Daily Digest

Daily Digest - September 10

Thursday, September 10, 2009, 10:50 AM
  • A Conversation About Payroll Data That You Never Saw On CNBC
  • Bad now? 1929 Versus 2007: Employment Change
  • 40% of Working Age Californians Jobless
  • China Issues Bonds To “Promote The RMB In Neighbouring Countries”
  • An Address To Our Schoolchildren
  • Myth: “Job-Less Recovery”
  • New Exotic Investments Are Emerging on Wall Street (H/T iDoctor and  Zulu)
  • Debtors Revolt Begins
  • Google Domestic Trends: Cash for Clunkers (Chart)

Economy

A Conversation About Payroll Data That You Never Saw On CNBC

Or that the seasonal adjustment of the payroll data artificially created 28,000 jobs in the auto industry, when, in fact, automakers cut 8,600 jobs, so that the reported 247,000 jobs lost in July were really closer to 285,000 jobs or 15% worse than reported?

Bad now? 1929 Versus 2007: Employment Change

40% of Working Age Californians Jobless

From the San Francisco Chronicle (hat tip reader John D):

A report released Sunday says two of five working-age Californians do not have a job, underscoring the challenges in one of the toughest job markets in decades. A new study has found that the last time employment levels among this group were this low was February 1977.

By comparison, the current national unemployment rate of 9.7% is the worst since 1983.

But the current situation is worse that that “2 out of 5″ figure indicates. The study reported that only 57.5% of working age Californians have a job. The Golden State has the fourth highest unemployment rate in the US.

China Issues Bonds To “Promote The RMB In Neighbouring Countries”

The yuan bond issue, worth about $879 million, will ‘‘promote the RMB in neighboring countries,’’ referring to the renminbi currency, ‘‘and improve the yuan’s international status,’’ the Finance Ministry said in the statement on its Web site.

‘‘The first step toward internationalization is regionalization,’’ Shi Lei, a foreign currency analyst at Bank of China in Beijing, said in an interview. ‘‘China wants to develop the offshore market in Hong Kong.’’

While domestic banks like Bank of China and the Export-Import Bank of China have already been issuing yuan-denominated bonds in Hong Kong for a couple of years, at the encouragement of Beijing, this is the first time that government bonds, the equivalent of treasuries, are to be issued. The bond sale is set for Sept. 28.

An Address To Our Schoolchildren

This is not an accident.

In math class you are taught "the power function", which you think of as squares, cubes, and similar. It is written as 4^2, or, expanded, as 4 x 4.

But what you're not taught is how this applies to finance, even though every household and every American has their own financial challenges, and every person in America should understand how finance works.

Neither Republican or Democrat wants you to see this graph. This is how much each American, from 1970 to today, is in debt because of our government's policies:

Myth: “Job-less Recovery”

The latest example of mindless droning from these pseudo-reporters is that the U.S. economy is headed for a “job-less recovery”.

As with all oxymorons, no intelligent person would/should be foolish enough to add these buzz-words to his/her lexicon

New Exotic Investments Are Emerging on Wall Street (H/T iDoctor and  Zulu)

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

Debtors Revolt Begins (H/T FarmerBrown)

Google Domestic Trends: Cash for Clunkers (Chart)

37 Comments

crash_watcher's picture
crash_watcher
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Posts: 146
Re: Daily Digest - September 10

Davos,

Like you, I am a big fan of Jim Puplava's Financial Sense Newshour, although it usually takes me nearly a whole week of commuting to get through the four hours of podcasts. 

I would be interested in hearing your, or anyone's, thoughts concerning a response Puplava made to a listener's question: 

In the "Q-line" in the last half hour of the 4th hour of last week's show, (See http://www.financialsense.com/fsn/main.html at about 44:00-46:00 min), a pretty irate listener asked about Puplava's previous position that, "money has to go somewhere before the collapse" and that's why we will soon be getting inflation. Puplava reiterated this same position. 

But, my impression from the CC chapter 7 on money creation is that, if money can be created out of thin-air by issuing credit, money can also vanish into thin-air if there is a default on the debt corresponding to the credit.  

Maybe I'm missing something, but it seems that these two differing views of money epitomize the differences between the inflationist versus deflationist outlooks. 

If money that is created by credit being issued by the government and banks, "has to go somewhere," as Puplava's said, then maybe inflation has to occur. 

But if money can vanish into thin-air because the corresponding bad debt gets defaulted on, then maybe deflation has to occur.  

This later view seems to be the position that Puplava's earlier guest, Robert Prechter, was taking in the 3rd hour of the show (e.g., listen to the exchange with Prechter from about  5:00-10:00 min in the 3rd hour).  Prechter's view seems to be that the amount of bad debt out there will totally swamp the new credit the government is trying to issue.

Any thoughts?

targetbuster's picture
targetbuster
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Re: Daily Digest - September 10

Crash_Watcher,

You nailed the question that always comes to my mind when I view the inflationists/deflationists views. I don't knwo the answer but I hope someone can answer it suscinctly and accurately. Cudo's to you for verbalizing the "question of the year" for me and many others.

igorcarajo's picture
igorcarajo
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Re: Daily Digest - September 10

Defaulting on a loan has to reduce the money supply. If you default on a loan, the bank has to take your debt off of their "assets" column, putting it in a hole and dampening its capacity to create new loans. Or at least that's my limited understanding.

Also to consider is that the central bank can, in theory, replace every single debt dollar that is defaulted on with a brand new debt dollar.

