Archive for July, 2010

Full article on The Automatic Earth

Inflation is the expansion of the supply of money and credit versus available goods and services. Some 95% (or more) of our money supply is credit, and by no means all of it was created by any central bank. There have been numerous engines of credit expansion during the mania years – fractional reserve banking, the whittling away of reserve requirements, lack of attention paid to credit-worthiness, securitization, derivatives, the development of the shadow banking system, conflict-of-interest at the ratings agencies, fraud etc. When the all-inclusive credit Ponzi scheme crashes – meaning that the overwhelming supply of virtual wealth disappears and we are left with only real wealth – we will have insufficient money to run our global economy.

When the money supply is inadequate, we will be trying to do the equivalent of running a car with the oil light on, which is to say that we will be trying to run an economy with insufficient lubricant in the engine. Money is the lubricant in the engine of the economy in the same way that oil is the lubricant in the engine of a car. Without enough lubricant, the engine will seize up, and then it will not be possible o connect buyers and sellers purely for want of money, exactly as happened in the Great Depression.

The credit contraction we are seeing is an early warning signal for the real economy. Since the large-scale trend change of late April (counter-trend rallies not withstanding), we are witnessing a change of perspective among the commentators, reflecting a loss of confidence and increased fear. Confidence IS liquidity in a very real sense, and as the contagion of fear spreads, liquidity will disappear. The suspension of disbelief that the long rally brought is over, and that will lead to the next phase of the on-going liquidity crunch.

Read Full Post »

Why? Greek truckers’ strike. Not that you would know it from the mainstream press. How about the fact that police are breaking up the strike today with tear gas under emergency legislation usually reserved for times of war and natural disasters? Why is this not being widely reported? Other than in the Guardian and buried on the Financial Times website I have yet to find even a mention of this event (or the strike which has been going on for four days now) in any mainstream North American outlet (ok wordpress has generated a related link for CNN but at the time of this posting the link was dead). Oh but wait…that would panic the markets.. Now why would the media not want to panic the markets? Because they are being held up by a thin tissue of lies..(well actually it’s more like a 12 trillion thick wad of Federal Reserve Notes) No. That could never be.

When Jail Threats Don’t Work: Greek Government Punctuates Case Against Strikers By Firing Tear Gas At Them

Read Full Post »

“The leaders coming out of a crisis are rarely the same as those that entered it and the ability to add capacity into a downturn will define the winners on the other side. We must reward those who saved, incentivize those who are motivated and punish those who’ve transgressed. Until there is culpability for wayward decisions, there won’t be motivation to change behavior and rebuild society from the inside out.

Therein lies the rub of our current course; innovation and entrepreneurialism are integral parts of the solution but many of those in a position to effect positive change don’t have access to capital. While credit worthy borrowers may be a rare breed—and lowering those standards were the root of the problem—the obligations of many have muted the aspirations of most.”

Also from the same post:

“I’ve repeatedly offered that the financial crisis hasn’t disappeared; it simply changed shape. It–for lack of a better analogy–has gone airborne, migrating from the tangible to the amorphous, from Wall Street to Main Street, from a distant coexistence to an emerging class war. It, like most viruses, will arrive in waves and infect those who haven’t been inoculated with a steady stream of financial consciousness.”

Read the rest of this most excellent post by Todd Harrison HERE

Read Full Post »

A very salient point about energy use in China: While China has recently surpassed the U.S. as the world’s largest energy consumer one must not lose site of the fact that a substantial proportion of that energy consumption is in the service of manufacturing cheap goods for export to your local box store. In other words we have not only exported our labour to China, we have exported our energy consumption as well. The post below, taken from www.gregro.us, also makes the point that China’s energy use is still mostly in the form of coal. Their consumption of oil is but a fraction of the potential consumption implied by the rapid pace of China’s industrial development.

Oil in the US represents nearly 39% of total energy use from all sources. But in China, oil barely represents 19% of total energy use. Most important of all: China’s coal use is four times its oil use.

Read the full article HERE

Read Full Post »

Whatever recovery is underway in the U.S. it certainly isn’t because of the real estate market…read on for some chilling perspective on the “real” health of the U.S. economy.

Posted by Keith Jurow on www.realestatechannel.com

“With the expiration of the first-time buyer tax credit on April 30, there are now two main props keeping the housing market afloat. One is the growing percentage of home sales financed by Federal Housing Administration (FHA) loan guarantees. The other is the refusal of banks to put on the market foreclosed homes over $300,000.”

In this article, we will take a look at the second factor. A future report will examine the role of the FHA in keeping the market from collapsing.”

Read the full article HERE

Read Full Post »

“Why does the military of a country convinced it’s becoming ungovernable think itself so capable of making another ungovernable country governable? What’s the military’s skill set here? What lore, what body of political knowledge, are they drawing on? Who do they think they represent, the Philadelphia of 1776 or the Washington of 2010, and if the latter, why should Americans be considered the globe’s leading experts in good government anymore? And while we’re at it, fill me in on one other thing: Just what has convinced American officials in Afghanistan and the nation’s capital that they have the special ability to teach, prod, wheedle, bribe, or force Afghans to embark on good governance in their country if we can’t do it in Washington or Sacramento?”

