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Disappointing Jobs Data Sour Mood
by Marc ChandlerSite Scrapers Find Free Money on the Web
by Edward HarrisonMonday Links on America’s Seduction, Europe and Bernanke’s Money Printing
by Edward HarrisonRecent Articles
The government has a printing press to produce U.S. dollars at essentially no cost
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms… Read the rest
Whose Side is the White House On?
In a speech given on November 20, 2010 at the ADA Education Fund’s Post-election Conference at Harvard’s Kennedy School of Government, Professor James K. Galbraith asks for whom President Obama is really working.
Chart of the Day: Net Payers and Receivers of EU Money
This chart is in German, but most of the terms should be clear. The top half of the chart are the net payers of existing fiscal transfers within the EU, Germany being the largest, followed by Italy, France, and the Netherlands. The biggest net beneficiaries are on the bottom half, with Greece in first place, followed by Poland, and Spain.
Note that these sums from 2008 are in total euros and not on a per capita basis within the… Read the rest
Munchau Says Eurobonds Would End Sovereign Debt Crisis
We have seen how German policy experts like Otmar Issing have argued against Euro Bonds. Now, we get a cogent argument in favour of thee debt instruments via Wolfgang Munchau of Eurointelligence. Munchau recently penned an FT column making the case for more fiscal federalism in Euroland. The interview with Bloomberg’s Andrea Catherwood below supports that piece. Munchau has also argued that the Euro Zone is inching toward break-up. He clearly sees the sovereign debt crisis in Europe as… Read the rest
South Korea: On Free-Trade Agreement And Won
by Marc Chandler
At the end of last week, the US and Korea appeared to reach the basis of agreement that will also resuscitate the moribund free-trade effort. In essence it appears that slowing down the liberalization in the auto sector and pork was what broke the log jam.
The US tariff on Korean auto will end in five years rather than immediately or in three years as earlier drafts suggested. Korea’s 8% tariff on US auto imports will… Read the rest
Monday Links on America’s Seduction, Europe and Bernanke’s Money Printing
The lead post here is from CW contributor John Lounsbury on the seduction of America. He wrote the original version in the Spring of 2009; yet, this piece is as relevant today as it was then – a must read. Then there is Felix Salmon’s post on Ben Bernanke. The line that caught my eye was "Yes, Ben, you are printing money. It’s how you pay for those Treasury bonds you’re buying." I agree with Felix despite denials from… Read the rest
European Debt Woes Expand As Hungary Downgraded
Moody’s downgraded Hungary two notches to Baa3, matching the BBB- ratings by both S&P and Fitch. Our model has long put Hungary at junk status, and we note that its implied rating deteriorated further in our latest round to BB/Ba2/BB from BB+/Ba1/BB+ previously, and so we believe further downgrades are likely.
The Deficit Commission and America’s Neo-feudal Economy
Commercial real estate has been regressively “freed” from debt – leaving the rental value to be pledged to banks as interest. This un-taxing of land rent has been a major factor inflating the real estate bubble on credit, much as deregulating monopolies has helped inflate their stocks and bonds on credit.
This is the policy that the Bowles-Simpson Deficit-Reduction Commission endorses. Its regressive tax proposals would shrink the economy, pushing it further into debt. This transfer of revenue from labor and business to property owners – and from them to their bankers and bondholders – threatens to force up the government’s fiscal deficit (as states and municipalities are seeing today) and turn the United States into a Third World type neofeudal economy.
Possible Misunderstandings about Municipalities and their Bonds
Undaunted by falling municipal bond prices, rising yields, and withdrawal of funds, research reports by large brokerage firms still mollify the majority of clients and fund managers with numbers and assertions: “General obligation bonds do not default.” “The general obligation default rate is 0.01%.” “Most states are required by law to balance their budgets.” To these and other airtight arguments in the muni marketing kit, the proper articulation of doubt may be expressed as: “Yeah, Yeah, Yeah.” Or, one might read “Possible Misunderstandings by Municipalities and Their Bonds.”
Market Turns it Attention Back to Europe on Eurobond and Hungary
We have long argued that there was less to the EFSF that met the eye due to the need to maintain AAA rating when most members are rated lower. However, to increase the guarantees now could signal that officials are preparing to have to come to Spain’s rescue, as there are surely enough funds to cover Portugal. There has been some suggestion (from some like Eurogroup head Juncker) that there could be a European bond, but Germany is again cool to the idea on grounds that it may be more difficult to enforce fiscal discipline. That leaves the ECB as the main institution that can act.
