ozzy43

Japan Defends Dollar’s Status, China Tears It Down

"It certainly is not in China’s best interest as all their U.S. dollar assets will lose value."

This statement would be true if the Chinese were as concerned about short term gain/loss as Americans tend to be. However, China, like Russia, is in this for the long game. If in their view it enhances their long term geopolitical strategy, there is no reason to think they'd balk at losing money in the near term.

It's simply not wise to assume your opponent thinks just like you do, especially in the face of a few millenia of evidence that they do not.

Summer 2009 Stock Market Evaluation

In the pages of history, will this assertion:

"While uncertainty still looms, the data suggests that the worst of the economic and credit crisis appears to be behind us."

Join with these?

"The spring...marks the end of a period of grave concern ... American business is steadily coming back to a normal level of prosperity,"
Julius Barnes, Head of Hoover's National Business Survey, March 16, 1930.

"We are now near the end of the declining phase of the depression," the Harvard Economic Review, November 15, 1930

Only time will tell...

Hyperinflation Not on the Horizon

Yes, there can be no doubt that the Fed will act in an intelligent, responsible and far sighted manner. After all, there's a first time for everything.

In Defense of the Dollar

"I do not believe that central bankers will allow their power to disappear by witnessing the fall of the fiat currency system. Instead, the dollar will eventually stabilize and rebound."

The entire preceding article argues against this point cogently - and then the author makes this assertion without any argument or logic to back it up! Unconvincing.

Consider: the only real power that central bankers have comes in two forms:

1. Positive: actions like increasing the money supply, printing money, monetizing debt. All positive actions lead to currency debasement, and these are the 'standard operating procedures' for central banks - indeed, these sorts of actions are their raison d'etre - the whole goal behind establishing central banks was NEVER to 'manage' or 'coordinate' - it has ALWAYS from the very start been to exploit and inflate. This is why the USD has lost more than 90% of its value since the Fed sprang into existence in 1913. No-brainer.

2. Negative: choosing *not* to manipulate and inflate - in other words, doing nothing and allowing markets to manage themselves would be negative actions. How often in the nearly 100 year history of the Fed has it done this, especially during times of crisis? And looking at the current hyper-activist Fed and Treasury, to expect them to engage in such hands-off, negative interactions would be like expecting Ralph Nader to suddenly open a Corsair dealership. It would be to violate everything they stand for. Yet that's what would be required for the Fed to stabilize the dollar long term.

With all the incoming debt (and don't forget - there was something like $60 - $90 TRILLION in public debt incoming BEFORE this crisis [what? you didn't watch I.O.U.S.A.?], which is aggregate to recent debt developments), the Fed and the US Govt has ONLY two options, and the author's knowledge of the history of fiat currencies should make this abundantly clear:

default or debase

Those are the only POSSIBLE paths forward. What we are seeing is that they have made their choice and we're only beginning to glimpse the consequences.

Questions About the Dollar

Great example of GIGO. Any analysis that relies upon the fraudulent government-generated numbers like CPI and GDP is bound to wind up issuing fundamentally misguided conclusions. Furthermore, the assertion of Keynesian principles as though this model had not been disproven conclusively in the 70s in a period of rising unemployment AND rising inflation (something the Keynesian model said was flat out impossible) perpetuates the fantasy-based underpinnings of the logic here. And the nail on the coffin is the way in which the author presume that 'strong policy response' will result in the expansion of the economy. Hello - unemployment continues to soar and the gargantuan private debt overhang will need to be paid down, painfully, by people with fewer jobs. Meanwhile, the strong policy response by the government consists of wresting capital resources from the more efficient private sector, leaving that sector - which is the ENGINE of growth - with fewer resources to actually build capital and contribute to a REAL expansion of economic activity (this does not include digging holes and then filling them in again).

The cherry on top is where the author cites Geithner with an apparent total lack of skepticism as to whether that Wall St banker might not actually be 100% honest.

This article is an exercise in pure fantasy on virtually every level.

Three Possible Causes of Yet Another Downturn

"government is rushing to help instead of making things worse"

This statement betrays a fundamental misunderstanding of, and mistrust in, market forces which cannot be denied. The 'help' government is 'rushing' to supply is, of course, 'making things worse'. Preventing insolvent, corrupt businesses from failing - at gargantuan expense - will only prolong the agony.

Zhou's International Reform Proposal - We Can't Afford to Ignore It

"John Maynard Keynes' sage advice"

Lost me right there...there is no more thoroughly discredited economic theory than the one promulgated by Keynes and seized upon by government's worldwide. Again and again, history has rendered its verdict. Yet, again and again, fools and supporters of vast government interference in economic matters have ignored that verdict and wrongheadedly pretended Keynes' views continue to have merit. "Those who do not remember history are doomed to repeat it."

If you think corruption and swindles at the national level are bad, just wait 'til you see what the supra-national level - compliments of the wholly unelected and utterly unaccountable IMF - is able to accomplish.

A Depression and Recovery in Internet Time

I think this statement says it all:

"Indeed, the eye of the storm has passed and 2009 will be a much better year than everyone expects."