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pwoody82
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Re: Daily Digest - September 10

Suppose you buy a house for $100,000 and borrow $90,000 and put in $10,000 of your savings. The $90,000 is created out of thin air by the bank and placed upon their balance sheet as an asset. Then after a time, the housing market goes down, you loose your job and have to sell the house for $80,000. Your $10,000 is gone of course, so that money vanishes, or simply ceases to exist. Depending upon how long you were making payments, you might have reduced the loan balance by $500 (assuming a loan of 10 years or more). That means that the difference between what was the balance and what was received is 89,500 - 80,000 or $9,500. That amount also simply vanishes, so that the bank has to take the loss. Since the loan was on the books as an asset, and the asset has declined in value, the bank has a loss.

Whoever sold the home originally still has the $100,000, you and the bank have $19,500 less so that is a net loss in asset value and is known as asset deflation. However, it has a real effect on how much money you and the bank have since your savings are gone and the bank has to take the loss against earnings. This is what is happining since the housing bubble burst, people are loosing whatever they paid down and the mortgage holders lost the difference between the mortgage balance and the sale price.

This has the effect of taking money out of circulation and decreasing the money supply. The banks and other financial institutions packaged groups of mortgages together and sold them as 'Structured Investment Vehicles' . They were divided into four 'tranches' and the tranches were rated AAA, AA, A, and BBB. AAA was supposed to be the most secure and B the least. AAA had the lowest intrest rate but took losses last, B the highest rate and took loss first. The problem was that over time these SIVs were composed of subprime and Alt-a mortgages all of which would have been rated B or less, so the SIV was rated better that its contents. Then the whole scam came apart.

There were trillions in these SIVs out there, and no one really knew what was in them, so they all fell in value and the holders had to mark the stuff to market (what someone else was willing to pay for it) so they had massive losses on their books. They took some of the losses, but put off some of them into the future by taking them 'off the books'. None the less, the losses were great enough to more than offset the amount of the bailouts so the money supply declined in spite of the bailouts.

I think we will see price increases because of the decline in the dollar against foreign currencies causing import prices to go up. But I do not think inflation will take off until all the bad mortgages, both residential and commercial, are reset, sold, foreclosed or otherwise liquidated and the money supply stops falling due to the massive asset deflation. Do not forget that Fannie and Freddie belong to us and they have billions and billions in SIVs, and they too will have to be liquidated. We have at least 2 more years of asset deflation ahead. After that, I think the sky is the limit for inflation since the money supply will stop falling, the Fed will keep pumping, and business will start to pick up increasing the velocity of money.

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saxplayer00o1
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Re: Daily Digest - September 10

Wall Street Is ‘Myopic,’ Bank of China’s Zhu Says

Zhu said that the financial crisis, which intensified last year after the bankruptcy in September of Lehman Brothers Holdings Inc., seems “not over yet.”

‘Cliff Drop’

“It’s sort of stabilized from cliff drop,” Zhu said. “But the real economic crisis has just started.”

 

dcm's picture
dcm
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Re: The Inflation vs Deflation Diversion

I humbly believe that "Money has to go somewhere" can be a misleading venture, and a miseading choice of terms. Just like the deflation vs. inflation debate.  It is not "money" but  an item of economic value along with  credibility and stability in an utterly corrupt, distorted  and criminal system that is trying to seek refuge. As a result, it is the utter collapse in the credibility of the US dollar as a stable, credible, and uncorrupt symbol of that fixed value. The problem is is that the US dollar is THE fiat system. It will collapse and cause chaos. That is a phenomenon entirely separate from prices, economic production, or the stock market going UP or DOWN.  But that does not mean it won't have an effect on all three including a huge price effect...at least that is for someone holding US dollars. When that supernova occurs, the only end result is hyperinflation and the end of that system.  How could there be any other result when the people finally realize that the piece of paper they are holding carries with it...nothing.

It's worse than that isn't it? Does anyone beyond our borders really applaud or trust our economic, military, finance, or spending policies?  And do they trust our DATA? Hell, we don't even trust OUR data.  So why, why would they want to continue to prop up a FIAT symbol and system whose destruction will affect all of them but whose ongoing life support will only make the inveitable implosion bigger?  And isn't it utter ignorance and arrogance of our fearless leaders to believe that somehow they will continue to prop us up?        

-just my two cents (dcm)    

-not sure what it's worth

-especially these days

http://www.fofoa.blogspot.com/

Words of Wisdom

And since I, myself, am a mere shrimp following giants, I will close with a few selected quotes from FOA on The Gold Trail:

The dollar is toast because most of the world doesn't like the management policy. They didn't like it in 71, but tolerated it because gold was suppose to keep flowing in repatriation payments. And if they didn't like it back then, they god awful hate it now!

We like to think that the dollar is what it is because we are so good. (smile) But, the truth is that for over a two decade period +, none of our economic policy, our trade financing policy, our defense policy or our internal lifestyle policy has pleased anyone outside these borders. We managed the dollar for us (U.S.) and the rest could just follow along.

Our fiat currency has survived all these years because others have supported our dollar flow in a way that kept it from crashing its exchange rate. We talk and think like we are winning the tug-of-war when, in fact, they just aren't pulling very hard.

My friends, a national fiat in our modern world only functions if the whole world uses and supports its flow and most importantly likes its management (political styling is the catch word). This support and use of our dollar can and will change faster than many think possible. Our dollar is not going to become a "banana" or "nada" in the future, as auspec notes. It already is and has carried this trait for some time now as does every fiat today. The only thing that keeps them from cascading away is world support and use.

