Thursday, December 29, 2011

Setting up shop...

...and with anti-climactic results to readers here. The Obama Doctrine is humming along.

The military’s legendary expeditionary construction units, the Navy’s Seabees are set to return to their World War II roots this spring when a construction detail Naval Mobile Construction Battalion 3 heads to Africa to greatly expand the runways at a remote Kenyan airstrip to allow it to handle large cargo planes.
Sailors from the detail will haul their own heavy construction equipment, such as a a mobile concrete batching plant, pavers and steam rollers to a remote part of the African nation to expand an austere airstrip into one capable of handling large jet aircraft.
While the Seabees declined to comment on where the airfield is, how large the new runway will be or even the specific types aircraft that will be able to use it, they did tell DT that this is the largest project they’ve worked on in a long time. The project is so large that the sailors are bringing their own asphalt prepping [batching] plant with them; something the Seabees haven’t done in a long time.
“This is the first time we’ve set up a batch plant up, this is a newly procured system, the Seabees haven’t done their own asphalt batching — the process of making asphalt — for several years; its almost an extinct skill,” Lt. Cdr. Bill Wohead, Naval Construction Battalion 3’s operations officer told DT recently. “We’re the first (Seabee) battalion to go through all this training, we’re the first battalion to use this brand new equipment and we’re the first battalion that’s going to use it all in concert to create a project in the middle of nowhere.”

Quote of the Day...

...and summing up the dangers of the unchecked concentration of power.

The Law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense.

-Frederick Bastiat

Wednesday, December 28, 2011

A Wild Austrian Economist Appears!!

The following is from a recent article in The Economist lamenting the travails of modern economic theory (whatever that is) and a worthy group of upstart challengers. The article concludes thusly:

The bygone and the marginalised always look strange. But would it not also be strange to imagine that, in 30 or 50 years, economic historians will look back on the current crisis and say that mainstream macroeconomics offered the best analysis and prescriptions that could have been conceived? If they agree that it did not, then there seems a chance that they will think perspectives outside the mainstream might have helped.

Decades ago macroeconomics resembled an “intellectual witch’s brew”, according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained “many ingredients, some of them exotic—many insights, but also a great deal of confusion”. Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy—and in time some new quintessence will be brought forth, perhaps from materials now considered base.

This "quintessence" (like some sort of 5th element shipped via UPS from Mt. Olympus) is a fiction. Economics is a historical construct that is inextricably linked to contextual events, each dependent upon the actions of millions of humans (and in some cases, the actions of a very few of them). So there will be no Great Synthesis ready to take its rightful place among the objective sciences. Business cycle theory applies equally to the academic discipline of Economics as well. Influence is achieved, prescriptions made, failure is inevitable, and challengers appear in the firmament to begin the cycle anew, with the next generation of adherents ready for battle.

Producing volatility order to beg for relevancy. This is no different from the more lurid and prurient representations we have heard from "shock radio" or gangster rap.

The word "reprobate" comes to mind...

The UN general assembly granted a request from North Korea to hold a moment of silence for Kim Jong-il, the country's former leader who died on Saturday. The tribute was boycotted by western delegations. Nassir Abdulaziz al-Nasser, president of the 193-nation assembly, called for the minute of silence before the start of a routine meeting

Tuesday, December 27, 2011



Jiang Shusheng made the statement during a meeting with the head of Argentina’s Lower House Julian Dominguez who also underlined the recent Mercosur solidarity support to Argentina’s request in the Falklands/Malvinas dispute.
The Chinese top official originally arrived in Buenos Aires as a special envoy from President Hu Jintao to President Cristina Fernandez swearing in ceremony last December 10.
“China will continue to support the Argentine claim of sovereignty over the Islas Malvinas”, said Jiang Shusheng who added that “solidarity with Argentina on the Malvinas issue is an invariable position of China’s foreign policy”.
Jiang Shusheng also praised Argentina for its role as the rotating president of the Group of 77 of non aligned countries saying “Argentina worked for world integration and peace”.

Friday, December 23, 2011

Muddling along...

...without any inflationary pressures from the "money printing" of QE.

Personal income increased $8.5 billion, or 0.1 percent, and disposable personal income (DPI) decreased $5.0 billion, or less than 0.1 percent, in November, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $13.1 billion, or 0.1 percent in November. In October, personal income increased $47.2 billion, or 0.4 percent, DPI increased $27.2 billion, or 0.2 percent, and PCE increased $11.3 billion, or 0.1 percent, based on revised estimates.

Once again...

..the wrong tools being considered because of wrong assumptions. QE does not lead to "inflation" nor does it combat "deflation". These officials think asset swaps lead to increased economic activity...something reinforced by bond-houses that love this sort of political volatility.

Never ask a barber if you need a haircut...and if you simply look at the employers (current and prospective) of these officials who claim QE is both essential and effective in combating deflation, you will see the influence matrix.

European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.
“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times. The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”
Unlike the U.S. Federal Reserve and the Bank of England, the ECB has offset liquidity created by purchases of government bonds so that such operations don’t amount to quantitative easing that stokes inflation. ECB Executive Board member Juergen Stark told Germany’s Die Welt newspaper in an interview published today that the central bank doesn’t “have a mandate” for unlimited purchases of government bonds.

Tuesday, December 20, 2011

The Obama Doctrine... work in the antipodes. A larger U.S. presence in Africa was predicted here as soon as Obama was president both as a vehicle for proxy competition with other nations as well as a bulkhead for energy security and inexpensive labor.

This is just the beginning.

BANGUI, Central African Republic - U.S. Special Forces troops have set up a base in the Central African Republic as part of their regional hunt for fighters from the Ugandan-born Lord's Resistance Army (LRA) group, military sources said.

"The deployment of this contingent, the size of which is unknown, was carried out very discreetly with Ugandan military aircraft," a Central African military official said Dec. 19 on condition of anonymity.

The U.S. troops set up a base in Obo and are expected to coordinate their efforts with local government forces and Ugandan soldiers.

U.S. President Barack Obama in October announced he was sending 100 Special Forces troops to Kampala, Uganda, to help Uganda track down LRA chief and international fugitive Joseph Kony, who has wreaked havoc over four nations for more than two decades.

Besides Obo, the U.S. forces also have a forward base in South Sudan. They began deploying in Uganda earlier this month.

Friday, December 16, 2011

Paradigms Lost...

...How is it possible, in light of the massive and continuous "money printing" of QE, QE2, (QEnth), are CPI and other price indexes (unrelated to commodities, which is a separate beast altogether) deflating? As I have outlined on this blog on numerous occassions, QE is a simple asset swap between an asset with zero interest (cash) and an asset paying interest.

In this environment, where the CREDIT CHANNEL OF MONETARY CREATION REMAINS BROKEN, QE is actually DEFLATIONARY. The following CPI numbers bear this out. I have emphasized (the admittedly hard to read) relevant portion which indicates all item CPI to have DECREASED from 3.5 to 3.4 in the October/November time period. In addition, earnings statistics released today show that real income decreased as well. Where is the inflation?

Nov. Oct.
Weight 2011 2011
All items 100.0% 0.0% -0.1%
(3 decimals) 100.0%-0.019% -0.085%
6-mo annualize n/a 1.7% 2.1%
ex-food/energy 77.2% 0.2% 0.1%
(3 decimals) 77.2% 0.173% 0.136%
All items NSA 100.0% 3.4% 3.5% (3 decimals) 100.0% 3.394% 3.525%
ex-food/energy 77.2% 2.2% 2.1%
(3 decimals) 77.2% 2.153% 2.100%
All items SA 100.0% 3.4% 3.6%
(3 decimals) 100.0% 3.412% 3.559%

Thursday, December 15, 2011


One of the great moments in cinema occurs in the film "The Princess Bride" in which the players discuss the use of the word "inconceivable".

So, in internet speak, "I will just leave this here".

BEIJING — China's manufacturing activity contracted in December while
foreign direct investment fell for the first time in 28 months, data
showed Thursday, as crises in the US and Europe drag on the economy.

The bleak data came as a senior government researcher forecast exports
growth would halve in 2012 from this year and pull the pace of
economic expansion below nine percent for the first time in more than
a decade.

Mounting evidence that China is slowing will ratchet up pressure on
Beijing to further loosen monetary and fiscal policies to prevent the
world's second biggest economy from suffering a painful hard landing.

The preliminary HSBC purchasing managers' index (PMI) reached 49 in
December, slightly up from 47.7 in November -- the first contraction
in nearly three years -- as consumers from New York to Paris cut back
on holiday spending due to deepening economic woes.

Wednesday, December 14, 2011

Statutum in favorem principum

Expect concessions to be extracted from the larger Euro members. This will be a temporary fix, of course, but such behavior is rational and expected when weakness is perceived.

