we're so far away from any such thing that we should stop paying attention to it, because it keeps us from addressing today's real issues. One of which is typified by Michael White's running slogan: Sell NOW!

Housing Agency’s Cash Reserves Down Sharply
The Federal Housing Administration said Thursday morning that its cash reserves had dwindled significantly in the last year after a record drop in home prices. Still, agency executives stopped short of saying that a direct bailout would be needed. The F.H.A., which insures loans made by private lenders, guaranteed more than $360 billion in mortgages in the last year, four times the amount in 2007.

“Even if we were to go below zero, if the reserves were to become negative, there is no extraordinary action that Congress or anyone else needs to take,” the secretary of Housing and Urban Development, Shaun Donovan, said at a Washington news conference. The results of the F.H.A.’s annual audit showed the agency’s capital reserves to be 0.53 percent, far under the 2 percent minimum mandated by Congress. A year ago, the capital reserves were 3 percent. “They’re running on empty,” a consultant, Ann Schnare, said. “It all depends how long it takes housing to recover.”

Other critics were less sure that the agency’s coffers would not need replenishing. “They keep saying they’re going to outrun their problems, but some way, somehow, the tax payer is going to end up on the hook,” said Edward Pinto, a former executive with the government mortgage giant Fannie Mae. The Mortgage Bankers Association, whose members make the loans that F.H.A. insures, also expressed concern. “Today’s announcement is a major wake-up call for F.H.A. and the lending community,” the association’s president, John A. Courson, said in a statement.

The disappearing reserves are a direct consequence of the many bad loans insured by the agency in 2006 and 2007, as the housing market began to cool and private lenders withdrew. Nearly one in five loans made in 2007 are seriously delinquent, the agency said.

S&P Cut Record 26,387 Home-Loan Bonds Last Quarter
Standard & Poor’s cut credit ratings on a record 26,387 U.S. residential-mortgage securities in the third quarter, reflecting its reassessments of the debt as consumers struggle to make housing payments. The figure was more than double the 10,459 in second- quarter downgrades and the previous high of 12,077 in the fourth quarter of 2008, the New York-based ratings company said today in a statement. No bonds were upgraded last quarter.

Ratings reductions often boost the capital needs of bondholders such as banks and insurers, forcing some investors to sell debt. After S&P and Moody’s Investors Service assigned top rankings to bonds that later suffered from homeowner defaults, lawmakers and the Securities & Exchange Commission have sought changes to ratings-firm rules while insurance regulators have begun to ignore grades on home-loan debt. “It has been very clear that the market gives the rating agencies very little credit for knowing what a bond should be rated,” Jesse Litvak, a mortgage-securities trader at Jefferies & Co. in New York, said. “But the rating does start to matter from a capital-charge perspective” if downgrades lower securities from investment grades to junk levels.

The third-quarter cuts covered notes from 3,219 deals, and “continued to reflect our view of the weakening credit quality of the underlying collateral,” the company said. S&P said in a related report it had downgraded $1.76 trillion of U.S. home-loan bonds issued from 2005 through 2007 at least once as of Sept. 30, or 63 percent of the original issuance amount, including 71 percent of classes originally rated AAA. “We’ve observed that monthly delinquencies and foreclosures continue to rise for recent-vintage transactions,” S&P credit analyst Terry Osterweil said in the statement.

About 25.3 percent of mortgages underlying U.S. home-loan securities without government backing were at least 60 days late, in foreclosure or already turned into seized property as of September bond reports, up from 20 percent in January, according to data compiled by Bloomberg. About 3.75 percent were 30 days late, up from a low this year of 3.57 percent in May and down from 4.18 percent in January.

Home Values Have Dropped Less Than 25% of the Fall Required To Reach Trend
by Michael White

property price index FHFA 1975 to 2009 by NewObservations.netPRICE TRENDS / WAR OF THE WORLDS (Part 4): Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home.

The good news according to the leading data series issued by the United States government is that prices have only fallen 6 percent. If you are a homeowner, you are wealthier than you knew. The bad news is you still have three dollars to lose for every one dollar which has already been lost.

The total projected fall from the Federal Housing Finance Agency (FHFA) “All Transactions Index”, which begins in 1975, shows a peak-to-trend fall of 27%. Since prices are 6% lower by this measure, prices must still fall an additional 23% from today for prices to revert to trend.

The assumption built into these estimates is that prices in the years 1975 to 1999 advanced at a typical rate. A trend line was generated to the present based upon that 25-year period. The chart depicts the divergence of the trend established from 1975 to 1999 and the actual prices recorded from 2000 to 2009.

The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% to 60% predicted by Case-Shiller. Based upon the four data sets reviewed in the last few weeks (see summary below), we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. The average of the four indexes projects a total fall of 41% from the bubble high to the trend bottom.

Looking ahead from today, the average of the four indexes predicts that property values will fall 26% from our current price levels.

Please click here to see charts for each of four data sets at “Property Price Index”.

property price index summary of 4 data sets by

There are still way too many houses in America
The lights are on in the housing market. But at more and more places, nobody's home. House prices have risen in recent months after a long plunge, according to the National Association of Realtors and the S&P Case-Shiller national index. Fewer Americans owe more than their property is worth, according to a report this week from But a full-fledged housing recovery will remain elusive until the market can absorb all the houses and apartments that were built during the housing boom. And on that front, progress has been slow.

About one in seven housing units was vacant in the third quarter, according to the Census Department. This year has registered the highest reading since the government began collecting such data in 1965. Part of the glut comes from a rash of foreclosures as strapped borrowers fall behind on their mortgages. But rental apartments are emptying out at a record clip as well, as a spike in the jobless rate and a decade of subpar wage growth have sent many Americans back home to live with Mom and Dad. And some owners, such as Treasury Secretary Tim Geithner, have decided to rent their houses out after they couldn't sell them.

"There's just too many houses out there for the population we have," said Brian Peterson, an economist at Indiana University who focuses on housing. "The market's going to take a couple years to clear." The homeowner vacancy rate dropped to 2.6% in the third quarter from 2.8% a year ago, when homeowner vacancies hit their all-time high. But a jump in the rental vacancy rate, to 11.1% from 9.9% a year earlier, more than offset that decline. Because twice as many people own their homes as rent, the total vacancy rate -- 14.5% in the third quarter -- exceeds the sum of the homeowner and rental vacancy rates.

The rise in vacancies comes after a decade in which homebuilders, motivated by easy financing and rising prices, built many more homes than the U.S. needed. About 1.2 million households are formed each year, on average, according to government estimates. But housing starts averaged 1.7 million a year between 1996 and 2006, when the boom topped out. "There was some overbuilding during that period," said Walter Molony, a public affairs specialist at the National Association of Realtors.

Since then, housing starts have dropped sharply, allowing the market to soak up some of the excess. And prices have dropped precipitously in the most overbuilt markets in the South and West, luring some buyers off the sidelines. Peterson also notes that the vacancy numbers have expanded over the years to include more types of vacant homes, such as seasonally occupied beach houses.

Meanwhile, tax credits, mortgage modifications and government mortgage market support have helped slow the decline of house prices. Federal mortgage purchases have brought down 30-year mortgage rates by a third of a point, according to Wall Street estimates. More than 350,000 Americans have used the $8,000 homebuyer tax credit to buy their first house, according to industry data. But because most of those buyers were presumably renters beforehand, their purchases filled one vacancy while creating another.

The biggest factor working for a recovery now, Peterson said, is that buyers who were once priced out of many housing markets are being lured in by lower prices. But those people may not take the plunge until their job prospects firm up, he added. That may take a while at a time when unemployment is at a 26-year high and the economy has shed jobs for 22 straight months. "We need those people to start buying houses and starting families," he said. 

Initial Jobless Claims Fall 12,000 to 502,000, Total Claims Rise to 9.54 million
The number of people filing initial claims for state unemployment benefits fell by 12,000 to a seasonally adjusted 502,000 in the week ended Nov. 7, the Labor Department reported Thursday. That's the fewest initial claims since early January. Initial jobless claims have hovered above 500,000 for 52 straight weeks, as the unemployment rate has climbed to a 26-year high of 10.2%.

Economists surveyed by MarketWatch expected initial claims to drop to about 510,000. The level of initial claims in the week ended Oct. 31 was revised up by 2,000 to 514,000. The four-week average of initial claims dropped 4,500 to 519,750, the lowest since November 2008. The four-week average smoothes out quirks due to one-time events such as bad weather, holidays or strikes. Continuing state claims declined 139,000 to a seasonally adjusted 5.63 million, the lowest since March.

"The numbers are still terrible in absolute terms, but at least they are clearly heading in the right direction," said Ian Shepherdson, chief U.S. economist of High Frequency Economics Ltd. in a note. Compared with a year ago, initial claims are up 6%, while continuing claims are up 51%. The federal government has extended benefits beyond the typical 26 weeks because of the recession's severity.

The number of people collecting extended federal benefits rose by 35,000 to 4.11 million, not seasonally adjusted. "Although fewer workers are being let go, employers are simply not comfortable adding payroll right now, leading to increase numbers of jobseekers qualifying for these additional benefits," Jefferies & Co. chief economist Ward McCarthy wrote in a report. Including those federal programs, the number of people claiming benefits of any kind in the week ended Oct. 24 was 9.54 million, not seasonally adjusted. That was up 18,000 from 9.53 million in the previous week.

President Obama signed legislation this week to extend benefits for up to 20 additional weeks in the states hurt most by job losses, for a maximum of 99 weeks. Read more about the extension of unemployment benefits. The decline in continuing state claims in the past few months could show that companies are more willing to hire, or it could mean that more people were exhausting their benefits and moving into the extended federal benefits program, which is reported separately. People are typically eligible for 26 weeks of regular state unemployment benefits.

The unemployment rate rose to a 26-year high in October. Job losses have been unusually steep in the latest recession, and little evidence suggests that employees will start hiring on a mass scale anytime soon.
With unemployment stubbornly high, Obama on Thursday said he will host a forum in December to explore how the U.S. can create more jobs. He said he would invite business executives, economists and labor leaders, among others.

"The economic growth that we've seen has not yet led to the job growth that we desperately need," Obama said Thursday after the jobless data was released. Read story about Obama's forum. Yet some business leaders complain that policies under consideration in Washington, such as higher taxes and new medical and energy regulations, are partly deterring them from hiring workers.

Stimulus job boost in state exaggerated, review finds
While Massachusetts recipients of federal stimulus money collectively report 12,374 jobs saved or created, a Globe review shows that number is wildly exaggerated. Organizations that received stimulus money miscounted jobs, filed erroneous figures, or claimed jobs for work that has not yet started.

The Globe’s finding is based on the federal government’s just-released accounts of stimulus spending at the end of October. It lists the nearly $4 billion in stimulus awards made to an array of Massachusetts government agencies, universities, hospitals, private businesses, and nonprofit organizations, and notes how many jobs each created or saved. But in interviews with recipients, the Globe found that several openly acknowledged creating far fewer jobs than they have been credited for.

One of the largest reported jobs figures comes from Bridgewater State College, which is listed as using $77,181 in stimulus money for 160 full-time work-study jobs for students. But Bridgewater State spokesman Bryan Baldwin said the college made a mistake and the actual number of new jobs was “almost nothing.’’ Bridgewater has submitted a correction, but it is not yet reflected in the report.

In other cases, federal money that recipients already receive annually - subsidies for affordable housing, for example - was reclassified this year as stimulus spending, and the existing jobs already supported by those programs were credited to stimulus spending. Some of these recipients said they did not even know the money they were getting was classified as stimulus funds until September, when federal officials told them they had to file reports.

“There were no jobs created. It was just shuffling around of the funds,’’ said Susan Kelly, director of property management for Boston Land Co., which reported retaining 26 jobs with $2.7 million in rental subsidies for its affordable housing developments in Waltham. “It’s hard to figure out if you did the paperwork right. We never asked for this.’’

The federal stimulus report for Massachusetts has so many errors, missing data, or estimates instead of actual job counts that it may be impossible to accurately tally how many people have been employed by the massive infusion of federal money. Massachusetts is expected to receive an estimated $1 billion more in stimulus contracts, grants, and loans.

The stimulus bill - a $787 billion package of tax breaks, expanded government benefits, and infrastructure improvements - was signed into law in February by President Obama, who said it would create and save jobs by preserving local government services and spurring short- and long-term economic development.

To be sure, the legislation has accomplished an important goal: funding public services facing the ax after the recession created gaping shortfalls in state and local government budgets. So Worcester and Lynn, for example, were able to keep police officers targeted for layoffs, schools across the state lost far fewer teachers, and community agencies preserved staff in the face of mounting demands for social services.

The president also said the legislation demanded an unprecedented level of accounting from recipients, who report on the uses of the money and the jobs via a massive online system,
Clearly, the first comprehensive accounting had shortcomings. Recipients said they found the reporting system confusing, leading them to submit information erroneously, and leaving them unable to correct mistakes in their reports. Additionally, the government files are massive and unwieldy. Reports do not distinguish between newly created positions and those that were “retained.’’

“We see $15 million construction projects with no jobs, and a $900 shoe sale that created nine jobs. Both are obviously wrong,’’ said Michael Balsam, chief solutions officer for Onvia, a Seattle data company tracking the stimulus spending. “There were a lot of recipients that did not report. Those that did report have some data challenges - wrong data or missing data.’’

Cheryl Arvidson, assistant director of communications for the Recovery Accountability and Transparency Board, the federal government’s oversight panel for the stimulus money, acknowledged the problems recipients are having reporting job counts. “Some people are going to be confused. Some people are manually entering data. We figured there would be innocent mistakes,’’ Arvidson said. “We anticipate that as we go forward . . . the data quality will be increasingly improved. We knew there was going to be a shake-out.’’

Some of the errors are striking: The community action agency based in Greenfield reported 90 full-time jobs associated with the $245,000 it got for its preschool Head Start program. That averages out to just $2,700 per full-time job. The agency said it used the money to give roughly 150 staffers cost-of-living raises. The figure reported on the federal report was a mistake, a result of a staffer’s misunderstanding of the filing instructions, said executive director Jane Sanders.

Several other Head Start agencies also reported using stimulus funds for pay raises and claimed jobs for it. At Bridgewater State, Baldwin said the college mistakenly counted part-time student jobs as full time. Some agencies that received stimulus money reported jobs for work that had not started. The Greater Lawrence Family Health Center reported 30 construction jobs “have been created,’’ even though it hadn’t begun construction on a $1.5 million renovation and expansion. Grant administrator Beth Melnikas said the health center does expect to hire 30 workers.

There was often variance among recipients of the same source of funding. Some did not report any positions retained; others did. Some used different methods and got different results. For example, the City of Waltham said a $630,500 solar panel installation on the roof of City Hall created 10 jobs - even though the work had yet to begin. Revere spent $485,500 in stimulus funds to install solar panels on the roof of a city school. Revere’s job count? 64.

The city’s project consultants used a different formula than the one the federal government recommended. “If not for this stimulus money, we would not have done the solar panel roof,’’ said Revere Mayor Thomas G. Ambrosino. “A lot went into this.’’ Another source of confusion over the job counting is because Congress this year labeled as stimulus initiatives several longstanding programs, such as student work-study and low-income rental subsidies, that it otherwise regularly funds in annual appropriations bills. In some cases Congress increased the funding amount, too, so the stimulus legislation was a vehicle for expanding government support for people in need.

Regardless of its label, the recipients treated the funding as business as usual. Only in September, when government officials told them they had to report on their stimulus spending, did they confront the issue of how to account for jobs associated with the money they received. Massachusetts property owners received $75.5 million in rental subsidies from the stimulus bill, for a reported total of 437 jobs. Recipients of 27 of the 87 contracts reported zero jobs. The others, meanwhile, simply reported the number of employees working at the property. If they received two contracts, for a larger property, they reported the employee figure twice.

For example, Plumley Village East in Worcester listed 23 jobs for each of its two contracts for a total of 46 jobs, even though it has only 23 employees working throughout the complex. “There was some confusion about what they were really looking for,’’ said Karen Kelleher, general counsel for Community Builders Inc., which runs Plumley Village. Those overstated jobs are going to disappear from future counts. The Obama administration has recently determined the rental subsidies don’t have to be reported under the stimulus bill.

One of those property owners, meanwhile, is frustrated by his experience with the legislation. Robert Ercolini manages a 201-unit affordable housing development in Plymouth. After being notified his annual rental subsidies were classified as stimulus spending, Ercolini renewed a request to the US Department of Housing and Urban Development for more than $1 million to fix up the property, reasoning he would be creating jobs by hiring contractors. He was refused.

“After HUD denied me money to make needed improvements and actually create jobs,’’ Ercolini said, “it’s really funny to find out in September that I’ve been receiving stimulus funds all along and they want to know how many jobs we’ve saved or created.’’ By his count, the answer is: “No jobs.’’

White House Aims to Cut Deficit With TARP Cash
The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue. The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program -- the amount it expects to lose -- to as little as $200 billion from $341 billion estimated in August.

The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation's mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability. The White House is in the early stages of considering what bigger moves it might make for next year's budget. The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5%.

OMB is also reviewing a host of tax changes. The President's Economic Recovery Advisory Board will submit tax-policy options by Dec. 5, including simplifying the tax code and revamping the corporate tax code. White House Chief of Staff Rahm Emanuel is pressing for substantial spending cuts to go with any tax increases to try to avoid the "tax and spend" label that has bedeviled Democrats, according to administration and congressional officials. The administration is constrained in tackling the mounting deficit, since raising taxes or slashing spending could stunt economic growth. Administration officials say the Obama economic team is especially concerned that rapid deficit reduction could hurt the economy.

On the $700 billion Troubled Asset Relief Program, the administration is considering a change that may appear to improve the fiscal situation. Agreeing not to spend a certain amount of TARP money will enable the White House, in its budget projections, to assume less money out the door and, therefore, less debt issued. The move would also reduce the deficit by an unknown amount since a certain level of spending and borrowing is already factored into estimated future deficits.

The Treasury Department said about $210 billion in TARP funds remains unspent, including about $70 billion returned from financial institutions. A further $50 billion is expected to be repaid in the next 12 to 18 months. Budget experts said committing some TARP funds toward debt reduction could help calm concerns about the size and intent of the program. "I don't necessarily want them to pull back in a huge way, because there's a lot of uncertainty, but right now what we've got could turn into a $700 billion slush fund" for Congress, said Douglas Elliott, a fellow with the Brookings Institution, a liberal think tank.

The move could buy the Treasury Department time before it hits the so-called debt ceiling, which limits the amount of money the U.S. can borrow. Already, some members of Congress have said they won't approve an increase in the $12.1 trillion debt cap unless efforts to reduce the deficit are included. Senate Budget Committee Chairman Kent Conrad, the North Dakota Democrat who is proposing a bipartisan commission, along with Sen. Judd Gregg (R., N.H.), to examine taxes, said he won't vote for raising the debt limit unless Congress and the administration start talking about cutting spending and increasing taxes.

World Tries to Buck Up Dollar
Governments around the world stepped up efforts to stem the U.S. dollar's slide, as officials grow increasingly concerned about the impact of the weak greenback on their nascent economic recoveries. Thailand, South Korea, Russia and the Philippines have been snapping up dollars this week in order to hold down the value of their currencies, traders said Wednesday, as the U.S. currency wallowed near 15-month lows. In Latin America, Brazil's finance minister said the country's currency remained too strong, sparking speculation that the government would intensify recent efforts to curb the real's ascent. On Tuesday, Taiwan banned foreign investors from parking time deposits in the country in an effort to ease upward pressure on the local currency.

The fresh buzz over the dollar's fall prompted Treasury Secretary Timothy Geithner, visiting Tokyo on Wednesday, to repeat the Obama administration's commitment to a strong dollar. Still, Washington hasn't taken any concrete steps to arrest the slide. The weaker dollar is actually benefiting the U.S. as it struggles to come out of recession by helping keep U.S. exports competitive. China is coming under new pressure from Pacific Rim countries to let its dollar-linked currency rise in value. On Wednesday, China's central bank made a nod to concerns about the declining dollar and yuan by issuing a rare change to the official language of its exchange-rate policy. The central bank said it would take major currency trends into account in setting policy, though it wasn't clear what impact that may have on the yuan's future value.

The U.S. wants to see a stronger yuan, though Washington has avoided explicit public pressure on China to abandon its policy of managing its currency. But in the jargon of finance ministers, Mr. Geithner has made clear that's what he thinks should happen. In an op-ed piece in Thursday's Wall Street Journal Asia, he emphasized the advantages of "market oriented exchange rates in line with economic fundamentals." On Wednesday, the dollar briefly sagged to a 15-month low against a basket of major currencies before recovering slightly. It fell slightly against the euro, which was quoted at $1.4982 at 4 p.m. in New York. So far this year, the dollar is down 7% against the European currency.