That dollar value is there now, you just don't see it yet. The price inflation that many don't or can't see happening, will be the result of our currency management changing to confront the nature of all the above. As this happens the US will have to raise rates even as it massively prints more currency to support our internal economy [obligations!]. Our entire economy will slow and fail as this price inflating process moves on. Some will call it stag/flation, but will change that description as it becomes more of a crash/hyperinflation.

We must not confuse a currency's "total demise" or "falling out of use" with a "loss of identity". In our time there have been few major moneys that went away. Today, we have a whole world of national fiats "in use" and "not demised" that still carry their nations identity. They lose value at an incredible rate, are mismanaged to the highest degree, are laughed at and despised. But, still they are "in use" as they function for their governments and economies. Make no mistake, the entire internal US sector can and will function as its currency runs a price inflation just like these third world countries. We will adapt as they have by dropping our living standard accordingly.

The prestige that we have the largest military force in the world does not help our money problem. We talk as if we will let any country die that does not use our money or support our currency. I point out that the British also made such comments and it didn't stop their downfall. Nor the Russians.

I point out that many, many other countries also have the same "enormous resources; physical, financial, and spiritual" that we have. But the degrading of our economic trading unit, the dollar, places the good use of these resources in peril. We buy far more than we sell; a trade deficit. Collectively, net / net, using our own resources and requiring the use of other nation's as well. Not unlike Black Blade's Kalifornians sucking up their neighbors energy supplies (smile). We cannot place our resources up as example of our worth to other nations unless we crash our lifestyle to a level that will allow their export! Something our currency management policy will confront with dollar printing to avert.

No, this country will not turn over and simply give in. But, we will give up on our currency! Come now, let's take reason in grasp. Our American society's worth is not its currency system. Around the world and over decades other fine people-states have adopted dollars as their second money, only to see their society and economy improve. Even though we see only their failing first tier money. What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living. In the US this function will be a reverse example from these others. We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an over valued dollar that we spent without the pain of work.

Davos's picture
Davos
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Re: Daily Digest - September 10
crash_watcher wrote:

Davos,

Like you, I am a big fan of Jim Puplava's Financial Sense Newshour, although it usually takes me nearly a whole week of commuting to get through the four hours of podcasts. 

I would be interested in hearing your, or anyone's, thoughts concerning a response Puplava made to a listener's question: 

In the "Q-line" in the last half hour of the 4th hour of last week's show, (See http://www.financialsense.com/fsn/main.html at about 44:00-46:00 min), a pretty irate listener asked about Puplava's previous position that, "money has to go somewhere before the collapse" and that's why we will soon be getting inflation. Puplava reiterated this same position. 

But, my impression from the CC chapter 7 on money creation is that, if money can be created out of thin-air by issuing credit, money can also vanish into thin-air if there is a default on the debt corresponding to the credit.  

Maybe I'm missing something, but it seems that these two differing views of money epitomize the differences between the inflationist versus deflationist outlooks. 

If money that is created by credit being issued by the government and banks, "has to go somewhere," as Puplava's said, then maybe inflation has to occur. 

But if money can vanish into thin-air because the corresponding bad debt gets defaulted on, then maybe deflation has to occur.  

This later view seems to be the position that Puplava's earlier guest, Robert Prechter, was taking in the 3rd hour of the show (e.g., listen to the exchange with Prechter from about  5:00-10:00 min in the 3rd hour).  Prechter's view seems to be that the amount of bad debt out there will totally swamp the new credit the government is trying to issue.

Any thoughts?

Hello CrashWatcher:

I agree with him that inflation is the increase in the money supply. Too much money leads to higher asset prices and bubbles. Housing market, before that we had people borrowoing on home equity and CCards to invest in the tech bubble.

Soros calls this a period of wealth destruction. I agree with his take, but I think we are all guilty of calling credit/debt wealth. Even if we own that big house outfight the debt being destroyed is tanking that asset price as people get evicted and the supply inches up to 24 million homes on the market and vacant. Worse we have less qualified buyers. But the point, yes I do think money is being destroyed.

The problem I don't see put in the news, and hardly on all the good blogs is the debt.

We take in 2 trillion but 4 trillion goes out the door. We SPEND 2 more trillion than we make. Bernanke is counterfeiting most of that, what was all borrowed is now mostly Ben hanging funny money.

So what? Some say. We destroy 12-2trillion (think that is the number can't recall) what is a measly 2 trillion a year have to do with it? Insolvency. We would default if Bernake didn't apply QE.

I think this will debase the dollar, causing assets to be more costly.

That's my take. The money IS going somewhere because we take in 2 t and spend 4 t per year, and that figure is moving on up fast. Our debt load, north of 80 trillion is not ever going to get paid unless they re-value the dollar.

targetbuster's picture
targetbuster
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Re: Daily Digest - September 10
pwoody82 wrote:

 

I think we will see price increases because of the decline in the dollar against foreign currencies causing import prices to go up. But I do not think inflation will take off until all the bad mortgages, both residential and commercial, are reset, sold, foreclosed or otherwise liquidated and the money supply stops falling due to the massive asset deflation. Do not forget that Fannie and Freddie belong to us and they have billions and billions in SIVs, and they too will have to be liquidated. We have at least 2 more years of asset deflation ahead. After that, I think the sky is the limit for inflation since the money supply will stop falling, the Fed will keep pumping, and business will start to pick up increasing the velocity of money.