Otmar Issing: Germans Should Just Say No to Eurobonds
The thinking behind Eurobonds is that a pan-euro zone debt instrument could be used as a release valve for liquidity issues, allowing the truly insolvent to restructure their state level debt if necessary, without creating contagion. The problem with the Euro bond is that it introduces the possibility of free riding by ‘profligate’ governments who get cheap funding on the back of ‘prudent’ governments. Otmar Issing, former ECB chief economist explains on Bloomberg in the video below.
Sunday Links feature Japan as a Buy and Munis as a Sell
Below are today’s links. The must-read links are from Edward Chancellor on Japan and the two links on state debt woes fron the New York Times and the Atlanta Journal-Constitution. I also recommend the Baseline Scenario link which goes into detail about the perniciousness of leverage in the banking sector, questioning the tax-code’s favouring of debt over equity.
Weekend Links on Google Search, Civil Liberties and Europe
Links on Google Search, civil liberties and the European debt crisis plus a lot more.
Texas, Ireland and Ten Little Indians
I have been in meetings with Very Serious Texas Politicians where secession was earnestly discussed 15 years ago. Do I think that could happen? No. The Fed will never choose hyperinflation, and I do not think you can find 60 Senators to decide that bailing out the states that let their own spending and taxes get out of control would be acceptable with their voters.
Now consider, if I have some pride in being Texan, with less than 200 years of history, proud as it is, what is it like to be Greek or Irish or French or German or any of the European mix? If you ask a European in that African bar where he is from, does he say Europe? No, he is from a country. (Unless he is Basque. Or Catalonian. Or Welsh.) One is not from Great Britain but from one of the diverse components of the UK. And a large number of Scots want out. Could Belgium split apart? Possibly.
Moment of Truthiness
if many countries were in the cast of “The Biggest Loser,” the US would be among the fattest competitors. Thus, with this report, is the US now able to say, “See here, we are going to go work as hard as the rest of you to slim down”? Maybe not. Today, for all the fanfare associated with “The Moment of Truth,” it did not get the votes necessary (14 out of 18 Commissioners) to move it forward to Congress for consideration. Only 11 Commissioners voted yes, as five of the six senators on the Commission backed the plan, but only one of the six House members did. The Moment of Truth will have to wait.
Casting Light on “The Moment of Truth”
James K. Galbraith writes that the National Committee on Fiscal Responsibility and Reform’s underlying budgetary analysis is faulty because it rests on the false premise that a country can involuntarily default on a fiat currency it creates.
Site Scrapers Find Free Money on the Web
This is about how site scrapers use loopholes in Google’s search algorithm’s to rank highly for content they scrape from the sites of others. These activities may eventually become an issue for regulatory officials since Google also earns revenue from these practices in the online advertising space that it dominates.
Friday’s Best Links are about the Fed’s Emerging Lending
Links on the Fed’s Emergency Lending to companies like magnetar and foreign banks of all stripes are featured in today’s links. Also here is a good article on structural/cyclical unemployment and one by Thomas Hoenig on too big to fail plus a lot more.
The Dirty Dozen
In the following post I list a number of risk factors which I believe investors should give serious consideration, but I do not for one second pretend for that list to be exhaustive. Neither should you read anything into the order of which those risk factors are listed. If you want my assessment of how to rank the various factors, you need to take a look at the risk scatter chart at the end of the letter.
Brazil Hikes Reserve Requirements, Policy Rate Hike Seen In January
Brazil hiked bank reserve requirements on time deposits to 20% from 15% and on cash deposits to 12% from 8%. Measures will take effect December 13 and an estimated BRL61 bln will be removed from the system. Central bank chief Meirelles said that this will help slow inflation, and we think this action makes a December rate hike unlikely. We do, however, believe that incoming central bank chief Tombini will hike the SELIC policy rate at his first meeting January 18/19.
