Daily Digest

Daily Digest - June 6

Saturday, June 6, 2009, 9:49 AM
  • Fed Hires Former Enron Lobbyist to Burnish Its Image
  • Patrick Byrne gives Oligoply the Business, Episode I (Video)
  • Two Depressions [PLEASE USE LINK THERE ARE A LOT OF CHARTS ON PAGE, THANKS(Repost)]
  • THE HORROR, Bond Traders are White with Terror...
  • Where the Axe Is Falling
  • Government borrowing as refinancing
  •  The Future of Food…(Video)
  • Controlling Our Food (Video, H/T Todd)
  • Home ATM (Cartoon)
  • Foreclosures and the Home ATM
  • Fed's Hoenig Calls for Rate Hikes
  • Gold and Silver has been Stolen from CANADIAN Mint? US Gold is Gone too! 

Economy

Fed Hires Former Enron Lobbyist to Burnish Its Image

This development, that the Federal Reserve has hired one Linda Robertson, former Enron lobbyist and Summers/Rubin protege, to manage relations with the Hill, strikes me as a tacit admission that the Fed thinks it has an Enron scale problem

Patrick Byrne gives Oligoply the Business, Episode I (Video) 

Two Depressions [PLEASE USE LINK THERE ARE A LOT OF CHARTS ON PAGE, THANKS(Repost)] 

To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.
The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column.

THE HORROR, Bond Traders are White with Terror...

This is an excellent piece written by Stewart Thomson of Graceland Updates (ht Ryan). My warning is that his site focuses heavily on precious metals, but what I like about this article is his focus on CAPITAL FLOWS (bond market versus stock market), and his neutrality in who will win the battle of evermore or what he calls the "thrilla in Manila!"

As you read the following article, please keep in mind the fact that next week’s bond auction will auction a staggering $127 billion in debt ($6.6 TRILLION annualized!)! For a quick review of the bond market’s latest action, I recommend that you review my article, Interest Rate Update…

While I believe that the deflationary forces are going to win in the medium term, the other forces may ultimately win the battle in the long term. You or I will not be “winners” regardless of who wins this battle! You may think you can place a directional bet and become a winner, but I am not so certain – again, a reason I like this article:

I want to talk about the bond market today as it relates to gold. And take you into the very real mind of a very real bond trader. Looking at a bond and gold chart is all very interesting if you like watching ivory tower movies. I do. But movies are not the whole picture. Experiencing the market thru the eyes of a real professional bond trader gives you a sensation of reality, in this case a most horrifying reality, that no chart can give you. I'm going to take you into the mind of a major bond trader who is a very good friend of mine.

Where the Axe Is Falling

(Chart on page)

Government borrowing as refinancing

One of the oft-stated aversions to government borrowing as fuel for fiscal stimulus is that more debt cannot be a solution where too much debt is the problem. And that might be true, as far as it goes. But there's something of a non-sequitur in jumping from fiscal stimulus to debt growth -- and brad setser attacks the fallacy of the meme in two postings, here and here.

Why hasn’t the expansion of the fiscal deficit pushed the amount the US borrows from the world up? Simple. American households and businesses are borrowing a lot less, so the total amount of money that Americans are borrowing isn’t rising.

This is a critical point, as it recasts what some think of as "more debt" in the proper light of a refinancing -- increased household savings and redirected business investment represent funds not borrowed, and in order to prevent monetary aggregate collapse the borrower of last resort must compensate by taking private debt repayments and turning them through fiscal stimulus into income which can then pay down more household and business debt until private sector balance sheets are repaired.

... [W]hile the US is borrowing less from the rest of the world, it is still borrowing from the rest of the world. A smaller trade deficit is still a trade deficit, and financing that deficit requires ongoing inflows from the rest of the world. That means that some creditor needs to increase their exposure to the US.

Yet the crisis also has alerted China’s population — rather belatedly in my view — to the risks of lending to the US. ...

The dislocations associated with the crisis temporarily eased the financial pressures facing the US. Americans sold their foreign assets faster than foreign investors sold their US assets (in part because American money market funds stopped lending to European banks, forcing them to scramble for dollars cash). But those dislocations have eased — and with commodity prices rising on hopes that the emerging world will rebound quickly from the crisis, the US is likely starting to need to borrow more from the world just when private demand for American financial assets is starting to fade.

That isn’t terribly comfortable – even if it actually isn’t all that different from 2007.

(More)

 The Future of Food…(Video)

Controlling Our Food (Video, H/T Todd)

 Home ATM (Cartoon)

Foreclosures and the Home ATM

"Credit is so loose today that I can buy the groceries I need on a credit card, eat the food tonight, discard the food by tomorrow at noon and finance my debt on a 30-year, amortized loan. How stupid is that? But people do it all the time - and then they wonder why they're in foreclosure."
-Mortgage Broker quoted in Denver Post, March 30, 2005

And today from Peter Goodman at the NY Times: Promised Help Is Elusive for Some Homeowners. This article is about homeowners struggling to get loan modifications, but this section reminded me of that Denver Post article:

Ms. Ulery, 63, is the face of the latest wave of troubled American homeowners, a surge of people in financial danger not because of reckless gambling on real estate, but because of lost income.

