Mish's Global Economic Trend Analysis |
- Appraisal Madness in Illinois, Maryland, Missouri and Nevada
- Good News: Only 83% Say Now is a Bad Time to Find a Quality Job
- Collective Bargaining neither a Privilege nor a Right
- Central Bank Authorized Fraud; Fractional Reserve Lending Problems Go Far Beyond "Duration Mismatch"
| Appraisal Madness in Illinois, Maryland, Missouri and Nevada Posted: 24 Mar 2011 09:42 PM PDT Inquiring minds are investigating sheer lunacy regarding the appraisal process in Illinois, Maryland, Missouri and Nevada. Please consider Four States Consider Legislation Barring Distressed Sales as Comparables Four states – Illinois, Maryland, Missouri and Nevada – are considering legislation that would prohibit or restrict the use of "distressed sales," such as foreclosures and short sales, as comparable sales as a part of a residential real estate appraisal.Admittedly appraisers blew it in 2004-2006 with absurd valuations. However, the market rectified that situation quite nicely. Let the appraisers do their jobs. They are the ones who ought to know what to include in comparables or not. If perchance some don't, the one thing we know with absolute certainty is that virtually 100% of legislators don't know either. If they did, they would have acted to prevent appraisal fraud six years ago. Such laws would be bad enough as is, but conflicting standards makes the legislation considered by Illinois, Maryland, Missouri and Nevada complete lunacy. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Good News: Only 83% Say Now is a Bad Time to Find a Quality Job Posted: 24 Mar 2011 03:58 PM PDT A recent Gallup survey shows Gallup's Job Creation Index Sees Its Best Week Since Sept. 2008 Gallup's Job Creation Index reached +14 during the week ending March 20 -- its highest weekly level since the week ending Sept. 28, 2008. Thirty-two percent of employees nationwide say their companies are hiring and 18% say their companies are letting workers go. This is a slight improvement over the prior week, when 31% of companies were hiring and 18% letting go, and a similar reading for the month of February.Inquiring minds may also be interested in Gallup Poll Pegs Unemployment Rate at 10.2%, Underemployment at 19.9%, Same as Last Year Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Collective Bargaining neither a Privilege nor a Right Posted: 24 Mar 2011 09:13 AM PDT The battle cry from Wisconsin is a union complaint that their "right" to collective bargaining has been taken away. Nothing could be further from the truth. You cannot take away something that does not exist and never did. Please consider this simple sentence straight from the Declaration of Independence. "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." Public unions take away those "unalienable rights" via collective bargaining arrangements. Five Ways Collective Bargaining Tramples Various Unalienable Rights
Example of Point Number Four Union firefighters are frequently prohibited from being volunteer fire department workers for their city. Example of Point Number Five Union rules prohibit volunteers from helping schools paint, trim shrubbery, answer phones, clean blackboards, etc. The absurdity of such pro-union, anti-taxpayer arrangements should be self-evident. Right to Pursue Happiness Unions have no right to deprive others of their "unalienable right" to pursue happiness. If it makes people happy to volunteer time, that "unalienable right" must not be stripped away by unions or politicians and their self-serving goals. The alleged collective bargaining "rights" of unions were attained over the years via tactics of coercion, bribery, fear-mongering, and vote-buying. Regardless of how attained, even in good-faith, politicians have no right to take away "unalienable Rights". Unions insist they won the rights to collective bargaining through negotiation. That is as impossible as whites negotiating rights to own blacks or to tell blacks where they can sit on a bus. There is no right or even privilege that can make people slaves. There is no right or privilege to tell people what they can or cannot do with their free time. There is no right or privilege to collect dues from members forced into an organization against their will. There is no right or privilege that can force someone into a union, otherwise stripping them of the ability to pursue the career of their dreams. The Issue is Unalienable Rights Rights of unions must not and cannot be allowed to interfere on the rights of others to NOT belong to a union and to NOT pay union dues if they do not want to. For more on the slavery aspect of public unions and collective bargaining advocates, please see Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You! Right-to-Work is an Unalienable Right The "right-to-work" is an unalienable right. Unfortunately, Paul Krugman, Stephen Colbert, Bill Maher, Michael Moore and countless others ignore the slavery aspect of this debate because it happens to suit their political goals. I commend Wisconsin Governor Scott Walker for his brave stand to end slavery in Wisconsin. I also commend Senator Rand Paul's effort in pursuing a national "right-to-work" law. It is time to abolish slavery once and for all. A properly written national "right-to-work" law would help do just that. