Cross-posted from Credit Writedowns Yesterday, I had the pleasure of talking on CNBC along with Marc Chandler of Brown Brothers Harriman about the European sovereign debt crisis. I also wrote a piece in the New York Times about the same issue, concentrated on Greece. While Marc and I differ somewhat in tone, we are both […]
Read more...Cross-posted from Credit Writedowns Here’s an interesting note from UBS’ Andy Lees this past Friday: Mexican steel maker Altos Hornos de Mexico (AHMSA) may return from a 12 year bankruptcy due to rising steel demand and prices. The 11 7/8% dollar notes jumped 21 cents in the last 5 months to 46.5 cents. "There’s an […]
Read more...Banks The People vs. Goldman Sachs Matt Taibbi Banks Want Pieces of Fannie and Freddie’s Business NYT The Myth that the Banks are Solvent Marshall Auerback European debt crisis Europe continues to demonstrate it has no answers billy blog The Coming Euro Crack-Up Weekly Standard Greece Default Anticipated by 85% in Investor Poll Bloomberg Eurosceptics […]
Read more...Cross-posed from Credit Writedowns I ran across a post by Robert Murphy over at the Mises Institute blog on Modern Monetary Theory. Since I have been pushing the idea at Credit Writedowns that the centrality of secular debt accumulation makes some ideas from MMT and Austrian Economics compatible, it was interesting to see a Mises […]
Read more...Solving The Greek Debt Crisis (from Credit Writedowns) Below are four conflicting posts from Credit Writedowns on Greece that I didn’t write. I think they compliment each other well though. Here’s my own thinking tying them together. Greece is certainly going to take haircuts; everyone knows this. The outcome is less clear elsewhere. I agree […]
Read more...In a fiat money system, there is not a very good correlation between base money and M1 and credit because reserves don’t create loans. In practice, the lending operations of commercial banks have no interaction with reserve operations. Lenders simply take applications from customers who seek loans and assess creditworthiness and lend accordingly. In approving […]
Read more...People arguing that hyperinflation is around the corner usually are pushing this view because of an ideological bias against fiat money. This is a bias I share because I believe that fiat money allows excessive money creation that winds up as a credit super bubble – and our experience over the past 40 years demonstrates this. However, I don’t let this bias get in the way of my analysis of the economics of the situation. I have a better understanding of the fiat money system because I am not anchored in a gold-standard mentality when looking at the constraints on government in the fiat money system and the types of events that lead to hyperinflation. The hyperinflation talk is a gimmick used to push a particular ideological viewpoint. While I share that viewpoint and don’t like fiat money, I am not a fear monger, so you won’t see pushing an ideological agenda which has the economics wrong.
Here are a few bullet points that are salient for understanding fiat money and hyperinflation.
Read more...In a fiat money environment, the first function of the Treasury bonds is to serve as a vehicle to add or subtract reserves in the system to help the Federal Reserve hit a target Fed Funds rate. The second is to give holders of government obligations a return on their investment. After all, bank notes or bank reserves don’t pay much if anything.
Am I missing something?
Read more...QE2 Is Equivalent to Issuing Treasury Bills. In actual fact, all QE2 does is drain the real economy of interest income by swapping an interest-bearing government liability for a non-interest bearing government liability. This decreases aggregate demand in the economy. So the real economy effects of QE are to slightly lower aggregate demand. This is offset by changing interest rate expectations, which alter private portfolio preferences and risk premia, leading to credit growth, leverage and speculation, forces which should pump up the real economy. The Fed had intended to lower interest rates via the lowered risk premia. To date, the Fed has lowered risk premia. But this has also provided the tender for speculation and leverage. Moreover, the Fed has also raised inflation expectations to boot, causing interest rates to rise and working at cross-purposes with the lowered risk premia. Thus, QE2 has only been successful insofar as it has increased business credit and raised asset prices. In my view, QE2 has been a bust as it adds volatility to the system and will have negative unintended consequences down the line.
Read more...Last week, I caught some very good commentary by a number of well-known financial industry experts. I wanted to share my own thoughts with you on their commentary, especially in light of my posts at Credit Writedowns on Eisenhower’s Farewell Address and The New Monetary Consensus. I had featured two of the commentaries at CW, from Roach and Faber. I will add a bit from Gross and Grantham and try to unify them into a single theme regarding corporatism and the sustainability of this upturn.
Read more...Edward Harrison here with my economic view for the new year. I am generally cautiously optimistic on the U.S. and global economy for 2011. Policy makers have done a pretty good job of avoiding egregious errors so far. I think that gives us enough oomph to get over the hump so the cyclical agents like inventories and cyclical hiring can do their magic. I do have lingering concerns. Let me explain both pieces of the puzzle – the cautious part and the optimistic part – in this post.
Read more...Edward Harrison here. Since Yves is still figuring out how to function with ancient computer gear, I am stepping in one last time for the links. Have a great weekend. Good luck, Yves. An Ode to Yves (I have to admit, there’s something about the terminology and the way this article is written that rubs […]
Read more...Edward Harrison here. Yves is away so I am doing the links today. I’m trying to make it a good mix of economic and non-economy stuff, so I hope NC readers appreciate that. I especially liked the psychology links because of what they signify about the way to make economic and political arguments. Enjoy. German […]
Read more...I have a ton of links today – probably 60-70. Many didn’t make it in to this edition because of space constraints. But I reckon I will fit them in at the weekend. Have a good weekend, everyone. Edward On Mortgages What’s Behind the Foreclosure Crisis The Economic Populist (h/t Richard Smith) Bank Holiday is […]
Read more...First Topic of the day: Foreclosures Robo-signers: Mortgage experience not necessary Yahoo! Finance (Mortgage servicers hired hair stylists, Walmart floor workers and installed them in "foreclosure expert" jobs. Here’s a quote from one of these experts: "I don’t know the ins and outs of the loan, I just sign documents." Gee, I wonder who will […]
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