Daily Digest

Daily Digest 4/24 - The "Miracle" Of Compound Inflation, Economy vs. Stocks and Risk Trade, "Energy Shift Parade" In Japan

Sunday, April 24, 2011, 9:40 AM
  • Mauldin: The “Miracle” of Compound Inflation
  • Your Pick, Ben, But One Goes Off the Cliff
  • America Appears To Be Sleepwalking Towards Disaster – Does No One Care?
  • First Time Since 1935, Handouts Exceeding Taxes
  • China, Japan, South Korea Urge Further Efforts For Trilateral Investment Framework
  • Stimulus by Fed Is Disappointing, Economists Say
  • "Energy Shift Parade" held to protest against nuclear policy in Japan
  • Magnitude 4.8 - Off The East Coast Of Honshu, Japan

Our 'What Should I Do?' guide has steps to cook, see & stay warm in times of power outage


Mauldin: The “Miracle” of Compound Inflation (JRB)

Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world.” And compounding is indeed the topic of this week’s shorter than usual letter, but compounding not of interest but of inflation. As you might expect, I am giving a great deal of thought as to how we get out of our current financial dilemma of too much debt and deficits that are far too high. While I will use US data for our illustration, the principles are the same for any country.

Your Pick, Ben, But One Goes Off the Cliff (pinecarr)

It's one or the other, Ben: you either push the real economy over the edge or you push stocks and the risk trade off the cliff.

Stimulus by Fed Is Disappointing, Economists Say (jdargis)

As the Fed’s policy-making board prepares to meet Tuesday and Wednesday — after which the Fed chairman, Ben S. Bernanke, will hold a news conference for the first time to explain its decisions to the public — a broad range of economists say that the disappointing results show the limits of the central bank’s ability to lift the nation from its economic malaise.

America Appears To Be Sleepwalking Towards Disaster – Does No One Care?

It is a testament to the delusion – and plain dishonesty – which surrounds America's fiscal debate that this figure is not more widely cited. Almost all US politicians and pundits spout the official line that sovereign debts are 59pc of national income, rather than 500pc.

First Time Since 1935, Handouts Exceeding Taxes (pinecarr)

In raw numbers, in February of this year, households received $2.3 trillion in income support from unemployment benefits, Social Security, disability insurance, Medicare, Medicaid, veterans' benefits, education assistance and other cash transfers of government funds to individuals.

China, Japan, South Korea Urge Further Efforts For Trilateral Investment Framework (pinecarr)

Top trade officials of the three countries agreed that the maintenance and development of a free and open trade system will not only support the recovery of the disaster-hit region of Japan but also secure vigorous and sustainable growth of all three countries.


"Energy Shift Parade" held to protest against nuclear policy in Japan (pinecarr)

Protestors hold a banner and placards as they protest against Japan's nuclear policy during a parade for the Earth Day in Tokyo on April 24, 2011. Hundreds of people joined the march "Energy Shift Parade," demanding the use of sustainable energy instead of nuclear power. (Xinhua/AFP Photo)


Magnitude 4.8 - Off The East Coast Of Honshu, Japan (pinecarr)

Saturday, April 23, 2011 at 03:34:31 PM (EDT) - Eastern Daylight (New York, Toronto)

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." 


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  China Proposes To Cut Two


China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings


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Now that you've pushed the

Now that you've pushed the dollar down, Ben, it's your pick on what to push off the cliff: your beloved risk trade or the real economy. Here's a chart of the U.S. dollar and crude oil. Notice they're on a see-saw: when the dollar tanks, oil skyrockets. When the dollar recovers a bit, oil declines.

That may be so....  but notice how much FASTER oil is going up than the dollar is going down.....

Mike.  Currently in Sydney Australia.  Wonders of technology.....!

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The Granddaddy of All Bubbles?


The Granddaddy of All Bubbles?
By Peter Coy and Roben Farzad
April 14, 2011

It's as if 2008 never happened. Once again the world's investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year. And Yale's Robert Shiller calculates that the Standard & Poor's 500-stock index is trading at 23 times earnings normalized over the past 10 years, compared with a historical average of 16. "I fear this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems," says Doug Noland, senior portfolio manager of the Federated Prudent Bear Fund.

