$this->bbcode_second_pass_quote('', 'M')ay 27, 2005
The Financial Endgame Slowly Plays Out - and then...
by Nigel Maund
... the Sudden Systemic Implosion which will usher in the Brave New World
This article first appeared on www.clivemaund.com
"Capitalism requires people to be quiet souls in the workplace and wild pagans at the cash register" - Ron Chernow, 1949, US Journalist
Amongst the growing plethora of warnings, some erudite some emotional, Mr. Paul Volcker's commentary in the Washington Post entitled, "The Economy on Thin Ice", of April 10th, has to be taken very seriously, given the former's position as Chairman of the Fed from 1979 to 1987, when he was succeeded by Alan Greenspan. Volcker was forced into making very tough economic decisions in 1980, which he did by raising interest rates sharply to cool a vastly overheated market. Volcker acted as the Fed Chairman should, responsibly, and, therefore, like few other market commentators has immense "gravitas" when he flags up major economic issues as he has done. However, the magnitude of the present Fed Chairman's problems are on a hitherto unimaginable scale. No country, or central bank, has ever attempted an exercise in FIAT money creation of such truly breathtaking proportions before. Moreover, no exercise in FIAT money creation has ever successfully worked over the long-term in any nation where it has been attempted. Before the post WW2 acceptance of the US dollar as a proxy global currency, no country has had the unique opportunity to try such an exercise out on a global scale. Dr Greenspan knows this. So, you may well ask, what on earth is he up to?.... and, equally importantly, why is it being done
Safehaven
PeakOil is You
Financial Endgame Being Played Out -In Comes Brave New World
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Financial Endgame Being Played Out -In Comes Brave New World
by OilsNotWell » Mon 30 May 2005, 00:26:42
Then there's this interesting comment from another board on what he sees as the beginning of the end...
$this->bbcode_second_pass_quote('', 'D')ue to artificially low interest rates, over the last decade there has been an explosion in the construction of tourist rental cabins in Sevier and Blount counties in the Smokies. I know for a hard fact that current occupancy rates have crashed to 25%. Cabin owners are streaming into local banks, saying they cannot meet their morgage payments. One local, who owns a large number of cabins, describes his situation as a "disaster."
Tourist resturants are closing in both counties. Please note that Sevier county has 1/2 of ALL the motel and hotel rooms in the entire state of Tennessee. In that county, motels are advertising room rates of $16 a night, and giving special deals right and left.
By late fall, the economic collapse of the cabin owners will be beyond horrific. What this piece is writing about is happening RIGHT NOW in the Smokies tourist rental cabin industry. Soon it will spread to other real estate "hot spots."
I live where a one way road exits the park. I observe tourist traffic. This year I only see huge extended cab pickup trucks and large sedans. And not very many of those. Damn near deserted, this place is...
$this->bbcode_second_pass_quote('', 'N')othing Makes Sense Anymore
Richard Daughty
...the angriest guy in economics
The Mogambo Guru
Archives
May 25, 2005
- I am officially back on the "scared and paranoid" side of life, and while it is not "good to be home," it is, at least familiar, and there is a certain comfort in that, as at least I know where all the pistols and cookies are stashed around here. But then again, my homecoming is only because I was temporarily in a distant, disturbed place, where even shadows spook me out, and where my nights were spent entirely without sleep, night after night, because my brain no longer waited for me to fall asleep before I started having nightmares about the economy, and I am here to tell you that that is unnerving, to say the least.
My problem seems to be that nothing makes any sense anymore. A story in The Post says essentially the same thing when the author notes "In the past few weeks, the world's financial markets have acted in a confused, counter-intuitive, bipolar fashion." Doug Noland entitled his Credit Bubble Bulletin this week "Conundrums." Mike Hoy writes "I have never seen as many red flags being raised at one time as what I see right now." It's everywhere!
MogamboGuru
and this:
$this->bbcode_second_pass_quote('', 'T')he Greenspan ConundrumMay 20, 2005
By John Mauldin
www.frontlinethoughts.com/
“Exactly What Inflation Are We Talking About?