For what it's worth, I agree, and this seems to be the reason we are able to, for the time being, ignore in real terms what has happened. And to my mind, appears to be the reasoning behind the massive bailouts and "money replacement" the fed has been injecting in to the system. In effect, replacing bad dollars with "good ones". And for the amount of time it takes for the smoke to clear, we will have a collective sense of "another recovery".  But "someone" has to pay, i.e., the American taxpayer. No matter how I look at this it seems inevitable to have a very bad ending for someone i.e, us.

I think in simplistic terms, it all boils down to what the dollar does. If it continues to fall, the end of the charade is very near.

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - September 10
 
 Other news items from the day:

 

1)Mortgage delinquency rates for commercial properties jump

http://www.tradingroom.com.au/apps/view_breaking_news_article.ac?page=/data/news_research/published/2009/9/253/catf_090910_073200_0424.html

 

2)Page Mill Properties, the largest landlord in East Palo Alto, may soon lose control of its 1,700 apartments in the Woodland Park neighborhood to a court-appointed receiver.

http://www.paloaltoonline.com/news/show_story.php?id=13771

 

3)Buyers of Huge Manhattan Complex Face Default Risk

($5.4 Billion property loses over half of its value)

http://www.nytimes.com/2009/09/10/nyregion/10stuy.html?hp

 

4)Gary Spending Goes Down the Toilet, Literally

http://www.nbcchicago.com/news/local-beat/Is-Gary-broke-58503297.html

 

 

5) WASHINGTON (AFP) – The United States wants to enlist its 3.4 million Girl Scouts in the effort to combat hurricanes, pandemics, terror attacks and other disasters.

The Department of Homeland Security (DHS) launched a campaign Tuesday to entice the blue, brown and green-clad multitudes to be even more prepared, with the promise of a new patch if they pitch in.

http://news.yahoo.com/s/afp/20090908/pl_afp/usattackschildrenoffbeat_20090908185707

 

 

6) US poverty rate jumps to 11-year high

http://www.ft.com/cms/s/0/ce58584c-9e1f-11de-b0aa-00144feabdc0.html?nclick_check=1

 

 

7) Gov. Quinn and House Speaker Michael Madigan both said today they favor a $1-a-pack tax hike on cigarettes to pay for college scholarships for Illinois students.

The state is under the gun to fill a $200 million shortfall in the program -- and students must start applying for their second-semester scholarships shortly.

http://www.suntimes.com/news/politics/1761680,cigarette-tax-hike-college-scholarships-090909.article

 

 

8) U.S. Aug. foreclosures off 1% from July, up 18% vs. year ago

http://www.marketwatch.com/story/us-foreclosures-off-1-vs-july-up-vs-year-ago-2009-09-10

 

 

9) LaToya Jackson appears to be on the verge of joining the celebrity foreclosure list.

A Las Vegas condo she purchased in 1996 for about $260,000 is in default with an unpaid balance of $750,000, according to documents filed in the Clark County recorder's office.

http://www.lvrj.com/news/58450762.html

 

  

10) The economic numbers in the news were distorted to beyond being of any use.

Nathan's Economic Edge makes some sense of it though:

http://economicedge.blogspot.com/2009/09/morning-update-market-thread-910.html

 

11) Councilman says Orange County may go bankrupt because of pension benefits:

http://www.pensiontsunami.com/foothills_sentry_2009-09-08/DOC001.PDF

 

12) Colton, California says it is broke:

http://www.sbsun.com/letters/ci_13302959

 

 

13) Changes proposed by two of Ohio's public pension plans could cost taxpayers about $1 billion by 2020, if approved by the state legislature.

http://www.columbusdispatch.com/live/content/local_news/stories/2009/09/09/pension.html

 

14) Dollar continues falling. About 1% away from its 52 week low:

http://www.marketwatch.com/investing/index/DXY

 

 15) In reference to #14 let Alicia's first four words tell you what the dollar is saying today:

igorcarajo's picture
igorcarajo
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Re: Daily Digest - September 10

I just wanted to add that, according to nowandfutures, the M3 money supply (green line) hasn't really decreased. Looks stable, but not going down.

M3

Davos's picture
Davos
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Re: Daily Digest - September 10
targetbuster wrote:

But "someone" has to pay, i.e., the American taxpayer. No matter how I look at this it seems inevitable to have a very bad ending for someone i.e, us.

I think in simplistic terms, it all boils down to what the dollar does. If it continues to fall, the end of the charade is very near.

I'd agree, quite strongly in fact, with these statements.

First, CM did a piece that showed the ratio of private vs. public sector jobs. In short, we work from January to late August to support the public sector. While some would argue that public jobs are keeping the economy alive, others could say that this is an Albatross around our neck. That money is money that isn't being invested or spent. When we work 8 months for Big Brother and we get 4 months left to service the banks, well that is slavery. 

The only question I have is who is my master?

Instead of cutting government they are making it larger.

But I totally agree, it all will boil down to what the dollar does. If there is a perceived flight to safety that may save them, but short of that we are Enron. Flat broke. Books cooked. Earnings bogus. In debt to the point we can't borrow enough to service the debt. No we are counterfeiting the difference between what we owe and what we can borrow.

If you owned a few trillion US dollars (bonds) I'm certain you'd look at the capability of the tax payer - after all that is who you want to service your interest. I'm sure you'd look at Ben's printing, since the tax payer is anemic.

I'm sure you'd lack faith. I'm sure you'd be looking to get out of the dollar asap.