Housing»
![Time To Shut Down MERS](https://webharvest.gov/congress111th/20101207022324im_/http://www.creditwritedowns.com/wp-content/themes/zenko/scripts/timthumb.php?src=http://www.creditwritedowns.com/wp-content/uploads/2010/10/hand-stop.jpg&w=235&h=140&zc=1)
Time To Shut Down MERS
22 November 2010 22:49- by John Lounsbury Buried 72 pages deep in the latest COP (Congressional Oversight Panel) Report is the following...by John Lounsbury on 18 November 2010 18:45
- Thursday November 18 Federal Reserve Governor Elizabeth A. Duke will predict that there will be four million...by John Lounsbury on 18 November 2010 01:50
- I found this video by David Fry with Janet Tavakoli as guest very enlightening. Tavakoli takes the same view...by Edward Harrison on 14 November 2010 10:30
Political Economy»
![The government has a printing press to produce U.S. dollars at essentially no cost](https://webharvest.gov/congress111th/20101207022324im_/http://www.creditwritedowns.com/wp-content/themes/zenko/scripts/timthumb.php?src=http://www.creditwritedowns.com/wp-content/uploads/2008/11/helicopter-ben.jpg&w=235&h=140&zc=1)
The government has a printing press to produce U.S. dollars at essentially no cost
6 December 2010 20:39- Whose Side is the White House On?In a speech given on November 20, 2010 at the ADA Education Fund’s Post-election Conference at Harvard’s...by Guest Author on 6 December 2010 16:44
- Chart of the Day: Net Payers and Receivers of EU MoneyThis chart is in German, but most of the terms should be clear. The top half of the chart are the net payers...by Edward Harrison on 6 December 2010 16:10
- Munchau Says Eurobonds Would End Sovereign Debt CrisisWe have seen how German policy experts like Otmar Issing have argued against Euro Bonds. Now, we get a cogent...by Edward Harrison on 6 December 2010 15:22
Economics»
![The Deficit Commission and America’s Neo-feudal Economy](https://webharvest.gov/congress111th/20101207022324im_/http://www.creditwritedowns.com/wp-content/themes/zenko/scripts/timthumb.php?src=http://www.creditwritedowns.com/wp-content/uploads/2010/12/serfs.png&w=235&h=140&zc=1)
The Deficit Commission and America’s Neo-feudal Economy
6 December 2010 08:30- MMT for AustriansI was eavesdropping on a conversation about Credit Writedowns on another blog (Pragmatic Capitalism) and wanted...by Edward Harrison on 23 November 2010 17:55
- Secular DeflationA cross post by Rick Bookstaber which originally appeared on his blog. My last post posited a future world where...by Guest Author on 22 November 2010 23:42
- by Claus Vistesen I don’t suspect anyone remember part 1 of this series. So if you want to refresh your...by Claus Vistesen on 18 November 2010 17:30
Markets»
![South Korea: On Free-Trade Agreement And Won](https://webharvest.gov/congress111th/20101207022324im_/http://www.creditwritedowns.com/wp-content/themes/zenko/scripts/timthumb.php?src=http://www.creditwritedowns.com/wp-content/uploads/2010/12/South-Korea.png&w=235&h=140&zc=1)
South Korea: On Free-Trade Agreement And Won
6 December 2010 11:56- European Debt Woes Expand As Hungary Downgradedby Win Thin Moody’s downgraded Hungary two notches to Baa3, matching the BBB- ratings by both S&P and Fitch. ...by Win Thin on 6 December 2010 09:46
- Possible Misunderstandings about Municipalities and their BondsFrederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street...by Frederick Sheehan on 6 December 2010 08:00
- Market Turns it Attention Back to Europe on Eurobond and HungaryHighlights The US dollar made ground against most of the major currencies, rebounding from the declines in...by Marc Chandler on 6 December 2010 07:26
Financial Institutions»
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Some Thoughts On The Fed and Bank Bailouts
1 December 2010 15:00- Will Wall Street Bonuses Be Slashed?CNBC’s Kate Kelly and David Faber say that Wall Street bonuses will likely be down this year as much as...by Edward Harrison on 30 November 2010 15:06
- Westwood’s Alpert Says US Home Prices Will Fall FurtherDan Alpert, managing partner at Westwood Capital, thinks that banks are under-reserving and that this will come...by Edward Harrison on 23 November 2010 23:17
- Bank Earnings Rise over 600% in 3rd Quarter!by Annaly Capital Management The title of this piece is strange but true. The FDIC released its Quarterly Banking...by Annaly Salvos on 23 November 2010 19:43