Eight Thoughts on the Current Crisis 17 comments
-
Font Size:
-
Print
- TweetThis
1) Greenspan — what a waste. A bright, engaging man becomes a slave to the Washington political establishment. Now he gives us a lame apology, when he should be apologizing for his conduct of monetary policy, which encouraged parties to take on debt because of the Greenspan Put. Now the debts are too big to be rescued by the Bernanke/Paulson Put, where the Government finances dodgy debts.
On a related note, Gretchen Morgenstern is right when she calls the apologies hypocritical. I would only add that Congress also needs to apologize; they did not do oversight of the Administration properly. Many members of the oversight committees are not economically literate enough to do their jobs; they can only score political points.
2) I found this post highly gratifying, because it points out the disconnect between macroeconomics and finance, which I have been writing about for years. When I was an economics grad student, I felt economics had gone astray by trying to apply statistics/mathematics to areas that could not be precisely measured. In this case, if your models of macroeconomics can’t accommodate the boom/bust cycle, you don’t deserve to be an economist.
3) You want accounting reform? Start with accounting that disallows gains-on-sale in a financial context. With modern life insurance products, gain from sale is not allowed under SFAS 97, and I would modify SFAS 60 to be the same way. No profits at sale. Profits are earned in a level way over the life of the business as risk decreases. Let other financial firms use something akin to SFAS 97, and many business problems would be solved.
4) What freaks me out about this article is that Taiwan is refusing the full faith and credit of the US Government, which stands behind GNMA securities. Don’t bite the hand that feeds you; who knows but that you might be traded for the elimination of Kim Jong Il.
5) It figures that the moment the PBGC buys the specious arguments of a pension consultant that the equity markets crash. What makes it worse is that the PBGC tended to buy long Treasury debt which has been one of the few securities rallying recently.
Given all the furor over investing in long duration bonds for pensions versus equities, it is funny that the PBGC rejected the growing conventional wisdom that DB plans should invest in safe long bonds. Once they reject their current pose, the equity market could rally.
6) Is the economy weak? Well, look at the states. If their tax receipts are going down, so is the economy. We are in a recession, and maybe a depression, given the lack of strength in the banks.
7) Do we need a new system for managing the global economy? The Chinese certainly think so. They finance the US and don’t get much in return. Perhaps China could host the new global reserve currency? I don’t think so. Their banking system isn’t real yet, and they still want to subsidize their exports. The global reserve currency role will flow to the largest economy allowing free flow of capital. Now, who is that? Japan? Too small, but the world now recognizes that their banks may be in better shape than many other countries. Plus, they have been through this sort of crisis for a while, and may be closer to the end of it than the rest of us. The alternative is that Japanese policymakers still don’t have the vaguest idea of what to do, much like the rest of the world now.
Thing is, we don’t have a logical alternative to the US Dollar as the global reserve currency. The Euro is a creation of an alliance of nations untested by economic crisis. Perhaps the rest of the world should consider the possibility of no global reserve currency, or keep the US Dollar, or move to a commodity standard like gold or oil.
For now, though, currencies will follow the path of panic, as carry trades unwind, as countries that had too much borrowing see loans repaid (Japan, Switzerland), and countries with high interest rates see a demand for liquidity, which perversely will push rates higher. (Isn’t everything perverse in the bust phase, just as everything is virtuous in the boom phase?)
8 ) On the bright side, some boats are rising. After seeming irrelevant, the IMF has found a reason to exist again with loans to Iceland, Hungary, and Ukraine, with more to come. The small/emerging markets once again learn that they were at the end of the line in this economic game of “crack the whip.” That said, the developed market banks financing them will get whipped too. This is truly a global crisis.
And given that it is a global crisis, I wonder how willing the developed nations will be to add more funds into the IMF when they have crises at home to deal with? I’m skeptical, as usual. Perhaps the Treasury can send them a raft of T-bills. The IMF can ask the Fed for contact info.
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
David Fry
-
2
Philip Davis
-
3
Tyler Durden
-
4
Bill Gross
-
5
TraderMark
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 17 comments:
what about this argument to restore economic order?
