Links 3/30/09

‘War’ on poisonous Australia toad BBC. Notice how this is basically a community effort? Aussies are good about that sort of thing.

What they Used to Teach You at Stanford Business School and Newsweek’s Fearful Krugman Profile Felix Salmon

Equities show us the way to recovery Alan Greenspan and A new plan needed as the cycle grows vicious Wolfgang Munchau. Financial Times. I doubt this juxtaposition was intentional, but it certainly looks like someone at the FT was having a bit of sport. I’m clearly biased, but the Greenspan bit strikes me as barmy, and confirms his long-standing obsession with equity valuations, which dates back to well before 2000 (the Wall Street Journal reported on it then). Seeing how well he did with it over the years, I see it as a negative indicator. The Munchau piece is worth reading, regardless (I broke down and featured it separately).

Japan Output Slumps for Fifth Month as Exports Tumble Bloomberg

Inflation Is Tempting for Indebted Nations Wall Street Journal. The Journal has only figured that out now?

Trust Your Guts William Greider, The Nation (hat tip Ed Harrision)

Study Predicts 50% Cut in Free Cash Flow CFO

Morgan Stanley Says Sell Following Best S&P 500 Rally Since ‘38 Bloomberg

Antidote du jour (hat tip reader Barbara):

In 2003, police in Warwickshire, England, opened a garden shed and found a whimpering, cowering dog. It had been locked in the shed and abandoned. It was dirty and malnourished, and had clearly been abused.

In an act of kindness, the police took the dog, which was a greyhound female, to the nearby Nuneaton and Warwickshire Wildlife Sanctuary, run by a man named Geoff Grewcock and known as a willing haven for animals abandoned, orphaned or otherwise in need.

Geoff Grewcock and the other sanctuary staff went to work with two aims: to restore the dog to full health, and to win her trust. It took several weeks, but eventually both goals were achieved.

They named her Jasmine, and they started to think about finding her an adoptive home.

The dog had other ideas. No-one remembers now how it began, but Jasmine started welcoming all animal arrivals at the sanctuary. It wouldn’t matter if it was a puppy, a fox cub, a rabbit or, probably, a rhinoceros, Jasmine would peer into the box or cage and, where possible, deliver a welcoming lick.

Geoff Grewcock relates one of the early incidents. “We had two puppies that had been abandoned by a nearby railway line. One was a Lakeland Terrier cross and another was a Jack Russell Doberman cross. They were tiny when they arrived at the centre and Jasmine approached them and grabbed one by the scruff of the neck in her mouth and put him on the settee. Then she fetched the other one and sat down with them, cuddling them.”

“But she is like that with all of our animals, even the rabbits. She takes all the stress out of them and it helps them to not only feel close to her but to settle into their new surroundings.

“She has done the same with the fox and badger cubs, she licks the rabbits and guinea pigs and even lets the birds perch on the bridge of her nose.”

Jasmine, the timid, abused, deserted waif, became the animal sanctuary’s resident surrogate mother, a role for which she might have been born. The list of orphaned and abandoned youngsters she has cared for comprises five fox cubs, four badger cubs, 15 chicks, eight guinea pigs, two stray puppies and 15 rabbits.

And one roe deer fawn. Tiny Bramble, 11 weeks old, was found semi-conscious in a field. Upon arrival at the sanctuary, Jasmine cuddled up to her to keep her warm, and then went into the full foster mum role. Jasmine the greyhound showers Bramble the roe deer with affection and makes sure nothing is matted in her fur.

“They are inseparable,” says Geoff Grewcock. “Bramble walks between her legs and they keep kissing each other. They walk together round the sanctuary. It’s a real treat to see them.”

Jasmine will continue to care for Bramble until she is old enough to be returned to woodland life. When that happens, Jasmine will not be lonely. She will be too busy showering love and affection on the next orphan or victim of abuse.

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  1. Anonymous

    A new protest group is lobbying for the big banks to be broken up.

    “Pledge to Break Up the Banks
    Tell Obama and Congress: “If it’s too big to fail, it’s too big to exist. Dismantle the power of the financial elite and make policies that keep a new crop from springing up. We want our economy and politics restored for the public.” Do something: sign onto the demand and we’ll bring this message to Congress on April 11. If there’s a rally near you, we’ll tell you.”

