Baseball91's Weblog

October 15, 2016

The Apprentice


I watched their two-hour show on who these candidates are, since the broadcast media mostly has such difficulty in an even-handed presentation of the two candidates for the Office of the President of the United States.

NSA logo The senseless leaders – Clinton-Trump. Dirty Harry. American can-do heroism? A clash of patriots? Blood poison? When you do not capture so very many . . .  voters.  So out of our leaders, what is missing? As a place is changing before our eyes, what will happen to people who idolize the new heroes? Or to this Land? 

“How dare THEY question!” Did you notice all the arrogance in Campaign 2016? It is the Age of “how dare they question.” And it seems fair that the kids who grew up believing in this New Age creed — with the mantra of this generation “How dare they judge!” — got these two candidates. What better memory would anyone have of this campaign but “How dare THEY question!” perspective of each candidate.  With the kind of attention from press and public that would inflate the ego of a weaker human, where is from the opportunity to question any candidate these days for public office, the much needed direct response to any question?

As ‘attack ads’ have been replaced by just attack. No matter the ages of the two nominees from the majority parties for president of the United States, the candidates are playing to the egregious generation so wounded in what they have come to know about American History. There is a reason that the issues will never be discussed in this election.  For an American generation carrying the egregious scars of September 11, 2001 and the 2008 financial crisis, in the political Olympics of the have’s and the have-not’s, there is the mental agony that is attached to being a hero, in the public’s eye. Most people carry around at different levels the poison of color, gender, belief in the normalizing middle-class perspective that comes out of Rome, of Mecca, or out from the Orthodox Slavic world, above the Equator. Most people carry around at different levels the poison…. a poison in a local nationalism that comes out of the land, if that is all the land has given to you. That local nationalism is the foundation of the National Football League – who plays for us? So is Donald playing for the other team? Is Hillory playing for the other team, with the coming of age SPLIT, again , as if Gender is some kind of scientific choice?  What does gender matter?

With his great understanding about the world and all of the sciences, the “Make America Great Again” candidate wants to begin by attacking the world of Muslims, as the broadcast media sits asking ONLY their “how does it feel?” and“ how important is it?” questions.

Was there the missing interest in these candidates who do not FEEL because they do not KNOW real people? It is the “Lifestyles of the Rich and the Famous” campaign. Who needs to watch this long-running reality show, either with the 24 years with one or the 14 years of the other, as “The Apprentice” working their way to the Presidency?   You had to just know how to use the broadcast media.

Behold this mental agony of a someone who will firmly justify their actions in public while inwardly craving solid, objective proof that they have done their duty, civilly.  Or even if criminally hiding their professional government emails, or hiding the agony of justifying your need to go public, taking  down your share-holders, to avoid personal bankruptcy.  Behold the naked public lives, sacrificing all decency along the way, of both candidates.  As the egregious generation thought this – Campaign 2016 – was all normal?   

In America, just as anyone can be sued for anything. In America, with the blessed culture, anyone can run for President. Though “the inheritance” is not shared so well for an American generation carrying the burden of freedom, now more as a historic preservation task than out of any real joy.  With what might have been — how had either candidate even claimed a nomination — a discussion about freedom in the world?  Who do egregious people idolize, purely on what they see on commercialized television?  The issues will never be discussed,if they ever had been in that never-ending primary season?  In the political Olympics of the have’s and the have-not’s, is the motto about taking what is not yours to take, after failing to hold onto what you once had?  The Bill of Rights?  Spying?  If education is about being led somewhere, behold the next generation with the enormous debt, living in the Promise Land with the lost sense, of being free.  There is the lost sense of human touch, everywhere, perhaps due to the over-dependence on your cell phone.

Reflecting public education these days, represented by one candidate educated in public school, there is this piece in Commonweal magazine:

A conversation widened more broadly to discuss race and racism. This soon-to-graduate senior, after a moment of silence, nervously chuckled and said: “Hey Doc! Guess what? Not every student of color gives a damn about how they are seen from the normalizing white-middle-class perspective.” I flinched from a punch that I never saw coming, in another blind spot revealed.

The instant-replay generation. The preponderance of evidence, if this was only a civil trial, weighing the facts. Did you see the mistake on the replay that you might have missed the first time? For both of the candidate. On the old media called television like the old device called the Video Cassette Recorder, with still all the talking heads, these were the Re-runs.  For “The Apprentice.”

The “American can-do” heroes? Like a first-responder?  The underling theme from barking dogs which, in an urban kettle as a noise, could be annoying after 11 o’clock at night, signifying that there was no THERE there anyway.  I am still waiting to hear what was really inside, in the way of ideas.  As the media is only checking the polls first?

“Unhappy is the land that needs a hero,” mourns Galileo in the Bertold Brecht play.

Proving your greatness, in institution, privately, in the land that has mostly welcomed immigrants since the beginning. “Ready to make America great again!” One man? 

So all alone.

With all of the surveillance workers watching. The police shootings. On Youtube. “The only thing surveillance workers are protecting is the supremacy of the government, and a counter-terror is their excuse for surveillance?”

As more and more in this campaign, counter-terror if not heroism is grown here! I carry the scale with a concern for justice. There is the preponderance of doubt. My measure is “beyond a reasonable doubt,” over the egregious generation, taking over everything.

Is this a courageous ideal – medical insurance without limits, like governments without limits? With her espoused great concern for all children, never counting the cost to the average citizen, as the writer of National Health Insurance as a new tax which is an imposition on everyone that no one can afford, is this a courageous idealist? Will a nation ever get to hear a discussion about the new ideals, from the original author of Affordable Health Care Act that has yet to address the actual costs being billed by health care providers?

Police shootings, with this mental agony of Dirty Harry. Nerve-wracking flashbacks to all of these police shooting. Of police. By police. With impunity. Like “The Troubles” in the North of Ireland, which side do you believe?

The helpless. Instructed to just pay the premiums, as a brand new kind of American tax as just a regular part of this thing called “The Economy.” The elephant in the room is the blessed Economy. The work producing the sweat of human brow.  From out of an unblessed emptiness, treating humans as animals. Animal Farm, with the trained helpless animals.

Fiscal policy.  Monetary policy.  Debt!  The ever increasing debt, without anyone being asked to sacrifice, except to pay the sky-rocketing health care premiums, with the increasing strength of the dollar.  This is the same dollar that waned, invisibly, so much in the early years of the New Millennium with the war in Iraq and the war again in Afghanistan, with ever an increase in federal taxes.  Those wars so far away were the basis for the ongoing Monetary War centered on currencies.  With innocent nations all over the world paying more and more visible price. There are these candidates with a shared lost sense of touch. Or out of touch?  

There is a terror in money along with all the other things shared here: Language. Belief, both public and private. Law and law enforcement. With public policy directed over the off-the-books expenses of National Security? There is worry over sectarian violence in San Bernardino, over racial violence in Jefferson, Missouri.  And gender violence.  What would resolve the problems of verbal assaults, on behalf of all the suffering women, after all the uncovered sexual assaults? Legalized marijuana?  The “p___y” remark from his video past, sacrificing all decency along the way. I heard the same “p___y” remark 30 days ago while in the public skyway directed at a beautiful young African-American woman – as if, I believed, the young African-American man should have the social culture of what he viewed to be the white society. In public. To impose my values on the young African-American, who had descended not from slaves but the missing real culture in slavery.

“How dare they judge!” One self-made man. As inequality threatens stability, with all the shared concern for a nation’s safety, is it time to leave here? In the Book of Genesis, the people who descended from the perfect son – always found to be the Victim in the story – do not end up so perfect themselves. Perfect people have no need for God, to bless America.

