jimboy

Two Takes on the Financial Crisis: 'Too Big to Fail' by Andrew Ross Sorkin and 'How Markets Fail' by John Cassidy

I'm no free market absolutist but I hate the sound of the title "How Markets Fail". They fail when they are distorted by government interference. How can financial market blow-ups be blamed on market failure when the key pricing mechanism (interest rates) has been mercilessly abused by the state? I'm also not convinced that more regulation is the "only answer". What about less regulation e.g. removing Federal Deposit Insurance. This would make every American with money in the bank think about who they are placing their money with and would do more than any regulation to make banks act responsibly.

New Head Coach; Same old play book

I can see your rate hike happening but not an end to the loose money policy as a whole. That can't end without crashing everything but needs to before any recovery can be deemed "real" - that's the dilemma. As for Greenspan's confession - that's a joke. That's like Jeffrey Dahmer owning up to not being a vegetarian - i.e. a non apology that's not much comfort to his victims.

Consumer Credit Down - But Does It Show Deleveraging?

It seems to be accepted wisdom that the consumer is turning thrifty and we are in for a long period of belt-tightening. I never really bought this argument for 3 reasons:

- profligacy is too ingrained in the psyche and culture
- a big chunk of the country can't afford to save
- the Fed and the government won't let a savings culture take hold and will continue to set policy (zero rates, clunkers, housing credit) that encourages debt accumulation

Stimulus Nation: What Are We Getting for Our $3.27 Trillion?

Andy - good article. Bob - bad comment (your first one, the second one was OK) that I totally disagree with. You accuse "Austrian" critics of the stimulus/bailout of wanting the recession to take its course and cause unimaginable suffering. The "more grounded individuals" like yourself welcome the government's efforts to prevent a deep recession. This is completely unfair - if anybody had been listening to the heartless Austrians in the early part of this decade when the Fed was "fighting" recession with super-loose money then we wouldn't be in this mess. The lesson from that period is that mitigating a recession by monetary and fiscal stimulus merely postpones the day of reckoning and makes the underlying problems worse. Why should this time round be any different? As Andy's article shows, the so-called "stabilization" you so admire is mostly illusory and has come at a high price.

Dollar Forced to Abdicate Its Throne

Send Peter to Washington so he can begin to do what needs to be done. It's not that complicated, it just takes courage:

(1) Let markets set interest rates
(2) force government to live within its means
(3) unleash capitalism by deregulating, taking on monopolies and special interests and simplifying the tax code

China, The Global Carry Trade and Oil

Fascinating insight into that remarkable dollar surge in the second half of 2008 which caught so many offguard (like me). The interview dates back to June right? Since then the dollar has weakened and hard asset investments have done well. So far so good. But isn't it quite likely that there will be another dollar surge and commodities collapse when everyone realises this recovery is built on thin air and has no substance. This year's carry trade has been to borrow free dollars and invest in anything else. When that unwinds the results could be devastating for EMs, commodities, risk and equities generally and good for the dollar and Treasuries. In short I wouldn't stock up on quality energy and metals stocks at current prices but would if there was a major correction.

Geithner to Blame for Outrageous Goldman Bonuses

I wholeheartedly agree with this piece. The UK news broadcasts yesterday were all over the Goldmans bonuses and along with the outrage, there was an air of disbelief: how could GS be making so much money? How could they be so crass as to pay it out in mammoth bonuses to their staff? Why is the government not doing anything about it?

I think people outside of finance don't have the slightest inkling that it was government policy that created the monstrously profitable financial sector in the first place and that, more importantly, the post - crash policy has been all about propping up and if possible reviving the beast. GS and the rest are thriving because the government needs them to. They are not being reformed, restricted or cut down to size because the government can't afford to upset them in its bid to reflate the economy. Expect a lot more public outrage and confusion.

