http://dollardaze.org Investor orientated commentary on economic and monetary issues from a free market perspective. Policies discussed include sound money on a gold standard and limited role of government. Investment research focuses primarily on both precious and base metal mining companies. en-us http://dollardaze.org/blog/?post_id=00657 In their day, serfs apparently paid about 33 percent of their income to their betters. Today, Western citizens often pay close to 50 percent of their income for services provided by their democratic governments. Britain is probably ahead of America in this regard, but not by much. Some Scandinavian countries charge their top wage-earners up to around 70 percent, and this is often mentioned approvingly by those who defend progressive tax strategies. What is ironic is that under the current central banking regimes, government can actually print all the money it needs without resorting to taxes. Granted, the additional money might have an impact on price inflation, but it is certainly feasible. June 27, 2009 http://dollardaze.org/blog/?post_id=00653 There are several different monetary aggregates used to measure a nation's money supply. These monetary aggregates can be thought of as forming a continuum from most liquid (money as a means of exchange) to the least liquid (money as a store of value). June 24, 2009 http://dollardaze.org/blog/?post_id=00651 A powerful, if rarified, historical debate in 20th century America (among other climes) was whether or not the Great Depression could have been avoided and, if so, how. Another equally important debate was whether or not inflation (especially price inflation) existed during the Great Depression in America or if deflation were the main monetary trend. June 23, 2009 http://dollardaze.org/blog/?post_id=00652 The US has run up massive deficits in recent years and concerns that its creditors would stop funding them were dismissed by the argument that China, Japan and the others needed US markets to keep their export-dependent economies growing and to create jobs. June 22, 2009 http://dollardaze.org/blog/?post_id=00650 Last week Congress passed the war supplemental appropriations bill. In an affront to all those who thought they voted for a peace candidate, the current president will be sending another $106 billion we don't have to continue the bloodshed in Afghanistan and Iraq, without a hint of a plan to bring our troops home. June 22, 2009 http://dollardaze.org/blog/?post_id=00648 There can be no doubt that the global economy is undergoing a massive transformation and we have now entered an era of 'Big Government'. After decades of excess credit and over-consumption, the developed world is finally being forced to deal with private-sector deleveraging. However, the governments seem to have other plans and they've decided to fight these deflationary forces tooth and nail. Their solution - even more credit and even more consumption! June 19, 2009 http://dollardaze.org/blog/?post_id=00647 Russian President Medvedev suggests the dollar is on its way out; Russian Finance minister Kudrin says there is no substitute for the dollar. The Chinese see a need to diversify out of the dollar; the Japanese say their trust in the dollar is unshakable. Let's look at this puzzle and make some sense of it. June 16, 2009 http://dollardaze.org/blog/?post_id=00646 Despite a near zero Fed funds rate and about $25bn of weekly MBS purchases by the Federal Reserve, yields have surprised the marketplace on the upside. Those of the bullish persuasion are content to see rising yields as confirmation of economic recovery. Others are referring to another "Conundrum." It is worth noting that 10-year Treasury yields are about 20 bps higher than their German counterparts today, after trading near 20 bps lower a month ago. June 12, 2009 http://dollardaze.org/blog/?post_id=00645 The Federal Reserve was served a subpoena from a Congressional committee Tuesday, as lawmakers demanded documents related to Bank of America' s acquisition of Merrill Lynch. In our view, this is a precursor of more trouble to come for the Fed. We have argued for some time that Fed Chairman Bernanke completely underestimates the political dimensions of the policies he pursues. The various "credit easing" programs have little to do with monetary policy, the domain of the Fed. Monetary policy ought to be concerned with money supply or the level of interest rates, thereby allowing the markets to decide where the money flows. June 11, 2009 http://dollardaze.org/blog/?post_id=00644 We often hear and read about the government "printing money" like there's no tomorrow. Our federal government has certainly passed out enough money to the people who got us into this mess that it seems as though hyperinflation