OK, I ALMOST GIVE UP...ALMOST

I was listening to CNBC this morning when Little Paulie Krugman came on.  "Wait a minute...that's not Little Paulie," said I.  "That's Donald Trump!"  If one couldn't recognize the voice one could not have told told the difference.  There was Trump parroting all of Paulie's column in the Times earlier this week.  Gobsmacked.  Then it dawned on me:  what is the real estate developer's First Commandment?  "Thou shalt not use thy own money."  What an idiot.  Of course Trump will gear up the good ol' US of A just like he geared up everything else in his life including himself.  In short, said me to my self, "we're doomed."

I wandered around in a daze until lunch time then when out with a classmate of mine and had a couple of beers.  Another not-so-good idea.  Home for a nap and woke up...refreshed!  That lasted about 1/2 hour.  Flipped the TV on and discovered that the DOW, the S & P and the NASDAQ were a RECORD highs!  Wait a minute, hadn't it been announced that there had been a record outflow from equity funds this year and a record inflow into bond funds?  Quick research...yep, sure had.  So how...why...well of course. It's a totally trader's market, which in the past would have meant that this thing is so overbought as to be...well, I don't know what...but this isn't the past.  Then again, if you had bought the ten year in December you're up 30%.  Want to make more money?  You should have bought the Long Guilt at the same time.  You're up 50%.  Want to keep it going?  Buy any currency--any--against the dollar and you are a winner.  Want to do even better?  How 'bout the Ruble.  Hell, there about to invade the Ukraine again.  Just a thought...to go along with the Turkish Bonds of yesterday.  Just keep in mind that when the entire world seems to be in a negative interest rate environment, it is the U.S. Dollar--the currency with the highest yielding fixed income obligations--that is the cheapest.  Which also means if you think about it that this is all going on without the "carry trade" because the currency risk will kill you.

Something's happening here; what it is ain't exactly clear, but the little economics and monetary theory with which I grew up has been turned on it's head.  Now either we are in a whole, new world  or if this thing ever decides to return to what is supposed to be normal, it is not going to be a gradual thing.  It's going to be a mess akin to what He Who Knows All Things referred to the other day as when the guy yells "FIRE" in the crowded theater.  In the mean time I'm depressed.  Not so much that I'm giving up but enough to take the day off tomorrow and enjoy the Dog Days.  Too much barking every where else.

Monday.

LITTLE PAULIE'S ROADMAP

If you want to know hat's going to happen next in a Democratic administration, you just have to read the New York Times.  As any one paying attention knows, a big focal point of Mrs. Clinton's bid for the White House is increased spending (DUH!) particularly in infrastructure development.  No how one pays for all of this has always been the question but this week Little Paulie spelled it out in clear baby-talk which of course will be the salient points in Mrs. Clinton's argument.  In a nut shell, as he has been belaboring for well over a year is more governmental debt but he has also taken it a step further this time and suggested (demanded?) that in order to take advantage of these historically low rates that the Treasury begin a massive restructuring of maturities extending the purchase of Long Bonds and perhaps even going when we have never gone yet out to maturities beyond 30 years.  On the face of it the argument looks pretty good and quite frankly, if the effort were to be undertaken there is no doubt that massive sales of government debt in this environment would be a huge success.   What is massive?  A multiple of a trillion dollars...perhaps many multiples.  Whether used properly is of course another argument but a political one.  The fiscal (financial?) issues?  Substantial and serious and not dealt with in Paulie's treatise.

One has to understand that the entire basis of global credit has always been and remains today the value of the direct obligations of the United States.  Everything, and I do mean everything, is priced off of some maturity of the Treasury market.  Now perhaps part of the effort in the extension of the average life of government debt may be to steepen the yield curve that is flatter than a pancake not just Over Here but Over There and Everywhere as well, but I doubt it.  Nor do I believe this will be the effect.  rather..and this is assuming that the debt has a positive coupon, a big assumption these days...I suspect will be the creation of even greater demand for the world's finest credit at whatever level, creating the damnedest's battle of world-wide governmental issuers we have ever seen.