  2. Anonymous

    Jump to 2:42 Queensland cane toad removal, with enhancing your game.

    Skippy….by the way good movie.

  3. Carrick

    Agreed on the Jasmine story.

    In related news, we adopted a cat yesterday morning… its still hiding under the washing machine.

  4. Anonymous

    It’s depressing to see animals showing more compassion to other unacquainted animals than people show to others who they are quite familiar with.

    Whatever–at least animals have priorities straight.

    Thanks for such an excellent site, Yves. If you consider this infotainment, I can only imagine how good your book will be!

  5. PacoMtl

    Although mega monetary and fiscal stimulus are probably necessary (is there a better option?), there will be a hefty price to pay down the road – both economically and politically.

    Obama will have to make tough choices some day:

    1) If the Fed unwinds its money supply, it will dump govt bonds on the market, which will make prices plummet and yields rise dramatically. Increasing rates will put the govt in danger of default (depending on where we get to in terms of debt-to-gdp ratio) or at least will put tremendous pressure on the debt service portion of the budget. To avoid default, the govt will be under accumulating pressures to increase all taxes, which could be a killer for Obama’s popularity, especially if these problems arise during elections in 4 years – the GOP would love to see that happen!

    2) To avoid point 1 above, the Fed may not unwind the money supply (it will depend on the political pressure and independance of the Fed, I guess) and will let inflation increase quite dramatically, thus effectively indirectly “defaulting” on US-denominated assets. This would no doubt infuriate China!

    (?) 3) To “avoid” 1 and 2, the Fed will issue its own bonds and will sell those (instead of govt bonds) to reduce its money supply? Don’t know if we will get to this? Yellen seems to point in this direction.

    (?) 4) The explosion of household savings will allow sustained mega deficits and will keep govt bond prices high and rates low, even when the supply increases, due to increasing demand for ways to park increasing savings. I doubt this is likely, but the recent increase in US household savings may extend the bond market boom, thus keeping yields low for quite some time.

    I still can’t come to grips with which option will come about, but I tend to go for option 2. So the USD will one day pretty much bomb and it will change the international geo-political landscape quite a bit.

    People who point to Japan in the 1990s to say that rates may never rise are wrong – this time, we do not have just one or 2 countries accumulating sky-high deficits. All very large economies are doing it, and this will inevitably put upward pressure on rates, even if savings rates increase. On top of this, increasing savings are 1) desirable in the long run but 2) strangely may make us enter a perpetual stimulus cycle, as continued sluggish household consumption will force more deficit spending, which will increase pressure on the long side of the yield curve eventually, etc.

    The fact that Central Banks are trying to pull down the long side of the yield curve is going to create headaches for sellers of long bonds (governments trying to plug their deficit holes!), as they may not find buyers at the “artificially low” long rates. This is in fact forcing monetization of deficits.

    Don’t get me wrong – I’m all for mega fiscal stimulus and stimulative monetary policy. But all this “stimulation” will have a hefty price one day or the other and will create quite a political/strategic headache for Obama down the road.

    Inflation is probably the lesser evil, of course, but given the past money supply increase, we could be in for quite an inflationary environment.

    We need to put in place sound grounds for future non-stimulus growth, because otherwise, the famed Keynes quote will come back to haunt us: “the market can remain irrational longer than you can stay solvent” …


  6. mistah charley, ph.d.

    William Greider appeared on Bill Moyers’ March 27 show

    A slightly condensed excerpt

    BILL MOYERS: I read just this morning that there’s a nation wide grassroots protest planned for April 11th…. They’re young people who want to take on banking reform, and reform the financial systems, as a campaign, an ongoing witness.

    WILLIAM GREIDER: I know. They call themselves A New Way Forward….
    Young people are part of my optimism. They’re smart kids, want to be engaged in their times, see the injustices of their society. And they don’t quite trust the great, big existing organizations. And with some good reason, as you know. And particularly, they’re not totally sold on the Democratic Party as the vessel of reform.

