Daily Digest

Daily Digest 3/13 - Inflation and Hyperinflation, Farmers Fear Dust Bowl Return, Partial Meltdown Assumed At Japan Reactor

Sunday, March 13, 2011, 11:44 AM
  • History's Lesson Is That Investment And Retail Banking Must Be Separate
  • Mauldin: Inflation and Hyperinflation
  • Veering From Peaceful Models, Libya’s Youth Revolt Turns Toward Chaos
  • Hidden energy crisis in the Middle East
  • U.S. farmers fear the return of the Dust Bowl
  • Crisis Underscores Fears About Safety of Nuclear Energy
  • Partial Meltdowns Presumed at Crippled Reactors

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Economy

History's lesson is that investment and retail banking must be separate (pinecarr)

What really got the banking lobby's goat, though, was King's insistence on fundamental bank restructuring. Banks have acted like "casinos" in recent years, the Governor argued, "making bets with other people's money" while "not understanding the nature of the risks they were taking".

King expressed "surprise" there wasn't more public anger at the banks, given the disastrous impact of their excesses on the broader economy. Pointing to a previous lack of regulatory oversight, he also stated that "we allowed a banking system to build up which contained the seeds of its own destruction", while raising the prospect of yet another deeply-damaging bank collapse. "We've not yet solved the 'too big to fail' problem," he observed. "Or, as I prefer to call it, the 'too important to fail' problem".

Mauldin: Inflation and Hyperinflation (JRB)

This a chapter from Mauldin's new book.

"Figure 8.1 shows U.S. inflation historically, going back to the late 1600s. (How economic historians know what prices were centuries ago always amazes us, but that is the story for another fascinating book.) As you can see from Figure 8.1, when the United States and the rest of the world used a gold standard, periods of inflation alternated with periods of deflation. On average, the price level didn’t go anywhere. One year’s inflation was usually canceled out by the next year’s deflation. But if you look to the right on the chart, you see that suddenly we don’t get deflation anymore. After the Bretton Woods Agreement in 1948, when the world moved to a dollar standard only nominally backed by gold,"

Veering From Peaceful Models, Libya’s Youth Revolt Turns Toward Chaos (jdargis)

The protests upending the Arab world have ranged from the climactic success of protesters in Tunisia and Egypt, to the brutal crackdowns in Syria, whose government forced just a handful of demonstrators to sign pledges never to protest again, and to the uneasy standoff in Bahrain between Shiite protesters and a Sunni royal family. Libya has begun to emerge as its own model — the darker side of the forces unleashed this year by the immolation of a young man in the Tunisian hinterland.

Energy

Hidden energy crisis in the Middle East (pinecarr)

While most of the world is preoccupied with the impact of instability in the Middle East on oil prices and the world economy, a different kind of energy crisis is unfolding practically unnoticed. An ongoing reshuffle in natural gas supplies has left at least two countries – Israel and Jordan - without much of the gas they need.

In general, the politics of Middle Eastern gas will probably be just as dramatically affected by the upheaval as those of oil, but will follow a separate trajectory. Their effect will, at least initially, be more local in nature, and will vary for each country. However, the energy status quo in the region is slated to change dramatically.

Environment

U.S. farmers fear the return of the Dust Bowl (txfloods)

There is not much to be happy about these days in Happy, Texas. Main Street is shuttered but for the Happy National Bank, slowly but inexorably disappearing into a High Plains wind that turns all to dust. The old Picture House, the cinema, has closed. Tumbleweed rolls into the still corners behind the grain elevators, soaring prairie cathedrals that spoke of prosperity before they were abandoned for lack of business.

Happy's problem is that it has run out of water for its farms.

Crisis Underscores Fears About Safety of Nuclear Energy (jdargis)

The unfolding crisis at the two reactors, both at the Fukushima Daiichi Nuclear Power Station, feeds into a resurgence of doubts about nuclear energy’s safety — even as it has gained credence as a source of clean energy in a time of mounting concerns about the environmental and public health tolls of fossil fuels.