Asian finance ministers, now gathered in Singapore for a meeting of the 21-member Asia-Pacific Economic Cooperation forum, are expected to raise their concerns about both the dollar's decline and the inflexibility of the Chinese yuan. The fear is two-fold. If currencies surge against the dollar, it damages the ability of countries in the region to compete in world markets, by making their exports more expensive. What's more, one of their major competitors -- China -- ties its currency to the dollar. As the yuan sinks in tandem with the dollar, China is able to keep its export prices low and price out competition.

A concluding statement from the assembled APEC officials is expected to underline the importance of flexible exchange rates to sustainable global growth -- generally viewed as code for a rise in the Chinese yuan. Such efforts are unlikely to bear fruit in the near term, which means these countries must act on their own to slow their currencies' rise. Experts estimate that some of the largest emerging economies may have spent as much as $150 billion on currency intervention over the past two months, judging from the growth of their international reserves, according to data from Brown Brothers Harriman. While that's not a huge amount in the currency markets, which have turnover of more than $3 trillion a day, traders pay keen attention to what the authorities are doing and where they are likely to intervene.

Thailand alone has bought $15 billion trying to push the dollar higher against the baht, Korn Chatikavanij, Thailand's finance minister, said in an interview with Dow Jones Newswires. "Quite clearly, all Asian central banks have found it necessary to intervene, and it's costing us," Mr. Korn said. The Chinese authorities aren't going to tip off financial markets in advance of a move in their currency, said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. But the fact that they adjusted the phrasing of their exchange-rate policy in a quarterly report Wednesday could be a response to the growing attention to the yuan, particularly from fellow developing nations. "It's one thing for the Chinese to ignore the U.S. and Europe," he said. "But when they start ignoring the developing G-20 it's a bit trickier."

For the last three years, the International Monetary Fund has been pressing China to revalue its currency. At the recent meeting of finance ministers from the Group of 20 nations in Scotland, the IMF once again said the yuan "remains significantly undervalued from a medium-term perspective." Emerging nations are recovering from the global slump far faster than their developed counterparts and investors are flocking to buy their stocks and bonds. That in turn puts upward pressure on their currencies.

Efforts to stem the flow of foreign capital or to intervene in currency markets pose serious challenges for governments and aren't always successful. Unless a government takes radical steps, it can't affect a U-turn in its currency. However, it "can lean against the wind," says Win Thin, a currency strategist at Brown Brothers Harriman, in this case by slowing the pace of currency strengthening. Developing nations aren't the only ones uncomfortable with the dollar's slide. European governments, especially Germany, will be increasingly uneasy if the euro continues to gain on the dollar. Governments that try to check the rise of their currency often end up accumulating dollars which they may not need. "I'm convinced that in the long term the dollar is more likely than not to decline in value, so we're building up assets that are declining in value over time," says Mr. Korn of Thailand. "That's not healthy."

10 states face looming budget disasters
In Arizona, the budget has grown so gloomy that lawmakers are considering mortgaging Capitol buildings. In Michigan, state officials dealing with the nation's highest unemployment rate are slashing spending on schools and health care. Drastic financial remedies are no longer limited to California, where a historic budget crisis earlier this year grew so bad that state agencies issued IOUs to pay bills.

A study released Wednesday warned that at least nine other big states are also barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services. The report by the Pew Center on the States found that Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are also at grave risk, although Wisconsin officials disputed the findings. Double-digit budget gaps, rising unemployment, high foreclosure rates and built-in budget constraints are the key reasons.

"While California often takes the spotlight, other states are facing hardships just as daunting," said Susan Urahn, managing director of the Washington, D.C.-based center. "Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers." The analysis, "Beyond California: States in Fiscal Peril," urged lawmakers and governors in those states to take quick action to head off a wider catastrophe. The 10 states account for more than one-third of the nation's population and economic output, according to the report.

Historically, states have their worst tax revenue year soon after a national recession ends. At the same time, higher joblessness and underemployment mean more people need government-sponsored health care and social safety-net programs, further taxing state services. California leads the most vulnerable states identified by the report, which describes it as having poor money-management practices. Since February, California has made nearly $60 billion in budget adjustments in the form of cuts to education and social service programs, temporary tax hikes, one-time gimmicks and stimulus spending, according to the Legislative Analyst's Office.

Many of those fixes are not expected to last. The state's temporary tax increases will begin to expire at the end of 2010, while federal stimulus spending will begin to run out a year after that. Gov. Arnold Schwarzenegger estimates California will run a deficit of $12.4 billion to $14.4 billion when he releases his next spending plan in January. The governor warned that the toughest cuts are ahead. "I think that we are not out of the woods yet," Schwarzenegger said this week.

At the same time, the Legislature is hamstrung by requirements that budget bills and tax increases be passed with a two-thirds majority, a mandate that the report labeled "a recipe for gridlock." The Pew report was based on data available as of July 31 and scored all 50 states based on revenue changes, unemployment, foreclosures and budget requirements. It also gave them grades. California and Rhode Island scored worst with D-pluses, then New Jersey and Illinois with C-minuses.

In reviewing why some states are suffering more than others, Pew found that the 10 states tend to rely heavily on one type of industry, have a history of persistent budget shortfalls or face legal constraints making it extra difficult to implement major changes, such as tax increases. Many require a supermajority vote for passing tax increases or budget bills.

Wisconsin officials issued a statement late Wednesday saying the Pew report was inaccurate. Wisconsin Department of Administration Secretary Michael Morgan said the state has balanced its budget by cutting spending and raising revenue. It projects a $270 million budget surplus for the period ending July 1, 2011, Morgan said in his statement. Several state legislatures have been unable to enact long-term fixes. Instead, they asked voters or governors to make the call, or used accounting gimmicks to put off the hard choices until later. For example:
  • Arizona lawmakers relied on one-time fixes to balance recent budgets as the state's home foreclosure rate surpassed California's and the nationwide average. Among the many ideas being explored by the state are a plan to mortgage state buildings, then rent the property until the state regains ownership at the end of the contract.

  • Michigan, where two of the Detroit Three automakers filed for bankruptcy protection this year, continues to offer tax incentives even as they take a toll on the state's pocketbook, leading to declining tax revenue. According to the Pew study, Michigan offered $6.3 billion more in total tax exemptions, credits and deductions than it actually collected in taxes in 2008.

  • Illinois, which has run deficits every year since 2001, is facing an $11.7 billion budget gap for its next fiscal year, beginning in July, according to the Center on Budget and Policy Priorities. Pew's Government Performance Project ranked Illinois behind only California and Rhode Island for its lack of fiscal management on paying medical bills and pension liabilities.

  • With Florida facing a shrinking population for the first time since World War II, Republican Gov. Charlie Crist and the GOP-controlled Legislature balanced a $5.9 billion shortfall with cuts, federal stimulus money and tax hikes, including a $1-a-pack tax increase on cigarettes. But the future remains uncertain. "Florida continues to face the same challenges as last year, including a very austere budgetary environment," said Rep. David Rivera, a Miami Republican who chairs both of the Florida House's two appropriations councils.

California: Most Commercial Property Deals From 2005 Onward Are Underwater
Buried in the California Controller's November analysis is a guest article: Overview of the Commercial Property and Capital Markets with Implications for the State of California by Dr. Randall Zisler.

Here are some excerpts:
Whereas excessive and imprudent leverage fed the bubble, deleveraging not only popped the bubble, but, in the process, destroyed record amounts of equity and debt. Most deals financed with high leverage from 2005 to the present are under water. The equity is gone and the debt, if it trades at all, trades at a deep discount to face value. Most leveraged equity invested in real estate has evaporated since property prices, if marked to market, have fallen 30% to 50%.

The chart [right] shows overall U.S. property total returns, quarterly (at annual rates) and lagging four quarters. This appraisal-based, lagging index shows sharp negative returns exceeding the deterioration of the RTC (Resolution Trust Corp.)
period of the early 1990s. (See Chart 1.) Second quarter 2009 returns indicate the possibility that total returns, while still negative, may have hit a point of inflection. We expect that property values in many sectors, especially office, retail, and industrial, will likely deteriorate further in 2010 with improvement beginning sometime in 2011.
A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. We estimate another $500 billion to $750 billion of unscheduled maturities (i.e., defaults). Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing. Marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent, especially as much of the debt is likely worth about 50% of par, or less.

The inability of many banks and other capital sources to lend not just to real estate firms but to other businesses in the State as well presents a real challenge to the private sector and state and local governments.
The author points out that many local and regional banks will fail because of CRE loans.

FDIC Chairwoman Sheila Bair said today: "We do obviously have a lot more banks that will close this year and next," Bair said, adding the failures "will peak next year and then subside."

These bad loans are also limiting lending to small businesses. Atlanta Fed President Dennis Lockhart made the same argument this morning:
I am concerned about the potential impact of CRE on the broader economy ... there could be an impact resulting from small banks' impaired ability to support the small business sector—a sector I expect will be critically important to job creation.
Many small businesses rely on these smaller banks for credit. Small banks account for almost half of all small business loans (loans under $1 million). Moreover, small firms' reliance on banks with heavy CRE exposure is substantial. Banks with the highest CRE exposure (CRE loan books that are more than three times their tier 1 capital) account for almost 40 percent of all small business loans.

Schwarzenegger: Budget Deficit Could Swell to $14 Billion by January
Saying that more spending cuts would be necessary with "very tough decisions still to be made", Governor Arnold Schwarzenegger said Monday (November 9th) that the state's dire financial situation is growing worse, with a state budget deficit that could swell to over $14 billion when he submits his proposed state budget for 2010-2011 in early January. The news, while not unexpected, comes at a time when disability, mental health, senior and low income family advocates, local governments and several state agencies are reeling from the impact of implementing a wide range of sweeping cuts to health, human services, education and other programs passed as part of the current revised state budget – and from previous budgets before that.

The Governor, speaking to the Fresno Bee editorial board in Fresno, said that the state’s current budget will have an additional shortfall of between $5 to $7 billion by the time the budget year ends on June 30, 2010, which policymakers had hoped would not happen. That shortfall is on top of an over $7 billion deficit that lawmakers and the Governor projected for the next state budget year that begins July 1, 2010 through June 30, 2011.

The deficit – the difference between what the state brings in as revenues (including taxes) and what it actually spends and is projected to spend – is growing because of a combination of several factors, including a sharp drop in revenues that the current budget did not anticipate; lawsuits that have stopped several major cuts from going forward; and spending on some programs that have increased due to growing caseloads.

An official monthly financial report covering October from State Controller John Chiang is due any day that will likely confirm the Governor’s dire budget news. That report from the state controller, who is the statewide elected official who pays the state’s bills, will likely show a further drop in the state’s revenues from what was projected in the state budget. His report covering September showed a steeper drop in revenues of over $1 billion then what the budget projected, since the budget year began on July 1.

Growing Deficit Will Have Huge Impact on People With Disabilities, Seniors

The news of a growing deficit with more proposals of massive and permanent spending cuts likely to be proposed to close it, will have almost certain impact again on services and programs for children and adults with disabilities, mental health needs, the blind, low income seniors and families, community organizations, facilities, workers and counties to provide services and supports.

The state budget for 2009-2010 passed in February four months early and revised in late July, tried to close a gap of over $60 billion with massive permanent cuts to major programs including those impacting regional centers that provide funding to community-based services to persons with developmental disabilities, SSI/SSP grants to the lowest income and needy who are persons with disabilities, the blind and seniors, Medi-Cal including permanent elimination of 9 benefits called "optional" because the federal government does not require the states to provide them, In-Home Supportive Services (IHSS), CalWORKS, senior programs, mental health and other critical services for children (including adoption assistance and foster care) that impact a wide range of people with special needs or seniors.

Governor Offers No Specifics Yet – But Says "Very Tough Decisions" Will Need to Be Made on Spending Cuts

The Governor told the Fresno Bee editorial board that more spending cuts would be needed because "…we are not out of the woods yet. ... the key thing is, we have to go and still make cuts and still rein in the spending. It will be tougher because I think the low-hanging fruits and the medium-hanging fruits are all gone. I think that now we are going to the high-hanging fruits, and very tough decisions still have to be made."

The Governor did not offer any specifics – either regarding the growing budget shortfall or where he would propose new spending cuts – which would need approval from the Legislature. The Governor did not say whether or not he would call the Legislature back into special session to deal with the growing shortfall earlier than January as he did last year. The Governor did not mention any possibility of proposing new tax or other revenue increases, which was part of the budget deal passed in February. Since then the Governor and legislative Republican leaders have strongly opposed any additional new revenue increases.

Most revenue increases – including tax increases – require approval of 2/3rds of both houses of the state Legislature. That means getting 54 votes of the 80 member Assembly and 27 votes of the 40 member State Senate. With Democrats hold 50 seats (Republicans hold 29 with 1 seat held by an independent) in the Assembly, at least 3 Republican votes would be needed (along with the independent or a 4th Republican – assuming all 50 Assembly Democrats support a tax or other revenue increase proposal).

In the State Senate Democrats control 25 seats to the Republicans 15 – which means at least 2 Senate Republicans would be needed to support any revenue or tax increase proposal – a prospect that seems at this point, highly unlikely in an election year.

California debt binge shakes up muni bond market
The municipal bond market’s message to California: Enough with the borrowing already! Over the last seven weeks the state has sold more than $21 billion of short- and long-term debt for budget-related reasons and to finance voter-approved infrastructure projects. That flood -- in a period when muni bond yields nationwide already were rebounding after diving in summer -- has helped to boost yields more than they might otherwise have risen, some analysts assert. "Yields are higher because California has so much paper in the market," said Matt Fabian, who tracks muni bond trends at Municipal Market Advisors in Westport, Conn.

The state has been its own worst enemy: Its borrowing costs have risen with each bond deal, which means taxpayers will bear a bigger hit to service the debt over time. Rising market yields also have the effect of devaluing older fixed-rate muni bonds. If you own a California muni-bond mutual fund, chances are its share price has been sliding since the end of September as the  market has suffered indigestion from the supply of new bonds.

In California’s latest offering -- a sale Tuesday of nearly $1.9 billion of bonds maturing in June 2013 -- the state had to pony up for a 4% annualized tax-free yield to lure investors to the deal. Less than two weeks ago the state paid a yield of 2.48% on a bond with a similar maturity. Investors’ ability to squeeze 4% out of the state in this week’s deal "is an expression of saturation of the market" by California, said George Strickland, a muni bond fund manager at Thornburg Investment Management in Santa Fe, N.M.

Demand for the bonds sold Tuesday also may have suffered because the deal stemmed from one of the gimmicks concocted by the Legislature and Gov. Arnold Schwarzenegger in July to close the state’s huge budget deficit: The proceeds will repay local governments for the $2 billion in property tax revenue that the state is borrowing from them to plug the budget gap. The bonds become part of the state’s overall debt burden, but they’re a step below so-called general obligation issues, which have an iron-clad repayment guarantee in the state Constitution.

Treasurer Bill Lockyer obviously knows that he has dumped a lot of debt on the market this autumn. He didn’t have much choice, given the budget fixes ordered by the Legislature, and given the backlog of infrastructure bonds California has to sell. The state’s borrowing plans had been put on hold for much of this year because of the deepening budget crisis. "We had a lot of work to do to get our financing program back on track" this fall, said Tom Dresslar, Lockyer’s spokesman.

Of course, for investors with money to put to work, rising muni yields are welcome. Ken Naehu, who manages bond investments at Bel Air Investment Advisors in L.A., believes the state’s budget woes are far from over, which Schwarzenegger acknowledged Tuesday. Still, a 4% tax-free yield on a bond maturing in less than four years was too good an opportunity to pass up, he said. "We gave them a large order," Naehu said.

Which Big Country Will Default First?
Of the world's six largest economies, three currently have budget and public debt positions that if allowed to fester will push those nations into bankruptcy (the seventh largest, Italy, also has a budget and debt position that is highly vulnerable, but its problems appear chronic rather than acute). Given the proclivities of modern politicians for delaying pain and avoiding problems, it is likely that festering is just what those positions will do. So which major country, the United States, Japan or Britain, will default first on its foreign debt?

The other three of the six top economies, Germany, China and France, appear to have fewer problems but are not out of the woods entirely. Germany has substantial public debt because of the costs involved in integrating the former East Germany, but those costs are now mostly past and the current government is highly disciplined – thus Germany is now the most stable major economy. France is less disciplined; its debt level is similar to that of Germany but its current budget deficit is much higher, at around 8% of Gross Domestic Product (GDP) in 2009, according to the Economist forecasting panel. However, its problems pale in comparison to those of the deficit-ridden trio. China has huge amounts of hidden debt in its banking system, which could well collapse, but its direct public debt is small, as is its budget deficit, so it is unlikely to enter formal default.

The worst budget balance of the three deficit countries is in Britain, where the forecast budget deficit for calendar 2009 is a staggering 14.5% of GDP. Furthermore, the Bank of England has been slightly more irresponsible in its financing mechanisms than even the Federal Reserve, leaving interest rates above zero but funding fully one third of public spending through direct money creation. Governor Mervyn King has a reputation in the world's chancelleries as a conservative man of economic understanding.

He doesn't really deserve it, having been one of the 364 lunatic economists who signed a round-robin to Margaret Thatcher in 1981 denouncing her economic policies just as they were on the point of magnificently working, pulling Britain back from what seemed inevitable catastrophic decline. King's quiet manner may be more reassuring to skeptics than the arrogance of "Helicopter Ben" Bernanke, but the reality of his policies is little sounder and the economic situation facing him is distinctly worse.

Britain has two additional problems not shared by the United States and Japan. First, its economy is in distinctly worse shape. Growth was negative in the third quarter of 2009, unlike the modest positive growth in the U.S. and the sharp uptick in Japan. Moreover, whereas U.S. house prices are now at a reasonable level, in terms of incomes (albeit still perhaps 10% above their eventual bottom), Britain's house prices are still grossly inflated, possibly in London even double their appropriate level in terms of income.

The financial services business in Britain is a larger part of the overall economy than in the U.S. and the absurd exemption from tax for foreigners has brought a huge disparity between the few foreigners at the top of the City of London and the unfortunate locals toiling for mere mortal rewards. A recent story that the housing market for London homes priced above $5 million British pounds was being reflated by Goldman Sachs bonuses indicates the problem, and suggests that the further deflation needed in U.K. housing will have a major and unpleasant economic effect.

A second British problem not shared by the U.S. is its excessive reliance on financial services. As detailed in previous columns, this sector has roughly doubled in the last 30 years as a share of both British and U.S. GDP. In addition, the sector's vulnerability to a restoration of a properly tight monetary policy has been enormously increased through its addiction to trading revenue. The U.S. has many other ways of making a living if its financial services sector shrinks and New York is only a modest part of the overall economy. Britain is horribly over-dependent on financial services, and the painful if salutary effects of London costs being pushed down to national levels by a lengthy recession are less likely to be counterbalanced by exuberant growth elsewhere.

The other question to be answered for all three countries is that of political will. If as is certainly the case in Britain, deficits at the current levels will lead to default (albeit not for some years since the country's public debt is still quite low), then to avoid default tough decisions must be taken. Britain is in poor shape in this respect. Its current prime minister, Gordon Brown, is largely responsible for the underlying budget problem, having overspent during the boom years, largely on added bureaucracy rather than on anything productive or value-creating. However, the opposition Conservatives, likely to take power next spring, are led by a center-leftist with a background in public relations and no discernable backbone or principles.

Britain has a history of such leaders, which it has managed to survive – the ineffable Harold Macmillan, in particular, who wanted to abolish the Stock Exchange and contemplated nationalizing the banks when they raised interest rates, was a man of outlook and temperament very similar to David Cameron's. Macmillan was notoriously prone to soft options that postponed economic problems, firing his entire Treasury team in pursuit of soft options in 1958 and leaving behind an appalling legacy of inflationary bubble on his retirement in 1963. If Cameron is truly like Macmillan, his government's response to economic and financial disaster will be one of wriggle rather than confrontation. With neither party providing solutions to an economic crisis, the British public is likely to discover that, unlike in the crisis of 1976, no solutions will be found. Default (doubtless disguised as with Argentina as "renegotiation") would in that case inevitably follow.

The United States is in somewhat better shape than Britain. Its deficit is somewhat lower, at 11.9% of GDP in calendar 2009, although its debt level is higher if you include the direct debt of Fannie Mae and Freddie Mac, as you should. It also has lower overall levels of public spending, although spending is rising rapidly. Furthermore, it has a much more diverse economy and a healthier real estate market, so that further likely downturns in California and Manhattan real estate and the financial services sector can be easily overcome.

U.S. pundits like to whine about the impending deficits in social security and health-care, but the former is easily overcome by adjusting the retirement age while the latter could be greatly mitigated by simple cost-containment measures, such as limiting trial lawyer depredations, making the state pay for the "emergency room" mandate to treat the indigent and allowing interstate competition for health insurance. All those changes would be politically difficult, but they are clearly visible and involve no damaging cuts in vital services, unlike the changes that would probably be necessary in Britain.

