Wednesday, 7 January 2009


yo!...neither a lender no a borrower be...innit!

PALOOKAVILLE FINANCIAL stardate : capitulation day+105

...the story so far...

...paintybynumbers has told beulah that he has let the pension stash shrink by 7%...

...beulah has shot him inna head with a sawn off .45...


Willem Buiter warns of massive dollar collapse

Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.

..."The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."

He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise."

..."Schwartz warns against facile comparisons between today's world and the Gold Standard era. "This is nothing like the Depression. I don't really believe the economy as a whole is going to fall apart. Northern Rock has been the only episode of a bank failure so far," she says.

Over 4,000 US banks - a fifth - collapsed in the 1930s. There was no deposit insurance. Real economic output fell by a third, prices by a quarter, and unemployment reached a third. Real income fell by 11 per cent, 9 per cent, 18 per cent, and 3 per cent in the years to 1933.

According to Schwartz the original sin of the Bernanke-Greenspan Fed was to hold rates at 1 per cent from 2003 to June 2004, long after the dotcom bubble was over. "It is clear that monetary policy was too accommodative. Rates of 1 per cent were bound to encourage all kinds of risky behaviour," says Schwartz.

She is scornful of Greenspan's campaign to clear his name by blaming the bubble on an Asian saving glut, which purportedly created stimulus beyond the control of the Fed by driving down global bond rates. "This attempt to exculpate himself is not convincing. The Fed failed to confront something that was evident. It can't be blamed on global events," she says.

That mistake is behind us now. The lesson of the 1930s is that swift action is needed once the credit system starts to implode: when banks hoard money, refusing to pass on funds. The Fed must tear up the rule-book. Yet it has been hesitant for three months, relying on lubricants - not shock therapy.

"Liquidity doesn't do anything in this situation. It cannot deal with the underlying fear that lots of firms are going bankrupt," she says. Her view is fast spreading. Goldman Sachs issued a full-recession alert on Wednesday, predicting rates of 2.5 per cent by the third quarter. "Ben Bernanke should be making stronger statements and then backing them up with decisive easing," says Jan Hatzius, the bank's US economist.

Bernanke did indeed switch tack on Thursday. "We stand ready to take substantive additional action as needed," he says, warning of a "fragile situation". It follows a surge in December unemployment from 4.7 per cent to 5 per cent, the sharpest spike in a quarter century. Inflation fears are subsiding fast.

Bernanke insists that the Fed has leant the lesson from the catastrophic errors of the 1930s. At the late Milton Friedman's 90th birthday party, he apologised for the sins of his institutional forefathers. "Yes, we did it, we're very sorry, we won't do it again."

How to stop the recession

..."In recent speeches the Governor, Mervyn King, and the Deputy Governor, Charles Bean, have warned that – unless banks lend more to the private sector – the economy will not recover in 2009.

This credit-determines-spending doctrine is false and dangerous. The correct answer is for the government to replace the private sector in the credit process, and so to create new deposits by itself borrowing from the banks and increasing the quantity of money. Since the government has the power of taxation, its own credit-worthiness is not in doubt and it can borrow almost without limit from the banks.

In the first instance the proceeds of the banks' loans to the government would be credited to the government's deposit. But civil servants can then write cheques to the government's suppliers and add to the quantity of money. These suppliers may include some financially hard-pressed small companies, giving them immediate help. But the favourable effects of extra money should soon spread widely. Payments between different companies and individuals are on such a scale that all cash-strained companies ought to find it easier to improve their financial position.

We are of course opposed to an excessive rate of monetary growth, because that causes inflation, and favour sound public finances over the medium term. But large-scale government borrowing from the banks in early 2009 – of between, say, £50bn and £100bn – would be simple to organize given the enormous budget deficit now being incurred. That would quickly boost the quantity of money, easing the financial squeeze on British companies, and helping them to maintain jobs and investment."

Simple Logic vs. Paradox of Thrift

Simple logic would dictate that excessive spending and loose lending standards caused this crash so excessive spending and loose lending standards cannot possibly cure it. Indeed it is axiomatic that the problem cannot be the solution. The concept is so simple that Keynesian demagogues cannot see it.

Is there a Keynesian on the planet who can think more than one second ahead?

Paulson and the Keynesian fools want banks to lend. For what? What is it we need more of? Houses? Condos? Pizza Huts? Home Depots? Lowes? Nail salons? Strip Malls? Walmarts? And if by some miracle banks did lend that money and new stores were built, who is there to buy? What would happen then? Is the amount of money that can be thrown at problem unlimited? What about the problems that will create? Can problems be postponed forever? Is there a Keynesian on the planet who can think more than one second ahead?
Something For Nothing vs. Paradox of Deleveraging
Attempts to prop up the stock market, housing prices, and to stimulate lending, etc., are all doomed to fail.

The simple truth is that Keynesian economic theory is based on the same failed something for nothing theory of perpetual motion. Attempts to get something for nothing are a complete waste of both time and resources and thus can only make matters worse.
Let's look at this still another way. In Austrian economics terms, saving is what is left over (not consumed) from production.

Keynesian theory suggests you can have something today and tomorrow which is of course as preposterous as having your cake and eating it too. In simple terms one cannot consume what one does not produce, at least not forever.

Spending now will only borrow from future production. The United States has been doing that for decades and all we have to show for it is an exodus of manufacturing jobs from the United States to China, and a housing bubble of epic proportion.