is theoretically possible. But every US Dollar printed in our current fiat monetary system is actually a debt. June 10, 2009 http://dollardaze.org/blog/?post_id=00643 Last week, General Motors finally declared bankruptcy. Many in government thought $20 billion in taxpayer dollars would save the company, but as predicted, it only postponed the inevitable. The government will dump another $30 billion into GM and take a 60 percent controlling interest for it. Public officials are now involving themselves in tactical business decisions such as where GM's headquarters should move and what kind of cars it will build. June 9, 2009 http://dollardaze.org/blog/?post_id=00642 Historically, inflation originated when a ruler would force the citizens to give him all the gold coins under the pretext that a new gold coin was going to replace the old one. In the process, the king would falsify the content of the gold coins by mixing it with some other metal and return to the citizens diluted gold coins. June 9, 2009 http://dollardaze.org/blog/?post_id=00641 My old "analytical nemesis", Paul McCulley, is out with a long piece this week, "The Shadow Banking System and Hyman Minsky's Economic Journey." He begins by stating the rather obvious: "creative financing played a massive role in propelling the global financial system to hazy new heights..." Mr. McCulley then asks a most pertinent question: "How did financing get so creative?" His somewhat insightful article is deeply flawed in that it fails to provide a valid answer. June 6, 2009 http://dollardaze.org/blog/?post_id=00640 Everybody knows that New Orleans was founded by the French. But the area where we stand in Alabama also used to be part of the French North American empire in the 18th century. Not far from here, north of Montgomery, was a military fort called Fort Toulouse. The French controlled one third of the continent at the time. The reason why I have to deliver this presentation in English today, however, is of course that the French lost most of their empire in 1763, at the end of the Seven Years' War -- or what Americans call the French and Indian War. June 3, 2009 http://dollardaze.org/blog/?post_id=00639 At the time of writing this article, the current US Federal Debt stands at $11.3 trillion. The sheer magnitude of that figure is difficult to comprehend. In order to illustrate just how large that number is, consider the following... June 1, 2009 http://dollardaze.org/blog/?post_id=00638 This week provided ample confirmation for the global reflation thesis. The dollar index dropped another 0.9%. Gold surged $22 to $979. Crude oil jumped $4.67 to a six-month high, posting the largest one-month percentage gain since 1999 (according to Bloomberg). The Goldman Sachs Commodities index rallied 5.5% to an almost 7-month high (up 27% y-t-d). Emerging markets remain on fire. And the Baltic Dry Index rose gain today, increasing its streak of consecutive gains to 19. May 29, 2009 http://dollardaze.org/blog/?post_id=00637 Last week Standard and Poor's announced that the AAA credit outlook of the United Kingdom was lowered to "negative" from "stable." The action caused many in the US, including Bill Gross, to impugn the United States' AAA credit rating and wonder if the same devaluation should be applicable here. May 24, 2009 http://dollardaze.org/blog/?post_id=00635 There can be little doubt that the US economy is in uncharted waters. The crash of 2008 and the US government's response -- and the world's response, for that matter -- were unprecedented, which means that many of the old rulebooks get thrown out the window. With markets having stabilized and rising, however, the search is on for the next great bubble, the asset class that will be the recipient of worldwide money printing efforts. The famed Milton Friedman, a monetarist, did argue that after a small lag an easy money policy would bring on a sharp recovery in stocks and the economy. May 21, 2009 http://dollardaze.org/blog/?post_id=00634 Although well off their all-time highs, American stocks are now marginally up for the current year. In the past two months, the markets have recovered over 30 percent from last year's lows. But something just does not add up. In the first quarter of 2009, average U.S. corporate earnings were down over 30 percent. There is once again a serious disconnect between stock prices and economic reality. Perhaps these sleepwalking investors think that the 50 percent sell-off in 2008 was overdone and great bargains are now available. To believe this is to misunderstand the economic hurricane of last October, and the gaping holes in America's hull that it exposed. May 20, 2009 http://dollardaze.org/blog/?post_id=00633 Last week the nation's number one trucking company, YRC Worldwide