So all alone, Hillory.  After all the joy over electing a black president, polls show that young women are not particularly moved by her solitary goal, in her promise to make history as a woman.  It might be time when a nation might concentrating again on electing a stateswoman or statesman?

The jury is still out on the question – So, revolution or restoration?  The counter-terror is in the candidates, plural, in a land that has these two-faced candidates, unqualified to unite the states for the next generation based upon their checkered past.  W. E. B. DuBois wrote in 1903: ‘It is a peculiar sensation, this double-consciousness – a sense of always looking at one’s self through the eyes of others – measuring one’s soul by the tape of a world that looks on in amused contempt and pity. One ever feels his two-ness.’

Missing. There is something missing in Clinton-Trump.  Mostly each of them seem to be missing a soul.  For me, Hillory’s loud voice is as empty as her opponent.  It is difficult to win over the hearts and minds of an electorate when you were missing a soul, running on anger. As the world looks on in amused contempt and pity. That this IS really a true story. Of two candidates running on anger.

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June 16, 2010

The DNA of British Petroleum

History. The accomplishment of history. The initial excitement. Until a culture was way beyond the excitement of firsts. Way beyond the excitement. Until the world was in upheaval. And seeing evils on display.

Survival. In the English speaking world. The world based on capitalism. With class distinctions, based in large part on education. This British culture. And the deceit of the Brits. Not unlike the Russian deceit finally on display at Chernobl, which had brought down communism.

The news events this week. About Bloody Sunday. Or British Petroleum. The culture. And the economic systems which America had inherited. These people whom Americans had broken with.

The BBC reported yesterday, “Lord Saville’s report into the Bloody Sunday killings raises the possibility of criminal prosecutions for offences ranging from perjury to murder.” Yeah, the BBC which never had reported on the truth in the north of Ireland. The BBC which was the propaganda arm of the British government in power.

The deceit. How long has it been going on? Thirty-eight years, when it came to the story of Bloody Sunday. In Ulster. Over human rights. Legalized terrorism against the Irish.

Brendan Behan said that the only distinction between what was felt a terrorist in the north of Ireland –or any terrorist– and any modern government was the size of the bomb. To prop up a government, in the name of survival, on a false economic system. Read Hitler’s Beneficiaaries by Götz Aly. With the use of falsehoods by government to prop up a system.

The God of Britain, with class distinctions, based in large part on skin color. Or place of origin. The God of Britain that set slavery in action. The complicity of the English concept of the 16th century God which allowed slavery. To build an empire.

The God of Britain that allowed slavery on these shores long ago. The danger in our British DNA. Brits and Americans judging just who it is that are terrorists. The God of Britain that allowed Bloody Sunday. The same God of Britain which allowed the passage of legislation of the Patriot’s Act, in the United States. At airports all over the world, God of Britain which searched air travelers. Based on their concepts of God. The God of Britain which went to war in Iraq. In the prevailing secular world of the media, in the English speaking world, with a world in upheaval, with God otherwise now subtracted from the equation.

The deceit. Of Russians at Chernobyl, which had brought down communism. Or the deceit of presidents and Congress bailing out capitalism. To prop up the class distinctions on Wall Street. When government lied, to prop up a system. With a righteous God sacrificed from the equation.

The deceit of the British. On display in the 1972 report of Bloody Sunday by Lord Widgery, which accused the 14 victims in Derry’s Bogside on 30 January 1972 of firing weapons or handling bombs. Bloody Sunday. After a 38-year struggle for truth and justice for those fourteen unarmed civilians shot dead by the Parachute Regiment in Derry, the Bloody Sunday Saville Report, concluding based upon facts that none of the 14 dead was carrying a gun, no warnings were given, no soldiers were under threat and the troops were the first to open fire, was that British soldiers had lied to the inquiry. Throughout the 5,000-page tribunal’s report was the use of the term “unjustifiable,”with the report’s unequivocal conclusion that the shootings were “unjustified.” The 14 deaths propelled a generation of nationalists into the Provisional IRA, with the annual Orangemen of the north on parade, to celebrate their dominance in the culture. Tory prime minister David Cameron announced the findings and apologized on behalf of the British state. No comment was apparently made of the ensuing cost to house the British army in the north of Ireland for the generation which followed.

Oh, father why are you so sad
On this bright Easter morn’
When Irish men are proud and glad
Of the land that they were born?

Oh, son, I see in mem’ries few
Of far off distant days
When being just a lad like you
I joined the IRA.

Where are the lads that stood with me
When history was made?
A Ghra Mo Chroi, I long to see
The boys of the old brigade.

Last night I had a happy dream,
for the sight that I did see;
I dreamt again I saw “the Ten”
and they’d set the Six Counties free.

Now we can’t forget those Troubled years,
they’re kept in memory fresh;
Of those brave young men who gave their lives
behind the walls of Long Kesh;

Where are the lads that stood with me
When history was made?
A Ghra Mo Chroi, I long to see
The boys of the old brigade.

And now, my boy, I’ve told you why
On Easter morn’ I sigh,
For I recall my comrades all
And dark old days gone by.

I think of men who fought in glen
With rifle and grenade.
May heaven keep the men who sleep
From the ranks of the old brigade.

With the danger in our British DNA, the Brits and Americans still judging. Deferring to British Petroleum and their profit motives, letting BP judge just who has mobility in this world, and who it is that was free men or slaves.

Sports Blogs

September 29, 2009

Performance Enhancement After Affects

Tsunami warnings. Times of panic. When the water recedes.

Money-market funds are no longer insured by the US Treasury. When the Reserve Primary Fund share price fell last September a bit below a dollar, the U. S. Treasury stepped in offering protection against losses, to prevent a “run” by money-market depositors. Commercial banks paid premiums for federal deposit insurance for such protection to the federal government which they are required to have. That money-market fund protection continued in the panicked climate of the last 12 months but came to a stop Friday.

On September 3, 2009, Chris Oliver wrote a piece about the biggest movement in gold which might have gone little noticed by currency traders. The Hong Kong Monetary Authority, which functions as the territory’s unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in a statement. Local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs. According to its International Reserves and Foreign Currency Liquidity statement, the Hong Kong Monetary Authority reported $63 million in physical gold reserves as of July 31, 2009, thought to be stored in London.

A newly built 3,660-square-foot depository, located at the city’s main Chek Lap Kok Airport,will serve as a “storage facility for local and overseas government institutions. The facility would support Hong Kong’s emergence as a Swiss-style trading hub for bullion and would lessen London’s status as a key settlement-and-storage center, Chris Oliver wrote. Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to Raymond Lai, finance director with the Hong Kong Airport Authority. Managing director at Scotia Capital, Sunil Kashyap, said the facility was the first with official government backing in the region. Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group, said, “Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal,” and this could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.

Management firm Value Partners planned to launch an exchange-traded gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, a local newspaper reported. Traders said the new depository facility could foster new financial products, such as exchange-traded funds based on precious metals. “Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region,” said Sunil Kashyap.

China has always shown a respect for the American dollar which comes from the history of the dollar. Now however, a larger interest is growing in China not to fall prey to wide currency fluctuations. Exports which have until now needed a reasonable balance in foreign accounts, a major share made up of the U S dollar. Paul Volcker spoke last night on the Charlie Rose show of the need in China to avoid social tension that is directly linked to currency.

The moves by the Fed last October are now starting to look a lot like a patient weened off steroids. It was not just the American electorate looking at how all the newly minted money was going to be paid for. It was either through tax increases or budget cuts. If the dollar was going to maintain any kind of value.

