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  • Greece: The First Of The Dominoes? [View article]
    "The 'last moment' to do what, exactly? The moment passed long ago, and default has long been inevitable."

    If the EU and EMU acted quickly enough, default could be avoided across the board. They won't, because they continue to embrace the monetary and fiscal frameworks of mainstream macro, which assume a world that doesn't operate like the one we actually inhabit.
    Sep 11, 2011. 12:36 PM | 2 Likes Like |Link to Comment
  • Income Investors Face Enormous Macro Risks Ahead [View article]
    James: "The key in this environment is to identify companies with true pricing power under inflationary conditions."


    Staggering un- and underemployment in the US, western Europe, and Japan;

    China flirting with a hard landing;

    Fiscal austerity run amok;

    Central banks stubbornly believing that net new money is created by private sector credit transactions;

    and deflationary demographic trends in most of the world...

    What's going to cause runaway inflation?

    The only thing that seems likely to start pushing price indices (e.g., PPI) up considerably (beyond temporary, wasteful, distorting commodity and forex speculation) is when the Baby Boomers in the western world start to pass away in significant numbers, which won't happen until the end of this decade.

    Furthermore, any such increase is likely to reflect relative rather than absolute price shifts, i.e., it' not technically inflation:
    Sep 11, 2011. 11:25 AM | 2 Likes Like |Link to Comment
  • Why Precious Metals And U.S. Treasuries Aren't Good Bets Against The Current Uncertainty [View article]
    Doug Eberhardt: "...I am clearly in the deflation camp with inflation occurring in certain areas the past year (food and oil) but not so with real estate.."

    Again, ad nauseaum...that is NOT inflation, any more than divergences within Jastram's wholesale price indices were! Those are RELATIVE PRICE SHIFTS. As long as people keep abusing these concepts, we're not going to get anywhere talking about this stuff.

    "In Roy Jastram's book, "The Golden Constant," he clearly laid out the observation that gold doesn't maintain its purchasing power in inflationary times, but increases its purchasing power in defalationary times."

    I'm amazed that people struggle with this. Gold's relative value drove prices when money represented a fixed quantity of it. Fiat money's relative value drives prices now, including gold's. Jastram's deflation (inflation) implied a shortage (surplus) of gold. Once money floats, gold becomes a barometer (some believe) of money's relative value; falling (rising) gold price implies shortage (surplus) of money (though personally I think the gold trade has become way too one-sided to put much trust in).

    "But his analysis was flawed from a deflation perspective in the 1929-1933 period because the price of gold was fixed."

    It has several flaws (so do his conclusions, but it's still a great piece of work). But why would you say this only applied to the GD??? A fixed nominal price of gold is at work in all of his data, including centuries of UK prices, except for brief periods where convertibility was suspended.

    "People are rushing to "perceived" wealth in U.S. treasuries and "real" wealth found in gold and silver."

    As long as my taxes have to be paid in USDs, they and USTs have "real" value. Cut the crap.

    "When interest rates start to rise again, and they will, and when inflation rears its ugly head, and it will"

    When and why? Baby Boomers aren't forming households any more. And the Echo Boomers household formation rate (measured by age group, at least) has peaked.

    "you can bet gold will be where people run to."

    Why, if it has already appreciated several-fold in anticipation of something like that? And what if you're wrong about inflation after this massive gold price run up? What then?

    "Watch TBT, the 20 year treasury short for indication of the end of the treasury run."'s sure been spot on to this point. Ever heard of the Black Widow trade?

    "But things can take longer than most expect. Just look at Japan which I have written extensively about. They lead the world in Debt to GDP ratio, before their recent triple disasters and yet the Yen is still "perceived" as strong."

    Because it is.

    "But they have something going for them that the U.S. doesn't. They are a net exporter..."

    You have just demonstrated complete ignorance of fiscal and monetary operations in Japan. Are you saying that when they export, they receive Yen, which they then use to service their govt debt???

    "and they own about $750 billion of our treasuries."

    Which they bought with dollars that they received after they sold us stuff. So what? From that statement, you can see that the dollars they bought those Treasuries with PRECEDED the issuance of interest-bearing Treasury debt...which means your entire thesis has no foundation in reality.

    "The U.S. on the other hand is a net importer and we owe trillions to other nations, let alone our own citizens."