Inc., announced that it will seek $1 billion in TARP assistance to bailout the company's pension plan. Never mind the fact that the request is light years away from the original intention and approval given by congress to purchase toxic assets from banks' balance sheets. The point is that the troubled company's request of the government to cover its pension obligations should remind us of the bigger issue; who will bailout our country's pension plan and can the USA TARP itself? May 19, 2009 http://dollardaze.org/blog/?post_id=00632 I have been very pleased with the progress of my legislation, HR 1207, which calls for a complete audit of the Federal Reserve and removes many significant barriers towards transparency of our monetary system. This bill now has nearly 170 cosponsors, with support from both Republicans and Democrats. Senator Bernie Sanders has introduced a companion bill in the Senate S 604, which will hopefully begin to gain momentum as well. I am very encouraged to see so many of my colleagues in Congress stand with me for greater transparency in government. May 18, 2009 http://dollardaze.org/blog/?post_id=00631 When, during the invasion of Iraq, the United States Government issued its famous deck of playing cards with the 52 arch villains of the Iraqi police state, Saddam Hussein's face adorned the Ace of Spades. If the Obama Administration wanted to engage in a similar public relations campaign for the real estate crisis, the top card should be reserved for Alan Greenspan. May 15, 2009 http://dollardaze.org/blog/?post_id=00630 One of our readers sent us a very interesting article from itulip.com entitled "Everyone is wrong, again -- 1981 in Reverse Part II: Nine Signs of Inflation". The article is an explanation by Peter Warburton (the author of the book "Debt and Delusion") of why generalised 'price inflation' is likely to become an issue by early next year, with comments by itulip's editor (Eric Janszen) interspersed. We don't agree with every aspect of this article, but we do concur with its gist and conclusions. Unfortunately, we can't provide a link because it is in the subscriber area of the itulip web site, but what we can (and will) do is discuss some of the article's main points and tie them in with our own views. May 11, 2009 http://dollardaze.org/blog/?post_id=00629 John Exter was an internationally known banker and a gold bug in the true sense of the word. He graduated from Harvard and was present when Keynesian economics first came to the fore. He lived through World War I, witnessed the founding of the Federal Reserve, the Great Depression, and the establishment of the International Monetary Fund (IMF). He also presided over the New York Federal Reserve Bank. Mr. Exter's work can be found on the Internet with a simple Google search. May 8, 2009 http://dollardaze.org/blog/?post_id=00628 Last month, many banks reported strong earnings. Market sentiment has changed substantially. Only a few months ago, the collapse of the whole US banking industry threatened to bring the whole global economy down. Now, suddenly, the picture looks rosier than ever and this financial crisis seems to be over. Or is it? With very limited transparency of bank earnings, there are several so-called earnings areas investors should question whether they are sustainable, and a few other areas investors should ask whether they are even real. May 3, 2009 http://dollardaze.org/blog/?post_id=00627 An astute analyst posed the following question yesterday: "The current debate is centered on whether the Fed can take back the liquidity in time in order to prevent inflation. Suppose it can. Suppose they execute this perfectly. But if the Fed is able to flood the system with the liquidity (thus reducing the severity of the downturn) and take it back before it causes inflation, it seems there is a free lunch. We get something for nothing. So, assuming a perfectly executed game plan by the Fed, is there a cost? Do they keep rates low for a time, only to raise them a lot a year down the road - is that the cost? Or is there another cost?" May 1, 2009 http://dollardaze.org/blog/?post_id=00625 Last week, when the U.S. Treasury unveiled the basics of their lender "stress tests", the Fed concluded that "most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized." Simultaneously, they also claimed that the banks needed more capital. Apparently the Fed has little understanding of irony. April 29, 2009 http://dollardaze.org/blog/?post_id=00626 I wanted to return to a theme that got me to start writing my blog as an attempt to contribute to society: Gold versus paper and what it means. Gold bugs know what it means but there is real value to looking at the contrast between the two for those who have not yet experienced the fever that