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Archive for the ‘bubbles’ Category

The Media’s Fly-like Memory

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Great quote from Eric at iTulip

Ten years from now, when the full impact of the U.S. asset bubbles of 1998 to 2008 are fully felt, the dot com era, when money flowed like oil from a geyser, before the wars and financial crisis, will be remembered as the good old says, the high water mark for American power and influence.

As American living standards decline for broad swaths of the population, first by underemployment and unemployment, then by inflation, the thread of cause and effect will be lost by a media that’s forced by its consumers to report daily events without context, as if the latest crisis fell out of the sky, from the clouds.

Nobody saw this coming*

* except those who profited from creating the bubble & are profiting once more from it popping ;)

But the media does give us what we want: ;)

The recent performance of the U.S. political system at the relatively simple task of getting more health care to Americans at a lower cost does not encourage optimism. A debate about the value of reducing the 40% health care cost overhead created by health insurance companies was turned seemingly overnight by the health insurance industry’s media into an free-for-all about death panels and socialism. Now imagine how swiftly a discussion about needed cuts in military spending to help bring the budget deficit in line will be turned by the military industrial complex into a media circus about aiding terrorists, replete with images of nuclear weapons going off on American soil.

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June 19th, 2010 at 4:53 am

Posted in bubbles

Bill Black on Modern Accounting Fraud

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  • Accounting fraud creates short term accounting profits followed by huge losses.
  • At its peak 40% of mortgages in the United States were not prime!
  • The average CFO in America lasts ~ 3 years. If your rivals engage in accounting fraud and you do not then you last much less than that average…maybe a quarter or 2. Bad ethics drive good ethics out of the market.

Bruce Bartlett’s The GOP’s Misplaced Rage is another lens on the politics behind the real estate bubble.

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August 17th, 2009 at 8:48 am

Posted in bubbles

The Joys of Protectionism + Inflate or Die

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Recently Mexico said they will be launching tariffs some products from the US because the United States canceled a program that allowed Mexican trucks to transfer goods throughout the US

The Mexican government said Monday it would slap tariffs on 90 U.S. industrial and agricultural products, in a trade dispute that underscored the difficulties facing President Barack Obama as he tries to assure business and global allies that he favors free trade.

Mexico said the tariffs were in retaliation for the cancellation of a pilot program allowing Mexican trucks to transport cargo throughout the U.S.

Unions have for years fought to keep Mexican trucks off U.S. highways, despite longstanding agreements by the two countries to eventually allow their passage. Legislation killing the pilot program was included in a $410 billion spending bill Mr. Obama signed last week.

Currency, as a type of good, is also being heavily manipulated, with countries around the globe trying to out-inflate each other to make their exports cheaper to foreign consumers. Even the Swiss have recently intervened.

The Chinese warned the US against printing too much currency. But the US federal government deficit could easily hit 2 trillion Dollars this year, and the Federal Reserve is buying up hundreds of billions of dollars in bonds across the yield curve to try to push down interest rates.

The Federal Reserve ramped up its efforts to resuscitate the sagging economy, saying it would purchase up to $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.

By buying long-term government bonds and mortgage-backed securities, officials hope to push up their prices and bring down their yields, and thereby energize the economy. Interest rates on many corporate bonds and consumer loans are benchmarked to U.S. Treasury debt.

Deflation has begun receding, and if/when inflation appears it may force the Federal Reserve to slow down the U.S. economy again.

Feb CPI rose .4% headline, .1% more than expected and rose .2% core, also .1% more than estimated. The y/o/y gain is .2% up from flat in Jan, the lowest since 1955, led by energy. The core rate is up 1.8% y/o/y. With oil prices bottoming out as are food prices, which I believe is for good in this cycle, inflation #’s are starting to reverse to the upside. The degree of course will determine the Fed’s next conundrum.

Long-term it seems like hyperinflation is a no brainer bet, but in the meantime the house is using your money to bet against you, propping up whatever they can. How far will they take it?

