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publius
2011-Nov-10, 10:37 PM
I couldn't resist, if you don't like, we'll come up with something else.


-Richard

publius
2011-Nov-10, 11:44 PM
And I almost forgot about this:



Who's the legally guilty party in the US for a bribe? The payer or the payee? Or both?
I personally can't get my head round the fact that none of the bankers were charged.


It's both, although it's not uncommon that only one side will be convicted or even charged in some cases. And while in popular terminology bribery is pretty straightfoward, the legal definitions are a mess and you have both federal and state law at work.

And indeed any honest person would be surprised they didn't go after the bankers, but that is par for a very disgusting course. Not only are these banks (and other large concerns) Too Big to Fail, they're Too Big for Jail. They fear if they were to take strong criminal action against them, it would roil the markets too much, especially now, so they end up fining them and they promise never to do it again. Sometimes they'll go after individuals criminally (once they've been fired from the company) but they'll never go after TBTF criminally.

In the long run, that just makes things worse of course because it just makes the public believe the system is corrupt with a two-tiered system.

A big example of this is drug money laundering. Our banks (and others) are up to their eyeballs in it:

http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html

How much do the Mexican cartels make per year? It's in the billions, and you don't deal with money like that cash only in suitcases. It's obvious they use the financial system

Ara Pacis
2011-Nov-11, 06:09 AM
I have a feeling that we'll run this thread to the max too. Do we have any major economic data coming out soon, or will we just watch it all chug along for the next few weeks?

PraedSt
2011-Nov-11, 06:38 AM
A big example of this is drug money laundering. Our banks (and others) are up to their eyeballs in it:

http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html

How much do the Mexican cartels make per year? It's in the billions, and you don't deal with money like that cash only in suitcases. It's obvious they use the financial system

Amusing Wachovia defence from that article. "We didn't spot a sum equal to 1/3 of Mexico's GDP being funneled through our accounts." Who believes this sort of stuff?

PraedSt
2011-Nov-11, 06:48 AM
I have a feeling that we'll run this thread to the max too. Do we have any major economic data coming out soon, or will we just watch it all chug along for the next few weeks?Well it looks like Europe's heading towards an reorganization of some sort. I'm curious as to how the stock market will handle it when it comes.

Ara Pacis
2011-Nov-11, 08:18 PM
Well it looks like Europe's heading towards an reorganization of some sort. I'm curious as to how the stock market will handle it when it comes.Godwin's law?

PraedSt
2011-Nov-11, 08:32 PM
Godwin's law?Oh no, nothing so serious. Just the EU throwing members out, or Germany leaving, etc. We'll have resurrected currencies, lots of elections and plenty of schadenfreude! Exciting times. And then there's always the gorilla train wrecks of the US, Japan and China to come.

p.s Sorry I haven't replied on the Train thread, I've been busy. But I will!

peteshimmon
2011-Nov-11, 11:07 PM
Another week and all's well!
I say.

BTW PraedSt, did you/do you know
Northern Boy? Seems to operate
in the same World as you.

publius
2011-Nov-11, 11:07 PM
Well, I don't know if ready to pronounce sticksave yet, but they got the Italian patient stabilized. Yields have come down, and the inversion has subsided on the bond side:

10Yr: 6.45%
5Yr: 6.46% (still technically 1bp above the 10, but we'll call that inversion averted
3yr: 6.15%
2yr: 5.69% (that's an 11% drop)
Bills:
1yr: 6.61%
6m: 5.86%
3m: 4.96%

So we've still got inversion with the 1yr zero coupon vs the bond side, and the 6 month yielding above the 2yr, but we've stabilized.

And as someone I was reading was pointing out, this moves have been 6-sigma and greater events. Heck, I think the rocket shot on the 1yr was a 10 sigma move. At any rate, these 6-sigma moves are occuring a heck of a lot more frequently than 6-sigma events should, of course meaning the models that calculate the sigma are wrong. :lol: And that's really been the whole problem with all these economic and financial modelling that has served us so well. They are right until they're wrong, and when they go wrong, they go wrong big time.

publius
2011-Nov-11, 11:13 PM
And then there's always the gorilla train wrecks of the US, Japan and China to come.


That's coming in a couple of weeks. The vaunted Super Committee's deadline is Thanksgiving or a couple days before, and word is they're deadlocked. Moody's has hinted at a downgrade themselves if they don't get their act together and S&P might go down another notch, so expect lots of trainwreck on that front very soon.

banquo's_bumble_puppy
2011-Nov-12, 06:54 PM
:-)

HenrikOlsen
2011-Nov-12, 09:32 PM
Why do people even listen to Moody's and S&P anymore, when they're part of the reason for the train wreck by their disastrously wrong multi-A ratings of the toxic crap the banks were passing around between them?

publius
2011-Nov-13, 09:26 PM
I trust you all are aware of the vaunted EFSF, which stands for the European Financial Stability Fund, which is the latest bailout vehicle that is supposed to save the EU. It is a bunch of financial razzle dazzle, the details of which I don't understand, but somehow it was going to lever itself up to E1T, one trillion euros, worth of firepower to bail out PIIGS as need be. The structure of the thing is about the same as all the nonsense created in the housing bubble, you know the CDOs and all that garbage that supposedly made risky loans become risk free.

Well, to get that 1T, the thing needs to issue debt, which it is via bonds, EFSF bonds. Well, funny thing was, for something that was going to lever up to 1T, it was having trouble even selling less than 10B euros of bonds. Last week they held an auction for E3B worth of EFSF bonds. 3B compared to 1T, keep in mind.

According to this, turns out even that was a lie:

http://www.telegraph.co.uk/finance/financialcrisis/8886380/Eurozone-bail-out-fund-has-to-resort-to-buying-its-own-debt.html

They had to buy 300M of their own bonds to keep the auction from failing, and failing on a measly 3B total.

Today, they denied that story:

http://www.reuters.com/article/2011/11/13/us-eurozone-efsf-idUSTRE7AC0M520111113?feedType=RSS&feedName=businessNews&utm_source=dlvr.it&utm_medium=twitter&dlvrit=56943

We didn't buy our own bonds, they say. Note the part about "upheaval has made it difficult" to lever up to E1T. :lol:

baskerbosse
2011-Nov-13, 10:57 PM
Isn't there an Italian bond auction coming up today?
Who will buy? :-)

Peter

publius
2011-Nov-14, 04:24 PM
Isn't there an Italian bond auction coming up today?
Who will buy? :-)

Peter

Yep, there was, E3B of 5yr bonds. On the one hand, the auction was weak, a record yield of 6.29% and a bid to cover of 1.47. On the other hand, the prevailing yield in the market before the auction was 6.43%! So they engineered a rabbit out of their hats on that one. What they pulled, I don't know, but yields starting spiking up across the board after the auction, the ECB intervened, buying up some, but yields are continuing to rise.

Also I was reading something with some charts of the ECB's action that shows clearly they pulled support last week, allowing Italian yields to spike (note this tells you what the market would do without ECB intervention), then started back intervening once Berlusconi announced he would resign. It is clear the ECB did this to force Berlusconi out. Get rid of him or we abandon you to your fate.

And meanwhile Spanish yields went over the 6% mark and CDS spreads on all the sovereigns are blowing out as well.

publius
2011-Nov-14, 04:46 PM
And something else to ponder. The new head of the ECB is Italian Mario Draghi. He's a former Goldman Sachs honcho. Berlusconi's replacement, Mario Monti, was a Goldman "advisor" of some sort as well. The same is true for the purported new boss in Greece, "L-Pap", Papademos or whatever. He was a Goldman "advisor" as well, and was the head of the central bank in Greece when Goldman was helping engineer the tricks that let Greece hide its true debt levels.

Giant Vampire Squid.

Noclevername
2011-Nov-14, 05:14 PM
Giant Vampire Squid.

Cthulhu Economics?

publius
2011-Nov-14, 05:50 PM
Rumble, rumble. Unicredit, Italy's biggest bank, just reported a E10.6B loss in Q3, on "expectations" of a smidge of profit, a few million, and announced it will need to raise E7B or so in new equity capital. Trading has been suspended as its shares fell like a rock. Euro is dropping as well.

Also, Moody's just announced it's putting Credit Suisse (Big Swiss bank) on credit review. And the ruling party in Germany just voted to created a mechanism for Euro exit.

Incidently, Unicredit is one of the descendents of Creditanstalt.

Drunk Vegan
2011-Nov-14, 09:36 PM
That's coming in a couple of weeks. The vaunted Super Committee's deadline is Thanksgiving or a couple days before, and word is they're deadlocked. Moody's has hinted at a downgrade themselves if they don't get their act together and S&P might go down another notch, so expect lots of trainwreck on that front very soon.

Should the thread be called Black Friday then? :)

HenrikOlsen
2011-Nov-15, 04:44 AM
And the ruling party in Germany just voted to created a mechanism for Euro exit.
OUCH!
That's basically a declaration that they'll remove themselves from the Euro before allowing themselves to be dragged into a money printing adventure.

novaderrik
2011-Nov-15, 07:55 AM
And something else to ponder. The new head of the ECB is Italian Mario Draghi. He's a former Goldman Sachs honcho. Berlusconi's replacement, Mario Monti, was a Goldman "advisor" of some sort as well. The same is true for the purported new boss in Greece, "L-Pap", Papademos or whatever. He was a Goldman "advisor" as well, and was the head of the central bank in Greece when Goldman was helping engineer the tricks that let Greece hide its true debt levels.

Giant Vampire Squid.

hmm.. so you're saying that Goldman Sachs might have a little bit of influence on things in Euroland..
for some reason, i find that somewhat unsettling..

profloater
2011-Nov-15, 01:52 PM
hmm.. so you're saying that Goldman Sachs might have a little bit of influence on things in Euroland..
for some reason, i find that somewhat unsettling..A little bit of influence!!!!!!!!!!!I will go get my Private Eye latest which has a nice list.

profloater
2011-Nov-15, 01:57 PM
pasted from Amazon website.... a revelatory history of Goldman Sachs, the most dominant, feared, and controversial investment bank in the world

For much of its storied 142-year history, Goldman Sachs has projected an image of being better than its competitors--smarter, more collegial, more ethical, and far more profitable. The firm--buttressed by the most aggressive and sophisticated p.r. machine in the financial industry--often boasts of "The Goldman Way," a business model predicated on hiring the most talented people, indoctrinating them in a corporate culture where partners stifle their egos for the greater good, and honoring the "14 Principles," the first of which is "Our clients' interests always come first."

But there is another way of viewing Goldman--a secretive money-making machine that has straddled the line between conflict-of-interest and legitimate deal-making for decades; a firm that has exerted undue influence over government since the early part of the 20th century; a company composed of "cyborgs" who are kept in line by an internal "reputational risk department" staffed by former CIA operatives and private investigators; a workplace rife with brutal power struggles; a Wall Street titan whose clever bet against the mortgage market in 2007--a bet not revealed to its clients--may have made the financial ruin of the Great Recession worse.

As William D. Cohan shows in his riveting chronicle of Goldman's rise to the summit of world capitalism, the firm has shown a remarkable ability to weather financial crises, congressional, federal and SEC investigations, and numerous lawsuits, all with its reputation and its enormous profits intact. By reading thousands of pages of government documents, court cases, SEC filings, Freedom of Information Act papers and other sources, and conducting over 100 interviews, including interviews with clients, competitors, regulators, current and former Goldman employees (including the six living men who have run Goldman), Cohan has constructed a vivid narrative that looks behind the veil of secrecy to reveal how Goldman has become so profitable, and so powerful.

Part of the answer is the firm's assiduous cultivation of people in power--dating back to 1913, when Henry Goldman advised the government on how the new Federal Reserve, designed to oversee Wall Street, should be constituted. Sidney Weinberg, who ran the firm for four decades, advised presidents from Roosevelt to Kennedy and was nicknamed "The Politician" for his behind-the-scenes friendships with government officials. Goldman executives ran fundraising efforts for Nixon, Reagan, Clinton and George W. Bush. The firm showered lucrative consulting or speaking fees on figures like Henry Kissinger and Lawrence Summers. Famously, and fatefully, two Goldman leaders-- Robert Rubin and Henry Paulson--became Secretaries of the Treasury, where their actions both before and during the financial crisis of 2008 became the stuff of controversy and conspiracy theories.

publius
2011-Nov-15, 08:23 PM
And Italian yields have just breached 7% again on the 5yr and 10yr. No re-inversion yet.

Just above everybody now realizes the only thing that will save Italy is massive printing by the ECB. They're begging for it across the board, demanding Germany be brought to heel. I think there is an off chance that the German leadership might give in, but if they do, they'll soon be new German leadership, and that leadership will pull out of the EU in no time flat. :)

publius
2011-Nov-15, 08:43 PM
The Spanish 10yr is now well over 6%, 6.34% last I checked:

http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND

Belgium and France are now at record levels as well.

Belgian 10yr is now pushing 5%, now at 4.91%:

http://www.bloomberg.com/apps/quote?ticker=GBGB10YR:IND

Note it is spiking well about the last peak a couple months ago when everything blew out prompted the last sticksave.

France is getting close to its last peak as well, which was around 3.7%.

I think you can see how only the ECB putting the printers in turbo mode can save this. And that is the one thing the Germans won't do. It's in their DNA not to do that, with Weimar burned in that very DNA (because printing --> unpleasant fellow with the little moustache). What was that song, "I'll do anything for love, but I won't do that?"

Ara Pacis
2011-Nov-16, 05:44 AM
Why is Goldman Sachs allowed to get their tentacles into everything when it seems obvious that they are incompetent?

HenrikOlsen
2011-Nov-16, 07:06 AM
Why is Goldman Sachs allowed to get their tentacles into everything when it seems obvious that they are incompetent?
Because they're not incompetent, they're actually extremely competent, it's just that they're competent at making money at the expense of everyone else.

And they know exactly how close they can get to buying politicians outright without crossing the line into criminally chargeable corruption.

profloater
2011-Nov-16, 11:01 AM
Maybe a compromise would be to print millions of German beer mats, with a space for the IOU, and drop them from helicopters to get bartering going. Cos we are going to be bartering soon.

publius
2011-Nov-16, 08:10 PM
Heh, heh:

http://www.reuters.com/article/2011/11/16/italy-gdp-idUSL5E7MG26L20111116

Italy is not going to release their preliminary Q3 GDP results. Don't worry, it's not that it sucks and would further roil their bond market, it's just some highly technical revisions to the raw data that prevent them from doing the preliminary report. Nothing to get excited about at all.

Now, the final report is due Dec. 21. Any guess on what technical problems may arise that prevent the release of the final as well? Or maybe they'll just cut, as part of the austerity measures, the agencies responsible and say sorry, we just can't afford to calculate our GDP anymore. See we're cutting expenses so it's all good.

And then this:

http://www.bloomberg.com/news/2011-11-16/italy-to-sell-440-billion-euros-of-debt-in-2012-cannata-says.html

Italy needs to sell E440B of debt next year, but no problem says their public debt director (that number seems to have increased from the last I read). They're not Greece, quoth she. That's true, they're about 6 times bigger.

And then this:

http://www.bloomberg.com/news/2011-11-16/government-bonds-bids-offers-show-market-frozen-italian-official-says.html

Some honcho at the Bank of Italy says their bond market is frozen and it's only the ECB that is keeping it going. Yields on the 10 year managed to drop to 6.75% today, but they came back and are sitting at 7.0% exactly last time I looked, which indicates the ECB intervention isn't holding.

The ECB is supposedly sterilizing these purchases. That is, foor every euro they create to buy Italian and Spanish bonds, they pull one euro out from somewhere else, at least on average, and that keeps the monetary base from increasing. This is how they can say they're not printing. With our Helicopter, at least there's the balance sheet which can you look at and see what's happening at the general level -- I don't know how much info the ECB puts out, but it's not like our bunch.

Anyway, the only way they're going to stop this yield blowout is to say the hell with sterilizing and print, print, print.

And yeah, they're having to intervene with Spain too. Their yields haven't hit 7% yet, but they're nipping at Italy's heels. And Spain has an auction tomorrow.

-Richard

profloater
2011-Nov-16, 08:41 PM
Italy Spain........France , that's sure a lot of printing. German bonds including inflation are yielding negative I believe. They could use their bond strength to buy the rest of Europe and make a nice percentage............better than a big hike in the (new) German currency killing the golden goose.

publius
2011-Nov-16, 09:39 PM
And back at home:

https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=11111500.pdf

Total public debt hit the $15T mark. The run rate has slowed down a bit. It hit $14T on Dec. 31 2010, so it took a whole 10.5 months to run up another trillion, compared to the 7 months for the run up from 13 to 14.

The Europeans are pikers compared to us in absolute debt levels (well the whole eurozone has whole would be on the same order).

Take Italy. It's going to have to issue E440B, which is about $600B in one year. Look at the DTS tables above and you'll see we've already rolled $660B in just 1.5 months, and issued around $850B in that same 1.5 months since the fiscal year began.

publius
2011-Nov-16, 09:40 PM
Italy Spain........France , that's sure a lot of printing. German bonds including inflation are yielding negative I believe. They could use their bond strength to buy the rest of Europe and make a nice percentage............better than a big hike in the (new) German currency killing the golden goose.

And how long do you think Germany's yields would stay as low as they are if they did that, barring printing? :)

publius
2011-Nov-16, 10:51 PM
Oh, and meanwhile, the Greek 1yr hit 271% today, increasing 20 percentage points (that's 2000 basis points).

Remember, 300% yield will be the point (ignoring coupon) at which the price of the bond is 25% of face value, a 75% discount rate, 25 cents on the euro.

Or to put yet another way, if Greece were to borrow from the market, it would have to pay 3 euros in interest for every 1 euro it borrowed. That is, borrow 1 euro today, and you must pay back 4 euros in a year.

profloater
2011-Nov-16, 11:04 PM
number crunching: you say public debt 15 trillion; the world now has 7 billion that's 15000/7 dollars each, an irrational number.(!)

publius
2011-Nov-16, 11:31 PM
Here's some cute little visualizations of $15T dollars, which I've attached.

These are in the form of bundles of $100 bills. The graphics are of a billion, a trillion, and 15 trillion157831578415785

Solfe
2011-Nov-16, 11:32 PM
Could any country get out of a hole like 1 to four? That sounds like losing by design.

publius
2011-Nov-16, 11:37 PM
Note the billion dollar image. At the very front of the pallets, there is a single bundle, which is $10K, 100 $100 bills. The second little pile is 100 of those bundles, which is $1M dollars. You see that a million dollars in a $100 bills is a nice little pile that you could fit in a duffle bag.

One hundred million takes 100 of those piles which requires the pallet. Thus a billion dollars is ten of those $100M pallets.

A trillion is thus 1000 of those 10, or 10,000 pallets of $100M.

15 trillion is thus 150,000 of those pallets.

publius
2011-Nov-17, 12:38 AM
Could any country get out of a hole like 1 to four? That sounds like losing by design.

Oh, not that is well, *well* beyond the point of no return. Those aren't really interest rates, just recovery rates, with the market figuring existing bonds will eventually be worth 1/4 of their face value.

