Eduard Fischer

The Problem of Stimulus and U.S. Growth

Ben Bernake was asked, during his confirmation hearing this month, how the US economy could be sustained when the government deficit was projected to outpace GDP growth indefinitely. Chairman Bernake replied that the Fed’s own projections were that within fifteen years the entire US government budget would be devoted entirely to servicing the debt and paying for entitlements such as pensions and Medicare, with nothing left over for anything else, like defense or infrastructure That the Dow could make a new yearly high within two weeks of the Chairman of the Fed stating that the US was headed for bankruptcy with no solution in sight is mind-boggling. I am somehow reminded of the Easter Inlanders cutting down every last tree on their island, at the direction of their rulers, with apparently no thought what so ever to the future consequences.

Although I haven’t read Michael Panzner’s book, I can’t imagine how one can be overly pessimistic when a whole civilization appears to be in denial of reality. Your own solution, as stated in this article appears to be to diversify into foreign stocks while Rome, here at home, burns. Well unlike Easter, the US is not an island and every other major economy in the world has for decades relied on the gluttony and hedonism of the US consumer to sustain the engines of their own economic growth. The talk of shifting economies, like China’s and India’s, to internal consumption, is the sheerest nonsense. Unlike the US these countries did not begin their industrialization process with a relatively sparse population and vast natural resources. They must therefore trade or starve, and with whom are they going to trade to when the US is bankrupt? Not only that, both China and India (I have just returned from there) are rapidly depleting the fossil aquifers that are essential to their agriculture. When these go dry, it will make the concept of peak oil seem trivial.

Recovery on Track: Buy Equities, Sell Bonds

Fed chairman Fred Bernanke stated during his confirmation hearings last week that the Fed’s projections were that within 15 years 100% of the US federal budget would be devoted entirely to entitlements and servicing the debt; in other words he was saying quite clearly that the US is headed for bankruptcy.

I find it astounding that under these circumstances professional economists like Dr.Lieberman are concerned with nothing more than the froth on the next short term bubble.

Barrick's Buy-Back Comes at a Bad Time

Financing at a lower gold price would have also meant more dilution of stock by selling at a lower share price. I think that if you crunch the numbers you will find that the present higher gold price and higher share price is a better deal for Barrick than a lower gold price, lower share price. Besides that people are hyped on gold right now so that Barrick seems to be having no trouble placing 4 billion $ worth of shares to do this deal. That may not have been the case when the gold price was in the doldrums.

China Becoming a 'Middle-Class' Nation

Although I generally enjoy this author’s articles here are a few reasons why China’s future may not be quite as rosy as he suggests:

1. China is relatively, for the size of its population, resource poor; it must, like Japan, manufacture and trade in order to sustain growth, or even simply not to starve. This holds true for most of South East Asia. The idea that this region could be economically
self sufficient could only come from America, where the blessings of an abundance of resources and a relatively sparse population are so taken for granted that the reality of other nations’ true circumstances are apparently seldom imagined. The domestic energy resources that China does have, chiefly coal, are very dirty, which brings us to the next point.
2. As the US continues to increase its fiscal debt, China continues to incur its enormous environmental one. The US may default on its government debt some day but China’s degradation of the environment will be impossible to walk away from. Hundreds of thousands of Chinese are already dying every year as a direct result of pollution. Anyone who doubts that China is paying an unsustainable price for its vaunted economic expansion should go there and look around and just take a deep breath.
3. The fossil aquifer under northern China that is supplying much of the irrigation water to feed China’s 1.33 billion people is already showing signs of running dry. Then what? Well maybe they will own enough US treasuries and gold by then to buy Alaska or something. One can only hope that they take Sarah Palin with it.

More Bad News Bears / Banks

Hey John,

Since leveraged short ETFs like SKF and SRS decay in value very rapidly if the market isn't tumbling (both are down over 90% since their highs last fall) you must feel that another financial meltdown is imminent if you put your family friends and clients into an Ultra Short ETF. These tools are definitely for traders and not for investors because of their quick decay. I take it then that you must feel very certain that there is another train wreck right around the corner here. I share your opinion that there is another meltdown coming but I am curious about what makes you certain that it is going to happen so soon.

Expect Further Rise in the S&P 500

Although there were a number of published models out there before the economic crisis of 2008 showing why it was inevitable, I have not seen a single model showing how this vaunted economic recovery is supposed to take place considering the present state of consumer and government debt. The crisis was caused by a credit (not real estate) bubble, which has not in any way been realistically addressed. The stimulus package and tax breaks have extended consumer credit further by sifting more of the new debt to the US government. There seems to be no realistic plan in place for even stabilizing the accrual of this debt let alone paying it down.

To begin to pay down consumer and government debt the US would have to enter another cycle of sustained economic expansion, which is not possible given world market completion. America cannot be completive on the world market simply because there are not enough Americans employed making things. Most Chinese workers, for instance, are directly engaged in production whereas only a small percentage of US workers are. The vast majority are employed in “services,” that is in simply moving stuff or money around, or in a Willy Loman style of hustling themselves. Arthur Miller’s character in “Death of a Salesman,” may well represent the state of the whole country today.

As for all the money “sitting on the sidelines”: the funds flowing into US treasuries is desperately needed every day to finance the enormous US government deficit that is needed to sustain the system. If that money starts to flow elsewhere, then the recent financial crisis will turn out to be a mere prelude to a real meltdown.

Here’s a quote form Miller’s famous 1949 play: “He's a man way out there in the blue, riding on a smile and a shoeshine. And when they start not smiling back — that's an earthquake. and then you get yourself a couple of spots on your hat, and you're finished. Nobody dast blame this man. A salesman is got to dream, boy. It comes with the territory."

Just remember how much of US debt is being financed by foreigners and what may happen if they stop smiling back. In the meantime dream on if you like.

U.S. Financial Conditions Are Best in Almost One Year

Does this mean the market is getting close to the edge of a big cliff as it did one year ago?

Fisher on the Coming Bull: 'Swift and Steep'

What are you smoking? When the Dow was at its peak Fischer was trying to show us why it was sure to go much higher.

Virtually no economist still believes that a V shaped recovery is going to happen this time. Only financial advisers who need to make sales, and some of their gullible listeners apparently, are still parroting this belief.

Consumers Spending Less Than Justified by Actual Income

It's kind of amazing that every comment posted here is more intelligently thought out than the original article. Dr. Conerly does not even seem to take into account the recent deflation of the credit bubble or the huge hole that was blown in the over leveraged banking system with the retreat of the real estate market. Or the even bigger hole that is going to appear in the credit system when another slew of ARM's start to reset in May and then these resets continue into 2012.