from Zero Hedge:
In today's interview with King World News, Art Cashin confirms that through its endless meddling, intervention and manipulation over the past two years, the Fed has essentially broken the market: "You used to have markets that were not particularly correlated. The asset classes now seem to be so heavily dominated and in inverse relationship to the dollar, and in direct relationship to the euro... It's frustrating having honed my skills over 50 years to be able to interpret news, and look at a piece of economic data, and try and outwit the rest of the world by figuring out how it would work, and now all you have to do is look and see how the dollar is reacting and know how everything else works. And that huge correlation is not good for people because if everything is correlated in a basket like that, it is very difficult for people to hedge and protect themselves, and therefore when assets move they tend to move altogether." In other words, step aside Value Investor Congress - meet Lack of Value Dollar Correlation Congress. But readers have known that for over three months. Just as they know that lately the biggest concern on Cashin's mind is hyperinflation "the difficulty is while you can get what appears to be nominal benefit out of [hyperinflation], when you try to convert to a hard asset, or even use it to try to buy a needed good, and the perfect example is Zimbabwe. If you were from out of space, and just could get the records of the Zimbabwe stock market you would say, "wow, they are having a pretty good time down there." But they are going up because the assets they hold are going higher and higher in a debased currency." And Cashin on his hyperinflationaty musings from earlier in the week: "My hope is that we don't get anything like that - hyperinflation would be destructive to civilization... But you are right, not only Zero Hedge, I think that was the most emailed comment that day all over the country." He may well be right. And he is certainly right about the Shazam moment: "Money only gets velocity when you lend it or spend it. The difficulty with studying things like the Weimar republic, is that the money supply growing drastically the initial reaction was small. There was very little doing, and it went slowly, until it went suddenly, and when it went suddenly, it went parabolic."
With $3+ trilion in excess reserves about to hit bank basements courtesy of QE2, the Fed will have to guard the biggest pent up demand of 'deferred' animal spirits in history. The biggest threat to the world will be not ongoing deflation at that point, but if the economy actually does pick up, and people start borrowing again! Then the money held in bank basemenets will flood the market, flood the streets, and hyperinflation will show up in a matter of seconds. And no, contrary to what Dudley and Sack believe, the cute IOER ploy will not work.
Once again, and we can not stress this enough, everyone should read this free copy of The Dying of Money (link) to understand just how serious our situation really is.
Full King World News interview with Art Cashin.
Saturday, October 16, 2010
from Zero Hedge:
2- They could argue that America's prescription for China's economic rebalancing – a stronger currency and a boost to domestic demand – was precisely the policy followed by the Japanese in the late-1980s, leading to the biggest financial bubble in living memory and the 20-year hangover that followed.
3- They could argue that the demand for a renminbi revaluation is, in truth, a policy of American default.
4- During the Asian crisis in 1997-98, Western nations, under the auspices of the IMF, insisted that Asian nations, having borrowed too much, should now tighten their belts. But the US doesn't seem to think it should abide by the same rules.
THE FACTS – JUST THE FACTS! – Of the 35 facts below, how many will you hear during the campaign?
10- In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th. Source: MACLEANS.CA
11- In 2008, 1.2 billion cell phones were sold worldwide. So how many of them were manufactured inside the United States? Zero. Source: The American Prospect
17- The U.S. trade deficit is running about 40 or 50 billion dollars a month in 2010. That means that by the end of the year approximately one half trillion dollars (or more) will have left the United States for good.
18- Between 2000 and 2009, America's trade deficit with China increased nearly 300 percent.
19- According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
20- If our trade deficit with China increases at its current rate, the U.S. economy will lose over half a million jobs this year alone. Source: Economic Policy Institute [PDF]
21- As of the end of July, the trade deficit with China had risen 18 percent compared to the same time period a year ago. Source: Economic Policy Institute [PDF]
22- The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States. Source: The Economic Collapse
23- One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040. Source: MarketWatch
32- Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power.
33- U.S. government spending as a percentage of GDP is now up to approximately 36 percent.
34- The Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.
The chart above was updated in the fall of 2009 in my thesis paper: Extend & Pretend. It was pointed out that the public policy decisions taken by the administration would be the deciding factor on where the market headed after a 2008 market sell-off counter rally was completed; a subsequent consolidation down leg took place and the effects of the policies were evident. We are now entering the latter period. It doesn’t look pretty.