September 6, 2009

In the Shadows of Those Cloakrooms

Twelve months ago, there was talk of a revolution coming in the financial markets, which was financially supported by the 3500 lobbyists in Washington, for both parties. There was a new form of fascism in those stories at the time. That is if “fascism” was a word about comforts, with government offering instruction how all of us could live easier. With the help of former Goldman Sachs officers in government, government was now deciding, 12 months later, who were saved, which among us were rescued, at least amongst financial institutions. The free market had been replaced.

If the revolution in the financial markets was not enough, how did you feel as Congress was coming back from summer recess, from all the dog and pony shows, to address not the health care crisis but how, with a nation with an aging populace, to pay for health care. At a point in time when government through Medicare had not exactly been covering the cost of new technology in hospitals, was not paying a fair share. Yet health care itself had never been better.

In the debate, there are people who desire government to decide all of the issues of health care. How much to pay medical institutions, when government was not, had not been, reimbursing hospitals the true cost of taking care of patients with Medicare. Government now wanted to mandate the amount of reimbursement for all procedures, and somehow distribute the cost throughout the entire population in the form of premiums. People who thought government was honest seemed to support the concept. Did they know about the 3500 lobbyists in Washington who had been working for more than a generation to make sure the system was not fair? How had these health care reform supporters felt about the bailouts? (In the case of my Congressional Representative, Betty McCollum supported both the bailout and health care reform.)

Like in those financial bailouts, government was now deciding, if Betty McCollum got her way, who would be saved, which among us would be rescued, amongst both health care institutions, and their patients. Suddenly aware that government knew it had the power to print money, increase property taxes in the states, and if the need were come, to confiscate everything, now they would decided every health care procedure. We had yet to hear specifics how Washington would replace those Blue Cross Blue Shield claims people to make the same kind of every day decisions with all the love and care I found when I went to renew my license plate tabs.

The timing was not real good in September 2009, less than 12 months after the revolution in the financial markets. Not when this discussion seemed more like elective surgery. With a lot of swine flu around. I hoped the vote might be postponed for 6 to 12 months. Until the patients had a lot more strength. Until the president had the courage to introduce the specifics of a bill himself, with some accountability, rather than rely on Congress or the 3500 lobbyists in Washington to take the citizens to a health care destination. Congress had not done a very good job dealing with triage in the last crisis, but that might have been due to a president who just wanted to get out of office after creating the mess himself rather than actually lead.

I wonder if somewhere in those August dog and pony shows from New Hampshire to Montana, if the president heard someone ask when he might introduce the actual legislation that might work. If Congress had spent the time to approve his appointment so he had enough staff to work on a bill.

August 2, 2009

Those Dog Days of August

There was a true revolution in the world markets last September that anyone buying stocks last week seems to have missed. The new world order was now all about social engineering on capitalism. It was only the start, back in September. Bill Gross is the Warren Buffet of the bond market and his PIMCO website with current outlook is must reading.

The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash is by Charles R. Morris, a former banker who “comes to his conclusions based on objectivity, knowledge, and lucid thought.” He wrote this book before the 2008 market collapse which I have not read. I have however read a few pieces by Mr. Morris over the last 12 months, as he is on occasion featured in the Jesuit magazine America.

Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.” –
Charles R. Morris

With an estimate that 20% of the population was really unemployed, there is no reason for the optimism reflected at July’s end in the Wall Street indexes. The procedure for identifying ends of a recession is by looking at when the contraction ends. Per the Wall Street Journal, “The elements that will drive a recovery –rising wages, consumer demand, production and sales — haven’t appeared.”

Government fears throughout the world are that of deflation, because they have no arrows in their quiver to fight it, when it occurs. Paul Virgen wrote on July 31st in the Wall Street Journal that economists surveyed by Dow Jones Newswires estimate the Commerce Department’s GDP report later today likely would show a contraction of about 1.5% for the second quarter, a less-severe decline than the first quarter’s 5.5% figure.

For me the word contraction is a synonym for “DEFLATION.”

Credit markets froze between September 15th and October 7th when Congress was voting on bailouts, while the battle of ideology was going on between the credit markets and the equity markets as reflected in the spread of about 3.0 percent in the LIBOR rate which one bank charged another bank. That is 3.0 higher than the Fed rate at the time, an unheard of differential. Banks in that environment, no matter the moves put on by the Treasury, were not buying in to the bailout in October 2008. When everything was overvalued, why lend money? So government came to the rescue. Because of government fear about DEFLATION.

I continue to live in a neighborhood where real estate values have barely budged, where the bubble has not burst. The American illusion persists. About values.

Read the current Atlantic Monthly piece about Dr. Doom. Learn about the economist, Hyman Minsky. Read Paul Krugman’s piece now 4 years old. ‘The news that the US housing bubble is over won’t come in the form of plunging prices….” He won the last Pulitizer prize in economics.

On May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Hyman Minsky was an economist who has gained a lot of disciples over the past few years. He wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention, like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. Euphoria ensues as people pile into the sector, with a driving demand to affect higher prices, often with borrowed money. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

That was why credit markets froze in September 2008. Bankers who have always been conservative. Do you know any? They were not buying into the social engineering on capitalism. There was a revolution in capitalism with this bailout. No one wanted to purchase shares in these banks that were illiquid. Based on the value of real estate, there was a bubble. A huge illusion about valuations of homes. The banks owned all the real estate. And it is said that the banks in Europe were in worse shape. In September 2008, bankers neither trusted the balance sheet of another bank nor the government. Thus the state of the credit markets. Bankers understood too well the persisting illusion.

By the end of October 2008, more than half of the U.S. banks were pretend banks. With no capital. Citibank. Bank of America. Wachovia. The bailout has worked to avoid an immediate collapse that would have had consequences worse than in Russia in 1906. Or in Russia in 1917. The panic, the revolution did not occur as a result of a couple years of events. Immediately.

“If drugs continue to be injected which mask symptoms rather than address the disease (medicine in the form of debt destruction), the likelihood of a seismic readjustment increases in kind, writes Todd Harrison, about the dollar. “As governments take on more risk” as they price assets on behalf of the market and transfer debt from private to public, “the common denominator, or release valve, becomes the currency.”

Some facts:

World GDP $47 trillion
World stock valuation $121 trillion
Bond market $85 trillion
Credit derivatives $473 trillion

There would be turmoil in currencies in the coming year as a consequence of the political fallout over American debt, before this was over. It was all because there was $460 trillion to $560 trillion in derivatives, and there is not enough money in the world to keep the system of capitalism going. The social engineering last September was all about government trying to keep capitalism going. Those derivatives, not backed up by reserves. When the laws of survival of the fittest in the market place had been always about letting systems collapse.

These news items in July 2009 you might have missed:

“Joining the growing chorus questioning the U.S. dollar’s unofficial position as global reserve currency, in India, chairman of the Prime Minister’s Economic Advisory Council, Suresh Tendulkar, is urging India to diversify its foreign-exchange reserves and hold fewer dollars,” according to Bloomberg News.

“Zeng Peiyan, the head of China Center for International Economic Exchanges and the former Chinese Vice-Premier, in a speech in Beijing on Friday called for a new system to ensure the stability of the major reserve currencies,” the China Daily reported.

“To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger.” –2008 piece by Henry Liu

“Tensions mounting between the People’s Bank of China’s economic concerns over China’s holdings of dollars, with the earlier call by central bank chief Zhou Xiaochuan for the development of a new super-sovereign currency largely taking the place of the dollar, and the Chinese government, with their “diplomatic reasons” for toning down their criticism, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange. The Chinese government is still more happy to play to the tune of the Bernanke-Geithner camp which sees leaning against the wind in order to protect the U.S. dollar as a necessary evil,” Gallo said.”

