January Low Economic Content Thread - Page 2 - Economics -- Two Plus Two Poker Forums

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January Low Economic Content Thread

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01-03-2010 , 04:21 AM

#26

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Callahan's Economics for Real People

Praxeology reading list from Mises Community forum

01-03-2010 , 05:23 AM

#27

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

01-03-2010 , 11:17 AM

#28

Bigdaddydvo

King of the Politics Forum

Join Date: Aug 2004 Posts: 21,496

Quote:

Originally Posted by J.R.

U.S. Treasuries Post Worst Performance Among Sovereign Markets

Sad face for the Chicoms.

01-03-2010 , 12:44 PM

#29

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Bernanke Calls for Regulation to Fight Future Bubbles

Quote:

WASHINGTON (AP) -- Stronger regulation should be the first line of defense against speculative bubbles that could send the economy into a new crisis, Federal Reserve Chairman Ben Bernanke said Sunday.

But he didn't rule out higher interest rates to stop dangerous bubbles, such as the recent one in housing, from forming.

How generous of him.

Quote:

Critics blame the Fed for feeding that housing bubble by holding interest rates too low for too long after the 2001 recession.

But Bernanke, in prepared remarks to the American Economic Association's annual meeting in Atlanta, defended the central bank's actions. Extra-low rates were needed to get the economy and job creation back to full throttle after the Sept. 11 attacks and accounting scandals that rocked Wall Street, he said.

Bernanke said the direct links between super-low interest rates and the rapid rise in house prices that occurred at roughly the same time are "weak." The stance of interest rates during that period "does not appear to have been inappropriate," he said.

He is an Ivy league scholar.

Quote:

"However, if adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplementary tool," he added.

Just in case the empty rhetoric doesn't work.

01-03-2010 , 01:11 PM

#30

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Translation:

01-03-2010 , 02:01 PM

#31

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

The lesson I take from this experience is not that financial regulation and supervision are ineffective for controlling emerging risks, but that their execution must be better and smarter.

We just need to do it better next time

01-03-2010 , 02:43 PM

#32

Borodog

Enemy of the State

Join Date: Jan 2004 Posts: 25,491

lol

What a ****ing ritard.

01-03-2010 , 03:10 PM

#33

Bigdaddydvo

King of the Politics Forum

Join Date: Aug 2004 Posts: 21,496

Quote:

Originally Posted by Borodog

lol

What a ****ing ritard.

QFT. I can't believe he's serious, though. Looks more to me a CYA move, e.g. the criminal yelling "Stop, thief!"

01-03-2010 , 03:15 PM

#34

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

"Yes, dad beats us kids. He beats us to enforce the discipline he himself lacks. He smokes in the house and last year set the house on fire. The kids tried to escape but with frenzied belt whips, he forced us to stay inside and help him fight the fire, and yes, we managed to keep the whole thing from burning down, but much of the house is ruined now. And he will not stop smoking in the house, just a promise of more care is all. He's our dad, we'll tend toward obedience. But he still smokes in the house. We can all smell it. None of us feel secure. We really hate the reckless old **** now. John has left and Frank is about to. The little ones left probably couldn't fight off another fire, whipping belt or not. Dad still smokes in the house."

01-03-2010 , 03:55 PM

#35

owsley

veteran

Join Date: Mar 2007 Posts: 3,277

The significance of receipts falling is seriously underestimated. In "conventional" or MSM discussion it is commonly stated that spending and deficits are up, and there is basically acknowledgement that these high deficits will have to be dealt with eventually (even though this acknowledgement is totally meaningless since no one actually has a plan for cutting spending). But the fact that tax receipts have fallen so much shows that the tax base will never get back to where it was from 1990-2008, which would necessitate structural change in the behavior of the USG on its own. The fact that spending is skyrocketing while the tax base is shrinking shows just how insane and out of touch with reality the policy response has been. The length of time which they will be able to rely on increased treasury sales, as they have so far, cannot be very long.

01-03-2010 , 05:23 PM

#36

Bigdaddydvo

King of the Politics Forum

Join Date: Aug 2004 Posts: 21,496

Some brief but "wow" thoughts from Chris Martenson's latest blog post:

Quote:

I think 2010 is going to be exceptionally difficult economically, and I think we are vastly closer to our date with a fairly horrific monetary/dollar crisis. While that may not come for a couple of years, everything points to the fact that it is coming. I suppose the fact that the US government had to up the debt ceiling by $290 billion to subsist for only 6 more weeks brought that into focus for me.

When you are going into hock by $50 billion every week, you are on a fast track to a currency disaster. Until and unless I see that trend slow down and then reverse, I will maintain my analytical position that we are skating on very thin ice and that prudent individuals and investors should maintain an insurance policy against the possibility that the dollar breaks down.

This is a stunning figure. $50 Billion per week to finance our deficits and roll over maturing debt. What is perhaps more stunning is the abject indifference our politicians show to this fact.

01-03-2010 , 05:36 PM

#37

Borodog

Enemy of the State

Join Date: Jan 2004 Posts: 25,491

One year old today: http://www.shadowstats.com/article/g...ederal-deficit

Hopefully the 2010 update will be out soon.