The Statutum in favorem principum is a good example of this. In order to solidify his Germanic holdings, the Holy Roman Emperor Frederick II ceded veto authority to regional prince with respect to any additional laws. These actions had the additional effect of validating England's newly minted Magna Carta, itself a testament to the dangers of the concentration of power.

Unproductive war was the cause of most of the above. Unproductive investment is the cause today.

So it goes. Power concentrated, pressured, exploded, and dissipated. We are in the pressured stage.

Tuesday, December 13, 2011

And yet...

...the bond auction today went swimmingly, the dollar rallies, and gold declines.

How can this be? Given all the EOTs ("End Of Timers") constant rhetoric about the impending demise of the U.S.?

The only reason... participants appear on Television is to effect sentiment...or rather to give the appearance to their competitors and counter-parties that they have the power to effect sentiment.

Vivid tales of impending destruction and mayhem make for good theater.

Saturday, December 10, 2011

The Fire Marshall...

...has officially warned about the falty exits in the crowded movie theater. What, precisely, do you own when you hold ETFs (or other similar securities) backed by the promise to deliver?

“The promise given was a necessity of the past: the word broken is a
necessity of the present.” -Machiavelli

An HSBC Holdings Plc (HSBA) unit sued the MF Global Inc. brokerage trustee to establish whether he or another person is the rightful owner of gold bars worth about $850,000 and silver bars underlying contracts between the brokerage and a client. Five gold bars and 15 silver bars underlie eight Comex contracts between the brokerage and its client Jason Fane of Ithaca, New York, the unit of London-based HSBC said in a court filing yesterday. Both parties have asserted claims to the bars, creating difficulties for HSBC, which is storing them, the bank said. HSBC asked a judge to decide who the rightful owner is.

“HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.” The unit is HSBC Bank USA National Association.

Bullion is selling for about $1,717 an ounce on the Comex in New York, up about 21 percent this year, as investors bought the metal to protect their wealth from Europe’s escalating debt crisis, and reached a record $1,923.70 in September. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

‘Bars Are Mine’
“These bars are mine,” Fane said in an e-mail today. “We had a letter from HSBC that they were on the loading dock to be shipped to our warehouse contractor when there was some action taken by a third party to stop or delay shipment.”

Friday, December 09, 2011

Better late than never...

...The men of Newport pull a neck-breaking about-face. Recall the positions from earlier this year (emphasized here of course)

Bill Gross, who runs the world’s biggest bond mutual fund at Pacific Investment Management Co., increased his holdings of Treasuries and mortgage debt amid a bet U.S. interest rates will stay low for years.
Government and Treasury debt as a percentage of the $241 billion Total Return Fund (PTTRX) climbed to 23 percent from 19 percent the previous month, according to data posted on Newport Beach, California-based Pimco’s website today. Mortgage securities, the fund’s largest holdings, were increased to 43 percent from 38 percent in October. Pimco doesn’t comment on portfolio changes.
Gross eliminated Treasuries from the portfolio in February and has increased the holdings amount since then. U.S. growth won’t prevent the Federal Reserve from signaling that borrowing rates will remain lower longer than policy makers have already indicated, Gross said during a Dec. 2 Bloomberg radio interview after a report showed the jobless rate declined in November. Gross said the Fed will keep the target rate close to zero for as long as four years.

Thursday, December 08, 2011

Why... some countries act as pilot fish time after time???

Hungary Looks Set for Downgrade, Possible Default as Recession Looms

Hungary looks the most probable eastern European Union nation to have
its credit rating downgraded and to default on its sovereign debt as
the prospect of a recession looms.

The outlook for the economy has deteriorated because of deleveraging
by the western parent companies of local banks, a worsening external
trade outlook and tighter monetary policy.

Hungary formally approached the International Monetary Fund for
financial support on Nov. 27, the second time it’s held out the
begging bowl in three years, after the forint fell to a record low
against the euro and Moody’s downgraded the country’s debt to junk
status. S&P and Fitch may follow suit if negotiations with the IMF
become prolonged.

Hungary’s credit-default swap spreads suggest investors see a
sovereign default as increasingly likely. Five-year CDS for Hungary
have doubled since August to 540 basis points. The yield on the
10-year government bond rose to 8.54 percent yesterday, 33 basis
points above that of bailed-out Ireland.

Tuesday, December 06, 2011


The promise to pay that is fabricated from other promises to pay is downgraded by S&P. Where is the Alexander that can cut this gordian knot?

LONDON—Standard & Poor's Corp. Tuesday said it placed the long-term
credit rating of the European Financial Stability Facility, or EFSF,
on credit watch negative.

This follows the placement on watch negative of the six European
sovereigns that guarantee its financial obligations. The six
sovereigns are triple-A rated Austria, Finland, France, Germany,
Luxembourg and The Netherlands.

Standard & Poor's could downgrade the EFSF by one or two notches
depending on the outcome of its review on the EFSF member sovereigns.
The rating will likely be the same as the lowest issuer rating, unless
further credit enhancements are put in place. If this is the case,
Standard & Poor's could affirm the EFSF triple-A rating on the basis
that these compensate the reduced creditworthiness of its guarantors

Ultimate Final European Solution #3,237...

...jettison the troublesome concepts of self-determination and "sovereignity", subsidiarity and simply transfer power back to the EU core to IMPOSE austerity measures amongst member states as a workable solution. Good luck with that. The Charge of the Light Brigade in financial terms.

The European commission could be empowered to impose austerity measures on eurozone countries that are being bailed out, usurping the functions of government in countries such as Greece, Ireland, or Portugal.

Bailed-out countries could also be stripped of their voting rights in the European Union, under radical proposals that have been circulating at the highest level in Brussels before this week's crucial EU summit on the sovereign debt crisis.

A confidential paper for EU leaders by the EU council president, Herman Van Rompuy, who will chair the summit on Thursday and Friday, said eurobonds or the pooling of eurozone debt would be a powerful tool in resolving the crisis, despite fierce German resistance to the idea.

It called for "more intrusive control of national budgetary policies by the EU" and laid out various options for enforcing fiscal discipline supra-nationally.

PRINT! (Then what?)

All the King's horses and all the King's men getting on the inflation < deflation risk (which is true) and that inflation is easier to contain once unleashed than deflation (which may or may not be true). The party line has infiltrated the popular business you know what that means.

In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times.

We teetered on the edge of this same precipice 80 years ago, in 1931. A succession of major European banks went bust. Bailing them out was beyond the resources of fiscally overstretched governments. Failure to agree on orderly debt reductions led to disorderly defaults, tariff wars, and a further worldwide collapse of production and employment.

Monday, December 05, 2011

The game.

The Paper Dragon continues to pressure its competitors for more IMF power...effectively positioning itself for a more "multi-lateral" world where IMF SDRs are the only true global reserve "currency".

These efforts should fail as the Paper Dragon's competitors (principally the U.S.) understand this strategy and are simply waiting for the inevitable massive GDP and associated wealth collapse.

The Slippery slope...

...makes an appearance in the Health Care debates. Soviet Russia would comfortable with the highlighted language. Full article here.

Asked why Americans were still deeply divided over the new health care law, signed 20 months ago, Dr. Berwick said: “It’s a complex, complicated law. To explain it takes a while. To understand it takes an investment that I’m not sure the man or woman in the street wants to make or ought to make.”

But, Dr. Berwick said, just as Americans supported manned missions to the moon without knowing the details of rocket science, they ought to support the new law because of its ultimate destination.

“We are a nation headed for justice, for fairness and justice in access to care,” Dr. Berwick said. “We are a nation headed for much more healing and much safer care. There is a moon shot here. But somehow we have not put together that story in a way that’s compelling.”

An article...

...making the rounds (again, as it was written earlier this year). Also much discussion of "optical back stops" for the EU system (the concept that what is perceived as a fully funded economic backstop are really only a bundle of promises to borrow and spend).

In the realm of economics, price controls
are designed to constrain volatility on
the grounds that stable prices are a good
thing. But although these controls might
work in some rare situations, the long-term
eªect of any such system is an eventual
and extremely costly blowup whose cleanup
costs can far exceed the benefits accrued.
The risks of a dictatorship, no matter how
seemingly stable, are no diªerent, in the
long run, from those of an artificially
controlled price.

Such attempts to institutionally engineer
the world come in two types: those that
conform to the world as it is and those
that attempt to reform the world. The
nature of humans, quite reasonably, is to
intervene in an effort to alter their world
and the outcomes it produces. But government
interventions are laden with unintended—
and unforeseen—consequences, particularly
in complex systems, so humans must work
with nature by tolerating systems that
absorb human imperfections rather than
seek to change them

Famous quote of the day...