And in April 2009, the head of the China Banking Regulatory Commission issued a statement published on its website that banks need to guard against making risky loans and instead focus more on sustainable lending practices. Banks must be “on high alert for the accumulation of hidden risks as loans surge,” Liu Mingkang said. According to published reports in remarks made at the Boao Forum for Asia, Chinese Premier Wen Jiabao last spring called for more surveillance of countries that issue major reserve currencies. That would be the United States. This statement comes on the heels of discussion at the G20 meeting of a new world currency. There is growing distrust of America and the politics involved in our currency. Last spring in an essay published on the central bank’s web site, the head of the People’s Bank of China, Zhou Xiaochuan, proposed the creation a new international reserve currency. Seeking to expand currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset, Wen said, “We should give full play to bilateral currency swap agreements and will study expanding currency swaps in scale and to more countries.”

“There is no chance that a nation as reputationally scarred and maimed as the US is today, could extract any true ‘alpha’ from foreign investors for the next 25 years or so. So the US will have to start to pay a normal market price for the net resources it borrows from abroad. It will therefore have to start to generate primary surpluses, on average, for the indefinite future. A nation with credibility as regards its commitment to meeting its obligations could afford to delay the onset of the period of pain. It could borrow more from abroad today, because foreign creditors and investors are confident that, in due course, the country would be willing and able to generate the (correspondingly larger) future primary external surpluses required to service its external obligations. I don’t believe the US has either the external credibility or the goodwill capital any longer to ask, Oliver Twist-like, for a little more leeway, a little more latitude. I believe that markets – both the private players and the large public players managing the foreign exchange reserves of the PRC, Hong Kong, Taiwan, Singapore, the Gulf states, Japan and other nations – will make this clear.

“Keynesian demand stimulus may work for a while (a couple of years, say). When the consequences for the public debt of both the Keynesian stimulus and the realization of the losses from the assets and commitments the Fed and the Treasury have taken onto their balance sheets become apparent, the demand stimulus will fade and may be reserved as precautionary behavior takes over in the private sector. My recommendation is to go easy on the fiscal stimulus. The US government is ill-placed financially and fiscally, to engage in short-term fiscal heroics. All they can really do is pray for a stronger-than-expected revival of global demand, without any major stimulus from the US.” -Willem H. Buiter of the European Institute, Professor of European Political Economy, London School of Economics and Political Science

William McChesney Martin was the Fed’s chairman from 1951 through 1970. Martin said his job as central-bank chief was “to take away the punchbowl just as the party gets going” to keep the economy from overheating. Paul McCulley said that the government’s efforts to aid financial firms in effect are reversing this well-known quip. “Now they are actually creating ‘punchbowl banks’ where you have the equity coming in from the Treasury,” McCulley said. “They are de facto banks owned by the Treasury and funded by the Fed. If the U.S. is putting its ‘full faith and credit’ behind the liabilities of the various financial institutions, then I want to be a co-investor with Uncle Sam, which is another way of saying I want to invest with the American taxpayer. It sounds a little like socialism only because it is.” The government’s attempts to revive lending have led policy makers to use taxpayer money to recreate “the shadow banking system,” he said.

According to Pimm Fox and Daniel Kruger, “So far, that has included expanding the Fed’s assets to $2.2 trillion, injecting $270 billion of capital into what Paul McCulley called ‘punchbowl banks,’ and promising to buy $600 billion in mortgage securities related to government-sponsored enterprises.” The government’s attempts to revive lending have led policy makers to use taxpayer money to recreate “the shadow banking system,” he said. Before the start of the financial crisis in August 2007, that comprised institutions which lacked access to the Fed’s discount window and whose customer accounts were not insured by the Federal Deposit Insurance Corp.

So that 12 months later, we are all back to where the world was, with just a little more transparency, recreating “the shadow banking system.”
Money always seemed to affect the outcome of elections.

In June 2009 there was a summit of the world’s four largest emerging economies, as leaders from of China, India Russia, and Brazil met in Yekaterinburg, Russia to discuss reforming the global financial system and lessening reliance on the United States. These four countries hold nearly 40 percent of the world’s currency reserves and make up 15 percent of the global economy.

A joint BRIC (Brazil, Russia, India, China) statement issued before the summit expressed a commitment to advance the reform of international financial institutions so as to reflect changes in the world economy. The statement said. “The emerging and developing economies must have a greater voice and representation in international financial institutions,” calling for a greater role for developing nations in global financial institutions and the United Nations. Leaders discussed investing their reserves in one another’s bonds, swapping reserve currencies and increasing the role of Special Drawing Rights, an international reserve asset. Discussions took place earlier in the day in the Urals city at a meeting of the Shanghai Cooperation Organization about the creation of a supranational currency and lessening global reliance on the U.S. dollar. President Dmitry Medvedev was an outspoken a critic of the current world financial system, reserving his most bold comments for the Shanghai Cooperation Organization. “There cannot be a successful global currency system if the financial instruments it uses are denominated in only one currency, which is the case today. And that currency is the dollar.”

But the idea of replacing the dollar found little traction with China, which holds $2 trillion in foreign currency reserves.

Other notable quotes this year, not dealing with currency:

“With stocks tied to bonds, bonds tied to housing, housing tied to the credit crisis, and everyone hitched to the government, this was all like the conga line to the poor house.” -Craig Rappaport, wealth manager at Janney Montgomery Scott

Bob Prince hedge fund manager of Bridgewater Associates, on downward spirals: “The pressure on corporate margins is now passing through to employment cuts. Employment cuts will reduce incomes which will raise defaults. Rising defaults will hinder bank capital adequacy, which will constrain credit growth, which will slow spending, which will hurt profit margins, then employment. This chain of events was virtually sealed when demand dropped off the table in October, although it was highly probable earlier this year when credit conditions deteriorated rapidly. We are now in the middle of it and there really isn’t much that anyone can do besides hang on.”

“My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner. Dow 5,000? We don’t have to go there if current domestic and global policies are focused on asset price support and eventual recapitalization of lending institutions. But 14,000 is a stretch as well. One only has to recognize that roughly 20% of bank capital is now owned by the U.S. government and that a near proportionate share of profits will flow in that direction as well. Better to own corporate bonds than corporate stocks, but that’s a story for another Investment Outlook.” -William H. Gross , Managing Director, PIMCO, December 1, 2008

Bill Gross, in October 2008: “What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August 2007.

I have never taken creative accounting….full disclosure. But anyone who was investing might recognize that the greatest opportunity to make money is now in the credit markets and not equities.

Now about the political consequences over the social engineering on capitalism which would be studied in history books in a thousand years, if the world survived this mess……. oh, that’s another lecture.

July 25, 2009

The Minsky Watch

There has been a lot of public discourse over the last year of systemic risk without any real systemic re-pricing of risk in my neighborhood, which would have a deflationary affect. Now my home is located within a few blocks of some famous people, like Joe Mauer and Garrison Keiller. From my own research, the homes around here have barely budged in valuation over the past year. Home now selling for $575,000 that would not have brought $325,000 since the time I moved into the neighborhood in the 1990s. In times when the financial system economy was not overlooking the precipice, trapped in a classic debt-deflation cycle as it seemed now in which falling asset prices and declining consumer demand transmit deflation through the economy. It had not really happened much yet in my neighborhood.

A number of publications have referred to real unemployment to be near 20%, despite the $787 billion stimulus package. State budgets are drowning in red ink, soon to deepen with jobless claims and Medicaid bills, hesitant to spend consumers as paychecks shrink and jobs disappear. I would not be buying stocks with this kind of economic forecast, yet this week the indexes on Wall Street sprouted up like Iowa corn.

