Posts Tagged ‘boondoggle’

The Trillion Dollar Coin Delusion

January 12, 2013

When some of the most prominent pundits, economists and financiers, if not the intelligent ones, can opine positively on this idea, then I too feel entitled to offer my thougths.

The idea is, to be polite, at best asinine. No suspense in what my position is as you can see.

Here is the quick and dirty.

If treasury can mint a 1oz coin of platinum and declare it to be worth $1 Trillion Dollars, where do we stop?

The question is rhetorical of course because in the new normal governments are attempting just that. When Fractional Reserve Banking and Floating Exchange Rates no longer provide the lift to asset prices as they used to, then the monetary authority must intervene directly to buy assets itself which, of course, runs counter to the dynamic they are trying to save.

Moreover, anyone who still believes the West enjoys free markets and a capitalist economy should finally have the cob webs removed from their eye lids. Insidiously if deliberately we are reaching the logical end of what this monetary system has wrought and the statist slant of the electoral political process is finally revealed for the authoritarian centrally planned utopia most politicians worth their salt dream about.

A $1 Trillion Dollar coin? If that works, then similarly why not declare by fiat the value of real estate, the value of wages, or what the rate of unemployment is…. oh! Wait!

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Sometimes, the power elite does lose a battle…

August 15, 2010

… but it is only a battle…

http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/good-news-layoffs-100618479.html

New job losses would not ordinarily qualify as good news, but Reuters reports that a lack of Senate action on cap-and-trade legislation is forcing the Chicago Climate Exchange to lay off about half of its remaining “really talented” 50-employee staff. […] The biggest losers have been CCX’s two biggest investors — Al Gore’s Generation Investment Management and Goldman Sachs — and President Obama, who helped launch CCX with funding from the Joyce Foundation, where he and presidential advisor Valerie Jarrett once sat on the board of directors.

Jus’ check’n….

June 14, 2010

So how’s that stimulus working out then?

Romer, Bernstein and Krugman – January 2009

http://krugman.blogs.nytimes.com/2009/01/10/romer-and-bernstein-on-stimulus/

Today we know that unemployment was not reduced. In all fairness, Krugman did comment that the stimulus as proposed by Romer and Bernstein was “too weak”; the implication being that he advocated much greater stimulus.

http://www.time.com/time/business/article/0,8599,1910208,00.html (this is a year old article but things have not improved since anyway)

What baffles me is how Mr. Krugman and any of the gaggle of pundits, economists and politicians can clamor for stimulus when stimulus has been the hallmark of the economy for at least the past thirty years.

I hear you asking what I am talking about.

When government spending has progressed from about $2Trillion in 1980 to about $12Trillion today but GDP has progressed from about $6Trillion in 1980 to $14Trillion today, that, in my book, is pretty aggressive stimulus. In percentage terms, since 1980 government spending has progressed by over 1000% whereas GDP has barely progressed by 100%. (The figures are actually much worse as I only take into account Federal debt as outlined in the links below).

https://guidoromero.wordpress.com/2010/05/06/i-am-not-an-economist-but-part-ii/

https://guidoromero.wordpress.com/2009/08/19/one-more-time-hoping-for-clarity/

And Krugman today is looking for even more stimulus.

https://guidoromero.wordpress.com/2010/06/13/us-political-figures-attack-european-austerity-measures-paul-krugman/

Somebody, somewhere must at some point realize the absurdity of stimulating an already grossly over stimulated economy… ???… This next graph depicts the reason why stimulus may no longer have the desired effect:

http://research.stlouisfed.org/fred2/series/MULT

Inflation is a dynamic that conforms to the law of diminishing returns. You can see what that means in the above graph. Considering the various cash infusions and guarantees that have totaled several Trillion Dollars in the past two years, the money multiplier is telling you that the presumed stimulant has lost traction. To call for more stimulant at this point, it seems to me, is the definition of insanity.

I like to think Germany has realized the predicament we are in and is putting its foot down. Iceland has too and its president has sided with the people to tell the banks to go fudge cake.

Men go mad in herds but come to their senses one by one.

Gold seems to be the only refuge for the time being. At least till more Icelands and Germanys will hold sway in international politics and economics.

