Central Perk: 21 mar. 2012

miercuri, 21 martie 2012

Mish's Global Economic Trend Analysis

Ben Bernanke: Inflationist Jackass, Devoid of Common Sense, and Clueless About Trade, Debt, History, and Gold
Another MF Global, Only Smaller: WorldSpreads has 13 Million-Pound Shortfall in Client Money
Spain Faces "Increasing Risk of Debt Restructuring" Says Citigroup Chief Economist

Ben Bernanke: Inflationist Jackass, Devoid of Common Sense, and Clueless About Trade, Debt, History, and Gold

Posted: 21 Mar 2012 10:05 PM PDT

Jo Weisenthal writing for the Business Insider claims Ben Bernanke Just Murdered The Gold Standard.

In an equally feeble post, Simone Foxman also writing for the Business Insider writes Ben Bernanke Explains Why The World Will Never See Another Gold Standard.

What is the Proper Supply of Money?

Let's start with Simone Foxman who says

Bernanke pointed out various reasons that there's simply "not enough gold" to sustain today's global economy. First, extracting gold from the ground is a costly and uncertain endeavor. There is a limited amount of gold in the world, and it just doesn't make sense in the modern world for central or commercial banks store large amounts of gold in vaults. The size of the gold supply and inconvenience of the metal renders it too impractical to keep up with the pace of global commerce.

Startling Truth About Money Supply

Please consider a snip from a free eBook on Mises.Org by Murray Rothbard, What Has Government Done to Our Money?

An increase in the money supply, then, only dilutes the effectiveness of each gold ounce; on the other hand, a fall in the supply of money raises the power of each gold ounce to do its work. We come to the startling truth that it doesn't matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the gold-unit. There is no need to tamper with the market in order to alter the money supply that it determines.

That snip is on page 29. Inquiring minds should start reading on page 26, the beginning of the chapter The "Proper" Supply of Money.

Moreover, I would like to point out that if there was a "proper" supply of money, different than stated above, the jackasses at the Fed (and the bubbles they have blown) have without a doubt proven they sure do not know what it is.

As Russia (and numerous other countries) have proven throughout history, the very idea that a bunch of central planners sitting in a room can decide on the proper supply of virtually anything is inane. Only free markets, operating without artificial interference from clueless bureaucrats can do that.

Price Volatility

Simone Foxman continues with still more economic drivel.

Second, while advocates of the gold standard are right that prices remain stable in the long-term, "on a year to year basis, that's not true." Limited supplies of gold—or changes to the supply of gold—cause prices of goods to be volatile in the short-term, regardless of long-term price stability.

Now that's pretty interesting. Simone admits that prices under a gold standard remain stable in the long term but she, like Bernanke is worried about the short-term.

There are two errors in in that short snip. Did you catch them? The first error is prices under a gold standard are not necessarily stable in and of themselves (short or long-term). Rather prices are relatively stable under a gold standard if and only if banks do not lend out more gold than there is.

History shows that alleged problems of the "gold standard" are primarily a problem of central bank interest rate manipulations in conjunction with fractional reserve lending that allows banks to lend out more money than there is gold backing it up.

The classic example is the John Law Mississippi Bubble.

Certainly when it comes to short-term price stability, the Fed does not have a leg to stand on. The housing bubble and its collapse is proof enough. How anyone could miss that analogy is nearly beyond belief, but Simone Foxman managed to do it.

Inability to Open Up Credit

Foxman continues with ...

[Bernanke] pointed to a substantial tome of economic research finding that the gold standard aggravated the Great Depression, saying "the gold standard was one of the main reasons the Great Depression was so bad and so long." The inability of the Federal Reserve to control monetary policy—open up credit, address unemployment, and drive business demand—left it with much less power to avert or mitigate the decade-long crisis. Bernanke added that countries not tied to the gold standard also had a much easier time getting out of the Depression. In the modern world, he said, "we've seen that problem with various kinds of fixed exchange rates."

Bernanke Says Pigs Can Fly

In other news, Bernanke said "pigs can fly" and Foxman concluded "pigs can fly". Seriously, just because someone in authority says something, does not make it true.

Proper analysis shows the true cause of the great depression was the enormous runup in credit and money the preceded it, just as happened in the Mississippi Bubble scheme. With that in mind, it is beyond silliness to propose more credit and more money is the cure for a problem caused by too much money and too much credit.

To believe so is to believe the solution to the Mississippi Bubble would have been to print still more money in the wake of that economic collapse.

Sorry Simone Foxman, You Can't Think Independently

Foxman concludes with "Sorry, Ron Paul. We think Bernanke just destroyed your position."

I conclude Foxman cannot think on her own accord, accepting economic drivel as fact because it comes from a position of authority.

Jo Weisenthal's Drivel

Let's now turn our attention to a point-by-point rebuttal of economic drivel presented by Jo Weisenthal.

Weisenthal: To have a gold standard, you have to go dig up gold in South Africa and put it in a basement in New York. It's nonsensical.