makes any strain of flu pale in comparison. It is essentially asset-backed or "honest" money (i.e. Gold) versus paper money and other instruments backed by the promises of men and women and the institutions they represent (i.e. fiat currency or "dishonest" money and its derivative products). The founding fathers of the United States, say what you want about them and they weren't saints, intended for this country to have gold and silver as the foundation for the monetary system of the country. Paper or fiat money backed only by promises is not a new invention and it has been used for centuries. Every time it has been tried, it has failed. EVERY SINGLE TIME. The U.S. Dollar has now been off the gold standard for close to 40 years and the course the United States is now on is typical for societies that make the decision to use fiat currency. April 28, 2009 http://dollardaze.org/blog/?post_id=00624 The effects of monetary inflation are three-fold. First, it brings about an unwarranted transfer of purchasing power (resources) to the creator of the new money and/or the first user of the new money. Another name for this unwarranted transfer is theft. Second, it has a NON-UNIFORM effect on prices, leading to mal-investment and the wastage of resources. The huge amount of savings and resources squandered in real-estate investments over the past several years exemplifies the havoc that can result from monetary inflation and why its effects cannot simply be counteracted at some later time by "withdrawing liquidity". Third, it EVENTUALLY results in a broad-based increase in the prices of everyday goods and services. April 28, 2009 http://dollardaze.org/blog/?post_id=00623 The most common policy is to lease gold to a specialized group of insiders known as bullion banks. The central banks call this leasing, but it is operationally a form of gold sales. The central bank leases gold at well under 1% per annum to bullion banks. Bullion banks then sell the gold into the private market, take the money, and invest it in government bonds or other investments that pay far more than 1% per year. That gold is gone. To get the gold back, the central banks would have to demand payment in gold by the bullion banks. The bullion banks could not repay this gold without going into the gold market and purchasing it. This would drive up the price of gold. It would bankrupt the bullion banks. April 24, 2009 http://dollardaze.org/blog/?post_id=00622 Many investors believe their portfolios have exposure to gold and precious metals because they hold stocks in mining companies. Bullion and mining stocks should be viewed as two different investments. But as a safe haven, no gold or silver or platinum mining stock (or even an ETF) compares with actual physical bullion. Let's examine why physical bullion is the superior investment to mining stock's for long-term investors. April 22, 2009 http://dollardaze.org/blog/?post_id=00621 On April 20th, Bank of America announced a first quarter surge in earnings to $4.2 billion. At first blush, it looked like the kind of news that would ignite a stock market rally. Instead, the Dow closed down 289 points. Could it be that, despite the apparent good news, investors don't trust the banks or the economy? In recent months, the Administration has poured billions of dollars into those banks that it has deemed "too big to fail". B of A alone received some $45 billion. Perhaps now it is time to examine whether the liabilities of these same banks make them, conversely, too big to survive. April 22, 2009 http://dollardaze.org/blog/?post_id=00620 A nation's currency, like its language, is an abstraction. There is a cultural agreement as to its meaning - in the case of money, an agreement that it represents a unit of wealth. Inflation is an assault on that assumption. When the assumption no longer holds, the social contract is broken and a civilization begins to cleave at the seams. As Calvin Coolidge once said, "Inflation is repudiation." April 21, 2009 http://dollardaze.org/blog/?post_id=00619 Is there anything - anything at all - that might convince world leaders that they shouldn't respond to the credit crunch by spending more? It may seem common sense that you can't borrow your way out of debt: we all apply that principle to our household budgets. But, since the financial crisis began, states increased their spending despite the plain evidence that stimulus packages have done nothing to ward off the recession. April 20, 2009 http://dollardaze.org/blog/?post_id=00618 Two weeks ago, Daniel Hannan, the Member of the European Parliament from South East England, made headlines the world over with a blistering indictment of the policies of British Prime Minister Gordon Brown. For his reliance on deficit spending and monetary