Ken Nelson

The only thing actually “deflating” is Fed credibility…

Funny and devastating.

Caution… some scatological terms used.

Bad time to buy that Monet “Water Lilies” You’ve been Saving up For

Who knows if he is right, but Gary Shilling, who is usually right, but not always, says you should avoid these investments…

The list includes commodities, China, Commercial Real Estate, Banks, home builders, Bonds backed by subprime loans, collectibles (art, fancy cars).

Basically, he assumes massive de-leveraging because we either can’t, or won’t, get credit.   He sees low demand killing China, and oil and commodity prices. He is looking globally, but the US also has to factor in that our dollar is devaluing rapidly due to our governments debt addiction.

The list makes sense to me.  The only trouble is… what’s left to invest in(-:

Nice place to visit, but don’t lend them money…

Germany bailed out Greece.  Now, Greece lashes out at Germany for wanting Greece to abide by the agreements set in place when they gave Greece a boat load of money.

We will NOT exit from this mess until we send the socialists packing AND until we make everybody accountable for their actions.  Bailouts breed contempt and more bailouts.

Not so lucky now…

Nobody wants to buy Ireland’s debt.   Same for Greece until they jacked the interest they paid up to 11%.  To avoid us having a crisis in debt interest the Fed is just printing money and debasing our currency by 15%.   But it will catch up with us too.

This is what happens when you let OTHER people spend YOUR money.  It always happens. Always will, always has.  Whatever government forms in Ireland after the collapse would be well served to have a Constitutional requirement that severely limits access to other people’s money.

I’ve enjoyed the first 4 parts of Peter Robinson’s interview with Gary Becker (Nobel Prize winner and a founder of the Chicago School of Economics).

Each one is about 5 to 7 minutes. He explains what happened, what worked, what didn’t and why.  And also, importantly, gives his view on what to do from here.  If only Obama would listen…

Part 1 – What Happened
Part 2 – Grading Bush
Part 3 – Grading Federal Reserve, and what we should do
Part 4 – Healthcare

Beckers suggests that the best thing the government could do is shrink, cut taxes, cut regulation – except one regulation – capitol requirements for “too big to fail” banks should rise.

The 30 year Treasury bond yield has been rising steeply.

A 1% rate rise in less than month, or about a 25% increase – in ONE month.

This means people don’t trust the US government out at 30 years. They think they will be stiffed, or that their 4.5% rate will be dwarfed by inflation.

In effect, Ben Bernanke is arguing that investors should value a one-time payout of $904 million dollars at $1.47 trillion.

The Pragmatic Capitalist
On why the stock market shouldn’t be excited about QE 2 or 3 or 4 or 5.

If you believe the typical liberal, Sarah Palin is  so dumb. Barely gets a sentence together darn it. No REAL enlightened citizen should care what that Tea Bagger Sarah thinks:

We shouldn’t be playing around with inflation. It’s not for nothing Reagan called it “as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.” The Fed’s pump priming addiction has got our small businesses running scared, and our allies worried. The German finance minister called the Fed’s proposals “clueless.” When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it’s time for Chairman Bernanke to cease and desist. We don’t want temporary, artificial economic growth bought at the expense of permanently higher inflation which will erode the value of our incomes and our savings.

Uhmmm… gosh, that’s not as dumb as you would have thought.  In fact…. that sort of sounds RIGHT.

I  like Sarah Palin. She may not know who the Prime Minister of Nowhereistan is, but she has the IMPORTANT issues down just fine.

Markets do as they like.

As QE2 (or 3) depending on how you count starts up, consider this quotation:

What? You don’t believe me?  We’ve done it before!

In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion—a 75-percent reduction. It brought federal spending down from a peak of 44 percent of gross national product (GNP) in 1944 to only 8.9 percent in 1948, a drop of over 35 percentage points of GNP.

The result… a boom until Lyndon Johnson killed it.

BTW: There is a PDF at the link.  Read it all. But if you don’t the abstract will suffice.

Quantitative Easing is just another way to get back to the crazy debt overload we mistakenly saw as a “strong” economy

Future economic wrecker

New academic research into the stimulus shows that the multiplier economic effect for fiscal stimulus is ZERO in  countries operating with flexible exchange rates (i.e. us):

Okay, the multiplier could be zero, or at best 0.7. That means that in the best-case scenario, the government spends a dollar and we get less than a dollar in growth (and we will have to pay the bill later through our taxes).

 

In other words, Barack Obama gets the benefit, we get the bill.

No thanks.

BTW: I don’t think it is an accident that the multiplier best case is equal to the spending minus the approximate top marginal tax rate. The piper has to be paid and the tax is the bill.

See anything you recognize in or government?

I’m sure Ben Bernake is a pleasant fellow. And I’m sure he wants to do the “best” he can.  But I can’t help but wonder how he defines “best”…. assisting in the demise of our currency hardly qualifies in my book…

Quantitative easing is nothing more than a euphemism for printing money out of thin air. Its one-and-only purpose is to destroy the currency being printed. It is pure dilution and absolutely no different than a corporation vowing to improve its fiscal performance simply by printing a lot of new shares.

 

Sure, I know we have no good options right now. Our political class, ever ready to kick problems down the road had made a very large problem for the current holders of political and appointed office to deal with. But the football has grown so big, that you can’t kick it – anything you do that doesn’t solve the problem means you make the problem bigger and pay the market cost of not dealing with the problem.

We NEED to cut spending. We need to INVEST our money in REAL INVESTMENTS not political payoffs.

Our problems are pretty solvable. Tough, but doable, assuming we have grownups that are actually working for us, not themselves in office.

For now, we are hosed. Maybe the new Tea Party caucus can force some adult behaviour, and perhaps we can hold on til 2012 and hope the infantile voters of certain states (California, and Connecticut are you listening) grow up and vote maturely.

I doubt it. I think we will keep doing Quantitative Easing 2, 3, 4 until collapse.  That is the price for choosing poor leaders.

We have a choice. We can not print money, and watch the interest we must pay to attract buyers of our government debt skyrocket. Or we can print money and buy the debt ourselves with a resulting drop in the value of the dollar.

The first would cause economic difficulties now, political difficulties now, but ultimately force us to behave financially sane.

The second delays, obscures, and increases the cost of any ultimate solution.  It is the governmental equivalent of borrowing from your already broke 401K.

So naturally, our “esteemed” leaders chose the one that wouldn’t hurt on their watch.

Trouble is… it won’t help. Markets responded and will continue to respond negatively until our government starts to behave financially responsible.

Lumps must be taken, the only question is who and how much. That is the game now. I’d favor something that penalizes the irresponsible and that does not burden our children.