The speculators still abound. People who are gambling with their money in these times, as they had gambled turning real estate in this decade. In May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Hyman Minsky is an economist who has gained a lot of disciples over the past few years. He wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. Euphoria ensues as people pile into the sector, with a driving demand to affect higher prices, often with borrowed money. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

James Fallow’s opening paragraph in this months Atlantic Monthly is: “On March 28, 2007, Federal Reserve Chairman Ben Bernanke appeared before the congressional Joint Economic Committee to discuss trends in the U.S. economy. Everyone was concerned about the ‘substantial correction in the housing market,’ he noted in his prepared remarks. Fortunately, ‘the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.’ Better still, ‘the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy.’ On that day, the Dow Jones industrial average was above 12,000, the S&P 500 was above 1,400, and the U.S. unemployment rate was 4.4 percent. That assurance looks bad in retrospect, as do many of Bernanke’s claims through the rest of the year: that the real-estate crisis was working itself out and that its problems would likely remain ‘niche’ issues. If experts can be this wrong—within two years, unemployment had nearly doubled, and financial markets had lost roughly half their value—what good is their expertise? And of course it wasn’t just Bernanke, though presumably he had the most authoritative data to draw on. Through the markets’ rise to their peak late in 2007 and for many months into their precipitous fall, the dominant voices from the government, financial journalism, and the business and financial establishment under- rather than overplayed the scope of the current disaster.”

Paul McCulley delivered a speech to the 17th Annual Hyman Minsky Conference on April 17, 2008. He stated, “Since August 2007, the shadow banking system – defined as any levered lender who does not have access to (1) deposit insurance and/or (2) the Fed’s discount window – experienced a modern-day run, with asset-backed commercial paper holders refusing to roll over their paper. It has not been fun. It has not been pretty.” And he saw that it was not over, as the ensuing 15 months proved. Whereas James Fallow cited Federal Reserve Chairman Ben Bernanke discussion of trends in the U.S. economy on March 28, 2007, Paul McCulley of PIMCO on April 17, 2008, 25 weeks before the Lehman Brother collapse, talked about a lot of things that Bernanke publicly was oblivious to.

Paul McCulley of PIMCO wrote on April 17, 2008: “Which brings us back to where I began: Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. And when the financial regulators are not only asleep but actively cheerleading financial innovation outside their direct purview, a disaster is in the making, as the last year has taught us. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation – both for conventional banks and shadow banks.

In May 2009, Paul McCulley wrote, “Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about. He says ‘from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system’s reactions to a movement of the economy amplify the movement – inflation feeds upon inflation and debt-deflation feeds upon debt-deflation.'”

Paul McCulley on April 17, 2008: “Whatever moment you pick for the Moment, we have since been traveling the reverse Minsky journey: moving backward through the three-part progression, with asset prices falling, risk premiums moving higher, leverage getting scaled back and economic growth getting squeezed. Minsky’s Ponzi debt units are only viable as long as the levered assets appreciate in price. But when the price of the assets decline, as we’ve seen in the U.S. housing market, Minsky tells us we must go through the process of increasing risk-taking in reverse – with all its consequences.

“The recent Minsky moment comprised three bubbles bursting: in property valuation in the U.S., in mortgage creation, again, principally in the U.S., and in the shadow banking system, not just in the U.S. but around the world. The blowing up of these three bubbles demanded a systemic re-pricing of all risk, which was deflationary for all risk asset prices. These developments are, as Minsky declared, a prescription for an unstable system – to wit, a system in which the purging of capitalist excesses is not a self-correcting therapeutic process, but a self-feeding contagion: debt deflation.

“Fittingly, the last debt unit on the forward Minsky journey is called a Ponzi unit, defined as a borrower who has insufficient cash flow to even pay the full interest on a loan, much less pay down the principal over time. Now, how and why would such a borrower ever find a lender to make him a loan? Simple: as long as home prices are universally expected to continue rising indefinitely, lenders come out of the woodwork offering loans with what is called negative amortization, meaning that if you can’t pay the full interest charge, that’s okay; they’ll just tack the unpaid amount on to your principal. At the maturity of the loan, of course, the balloon payment will be bigger than the original loan.

“As long as lenders made loans available on virtually non-existent terms, the price didn’t really matter all that much to borrowers; after all, housing prices were going up so fast that a point or two either way on the mortgage rate didn’t really matter. The availability of credit trumped the price of credit. Such is always the case in manias. It is also the case that once a speculative bubble bursts, reduced availability of credit will dominate the price of credit, even if markets and policymakers cut the price. The supply side of Ponzi credit is what matters, not the interest elasticity of demand.

“Clearly the explosion of exotic mortgages in recent years have been textbook examples of Minsky’s speculative and Ponzi units. But they seemed okay, as long as expectations of stably rising home prices were realized. Except, of course they cannot forever be realized. At some point, valuation does matter! How could lenders ignore this obvious truth? Because while it was going on, they were making tons of money. Tons of money does serious damage to the eyesight. And our industry’s moral equivalent of optometrists, the regulators and the rating agencies, are humans too.

“As long as the forward Minsky journey was unfolding, rising house prices covered all shameful underwriting sins. Essentially, the mortgage arena began lending against asset value only, rather than asset value plus the borrowers’ income. The mortgage originators, who were operating on the originate-to-distribute model, had no skin in the game – no active interest – because they simply originated the loans and then repackaged them.
But who they distributed these packages to, interestingly enough, were the shadow banks. So we had an originate-to-distribute model and no skin in the game for the originator, and the guy in the middle was being asked to create product for the shadow banking system.

“The system was demanding product. Well, if you’ve got to feed the beast that wants product, how do you do it? You have a systematic degradation in underwriting standards so that you can originate more. But as you originate more, you bid up the price of property, and therefore you say, “These junk borrowers really aren’t junk borrowers. They’re not defaulting.” So you drop your standards once again. And you take prices up. And you still don’t get a high default rate. The reason this system works is that you, as the guy in the middle, had somebody bless it: the credit rating agencies. A key part of keeping the three bubbles (property valuation, mortgage finance and the shadow banking system) going was that the rating agencies thought the default rates were low because they were low. But they were low because the degradation of underwriting standards was driving up asset prices.

“Both regulators and rating agencies were beguiled by very low default rates during the period of soaring home prices. It all went swimmingly, dampening volatility in a self-reinforcing way, until the bubbles created by financial alchemy hit the fundamental wall of housing affordability.

“Ultimately, fundamentals do matter! We have a day of reckoning, the day the balloon comes due, the margin call, the Minsky Moment.

“If the value of the house hasn’t gone up, then Ponzi units, particularly those with negatively-amortizing loans, are toast. And if the price of the house has fallen, speculative units are toast still in the toaster. Ponzi borrowers are forced to “make position by selling out position,” frequently by stopping (or not even beginning!) monthly mortgage payments, the prelude to eventual default or jingle mail. Ponzi lenders dramatically tighten underwriting standards, at least back to Minsky’s speculative units – loans that may not be self-amortizing, but at least are underwritten on evidence that borrowers can pay the required interest, not just the teaser rate, but the fully-indexed rate on ARMs.
From a microeconomic point of view, such a tightening of underwriting standards is a good thing, albeit belated. But from a macroeconomic point of view, it is a deflationary turn of events, as serial refinancers, riding the back of presumed perpetual home price appreciation, are trapped long and wrong. And in this cycle, it’s not just the first-time homebuyer that is trapped, but also the speculative Ponzi long: borrowers who weren’t covering a natural short – remember, you are born short a roof over your head, and must cover, either by renting or buying – but rather betting on a bigger fool to take them out (“make book”, in Minsky’s words). The property bubble stops bubbling and when it does, both the property market and the shadow banking system go bust.

“The asset class imploded violently, when the conventional basis of valuation was undermined for the originate-to-distribute (to the shadow banking system) business model.