“I have always found the word ‘Europe’ on the lips of those who wanted something from others which they dared not demand in their own names!” -German Chancellor Otto Bismark,1880

Bienvenue à la décennie perdue

Sarkozy waxes "heroically" (read: like a demagogue) about the causes, effects and best proscriptions for recovery. Full speech here.

Exchange rates are at the heart of the financial crisis just as they are at the heart of the distortions affecting global trade. And if we don’t take care, monetary dumping will end up generating extremely violent trade wars, so paving the way for the worst protectionism. A French manufacturer can make all the productivity gains in the world. He can, at a pinch, compete with the Chinese workers’ low wages, but he can’t compensate for the undervaluing of the Chinese currency. (…)

So I repeat just how necessary I think it is for heads of State and government of the main countries concerned to meet before the end of the year to learn the lessons of the financial crisis and coordinate their efforts to restore confidence. (…)

I am convinced that the sickness runs deep and that there has to be a root and branch revision of the whole global financial and monetary system, as was done at Bretton Woods after the Second World War. This will allow us to create the tools for global regulation, now made essential by the globalization of trade. We can’t go on managing the economy of the twenty-first century with the instruments of the twentieth, no more than we can design tomorrow’s world with yesterday’s ideas.

When every day the central banks are making cash injections into banks and American taxpayers are on the point of spending a trillion dollars to prevent widescale bankruptcy, it seems to me that we need no longer question the legitimacy of public authority intervention in the operation of the financial system! (…)

In these exceptional circumstances when everyone absolutely has to act, I call on Europe to ponder its ability to cope with the emergency, to rethink its rules, its principles, learning the lessons of what is happening in the world. Europe must give itself the means to act when the situation demands and not condemn itself to inaction.

If Europe wants to safeguard its interests. If it wants to have a say in reorganizing the global economy, its leaders must start thinking together about its competition doctrine – to my mind, competition is only a means and not an end in itself –, about its ability to mobilize resources and prepare the future, about the economic policy instruments and objectives assigned to monetary policy. I know it’s difficult because there are 27 countries in the EU, but when the world changes, Europe has to change too. Europe has to be capable of drastically changing its own dogmas. (…) As EU President, I shall propose initiatives along these lines at the next European Council on 15 October.

The recent post...

...on U.S. carrier location and the reasons for same appears to be bearing fruit. Full Article.

Tehran quickly latched onto US Defense Secretary Leon Panetta's warning Friday, Dec. 2 that an Israeli strike at Iran's nuclear facilities would cause unpredictable results. Sunday, Iran issued two threats: to hit back beyond its borders for a US reconnaissance drone which its military claimed to have shot down near the border with Afghanistan and Pakistan and that an oil embargo on its exports would boost the price of oil to $250 a barrel.
This was another way of threatening a tit for tat in the form of a blockade on the Strait of Hormuz, the most important oil channel in the world, and the transit of Saudi and Gulf oil. This was a reference to another of the US defense secretary's warning Friday that: "…any disruption of the free flow of commerce through the Persian Gulf is a very grave threat to all of us" and a red line for the US."
The unmanned aerial vehicle the Iranian military claimed in a report on English language Press TV to have shot down Sunday over the eastern part of the country was described in Tehran's statement was an RQ-170.

Saturday, December 03, 2011

Its instructive to note... the popular media is fed much of their material and bias by financial market participants. Those who are short (and facing various margin calls) are in full propaganda mode providing "information" that has zero probative value with respect to economic prospects.

NEW YORK (Reuters) - Earnings season is just over a month away, but the early signals are not comforting.

Companies cutting forecasts outpace those raising estimates by the greatest ratio in 10 years, and some sectors, such as materials, have seen a dramatic fall in expectations for the soon-to-be ended fourth quarter, according to Thomson Reuters data.

It is a stark reminder that even as U.S. economic data has improved in recent weeks, the euro zone debt crisis and concerns about slowing growth in China still cast a long shadow.

Estimates for fourth-quarter S&P earnings growth have tumbled over the past two months as global macroeconomic headwinds prompted analysts to slash forecasts.

The S&P is now seen posting earnings growth of 10 percent in the fourth quarter, down from a forecast for 15 percent growth on October 3.

"With all the uncertainties out there - from geopolitical issues to the risk that we could be headed towards another recession - this suggests the economy is barely keeping its altitude above the tree line right now," said Michael Mullaney, a portfolio manager for the Boston-based Fiduciary Trust Co.

"It's good that we're still expecting growth, but it is nowhere near as robust as what we were expecting, to a significant degree."

Always worth listening... the great Richard Epstein. The brief discussion is an excellent summation of adverse outcomes and unintended consequences.

False Dichotomy...

...there is no distinction. Both states, by themselves, can only exist in theory, as they are inextricably linked to one another.

Arguing over the definitions of capitalism at this point is tantamount to discussing how to remove liquid from water.

Economics Professor Chris Coyne draws the distinction between crony capitalism and legitimate capitalism. Crony capitalism is government favoritism fueled by handouts and is responsible for the plight of the 99%. Legitimate capitalism, on the other hand, uses competition to align consumer and producer interests and serves to improve everyone's standard of living.

Friday, December 02, 2011


...all the way around.

Sen. Tom Coburn (R-Okla.) says he is planning legislation directing the U.S. government to veto an expanded role for the fund.

Senate Republican Steering Committee Chairman Jim DeMint (R-S.C.) and Rep. Cathy McMorris Rodgers (Wash.), a member of the House Republican leadership, also have legislation to curb the proposed intervention.
“I’m adamantly against the IMF being involved in this,” Coburn said.

“We’re throwing good money after bad down a hole that I think is not a solvable problem,” he said.

“Europe is going to default eventually, so why would you socialize their profligate spending,” he added.


...the continuing series...

(Boston Fed President version)


Some Hedge Funds...

...nicely summed up (in code) by a friend of mine:

lev = funds[client] + borrow(funds[client]*5)
repeat until (or(funds[client]=0, date=12/31))
results = wager(obviousmacrobet[lev])
if results > 0, deduct(results*.2)
if funds[client] = 0, write(letter[apology,"cygne noir",sigma[rand(6,9)]])

IMF involvement...

...basically communicates that adult supervision (in the form of the IMF and the U.S.) is needed for the romper room of adolescents that is the Euro area.

Monday, November 28, 2011

This would be relevent...

...if the same warnings were given two years ago. Like the sirens in action films being audible *just* in time for the final credits to start rolling.

While Moody’s central scenario remains that the euro area will be
preserved without further widespread defaults, even this ‘positive’
scenario carries very negative rating implications in the interim period.
The rating agency notes that the political impetus to implement an
effective resolution plan may only emerge after a series of shocks, which
may lead to more countries losing access to market funding for a
sustained period and requiring a support programme. This would very
likely cause those countries’ ratings to be moved into speculative grade
in view of the solvency tests that would likely be required and the
burden-sharing that might be imposed if (as is likely) support were to be
needed for a sustained period.

However, over the past few weeks, the likelihood of even more negative
scenarios has risen. This reflects, among other factors, the political
uncertainties in Greece and Italy, uncertainty around the final haircut
imposed on holders of Greek debt, the emphasis in the recent Euro Summit
statement on the conditional nature of the existing support programmes
and the further worsening of the economic outlook across the euro area.
Alternative outcomes fall into two broad categories: those involving one
or more defaults by euro area countries (in addition to Greece’s PSI
programme); and those additionally involving exits from the euro area.

Saturday, November 26, 2011

Tensions increase

The inexperience is telling. Much, much more of this to come.

The company involved, New Forests Company, grows forests in African countries with the purpose of selling credits from the carbon-dioxide its trees soak up to polluters abroad. Its investors include the World Bank, through its private investment arm, and the Hongkong and Shanghai Banking Corporation, HSBC.

In 2005, the Ugandan government granted New Forests a 50-year license to grow pine and eucalyptus forests in three districts, and the company has applied to the United Nations to trade under the mechanism. The company expects that it could earn up to $1.8 million a year.

But there was just one problem: people were living on the land where the company wanted to plant trees. Indeed, they had been there a while.

Sunday, November 20, 2011

Carrier Group Locations

Foreign policy being inextricably tied to economic interests, it is instructive to note where U.S. Carrier groups are located. The Recapitulator notes multiple carrier groups in and around the persian gulf.

(Link can be found on this blog titled "Carrier Group Locations" in the "Useful Links" section to the right)

Redenomination risk.

An issue as old as finance (the risk that the currency you possess from another country or culture is not what is currently used in said country) makes a comeback with respect to the Euro area.

full article here:

Investors should consider three main parameters when evaluating redenomination

1) legal jurisdiction under which a given obligation belongs; 2) whether a break-up can happen in a multilaterally agreed fashion; and 3) the type of Eurozone break-up which is being considered, including whether the Euro would cease to exist.