The other thing I'd point out, everyone's dollars (except for a few countries with a lot of natural resources) are sliding. That slide is masking reality. Every time I make a purchase I think how much was this in 2002? How much could I buy of this now if I sold gold that I bought in 2002, vs. a dollar I saved from 2002?

That answer tells me inflation is omni present.

I wouldn't let a few popped asset classes fool you!

I think this is going to surprise a lot of people when it hits. I think it will hit hard and fast. Argentina, Mexico hard and fast.

Take care

 

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Puplava

I would like to contribute something from the other camp to this discussion....

  • Debt is ultimately deflationary. 
  • A build up of debt proceeds deflationary depressions. The biggest debt bubble in history just popped. I wonder what is next?
  • Investor sentiment (or mood) is what moves the currency markets (all markets). The dollar, technically, cannot be devalued, because what can you devalue it against? All other currencies are derivatives of the dollar.  The dollar has dropped not because of fundamental factors, but because of speculation.
  • Mr. Puplava is a well-known commodities speculator. Is it any wonder that he is pro-inflation? He stands to profit from a get long commodities, get bearish on the dollar, and get loud stance. Is he right? Was he right last year?
  • We currently have a bubble in bearish sentiment for the dollar. If you want to invest in that bubble, thats your choice, but do so knowing that it will pop one day.

Thanks.

 

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Davos
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Re: Puplava
JAG wrote:

I would like to contribute something from the other camp to this discussion....

  • Debt is ultimately deflationary. 

[Totally agree - when it unwinds anyway.]

A build up of debt proceeds deflationary depressions. The biggest debt bubble in history just popped. I wonder what is next?

[Totally agree!]

Investor sentiment (or mood) is what moves the currency markets (all markets). The dollar, technically, cannot be devalued, because what can you devalue it against? All other currencies are derivatives of the dollar.  The dollar has dropped not because of fundamental factors, but because of speculation.

[What if they did what Mexico and Argentina did and said bring in 100 old dollars and you get 1 new dollar? Other countries could ditch the USD for their own BRIC basket, IMHO both are bad but the first at least they can negotiate with our creditors]

Mr. Puplava is a well-known commodities speculator. Is it any wonder that he is pro-inflation? He stands to profit from a get long commodities, get bearish on the dollar, and get loud stance. Is he right? Was he right last year?

[I think he does 60% or 40% right. I think he is pretty straight but I respect your question]

We currently have a bubble in bearish sentiment for the dollar. If you want to invest in that bubble, thats your choice, but do so knowing that it will pop one day.[Not sure what you mean here. I think 'deflation" is an easy prep job - hoard cash. "Inflation" I think needs PMs and food etc....]

Thanks.

 

Just my thoughts added to your bullet points. I respect you point of view. I'm pretty much a lone voice in the woods on this issue, I see that from all the blogs I go to. Everyone else may be right and I could be wrong. NOT trying to argue, just want to point out a glaring issue I see. Debt/insolvency. I think everyone is just looking at bank credit. That isn't who the USA is indebted to. That isn't the USA's creditors. That isn't what our dollar is tied to - but it sure as heck can be tanked by the banks as well as the creditors. Take it easy

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Re: Daily Digest - September 10

http://news.bbc.co.uk/1/hi/business/8249645.stm

Hey my American friends! Your amazing president and his golden-magical stimulus cheque book has created over ONE MILLION jobs!!

Geeee! Ain't creating jobs easy! What you guys worried about?

(ps: exactly where are these jobs, and also how come the US unemployment figures keep on going up?....)

 

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saxplayer00o1
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Re: Daily Digest - September 10

Just a few more news items:

 

1) Singapore seems to be having doubts about the dollar:

'We cannot assume the US will be the big consumer market for all of us,' Mr Goh said.

Another challenge relates to the financial sector and the use of the US dollar as a reserve currency. 'We invest our funds in the dollar, so does China,' Mr Goh said. 'We have to assess where the US dollar will be heading, and where the renminbi will be heading.'

 

2) Nigeria loses money on falling dollar

 

3) Utah retirement fund facing $6.5 billion shortfall

4) Pelosi looks to extend unemployment benefits as they are expiring

for 1.5 million Americans

5)  NEW YORK (Reuters) - If the kids are back at school, it must be time to sell the U.S. dollar. Or at least that's what history suggests for the greenback.

 

6) ....and probably going through the minds of the leaders of China, Singapore and Nigeria as they think about their dollars  

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Re: Daily Digest - September 10

Linda and the "estimated" .9 trillion new health care. Untied Debt of Addicts: We spend it faster then Ben prints it. In Counterfeit we trust.

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Re: Daily Digest - September 10

MARC FABER - No faith in the US economy.

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Re: Daily Digest - September 10

Hi Davos,

Thanks for your input. From what I know about you, I think our differences are very minor, and our commonalities are very significant. 

Actually, the scariest thing to me personally, is I'm starting to think we might both be wrong, at least for the near future.. That the next 10 years will end up being just like the last 10 years, is something I have a hard time swallowing. I'm not sure if I can live with another bubble/ business cycle.

I put off major life plans because of the real estate bubble. I paid through the nose for gasoline and goods because of the commodity bubble, and I didn't participate in the recent stock bubble, but I still managed to lose purchasing power. Its time for the savers, the conservative minded (non-political) to be rewarded for their discipline. Its time for all of the effort that we invested in understanding this riddle that we call the American economy to pay off. Its time.

Disclosure: I am a deflationist because I'm a saver. Inflation punishes savers and rewards speculators.