Gold Reserves (1) M Ozs
(1) ECB+Germany France+Italy, 290
USA 262
Rest of the World 208
Switzerland 36
Japan 25
China+ Hong Kong 20
United Kingdom 10
The 'boom phase' is where all the mistakes were made via spending money we didn't have on things that were overvalued. The 'bust phase' is where those mistakes are being corrected.
The problem we face is that nobody wants to admit that the mistakes were made in the first place, much less pay the price for making them.
So, we see the gub'mint pouring borrowed money into businesses who made mistakes so large that they are unthinkable rather than let them fail. This will only serve to prolong the period it takes to unwind the mistakes.
The runaway greed of Wall Street starts with Washington and corporate America. I'm in favor of reform for lobbying... particularly every cent gets a name next to it from whom it is from to whom took the bait.
If I were president there would be Armageddon on corporations. Slash and burn.
What a crock of $hit we have turned "democracy" and "patriotism" into. We should be utterly ashamed -- and will be.
Peter was robbed during the boom phase via fractional reserve lending and will be thrown out of work during the bust.
But hey, Pete will have a nice ipod to listen to in the unemployment line courtesy of the "forced investment" made on his behalf with the money stolen from him.
Ditto to what Smarty said
Abolish the FED and make the dollar a value based currency again instead of the debt based currency it is now. I don't care if you back it in gold, silver, uranium, it doesn't matter. Fiat currencies FAIL. The FED creates all of these bubbles and disasters by trying to "predict" the market with inflation hikes and cuts. Interfering with the free market and creating all these damn problems. They create hyper inflation by devaluing the dollar by printing money out of thin air. Good lord is anyone getting the memo the FED is the core of the problem?? And btw we do have an alternative world currency to the dollar, its called gold.
A large portion of our country has a "What has my government or employer given me today that is OWED to me". The harsh times now and harsher times soon to come will change this attitude as people learn to compete and offer value rather then expect an easy life. JFK hit the nail on the head "Ask not what your country can do for you but what you can do for your country". And government is FAR to intruded into business then it should be, despite the regulatory supervision failures and removing regulatory safeguards.
1) Government now sees itself as the Provider and Protector of the people. The Constitution provides for this only in terms of the military. "...provide for the common defense...promote the general welfare..." That latter part...did not refer to entitlement programs!! It's about *preventing* government or groups from *interfering* with private life and private commerce!! Our Founders were all about SMALL government...our current government thinks we need to be provided for and wants us as the underlings to fund it and to have power wielded over us!! We were not intended to be such "wards of the state"!!
The Fed and its ability to manipulate the economy are a big part of this government usurpation of *private* commerce. Biggest scam ever. Tool to profit "the few". Abolish it and restore the gold-backed dollar.
2) Private Property Rights: We are quickly losing all notion of personal property rights. In recent years, the concept of Eminent Domain has been radically abused. For decades now, the government has thought that it has the first claim on our paychecks. And now, redistribution of wealth is threatening to ramp up even further!
3) Personhood: closely related with personal property rights. Ya know who denies personal property rights? Hegelian-Marxists. And the next step is personhood -- where there is no private property, the next step is *always* for the person to become regarded as an automaton who exists FOR THE SAKE OF THE STATE!! A cog in the wheel, to be USED. That is not the essence of a human being, folks!! We'd better watch closely for this, because it IS COMING. There are very close similarities to what happened in Nazi Germany now forming in the U.S., in terms of philosophies!!
4) Taxation -- again, closely related to both 2 & 3: with the rise and continuation of Entitlement government, we already *have* become automatons who are mere producers for the state in some sense: those in the workforce exist and are kept employed in order to maintain the in-flow of tax money for those who are now on the receiving end. You need only look at Social Security to see this one!!
In general, this is what our current entitlement-minded government and our entire tax structure does!!! It makes us wards of the state, and mere producer automatons, for the sake of the state, and to perpetuate the power of those who are "the provider". In order to become human beings again, with value for our own sake, and having a government that *serves us*, instead of being producers for *it*, we need to abolish the income tax completely!!