    So what? In most of the periods Jastram studied, the gold mining industry "owed" as much bullion to the global economy as it could dig out of the ground (which made for some real sport if you happened to live in a gold rich area of the world...).

    All of that so-called "debt" represents nothing more than an interest bearing liability of the monopoly issuer of the USDs that it promises. Like gold mines in most of the period Jastram's book covers, some sector of a monetary economy MUST run perpetual deficits. In the US, that's accomplished through Treasury deficit spending, and only very rarely through Fed operations (no, QE2 did not create any net financial assets, nor does routine open market interest rate targeting).

    "This can't end pretty when/if people lose faith."

    Right. But your entire forecast is a matter of faith, or at least faith-based economics. Ask some financially strapped households, or non-US govts with debt denominated in USDs, if they have a lack of faith in USDs.

    "What will cause them to lose faith? Well, in Iceland they had better economic data than in the U.S. before their financial collapse."

    Again, you're demonstrating your ignorance, Doug. Iceland left the eurozone because it became too costly to outsource monetary policy while also ceding fiscal autonomy. (Not to let the banks off easy, btw). This is what the PIIGS are now feeling, and what the core will feel soon enough, because they're just as ignorant as you (e.g., when the ECB buys "sovereign" bonds, it is not creating net assets, despite what Trichet et al believe).

    "The inflation/deflation debate becomes irrelevant when the banking system trumps it all. That's why I keep close tabs on that sector. Someone hast too... "

    Thanks Sheriff...

    "I know the typical retort from some to this, is higher interest rates will take people away from gold and into higher interest rate accounts...Gold and silver give investors the insurance necessary to protect against any potential crack in the Humpty Dumpty economy. Those cracks can come from a multitude of places."

    Look, anyone in a net asset position without a benchmarked investing mandate can buy whatever they damn well please. If precious metals give them comfort, fine. But let's not suffer the delusion that they cannot experience price bubbles. They have and they will, like almost every other asset.

    ***Disclosure: some clients long puts on GLD***
    Sep 7, 2011. 05:23 PM | 2 Likes Like |Link to Comment
  • German DAX Crushed As Deutsche Bank CEO Offers Truth On Banks [View article]
    How are people missing the Germany connection?

    It sells most of the goods it produces to other eurozone members.

    The ECB does NOT create net new financial assets (quantitative easing is this century's biggest misnomer so far).

    Private sector credit creation does not create net new financial assets.

    Only sovereign deficit spending and "extraordinary" central bank operations can create the new money that Germany's 'export miracle' requires to continue growing.

    And the German public is dead set against it out of ignorance. They might start to figure it out once unemployment returns to (Maastricht) "normal" and they have to work as many hours in a week (and/or send both spouses out to work) as those "lazy" PIIGS citizens.
    Sep 6, 2011. 07:51 AM | 2 Likes Like |Link to Comment
  • Trillion Dollar Coin Idea Goes Mainstream [View article]
    bds: "If the federal government could mint $1billion goods and services, i.e. wealth, along with the coin it wouldn't be inflationary"

    If the productive capacity to produce those goods is available, even with up-front investment required, it's not inflationary. Govt money is like points on a scoreboard. Doesn't need any real value whatsoever.

    "As a holder of US debt myself, if the federal government simply printed up the new money to buy it back from me"

    What would have happened? First, you bought that debt with dollars, correct? Where did those come from? They were most likely deficit spent into existence (a very small % were created by non-normal Fed operations).

    What happened to those dollars? Typically they're digitally destroyed (Treasury doesn't directly fund its spending with "borrowing", a misnomer). Can that cause deflation?

    So now if Treasury or Fed bought it back from you, you'd just be swapping it back to its original form, which in theory has the same present value as the Treasury security you unloaded. That's not inflationary. It may impact the Fed's interest rate targeting operations if it's large enough in one direction or the other, but that's it.

    "I think the reason that we haven't had serious inflation despite the massive annual deficits"

    Is that they're not large enough to cause inflation under prevailing conditions???

    "if the government defaults on my paper and still wishes to retain the fiction of the face value of that debt, my plan is to present it as payment for my taxes at face value. Not sure how the IRS would respond if many people did this."