 

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Re: Daily Digest - September 10

This was just posted to Financial sense and I found it a good article explaining the pickle the U.S. is in.

http://www.financialsense.com/fsu/editorials/puetz/2009/0909.html

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Re: Daily Digest - September 10

Hello Jeff:

Yup, time will tell and there are always wild cards so who the heck really knows!

So far my purchasing power has NOT dissipated. I'm out of the market save for a few shorts and I do them with puts or calls on inverse ETFs, so it is like a ticket at the horse races, my cost is fixed thanks to options, which also leverage me.

Take care

PS If I had a disclaimer it would be: There is no such thing as inflation or deflation. I have faith in 4G's: The first one is religous so moving right along, Gold, Guns and the Government will destroy the dollar and everything else it fixes. Our books are more creative then Enron, we are less solvent then Enron.

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Re: Daily Digest - September 10
pwoody82 wrote:

This was just posted to Financial sense and I found it a good article explaining the pickle the U.S. is in.

http://www.financialsense.com/fsu/editorials/puetz/2009/0909.html

I just skimmed it. I don't see anything about our 80+ trillion in debt or about how we can't service the existing debt without counterfeiting/QE or that we take in 2t and blow 4t out the door and can't get loans to do that.

I'm going to shut up now, I'm sure everyone on this board has read the flags I've tossed out. Good luck to all with what ever you believe is correct.

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Re: Daily Digest - September 10

Very good discussion here with many interesting comments and different viewpoints expressed!

 I agree, targetbuster, whether we have inflation, deflation, or both, and in what order, is the $64,000 dollar (or should that be $64 or $64 trillion) facing us for this year and maybe several years to come.  It's a very tough call—I'd hate to be a pundit for a living. And yes, it will probably end very badly for the American taxpayer, and for many others. 

 If you believe that inflation is imminent, having your wealth in US dollars is probably the last thing you want.  I suppose that is why Puplava and others advocate precious metals, commodities and non-US stocks. 

 If you believe that deflation is imminent, then as suggested by Prechter, you probably want to be in the US dollar, and then, when the deflationary period bottoms, invest your US dollars into something else. 

 JAG, I have too much respect for Puplava to believe that he is advocating his inflationist viewpoint just for the sake of  his company's interests.  But, as you (and Puplava's irate caller) suggested, he and others in the inflation camp probably got hammered last year when the sub-prime mortgage bubble broke.  And, as pointed out by igorcarajo and pwoody82, the default of these loans and their corresponding SIVs had to cause a lot of that money to just "disappear."

 Davos, you are far from alone—I think that eventually, we will have world-wide hype-inflation as multiple fiat currencies fail.  Even Prechter admitted that this as a possibility for the US during his interview with Puplava.

 My concern is with the timing.  As JAG pointed out: "The biggest debt bubble in history just popped."  My concern is that even bigger bubbles are going to pop over the next few years, and that we will see a substantial repeat of last fall, including a flight back to the perceived safety of the US dollar. 

 For instance, just considering real estate, the sub-primes were just the first wave of real estate mortgages likely to default.  There are also residential private alt-A, option ARM, interest only and prime mortgages, and commercial real estate mortgages, that are going to reset over the next few years.  See e.g.,

 http://latimesblogs.latimes.com/laland/2008/12/60-minutes-repo.html

 http://www.businessinsider.com/henry-blodget-coming-soon-the-alt-a-mortgage-reset-bomb-2009-8

 http://www.calculatedriskblog.com/2007/10/imf-mortgage-reset-chart.html

 http://www.imf.org/external/Pubs/FT/GFSR/2007/02/pdf/chap1.pdf

 http://www.commercialbanc.com/z-article-cmbs-conditions-bad.html

 In particular, take a look at this graph of resets: http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg

 We are presently sitting in a local minimum on the graph, but in late 2009, local maximums will occur for all of these types of mortgages.  Then, another local maximum in the fall of 2010, and then the maximum number of resets occurs in about the summer of 2011.   It looks to me that the sum total of all of these resetting mortgages will about the same or larger than the sub-prime peak that occurred in the fall of 2008.   

 It also seems very likely that when these mortgages reset, a large fraction of the mortgagors will default. (see e.g. slide show at: http://www.businessinsider.com/henry-blodget-half-of-us-homeowners-underwater-by-2011-2009-8#now-14-million-underwater-next-year-25-million-1)

 My concern is that a series of increasingly large numbers of mortgage defaults will cause deflation at least until the end of 2011.   After that who knows, maybe all the credit expansion by the government will come home to roost and then hyper-inflation will kick in.    On the other-hand, maybe the government is on the ball, they knows this is coming, and is hell-bent on counter-acting the destruction of money that the defaults will cause and so there will be no deflation after all.  What troubles me, however, it that the government should have known that peaks in subprime mortgages were going to occur in late 2007 and fall 2008, shouldn't of they?  So maybe there isn't much that they can do to stop this after all. 

 I don't know...reasonable minds can certainly disagree. 

 It would be interesting to see how this will play out—if I were watching from another planet.  But to be in the middle of it—that's just scary.

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Debt, Inflation, & Deflation

pwoody,

That was a hellava article that you posted by Steve Puetz. My head is still spinning and my eyes hurt after reading it. Although its the best argument for deflation that I have read in quite some time, it made me reconsider the inflationist argument for a currency crisis. Its seems to me, that both a deflationary spiral and currency crisis, occurring simultaneously, are very likely. Up until this point, I thought the two were mutually exclusive. 

One thing is for sure, the science of economics will have a whole new vocabulary after this crisis has passed.

Thanks for the post.