01-03-2010 , 07:42 PM

#38

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Jesse - Is the US Government Preparing the Lifeboats for the Next Financial Disaster?

the rub:

Quote:

"A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to 'suspend redemptions to allow for the orderly liquidation of fund assets.'"

ZH - This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

Quote:

"At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that "price discovery" occurs all at once, and at the very same time. And all too often, investors "discover" they were lied to, as the emperor, in any fiat system, always has no clothes.

Just like in September 2008, when the banks were forced to look at each-others' balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman's FICC trading axes would have resulted in the "Ice-Nine'ing" (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman's EPS. But we will never know.

What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of "last fool in", holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.

01-03-2010 , 11:45 PM

#39

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

-Ernest Hemingway

==================

The worst is not over

Quote:

One area of the economy about which people seem especially prone to wishful thinking is the real estate market. Already, the dip-buyers are moving in, and those who failed to sell at the top and as the market tumbled during the last two years are holding off, expecting the next leg up to take them out at much better levels. But as Martin Hutchinson, Contributing Editor of Money Morning explains in "Don’t Be Fooled by the Housing Market’s False Bottom," they risk ending up in a deeper hole than they are already.

Existing home sales surprised the markets by rising 7.4% to an annual rate of 6.54 million units in November, the highest since February 2007, according to the National Association of Realtors (NAR). That's only 10% below the all-time peak in 2005.

What's more is that house prices, as measured by the S&P/Case-Shiller 20-city Home Price Index, rose for the fourth consecutive month in September before stabilizing in October when prices were flat.

The NAR is inevitably convinced that the worst is over and that housing is due for a rapid recovery, and that home prices will take out 2006's peaks some time in 2011 or 2012.

Not so fast, guys!

The recovery in housing has been boosted by just about every artificial means you can imagine:

Quote:

* Interest rates have been kept at a historically low level of 0%-0.25% for a very long time.
* Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the bankrupt behemoths of housing finance, have been bailed out with what amounts to a blank check from taxpayers.
* The Federal Housing Agency (FHA) went on making mortgages with 3% down payments when nobody else was, thus very likely landing taxpayers with another bill for some large fraction of $1 trillion.
* And the government has been handing out cash subsidies for refinancing houses that were about to be repossessed and $8,000 subsidies for first time buyers - now $6,500 for all homebuyers.

Of course it looks like the housing market has recovered! The question is what happens when some of these subsidies are taken away?

Even if we wanted to provide gigantic subsidies to housing finance in every form for evermore, we couldn't afford to. The U.S. government is running trillion dollar deficits, and something has to change. So at some point the feather cushions that have surrounded every aspect of the housing market will be taken away.

01-03-2010 , 11:52 PM

#40

Bigdaddydvo

King of the Politics Forum

Join Date: Aug 2004 Posts: 21,496

Chris Martenson: The Christmas Eve Taxpayer Massacre

01-04-2010 , 12:02 AM

#41

tolbiny

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Join Date: Mar 2004 Posts: 10,448

Quote:

Originally Posted by J.R.

They make a couple of mistakes here- the big one is that while existing home sales may be "only" 10% below the peak new home sales are 67% off peak for another 800,000 homes or so with the peak being ~8,000,000 total homes sold at peak we are off more like 20-25% in total sales, not 10%.

As far as optimism in the housing market- I suspect more than a few people are like me. With the credit paying closing costs and 3.5% down payments and 4.5% interest rates buying a house is a damn good deal- but even more so if the dollar collapses. Should gold go to $100,000 an ounce we can pay off our mortgage and live rent free (with the other side of our duplex covering taxes/insurance/repairs) for 2 ounces of gold- we are basically given a shot at leveraging our money in gold at a 20-1 (or better) ratio with little downside.

01-04-2010 , 12:14 AM

#42

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

Originally Posted by tolbiny

I think that is one of the quotes he is debunking:

Quote:

Existing home sales surprised the markets by rising 7.4% to an annual rate of 6.54 million units in November, the highest since February 2007, according to the National Association of Realtors (NAR). That's only 10% below the all-time peak in 2005.

Quote:

Originally Posted by tolbiny

As far as optimism in the housing market- I suspect more than a few people are like me. With the credit paying closing costs and 3.5% down payments and 4.5% interest rates buying a house is a damn good deal- but even more so if the dollar collapses.

Maybe. House prices go down when interest rates go up (less demand as people can't get/afford loans). Maybe we will have deflation in what we own (leveraged assets) and inflation in what we use/need.

Quote:

Originally Posted by tolbiny

Should gold go to $100,000 an ounce we can pay off our mortgage and live rent free (with the other side of our duplex covering taxes/insurance/repairs) for 2 ounces of gold- we are basically given a shot at leveraging our money in gold at a 20-1 (or better) ratio with little downside.

Do you need to own a house to benefit from gold appreciation?

01-04-2010 , 12:20 AM

#43

The 13th 4postle

banned

Join Date: Oct 2006 Posts: 11,244

The Epstein episode of Econ Talk on the Rule of Law was awesome. I suggest everyone take a listen.