    Interesting idea. Check out the Mosler Plan for Greece.
    Aug 6, 2011. 03:10 PM | 2 Likes Like |Link to Comment
  • One Chart That Explains the Entire Financial Crisis [View article]
    Northwest: You must be one of those clueless left coast liberals. Or just reasonable. Either way, couldn't agree with you more.
    Aug 2, 2011. 11:32 AM | 2 Likes Like |Link to Comment
  • One Chart That Explains the Entire Financial Crisis [View article]
    Ray: CRA was enacted in 1977, and the chart shows an upward trend existing from at least 1980, so maybe it did play a role. Of course, you'd need to decompose the data and shoe that CRA was behind the increase in LTVs. Otherwise we're playing fast and loose (as the author and his source have done).

    But the three inflection points I outlined above -- cap gains reduction 1997, fin mkt dereg 1999, and inv bank dereg 2004 -- all coincide with clear inflection points in the proportion of LTVs. And because it's a proportion, it's crystal clear that your "greedy banker" factors played a MUCH larger role than CRA or anything else.
    Aug 2, 2011. 11:19 AM | 2 Likes Like |Link to Comment
  • Paul Ryan: Not Qualified to Chair the House Budget Committee [View article]
    soleprop: "Revenue has to be increased to cover expenditures (the US needs to get a second job; or ask for a raise!)."

    Operationally, expenditures precede revenues and your tax dollars are 'destroyed' upon receipt, not subsequently spent. So how is this remotely possible?

    The USG (under almost any economic conditions imaginable) *has* to run a deficit in some form (via Treasury spending and/or Fed permanent operations involving something other than Treasury debt).

    "After that (as soon as the debt is paid-off)..."

    ...a Jacksonian depression! Great idea.

    I'm OK with just about everything else you wrote. But 'balancing' the federal budget is a bad idea, and 'paying off' the federal debt would be 1,000 times worse.
    Jul 12, 2011. 01:24 PM | 2 Likes Like |Link to Comment
  • Paul Ryan: Not Qualified to Chair the House Budget Committee [View article]
    "Yes, but Ryan is an idiot."

    Come on...he's not a dumb guy. He just works in the same paradigm that almost everyone else does.
    Jul 8, 2011. 12:23 PM | 2 Likes Like |Link to Comment
  • Debt Ceiling and Austerity Have Their Costs [View article]
    @ fessy: "If austerity measures slow economic growth, then why don't we just print all the time"

    Relax. What you call "printing" is akin to what was once called gold mining. Under a gold standard, we needed the gold mining industry to run steady 'deficits' of gold. Now that money is largely a public monopoly, we need (in the US) the federal govt to do the same thing via its budget. Can be via tax cuts or expanded spending or both. It's decidedly non-partisan (but something no partisans are talking about unfortunately).

    "and the government can give everyone free homes, food, boats, and cars. Just think of all the economic growth we would have!"

    Right, like in the USSR. No one in their right mind is advocating this. Again, relax. Optimal budget deficits do not mean that the govt is giving stuff away for free. It means that savings desires are sufficiently met and that incomes are at a level that allow us to trade freely with one another.

    "Governments should not be in the business of stimulating the economy."

    We should wait until there's a major gold discovery instead? That took half a century under the last gold standard.

    "They are formed to secure our liberties. Central planning does not work, will not work, and can never work."

    I'm OK with this (though some theorists would disagree with you, even some Hayekian types) but it's not really as binary a thing as some libertarians make it out to be. As soon as there's a military or a judicial system, there's some degree of 'central planning' (or at least governmental authority and discretion) occurring. Furthermore, some public monopolies (such as modern money) are designed to (among other things) secure our liberties.

    As an aside, the man who said that thing about the shame of trading liberty for security also believed in soft currency economics. He certainly wouldn't have called his monetary system 'central planning.'
    Jun 21, 2011. 03:05 PM | 2 Likes Like |Link to Comment
  • Ratings Agencies Circling the U.S. [View article]
    If the misinformed lunatics in DC follow through with their threats of default, then it's absolutely valid to downgrade the USG's credit rating. But assuming we manage to avoid that needless disaster, here's a quick exercise to assess just how much the rating agencies matter when it comes to sovereign credit:

    1) Plot the yield on long-term yield on Japanese Govt Bonds over the last 20 years.