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March 18th, 2009 at 4:40 pm

Posted in bubbles

Why Recessions are Good (and Required)

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We paint recessions as being a bad thing, but rarely do we talk negatively about credit expansion. Market Ticker explains why recessions are a mathematically necessity in any banking system that uses fractional reserve lending:

As the “spread” between production and net interest expense rises, the economy falters. A higher and higher percentage of the loans ultimately cannot be paid back, even productive loans, because the net interest expense over time exceeds the productive gain of the person who takes them out. The presence of this ever-widening spread, which is inherently part and parcel of fractional reserve banking, means that recessions are necessary and more importantly, some people who have taken out loans and some people who made loans must, during those recessions, go bankrupt.

That is the purpose of a recession – to clear out the excess indebtedness along with excess capacity, resetting downward the “spread” between net interest expense and gross output (GDP).

While many unfit enterprises go bankrupt, forced entrepreneurs create the next wave of innovation that will rebuild the economic system, but failure and time are needed to clear out the underbrush before the next forest is built. If we prevent failure we prevent success by debauching currency and stealing from the winners to pay for the continued failure of the losers.

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March 15th, 2009 at 7:54 am

Posted in bubbles

The Federal Reserve Giveth & US Treasury Taketh Away

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Nice interview of Marc Faber on CNBC

“About 15 percent of U.S. households have negative equity. Who supplied the leverage into the system? It’s called the Federal Reserve Board,” Faber said.

“If I’m the drug dealer I’m not responsible that everybody takes drugs, but I facilitate it, especially if I give it out free of charge, I can enlarge the market share, and that’s what the Fed has done.”

President Bush went on national TV to try to sway the population that the proposed Wall Street bailout is a good plan, but is it? Chris Martenson describes it as act of financial terrorism, and The Greatest Looting Operation in History.

The bailout proposal, as originally presented (on Sat. 9/20/08), was shocking.

First, there was the sneaky language that the $700 billion figure was the most that could be spent at any one time, meaning that there was no limit on the spending at all. Second, the right of review by any court of law or other administrative body was to be stripped away, a distinctly unconstitutional and anti-American provision if ever there was one. Third, the Treasury Secretary was to be embodied with complete unitary power in selecting who was to be empowered with an open-ended taxpayer checkbook.

No review, no limits, no questions.

Marc Faber, expecting more shadiness from the US government, predicted that if this emergency measure/theft did not work well enough that…

“The next emergency measure will be that Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold and so on and so forth…. It creates even more uncertainty in the market place when you continually change the rules,” Faber said.

It wouldn’t be the first time United States citizens had their gold confiscated. In 1933 Franklin D. Roosevelt issued executive order 6102, requiring all US citizens to hand all gold coins, gold bullion, and gold certificates over to the Federal Reserve. Shortly after confiscating all gold the price of gold from the treasury was raised from $20.67 to $35 an ounce, devaluing the US dollar by 41%.

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September 25th, 2008 at 1:49 am

Posted in bubbles,economics

Every 20 Years Wall Street Loses its Mind

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I was talking to a friend last night about the economy, and he stated the above quote…noting that the market has a short memory. Every bubble in history is built on the thought that this time is different, but opportunity leads to opportunism leads to corruption leads to collapse. Trade away the future until there is nothing left, and then start over again.

The Daily Show offers a humorous look at the economy and you

With the recent worries on Wall Street leading to government bailout after bailout deregulation failed badly.

We now see that the grand experiment of deregulation has ended, and ended badly. The deregulation movement is now an historical footnote, just another interest group, and once in power they turned into socialists. Indeed, judging by the actions of the conservatives in power, and not the empty rhetoric that comes out of think tanks, the conservative movement has effectively turned the United States into a massive Socialist state.

The problem is not regulation, but short term opportunism. People will always work within the limits of the loopholes that exist. Regulators can at best be one step behind.

Unless corporations have a real opportunity cost that prohibits them from fudging the numbers the standard will be fraud, or step away from it…every time there is a bubble we can expect the whole market to chase it, especially if the government undermines moral hazard and saves these companies that should no longer exist.

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September 19th, 2008 at 8:55 am

Posted in bubbles,economics