Max Keiser: Oil Trade's U.S. Dollar Dump Rumors Are True

Dr Benway - of course China, Saudi Arabia, Japan etc don't WANT to see their biggest customer collapse and the value of their dollar holdings crash but the point is they can see the writing on the wall and that it WILL. The US government is not even trying to pretend that it cares about its currency's integrity or fiscal probity and unless this phoney recovery turns real and tax revenues recover in the next year or so, an Argentina style collapse is on the cards regardless of whether or not a replacement reserve currency is in place.
My prediction (link) is for one more dollar / TB bull rally next year before showtime in 2011.
hubpages.com/hub/Peak-...

America as Argentina: Setting Up For Economic Decline

Excellent article and totally in tune with my opinion that America, reserve currency or not, is headed for an "Argentina moment" perhaps as early as 2011 which will wipe out the country's middle class and its creditors.

Obvious bets in this scenario are gold, silver, physical commodities and the Euro but perhaps the author suspects like me that there is one more "flight to safety" to come when the phoney recovery bites the dust in 2010 before showtime the following year.

hubpages.com/hub/Peak-...

Asset Reflation Does Not Signal Recovery for U.S.'s Collapsed Economy

Good, well-written fare from you as always. Solid recoveries can only follow recessions that actually correct the problems of the previous boom. To use a gross medical analogy: it's the difference between cleaning and disinfecting a wound and just sticking on the bandage and taking a couple of painkillers. We've had two boom/bust cycles in succession where the Advil's come out but no one has cleaned out the puss and it's getting messy.
I'm predicting the US's Argentina moment will take place in 2011 but not before one final "fool's rally" in Treasuries and the dollar:
hubpages.com/hub/Peak-...

5 Myths About an Economic Recovery

Recessions are horrible but usually achieve things - leaner industry, government belt-tightening, debts repaid or forgiven, export booms, re-skilling - an endless list of good things potentially. You can tell this recovery is fake because the recession has produced very little of value apart from a bit of consumer retrenchment and a narrowing of the trade deficit.

The authorities have been attacking fundamental problems with ephemeral solutions - it's like watching a housewife trying to mask the smell of rodent decomposing behind the refrigerator with air freshener.

I disagree with the long, slow recovery thesis - the US doesn't have time for that because of the fiscal mess. The reflation either has to work or it's doomsday. My humble article here sees Argentina - not Japan - as the model and pencils in the collapse for 2011.

hubpages.com/hub/Peak-...

Sorry for the long post - I've been getting a bit emotional about it all recently.

Krugman and the Pied Pipers of Debt

Rolfe - I'd barely read half of this article before shifting my cursor in the direction of the "Follow" button. It radiates good sense and skewers Krugman using his own words as a bonus. You also correctly cite Argentina - not Japan - as the final destination for all of this. I do the same in my article arguing that US economic decline is starting to look terminal:
hubpages.com/t/c5575
Someone better start paying attention to people like you instead of weasel-mouthed debt sirens like Krugman before it's too late.

The US recession: more unemployment and a sinking dollar

Good article Gerard. The public's been primed to expect a recovery but they are soon going to find out that 2 years of the Fed "fighting recession" has just made the situation worse and dragged out the inevitable process of adjustment. I agree though that there will be some spritely (if jobless) growth for 6-12 months.

MELTDOWN

Woods has quite a few very watchable and timely videos out on the web which have very much influenced me recently. He is particularly strong explaining for example:
- the damage done by manipulating interest rates below market levels
- why this is not a crisis of capitalism's making but rather a crisis of free markets being subverted and undermined by government.

This video is highly recommended (about the lessons from the 1920 Depression):
www.youtube.com/watch?...

Stephen Roach: West Went on 'Drunken Binge of Excess Consumption'

I agree that "finger pointing" as you put it has to begin and mostly end with governments and their central bankers. But is it any surprise that they are trying to reflate the bubble they created? Purging excess and starting afresh might make theoretical sense but is simply unthinkable for the politicians and bureaucrats in power. It would require a depression so deep it would destroy the interests that bankroll them, the tax revenues that pay their salaries and their electoral prospects.