Posts Tagged ‘Paul Krugman’
Interpreting the Activity of Banks and the ECB Correctly
It appears that market observers are only very slowly coming around to grasping the fact that what the ECB has done in December does indeed amount to a major dose of monetary pumping. The misunderstandings center mainly on the use of the ECB's deposit facility by banks, which overshadows the far more legitimate debate over whether the commercial banks are going to use ECB funding to play the sovereign debt carry trade or rather 'play it safe' in view of the large amount of bank bonds maturing in the first quarter.
An Intractable Problem
Something that keeps exercising our mind is the seeming contradiction between two stances uttered as firm principles by the German political leadership. The first is that often repeated assertion that it is determined to ensure the euro's survival. The second is the equally often repeated assertion that using the ECB's printing press to stem the run on euro area sovereign bonds is completely out of the question.
A Paucity of Imagination
We want to return to a theme we have recently discussed in these pages, namely the allegedly exhaustive hypotheses regarding the possible solutions to the euro area's problems that are regularly presented to us in the media.
Leading intellectuals and economists usually list a set of choices based on the views of the current economic orthodoxy, which choices they insist are all that is possible or even imaginable.
The main problem from our point of view is of course that no-one in the mainstream has as of yet really given voice to the so-called 'unthinkable', which in a way demonstrates what it really consists of (if it weren't 'unthinkable', they would have thought of it).
A Historical Mistake
There once was a time when the science of economics – based on sound reasoning – concluded that economic liberalism was the best way to achieve lasting and growing prosperity. Classical economists may have been stumped by the theory of value, a problem satisfactorily solved by Carl Menger in the 1870's, but on the whole, their teachings were conducive to the adoption of free market capitalism. This ushered in an age of unprecedented capital accumulation and prosperity.
Euro Area PMI – Ireland Must Be Doing Something Right
Manufacturing in the euro area continues to contract noticeably – the crisis is taking its toll not only on financial markets, but also the real economy. Note here that what the present economic situation reveals are the results of the policy errors of 2008-2009, namely massive monetary pumping and various wealth-misdirecting and wealth-destroying government intervention schemes designed to 'avert recession'. Why are these mistakes revealed now? This is due to the lag time of monetary policy. On account of the ECB's approach (the ECB – so far – accommodates booms, but is reluctant to actively pump during busts except in order to rescue insolvent banks) monetary policy has become much tighter in the course of the past year than the still very low administered interest rate would suggest. Money supply growth in the euro area as a whole has only been 1.3% year-on-year (in terms of money TMS), with several peripheral nations experiencing outright monetary deflation. Read the rest of this entry »
Antipodes Speak Out – Lacker and Evans
Over the past two weeks we have heard several regional Fed presidents speak their mind, some of whom oppose the central bank's current easy money policies and some of whom think it should ease even more. Members of the Fed's board of governors in Washington and chairman Bernanke were also heard from – this group seems to be united in wanting to pursue an extremely easy monetary policy. We will look at some of the speeches that were delivered, with special emphasis on Charles Evans, as his viewpoint seems to be gaining ground lately. Read the rest of this entry »
Dissenters Speak Out
Before discussing what the Fed might do next, we would note that it has recently 'wheeled out the hawks'. We have noticed that there seems to be a method behind the Fed's communications tactics. Naturally it is possible that we're just a bit too paranoid, but it appears to us that between FOMC meetings, we always get to hear from the perceived 'hawks' (who really aren't all that hawkish, they're only less dovish than their colleagues) relatively early before the next meeting approaches. Their speeches add to the sense that there is someone responsible lurking at the Fed, someone who cares about manipulating the currency 'just right'. Moreover, by getting their remarks out of the way early, it is possible for the Fed to gauge how the markets react to what they say and ideally, from its point of view, make use of the reaction. It is a good bet that if there is a reaction at all, it will be negative from the 'risk assets' side, as Messrs. Plosser, Kocherlakota, Fisher and Lacker (the current crop of dissenters/doubters) all talk about wanting to pursue less rather than more inflation. Read the rest of this entry »
Establishment Quacks Call For More Money Printing
No matter how often and how thoroughly inflationist doctrines have been refuted by economic theory, or how many times their implementation in practice has resulted in large-scale economic misery, they never seem to lack for support. The main supporters these days are the pro-statism establishment intellectuals which seem to populate both mainstream media and academe in staggering abundance. You might say there's an inflation of inflation-loving intellectuals.
Naturally, their doctrines are as faulty today as they have been since the times when Roman emperors debased their coins, but that doesn't keep them from recommending the same hoary nonsense all over again. Worst of all, their opinions coincide with those of modern-day policymakers, in fact they serve as a fig leaf and provide propaganda support for their policies. Read the rest of this entry »
… but it stands on a weak foundation.
The expected rebound in stocks and commodities has continued on Monday, but there are a number of signs that this is not much more than a short covering rally that is unlikely to last. Although yields on euro area government bonds and CDS on them have continued to decline (we will update the euro area charts tomorrow), the fact remains that the economy is under pressure, so bounces in stocks have to be approached with great caution – they are more likely to represent selling opportunities than a reason to buy at this stage. Notably the recent rally has inter alia been triggered by a in several European countries. Short selling bans have historically always been medium term bearish events – they can trigger a bounce lasting for a few days, but in the long run they are extremely counterproductive, as they lower liquidity and hinder the price discovery process. By taking away the opportunity to hedge, they ultimately create even more selling pressure than would have appeared otherwise. This latest short selling ban is thus likely destined to fail as well – one wonders why the authorities even bother.
Paul Krugman Pines For A Command Economy
Sometime in late 2008 we waxed philosophically about what we thought had happened to the US pool of real funding (i.e., the pool of saved real goods that funds all economic activity) in the wake of the 1990's/Nasdaq bubble. We wondered how it was possible, in spite of preliminary evidence that the pool of real savings was in trouble, to create yet another, even bigger bubble from 2003-2007.
Most read in the last 20 days:
- Gold Sector Update – What Stance is Appropriate?
The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
- Don’t Blame Trump When the World Ends
Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook. One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
- Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
- What is the Best Time to Buy Stocks?
Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity? Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
- Trump and the Draining of the Swamp
Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
- Gold and Silver Divergence – Precious Metals Supply and Demand
Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
- When Trumponomics Meets Abenomics
Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway] Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
- The Great Wailing
Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations. Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any... You’d think Washington had been invaded by Goths, now...
- Receive a One Percent Gift When Buying or Selling a Home
How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine. Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell. The people who took this photograph probably want to...
- Silver Futures Market Assistance – Precious Metals Supply and Demand
Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Taking off for real or not? Photo credit: NASA Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...
- Unleashing Wall Street
To Unleash or Not to Unleash, That is the Question... LOVINGSTON, VIRGINIA – Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive? Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat... Image credit: Urs Hagen Oh,...
- Boondoggles for the Swamp Critters
Monster or Mozart? BALTIMORE – Investors seem to be holding their breath, like a man hiding a cigarette from his wife. It’s just a feeling, and it’s not the first time we’ve had it... but it feels as though it wouldn’t take much to send them all running. Actually, they're not going anywhere yet... but there is a lot of overconfidence by those who were very worried when prices were a lot better - click to enlarge. Meanwhile... we’re coming to a deep...