By Monty Pelerin, on February 24th, 2010
In Jimmy Carter’s reign, the Wall Street Journal editorialized about “Ratcheting to Ruin.” The title derived from the fact that each cycle high in unemployment was higher than previous ones, and each cycle high in inflation was also. “Stagflation” was coined to describe what up until then was believed to be impossible in the Keynesian world. This period ushered in a new era in both politics and economics. Carter was replaced by Reagan, and Keynes was replaced by Friedman.
Thirty years later Keynes is back in vogue, Obama has ascended to the White House and times are again reminiscent of the Carter era. The economy is awful. Fear and dissatisfaction prevail. Politicians are held in contempt. There is one major difference – Carter did not face an “ides of March” event.
In Shakespeare’s Julius Caesar, a soothsayer warned Caesar to “beware the Ides of March.” The prescient warning did not help Caesar. As Obama approaches his March moment, no warning can change his fate.
Ben Bernanke promised to end Quantitative Easing (the printing of money to stimulate the economy and fund the deficits) by the end of March. Some believe his commitment was a “campaign promise” to ensure his Senate reconfirmation. Others believe it was a real commitment, necessary to maintain a stable dollar. Shortly, the world will find out.
Mr. Bernanke, quite unintentionally and through no fault of his own, will be Obama’s Brutus, regardless of his decision. To understand why, some numbers are necessary. Government needs funding this year
Continue reading Obama’s “Ides-of-March” Moment is Near
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By Monty Pelerin, on February 20th, 2010 Great hoopla over the Federal Reserve’s surprise decision to raise the discount rate 0.25 % fills the media and the markets. Pundits discuss earnestly the spice has been added to the tea leaves. Barry Ritholtz lists three possible motivations behind the Fed’s move:
Response to political pressures;
Proof the Economy is improving;
Inevitable ending of extraordinary accommodation.
The relevance of number 1 can be discounted rather quickly. Where could the “political pressure” come from? Other than lip service around election time, Congress never demands fiscal or monetary responsibility. It could refer to “hawks” on the Fed board, but they would not overrule Bernanke on anything substantive, which this move wasn’t. Thus points 2 and 3 appear to be possible motivations.
The rate move was miniscule. Its size precluded it from having any meaningful economic effect. Thus, it must be interpreted as a “signal.” But was it a signal meant to deceive? That is, was the move a “feint?”
The Fed traditionally sends a signal in advance of taking more serious economic measures. The rationale for a warning is to prepare markets for what is coming. It is believed that markets then adapt somewhat in advance of the future, stronger actions. This move was not a signal. As stated by John Williams of Shadowstats.com:
… the Fed has virtually no room to tighten credit in a system where the real (inflation-adjusted) broad money supply is in severe annual contraction, and where general bank lending into the flow of commerce is not adequate to maintain economic growth.
Continue reading The Fed Feints
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By Monty Pelerin, on January 30th, 2010 I sure would like to know the rationale behind this “deal” as reported in an article in the WSJ.
The U.S. is going to lend billions of dollars to Brazil’s state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil’s Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil’s planning minister confirmed that White House National Security Adviser James Jones met this month [August 2009] with Brazilian officials to talk about the loan.
Despite our economic problems at home and an adverse position on drilling for oil off our shores, we are guaranteeing or lending billions to Petrobras, a huge Brazilian-owned oil company. The reason offered is so that they can drill for oil off their coast. The oil has been committed to China and not us. There are many troubling aspects to this arrangement.
First, what business does our government have lending money to any corporation, never mind a large foreign corporation? At a time when our industry is starving for capital, we lend to Petrobras. It might make some sense if we were guaranteed a portion of the oil from the field. That apparently is not happening. Supposedly it is going to China.
Second, it appears as though George Soros is a major shareholder in Petrobras. He also was probably the largest financial backer of the Obama Administration. As unethical as this appears, if we were getting the oil, it might actually have some economic basis other than rewarding a campaign
Continue reading US Lends to Brazil to Benefit China
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By Monty Pelerin, on January 29th, 2010 For those who want to understand more about money and inflation, the following piece by Bill Bonner of the Daily Reckoning is good reading.
The Descent of Money
By Bill Bonner
Paris, Fance
Science and technology have produced many wondrous breakthroughs. But there are some things it cannot improve. A kiss from natural lips is still the lover’s choice. Baby formula proved no match for the real thing. Ersatz money is a flop too. That last item is not so much a fact as a prediction.
The first modern competition between gold and paper money ended like the pre-modern ones. Gold won. Herewith, a short summary:
A rogue, John Law, was the protagonist of the story. He killed Beau Wilson in a duel. Then, he went on the lam…first to Scotland…then to Amsterdam…and finally to Paris. Like Alan Greenspan or Ben Bernanke, he made himself useful to people in high places – in this case the Duke d’Orleans, who needed money. Law had a way to get it:
“I have discovered the secret of the philosophers’ stone,” he is said to have remarked, “it is to make gold out of paper.”
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By Monty Pelerin, on January 7th, 2010 Here is a good collection of articles from Chris Martenson’s site. These articles show no green shoots, and in no way are consistent with what the government wants you to believe. There is no recovery coming. See recent post about 2010 will be worse.
Take a look at Chris’ site. Be sure to watch “The Crash Course” that he provides online. It will provide a simple and thorough explanation as to why we are here and why getting out the hole is not simple (and I would say, not possible). He also provides good information as to how you might protect yourself and your family in the free “Crash” video.
Daily Digest – January 6
Wednesday, January 6, 2010, 11:01 am, by saxplayer00o1
Contracts down: Is housing headed for double-dip?
Pump prices on pace to top 2009 high by weekend
GMAC Says Lender Will Post $5 Billion Quarterly Loss
Silicon Valley ‘Bloodbath’ Leaves Buildings Empty
Manhattan Apartment Prices Fall as Finance Jobs Lost
Fed may re-enter MBS market later in 2010
TrimTabs suggests government manipulated stocks
Medicaid Long-Term Care Spending Tops $106 Billion
Missouri revenue drops in December, more budget cuts coming
U.S. business bankruptcies rise 38% in 2009
Homelessness and cold weather have shelters at capacity
Unemployment spikes demand for Census jobs
Promise to Trim Deficit Is Growing Harder to Keep
US public pensions ‘facing $2,000bn shortfall’
Over $26 billion borrowed by states for unemployment benefits
U.S. Budget Deficit May Exceed $1 Trillion for Years, Kos Says
read more »
Continue reading Martenson Sees No Recovery
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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