The other U.S. advantage is political: it has an alternative to overspending.  Last Tuesday's election results were a useful shot across the bows of the overspending consensus that had developed in both the Bush and Obama administrations (as well as among the ineffable barons of Congress) since 2007. Whereas voter concern about spiraling deficits and public spending has no satisfactory outlet in Britain, it can now express itself clearly in the U.S., producing either a sharp change of policy by the current administration and Congress or a change of administration in 2012. Since the likelihood of a reversal of policy towards sound budgetary management is greater in the U.S. than in Britain, the probability of eventual default is less.

Japan has already had its change of government, throwing out the faction of the Liberal Democrat Party (LDP) that regarded politics as the art of creating pointless infrastructure. Unfortunately, the Japanese electorate, faced in August with a no-good-choices problem similar to that of U.S. voters last year and British voters next spring, replaced a long-serving overspending government with another committed to a different set of spending priorities rather than to ending the spending itself. The Democratic Party of Japan (DPJ) has cut back sharply on the infrastructure "stimulus" but is showing signs of replacing it with social spending. It is also committed to economically dozy policies such as reversing postal privatization, organized with such great political effort by Junichiro Koizumi in 2005.

Japan does however have a couple of advantages that may enable it to avoid default. First, its public debt carries very low interest rates, mostly below 2% per annum, and is owned almost entirely by its own citizens. What's more, state-owned entities such as the now un-privatized Postal Bank lend vast amounts of money to the government, acting as conduits to the less efficient bits of the public sector in the same way as do China's state-owned banks. This is appallingly bad for the efficiency of the economy and for living standards, but it postpones default and makes it less likely.

Second, it's not inevitable that the LDP's wasteful infrastructure spending will simply be replaced by wasteful social spending. Finance minister Hirohisa Fujii is reputed to be a budgetary hard-liner. Further, at least part of the DPJ's spending will take the form of handouts to families with children. Those may increase domestic consumption compared to exports and thereby balance the Japanese economy better, increasing its growth potential marginally. Nevertheless, since Japan's public debt is currently around 200% of GDP, Japan is much closer to the default precipice than either the U.S. or Britain. Thus, while the better structure of Japan's economy and its debt make Japan's probability of default lower than Britain's, it's likely that if both countries defaulted, Japan would do so first.

We have not experienced a debt default by a major economy since the 1930s. That three such defaults are currently conceivable indicates both the severity of the current downturn and the wrong-headedness of the policies taken to address it. If it happens, a major sovereign debt default of this kind will cause the seizure of global capital markets, prolonging downturn for a decade or more. We'd all better hope the urge for fiscal responsibility hits London, Washington and Tokyo pretty damn soon.

Roubini Is Wrong
by The Mad Hedge Fund Trader

Nouriel Roubini is wrong. He has embarked on a global campaign to warn the world, Cassandra-like, of the “mother of all highly leveraged asset bubbles” now in progress. Shorts in the US dollar are being built up to unprecedented levels, and are being used to finance the purchase of every asset class, especially in energy, commodities, and precious metals. This bubble will be pricked by a huge snap back rally in the greenback, the exhaustion of Fed support measures, a growth surprise in the US leading to an early Fed tightening, or a real double dip recession.

The inevitable collapse will make the last financial crisis look like a cake walk, and take all markets, especially equities, down to new lows. The flaw in the Turkish New York University economic professor’s logic is lurking in his own arguments. The basis for his “U” shaped recession (described by others as “bathtub” or “toilet bowl” shaped), is the absence of credit, especially at the regional and small business level. But I can tell you from my own experience that credit is also absent, or severely diminished, in the hedge fund community too. Terms have been tightened across the board. Collateral requirements are much stricter. Margin requirements on the futures markets are vastly heavier than they were two years ago, especially for the most volatile contracts, like crude.

You can forget about financing for any kind of instrument that is illiquid or trading over-the-counter. Prime brokers really play hard ball. The days when big hedge funds borrowed stock and shorted them with no money down are a distant memory. The last time I checked, Lehman, Bear Stearns, and AIG weren’t doing any new lending. Many credit markets, such as those for certain CDO’s, are still completely closed, and are never coming back. So where is all this leverage?

The net net is that speculative positions are but a fraction of those seen at the 2007 peak. To get a real crash with new lows, someone has to sell, and there just isn’t that much around to be sold these days. I think Nouriel is one of those Mount Olympus guys who can only give a very broad, general overviews of what we mere mortals are doing. Never having worked on a trading desk, he doesn't realize that what he is proposing can't actually be executed. When the current trends reverse, there will be much volatility, pain, hand wringing, and gnashing of teeth, for sure. But it is much more likely that we are going to die from ice, not fire, and of boredom, not from cardiac arrest.

In China's Growth Story, Credit as Villain?
The bull case for global financial markets hinges partly on belief in a bulletproof Chinese economy. But China is vulnerable to the same Kryptonite that has hurt countless other economies: credit. Fresh evidence of China's strength is expected this week, when the government is due to release data on trade, retail sales, industrial production, consumer and producer-price inflation, money supply and fixed-asset investment. Economists expect the inflation and trade measures to fall from a year ago; they expect other measures to rise by fat double digits.

China has supplied most of the world's economic growth in the past three years, according to the International Monetary Fund. While the U.S. and other developed nations are expected to expand sluggishly for years to come, China's economy is widely expected to keep rising at this year's 8% growth rate or better. Most of China's growth this year has been unsustainable, driven by stimulus. China's money supply has risen 29% in the past year. At the government's behest, banks have increased their lending by nearly $1.4 trillion, or 32%, during that time.

That flood of borrowed cash has been channeled into new infrastructure and production capacity. These investments will account for up to half of China's gross domestic product this year, according to some estimates. A key question is whether China needs all of this investment. Analysts at the London hedge fund Pivot Capital Management say that China already has enough idle steel-production capacity, for example, to match the steel output of Japan and South Korea combined.

Meanwhile, the ratio of investment to GDP is rising, suggesting China's investment is less and less efficient, says Edward Chancellor at Boston asset-management firm GMO. The combination of soaring investment and dwindling returns was seen in Japan in its asset bubbles in the 1980s and in the "Asian Tigers" just before their crises in the late 1990s, he says. These data are hard to measure and subject to much debate. China's economy may turn out to be strong enough to merit all of this investment. But any hiccup in growth raises the risk that these investments become bad debts.

Chinese credit card debt mounts
The world economy is placing a bet on its future with China, but some Chinese are placing bets on their future with plastic. In rebalancing the world economy, analysts have said U.S. citizens should take cues from the Chinese, where 40 cents of every dollar of disposable income is saved, compared to 3 cents of every dollar in the U.S.

But there are worrying signs in China that some young consumers are starting to emulate the worst habits of U.S. consumers -- like 27-year-old Yuan Shuai in Beijing, whose credit card bets on his future have turned into overwhelming debts. In the last two years, he got seven cards from seven banks and wracked up $29,000 in debts. "I spent money on eating and having fun," he said. "That's all."

Unemployed and studying to be a taxi driver, Yuan now has debt collectors from banks turning to his father, Yuan Yizhong, for bill payment. "The banks told me they could lend to him because he's an adult," his father says. "Now they hold me responsible and threatened me." With no laws for bankruptcy protection in China, those threats can be real. "If you cannot pay it back you either have to go to parents or friends to pay back for you, or you got to jail," said Yeongwen Chiang, a consumer expert.

Credit card issuance is up 32 percent in China in the past year, according to China Market Research and the National Bureau of Statistics. Credit card debt is up more than 130 percent to $838 million. That still pales compared to U.S. credit card debt, but the quick rise have some observers alarmed. With the decrease in exports during financial crisis, China has been working to build domestic consumption, offering subsidies on cars, home appliances and other big ticket items. That has helped China to continue to grow through the recession. During the October holiday week celebrating the 60th anniversary of the People's Republic of China, Chinese poured $83 billion into the economy - a 20 percent increase in spending from the same holiday period last year.

By comparison, retail spending in the United States fell 6 percent in September compared to the same time last year. But some of the increased spending in China is with money the consumers didn't have. In the first six months of this year, the number of Chinese consumer with credit card debts more than two months overdue rose 133 percent. For the Yuan family, credit card debt will take years to pay back. "I have only one son, and he failed to live up to my expectations," Yuan's father said.

Europe's industry slams China over currency
Europe's industry federation has called for urgent measures to cap the surging euro after it blasted through $1.50 against the US dollar and 10.25 against China's yuan on unexpectedly strong data from Germany. "I am deeply concerned about recent exchange rate developments," said Jurgen Thumann, president of Business Europe, the pan-EU lobby. "An overvalued euro is not good news for growth and is inconsistent with the commitments of the G20 countries for an orderly resolution of global imbalances. We must insist that our partners honour their commitments." He was addressing his words directly to top officials from the European Central Bank and the Eurogroup in Brussels.

China has held the yuan fixed to the dollar despite its huge trade surplus through vast purchases of foreign bonds. This has allowed it to flood Europe with cheap exports, gaining market share on the coat-tails of dollar devaluation. Mr Thumann called on EU leaders to "push the message" in Beijing that China must let the yuan rise. There is growing irritation over the apparent insouciance of EU officials in the face of the euro's 24pc rise against the dollar/yuan since March. China's central bank governor, Zhou Xiaochuan, let slip at the G20 summit that global pressure for yuan appreciation "is not that big". Germany has so far seemed able to shrug off the currency effects. Exports jumped 3.8pc in September from a month earlier.

However, a study by Ansgar Belke from Duisburg University found that even Germany has clear limits. Berlin's pleasure in the muscular performance of the euro is likely to prove "nasty, brutish, and short", he said. "Firms with standard products exposed to the biting winds of international competition have a huge problem with a strong euro," he said. Germany's small and medium-sized family firms produce locally and cannot switch plant abroad. Currency hedging is complex and costly. Mr Belke said the "pain threshold" varies by sector but overall demand for German goods will "fall dramatically" if the euro goes above $1.55 for long. Furthermore, it will do lasting damage as firms lose their global foothold. Many will struggle to re-enter these markets even if the euro falls again. Currency effects are slow but powerful.

Professor Willem Buiter from the London School of Economics said the ECB has made an error by pushing the euro too high through tight-money policies. "The German export industry has learned to cope by wage restraint and productivity gains. This is not something that other countries can emulate easily," he said. "There is going to be some egregious suffering." IMF data shows that Spain and Italy are over-valued by more than 30pc. Germany's car scrappage scheme and a rebound in inventories have lifted the country out of recession but from a very low base. Exports are still down 19pc from a year ago. The Bundesbank says the economy may not regain its former output until 2014.

Recovery is not secure in any case. Private credit in the eurozone contracted for the first time in September. Germany's Bank Federation has given warning of a "generalized credit crunch" next year due to the delayed effect of rising defaults and G20 pressure for higher capital ratios. Business Europe called on regulators to move carefully as they clamp down on banks. "We have absolutely no idea of the overall impact on our economy," it said. European firms raise two thirds of their debt from banks, compared with one third in the US. "Company investment in machinery and equipment is already down more than 20pc since last year. We need to reverse this trend rapidly, otherwise we will never get back on our former growth track," it said.

China Signals That It May Allow Currency to Rise Against Dollar

China sent its clearest signal yet that it was ready to allow yuan appreciation after an 18-month hiatus, saying on Wednesday it would consider major currencies, not just the dollar, in guiding the exchange rate. In its third-quarter monetary policy report, the People's Bank of China departed from well-worn language on keeping the yuan "basically stable at a reasonable and balanced level." It hinted instead at a shift from an effective dollar peg that has been in place since the middle of last year.

"Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange-rate formation mechanism," the central bank said in a 46-page monetary policy report. The comments, published just days before a visit to Shanghai and Beijing by U.S. President Barack Obama, set out the possibility of a return to exchange rate appreciation that began with a landmark July 2005 revaluation.

The yuan strengthened by nearly 20 percent against the dollar until concern over the impact of the global financial crisis prompted Beijing to hit the brakes in the middle of last year to protect exporters. The yuan has been stuck at around 6.83 per dollar ever since, drawing increasing ire from other countries, especially as it has followed the dollar downwards against other currencies.
The dollar has dropped 13 percent against a basket of major currencies including the yen and euro since mid-February.

Some analysts have called for the return to a genuine basket of currencies, which the central bank said in 2005 it would use as a reference for the yuan. "I think the wording change ... shows that it is an irresistible trend for China to resume yuan appreciation," said Xing Ziqiang, an economist at China International Capital Corp (CICC) in Beijing. "It is not sustainable for the yuan to always be pegged to the U.S. dollar; after all, the repegging since late 2008 was just part of China's measures to address the global financial crisis, and now the impact of the financial crisis is fading, so the yuan should resume appreciation sooner or later."

The central bank's report came just hours after data that showed the world's third-largest economy had firmly put the worst of the global financial crisis behind it. Factory output growth surged to a 19-month high of 16.2 percent in October. While exports were still down in year-on-year terms, economists pointed to the likelihood that they would start growing again soon. Some analysts said the statement could have been timed to send a signal ahead of Obama's Nov. 15-18 visit to China. Obama told Reuters on Monday that he planned to raise the currency issue during his trip.

However, Beijing is increasingly facing complaints about its currency from other emerging economies, which see an undervalued yuan as undercutting them in global markets. Those concerns were evident in a draft statement from APEC finance ministers circulated on Wednesday, in which they call for flexible interest rates and exchange rates as a way of redressing economic balances. "We agreed that flexible prices, including exchange rates and interest rates, play a critical role in allocating resources efficiently, and can facilitate the adjustments needed to support balanced and sustainable global growth," said the latest draft statement by the finance ministers dated Nov. 10.

While the statement could change in its final form, a deputy Chinese finance minister was present at discussions on it, suggesting some level of agreement by Beijing on the wording. However, analysts were quick to caution against expecting any sudden shift in the yuan's actual value, given China's penchant for carrying out any reforms gradually. "The central bank's worries about capital flows, liquidity, and inflation signal growing pressure for yuan appreciation," said Ben Simpfendorfer, strategist with the Royal Bank of Scotland in Hong Kong.

"But I'm not looking for gains in the currency until the second quarter as the export sector still faces large challenges and margin pressure." Markets priced in a slightly greater appreciation over the coming year. Offshore one-year dollar/yuan non-deliverable forwards (NDFs) fell to 6.6075 bid late on Wednesday compared with Tuesday's close of 6.6320. Yuan appreciation implied by NDFs, which moves inversely with the forwards, was around 3.3 percent in a year compared with 3.06 percent before the announcement.

Xing with CICC said he was expecting even greater appreciation, of 3 to 5 percent next year, in the face of growing external and internal pressure. "For China's own sake of balancing its economic growth and reducing its large surplus in the trade account, it is also necessary for the government to make the yuan more flexible."

Record number trapped in part-time work, unemployment figures show
A record one million people are trapped in part-time work, masking the true extent of the unemployment crisis, official figures suggest. The number of unemployed has increased by the slowest rate for 18 months, according to the Office for National Statistics. The small increase of 30,000 to 2.46 million in the three months to September, a mere 1.2 per cent, took economists by surprise, with some suggesting it heralded the end of the recession. However, behind the modest rise in the total number, the figures revealed a record number of people were being forced to work part-time because they could not find a full-time job. And many more appeared to have opted out of the workplace completely.

Just under one million – 997,000 -- are trapped in a part-time job despite wanting a full-time one, the figures suggest, a record number and an increase of 40 per cent on a year ago. A number of companies, most notably BT, have offered their workers long sabbaticals in return for a drastic pay cut. Most leading law firms are still on a four-day week in an attempt to cut their costs. Many of the large companies offering work are only doing so on a part-time basis, helping women trying to juggle family responsibilities and work, but leaving male unemployment heading up. John Philpott, the chief economist at the Chartered Institute of Personnel and Development, said: "Unemployment remained below 2.5 million in the three months to September primarily because there was a rise in part-time employment, temporary employment and contract working, the latter boosting self-employment."

Alongside the figure that revealed the rise in part-time working, the total number of so-called economically inactive of working age shot up. These are the unemployed, students, housewives and anyone who cannot get or has chosen not to look for a job. This figure has jumped by 41,000 over the past three months to hit 8 million. This is the first time that the economically inactive figure has hit 8 million since the ONS started collecting jobs data nearly 40 years ago, in 1971. More than one-in-five people, or 21 per cent of the population of working age, do not have a job in Britain. Theresa May, shadow work and pensions secretary said: "A culture of worklessness has become rife in parts of Britain. It is shocking that one in 5 people of working age is economically inactive and that 5 million people have never worked under this government."

Many economists are now expected to downgrade their forecasts for total unemployment to peak at below 3 million, which would mean the jobless crisis during this recession will have been less dire than that experienced during the recessions of the early 1990s and 1980s. However, many fear that youth unemployment, which crept up to hit a new high, will cause serious problems. A further 15,000 people between the age of 16 and 24 did not have a job during the period, causing the youth unemployment figure to edge up to 943,000. Martina Milburn, chief executive, youth charity The Prince's Trust said: "While the levels of youth unemployment appear to be slowing, it is too soon to be complacent. One in five jobless young people desperately need our support. We cannot let this recession wipe out our young talent."

The Aussie Dollar Is Wildly Overvalued, And Household Debt Is Enormous
Morgan Stanley analysts sound the alarm about the Aussie dollar, favorite of at-home Forex punters:
The AUD is now the most overvalued of all the currencies we monitor, at 37%. This is not a reason in itself to revert but implies that any signs of stress could see a sharp adjustment.  The fact that there are a number of issues which have the potential to generate downward pressure on the currency ensures we have warning signs of a reversal. 
Household Leverage Remains High Australians have embraced the Anglo-Saxon debt philosophy wholeheartedly. However, unlike the US or UK, they have not seen a correction in debt levels or house prices. Australian household debt to income remains at extreme levels even compared to their Anglo-Saxon counterparts (Exhibit 3).

Australian household debt levels have been supported through the downturn by: the modest adjustment in the labour market, the rapid flow-through of lower interest rates to mortgage payments, and the stability of the domestic banking sector, which has maintained its intermediation role.  This leaves households exposed to the RBA’s rate hiking cycle at relatively high debt levels and a higher level of unemployment. It is true that the labour market should improve and is a lynchpin for household resilience.

Thus it is only a risk that there is enough pressure on households to de- leverage. Given that there was not a large increase in unemployment during the downturn, as firms chose to cut hours worked instead, our economists are not expecting a big improvement in the labour market through 2010. Next year is a concern as incomes should begin to slow. The reversal in tax and interest rate cuts should reduce income and raise the debt/income ratio. This also bears watching as a stress on households with such high leverage.
Again, similar to its Anglo-Saxon counterparts, the Australian housing market has seen an acceleration in house prices. However, unlike in the US or UK, there has yet to be a correction. The RBA have noted the run-up in housing prices and may wish to address this through their hiking cycle. The general market belief is that this bubble can be gently pricked and deflated. The risk is that it faces a more disorderly unwinding at some future point, which is also a threat to AUD.

As our economics team points out, the run up in house prices is reflective of the increase in debt levels (Exhibit 4) and is not the product of more fundamental factors such as population changes or rental income equivalents. Additionally, there is likely to have been a change in demand, as years of rising prices have changed household formation dynamics. The RBA have noted that members per household have risen in recent years, bucking a long-term trend. This would suggest that supply-demand imbalances are not as large as demand estimates based on historical averages would suggest.

The end of a bubble is always difficult to predict and identifying the trigger for such an unwind is similarly fraught with difficulty. Given that markets are extremely sensitive to the potential for asset price bubbles bursting and with the effects of such events still in mind, the Australian housing data are key to AUD maintaining its lofty levels. 

More recent housing data have been relatively robust, but this may not last. The run-up in building approvals and housing finance data can be partially attributed to the government’s increased first-home-owner grants. This policy, implemented in the financial crisis, provided an additional $14k for newly built houses and $7k for existing houses – on top of the original $7k grant. This expired at the end of October.

The Dow priced in gold
by Rolfe Winkler

Gold’s recent behavior strikes me as similar to oil circa July ‘08. With it leaping to another new high today — $1,119 — I thought I’d offer the following chart for reader comments:


Thanks to Nick Laird of Sharelynx for the data.

Barrick shuts hedge book as world gold supply runs out
Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world's top producer Barrick Gold. Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. "There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London. "Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970. The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday. The key driver over recent days has been the move by India's central bank to soak up half of the gold being sold by the International Monetary Fund. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt. China has quietly doubled holdings to 1,054 tonnes and is thought to be adding gradually on price dips, creating a market floor. Gold remains a tiny fraction of its $2.3 trillion in foreign reserves.

Gold exchange-traded funds (ETFs) – dubbed the "People's Central Bank" – have accumulated 1,778 tonnes, making them the fifth biggest holder after the US, Germany, France, and Italy. Ross Norman, director of, said exploration budgets had tripled since the start of the decade with stubbornly disappointing results so far. Output fell a further 14pc in South Africa last year as companies were forced to dig ever deeper - at greater cost - to replace depleted reserves, not helped by "social uplift" rules and power cuts. Harmony Gold said yesterday that it may close two more mines over coming months due to poor ore grades.