Far from being one of those who used easy-money loans to speculate on homes proliferating across the desert soil of greater Phoenix, she has lived in the same modest, stucco-sided condo in suburban Mesa for a dozen years. She bought the two-bedroom home in 1997 for $77,500.

So far so good ... but:

Like tens of millions of other American homeowners, she added to her mortgage balance as the value of her condo swelled, at one point exceeding $200,000. She refinanced to pay off some credit cards and settle into a 30-year, fixed-rate loan. Later, she took out a home equity line of credit to buy a new Hyundai. She refinanced again in 2007, borrowing $20,000, mostly for a new roof.

Money is fungible, but a general guideline is to match the term of the debt with the useful life of the asset. A 30 year loan for a house. A 5 to 7 year loan for a car. Pay cash for lunch.

Then - if the useful life and debt term match - when it comes time to replace the asset, the debt will have been retired. But this article provides an example of buying lunch on your credit card, paying off the credit card with a larger mortgage and essentially financing lunch for 30 years!

And I'm sorry, but I'd call excessive use of the Home ATM as gambling.

Fed's Hoenig Calls for Rate Hikes

From Kansas Fed President Thomas Hoenig: An Economy at Risk: Tough Decisions Ahead. A few excerpts:

"While I am convinced the economic recovery we all want will develop, it will be slower and more fragile than we hope for."
...
"I would direct you to an article by Martin Barnes, the managing editor of Bank Credit Analyst, published in May. In estimating the effect on consumption growth if the annual savings rate steadily increased from zero to 8 percent between now and the end of 2013, the article suggests that consumer spending would grow at an average rate of only 1.3 percent per year. This would be a significant reduction of consumption growth, the slowest since the 1930s."
...
"The markets won't be fooled by artificially low rates for long. Market participants realize that a period of high deficits and accommodative monetary policy are an invitation to increased inflationary pressure. I suspect we are experiencing the first signs of the markets' concerns in the rising rates and increased volatility in longer-term Treasury markets. I suggest strongly that we need to be alert to the markets' message and begin in earnest to bring monetary policy into better balance before inflation forces our hand."

It is interesting that Hoenig believes growth will be sluggish for some time, and he is still advocating raising rates. This will not happen any time soon.

Gold and Silver has been Stolen from CANADIAN Mint? US Gold is Gone too!

OTTAWA — A significant quantity of gold, silver and other precious metals is unaccounted for at the Royal Canadian Mint.

External auditors are investigating a discrepancy between the mint's 2008 financial accounting of its precious metals holdings and the physical stockpile at the plant on Sussex Drive in Ottawa.

The mystery raises possibilities from sloppy bookkeeping to a gold heist.

Officials with the commercial Crown corporation are saying little and refuse to confirm the amount and value of the unaccounted for gold, silver and palladium.

"An unprecedented demand in gold in 2008 has led to an unreconciled difference between the mint's financial statements and the physical count of precious metals. There's a difference there that we're looking into," Christine Aquino, mint spokeswoman, said in a prepared statement Tuesday in response to questions from the Ottawa Citizen.

"We're taking this very seriously. We're conducting a thorough review and we're expected to have that completed within the month. (It) includes the analysis of precious metal by-products and financial data. We've allocated all necessary resources to this review."

She stressed police have not been called into what mint officials consider an internal matter. She would not say whether the gold and other metals in question were part of the refinery and bullion operation or one of the mint's three other business lines: producing Canadian circulating coins, designing and producing coinage for foreign countries, and numismatics.

(More)

10 Comments

gtazman's picture
gtazman
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Re: Daily Digest - June 6

VeganDB12's picture
VeganDB12
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Re: Daily Digest - June 6

I just watched both food videos re: genetic modification of food and the M*****to global monopoly over grain production. All I can say is, OMG. 

I wonder if the epidemic of suicides of farmers in India are related to chemical exposure in some physical way?   In addition to having their livelihoods blitzed by pesticides they were forced to use. The incidence cited in one area in India by one of the films (600 in a six month period) sound very high but hard to know since the overall population numbers were not provided. I did a quick google search and found one source-http://www.maithrikochi.org/india_suicide_statistics.htm#incidence-that states the rate has been up to 10.5 per 100,000 or .01 percent.  Thus, 600 suicides in 6 months (extrapolated to 1200 in a year) , if just random occurrences unrelated to anything else would imply a total population of roughly 12 million in the region affected.  Anyone looking at the film could surmise that there are fewer people in the area described which is farmland, much less populated.  Hence, the suicide rate is unusually high. Drastically high.