If Greece actually attempted to go to the market and borrow more, the interest rate would essentially go to infinity, as no one would lend them a dime. Greece is utterly depedent on the bailout funding mechanism, which is really just other entities borrowing at their rates and giving it to Greece.

The point of no return varies, but Italy at 7% has probably reached it. Note 7% compared to 270%. :) When you reach the point of no return, you've reached the debt compound spiral point. The market will realize it, and then accelerate the process by jacking up the yields relatively instantly.

publius
2011-Nov-17, 05:57 AM
And this just in. We now have hard economic proof of aliens:

http://www.economist.com/node/21538100?fsrc=scn/tw/te/ar/exportstomars

Planet Earth is running a current account surplus of $331B. Thus it's obvious we're exporting to alien civilizations. Up until 2005, we'd been running a deficit, so we were buying more from the aliens than we were selling, but that turned around and now we're a net exporter to the Galactic Federation or whatever it's called.

So there you go. Proof.






Seriously, what's going on is errors (or some intentional lying) with total imports being understated or exports being overstated or both.

publius
2011-Nov-18, 02:41 AM
Okay, the ECB jumped in massively today, trying to knock down Italian and Spanish bond yields. Again, they say they're sterilizing, at least on a long average, but it looks like today they kicked up the printers a notch. Not into turbo mode, but they did step on the gas a bit.

They got Italian yields below 7%, 10 yr closing at 6.84% from a high of 7.15%. They were also hitting Spanish bonds hard, knocking the 10yr down to 6.49%. But that didn't save the Spanish 10yr auction today which came in at 6.975%-- note this a primary sale, while the ECB is intervening in the secondary markets; direct buying at a primary auction would be direct printing, directing monetary financing of govt debt. That is probably flat out illegal for the ECB, just as it is for the Fed to do it under our law. As I understand it, they were shooting for E4B, but cut it off below that (likely to keep the yield from going over 7%) at E3.6B.

7% is the death spiral point. Any country that goes above that at primary debt sales has gone down the crapper quickly.

The Fed has also ramped up the swap lines again, meaning someone in Euroland is starving for dollars. It also made an unusual annoucement about requiring some margins for certain "cash roll" operations with the primary dealers. Remember back in the old thread a couple of week, I posted about the NY Fed employing the "negative liability" trick to cover a $1.6B loss over the course of one week. This move is likely in response to whatever they lost that on, trying to make sure it doesn't happen again. I'm smelling MF Global there, but I'm not sure.

And finally, some broker/hedge fund head, a woman turns out, just shut down her whole operation, releasing a scathing rant to her customers that she could no longer in conscience continue to do business because of the corrupt environment exposed by MF Global. She could no longer guarantee the safety of their funds. She went on some rant about how crooked and corrupt the players were, as well as how crooked and corrupt the regulators supposed to be policing them were, saying she would not reopen her business until "our corrupt government has been replaced".

publius
2011-Nov-18, 03:05 AM
And according to AEP's latest, the Japanese and other Asian central banks are dumping German bonds:

http://www.telegraph.co.uk/finance/financialcrisis/8897775/Asian-powers-spurn-German-debt-on-EMU-chaos.html

If that's the case, it's over. According to that, Swedish debt (non-euro) is now yielding under German debt for the first time in modern history.

Again, if true, this means the Asians have decided the leaders can't solve the crisis, and it will bring down Germany when it blows up, meaning German debt is no longer safe.

My spidey sense is tingling that it may indeed soon be time to put on my helmet and go in the bunker.

HenrikOlsen
2011-Nov-18, 04:15 AM
Unless that's just the randomized reaction to the comment

Jean-Claude Juncker, Eurogroup chief, fueled the fire by warning that Germany is no longer a sound credit with debt of 82pc of GDP. "I think the level of German debt is worrying. Germany has higher debts than Spain," he said.
That comment could well be seen as a warning shot to Germany that they should stop undermining the Euro with their talks about pulling out and should instead start to work for a common policy, because "just watch this, you're vulnerable to statements to the media too, and I can hurt you very badly if I want".

profloater
2011-Nov-18, 12:34 PM
oops my old prediction of feb 14th next year maybe way too optimistic?

PraedSt
2011-Nov-19, 07:13 AM
Some amusing/interesting articles I came across:

EU bans claim that water can prevent dehydration
http://www.telegraph.co.uk/news/worldnews/europe/eu/8897662/EU-bans-claim-that-water-can-prevent-dehydration.html

EU officials concluded that, following a three-year investigation, there was no evidence to prove the previously undisputed fact.

Producers of bottled water are now forbidden by law from making the claim and will face a two-year jail sentence if they defy the edict, which comes into force in the UK next month.

Did watching TV put Americans in debt?
http://www.physorg.com/news/2011-11-television-americans-debt.html

The study finds a positive link between mass media advertising and the tendency to take on household debt. The results indicate that television exposure is associated with a higher tendency to borrow to purchase consumer goods and a higher tendency to hold non-mortgage debt. The authors also offer suggestive evidence that markets with early access to television saw higher male labor force participation compared to markets with delayed access to television.

A mathematical model for stability/instability of and within the EU.
http://www.physorg.com/news/2011-11-mathematical-nations-stable.html

According to the model, those that are more inclined to pair up would be Austria and Switzerland, Denmark and Norway and France with Great Britain. Spain would be more interested in uniting with France but "this does not necessarily mean that France would be interested in uniting with Spain,"

Ara Pacis
2011-Nov-19, 08:29 AM
Some amusing/interesting articles I came across:

EU bans claim that water can prevent dehydration
http://www.telegraph.co.uk/news/worldnews/europe/eu/8897662/EU-bans-claim-that-water-can-prevent-dehydration.html

I actually agree with this. And to relate it to the topic, I think such labels are akin to telling homebuyers that homes always appreciate and never go down in price.

PraedSt
2011-Nov-19, 09:07 AM
I actually agree with this. And to relate it to the topic, I think such labels are akin to telling homebuyers that homes always appreciate and never go down in price.How on earth can you agree with it? :)

HenrikOlsen
2011-Nov-19, 11:13 AM
Some amusing/interesting articles I came across:

EU bans claim that water can prevent dehydration
http://www.telegraph.co.uk/news/worldnews/europe/eu/8897662/EU-bans-claim-that-water-can-prevent-dehydration.html
Isn't that a ban on the misleading scare advertisements that make people drink totally unnecessary amounts of overprized tap water.
As if anyone's likely to dehydrate if they don't drink water every 10 minutes.

PraedSt
2011-Nov-19, 01:04 PM
Isn't that a ban on the misleading scare advertisements that make people drink totally unnecessary amounts of overprized tap water.
As if anyone's likely to dehydrate if they don't drink water every 10 minutes.
According to the article, they applied for the right to state that “regular consumption of significant amounts of water can reduce the risk of development of dehydration” as well as preventing a decrease in performance.

The denial of this right was one source of mirth. The other was the bureaucracy. Again from the article:


Ukip MEP Paul Nuttall said the ruling made the “bendy banana law” look “positively sane”.

He said: “I had to read this four or five times before I believed it. It is a perfect example of what Brussels does best. Spend three years, with 20 separate pieces of correspondence before summoning 21 professors to Parma where they decide with great solemnity that drinking water cannot be sold as a way to combat dehydration.

“Then they make this judgment law and make it clear that if anybody dares sell water claiming that it is effective against dehydration they could get into serious legal bother.

peteshimmon
2011-Nov-19, 02:11 PM
If a guy comes up to people with his bottled
water claiming it prevents dehydration, you
have a hustler pure and simple! Most know what
dehydration means but some may think it is an
illness to be prevented.

The EU is just clamping down on hustling.

HenrikOlsen
2011-Nov-19, 02:38 PM
Yep, it's anti-scam legislation.

flynjack1
2011-Nov-19, 03:06 PM
Sounds to me like, what here in the states we call, "legislating common sense". Something our leaders excell at IMHO.

HenrikOlsen
2011-Nov-19, 03:36 PM
Actually, it's legislating against false or misleading advertising.

There's a not very subtle difference.

It's the same principle that would forbid the sale of "I Can't Believe It's Not Butter" in Denmark on the grounds that since it isn't butter, the word "butter" can't be used on the package.

Solfe
2011-Nov-19, 03:55 PM
I find it amusing that in the US we can have the words "non-toxic" on a product, but other places you can't do that as it implies the product sitting next to it may be toxic.

Until someone explained it to me, I understood the "non-toxic" marking to be reassuring, clearly it isn't meant to be. It's pure marketing.

Ara Pacis
2011-Nov-19, 04:12 PM
How on earth can you agree with it? :)Well, like others have said, it's misleading. It's the hidden use of "the exception proves the rule" meaning that stating that one product does prevent something (the exception) means other competing products (water) or other related products (carbonated sugar water) don't (the rule). More over, it invokes a quasi-medical understanding and when it comes right down to it, hydration isn't just about water but about multiple chemicals that balance hydration including salt and potassium etc. IIRC, actual anti-dehydration used in medicine include electrolytes. The crazy part isn't the denial/disallowance of the claim, but that the marketers wanted to put the claim on the bottles in the first place. Maybe they should be forced to also include the label "Contains DHMO, which in large quantities can cause hyponatremia and death."

HenrikOlsen
2011-Nov-19, 09:39 PM
IIRC, actual anti-dehydration used in medicine include electrolytes.
Basic improvised rehydration solution is 6 level teaspoons of sugar, ½ level teaspoon of salt to 1 liter of clean water.

The official standard formulation has potassium cloride and trisodium citrate as well.

Water's actually very bad for treating dehydration, so it's not just misleading advertisement, it's directly dangerous medical advice and Paul Nuttall is an idiot.

PraedSt
2011-Nov-19, 10:17 PM
Most know what
dehydration means but some may think it is an
illness to be prevented.

The EU is just clamping down on hustling.If most know, but a few don't, that's ample reason for society to take care of it on their own. If you're going to spend 3 years and a commensurate amount of money making a decision, better to save it for those cases that a few know, but most don't.

As for the EU clamping down on hustling, that's an admirable goal. If the EU shut itself down, the amount of hustling in Europe would decrease by a magnitude. Of course that won't happen, because when bureaucrats do it, its negotiation, but if a private individual does it, its fraud.

PraedSt
2011-Nov-19, 10:18 PM
Yep, it's anti-scam legislation.We have that already.

PraedSt
2011-Nov-19, 10:32 PM
Well, like others have said, it's misleading. It's the hidden use of "the exception proves the rule" meaning that stating that one product does prevent something (the exception) means other competing products (water) or other related products (carbonated sugar water) don't (the rule). No it isn't misleading. Drinking water prevents dehydration just as much as eating prevents starvation. As for "the exception proves the rule" statement, that is a totally left-field argument. If eating a pizza stops you from feeling hungry does that mean eating a burger doesn't?


More over, it invokes a quasi-medical understanding and when it comes right down to it, hydration isn't just about water but about multiple chemicals that balance hydration including salt and potassium etc. IIRC, actual anti-dehydration used in medicine include electrolytes.Hydration is continuous spectrum between adequately hydrated and severely dehydrated. And there are three types of dehydration, naturally of course- hyop, iso and hypertonic. But water is the common denominator- it does you no good to eat table salt if you don't drink water as well. Regardless, mild dehydration is by far the most common because all of us get into that state a few times every day, we feel thirsty. So certainly water can reverse mild dehydration- by definition.


The crazy part isn't the denial/disallowance of the claim, but that the marketers wanted to put the claim on the bottles in the first place. Maybe they should be forced to also include the label "Contains DHMO, which in large quantities can cause hyponatremia and death."The DHMO trope was invented to illustrate the absurdity of bureaucracy and highlight a safety culture gone mad. So it's quite amusing to see you use it.

PraedSt
2011-Nov-19, 10:42 PM
It's the same principle that would forbid the sale of "I Can't Believe It's Not Butter" in Denmark on the grounds that since it isn't butter, the word "butter" can't be used on the package.And that's (a) and acceptable principle and (b) an acceptable use of that principle, to you? Seriously? The margarine isn't a person, or a can, or a belief either. Let's advertise it as "Not", shall we?

PraedSt
2011-Nov-19, 10:48 PM
Basic improvised rehydration solution is 6 level teaspoons of sugar, ½ level teaspoon of salt to 1 liter of clean water.
The official standard formulation has potassium cloride and trisodium citrate as well.
So...you only drink Gatorade when you're thirsty? Probably not..you probably have a have a problem with their advertising too.[/QUOTE]


Water's actually very bad for treating dehydrationThat's a phrase that needs framing.


so it's not just misleading advertisement, it's directly dangerous medical adviceMy mum told me to "drink lots of water". Should I sue her? Report her to the police?


and Paul Nuttall is an idiot.Apart from the fact the article says UKIP, MEP, I have no idea who he is. Why is he an idiot? And how is this relevant?

HenrikOlsen
2011-Nov-19, 10:57 PM
So...you only drink Gatorade when you're thirsty? Probably not..you probably have a have a problem with their advertising too.
It's not available in Denmark, so no, I don't drink it.

Normally I just drink water with my food and I'm very seldom thirsty.
If I drink something alone it's normally coffee, milk or cola.

I don't walk around with a water bottle as if I'm on an expedition to the Sahara, it's quite natural to go hours without drinking anything, though the bottle water scammers want to make that sound like a dangerous practice.

HenrikOlsen
2011-Nov-19, 11:02 PM
And that's (a) and acceptable principle and (b) an acceptable use of that principle, to you? Seriously? The margarine isn't a person, or a can, or a belief either. Let's advertise it as "Not", shall we?
A) Yes
B) Yes

It's not butter it's margarine. Don't try to trick people by putting the word Butter on the front.

By what sounds like your logic. please tell me I'm misunderstanding you, it should be ok to sell

I can't believe it's not
Glenfiddich
12YO
Single Malt
too.

publius
2011-Nov-20, 12:24 AM
You know, this all reminded me of the "water vs Gatorade" question and related. It seems the recommendations are that plain water is the best for mild to moderate dehydration in adults, and plain water is the best bet to keep from getting dehydrated through moderate activity (and high altitude or low humidity conditions).

Here's what the Mayo Clinic says (and it seems to agree with "federal guidelines", which I've seen referenced but can't find):

http://www.mayoclinic.com/health/dehydration/DS00561/DSECTION=treatments-and-drugs

For dehydrated infants and small children, the dehydration solution is recommended, but for mild to moderate cases, this is what they say:



Treating dehydration in sick adults
Most adults with mild to moderate dehydration from diarrhea, vomiting or fever can improve their condition by drinking more water. Water is best because other liquids, such as fruit juices, carbonated beverages or coffee, can make diarrhea worse.

Treating dehydration in athletes of all ages
For exercise-related dehydration, cool water is your best bet. Sports drinks containing electrolytes and a carbohydrate solution also may be helpful. There's no need for salt tablets — too much salt can lead to hypernatremic dehydration, a condition in which your body not only is short of water but also carries an excess of sodium.


So they say plain water is the best bet. For severe dehydration, medical attention is necessary to maintain the proper balance and all that, of course.
From what I gather, Gatorade may actually be better for strenous exercise, endurance stuff and all that. Personally, it hits the spot with me only when I've really been working hard in the hot sun. I can't stand it otherwise, but under those extreme conditions, the stuff really hits the spot. I've chugged a 40oz bottle of the stuff in just about one gulp years ago when some friends and I decided to get in the straw business one year right after college. I was baling straw and loading in 90 degree weather.

Yep, here's what Mayo says about sports drinks:

http://www.mayoclinic.com/health/health-tip/HT00212

Water is generally the best for replacing lost fluid, but if you're exercising more than an hour, Gatorade (and equivalent) is better.

publius
2011-Nov-20, 01:19 AM
Okay, I looked into this some more, and here's the story.

There is no bottled water seller, nor anyone for that matter, who is currently using, want to use, or has applied to use the statement that "water prevents dehydration". This was simply a test proposal by a couple of German professors of food science who just wanted to see what the EU would do with it. They submitted the following claim for approval:




The regular consumption of significant amounts of water can reduce the risk of development of dehydration and of concomitant decrease of performance.


Again, no bottled water seller applied for this; this is just a couple of German professors trying to see what would happen. It seems they are of the opinion that EU regulations in this area were a bit over the top and they were trying to make a point.

And (just like I suspected), it turns out the soft drink industry (which includes the bottled water people as well) was in favor of this ruling and is defending it. So, no bottle water seller is trying to put this claim on their labels, only some rascally professors, but the soft drink people didn't like it for fear it might it decrease the sales of soft drinks relative to bottled water. They put out a statement that "all soft drinks" contain mostly water and thus no one drink is better than others about water content.

On that score it's like a recent controversy with "organic milk" vs regular milk here in the US. Some small "organic" farms were selling milk adverstised as from cows with "no hormones" used. The regular milk industry went nuts, fearing that might hurt sales of their own milk, and they successfully sued to prevent the "no hormones" statement, arguing it implied their own product was unsafe since it did contain hormones, or was from cows that were given hormones, when there was no evidence that such was unsafe.

HenrikOlsen
2011-Nov-20, 01:25 AM
Hmmm.
It looks like there may be a language issue here.
I drink water if I'm thirsty, I drink rehydration fluid if I'm dehydrated.
I don't think of being thirsty as being dehydrated.

And I see it was a test of legislation that would allow people to mention it if a product reduces the risk of disease. Thirst isn't a disease.

BTW, fruit juice is bad because the sugar content is too high so osmosis actually draws water from the body, which is why for the rehydration fluid, erring a bit too low in the concentration is better than too high, but not much lower either because of the risk of hyponatremia.

As for the politicians' comments, they're cookie cutter anti-EU propaganda, talking about the economic crisis at the same time as this is a massive fallacy which assumes "officials" are a uniform mass that can all be moved around to work on anything, and the idiot talking about the "bendy banana law" that way shows he didn't understand it and bought the anti-EU propaganda version outright.

I'm rather EU-skeptical myself, but I try to avoid getting sucked in by manipulated propaganda, which may have been part of my reaction to this story as it does come across as deliberately manipulative with a clear, though non-stated, political agenda.

Delvo
2011-Nov-20, 05:18 AM
I wonder why the article about television's influence on debt goes straight from there to advertising as the culprit. What about the content of the shows that people are actually watching?

PraedSt
2011-Nov-20, 08:36 PM
I wonder why the article about television's influence on debt goes straight from there to advertising as the culprit. What about the content of the shows that people are actually watching?Well it's a study on spending habits, so I guess that it was natural for them to focus on advertising. Shows aren't designed to get people to buy things.

PraedSt
2011-Nov-20, 08:41 PM
On that score it's like a recent controversy with "organic milk" vs regular milk here in the US. Some small "organic" farms were selling milk adverstised as from cows with "no hormones" used. The regular milk industry went nuts, fearing that might hurt sales of their own milk, and they successfully sued to prevent the "no hormones" statement, arguing it implied their own product was unsafe since it did contain hormones, or was from cows that were given hormones, when there was no evidence that such was unsafe.I'm going to google this case. I'm curious as to how they won, given the lack of evidence.

publius
2011-Nov-20, 09:03 PM
I'm going to google this case. I'm curious as to how they won, given the lack of evidence.