Mish: In my rebuttal to Simone Foxman, I stated that any amount of money was sufficient. One does not need to dig up more gold to have a proper supply. However given the credit bubble and the housing bubble, it should be quite clear we had vastly more supply of paper money than needed.

Weisenthal: The gold standard ends up linking everyone's currencies.

Mish: So what? Look what happened after Nixon closed the gold window. We have had nothing but problems, temporarily masked over by printing more money until things blew sky high, culminating in bank bailouts at taxpayer expense, and those on fixed income crucified in the wake.

Bear in mind, no one needs to fix the price of gold in dollars or any other currency. Indeed that is the wrong way to do it. Rather, one dollar should represent "x" amount of gold. As long as fractional reserve lending does not come into play and banks do not lend out more money than they have gold, problems under a gold standard would be far less than they are now. History suggests the same.

Weisenthal: [A gold standard] creates deflation, as William Jennings Bryan noted. The meaning of the "cross of gold" speech: Because farmers had debts fixed in gold, loss of pricing power in commodities killed them.

Mish: Hello Joe. Please tell me how many in this country would not like to see lower prices at the gas pump, lower prices on food, lower rent prices, lower prices on clothes? The fact of the matter is price deflation is a good thing. The only reason why it seems otherwise is debt in deflation is harder to pay back. That is not a problem with deflation, that is a problem of banks foolishly lending more money than can possibly be paid back. Fractional reserve lending is the culprit.

Weisenthal: The economy was far more volatile under the gold standard (all the depressions and recessions back in the pre-Fed days).

Mish: Really? On what planet? Did the collapse in the housing bubble affect your ability to reason? Except for cases like Weimar, Mississippi Bubble, and for that matter all bubbles, gold provided stability. The bubbles (and the subsequent collapses) were caused by fractional reserve lending, not the gold standard.

Weisenthal: The only way the gold standard works is if people are convinced that the central bank ONLY cares about maintaining the gold standard. The moment there's a hint of another priority (like falling unemployment) it all falls apart.

Mish: That is one of the silliest defenses of paper money I have ever seen. The fact of the matter is, the ONLY reason paper money works at all is governments mandate its use. The free market would never except as money something that can be created at will in infinite supply. The idea that gold would "fall apart" in the case of employment conditions is simply inane.

Weisenthal: Gold standards leave central banks open to speculative runs, since they usually don't hold all the gold.

Mish: In a series of weaker and weaker arguments, Weisenthal proves 100% without a doubt he does not know a damn thing about either gold or what causes bank runs.

What Causes Bank Runs?

Lending out more money than there is gold backing it up
Duration mismatch - Banks secure money for 5 years via CDs then lend the money for 30 year mortgages. The problem comes when people want their money back after 5 years and it isn't there.

Both practices are fraudulent. They are the equivalent of selling the Brooklyn Bridge without having ownership of it.

Conclusion

All of the problems allegedly caused by the gold standard are in fact properly attributed to one of the following four things:

Central banks and their inept Soviet-style central planning
Fractional reserve lending
Fed manipulation of interest rates
Government sponsored monetary printing, frequently but not always to fight absurd wars that have no justified explanation. The War in Vietnam and the War in Iraq are recent examples.

The biggest housing bubble in history happened because the Greenspan Fed held interest rates too low too long. I made that case recently in a pair of related posts:

Here is the key chart and commentary from the first link.

HPI-CPI

click on chart for sharper image

The Fed kept interest rates at historic lows between 2002 and mid-2004. The last two rate cuts by Alan Greenspan were not justified at all, by any measure, and downright absurd considering the bubble brewing in housing prices vs. rent.

Certainly the Greenspan Fed ignored (cheerleaded is a better word), the housing bubble every step of the way. Bernanke defended the housing bubble and failed to see its consequences.

The most amazing, and galling thing, is Bernanke has the nerve to preach about "price stability" in the wake of that collapse.

Bernanke: Why are we still listening to this guy?

The following video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It's a compilation of statements he made from 2005-2007 that will have your head spinning.

Please play that video. Bernanke proves over and over again he is a clueless jackass, devoid of common sense.

In regards to trade, I ask you to read Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Finally it is important to point out it is those with first access to money that benefit from inflation. Who is that?

Banks, because they can conjure up loans out of thin air and the Fed will bail them out if they go bust
The already wealthy
Government (via tax confiscation, especially property taxes)

By the time money is readily available to any fool who wants it, it is primarily fools who want it. Once again, the housing bubble is proof enough.

Those on fixed income and those in the middle class have been hammered by Fed policies. If you are looking for a reason for the shrinking middle class, then look at the Fed.