Stop interfering and let capitalism work its proven magic!
Friday, October 15, 2010
The divergence for oats was even more striking!
With Bernanke talking of more quantitative easing today, I find it hard to believe that commodities have topped out, but the signs certainly point at that possibility. Prices must now confirm this by moving lower in the next few days.
by Victor Davis Hanson at Investors.com:
We will learn in November just how angry the public is about a lot of things, from higher taxes to massive unemployment. But the popular uproar pales in comparison to the sense of humiliation that we Americans are quite broke.
In 2008, the public was furious at George W. Bush, not because he was too much of a right-wing tightwad, but because he ran up a series of what were then thought to be gargantuan deficits.
The result was that under a supposedly conservative administration, and despite six years of an allegedly small-government Republican Congress, the deficit nearly doubled from $3.3 trillion to $6.3 trillion in just eight years.
Barack Obama apparently never figured out that he had been elected in part because that massive Republican borrowing had sickened the American people. So in near-suicidal fashion, he took Bush's last scheduled budget deficit of more than $500 billion — in a Keynesian attempt to get the country out of the 2008 recession and financial panic — and nearly tripled it by 2010.
Giving It All Away
Obama's new red ink will add more than $2.5 trillion to the national debt — with near-trillion-dollar yearly deficits scheduled for the next decade. All of that will result in a U.S. debt of more than $20 trillion.
What exactly is it about big deficits and our accumulated debt that is starting to enrage voters?
First, the public is tired of the nonchalant way that smarmy public officials take credit for dishing out someone else's cash without a thought of paying for it. Each week, President Obama promises another interest group more freshly borrowed billions, now euphemistically called "stimulus."
But the more public money he hands out to states, public employees, the unemployed or the green industry, the more voters wonder where in the world he's getting the cash. The next time a public official puts his name on yet another earmarked federal project, let him at least confess whether it was floated with borrowed money.
Second, there is a growing sense of despair that even vastly increased income taxes cannot cover the colossal shortfalls. At least the old Clinton tax rates of the 1990s balanced the budget. But should we bring them back, we would still run a deficit of more than $1 trillion in 2011 — given the vast increases in federal spending.
That bleak reality creates hopelessness — and anger — among voters, who feel they are being taken for fools by their elected officials. The public opposes tax hikes not because they don't wish to pay down the debt, but because they suspect the increased revenue will simply be a green light for even greater deficit spending.
Third, it does no good for Beltway technocrats to explain how deficits are good at "stimulating" the economy, or why they do not really have to be paid back. Voters know that such gibberish does not apply to their own mortgages and credit card bills.
Voters feel relieved when they can pay off debt and become chronically depressed when they cannot. When the government last balanced the budget in 2000 under the Clinton administration and the Republican Congress, the country collectively experienced as much of a psychological high as it is now collectively experiencing humiliation over being ridiculed as a spendthrift borrower.
So national reputation and sense of self also matter. Americans are tired of hearing about inevitable Chinese ascendancy and American decline. They know China is still in many ways a repressive developing country facing huge political, environmental and demographic challenges.
But Americans also concede that China's huge budget and trade surpluses result in trillions of dollars in cash reserves — and hence global clout, world respect and a promising future that seems not likewise true of spend now/pay later America.
Fourth, there is real fear that something terrible will soon come from this unsustainable level of spending. Interest rates are at historic lows. But if they should rise, just servicing the current debt would cost even more hundreds of billions in borrowed dollars.
Vote 'Em Out
Soon, we will face a bleak choice of either slashing national defense or Social Security — or both — just when the nation is graying and the world is becoming more dangerous than ever. Will the Chinese lend us the money to deploy an aircraft carrier off their coast, or finance new American health-care entitlements that they cannot afford for 400 million of their own people?
In this upcoming election, all the old political pluses — years of incumbency, entrenched seniority and pork-barrel earmarks — are proving to be liabilities. Instead, the more public officials admit to being in control when trillions of dollars were run up, the more Americans want them gone.
We are humiliated by what we owe. If we cannot pay it back, we will at least want political payback. It's that simple this year.