Now in Paulie's world, no big deal except he seems to dismiss the fact that the economy of the world still is driven by dollars.  Two things will happen: firstly there will be a shortage of dollars as the Treasury sucks up all liquidity to feed the ever ravenous state or secondly, starved of credit, the global economy slips into global recession...or both.  Frankly, I bet on both as the growth of governmental debt already exceeds global economic growth by a wide margin.  Within this scenario we are also faced with the onslaught of regulation as a consequence of the great recession, ignored by Paulie who, like its authors, never really understood the causes of the disease they were tying to cure which a dramatically reduced the risk appetite of financial institutions further reducing the availability of credit.

On the flip side of course is the investor or, in a category near and dear to me, the retiree.  We have no place to go.  The governments of the world have simply destroyed reasonable return opportunities leaving the average person with the choice of either accepting the status quo and reducing life styles and the quality of life or seeking yield wherever one can find it.  Turkey, Brazil...hey, how 'bout Venezuela!  And has Paulie ever considered the pension plans on which millions of Americans rely many of which still assume returns of 7% to remain actuarially sound, which, given the restrictions placed upon the nature of their investments, is insane.  The solution to those problems?  Paulie will never admit it but think government bailout--and more and more debt.

When might all this happen if ever?  I have no idea, but the road map is there.  I think it will take us to the place of which I have been speaking and I haven't even considered a bumps along the way such as an armed conflict in a world armed to the teeth by countries led by less than--shall we say--world statesmen as opposed to irrational midgets.  Many years ago in speaking about what I thought was a looming debt crisis a very wise man said to me; "You know, you guys are going down a road that has a lot of twists and turns to it.  Some day, you are going to go around one of those turns and there's going to be a guy with his hand out.  It's toll road you're on, you know that don't you?"  That was a hell of a toll we paid back then.  An entire continent lost a generation.  It will be a bigger one today.

ON YOUR KNEES?

Madame, you are the Director of the International Monetary Fund.  To say that would be a undignified position would be the understatement of the year.  OK, you got it wrong but you know what Les Anglais are like.  They never miss an opportunity to "give you the mickey" as they like to say.  Ignore it…like Little Paulie Krugman of the NY Times who's been wrong for the past two years so he just stops talking about it.  It will go away unless the Irish decide to get in a few shots.  Never miss the chance to land a couple, that lot, and then you're in the stew pot.  But they wont, so relax.  After their dumb-ass move at the start of this thing to guarantee all their banks, they're just happy to be around.

So they and of course the Germans tighten up and get all conservative on everybody (including you) and they're looking at GDPs in the 3-4% range while everybody else is stuck at 1% or less including your mob despite having as good a work force and infrastructure as there is Over There.  So answer me this.  Do you think that despite the advice of Little Paulie and every out of work economist from the sub-continent that works for you, has it ever crossed your mind that monetary expansion might not be all it's cracked up to be and despite Paulie and the late, great Keynes, there might be something else going on?  Did you ever think that Paulie & Co. might, just like the economist he is have sat back and started by saying, "Assume sound fiscal policy, a mobile work force, sound labor policies, government stability, no corruption, sound credit distribution, little or no bureaucracy within government, simplicity and paucity of regulation and an efficient system of taxation.  Then, let's create a trillion or so out of thin air and drop it on these guys and wow, will it take off!!!!"

Of course assumptions are not reality, and southern Europe has none of these things.  Fact is, we used to have a lot of these things Over Here, but the people who listen to Little Paulie are running the country now and we don't any more.  Oh by the by, we were at -1% in the first quarter and it wasn't all weather.  So Madame, why don't you get up off the floor, dust off your knees and tell the stupids running things in Brussels and in the southen tier that it might not be a bad idea to take a good, hard look at the way things are being run and perhaps come to the conclusion that the problem is not in our stars or lack of monetary creation but in our administration.  Warning.  Paulie and the New York Times and the Guardian and your Landsman, Frankie aren't going to be saying nice things about you any more but hey, you're known by the company you keep.  And this time you will have gotten it right.


