Archive for September 2010
How Keynesian Archduke Krugman recommended a housing bubble as a solution to all of America’s post tech bubble problems
by Tyler Durden
Posted originally on Zero Hedge, August 9, 2010
THE YEAR IS 2002, AMERICA HAS JUST WOKEN UP WITH THE WORST POST-DOT.COM hangover ever. Paul Krugman then, just as now, writes worthless op-eds for the NYT. And then, just as now, the Keynesian acolyte recommended excess spending as the solution to all of America problems. Only this one time, at band camp, Krugman went too far. If there is one thing that everyone can agree on, is that the Housing Bubble, is arguably the worst thing to ever happen to America, bringing with it such pestilence and locusts as the credit bubble, the end of free market capitalism, and the inception of American-style crony capitalism. Those who ignored it, even though it was staring them in the face, such as Greenspan and Bernanke, now have their reputation teetering on the edge of oblivion.
So what can we say of those who openly endorsed it as a solution to America’s problems? Enter exhibit A: New York Times, August 2, 2002, “Dubya’s Double Dip?” Name the author: “The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
If you said Krugman, you win. Indeed, the idiocy of Keynesianism knew no bounds then, as it does now. The solution then, as now, to all problems was more bubbles, more spending, more deficits. So we have the implosion tech bubble: And what does Krugman want to create, to fix it? Why, create a housing bubble… Well, at least we know now how that advice played out.
And now what? He wants another trillion in fiscal stimulus… Quadrillion? Sextillion (arguably this cool sounding number is at least two to four years away before the Fed brings it into the daily vernacular)? And just like the housing bubble he suggested then brought America to the biggest depression it has ever seen, so his current suggestion will be the economic cataclysm that wipes out America from the face of the earth.
So we have two simple questions:
i) how does Krugman still have a forum in which to peddle his destructive ways, and
ii) why does ANYONE still listen to this Nobel prize winner, a.k.a. charlatan?
Being stupid is one thing. Being stupid and learning your lesson after seeing your idea crash and burn is another. Pushing for the same policy response time after time, layering misery upon misery, is an altogether third, and most Krugman, thing.
How many more lunatics in charge of the insane asylum do we need before we finally say “enough” to their deranged ramblings and their illusions of reality…
by Gary North
Originally posted September 25, 2010
“Show me the money!” Cuba Gooding made this phrase famous in the 1996 movie, Jerry McGuire. The phrase soon got into the language.
“Follow the money!” That came from the movie, All the President’s Men. No one knows who said it. “Deep Throat” didn’t. The screenwriter says that he does not know where he got it. It has entered the language.
“Trust me.” That was Jimmy Carter’s phrase in 1976. It also got into the language. It has been used ever since as satire. It has been the mantra of every Chairman of the Federal Reserve System.
“Don’t ask. Don’t tell.” That was Bill Clinton’s phrase. I think he got it after watching Congress deal with Alan Greenspan.
“Never give a sucker an even break.” That was W. C. Fields’s famous line. This has been the Fed’s operational policy since 1914.
AUDIT THE GOLD
In 2011, Congressman Ron Paul will introduce a bill in the House of Representatives calling for an audit of the gold held by the Federal Reserve System on behalf of the United States government. If he can successfully promote this bill by the phrase, “Show us the gold!” he will inflict enormous damage on the American Establishment. This damage could conceivably spread to the entire international Establishment, which rests on the sovereignty of the central banks over their domestic governments.
Most of those few Americans who have ever heard of the Federal Reserve System operate under the illusion that the government is sovereign over the Fed. On paper, this is true. Operationally, it isn’t. We know this, because no government agency audits the Fed.
You are surely not sovereign over the United States government. The United States government is sovereign over you. The supreme mark of this control is the fact that the Internal Revenue Service can tax you. It requires you to sign your tax forms, on penalty of perjury. You can be sent to jail if you lie about these forms. It can require you to provide evidence that you have filled out your income tax forms accurately. If you refuse to provide this evidence, the IRS will simply assess whatever it wants, and you will be required to prove that its assessment is inaccurate.
If you want to find out who is really in control in any situation, find out who has the legal right to audit the other one.