The crisis stems from failures of the cooling systems at the reactors at the 40-year-old Fukushima Daiichi plant. At a nearby nuclear plant, Daini, three more reactors lost their cooling systems, and Japanese officials were scrambling Sunday to determine whether the systems could be revived or would also need injections of cooling seawater.

Partial Meltdowns Presumed at Crippled Reactors (jdargis)

The government confirmed that radiation had escaped from the worst-hit plant and that as many as 141 people inside and outside the plant had likely been exposed to radiation. Nineteen of them had definitely been exposed, but it was unclear if they had received dangerous doses. Early Sunday, the government said three workers were suffering full-out radiation illness.

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10 Comments

britinbe's picture
britinbe
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As Northern Japan Struggles With Tsunami Aftermath, Southern Shi

From Zerohedge.

As Northern Japan Struggles With Tsunami Aftermath, Southern Shinmoedake Volcano Resumes Eruptions

http://www.zerohedge.com/article/northern-japan-struggles-tsunami-afterm...

greenpower's picture
greenpower
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Interview with Andrea Rossi, inventor of the 'energy catalyzer'

Questions poured in when the Italian engineer, Andrea Rossi, the inventor of the so-called 'energy catalyzer' which may be based on cold fusion, met with Ny Teknik's readers in a live chat. Read all questions and answers here.

Rossi's 'energy catalyzer' was shown to an invited audience in Bologna in January 2011 and produces heat by an unknown reaction. The reactor of the device is loaded with nickel powder in the presence of secret catalysts, and pressurized with hydrogen.

http://www.nyteknik.se/nyheter/energi_miljo/energi/article3124295.ece

jdm2's picture
jdm2
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The end of QE-2...

Contrary to CM’s position as presented in “Why Things Are About To Get Turned Upside Down” and probably in “The Coming Rout”, Jim Rickards says he is pretty sure the Fed will come to a full stop on QE-2 in June.  He says the Fed balance sheet is so large now that they will be able to continue monetizing the Federal debt beyond June by simply reinvesting the incoming principal payments on their mortgage backed securities and rolling over their maturing Treasuries.

  http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/12_Jim_Rickards.html

Like Chris, Jim Rickards is a pretty sharp pencil… so where is the disconnect here?

rjs's picture
rjs
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Posts: 445
High oil prices are DE-flationary

As the European Central Bank (ECB) prepares to raise interest rates to prevent inflation, the bank cites rising commodity prices, particularly oil prices, as a sign of that inflation. What the bank and other market participants don't seem to understand is that high commodity prices and, in particular, high oil prices are deflationary.

The logic is so simple it's hard to understand why smart people with advanced degrees can't see it. Commodities, particularly oil, pull money away from other sectors of the economy. When people are forced to choose between paying for heat and gasoline or paying the mortgage, they pay for heat and gasoline. Cars don't budge without gasoline (unless you can afford an electric one) and most people need their cars to get to work. The heat can be turned off rather quickly by the utility company in comparison to the glacial pace of a mortgage foreclosure that can take many months and sometimes more than a year.

This situation is particularly problematic because it pulls money out of the financial sector. And, despite all the nonsense about the financial industry being on the mend, the industry is actually becoming more and more vulnerable by the day as it increases its exposure and leverage to financial and commodity markets. The speculative animal spirits of the banks, hedge funds and other large investors, buoyed by all the virtually free money available for borrowing and huge taxpayer-financed injections into zombie banks, may now be hurtling us toward another jaw-dropping financial catastrophe. As Hyman Minsky might put it, stability and prosperity lead to instability and crisis as market participants become more and more emboldened on the upswing creating the illusion that all is well. Then, when prices and credit expansion go beyond what the economy can sustain, a decline ensues that is often dramatic as confidence suddenly shifts to revulsion and fear.

Stan Robertson's picture
Stan Robertson
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Posts: 662
disconnect
jdm2 wrote:

Contrary to CM’s position as presented in “Why Things Are About To Get Turned Upside Down” and probably in “The Coming Rout”, Jim Rickards says he is pretty sure the Fed will come to a full stop on QE-2 in June.  He says the Fed balance sheet is so large now that they will be able to continue monetizing the Federal debt beyond June by simply reinvesting the incoming principal payments on their mortgage backed securities and rolling over their maturing Treasuries.

  http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/12_Jim_Rickards.html

Like Chris, Jim Rickards is a pretty sharp pencil… so where is the disconnect here?