For some reason Jo Weisenthal and Simone Foxman are not only listening to Bernanke's economic drivel, they actually believe it and are attempting to spread the word.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Another MF Global, Only Smaller: WorldSpreads has 13 Million-Pound Shortfall in Client Money

Posted: 21 Mar 2012 09:21 AM PDT

Following an "unusual pattern of client trading" WorldSpreads Announces 13 Million-Pound Shortfall in Client Money

WorldSpreads Group Plc (WSPR), a U.K. brokerage and spread betting company, said it has a shortfall of 13 million pounds ($21 million) of client money as it appointed KPMG LLP as an administrator to manage the business.

WorldSpreads owes clients 29.7 million pounds and has about 16.6 million in cash, the London-based company said in a statement. The firm's stock was suspended on March 16 after it discovered a hole in its accounts.

"Due to the accounting irregularities that have been discovered, it is likely that there will be a shortfall to clients," KPMG said in a separate statement. "One of the immediate priorities of the special administrators will be to investigate and attempt to reconcile all client positions in order to establish the extent of the shortfall."

WorldSpreads's founder, chief executive officer and largest individual shareholder, Conor Foley, resigned March 14. Roger Hynes, a former managing director at CMC Markets Plc, replaced him as interim CEO. Niall O'Kelly resigned as chief financial officer in February as WorldSpreads said it would post a full- year loss after an "unusual pattern of client trading."

Clients' accounts were frozen on the afternoon of March 16, preventing them from withdrawing money or adding to their funds, according to Sorrelle Cooper, a spokeswoman for KPMG in London. Any open positions were also closed, she said.

WorldSpreads clients facing losses may have access to the Financial Services Compensation Scheme, which covers as much as 50,000 pounds per claimaint, the Financial Services Authority said in a separate statement.

The firm has about 15,000 client accounts and 66 employees, who will be initially retained "to support the orderly wind down of the business," KPMG said. Redundancies are nonetheless probable, it said.

This begs the question: Do you know where your money is?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Spain Faces "Increasing Risk of Debt Restructuring" Says Citigroup Chief Economist

Posted: 21 Mar 2012 09:02 AM PDT

Spanish Sovereign debt yields jumped again today following Restructuring Concerns expressed by Willem Buiter.

Spanish bonds fell, pushing 10-year yields to the highest level in a month, after Citigroup Inc. chief economist Willem Buiter said the nation faced an increasing risk of a debt restructuring.

Ten-year Spanish securities slid for an eighth day, widening the extra yield over similar-maturity German bunds, as a decline in European stocks sapped demand for higher-yielding assets.

"Spanish spreads moved much wider after Buiter's comments," said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. "This highlights concern over further debt restructuring. Bunds recovered on the resulting safe-haven demand."

The Spanish 10-year yield jumped 14 basis points, or 0.14 percentage point, to 5.37 percent at 2:55 p.m. London time after rising to 5.38 percent, the highest since Feb. 16.

Dutch Bonds

The extra yield investors demand to hold Dutch bonds instead of German bunds widened after an independent agency said the Netherland's budget deficit may increase.

The Netherlands Bureau for Economic Policy Analysis said the shortfall would exceed the European Union's target of 3 percent. The agency said the 2013 deficit would be 4.6 percent, revised from 4.5 percent.

Spanish 10-Year Bond Yield

Willem Buiter is a bit too politically correct. I suggest the odds of a Spanish Debt restructuring is greater than 90%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Flying Like a Bird

Posted: 21 Mar 2012 05:45 PM PDT

In this incredible YouTube video, Jarno Smeets takes a running start and then lifts off the ground by flapping his massive brightly colored wings and manages to stay airborne for about 30 seconds.

In this most recent attempt, he was able to fly up to 100 meters, IT World reports.

A mechanical engineer, Smeets' success is the fruit of eight months of research and design for his Human Birdwings Project.

Via: Huffingtonpost

One Tiny Hand

Posted: 21 Mar 2012 03:39 PM PDT

One Tiny Hand is a simple concept, but that doesn't make it any less brilliant or unsettling. It is a Tumblr site created by Zach Vitale who photo-manipulates one tiny hand onto images of famous people.

Mickey Mouse Made to Look His Age

Posted: 21 Mar 2012 01:29 PM PDT

Mickey Mouse was born in November of 1928, which makes him 83 years old today. Luckily for those who ever wondered what the mouseman would look like if he ever did age, using skills honed from a mask making class, artist Darick Maasen has created a vision of what Mickey would look like today, assuming micemen live on the same age lifecycle as humans.

Darick Maasen via Geekosystem

First Date Survival Guide [infographic]

Posted: 21 Mar 2012 01:18 PM PDT

A little while ago, We Love Dates conducted a fairly large survey all about the unavoidable first date. We've turned all the answers into a lovely infographic, and it's so pretty I had to share it here, too. Do you agree with the answers?

Click on Image to Enlarge.

Dog Takes A Dump On TV

Posted: 20 Mar 2012 09:30 PM PDT

At Crufts 2012 a dog's gotta do what a dog's gotta do. 5-year-old Libby cruises through the course but stops just before the slalom posts. Unfortunately, Libby and her owner Claire Richardson were disqualified from the event.