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Central Bank Authorized Fraud; Fractional Reserve Lending Problems Go Far Beyond "Duration Mismatch" Posted: 24 Mar 2011 01:57 AM PDT Keith Weiner at the Daily Capitalist purports to explain the Fractional Reserve Banking: The Real Story Weiner makes a case that the problem with fractional reserve lending is one of "duration mismatch". If you don't understand the term "duration mismatch", please don't stop reading. I provide an easy to understand example below. While "duration mismatch" is a huge problem, it is by no means the only problem. Thus Weiner misses the overall picture. Fractional Reserve Banking Defined Before we can state the problems and concerns with fractional reserve lending we need to define the term. Here is the meaning I use for my analysis: Fractional reserve lending is the act of lending out more money than banks have ownership of. "Ownership" can be temporary. Clearly, I cannot lend you $1,000 if I only have $1.98. However, and this may surprise many people, banks can. Moreover, the fact that banks can lend more money than exists is at the very root of the financial crisis we are in today. It is illegitimate to lend out more money than you have "ownership of". Legitimate Right-To-Lend The key question is what constitutes a "legitimate right-to-lend"? The answer involves banks' "right-to-use" deposited money. CDs provide an easy to understand example of right-to-use. Consider a 5-year CD. A person buying a 5-year CD gives up the right to use his money for 5-years in return for an agreed upon interest rate. The bank then lends the money out for a higher amount of interest. Keith Weiner complains (and rightfully so), about banks securing funds for 5 years, then lending them out for 30-year mortgages. That "duration mismatch" is certainly a problem, but it is not the only problem as discussed below. First let's consider a 100% gold-backed dollar. A 100% Gold-Back Dollar Would Not Stop Lending Note that a 100% gold backed dollar would not stop lending. One can easily relinquish ownership of gold for as long as one wants (say 5 or 10 years), and at the end of that period the bank would have to return the gold to its owner, plus interest. Thus a 100% gold-backed dollar would not stop lending as many misguided souls think. Also note that the commonly attributed meaning of fractional reserve lending is complete silliness in that it fails to address the crucial issue of "ownership" I suspect this is what led Keith Weiner astray in this admittedly very complicated issue, even though I agree on his central thesis that "duration mismatch" is a huge problem. Duration Mismatch Schemes Guaranteed to Blow Up Weiner states .... Borrowing short to lend long, aka duration mismatch, inevitably implodes. This is not a matter of odds or probability. Like a geological fault line, one can try to assess probability of a destructive event in any given year, but sooner or later catastrophe is certain. When a business knowingly engages in an activity that is guaranteed to cause it to dishonor its obligations, that is acting in bad faith. Such a business has no intention of honoring its obligations over the long term, only in the short term when it is expedient.Duration Mismatch Articles For starters, I have written about Duration Mismatch 17 times since 2007 as the link in this sentence shows. Two of the articles are from 2011. Here are some of the key posts. February 16, 2011: The Next Borrow-Short Lend-Long Guaranteed to Blow Up Bank Lending Scheme; Citigroup, Chase, Bank of America CD Ripoff Borrow-short lend-long strategies have caused more pain and grief than nearly any play in the book. They are virtually guaranteed to blow up given enough time if the duration mismatch and leverage is too great.February 02, 2007: Central Bankers Cry Wolf Key GSE PointsNovember 03, 2009: What is Money and How Does One Measure It? Given there are no reserves on savings accounts, as much as $4.5 trillion people think is in their savings accounts is not there either. Moreover, the duration mismatch on savings accounts, sweeps, and likely even CDs is massive.September 10, 2007: Duration Mismatch Causing Severe Stress Everywhere Duration Mismatch and LeverageDuration Mismatch Not the Only Problem Fractional reserve lending go far beyond duration mismatch. Here are few key points.
