Daily Digest

Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline Realities, Water Shortages

Sunday, November 7, 2010, 11:00 AM
  • Mauldin: Thoughts on Liquidity Traps
  • Bernanke Invokes Friedman's Inflation-Fighting Legacy to Defend Stimulus (at Jekyll Island)
  • Number of the Week: $10.2 Trillion in Global Borrowing
  • GOP to Use Debt Cap to Push Spending Cuts
  • Bank of America Edges Closer to Tipping Point
  • How to Get a Pipeline Built
  • Arab World to Face Severe Water Scarcity by 2015

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Economy

Mauldin: Thoughts on Liquidity Traps (JRB)



Recall that a Keynesian liquidity trap occurs at the point when interest rates become so low that cash balances are passively held regardless of their size. The relationship between interest rates and velocity therefore goes flat at low interest rates, since increases in the money stock simply produce a proportional decline in velocity, without requiring any further decline in yields.

Bernanke Invokes Friedman's Inflation-Fighting Legacy to Defend Stimulus (at Jekyll Island) (chris)



Federal Reserve Chairman Ben S. Bernanke invoked the inflation-fighting legacy of the late Nobel laureate economistMilton Friedman and, for the third time in as many days, defended the Fed’s expansion of record stimulus.

Bernanke, speaking yesterday at a conference in Jekyll Island, Georgia, responded to criticism in an opinion article this week by Allan Meltzer, a Fed historian. Meltzer said in the Wall Street Journal that Friedman, who died in 2006 and influenced the thinking of Fed officials such as Bernanke, wouldn’t have supported the central bank’s decision to buy more assets.

“We are doing everything Milton Friedman would have us do,” Bernanke said. “What Milton Friedman would say is that the Federal Reserve is responsible for the stability of nominal aggregates including prices, and that means that particularly with respect to inflation, you don’t want inflation to be too high but you also don’t want it to be too low.”

Number of the Week: $10.2 Trillion in Global Borrowing (chris)



$10.2 trillion: The amount of money advanced-nation governments will need to borrow in 2011

As the debts of advanced countries rise to levels not seen since the aftermath of World War II, it’s hard to know how much is too much. But it’s easy to see that the risk of serious financial trouble is growing.

Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.

GOP to Use Debt Cap to Push Spending Cuts



Republicans are planning to demand major spending cuts next year before they would agree to raise the amount of federal debt that can be issued, setting up a clash between the Obama administration and a Congress stocked with lawmakers who campaigned as deficit hawks. The U.S. can't accrue debt above a certain ceiling set by lawmakers. In the most extreme scenario, the government would default on certain debts if the cap doesn't move.

Bank of America Edges Closer to Tipping Point (txfloods)



Judging by its shrinking stock price, though, investors are acting as if Bank of America is near a tipping point. Its market capitalization stands at $115.6 billion, or 54 percent of book value. That’s the second-lowest price-to-book ratio among the 24 companies in the KBW Bank Index, and well below the 76 percent ratio the company was at in October 2008 when it landed its first round of TARP dough. Put another way, the market is saying there’s a $96.8 billion hole in Bank of America’s balance sheet.

Energy

How to Get a Pipeline Built (chris)



There are regularly stories in the media or in the blogosphere about various pipeline projects that are announced with much publicity, and are seen to have major strategic consequences, or conversely about projects that are more discreet but are seen as the "real" justification for various military or diplomatic acts.

These analyses (which are absurd to anyone with a basic knowledge of the oil&gas industry) completely ignore the dynamics of what it takes to actually get a pipeline deal done, and what it means for relations between the parties involved. Therefore they fail to understand the significance (or lack thereof) of announcements by energy companies or governments and wrongly interpret the geopolitical implications of both pipelines, and announcements of pipelines.

Environment

Arab World to Face Severe Water Scarcity by 2015 (chris)



BEIRUT — The Arab world, one of the driest regions on the planet, will tip into severe water scarcity as early as 2015, a report issued on Thursday predicts. By then, Arabs will have to survive on less than 500 cubic metres of water a year each, or below a tenth of the world average of more than 6,000 cubic metres per capita, said the report by the Arab Forum for Environment and Development (AFED). "The Arab world is already living a water crisis that will only get worse with inaction," the report says, adding per capita supply has plunged to only a quarter of its 1960 level.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