There is no paradox. The United States has borrowed itself into oblivion. Consumers have finally seen the light and are attempting to save in spite of horrible economic policy encouraging them to do otherwise."

Mike "Mish" Shedlock

deadpetey : y'all should read the lot dudes...

vince : whahoppen? musky?

musky : paintbrush got shottin a head...

opkin : is he gon be OK?

spidah : shure...lucky vital he head man...

and this from the market ticker...

Break the momentum of the recession?

Mr. Obama, with all due respect, would you please stop lying?

See, I know full well that you're not one of the 99% of America that is too stupid (or simply uneducated) to understand exponents. And I certainly hope Michelle isn't, seeing as she has an advanced degree.

See, government caused this mess. That's right. It enabled people like Madoff, it conspired with the lenders, including Fannie and Freddie (the revolving door in DC with those two was not only incestuous it was outrageous and feckless besides) to pump asset values in a puerile attempt to prevent the recession in 2000 from working off credit excess and then to put a nice cherry on top of it government put in American's heads that they should just "go out and shop" after a terrorist attack - whether we had any money or not.

As a consequence what was a fairly serious recession that had to be suffered in 2000 was "kicked down the road" and due to the power of exponents has now turned into something far worse.

The "far worse" isn't an accident, it isn't a coincidence, and it isn't a part of the "natural business cycle." It was caused by the direct actions of government, including yours as a Senator.

I expected more from you, even though knowing you're a politician, my expectations were somewhat tempered. After all, we know that politicians are the easiest to read in terms of honesty any time their lips are moving: they're lying...."

1 comment:

  1. Prof. Benjamin Shalom Bernanke Exposed

    "The debate about the ultimate causes of the prolonged Japanese slump has been heated. There are questions, for example, about whether the Japanese economic model, constrained as it is by the inherent conservatism of a society that places so much value on consensus, is well-equippedto deal with the increasing pace of technological, social, and economic change we see in the world today.

    The problems of the Japanese banking system, for example, can be interpreted as arising in part from the collision of a traditional, relationship-based financial system with the forces of globalization, deregulation, and technological innovation (Hoshi and Kashyap, forthcoming). Indeed, it seems fairly safe to say that, in the long run, Japan’s economic success will depend largely on whether the country can achieve a structural transformation that increases its economic flexibility and openness to change, without sacrificing its traditional strengths.

    In the short-to-medium run, however, macroeconomic policy has played, and will continue to play, a major role in Japan’s macroeconomic (mis) fortunes. My focus in this essay will be on monetary policy in particular. Although it is not essential to the arguments I want to make—-which concern what monetary policy should do now, not what it has done in the past—-I tend to agree with the conventional wisdom that attributes much of Japan’s current dilemma to exceptionally poor monetary policy-making over the past fifteen years (see Bernanke and Gertler, 1999, for a formal econometric analysis).

    Among the more important monetary-policy mistakes were 1) the failure to tighten policy during 1987-89, despite evidence of growing inflationary pressures, a failure that contributed to the development of the “bubble economy”; 2) the apparent attempt to “prick” the stock market bubble in 1989-91, which helped to induce an asset-price crash; and 3) the failure to ease adequately during the 1991-94 period, as asset prices, the banking system, and the economy declined precipitously

    Bernanke and Gertler (1999) argue that if the Japanese monetary policy after 1985 had focused on stabilizing aggregate demand and inflation, rather than being distracted by the exchange rate or asset prices, the results would have been much better. Bank of Japan officials would not necessarily deny that monetary policy has some culpability for the current situation. But they would also argue that now, at least, the Bank of Japan is doing all it can to promote economic recovery.

    For example, in his vigorous defense of current Bank of Japan (BOJ) policies, Okina (1999, p. 1) applauds the “BOJ’s historically unprecedented accommodative monetary policy”. He refers, of course, to the fact that the BOJ has for some time now pursued a policy of setting the call rate, its instrument rate, virtually at zero, its practical floor. Having pushed monetary ease to 2 Posen (1998) discusses the somewhat spotty record of Japanese fiscal policy; see especially his Chapter 2.its seeming limit, what more could the BOJ do? Isn’t Japan stuck in what Keynes called a “liquidity trap”?

    I will argue here that, to the contrary, there is much that the Bank of Japan, in cooperation with other government agencies, could do to help promote economic recovery in Japan. Most of my arguments will not be new to the policy board and staff of the BOJ, which of course has discussed these questions extensively. However, their responses, when not confused or inconsistent, have generally relied on various technical or legal objections—- objections which, I will argue, could be overcome if the will to do so existed.

    My objective here is not to score academic debating points. Rather it is to try in a straightforward way to make the case that, far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism."

    Prof. Benjamin Shalom Bernanke
    Japanese Monetary Policy: A Case of Self-Induced Paralysis?
    For presentation at the ASSA meetings, Boston MA, January 9, 2000.

    A Credit Free, Free Market Economy will correct all of those dysfunctions.

    The alternative would be, on the long run, to wait for the physical destruction (through war or rust) of most of our productive assets. It will be at a cost none of us can afford to pay.

    In This Age of Turbulence People Want an Exit Strategy Out of Credit,

    An Adventure in a New World Economic Order.

    A Specific Application of Employment, Interest and Money [For Economists].

    Press release of my open letter to Chairman Ben S. Bernanke:

    Sorry, Chairman Ben S. Bernanke, But Quantitative Easing Won't Work.

    Yours Sincerely,

    MC Shalom P. Hamou
    Chief Economist & Master Conductor
    1776 - Annuit Cœptis.