    So they’re now engaged in putting together the 11, 12, I’m sure they’d like to have 50, little bonfires around the country. These demonstrations. There’s going be one in Washington and one in Wall Street, and a number of other cities. I think if people do those things with or without any help from big organizations, that collectively becomes the voice that tells Washington, we’re on to your silly ideas that Wall Street wants you to do about reform. We see through them. And we have some ideas of our own. And we’re going to come talk to you, and if you decline to talk to us, we’re going to come after you. That’s the voice of democracy speaking.

    I plan to be at my local gathering.

  7. ECF

    One crippling aspect of the economic crisis is the volatility in foreign exchange rates that currently involves insane risks for participants in international trade.

    The answer is a sound monetary system and the one that was used in the past very successfully. Nathan Lewis is a modern day persuasive advocate of the gold standard. Many reject such a proposal out of hand and I note that this otherwise excellent blog rarely discusses the matter, but here it is:

    A New World Monetary System – Nathan Lewis:

    G20 – Do this first.

  8. Anon1

    Ugh…the “gold standard” has reared its head.

    Honestly, what is so mystical/magical about gold!? It is ONLY a commodity with ups and downs like ALL other commodities. Plus, there is not enough gold in existence to match the value of world economic activity! Double plus, it means REALLY screwing people when a downturn comes: no safety net, no extra spending to keep people from starving/dying at the side of the road (sorry, not enough gold in the vaults losers!).

    I had one person answer that we could simply assign a high value to gold (in order to make it match with the world economic value level). What? Why not then just pick ANY old thing as a “standard” and willy-nilly assign some mystical value to it? Why gold?

    Now, don’t get me wrong, I own some physical gold (about 8% of my net worth) but it is NOT magic. Outside of jewelry, it is practically useless (specialized use is VERY small-scale and doesn’t serve as a basis for massive value: nanobeads, optical physics, etc, use VERY SMALL amounts of gold.

    Sorry, I just don’t see jewelry as a basis for world wealth or world currencies.

  9. Anon1

    Oh, one other thing vis a vis the dog story.

    Dogs rule.

    Plain, simple fact. Nothing is better than a dog. When you cannot trust anything else in the universe, you can trust a dog.

  10. Anonymous

    Sorry, I just don’t see jewelry as a basis for world wealth or world currencies.

    I don’t either. But the truth is you don’t need much reserve gold to operate a gold standard monetary system. The “market” just has to have confidence the Ultimate Market Maker will fill all orders from all comers at its preset and unchanging Bid/Ask.

  11. Anonymous

    Lovely animal story…but only in Britain would someone have a name like Grewcock. Ahah-ha!

  12. Anonymous

    Thank you, Yves, for this Antidote du Jour, which was particulary needed by me today after the call from Obama for autoworkers to sacrifice even more.

    But, banksters? He wishes they would “show restraint,” right?

    OK, now I go need to look at the photo again and read about the fawn colored greyhound drawing stress out of the animals coming to the shelter. Again, T/U.

  13. briareus

    Anon1, it doesn’t matter how much gold there is, really. Products, services, and assets will automatically reprice downward, and if there is a market for other commodities as money-of-account, it will happen. The point of returning to a gold standard is exactly not to fractionally reserve past any ability for redemption, so I don’t see the point in hysterical cries for people starving in the streets for lack of gold in the vaults. We’re about to have that from fiat emission alone. With remarkable stability, my gold and silver purchase just about the same amounts of food, shoes, iron, copper, wood or nails as the day the The FED began emitting FRNs after the first US default in 1933. Those FRNs have lost about 95% of their purchasing power since those early days when the FED still offered dollar redemption. Take fractional reserve lending out of the equation and I think you’ll find there’s quite a bit of gold to go around–and if not, something else will fill the gaps. Competition in monies is a good thing. Wild instabilities between fiat notes is not.

  14. MyLessThanPrimeBeef

    Wonderful story about Jasmine.

    I only have a small request.

    In the future, any legal conflict involving a human and an animal, the human judge has to recuse himself or herself, due to possile conflict of interest, being a human and all that…perhaps a vegetable or a rock can preside over it.

  15. briareus

    "Honestly, what is so mystical/magical about gold!? It is ONLY a commodity with ups and downs like ALL other commodities."


    There is nothing mystical or magical about it, but it does fulfill the main criteria for a sound monetary unit.