In a scenario of a limited Eurozone break-up, where the Euro remains in existence for core Eurozone countries, the risk of redenomination is likely to be substantially higher for local law obligations in peripheral countries than for foreign law obligations. From this perspective, local law obligations should trade at a discount to similar foreign law obligations.

In a scenario of a full-blown Eurozone break-up, evaluating the redenomination risk is more complex, as even foreign law obligations would have to be redenominated in some form. In this case, redenomination could happen either into new national currencies (in accordance with the so-called Lex Monetae principle), or into a new European Currency Unit (ECU-2). This additional complexity in the full-blown break-up scenario leaves it harder to judge the appropriate relative risk premia on
local versus foreign law instruments.

The distinction between local and foreign law jurisdiction also becomes less important in situations involving insolvency. In those instances, the lower redenomination risk associated with foreign law obligations may be negated by higher haircuts. Hence, the legal jurisdiction therefore seems most relevant from a trading perspective in connection with high quality corporate credits which are
highly resilient to insolvency.

Read more:

Thursday, November 17, 2011


...a continuing series...this is shaping up to be another containment strategy. Something we have a great deal of experience with.

When President Obama met with Australian Prime Minister Julia Gillard on Wednesday, they announced plans for the first sustained American military presence in Australia.

By the end of 2012, 250 Marines will begin six month rotations, and in the years ahead, that force will build out to 2,500. They'll train alongside Australian troops and live on Australian bases. In addition, the U.S. Air Force will have additional access to Australian airfields.

At the news conference with the Prime Minister, President Obama said:

The United States of America has no stronger ally than Australia. We are bound by common values, the rights and the freedoms that we cherish. And for nearly a century, we’ve stood together in defense of these freedoms. And I'm very happy to be here as we celebrate the 60th anniversary of our alliance, and as we work together to strengthen it for the future.

Problems and flash points

While "indexes" are fraught with computational and aggregation error, this failed state index is interesting. Nothing that we have not contemplated before, but the granularity of the data gathered is as good as can be at the moment.

Monday, November 14, 2011


...Once again, the illusion of control is laid bare by the Euroskeptic.

Chancellor Angela Merkel tells us that peace in Europe can no longer be taken for granted, and she is right. Her own Gothic actions and her inflexible imposition of 1930s Gold Standard contraction and debt-deflation on Southern Europe is itself preparing the ground for Europe’s civil war (hopefully pacific), a rebellion by the South against the North.
Italy’s youth are turning. Watch the footage of students chanting "democracy" and brandishing their "95 Theses" of Wittenberg revolt as poet Van Rompuy tried to speak in Fiesole.
"No to Austerity," starts the Luther List: "Troika out of Greece", "IMF and ECB out of Italy, Ireland, and Portugal", it goes on.
"The EU has become ever less accountable to the people of Europe. The undemocratic structures have infiltrated the very structures of the Union," they said.

Friday, November 11, 2011

The intrinsic...

...and pathological need for order in humans takes various (but universal in frequency and intensity) manifestations.

One of these is the requirement that market changes have a "cause". Any cause will do. So last weeks volatility was immediately ascribed to problems in Europe. But, as we know the discounting nature of the markets, there is likely something else causing trepidation in U.S. stocks.

So the following article is a more likely "cause".

Call it Wall Street's other geopolitical driver, one played out not in Athens or Rome, but close to home in Washington.

WSJ's Janet Hook reports on yet another week ending without a deal from the congressional deficit supercommittee. Plus, what is likelihood that the deficit negotiations will come down to the 11th hour?

As stock-market investors fret over sovereign-debt contagion in Europe, a Nov. 23 deadline for the U.S. Congress's so-called budget supercommittee is fast approaching. The committee is assigned to devise at least $1.2 trillion in deficit-reduction measures over 10 years, or else automatic cuts ordained by Washington's summer debt-ceiling agreement are triggered.

Friday's market action gave little hint that investors remain perturbed over Europe's debt situation, much less any happenings in Washington, as the Dow Jones Industrial Average surged by triple digits. But the gains came on the kind of light volume that usually suggests a lack of participation.

Wednesday, November 09, 2011


...what? Interesting diplomacy.

WASHINGTON, Nov. 8, 2011 /PRNewswire via COMTEX/ -- In the run-up to the international climate negotiations in Durban later this month, China has responded to efforts to ban the trading of widely discredited HFC-23 offsets by threatening to release huge amounts of the potent industrial chemical into the atmosphere unless other nations pay what amounts to a climate ransom.

China's threat comes after the European Union and other nations moved to ban HFC-23 credits from internal carbon markets in recognition of the perverse incentives created by these credits under the UN Clean Development Mechanism (CDM). The vast amounts paid for HFC-23 offsets have led factories in China and elsewhere to manufacture far more HCFC-22 and its HFC-23 by-product than necessary, just to maximize the amounts paid to destroy HFC-23 through the UN-backed carbon trading scheme.

Tuesday, November 08, 2011

Modest improvement... does appear the trajectory is not full-on descent into chaos, as the EOTers have constantly proclaimed...


In September, the hires rate was little changed at 3.2 percent for
total nonfarm. The hires rate increased in construction and
professional and business services as well as in 3 out of 4 regions.
(See table 2.) The number of hires in September was 4.2 million, up
from 3.6 million in October 2009 (the most recent trough) but below
the 5.0 million hires recorded when the recession began in December
2007. The number of hires has increased 17 percent since the end of
the recession in June 2009.

Over the past 12 months, the hires rate (not seasonally adjusted) was
little changed for total nonfarm, total private, and government. The
hires rate increased for construction and professional and business
services. The hires rate increased in the Midwest and decreased in the

Excellent example...

...of a Sovereign's ability to change self-imposed rules in the name of economic growth, mirroed by the ability of industry to apply pressure for the same reasons. Note also the insular nature of the process.

That German exports have remained strong despite the brewing crisis in Europe is hardly a secret. Indeed, a new report emerged on Tuesday indicating that exports actually climbed in October by 0.9 percent relative to September. In comparison to September 2010, exports even skyrocketed by a hefty 10.5 percent.
Chancellor Angela Merkel, it would seem, is anxious to do her best to ensure that the trend continues. And according to information obtained by SPIEGEL, arms exports have become one of her administration's focuses.
In a position paper delivered to the European Commission on Oct. 27, which SPIEGEL has seen, the German government argues that, when it comes to export controls, "The effort to prevent proliferation and destabilizing arms accumulations should not unreasonably hinder or impede legal trade, particularly when it comes to economic relations with new regional powers."
The document focuses on so-called "dual-use goods" which have both military and civilian applications. Both "foreign and security policy considerations" as well as "economic interests" should be "adequately considered," the position paper states. German arms exports amounted to €15.1 billion between 2005 and 2010, making it the world's third leading weapons exporter.
The words "human rights" do not make an appearance in the 21-page document, though Merkel frequently emphasizes that her government's security policy is "values driven."

Sunday, November 06, 2011

Dangerous opportunities...

...for governments to jettison principal in the name of expediency.

In Greece and Italy, there has been strong criticism of the perceived arrogance of "Merkozy," as the Franco-German duumvirate are increasingly nicknamed, in summoning their prime ministers to receive ultimatums.

German and French officials shrug off such complaints as inevitable, noting that EU partners are even more unhappy when France and Germany do not agree, since that paralyses Europe.

"There is always a trade-off between legitimacy and efficacy," said an EU official involved in the Frankfurt Group. "The euro area institutions were not designed for crisis management so we need innovative solutions.

"In an emergency like this, we have to have a structure that works," he said, adding that the presence of the European Commission and of European Council President Herman Van Rompuy guaranteed that the interests of smaller member states would be taken into account.

Saturday, November 05, 2011

Powder Kegs... I have said before, Italy is the real weak link in the entire Euro problem.

Nov. 5 (Bloomberg) -- Italian Prime Minister Silvio Berlusconi’s closest aides told him he doesn’t have a majority in parliament anymore and he should consider stepping aside, la Repubblica reported, without saying where it got the information.

Rational response to regulation...

...interesting circumventions should be applauded, not prosecuted. But that is a different world unfortunately. Interesting article.

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise." Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy. A number of well-known chefs have also appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.

Channelling Sartre...


Thursday, November 03, 2011


DJ Obama To Merkel: We Are Totally Invested In Your Success

Wednesday, November 02, 2011

Slight improvement...

...with all the turmoil, modest signs of change in growth's pesky second derivative.

Tuesday, November 01, 2011

Sovereignity makes a comeback... Europe of all places.

Animals have a tendency to return home when lost. So it is with politicians who make unwarrented expeditions into Global Goverment.


Monday, October 31, 2011

And yet these bonds rally...

From August 3, this year.

