Economic Darwinism

Replace Ben Bernanke with Paul Volcker

I like the general idea here, but in June, I made my own recommendations for reappointments that I still stand by.

economicdarwinism.word.../

It has Volcker as the Director of the National Economic Council, brings in Blinder to head the Fed, and Summers as the Treasury Secretary (mostly because he's running it anyway).

Why Bernanke Should Not Be Reappointed

Didn't realize basic html links didn't work here. Here are the links:

Blinder not Receiving Enough Credit for “Cash for Clunkers”
economicdarwinism.word.../

Appoint Blinder to Fed, Summers to Treasury
economicdarwinism.word.../

Lobbying for Alan Blinder
economicdarwinism.word.../

Alan Blinder: A Voice of Reason for the Fed
economicdarwinism.word.../

Why Bernanke Should Not Be Reappointed

My vote would be for Alan Blinder.

See:

Blinder not Receiving Enough Credit for “Cash for Clunkers”

Appoint Blinder to Fed, Summers to Treasury

Lobbying for Alan Blinder

Alan Blinder: A Voice of Reason for the Fed

Marc Faber: 10-20% Inflation Coming to the U.S.

Hyperinflation is defined as a 100% increase in price levels over a 3 year period, which assuming a constant, works out to roughly 26% inflation per year.

Treasury Sale: Does This Make Any Sense?

Hi Karl,

Today is a very painful day for my PA. As a trade, you hit the jackpot. I can try to console myself with the excuse that "I am an investor, not a trader", but that doesn't make the pain any less.

I think I will hang tough though. There is nothing about today that has changed my longer term perspective.

Best regards

Calculated Risk Misses on Housing / Unemployment Comparison

"I appreciate the good work blogger Calculated Risk does putting together outstanding charts"

So CR's contribution to the blogosphere is his charting ability?

"probably extremely bimodal"
"something like 1%"
"probably 90% or more"

Nothing like hard analysis, eh? If you're going to criticize people that you might be better off admiring who have a pretty loyal following, I'd hope you put a little more effort into it than that if you want to sound credible.

U.S. Dollar as a Safe Haven Is a Disturbing Idea

Thanks for the article. I like your analysis. One thing that is interesting to me about currencies is the relativity of things. If you're on a bus in a station surrounded on either side by other buses and your bus starts inches forward and backward, you'll think the whole world is moving chaotically, "Why are all those other buses oscillating like that?". Every other bus sees the world as pretty much stable with just one bus (you) oscillating. The US seems to be the oscillating bus so, to us, it seems the world is chaotic. Things may seems quite different from the perspective of someone in South Korean or Australia.

Treasury Sale: Does This Make Any Sense?

> Disclosure: They won't stop spending so I am of course short
> the broad market - the only logical trade to have on with this sort
> of stupidity coming out of Washington DC. We break a couple of
> key technical levels and I'm going to get so short I will be able to
> walk under my Suburban and not hit my head.

What is your time horizon? When will you declare victory or defeat?

My opinion on equities is pretty much the opposite of yours. I'd like to revisit your opinion in time. When should I come back here?

More Dollar Schizophrenics

One thing you have to keep in mind when discussing Chinese reserves is the very strong political force rising in that country that is increasingly opposed to holding US Treasuries. It is no longer politically acceptable for China to continue purchasing Treasuries at an accelerating rate. By gradually decreasing their purchases, they can assure the laughing college students that they are being responsible with their reserves. One of the risks is a strong political backlash that would force them to sell to appease the people. In other words, China's reserves are no longer an economic issue, they are a political one.

What if the Chinese Sell Treasuries?

I think this underestimates the intelligence and creativity of the Chinese. Like it or not, they have some of the brightest and most experienced economists and investors (not to mention scientists and engineers) in the world. The reverse brain drain has already commenced. I believe that China will find a way to diversify away from USD. They might end up shooting themselves in the foot, but I doubt they'll blow their foot off. It'll be a flesh would that will quickly heal. The political rewards they will reap by doing so will far outweigh the financial costs.

Rising Treasury Yields Are Not a Threat to the Economy

I agree with pretty much your entire view on this. Well put. I'm actually long oil, long equities, and short treasuries. So far so good.

Commodity Price Inflation Is Inflation and Is Happening Now

Prior to the crisis, everyone chose to ignore oil and food price inflation and focused on core to assure us that inflation was not a problem. During the crisis, everyone chose to focus on healine inflation, which was negative to point out the dangers of deflation while core was still going up! Now, with headline inflation taking off again, it is time to go back to concentrating on core again.

No worries.

Roubini the Revisionist

Please. Could you do so some research before you criticize someone (if you must even criticize someone) for crying out loud? Roubini has been saying this for quite some time now. He's one of the few consistent economists out there.

Yuan Legislation Being Resurrected by Congress

The Law of Unintended Consequences comes to mind on this one.

What would be China's counter punch? Speeding up the inevitable Yuan float doesn't seem to be the smartest thing at this moment.

What will happen when China forces us to buy their goods in Yuan rather than dollars? Could an appreciating Yuan counter their depreciating dollar reserves? It seems we may find out sooner than I thought.

The Clogged Banking System

Let's say you are shopping for a home and you want to get a mortgage. Is it possible? Sure it is. You might have to put 20% down and pay a higher rate, but that is how it should be.

Let's say you are a small business with no guarantee of future revenue and you need a loan for payroll. Is it possible? Sure it is. You might have to pay a punitively high interest rate to compensate the bank for the risk of giving you a loan, but that is how it should be.

Let's say you are a corporation and you need to issue bonds because you are free cashflow negative and have been relying on easy credit for the last 5 years to keep afloat. You are rated BB. Can you issue new bonds? Sure you can. You just need to pay a punitively high yield to compensate investors for the risk they are taking by lending you money, but that is how it should be.

My point is that it is frustrating to read articles about frozen credit markets. There is nothing frozen about credit markets. It is just that borrowers are experiencing sticker shock when they find out how much they need to pay to compensate for the risk of borrowing money these days. That is because they've been spoiled over the last 5 years with easy credit. A high-yield issuer SHOULD pay 15-20% to borrow money because there is a high probably of default. They are being artificially resuscitated by trying to keep rates low.

Businesses simply need to rethink their capital structure. When you know you're going to have to pay 15%+ yield to borrow money, you'll think twice about depending so much on easy credit.

Bankruptcies are imminent and are, in fact, healthy to weed out those companies not fit for survival. The sooner we learn to deal with that the better.