“And the implosion was on Wall Street and next on Main Street, with debt-deflation accelerating in the wake of a mushrooming mortgage credit crunch, notably in the subprime sector, but also up the quality ladder. Yes, we are now experiencing a reverse Minsky journey, where instability will, in the fullness of time, restore stability, as Ponzi debt units evaporate, speculative debt units morph after the fact into Ponzi units and are severely disciplined if not destroyed, and even hedge units take a beating. The shadow banking system contracts implosively as a run on its assets forces it to delever, driving down asset prices, eroding equity – and forcing it to delever again. The shadow banking system is particularly vulnerable to runs – commercial paper investors refusing to re-up when their paper matures, leaving the shadow banks with a liquidity crisis – a need to tap their back-up lines of credit with real banks or to liquidate assets at fire sale prices. Real banks are in a risk-averse state of mind when it comes to lending to shadow banks, lending when required by backup lines but not seeking to proactively increase their footings to the shadow banking system but, if anything, reduce them. Thus, the mighty gulf between the Fed’s liquidity cup and the shadow banking system’s parched liquidity lips.

“The entire progression self-feeds on the way down, just like it self-feeds on the way up. It’s incredibly pro-cyclical. The regulatory response is also incredibly pro-cyclical. You have a rush to laxity on the way up, and you have a rush to the opposite on the way back down. And essentially, on the way down, you have the equivalent of Keynes’s paradox of thrift – the paradox of delevering. It can make sense for each individual institution, for a shadow bank or even a real bank, to delever, but collectively, they can’t all delever at the same time.

“Along the way, policymakers slowly have recognized the Minsky Moment followed by the unfolding reverse Minsky journey. But I want to emphasize “slowly,” as policymakers, collectively, tend to suffer from more than a thermos full of denial. Part of the reason is human nature: to acknowledge a reverse Minsky journey, it is first necessary to acknowledge a preceding forward Minsky journey – a bubble in asset and debt prices – as the marginal unit of debt creation morphed from hedge to speculative to Ponzi. That is difficult for policymakers to do, especially ones who claim an inability to recognize bubbles while they are forming and, therefore, don’t believe that prophylactic action against them is appropriate. But framing policies to mitigate the damage of a reverse Minsky journey requires that policymakers openly acknowledge that we are where we are because they let the invisible, if not crooked, hand of financial capitalism go precisely where Professor Minsky said it would go, unless checked by the visible fist of counter-cyclical, rather than pro-cyclical, regulatory policy.

“That’s not to say that Minsky had confidence that regulators could stay out in front of short-term profit-driven innovation in financial arrangements. Indeed, he believed precisely the opposite. Minsky wrote these words in 1986:

“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”

Three years later, we can only bemoan that his sensible counsel was ignored and the economy experienced the explosive growth of the shadow banking system, or what Minsky cleverly called “fringe banks and other financial institutions.”
Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation – both for conventional banks and shadow banks.

“Meantime, we’ve got a problem: we’re on a reverse Minsky journey. The private sector wants to shrink and de-risk its balance sheet, so someone has to take the other side of the trade to avoid a depression – the sovereign. We pretend that the Fed’s balance sheet and Uncle Sam’s balance sheet are in entirely separate orbits because of the whole notion of the political independence of the central bank in making monetary policy. But when you think about it, not from the standpoint of making monetary policy but of providing balance sheet support to buffer a reverse Minsky journey, there’s no difference between Uncle Sam’s balance sheet and the Fed’s balance sheet. Economically speaking, they’re one and the same.

“I think we’re pretty well advanced along this reverse Minsky journey, and it’s a lot quicker than the forward journey for a very simple reason. The forward journey is essentially momentum-driven; there is a systematic relaxation of underwriting standards and all that sort of thing, but it doesn’t create any pain for anybody. The reverse journey, however, does create pain, otherwise known as one giant margin call. The reverse journey comes to an end when the full faith and credit of the sovereign’s balance sheet is brought into play to effectively take the other side of the trade. No, I’m not a socialist; I’m just a practical person. You’ve got to have somebody on the other side of the trade. The government not only steps up to the risk-taking and spending that the private sector is shirking, but goes further, stepping up with even more vigor, providing a meaningful reflationary thrust to both private sector risk assets and aggregate demand for goods and services.

Thus, policymakers have a tricky balancing act: let the deflationary pain unfold, as it’s the only way to find a bottom of undervalued asset prices from presently overvalued asset prices, while providing sufficient monetary and fiscal policy safety nets to keep the deflationary process from spinning out of control. Debt deflation is a beast of burden that capitalism cannot bear alone. It ain’t rich enough, it ain’t tough enough.

“Capitalism’s prosperity is hostage to the hope that policymakers are not simply too blind to see.

“As long as we have reasonably deregulated markets and a complex and innovative financial system, we will have Minsky journeys, forward and reverse, punctuated by Minsky Moments. That is reality. You can’t eliminate the Minsky journeys. It’s a matter of having the good sense to have in place a counter-cyclical regulatory policy to help modulate human nature.

“Not to say that Minsky had confidence that regulators could stay out in front of short-term profit-driven innovation in financial arrangements. Indeed, he believed precisely the opposite:

“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”

“While asset prices, and notably property prices, were soaring, it was all quite dandy. Which, of course, propelled the Forward Minsky Journey. There were no regulatory cops on the beat, only regulatory czars in corner offices, actively accommodating growth in the shadow banking system. Most fundamentally, regulatory authorities ignored the systemic liquidity risk imposed by the shadow banking system versus the conventional banking system: without access to either deposit insurance or the Fed’s discount window, and mostly void of any meaningful term financing, the shadow was a sitting duck for a classic run on liquidity. And ever since last August, that has been precisely what has unfolded, punctuated by the run on Bear Stearns last month.

“Along the way, the Fed has taken gallant and bold steps to inject liquidity into the markets, creating lending facility after lending facility. But up until last month, when the Fed opened the discount window to investment banks, who are the largest shadow banks of all, the Fed’s role as liquidity provider of last resort was simply not effective, however valiant it may have been. Channeling liquidity to conventional banks, in hopes that they would pass it along to shadow banks, simply did not work very well, though it did have the salutatory effect of allowing some banks to (reluctantly) expand their balance sheets so as to absorb assets being disgorged by shadow banks.

“As the Bear Stearns rescue forcefully demonstrated, the Fed had no choice but to open the discount window to investment banks, to facilitate the takeover of Bear in particular and even more importantly, to prevent a cascading of runs. This was a moment of truth and clarity, if there ever was one. I applaud the Fed for doing what it had but no choice to do. At the same time, the Fed’s action demands a complete re-think of the bifurcated regulatory regime for conventional banks and investment banks.

James Fallow: “The difference was partly ‘debt versus equity.’ That is, a loss of stock-market value is damaging, but defaults on loans which put banks themselves in trouble had a ‘multiplier’ effect. The difference between this crash and others, Nouriel Roubini said, was that the speculative bubble involved so much more of the economy than the term ‘subprime’ could suggest. ‘It was subprime, it was near-prime, it was prime mortgages. It was home-equity-loan lines. It was commercial real estate, it was credit cards, and it was auto loans. When there’s a credit crunch, for every dollar of capital the financial institution loses, the contraction of credit has to be 10 times bigger.’

“‘Bernanke should have known better. But it’s not really about him. It’s in everybody’s interest to let the bubble go on. Instead of the wisdom of the crowd, we got the madness of the crowd. So when the proverbial stuff hit the fan in the summer of 2007, the Fed and the Bush administration were initially taken by surprise,’ Nouriel Roubini concluded. ‘Their analysis had been wrong. And they didn’t understand the severity of what was to come. And all along, their policy was two steps behind the curve. We’ve had a model of growth in which over the last 15 or 20 years, too much human capital went into finance rather than more-productive activities. It was a growth model where we over-invested in housing, the most unproductive form of capital. We have been in a growth model based on bubbles, and the model has broken down, because we borrowed too much. The only time we are growing fast enough is when there is a big bubble.