I looked for the latest, and this crap is ongoing. I think the way it is now, after various appeals and settlements (this stuff goes on at the state as well as national level, with different states doing different things), is an "organic" dairy can label its product as using no artificial hormones, but must then add a statement that the FDA states there is no significant difference between milk from treated vs untreated cows.

PraedSt
2011-Nov-20, 09:37 PM
Yeah I think found it. Growth hormone and Mosanto? Truth in advertising can lead to some unwieldy catch phrases. "No factory produced copies of natural hormones were fed to the cows that produced this milk!"
Personally, I always surprised that "Red Bull Gives You Wings" is still around. :D

flynjack1
2011-Nov-21, 03:34 AM
Surely no one here would be foolish enough to actually think that advertising accurately portrays products?
Whats the old saying," believe half of what you hear and less than half of what you read"?

jokergirl
2011-Nov-21, 10:07 AM
So I have an internet acquaintance who lives in the US, and apparently she has to call in sick to work this week because she cannot afford gas to commute to work.
Seeing the comments on her blog entry stating this, she isn't the only one with this problem.

I... I'm a privileged European, but this just won't go into my head. I would claim bad planning if it was just one person, but it's not. Of course long commutes, too little money to afford new-ish cars (which take less gas) and other bills to pay feature into the account, but... too poor to work? That's just... mind-boggling.

(ETA: Please don't make this about gas prices though... I deliberately left that part out to avoid another closed thread.)

Extravoice
2011-Nov-21, 05:51 PM
MF Global's customer accounts seem to be missing twice as much as previously reported. That's 1.2 Billion dollars.
Investigators are still trying to figure out if MF tapped customer funds for its own use, or were just really, really bad at accounting.

AP News story can be found here. (http://finance.yahoo.com/news/mf-global-trustee-says-1-170554407.html;_ylt=AvrsOPYhtD2CmPFNJ3w7aXuiuYdG;_ ylu=X3oDMTNyZjdyaDhoBG1pdANGUCBUb3AgU3RvcnkgTGVmdA Rwa2cDY2E1NjY0YjItZTBmZS0zYTNjLThhN2UtOGJlOGZhNDQw NTczBHBvcwMyBHNlYwN0b3Bfc3RvcnkEdmVyAzA5Zjc0MDM4LT E0NjctMTFlMS1hNDk5LTU3OGQwYzUzY2I2OA--;_ylg=X3oDMTFvdnRqYzJoBGludGwDdXMEbGFuZwNlbi11cwRw c3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25zBHRlc3QD;_ ylv=3)

Ara Pacis
2011-Nov-21, 06:49 PM
No it isn't misleading. Drinking water prevents dehydration just as much as eating prevents starvation. As for "the exception proves the rule" statement, that is a totally left-field argument. If eating a pizza stops you from feeling hungry does that mean eating a burger doesn't?That the logic fails is exactly why it's a bad argument for bottled water. The whole point of common sense is that it's common, therefore drawing attention to an article of common sense leads those who have common sense to wonder why there's a special emphasis on it now because it had been formerly considered common sense. In other words, when you put emphasis on an idea, people commonly assume it was done for a reason other than to mess with your mind. Perhaps some people believe that forcing people to be analytical about advertising statements is a good exercise of critical thinking skills, but for most normal humans it generates confusion and/or cynicism even if they have those critical thinking skills. Sometimes it's a good idea to take things for granted, it allows us to use our limited cognitive skills on more advanced problems of modern humanity.


Hydration is continuous spectrum between adequately hydrated and severely dehydrated. And there are three types of dehydration, naturally of course- hyop, iso and hypertonic. But water is the common denominator- it does you no good to eat table salt if you don't drink water as well. Regardless, mild dehydration is by far the most common because all of us get into that state a few times every day, we feel thirsty. So certainly water can reverse mild dehydration- by definition."hydration" was my word, not that used in the article/legal review. Nevertheless, water in the body is regulated with other chemicals. If you don't take those chemicals in through food, then then must come in via liquids. Taking in water without other chemicals will result in dehydration or hyponatremia as you secrete and excrete those other chemicals.


The DHMO trope was invented to illustrate the absurdity of bureaucracy and highlight a safety culture gone mad. So it's quite amusing to see you use it.If the shoe fits... After all, the suggested use of such a claim for water *is* an example of safety culture gone mad: health safety. Can't you see that?

publius
2011-Nov-21, 06:56 PM
MF Global's customer accounts seem to be missing twice as much as previously reported. That's 1.2 Billion dollars.
Investigators are still trying to figure out if MF tapped customer funds for its own use, or were just really, really bad at accounting.


Yeah, I saw the missing money had doubled.

Really bad accounting by the "best and brightest" worth all these huge salaries and bonuses? The accounting is bad only if they want it to be bad. It's sort of like some guys I know who act like total dunces who can't add 2+2 when they get audited. They put on a good ol' boy, but dumb as a box of rocks act.

Also, some customers are having trouble getting their funds out. One is Gerald Celente, an "uber doomer" type. He forecasts Mad Max and advises the GGG strategey (Gold, Guns, and Grub, and/or other stuff that begins with 'G'). Funny thing is, his own gold account got wrapped up in MF Global and he says he lost "6 figures". Turns out he wasn't dealing with MF directly, but the outfit he was dealing with directly was itself dealing with MF. So that's a lesson in how interconnected everything is -- you might think your money is one place, when it's really in another, maybe several links down a chain.

Now, you'd think a doomer like that would want physical gold which he would bury out in a field, or store in a bunker with his ammo and food supplies. He did have some excuse I forget what. Anyway, he's been ranting about the ex-CEO of MF to anyone who will put a microphone in front of him, as well as railing against the regulators and bankruptcy trustees who won't release his funds.

Some big fallout from this missing money is a lot of people are fearing their money isn't safe anywhere and are acting accordingly. Previously, at least on any significant scale, customer money had been sacrosanct, and even if the brokerage went belly up, that money was safe, and the exchanges themselves would backstop it if they had to.

MF Global destroyed that trust and it's having severe ramifications.

Ara Pacis
2011-Nov-21, 07:01 PM
Ouch, Publius. Some kinda Thanksgiving this will turn out to be. I guess I'm thankful I'm broke and am not involved.

Perhaps it's time to think of the ** too. Barn animals, Bunker and Brass - after all, canned food will run out eventually.

PraedSt
2011-Nov-21, 08:52 PM
It's interesting that Europe has twice the population density of the US, and the price of petrol in Europe is also twice that of the US. If you have twice the population density, you should have to travel 1/sqrt(2) less because of the area/perimeter relationship. But if Europeans travel 1/sqrt(2) less, they still end up paying more because 1/sqrt(2)*2>1. So either Europeans spend more of their income on transport, or their transport is more efficient, or a mixture of both.

Noclevername
2011-Nov-21, 09:11 PM
It's interesting that Europe has twice the population density of the US, and the price of petrol in Europe is also twice that of the US. If you have twice the population density, you should have to travel 1/sqrt(2) less because of the area/perimeter relationship. But if Europeans travel 1/sqrt(2) less, they still end up paying more because 1/sqrt(2)*2>1. So either Europeans spend more of their income on transport, or their transport is more efficient, or a mixture of both.

Or they just don't drive as much.

PraedSt
2011-Nov-21, 09:24 PM
Or they just don't drive as much.Well, given their population density they only need to drive 1/sqrt(2) as much as Americans. So "not driving as much" would mean driving even less than this fraction, and for reasons other than shorter distances. There are two reasons I can think of right of the bat: (1) the open road that's part of the American psyche, and (2) with greater population densities, walking to your destination becomes a viable alternative. I am sure there are more, but I'm also pretty sure the biggest difference comes from Europeans spending more of their income on transport, or that their transport is more efficient, or a mixture of both.

publius
2011-Nov-21, 10:05 PM
As I understand, the main reason for the difference in price is taxes. The Europeans tax it much higher than we do. I've heard and read that if you factor the taxes out (and all the taxes), any remaining differences in price are small and explained by standard economic factors.

There's a lot of price variation here in the states, from state to state and locality to locality and that is explained by those factors. Where I live, the price of gasoline is at the bottom of the range. It's not the lowest, but it is in the lower range. The guys in the business tell me that price difference comes from how close one is to a given "terminal" (major distribution) point and regional variation in formulation requirements. Some areas will be required to have more expensive additives depending on whatever EPA "zone" they're in or something like that. Or may not necessarily be the cost of the additives themselves, but the supply and demand factors of how much of each formulation is made and distributed.

HenrikOlsen
2011-Nov-21, 10:07 PM
Well, given their population density they only need to drive 1/sqrt(2) as much as Americans. So "not driving as much" would mean driving even less than this fraction, and for reasons other than shorter distances. There are two reasons I can think of right of the bat: (1) the open road that's part of the American psyche, and (2) with greater population densities, walking to your destination becomes a viable alternative. I am sure there are more, but I'm also pretty sure the biggest difference comes from Europeans spending more of their income on transport, or that their transport is more efficient, or a mixture of both.
The shorter average distance also means public transport makes economic sense in more situations, making it available for more people, which tends to lower average energy consumption per person-mile transported.

Having less big-car fetish also helps as does a younger car population.

flynjack1
2011-Nov-22, 04:35 AM
Fuel prices here are a bit unusual of late. I took a trip east of about 900 miles and prices actually varied by as much as 50 cents. Typically over the last 20 years those prices would vary approximately 20 cents and would be cheaper further east....now its cheaper out west to the tune of nearly 50 cents. I haven't discerned the reason for this difference.

This week should prove interesting as the impending downgrade in US credit rating is matched against the financial uncertainties of the EU.

Ara Pacis
2011-Nov-22, 05:32 AM
In some locations there's a different blend of chemicals for different times of year that affect price, not to mention prices tend to be higher in urban areas.

publius
2011-Nov-22, 07:43 AM
Here's a good article on what I was talking about with MF Global:

http://www.reuters.com/article/2011/11/22/us-mfglobal-futures-idUSTRE7AL06I20111122?feedType=RSS&feedName=topNews&rpc=22&sp=true

The important thing to appreciate is this doesn't just involve speculators. This involves producers, farmers and ranchers, elevators as well as buyers. These are people who deal with actual product, not speculators who just bet on it without even touching the actual commodities. This what the futures markets were originally created for and serve a vital purpose. But of late, big time speculators have come in and their influence has moved it away from its original purpose.

If these idiots (Wall Street and Washington) manage to destroy the faith in the system for farmers and those who buy the product, then they, well, think of Charlton Heston in Planet of the Apes at the end, "Damn you! You blew it all to hell!" or however it went.

publius
2011-Nov-22, 07:53 AM
Perhaps it's time to think of the ** too. Barn animals, Bunker and Brass - after all, canned food will run out eventually.

Would you believe that that the big hedge funds are now buying up farm land? They're managing to bid up the price pretty good (bubble), and that demonstrates that some of the Big Money Boys are indeed, well, hedging, for Mad Max and the GGG or BBB situation.

peteshimmon
2011-Nov-22, 08:07 AM
What is all this stuff about not finding
cuts of a trillion? Heck, you just start
with a thousand million and decide where
you dont spend it! Repeat this a thousand
times and there you are. Easy Peasy!

Just leave waste water projects alone.
And...

:)

jokergirl
2011-Nov-22, 08:08 AM
The shorter average distance also means public transport makes economic sense in more situations, making it available for more people, which tends to lower average energy consumption per person-mile transported.

Having less big-car fetish also helps as does a younger car population.

Actually, I live in a big city right now and it is still cheaper for me (calculated on price per trip, fuel vs. ticket, even yearly ticket) to take the car than the train, especially much so since I share the car with my partner. But that's local politics at work. Public transport here is insanely expensive. And that's on top of fuel taxes being about the highest in the world here.

Still, I never heard of anyone not being able to work because they do not have the money to get there before this week.

Ronald Brak
2011-Nov-22, 09:13 AM
On average European cars are much more efficient than US cars. In 2007 European cars got 40 mpg compared to 20.4 mpg in the US. I would guess the US has caught up a little since then with the decline in SUV sales.

HenrikOlsen
2011-Nov-22, 09:40 AM
Incidentally, today's xkcd (http://xkcd.com/980/) just did to money what was previously done for radiation.

It's not really reassuring to see that the derivatives market is larger than the total value of everything tangible in the world.

PraedSt
2011-Nov-22, 10:40 AM
As a supporter of exchange trading, I find the CME situation particularly annoying. I know balance sheets are hard to trust any more, but according to theirs, they have a net worth of $20bn. If they made up the lost funds, that would lower equity by 5% but raise goodwill and future prospects. So I suppose it's a trade-off, and a decision that has to be made (or avoided). But they certainly could do more.

PraedSt
2011-Nov-22, 11:02 AM
On average European cars are much more efficient than US cars. In 2007 European cars got 40 mpg compared to 20.4 mpg in the US. I would guess the US has caught up a little since then with the decline in SUV sales.Another factor of two? This is getting spooky.
Ok, then the price ratio exactly cancels the fuel-economy ratio, and we're simply left with Americans being on average 41% further apart than Europeans, and consequently spending 41% more.
41% seems a little high to me.

Space Chimp
2011-Nov-22, 01:13 PM
If these idiots (Wall Street and Washington) manage to destroy the faith in the system for farmers and those who buy the product, then they, well, think of Charlton Heston in Planet of the Apes at the end, "Damn you! You blew it all to hell!" or however it went.

I believe Charleton Heston's despairing wail was:

"You maniacs! You blew it up! Ah, damn you! Damn you all to hell!"

Sorry to bring it up. It's the ape in me. The Forbidden Zone was once a paradise you know. :) Well, before the bankers got to it anyway.

publius
2011-Nov-22, 08:38 PM
What is all this stuff about not finding
cuts of a trillion? Heck, you just start
with a thousand million and decide where
you dont spend it! Repeat this a thousand
times and there you are. Easy Peasy!

Just leave waste water projects alone.
And...

:)

You know, something to keep in mind is these "cuts" aren't really cuts as most would think of it, and that's due to the bias of what they call baseline budgeting, which was put in place back in the '70s or maybe before. Anyway it works like this. There will be automatic increase in a budget item ever year, a percentage increase. This puts into place automatic geometric/exponential growth. That factor varies from item to item, and dept to dept, but it's there. Cuts and increases are relative to this automatically increasing base line ("curve" one should really say).

Now, they look a things over a 10 year window and these figures are *cummulative* totals over the 10 year period. Thus 1.2T in "cuts" means the cummulative total increase is $1.2T over the next ten years than if nothing were changed. Let's look at an example. Say we're spending $100 on something and the automatic increase is 5%, and we'll look at 5 years, not 10: So the next 5 years for that item looks like this:

Year 1: $105
Year 2: $110 (rounding to nearest dollar)
Year 3: $116
Year 4: $122
Year 5: $128

That is thus the baseline. Cuts and increases will be relative to that. Suppose we make a draconian cut in the first year and only spend $102 dollars, but let the 5% baseline increase still apply:

Year 1: $102
Year 2: $107
Year 3: $112
Year 4: $118
Year 5: $124

Now let's put the together:

Old Budget New Budget Difference
Year 1: $105 $102 $3
Year 2: $110 $107 $3
Year 3: $116 $112 $4
Year 4: $122 $118 $4
Year 5: $128 $124 $4


So, we say that we have cut $18 over 5 years. And this also illustrates something else important. While the change was too small and I didn't run the time period long enough, you can see that the difference, the "cut" for each individual year will itself increase exponentially. Thus, most cuts will be in the "out years", or the last few years of the 10 year run, and this fact is a mathematical consequence of its design.

All you have to do is come along later in Year 2 or so and just bump things back up a little bit, and you erase all that cummulative difference in the out years.

publius
2011-Nov-23, 01:11 AM
Spain had another auction today, a bill auction, and it was disaster as far as yield. The 3m came in at 5.1% and they sold a 6m as well which came in at 5.2%. Note this is very short term debt.

The Spanish Treasury also pulled something, getting the press to change which batch of bonds they use for the benchmark yield, a move which made the yields look like they dropped rather than increased. Normally, the latest issue is used, but Spain got them to use a previous issue, which was yielding lower.

Consider an older bond. If you're buying and selling on the secondary market, then the maturity date is sooner than a more recently issued bond of the same maturity and this accounts for the difference in yield. For example, consider a 10 yr bond issued in 2005. It will mature in 2015, so if you're buying it today, you're buying the equivalent of 4-yr maturity.

publius
2011-Nov-23, 07:22 AM
And another biggie. Remember Dexia, the big Belgian bank that went belly-up and was split into a good/bank deal, with France and Belgium (and some other taking a smidge) of the bad bank guarantee? Well, that deal looks to be falling apart, with Belgium demanding France take on a bigger share of the guarantees. France is not amused. If France takes on more, it may just be the last straw that gets them downgraded from AAA, or accelerates that downgrade.

PraedSt
2011-Nov-23, 07:54 AM
Who's doing the demanding on the Belgian side? They still don't have a government. :lol:

PraedSt
2011-Nov-23, 09:16 AM
More idle analysis on driving and working:

From above, we assume that American drivers spend approx 1.41 times more than Europeans drivers. Now a person will only drive to work if he earns enough money, from the day's work, to cover at least the cost of the drive. So the "tipping point" of a day's wages should be 1.41 times higher in the US than in Europe. I can't identify the actual figure, but I think the tipping point would lie close to the minimum wage.

The minimum wage in the US is about $8/hr. Dividing by sqrt(2) and multiplying by the exchange rate gives a European minimum wage of around 4 Euros/hr. Most of the comparable EU economies have minimum wages far higher than this- France 9E/hr, Germany 8.5E/hr, UK 7E/hr, although Spain's is close to 4E/hr and Portugal's is 2E/hr.

So, it's quite likely that there are more Americans close to their drive-to-work/stay-at-home tipping point than there are Europeans who are close to theirs. And seeing as this could equally apply to any decision that has a driving as one part of the trade-off, Americans as a whole are likely to be more sensitive to changes in gas prices than Europeans. Having said that, if you were an alien studying French truckers you would probably come to the opposite conclusion.

HenrikOlsen
2011-Nov-23, 10:06 AM
More idle analysis on driving and working:

From above, we assume that American drivers spend approx 1.41 times more than Europeans drivers. Now a person will only drive to work if he earns enough money, from the day's work, to cover at least the cost of the drive.
Gas is less than 1/3 in the US, you're mixing distance and money here.

PraedSt
2011-Nov-23, 10:29 AM
You mean a third of EU price? I was just playing around from earlier- posts 77 and 91. I used 1/2 there.

HenrikOlsen
2011-Nov-23, 10:37 AM
Actually, I just realized I forgot the factor 2 in average mileage. sorry, you're right.
sqrt(2) times the miles * 2 times the gas/mile * ½ times the cost for gas is sqrt(2) times the cost totally.