expansion to fight financial collapse, Hannan labeled Brown as the "devalued Prime Minister of a devalued government." Mr. Hannan cited the Governor of the Bank of England, who blew the whistle on the U.K.'s deep financial troubles, as evidence that even members of the Westminster regime are beginning to doubt the wisdom of a perpetually growing government funded by a perpetually growing deficit. April 20, 2009 http://dollardaze.org/blog/?post_id=00617 In the past three years, while banks all over the world and Wall Street were imploding, while some $40-$50 trillion of capital was being destroyed in global stock markets, one financial market kept growing. That market is the financial derivatives market. According to the Bank for International Settlements [BIS], the global Over the Counter [OTC] derivatives market has grown almost 65% from $414.8 trillion in December, 2006 to $683.7 trillion in June of 2008. On the BIS's own website, there are no updated figures for the notional derivatives market since June 2008, so we can likely assume, with some margin of safety, that this market has now grown to more than $700 trillion. Comparatively speaking, the total market cap of all major global stock markets is approximately $30 trillion. April 19, 2009 http://dollardaze.org/blog/?post_id=00616 Any healthy economy has a reasonable balance of consumption and production. This is the manifestation of the age-old equation of "supply and demand". When you hear that there are "imbalances" in an economy, it sounds tame but it could mean anything from a bad problem to a massive crisis. America needs to address this balance of consumption and production if it is going to be back on a sound foundation for economic growth and prosperity. The problem is that government policy created the massive imbalances in recent years and current policy initiatives will only make matters worse. April 18, 2009 http://dollardaze.org/blog/?post_id=00615 Apart from the obvious financial distress that the current economic crisis has inflicted on most Americans, perhaps one of the more irksome byproducts of the meltdown has been the inescapability of clueless economic blather. It's bad enough when so-called economists serve up the same Keynesian nonsense that has led us down the current cul-de-sac in the first place. At least those people have some incidental knowledge, however deeply flawed, of basic economic concepts. It's far worse when political pundits, whose understanding of economics typically comes from Treasury Department talking points, hold forth as if they really know what is going on. April 9, 2009 http://dollardaze.org/blog/?post_id=00613 Last week saw a continuation of the impenetrably misguided policy response to this financial crisis, which seeks to address the downturn by encouraging more of what got us into this mess in the first place. The U.S. Treasury's toxic assets plan, for instance, looks to "leverage" public funds (with the FDIC providing the "6-to-1 leverage") in order to defend the bondholders of mismanaged financials who took excessive leverage. At the same time, the Treasury plans to limit the "competitive bidding" to a few hand-picked "managers" who will be encouraged to overpay thanks to put options granted at public expense. This is a recipe for the insolvency of the FDIC and an attempt to bail out bank bondholders using funds that have not even been allocated by Congress. The whole plan is a bureaucratic abuse of the FDIC's balance sheet, which exists to protect ordinary depositors, not bank bondholders. April 6, 2009 http://dollardaze.org/blog/?post_id=00611 I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of the order: April 6, 2009 http://dollardaze.org/blog/?post_id=00612 The U.S. government and the Federal Reserve (FED) are pursuing reckless policies. The scale of their budget and financial mismanagement is so large that they will almost surely cause social and economic discontinuities unless they are slowed, halted, or impeded by factors that counteract them. They are saddling us with huge fiscal deficits and huge debts. They are transferring huge amounts of wealth. They are inflating the money supply without any restraint. States that have done this in the past have suffered devaluations, capital flight, economic disruptions, and severe economic difficulties. The affected nations have suffered impoverishment and loss of wealth. Before these dislocations ended, governments collapsed, currencies collapsed, economies collapsed, and people took to the streets. April 5, 2009 http://dollardaze.org/blog/?post_id=00609 Today, from Bloomberg's Rich Miller and Simon Kennedy: "Global leaders took their biggest steps yet toward a new world order that's less U.S.