by ilene - October 13th, 2009 3:56 pm
Mish wrote a post responding to the article by John Mauldin, posted here over the weekend. He addresses each of John’s economy fixing ideas, sharing his thoughts on a variety of issues. -Ilene
Courtesy of Mish
John Mauldin has proposed some interesting solutions for fixing the economy in his weekly E-Letter Killing The Goose. Let’s take a look, first at the problem, then at various solutions.
Long-time readers know that I think the Fed has been able to get away with its rather large monetization program because of the massive deflationary forces let loose in the world by the credit crisis, which is forcing a monster deleveraging regime all over the world.
And this brings us to our conundrum. You cannot continue to run deficits significantly larger than nominal GDP for too long without risking the demise of the economic system. But we are in a deflationary environment, so the Fed can monetize the debt far more than any of us suppose without risking immediate and spiraling inflation.
How long can we go before there is an upheaval? I don’t know. The markets can remain irrational or complacent for a lot longer than most of us think. It could be years. Or not.
Some of my most knowledgeable friends argue for the inflation side, and others take the deflation side. I tend to think the Fed will fight deflation until we get inflation, but the consequences will not be pleasant. There is no benign path.
How can we avoid such an upheaval? The only way is to make some very difficult choices. There have to be some adults making the choices, as the teenagers now in control clearly cannot make them.
It is not a matter of pain or no pain, it is just deciding when and how bad it will be. The longer we wait, the worse the consequences.
First, we must acknowledge the deficit is out of control, and spending must be cut. If we raise taxes by as much as the Obama administration now wants to, we will most assuredly put the country back into a deep recession in 2011. Think what raising taxes in 1937 did to a nascent recovery. A $3-trillion-dollar budget is 20% of the US economy. That is just simply too much.
The most credible studies show
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Tags: Bernanke, central bankers, Congress, Economy, Geithner, John Mauldin, killing the goose, massive global imbalances, Mish, Obama, printing money, social security, Taxes, the Fed
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by ilene - October 7th, 2009 9:15 pm
Courtesy of Ellen Brown, http://www.webofdebt.com/articles/imf.php
“A year ago,” said law professor Ross Buckley on Australia’s ABC News last week, “nobody wanted to know the International Monetary Fund. Now it’s the organiser for the international stimulus package which has been sold as a stimulus package for poor countries.”
The IMF may have catapulted to a more exalted status than that. According to Jim Rickards, director of market intelligence for scientific consulting firm Omnis, the unannounced purpose of last week’s G20 Summit in Pittsburgh was that “the IMF is being anointed as the global central bank.” In a CNBC interview on September 25, Rickards said, “They’ve issued debt for the first time in history. They’re issuing SDRs. The last SDRs came out around 1980 or ’81, $30 billion. Now they’re issuing $300 billion. When I say issuing, it’s printing money; there’s nothing behind these SDRs.”
SDRs, or Special Drawing Rights, are a synthetic currency originally created by the IMF to replace gold and silver in large international transactions. But they have been little used until now. Why does the world suddenly need a new global fiat currency and global central bank? Rickards says it because of “Triffin’s Dilemma,” a problem first noted by economist Robert Triffin in the 1960s. When the world went off the gold standard, a reserve currency had to be provided by some large-currency country to service global trade. But leaving its currency out there for international purposes meant that the country would have to continually run large deficits, and that meant it would eventually go broke. The U.S. has fueled the world economy for the last 50 years, but now it is going broke. The U.S. can settle its debts and get its own house in order, but that would cause world trade to contract. A substitute global reserve currency is needed to fuel the global economy while the U.S. solves its debt problems, and that new currency is to be the IMF’s SDRs.
That’s the solution to Triffin’s dilemma, says Rickards, but it leaves the U.S. in a vulnerable position. If we face a war or other global catastrophe, we no longer have the privilege of printing money. The dollar becomes just another currency. To avoid…
Tags: central bankers, currency, Ellen Brown, G20, Gold, IMF, inflation, International Monetary Fund, poor countries, printing money, stimulus package, the Federal Reserve
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by ilene - September 17th, 2009 11:23 am
Courtesy of Mish
Reflation or not, end of recession or not, the global economic fundamentals have not changed one bit thanks to the misguided actions of central bankers. Nassim Taleb, author of the Black Swan says: ‘We still have the same disease’
Here are some clips from a Globe and Mail interview including some thoughts on Canada.
Margaret Wente: Happy days are here again. The central bankers say the recession is over. The markets are buoyant. Can we relax?
Nassim Taleb: Not at all. Central bankers have no clue. In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who’d never heard of hurricanes.
After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.
MW: But aren’t those the very problems we’re supposed to be fixing?
NT: They’re all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient’s symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.
MW: Are you saying the U.S. shouldn’t have done all those bailouts? What was the alternative?
NT: Blood , sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you’re not too impressed with the folks in Washington who are handling this crisis.
Ben Bernanke saved nothing! He shouldn’t be allowed
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Tags: central bankers, credit disease, debt, Nassim Talib, Obama
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(