Cassandras, pointing to the bankruptcies, taxpayer-financed bailouts, and joblessness caused by the last bubble, argue that today's bubbles need to be deflated now before they get dangerously large. Many blame the Federal Reserve for keeping interest rates too low and pumping out a flood of money in search of yield that feeds bubbles around the world. Chinese authorities want the Fed to raise rates to relieve inflation in China. On Apr. 7 the European Central Bank raised its benchmark lending rate a quarter-point, to 1.25 percent. In the U.S., "What we've created is beyond moral hazard," laments Brian Wesbury, chief economist at First Trust Advisors, a Wheaton (Ill.) fund shop. "People are coming to think that the market cannot go higher if the Fed isn't helping it."

Not everyone is in the grip of bubble-phobia, least of all Fed Chairman Ben Bernanke. The central bank remains committed to keeping rates ultralow until the economy shows more staying power. In an Apr. 11 speech in New York, Fed Vice-Chair Janet L. Yellen didn't say anything about bubbles. But she rejected the contention that Fed policy is responsible for commodity price inflation, blaming the runup in oil and food prices largely on "rising global demand and disruptions in global supply." She's right: Commodities aren't being hoarded, as they would be if investors were speculating on them. Inventories have fallen since last summer.

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   re: China Proposes To


 re: China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

 Effectively a China initiated QE3 ?

 If the FED acts as buyer of last resort, the Chinese will have a large pool of dollars that need to be spent rapidly and usefully...

 Potentially bullish for metals, the stock market... but if it encourages other dollar holders to rush for the exits, it could get a bit ... wild.



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Animated: The Fed are making money, LITERARLLY!

Animated: The Fed are making money, LITERARLLY!
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Mauldin: The miracle of compound inflation

Glad to see the Mauldin article posted up front. I think it may be a more important principle that some of us (including me) have believed.

I posted some of  the following elsewhere in this topic based on the Mauldin article;

Landmines ahead ..........

Day by day we appear to head closer to disaster. I'm not sure if it is a bright light on the horizon, but John Mauldin put together a piece that illustrates a possible outcome given medium inflation and dollar devaluation. Clearly this scenario will be painful, leading to both lower standards of living and decreasing world influence. With just the right touch on the steering wheel, we may dodge the spectre of complete collapse as many of us preparing for. He overlooks the challenge of peak oil in his scenario which may blow up this gentle letdown theory before it gets around to cleaning up our debt problems - in which case we are back to square one.

Maybe a slight possiblity that Bernanke etal can avoid the larger mines ahead and and keep us going at much reduced speed?

From the politician's point of view, the (controlled if possible) compound inflation concept is perfect - nobody has to fall on a sword over austerity or serious tax increase and everybody is happy. Well, not quite that magical - most of us take the fall by way of seriously reduced living standards and lost savings but it is hard to pin the blame on anyone - it just happens. So the elites and the politicians carry on as before.

I'm not optimistic that this is a likely outcome, especially given peak oil and other challenges, but it seems to me this is more or less the path that we are on. Whether by plan or otherwise is open to question. I continue to be surprised that we've held on as well as we have for this long, so miracles can happen


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IEA Chief Economist on Peak Oil


Fatih Birol

Chief Economist
International Energy Agency

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Australia Needs Spending Cuts

Australia Needs Spending Cuts as Mining Boom Limited, Swan Says


Australia needs to cut spending because there won’t be any repeat of the windfall tax revenue generated between 2004 and 2007 by the mining industry’s previous expansion, Treasurer Wayne Swan said.

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4/19 The Best Currency Is

4/19 The Best Currency Is Gold and Silver, Says Marc Faber http://www.lewrockwell.com/faber/faber106.html

Weekend funnies: http://economicedge.blogspot.com/2011/04/weekend-funnies_23.html

3/25: Financial Thought Leader Niall Ferguson discusses why the centuries long dominance of Western economic and political power is waning and what the United States needs to do prevent it from slipping even more.  (Wealthtrack interview, 26 minutes) http://www.youtube.com/user/WealthTrack#p/u/4/8197GgZ5Gqw

4/24 Cautiously Bullish on Silver  http://www.financialsense.com/node/4990

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sleepwalking or braindead?

Can we be sleepwalking and still be so excited about the royal wedding, Dancing With The Stars, and Jersey Shore? People can awaken from sleepwalking, I think we are braindead.

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