-centric with a more heavily regulated financial industry and a greater role for international institutions and emerging markets... 'It's the passing of an era,' said Robert Hormats, vice chairman of Goldman Sachs International, who helped prepare summits for presidents Gerald R. Ford, Jimmy Carter and Ronald Reagan. 'The U.S. is becoming less dominant while other nations are gaining influence.' April 4, 2009 http://dollardaze.org/blog/?post_id=00614 In my previous article I warned that the greatest transfer of wealth in recent history was about to get underway, with the announcement by Treasury Secretary Geithner of the so called Public-Private Investment Program, the PPIP, which aims to rid banks and markets of the distressed assets and toxic loans still ticking away like an inevitable time bomb on the balance sheets of major institutions. April 3, 2009 http://dollardaze.org/blog/?post_id=00608 When elementary school kids want to escape the confines of their circumstances they pretend to be pirates, princesses, and Jedi knights. Now, with the relaxation of "mark to market" valuation rules announced yesterday by the accounting trade's self-regulatory body, our bankrupt financial institutions can escape their own reality by pretending to be solvent. The unraveling of our fairytale economy over the last few months has not yet convinced us that the time has come to put away childish things. The applause that greeted the news yesterday on Wall Street is a clear sign that we still have some growing up to do. April 3, 2009 http://dollardaze.org/blog/?post_id=00607 This week, the leaders and finance ministers of the 20 most economically important nations, or G-20, will convene in London to develop coordinated policies that they hope will prevent a worldwide depression. The leaders will also consider greater transnational regulatory oversight of the financial industry and the future of the U.S. dollar as the world's 'reserve' currency. By any reckoning, this meeting will be the most important international economic conference since Bretton Woods in 1944, or the Great Powers economic meeting in Rome in 1922. April 1, 2009 http://dollardaze.org/blog/?post_id=00606 There seems to be much confusion lately about the consumer's increased savings rate and if this is a good or bad condition for the health of the U.S. economy. While many Austrian economists are lauding our new found predilection to save, the Administration is obsessing over forcing banks to increase lending and compelling consumers to step up their borrowing. April 1, 2009 http://dollardaze.org/blog/?post_id=00605 What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I'd take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like. March 28, 2009 http://dollardaze.org/blog/?post_id=00604 Alan Greenspan remains the master of cleverly obfuscating key facets of some of the most critical analysis of our time. The fact of the matter is that "the sophisticated mathematics and computer wizardry" fundamental to contemopary derivatives and risk management essentially rested on one central premise: that the Federal Reserve (and, more generally speaking, global policymakers) was there to backstop marketplace liquidity in the event of market tumult. More specific to the mushrooming derivatives marketplace, participants came to believe that the Fed had essentially guaranteed liquid and continuous markets. And the Bigger the Credit Bubble inflated the greater the belief that it was Too Big for the Fed To ever let Fail. March 27, 2009 http://dollardaze.org/blog/?post_id=00603 As I have often noted, China's twenty-first century export boom was assisted by the fact the Chinese government chose to peg the renminbi within a range against the US dollar. In so doing, Chinese goods were lapped up by Americans (using debt of course) but there was no resulting appreciation in the renminbi against the dollar to slow demand. Modern economics suggests such a mechanism should have been allowed to prevent excessive imbalance. It wasn't, so US consumption of Chinese goods continued to grow and grow, providing the US with an ever growing current account deficit and China with an ever growing surplus. March 25, 2009 http://dollardaze.org/blog/?post_id=00601 I believe the Bernanke Fed committed a historic mistake this week - compounding ongoing errors made by the Activist Greenspan/Bernanke Federal Reserve for more than 20 years now. I find it rather incredible that Discretionary Activist Central Banking is not held accountable - and that it is, instead, viewed critical for the solution. Apparently, the inflation of Federal Reserve Credit to $2.0 TN was judged to have had too short of a half-life. So the Fed is now to balloon its liabilities to $3.0 TN, as it implements unprecedented market purchases of Treasuries, mortgage-backed