Robbing Peter to pay … Peter… (the blue yonder of absurdity)

June 13, 2010

I could not believe anyone, let alone elected politicians, could think this is a viable solution…. and yet, here we are. With thanks to Michael Shedlock.

http://globaleconomicanalysis.blogspot.com/2010/06/ny-state-shell-game-municipalities.html

Excerpt of the press article, emphasis added:

Under the plan, the state [New York] and municipalities would borrow [from the fund] the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013. […] Another oddity of the plan is that the pension fund, which assumes its assets will earn 8 percent a year, would accept interest payments from the state that would probably be 4.5 percent to 5.5 percent.

Just to summarize the boondoggle. New York state will borrow money from the pension fund in order to make payments to the pension fund… no, this is not a typo hence the title of the post…. but wait… pension fund assumptions are based on returns of 8% yearly… now, considering that just in the past ten years pension funds have barely made half of that if at all, one wonders why the next ten years should be any different…

You cannot make this stuff up folks! Gold looking awfully good still.

Barak Obama warns Iran of “unmistakable message” on nuclear program

June 10, 2010

You may want to brush up on this post and this one too before you read this latest piece of rhetoric.

http://www.telegraph.co.uk/news/worldnews/middleeast/iran/7815207/Barack-Obama-warns-Iran-of-worlds-unmistakable-message-on-nuclear-programme.html

The US president said the sanctions would be vigorously enforced and claimed they demonstrated the international community’s commitment to stopping the spread of nuclear weapons.”

The international community’s commitment stops short at Israel…

Concentration of profits

June 7, 2010

In a fiat monetary system, the unit of exchange (currency or money) is debt owed to the creator of the currency.

In the case of the United States of America, once printed and delivered to the Treasury, a US$ bill represents a debt owed to the Federal Reserve by the Treasury. Ergo, each coin and each Dollar bill represent a debt owed by the people to the central bank.

In the fiat monetary construct, the Treasury then avails itself of banks called “Primary Dealers” to inject this money into the economy. By the way, do note in this regard that the Federal Reserve board is staffed by the directors of all the primary dealers.

Therefore in this construct, each unit of currency that leaves the premises of the Federal Reserve on its way to the Treasury is instantly devalued by the prevailing rate of interest.

It follows that every time a unit of currency moves from the Federal Reserve, to the Treasury, to the Primary Dealers and then onwards towards smaller and smaller banks, each unit of currency is instantly devalued at every step in the chain that eventually brings that coin into your pocket.

Thus, by the time a coin or a Dollar bill reaches you, it has been devalued several times during its voyage.

Hence the reason that in a fiat monetary system, the entities that are closest to the creator of the currency are the entities that gain the most from its use because they are the first users of the currency.

Thus the Primary Dealers are the entities that not only have the most to gain from the use of fiat money but they have a vested interest in pushing for excessive quantities of fiat money too.

And please try to remember that the Primary Dealers are directly involved in shaping and executing Federal Reserve policy.

The above being so, it follows that as economic crisis develops and profits disappear from the wider economy, profits concentrate in the finance sector and, as the crisis intensify, profits progressively concentrate towards the major banks ergo the Primary Dealers.

http://www.forbes.com/2010/06/03/goldman-sachs-citigroup-markets-lenzner-morgan-stanley.html

Focus hard on this shocking Wall Street reality: The top six bank holding companies earned an aggregate of $51 billion in pretax income in 2009. We’re talking about JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, Citigroup and Wells Fargo.

All of this pretax income can be attributed to their trading revenues of $59.7 billion. The proprietary trading operations of an oligopoly of banks, saved from disaster by Uncle Sam’s largesse and subsidized with cheap money from the central bank, was the single driving force behind the restoration of their fortunes and the renewed surge in their stock prices.

No surprise here.

Curtailing public spending; a precursor to war

January 26, 2010

Here we go folks… this is only the beginning…

http://www.cnbc.com/id/35068969

Excerpts:

U.S. President Barack Obama, under pressure from deficit hawks, will seek a three-year freeze on domestic spending in his 2011 budget […]

His proposed budget savings will need congressional backing and would exclude Defense, Veteran Affairs, Homeland Security and spending on international affairs, the officials said. “We are in the midst of fighting a war and have security needs. We’re going to fund those security needs as necessary,” one of the officials told reporters, speaking on condition of anonymity.”