MF Global Holdings Ltd. (MF) took the cult of the Wall Street chief executive officer to a new level with its sale of bonds that pay a higher rate if Chairman and CEO Jon Corzine quits to take a job from the U.S. president.
The futures broker sold $325 million of five-year unsecured notes, the company said today in a statement. The notes will pay an extra percentage point of interest if Corzine is named to a federal post and confirmed by the Senate before July 2013, New York-based MF Global said yesterday in a regulatory filing.
“That seems crazy,” said William Larkin, a fixed-income portfolio manager who oversees $500 million at Cabot Money Management Inc. in Salem, Massachusetts, and has 22 years of experience. “I’ve never heard of something like this.”

MF Global

...its not just its exposure (and the ramifications of European Banks who are in the same position), but with 17 billion or so in debt of its own, who is now holding an empty bag?

This is quite the haircut...


The Lost Decade...

...continues for Japan. Bridges to no-where, and now "back up" cities.

Japan is considering building a new city that would take over the functions of Tokyo if the capital was crippled by an earthquake or other natural disaster.

The plan is being put forward by a group of politicians from across the spectrum and comes nearly eight months after the north-east of Japan was devastated by a magnitude 9 earthquake and tsunami. Nearly 20,000 people were killed or are still listed as missing, while experts are still trying to bring the damaged reactors at the Fukushima Daiichi nuclear plant under control.

If the earthquake had struck closer to Tokyo - which seismologists believe is overdue for a major tremor - then the results could have been catastrophic, the politicians said.

The planned new city - given the less-than-inspiring title of IRTBBC, standing for Integrated Resort, Tourism, Business and Backup City - could be built on a 1,236-acre site now occupied by Itami Airport, which used to be the main gateway to Osaka but has been largely superseded by Kansai International Airport.

Sunday, October 30, 2011

Ring-Fencing... it comes. The academic and propaganda machines for INCREASED euro-area powers and fiscal "cooperation" (read: entanglement) are in full rapid-fire print mode.

To wit, from this paper:

The stronger the statutory base establishing national fiscal rules (that may vary between mere party coalition agreements and constitutional law), the lower risk premia will be. But also the enforcement mechanisms of the rules turn out to be important while the body in charge of the supervision of compliance with the fiscal rule appears to be somewhat less important. Our results thus show that rules become the more credible to market participants the stronger their binding character is, and the more
effectively they can be enforced.
Moreover, the results point to significant benefits in terms of interest rate cost on public debt.

Breaking moratorium...

...only to provide evidence of my position...When Time Magazine takes a break from celebrity worship and stating the obvious to opine on economic happenstance, its good to take a step back and calculate what is already priced in the markets...

Friday, October 28, 2011 Michigan...

...Consumer confidence ticking up. The seeds being planted and the popular media guiding ever so faithfully for the retail investor to go the other way and be bearish...its just so easy for the market mistriss to pick the pockets of the weakest hand and be on its merry way to the best October ever for equities.

The Hound heeds his master...

...and remains loyal.

Speaking on his way to Perth, Australia, for a Commonwealth summit, the Prime Minister also warned against the 17 Eurozone nations colluding to undermine the European Union's free market rules.

He said: "London is the centre of financial services in Europe. It's under constant attack through Brussels directives. It's an area of concern, it's a key national interest that we need to defend."

Mr Cameron said that he will fight to prevent closer integration of the Eurozone countries leading to anti-competitive regulations.

"As the 27 we need to make sure that the single market is adequately looked after."

"There are a lot of things the eurozone is doing together. Having more meetings alone, establishing machinery - it raises the question of could there be caucasing?"

Thursday, October 27, 2011

Final Post regarding the Paper Dragon

What has been obvious to readers here for 4 years is suddenly "news" all over the popular business media. Time to move on to future bubbles and valuation plays.

The Markets...

...are a discounting mechanism. I am currently inundated by calls and emails from people who cannot believe this rally was possible. As I said before, given the dismal projections the market had priced in, the news today was obviously welcomed.


...the great Euroskpetic opines on the EFSF. The terms imposed by the Paper Dragon will be most interesting to me. The larger question being what and where is the collateral for all of this activity?

Whether it proves any more successful than past efforts over the past two years is far from clear. The package is a huge gamble. If it goes wrong, it may accelerate contagion to core Europe, hastening the denouement so feared by EU leaders.
The EU's €440bn bail-out fund (EFSF) will be leveraged "several fold" – perhaps to €1 trillion – chiefly by insuring the first 20pc loss of new bonds by Italy, Spain and other debtors. This creates a two-tier market, instantly downgrading old debt to lower status.
The plan will "probably" be buttressed by an off-books fund that uses EFSF seed money to rope in the International Monetary Fund, China, Japan and Russia.
French President Nicolas Sarkozy said he would call his Chinese counter-part Hu Jintao on Thursday to garner support.
Beijing will almost certainly impose terms, renewing its demand for open-door access for Chinese state firms investing in EU industry and for an end to Europe's veto on "full market status" for China under global trade laws.


The current rally based off of the positive GDP report and "solution" to the Greek problems is welcomed. The previous weeks of incessant reports regarding the destruction of Western Civilization were always far too dramatic to descend into reality.

But the European problem does remain, and they will have to determine if they want a United Europe or something different. My opinion on this has been fairly consistent; that the EU will mutate into "something else".

Any strategist who is either perma-bullish or perma-bearish will always enjoy periods of success, but risk having their emotional position percolate into their intellectual positions and thus disproportionately effect their logic. Guarding against a foolish consistency is something we all must strive to achieve.

Wednesday, October 26, 2011

Massive EU exposure... obviously effecting firms such as MF Global in the states...but in this late hour it is the Paper Dragon who is making the news. This is clearly in China's best interests to keep the lights on in the factories making all those "goods".

Oct. 26 (PTI) -- China has agreeed to invest in Europe's bailout fund, two senior EU diplomats told AFP today hours from a crunch summit on the eurozone debt crisis.

"China is in," said one of new plans to boost the European Financial Stability Fund (EFSF) with a spin-off investment vehicle to be used to prop up debt-laden nations.
"But not yet Brazil, Russia, India or South Africa," he added, referring to the four other countries in the BRICS group of emerging powers.
The diplomats gave no indication as to the scale of China's likely investment, although an EU official said EFSF chief executive Klaus Regling would leave for Beijing tomorrow, after the summit.

Monday, October 24, 2011

The Paper Dragon.

I have been warning against investment in China for some years now, so this next message will be brief.

The pace of decline in the Middle Kingdom is increasing in pace now. We must talk in terms of months and weeks instead of years when discussing the deflation of the biggest bubble in the history of the world.

As they say in New York: "I'm just sayin"

Must Read.

This is mandatory reading, and the memes and ideas presented will percolate among the popular press and augments some of the arguments on this blog regarding the Unites States relatively strong position versus competitor nations.

The Sword or the Crozier...

...another continuing series in addition to the "by cloth or gavel" posts on this blog.

Readers here will note that power, like nature, abhors a vacuum. The Catholic church has given opinion on world governance previously, and now feels free to opine on the optimal way to reform the global financial system.

the emphasized phrase below is quite troubling to anyone who understands how power mutates with time...and the myriad problems with defining what constitutes a "public authority with universal competence".

VATICAN CITY—The Vatican on Wednesday said it was preparing a series of proposals for reforming the global financial system that would include the creation of a “public authority with universal competence.”
A document entitled “For a reform of the financial system through the perspective of a public authority with universal competence” will be presented on Monday by the Vatican’s Pontifical Council for Justice and Peace.

Friday, October 21, 2011


...another meaningless term rightly relegated to the dustbin of history.

The euro-zone debt crisis is spilling over to emerging-market banks, signaling new risks for economies that had largely brushed off European troubles for the past two years, an industry survey found.

Across Asia, Eastern Europe, Latin America and elsewhere around the world, banks are tightening credit standards and facing an increase in bad loans, according to the survey to be released Friday by the Institute of International Finance, a global association of big banks.

Thursday, October 20, 2011

Prudential risk...

...much more on this phenomenon later. Global markets have assumed the free flow of capital, unconstrained by political pressures, for too long now.

The European banking crisis is spilling over into commodities trading with French banks, the main financiers of trading houses, reining in their lending.

BNP Paribas and a handful of other European banks, including Société Générale and Crédit Agricole, provide most of the credit lines that underpin the business of the publicity shy Swiss-based traders that dominate commodities markets.

Industry executives said that as the banks have to boost their capital buffers, credit to the trading industry is becoming scarcer and costlier, particularly in US dollars, the currency of the global commodity markets.

What is the point of independent ratings...

...if they can be censored? Rather, set the ratings and let the market set the clearing rate on the "informational content" of the ratings. I particularly appreciate the use of "ill thought out", as if political organizations can be trusted to provide objective, rational viewpoints.