7 Comments

rjs's picture
rjs
Status: Gold Member (Offline)
Joined: Aug 8 2009
Posts: 445
Re: Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline ...
good breakdown by linda beale of the legal intricacies that yves smith has covered:
.................
The Mortgage Loan Foreclosure Mess: Yves Smith on the Banks' Gluttony; Problems with MERS and Sloppy Securitizations - Yves Smith has an op-ed in the Oct. 31, 2010 New York Times on the mortgage mess. See Naked Capitalism, here, for full op-ed. As noted, the mortgage crisis goes much deeper than just bank use of robo-signers for documents. When the securitization process took off in the early 2000s, banks became sloppy. Loan product was needed, so niceties like documentation became an expendible. Subprime loans were more grist for the mill--the faster mortgage lenders could process them, banks could buy and securitize them, the more money they could all make. Since they were selling off the mortgage loans, they didn't care how good they were. And since they were often selling them via securitizations that they "sponsored", they didn't want to have to do all that legal busywork that location-specific transfers of mortgages and notes required, including payment of recording taxes in the county where the land was located every single time a loan was moved from one owner to another, though they still wanted to collect all kinds of fees from servicing the mortgage loans that they "sold" via securitization.
.......................................................
and another on the same topic:
MERS: Symptom or Cause - MERS, which stands for Mortgage Electronic Registration System, is under fire. Courts in a few states have held that MERS does not have standing to pursue a foreclosure in its own name, and there is a pending multi-district litigation claim against MERS. The most recent MERS news is the press release by the Attorney General for the District of Columbia. The District of Columbia has a non-judicial foreclosure process that begins with a Notice of Foreclosure form. The AG has announced that people facing foreclosure can assume that the completion of such a Notice, with its identification of the "Holder of the Note" and the "Security Instrument recorded" in the DC land records means that every intermediate transfer of the security interest is documented in the public records. Under the AG's interpretation, MERS does not meet this requirement.
plato1965's picture
plato1965
Status: Platinum Member (Offline)
Joined: Feb 18 2009
Posts: 615
Re: Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline ...

 

 Still no webcast... but should appear on this page.. "soon" (tm)...

 http://www.frbatlanta.org/news/conferences/10jekyll_webcast.cfm

 

 Denninger's QE2 protest video.

 http://www.youtube.com/watch?v=XK4dxacv7jY

 Orwellian Price stability...all prices are stable (*)... but some prices are far more stable than others...

 

(*) stable - see Augean.

 

 

ashvinp's picture
ashvinp
Status: Gold Member (Offline)
Joined: Jan 21 2010
Posts: 412
Re: Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline ...

Australia should provide a good example of what happens when you're caught in a liquidity trap. Its central bank recently decided to raise targeted interest rates, even though private debt levels are still very high. Dr. Keen believes they will have to back track on that policy soon once it becomes evident what higher rates mean for economic growth. Here's a link to an interview he gave discussing that issue and others:

http://www.debtdeflation.com/blogs/2010/11/04/competition-as-a-panacea/

plato1965's picture
plato1965
Status: Platinum Member (Offline)
Joined: Feb 18 2009
Posts: 615
Re: Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline ...

 

World Bank President Robert Zoellick Calls For Return To "Old Money" Gold Standard

 http://www.zerohedge.com/article/world-bank-president-robert-zoellick-calls-return-old-money-gold-standard

 meh...  Freegold(tm) female-caninez !  Tongue out

 or for the more astute FreeMetallism(tm) -  (3E aware savings...)

 

 

 

 

plato1965's picture
plato1965
Status: Platinum Member (Offline)
Joined: Feb 18 2009
Posts: 615
Re: Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline ...

 

 "Thou shalt not press upon the brow of Morgan the covering of silver shorts,

you shall not crucify Central Banks upon a cross of gold." - (Co) Worldly Bryan 2.0

 Plz make it stop !!

 

 

http://en.wikipedia.org/wiki/Phase_transition

 meh... can I haz cheezburger ?

 (image via FOFOA).

 

 

plato1965's picture
plato1965
Status: Platinum Member (Offline)
Joined: Feb 18 2009
Posts: 615
Re: Daily Digest 11/7 - Debt Cap = Spending Cuts?, Pipeline ...

coming thick and fast....

Take one last look at this sacred heart... before it blows...

and everybody knows....  -Cohen

 

 " surely some revelation is at hand.. ?"

 

 http://www.telegraph.co.uk/finance/newsbysector/industry/mining/8115810/HSBC-and-JP-Morgan-accused-of-manipulating-silver-market.html

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