Paulson says everything is A-OK

Mr. Paulson is one of the more prominent hedge fund managers. As such, he most definitely knows more than a thing or two about the economy and the markets. So, Mr. Paulson saying that this is actually an excellent time to go buy a home or, if you already have one, buy another one and, if you already have two, then help your children buy homes must be worth something… I guess… right?

I am only a simple man typing away at a $800 computer. There is no way I can make a more informed decision than Mr. Pauson and, of course, nobody reading this blog should take my rants at face value.

I’m posting Mr. Paulson’s comments on my blog merely to be able to refer back to them in the future.

http://www.marketwatch.com/story/european-debt-crisis-manageable-paulson-says-2010-05-10-144600?pagenumber=2

My advice to all Americans — if you don’t own a home today now’s the time to buy one,” Paulson said. “If you already own one, now’s the time to buy another one. If you already own two, it’s time to help your children buy a home.

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5 Responses to “Paulson says everything is A-OK”

  1. guidoamm Says:

    Currency pegs can work… temporarily… I live in a country that has had its currency pegged to the US$ now for over 30 years and it is holding. At least politically it is holding. What is swept under the carpet is the imbalances the peg feeds. However, since the USA are one of the largest financial donors to the country, the imbalances can be managed. The key word here is “managed”. But eventually things will come to a head. Like in a fiat monetary system, you know what the end looks like and how you are going to get there. What you don’t know is the time frame. And government intervention can alter the time frame albeit by creating a larger problem later.

    On the other hand, the currency peg in Argentina in the recent past has not worked too well.

    As we discussed previously, the government of the union as you propose must make a choice – and it is a choice. Either they subordinate the management of the monetary system to politics or they manage it according to economic principles.

    If the system is subordinate to politics, then the currency will be manipulated in order to achieve the political goals as set out by the aims and desires of the union. Currency manipulation inherently and necessarily means inflation. Thus, if the state deems it necessary to manipulate the currency, the monetary system it will choose will necessarily be a fiat system.

    Thus, even in a monetary union as you describe, inflation may very well become a necessary and deliberate tool of the state.

    The ugly truth is that fiat money is a genial construct. As human constructs go, fiat money is by far one of the most sophisticated and could have the potential to be the most useful. But, as I said before, fiat money conforms to a logic that is well known. Thus, in order to successfully exploit the advantages of fiat money the authorities should allow the system to purge itself out regularly; i.e. the authorities must allow regular crisis to work themselves out. That is, economic entities should be allowed to go under when they are not economically viable. If you allow economic entities to go under, you also avoid feeding overcapacity thus you avoid subsidies to industry.

    But that’s all a utopia anyway. Politics is politics because politicians need a following; and you can only create a following by manipulating information. If you manipulate information, you are distorting reality. If you are distorting reality you are intentionally creating false needs in order to induce false solutions aimed at increasing your following so you can get to power or stay there longer.

    Competitive politics and competing nations can only bring inflation.

    So it is that we are where we are.

    And just to be clear. By the time this crisis is over and we emerge at the other end of this tunnel, a number of states will have failed along with a number of currencies. Yet, when we will be at the other side of this crisis, I can guarantee that fiat money will once again be the preferred choice of nation states.

    • David W. Lincoln Says:

      Thanks Guido. The successful stories of pegs working can be used to give the best headings out of the swamp. When combined with trusteeships over
      lands like Argentina, Brazil & Venezuela, not to mention Angola and Congo (or whatever it is called these days), plus the application of “75 years of funny money”, the way out of the minefield is possible.

      Thank you for your analysis.

  2. David W. Lincoln Says:

    Those holding financial instruments are expecting a certain return. Right now, some of those instruments look to give a return of, perhaps, half of what was plowed in. So the options are hold, or dump.

    Which raises a point. What about this as an alternative: http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100005425/time-for-capital-controls-in-europe/ and in particular, this:

    I believe there is two real options on the table.

    1) Allow the Greeks to have a moratorium on their debt for 3-years to give them time to phase in some austerity measures.

    And this goes against everything I feel with regard to the EU project and Britain’s role in it.

    2)
    Is for Germany, France, Netherlands,Poland,Benelux to create North Euro ccy and link it to GBP around the level 0.75-0.85. With Ireland locking back in with GBP at par. Then Norway, Sweden, Finland, Denmark link into a sterling area with a rate equal to tdy’s rates. I have included Norway, Denmark,Sweden and Finland to shield these countries from the expected fallout and to promote trade with Asian sterling area. Giving them a trade boost

    Then club Med including ‘Italy’ if she wants can be in the weak Euro to take advantage of the tourism from Northern states of Europe and link their ccy to the GBP at 40% devaluation to current rates. This should kick start them over the next 5-years.

    Would like to see sterling zone area extended to include HK,Australia, Canada, India, NZ, Sing,Malaysia linking to the gbp area at an appropriate rate to promote trade.

    Then China & Japan can form an Asian monetary union if they need.

    The resurrection of a Sterling area would be beneficial to world trade & be big enough to handle China funds safely as a bonafide reserve ccy. I suspect they will seek to lower their dollar holdings soon, taking advantage of this up tick and expect them to move into gbp around the 1.25/35 area, which will see gbp (cable) rise again back to 1.70 and china revalue by 15% against dollar, which is much needed.

    If the above does not happen to assist trade and help countries out I see WW3 all the ingredients are there in place, we just need the excuse from some mad man.
    Purps on May 6th, 2010 at 7:56 pm

    But, I would make these changes. Move Poland and France to a North/South axis from the Balkans to the Baltics, and then pivot west from Greece, and include the countries on the Northern edge of the Mediterranean Sea (and include Cyprus), so that they get the message from Poland, Israel and Latvia, and I think the Czechs, as to how to manage public funds properly. Then I would move China out, and put in South Korea and Taiwan to interact with Japan. China then can move out of US securities into the extended Pound Zone.

    • guidoamm Says:

      Other than to say that anything like this proposition must necessarily be preceded by fiscal harmonization (otherwise you fall in the same trap of the Euro) lets assume that this is a viable option… here is the question. Who controls the issuing of Sterling and how.
      In other words, what monetary system are you going to opt for and how are you going to manage it. This is the one single most fundamental decision that will drive the economic and political life of the members of the union. That is the key critical decision.

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