Mr Norman said the "false mine of central banks" had been the only new source of gold supply this decade as they auction off reserves, but they are switching sides to become net buyers. Barrick is moving fast to wind down the remaining 3m ounces of its infamous hedge book over the next twelve months, an implicit bet on rising gold prices over time. Mr Regent said the company had waited too long to ditch the policy, which has made the company enemy number one among 'gold bug' enthusiasts. The hedges oblige Barrick to deliver part of its gold into futures contracts set long ago at levels far below today's spot prices. The strategy worked well in the falling market of the 1990s, but has cost the company dear in lost profits this decade. "Hindsight is always 20/20," said Mr Regent, who was appointed from the outside earlier this year.

Barrick bit the bullet in the third quarter, taking a $5.7bn charge against earnings on hedge contracts. Liberation is at last in sight. In 2001 the hedge book topped 20m ounces. Mr Regent said the hedge policy has weighed badly on the share price and irked investors, becoming a bone of contention at every meeting. The financial crisis brought matters to a head as markets fretted about counterparty risk. "It was clear to me that there were a significant number of institutions who wouldn't invest in Barrick because of the hedge book," he said. Barrick produced 1.9m ounces of gold last quarter, down from 1.95m a year earlier. Costs have been "trending down" to $456 an ounce, though rising energy prices pose a fresh threat. Total reserves are 139m ounces, far ahead of rival Newmont Mining at 86m. The hedge book venture has not been a happy one, but those who predicted that Barrick would eventually "blow up" on its contracts may owe the company an apology.

Gold - a six thousand year-old bubble
by WIllem Buiter

Gold is unlike any other commodity. It is costly to extract from the earth and to refine to a reasonable degree of purity. It is costly to store. It has no remaining uses as a producer good - equivalent or superior alternatives exist for all its industrial uses. It may have some value as a consumer good - somewhat surprisingly people like to attach it to their earlobes or nostrils or to hang it around their necks. I have always considered it a rather vulgar metal, made for the Saturday Night Fever crowd, all shiny and in-your-face, as opposed to the much classier silver, but de gustibus… .

The total stock of ‘above-ground’ gold is about 160,000 metric tonnes (a metric ton is 2,204 lbs. or 35,264 oz, for those of a non-decimal mind-set). About 50 percent of this existing stock of above-ground gold is kept as a pure store of value (for investment purposes), most likely somewhere below-ground, for security reasons. The other 50 percent exists as jewellery. I would argue that most of this jewellery demand is simply small-scale store of value (investment) demand by households, rather than demand driven by aesthetic considerations or other intrinsic sources of joy associated with having gold hanging from your extremities.

From a social perspective, gold held by central banks as part of their foreign exchange reserves is a barbarous relic (Keynes used the expression to refer to the Gold Standard, but close enough is close enough). The same holds for gold held idle in private vaults as a store of value. The cost and waste involved in getting the gold out of the ground only to but it back under ground in secure vaults is considerable. Mining the ore is environmentally damaging, especially if it involves open pit mining. Refining the gold causes further environmental risks. Historically, gold was extracted from its ores by using mercury, a toxic heavy metal, much of which was released into the atmosphere. Today, cyanide is used instead. While cyanide, another toxic substance, is broken down in the environment, cyanide spills (which occur regularly) can wipe out life in the affected bodies of water. Runoff from the mine or tailing piles can occur long after mining has ceased.

Even though, from a social efficiency perspective, the mining of new gold and the costly storage of existing gold for investment purposes are wasteful activities, they may be individually rational. There is no invisible hand here (or elsewhere) to ensure that the aggregation of individually rational behaviour adds up to anything desirable or sensible. Because to a reasonable first approximation gold has no intrinsic value as a consumption good or a producer good, it is an example of what I call a fiat (physical) commodity. You will be familiar with fiat currency. Unlike what Wikipedia says on the subject, the essence of fiat money is not that it is money declared by a government to be legal tender. It need not derive its value from the government demanding it in payment of taxes or insisting it should be accepted within the national jurisdiction in settlement of debt. Instead the defining property of fiat money is that it has no intrinsic value and derives any value it has only from the shared belief by a sufficient number of economic actors that it has that value.

The “let it be done” literal meaning of the Latin ‘fiat’ should be taken in the third sense given by the Online Dictionary: 1. official sanction; authoritative permission; 2. an arbitrary order or decree; 3. Chiefly literary any command, decision, or act of will that brings something about. The act of will in question is the collective attribution of value to something without intrinsic value. Being declared legal tender by a government may help achieving that status, but it is neither necessary nor sufficient. Gold is very close therefore to the stone money of the Isle of Yap. This stone money, known as Rai, consists of large doughnut-shaped, carved disks, consisting usually of calcite, that can be up to 4 m (12 ft) in diameter, although most are much smaller. Apparently, the total stock of Rai cannot be augmented any further. It also depreciates very slowly. This intrinsically useless form of money in the Isle of Yap is in all essential respects equivalent to gold today in the wider world. Another example would be pet rocks, as long as the rock in question is rare and costly to get into its final shape.

Gold has become a fiat commodity or a fiat commodity currency, just as the US $, the euro, the pound sterling and the yen (and a couple of hundred other currencies) are fiat paper currencies. The main differences between them are that gold is very costly to produce, while the production of additional paper money has an extremely low marginal cost. If we count the deposits of commercial banks with the central banks, which together with currency in circulation make up the monetary base, as fiat money, then the incremental cost of fiat base money creation is zero. The outstanding stock of physical gold, at 160,000 tonnes or thereabouts, is very large relative to the maximum amount of new gold that can be mined and refined during a year. The short-run supply curve of new gold is steep and becomes vertical at a volume of production that is small relative to the oustanding stock (annual gold production has been declining from a peak of just over 2,500 tonnes in 2001 to 2330 tonnes in 2008 - only 1.5% of the outstanding stock).[1]

The good news for gold bugs
Since gold is a fiat commodity currency, its value will be determined largely by its attractiveness relative to other fiat currencies - the fiat paper currencies issued by central banks. Gold should not be analysed as one of a set of intrinsically valuable commodities (silver, iron, lead, zinc, platinum, aluminium, titanium etc. etc.) but as part of a set of intrinsically useless and valueless fiat currencies - the US dollar, the yen, the yuan, the euro, sterling, the rupee, the rouble etc. etc.). It is therefore in times that market participants are nervous about the future value of most other fiat currencies, that gold will be at its most attractive.

Such a time is what we are going through now. Many systemically important central banks have expanded their base money stocks and balance sheets massively. The Fed has doubled the size of its balance sheet. The Bank of England has tripled the size of its balance sheet. Many central banks have bought vast amounts of public debt. In the UK, out of the initial £175 bn of quantitative easing, as much as £173 was spent on gilts. The Fed has purchased only about €300 bn worth of Treasury securities, but has acquired a much larger amount of Treasury-guaranteed agency debt. Although in most of the overdeveloped world (except the UK), deflation is the immediate threat, there is a medium and long-term threat of much higher inflation in all countries with enlarged central bank balance sheets and the prospect of large future fiscal deficits. The great advantage to investors of gold is that, although it is not intrinsically valuable, it is very costly to increase its stock. The tap can be opened at the drop of a hat for fiat paper and electronic currency. The tap produces never more than a trickle in the case of gold.

So when fiscal incontinence threatens price stability in some of the main industrial countries (especially the US and the UK) because the central banks in these countries may be forced to monetise both the stock and large new net flows of public debt, the one fiat money whose quantity cannot be varied at will by a monetary authority will do well. We see that with gold today. We also see that, to a lesser degree, in the strength of the euro. The ECB is by far the most independent of the leading central banks. They also have a heavily asymmetric de-facto interpretation of price stability: inflation is unacceptable, deflation is OK. So until the risk of serious inflation is removed from the medium-term outlook for the US, the UK and other fiat currencies, gold will be a relatively attractive store of value despite the cost of storing it.

The gold bug’s nightmare
An economy with fiat money can have many different equilibria. To make the point as clearly and simply as possible, consider a stationary economy. Population, endowments, technology, government spending, taxes and preferences are constant. The government budget is balanced. Prices are flexible. There is a constant stock of fiat money (which could be paper money, gold, Rai or pet rocks. This fiat money is perfectly durable and therefore can serve as a store of value. It pays no interest. Assume that, for whatever reason, society prefers it (or even has decided to require) it as a medium of exchange or means of payment.

With a bit of further work, such an economy will have an equilibrium with a positive, constant price of money (a constant general price level). Economists call this the fundamental equilibrium. This stationary economy will, however, also have many other (in fact infinitely many other) non-stationary equilibria, called (speculative) bubbles. They always have equilibria in which the value of money starts at a positive value but falls steadily towards zero - the general price level rises without bound even though the quantity of money is constant. The holders of money anticipate the future inflation and reduce the real stock of money balances they want to hold. This further increases the actual and expected rate of inflation, and the real stock of money balances goes to zero: the general price level goes to infinity or the price of money goes to zero. We have Zimbabwe.

What is often ignored is that this economy has an equilibrium that is even more ‘fundamental’ than the fundamental equilibrium. That is the equilibrium in which the price of money is zero in every period, not just in the long run (as with the speculative inflationary bubble equilibria). Remember, fiat money, including gold, is intrinsically useless. It has value only because people believe it to have value. If everyone expects that money will have no value in the next period, it will have no value this period, because no-one will be willing to take receipt of money to carry it into the next period where it will be valueless. So fiat money with a zero value is always an (unfortunate) fundamental equilibrium.

I would actually call it the only fundamental equilibrium. All other equilibria with a positive price of money - an asset with no intrinsic value - are benign (relatively speaking) bubbles. The constant price of money (constant general price level) equilibrium is also a bubble, based entirely on belief and trust - a beneficial bootstrap equilibrium, lifting itself by its hair, like the Baron von Münchhausen. In a world with multiple fiat moneys, the zero value of money equilibrium lurks for each of the fiat currencies, including gold. Admittedly, as regards gold, so far so good. Gold has positive value. It has had positive value for nigh-on 6000 years. That must make it the longest-lasting bubble in human history. I don’t want to argue with a 6000-year old bubble. It may well be good for another 6000 years. Its value may go from $1,100 per fine ounce to $1,500 or $5,000 for all I know. But I would not invest more than a sliver of my wealth into something without intrinsic value, something whose positive value is based on nothing more than a set of self-confirming beliefs.

EU to demand hedge funds defer 60% of pay
Hedge funds and private equity firms could be forced to defer up to 60pc of their annual pay under proposals from the European Union, the Telegraph has learned. Sources in Brussels say that the European Commission's powerful Swedish contigent, which currently holds the rotating presidency of the EU, has concluded that the high-rolling managers should have 40pc of their “variable remuneration” spread over “at least three years”, and in cases where the “variable element is particularly high”, then 60pc of the pay should be deferred. The suggested rules are even tougher than those suggested by the EU to curb bank pay and will shock hedge fund managers, particularly those in London, where 80pc of the alternatives industry is based. The plans for bankers' pay, currently being debated by the EU parliament, would see a minimum of 40pc of bonuses deferred.

The proposals are part of the Swedish Council’s amendments to the EU’s controversial directive on alternative investment fund managers (AIFM) which will form a central pillar of Europe’s efforts to regulate hedge funds and private equity firms. But the sweeping proposals on pay - which critics say are an attempt to simply transfer the rules designed for bankers on to hedge fund managers and private equity bosses - will dismay the industry. There appears to be no reference to the complicated way private equity managers are remunerated, which includes a carry interest of 20pc only when the business they have invested in is sold.

“Much of the concern expressed on banking bonuses relates to the fact that many banks have been bailed out by governments around the world,” said Florence Lombard, executive director of the Alternative Investment Managers Association. “There is no single hedge fund in the world that has either been bailed out or received a handout.” The implications on “variable pay” could seriously hurt hedge fund managers who are normally paid a basic salary of £40,000 to £80,000 in the expectation that they will earn most of their money from successful trades. Hedge funds traditionally charge a 2pc management fee and 20pc performance fee. The attack on pay will be seen as a strong motivation for hedge funds and private equity firms, who are far more mobile than banks, to relocate off-shore.

BlueCrest Capital, one of London’s largest and most successful hedge funds, has become the latest to plan to move a significant proportion of its operations to Geneva amid growing concerns about regulatory interference. The industry believes it is being targeted for public retribution in the same way as investment bankers despite numerous reports confirming that they had nothing to do with the causes of the financial crisis. But there is growing support to restrict bumper pay in financial services. A hearing in Brussels this week was told by one witness that “in the same way that remuneration and fees structures caused the risks within the banks’’, the high levels of pay within hedge funds and private equity also posed a threat. The rest of the Swedish proposal is expected to be broadly supportive of the industry. Documents being circulated last month indicated that Sweden was determined to dilute the directive, including its proposals on borrowing limits and the “passport’’ system for non-European funds.

Barclays and HSBC upbeat on bad loans
Barclays and HSBC both reported good news on bad loans on Tuesday as their investment banking arms continued to drive growth. Barclays said it would resume payments to shareholders with a 1p per share dividend after its underlying profit more than doubled in the first nine months of 2009. The group also said that a better-than-expected economic environment meant that its loan impairments for the year as a whole would be at the lower end of a previously forecast £9bn-£9.6bn range after slowing in the third quarter.

The figures chimed with a later trading update from HSBC, which said underlying profit for the first nine months of the year had been stronger than its expectations at the start of the year, while loan impairment charges had fallen to their lowest quarterly level in over a year. “I believe the biggest jolt has now passed through the global economy. But it is too early to claim victory, especially while unemployment is still rising in the west,” said Michael Geoghegan, HSBC chief executive.

Shares in Barclays, which have rebounded vigorously in 2009, fell 2 per cent to 335?p in early morning trading on Tuesday. HSBC shares rose 4 per cent to 716.6p. Barclays’ statutory pre-tax profit for the first nine months of 2009 was £4.542bn, a 19 per cent decline on the figure reported for the first nine months of 2008. However, pre-tax profit was £4.413bn when distorting items such as one-off acquisition gains and debt buy-backs were stripped out, an increase of 116 per cent. For the third quarter of the year, Barclays’ pre-tax profit was £1.558bn, compared with £2.841bn in the third quarter of 2008, although underlying performance was again almost unrecognisably distorted by various accounting items, including a “movement on own credit” deduction resulting from fair value fluctuations linked to certain instruments it sells.

Barclays’ strong underlying performance was driven by Barclays Capital, its investment banking unit, whose pre-tax profit for the first nine months was £2.714bn, excluding an “own credit” charge. The group said it was too early to say how large the bonus payments would be for Barclays Capital’s employees. Chris Lucas, Barclays finance director, said the views of stakeholders such as employees, shareholders and the “broader community” would be taken into account when setting the bonuses. For the overall group, the nine-month annualised loan loss rate was 136 basis points, against the 144 basis points for the first half of the year. Barclays said loan impairments were still expected to rise in the final quarter of the year, in line with seasonal trends.

The 1p per share interim dividend will be paid on December 11. The distribution will be the first since Barclays decided not to pay a final dividend for 2008, blaming increased regulatory capital requirements. HSBC provided fewer concrete figures in its update. It said pre-tax profit in the third quarter was “significantly ahead” of the same period of 2008, excluding fair value fluctuations related to its own debt. Its investment banking arm “maintained its record performance for the year to date”. At HSBC’s US consumer finance division – the black sheep of the group because of its exposure to subprime lending – loan impairment allowances declined in the third quarter in the first quarterly fall since the start of 2006, the group said.

Schumer: 8,600 homeless vets in upstate NY
Sen. Charles Schumer says there are about 8,600 homeless military veterans in upstate New York. The New York Democrat says that homelessness and mental health programs for veterans are starved for funding and aren't able to handle the increasing number of new vets who end up on the streets. He's calling for more money for those programs and for student loans to veterans. Schumer says Wednesday service members returning from Iraq and Afghanistan are falling into homelessness more quickly after their returns than vets of previous wars. He says many are also suffering psychological trauma. Federal data for 2008 show between 20 and 25 percent of homeless people in the U.S. are veterans.


Bukko Boomeranger said...

Re: the excess housing supply...

My thoughts trend all Starcade-y more than is mentally healthy for me. I'm wondering about massive levels of arson as a solution to that 1-in-7 unoccupied thing. Not that I'm recommending it.

But when I lived in Michigan's Upper Peninsula in the 1980s, the newspapers were full of stories about Devil's Night, an annual mass arson social phenomenon. Will it become "sport" in America to torch vacant houses, a non-homicidal way for kids to act out their anti-social impulses? And for those of a 9/11 Truther conspiratorial frame of mind, will this be covertly encouraged by the authorities as a way of eliminating the excesses?

I reckon the arson rate will be an important indicator of society's "temperature" in coming years.

Greenpa said...

Bukko: "Will it become "sport" in America to torch vacant houses, a non-homicidal way for kids to act out their anti-social impulses?"

I think it is equally likely that it will also become a sport to torch occupied houses of the tycoons, as a homicidal way for kids express their complete hopelessness.

Bukko Boomeranger said...

Greenpa said: I think it is equally likely that it will also become a sport to torch occupied houses of the tycoons, as a homicidal way for kids express their complete hopelessness.

One could hope so, in the spirit of social justice. But hoping for stuff like that brings bad karma. Plus I agree with Joe Bageant and many commenters here that Americans lack the sense of class resentment necessary to do such a thing. They're more likely to "kick down" at people of a lower social class, than to kick up against their "betters"...

el gallinazo said...


"And for those of a 9/11 Truther conspiratorial frame of mind, will this be covertly encouraged by the authorities as a way of eliminating the excesses?"

Do you think Obama will let Dick Cheney under the White House to orchestrate it?

jal said...

Timmy took care of the banking problem.

Fannie and Freddie are taking care of the immediate problem with housing.

The next urgent problem is unemployment.

: Joseph j7uy5 said...

Could this be real? Bloomberg makes it sound as though Barney Frank is serious about disaggregating TBTF banks:

"Kanjorski, a member of Frank’s panel and chairman of its capital markets subcommittee, would go further by allowing the U.S. to dismantle any large firm whose size and risk-taking threaten the financial system.

Frank supports both the Kanjorski and Perlmutter plans. “I believe both will be adopted,” he said on Nov. 3."

No. Legislation that would allow it is hardly the same as legislation that would require it. It is more likely that it is an effort to generate positive headlines and give the impression that Congress is doing something.

Still it might be enough to put the fear of God into those who are "doing God's work." Or fear of pitchforks into those who are doing pitchfork work.

What is amusing to me, though, is the efforts to lobby against the legislation, as expressed by the opponents:

"In fact, you couldn’t have had the assisted takeovers you had," Gramm, now a vice chairman at the investment bank division of UBS AG, Switzerland’s biggest bank by assets, said in a Nov. 10 telephone interview. "More institutions would have failed."

Notice how he conveniently omits mention of the problem of moral hazard, and the problem that regulators have in understanding -- much less regulating -- gigantic banks.

Bukko Boomeranger said...

El Buzzi said: Do you think Obama will let Dick Cheney under the White House to orchestrate it?

Sadly, Hopey is letting Snarlin' Dick manipulate him via the court of public intimidation almost as much as Cheney manipulated his prior puppet. Shotgun just has to pull the strings harder, with less cause/effect correlation. Would that it were different; that Obama was a man who could stand on his own...

Then I might have been able to repatriate to USAco instead of growing mould in sodden, chilly Canuckistan. (But seriously, Canadians, thank you for allowing me to live in your country and wipe your bums!) You got the better climatological choice of countries to flee to, mate. Hey, Dr. J! I saw the sun today! First time I've broken out my shades in the week we've been here.

Anonymous said...

The "9/11 truthers" now includes the senior counsel of the 9/11 Commission itself, as well as several members of the original commission. The Ground Truth: The Untold Story of America Under Attack on 9/11 (9781616375072): John Farmer, Patrick Lawlor

Governor Keane. who was a 9/11 Commission member, has stated that Farmer's book documents how every single thing the government told the Commission about the events of 9/11 turned out to be false. He, and other commission members have stated that there should have been a full criminal investigation into the events of 9/11 but the Bush administration blocked that. And then, as soon as they possibly could, they took the majority of the evidence, put it on a barge, dragged it out to sea, and dumped it in 14,000 feet of ocean to ensure that no one else could contradict the conclusion that they wanted published to the world.

What actually happened on 9/11? Farmer doesn't attempt to draw that conclusion. Instead he simply and forcefully proves that what you've been told by the US government so far is a lie.

Ventriloquist said...


Pledge of Subservience

I pledge Allegiance to the Fed
of the United States of America
and to the corruption for which it stands,
one nation under Goldman, easily divisible,
with criminal acts against all.

Mike "Mish" Shedlock


el gallinazo said...

Yes, Obama could change his name to Chainy, as in "Chains we can believe in."

el gallinazo said...