PraedSt
2011-Nov-23, 08:04 PM
No worries Henrik. By the way, while doing that I noticed that Denmark has the highest minimum wage in the world- 14E/hr! And since the sky hasn't fallen over there, it piqued my interest. I've decided to have a look at it when I get some time.

PraedSt
2011-Nov-23, 08:05 PM
Saw a headline earlier. Partial fail of a German bond auction. Oops! I hope publius will have the gory details.

publius
2011-Nov-23, 09:03 PM
Partial fail of a German bond auction.

Yep. It was E6B 10yr bond auction and they only sold 65% of it, with a yield "tail" of 14 bp, pushing the 10yr yield over 2% and over 10 yr Ts. Germany has had these partial failures before, but they were never considered a big deal. But is now, and this is the worst failure since Germany went on the Euro, I think.

They say the Bundesbank had to pick the slack of the remaining 35%. How that works I don't know. The Bundesbank used to be the central bank for the D-mark, but now they've gone to the euro, with the ECB being the central bank for that, I just don't how the former central banks really work. It may be like the regional Fed banks in some ways, I'm just not sure.

But at any rate, the central bank buying debt directly at an auction would seem to be illegal direct monetization (printing), so how it works I don't know.

Over here, we have the primary dealer (PD) system (MF Global was a primary dealer, keep in mind -- I'm now just about convinced, without any hard proof mind you, that MF's failure was the reason for the NY Fed's $1.6B loss of a few weeks ago). Any the PDs are *required* to bid at Treasury auctions. This prevents failure. (Of course, if they don't have the money, they couldn't buy any even if required to, so it really doesn't prevent failure directly, although I'm sure they're all sorts of games behind the scenes they could play with the Fed who would ensure they did have the money, which would be indirect monetization :) ).

So I imagine whatever the Bundesbank (sometimes called the BuBa) does is similiar to the PD system, just with it doing it directly. The BuBa acts as the state bank, holding the checking accounts for all the German govts, federal and local.

At any rate, this failure was bad and sent shock waves all over the place which caused other yields and CDS spreads to increase. Germany is the benchmark for all other sovereign debt in the region, with the spread between a given yield and the corresponding German yield being a critical metric that determines margin requirements and so forth. Someone I was reading quipped that's one way to lower PIIGS spreads -- raise German yields rather than lowering PIIGS. :) Of course, what happens is a German increase makes everyone else increase as well so that doesn't work too well.

So take this as further and stronger rumbling from Vesuvius. The wise man will put some distance there between.

PraedSt
2011-Nov-23, 09:33 PM
Sorry if you've covered this before, but what's a yield "tail"?

publius
2011-Nov-23, 09:48 PM
"Tail" is how much the yield rises over the prevailing price before the auction. It's a measure of how much the new supply thrown in affects the yield and hence lowers the price.

I was looking at the "BuBa" role and it appears the BuBa "retains" the unsold bonds, then sells them later on the secondary market. Whether they immediately credit the govt account with the money, or wait until they manage to sell them all, I don't all.

publius
2011-Nov-23, 09:54 PM
Whoops. I think I misunderstood what I read. The actual tail itself wasn't 14 bps, but somewhat lower, and the yield on the 10 yr Bund only rose that much *after* the auction. So the actual tail of the auction wasn't that bad, but the yield did eventually rise 14bps to over 2% at the end of trading.

And while the German long end was rising, there was a flight to safety in the short end, with bill yields actually going negative, I believe.

The EU is about to blow.

HenrikOlsen
2011-Nov-23, 10:01 PM
No worries Henrik. By the way, while doing that I noticed that Denmark has the highest minimum wage in the world- 14E/hr! And since the sky hasn't fallen over there, it piqued my interest. I've decided to have a look at it when I get some time.
The minimum wage thing is likely caused by a combination of several things, including one of the worlds highest tax levels which means it may not be all that high after tax.

I think part of why the sky isn't falling down here is that our lending market is completely different from the American and likely from several of the other European countries.
Here, housing loans are financed by a strictly limited number of financing institutions which get the money by emitting bonds rather than by reselling the loans themselves as happens in the US, that would simply be illegal to do here, so the legality of who has title to the loan is never in doubt and there's far less possibility of the banks playing pass-the-gilded-turd.
There has been a bit of a bubble, but not nearly as large.
And by not being Eurozone, we have the possibility (which hasn't been needed yet but may end up getting triggered if they start the presses) of floating the Krone relative to the Euro.

Also we didn't have the bank deregulation that allowed the banks to set themselves up to only be solvent when looked at by those who'll add 2 and 2 and get 6 including expected profit.

We've only had two banks go all-out bankrupt and in both cases it was mainly because of lending too much money to too many too large companies that failed. Straight up greed overruling basic risk assessment in both cases.

Ronald Brak
2011-Nov-24, 01:27 AM
Let's see, a year's work at minimum wage is about 66% of per capita GDP in Denmark, 52% in Australia and 33% in the US.

publius
2011-Nov-24, 03:01 AM
Speaking about hedging for Mad Max, I was just reading that survival gear sales are through the roof with one such chain store (St. Louis area, I think) reporting a pretty good spike in sales. They said sales started picking up when the Mideast uprisings started, and are now getting pretty strong indeed. I think they said "MRE" sales were 3 to 5 times normal. Outdoor gear and all that are selling well as well.

It seems some people are preparing "bug out" kits. Basically, these are backpacks and bags they'll fill with food and survival gear so they can bug out of the city or suburbia at a moment's notice. Some are preparing "communal safe areas", where groups of friends and family pick out some location to bug out to (out in the country), and all stock up on the gear and supplies they'll all bring. Prestocking such a safe location is also going on.

That of course seems insane, unless a collapse really happens and then it will seem very smart indeed. The thing is, if you were doing that, you wouldn't want to tell people (other than those of like mind) because they'd think you had gone nuts, and second, if Mad Max did come, you wouldn't want all the unprepared "zombies" to know you had food and other needed supplies. :)

Extravoice
2011-Nov-24, 03:34 AM
...if Mad Max did come, you wouldn't want all the unprepared "zombies" to know you had food and other needed supplies. :)

I guess they never saw the Twilight Zone episode "The Shelter (http://en.wikipedia.org/wiki/The_Shelter_(The_Twilight_Zone))"

Ara Pacis
2011-Nov-24, 11:14 PM
That of course seems insane, unless a collapse really happens and then it will seem very smart indeed. The thing is, if you were doing that, you wouldn't want to tell people (other than those of like mind) because they'd think you had gone nuts, and second, if Mad Max did come, you wouldn't want all the unprepared "zombies" to know you had food and other needed supplies. :)

But how do they expect things to play out, global thermonuclear war? If everything crashes monetarily, government may institute some mandatory controls for a period of time, but food and necessities would still flow for the most part. I mean, the US still has a lot of internal resources.

publius
2011-Nov-25, 12:23 AM
But how do they expect things to play out, global thermonuclear war? If everything crashes monetarily, government may institute some mandatory controls for a period of time, but food and necessities would still flow for the most part. I mean, the US still has a lot of internal resources.

Read up on the economic collapse in Argentina. There are many "on the ground" accounts floating around the internet, and that is sort of the blueprint.

This bubble in survival supplies was in the St. Louis area, and St. Louis is one of the top ten cities in financial trouble, I think. Look at what's happening to Detroit.



If everything crashes monetarily, government may institute some mandatory controls for a period of time, but food and necessities would still flow for the most part.


Look up "normalcy bias". That statement is an example of that. :) If it does all go to hell, it's going to be worse than one imagines if one is not prepared. Or better, by not being prepared (and that can mean just war gaming out things in your mind) one will easily make things worse than they need to be. Turns out the "small group" strategy is probably the best, and that is a lesson from the Argentine experience (as well as many others). Sheep will not survive, but lone wolves won't either. A small community out in the country will fair the best, and it sounds like some of these people are making preparations exactly along those lines.

Think Kartrina in all the major US cities at once. Katrina itself is an example of the problems of normalcy bias. Those cities would become feral free fire zones quickly. Local authority would be overwhelmed in no time flat. The National Guard takes time to mobilize (and consider how thin we've spread out our forces of late).

War game out a collapse scenario. "The money runs out" completely and the financial system just collapses. All those cities depend on truck load after truck load bringing in supplies continuously and then truck load after load carrying the waste out. That comes to a stop. Store shelves are cleaned out in a day. Then the power goes out. Water and sewer fail. They'd be eating each other alive in a week writhing around in their own filth in no time. :)

Normalcy bias tells you that is all nuts. That will never happen. But it can. And the probability for it happening is increasing every day.

Ara Pacis
2011-Nov-25, 02:17 AM
I'll look it up later --we're on death watch for my grandfather tonight-- but I have thought about it a lot. I can see how things would deteriorate and I don't think it will get that bad that fast for most people. We have strategic supplies to keep basic services running for some time, even if the general public goes without fuel or is strictly rationed. I don't think US civilization will devolve like that, unless people start using their guns to cause problems instead of using them to prevent/stop problems. But I agree with stocking up on enough food for a few weeks to a few months. I admit I may be biased: I'm not the type who is planning to use such a problem as an excuse to ditch the concept of governance.

Of course, where I live we have to survive winter every year, so maybe we're just naturally well prepared.

Ronald Brak
2011-Nov-25, 04:16 AM
Think Kartrina in all the major US cities at once. Katrina itself is an example of the problems of normalcy bias. Those cities would become feral free fire zones quickly. Local authority would be overwhelmed in no time flat. The National Guard takes time to mobilize (and consider how thin we've spread out our forces of late)

So what happened in Kartrina?

Solfe
2011-Nov-25, 04:45 AM
Speaking about hedging for Mad Max, I was just reading that survival gear sales are through the roof with one such chain store (St. Louis area, I think) reporting a pretty good spike in sales. They said sales started picking up when the Mideast uprisings started, and are now getting pretty strong indeed. I think they said "MRE" sales were 3 to 5 times normal. Outdoor gear and all that are selling well as well.

It seems some people are preparing "bug out" kits. Basically, these are backpacks and bags they'll fill with food and survival gear so they can bug out of the city or suburbia at a moment's notice. Some are preparing "communal safe areas", where groups of friends and family pick out some location to bug out to (out in the country), and all stock up on the gear and supplies they'll all bring. Prestocking such a safe location is also going on.

That of course seems insane, unless a collapse really happens and then it will seem very smart indeed. The thing is, if you were doing that, you wouldn't want to tell people (other than those of like mind) because they'd think you had gone nuts, and second, if Mad Max did come, you wouldn't want all the unprepared "zombies" to know you had food and other needed supplies. :)

Oops. That was just me. :)

I made a pretty big purchase of camping supplies recently. My rational was camping is a cheap hobby; some food plus a modest amount of gas and a small fee for a weekend equals an instant vacation. A fishing license can be had for a small fee and a cheap pole can be as little as $10. Pick a place with a private lake/pond and you can skip the license and possibly rent a small watercraft for a couple of hours too. Forgoing the fishing entirely, camp gear makes day hikes easier.

I camp about five times a year. If my $500.00 worth of gear lasts 5 years, that is a really good investment. The gear cost $20.00 per trip. My shopping bill is typically about $50.00 per trip plus about $25.00 in other supplies for a three day trip. So for 3 people to camp for three days (my wife won't camp), my cost is less than $100.00 per trip. I don't think you can get a hotel room for three days at that cost.

If you hadn't mentioned MRE's I would seriously wonder if this was some sort of recreational reaction to prices. An MRE's vs a weekend campers bag of pancake mix and some sandwich stuff is a relatively huge investment and very long term.

publius
2011-Nov-25, 08:35 AM
So what happened in Kartrina?

I forget we're international here, but "Katrina" is something of a synonym for Mad Max, because New Orleans pretty much went Mad Max in the aftermath of that hurricane until the military (and regular army, 82nd Airborne, IIRC) finally got in there and got in under control.

Let's see Wiki has a summary here:

http://en.wikipedia.org/wiki/Effects_of_Hurricane_Katrina_in_New_Orleans#Afterm ath

That's a general overview, but here is 15 page NY Times article about what went on in a hospital. Some doctors essentially euthanized very sick patients with morphine:

http://www.nytimes.com/2009/08/30/magazine/30doctors.html?pagewanted=1

In short, conditions went to hell and went to hell fast, overwhelming local and state authorities. FEMA, at the federal level, was also a cluster, uh, bomb itself. While things were bad, there were false stories about even worse things happening which the media repeated and authorities believed. One was stories of "rape gangs" in the Superdome going around raping and killing people with tales of hundreds being killed. Such stories made rescue people afraid to go in.

At the time, I remember wanting to slap some news anchor who was down there reporting and actually went hysterical on live TV.

Ronald Brak
2011-Nov-25, 01:56 PM
I tried to look up how many people were murdered during Katrina and got a figure of 21 suspicious deaths: www.outhouserag.typepad.com/hurricane_watch/2005/12/mysterious_deat.html

To me that doesn't seem too bad a figure given the situation. Of course that just might mean my opinion of humanity is set too low.

Extravoice
2011-Nov-25, 02:24 PM
Oops. That was just me. :)

I made a pretty big purchase of camping supplies recently... An MRE's vs a weekend campers bag of pancake mix and some sandwich stuff is a relatively huge investment and very long term.

We do some occasional camping, and have found that gear will last a long time if properly cared for. Now that I'm a little older, we find ourselves renting a spartan cabin more often than using the tent. We considered a buying towable trailer a few years ago, but the math didn't work out.

We never take MREs camping, although they might be good for hikers. I *do* have a few cases in my basement as emergency supplies, but my supplies are more geared toward surviving a week or so "off the grid" in the event of a natural disaster rather than a Mad Max scenario. I chose MRE's for that application because they have a long shelf life.

PraedSt
2011-Nov-25, 03:58 PM
The narrative seems to have shifted from preventing a Euro breakup, to managing the breakup. I have no idea how they're going to do it, it seems mindbogglingly complicated. Do we even have the currency plates anymore? Or were they melted down 10 years ago?

Ara Pacis
2011-Nov-25, 04:15 PM
Okay, I read an account of the Argentinian Economic Crisis by a guy named "ferfal". Even he underlines some differences between the US and Argentina. While I see some similarities in the actions of businesses and politicians, he seemed to think that some of what happened was because there were endemic problems already, and even then things didn't devolve into Mad Max hide-in-the-hills, but more like criminals got more desperate, services were reduced but not entirely absent and people still went to work. I won't get into it more here (lest I risk mod action) than to say that. Simply put, the US and Argentina are different. Moreover, it seems likely that in this current crisis and for the foreseeable future, if the US crashes, so will the rest of the world (if it didn't precede the US). Thus, some of the export issues Argentina had may not exist for the US. In other words, it probably won't get that bad that fast, like I said above. Maybe in 20 years, but not in a matter of months... except for those places in the US that would happen to experience a physical disaster.

Solfe
2011-Nov-25, 05:43 PM
I chose MRE's for that application because they have a long shelf life.

I tend to use items that have a short shelf life, so everything is in rotation. I keep the cars loaded with food and water that has to be replaced all of the time. On the upside, I could last 24-48 easily in any one of my cars. Paranoia on my part, I got stuck for 2 days in a snowstorm. Cold is much worse than hunger, at least in the short term.

Back to the discussion at hand, Euro break up. Maybe I am a fool, but I can't see that every happening completely. Each country could revert back to their own currency "easily" by busting out the presses, but Europe is pretty tightly stitched together. There would be a frightening period of financial woes as everyone struggles to adapt to the new situation.

How would that effect daily life for Phillipe and Emma Average?

Here is another foolish question. If the EU does start to fall apart, are any countries willing to stick with it and continue on? That is a very interesting question in my mind. There are 27 countries to start with, what if any 6, 9 or 12* decided to keep going? What would their role be in the situation?

(*small but significant random numbers, feel free to replace them with your own.)

HenrikOlsen
2011-Nov-25, 07:51 PM
Here is another foolish question. If the EU does start to fall apart, are any countries willing to stick with it and continue on? That is a very interesting question in my mind. There are 27 countries to start with, what if any 6, 9 or 12* decided to keep going? What would their role be in the situation?
That would utterly depend on which countries it is.

Taeolas
2011-Nov-25, 08:06 PM
If I recall correctly, there were some articles linked recently, or at least some musing, that the EU may shrink down to a core group, centered on Germany and/or France, and letting the weaker states drop out or at least drop to a lesser tier.

Extravoice
2011-Nov-25, 10:29 PM
It may not be "Back Monday," but today is "Black Friday" in the US. The day after the Thanksgiving Holiday when people go insane as the Christmas shopping season begins. I haven't heard about anyone getting trampled to death this year, but some woman pepper sprayed the shopping competition. Good will toward men? I sometimes wonder if we are fit to be the dominant species on the planet.

Personally, you couldn't pay me to go near a shopping center today, and I set aside the day for annual maintenence items, such as vacuuming my clothes dryer duct and cleaning the gutters.

peteshimmon
2011-Nov-25, 10:48 PM
And black means the ink in the ledgers
is black meaning profits, waa-hey!
Heck, why could not those accountant
wallahs have used green ink? Much
less confusing. In the green-gains,
in the red-losses.

Green ink was not invented back then?
Well it should have been!

publius
2011-Nov-25, 10:53 PM
Yeah, you couldn't pay me to go to town today.

Italian yields blew out even higher today hitting levels higher than the last blow out last week or whenever it was (it's all running together). There was a disastrous Italian bill auction, and the 12m and 6m are now over 7% yield themselves, jumping 13%. However, that's still below the 8% peak they hit during the last blow out event.

I think they only ones buying Italian debt now are the ECB and the Italian banks (they know the debt is risky, but if they don't buy and let it blow up, they go down with sovereign ship)

publius
2011-Nov-25, 11:43 PM
The narrative seems to have shifted from preventing a Euro breakup, to managing the breakup. I have no idea how they're going to do it, it seems mindbogglingly complicated. Do we even have the currency plates anymore? Or were they melted down 10 years ago?

There've been rumors going around for months that Germany was secretly printing new D-marks as a contingency. Those rumors were hotly denied. And there have been leaks coming out from the UK Treasury and others that they were all contingency planning for euro breakup and currency collapse. They would be stupid not to and that would be an example of the "normalcy bias" I was rambling about as well -- it's unthinkable the EU would break up, so we won't think about it. Of course, it being common knowledge that they were making such plans might make it self-fulfilling, so they would want to keep it secret.

At any rate, here's a good article from Jeremy Warner which goes along with your point:

http://www.telegraph.co.uk/finance/comment/jeremy-warner/8913884/Death-of-a-currency-as-eurogeddon-approaches.html

There's been a sudden shift in thinking. Previously, everyone thought Germany would eventually relent and allow printing and/or Eurobonds, but now they've suddenly realized that Germany isn't going to relent and it's time to head for the exits.

Warner doesn't think it will be "orderly" and says the contingencies are for the biggest mass default in history.

Note his comments at the end about CDS. They ruled the Greek haircuts were "voluntary" meaning the CDS wouldn't be triggered. That had to effect of telling investors that CDS were worthless. Of course in practicality they are worthless anyway, and triggering such a credit event is what they were desperately trying to avoid. Our idiot banks in the US have written wads of CDS on Euro sovereigns, and it would be Armaggeddon indeed if they were triggered.