Anyone who has lived in Florida can tell you: it is after the eye passes and the 'back' side of the storm then hits that most of the serious damage is done. The author does not seem to realize just how apt his metaphor is, because he does not understand hurricanes any better than he understands economics, which is born out by making ludicrous assertions like 'over the top deficit spending' is the 'only known fix'. I suggest some reading on Austrian economics.

Fiat Money and a Profligate Congress: A Bad Combination

An astonishingly naive view, politically speaking. If this government of ours has proved nothing else, it is that it is utterly incapable of abiding fiscal restraint of any form.

Also worth noting: every episode of fiat currencies deployment, historically speaking, has ended in massive economic dislocation. In France, in the late 18th century, it ended in the guillotine being put to good use. Perhaps they were on to something...

The Poor, Poor Dollar

I'm curious to know why the author chooses to swap one fiat currency for others (we can partially exempt the CHF from this statement, as it must by law be backed by 40% gold reserves). Massive monetary manipulation via fiat currencies issued by fractional reserve banking systems seems to be at the heart of the crisis, conventional wisdom notwithstanding. At a minimum, partial diversification into gold would seem to a better strategy, or at least to have some place in such a dollar-wary strategy. Fiat currencies are all, after all, subject to, well, fiat.

Commodities Correction: Painful but Healthy

Maybe Paul is on to something - instead of charting and technical analysis, perhaps we should start praying to the animal spirits, building animistic totems in our living rooms, etc. Then again, probably not.

Just a Commodities Correction - Not the End of the Bull (Part 1)

The slow spread of alternatives to fossil fuels has little to do with bribes or lobbying, though Big Oil certainly plays a role. But more importantly are the severe technological hurdles for, say, a 'hydrogen economy' which experts and scientists in the field predict is 40 or 50 years away. Additionally, even the terminology is misleading - these technologies are not so much 'alternatives' to fossil fuels as they are 'derivatives' of it.

Also, there is a fundamental distinction to be made here: fossil fuels are almost unbelievably energy dense - most of the 'alternatives' are, simply, not. And there are no good substitutes for liquids replacement that offer anywhere near the ERoEI metrics of traditional fossil fuels, and the ERoEI for fossil fuels going forward looks set to drop rather dramatically.

There is no magic wand - there is no 'switch' we can simply flip. And given that we do not have a free market, but rather a heavily regulated, subsidized and politicized market which operates under the burden of profound market distortions compliments of both the government and non-governmental entities like the Fed, you cannot expect 'market forces' (which are heavily suppressed) to come to the rescue.

Additionally, while human ingenuity is a marvelous thing, it is *not* a miraculous thing. If it were, we'd have solved the battery problem decades ago, dontcha think? Not like there haven't been really smart, really motivated people working on this particular challenge for years and years and years - and with the dollar incentives involved, it's hard to see how any additional level of motivation would make a difference.

In other words, this is not a simple problem to solve, and it may in fact be the most difficult problem to solve that modern humans have yet faced, and there are no guarantees that we *will* solve it. In the current political and socio-economic climate, it certainly seems the odds are stacked quite heavily against us.

It seems possible that what we face is, in fact, not a problem in search of a solution, but a new condition to which we will need to adapt. Or not.

The Bedrock Case for the Return of the Gold Bull

rawprawn I am not sure, but I *think* the author meant something like this:

"When prices start to fall in earnest, people [i.e. consumers] lose their jobs, and get scared and start cutting back on all their purchases".

The Bedrock Case for the Return of the Gold Bull

"Gold will never be accepted as legal tender in the grocery store. It will always have to be converted into paper."

Tell that to the folks in Zimbabwe. The whole point here is that, when legal tender becomes worthless (wheelbarrows full), there will be plenty of folks willing to accept something of REAL value - gold, silver, and the like - in exchange for what they're trying to sell. At least, that's precisely what's happened the other gazillion times in history that fiat currencies have imploded, from 11th century China to 18th century France to 19th century America (ever heard of the Continental?) to 20th century Germany. Of course the poster who wrote the above may be right - maybe we are just so amazingly smart and special, we 21st century humans, with our central banks which simultaneously create AND fight inflation (neat trick, that), that for the very first time in thousands of years of recorded history, a fiat currency in the hands of a reckless government will not wind up causing a hyperinflationary environment to ensue engendering a collapse of the monetary system and a flight to whatever people perceive as 'things that hold value', with gold having historically topped the list.

Yeah. I'll expect that to happen just as soon as politicians learn to tell the truth.

Enjoy These 'Dollar Days' - But Will They Last?

I think this paragraph nicely denotes why I disagree with the assessment therein:

"First, the Fed is taking a tougher public stance against inflation by signaling it won't cut interest rates any further. The Fed ended its rate cuts in April, then increased its inflation rhetoric, and in August said in the face of weakening economic activity that it had "significant concern" regarding the upside risks to inflation. The expectations for higher interest rates, or for interest rates not to go any lower, can support a currency by making a country's assets look more attractive, since investors earn a higher return on funds."

But this is patently false! Since this is all 'rhetoric' at this point, it's just about *sounding* tough - not *acting* tough, and everything depends on *credibility*. And with rates unchanged, investors don't earn a higher return - they simply anticipate that they may in the future - IF the Fed backs up its rhetoric with action. So this latter bit becomes the critical aspect: how credible *is* the Fed and when will they back up their words with actions? The answer to this seems abundantly apparent: not any time soon.