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 short selling ban 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:
- Reality is a Formidable Enemy
Political Correctness Comedy We have recently come across a video that is simply too funny not be shared. It also happens to dovetail nicely with our friend Claudio's recent essay on political correctness and cultural Marxism. Since this is generally a rather depressing topic, we have concluded that having a good laugh at it might not be the worst idea. How to most effectively create a “safe space” on campus Cartoon by Nate Beeler It is especially funny (or...
- Fresh Mainstream Nonsense on Gold Demand
They Will Never Get It... We and many others have made a valiant effort over the years to explain what actually moves the gold market (as examples see e.g. our article “Misconceptions About Gold”, or Robert Blumen's excellent essay “Misunderstanding Gold Demand”). Sometimes it is a bit frustrating when we realize it has probably all been for naught. Gold wants to know what it has done now... Photo credit: Ajay Verma / Reuters This was brought home to...
- Drowning the Fir
Presidential Duties Our editor recently stumbled upon an image in one of the more obscure corners of the intertubes which we felt we had to share with our readers. It provides us with a nice metaphor for the meaningfulness of government activity. First, here is a look at the picture – just quietly contemplate it for while and let it work its magic on you: Yes, these two gentlemen are actually watering a tree in the middle of a downpour... Photo via...
- The Wonder Years Are Over
Everybody Is Unhappy PARIS – “France?” We were in a cab on the way from Charles de Gaulle Airport yesterday. We had innocently asked our cab driver how things were going in the country. He had some thoughts... French president Francois Hollande: against all odds, he managed to attain the most powerful position in French society. And yet, even he is unhappy. Photo credit: Patrick Kovarik / AFP “France is a mess. We have 5 million people unemployed. And...
- Switzerland About to Vote on “Free Lunch” for Everyone
Will the Swiss Guarantee CHF 75,000 for Every Family? In early June the Swiss will be called upon to make a historic decision. Switzerland is the first country worldwide to put the idea of an Unconditional Basic Income to a vote and the outcome of this referendum will set a strong precedent and establish a landmark in the evolution of this debate. The Swiss Basic Income Initiative in a demonstration in front of parliament. As we have previously reported (see “Swiss...
- Gold – The Commitments of Traders
Commercial and Non-Commercial Market Participants The commitments of traders in gold futures are beginning to look a bit concerning these days – we will explain further below why this is so. Some readers may well be wondering why an explanation is even needed. Isn't it obvious? Superficially, it sure looks that way. As the following chart of the net position of commercial hedgers illustrates, their position is currently at quite an extended...
- Heretical Thoughts and Doing the Unthinkable
Heresy! NORMANDY, France – The Dow rose 222 points on Tuesday – or just over 1%. But we agree with hedge-fund manager Stanley Druckenmiller: This is not a good time to be a U.S. stock market bull. Legendary former hedge fund manager Stanley Druckenmiller at the Ira Sohn conference – not an optimist at present, to put it mildly. Photo credit: David A. Grogan / CNBC Speaking at an investment conference in New York last week, George Soros’ former partner...
- Staying Home on Election Day
Pretenses and Conceits The markets are eerily quiet… like an angry man with something on his mind and a shotgun in his hand. We will leave them to brood… and return to the spectacle of the U.S. presidential primaries. On display are all the pretenses, conceits, and absurdities of modern government. And now, the race narrows to the two most widely distrusted and loathed candidates. US election circus: Deep State Rep vs. Rage Channeller The first, a loose...
- How the Deep State’s Cronies Steal From You
Expanding in Ireland DUNMORE EAST, Ireland – We came down the coast from Dublin to check on our new office building. For this visit, we wanted to stay somewhere different than we normally do. So we chose a small hotel on the coast, called the Strand Inn. Irish landscape with alien landing pads. Even the guys from Rigel II have heard about Ireland's corporate tax rate. Photo credit: Tourism Ireland It is an excellent place for seafood and soda bread on a...
- The World's 100 Most Influential Hacks, Yahoos and Monkey Shiners
Hacks and Has-Beens NORMANDY, France – What has happened to TIME magazine? Henry Luce, who started TIME – the first weekly news magazine in the U.S. – would be appalled to see what it has become. Time cover featuring the sunburned mummy heading the globalist IMF bureaucracy (which inter alia advocates that governments should confiscate a portion of the wealth of their citizens overnight, even while its own employees don't have to pay a single cent in taxes). Once you...
- The Japanese Popsicle Affair
Policy-Induced Contrition in Japan As we keep saying, there really is no point in trying to make people richer by making them poorer – which is what Shinzo Abe and Haruhiko Kuroda have been trying to do for the past several years. Not surprisingly, they have so to speak only succeeded in achieving the second part of the equation: they have certainly managed to impoverish their fellow Japanese citizens. Shinzo Abe and Haruhiko Kuroda, professional yen assassins Photo credit:...
- Kuroda-San in the Mouth of Madness
Deluded Central Planners Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”. BoJ governor Haruhiko Kuroda Photo credit:...