    It is divisible, it is finite & scarce, it is difficult to counterfeit, and it has other non-monetary uses.

    Sure, platinum meets these, but it is far more scarce and I've had it confused for silver. Yes diamonds fit most of these but are not predictably divisible. Copper meets many of these but is almost too common. Gold simply fits the bill best and to a slightly lesser degree, silver.

    While the merits or lack thereof of bimetallism, or those of a gold ubiquity can be debated, it's truly hard to refute those simple truths of gold. It is truly nothing mystical. It is just a commodity, but a scarce one.

  16. Anonymous

    If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.
    —Mark Twain

  17. Anonymous

    briareus: Sure, platinum meets these, but it is far more scarce and I’ve had it confused for silver.

    You tell us earlier that “it doesn’t matter how much gold there is, really.”, and now complain about the scarcity of platinum?

  18. MyLessThanPrimeBeef

    Hot dog – the noblest of all dogs and the exact opposite of your ingrate banker – it feeds the hand that bites it, rather than biting the hand that feeds it.

  19. briareus

    “You tell us earlier that “it doesn’t matter how much gold there is, really.”, and now complain about the scarcity of platinum?”

    There is no complaint about scarcity, only the obviation that platinum, being less common than gold, may not be as widely available and thus not as recognizable as gold. I made the point–which you copied–that I’ve seen it confused for silver.

  20. Anon1

    Yes diamonds fit most of these but are not predictably divisible.

    Just a nit…there is no scarcity of diamonds. Not really. The entire diamond market is, literally, a racket. There are PLENTY of diamonds about. The Diamond cartels, however, create an artificial scarcity to keep prices high.

    They should be shut down and jailed (diamond cartels).

    As for platinum, it actually has FAR more actual utility in real world activities than gold does. It is used in catalytic converters, in catalytic surfaces in chemistry (beyond combustion), is used for wiring in electrophoresis devices). Gold, on the other hand…hardly any real utility at all.

  21. Anonymous

    Briareus: There is no complaint about scarcity, only the obviation that platinum, being less common than gold, may not be as widely available and thus not as recognizable as gold. I made the point–which you copied–that I’ve seen it confused for silver.

    But according to you, though, questions of availability are irrelevant. It should then follow that issues of identifiability are equally unimportant … except, perhaps, for the “few” people who are dependent on its physical characteristics (e.g., the examples for platinum noted by Anon1).

    Remarkably, though, it’s basically impossible to confuse platinum and silver: even a cursory examination is sufficient to distinguish them (e.g., color, density, etc). Even if there was some kind of problem, however, I’d have to wonder how many people can reliably identify gold. If you came to me with a brick of the stuff, I’d be more or less at a loss and would assume, absent of other evidence, it’s fake.

    But maybe that’s just me.

    Personally, I find this entire gold-bug position amusing. Consider the reference above to Nathan Lewis: like you, he insists that it’s not the real gold that matters, but that the system be run in a manner consistent that it does matter. (This doesn’t make any sense, but that’s what he says!)

    I find this no different from a fiat currency myself. In one case, we have a bunch of bureaucrats printing squiggly lines on paper, and in other case, we have a bunch of bureaucrats printing a bunch of squiggly lines on paper. I think the only difference is that the former (or latter) are paid by taxes and the latter (or former) aren’t. If that isn’t similar enough, recall that we have to trust both systems are being well-run … and look at what that has gotten us into today, eh?

    But if some kind of bizarro precious metal must “back” the currency, my suggestion — and I am completely serious here — is that we use technetium-99. It’s nice and pretty — though making jewelery out of it isn’t recommended. It’s quite rare too, and expensive. It does have a few industrial and medical uses, certainly more that gold. But best of all is that it can be manufactured, and in the best way possible: it’s a principle component of the waste stream from a super-efficient nuclear power plant.

    What better way to encourage investment in such?

  22. briareus

    One fact up front: I’m no gold bug. Never have been, never will be. Gold bugs are permabulls, and see every retraction as proof of conspiracy, so I will thank you not to include me in that metric.

    I have no problem with your suggestion of technetium-99 except for one problem that might trouble the streetwalker who wants to redeem his note for its promise to pay just might find it hotter than he cared for, and therein lies the rub.