And so the government now more than doubled note and bond offerings to $963 billion in the first half of 2009 as it tries to end the recession. It may sell another $1.1 trillion by year-end, according to Barclays. The second-half sales would be more than the amount sold in all of 2008.

“Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth,” Fed Chairman Ben Bernanke said this week in semi-annual testimony before the House Financial Services Committee. Bernanke said “limited inflation pressures” will allow policy makers to keep interest rates near zero for an “extended period.”

“‘The Fed is now embarked on a policy,’ Nouriel Roubini said, ‘in which they are in effect directly monetizing about half of the budget deficit. The public debt is going up, and the federal government is covering about half of that total by printing new money and sending it to banks. In the short run, that monetization is not inflationary.” But banks are holding much of the money themselves. ‘They are not re-lending it. So that money is not going anywhere and is becoming inflationary.’”

But at some point the recession will end—Roubini’s guess is 2011–and banks will want to lend the money. People and businesses will want to borrow and spend it, James Fallow’s piece concludes.

Writes Alan Blinder, a Princeton University professor of economics and public affairs, in the Wall Street Journal: “Economic conditions are dreadful at the bottom of a deep recession. Jobs are scarce. Layoffs abound. Businesses scramble for penurious customers. Companies go bankrupt. Banks suffer loan losses. Tax receipts plunge. Government budget deficits balloon. All this and more in what now looks to be the country’s worst recession since 1938. So why is everyone so blue when the U.S. economy is hitting bottom. The good news also is the bad news. As the economy hits bottom, it’s a long uphill climb to get out.

Paul McCulley of PIMCO and Bill Gross of PIMCO and Mohamed El-Erian at PIMCO have had a better public perspective than Mr. Bernanke has over the past two years. As did Nouriel Roubini. It is hard to believe his name will be put in nomination at the soon to end current term as Fed chief, no matter his performance since September 2008. Even though the real-estate crisis was working itself out and its problems likely remained ‘niche’ issues, and had not approached my neighborhood.

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July 18, 2009

Checking from Behind: Gypsies Come To Canada

A refugee is defined, according to the 1951 Geneva Convention on the status of refugees, as someone who “owing to a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group, or political opinion, is outside the country of his nationality, and is unable to or, owing to such fear, is unwilling to avail himself of the protection of that country…”

With 600,000 refugees claims made in Canada over the past 20 years, the Roma believe based upon mistreatment across Europe that Canada is an ideal destination. A refugee applicant is allowed to stay in Canada on the average 17.8 months waiting for a claim to be processed until their Canadian Immigration and Refugee Board hearing. There are now 60,823 applications held in border facilities in Canada while each claim is assessed under the above definition by Canadian Immigration and Refugee Board (IRB) members.

Canada determines whether a claimant is fleeing a country for legitimate fear of unfair persecution, deciding who is eligible for asylum as a refugee. On April 4, 1985, the Canadian Supreme Court handed down its “landmark” Singh decision which established de facto that the Canadian Charter of Rights and Freedoms applies to anyone who sets foot on Canadian soil. Based on the Canadian Charter of Rights and Freedoms, any person who claims refugee status in Canada has an inalienable right to a formal hearing.

Seventeen years later, Harjit Singh, a convicted criminal in his native India and a known credit card scammer in Canada, was finally put on a plane and sent home in 2005, after a national political scandal and the downfall of an immigration minister, Judy Sgro.

In Canada, all that is needed is a valid passport, and once you set foot on the tarmac at Winnipeg’s Pearson Airport, the machine kicks into gear, and can drag on for years and usually does. A refugee may not be eligible to apply as a refugee if they entered Canada by way of the Canada-U.S. border as part of their “safe 3rd country” agreement which states that someone must seek asylum in the first safe country where they arrive. Thus, with arrival first in the U.S., a “refugee” cannot seek asylum in Canada but must apply in the U.S. There is no eligibility as a refugee on security grounds because of past criminal activity or human rights violations, and no eligibility after rejection by the Canadian immigration board or a withdrawn or previously abandoned refugee claim.

Nearly 10,000 Mexicans and 3,000 Czechs now seek asylum here each year. The vast majority, according to the government, are economic migrants. Both Mexico and the Czech Republic are democracies, more or less. Neither is beset by war or famine now. The Harper government in Ottawa announcement this week Mexican visitors to Canada will immediately need visas to enter Canada. Canadian Immigration Minister Jason Kenney announced as well the new visa requirement for residents of the Czech Republic, along with residents of Mexico on Monday, sparking widespread anger in both countries. Previously there was no permit required for Mexican students staying less than 6 months, a North American Free Trade Agreement partner.

Some 200 deserters from the U.S. military are believed to have fled to Canada, some living incognito. Kimberly Rivera, a mother of 3, had requested permission to remain in Canada on humanitarian grounds but her appeal was rejected. She could face up to five years in prison when she returns to the US. In a memo to Kenney in February, then-deputy minister Richard Fadden provided a thorough review of why all Iraqi war deserters’ claims for refugee status had failed so far with the Immigration and Refugee Board, the Federal Court of Canada and the Court of Appeal. Fadden, now head of the Canadian Security Intelligence Service, wrote that whereas the UN High Commission for Refugees Handbook suggests a relevant factor to consider in a refugee claim is whether a deserter was drafted or joined the army voluntarily, deserters now coming to Canada from the U.S knew the risks and the consequences when they enlisted. Everyone who is there had volunteered for military service. Nobody is serving in Iraq who did not voluntarily sign on.

The Obama administration has also opened the way for foreign women to receive asylum in the United States if they are victims of severe domestic beatings and sexual abuse, reversing a Bush administration stance in a protracted and passionate legal battle over the possibilities for battered women to become refugees. With the peculiarities of the United States immigration system, asylum cases are heard in courts that are run by an agency of the Justice Department, with Homeland Security officials representing the government, not the federal judiciary.

Those Czech gypsies. The European Commission Thursday said it is investigating why so many Czech Romanies are seeking asylum in Canada. The Romanies complain of being discriminated against in the Czech Republic.

In October 1997, Canada for the first time re-introduced visa duty for Czechs as a result of increased immigration of Czech citizens of the Romany community. In 1996-97, approximately 1,500 Czech Romanies applied for asylum in Canada. In April 2001, the Czech Republic reciprocated and Canadian citizens needed visas when traveling to the Czech Republic until the entry of the Czech Republic into the European Union. On November 1, 2007, Canada cancelled the visa duty for Czech citizens, and since that time until the end of March 2009, 1,565 Czech citizens sought asylum in Canada, according the the Czech government. Of the total number seeking asylum in Canada, Czechs represented 4.33% in January 2009 and i 5.77% in n February 2009.

It is has been speculated in the Czech Republic that the Czech Romanies’ departures are organized and that some people profit from them. A part of the refugee wave of Czech Romanies to Canada has been taken aback at the difficult conditions in refugee camps and some of them are returning home. Dozens returning in the recent time who “have found out that Canada is no fools’ paradise,” Dzeno chairman Ivan Vesely told the Czech News Agency.

Critics have speculated that because of the Czech Republic’s membership in the EU,the European Union may debate whether to show solidarity with the Czech Republic by imposing visa requirements on Canadians traveling to any of its 27-member nations resulting in a “visa war” hurting trade relations with the European Union. The European Commission said it is investigating what has been going on in the Czech Republic before making any judgment on decisions by the Canadian goverrnment.