Central Bank Authorized Fraud Point number two above involves sweeping of checking deposit accounts into saving deposit accounts by banks, unbeknown to customers, then lending the money out. Greenspan authorized sweeps in 1994 as a way of allowing banks to put "idle cash" to use. There are no reserve requirements on savings accounts. Thus, money that is supposed to be available on demand isn't. People think that money in their checking accounts is sitting in banks. It most assuredly isn't. It has been "swept" away nightly into savings accounts that banks can lend out. Bookkeeping says the money is there. Physically it isn't. Lending of money in "available on demand" checking accounts is purposeful fraud. Greenspan authorized the practice, but that that simply makes it central-bank authorized fraud. Savings Accounts Fraudulent as Well With savings accounts, customers do relinquish control of deposits, at least in theory. For example, customers deposit money in a savings account and receive an agreed upon interest rates. Everyone understands their banks will lend that money out. Nonetheless, should someone walk into the bank the next day and request to pull money out of "their savings", it will be given to them. Unfortunately, control of "their savings" was relinquished to the bank who then lent the money out. It is illogical (and fraudulent) for money that is already lent out to be available on demand. Thus savings accounts are nothing but another form of "have your cake and eat it too" fraud. Whether the loans are backed by assets or not is irrelevant. Problems Measuring "True Money Supply" It is this very savings account debate that has caused two Austrian economic camps to split into two camps as to how to measure "True Money Supply". The TMS2 camp says that money in savings accounts is available on demand and thus needs to be factored into money supply figures. Meanwhile the TMS1 camp that I am in says that the right-to-use the money was transferred (whether it is fraudulently available on demand or not) and thus should not be counted in money supply figures. For further discussion, please see Money Supply Divergence - TMS1 vs. TMS2 vs. M2 - What does it Mean? The above link also contains a discussion of sweeps and how they distort money in checking accounts. Regardless of the "correct" measure of money supply, both the TMS1 and TMS2 camps generally believe the practice of lending of savings accounts while simultaneously making the money available on demand is fraudulent. Reflections on "Legitimate" Right-To-Use Some argue that as long as customers agree to these various banking schemes it is OK. That line of thinking says as long as it's in the agreement for banks to sweep money from checking accounts to savings accounts and lend it out, then it's OK for banks to do so. However, it's not OK because such lending is nothing more than a gigantic kiting scheme. Moreover, it affects others by cheapening the value of money, pushing up asset prices for the benefit of those with first access to money, the banks and the wealthy. Logically, two people cannot have the right to use the same money at the same time, whether they agree to such a scheme or not! Money Multiplier Theory Compounding the issue, money that is lent out then redeposited in another bank, can be lent again and again and again. In theory, the same money can be lent an infinite number of times (10 times if you prefer, with each bank keeping 10% in reserves). This is the "money multiplier" theory of fractional reserve banking. However, such analysis is further complicated by the fact that in a fiat-credit based banking system, lending comes first and reserves come second. Thus, money multiplier theory as commonly understood is simply wrong. For a discussion of the "money multiplier" issue please see Fictional Reserve Lending And The Myth Of Excess Reserves Complicated Issue Clearly, money is a complicated subject involving numerous competing definitions of money. Fractional reserve banking and invalid money multiplier theories greatly compound understanding. Unfortunately, Weiner adds to the confusion with analysis that suggests that duration mismatch is the only issue in regards to fractional reserve lending. Fractional Reserve Lending is Fraudulent and Must Stop Entirely Lending what you do not have "ownership of" is the issue. Duration mismatch is a form of that problem, but it is not the only form of that problem. Numerous complications arise when multiple people have immediate access to the same money at the same time. Housing and credit lending bubbles constitute unmistakable proof that fractional reserve lending in any form is fraudulent and must stop entirely. The solution is to abolish the Fed, institute a 100% gold-backed dollar, and disallow banks to ability to lend money they have no legitimate right-to-lend. Addendum: At the Suggestion of James Turk I made a quick change to my definition above From Fractional reserve lending is the act of lending out more money than banks have a legitimate right-to-lend To Fractional reserve lending is the act of lending out more money than banks have ownership of. That was the way I originally wrote it, but changed it at the last moment. "Ownership" of course can be temporary. I made a few other changes of "right-to-lend" to "ownership" as well to make it more clear. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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