Denninger and others have shown beyond dispute that the dollar index and the S&P 500 are exactly inversely related, sometimes to within minutes. This does not necessary prove a cause and effect relationship, but does imply one. Then the question becomes, which one is the tail and which one is the dog? If our "allies" force Uncle Ben to reverse his "strong dollar" death spiral policy, would it sink the S&P?

Some are implying that the international bond market is no longer the 800 pound gorilla which Slick Willie could not ignore, and that quantitation sleazing can go on indefinitely.

bluebird said...

Click for 20 minute interview

Minyanville Kevin Depew Q&A With Robert Prechter

scandia said...

Stoneleigh, I was plagued by ignorance last night keeping me from sleep! I found myself thinking about the many charts posted of late here and in other media, of trendlines and momentum.
Some of the charts show an extreme drop, straight down with a most unforgiving angle. Trendlines are less extreme.
My question is how can there be such extreme charts without momentum? How can there be volatility without momentum. How much momentum is required to be a game changer? Is there a theory to identify the point of unstoppable momentum or critical mass in the charts? It is generally held that accurate prediction is hit and miss so to speak. Is there a method using charting to at least measure momentum?
In TAE's early days I vaguely recall a mention of a chart reader( Sinclair?) that is held in very high esteem. Perhaps this man knows how to assess momentum?
Perhaps looking in the FIRE sector for momentum is looking in the wrong place?
Am I asking the wrong questions?

Dr J said...

Hey yourself, Bukko! Welcome to Soviet Canukistan.
What's not to like about the rain? It translates into big snow at Whistler. They are opening tomorrow, two weeks early. Watch out for me and my nine-year-old son as we terrorize the slopes!

John Hemingway said...


Well, regarding the rain, you did move to BC in November, one of its worst months weather-wise. But then, as my brother in Vancouver once said about the area "it rains for a solid six months":-) My sister, on the other hand, (who lives in Seattle, with a similar annual rainfall) says that while the winters are seriously wet, the summers are stunningly beautiful.
I lived in Seattle for a year before I moved to Europe in the early '80s and I remember how amazed I was when the rain did stop and you could actually SEE all the mountains and lakes and forests that the Pacific Northwest is rightly famous for.

Ilargi said...

"Some are implying that the international bond market is no longer the 800 pound gorilla which Slick Willie could not ignore, and that quantitation sleazing can go on indefinitely."

And some are implying that the world will end in 2012. Also a tempting theory, and also not terribly bright or convincing.

Cassandra said...

TAE bang on the money:

From Zerohedge:

"The chart below demonstrates what the implied Fed Fund rate should be today based on the Taylor Rule: a whopping -6.15%! In other words, due to the Fed's inability to charge people money to hold monetary assets (negative rates), QE is expected to inflate assets to the point where the deteriorating economic data drowns out the implied negative number. In practice, the Taylor result means that the economy is still bogged down in a deep deflationary slump. One side effect: look for Excess Reserves to keep rising so long as the direct threat of deflation not wiping out trillions of bad debts at bank balance sheets, persists. Another side effect: look for the Fed's "assets" to start growing exponentially quite soon as the deflationary threat truly takes hold.

What few people realize and what is most troubling, is that despite the Fed's QE program, the current Taylor implied Fed Fund Rate of -6.15% is in fact lower than what it was in January 2009: as we discussed at the time, the Taylor implied rate then was a deja vuish -6%. And this was just as Ben Bernanke was finalizing the $1.7 trillion Quantitative Easing inflation/liquification program. It stands to reason that Quantitative Easing has been not only a failure, but has resulted in a monetary environment that is actually worse than it was at the peak of the crisis. That's what central planning intervention will do to an otherwise efficient economy."

Weaseldog said...

The legislation to allow the Fed to break up large financial institutions, would likely be used as a weapon to destroy competition for one or two gigantic banks.

As Goldman Sachs appears to be the owner of the Fed, or at least it's incestuous lover, this legislation would give GS the power to destroy any bank it perceives as a threat to it's interests.

Ventriloquist said...

el gallinazo said:

Some are implying that the international bond market is no longer the 800 pound gorilla which Slick Willie could not ignore, and that quantitation sleazing can go on indefinitely.

While nothing goes on indefinitely, if the jugglers are adept enough, they may be able to keep the plates spinning in the air for a lot longer than we think.

Within the past week or so the word is out that the G20 are now really getting worried about the USD death march, and how a total swan dive by the world's reserve currency would suck all the world's economies together into the black hole.

Forget the banks, the US itself is too big to fail.

It's easy to arrive at the conclusion that Timmy and Ben and Barack are fully cognizant of this. And that the rest of the G20 are our enablers, and will continue to be for as long as feasibly possible.

While there's much talk about coming up with an alternative reserve currency, be it some kind of super SDR or similar basket or "new world currency", it would take many years to truly implement. Therefore, it is in the rest of the world's best interest to prop up the dollar for as much time as it takes to make an orderly segue to an alternative.

In the interim, just like our government bails out the TBTF banks on the backs of the US taxpayers, the rest of the G20 are going to have to suck up the dwindling value of their USD holding, and bail out the US on the backs of their own countries' taxpayers.

Yep, is seems that T&B&B may have a pretty good scam going here.


Cassandra said...


Think there's a typo in the original article:

"One side effect: look for Excess Reserves to keep rising so long as the direct threat of deflation not wiping out trillions of bad debts at bank balance sheets, persists."

Should be threat of inflation methinks?

Hombre said...

Board - Have I got a deal for you!
As you read in the post, Willem Buiter refers to gold as "...a barbarous relic" and a "fiat commodity" etc.

So, since I consider all of you my friends, I hereby gladly and willingly offer to take all of the barbarous relics and fiat commodities you have off your hands. I will even pay for the postage and shipping insurance!

Greenpa said...

Bukko: "Plus I agree with Joe Bageant and many commenters here that Americans lack the sense of class resentment necessary to do such a thing."

well- you might want to ask a young black or chicano in downtown Chicago, St. Louis, Kansas City, Dallas, Los Angeles, or New York about that.

jal said...

Obama and the boys are in Asia.

What would it cost the US to get China to increase its $ by 01%?
What is 01% of their US$ reserve?

What does the US have to sell?
01% is a lot of money?
What would the Chinese want?

Would buying short term bonds from the 10 failing states, say at 7%, be a good trade? For China of course!

Hombre said...

Bluebird - I watched/listened to the Prechter interview 19 minutes. His explanations and rationale appear quite studied and he is very confident in discussing them. Obviously a smart guy. I know the Stonelady thinks highly of him, which is why I took a look.

I am puzzled as to why then he never brings the notion of "peak" anything into the picture.

He indicated concerning the current deflationary period that we will go through this tough time for 4 or 5 years then come out the other side and go about business as usual! (paraphrasing somewhat)

Has anyone heard him discuss peak resources?

Punxsutawney said...

I have a question if Ilargi will permit it. My wife likes practical gifts, bless her heart, and wants a battery charger for Christmas. We use mostly AA & AAA’s for our bike lights, headlamps and flashlights. I know there was discussion some time ago about the best chargers and rechargeable batteries. Any opinions that people have would be much appreciated.

Bukko – you will get used to the rain. I live in the NW in part because it’s cool and wet. And the summers are the most pleasant in the entire country imho.

Coy Ote – On your kind offer, afraid I’ll have to pass on it, maybe next year ;)

Hombre said...

David - "...And that the rest of the G20 are our enablers, and will continue to be for as long as feasibly possible."

You made some interesting points about why the big G-nos. enabling us for their own safety. But This dinosaur is not only bloated and weak... it is really sick (corrupted) and traditional remedies may no longer work as well, if at all. We're PEAKed.

Jal - Maybe the Chains we can believe in boys (re:El G) are lubricating the chains connecting Asia to us! -- You know, greasing the palms of the enablers! ;-)

Ruben said...

Hey Bukko,

You know what Canada has that Oz doesn't? Water. Unfortunately, the US knows that too, so don't make long term plans for the south--head north, like the mythic Canadians. Canada will be to the US what NZ will be to Australia--fighting back the parched refugees with cracked skin and sunburn.

Anonymous said...

The basic thesis continues that housing prices will decline, or even collapse, IF the federal government removes its various price support mechanisms through the Fed's multitude of overt & covert quantitative easing programs.

Note that I purposely include the Fed as a pseudo-agency of the federal government. It's high time we end the charade of pretending that it's in any way, shape or form an independent bank. This means that Congress controls the printing press.

So does anyone really think Congress (and let us also dispense of the canard that Congress is controlled by Wall St), um, that would be We The People, are going to take our collective foot off the peddle?

Oh, you say we can't do that because the markets are bigger than the US federal government/Fed, and that these types of blatant re-inflationary attempts will (eventually) force a bond market dislocation?

Well, what if the entire developed world (G20) is in the same boat? What if every central bank/foreign government is engaged in the same exact re-inflationary activities? Well, sure, these currencies would be destroyed as stores of value (witness the flight to gold), but as a means of exchange, nothing would change at all. Nothing.

Ok, so now we get to the good part. Why would the G20 countries be acting in concert to devalue their currencies in lock-step? That is, to collectively manage a de facto global currency comprised of certain constituent parts (ahem, cough, dollar & pound, cough) that desperately need to extinguish excess claims?

After all, Stoneleigh's primary contention is that there's insufficient trust between trading partners, and a general unwillingness to suborn sovereignty, in order to continue the globalization game going on much longer.

So why are they (that would be: CHINA) doing it? Increase trust? Decreased sovereignty? If you believe that, I've got a bridge to sell you. No, the only thing frustrating Stoneleigh's spot-on prognosis is that there's something in it for them.

What it is can be any assortment of motives. In fact, it really doesn't matter. All that matters is that China is letting us devalue. As long as they do, housing prices will stay stable. If/when they pull their support, Stoneleigh's predictions of deflationary collapse come true in all their horrific glory.

So watch China.

Ruben said...


Maha or La Crosse chargers, Eneloop batteries.


Ventriloquist said...

@ Coyote:

But This dinosaur is not only bloated and weak... it is really sick (corrupted) and traditional remedies may no longer work as well, if at all. We're PEAKed.

We are all peaked.

The G20, and indeed, most of the rest of the world, are all running irresponsible, credit-pumping, printing-press stimuli of various and sundry flavors. None of it will end well.

"We must, indeed, all hang together, or most assuredly we shall all hang separately."

-- Benjamin Franklin


Ilargi said...

"The basic thesis continues that housing prices will decline, or even collapse, IF the federal government removes its various price support mechanisms through the Fed's multitude of overt & covert quantitative easing programs."

Whose thesis is that? I don't think i've ever seen it here.

"Note that I purposely include the Fed as a pseudo-agency of the federal government. It's high time we end the charade of pretending that it's in any way, shape or form an independent bank. This means that Congress controls the printing press.

So does anyone really think Congress (and let us also dispense of the canard that Congress is controlled by Wall St),"

Three short paragraphs and you're way beyond any consideration for a serious response.

The level of "discussion" on this forum the past few days is quite deplorable. Everybody and their pet hamster seems to have cut, pasted and glued some grandiose theory of their own, which is then proudly presented as being of value to the world at large.

I wonder why that is. Is it a reaction to some sort of collective fear that makes people shy away from thinking straight? It's all far more interesting from a psychological point of view than from an economical or even political one.

There's a lot of so-and-so said this-and-that, and so it must or might be true. I think it would probably much more useful to ponder what he implications of Michael White's research might be for the economy and society as a whole.

Looking at his consensus model, some $4.2 trillion has evaporated from the US housing finance market to date, out of a $21.1 trillion total at peak, and more is yet to disappear than has been lost until now. Much of this involves highly leveraged "capital", conservatively 10-20 times.

Ventriloquist said...

@ Punxsutawney:

Try to get your hands on a solar battery charger.

I picked up one from Amazon about a year ago; it charges AAA, AA, C, and D batteries, and works like a charm. Three or four hours in direct sunlight, or 6-8 hours on an overcast day, and they are good to go.

And if you ever lose power, you will still be able to charge your batteries and continue using your electronics.

The brand I got is "CE", I have no knowledge about the company that manufactures it, except that it is made (where else) in China, has patents registered for China, Hong Kong, and Taiwan, and pending in the US. It was about $40. IIRC, and seems reasonably well-made.

And as Ruben says, Eneloop batteries are the showstoppers.


Anonymous said...

@Ilargi - "$4.2 trillion has evaporated from the US housing finance market to date, out of a $21.1 trillion total at peak, and more is yet to disappear than has been lost until now. Much of this involves highly leveraged "capital", conservatively 10-20 times.

Five words, courtesy of Larry Summers: "Little green pieces of paper."

What does the dollar (or any fiat currency) mean in the abstract? As a store of value, it may have once had meaning, but only if one believes that whatever phantom wealth that may have once existed was redeemable.

As a means of exchange, however, fiat currency means nothing whatsoever other than what respective trading parties agree for them to mean.

If I sell you my cat for $1b and you sell me your dog for $1b, voilà, we're both billionaires. I rush to collect from a 3rd party, but find out much to my chagrin that no one will redeem my IOU from Ilargi for $1b. Drat, I'm back to where I started, no richer nor poorer.

You can toss around $trillions all you like if that's what floats your boat. It doesn't impress or convince anyone who has even a modicum of financial or economic training.

Even commenters who don't have apparent backgrounds in these subjects are starting to observe that the G20 can extend this game for as long as they like as long as the respective trading parties are in consensus as to the end objectives ie devaluation & re-inflation.

There will be no deflationary collapse if the major players don't want there to be one. Steve Keen says the Fed would need to print $25T to make a dent; so what of it? Who is going to stop them, especially if all other parties are doing the same exact thing?

The only thing that happens is real savers get hosed. So what - they already lost their "$1b IOU". It was never collectible in the first place.

Your readership is catching up. Stoneleigh is correct regarding deflationary collapse only if her pessimistic opinions regarding trust & sovereignty hold true.

If the world decides to step away from the brink, then look for the dollar, as of today, to lose another 95% of its value.

Weaseldog said...

Snerfling said, "So does anyone really think Congress (and let us also dispense of the canard that Congress is controlled by Wall St), um, that would be We The People, are going to take our collective foot off the peddle?"

Congress follows the path of least resistance. They don't read the bills they vote on. the people they hang out with are mostly Washington insiders that buy them free dinners.

They listen to Wall Street, because Wall Street finances a team of lobbyists for each Congressman. These lobbyists spend their days, letting Congress know what they want. Further, they give money, gifts, prostitutes, take them on expensive trips and provide various other sundries to our representatives as a way of saying, "We're your real friends. We'll look after you."

The lobbyists actually write the bills. Congress doesn't write their own bills. Wall Street employs professional attorneys who spend their days writing new bills to submit to Congress and going over proposed legislation.

If the people want the same level of access, it's easy. Quit your job. Move to Washington. Treat members of congress to golfing trips, dinners at expensive restaurants. Take them on African Safaris! And while you're at it, draft the bills you want submitted and pass them along with your campaign contributions. Anyone can do this!

When the public outcry is loud enough, you'll see the mood of Congress shift. They need to see such a change as necessary to their well being.

Simply voting them out, has them taking up lobbying jobs until the next election. What gets done, changes little.

Now it's noble of you Snerfling, to argue that you and all of the rest of us are responsible for what Congress does. But it's not really your fault. Each congressman is responsible for their own actions.

When a congressman gets drunk and has a traffic accident. You aren't responsible. You can't be put on trial and go to jail for them. Likewise, you're not responsible for how they vote on the legislation that the lobbyists provide them.

And if you can't spend your days hanging with members of Congress while paying all of their expenses in fancy restaurants and buying them hookers in Reno, then don't expect that you'll have the influence of people who do that for a living.

el gallinazo said...


I think what may be aggravating you is that much of the board is focusing on the ploys of TPTB to avoid the inevitable. You, yourself have observed that the Fed and the treasury have managed to delay some overt symptoms of various collapses for a matter of some months by mortgaging the future of the taxpayers up to the hilt. Some of us are trying to get a grasp on the timing of the various crashes that are coming. The current central bank and treasury policies are creating a stalling action which will result, of course, in even greater systemic collapse once it starts. While this focus of the readers may frustrate you, it is only human to be concerned when certain dire events will hit the fan. The one thing that TPTB in the USA have been unable to delay at all is the real unemployment, and real unemployment is the engine driving future events IMO.

As to Michael White's analysis, most of us here agree that eventually real estate prices will drop to 10-20% of their peak value. And as every last mortgage goes under water, the banks must be declared insolvent. When a group of people are in agreement on something, they tend to discuss it less.

It is open knowledge that the world's central banks are in constant communication and various degrees of cooperation with each other. So it's not an outlandish thought to wonder what will happen regarding the threat of a bond dislocation to US treasuries if the central banks try to eviscerate their currencies synchronously. What other options do people and institutions have as to where to put their savings?

Wolf at the Door said...

"The level of "discussion" on this forum the past few days is quite deplorable. Everybody and their pet hamster seems to have cut, pasted and glued some grandiose theory of their own, which is then proudly presented as being of value to the world at large."

Now now Ilargi...what else are we supposed to do.....simply regurgitate your views and continuously compliment you on your outsized intelligence? That does not sound like much fun.

There are plenty of humans with well functioning grey matter that can analyze data and come to reasonable conclusions other than you and Stoneleigh, although I will conceed that you two are some of the best.....

Since most of the "disagreements" are centering around the idea of how long the PTB can keep things levitating why not put up a post explaining (for the slower members of your commentariat such as myself) your reasoning and illustrating the underlying dynamics that will cause the insolvency to be recognized and cause the much anticipated panic to occur in the remaining weeks of fall / early winter that we have left.....

A lot of people are expressing some variation of the theme that these manipulations can be extended for a long time to keep the markets and economy levitating. If everybody is accepting a pretend and extend model (which I never thought would fly for even one minute) what is there to trigger a panic in the short term?

Note....This is just a suggestion. I don't read everyday so if I missed this on a previous post I apologize.

YD said...

In regards to the gold as fiat article, I think he convincingly makes the point that Au would be the perfect fiat currency. If there is no more coming on line and it was "the money" then no inflation or deflation. Infinitely recyclable and unless the alchemist have figured out something new in the last 500 years static. That is not to say its implementations could not be sullied ala all previous coinage, but those weren't global economies. So until the space aliens started bringing in gold to spike the Terran market it should work nicely, no faith no trust just you have it or you don't. Of course given its quantities the coins would be mighty small.

Coy Ote-
I think Prechter thinks the Elliot waves are independent of peak anything. It is not that these resource limits are not at hand, but they don't matter in the unfolding of economic cycles. Maybe more accurate to say that the peak of the resource that underlies an economy is inherent in triggering an economies decline. Think Lebanese timber, Atlantic blubber etc. The Elliot wave may already account for significant die off, conservation and resource shifting. If these are the measure of herd movement, how can the herd not be affected by its changing environment and its interaction with it.

But beyond that maybe peak need not be all doom, maybe it will be the challenge that brings out the best of man and makes us sustainable, think about the excess and more than that the waste inherent in modern western industrial society. We could probably become 1000% more efficient, meaning we could have 90% of what we have now with only 10% of the resource.

As the old software 80/20 rule illustrates it is those last points of marginal increase that are most expensive. These are of course aggregates your individual results may vary. (Bangladesh will suffer more than Peoria, Arizona will suffer more that B.C.) I am not going to hold my breath but there is hope.

Besides, even the collapse of governments, currencies and societies still leaves some people as survivors (most of the time) and therefore trade and some form of economy. This becomes intrinsic to using a cycle to prognosticate beyond one market. Meaning you are trying to see the cycle beyond the collapse of the individual gov or market. (most of the data started with one market whether the DJIA or the Russian grain markets and then was extended either back to Rome and byzantine or across to other measures to make the cycle theory more universal) I take the elliot wave and cycle theories in general's point to be that these cycles unfold fractally that is both the beauty and the strength, the difficulty is just how that can be applied.

Even though you are enlightened that may not be enough, even the enlightened have to eat.

Anonymous said...

Wow, I wonder when my husband will lose his government job ...

"22 percent of Florida Mortgages Non-Current"

Starcade said...

Interesting question, though:

What is to say that even the 20% left of "value" can be maintained?

Bukko makes a great point. I forecast absolute breakdown -- no more US, no more dollar, none of it survives.

What someone like Denninger gets is the economic basis under which such a system would survive if the system were savable.

But there is so much excess _EVERYTHING_ in the system (except the resources on which the system runs) that the system itself (and everything which is dependent on it) can not survive.

That's why I do begin to wonder if there might be some encouragement for the roving masses who will have material control (on the local levels) to torch everything which the more regional powers that be (I do not believe there will be meaningful national PTB) declare expendable.

Imagine the amounts of fear that would set off in the populace just huddled, waiting for their deaths...

Now Greenpa is right too - but that will be more, to me, an earlier phase of it. I do believe that we will see, as the first leg of the absolute breakdown, that the people will go after the rich and basically try to kill them off. Basically, abject class war, and it's all a matter of just getting to "roll the dice, just one more time".

Bukko: Bageant is right, though I also wonder how much of _that_ is more a function of not wanting to be right, but wanting to be left. Because, if you're left, then, by definition, you're right.