Of course, the "biggest mass default in history" will do it as well.

publius
2011-Nov-26, 12:17 AM
I was just looking at yields. Greek 1y went over 300% which is the 1/4 of face value mark. Greece has also started direct talks with the bondholders and is demanding such a 25% recovery rate, a 75% haircut.

And the Italian yield curve inverted again. 2y: 7.66% (off a high of 7.92%!), 3yr 7.72%, 5y 7.74% and 10yr 7.26%.
The short end of the bills: 3m: 4.93% 6m: 7.06% 12m: 7.02%

publius
2011-Nov-26, 11:12 PM
More on Brit contigency planning for euro collapse:

http://www.telegraph.co.uk/news/politics/8917077/Prepare-for-riots-in-euro-collapse-Foreign-Office-warns.html

Note the contingency planning is that collapse is just a matter of time. They're preparing for riots and social breakdown, and what do with Brit citizens inside the EUzone unable to access cash or the bank accounts.

And also note the final "worst case" part about a 50% drop in GDP for euro member states. Economic output drops in half. That is collapse territory, not mere depression.

And if(when) that happens, that will sweep over here and consume our own idiot banks like wildfire.

publius
2011-Nov-26, 11:37 PM
There's been another kerfluffle about another little mystery on Helicopter's balance sheet this week. Before 2008, if you'd told me that in a few years I'd be watching the Fed's balance sheet like a hawk and trying to learn every little detail about it, I would have laughed. At any rate, behold the latest H.4.1:

Go to Table 1 and look at "Other" under Deposits with FRBs other than reserves (these are the "checking" accounts of everybody else besides the banks. Uncle's account is here, as well as Foreign Official). "Other" is everything that is not explicitly listed as a seprate item.

There has been a huge jump in the Other category, with the ending balance at $115B. The weekly average jumped $45B, but look at last week's H.4.1:

http://www.federalreserve.gov/releases/h41/20111117/h41.htm

It ended at just $27B on Nov. 16th. The week before that it was $51B.

15853

Now, just what does Other include. Well, it includes the checking accounts of Fannie and Freddie (who are privileged enough to have deposit accounts directly at the NY Fed). But that's not it. It also includes things like the IMF and other international NGOs and similiar. I hear the Euro bailout fund would also have an account at the Fed.

PraedSt
2011-Nov-27, 10:55 AM
Zerohedge has an article pointing out that the total amount of over-the-counter derivatives rose by $100 trillion in the first half of this year. Gulp.
http://www.zerohedge.com/news/707568901000000-how-and-why-banks-increased-total-outstanding-derivatives-record-107-trillion-6

Their analysis: "So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows."

I do recall that there was a backlog in recording OTC contracts. This might simply be result of the backlog clearing. Or maybe not.

boppa
2011-Nov-27, 11:42 AM
Usually dont post, but I hate to say- when looking at the total debts (private, government and industrial) the US looks to be breaching 400% where Italy is `only' at 360%

so why is there this sudden `flocking' to `safe' US dollars in the last few weeks?

(another case of `too big to fail' ??? .....)

IMHO- its betting on whose sandcastle is going to be washed away first- you might be right for a few seconds, but in the end- everybody loses?????

publius
2011-Nov-27, 08:20 PM
That's standard behavior, flocking to "safety" (safety being a very relative term). The stampede is just to get out of the euro, which happens to be the ugliest ugly girl at the dance as it were. Right now, the dollar is the prettiest ugly girl.

Where did you get that 400% figure? Here's the latest from Fred:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=TCMDO_GDP&scale=Left&range=Max&cosd=1947-01-01&coed=2011-07-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=%28a%2Fb%29%2A100&fq=Quarterly&fam=avg&fgst=lin&transformation=lin_lin&vintage_date=2011-11-27_2011-11-27&revision_date=2011-11-27_2011-11-27

Now Japan may be at 400% total. Their public debt ratio is at a mind boggling 200%.

publius
2011-Nov-27, 08:51 PM
The latest rumors are something about a massive IMF loan bailout for Italy with a figure of $600B (whatever that it is euro) being floated around. No details just that figure.

They've got to do something, even if it's just talk, to try to stop the bleeding. Another "sticksave", some attempt to kick the can a few more weeks (days, even) down the road. If they don't do pull some rabbit out of their hat, Italy is gone. Remember last week's disastrous Italian bill auction (and other disastrous auctions, including Germany). Italy has to roll over and/or make coupon payments of about E30B in the next month or so, and if Bondzilla tells them hell no to new debt, they default right then and there. And then the euro dies right then and there and all the contigencies are realized.

publius
2011-Nov-27, 10:41 PM
Here's a good one:

http://www.ft.com/intl/cms/s/0/82b15932-18fe-11e1-92d8-00144feabdc0.html#axzz1ewfQdSEf

The head of Greece's statistics agency is being charged with fudging numbers *and to the downside*, not up. He is charged with making things look worse than they were, not better. And the reason was apparently to get more IMF help.

publius
2011-Nov-28, 03:45 AM
How desperate are things getting? This desperate, from AEP:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8918784/Should-the-Fed-save-Europe-from-disaster.html

If the ECB won't helicopter, they're screaming for Helicopter himself to do the helicoptering. Again, AEP is a money printer at heart, and he thinks this will work. He quotes some character from Jeffries there, demaning this be done. Jeffries is up to its own eyeballs in Euro sovereign cum junk debt, so he's about as far from an impartial source as possible.

Politically here, the headline "Fed prints another $2T to save Europe" would be the end of the Fed. It wouldn't be immediate, but the political fallout would be the Fed's head on a pike ultimately. The Fed does have the legal authority to buy foreign sovereign debt, although I don't think it ever has (it might have accepted it as collateral for discount window loans and repos, though).

The problem is the Fed creates dollars, not euros. The Fed can certainly buy if someone is willing to accept dollars, but if someone needs euros, it can't be done directly. The ramifications of all that forex indirection, I don't know. And I doubt the cheerleaders for this have thought it out either.

publius
2011-Nov-28, 04:04 AM
And the massive IMF loan for Italy rumor has just been denied.

publius
2011-Nov-28, 04:19 AM
According to this guy,

http://www.ft.com/intl/cms/s/0/d9a299a8-1760-11e1-b00e-00144feabdc0.html#axzz1ewpKcCAe

the EU has 10 days. If they don't agree to massive ECB printing, Eurobonds, and fiscal union by the next meeting, the euro is gone and we have that "biggest massive default in history".

publius
2011-Nov-28, 04:35 AM
And now, according to Dow Jones wire via ZeroHedge, ICAP (big London broker/dealer) is now testing Drachma trades. :) But it says it's just a precaution.

They are preparing for Euro breakup and the reintroduction of old currencies.

PraedSt
2011-Nov-28, 06:59 AM
Zerohedge comes up funny headlines. "Multi-Trillion Bank Bailout Leads to Multi-Billion Bank Profit Bloomberg Finds"
http://www.zerohedge.com/news/multi-trillion-bank-bailout-leads-multi-billion-bank-profit-bloomberg-finds

As for the Euro, I'm skeptical about increased fiscal union. It can be rammed through of course, I just don't think electorates will react well to it.

Ronald Brak
2011-Nov-28, 08:17 AM
Here we've manged to have massive droughts, massive floods, massive fires, cane toads, rabbits, carp, a couple of world wars and the Spanish Flu. But none of these things resulted in even the temporary collapse of our society. The EU's financial woes are not a good thing, but still nowhere as damaging to us as rabbits, and so I find it impossible to feel any sense of danger for my own comfortable position here at the Aust end of the world. While a very real chance of a decline in commodity prices and European tourists is, in general, not a good thing for us, I think I can safely speak for us all when I say that very few of us feel the need to run outside and shoot people in the face over it. And looking on the bright side, a fall in commodity prices will do plenty of other people some good. So I shall watch the stock market's gyrations with an air of detachment and pay no mind at all to bond markets. Maybe I'll buy a Euro on eBay for old times sake. I have a US dollar and a Malaysian coin I can try to exchange for it.

boppa
2011-Nov-28, 11:10 AM
Here we've manged to have massive droughts, massive floods, massive fires, cane toads, rabbits, carp, a couple of world wars and the Spanish Flu. But none of these things resulted in even the temporary collapse of our society. The EU's financial woes are not a good thing, but still nowhere as damaging to us as rabbits, and so I find it impossible to feel any sense of danger for my own comfortable position here at the Aust end of the world. While a very real chance of a decline in commodity prices and European tourists is, in general, not a good thing for us, I think I can safely speak for us all when I say that very few of us feel the need to run outside and shoot people in the face over it. And looking on the bright side, a fall in commodity prices will do plenty of other people some good. So I shall watch the stock market's gyrations with an air of detachment and pay no mind at all to bond markets. Maybe I'll buy a Euro on eBay for old times sake. I have a US dollar and a Malaysian coin I can try to exchange for it.

You no fun R.B

I even know where theres a mint xc falcon coupe with a 351 in it...

You mean I don't get to go all Mad Max in it???

Bummer

Ronald Brak
2011-Nov-28, 11:30 AM
You no fun R.B

I even know where theres a mint xc falcon coupe with a 351 in it...

You mean I don't get to go all Mad Max in it???

Bummer

I'm already a maggot living off the corpse of the old world, so a world wide collapse of civilisation won't do me any good. On the other hand, I fully intend to get around to playing Fallout 3 at some point and I'm sure there's someone out there who has made a financial collapse mod for it with bowler hatted bankers instead of raiders and super mutant hedge fund managers.

Space Chimp
2011-Nov-28, 12:44 PM
It isn't like there weren't lone voices warning against the witches' brew of bad economics, bad finance, & bad politics that was the Euro. But the reply was damn the icebergs, full speed ahead. Now the watertight compartments are compromised, the ship is sinking, and the crew and passengers are flailing about trying to find lifeboats. Next year is the centennial of the Titanic. Maybe we were overdue for another humbling.

Delvo
2011-Nov-28, 04:09 PM
There's been an ad playing on the radio around here lately including a hypothetical news broadcast from the future, full of what the people who made it expect to sound like good news. One of the good-future-news items in it is that house prices are going up significantly. :doh:

My amazement that that attitude (of high house prices being inherently good) so often comes from people who think high prices are inherently bad in every other type of product or service, but who don't seem to notice how they're reversing themselves for just this one kind of product for no reason, is second only to my dismay that there are still apparently so many people who haven't learned that bloated house prices were a large part of the problem and letting them fall is the solution. As long as there are still people thinking that way, a real solution to the economic problem won't be politically viable.

Extravoice
2011-Nov-28, 04:38 PM
Many people consider a house as an "investment" rather than a "purchase". While they don't expect most other items they purchase to increase in value, they expect their house (and associated real-estate) to do so. I'll leave it to people who understand economics better than I to determine if that is a reasonable expectation in the long term.

There are a large number of people whose house is now worth less than they signed-up to pay for it, and feel that increasing prices will set things back to "where they belong", rather than the collapse in prices having done so.

peteshimmon
2011-Nov-28, 05:03 PM
There are many pro's and con's with house
buying. Firstly lets recognise the market
is the best mechanism for distributing
goods. Then there is upkeep for an asset
that will deteriorate unless looked after.
And when changing locations as a career
may demand, selling and buying is easier.

But against this is the price spiral because
demand is always positive even in depressed
times. Local Authority building can always
offset this though miserable types may grumble.

Some properties belonging to people whom age
has graced are seen to be in a state everywhere.
There could be a case for buying these up if
empty and renovating on the basis that land
has to be used positivly all the time. But
this is slightly political I suppose:)

profloater
2011-Nov-28, 11:12 PM
I guess it is too late for eurobonds although Soros (wasit?) suggested a neat fudge with quasi independent bond holders so that the ECB could legally buy sovereign bonds through them to bring down all those bond rates. Otherwise it does look as though germany has been planning for this collapse all along and we will end up with a northern Euro and a Southern Euro, rather than all the old currencies back and fighting each other. Devalued currencies is the only way out but surely Germany does not want a super high value Northern Euro killing all the exports? Who is the king maker here? Are the so called technocrats from Goldman Sachs all idealogues at heart and about to discover a big dose of reality? Is this the final proof of the cock-up theory that really no one knows what they are doing?

publius
2011-Nov-29, 03:22 AM
Is this the final proof of the cock-up theory that really no one knows what they are doing?

What they're doing is just trying to hold things together for a few more weeks, if not mere days, and not thinking about the long term.

We had a nice little rally here, a little sugar high today, so all is well for a few hours.

The Italian 2yr went on a conniption fit today, swinging 100bps -- one whole percentage point -- in one day. It peaked at 8.12% before closing at 7.11%. That's another one of those 6 sigma events.

And they've appointed Louis Freeh, former FBI head, to head the investigation into MF Global.

publius
2011-Nov-29, 04:45 AM
Italy has a bond auction tomorrow I just learned.... So does Belgium, short term bills, actually. Then France and Spain on Dec 1, some others following, followed by more Italian auctions on Dec. 12, Dec 14, 28 and 29th. Greece has a big coupon payment due sometime around the 30th. Spain and Portugal have several more auctions in Dec. as well.

Tensor
2011-Nov-29, 05:20 AM
Italy has a bond auction tomorrow I just learned.... So does Belgium, short term bills, actually. Then France and Spain on Dec 1, some others following, followed by more Italian auctions on Dec. 12, Dec 14, 28 and 29th. Greece has a big coupon payment due sometime around the 30th. Spain and Portugal have several more auctions in Dec. as well.

With the situations in regard to their bonds, Merry Christmas and Happy New Year.

publius
2011-Nov-29, 05:41 AM
I'll leave it to people who understand economics better than I to determine if that is a reasonable expectation in the long term.


Please let's not leave it to economists. Please. :lol: Here's the 100 yr+. Case-Shiller. This is their best attempt to look at the real (inflation adjusted) price of a given unit of house, a comparison of how much a given "amount of housing" would cost you in real terms in the US:
15872

Now, what does that tell you?

publius
2011-Nov-29, 06:35 AM
This reminds of how my parents built their house. They saved up money over the course of several years, and my father built it himself back in 1960, for a cost of $8000 in materials. He did just about all the work himself, save for the plumbing which he hired out. He did hire some manual labor, but they were on his payroll anyway. My mother always jokes that the closest they ever came to divorce was when they were putting up the kitchen wallpaper back then. It was some fancy mural thing she wanted and she wanted to hire a pro to put it up, but my father wasn't about to spend extra money to do some little thing like that. It wasn't such a little thing, and they got quite exasperated with each other.

$8000 is about $61,000 in today's dollars. Back then, there were little building codes and regulation out in the country. You just built a house or whatever you wanted where you wanted it with no hassle whatsoever, other than the acutal building of it.

Such a thing was possible back then and not all that rare. Today, it's very rare indeed. I did read something about some guy who managed to save and build his own house without going into a penny of debt, but he had to use low cost materials and construction. It wasn't any Mcmansion, IOW, but he did build himself a house. And it was out in the boondocks of course, with minimal regulation, and more importantly, no snooty neighbors who wouldn't like his architecture. :lol:

Delvo
2011-Nov-29, 10:20 AM
While they don't expect most other items they purchase to increase in value, they expect their house (and associated real-estate) to do so. I'll leave it to people who understand economics better than I to determine if that is a reasonable expectation in the long term.The issue is not whether the prices go up, but how rapidly and for what reasons. (When it's artificially induced & enforced, not due to natural supply & demand in the market, it's fake and unsustainable. That's what makes a bubble a bubble.)

PraedSt
2011-Nov-29, 12:31 PM
American Airlines files for bankruptcy.

http://www.zerohedge.com/news/american-airlines-files-bankruptcy

publius
2011-Nov-29, 09:41 PM
Well, nothing blew up in Euroland today. Nothing improved, but nothing blew up. And CNBC's idiot Cramer just announced that these are "dangerous" times. Wonder when he got a clue?

The ECB had a sterilization miss, and was unable to fully sterilize its latest PIIGS bond purchases by about E10B. "Sterilizing", if you recall, is when the central bank offsets injections of money in one sector by pulling out equal amounts in another areas, thus yielding a net zero effect on the monetary base. The ECB failed to completely pull an equal amount out from those other areas. Thus it printed a little even though it didn't want to, or claims it didn't want to.

publius
2011-Nov-29, 10:27 PM
S&P just downgraded 37 of the TBTF banks:

http://www.zerohedge.com/news/standard-and-poors-downgrades-37-global-banks-among-which-bank-america-citi-wells-fargo-morgan-

That includes BAC, JP Morgan, Wells Fargo and Citi. The Squid also got downgraded. Bunch of Euro banks as well, UBS, Credit Agricole, Unicredit, French and German banks... See the list.

Ronald Brak
2011-Nov-29, 11:14 PM
The ECB had a sterilization miss, and was unable to fully sterilize its latest PIIGS bond purchases by about E10B. "Sterilizing", if you recall, is when the central bank offsets injections of money in one sector by pulling out equal amounts in another areas, thus yielding a net zero effect on the monetary base. The ECB failed to completely pull an equal amount out from those other areas. Thus it printed a little even though it didn't want to, or claims it didn't want to.

I hope they will start large scale unsterillized money creation in the EU immediately. Either that or break up the Euro zone in a reasonably sensible way. I don't see how keeping things as they are at the moment does anyone any good.

HenrikOlsen
2011-Nov-30, 09:51 AM
I hope they will start large scale unsterilized money creation in the EU immediately. Either that or break up the Euro zone in a reasonably sensible way. I don't see how keeping things as they are at the moment does anyone any good.
They can't do one without the other, Germany will pull out of they try Zimbabweing their way out of debt.

Ronald Brak
2011-Nov-30, 11:23 AM
I meant Germany could throw its weight behind printing money, not Greece et. al. (Which they can't do while in the Euro.) But Germany deciding to do so seems somewhat unlikely.

Extravoice
2011-Nov-30, 01:39 PM
World's central banks act to ease market strains (http://finance.yahoo.com/news/worlds-central-banks-act-ease-131058888.html;_ylt=AquClo9jEe2CkiGl7BCdVoaiuYdG;_ ylu=X3oDMTQzMjRmNjdpBG1pdANGaW5hbmNlIEZQIEp1bWJvdH JvbiBMaXRlBHBrZwNjZGE2NGMwMi1mM2JjLTM4MzAtOTI2MC1k Zjk4ZDg2ZGRjNDcEcG9zAzEEc2VjA2p1bWJvdHJvbgR2ZXIDND YxMTc3NDAtMWI1Ny0xMWUxLTlmZDQtYWI2ODRkNGE4ZjQ5;_yl g=X3oDMTFvdnRqYzJoBGludGwDdXMEbGFuZwNlbi11cwRwc3Rh aWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25zBHRlc3QD;_ylv= 3)

The European Central Bank said in a statement the central banks were making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant by establishing a temporary network of reciprocal swap lines

Does this constitute a worldwide bailout for the euro zone?