BRUSSELS (Reuters) - The European Union's executive may ask for powers to censor credit ratings for countries in crisis, its financial reform chief said on Thursday, describing a ban as one way of stopping fallout from "ill-thought-out" ratings.

The proposal, which officials cautioned may be impossible to police, would be the most stringent curb yet on rating agencies and highlights frustration in France, which was this week warned by Moody's that its top rating was under threat, and Germany.

Tuesday, October 18, 2011

Das is right again...

...The great Satyajit Das, one of the few macro-economists worth listening to (I am partial to him because he does not feel compelled to window-dress economic arguments in usesless mathematical models that hopelessly conflate variables) lays out the Paper Dragon's problem in a recent Bloomberg interview:

China’s Ponzi

Pressley: Chinese state-controlled banks are meantime on the hook for bad loans to state-owned companies. Is that a Ponzi scheme?

Das: It is. I do a simple piece of mathematics. The Chinese say they’re growing at about 10 percent. But they’re pumping the system full of bank debt equal to 30 percent to 40 percent of gross domestic product. Of that, a third to a quarter isn’t coming back.

If one-third doesn’t come back, they’re losing 10 percent. The state-owned companies’ production shows up as GDP. Are they growing at 10 percent, or do the losses mean they’re growing at zero? Are they converting capital into income? Isn’t that what the U.S. did when it borrowed against home equity to fund growth?

Monday, October 17, 2011

Even the NY Times has figured it out...

...what I have been stating for years. The massive leverage and inflation pressures in China are no longer easily concealed by Communist Party. Its downhill, mit großer Geschwindigkeit, from here. I say that in German because comparisons to the Weimar era are not overblown at this point.

Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.

Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.

This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.

Sunday, October 16, 2011

Balance Sheet expansion... the Fed a near certainty at this point. I have pointed this out in the past as a friendly warning, but now it appears massive additional asset purchases are inevitable.

IMF power grab

...extracting the maximum amount of concessions and promises of further "responsibility" while posturing as the only grown up in the room.


The downside is if an agreement is not reached, the IMF will have made so many enemies that it can effectively surrender its charter.

The key is ECB guarantees...something that should have been done a year ago.

PARIS — European officials working to address the region’s financial
crisis have rejected key recommendations from the United States and
the International Monetary Fund, casting doubt on whether an emerging
plan will be as broad or fast-acting as hoped.

As crisis negotiations continued this weekend, European officials said
they had reached general agreement on a response they were confident
would restore faith in European banks and government finances.

The detailed plan to be agreed on by European officials next weekend
“will be decisive,” French Finance Minister Francois Baroin said
Saturday as he concluded a two-day session with finance ministers from
the Group of 20 major economic powers.

But the plan excludes the open-ended use of the European Central Bank
as a guarantor of government debt
and the swift infusion of public
capital into banks that U.S. and IMF officials say could be critical
to restoring confidence in the euro region. Both were central elements
of the effort to shore up the U.S. financial system three years ago.

Right on time...

...the Obama Doctrine is now "fully operational".

The vacuum is obvious. Operations will move towards Africa as I have written extensively in the past.

Saturday, October 15, 2011

Just One Fix

Another round of talks to "fix" the Euro. The entire world can feel the fear emanating from Frankfurt and Brussels.

(Reuters) - The world's leading economies pressed Europe on Saturday
to act decisively within eight days to resolve the euro zone's
sovereign debt crisis which is endangering the world economy.

In unusually direct language, finance ministers and central bankers of
the Group of 20 major economies said they expected an October 23
European Union summit to "decisively address the current challenges
through a comprehensive plan".

French Finance Minister Francois Baroin, who chaired the meeting, said
Berlin and Paris, the leading euro zone powers, were well on the way
to agreeing a plan to reduce Greece's debt, stop contagion and protect
Europe's banks.

Non-euro countries highlighted the damage the European crisis was
already doing to their economies and underlined the urgent need for
action by the 17-nation single currency area.

"Europe needs to get its act together because unless the crisis is put
to an end, it will start to affect emerging economies which have
enjoyed strong growth," Japanese Finance Minister Jun Azumi said.


Analogies to the present economic situation in China is an exercise I leave for readers here.

The Sword or the Crozier

The religious concept of Jubilee is being bandied about among intellectual types. Debt cancellation in this form is a rational response from a group of organisms seeking to avoid predators.

Jubilee would be an interesting strategy from the Catholic church as well given the power vacuums created by the collective incompetence politicians to contain and repair current economic duress.

Again, organizations with centralized decision making enjoy a premium over more democratic societies in these situations. Unfortunately, tyrants will gain power.


...always a powerful tool of government. The power to re-define is the power of creation and destruction. Eminent domain law is full of these types of appropriations and taxes.

October 13, 2011|By Hal Dardick and David Heinzmann, Tribune reporter
When Mayor Rahm Emanuel trotted out his city vehicle sticker fee hike, he billed it as a modest $15 increase aimed at those who drive SUVs and trucks that cause the most damage to city streets.

What the mayor didn't highlight is a change he's pushing in how those large passenger vehicles are defined. Instead of setting the bar at 4,500 pounds, as it is now, Emanuel wants it set at 4,000 pounds

EU Banks: Stress tests only valid...

...if they guarantee a positive result.

Oct. 13 (Bloomberg) -- The European Union’s top banking regulator risks worsening the sovereign debt crisis with a new round of stress tests as policy makers push the region’s lenders to raise capital levels, Germany’s banks said.

Finance Minister Wolfgang Schaeuble should stop the European Banking Authority from using stricter capital definitions under future Basel III rules to test the strength of lenders today, according to a letter to Schaeuble from Germany’s five banking associations. The Oct. 12 letter, a copy of which was obtained today by Bloomberg News, also was sent to the head of Germany’s Bundesbank and financial regulator BaFin.

Wednesday, October 12, 2011

Movement of labor...

...and why history and time are against China. These types of demographic pressures in that kind of society justify the use of phrases like "inevitable collapse".

Labor can neither leave nor arrive in any serious measure.

Tuesday, October 11, 2011

Et tu, Slovakia?

Oct. 11 (Bloomberg) -- Slovak lawmakers failed to approve an overhaul of Europes bailout fund, toppling the government and leaving the euro areas second-poorest member with the need to repeat the vote to pass the mechanism.
Smer, the largest opposition party, which didnt back the legislation today, will support the changes in a second vote, ensuring it will pass, party leader Robert Fico told reporters in the capital Bratislava. While no date has been set for a new vote, Finance Minister Ivan Miklos said the revamped European Financial Stability Facility will likely be passed this week.

Monday, October 10, 2011

Property Bubble in the Middle Kingdom?

Now who would have guessed this might happen?

Sept. 23 (Bloomberg) -- The squeeze on China’s property market may be reaching a “tipping point” that drives growth lower just when exports are under threat from a global slowdown and investor confidence is plunging, said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc.
Land transactions in 133 cities tracked by Soufun Holdings Ltd., the country’s biggest real-estate website, fell 14 percent by area in August from a month earlier. Prices of new homes declined in 16 of 70 cities last month compared with July, according to government data.
Property construction is a mainstay of investment that last year drove more than a half of economic growth while land sales contributed 40 percent of revenues earned by local authorities that have amassed 10.7 trillion yuan ($1.67 trillion) of debt. A funding squeeze on developers risks a “domino effect” as companies needing cash cut prices, forcing others to follow, Credit Suisse Group AG said yesterday.
“We’re reaching a tipping point where land sales are dropping much faster than before, developers are losing more access to bank financing, and housing prices are showing weakness,” Nomura’s Zhang said in an interview in Beijing yesterday.

Financial Repression

This paper by Rogoff and Reinhardt has professionals discussing the likely trajectory of Government action during the crisis.

I have argued previously that mercantilism and RealPolitik is back, and this paper certainly does not dissuade me from this position.

Even more interesting will be the timing of these measures. I can certainly see the benefits of advocating the Great Repatriation then immediately imposing capital controls and other regulatory requirements to ensure the newly repatriated capital remains sequestered in the U.S. (or any other country choosing to exercise "financial repression" as an option against capital movement).

About that "strong dollar" policy...

...the "strong dollar" policy that has always been bandied about by the Fed and Treasury execs is being conspicuously undercut. These types of remarks cannot be said without some sort of tacit or explicit approval. Its also somewhat notable that they were said in that Bulwark of monetarism, my alma mater.

This leaves us with nominal exchange rates and structural adjustments. From this perspective, the weakness in the US dollar contributes to the adjustment. And structural policies, as necessary as they are, will not work quickly enough. If we are going to continue to reap the benefits of substantial global trade and global finance, the world needs to move to reduce the large and persistent current account imbalances that have now been with us for too long.