Speaking of Frankie, he of course was the Chef de Field at Normandy last week.  It was a solemn ceremony at a solemn place.  He spoke.  We had a president who spoke at one of these things some years back.

 "…The world will little note nor long remember what we say here, but it will never forget what they did here."

 Frankie didn't read that speech.  He spoke for what seemed like hours.  He said not as much.

WHY SHOULD I WORRY

Krugman has it figured out in his Times column today.  Beginning with a brief history of crises starting with Mexico in 1982, which was apparently caused by the onset of deregulation and banker aggressiveness (his words, not mine) that led to the "sudden stop" of lending in 1982 and to economic implosion.  From this explanation all else follows in a logical pattern, for Paulie is nothing if not logical.  Unfortunately, as if too often the case, Paulie is dishonest and incorrect in his assessment.

Prior to 1982, and right at in the middle of the real estate bubble of the early 70ies, we had this new event called OPEC and the great oil shut off to which the West capitulated resulting in a massive increase in oil prices and unheard of new wealth throughout the middle east and in certain countries in Latin America.  It also led to massive amounts of liquidity flooding American and international banks, unusable at home, creating a need for it to be "recycled."  The recycling went through many of the very countries producing the bonanza whereby future revenues were targeted for repayment of present loans designed for infrastructure development.  Make no mistake, this lending was greatly encouraged by governments both here and overseas and banking regulators.  Remember, "Countries don't go broke."

The second most important thing to remember is that not all of this liquidity could be sopped up in this manner.  There was no capital market for sovereigns in the emerging markets; all the lending was done by banks.  There remained A LOT of liquidity.

The third thing to remember is Jimmy Carter was President and Jimmy Carter was an idiot.

The fourth thing to remember is inflation went through the roof and to combat it Jimmy did the only smart thing he did in four years…he appointed Paul Volker as Chairman of the Fed, and finally,

The fifth thing to remember is Paul killed inflation, stone, cold, dead with interest rates north of 15% but at the same time he killed Latin America as well.

Now little Paulie wont tell you all that because his solution to everything is for western governments to engage in huge amounts of deficit spending which will create demand which will cure all things otherwise we will face bubbles and recessions forever.  Unfortunately, near history--not theory--seems to suggest that improper fiscal management is what buggers things up and nothing has proven worse than the nonsenses of the Carter years and the economic disincentives of the present administration coupled with fiscal mismanagement over the past dozen years that encourages…nay, almost forces--investors to seek yield in places most really shouldn't be. 

Why should I worry?  Well, because I don't think this emerging market thing is over nor do I think it's a mere blip.  This could get worse and as I said the other day who cares about Turkey or the Venezulus or Argentina as stand-alones.  But throw in India, the weak guys in Euroland and certainly Brazil, and you have the makings…of…something.   Don't look for leadership from Uncle; The Leader and his party are in full election crisis mode not that anyone would listen to them in the first place.  Unfortunately, though unavoidable on the international stage we command absolutely no credibility. So do us all a favor, Paulie Bubbala, go sit in a corner somewhere and play with your Nobel which you  earned when you used to be an economist rather than a political enabler.  Crap like your latest effort we don't need.

MOVING ON

Well, Monday came and went.  The Leak created not a ripple in the otherwise placid pond of Euroland.  The Italians formed a government which withstood its first no confidence test and promised that Italy would not die the slow death of austerity as the PM flew to Germany to express his desire to stick to the suggestions of Ms. Merkel and the requirements of the Troika.  Now how that circle is going to be squared is anybody's guess but there you have it and so far the Germans have not said anything...well...Germanic.

I must admit that I was a bit skeptical about Massimo's outline of the last week despite his past record but almost as though on cue, the deputy PM, who as a member of the governing coalition while at the same time the head of the party of Berlusconi, immediately took credit for the tough talk against austerity and proclaimed his party's victory and of course by extension, the victory of the old reprobate.  I was going to call Massimo today and congratulate him but then thought, hold on, let's see how this thing plays out...at least for a month.  In the mean time, the focus may well be off Italy for a bit as the news out of Spain continues to worsen and while somewhat overlooked Over Here, all the talk Over There is is the utter collapse of Franco/Germanic relations at this point, they degenerating into ad hominem attacks on Ms. Merkel.  The Hollande government's approval rating is somewhere in the middle 20 per cent and a bit of frustration and panic seems to be setting in.  Funny.  The French and the Germans used to have at it about every 40 years for God knows how long--I mean every generation in Alsace-Lorraine would have to learn a new language--and that was supposed to be ended by the EU.  Well, old habits die hard and while I'm absolutely sure there will be no shooting, not much good is going to happen in the mean time.