    The crux of the whole matter is that when a money is irredeemable, and it can be created for nothing, it probably will end up being worth nothing. The non-mystical non-magical pluses for gold are not that it is purty and shiny–though that is clearly what makes it recognizable and desirable to a great many–it is that it satisfies the criteria I established above and does so in a not too inconvenient way. If the entire history of a gold brick consisted of it sitting in the same place in a single vault while its ownership constantly changed hands, that’s fine with me. The point being that it is signifying a placeholder value for extant notes.

    When the banks are effectively freed from the requirements to redeem, and governments with favored industries are burgeoning to grow, you tend to find policy that–surprise surprise–allows those banks to lend against a fractional reserve. This newly created base money in the case of the central bank and the newly created state bank money is of most value to the first user, and that first user is essentially the prime lenders and the industries that they and their symbiotic government favor most for policy goals.

    I don’t have much use for a central bank that artificially contrives interest rates and the boom/busts it so engenders. Nor do I have any use for the fractional reserves that provide ready gain to its first users by spending that newly created money before its depreciation causes prices to rise around us. It’s inflationary in the short term, deflationary in the long term, and confiscatory for the general public all around.

    The misery that results from countless lives falling apart as the jobs they had worked vanish–in industries that never would have existed but for this phantom of leveraged credit–and the resultant transfer of title to wealth into concentrated hands, seems to obviate that this system favors those prime lenders and their governments and the industries they so favor.

    Is it any wonder that governments and banks favor economists who recommend that governments and banks do exactly what they want to do? Is it any wonder that these banks don’t clamor against The FED who allows them to inflate simultaneously? No one bank would be able to leverage itself toward oblivion without its neighbor banks noticing its paper piling in their coffers and so checking its behavior. The FED lets them all do it simultaneously. Is it any wonder the system is insolvent en masse?

    I don’t care much for gold myself. I don’t find it as pretty or as useful as other metals. I don’t collect gold rings or jewelry. I do support a non-fractionally reserved money of account based on it for its merits, perhaps and hopefully in competition with other similar intrinsically-backed monies of account in the general marketplace. I support this for the relief it may grant from these endless cycles of confiscatory booms and busts at the hands of an elite who at every turn manipulate the ‘free’ market to their advantage. Nothing is perfect and nothing will be, but why stack the deck in their favor?

  23. Jeff65

    A commodity is better suited as a medium of exchange if it has little industrial utility. Minimal volatility due to supply and demand is a feature, not a bug. This applies to oversupply (=inflation) as well as shortages (=deflation).

    I’m not calling for a new gold standard, but some of the “I don’t get it crowd” need a lesson in monetary history. They are right in that there is nothing special about gold. What they miss is that it was historically chosen as a medium of exchange for very good reasons. It was not accidental.

    Some interesting history everyone should read:

  24. MyLessThanPrimeBeef

    Briareus, interesting what you said what gold:

    "It is divisible, it is finite & scarce, it is difficult to counterfeit, and it has other non-monetary uses."

    My question, as an amateur dismal scientist, is this: What about love? Can love be used as our currency? Love, as practiced by humans, is definitively finite and scarce. Most lovers will tell you it's hard to fake it and has other non-monetary uses. As for divisibility, I am told by owners of multiple pets and men with mistresses that it's divisible.

    So, what about love?

  25. Anonymous

    Sy Krass aid…

    Just a quick reminder: The FED issuing its own bonds would be a disaster. Either it would be just another way of adding to the already large supply of bonds outstanding, or worse yet, it would be stronger than t-bills and treasury bond yields would go through the roof.

  26. Anonymous

    Jeff65: A commodity is better suited as a medium of exchange if it has little industrial utility.

    Well, you know of course that a commodity with little industrial use is an oxymoron. ;-)

    Really, if there was any model that explained and predicted “money”, we wouldn’t be in the mess we are today. The #1 reason for this, and why no such model will can be expected any time soon, is that at the bottom of it all is human trust and confidence. We’ve tried gold, paper and (lately) magnetic patterns on spinning disks: they’ve all worked and failed awesomely. This strongly suggests that substituting another substance isn’t going to change anything.

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