Weaseldog: If TBTF ever falls, NO banks survive. They probably would try it to get it down to one or two national banks, but what they don't get is that the entire SYSTEM is _GONE_.

Gravity said...

Today the dutch media proudly touted an end to the recession, as quarterly growth was statisticized positively at 0.4%, despite every kind of spending being down, sales and price levels of housing still declining, unemployment still rising. While increased government expenditure provided all of the supposed growth, no one cares for such nuances, nor does anyone care to factor in the additional taxation that will be required to pay off the increased national debt.

The financial journalists here are typical desperate fools, statistically inept and ideologically opposed to the possibility of peak finance, oil or peak anything. I've heard people here suggesting that holland is above serious recession or depression cause we've got a solid middle-class which can't be harmed in any way, which is why housing prices must not be allowed to decline, ever.

Several completely superfluous projects concerning new roads and such are being accelerated, mainly by disregarding environmental standards and lenghty democratic procedures, as the government hopes this will yield multipliers somewhere or lead to new incentives to spend somehow.

The gov. is faithfully planning to expand the road network in expectation of increased traffic, because the consultancy structures commonly used to extrapolate long-term trends function as a sort of cargo-cult in this scheme, I reckon.

Starcade said...

And it is that degree of leverage, Ilargi, that makes the entire mess forever unsustainable, and hence why the entire system, not just single entities, collapse.

I'd like to know where some of these theories see the survivability of:

-- the present population
-- a currency
-- a government
-- social order

in the United States without all this "extend and pretend" BS...

el gallinazo said...


I was the dude who asked the question here a couple of months ago. I bought a La Crosse BC-9009 and couldn't be more pleased with it. The thing I like about it best is that the batteries are room temperature when they are charged. I could fry an egg on the last one, which of course is the kiss of death for batteries. It has four slots and you can mix AA with AAA, charge anywhere from 1-4, adjust the charge rate for each slot differently, and test the batteries for death. It comes with 4 each M+Hydride AAA and AA, and even four adapters that let's you use AA in a C device. I never buy things that use C batteries, but it was a nice thought. The manual can give you light reading for days if you are so inclined :-) I got it through ebay,and you can check my vender, who was the least expensive and quite prompt through:

eBay item # 260434711239


Today was my moving day and things didn't go great. My 1Mbps wifi, which was just installed and cost me a princely ransom, is downloading at 90 kbps. The landlady, a Gringa ex surfer in her 50's is turning out to be a piece of work, and then I just got an earthquake which was probably about 5.0. I have experienced slighter ones, but this is the first one where I really felt like the earth was a big ball of green and brown jello. But I guess that is good psychological preparation as we are all on shaky ground.

thethirdcoast said...

@ Punxsutawney:

I second the recommendation of Maha battery chargers. I've had decent luck with Accupower batteries, less luck with Tenergy batteries.

I've tried to run the Maha charger from a Solio, but the NE is a little light on sunlight. I'm assuming the NW is similar. I was recently trying to land a job out there, but I cratered the technical portions of the interview pretty deeply.

Regarding the truth-seeking at the beginning of the comment thread, I used to think that mattered. These days I'm much more cynical, and I feel that 99% of the US population is so alloyed to the dominant cultural matrix that even a smoking gun would fail to make a dent.

At this point I feel it makes more sense to prepare as best I can and fill a few breaks with games of "Bailout Wars" on my iPhone.

Hombre said...

darn it Ilargi...

"The level of "discussion" on this forum the past few days is quite deplorable. Everybody and their pet hamster seems to have cut, pasted and glued some grandiose theory of their own"

Just when I was going to take poetic license! Oh well, here goes anyway...

Bubble monster

A monster was trapped in a bubble
To burst it would be too much trouble

But to his surprise

He covered his eyes

And pop! It crashed into rubble

Greenpa said...


"Your readership is catching up. Stoneleigh is correct regarding deflationary collapse only if her pessimistic opinions regarding trust & sovereignty hold true."

lol. Now there, grasshoppers, is a complete giveaway that the writer is a paid disruptor.

A completely unjustified falsehood presented as fiat truth- followed by skillful damning with faint praise.

CIA- Disinforming The Public 203.

At least, Ilargi, they're not throwing the idiots at you anymore.

Hombre said...

YD - "I think Prechter thinks the Elliot waves are independent of peak anything."

Yes, I agree, or accept that.
My question is does this intelligent person, Precter, not understand and integrate peak resources at all? Anywhere in his thinking?
Just a personal query about him.

Ruben said...

Regarding the truth-seeking at the beginning of the comment thread, I used to think that mattered. These days I'm much more cynical, and I feel that 99% of the US population is so alloyed to the dominant cultural matrix that even a smoking gun would fail to make a dent.

I just finished reading a short paper which finds that people, rahter than being apathetic, as this comment may suggest (apologies if that is not your intent) are instead engaging in maladaptive coping strategies.

It is only a few pages, and is a good little read.

Josh said...

Herd Psychology Thesis is Wrong.

Herd optimism does not explain this rally. There has never been any herd optimism. Where do you derive evidence for herd optimism to explain the rally - CNBC? Wall Street Journal? Bloomberg? Please, give me a break. These mouthpieces exist to frame a circus-reality for the little people, not to convey reality.

The herd is pessimistic. The herd has been pessimistic all summer long and is still pessimistic today. There is no optimism. None of the professional traders believe this rally.

Evidence? 3-month T-bill yield = 0.063%. The Fed is not responsible at all for this nearly 0% yield. The fed follows the market. When traders are ready for risk, they'll sell 3 month T-Bills and yields will rise. Then and only then will the Fed raise rates - after the market does.

So, since the herd has been pessimistic all summer long (with its money parked in T-Bills) and the yet the markets still rose anyway, herd psychology doesn't explain the rally.

Global coordinated Central Bank/Government manipulation explains the synchronous and nearly identical movements of all world stock markets all around the world over at nearly exactly the same time frame. Global coordinated Central Bank/Government manipulation explains why the stock markets continue to push higher today. They must at all cost make the little people fear inflation so they'll spend and borrow and post collateral on whatever they still own.

When will it end? No way to know since we don't have the inside scoop on Global Central Bank/Gov manipulation scheme. Probably won't end until global employment starts improving later this year.

Herd psychology doesn't explain anything anymore.

el gallinazo said...

The universe grows like a bubble
So said the deep thinker Hubble
Then Einstein chimed
Compound interest is primed
To convert wealth to infinity doubled

carpe diem said...

Coy Ote,

Oh please!!! poetic schmoetic.

Go read some John Keats.


scandia said...

@thethirdcoast said "...even a smoking gun would fail to make a dent."
I really thought the news from the IEA whistleblower would have folks in a panic. I don't see any impact on the market. Noone I know mentions it, isn't interested or alert to the implications when I mention it.
This truly amazes me. It may influence the decisions at the Copenhagen summit. We'll see...

el gallinazo said...

For your reading pleasure:

Only Hendry can tie deflation and suckers rallies into poor Vemeer forgeries that fooled the Nazi war machine :-)

andrew said...

The capitalist economy of the United States no longer has the capacity to maintain a public school system.

For that matter, public health care (Medicare/Medicaid) and a public program of old-age and survivors insurance (Social Security) will be sacrificed in the coming year for the sake of the US military's war making capacity and our Chinese creditors. Today the Obama Administration floated the idea of a federal spending freeze in 2010 in pursuit of that ruling class policy decision.

Only one question looms before the people of the US now. Will we have public schools, national health care, and Social Security or will we have capitalism? Can't have both anymore.

VK said...

Two years ago on TOD Canada, Stoneleigh was putting up a guest post on Energy Decline and National GDP in 2050: The Growth of Destitution

And one year ago Ilargi was saying...

The bail-out plan will pay 50 cents on the dollar for paper that has no value. Perhaps paying 5 cents on the dollar would have been deemed acceptable and defensible (albeit under protest), but paying 10 times or more the realistic remaining value, and using taxpayer money to do it, is simply fraudulous. Keeping AIG alive was already an incomprehensible decision from a long term point of view. Stuffing the carcass with US taxpayer dollars, in order to support the other walking dead, is perverted necrophilia. And I don't think having intercourse with corpses is all that popular among Americans.

and this from Nov 11 2008,

The US government is bankrupting its economy with these wild bailouts of Paulson and Cheney cronies. It needs to focus on saving businesses that could still be saved. That does not include AIG, GM, Citigroup or even Goldman Sachs in its present form. Bailing out these firms doesn't just cost $100's of billions, it also drives down whatever confidence and trust in the US still exists around the world. And the US is like an old lady that pees in her pants and shakes too much to lift a fork to her mouth: utterly dependent on 24/7 assistance.

As I said before, it's the Treasuries and bond market that they have to look at. There's no such thing as a limitless source of money, whether in printing presses or in helicopters, as long as the US depends on international bond markets to purchase its government-guaranteed paper. Don't forget that many parties around the globe are first of all looking with wary eyes at the developments in US domestic markets, and second, have huge issues at home.

M said...

Since this is goofy theory day I will offer up my own…

In my opinion, we’re experiencing financial Cubism, and not the further extending of a distant horizon line. In other words, the receding horizon line is now the rapidly approaching wall that has arrived. As a result, formerly closed forms ( financial / economic instruments) have ruptured due to compressive forces and are now moving horizontally within a very narrow width of constrained space. Similar to the flattened picture plane of Cubism, the ability to manipulate and maneuver within compressed confines is a result of simultaneous perspective adaptations. Like a Picasso or Braque depiction, we are witnessing complex arrangements and omni-directional perspectives that attempt to apprehend a composite view of the situation as if actually moving around it. However, there is no longer the room to move around and take in all views and all angles. Thus, an impoverished and compressed vision attempts to compensate with complex projections. And to just keep moving, if only side to side.

In my opinion, this ultimately will end up as the equivalent of a delimited and bare bones Piet Mondrian picture as the states and municipalities are discovering. Clutter is not a good prescription for declining "space."

But for those holding on to the idea of a distant and ever-receding horizon that continues to enable expansive options... out there where the rubber meets the road employment and wages will ultimately determine housing prices. Which is why housing prices will fall and why the picture plane will remain compressed and marginalized despite the best moves of the fancy dancers moving sideways under the weight of compressive forces.

Ric said...

Drove into LA this morning to see Mike Ruppert's Collapse--and want to give some fast impressions.

Thoroughly enjoyed watching how he dealt with Smith's (the director's) questions. Like many here I've work as hard as I can preparing physically, mentally, and spiritually to the transition--much of this work includes speaking with students, colleagues, neighbors, and family. Seeing how Mike responded to the same questions we all meet everyday was fascinating.

Mike is an ethical reasoner--he works things out based on what's ethically right. One of the most poignant moments in the movie was when he became angry when Smith asked why he just didn't "walk away" from the whole issue, especially since it's taken such a toll on his life. Mike became indignant at the thought. "If you were a German in 1933 and you knew what was coming, would you walk away?" he asked furiously, as though the idea were inconceivable. Yet, when I think about the people I've talked about these issues with over the years, I can easily imagine 80% walking way, as most my students and colleagues are pragmatic reasoners--they work things out based on what will work, what will help them gain a personal advantage; what is "right" comes in a distant second.

Part of what's so engaging about the movie is that Mike displays the impassioned, righteous, fury of an Old Testament prophet. He's leaving middle-age, forced to confront his professional, emotional, and physical limits in a world that doesn't want to hear what he has to offer. But how can the world hear? In essence, the task for those driven to articulate these issues is how to express the beauty, purpose, and dignity in die-off. This is THE problem for those of us past middle-age as we face our personal decline--and now the challenge of our civilization.

Unknown said...


To pick up on one of El G's points:

"When a group of people are in agreement on something, they tend to discuss it less."

For almost 2 years, the two of you have eloquently discussed the political/economic problems that confront us. However, not nearly enough discussion has gone into explaining the central issue that interests your readers today: the markets (commodity, equity, and bond) march higher and higher. How that's possible deserves much greater examination. It's frankly much more interesting because the other topics have been addressed. The simplistic notion that governments and central banks don't control these events doesn't seem to give with the reality. I like snerfling's point: If all the governments agree to print like mad simultaneously, why can't they overwhelm the debt issue. If the alternative is mad max, the course of action is obvious. Central bankers around the world hold hands and print together until the debts are paid. Since everyone is devaluing simultaneously, there aren't any sudden currency dislocations. There's no inflation because there's no significant money multiplier. The money goes into the black holes all around the world and when the black hole is finally full, the system is reset for another expansion.

thethirdcoast said...

Here's a bit of fun Friday night reading from our friend Arom Ralston at The Nation:

How the US Funds the Taliban

"In this grotesque carnival, the US military's contractors are forced to pay suspected insurgents to protect American supply routes. It is an accepted fact of the military logistics operation in Afghanistan that the US government funds the very forces American troops are fighting. And it is a deadly irony, because these funds add up to a huge amount of money for the Taliban. "It's a big part of their income," one of the top Afghan government security officials told The Nation in an interview. In fact, US military officials in Kabul estimate that a minimum of 10 percent of the Pentagon's logistics contracts--hundreds of millions of dollars--consists of payments to insurgents."

What an utter farce.

Ventriloquist said...

El Gallizano --

Panama?!? I thought you were in Costa Rica? They've been observing you over the Panama Canal since 2004! And, not only that . . .!

Rosabel Miró, directora ejecutiva de la Sociedad Audubon, que se dedica a la observación de aves, explicó la organización cuenta desde 2004 las aves rapaces que vuelan en estos meses.

Destacó que se estima que alrededor de tres millones de aves sobrevuelan en el área cercana al Canal de Panamá.

Según la experta, algunas de las aves, entre las cuales hay especies de gavilanes y el gallizano cabecirrojo.

Well, and that from the Audubon Society! You've been sneaking down there in drag for five years now!

Well, El G I'm so PROUD of you! Your wings spread far and wide!


jal said...

Things are really improving ... only 3 BANKS FAILED.


Bukko Boomeranger said...

Ruben said: You know what Canada has that Oz doesn't? Water. Unfortunately, the US knows that too, so don't make long term plans for the south--head north, like the mythic Canadians. Canada will be to the US what NZ will be to Australia--fighting back the parched refugees with cracked skin and sunburn.

I did a quick dash through New Zealand in early October because I wanted to see it before we left the Southern Hemisphere. (Note to anyone thinking of touring En Zed -- do NOT think you can do it justice in four days! Those islands are WAY bigger than they look on a map...)

After seeing the jagged, snow-capped mountains of New Zealand, and the rivers with so much water that they had eddies, it was shocking to return to Oz. The "Great Dividing Range" was barely more than wrinkles in a blanket by comparison. As the plane descended on Tullamarine Airport, I could see these places on the flat landscape that looked like fingernail gouges filled with brown water. These were the "dams" (Aussie for "farm ponds") that keep the stock alive. Compared to gushing New Zealand, it seemed so sad, and that was after Victoria had had a wet winter. It was another representation of how close Australia is to the edge.

That was one of the reasons I didn't resist Mrs. Bukko's desire to move to Canada. While I loved Australia, I can see problems on the horizon. My worry is that I'm looking too far into the future, and am missing good times closer at hand. As may many doomers. Are we screwing up our lives in the next year or two because we're anticipating hard times that might not arrive for 5 or 10 years?

P.S. You've moved to Melbourne, right Ruben? Make sure you go to Balha's on Sydney Road in Brunswick for the best Arab sweets that I've ever eaten, and if you like Turkish food, al-Asya restaurant not far down the street from Balha's is excellent. And the Phoenician grocery store across from Balha's is a good source of Middle Eastern foods plus they make nice Lebanese pizzas...
Mate, I miss Melbourne!

Unknown said...

I'm trying to organize my life based upon some of the stuff you guys have said. I'm trying to get a handle on how extreme you think things are going to get.

Can you guys make some predictions for what the world will look like 1 year from today?

U3 unemployment = ?
U6 unemployment = ?
Median House Price (% decline) = ?
US Debt/GDP = ?
S&P500 = ?
Price of Oil = ?
Price of Gold = ?
Any major bank failures (JP Morgan, Citigroup, Wells Fargo, Bank of America, Goldman Sachs, Morgan Stanley) = ?
Bank Holidays = ?
Pension fund defaults = ?
Municipal bankruptcies (if yes who)?
State bankruptcies (if yes who)?
VAT Tax?
Higher or lower Income taxes?

Will entitlement (SS, medicare, medicaid) spending be cut?
Will we have seen major riots in Washington DC?

What countries will have defaulted on their sovereign debt?

Will we be beating the war drums?

Will we be at war?

Who will win the mid-term elections?

Will we still live in a Republic?

team10tim said...

RE: momentum

I haven't finished reading the comments, so I apologize if this has already been addressed.

Yes, you are asking the wrong question. Think of it like an avalanche triggered by a loud noise. It gains momentum as it progresses, but momentum is the result, not the cause.

The problem is a structural instability that keeps building and building. It will fail in a spectacular way at some point but that point isn't known until after the fact.

Riots and forest fires exhibit the same characteristics. A build up of social pressure or dead wood lays dormant until a strike of lightning ignites the situation.

After the fact we think that police shooting and unarmed kid caused the Greek riots or that lightning caused a the fire. But police shoot kids all the time and lightning is always striking the forest. It only starts a blaze when the conditions are ripe.

VK said...

@ Bukko

Don't forget Maha restaurant on a little alley of Flinders Street near Elizabeth and The World restaurant near Crown Casino :D Nice place that.

@ Jal

I tweeted about this earlier but the 3 banks failed at a huge cost, FDIC lost nearly a billion dollars!!

@ Those thinking that printing money is the answer

Take a look at the history of Weimar Germany or Zimbabwe much recently, hyperinflation can also pretty much decimate an economy. There is no easy way out of this collapse barring a complete change in the political system as Ilargi says so often. For the elites deflation really is preferable, buying back assets on cents on the dollar is a deal well done, hyperinflation cuts them off from international markets and oil supplies as nation's simply won't accept payment in paper for hard goods and services.

el gallinazo said...

Moderate earthquake shakes Costa Rica
Xinhua - Li Xianzhi - ‎12 hours ago‎
13 (Xinhua) -- A 5.1 magnitude earthquake shook Costa Rica Friday, without immediate report of victims and material damages. The Costa Rican Vulcanology and ...
One dead, two missing in Costa Rica earthquake TopNews

I think I may have a new profession. My butt was only 0.1 of a Richter point off. Think of all the expensive equipment my butt could replace.

David, as to Panama, perhaps a flyover in January, but doubt that I would go to the canal zone. This Gallinazo tries to stay in mountains near the equator.

And how did you come up with that clipping? Do you have a google alert on gallinazo. Not a bad idea to keep up with extended family matters.

M said...

Perhaps somebody will explain to me how the below might work:

“I like snerfling's point: If all the governments agree to print like mad simultaneously, why can't they overwhelm the debt issue.”

I’m no financial/economic whiz, but printing to pay off debt seems like the equivalent of remodeling to raise a ship’s ceiling height as water simultaneously pours in thru a gaping hole.

It’s still a race for breathing room, but compression is still the force that threatens to overwhelm even as the ceiling is being raised.

The ocean is not going away, and neither are the high winds, tell me how a distorted ceiling height survives the high winds and the ship itself remains afloat?

In my naïve little scenario, the only hope seems to be a race for dry land. But then the ship is no longer sailing and a period of drying out would be required.

I’m all eyes and ears here; I really have no academic clue. My sense of things is just feeling and intuition as well as experiencing the day by day real world.

Tell me how this goes?

bluebird said...

Fuser, or anyone who has the human powered generator

How do you like it? Does it really take 4 hours of hand-cranking to fully charge the storage battery? Or did you get the model to use with a bicycle?

For the same amount of money, why not get a small unit of solar panels/storage abttery, to save cranking time.

scandia said...

@team10tim...Thank-you so much for your response, specifically:
" momentum is the result,not the cause."
" the point isn't known until after the fact."
"it only starts a blaze when conditions are ripe."
I sure was on the wrong track thinking momentum is causal!
Remembering those stress test on banks awhile back... Someone must be looking for the breaking point of the system. I doubt their motivation is benevolent though.
I think they were wanting to know how far and for how long they can keep the ponzi game in play. I'd say with their insider information that they concluded it could go on longer than I think.
Things are smelling" ripe " to me.

LynnHarding said...

Ric - thanks so much for the review of Collapse. I don't own a TV so I can't get it on pay per view and I don't see that it is playing anywhere in Massachusetts where I live. If anyone here has a suggestion as to where it can be viewed, please post. I check this wonderful blog pretty frequently.

Littleboobynobody and others looking for specific predictions: there is a difference between forecasting and soothsaying. I can't imagine that we can continue much longer without an extreme dislocation but when or how or where - who knows? People living in tent cities without food, both here and abroad, would probably say that collapse had happened. I would say that it is happening all around us if we look. Furthermore, you cannot seriously suggest that central banks around the world are going to "hold hands" and maintain the supremacy of the United States when it ceases to be in their national interest. If you are asking "when will the ATMs refuse to yield up $$ and when will the markets run out of food" then no one can tell you exactly when, how, or even if. But...if someone has a clue, let us know. It is interesting to speculate, especially on a rainy day when one is warm and safe indoors.