securities, agency and corporate debt securities. And what if $3.0 TN doesn't go the trick? Well, why not the $5 or $6 TN Bill Gross is advocating? What's the holdup? March 21, 2009 http://dollardaze.org/blog/?post_id=00600 There is an old adage on Wall Street that no one rings a bell at major market tops or bottoms. That may be true in normal times, but as many have noticed, we are now completely through the looking glass. In this parallel reality, Ben Bernanke has just rung the loudest bell ever heard in the foreign exchange and government debt markets. Investors who ignore the clanging do so at their own peril. The bell's reverberations will be felt by everyday Americans, whose lives are about to change in ways few can imagine. March 20, 2009 http://dollardaze.org/blog/?post_id=00599 The cat is out of the bag. The Federal Reserve is waging an all-out inflationary war on the economic contraction. Two days ago, Mr. Bernanke announced that the Federal Reserve would buy US$300 billion worth of US Treasuries and another US$700 billion worth of government-agency mortgage debt. In order to finance these purchases, the Federal Reserve would simply create this money out of thin air. March 20, 2009 http://dollardaze.org/blog/?post_id=00598 Last weekend, Ben Bernanke took an unprecedented gamble for a sitting Fed Chairman: he granted a long-form interview to 60 Minutes, America's most watched news program. There can be no doubt that the interview came about as the result of a coordinated strategy between the Obama Administration and the Federal Reserve. But was the decision to offer the public a rare look at the inner workings of the central bank an act of resolution or desperation? March 18, 2009 http://dollardaze.org/blog/?post_id=00597 Reflation refers to policy makers' attempts to "reflate" the economy, to prop up what many would consider a broken system. Federal Reserve (Fed) Chairman Ben Bernanke made it very clear in his March 15 interview on 60 Minutes that he will attempt to stem the tide of market forces: March 18, 2009 http://dollardaze.org/blog/?post_id=00596 Earmarks seem to be the hot topic this week, and as a fiscal conservative I am dismayed so many people deliberately distort the earmarking process and grandstand to make political points. It is an easy thing to do with earmarks. It takes a little more time and patience to grasp the reality of what earmarks really are. March 16, 2009 http://dollardaze.org/blog/?post_id=00595 This week, with his pronouncement that "credit is the lifeblood of a healthy economy," President Obama reiterated what has been one of his most common themes in diagnosing our economic problem. The president has relied on this bedrock belief to propose policies that place the restoration of credit as the highest priority. However, despite his seemingly earnest intentions, the president and his economic advisors have misdiagnosed the ailment. Savings, not credit, is the lifeblood of a healthy economy. When not used properly credit can be like a cancer that sickens an otherwise healthy economy. March 13, 2009 http://dollardaze.org/blog/?post_id=00594 We learned on February 27th of the Treasury's plan to convert up to $25 billion of their $45 billion preferred Citigroup shares to common equity. According to the company, the existing shareholders would be diluted by 74%. Thus, the taxpayers will cease collecting dividends on their holdings and they'll slide down the capital structure in Citigroup to the lowest rung on the ladder. Ostensibly, it looks like a good deal for the bank and not such a great deal for the government/taxpayer. March 9, 2009 http://dollardaze.org/blog/?post_id=00593 The recent Term Asset-Backed Securities Loan Facility (TALF) announcements bring to mind Einstein's definition of insanity - "doing the same things over and over again and expecting different results". It is well documented that securitization of loans, use of leverage, and government intervention in the free markets helped inflate assets bubbles, fostered a culture of debt, and distorted the efficient allocation of limited resources in our economy. If you want a good real world example, Fannie Mae bonds guaranteed by the government, backed by a pool of subprime mortgages, and bought using borrowed money (leverage) touches most of the bases. March 8, 2009 http://dollardaze.org/blog/?post_id=00592 This week, Congress and the administration once again showed their lack of economic understanding, as they ramped up spending to record levels. On the surface, maybe it does look to some like the economic crisis is a liquidity problem, that the economy is in trouble because money is not changing hands at the pace it once did in the boom years. They believe that to get back to a booming economy money needs to start