Jeff

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Re: Daily Digest - September 10

How about another alternative to the inflation/deflation debate?  Let's say it's neither inflation nor deflation.  It appears there is no stopping the government's massive spending machine.  And note that tax receipts are way down.  And the Federal Reserve keeps printing money (electronically) like there is no tomorrow.  And we know there is a trend in the BRIC  countries to trade using other currencies besides the dollar.   Already a lot of us are moving out of dollars and into precious metals & other alternatives.  And we know China is not so interested in buying Treasuries.   Suppose there is simply a failure of the currency in that gradually  -- or maybe even suddenly  --  nobody wants dollars anymore. 

Take a look at http://fofoa.blogspot.com/2009/09/end-of-currency.html and

http://fofoa.blogspot.com/2009/08/dollar-repudiation.html

  

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Re: Daily Digest - September 10

Hucklejohn

I see you found fofoa. I've posted some of his thoughts over the last two days including one earlier today. He makes a lot of sense to my toubled mind. But the ultimate result of the dollars demise has to be an "inflationary effect". Whether that is true academic inflation doesn't matter. Prices will rise in US dollars and our stadard of living will quickly move in the opposite direction. 

Cause when our credibility and the piece of paper representing it falls, we'll have to pay a huge price to lure capital to the capitol. 

Here's another quote on that note:

"The price inflation that many don't or can't see happening, will be the result of our currency management changing to confront the nature of all the above. As this happens the US will have to raise rates even as it massively prints more currency to support our internal economy [obligations!]. Our entire economy will slow and fail as this price inflating process moves on. Some will call it stag/flation, but will change that description as it becomes more of a crash/hyperinflation.

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Re: Daily Digest - September 10

1) (Warren) "Buffett, 79, has been looking outside the U.S. for investment opportunities as the federal deficit swells."

"Berkshire has been buying securities issued by governments outside the U.S. The company held about $11.1 billion in foreign government bonds in its insurance units as of June 30, compared with $9.6 billion three months earlier, Berkshire said in a regulatory filing on Aug. 7.

The value of holdings in U.S. Treasuries and so-called government sponsored enterprises slipped 5.3 percent in the three months ended June 30 to about $2.5 billion.

Buffett said in a New York Times commentary last month that the “monetary medicine” pumped into the financial system poses threats to the U.S. economy and its currency.

“Unchecked greenback emissions will certainly cause the purchasing power of currency to melt,” Buffett said. “The dollar’s destiny lies with Congress.”

 

2) China's currency swaps may extend to the middle east and Latin America

 

3) Dude, the good news is that I found the green shoots (more like green buds) on the economy.

 

 

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Re: Daily Digest - September 10

A Rout on the Dollar

You know the dollar is not faring well, when not only the usual suspects of euro, Aussie (AUD), kiwi (NZD), loonies (CAD) and francs (CHF) are taking liberties with the dollar, but also the Japanese yen (JPY)… And THAT, folks, is an indication to me that maybe, just maybe, cause you never know, fundamentals could be coming back to the head of the class. Oh! And one other thing that puts a nail in the dollar’s coffin is, last night I checked the price of gold, too… Then it was $999. This morning… It’s $1,005!!!!!!

So… We’ve got euros kicking tail and taking names, and gold kicking the dollar when it’s down. We’ve seen this type of rout on the dollar before… They used to take place at least once a week before the financial meltdown in August of 2008… And before the collapse of Lehman Bros. That’s when the markets, traders, and investors, all had their eye on the fundamentals ball, and whacking the dollar out of the park whenever another piece of bad data came the dollar’s way.

If this is the beginning of another period like we saw pre-August 2008, then get ready to strap yourself in, and make certain to keep your arms and legs inside at all times during the ride! If it’s a false dawn, it sure is a strong false dawn!

...

And with all these strong currency moves… The dollar index has fallen to a low for the year at 77.24… This is a significant move, folks… Because… In the first quarter of this year, the dollar index got down to 77.40, and bounced higher from there… And here we are again… It was thought that the 77.40 figure would prove to be a resistance figure… But the dollar slid right past that figure. I would think that having the index remain below 77.40 for the day and overnight would be HUGE!

So… Before I finish for the day… Let’s recap… The dollar has fallen big overnight… The Chinese are not happy with the Fed printing dollars… The UN is talking about replacing the dollar with a global currency that is issued by a “new global reserve bank”… And all the currencies along with gold and silver are rallying on these things.

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The dollar's at 76.59...

...according to the ticker on the CM homepage.  About a month ago, folks here were saying "When the dollar slides under 78, expect all H-E-Double-Hockeysticks to break loose."  Now it's under 77.  Should this be a hair on fire moment?

Viva -- Sager

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Re: Daily Digest - September 10

My concern is with the timing.  As JAG pointed out: "The biggest debt bubble in history just popped."  My concern is that even bigger bubbles are going to pop over the next few years, and that we will see a substantial repeat of last fall, including a flight back to the perceived safety of the US dollar.

 

What if the flight to safety becomes precious metals or a new reserve currency and a universal dumping of the dollar?  Wouldn't that still result in some sort of inflation for the US?

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Re: The dollar's at 76.59...
SagerXX wrote:

Should this be a hair on fire moment?