I think that the disconnect is that the maturing Treasuries are part of the federal deficit each year.  Despite appearances, the Fed will continue to monetize the debt by various subterfuges after the end of QE2. Since the government really has no other place to get the money, what it pays for maturing Treasuries can't be counted as net income for the Fed.

plato1965's picture
plato1965
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Posts: 615
With night-time temperatures

With night-time temperatures dropping below zero in some of the isolated towns and villages worst-affected by the disaster, charities warned that further lives could be lost if survivors were not given food and shelter quickly.

Last night 590,000 people, many of whom have lost their homes, were living in temporary shelters, including 210,000 people evacuated from the area around the Fukushima nuclear power plant, which suffered an explosion in a reactor building at the weekend.

 

 http://www.telegraph.co.uk/news/worldnews/asia/japan/8379663/Japan-earthquake-race-to-prevent-a-humanitarian-disaster.html

 

Woodman's picture
Woodman
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Posts: 1028
Fed balance sheet
Stan Robertson wrote:
jdm2 wrote:

Contrary to CM’s position as presented in “Why Things Are About To Get Turned Upside Down” and probably in “The Coming Rout”, Jim Rickards says he is pretty sure the Fed will come to a full stop on QE-2 in June.  He says the Fed balance sheet is so large now that they will be able to continue monetizing the Federal debt beyond June by simply reinvesting the incoming principal payments on their mortgage backed securities and rolling over their maturing Treasuries.

  http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/12_Jim_Rickards.html

Like Chris, Jim Rickards is a pretty sharp pencil… so where is the disconnect here?

 

I think that the disconnect is that the maturing Treasuries are part of the federal deficit each year.  Despite appearances, the Fed will continue to monetize the debt by various subterfuges after the end of QE2. Since the government really has no other place to get the money, what it pays for maturing Treasuries can't be counted as net income for the Fed.

That was my initial though too; where is the money coming from to pay back maturing debt?  Hope Chris can share his take on this.

Doug's picture
Doug
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Posts: 3176
mortgage payments

mistake

Damnthematrix's picture
Damnthematrix
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Saudi troops enter Bahrain: official

Saudi troops enter Bahrain: official

http://www.abc.net.au/news/stories/2011/03/14/3163869.htm?section=justin

More than 1,000 Saudi troops, part of the Gulf countries' Peninsula Shield Force, have entered Bahrain where anti-regime protests have raged for a month, a Saudi official said.

The troops entered the strategic Gulf kingdom on Sunday, the official said on Monday, requesting anonymity.

The intervention came "after repeated calls by the [Bahraini] government for dialogue, which went unanswered" by the opposition, the official said.

According to the regulations of the Gulf Cooperation Council, "any Gulf force entering a member state becomes under the command of the government," the official added.

The Bahraini government has not confirmed the presence of Saudi troops in the archipelago, which is home to the US Fifth Fleet.

Opposition protesters are demanding far-reaching democratic reform in the mainly Shiite country which has been ruled by a Sunni Muslim dynasty for more than 200 years.

The king has offered dialogue and a new, empowered parliament and other reforms but the opposition has refused to sit down to talks until the government resigns.

The Saudi intervention comes two days after US Defence Secretary Robert Gates visited Manama and held talks with the king in which he said he urged them to undertake rapid and significant reform.

Mr Gates also said Washington was concerned that the longer the instability dragged on the more likely Iran, a Shiite theocracy, was to try to meddle in Bahrain's affairs.

Doug's picture
Doug
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Posts: 3176
There is another take on the

There is another take on the Bahrainy intervention. 

http://www.zerohedge.com/article/stratfor-update-saudi-invasion-bahrain

The Saudis are apparently there at the invitation of the Bahrainy sheik.  This may be a move to forestall any move by the Iranians to support the Shiite majority in Bahrain.  Politics are never simple in the ME.

Doug

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