    2) Plot the dates of rating agency downgrades of the Japanese govt's creditworthiness over the last 20 years.

    The same thing is going to happen for the UK, and the US, ignoring the short-term lunacy. The rating agencies are an utter joke on developed sovereigns, as bad as or worse than they were on subprime securitizations.
    Jun 11, 2011. 05:20 PM | 2 Likes Like |Link to Comment
  • Austerity Won't Shrink the Deficit in a Balance Sheet Recession [View article]
    "It is axiomatic that the financial markets would crash & the dollar would immediately cease to be convertible with the passage of any legislation legitimizing MMT."

    Wow, I'm convinced...except for the part about convertibility, as the USD is already non-convertible (has been since 1933-34 for most of us, since 1971-73 for the rest)...and "legislation legitimizing MMT," as it's already an operational fact of life.
    Apr 27, 2011. 03:02 PM | 2 Likes Like |Link to Comment
  • Austerity Won't Shrink the Deficit in a Balance Sheet Recession [View article]
    jh re: "You fail to understand the nature of taxes as did Keynes. All government spending is a tax..."

    In addition to demonstrating absolutely no comprehension of any known form of 'Keynesian' economics or Keynes himself, you're failing to close your model. For most of Keynes' life, gold mines (and to a far lesser extent owners of gold) were the provider of marginal units of money. Given that sovereign govts are now the monopoly suppliers of money (in the US, via Fed support of private sector credit creation and Treasury via expenditures), then for your logic on deficits and taxes to hold true, you must either:

    (1) also argue that gold mine output in the 19th century was a tax that was always negative for the economy; or
    (2) accept that sovereign govt deficits can have positive economic effects under at least some circumstances.
    Apr 27, 2011. 02:53 PM | 2 Likes Like |Link to Comment
  • Time to Get Precious Metals Out of Storage in London? [View article]
    @ ilc: Thanks for bringing data to the debate, especially Angus Maddison's, he left an amazing body of work behind. If either of you are wondering, I once viewed this issue the same way you do, regurgitated the same platitudes, and always brought a biased eye to the data until I looked at enough of it. Or until the Establishment successfully brainwashed me. :)

    The 19th century was a period of unprecedented global trade integration and growth, no doubt about it. However, demographic transitions (lower mortality followed later by lower fertility) were a powerful factor behind that (in fact, the baby boom, which was not a US-only phenomenon, had a lot more to do with sanitation innovations in the mid-to-late-1800s than with GIs returning from war). As you know, adding population should increase real GDP, all else equal.

    To control for that, you have to look at real GDP per capita. And given that the classical gold standard was global in nature, you need to use more than just US data; I've used Maddison's world average for real GDP, imperfect as it is. Through 1820 annualized increase in real GDP was essentially zero. From 1820 to 1870 it was just over half a percent. From 1870 to 1890, it was 1.24%. But from 1900 to 1913, which arguably excludes some of the initial reflationary impulses from massively increased gold production in the late 1890s, it was 1.47%. A better monetary system would not have required massive capital investments (human, physical and financial) and widespread social upheaval (South Am, Africa) to deal with a shortage of money.

    Getting more granular, we can look at individual years for western europe and western offshoots for classical gold standard (1873-1896) and post-Witwatersrand (which was essentially a huge injection of base money into the global economy). I'm even giving you 1871 and 1872 real GDP growth, so I'm cherry picking against myself. The 1871-1896 mean is 1.32%, median is 1.2%. For 1897 to 1913 mean is 2.11%, median is 2.33%. Small numbers, but as you and Avery well know, doubling the growth rate of real GDP has astounding implications for wealth and standards of living.

    Again, I'm not arguing for inflation here. I'm simply pointing to some of the historical *realities* of the gold standard. If you're interested in challenging your assumptions, the Bordo-Schwartz Retrospective on the Classical Gold Standard and SB Saul's Myth of the Great Depression 1873-1896 are good places to start.
    Mar 15, 2011. 08:48 AM | 2 Likes Like |Link to Comment
  • Is It Time to Short Commodities? [View article]
    "The fed should be abolished. Another gift from the Democrats we never needed."

    That's a bit of an oversimplification. Too bad you weren't alive then to tell everyone they didn't need a central bank.
    Feb 11, 2011. 03:45 PM | 2 Likes Like |Link to Comment