Bigelow said...


Thanks for the review.

Anonymous said...

Sigh, I'm going to try one more time.

@VK - Weimar Germany & Zimbabwe merely prove Stoneleigh's thesis that individual countries cannot inflate their way to economic growth. I've never disputed this contention; acting alone, the US cannot devalue the $USD to prosperity.

However, those two examples fail to provide is any insight into what might occur in a closed system. That is, a de facto global currency where ALL major economies devalue their respective currencies in conjunction with each other.

In this scenario, the only losers are savers - including both holders of fiat currency AND those who have raw material "saved" in the earth. But here's the catch: the fiat holders already lost their savings. In fact, their excess claims (again h/t to Stoneleigh) could never hope to be collected/realized.

So all we're left with is real wealth holders. Gee, now how does a sheep feel when surrounded by 20 hungry wolves voting on what to have for dinner? Yeah, the world might object to the US expropriating ME oil production by itself, but what if all G20 countries reach an agreement as to what constitutes a "fair price" in order to keep the global economy moving?

As to compound interest, that merely gets reset in the next stage. If the G20 determine that their initial coordinated QE efforts have been successful (which, I think by any measure have been a roaring success - even to the point that I&S appear to believe that the herd is "optimistic", when in fact they have cynically, yet correctly, understood the market rally to be nothing more than re-inflation), then it will be time to take it the next level: a 10:1, 20:1, 50:1 devaluation.

Imagine this: Obama comes out smiling announcing that the G20 countries have reached an agreement on radical currency re-alignment. All those $trillions of freshly printed dollars are now mere billions. Everyone with an upside down mortgage is now once again "in the money".

Sure, there's a little catch - everyone's savings & pensions have been reduced to pennies. This means the grandparents have to move in with the kids, but hey, at least it's a house instead of a tent. That is where everyone would have wound up anyways in a deflationary collapse.

The take away observation is that people are going to do whatever they can to avoid catastrophe. Right now, the PTB are dancing around the edges of what has previously been polite behavior. As they become more desperate, the measures will become much more covert until it's finally admitted that all savers are toast and the dollar is going to 5% of its **current** value.

Anonymous said...


Thank you for sharing your thoughts on "Collapse." I'm looking forward to viewing the film.

I'm grateful for Michael Ruppert's work -- books, films, website, etc. His work is essential in understanding just how corrupt US politics really are.

jal said...

@ VK
“I tweeted about this earlier but the 3 banks failed at a huge cost, FDIC lost nearly a billion dollars!!”

RE.: Questions on failed banks
There is very little info for the public.
Who is making money
Who is loosing money

$27.4 million.
a loss-share transaction on approximately $1.9 billion
a loss-share transaction on approximately $656 million


The two branches of Pacific Coast National Bank will reopen on Monday.
As of August 31, 2009, Pacific Coast National Bank had total assets of $134.4 million and total deposits of approximately $130.9 million.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $27.4 million.
The 23 branches of Orion Bank will reopen during normal business hours as branches of IBERIABANK.
As of October 31, 2009, Orion Bank had total assets of $2.7 billion and total deposits of approximately $2.1 billion. The FDIC accepted a 1.5 percent discount from IBERIABANK on the deposits of the failed bank. In addition to assuming all of the deposits of the failed bank, IBERIABANK agreed to purchase $2.4 billion of the failed bank's assets. The FDIC retained the remaining assets for later disposition.

The FDIC and IBERIABANK entered into a loss-share transaction on approximately $1.9 billion of Orion Bank's assets.
The eleven branches of Century Bank, FSB will reopen during normal business hours as branches of IBERIABANK.

As of October 31, 2009, Century Bank, FSB had total assets of $728 million and total deposits of approximately $631 million. The FDIC accepted a 1.5 percent discount on the deposits of the failed bank from IBERIABANK. In addition to assuming all of the deposits of the failed bank, IBERIABANK agreed to purchase $706 million of the failed bank's assets. The FDIC retained the remaining assets for later disposition.

The FDIC and IBERIABANK entered into a loss-share transaction on approximately $656 million of Century Bank, FSB's assets.
Karl D. had a post on failed banks but it did not explain the details enough for me to understand and figure out the winners and the losers.

It looks like IBERIABANK is going to get bigger and make more money with all the loses taken by FDIC

LynnHarding said...

@Snerfling: 95% fall in the value of a dollar sounds like collapse to me. Please tell us what month that will be, or what day, if you know.

Fuser said...


I love it. I bought the hand crank version -though it has pedals and you can charge it the same way you would pedal a bike. It does take four hours to charge the battery fully or, if you have electricity, you can plug the battery into a wall outlet and it charges up very quickly.

It gives me some peace of mind in case of a prolonged power outage with rain. I live in a split level house and would lose quite a bit due to an inoperative sump pump.

I don’t know enough about solar panels to compare them to hand crank electric generation. If society doesn’t completely fall apart in the next few months –I’ll look into panels.

soundOfSilence said...


"I like snerfling's point: If all the governments agree to print like mad simultaneously, why can't they overwhelm the debt issue."

Why don't all members of the G20 just get out an eraser? That would "overwhelm" the numbers in a manner of speaking.

tabula rasa... here we come baby...

scandia said...

@snerfling and others...One has to consider the Goldman influence on Central gov'ts which supports the argument that they will act as one as opposed to opposing the US.
Mish makes a similar error in saying that the administration will start to cut spending in response to public concern about national debt levels. Perhaps but I don't believe the public has that kind of influence. The administration will obey the bankers/Goldman. I mean, why would the MO change at this time?

Joseph j7uy5 said...

RE: Who is making money
Who is loosing money

There are two parts to this: 1) Where does the FDIC insurance money come from and go to, and 2) Which banks (and stock/bond holders, creditors) make and lose money in these transactions.

Part 1) The FDIC fund comes from banks themselves. They all pay a fraction of their deposits into the FDIC fund, which is like car drivers paying into an auto insurance fund. So theoretically, when a bank fails, the depositors are repaid entirely with funds that the banking industry paid. So it is not a burden that is paid out of federal tax dollars.

The wrinkle is that the FDIC does not actually keep the insurance fund. The Treasury does, and the size of the fund is counted against the federal deficit. SO when the fund is depleted, it makes the deficit bigger. This is merely an accounting trick; it does not really change anything.

The other wrinkle is that the FDIC is almost out of money. It has a vast credit line with Treasury, so there is a chance that federal taxes will have to go to a bailout. If that happens, the idea is that the banking industry -- as a whole -- would pay it back, eventually.

Part 2) (I am less sure about this, somewhat correct me if I am wrong) When a bank is closed by federal regulators, the stock becomes worthless. Bondholders are creditors are paid as they would be in a bankruptcy, either getting a haircut, or getting nothing. The bank that takes over gets a larger customer base, some valuable assets (e.g. buildings and such), and some worthless assets (e.g. loans that are going to default someday). I have to assume they would not do it unless they thought they would eventually make money on the deal. The details of the deal are worked out on a case-by-case basis with regulators. Theoretically, the regulators try to get the best deal for the FDIC fund, but who knows how hard they try? Are there backroom deals, favoritism, bribes, kickbacks, etc. ? I tend to think not, but then, I wonder why I think that.

Then, I guess there is a part three. The part 3 would occur if there are credit default swaps that pay off when the institution fails. This is largely unknowable.

Ventriloquist said...

A fascinating speech by the Old Wizard himself:


Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency.

A fiat money system, like the ones we have today, can produce such claims without limit. To be sure, if a central bank produces too many, inflation will inexorably rise as will interest rates, and economic activity will inevitably be constrained by the misallocation of resources induced by inflation.

. . . . . . . .

With leveraging there will always exist a remote possibility of a chain reaction, a cascading sequence of defaults that will culminate in financial implosion if it proceeds unchecked. Only a central bank, with its unlimited power to create money, can with a high probability thwart such a process before it becomes destructive.

Hence, central banks will of necessity be drawn into becoming lenders of last resort. But implicit in the existence of such a role is that there will be some sort of allocation between the public and private sectors of the burden of risk of extreme outcomes. Thus, central banks are led to provide what essentially amounts to catastrophic financial insurance coverage. Such a public subsidy should be reserved for only the rarest of disasters. If the owners or managers of private financial institutions were to anticipate being propped up frequently by government support, it would only encourage reckless and irresponsible practices.

-- Alan Greenspan
January 14, 1997

TAE Summary said...

* Will Obama invite Dick back? Dickey manipulates Barky through press conferences; Obama delivers Chains you can believe in; Lubricated chains are easier on the sprockets

* The Boyz
- Have fixed banking and housing are under control; Now for unemployment
- May be able to keep the plates in the air indefinitely as long as people believe the plates are in the air
- May get Barney to give them more power so they can better assist those doing G-d's work to spread their gospel

* BC is rainy in November; Rain is skookum but snow is skookumer; AZ and Oz wish they had some; Go north, young man, go north

* USD and S&P have hyperbolic relationship; Some lose sleep over charts

* Gold, slavery and polygamy are relics of barbarism and should be prohibited by congress; Gold is the perfect fiat currency; It is static and doesn't wear out; Coins would need to be small

* Prechter doesn't believe in peaks; Eliot waves are not peak aware; We are all peaked

* The march of the markets deserves more discussion; First annual Goofy Theory Day; TAE comments are full of theoretical sound and fury; Too many cry "lo here" and "lo there" and contend for their own ideas; No economic chart or data is of private interpretation; Straighten up and think right

* For Sale: Snerfling's cat - $1,000,000,000 OBO

* Deflationary collapse will require the consent of TPTB; Damn the savers, full speed ahead

* Congress follows that path of least resistance; Lobbyist write our legislation; To fix congress, quit your job and schnmooze congressmen full time; Voting congress out is replacing interchangeable parts

* There is excess everything in the system; We have reached peak excesss

* American have enough class resentment to lynch illegals but too little to hang the banksters; Burning vacant houses for fun and profit; People will kill the rich; The world will end in 2012 to be replaced by a new heaven and new earth

* The herd is pessimistic; Traders don't trust the rally; Fear of inflation makes people buy; Herd psychology explains nothing

* US capitalism can no longer afford public schools; US must choose between the Great Society and Capitalism

* Note to I & S: Please predict the future in detail so I can organize my little life; Please be specific so as to minimize the risk of me stubbing my toe

* Sparks occur regularly; Conflagrations start after a build up of fuel

* My Country Used to Be

bluebird said...

@Fuser - that is good news. We have a gas powered generator for emergencies (no emergency yet), but if we're not able to get gas, then I was wanting another alternative to generate a bit of electricity. Spouse totally nixed the roof solar panels as way too expensive to buy for operating the whole house. So I was contemplating a few yard solar panels vs. the human powered generator.

Spouse could probably build a frame for the yard solar panels to raise them off the ground to keep the dogs from using them as launching ramps. But the human powered generator seems more 'productive'. I could strengthen the muscles in my arms or legs, while watching PBS. And I'd be storing energy for future needs. Thanks!

jal said...

Thanks Joseph j7uy5

Bloggers have been criticizing the main stream media for not doing investigating journalism.

How hard has life been made on the bank owners and managers that got seized by FDIC?

Are they destitute?

Did those bankers end up in jail?

Are they angry at FDIC?

Do they think that the FDIC unfairly took their business and gave it to their competitors?

There is enough material for a good book.

Anonymous said...


@ David

About the "CE" battery charger, look at it again because I strongly suspect that the brand is something else.

"CE" is a regulatory label for the EU meaning that the manufacturer has officially declared that the product complies with all EU directives/regulations and may therefore be legally marketed in the EU.

It may be that a brand "CE" also exists, but that would be a real source of confusion and I doubt the EU would allow a company to use the brand in Europe, particularly if the company used the same lettering ( as the label.

On a completely different topic, I look at the photo for today, at the architecture, and I wonder how much fossil fuel was used in Mexico in 1890.

I know, there is not much to compare. At that time, they were headed up, we are heading down, but still, I look at the photo and wonder what things will be like.


Gravity said...

"those two examples fail to provide any insight into what might occur in a closed system. That is, a de facto global currency where ALL major economies devalue their respective currencies in conjunction with each other."

Devaluation would occur in proportion to what part of that closed system? oil, preciousses?
Currencies have to devalue against some set metric, if not another currency, then some combination of commodities which cannot logically be contained inside that same currency system to be revalued against. I don't think a closed economic system can exist in that way, being inexorably coupled to inputs of revalued substance, the act of devaluation makes the system by definition open.

This is already a deflationary collapse, proceeding slowly, and should at some point turn into inflationary collapse, which won't change anything, its still inevitably societal collapse, catastrophe cannot be avoided by any monetary means or economic policy whatsoever.

The difference in energy dimensions between decades of debt-deflation and immediate ultra-infatuation are negligible to a certain point, slowly filling the debt hole or quickly lowering ground level to match the depth of the pit both result in utter poverty.

VK said...

@ Snerfling

Interesting thoughts, I hope to answer back to you once I am in a more sober state of mind :D

But from what I can tell we are all fu**ed in the long run, regardless of deflation or hyperinflation or whatever due to declining marginal returns on virtually everything - mainly on debt and energy.

Hombre said...

Snerfling - I claim no expertise here, but you made this statement in your world-wide currency devaluation scenario...

"In this scenario, the only losers are savers - including both holders of fiat currency AND those who have raw material "saved" in the earth."

Raw materials such as oil, bauxite, titanium, etc., have a fixed "real world" value do they not. Therefore in a world where all currencies are devalued in concert, these raw materials would be worth proportionately more of the same currencies.

Carpe Diem - I have read a bit of Keats, but my appreciation of pulchritudinous verbalizations has nearly diminished (at my age.) ;-)

Ric - Thanks. I too look forward to viewing "Collapse".

Board - ASPO article of interest!

Gravity said...

The society of Oceania in 1984 manages to function in perpetual deflation, the few times Winston actually purchases anything it's with crumpled dollar bills, old and worn by prolonged circulation, everythings priced low, even the rent of his room above the pawn shop is only four dollars a week.

The stats produced by the ministry of plenty make monetary exchange stable, the statistics themselves function as a transient store of value, a surrogate for actual productivity. With decreasing accuracy, their function as a medium of information exchange, concerning price-mechanisms, decreases as well, inversely correlated to their function as store of happy societal cohesion, which would break down if they were in any way accurate. The unstatistics spawned by real quotum-based central planning function in much the same way, as do our systems malquotations.

It should be a matter of national security to accurately report vital econometric stats, yet the actual economy has degenerated so far now it could be argued its a matter of natsec to misreport them, just to buy time.

NZSanctuary said...

Re: Optimism, people disregarding or not knowing about IEA whistleblower admissions, etc.

The (commonly considered) smartest people I know shrug off the financial crisis, the frank admission of the former UK Ambassador to Uzbekistan that the CIA is sending people there to be tortured to generate false intelligence, and things like the IEA changing it's tune about Peak Oil over the last couple of years.

They just don't think it's important, and I have difficulty raising any such subject with them. They are reluctant to discuss such things and just fall back on nonesense comments like "They'll figure somthing out", or deflect the focus of the topic to something they can make light of. The psychology of it is strange. People just prefer their fantasies.

Optimism in the current senario does not always refer to people thinking everything is great out there, but more often it is: (a) "It hasn't really affected me yet, so it isn't important," or (b) "It's hard now, but things will get better - they always do" (always being their limited experience of the last 1-4 decades, or course).

Ventriloquist said...


I think you are correct. The product package is simply labelled "Solar Battery Charger" Model no. ES907. And no manufacturer name or logo is given. I did some online digging and did find a page with the manufacturer, which had the same photograph that is on the product package.

However, I'm happy with the charger because it works as advertised, and a solar charger is a clean, dependable, and cost-effective way to charge your batteries.

Thanks for the CE info!


Jim R said...

Can you guys make some predictions for what the world will look like 1 year from today?

Sure, why not:
U3 unemployment = No longer officially tracked.
U6 unemployment = 65% per shadowstats.
Median House Price (% decline) = 40% measured in Krugerrands.
S&P500 = ~½ Krugerrand.
Price of Oil = 12 barrels/Krugerrand.
Price of Gold = 1.0 Krugerrand/OZ.
Any major bank failures (JP Morgan, Citigroup, Wells Fargo, Bank of America, Goldman Sachs, Morgan Stanley) = Yes but no one will care any longer.
Bank Holidays = Permanent.
Pension fund defaults = Yes.
Municipal bankruptcies (if yes who) Most of them.
State bankruptcies (if yes who) See above.
VAT Tax Whatever your local warlord cares to charge.
Higher or lower Income taxes In what currency?

Will entitlement (SS, medicare, medicaid) spending be cut Yes.
Will we have seen major riots in Washington DC Not publicized ones.

Your mileage may vary. Not to be used for investment strategies. Disclaimers, etc...

Gravity said...

Wait, its not a state of perpetual or enduring deflation in Oceania, but maximized or static deflation, mininimized unflation, assuming the lowest possible and unchanging price levels in perpetuity, which shouldn't be possible in a complex profit-based logistical chain without sequential price-removal or demonetisation of non-essential goods and services in circulation.

scrofulous said...

@el gelato

...and real unemployment is the engine driving future events IMO.

Who cares about the unemployed except for supermarkets that will be missing more shopping carts. Ever notice in the so called good times anyone giving much care about the unemployed? What's so different about twice as many unemployed now? Sorry but whatever is going to "drive future events" it won't be that. If I was looking I would look at those mortgages and try to find out what the limits are there to how long they can be hidden. What if any mechanism is there that would drive them to the surface, is there one? Hey and you too, ilargi, you have studied mortgages like Bernanke has studied The Crash,right? What exactly stops the bank from leaving them mouldering till the houses they represent rot where they stand, and then would even that do the trick?

Stoneleigh said...

El G,

Denninger and others have shown beyond dispute that the dollar index and the S&P 500 are exactly inversely related, sometimes to within minutes. This does not necessary prove a cause and effect relationship, but does imply one. Then the question becomes, which one is the tail and which one is the dog? If our "allies" force Uncle Ben to reverse his "strong dollar" death spiral policy, would it sink the S&P?

Neither one drives the other, but both are driven (in opposite directions) by the same changes in collective mood. Many other things are as well.

Stoneleigh said...

Coy Ote,

I am puzzled as to why then he never brings the notion of "peak" anything into the picture.

He indicated concerning the current deflationary period that we will go through this tough time for 4 or 5 years then come out the other side and go about business as usual! (paraphrasing somewhat)

Has anyone heard him discuss peak resources?

Prechter is great on pure finance (albeit more optimistic than I am), but don't look to him for a discussion of peak resources. He's inclined to think that 'peak talk' simply represents the fear that comes with a large-scale bear market. He even flirted with the notion of abiotic oil at one point.

Resource availability is his major blind spot IMO, but there's no one better on finance, so his work is still an important piece of the big picture.

Stoneleigh said...


Stoneleigh is correct regarding deflationary collapse only if her pessimistic opinions regarding trust & sovereignty hold true.

If the world decides to step away from the brink, then look for the dollar, as of today, to lose another 95% of its value.

Watch this space. Trust will evaporate with the next phase of the decline. I still maintain that there is no element of choice as to what is coming. The long rally makes people believe in the omnipotence of central authorities, but that perception will disappear quite quickly IMO.

Stoneleigh said...

Wolf at the Door,

A lot of people are expressing some variation of the theme that these manipulations can be extended for a long time to keep the markets and economy levitating. If everybody is accepting a pretend and extend model (which I never thought would fly for even one minute) what is there to trigger a panic in the short term?

A neither a trend reversal nor a panic needs a trigger. Market mood swings are endogenous, although something will typically be rationalized as a cause after the fact. Extend and pretend lasts as long as confidence holds up, but when confidence evaporates (of its own accord), that phase will be over until the next rally.

Stoneleigh said...

Lord Bacon,

The herd is pessimistic. The herd has been pessimistic all summer long and is still pessimistic today. There is no optimism. None of the professional traders believe this rally.

All things are relative. The herd is much more optimistic (or complacent if you prefer) than it was in March when the rally began. Just watch what happens to mood coincident with the next phase of the decline. We should see increasingly alarmed headlines, along with articles saying that it was obvious all along that this wasn't a real recovery. We are headed for a panic, and a much worse one than we have seen so far, although it will take time after a definitive peak for downward momentum to build up to that point.

By the way, I do not get my opinions from mainstream news sources.

Ruben said...

@ Bukko,

Nope I am in Vancouver, trying to convince the cool kids to move north, into central BC. So far, I am failing.

Ventriloquist said...


I think it was a wise choice for you to answer a number of the points that have been raised by contributors in the comments section during the last 24 hours.

Your ego is on a tight leash.

And we thank you for measured, rather than demeaning, sarcastic, responses.