This is easy to understand with respect to individuals, corporations, and other organizations that are under the thumb of the tax man. This is understood by taxpayers all over the world. They fully understand who is in charge. In a modern society, the agency in charge is the agency that can and does compel other individuals and agencies to supply records relating to their income, capital, and bank accounts.
The Federal Reserve System has never been audited by an agency of the United States government. The Fed hires private auditing firms, rotating them year by year, which undermines continuity, making it more difficult for them to follow the money. The Fed limits those firms with respect to what they are allowed to audit. The Fed then submits these internally audited facts to the United States Treasury.
Each year, the Fed pays the Treasury any excess money beyond the Fed’s operations expenses, if the money came from interest earned from its holdings of U.S. government debt. This has been the law since the early 1940s. In the good old days, the Fed kept all of the money that it earned as interest payments from the Treasury. It paid nothing to the Treasury. That was a sweet deal.
When Congressman Paul persuaded the House of Representatives in 2009 to vote in favor of a general audit of the Fed by the Federal government, the bill was blocked in committee. His original version of the audit bill never came to a final vote in the House as part of the banking reform legislation. The Senate never considered the amendment.
So, it is obvious who is in charge. Congress pretends that it is in charge, but in fact the Federal Reserve System is in charge. Congress accepts the word of the Federal Reserve System with respect to how much it cost the Fed to keep its doors open, and it accepts whatever payment the Fed makes to the Treasury.
It is obvious that if the Internal Revenue Service did not have the power to audit taxpayers, and if taxpayers have the authority to decide how much it cost them to “keep their doors open,” and pay the Treasury only that amount of money that is in excess of their costs of operation, the government would go bankrupt. It is equally obvious that the government does not intend to go bankrupt. The government does not intend to let individuals decide on their own authority how much to pay the government. This is because the government is in charge, and taxpayers are not in charge.
The Federal Reserve System is in charge of Congress; Congress is not in charge of the Federal Reserve. You can say that, on paper, the Congress is in charge. In response, I argue that this paper is rarely used, and with respect to an audit, it has never been used.
from Phoenix Capital Research
Posted originally on September 21, 2010
THE BIG FINANCIAL MYTH BUSTER OF THE WEEK IS THAT THE ALLEGED DELEVERAGING of the US consumer has in fact been a giant myth. According to the Wall Street Journal, if you account for defaults, US consumers have only pared down their debts by an annual rate of 0.8% since mid-2008.
The Journal writes (emphasis added): “Over the two years ending June 2010, the total value of home-mortgage debt and consumer credit outstanding has fallen by about $610 billion… Our own analysis of data from the Fed and the Federal Deposit Insurance Corp. suggests that over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans.”
That means consumers managed to shave off only $22 billion in debt… In other words, in the absence of defaults, they would have achieved an annualized decline of only 0.08%.
This is a major deal-changer for the US financial system. For months we’re been hearing tales of consumers are doing the right thing by paying off debts and living more frugally. While this is true for some consumers, the Journal’s article makes it clear that the vast majority of folks are simply spending until they’re officially bust and have their credit lines pulled.
Whether this is because Americans are stuck on a “buy ‘til you’re bust” mania, or if it’s simply because the cost of living in the US today is so high relative to incomes and other expenses that most folks can’t get by without using credit is up for debate. Personally I think it’s a bit of both, with some folks obsessively buying the new iPad while skipping on mortgage payments while others are simply using credit cards to try and get by after being unemployed or underemployed.
Indeed, another story run in the Wall Street Journal supporting the second argument points out that incomes have actually fallen 4.9% since 2000. Add to this the $1.5 trillion drop in household wealth in 2Q10 and it’s clear US consumers are making less and losing even more from their investments. This leaves credit as the one means of maintaining living standards.
Regardless, the primary point is that the US credit bubble has not deleveraged in any meaningful way. The system remains debt saturated to the gills on a personal, corporate, state, and Federal level.
In plain terms, the entire US system is one giant debt bubble. And there are only three ways to deal with a debt problem:
1) Pay it back
2) Default/ restructure
3) Hyper-inflate it away
The US has no chance of #1, which leaves either #2 or #3. Both involve the Dollar taking a sizable hit, which might explain why Gold has begun breaking out while Treasuries are dipping.
Keep your eyes on these two, if they don’t reverse soon then something big is coming down the pike for the Dollar.