This looks ominous to me! http://stockcharts.com/charts/gallery.html?$usd

The weekly charts have had a strong bearish divergence for a while. For the past few weeks, though, it looked like a rounded bottom might be put in, but recent price action has definitively broken through that. The next point of resistance would be around 76. There's a bit at 74 and 72 as well. But just looking at the chart and the indicators, it looks pretty bad to me. But since Timmy has assured us (and the Chinese) that he believes in a "strong dollar policy," I have no doubt that the normal rules will not always apply. I'm sure that Central Bank interventions will occur before things get really dramatic. That said, foreign vacations are not going to be getting any cheaper, I think.

I'm beginning to get the impression that there may never be an all out dramatic action from the Chinese that would threaten imminent collapse to America. It seems that China is just following a methodical path of slowly increasing its economic clout. At the same time, America continues to arrange deck chairs, as the expression goes. Of course, no one knows what's coming up ahead, but both the fundamentals and technicals of the US Dollar are very weak. Further, the international politics of the US Dollar are not supportive. Central Bank interventions appear to be the primary mechanism used to support the dollar. And apparently, even that's not enough.

I just try to remind myself that precious metals are generally best in a panicky type atmosphere or one in which there is a loss of faith. As we've seen from 1980-2000, they don't always do so well in keeping up with "normal" inflation during the good times. The price action in PMs has been strong, even on days when the dollar was moving up. Further, PMs are now moving up as the stock market moves up, which good be taken to indicate that there is not full confidence in this rally.

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Re: Daily Digest - September 10
mike wrote:

'm beginning to get the impression that there may never be an all out dramatic action from the Chinese that would threaten imminent collapse to America. It seems that China is just following a methodical path of slowly increasing its economic clout.

This is key to understanding China--they're playing a long term game focused on 2050.  The Asian way is all about stability.  This contrasts profoundly with a panicky US where businesses are quarterly focused, the Fed is at max medium-term focused, and we're all caught in an emotional short-term noise zone called the US media.  

We hear a guy like Schiff say "we'll decouple tomorrow, bonds are worth zero, the dollar will die, send all money offshore!" and some think we better do it before tomorrow because we know there's no question he's right about the end game.  The Chinese hear it and know it's correct as well, but they're thinking "in due time my friend....in due time....breathe my child....breathe."

Checkout Mahbubani's book if you're curious about the Asian perspective, which possibly helps americans anticipate how China is going to play things, which means it's also how the G2 will play things (despite our hyper-emotional short-term society, our econ relationship through the G2 is going to be more longer-term than the media portrays).  

http://www.amazon.com/New-Asian-Hemisphere-Irresistible-Global/dp/158648...

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Re: Daily Digest - September 10

Crash-watcher ,

I faced the same concern 1 or 2 years ago, when the same discussion took place on FSO between J.Puplava and R. Prechter.

Jim was in favor inflation first and deflation later, Robert  the opposit.

Both positions deserve merit, but I had to come to a conclusion for my savings and I found in the interesting 200 years graph of the DJIA/Gold ratio, which stood at 40 in 2000 now at 10 (4 fold gold revaluation in purchsing power) and a potential target of 1 in the coming years.

What I find interesting is that using this ratio, you avoid the issue inflation vs. deflation because what matter is the ratio not the values.

I think this hypothesis work for those products (investments) in short (or limited) supply.

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Re: Daily Digest - September 10

Crash-watcher ,

I faced the same concern 1 or 2 years ago, when the same discussion took place on FSO between J.Puplava and R. Prechter.

Jim was in favor inflation first and deflation later, Robert  the opposit.

Both positions deserve merit, but I had to come to a conclusion for my savings and I found in the interesting 200 years graph of the DJIA/Gold ratio, which stood at 40 in 2000 now at 10 (4 fold gold revaluation in purchsing power) and a potential target of 1 in the coming years.

What I find interesting is that using this ratio, you avoid the issue inflation vs. deflation because what matter is the ratio not the values.

I think this hypothesis work for those products (investments) in short (or limited) supply.

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Re: Daily Digest - September 10

Crazyhorse, you might be right, maybe the flight will be to something other than the USD. 

But I believe that part of the reason that the USD index went up last year when the sub-prime bubble burst was because the SIVs "tranches" and credit swaps were denominated in USD, and had to be settled in USD.  That, in turn, drove up the demand for USD and drove down the demand of other currencies, stocks and commodities.  So, the USD, in the panick of last fall, still looked relatively "safe," at least temporarily. 

It seems likely to me that the SIVs based on the other real estate mortgages that I mentioned (alt-A, option ARM etc...) are also largly denominated in USDs.  So if these mortgages also default, as they seem highly likely to do in the coming years, I am concerned that we will see the same behaviour, with the value of the USD going up, at least temporarily, and everything else going down.  

Of course, many others, including foreign governements and investors, can see this as well, and they would surely like to avoid a repeat. 

 

 

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Re: The dollar's at 76.59...
SagerXX wrote:

Should this be a hair on fire moment?

I smell smoke . . . .

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Re: The dollar's at 76.59...
C1oudfire wrote:
SagerXX wrote:

Should this be a hair on fire moment?

I smell smoke . . . .

...hmm....gives the phrase "took a haircut on that deal" a while new meaning.  Surprised

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Re: The dollar's at 76.59...
Mike Pilat wrote:

I'm beginning to get the impression that there may never be an all out dramatic action from the Chinese that would threaten imminent collapse to America. It seems that China is just following a methodical path of slowly increasing its economic clout. At the same time, America continues to arrange deck chairs, as the expression goes.

Thanks for your thoughts, Mike.  I'm dubious the Chinese would pull the rug out, too.  At least not until they are far more substantially decoupled from the USD.  For now, they have over 2 trillion reasons to nurse things along...

Viva -- Sager

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