A war that we are fighting by choice. But beyond anything else, this is the clearest indication yet that war will be expanded. I stand by my prediction: world war by 2013/2015 latest. Take me to task then.

The 2010 budget allocated $447 billion to non-security discretionary spending, or about one eight of the overall budget. Agencies that could feel the pinch include the Commerce, Interior, Justice and Labor departments, as well as the Environmental Protection Agency.

Part of the problem, on top of a severe recession that hit government revenue, are entitlement programs like social security and Medicare, the huge public healthcare program for older Americans.

Part of the problem is the cost of entitlement programs??? This is a load of crock if anything is. THE problem is not the entitlement programs. THE problem is that whatever money was set aside by the tax payer was funneled to the general fund of the government AND SPENT. The money physically is no longer there. THAT IS THE PROBLEM. The other major problem is that subsequent administrations have pandered to unions and special interests so that at this moment in time, public official pension entitlements are killing state budgets – and unions only represent a fraction of the total labor force. The other significant problem of course is that enshrined in the fiat monetary logic is the need to prop up companies deemed too large to fail. As you do that over and over again, in time you feed gross overcapacity in the market. If at the same time you manipulate interest rates lower, than you guarantee a frivolous inefficient economy characterized by excess debt and low capacity utilization. That is the problem.

Things you have to do to keep the largest actor in the economy alive…

January 25, 2010

http://www.guardian.co.uk/world/2010/jan/19/fbi-terror-emergencies-phone-calls

Inflation gimmicks… (auto sales and incentives)

January 7, 2010

The old trick of giving money away is a solution that, like inflation, conforms to the law of diminishing returns. The “diminishing” part of the equation is not truly visible when inflation is still on a positive trajectory. But it becomes gradually clearer as other inflationary effects wane.

It is a foregone conclusion that free money will always find takers. What is less clear is whether free money can be put to productive use. In my opinion, the outset of the inflationary dynamic is a time when free money could be put to the most productive use because there is a genuine need for capital formation and investment in industry and commerce. But as the inflationary dynamic progresses and debt burdens expand and as industrial capacity reaches higher highs your ability to induce ever greater degrees of inflation is necessarily constrained by your ability to induce a rise in income either in the form of wages or in the form of earnings or both.

Offering subsidies to anyone or to any industry is a strategy that is inherently self defeating in the long run because the effects are gradually less… well, effective.

Just like inflation, every subsidy ensures excess capacity thus pulling forward in time the demand dynamic thus encouraging to consume today more of what would otherwise be consumed over a longer period of time. Subsidies are nothing but gimmicks to induce inflation… as are the world bank, the IMF, the United Nations and most regulation that is enacted… consider Climate Change for example… these are nothing but strategies to induce more layers of payments thus forcing more disbursements in the hope to induce the spreading of the reserve currency far and wide in an attempt to maintain a positive degree of velocity…

http://www.guardian.co.uk/business/2010/jan/06/us-cars-sales-record-low

Ho, ho, ho…. global currency talk is once again filling the air waves…

December 28, 2009

As outlined in several prior posts, one way to get a modicum of inflation going again would be to introduce a new currency so as to devalue the currency it replaces. This is one of the oldest tricks in the book and one that has been used often in the recent past (think Argentina, Zimbabwe…) and again very recently with the introduction of the Euro for example. At this stage of the game however, nothing short of somehow altering or even replacing the global reserve currency is going to help.

In recent months rumors have filled the airwaves at regular intervals regarding potential strategies that could be implemented: the Amero, adoption of the UN’ Special Drawing Rights (SDRs) and even rumors of a two tier devaluation of the US Dollar differentiating between US$ held overseas (to be devalued more) and US$ held within US borders.

What is clear is that governments are running out of options to restart the inflationary cycle and this would be a desperate last ditch attempt that would buy us some time. But that’s all it would do. Buy us some time because as per the latest BIS report, outstanding global financial obligations are still running at US$600Trillion whereas global GDP is running in the ball park of US$50Trillion and is dropping fast. The elephant in the room therefore is still the debt mountain we have built in 100 years of aggressive, pervasive and persistent inflation pumping in the US$ monetary system (the US$ being the world reserve currency of course).