Full book review on www.commondreams.org

Read Full Post »

Will subscriptions ever surpass downloads? Skype Technologies founders Niklas Zennstrom and Janus Friis are banking on it. Their latest San Francisco, Calif.-based music startup called Rdio sells subscriptions that give access to more than five million songs for $5 to $10 a month, depending on the devices used. Friis told BusinessWeek that they are betting consumers will opt for cloud-based music services over storing music on various devices. Fris: “The whole download model is going away.”

Full article from paidcontent.org here

Read Full Post »

A most fascinating exploration of the future that awaits the ever growing underclass of the West.

From The New Scientist:

Die young, live fast: The evolution of an underclass

FROM feckless fathers and teenaged mothers to so-called feral kids, the media seems to take a voyeuristic pleasure in documenting the lives of the “underclass”. Whether they are inclined to condemn or sympathise, commentators regularly ask how society got to be this way. There is seldom agreement, but one explanation you are unlikely to hear is that this kind of “delinquent” behaviour is a sensible response to the circumstances of a life constrained by poverty. Yet that is exactly what some evolutionary biologists are now proposing.

There is no reason to view the poor as stupid or in any way different from anyone else, says Daniel Nettle of the University of Newcastle in the UK. All of us are simply human beings, making the best of the hand life has dealt us. If we understand this, it won’t just change the way we view the lives of the poorest in society, it will also show how misguided many current efforts to tackle society’s problems are – and it will suggest better solutions.

Evolutionary theory predicts that if you are a mammal growing up in a harsh, unpredictable environment where you are susceptible to disease and might die young, then you should follow a “fast” reproductive strategy – grow up quickly, and have offspring early and close together so you can ensure leaving some viable progeny before you become ill or die. For a range of animal species there is evidence that this does happen. Now research suggests that humans are no exception.

Certainly the theory holds up in comparisons between people in rich and poor countries. Bobbi Low and her colleagues at the University of Michigan at Ann Arbor compared information from nations across the world to see if the age at which women have children changes according to their life expectancy (Cross-Cultural Research, vol 42, p 201). “We found that the human data fit the general mammalian pattern,” says Low. “The shorter life expectancy was, the earlier women had their first child.”

Read Full Post »

Reposted from http://www.counterpunch.org

Greg Moses: Capital Strike?.

Read Full Post »

By John R. Taylor, Jr., Chief Investment Officer, FX Concepts

Here in Paris, the stores on avenue Matignon and rue du Faubourg Saint-Honoré are packed and long lines snake into the Louvre and other museums – the summer is wonderful. And in London and New York, as well as the Côte d’Azur and the Hamptons, it is just the same, as those with money and credit leave their worries behind. It’s hard to believe that the world isn’t in great shape. As a bear, sometimes I even feel guilty for harboring negative thoughts and raining on the triumphal parade of the ruling classes. The wealthy centers of the European and American capital cities do look better and better every year, but the business and editorial pages of the leading papers tell another story. The financial picture is deteriorating at an accelerating pace, and now even the major governments, bulwarks of the free market system, are threatening to slide into trouble. The latest phase of this has been the creation of large amounts of high powered money, issued to benefit and support crucial financial actors within the system. Finding a home for this excess liquidity has resulted in a continuing series of bubbles, large and small (one of which is the beautifully renovated monumental buildings in central Paris).

Although we have not done a word content analysis for ‘bubble’, it is our opinion that in 2010 this word has appeared more often in the financial and general press than at any time since 1720, when the Mississippi Bubble and the South Sea Bubble topped the charts in Paris and London. Does today really have parallels with 1720? That’s what vacations are for: thinking of things like this, reading murder mysteries, romance novels and financial histories, and fantasizing. After reading This Time Is Different by Carmen Reinhart and Kenneth Rogoff, which we all should memorize, I wished that their analysis had gone back to the period before 1800 as it seemed to me that the most interesting financial conflagration of the last 500 years occurred in 1720. Central banks were just beginning and the big powers were struggling with monumental debts. The British had just gone through a long revolutionary period that ended in 1688, and the “Glorious Revolution” seemed to bring a new mercantilistic twist to finance, leading to the creation of the Bank of England. The large government debt was absorbed through the Bank’s expanded liquidity and the economy grew rapidly, spawning many other joint stock companies. The most famous of these was the South Sea Company, founded in 1711, which, by promising to finance the government dramatically expanded liquidity, but it was never profitable, and eventually collapsed. The Bank of England and the British Treasury managed to avoid default, retiring the debt over many years but the economy suffered for decades. In France, the death of Louis XIV, a singularly expansionary and profligate monarch, caused the government to default in 1715. John Law arrived and introduced a bank, the Banque Royale, with the guarantee of the king to issue paper currency backed by the revenues of the Mississippi Company. The success of his venture led to the circulation of far too many banknotes, and the bubble collapsed in 1720. The French economy went into a long chaotic decline, never really recovering and ended in revolution by 1789.

The Bank of England was the first central bank and John Law’s bank was the first to act like a modern central bank. These independent banks were there to finance the government. Although both governments needed liquidity to satisfy their debts, the banks expanded so much that the economies were stronger too. However, despite the multitude of investors attracted by the bubbles, eventually the commercial operations could not support the debts and a collapse followed. The British took a deflationary path, while the French one seemed erratic but generally inflationary. Neither brought economic relief in the next decades, but the British tactics eventually built a sounder economy.

h/t Teddy KGB

Read Full Post »

Older Posts »