Sunday, October 09, 2011


One of the hallowed concepts in Economics is the notion that Savings=Investments. This follows from the sacrosanct accounting identity Y=C+I+G, which means in English "output equals consumption plus Investment + Government Spending".

Much has been said about the "I" variable of the above, and I will spare the reader from the supposedly rigorous math involved. Suffice to say that just because something is logical in a strict sense (and much of mathematics is error-testing for logical sufficiency) does not necessarily mean it is instructive or even true.

Variables that attempt to convey the complexity of economic systems have always been well, insufficient. A variable containing millions of other variables that fluctuate individually and in concert with still other variables (while also being effected by that strange economic "gravity" of "confidence") is not very useful in forecasting.

And yet there persists this knee-jerk response when economic issues to simply say Savings equals Investment, and thus everything is copasetic.

I think this is wrong-headed. Investment happens over long time periods involving uncertain payoffs whilst saving happens immediately with known amounts. Equating a benefit from the future with an asset now compresses time in an unsettling and academic way.

Reality is far more complicated than that. The above identity not very useful anymore, if it ever was.

Brookings makes its move.

Its the Legislative branch's fault.

This must please the Executive Branch, which has been on a tear in the power grab created in the wake of the Financial Crisis.

Saturday, October 08, 2011

The Great Repatriation...

...a continuing series...


Friday, October 07, 2011

More Facepalm...


Thursday, October 06, 2011

Another "Facepalm" moment.


Tuesday, October 04, 2011

First steps... re-establishing the empire.

MOSCOW (Reuters) - Russia's Prime Minister Vladimir Putin said he wants to bring ex-Soviet states into a "Eurasian Union" in an article which outlined his first foreign policy initiative as he prepares to return to the Kremlin as the country's next president.
Putin said the new union would build on an existing Customs Union with Belarus and Kazakhstan which from next year will remove all barriers to trade, capital and labor movement between the three countries.
"We are not going to stop there and are setting an ambitious goal -- to achieve an even higher integration level in the Eurasian Union," Putin wrote in an article which will be published in Izvestia newspaper on October 4.
Putin said last month he would run in the March 2012 presidential election and his current public approval ratings show that he is set to win.
Putin's initiative comes as Russia nears the end of its 18-year-old negotiations to join the World Trade Organization. In the article Putin made no secret of his skepticism about the global trade watchdog.

Monday, October 03, 2011


...on the ISM Manufacturing Index is greater than the 50.6 from last month. Modest improvement that will hopefully succour this market.

There has been so much in the popular press detailing the "End of Days" and various similar scenarios...always a good time to consider the other way.

Sunday, October 02, 2011

The Euroskeptic...

...bringing out the big rhetorical guns. Readers here will note the same issues with a more pragmatic outlook, but whatever.

The self-correction mechanism is jammed. China holds down the yuan
against the dollar through a dirty peg. Germany and its satellites
hold down the D-mark against Club Med covertly through the mechanism
of EMU.

This outcome in Europe is not deliberate (I hope); it is not a German
plot; it is the unintended effect of a currency union created by
ideologues against Bundesbank advice, and which has calamitous
implications for German foreign policy and for Latin social stability.

My sympathies go to the hard-working citizens of Germany, Spain,
Italy, Portugal, and Ireland for being led into this impasse by
foolish elites.

A global system biased towards export dumping has had unhappy effects
on the US, UK, and Club Med. These countries have faced a Morton’s
Folk over recent years: an implicit choice between job losses at home,
or accepting credit bubbles to mask the pain.

They chose bubbles. That was a mistake. This strategy of buying time
cannot safely be repeated because fiscal woes are already near
"boiling point", in the words of the BIS. “Drastic improvements will
be necessary to prevent debt ratios from exploding," it said.


...are not working. One of the disadvantages of democracy is crisis management; Politicians and Representatives simply lack the concerted overwhelming power necessary to control situations that quickly unravel. More on this phenomenon in the context of global power transfers later.

Greece will miss deficit targets set just months ago in a massive
bailout package, sources said citing a budget draft being adopted by
the cabinet, in a setback in Europe's efforts to stave off the
country's bankruptcy.

The dire forecasts come while inspectors from the International
Monetary Fund, EU and European Central Bank, known as the troika, are
in Athens scouring the country's books to decide whether to approve a
loan tranche, without which Greece could run out of cash this month.

Saturday, October 01, 2011

EU reality

This article written by one of my former professors details much of the problems occurring in the EU area. As I have maintained since the beginning of this blog, all options save dissolution are suboptimal

The article draws comparison to the TARP program instituted by the Treasury during the last financial crisis...a good point and it is instructive to think of the present situation as a card game where no one wishes to show their hands, all of which are bad. Germany has the chips, but may be more inclined to walkaway from the table.

Friday, September 30, 2011

The Euroskeptic...

...outlining the reluctance of the Germans to abdicate sovereignty. One of the major themes of this blog is the very concept of "sovereignty" and its changing definition given economic pressures.

By Ambrose Evans-PritchardEconomicsLast updated: September 30th, 2011

Judging by the commentary, there has been a colossal misunderstanding
around the world of what has just has happened in Germany. The
significance of yesterday’s vote by the Bundestag to make the EU’s
€440bn rescue fund (EFSF) more flexible is not that the outcome was a

This assent was a foregone conclusion, given the backing of the
opposition Social Democrats and Greens. In any case, the vote merely
ratifies the EU deal reached more than two months ago – itself too
little, too late, rendered largely worthless by very fast-moving

The significance is entirely the opposite. The furious debate over the
erosion of German fiscal sovereignty and democracy – as well as the
escalating costs of the EU rescue machinery – has made it absolutely
clear that the Bundestag will not prop up the ruins of monetary union
for much longer.

Horst Seehofer, the leader of Bavaria’s Social Christians, said his
party would go "this far, and no further".

There can be no question of beefing up the EFSF to €2 trillion or any
other sum, whether by leverage or other forms of structured trickery.
"The financial markets are beginning to ask whether Germans can afford
all this help. We must not risk the creditworthiness of the German
state," he said.

The best-read story in today’s Handelsblatt is the mounting rebellion
against the EFSF in the Bundesrat, the German senate representing the
interests of the regions. While this chamber does not have the power
to block budget deals, it has begun to express deep alarm about the
drift of events.

Thursday, September 29, 2011

Deutschland Uber alles!


The Paper Dragon... now feeling the effects of all that FDI it gobbled up and put to "use".

Here. We. Go.


Delving into sports again...great article here regarding the anti-capitalist NCAA and its treatment of "student athletes".

Monday, September 26, 2011

The Fed's next move

"Asset purchases are a important tool and must be employed carefully"

By Cloth or Gavel...

...a continuing series here.

The problem with "Justice" being administered by politicians of all people is the administrative process inevitably succumbs to corruption. Plato assumed his "Golden" class of rulers would, by education and temperment, be uncorruptable and never degrade into selfish beings that further their own self interest.

History has not been kind to his prescription for government nor his conceptualization of "justice". Far better to assume corruption, selfishness, and greed then attempt to counteract these forces by accountability and a matrix of checks and balances.

So it is with great interest that I pay attention to what the Catholic Church defines as normative government.

From Benedict's 9/22 speech to the Bundestag:

Allow me to begin my reflections on the foundations of law [Recht] with a brief story from sacred Scripture. In the First Book of the Kings, it is recounted that God invited the young King Solomon, on his accession to the throne, to make a request. What will the young ruler ask for at this important moment? Success – wealth – long life – destruction of his enemies? He chooses none of these things. Instead, he asks for a listening heart so that he may govern God’s people, and discern between good and evil (cf. 1 Kg 3:9). Through this story, the Bible wants to tell us what should ultimately matter for a politician. His fundamental criterion and the motivation for his work as a politician must not be success, and certainly not material gain. Politics must be a striving for justice, and hence it has to establish the fundamental preconditions for peace. Naturally a politician will seek success, as this is what opens up for him the possibility of effective political action. Yet success is subordinated to the criterion of justice, to the will to do what is right, and to the understanding of what is right. Success can also be seductive and thus can open up the path towards the falsification of what is right, towards the destruction of justice. “Without justice – what else is the State but a great band of robbers?”, as Saint Augustine once said . We Germans know from our own experience that these words are no empty spectre. We have seen how power became divorced from right, how power opposed right and crushed it, so that the State became an instrument for destroying right – a highly organized band of robbers, capable of threatening the whole world and driving it to the edge of the abyss. To serve right and to fight against the dominion of wrong is and remains the fundamental task of the politician. At a moment in history when man has acquired previously inconceivable power, this task takes on a particular urgency. Man can destroy the world. He can manipulate himself. He can, so to speak, make human beings and he can deny them their humanity. How do we recognize what is right? How can we discern between good and evil, between what is truly right and what may appear right? Even now, Solomon’s request remains the decisive issue facing politicians and politics today.