Space Chimp
2011-Nov-30, 02:23 PM
The European Central Bank said in a statement the central banks were making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant by establishing a temporary network of reciprocal swap lines

Does this constitute a worldwide bailout for the euro zone?

Just when you thought they couldn't dig any deeper. Maybe they think they'll hit a bank vault in Shanghai and it'll solve all their problems. :wall:

Extravoice
2011-Nov-30, 03:02 PM
From an article at CNN (http://money.cnn.com/2011/11/30/news/economy/fed_ecb_dollar_liquidity/index.htm?hpt=hp_t1):

A swap takes place when the Fed provides U.S. dollars to a foreign central bank, in exchange for the equivalent amount of foreign currency from that central bank.

"These swap lines are being implemented as a contingency measure, so that central banks can offer liquidity in foreign currencies if market conditions warrant such actions," the Federal Reserve said.


Is this to allow European banks to offer dollars/pounds/yen, etc. if nobody wants to deal in euros?

ETA: I just read this little item in the article:
Since May, the cost for European banks to borrow dollars from other European banks has skyrocketed. Through central bank auctions announced in September, these banks can borrow dollars at reduced interest rates, for periods of three months.

Can't get a good rate on a loan from the bank? No problem, your Uncle Sam will spot you the money. What could possibly go wrong?

PraedSt
2011-Nov-30, 03:49 PM
Yeah, it's sort of a bail out. They can borrow money at a cheaper rate. But they still have to go out and generate the revenue.

publius
2011-Nov-30, 08:23 PM
A big Euroland bank was about to go belly up and be another Lehman event (or Creditanstalt, I should say :lol:). They learned their lesson from Lehman, and will do everything in their power to stop another one from happening. They'll sacrifice their first born to stop another Lehnman event. Which bank it was no one knows, but they'll figure it out in a few days based on data that becomes available. It was probably an Italian bank and maybe a French one.

Anyway, this is ramping up the swap lines again big time, making dollars available, with the additional feature as a "contingency" that they can make other currencies available, not just dollars. This means, as expected, the about-to-blow-up bank was starving for dollars and couldn't get them from the market as no one would lend. H.4.1 will be out tomorrow evening and we'll see just how big the initial swaps were which will give us an idea of how bad it was.

This being a family forum, I'm somewhat restricted in the descriptive language I can use, but swap lines are a type of circular monetary activity that ryhmes with berserk. Central banks create base money and they do that by maintaining the notion they create the money against some asset that is worth something. In the parlance, they "monetize" that asset. In practice that asset is usually an IOU, a promise to repay the dollars that are created.

In the case of the swap lines, the Fed creates dollars against foreign currency created by another central bank. All of them are involved here, but we'll just consider the ECB and euros. So the ECB creates some euros and gives them to the Fed, who then swaps them some created dollars for it. So what it is the asset that backs the newly created dollars? The newly created euros by the ECB. But what backs the newly created euros? Why the dollars that were just created. :lol: Monetary circular activity. On the Fed's balance sheet, the euros are on the asset side to back the dollars on the liability side. On the ECB's balance sheet, the dollars are assets which back the created euros on the liability side.

Weeeeeeeee. Fiat currency is fun. However, to be fiar, technically, when they do this, nothing has been put into circulation. The Fed has a bunch of euros on depost with the ECB, and the ECB has a bunch of dollars on deposit with the Fed. To put the dollars into circulation, the ECB must give them out to the about-to-blow-up Euroland banks. To do that, it does it the same way it would lend euros. It makes a dollar loan. That loan is backed by the about-to-blow-up banks' IOUs.

If we were to merge the balance sheets of the Fed and ECB together, the un-lent out into circulation currency would cancel, and the net effect is if the Fed made the loan to the failing Eurobank itself which it can't directly because the Eurobank is not under the jurisidiction of the Fed, and thus is not eligible by law for Fed lending. Same as our banks aren't eligible for ECB lending. So the effect of the swap lines is to get around that legality and allow the Fed to create dollars willy nilly for all foreign banks. It gives the dollars to the ECB, which it can legally do, and the ECB then lends the dollars to the banks under its jurisdiction.

When the make the swap, they agree to unwind at the same forex ratio they were created, so their is no forex fluctuation risk, and the foreign central banks just transfer the interest on their dollar loans, which are paid in dollars, right back to the Fed. That thus confirms it works just like the Fed itself made the loans to the foreign banks/entities in need of dollars.

Usually, the Fed agrees not to do anything with the foreign currency in the swap. The difference this time is they explicity worded it that as a "contingency", the Fed could lend out those euros if it needed to, if some of our banks needed euro funding. And presumably, the other central banks could open swap lines between themselves, not involving the Fed, say the ECB and the BOJ swapping euros and yen. But at the moment, the need is for dollars.

profloater
2011-Nov-30, 08:44 PM
Beautifully explained; thank goodness USA is full of money and has no balance sheet issues (this week). So it puts a bigger bouncer on the door of the speculators' gambling den to make big swaps like this. The issue of whether countries can ever actually repay these debts is put off again. We know USA will pay its debts because it has super fast printing presses and lots of green ink. What is a big pension fund to do? They need income from their vast stash of currency so they have to keep moving it about in intervals of seconds. The pity is money itself cannot actually generate any wealth and you can't even eat it. The very idea of interest on a money bond is quite amusing, as if it can somehow reproduce like algae with sunlight and CO2.

PraedSt
2011-Nov-30, 08:54 PM
I don't like swaps. They're an easy way to get around sovereign and CB restrictions. Right now the cash flow goes like this:

US Fed --> European CB --> European banks --> refinancing and/or servicing customers.

But if this mechanism persists, it could easily become:

US Fed --> European CB --> European banks --> Greek/Italian/UK/insert broke European country here/ bonds

The CBs have followed the letter of the law- the Fed hasn't directly bailed out a non-US entity and the ECB hasn't monetized, yet the end result is the same- the US will be bailing out Europe.

publius
2011-Nov-30, 09:04 PM
Well, the market loved it, Dow closed up 484 points. This is what they've been wanting, rolling on the floor like spoiled children throwing a tantrum, demanding that some central bank shower the problem with money, and they went nuts on this swap line stuff, thinking the Fed has saved Europe.

publius
2011-Nov-30, 09:14 PM
Now, to change the subject a bit with a very interesting development. Remember l'affair DSK, the rape allegation against Dominique Strauss-Kahn that fell apart? Well:

http://www.businessinsider.com/bombshell-investigative-report-reveals-evidence-that-dsk-was-probably-framed-2011-11#ixzz1f1KOlwV2

At the time, I believed it all, because it fit a little script. Well, that script may have been written. At the time, there were conspiracy theories that DSK was framed, either by his domestic political rivals, or by those in the global finance cabal who wanted him out of the IMF for whatever reason. I laughed at that at the time. Well, based on that reporting, I'd say it's more likely than not that DSK was indeed framed.

DSK had some proclivities ("rutting chimpanzee" I believe a female acquaintance called him) and they used those proclivities to set him up for a rape charge. Note the info in this report. DSK had been warned his Blackberry had been compromised/hacked and that's the one that went missing. The hotel's security firm has strong ties to DSK's political opposition.

But in the end, while it has apparently destroyed his career, and got him out of the IMF, the evidence didn't hold up and he didn't go to jail.

publius
2011-Nov-30, 11:04 PM
The pity is money itself cannot actually generate any wealth and you can't even eat it. The very idea of interest on a money bond is quite amusing, as if it can somehow reproduce like algae with sunlight and CO2.

At its root, money is just a "veil for barter", although because of debt dynamics, it is more complicated, and in ways economists don't factor in their models.

Interest can work, and it does, in a indirect way boil down to sunlight. :) A loan is promise to repay in the future, and repay more than you borrowed. To work, you must produce something in the future to pay it back. And to produce you need energy, and that's where the sunlight comes in (and millions of years worth of storage of it). The problem is when you go off and start borrowing too much and beyond what real production can back.

Thus there is good debt and bad debt, and we might add a third category, satanically evil debt. Good debt facilitates real production that wouldn't otherwise occur. Classic example is the farmer borrowing to put a crop in. No loan, no crop. Thus GDP benefits. The loan goes directly to real production.

Bad debt is when you buy to fuel pure consumption. Example is the farmer buying a flat screen TV on credit in anticipation of his profit when the crop comes in. All this does is pull demand foward in time. The farmer buys the flat screen TV now instead of in the future when the crop does come in. The flat screen TV is not needed now. Getting the crop in is.

There's a blurry line between good and bad debt and even some cross pollination. For example, the increased pull-forward demand for flat screen TVs sends a signal which causes the makers to perhaps take on debt to increase production. If that demand were real, that would be good debt. But if that demand is just debt fueled itself, then it is more bad debt piled on, as the demand is not real.

Satanic, 666, evil debt is borrowing to fund gambling (we'll define that as an expectation value of zero or less, but in reality the expectation needs to be positive enough). Speculative bubbles that bid up the price of some asset class are this kind of debt, no different that taking out a loan to go to Vegas.

The sign of bad and evil debt being taken on is an ever increasing debt to GDP ratio. And when you look at the deltas, the changes in each, you see that the change in debt is greater than the change in GDP. That means that some of current GDP needs debt to keep going, and thus a dollar of new debt produces less than a dollar of new GDP. This "debt efficiency" ratio has been going down for years.

Such a system is just a Ponzi. It will collapse eventually. We've done it, and globally, for nearly 30 years, with the housing bubble being the final orgy of the bad debt creation. We've reached the end of the Ponzi, and things must reset.

publius
2011-Nov-30, 11:16 PM
Here's some little graphs I had that are still stored in the forum system of debt to GDP that go back in time. One to pay attention to is the dGDP/dDebt graph, showing how the efficiency of debt has been steadily decreasing (Productive, good debt would have a ratio greater than 1 -- that is, one dollar of new debt would stimulate more than 1 dollar of real production). The others are of the total US debt to GDP ratio going back in time before the Depression.

158811588215883

Notice how debt to GDP shot up and peaked during the previous Great Depression. The system went Ponzi in the
20s and blew up. There was debt destruction period, which was terrible (that's why they're called depressions!), and then i

publius
2011-Nov-30, 11:25 PM
Well, it didn't inline the graphs, just put them in there as attachment links. I'm not even going to bother to try to fix it. :)

I just read some comments on this Fed Swap fueled ramp job. He said they managed to kick the can for another week or two. This is a rocket with a spectacular lift off, gaining speed with an impressive exhaust plume. Only problem is it's too heavy and not enough fuel to make orbit. It's coming back down hard, but enjoy the initial show.

profloater
2011-Nov-30, 11:31 PM
good debt is when a baker borrows for an oven to bake bread to sell. Bad debt is when money is borrowed to buy gold to hoard. ( Or made too complicated to understand.) Capitalism is the use of big money to advance production of things people want, to make those things cheaper. Bad capitalism is sucking in money to fund an elite who don't make anything useful at all. Debt is only an asset if the borrowers are solid and will pay back into the distant future. This is this end stage of the growth model of economics. Growth capitalism only works if the growth occurs. If the future shrinks the debts go unpaid and the system totters and falls. But it's only money. Unfortunately the need keeps on growing but the supply reduces. Malthus did have a point. The interest on money invested can turn negative. The funny thing is a shrinking business can generate loads of cash as the costs reduce faster than the income. I think we will see that happen.

PraedSt
2011-Dec-01, 05:59 AM
Thus there is good debt and bad debt, and we might add a third category, satanically evil debt.:lol: You do have a way with words.

PraedSt
2011-Dec-01, 10:09 AM
Please let's not leave it to economists. Please. :lol: Zerohedge has dug up another classic from an economist. There must be millions of these floating around.
http://www.zerohedge.com/news/global-bailout-surprise-twist-endings-presents-stocks-soar-investors-bet-govt-rescue-plan

From the article:

Wall Street had another extraordinary rally Friday as investors stormed back into the market, relieved that the government plans to restore calm to the financial system by rescuing banks from billions of dollars in bad debt. The Dow Jones industrials soared about 370 points, giving them a gain of about 780 over two days, and Treasurys fell as money flowed into equities.

Analysts said it was the first government response decisive enough to restore confidence in the markets; in the past, it has relied largely on steps like injecting cash into the banking system that, at least until now, had a limited impact.

"Everything they had done had been a Band-Aid approach, at the margins," said Jay Mueller, economist at Strong Capital Management. "Now we're dealing with the root problem."

The date? September 19, 2008 :lol:

HenrikOlsen
2011-Dec-01, 11:56 AM
The pity is money itself cannot actually generate any wealth and you can't even eat it. The very idea of interest on a money bond is quite amusing, as if it can somehow reproduce like algae with sunlight and CO2.
Money create wealth by being lent to people who use them to increase their productivity in ways they couldn't without the loan.

In a bubble, there's the belief that they create wealth by being lent to people who buy the bubbling commodity in order to sell it later, which fuels the bubble for a while. This is a lie. It doesn't create wealth, it just moves money around.

Bonds can create wealth, by being emitted by people who use the money to increase their productivity or who lend them to people who use it to increase their productivity.

Extravoice
2011-Dec-01, 01:35 PM
:lol: You do have a way with words.

Indeed. Thanks for the posts Publius. Please keep them coming.

Extravoice
2011-Dec-01, 01:44 PM
I flipped on the TV and stumbled across an interview with an analyist from Europe yesterday. The interviewer asked if the latest intervention by the Central Banks was like fixing your broken car with duct tape.

The analyst said that it was nothing like that at all. It is more like putting gas in your broken car. It allows you to drive your car a little farther down the road, but doesn't really do anything to fix the underlying problem with the vehicle.

If that's the case, why the euphoria in the stock markets?

Dude, I've got a cracked engine block and it's leaking oil really bad. On the bright side, I just bought gas and we can drive until the engine seizes. :confused:

HenrikOlsen
2011-Dec-01, 02:23 PM
If that's the case, why the euphoria in the stock markets?
Most investors & economists still have their heads screwed on against the thread, they're still in bubble mode thinking in terms of moving money instead of generating wealth, believing there's something magical about having money moving in the system without understanding that as long as the money are just moving around IN the system they're useless for anything else.

In ficticious terms this gives them more money to play with, so they're happy.

PraedSt
2011-Dec-01, 02:24 PM
If that's the case, why the euphoria in the stock markets?Traders who were short got scared of losing their profits and exited the trade (you exit a short trade by buying). And traders who were out of the market got scared of missing out on profits and plied on. Depending on who you ask, we're either an emotional bunch, or a bunch of sheep. :)

HenrikOlsen
2011-Dec-01, 02:38 PM
You're a bunch of irrational emotion-driven sheep. :)

publius
2011-Dec-01, 10:18 PM
The big bank that was about to blow was apparently Credit Agricole, a French one. While they can't be sure, that's the best guess based on public data. H.4.1 is out, but there was no activity at all on the swap lines. That means that the actual activity happened after the close of the period (4PM Wed. or whenever it was), so we'll have to until next Thursday to see how much was involved (unless it was all just talk and they haven't really done anything yet).

Italian yields came down below 7%, and all the auctions went as well as could be expected. So we can pronounce this swap line crap another stick save.

publius
2011-Dec-01, 10:42 PM
Another month older, another $100B in debt:

https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=11113000.pdf

Total public debt hit $15.11T today, sailing past the $15.1T mark. That puts total public to GDP at 99.5%. The debt limit is now $15.194T -- I think have another "tranche" in the debt limit deal and get to automatically raise it one more time without a vote. Or something. Anyway, they're going to need it before the end of the year. There will be a big coupon payment to the trust funds due then. Although it's not realy money, only more IOUs/GAS bonds, that alone will bump it up another $80B or so. And they'll be another $100B of real money borrowing needed for the month.

Note that total debt has increased $320B in the two months to date of the fiscal year. Let's see, the debt limit before the deal was $14.294T as of Aug 1. So they've increased it $900B since then.

publius
2011-Dec-02, 01:22 AM
:lol: You do have a way with words.

Speaking of ways with words and satanically evil, I think I just was possessed this evening, and right in front of the main church in town. I had to go to the grocery store, and coming back, some woman coming out of some church function (it's Thursday, not Wed, so something special must've been going) jaywalked right in front of me.

There was no danger, but she didn't see me, and it scared the devil of out her when my truck passed by her. She shouted out, "Slow down, you idiot!". I was well within the speed limit, she was jaywalking, and she hadn't noticed me coming, as I had just turned onto that particular street after she started crossing.

At that point, Satan himself must have possessed me, because I rolled down the window, and launched a stream of invective her that I'm now somewhat ashamed of. I don't think I used any actual curse words, but I may have, and right there in front of the church. :lol: I love to alliterate, especially with I get on a roll, and I remember calling her a "half-witted haridan" and explained how how I was sorry for he "henpecked husband". Somehow I got off the 'h's. Anyway, while initially sastifying, I did get ashamed of myself.

I just get the sense that everyone is stressed out near the breaking point, and that's an example of it from my own self. My response to an insult is always to return it by an order of magnitude at least, but such a thing could have easily escalated, and I might have been in a fight with an angry husband.

At any rate, I've got to watch that.

PraedSt
2011-Dec-02, 04:32 AM
I love to alliterate, especially with I get on a roll, and I remember calling her a "half-witted haridan" and explained how how I was sorry for he "henpecked husband". Somehow I got off the 'h's. Captain Haddock? Lily-livered landlubber! Nit-witted ninepins!

HenrikOlsen
2011-Dec-02, 12:24 PM
Next time try for alphabetical order as well.

publius
2011-Dec-03, 12:40 AM
Captain Haddock? Lily-livered landlubber! Nit-witted ninepins!

What's the expression (French, IIRC) that means "wit of the stairway". Horse-faced haridan would've been better -- I sort of like to go in threes -- so "hideous, horse-faced haridan" would've been better. I like to use classier language than the standard gutter grunts we've devolved into, and "haridan" just popped in my mind which got me started on the 'h's. I need to think up some good ones like that and try to memorize it, so it's ready in the heat of the moment. :lol:

That woman was a shining example of some of the thinking and behavior that got us into this economic mess, actually. First, she had some entitled sense that she could do whatever she wanted, and was blissfully unaware of her surroundings and what she was literally walking into. I remember when my father was teaching me how to drive -- and that started with tractors and farm machinery -- he pounded situtational awareness into my head. Always be aware of where you are, where all parts of your vehicle is in relation to everything else, and be thus aware of the consquences of the manuevers you make. Think of all the bad things that could happen because of a move you make, and further, think of the possible bad moves others around you could make.

THe irony is that now he's in his 80s, I'm seeing him lose that situtional awareness that he pounded into me, and he's getting somewhat accident prone.

But at any rate, that woman went into a situation unawares, acting wrecklessy, and then blamed the result on someone else, instinctively lashing out at others.

Celestial Mechanic
2011-Dec-03, 05:36 AM
What's the expression (French, IIRC) that means "wit of the stairway"? {Snip!}{Punctuation mine.}

I think it's "l'esprit d'escalier". Literally "the spirit of the staircase". It's one of my favorite expressions from the French language.