The Fed in its last minutes noted that inflation pressures seem to be waning. Merrill Lynch notes that "80% of the increase in inflation cycle, which began in November 2003 came from only two sources: 1) the dollar and, 2) commodity prices." Gave-Kal openly worries that the latest move toward higher inflation is temporary. They make the following important notes:
"...since 1990, the collapse of the communist system and the end of the Cold War, things have changed. Specifically:
1. There is now a strong downtrend in prices
2. The growth rate of US CPI seems to be capped at 3%
3. US CPI does not really accelerate with global economic activity
4. US CPI falls precipitously when economic activity decelerates
"So in a sense, we are now facing an asymmetry in prices (typical of deflationary periods). In each economic slowdown of the past fifteen years, US inflation fell by 1-2%, while in periods of economic expansion, US inflation failed to make new highs. And where does all this leave us today? Today, the US median CPI is above its trend, a position which, in the past fifteen years, was a time when inflation would start to decline... but only if global economic activity slowed.
"So what are the prospects for global growth? ....According to the OECD, global industrial production could very well be declining by the end of the year. So, the conclusion is inescapable: global growth is weakening. Will US inflation consequently roll over?
"...Today something odd is happening. By all historical measures short rates are still very low. And yet, the rate of US money growth is collapsing.
"As Milton Friedman famously stated, and as History has proven time and again, a central bank can control only one thing at a time. It can control an exchange rate, short interest rates, or the growth rate of money supply... But not all at once. In the case of the Fed, the tool of action is usually the Fed funds rate. When the policy is very "easy", one would expect to see a large increase in the US monetary base (the central bank money stock). Indeed, at the perceived very low rates of interest, the financial sector comes in and borrows happily to distribute credit in the economic system. This also usually leads to a collapse in the exchange rate. Similarly, when the monetary policy is perceived to be very tight, the monetary base growth rate will implode, and the exchange rate will rise.
"Along with the very weak growth in the US monetary base (which argues for lower inflation in a few quarters), we find that: a) the US$ is rallying, b) commodity prices are falling, c) credit spreads are widening, d) gold shares and gold prices are weakening... All signs that the US monetary conditions are now tight!
"Asked about the difference between pornographic and erotic material, a US supreme court justice famously answered: "I know pornography when I see it." By the same token, it can be argued that the markets know when the Fed has pushed short rates to, or even above, their "neutral level". At such times, we start to witness all of the things we have witnessed in recent weeks (US$ rally, weakness in gold, slowing global activity, etc...). Given the Fed's History of listening to the markets, the Fed is probably close to done in its tightening cycle."
Paul McCulley of Pimco argues this week that the Fed always stops raising rates when the ISM manufacturing numbers turn negative (meaning they go below 50). He shows a very compelling chart at www.pimco.com. Click on McCulley's latest essay, which is a must read. We are starting to see early signs of a manufacturing slowdown, which means that below 50 number could happen soon rather than later (more below). He, too, thinks the Fed should start thinking about sitting still.
There are signs that inflation may be receding. Import price data for April was up only 0.1%, ex-energy. Capital goods prices have actually been down for the past three months, and stripping out food end oil prices are only up 1%. Now I know that oil and food are important, but the point is that a stronger dollar and a flat energy market are not the substance of inflation without other pressures, and there seem to be none.
The 3 month trend in the Producer Price Index is now at only a 2% annual rate. Capital goods are only rising at a 1% rate. The monthly reading for core CPI (consumer price inflation) took the year-over-year rate down to 0.2%. (Merrill Lynch) “
and this comment from another poster:
$this->bbcode_second_pass_quote('', 'D')ebtors prisons
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The new bankruptcy law goes into effect around October 20. This September should destroy all records for filings
Yikes...
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OilsNotWell - Heavy Crude
- Posts: 1202
- Joined: Wed 11 Aug 2004, 03:00:00
