Michael B. Krause

Treasuries and the U.S. Dollar: Twin Bubbles

The direction of monetary velocity is key. If it never recovers, the path is to hyperinflation as we are unable to pay off our debts. It will undoubtedly at some point, as banks feel no more need to hoard. This is probably equal to the point where all downside on homes is properly matched with reserves provided by the fed.

Trichet, ECB Missing the Point with Crude

The European banking system is just as guilty (if not moreso) and dependent on liquidity support from their respective central banks as US counterparts. I am suggesting that 'this time around' uncoordinated rate policy is really a sloppy way of solving these inflationary tendencies.

Remember that speculative money is out of stocks and bonds, looking for a home. That $240B (or whatever the # is) is now pumping commodities.

Also considering the destruction of wealth and reigned in credit (slower velocity of money as well), I am not sure total money supply is so 'pumped' as of recent despite what shadowstats might suggest. Whatever has been sent to the system offsets the hundreds of billions of wealth that have already disappeared (or been transferred to 'subprime' assetholders).

I agree the EU should look out for itself, and it should not have to pay for US policy recklessness as well. But at the same time, my criticism focuses on two issues seperately: 1) rate policy may be ineffective versus actual coordinated world energy policy (and this should have been done a long time ago), 2) the EU is now not backing up the Fed, but they were months ago. The EU has not decoupled from the US economy, and erroneous moves have negative ramifications for them as well, despite the wave of anti-US dollar sentiment that is so popular now.

Peak Oil, Crude Price and Equity Correlation

I am only suggesting it will take $50 crude for it to be a serious stimulus, rather than braking force to the economy. The bulk of this article is quite bullish oil (long term), buying into peak oil. That is of course until demand destruction occurs at a faster rate than supply shortfall.

Options Trader: Wednesday Outlook

Agree that oil recovery is more expensive, but you forget one thing: the market doesn't care how much it costs to produce oil.

The market only cares if there is too much or too little supply, and will adjust price accordingly.

An Energy Policy that Makes Cents (and Sense)

I totally agree with the jist of this... So much that I made my own contribution in a letter to politicians on the concept. Similar minds think alike I guess:

scriabinop23.blogspot....

And on ethanol: scriabinop23.blogspot....

U.S. Dollar Paradigm Shift Underway

correction: low interest rates ARE not significantly ramping up money supply.

typed a little too quick.

U.S. Dollar Paradigm Shift Underway

Yes. This 'bail-out' just prevented, as Meredith Whitney of Oppenheimer speculated, a 2.5T forced unwind (imagine the cascade) of credit default swaps.

The err here is that of the masses blindly following the quants in the quest that greed guides. That, by the way, is capitalism. Judge for yourself the errors of capitalism.

As far as John's arguments of money supply: My point is that there has been a gigantic amount of monetary destruction going on. The reigning of credit is monetary destruction. When the reserve base falls (as it has due to these bank losses), the total money outstanding is significantly less. Its just like a multiplier reduction. Now even with a new risk assessment mentality, w/ banks being afraid to even loan to each other, low interest rates is not significantly ramping up money supply. Its just helping reduce a barrier of functionality in the system.

A deflationary environment provides no incentive to run a business. Why invest if your future returns on investment will not pay for your current investment? If you want gold standard, no fractional reserve, etc. then you want a socialist system. Capitalism vs. socialism is another argument for another place.

But certainly, a strong currency with little innovation is fundamentally sound from the point of view of the fact that no progress yields little in the way of health care tech advances. You're right: you won't need to worry about retirement with a gold standard currency because you won't live more than a few years past working age.

U.S. Dollar Paradigm Shift Underway

This is a great provoker ... I was wrong about the depth of the credit crisis. I'll admit that. But if you read further in the same article, I go on to say:

If $90+ oil is here to stay, we're only at the beginning of the food commodities rally. Watch corn go to $6.00/bu, soy to $13.00, and forced out wheat acres will repeat this past season's ascent to an even more ridiculous level. Then comes the more expensive to feed pigs, cattle, and resulting milk.


And to the first writer: The average middle class lives more comfortably (minus the servants) than Rockefeller did at the turn of the century. A move away from gold standard facilitated this.

To the last poster, you say:

" For those of you that say innovation has created economic "booms"...I guess there is a sucker born every day. Booms are created by the FED. "

You are getting it backwards. The flexibility of the money supply helps and does not hinder gigantic productivity and technological increases. It is the fuel to our innovative spirit in the US. Sure it leads to excesses and busts like this, but this cycle is necessary. Greed, fear and risk taking are inherent in capitalist mentality systems; a move to a system that removes the cyclical element takes away the capitalist 'oxygen' so to speak.

On the other hand, I'm in no way condoning the giant 'herd' screwup that subprime became (not just in the US scene, but the world scene). It is a story of collusion between i-bankers, ratings agencies, and blind faith into flawed statistical models. Perhaps the lesson here is everyone in finance should be required to take 4 semesters of statistics and econometrics to not function like the herd and think for themselves.