The Income Tax is unconstitutional, and it was ruled so in 1895...somehow we amended in 1913 to allow it -- and *that* has sucked power from the people like noone could ever have anticipated!! Needs revoking *yesterday*! When we go to sales tax & tariffs only, we will have restored the power of the people:
a) Their right to their own money, vs. presumptive grab by government
b) The power to control the government purse -- American doesn't like what is being spent, we cut our consumption drastically for a couple weeks...boom -- project cancelled. We'd have government responding to us again, instead of wringing our hands nervously over whether we did our taxes correctly.
c) Restore privacy - why does the government get to know every detail of your financial life? That's what happens with income taxes! They have no right to that knowledge. Sales tax is non-intrusive.
And the other king-daddy: property taxes -- totally out of control! Why should we pay tax forevermore on something we have already bought and own? There should be a one-time sales tax, and then that's IT.
In short, we can reverse *most* of the wrong ideas and damage, by giving the people control over their own livelihood again -- by abolishing the income tax entirely! Let's get it done, people!!
P.S. -- did you all read about the Democrats and the proposal to grab our 401Ks?? They're talking now of "nationalizing" 401Ks...we'd be the gracious recipients of government bonds yielding 3%. Like it or not. Betcha Obama signs that bill when Pelosi and Reid put it on his desk. Any takers??
The basic reason the decision was made to go off the gold standard is simple. Without a gold standard the gub'mint is free to print and spend money without end. This money benefits those who get to use it first, while those who get it much later lose out.
Example:
You live on an island of 100 people. Everyone has $1000. There are thus $100,000 of money in total. Prices have stabilized at $1 for a loaf of bread based on bread supply and demand.
Your next door neighbor starts printing money. He prints another $100,000 and does a perfect job of it. No way to tell it's counterfeit.
Your neighbor goes on a spending spree (he's got over half the money on the island now) and spends everything but $20,000. Over time the extra money allows people to bid up the prices for stuff they want until new price levels are established (at 1.8x the old levels of course). Now bread costs $1.80/loaf.
You and everyone on the island are now paying twice as much for everything with an income that is 1.8x as large. Not terribly bad, except your savings will buy 1.8 times less than they used to buy.
Next year your neighbor prints up another fresh batch of money and the process repeats. Every year your neighbor gets richer and you get poorer as your savings buys less and less.
Can you now see why your neighbor (ie. the gub'mint) wants to print money?
A gold standard restrains this printing because anyone with paper money can exchange it for gold UNTIL THE GOLD RUNS OUT! Then the gub'mint is in deep doo-doo and heads start to roll.
Ironically Alan Greenspan wrote a good paper on this back in the 60s. moonbat posted a link to it a while back. It's a good read.
There once was a fella named Lou,
His views were considered 'whack-a-doo',
He said with much verve,
"No more Federal Reserve!",
"Let's just bid all those bankers adieu."
send me your address & I'll Halliburton overnight you a tactical nuke
As this constituency becomes more dependent on the government, their vested interest in big brother government becomes more compelling, and their collective influence more powerful. Politicians play to this weak, non-productive, but happy-to-have-a-handou... crowd, all the while lining their own pockets.
It is a "virtuous" circle of greed and laziness that will maintain its inertia until something radical happens to break it. The solution is left as an excercise for the student.
The reason the US took itself off the gold standard is fairly simple. And that reason is because gold limited the funds the Federal government had available to wage its wars, builds its VAST global empire, put military bases in well over half the countries on earth, topple governments, and secure its new empire. Gold is finite, and the US Federal government only had (n) amount of that finite gold. If you only have (n) amount of gold and you need (n+1) you must get more gold.
This of course is a major road block to building your global empire. It's much easier to pile up HUGE deficits and spend all the money you need, to do whatever you want when you have a printing press (the FED) and can just print money out of thin air. This is one of the theories of Austrian economics on having a currency backed by say gold. It limits the ability of insane run away spending like we see with the US Federal government now. I find it laughable these clowns in washington even waste the time to print up budgets. What's the point? They just print money out of thin air. Useless money that is literally only worth the fabric paper its printed on. The dollar is essentially valueless.
Add universal healthcare? We just get to fail quicker. Hmmm...maybe that's a *good* thing? I'd rather not take that medicine though.