changing hands again - and the quickest way to do this is for the federal government to massively expand spending to pump new money into the system. If this is the extent of their understanding, no wonder they call for spending, taxing, bailouts and inflation. March 2, 2009 http://dollardaze.org/blog/?post_id=00591 It seems every authoritative figure has begun warning about the dangers of deflation. With Britain's Monetary committee making a case for printing money, we are told that this is to ward off the 'dangers' of a falling money supply, and we need to inject more cash into the system to get the economy moving again. February 27, 2009 http://dollardaze.org/blog/?post_id=00589 Vicious selling continues on Wall Street and the pathetic action of the financials is dragging down the entire market. So far, the banking index has declined by roughly 83% from its highs! As I have said for years, banking is the only industry which is always in a state of permanent bankruptcy and people have finally realised that the emperor has no clothes! We can thank the fractional reserve banking system for this mess; a totally fraudulent system which allows banks to create multiples of credit compared to bank deposits. This is the reason why I urged you repeatedly to stay well clear of financial shares and I hope that you followed my advice. February 24, 2009 http://dollardaze.org/blog/?post_id=00583 In this paper, we analyze the value of money. We consider both paper money and gold. We attempt to relate the supply of money (MS) and gold to their purchasing power (PP). We demonstrate the extent to which printing of money dilutes its value. As a store of value, the value of money is represented by its purchasing power. We compare the ability of paper money and gold to function as a long-term store of value. We conclude that gold is an excellent store of value, while paper money is not. We observe that excessive printing of paper money is the ultimate cause for the inability of paper money to function appropriately as a store of value. February 23, 2009 http://dollardaze.org/blog/?post_id=00588 The broad swath of land from the Baltic to the Black Sea and into the Russian heartland constitutes what is often called Emerging Europe. Over the last few weeks, this area caught the attention of the financial press due to rising concerns that the earlier build-up of external debt is beyond the region's means of repayment -- a factor that could have a wider ripple effect into Western European banks and through them into those economies and the world at large. February 23, 2009 http://dollardaze.org/blog/?post_id=00585 CNBC's impassioned Rick Santelli suffered an impromptu "mad as hell and not gonna take it any more" moment. And there is definitely plenty of dry kindling lying around awaiting a spark. Mr. Santelli's outburst could very well mark a turning point for national policy debate. Hopefully it is not used as a battle cry for more rage and open "class warfare." Public outrage, as understandable as it is, is a troubling facet of The New Post-Bubble Landscape. February 23, 2009 http://dollardaze.org/blog/?post_id=00584 With millions of homeowners now struggling to repay money they clearly never should have borrowed, our leaders have been righteously wagging fingers at predatory lenders who allegedly enticed innocent borrowers, and the country, into a financial snake pit. While the mortgage industry clearly deserves a good share of the blame, unindicted co-conspirators abound. The ringleaders are still at-large and are, in fact, busy hatching a plan to dwarf the earlier mistakes. February 20, 2009 http://dollardaze.org/blog/?post_id=00578 One of the chief mandates of the U.S. Federal Reserve is to manage the nation's monetary stock. This essay analyzes the historic growth of the American monetary stock (or aggregates) since 1960 and looks at some recent developments revealing a marked adjustment in policy. These changes are a direct response to the on-going worldwide financial crisis that escalated in September 2008 following the collapse of Lehman Brothers. February 10, 2009 http://dollardaze.org/blog/?post_id=00580 What are we really dealing with here? First of all, the system is suffering through the breakdown in contemporary "Wall Street finance." As wrenching and destabilizing as it continues to be, this process should be differentiated from outright financial collapse. Confidence in Wall Street "money" (their previously perceived safe and liquid securities and instruments) has been shattered. Myriad sophisticated Credit instruments have been discredited and thus will no longer provide a viable mechanism for system Credit expansion. Importantly, however, confidence has been sustained for system "money" more generally. February 6, 2009