HenrikOlsen
2011-Dec-03, 11:47 AM
BTW, isn't it spelled harridan?
Haridan is a surname.

publius
2011-Dec-03, 08:18 PM
Yep, you're right, two 'r's. Harridan. It comes from a French word with only one 'r', Haridelle, meaning an old horse.

PraedSt
2011-Dec-03, 08:38 PM
Yet another country (Portugal) has raided pension funds in order to finance its deficit.

http://www.zerohedge.com/news/portugal-latest-country-go-mf-global-raids-pensions-funds-delay-fiscal-death

In this case the funds belong to pension plans of a privatized company, Portugal Telecom. I'm surprised this is allowed under EU rules.

Extravoice
2011-Dec-03, 09:13 PM
Some things never change. Back in the mid 1970s, my (future) father-in-law's employer raided the pension fund just prior to shutting down the business and laying every one off. I guess you can still get away with this if you make the laws.

PraedSt
2011-Dec-04, 07:40 AM
Some things never change. Back in the mid 1970s, my (future) father-in-law's employer raided the pension fund just prior to shutting down the business and laying every one off. I guess you can still get away with this if you make the laws.Did he get away with it? I'm not sure exactly sure who owns a company pension fund, or if a company pension is a legal obligation or not.

Extravoice
2011-Dec-04, 10:45 PM
Did he get away with it? I'm not sure exactly sure who owns a company pension fund, or if a company pension is a legal obligation or not.

Apparently, they got away with it. I find that hard to believe, but don't know much about bankruptcy law and how it may have been different in the 1970s. I did a Google search and found what appears to be an unofficial history of Ballantine Ale (http://www.falstaffbrewing.com/ballantine_ale.htm), and they have the following statement:

"Balco's CEO Stephen Haymes blamed the annual city real estate tax bill of $1 million for the failure of the company. Balco's management had robbed the employee pension fund in a search for cash, leaving 700 employees without any retirement. 1500 workers were thrown out of their jobs, and 700 transferred over to Falstaff, who retained the Ballantine direct sales and distribution network. But Balco was unable to develop the Newark site, and declared bankruptcy in 1974."
[emphasis added]

peteshimmon
2011-Dec-05, 12:19 AM
Reminds me of a story from the seventies
when a famous person liked to buy up
companies.(no names, no packdrill).
A pension fund trustee was discussing
matters with this new owner when he
realised there was a misunderstanding.
So he said to the person you do realise
the fund is closed? Which meant safe
from being raided by the company. When
he looked up the famous person was "in
orbit!" Having access to these funds was
a major part of the reason for wanting
the company.

Nice.

publius
2011-Dec-05, 12:44 AM
It looks like Commerzbank, Germany's second largest, is going to have to be nationalized:

http://www.efxnews.com/story/7676/germany-preparing-potential-commberzbank-nationalization-plan

The govt. already holds a 25% stake in it.

Every time I see "Commerzbank" I think of the Commerce Bank of Beverly Hills, which was the fictional bank in "The Beverly Hillbillies", where Uncle Jed put all his oil millions. It was run, if you recall, by Milburn Drysdale, with his uppity, snooty wife Margaret. Margaret of course was mortified by the thought of hillbillies in her beloved neighborhood, but Mr. Drysdale loved their money too much.

He was the ultimate stingy tightwad. I was just thinking how different the stereotypical banker of that day was from now. Back then Mr. Drysdale and say Mr. Mooney from the Lucy Showseries were all tightwads and skinflints. They loved money, but didn't want to spend it.

Ask yourself. Would Mr. Drysdale or Mr. Mooney have gotten us in this mess? Heck no. They wouldn't have been so recklessly stupid. They were greedy. They loved money, but holding on to it, not blowing it and loaning it on liar loans. :lol:

Ara Pacis
2011-Dec-05, 01:35 AM
Those types of bankers disappeared with the laws against usury. There's no need to be stingy when the banker can get fat on the interest alone.

publius
2011-Dec-05, 05:09 AM
Speaking our German-minded members of the FOMC, I just read something. Every year, they rotate seats on the FOMC amongst the regional Fed heads (Board of Governors is always on, and the President of the NY Fed is always voting -- NY Fed is double plus special, of course). Well at the end of this year, it turns out that all of the hawks are going to rotate off, and will be replaced by doves.

So we can expect QE III to be announced in Jan. After the meeting this month, they'll make another statement that they'll keep rates at 0% for the next 20 years no matter what happens and hope that and Santa Claus tides everything over until Jan. Then they start to print again.

There's a rumor going around that the Fed is going to fund the IMF somehow to provide a Euroland bailout (that would be what, the 10th bailout program announced), but that's probably just nonsense by someone in Euroland trying to keep the market pumped.

PraedSt
2011-Dec-05, 06:04 AM
Apparently, they got away with it. I find that hard to believe, but don't know much about bankruptcy law and how it may have been different in the 1970s. I did a Google search and found what appears to be an unofficial history of Ballantine Ale (http://www.falstaffbrewing.com/ballantine_ale.htm), and they have the following statement:

"Balco's CEO Stephen Haymes blamed the annual city real estate tax bill of $1 million for the failure of the company. Balco's management had robbed the employee pension fund in a search for cash, leaving 700 employees without any retirement. 1500 workers were thrown out of their jobs, and 700 transferred over to Falstaff, who retained the Ballantine direct sales and distribution network. But Balco was unable to develop the Newark site, and declared bankruptcy in 1974."
[emphasis added]According to that article, Balco's management at that time were investment bankers. The more things change...

PraedSt
2011-Dec-05, 07:38 AM
Speaking our German-minded members of the FOMC, I just read something. Every year, they rotate seats on the FOMC amongst the regional Fed heads (Board of Governors is always on, and the President of the NY Fed is always voting -- NY Fed is double plus special, of course). Well at the end of this year, it turns out that all of the hawks are going to rotate off, and will be replaced by doves.

So we can expect QE III to be announced in Jan. After the meeting this month, they'll make another statement that they'll keep rates at 0% for the next 20 years no matter what happens and hope that and Santa Claus tides everything over until Jan. Then they start to print again.

There's a rumor going around that the Fed is going to fund the IMF somehow to provide a Euroland bailout (that would be what, the 10th bailout program announced), but that's probably just nonsense by someone in Euroland trying to keep the market pumped.France hold presidential elections next year, so possibly yet another change of guard. This article argues that if Sarkozy loses (and right now its looking like he will) either France will leave the EZ, or Germany will.
http://www.testosteronepit.com/home/2011/12/1/french-presidential-election-coup-de-grace-for-the-euro.html

publius
2011-Dec-05, 11:40 PM
S&P just put the Euroland AAA sovereigns, *including Germany itself* on credit watch negative, which means they may downgrade within 90 days. It was expected for France, but not Germany. The other AAAs include The Netherlands, Finland, Austria, and Luxembourg. Some were warning about Austria as well as France, actually, I think.

I just wonder if this all part of the effort to force Germany to allow printing. "Okay, print, or we take you down with us."

publius
2011-Dec-06, 12:29 AM
Austerity:

http://www.youtube.com/watch?v=MVRJ18oHsa8&feature=player_embedded

This is the Italian Welfare (WSJ says it's Labor) Minister, who breaks down in tears announcing all the austerity cuts. They're going to end inflation indexing of pensions for all but the lowest income groups, raise the retirement age to an unheard age of 65 for men and 62 for women.

Bondzilla liked the austerity package, with the Italian 10yr now dropping just below 6%.

Note carefully the part about ending inflation indexing for pension benefits. If you're going to try to inflate your way out, this is what you'd have to do. At least they're honest about it. Over here, we'd just fudge the inflation numbers. Inflating will reduce existing debt, but not the future obligations (promises you've made that you can't possibly keep) if you've indexed them to inflation.

All of this is the wages of debt sin, keep in mind, living for today beyond your means.

HenrikOlsen
2011-Dec-06, 12:40 AM
So this would be the government version of raiding the pension funds.

publius
2011-Dec-06, 03:56 AM
There's new book out, "Throw Them All Out" by a Peter Schweizer that documents Washington corruption. I highly recommend it, but warn that it will make you madder than just about anything you've read or heard to date. It goes through the details, naming names (which I won't do) of how politicians get filthy rich off the inside information they get. They pass laws the results of which favor or hurt various companies. They make millions trading off that information. Insider trading is perfectly legal for members of Congress (they've exempted themselves, either explicity, or implicitly) from all the laws against the type of thing. IOW, they do everyday what would put the rest of us in jail.

Example: US senators, as an investment class, outperform the market by 12%. The top hedge funds manage about 7%. Members go in middle class and come out filthy rich.

Remember the financial crisis and TARP. They traded the hell out of that. Stimulus bill? Traded the hell of that. And all the others. And then there's the revolving door. Somehow regulators and agency people end up with cushy jobs working for the very companies that profited greatly from their previous actions.

And you'll read about how various billionaire investors and hedge fund types, some with stellar reputations, game that system to their advantage everyday. And it's all legal. Anyone that does something outright illegal is an idiot. He's just not smart enough to take advantage of the loopholes put in there for him in some mess of legalese.

But what will really get you, is the absolute cynical nature of some of these plays. Some politician is publically in favor of some legislation to go after someone or some class, some bunch of evil people doing something the public doesn't like, and perhaps he's helped to create that indignation. Well, behind the scenes that same politician will have set up trades that will yield him great profit from the actions the targeted bunch of evildoers will take to avoid and fight that law. Indeed, he may even put a back door in that law, and he'll charge a fee for passage through it essentially.

Anyway, it's a good book, and it will help one to come to grips with just how corrupt our system has become. Comparisons to the fall of Rome come to mind. Utter rot from within.

publius
2011-Dec-06, 04:22 AM
And something interesting on the education/student loan Ponz-- uh, bubble. China is seeing signs of the same problem and they've decided to nip that in the bud. They're simply going to eliminate majors that have low employment rates (incentive to fudge employment numbers in the future). No more majors in basket weaving as it were, and various other useless degrees which we won't name. :lol:

Of course that would be too authoritarian for us (and it really is, of course). The second way would be to end the free money, and if you wanted a student loan, you'd have do it with some strict criteria. Ie, look at the earnings potential above what you'd have without a degree, add risk, and then price things. And of course, you'd have to prove you were performing, and if you weren't making the grade, the money would be cut off. A borrower wouldn't get free money and would have to prove performance, and a lender would eat the loss if he loaned out foolishly -- not subsidies to make up for the loss.

But that would be too harsh for current thinking. So someone has come up with what I think is a very clever trick. Make the colleges themselves responsible for the loan if the student defaults. :lol: Make the people who ulitimately get paid all the money be on the hook for it themselves. That might make the colleges a little less likely to let students take on mounds of debt and be al little more honest about the prospects of various degrees. Why heck, they might even be less likely to spend wads of money on Taj Mahal "Student Life" centers and all that nonsense, along with bloated salaries and administrative costs and all that crap.

Tensor
2011-Dec-06, 05:31 AM
Of course that would be too authoritarian for us (and it really is, of course). The second way would be to end the free money, and if you wanted a student loan, you'd have do it with some strict criteria. Ie, look at the earnings potential above what you'd have without a degree, add risk, and then price things.

Richard, I'm not quite sure how you determine earning potential. I started at a company who didn't require college degrees, as long as you could prove you could do the job, they didn't care. I didn't have a degree (although I did have near enough credit hours, just not in the right places) and didn't have any problems. A couple of years later, we were bought by a company that absolutely demanded that anyone in my pay status have a degree, preferably a masters. Most of the people there had degrees in English Lit, History and other Liberal Arts degrees. You know, the ones that are considered useless. I find it somehow strange that many of those people ended up with MBAs, and it didn't matter what their Bachelors degree was. So, again, how do you determine earning potential? Force people to tell everyone their pay?

Hell, my brother earns above six figures as a lighting designer for buildings (he works for a company that has an architect, a plumbing specialist, a electrical specialist, etc. My brother is designs all the lighting for any building the company does). He got his history degree after he started with the company. Not because he needed it, he'd been working for the company for six years, but because he wanted to study the Civil War. And he needed a history degree to get into the specific Civil War masters program he wanted to get into. How do you count him? (Of course, he paid for it himself, but, does his earnings count under the History degrees?)

publius
2011-Dec-06, 07:13 AM
How do we determine earnings potential? With statistics. :) That is the logical basis for all sound lending and insurance practices. Someone wants life insurance. How do we know we he's going to die? Someone wants fire insurace for his house. How do we know if his house will catch fire?

The answer is statistics. And proper practice involves pricing risk. In the case of life insurance, you look at risk factors such as age, health history, smoker, etc, etc. For fire insurance, we look at the fire risks. How old is the building. How close is the nerest fire dept. What are the local codes.

And so segregate into various risk buckets. We'd do the same with education. This degree is more likely to earn more than this degree. But there are always people like your brother on the tails of the distribution. Some people who would be at high risk for death might live to be 100. Someone at low risk for fire might have 3 fires in 3 weeks of getting insurance.

So, listening to our hearts and not our brains, we might declare it unfair that those in high risk brackets pay more than those in low risk brackets. We might even pass a law requiring everyone to be charged the same.

When we do that, we make the cost for *everyone* go up -- the low risk now subsidize the high risk. So since the price has gone up, people will stop buying because its too expensive. But they won't do it equally across all risk brackets. The low risk will leave first. Now the remaining premium base is now higher risk than before, and premiums must go up even more. More lower risk leave. Wash, rinse, repeat, and now prices have gone way up.

And besides that, consider the incentives. If you get a lower price by being lower risk, your incentive is to reduce your risk. But if everybody is charged the same, you no longer have that incentive. In fact, you have the opposite incentive. Way should I spend money and effort to reduce my risk when that guy over there who hasn't is paying the same as me?

The result is that the prices rises beyond all reason, no one has any insurance, and no could afford it anyway (incidently, the way around that is to force everyone to buy it, by law -- hmm, that sounds familiar, doesn't it, a mandate to buy insurance :) this is the reason for that particular mandate).

And that is not just theoretical. That has been observed to happen when states and localities have passed such equal price laws.

So, if we make everyone equal, we raise the price for everyone else. And that ultimately hurts those on the "good tail" of the distribution (those who appear to be high risk, but actually aren't).

The older I get, the more and more an old saw rings true: "The road to hell is paved with good intentions."

publius
2011-Dec-06, 07:55 AM
This is the problem with education:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=CUSR0000SEEB,CPILFESL&scale=Left,Left&range=Max,Max&cosd=1978-01-01,1957-01-01&coed=2011-10-01,2011-10-01&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=1,1&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=a,a&fq=Monthly,Monthly&fam=avg,avg&fgst=lin,lin&transformation=lin,lin&vintage_date=2011-12-06,2011-12-06&revision_date=2011-12-06,2011-12-06

rate of change, %YoY:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=CUSR0000SEEB,CPILFESL&scale=Left,Left&range=Max,Max&cosd=1978-01-01,1957-01-01&coed=2011-10-01,2011-10-01&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=1,1&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=a,a&fq=Monthly,Monthly&fam=avg,avg&fgst=lin,lin&transformation=pc1,pc1&vintage_date=2011-12-06,2011-12-06&revision_date=2011-12-06,2011-12-06


Red curve is the CPI less food and energy (economists tell us that food and energy don't matter for inflation), and blue is the CPI for tuition, fees, and "childcare". That's the only tution index FRED has.

A simple e^rt for tuition comes up with 6% per year growth (6x over 30 years), but I think the tuition alone index would be over 7%.

publius
2011-Dec-06, 08:13 AM
If you look at the rates of change, they almost move in lockstep, which looks like the rate of real change ought to be close to constant. So lets deflate tuition by the CPI less food and energy and look at rate of change:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=CUSR0000SEEB_CPILFESL&scale=Left&range=Max&cosd=1957-01-01&coed=2011-10-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=%28a%2Fb%29%2A100&fq=Monthly&fam=avg&fgst=pc1&transformation=lin_lin&vintage_date=2011-12-06_2011-12-06&revision_date=2011-12-06_2011-12-06

That's the "real" price of education, deflated relative to the CPILFE.

What does that mean? It means that demand has been increasing faster than supply for 30 years. Why is demand increasing? Same reason demand for houses was increasing. Money is being thrown at it, through cheap credit, beyond all reason. In the mid 70s, I believe the worforce ratio was 1 in 10 had a college degree. Now, I think it's 1/4 to 1/3. Back then, college was cheap in real terms. One could easily work one's way through college.

Pre 1980, a college degree was worth a lot more than it is now in the sense of earnings potential. If you had a degree, you were in the top 10% of the competition. It also cost you, in CPI real terms, 35% less than it does now. Because of our *good intentions*, we've devalued it and inflated the cost.

HenrikOlsen
2011-Dec-06, 08:29 AM
But don't tuition, school fees and childcare include energy costs paid by the providers?

By excluding food and energy from the compared index, you're skewing the comparison.

publius
2011-Dec-06, 08:45 AM
Only if the fraction of energy input costs was the same fraction as the CPI weighting for it, actually (which they change over time, as well). Actually, if I were the Fed, I'd use the PCE less food and energy index, the personal consumption index from GDP, which would be even less. That would be the real value of the tuition index increase even more.

But let's compare with the full CPI:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=CUSR0000SEEB,CPIAUCSL&scale=Left,Left&range=Max,Max&cosd=1978-01-01,1947-01-01&coed=2011-10-01,2011-10-01&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=1,1&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=a,a&fq=Monthly,Monthly&fam=avg,avg&fgst=lin,lin&transformation=lin,lin&vintage_date=2011-12-06,2011-12-06&revision_date=2011-12-06,2011-12-06

rate of change:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=CUSR0000SEEB,CPIAUCSL&scale=Left,Left&range=Max,Max&cosd=1978-01-01,1947-01-01&coed=2011-10-01,2011-10-01&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=1,1&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=a,a&fq=Monthly,Monthly&fam=avg,avg&fgst=lin,lin&transformation=pc1,pc1&vintage_date=2011-12-06,2011-12-06&revision_date=2011-12-06,2011-12-06

ANd finally, rate of change deflated by the full CPI:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=CUSR0000SEEB_CPIAUCSL&scale=Left&range=Max&cosd=1947-01-01&coed=2011-10-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a%2Fb%2A100&fq=Monthly&fam=avg&fgst=pc1&transformation=lin_lin&vintage_date=2011-12-06_2011-12-06&revision_date=2011-12-06_2011-12-06

publius
2011-Dec-06, 08:50 AM
Note it looks about the same, on average, just with more volatility. When food and energy was falling, tuition did not fall proportionally, note, making the deflated increase hit 7.5% in 2010, rather than fall close to 2.5%.

If I used the Fed's favorite PCE index, I'd bet we'd find it was somewhat smoother, with a slightly higher average.

PraedSt
2011-Dec-06, 10:52 AM
I wonder why supply hasn't kept up with demand. Are US universities non-profits?

publius
2011-Dec-06, 11:18 AM
Well, Praed, if you ask me, I think the main reason is we're just throwing too much money at it, increasing it every year, and supply just can't keep up. We've been operating under the theory that "everyone must go to college". That is going to change soon, as reality is to kick in like everything else. BTW, that belief comes from the Great Depression, actually, experience of hard times past. Back then, a college degree was the ticket out of desperation. If you had a degree, you would do well. And again, that's a function of the scarcity.

