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 »
Most read in the last 20 days:
- The Stock Market in Trouble - How Bad Can it Get?
A Look at the Broader Market's Internals We have previously discussed the stock market's deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). First it has to be noted that a majority of the stocks in the NYA are already in bearish trends. The chart below shows the NYA and the percentage of stocks above their 200 day and 50 day moving averages, which is 39.16% and 33.77% respectively. When...
- Gold Stocks at an Interesting Juncture
A Fascinating Parallel We have recently discussed the sentiment and positioning backdrop in gold on two separate occasion, as it has once again reached rarely encountered extremes (see “Gold Panic” and “Gold and the Grave Dancers” for details). Image via bullionstreet.com Not much has changed on that front, except for the fact that small speculators have increased their net short position in COMEX gold futures to the highest level in nearly three decades last...
- Gold Stocks: A Playable Rally May Be Beginning as Junk Bonds Crater
Gold Stocks Jump and Retrace 50% Last week we discussed the potential for a rally in the gold sector (see: “Gold Stocks at an Interesting Juncture” for details). Gold stocks jumped early in the week and then retraced almost precisely 50% of the initial move higher, in the process closing a gap that was left behind on Wednesday. Image credit: dreamstime.com Interestingly, for the first time in many months, there were three up days in a row prior to the...
- A new Multi-Year High in Buying by Gold Sector Insiders
Latest Data from INK Show A Huge Surge in Insider Buying As our friends at INK Research in Canada have pointed out to us, insiders at gold companies have made use of the recent sell-off in the sector to load up on shares to an extent not seen in many years. Image source: bidness etc The INK insider buy/sell indicator for gold stocks has peaked just one day after China's initial devaluation announcement at nearly 1,200%: INK's gold insider sentiment...
- The Trump Phenomenon
Surprising Success We were wondering a while if there was anything we could say about the highly entertaining real estate mogul who has successfully hijacked the Republican nomination process – apart from the fact that he is sporting a haircut that looks a bit like a helicopter landing pad, endowing him with instant recognizability: Teflon-Donald Trump, the unlikely front-runner with the interesting haircut Photo credit: Dominick Reuter / Reuters Of course...
- Is Crude Oil Close to a Low?
Panicky Headlines Everybody knows that there is a never-ending glut in crude oil, right? Who knew about it a year ago? Not everybody, that much is certain. The problem with what everybody knows is of course that it is often not worth knowing. Photo credit: Alamy Today a friend pointed two articles out to us that have been published yesterday and today. Their headlines say it all. The Wall Street Journal writes “No End in Sight for Oil Glut” - and proceeds to...
- The Stock Market's Panic Potential
The Odds Favor a “Warning Shot” Scenario - but there is a “But” As regular readers have probably noticed, we have upped the frequency of our “caution is advised” posts on the stock market in recent weeks in light of the market's increasingly deteriorating internals. Although one never knows when exactly such warning signs may begin to matter, it is always a good bet that they eventually will. Last week the market delivered a little wake-up call to the hitherto rather...
- The Donald and China, or The Fallacy of Protectionism
Not Every Populist Topic is Worth Exploiting For reasons that will forever remain a mystery to us, mercantilism and protectionism actually hold enormous popular appeal. The best explanation we can come up with for this phenomenon is that the support for such policies is based on a mixture of economic ignorance and relentless propaganda by vested interests over the past, say, four centuries. Still, it is almost comical that people are so vociferously clamoring for policies that can actually...
- The Economy is in Liquidation Mode
Capital Consumption If you’re an American over a certain age, you remember roller skating rinks (I have no idea if it caught on in other countries). This industry boomed in the 1970’s disco era. However, by the mid 1980’s, the fad was fading. Imagine running a rink company at the end of the craze. You know it is not going to survive for long. How do you operate your business? The birthplace of roller disco turned out to be edible, sort of Photo via...
- Monetary Metals Supply and Demand Report 9 August, 2015
Withdrawing the Gold Bid Last week, we left off with this: “Something is happening with gold…” It began in Dec 2008. To understand it, it is necessary to understand two principles. The first is that gold is money and the dollar is credit, which currently has nontrivial value. A dollar is worth 28.4mg gold. To understand the second, let’s look at how markets work at the mechanical level. An assortment of well-known bullion coins and bars from all...