01-04-2010 , 12:34 AM

#44

J.R.

Econ Forum Czar

Join Date: Sep 2002 Posts: 8,292

Quote:

While a topic of a future post, interest rates are the biggest household net worth killer, much more so than the stock market. For instance, the lifetime payments of a $100,000 30 year fixed mortgage (with standard terms) comes down to $193k at a 5% rate... and $316k at 10%! Netting out, this implies a nearly 40% loss in the worth of the home to compensate merely for the greater interest outflows, all else equal. (the same lifetime payments for a $100k mortgage at 5% are about equal to a $60k mortgage at 10%). Of course, this analysis is simplistic and avoids discounting, but optically this is precisely what the biggest threat from higher interest rates is to the household balance sheet. And as the bulk of American net worth is not in the stock market, but merely in their home, the adverse impact from a rise in interest rates by 5, 4 or even just 3% will undo all the hard fought 2009 stock market gains (not to mention what an additional 40% loss in home values will do to bank balance sheets).

So is a 8% 30 year mortgage inconceivable? Not if you believe Morgan Stanley. And what will a roughly 3% rate increase do to house value? Not much: just take another 16% or so off current prices.

01-04-2010 , 12:16 PM

#45

Bigdaddydvo

King of the Politics Forum

Join Date: Aug 2004 Posts: 21,496

My wife is awesome btw. We have CNBC this on this morning and they were discussing the Bernanke low interest rates/housing bubble "it wasn't me" speech. So my wife makes a brilliant fusion of the LOLtastic idea of "animal spirits" while getting a nice dig in on Scientology:

"OK, so what was it Ben, Economy Thetans? Do we need to page Tom Cruise to heal the Economy?"

my wife obv

01-04-2010 , 01:18 PM

#46

tolbiny

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Join Date: Mar 2004 Posts: 10,448

I cant really think of anything witty to say- this sort of stuff is just hilariously disgusting.

Quote:

Like Samuelson, McConnell estimated Soviet GNP as half that of the United States in 1963 but he showed that the Soviets were investing a much larger share of GNP and thus growing at rates "two to three times" higher than the U.S. Indeed, through at least ten (!) editions, the Soviets continued to grow faster than the U.S. and yet in McConnell's 1990 edition Soviet GNP was still half that of the United States!

I wish I could write textbooks for a living

01-04-2010 , 01:26 PM

#47

tolbiny

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Join Date: Mar 2004 Posts: 10,448

Quote:

Originally Posted by tolbiny

I cant really think of anything witty to say- this sort of stuff is just hilariously disgusting.

I wish I could write textbooks for a living

BTW this line

Quote:

When the war ended, the fundamental tradeoff became one between investment and consumption and since the Soviets invested a greater share of GNP they would naturally consume less but grow faster.

essentially sums up Schiff's position on China (and why its bound to be wrong). Just because China is spending tons on infrastructure and other "investments" doesn't mean that real GDP growth is to follow.

01-04-2010 , 02:09 PM

#48

Borodog

Enemy of the State

Join Date: Jan 2004 Posts: 25,491

I don't think that sums up Schiff's position at all.

01-04-2010 , 04:52 PM

#49

Borodog

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Join Date: Jan 2004 Posts: 25,491

Zygote calls it again: http://mises.org/daily/4005 . Bob murphy debunking Mankiw and the other deflationists (like Mish).

In AIM conversation Zygote made the point that the Fed is succeding in refloating the bubble. Inflation is occuring, price inflation. In food, energy, equities, commodities, PMs, the PPI, it's there. Most of these are touted as signs of "recovery" by the mainstream media, while consumer price inflation is downplayed through various mechanisms like reporting only "core" (i.e. minus food and energy, what family needs those anyway). And why is this occuring? Everyone tells us that the banks are not lending, that there is no threat of inflation if the banks are not lending, that the explosion of the monetary base is contained and not spilling into M1 and M2, yada yada yada.

Quote:

If Mankiw doesn't think M1 (the blue line) has surged since the fall of 2008, I'd hate to put him in charge of Iraqi troop levels. Note that M2 (the red line) saw an acceleration in its growth trend at the same time the monetary base exploded, but it admittedly plateaued in early 2009 and is only recently back on an upswing.

My response to Zygote was that of course this requires enormous sacrifice of real capital. The Fed is keeping alive an entire ecology of zombie institutions that would immediately collapse without continued and massive intervention. They would collapse because they have made titanic losses; they are engines of wealth destruction. So keeping them alive requires a continuous stream of real resources to be thrown onto the pyre. We are in the era of capital decumulation, gold buddies.

The rest of the article is very good imo.

01-04-2010 , 05:13 PM

#50

Borodog

Enemy of the State

Join Date: Jan 2004 Posts: 25,491

Murphy makes a dynomite point I have made before about deflationists going wrong when they claim that credit contraction causes the money supply to contract; this isn't true. A loan default does not contract the money supply; the money created when the loan was made is already spent and distributed into various checking accounts. Only when a loan is paid off would the money supply contract, if the bank did not choose to make a new loan, or when a bank fails and it's depositor's accounts are wiped out. But the latter does not happen any more, as we all know.

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