Here is Jesse’s Cafe Americain with his comments and an article written by Martin Wolf in, of all places, some Persian Gulf daily:

http://jessescrossroadscafe.blogspot.com/2009/12/what-will-new-world-reserve-currency.html

Here is the UN’s own Trade and Development Report 2009 – true to form of course, always late to the penny-dropping party and always misguided in the final conclusion. But at least they’ve brought the issue up finally.

http://www.unctad.org/Templates/WebFlyer.asp?intItemID=5006&lang=1

In the needlessly wordy, overly pompous lump of platitudes and redundant ideology that passes for a “report” at the UN, what you want to read is chapter IV: “Reform of the international monetary and financial system”. You will find the link at the bottom of the page under “quick links”. It is a PDF file and I seem unable to attach a link for you but I will post below their own highlights.

To be sure the report is actually reasonable in its initial chapters despite a glaring piece of ignorant pablum right at the start of the report when the luminaries that are the UN researchers state that:

The crisis proves that free financial markets do not lead to optimal social and macroeconomic outcomes.”

Of course, the UN conveniently disregards the fact that in economies where, for example, the choice of monetary system is not submitted to the people for ratification, where interest rates are manipulated arbitrarily by political decree, where in order to pander to special interest groups companies are not allowed to fail, where governments arbitrarily decree that corporate and commercial law must be suspended in order to save the system and where governments arbitrarily appropriate public funds, where industries are protected and subsidized even though they are not economically viable, how free can the market really be?

But, in all honestly, the report does get better as you go along… to a point:

“… because speculative investments do not generate increases in real income. […] Financial globalization implies a de facto loss of national policy autonomy […] The current international reserve system does not provide for any disciplines on surplus countries and on deficit countries that issue reserve currencies. (Ed. you don’t say!) […] In the absence of symmetric interventions in currency markets, the system has a deflationary bias… […] Any reform of the inter- national monetary and financial system has to address the issue of SDR allocation (Ed. this is the allusion to a new reserve currency).

This is the point at which after having identified many of the shortcoming of the present monetary system, the bright crayons that are the experts in the UN box, go on to offer solutions that are nothing but variations on the floating exchange fiat theme… ergo… more of the same…

I expected no less from the UN so, here it goes:

Unconditional countercycli- cal access to IMF resources would help prevent excessive currency depreciations. […] Achieving a stable pattern of exchange rates stands a bet- ter chance within a multilat- erally agreed framework for exchange-rate management. (Ed. of course the UN says it is desirable but does not say how to achieve that concretely. Also, the UN completely disregards the fact that government continuously intervene in the currency markets; what else is Quantitative Easing? Why set up Euro/Dollar swap lines of credit with foreign governments?… what a bunch of crock!!) […] An exchange rate system based on the principle of constant real exchange rates would tackle the problem of destabilizing capital flows at its source (Ed. these nitwits propose floating exchange rates by any other name i.e. more of the same)

So, after a reasonably good start even if peppered with pablum, the UN report goes on to propose more of what we already have but maybe with a new currency or a revalued global reserve currency and then, disregarding all the crap they have dished out in what is essentially a piece of trashy literature that aims to justify the grossly ludicrous salaries and benefits paid to an over staffed, under employed, unjustifiably proud, over arrogant, group of vain and ineffective “professionals” that couldn’t hack it in the real world, they conclude with one pearl of wisdom:

A further accumulation of external debt obligations by the United States would make the world economy even more fragile.

Of course, if you follow this blog, you will know that I contend that like Climate Change, the UN is nothing but a tool of inflation. I don’t mean to detract from the group of true idealists that are employed here and there within the organization and that are genuinely unaware of the ultimate purpose of the UN. But all the UN is, is a tool meant to create circulation of great amounts of money in an attempt to maintain a positive multiplier effect of the currency. That is the reason the UN must spend money regardless of the political/economic/social conditions it encounters in the areas where it operates. Have you ever heard the UN not to disburse on a project because the local government had been found out to be corrupt? Of course not. The UN must disburse because failure to deploy those sums would mean a reduced budget for the following year. And I can assure you that no UN department is going to stand for that. The UN will always outspend itself in an effort to acquire ever more resources year in year out. That is par for the course in a monetary/political system predicated on inflation.

But inflation is teetering on the brink of the deflationary cliff these days….

How far can a global war be?

2013/2015 is my prediction in the absence of radical political economic change in direction.

Take me to task then.