OMG. I am afraid to eat grain now. Bad for a vegetarian. M*****to is evil.  Really bad. No other conclusion.

Thanks for listening to my rant.  Sorry for avoiding discussion of finance. JMHO.

Regards

Denise

Davos's picture
Davos
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Re: Daily Digest - June 6

 Hello Denise:

I haven't watched the video yet, it came to me from my friend Todd who gave me A Crude Awakening and a few other gems. He doesn't send much, but what he sends is usially top knotch. Thanks for the summary!

homestead's picture
homestead
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Re: Daily Digest - June 6

 Denise, your mentioning the suicides of farmers in India rang a bell in my memory of something I had read not long ago about it being connected to drought and loss of crop income.  I found this reference:

http://www.foodandwaterwatch.org/blog/archive/2009/04/24/farmer-suicides...

Farmer Suicides in India Tied to Debt, Drought, Industrial Agriculture

by Erica Schuetz — last modified 2009-04-24 15:19
 

According to reports, 1,500 farmers in India have committed suicide after drought and crop failures made it impossible to repay loans for agrochemicals and seeds.  The high cost of industrial farm inputs often puts small farmers in the developing world on a treadmill of mounting debt – one crop failure away from losing their family’s land.  These pressures can be higher for farmers in India that have adopted even more expensive genetically modified seeds for crops like cotton.  



The New York Times reported in 2006 that genetically modified cotton seeds can costfarmers twice as much, doubling the household debt and making a successful crop that much more urgent.  When these crops fail, indebted farmers can take their own lives and strand their families.  The United Kingdom’s Prince Charles has championed the plight of farmers driven to debt and despair by high-cost genetically modified seeds....  (see link for rest of article)

ejanea's picture
ejanea
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Re: Daily Digest - June 6

Vandana Shiva has been writing about issues facing Indian farmers for years,  including their rates of suicide. Just google Vandana Shiva and farmers suicides and you'll find heaps.

J

Davos's picture
Davos
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Re: Daily Digest - June 6

well, just finished that watch.

words can't even begin to express my thoughts.

idoctor's picture
idoctor
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Re: Daily Digest - June 6

This Septic Tank cleaning truck had a cute message.

septic tank sign

Check this out on hoarding.

http://www.ethicsoup.com/2009/04/hoarding-time-part-ii.html

fujisan's picture
fujisan
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Re: Daily Digest - June 6

AFP: Nigerian militants give oil workers 72 hours to quit


LAGOS (AFP) — Nigeria's main armed group warned Niger Delta oil workers on Saturday to quit within 72 hours to avoid an "imminent attack," a threat dismissed by the military as an "empty boast by a toothless gang."

"This is a final warning from the Movement for the Emancipation of the Niger Delta (MEND) to local and foreign workers in the oil services and exploration companies to vacate the region within the next 72 hours due to an imminent attack," MEND said in an email statement.

The militants dubbed the attack "Hurricane Piper Alpha" which they warned "will not discriminate on tribe, nationality or race when it sweeps across the region.

"The warning also applies to greedy individuals from oil communities tempted to carry out repair contracts on pipelines already destroyed," MEND added.

...
fujisan's picture
fujisan
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Re: Daily Digest - June 6

Banks Try to Stiff-Arm New Rule - WSJ.com

Banks Try to Stiff-Arm New Rule
Delay Sought in Accounting Change, as Investor Groups Plot Own Response

The financial-services industry is taking steps to delay an accounting rule that would force banks and others to bring some of their off-balance-sheet vehicles back onto their books next year, which could force some to raise additional capital.

A group that includes the Chamber of Commerce, the Mortgage Bankers Association, and the American Council of Life Insurers and others sent a letter on June 1 to Treasury Secretary Timothy Geithner, regarding the off-balance-sheet accounting-rule change, saying it should be adopted "cautiously and seek to minimize any chilling effect on our frozen credit markets."

The letter was signed by 16 industry ...

FYI, According to this article in the french journal Les Echos, European banks are already forced to move their off-balance-sheet vehicles onto their books. JPM might have to move $145 billion onto their books.

VeganDB12's picture
VeganDB12
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Re: Daily Digest - June 6

Homestead Grandma and J (and Davos of course!)

Thank you for the information.  As a psychiatrist these numbers seem staggering to me.  I appreciate the links and the names and will continue to read up on it.  We shall see what the suicide statistics show as this decline progresses-hopefully there will be nothing much to report. 

I believe people need support and awareness of options during this crisis and need to be treated carefully when they are thinking about suicide.  As was illustrated in the film unemployed men can be especially at risk for suicide.   But it certainly occurs in both genders and all age groups.  Fortunately we still have mental health resources and suicide hotlines in this country although the funding is dwindling for such things they are still out there (I would assume in other countries as well but don't know).   Beyond that are family and community. Regards-

Denise

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