"Legality"... laugh or cry...this once again reminds me of one of my favorite vignettes regarding tyranny. "Legality" in the middle kingdom is a perilous and fragile concept.

As the autumn harvest draws ever nearer, villagers in Liuxiazhuang have found themselves, quite suddenly, landless.

Documents provided to Al Jazeera by township-level officials showed contracts the government entered into on September 10 - less than two weeks ago.

Four days later, villagers at Liuxiazhuang received notices of the confiscation of parts of their farmland and the bulldozers promptly rolled in.

This took place just weeks ahead of the autumn harvest, and the farmers could hardly believe they had not only lost their land, but their last season of crops.

It did not appear that the new developers could wait a single moment for work on their latest project - a series of industrial and manufacturing parks - to begin.

Deputy Party Secretary Li Xiaofei, who is in charge of Liuxiazhuang, explained, "everyone" had been aware of this project and the plans to convert the land into a large-scale industrial and commercial park.

"During this entire land dispute, we have followed the laws. Everything we have done us is legal. Of course, what has happened is unfortunate," said Li.

Re-defining "news". an event considered "news" if it was both certain and obvious?

The power players in Russia are having a fun time engineering news given their soviet experience.

Prime Minister Putin has accepted Dmitry Medvedev’s proposal for him to run for the presidency in 2012, made at the convention of the United Russia party in Moscow. Putin also put forward Medvedev to lead the party’s election list.
“I consider it to be the right move for the congress to support party’s leader Vladimir Putin as a presidential candidate,” announced the Russian president, talking of the presidential elections, which have been set for March 2012.
Vladimir Putin, who is the leader of the United Russia Party, addressing the delegates at the gathering, in his turn, has called on the party to put Dmitry Medvedev at the top of the list of candidates at the forthcoming parliamentary elections in December 2011.

Thursday, September 15, 2011


...the churn goes on in the Paper Dragon.

From the FT:

More than a quarter of pre-tax profits at China’s Yangzijiang Shipping Holdings in the second quarter came from an unexpected source – not its core shipyard business, but from lending money to other companies.

In a similar vein, China Mobile has set up a finance arm to lend money, while PetroChina already has a number of financial vehicles in place.

They are part of a growing number of Chinese companies using excess cash to fund indirectly the country’s shadow banking system as Beijing’s monetary tightening makes it more difficult for small and medium-sized firms to access the formal banking sector.

At the same time it allows the companies – some estimates say 90 per cent of the shadow lenders are state-owned – to make healthier returns than they could by leaving the cash on deposit.

“Everyone does it; they just don’t tell you,” says Vincent Chan, equity strategist for Credit Suisse in Hong Kong. “The difference with Yangzijiang is that they do it in the listed entity, not at the group or parent level.”

China Economic Daily, a state-run newspaper, reported that 64 listed non-financial companies had issued loans this year as of the end of August. It said that they had lent a total of $16.9bn, up 38.2 per cent from last year, according to stock market filings.

Of these companies, 35 lent at rates higher than the standard bank rate, with the highest at a 24.5 per cent annualised rate. The report added that at least nine out of ten companies engaged in lending were state-owned, such as China Railway Group and the property arm of China’s food giant Cofco.

The Palindrome...

...aka Soros outlines some of the problems I have been discussing here for years. None of this is politically possible as EU core citizens are tired of solving yet more problems their elected (and non-elected EU commission) members create.

Full article here.

Unfortunately the capacity of the financial authorities to take the measures necessary to contain the crisis has been severely restricted by the recent ruling of the German Constitutional Court. It appears that the authorities have reached the end of the road with their policy of “kicking the can down the road.” Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the eurozone into prolonged recession. This will have incalculable political consequences. The euro crisis could endanger the political cohesion of the European Union.

There is no escape from this gloomy scenario as long as the authorities persist in their current course. They could, however, change course. They could recognize that they have reached the end of the road and take a radically different approach. Instead of acquiescing in the absence of a solution and trying to buy time, they could look for a solution first and then find a path leading to it. The path that leads to a solution has to be found in Germany, which, as the EU’s largest and highest-rated creditor country, has been thrust into the position of deciding the future of Europe. That is the approach I propose to explore.

To resolve a crisis in which the impossible becomes possible it is necessary to think about the unthinkable. To start with, it is imperative to prepare for the possibility of default and defection from the eurozone in the case of Greece, Portugal, and perhaps Ireland. To prevent a financial meltdown, four sets of measures would have to be taken. First, bank deposits have to be protected. If a euro deposited in a Greek bank would be lost to the depositor, a euro deposited in an Italian bank would then be worth less than one in a German or Dutch bank and there would be a run on the banks of other deficit countries. Second, some banks in the defaulting countries have to be kept functioning in order to keep the economy from breaking down. Third, the European banking system would have to be recapitalized and put under European, as distinct from national, supervision. Fourth, the government bonds of the other deficit countries would have to be protected from contagion. The last two requirements would apply even if no country defaults.

Famous last words...

A senior advisor to the People’s Bank of China said China’s currency
will be fully convertible in the next 5 years as long as there is no
major shock to the economy
. Li Daokui dismissed suggestions that
freely floating the yuan will hurt China’s exports and its economy.

“With a fully convertible currency there will be both inflows and
outflows of currency. So currently there is a great, great potential
for our households and enterprises to get our foreign currency
reserves and go out and invest abroad,” Daokui said Wednesday at the
summer meeting of the World Economic Forum in Dalian.

Daokui said China was looking at both yuan convertibility and
liberalization of interest rates as part of a bundle of reforms. He
said the next step in the liberalization agenda would be to free up
the amount of foreign currency Chinese households and businesses can
get access to.

Tuesday, September 13, 2011


...from a popular site.


"China increases its gold reserves in order to kill two birds with
one stone"

The China Radio International sponsored newspaper World News Journal
(Shijie Xinwenbao)(04/28): "According to China's National Foreign
Exchanges Administration China 's gold reserves have recently
increased. Currently, the majority of its gold reserves have been
located in the U.S. and European countries. The U.S. and Europe have
always suppressed the rising price of gold. They intend to weaken
gold's function as an international reserve currency. They don't
want to see other countries turning to gold reserves instead of the
U.S. dollar or Euro. Therefore, suppressing the price of gold is
very beneficial for the U.S. in maintaining the U.S. dollar's role
as the international reserve currency. China's increased gold
reserves will thus act as a model and lead other countries towards
reserving more gold. Large gold reserves are also beneficial in
promoting the internationalization of the RMB."

Wednesday, September 07, 2011

Amazing article...

...on how to think and conceptualize "risk".


...finally getting around to a pay-roll tax holiday it appears. Something Warren Mosler has advocated since the start of the troubles.

Getting payment streams back to normal and repairing confidence is all that this economy needs to stage a comeback...all the international levers are in place.

Saturday, September 03, 2011

Just a bit late.

Self explanatory...

Sovereign-debt difficulties in Europe pose a threat to the euro and financial institutions in the region, said World Bank President Robert Zoellick.

“The world economy is entering a new danger zone this autumn,” Zoellick said in remarks prepared for a speech in Beijing today. “The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks and competitiveness of some countries.”

European sovereign default risk rose to a record yesterday after a report showed employment in the U.S. unexpectedly stagnated in August, adding to signs the global economic recovery is weakening. Stocks sank in August, sending the MSCI All-Country World Index down 7.5 percent for the biggest loss since May 2010.

Friday, September 02, 2011

UBS's Donovan sums it up

"Markets need to remember that they exist on politicians' sufferance."

That is certainly a fair observation given current political phagocytosis of capital allocation.

The chart...

...that the entire investment world is talking about.

Thursday, September 01, 2011

Macroprudential measures...

...include capital controls, according to a short paper from the St. Louis Fed that can be found here.

The punch line of the argument:

Surely free capital flows, like free trade in goods, carry large
benefits. Yet the proposition that trade in dollars carries no
more risk than trade in goods remains controversial. If regulating internal debt accumulation is important for limiting
systemic risks, then regulating external debt accumulation
should be similarly important. Moreover, measures targeted
at specific capital flows, such as short-term external debt,
do not exclude the benefits of capital flows in the form of
foreign direct investment and other equity flows.

Wednesday, August 31, 2011

Faustian bargain...

Why Germany insists on the appearance of the only adult supervision left in the EU area escapes me. The entire EU
Project has always appeared to me as the product of French intellectuals and their eternal effort to affix manacles to their more powerful neighbor. And yet Germany insists upon the role of villain in this charade.

I won't comment further in lite of the obvious reply to that line of thought...