Have a pleasant evening.


scrofulous said...

"Neither one drives the other, but both are driven (in opposite directions) by the same changes in collective mood. Many other things are as well."

Sounds like that would describe a teeter totter as well quite well.

As far as trust evaporating, it is presently baking in the cake. A recent 'letter to clients' I received speaks of an expected 10 to 15 percent correction. Not Armageddon perhaps but it would be a start and it is the sentiment that counts in these things isn't it?

EBrown said...

I hope it's not too much of a bubble burster but I believe you'd have to have the legs of a professional bicyclist in order to power a small television with a pedal generator. I am fit and can barely light a single standard lightbulb for any appreciable duration.

Haper's magazine this month has an interesting take on your point. The piece be Arthur Krystal is a book review of a recently released book on the Great Depression by Morris Dickstein. Dickstein proposes that once the ranks of the unemployed cross a certain threshold the cultural experience of "how the world is" changes. His thesis holds this is due to teh number of artists and writers and other "cultural" types that join the truly poor. Steinbeck's rotten teeth were cited as supportive of this perspective.

I understand where your thought process comes from. I'm a doomer by way of breeding (I blame my genes), and I rarely thought of the unemployed prior to the recent financial fallout. Now that more of my friends and colleagues have had time cut or totally lost their jobs I'm more aware of unemployment as a force unto itself. When U3 doubles from where it is now we will enter a paradigm not experienced in many a year.

EBrown said...

It's been a while since I managed to write a post here though I have pulled a bit of lurking. We just a bought a place in Upstate NY, we being me, my wife, my brother and his wife.

Since we refuse to take on debt we bought a run down old farm house with a barn, an equipment shed, and a newer pole building which was used for livestock during the winter. It is a lovely dump of a place in that it used to be a decent dairy, but the owner for the last 10 years did nothing to maintain and a lot to damage the place. I've spent every day off for the last month (since we finally closed) working to get the house up to snuff before cold weather arrives. The deep cold could arrive at any time and stay, so every day that goes by with temperatures above freezing is a blessing. Eradicating the odor of cat in all its various (horrible) forms is the highest priority. The previous owner didn't own a litter box and had somewhere near 20 cats in and around the house. I found not just one, but two, dead cats behind the moldering fridge when we pulled it out to dispose of. Cutting up the worst of the subfloors and priming like mad has done wonders, though today's damp weather brought out a whiff of dander or something stinky... I just need to put a touch more elbow grease into the sealing away before we go for laying a new floor int he living spaces.

I suppose that is a roundabout way of coming to my main point. For those of you considering purchasing a cheap rural place as your doomstead I say go for it. It requires an incredible amount of energy and about twice as much money as planned, but it is well worth the effort. I sure hope I feel the same way in two or three years...

el gallinazo said...


No fair using a magic 8 ball.

Stoneleigh said...


I think it was a wise choice for you to answer a number of the points that have been raised by contributors in the comments section during the last 24 hours.

Indeed so. I'm traveling at the moment though, so my ability to answer questions will be somewhat limited this week. I have two conferences and a trade show to deal with, and will be away from my computer most of the time for the next 5 days.

I'll try to keep up with the comments, but if I miss something, people may need to ask me again when I get back home (late next Friday). Ilargi is away as well at the moment, so there may be longer than usual gaps in comment moderation. I've been doing it this evening, in between bursts of activity on the presentation I'm supposed to be preparing.

Stoneleigh said...


Thanks for the update - a very graphic and interesting description! Being prepared to do that much work can save you a fortune in the long run, not to mention the peace of mind that comes with knowing you only have to pay property taxes and not a mortgage. Best of luck with the project and keep us in the loop when you can :)

el gallinazo said...


What do you think of Hugh Hendry's report to his fundholders?

Whether he is correct or not, I simply love the style in which it is done. More of these reports should include verses from Charlie and the Chocolate Factory and pictures of Bernie Madoff superimposed over GW on the one dollar bill.

He argues against the coming bond dislocation because, as you point out constantly, it would result in the financial engine running without oil. He maintains that perhaps the speculators are not that stupid. But the turtle bought the same argument when he agreed to ferry the scorpion across the river.

Fuser said...

Anyone remember that video Ilargi put up of that opera singer in black and white a few months back?

Fuser has a taste for it but can't remember ....

Stoneleigh said...


I think it was Maria Callas singing Tosca.

el gallinazo said...

I just got the following offer from JPMC today:

Dear Scabrous Bird,

"You make smart choices about handling money every day. And now, because of your good credit, we can offer you one more smart choice. Transfer your high-rate balances from store, credit or gas cards to your Chase credit card today."

And on these transferred balances, I would pay 0 % until August 2010 and then 1.99 % until Feb 2011. (Good thing they didn't write 2%; that would have been a deal breaker).

So with these rates that Uncle Ben only offers to his chosen people, I was thinking of entering carry trading, and pondering Aussie investments as Iceland doesn't seem to be making a comeback.

But then I zoomed the screen in Universal Access mode ( Steve Jobs is so good at coming up with these handles), and saw:

"At the end of the promotional period, your APR will be 12.65%. This rate will vary with the market based on the Prime Rate."

But surely I could dump my Aussie BBB- bonds before TSHTF.

And then:

"A fee of 4% ($5 minimum, No maximum) applies to the amount of each transaction from this offer. Each transaction is subject to a $30,000 maximum."

So they are going to hit me with 4% straight up and limit me to being a very small time hedge fund. Still, think of the prestige of entering the dollar carry trade. There must be a way to make the numbers work.

Unknown said...

You guys think about the future all the time. Why didn't anybody answer my predictions post? Give it a whirl.

scrofulous said...


. I sure hope I feel the same way in two or three years...

I think you will feel even better! There is nothing like an old house that one has put their efforts into. One house on 9 acres we bought, just over 15 years ago in the interior of British Columbia, had several builders and been originally built in 1907 with a log foundation. When we got it it had evolved into cement foundation with a great basement and three stories with two staircases side by side in opposite directions. What I found amusing was how the style of each person who had worked on the house was so identifiable. I have an old yardstick we found there that has two old local business telephone numbers. One was 87 for fruit and and the other was 178 for lumber. The only problem with the house was that it was in the wrong location and we missed the coast. I hope you have some good fruit trees that you are adding to. Fruit trees don't get built in half a year the way houses do now. Have fun.

M said...

Not meant to be condescending or paternal….but be very careful when cutting, removing, sanding floors ect…you never know what old materials might contain asbestos. I mention this respectfully, as I know how easy it is to forget about this sort of consideration. For example, a neighbor, who is having a new roof installed took a look up in the attic at the request of the roofer. When she opened the lid opening to the attic a bunch of insulation fell out…it was vermiculite…Yikes.

EBrown said...

I suspect I will like it more in a few years than I do now. My wife enjoys the renovating far less than I do, so once we get it livable it will become "my" project to improve. Our place is interesting in that it was a small house with adjacent summer kitchen/tool shed in the loft. At some point in the past the owners decided they needed more room and connected the two buildings.
They did a good job of joining the two buildings as it now looks like a classic NY farmhouse and one would not guess its strange genesis from a driveby glance. The tripartate dirt and stone foundation reveals much though...

EBrown said...

Warning heeded. We are careful. We wear respirators whenever there's dust, regardless of the constituent material. So far I haven't found asbestos based materials. The walls are old enough to have horsehair plaster over wood lathes and the floors are partical board over an older tongue and groove pine floor.

My wife is a potter and sculptor by trade and I'm an RN so we're quite concious of our delicate lungs. Silicosis is a nasty way to go.

Cendrine said...


If you haven't already tried this, you might consider Nature's Miracle, a non-toxic enzyme cleaner for pet stains. It is quite effective.

Did you remove all carpeting? I don't even want to imagine what 20 cats with no litter box can do to carpeting!

thethirdcoast said...

@ EBrown:

When you say "Upstate NY" do you mean northern NY state or western NY state?

It makes a huge difference, believe me.

NZSanctuary said...

Have spent the last few years contemplating family, with the death of parents, children being born, the coming localisation of communities, etc.

Read this comment at JHK:
"zzzzzz | NOVEMBER 10, 2009 2:38 PM | REPLY
asoka-his-pants sez:

"The nuclear family is the primary means of maintaining a sick society by indoctrinating children with its values."

What a fucking MORON. We find ourselves in the straights we are currently in not because of the nuclear family but because of the decline of the nuclear family. When over 50% of children are born out of wedlock the decline and rot are well underway."

While I am not sure of the full intent of the first poster's comment, the reply shows the common small-minded view of family that I encounter almost without fail when the subject comes up. Families should not be nuclear - mum and dad, and 2.5 kids. A family should ideally be: grandparents, parents, kids, cousins, aunts and uncles, plus the local community - a village of families that band together.

This is a difficult arrangement to achieve in modern society however.

My wife and I have been experimenting with semi communal living (it's not a proper commune, but there are a bunch of non-related kids and adults living together), even though we have our own munchkins, and although it is not ideal (I suspect primarily because we are all wedded to our own culturally ingrained hyper-individuality to some extent), it sure beats living just by ourselves.

I would be interested in other's experiences and pitfalls faced with communal living - I know it has been raised here recently by some.

EBrown said...

We used OdorXit to clean, but the biggest difference seemed to come after we sealed everything in with a high quality primer.

I mean a touch south of the Erie Canal, between Syracuse and Albany. We considered moving as far north as the Quebec border in VT as we have friends there, but ultimately decided to go slightly warmer. Also land is cheaper in rural NY than in VT because VT has a vacation/organic/hemp/hippie premium attached to it. Or so I believe.

Eric Lilius said...

Thanks for the charger reference.
Solar Battery Charger" Model no. ES907.

This appears to be a match

Hombre said...

StoneLady - (complimentary name variation) Thank you for the thoughtful response. I take your point on Mr. Prechter's financial predictive prowess.

It is easy for me to see why my gun-totin' millright friend here in town doesn't understand the concepts of EROEI and diminishing reserves of stored sunlight, etc. After all, he doesn't understand basic algebra!

What puzzles me is how any really brilliant person eg. Prechter, does not integrate something of this really fundamental reality into his worldview or economic prognosis.

Interesting indeed.

Hombre said...

DIYer - Agreed on all points but one, failure of municipalities.
The municipality of Shipshewanna, Indiana will not fail. (Amish)

Greenpa said...

Stoneleigh: "A neither a trend reversal nor a panic needs a trigger. Market mood swings are endogenous, although something will typically be rationalized as a cause after the fact."

True, of course, but difficult for many to comprehend or believe. We so desperately want to believe it makes sense, and things happen for reasons that we understand.

My own metaphor- it's like squeezing the trigger on a rifle. The endogenous mood swing is doing the squeezing- and little by little you get closer to the event. You may, indeed reach it purely by squeeze, so everyone is surprised when it goes off (ideal if you're actually shooting) - or; IF the squeeze is sufficiently advanced, and somebody sneezes behind you- the trigger may get jerked slightly sooner than if purely squeezed.

The end result is the same.

Greenpa said...

ok, ok, it's a simile, not a metaphor. I bite my elbow at you.

Jim R said...

Yeah, the Amish. Mennonites too -- we remember Harrison Ford in Witness and Lancaster, PA. They will eventually have to adjust to the unavailability of hydrocarbon fuels. It won't affect them as much as it does the rest of us, but it will affect them.

Predictions are easy; accurate ones, not so much. Sorry about feeding the troll, I couldn't help myself. Diarrhea of the keyboard and all.

One point that was made by, um I can't remember who just now, but it was in the ASPO talks a year or two ago, was that there's a correlation between the real economy and the supply of liquid hydrocarbons. In the '70s and '80s, a 1% drop in hydrocarbon supplies would result in a recession that shrinks the economy by 1%.

But right now we USians are blowing off a ridiculous excess from the "housing bubble", the remains of the "technology bubble" and we're just ramping up the "corruption bubble", so it's more than a divot in hydrocarbon supplies now ... your magic 8 ball's snarky answers may be about as good as anything.

john patrick said...

Snerfling/Gravity--thank you for the discussion on the "relativity" of inflation/deflation.

This has puzzled me, because past examples of each involve one country pitted against its neighbors. But now, it seems the entire globe is in the pot, all doing the same thing. It's like playing monopoly and everyone on the board gets additional money. The status quo remains the same, except the game is allowed to go on.

Unless... some get more than others?

Thanks, to everyone posting on this board.

el gallinazo said...

i was shopping for essentials in a local supermarket in my little city in Costa Rica. When I got to the cleanser/disinfectant section, the major local brand was TERROR with a picture of a happy baby on the label. What hath Darth Cheney wrought?

Ventriloquist said...

@ Eric Lilius

Yes, that is it exactly. Can't tell you what retail outlets offer it, but it's worth a search.


el gallinazo said...


The situation is a lot more complicated than Monopoly (which I haven't played in decades and am a bit fuzzy about the rules). In Monopoly, the only credit is your right to mortgage your property to the bank for a set amount. If you go bust after this, then you are out of the game. I believe that the bank then puts the properties back in the unsold pile, but the bank doesn't take a hit for the defaulted mortgage, and there is no drop in the money supply, which is a constant. On the contrary, since when you purchase a property, the money goes to the bank, a player default dropping out of the game, actually puts more money into the bank when a surviving player buys it.

Also there is no fractional reserve system in Monopoly, so you have no huge ratio in credit to money, and this makes it totally unrealistic in the present global economy.

Since credit is disintegrating, if I&S are correct that all the world's central banks are incapable of printing more money **and getting it into the system at a meaningful velocity** than the credit that is being beamed to an alternative universe, then it still doesn't matter much whether the global banks collaborate on the degree of their quantitative sleazing.

Two heavy hitters, Hendry and Mish, think that Japan's sovereign debt will blow up first of all the majors. This would skyrocket the dollar index, and realistically (as opposed the government manipulation) lower the interest on US treasuries. Hendry also puts forth that a remarkably small percentage of US savings is currently being invested in US sovereign debt compared to historical trends, thus much more room for growth. This could put off the US bond dislocation by having Japan sink under the water first. ( I think the psychic Edgar Cayce predicted it, about the same time that Atlantis was suppose to rise, but his prediction was geological - non financial :-)

If my reasoning is valid, I would very much look forward to observing the effect on the hedge funds and former investment banks participating in the dollar carry trade when Mt. Fuji blows.


I think your Magic 8 Ball predictions were excellent, but it didn't seem to register with our troll, as he recently protested that no one responded.

Ventriloquist said...

Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult, including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s essential to remember that “being too far ahead of your time is indistinguishable from being wrong.”) Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.

Howard Marks,
Oaktree Captital

Stoneleigh said...


I agree with Howard Marks. The closer we get to a rally top, the lonelier the contrarian position gets. More and more people capitulate to the prevailing trend until a sentiment extreme is reached and the trend reverses. Anticipating trend changes is tricky, but very important.

Gravity said...

Since curved volume harmonics embodied in gravirotationally dependent interreflexive capital flow-rates are governed by multivariant values of debt, a cataclysmic devaluation of debt so as to sufficiently diminish and render negligible the expressions of recursive vectored capital allocation must cause a retroactively compounded charge contravaluation of associated substance whereby all capital in the marketverse will become heavier in excessive exponential proportion to the weight of the nullified debt.

Whereas, in conjunction with the irrevocable degenerative state of planetary energy-ratio inverse inversion cascade, such morally normalised flat values of human labor could be rendered proportionately lighter in boundary states of sustained debt-deflation in comparison to static anti-capital bombardment, thus less readily resulting in negative marginal gains on added dronery drones, after collective dissociative psychosis thresholds past mass hysteria in accordance with inductive carrier-waves moving into hyperbolic cascade at 23%-28% tertiary energy dilation.

My working theory is that these are facts.

jal said...

Here is a start of investigative jornalism.

What happened to a bank owner after FDIC took over?

Did he become destitute?
Did he go to jail?

Jess S. Levin, President, Chairman of the Board & Chief Executive Officer

Down and out: When the Bank of Elmwood went under, so did its employees’ retirement funds

Behind the deal: How Tri City bought the Bank of Elmwood

Not business as usual at failed Racine bank

Regulators close Racine lender <|> Bank of Elmwood will become part of Tri City

Regulators close Bank of Elmwood

Chief Executive Officer and Chairman of Bank of Elmwood, Jess Levin, said that the economy should be blamed for the bank’s struggles and difficulties to meet the requirements. Levin also added in a released statement that the bank’s customers consist mostly of minority businesses and blue collar workers who are being hurt due to recession.

Racine Post

(Read the comment from the “locals”)
GEO Principle Blog

God in Every Occupation means purpose for every job -- even yours!

Christian outlook at work is about glorifying God
Reflecting the state of the economy, particularly in the real estate sector, more than 100 banks have failed so far this year. Two that were closed on Oct. 23 particularly caught my attention: Riverview Community Bank in Otsego, Minn., and Bank of Elmwood in Racine, Wis.
This story,,

gives you a pretty good idea of how Levin worked.
Jess Levin made Bank of Elmwood true ‘community bank’

Levin given role with Tri City National Bank
RACINE - The former Bank of Elmwood, which is now part of Tri City National Bank, still has a place for Jess Levin.
Monday Tri City Chief Executive Officer Ron Puetz said Levin had been named "community executive" for all former Bank of Elmwood sites.
"Jess has so much knowledge; he knows so many people," Puetz explained. "He'll begin with significant depositors and commercial borrowers, make the introductions and get us rolling in that relationship."
Levin's new post was announced to staff Monday, and he spent part of the day going around to the bank's branches to visit employees.
"He has already started working in that community executive role, and he started with our own staff," Puetz said. "He said some great things about us (Tri City), which helped me."

Hombre said...

I do not think being realistic in evaluating a position from every possible angle and a within a rigorously developed unbiased position is contrarian. But since I fit the common definition accept the term.

Anyone who has ever worked as a troubleshooter understands the necessity to search out every bit of information and validate it without bias or wishful thinking.

Having said that I am puzzled about one aspect of the current international predicament, and that is the several month upsurge in the Baltic Dry Index BDI.

With shipping companies losing money, some even bankrupt, and credit tighter than a wet drumskin, why is the BDI advancing above 4000? It doesn't fit with most of the other hard data?
Anyone want to kick that around, please do.

Contrary Coy ;-)

Anonymous said...

@ Gravity at 13.43

I follow you and concur up to the point where you mention the dronery drones. There, I think you mistyped, but I would appreciate confirmation on your part.

Also, I would extend your tertiary energy dilation range to 32%. What do you think?


Anonymous said...

RE Monopoly

What we see today is exactly what experienced gamers do when get they bored with the rules & regulations. They start making it more complicated, making side deals and hiding money.

Buffet buys B&O, but who will own the utilities?

Sure you can complicate it, but it doesn't change anything fundamental. As long as you're the payer, you can't win against the players.

Unknown said...

Nov. 15 (Bloomberg) -- Retail sales probably rebounded in October, production climbed and work began on more houses, allaying concern the U.S. expansion will unravel without the government’s help, economists said before reports this week.

Purchases rose 0.9 percent after dropping 1.5 percent in September, according to the median of 66 estimates in a Bloomberg News survey ahead of Commerce Department data tomorrow. Output rose for a fourth month and housing starts reached the highest level in a year, other figures may show.

Auto dealers last month saw demand improve even after the administration’s trade-in incentive expired, while the increase in construction showed builders weren’t deterred by the possible end of the first-time buyer credit. Rising exports to expanding economies in Asia and Europe may also spur increases in manufacturing, maintaining the pickup into 2010.

“The recovery seems increasingly sustainable,” Richard Berner, co-head of global economics for Morgan Stanley in New York, said in a report to clients. “Incoming data for consumer spending has been significantly stronger than expected.”

Gravity said...

I can see how the terminology might be confusing, since the general dronery of drones is distinct from the specialised function of dronery drones, who administer motivational stimuli throughout the facturated marketverse by means of adhesive droning which is used to facilitate differential moneyfolding of productivity in sterile droney drones, assuming a minimal anti-capital ratio of at least 400.000 megaPaulsons per cubic penny, translating into an approximate tertiary energy dilation of anywhere between 19%-36%, depending on conditions of flavored branespun colortype in the constituent con.

Ventriloquist said...

Coy Ote said:

With shipping companies losing money, some even bankrupt, and credit tighter than a wet drumskin, why is the BDI advancing above 4000? It doesn't fit with most of the other hard data?
Anyone want to kick that around, please do.

From what I've read elsewhere (several places, can't recall where ATM), the bulk of this current bulge in BDI shipping is coming from China's purchases of major quantities of raw materials they are steadily acquiring.

China is in the process of recycling their vast dollar holdings into hard assets, including enormous stockpiles of industrial metals and construction materials. These are being used to fuel massive infrastructure projects that are part of their current economic steroid stimulus buildouts.

And China is also locking down many future natural resource contracts in Africa and Asia to ensure a pipeline of materiel for years and decades to come, so this will affect shipping data for quite some time to come.

Of course when the world economy swan dives off the bridge at some point, then all those bets become null and void.