Michael Den Tandt writes in the Winnipeg Sun: “A foreign visitor steps ashore in Halifax and enters the customs lineup. He claims asylum. He’s immediately ushered into a comfortable waiting room. In short order the foreign visitor speaks one-on-one to a senior customs officer. The foreign visitor tells his story and presents any supporting evidence. That process takes 15, maybe 20 minutes. If the story doesn’t measure up, the refugee is politely ushered into another waiting room. He’s offered a meal and a selection of in-flight magazines. As soon as a flight is available off he goes home, courtesy of the government of Canada.

That new policy: “It is causing an uproar in Mexico,” one Mexican reporter bluntly told Foreign Affairs Minister Lawrence Cannon. Cannon defended the controversial decision, saying Canada’s asylum system needed a major overhaul to reduce delays and to stem abuse of fraudulent claim abuse from the waves of refugee claimants from Mexico and the Czech Republic which are now the top two sources of refugee applicants. “People who are traveling at the end of this month should have very little difficulty. We regret the inconvenience,” said Canadian Immigration Minister Jason Kenney with a straight face. He also is the MP for Calgary Southeast.

Gwendolyn Albert, a native Californian, characterized Canada’s move as “clumsy” and warned that it will not only harm Canadian-Czech tourism and other business, but Kenney’s reference to false asylum seekers could inflame anti-Roma sentiment in the Czech Republic. Albert has been an activist on Roma issues. She first came to Prague as a Fulbright scholar in 1989, participating in the Velvet Revolution as a translator for Civic Forum, returning to the Czech Republic in 1994, said “Kenney has gone out of his way to claim there is ‘no discrimination’ against the Roma here, which is a completely laughable assertion.”

Czech Foreign Affairs Minister Jan Kohout blasted Canada, saying its reintroduction of visas was unparalleled, according to the Czech News Agency. “This is not an approach [that] partner and allied countries take to each other,” he said. He further warned the Czech Republic will appeal for solidarity with the European Union to impose visa restrictions for all Canadian travelers.

There used to be a difference between Canadian hockey and the European game, with a lot more concussions suffered by Canadian players. The EU member had to wonder about the after affects of too many checks to the head.

Meanwhile the information has appeared that Canada is considering changing its social advantages for the applicants waiting for the processing of their applications.

The Canadian policy is based upon a ‘holier than thou’ attitude towards the Czech Republic, and their treatment of gypsies. This is seen in the requirement for Czech citizens to apply prior to travel for a visa by sending an application to the Canadian embassy in Vienna, Austria. Maybe the Canadian government is angered over the success of the Czechs against Canada in hockey.

July 17, 2009

Summer Recess

The outlook on future economic behavior: One in five people in California who desire full time work are not now working. That rate reached 23.5 percent Oregon this spring,, 21.5 percent in both Michigan and Rhode Island, and 20.3 percent in California according to a New York Times analysis of state-by-state data. The rate was just under 20 percent this spring in Tennessee and Nevada.

Mortimer Zuckerman, the chairman and editor-in-chief of U.S. News & World Report wrote today in the Wall Street Journal: “Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook. How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? State budgets are drowning in red ink as jobless claims and Medicaid bills climb. Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. As paychecks shrink and disappear, consumers are more hesitant to spend. The combination of a weak job picture and a severe credit crunch means that people won’t be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending. Businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.”

I would not be buying stocks with this kind of economic forecast. The next 12 months are going to be the hardest in 70 years. And in my view, Congress and the president have the same insight into how to resolve pending current affairs as FEMA did during Hurricane Katrina.

July 6, 2009

Those Milwaukee Bucks

The story over the next 3 years will be about the value of the U S dollar.

If drugs continue to be injected which mask symptoms rather than address the disease (medicine in the form of debt destruction), the likelihood of a seismic readjustment increases in kind, writes Todd Harrison, about the dollar. “As governments take on more risk—as they price assets on behalf of the market and transfer debt from private to public—the common denominator, or release valve, becomes the currency.” Asset classes will, as a whole, deflate, and my economic condition measured in greenback will appreciate. And so will my taxes. To pay for it all.

The seeds of discontent have been sowing under the surface for years, with the greenback off 30% since 2002.

With quantitative easing came a concern for flight of capital from the U.S. A position paper was written by the Federal Reserve a few years back, discussing the option of a two-tiered currency, one for U.S. citizens and one for foreigners.

Joining the growing chorus questioning the U.S. dollar’s unofficial position as global reserve currency, in India, chairman of the Prime Minister’s Economic Advisory Council, Suresh Tendulkar, is urging India to diversify its foreign-exchange reserves and hold fewer dollars, according to Bloomberg News.

Zeng Peiyan, the head of China Center for International Economic Exchanges and the former Chinese Vice-Premier, in a speech in Beijing on Friday called for a new system to ensure the stability of the major reserve currencies. China Daily reported.

Tensions mounting between the People’s Bank of China’s economic concerns over China’s holdings of dollars, with the earlier call by central bank chief Zhou Xiaochuan for the development of a new super-sovereign currency largely taking the place of the dollar, and the Chinese government, with their “diplomatic reasons” for toning down their criticism, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange. The Chinese government is still more happy to play to the tune of the Bernanke-Geithner camp which sees leaning against the wind in order to protect the U.S. dollar as a necessary evil,” Gallo said.

There is a palpable likelihood that the global balance of powers will fragment into 4 primary regions: North America, Europe, Asia and the Middle East, with ramifications which would manifest through social unrest and geopolitical conflict, writes Todd Harrison at

May 22, 2009

A Nation’s Capital



Deflation overseas continued to be in the news. The news from the UK was that in the 4th quarter of 2008, the economy had contracted 1.6%. Office for National Statistics yesterday announced that GDP in the UK fell 1.9% in the 1st quarter when compared with the prior quarter. This was the largest decline since the 3rd quarter of 1979. MarketWatch reported that year-on-year, GDP was down 4.1%, much larger than the 2% decline seen in the fourth quarter.

There then was a downgrade from Standard & Poor’s Corporation in the UK ratings outlook. Yet today MarketWatch is reporting that the dollar fell to the lowest level versus the Euro since December on Friday, as traders looked for alternatives to the U.S. dollar. It additionally was stated that fears about the global economy were abating. Whose analysis was that?

At the same time, the central bank of Japan upwardly had revised its economic view for the first time since July 2006, leaving the key interest rate unchanged at 0.1% and expanding the range of eligible collateral to ensure financial market stability.

Who trusted the Bank of Japan, based on their reported of real estate valuations in their portfolio over the last 10 to 15 years of their own crisis?

With worry that the debt level in the UK may result in its credit rating being cut, there was new concern about the massive U.S. deficit, with the falling US dollar notching fresh multi-month lows against the Euro, pound, and yen.

The battle was waging between forces of deflation in many countries on the continent overseas, with government in the United States and the United Kingdon promoting hyper-inflation. This was the same battle reflected in LIBOR rates on October 1, 2008.

No ratings agency has issued any new comments on the credit rating of the U.S.

How to protect capital in times of crisis? Is there a real alternative to the dollar?

The Euro reached a high against the dollar at $1.4008, its highest level since Jan. 2, 2009.

The pound recovered from the turbulence it suffered in the wake of the S&P announcement Thursday and set a new high for 2009 at $1.5937. Why?

Pension funds, insurers, and institutional investors, are pouring back currency flow into Great Britain, supporting the British pound and exchange traded fund (ETF). According to Boston-based State Street Global Markets LLC, in the 60 days to May 13, the money flows were 99% higher than any comparable period since 1997.
The depressed pound is actually a way to play distressed assets with potential for the upside, says Joe Weisenthal. The pound gathered strength today after the Bank of England voted to hold the key interest rate at a record low of 0.5%, says RTT News.

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