When you decided that "money is no object" for something and start throwing money willy nilly (because it's a good cause), then prices always rise. If you're willing to pay some high price, someone will always come along and charge you that high price. :)

But then you can look at the supply side. Is there some monopolistic(oligopolistic) behavior going on there? I wonder if anyone has actually looked into that seriously. Determining that is difficult, IIRC. It has to do with Nash Equilibrium and all that.

Oh, and we've got some "for profit" and many that would be more nonprofit in spirit. And many are state subsidized directly.

PraedSt
2011-Dec-06, 11:23 AM
This is Germany and France's plan so far, ahead of the summit on Friday:

http://www.telegraph.co.uk/finance/financialcrisis/8936358/Merkel-and-Sarkozy-demand-tough-new-eurozone-treaty.html
and http://globaleconomicanalysis.blogspot.com/2011/12/eurozone-treaty-changes-to-be-finalized.html

Important points:
1. In case of non-compliance with the deficit rule, countries are subject to automatic sanctions, which will require a majority of 85% to overturn. This will need to be voted on by individual members,
2. ECB's role to remain unchanged - will not be lender of last resort - and there will be no eurobonds. So no "printing money".

And there's one point that I get conflicting news- whether or not the European Court of Justice can rule national budgets to be illegal. I don't know if this is in or out. If in, then this too will need to be ratified by members.

PraedSt
2011-Dec-06, 11:29 AM
But then you can look at the supply side. Is there some monopolistic(oligopolistic) behavior going on there? I wonder if anyone has actually looked into that seriously. Determining that is difficult, IIRC. It has to do with Nash Equilibrium and all that.Are they self-accredited? The medical profession in the UK does it. I've always thought that was a neat trick :)

publius
2011-Dec-06, 11:34 AM
And some universities, like Hahhhvahhhd dahhling, have their own hedge funds, which they call endowments and the like. Harvard's is worth about $32B. While still below its pre-crisis peak in 2008, it managed to gain 21% in 2011, IIRC, and paid big multi-million bonuses to the managers running it. The fund pays about 1/3 of the university's budget. And they still charge tuition that would absolutely blow your mind -- I think it runs something like $30K total per semester. So a 4yr degree from Harvard is gonna run you about a quarter million.

Note what goes on there. Harvard and similiar Ivy Leagues have always been for the elite and cream of the crop. And they always will be. When lesser degrees become more prevalent and more expensive, Harvard is going to make sure that theirs remains pricey enough that it remains elite.

publius
2011-Dec-07, 12:58 AM
Spanish austerity:

http://www.telegraph.co.uk/news/worldnews/europe/spain/8938470/Toilet-paper-restrictions-imposed-on-schoolchildren-in-Spain-in-latest-austerity-cuts.html

Schoolchildren will be limited to 25m of toilet paper per month. Wonder how they're going to enforce that? If I were clever, I come up with some toilet paper parody of "The Rain in Spain", but I can't think of anything. Remember Seinfeld's "Soup Nazi" who famously declared, "No soup for you!" Maybe they'll have TP Nazis. Each kiddie will be rationed a quota of paper every week or day or whatever. No more toilet paper for you!

Reminds me of an experience back in college, freshman year. 4 of us buddies from high school roomed together in an off campus apartment. The tales I could tell you of our trials, tribulations and fights. One time a couple of us got into big fight that came to blows, and the girls next door ran in screaming "Stop it! Stop it!" hysterically.

Another time, we used to horse around and drive the guys below us crazy, rattling their ceiling. One came running up, having enough. He sarcastically asked what we where doing, and went around jumping up and down, stomping the floor hard. He stomped so hard, that he managed to knock down a light fixture in his apartment. That got his roomate up there, thinking we had done it, and when he discovered that his own roomate had done it, they got into a big fight.

Well, at any rate, one time we had a big dispute over who was going to buy the groceries and supplies. Each claimed the others were using more than his "fair share" of some item, and so we all went on strike about buying crap. Toilet paper was one of them, and we sort of had toilet paper austerity going on there. We'd buy a roll and try to hide it, and the others would try to find it and steal it.

publius
2011-Dec-07, 05:18 AM
A UBS analyst has gone GGG (Gold, Guns, and Grub) as ZeroHedge lampoons:

http://www.zerohedge.com/news/ubs-advice-what-buy-case-eurozone-breakup-precious-metals-tinned-goods-and-small-calibre-weapon

If the EU breaks up, the asset classes he advises to invest in are precious metals, tinned goods, and small caliber weapons. And he goes to predict a repeat of the unpleasantness of the early 20th century. ZH's take is its all hyperbole on his part of the sort of Paulson and co did to Congress back during the Crash of '08: "Give us a trillion dollars or there'll be tanks in the streets".

And Helicopter blew his stack at the Bloomberg report about the Fed's "7.7T" of free money on which the TBTFs made $18B in profits, a story PraedSt linked I think. Bloomberg responds:

http://www.bloomberg.com/news/2011-12-06/bloomberg-news-responds-to-bernanke-criticism.html

One thing I'll give Helicopter is this: In many cases, the media like to add cummulative totals to get as big a number as possible to make a headline like "Fed gives away $10T!". It makes it sound like the Fed actually printed that much at one time, which isn't true. Suppose TBTF bank A needed a $10B loan, and took it out as overnight and rolled it over for 10 days. They'd add it up and say that was $100B. Not so, the oustanding amount was never more than $10B.

HenrikOlsen
2011-Dec-07, 07:25 AM
ZH's take is its all hyperbole on his part of the sort of Paulson and co did to Congress back during the Crash of '08: "Give us a trillion dollars or there'll be tanks in the streets".
Someone doesn't know his military history, tanks hadn't been invented in '08.

publius
2011-Dec-07, 08:32 AM
Someone doesn't know his military history, tanks hadn't been invented in '08.

Crash of 2008.

Your comment sort of threw me for a loop, but upon reviewing what I said, I just mentioned the early 20th Century, so
"Crash of '08" could make you think of 1908.

HenrikOlsen
2011-Dec-07, 08:47 AM
:doh:

PraedSt
2011-Dec-07, 02:54 PM
World's central banks act to ease market strains (http://finance.yahoo.com/news/worlds-central-banks-act-ease-131058888.html;_ylt=AquClo9jEe2CkiGl7BCdVoaiuYdG;_ ylu=X3oDMTQzMjRmNjdpBG1pdANGaW5hbmNlIEZQIEp1bWJvdH JvbiBMaXRlBHBrZwNjZGE2NGMwMi1mM2JjLTM4MzAtOTI2MC1k Zjk4ZDg2ZGRjNDcEcG9zAzEEc2VjA2p1bWJvdHJvbgR2ZXIDND YxMTc3NDAtMWI1Ny0xMWUxLTlmZDQtYWI2ODRkNGE4ZjQ5;_yl g=X3oDMTFvdnRqYzJoBGludGwDdXMEbGFuZwNlbi11cwRwc3Rh aWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25zBHRlc3QD;_ylv= 3)

The European Central Bank said in a statement the central banks were making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant by establishing a temporary network of reciprocal swap linesFigures just in. They borrowed over $50bn through this mechanism. Wow.

http://www.zerohedge.com/news/european-banks-dash-fed-cash-dollar-swap-usage-soars-funding-squeeze-now-shifts-euros

peteshimmon
2011-Dec-07, 03:22 PM
A one and a half hour show tonight on
BBC2 about the 2008 financial crisis.
Narrated by Matt Damon!?? Wonder what
the oblique statement from that is!

Anyway, 9.00 hrs pm GMT start and I
understand you see British shows
overseas these days by some magic.

peteshimmon
2011-Dec-07, 05:39 PM
Ermm...I think this maybe a US show just
being shown here. Just noticed the 2010
date on it. Heck, must have been over
2 hours with advert breaks over there.

publius
2011-Dec-08, 03:48 AM
Ex-ceo of MF Global Jon Corzine is supposed to appear before Congress tomorrow. He is expected to plead the 5th.

Extravoice
2011-Dec-08, 01:14 PM
Ex-ceo of MF Global Jon Corzine is supposed to appear before Congress tomorrow. He is expected to plead the 5th.

[emphasis added]

This is going to be a big non-event, but will be covered extensively here in The Garden State, where he previously held the posts of Senator and Governor.

I don't think he is going to say much until they locate that missing $1.2B in client funds that have gone missing.

publius
2011-Dec-08, 01:27 PM
Well he has already released his official "prepared" statement. Now, whether that means he's going to plead the 5th to any serious questions, I don't know. Usually when somebody pleads the 5th, he doesn't say anything but "I plead the 5th" every time they ask him something.

At any rate, here's an excerpt from that prepared statement:




Obviously on the forefront of everyone’s mind – including mine – are the varying reports that customer accounts have not been reconciled. I was stunned when I was told on Sunday, October 30, 2011, that MF Global could not account for many hundreds of millions of dollars of client money. I remain deeply concerned about the impact that the unreconciled and frozen funds have had on MF Global’s customers and others. As the chief executive officer of MF Global, I ultimately had overall responsibility for the firm. I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral.

Nor was I an expert on the complicated rules and regulations governing the various different operating businesses that comprised MF Global. I had little expertise or experience in those operational aspects of the business. Again, I want to emphasize that, since my resignation from MF Global on November 3, 2011, I have not had access to the information that I would need to understand what happened. It is extremely difficult for me to reconstruct the events that occurred during the chaotic days and the last hours leading up to the bankruptcy filing....I simply do not know where the money is, or why the accounts have not been reconciled to date. I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules. Moreover, there were an extraordinary number of transactions during MF Global’s last few days, and I do not know, for example, whether there were operational errors at MF Global or elsewhere, or whether banks and counterparties have held onto funds that should rightfully have been returned to MF Global.


He was shocked, shocked I tell you, shocked and stunned about the missing money. He is deeply concerned about it. Yes, as CEO it's his responsibility, but he didn't know anything about all the complicated things his underlings were doing. He wasn't an expert at all, with no expertise in the sort of trades they were doing (then why the devil were you CEO?). And he just can't recall, reconstruct all the events in the chaotic final days there. And now that he's resigned, he doesn't have the info he'd need to reconstruct events.

Why, it sounds like he's as much a victim as anyone in this mess, poor thing.

-Richard

Space Chimp
2011-Dec-08, 01:52 PM
Implausible Deniability must be the new legal defense. :rolleyes:

publius
2011-Dec-08, 02:05 PM
Just imagine if this were the captain of a ship, say a naval vessel that was destroyed by some cock-up. That captain says he was no expert on the workings of the ship, and just doesn't have any idea was going on as the junior officers and crew handle all that detail stuff. And there at the last, things were just so hectic he can't remember what orders he gave, what reports from juniors he received, etc, etc. And further he abandoned ship, and thus doesn't have the information to understand what happened.

I would think that in wartime, such a captain would be taken out and shot.

Space Chimp
2011-Dec-08, 02:16 PM
Just imagine if this were the captain of a ship, say a naval vessel that was destroyed by some cock-up. That captain says he was no expert on the workings of the ship, and just doesn't have any idea was going on as the junior officers and crew handle all that detail stuff. And there at the last, things were just so hectic he can't remember what orders he gave, what reports from juniors he received, etc, etc. And further he abandoned ship, and thus doesn't have the information to understand what happened.

I would think that in wartime, such a captain would be taken out and shot.

Corzine and his ilk are probably more familiar with the more ancient school of warfare where kings and noblemen, no matter how inept in military skill were ransomed on the battlefield. The common foot soldiers and cannon fodder?...not so much.

Noclevername
2011-Dec-08, 06:36 PM
Implausible Deniability must be the new legal defense. :rolleyes:

"It does not make sense!" (http://en.wikipedia.org/wiki/Chewbacca_defense)

PraedSt
2011-Dec-08, 08:38 PM
I thought Sarbox ruled out that defence?

publius
2011-Dec-09, 02:13 AM
I thought Sarbox ruled out that defence?

The Irony is strong with Corzine. Sen. Corzine voted for SarbOx.

publius
2011-Dec-09, 02:19 AM
And now for something really innappropriate, but just plain funny. It's another "Hitler rants" parody, Hilter ranting about the breakup of the EU. Warning about language:

http://www.youtube.com/watch?v=yKaBSp18u2c&feature=player_embedded

I nearly fell out of my chair near the end when Hitler says at least he has his money in Commerzbank, so it's safe, and then at the very end, tells them to go out and get the D-Marks.

publius
2011-Dec-09, 03:29 AM
And in the you can't make this crap up category:

http://e.nikkei.com/e/fr/tnks/Nni20111207D0712N01.htm

Japan is changing the method used to calculate their GDP and that will add about about 2% to the next report. If your economy isn't growing as fast as you like, change the way you count. "New Math", I guess. What they're doing apparently is going to now count some type of bank interest income into GDP. This is pure bovine scatology. Interest is not production, never has and never will be. A bank's interest earnings are a general "tax" on real production.

If Japan gets away with this, I'll bet our guys and all governments will start using it. Not only are macroecnomic models bad, but the freaking data itself is increasingly corrupt.

publius
2011-Dec-09, 05:27 AM
It just hit me. Japan's change of GDP definition (and that's what it is, not some mere technical change in accounting) is not a mere fudge to make GDP look better, it's a much deeper systemic fudge. As I've railed about until I'm blue in the face, the problem is debt, and the declining productivity of that debt as it accumulates. The ratio dGDP to dDebt is going down, meaning $1 dollar of additional debt has less and less of an effect on GDP.

By defining a large chunk of interest income to be GDP, what does that do? It makes debt seem more productive.

This change is insidious. It is truly evil.

PraedSt
2011-Dec-09, 06:26 AM
And in the you can't make this crap up category:

http://e.nikkei.com/e/fr/tnks/Nni20111207D0712N01.htm

Japan is changing the method used to calculate their GDP and that will add about about 2% to the next report. If your economy isn't growing as fast as you like, change the way you count. "New Math", I guess. What they're doing apparently is going to now count some type of bank interest income into GDP. This is pure bovine scatology. Interest is not production, never has and never will be. A bank's interest earnings are a general "tax" on real production.

If Japan gets away with this, I'll bet our guys and all governments will start using it. Not only are macroecnomic models bad, but the freaking data itself is increasingly corrupt.It's been years since my national accounts lectures. I thought interest was already included, so I'm having trouble understanding what's changed. The three ways of calculating GPD should give you the same result- value add by the banks, interest income for banks, interest expenditure by us.

PraedSt
2011-Dec-09, 07:39 AM
So far I count 7 EU countries who are likely to reject further integration: Finland, Netherlands, Ireland, Sweden, Czech Republic, UK, Hungary.

HenrikOlsen
2011-Dec-09, 08:36 AM
You can add Denmark to the list. We're rather unlikely to go Eurozone any time soon.

PraedSt
2011-Dec-09, 11:29 AM
So far I count 7 EU countries who are likely to reject further integration: Finland, Netherlands, Ireland, Sweden, Czech Republic, UK, Hungary.I jumped the gun here.

I now count 2 (UK and Hungary) as a "definite no", and 2 (Sweden and Czech Republic) as "most likely no". The other three (Finland, Netherlands, Ireland) had objections which appear to have been negotiated away. So that's only 4 opposed.

So those that have agreed number 23, the 17 Eurozone countries and 6 other EU countries- Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania.

Henrik reckons Denmark won't agree. So tentatively that's 22-5.

HenrikOlsen
2011-Dec-09, 11:46 AM
Henrik reckons Denmark won't agree. So tentatively that's 22-5.
I think I misunderstood the question, Denmark will likely agree on this thing as it'll postpone the meltdown a bit and keep the Germans from breaking out the D-marks this time.

Space Chimp
2011-Dec-09, 12:50 PM
I notice that the agreement such as it is, had little to say about the staggering mountains of debt and the prospect of zero growth in most of Europe.

Still, it may goose the markets a bit.

publius
2011-Dec-09, 12:53 PM
A package bomb just went off in Rome in front of something called Equital, a "revenue collection agency". This is on the heels of the plot to bomb and kill the head of Deutsche Bank which they discovered recently. I don't think there were any deaths, but I'm not sure.

Delvo
2011-Dec-09, 02:29 PM
another "Hitler rants" parody, Hilter ranting about the breakup of the EU.I hope whoever first thought of doing that, and the actor whose performance inspired it, are proud.

Extravoice
2011-Dec-09, 03:15 PM
And now for something really innappropriate, but just plain funny..

I've gotta buy a coffee-proof keyboard :)

Some of these Hitler rants are incredibly well done. When watching this one, I'm convinced the creators tried to match the cadence of the actor's lines with the subtitles. It almost makes me glad I don't speak German, so I can leave the audio turned on.

PraedSt
2011-Dec-09, 08:22 PM
I think I misunderstood the question, Denmark will likely agree on this thing as it'll postpone the meltdown a bit and keep the Germans from breaking out the D-marks this time.The latest is that its 26-1 now. Frankly I'm astonished.

ETA: the "1" in 26-1 is the UK.

PraedSt
2011-Dec-09, 08:49 PM
I notice that the agreement such as it is, had little to say about the staggering mountains of debt and the prospect of zero growth in most of Europe.As I understand it, there are two parts to the agreement.

Part 1 deals with the future. The EU countries have promised to behave (economically) like Germany in the future.

Part 2 deals with the current crisis (and its success depends on people believing Part 1). The plan is to borrow from each other, to lend to each other, so that the previous loans that they made to each other, can be paid back to each other.

As 23-4 became 26-1, the stock markets were definitely goosed.

publius
2011-Dec-09, 10:56 PM
It's been years since my national accounts lectures. I thought interest was already included, so I'm having trouble understanding what's changed. The three ways of calculating GPD should give you the same result- value add by the banks, interest income for banks, interest expenditure by us.

Look at the expenditure definition of GDP:

Y = C + I + G + (X - M)

That is private consumption plus private investment plus government (consumption and investment -- transfer payments do NOT count, as those are simply intermediate transfers) plus net exports.

GDP is supposed to be the value of real production, the new "stuff" produced every time period. Interest is just another type of transfer payment, and does not represent real production. Now, the other ways of counting GDP, the income method and whatever the other is, make use of the accouting identities. In those, some types of interest may have to count, being equated with the expenditures that make up the real production.

But if you're just trying to add interest there, claiming it is something of value being produced, you're going off track, and that little deception is going to make incremental debt look more productive because it will count the incremental interest (or whatever fraction it counts) towards GDP in the future.

publius
2011-Dec-09, 11:57 PM
Well, well:

http://www.cnbc.com/id/45610428

Guess who, in vulture like fashion, bought up some of the Euro sovereign debt carrion from MF's rotting corpse. George Soros. He bought it below market value, even the distressed levels at the time. If this new EU sticksave works, he may make quite a profit.

So idiot Corzine runs MF into the ground with the crap, levering up to ridiculous levels and screwing his clients out of billions in the implosion. But now Soros comes in and will make a pile on that carnage.