The near future conversations will be dominated by thoughts as to the action of the ECB on Thursday.  There is now an almost 100% agreement that Mr. Draghi will lower interest rates yet again from their massively high level of 0.75%.  If that doesn't happen it's really going to be fun to watch...almost as much fun as observing people in belief that this action is going to make a difference.

Finally, today in a truly funny moment, Harvard historian Nigel Ferguson--who is a seriously smart guy--was commenting on the dust-up between his two Harvard colleagues, Rogoff and Reinhart and Little Paulie of Princeton residence.  Deriding Krugman's assertion that he had won the argument, Ferguson proclaimed that he in fact was wrong and that was the kind of comments headline writers for a tabloid make up not someone who used to be an economist.   Whoa!  In academia that's akin to remarks about your mother.  Can't wait for the next chapter in this soap opera.

THE KRUGMAN RAND

He did it, he really did it.  Today, Little Paulie came out in full support of the Trillion Dollar Platinum Coin or "other such innovative ideas" in a deliberately misleading, factually incorrect, packed with misunderstanding of markets (and one outright untruth) piece in the Times today.  But there we are; we now know that if pushed, the administration will challenge any concept, law or provision of the Constitution to shape their view of governance.  They won so I guess they think they can.  One thing I don't get, however, is why these guys insist on Platinum when freeze dried feces would work as well.  Same trillion dollar value and far lower production costs.  Why, they could use their own; they seem to have a lot of it.

On the banking front, Wells Fargo came out with great fourth quarter numbers and prom ply fell like a stone bring the rest of the banking system down with it.  Now I don't know much about the stock market except for the fact that it is the place to which I head when I want to lose money but the reason given for the decline in bank stocks is demonstrative, I think, of what these guys don't know.  You see, the problem according to the street is that Wells has too many deposits and can't put them to use because rates are too low.  Boys and girls, you can NEVER, especially in times like these, have too many deposits...especially the retail based deposits akin to Wells.  If anyone tells you different, you are dealing with a fool.  Deposits are the real capital of a bank; one uses them to make loans, build relationships, sell additional services to he who is a customer rather than through cold calling.  They provide stability and most of all they provide liquidity.  Retail deposits hang around through thick and thin which is what the monstrously dumb Ms. Bair didn't understand when she intervened in the merger of Wachtovia and Citibank who, at the time, desperately needed a domestic deposit base.  Poor Wells. They are now paying for the stupidity of Poo Bair in being unable to put to work all those deposits.  Yeah, right.

Over there, The Italians had a hell of a 3 year auction with yields falling below 3%.  Good by any standard.  Massimo is still on holiday so the "insider's" view is still unknown to me but he should be back by next week  when things begin to pick up unless you consider L'Affair Cyprus to be of interest which it actually is as what has been floated that in return for the bail-out the Russian bond holders and depositors take a hit.  Look for a disruption of natural gas shipments to Europe if this discussion doesn't end which caused one of my more savvy friends down in the coffee shop in Galveston to ring me up with, "Damn boy, iffin we can git the OK to liquefy all the extra stuff we got and ship it to Europe, how much money you think we can make?"  Hadn't thought about that aspect but he may be on to something.  I'lltellyouwhat'sthetruth: things are gettin' complicated in this ol' world.  Fortunes from financial crises in natural gas.  Whew!  Oh, the Euro is at 1.33 today.  Guess the Euros really like that Krugman Rand idea.

See you next week

EXCELLENT RESULTS

Tottenham won on Sunday 2-nil and City bested United 1-nil just an hour ago with 20% of the world watching in case you weren't.  Riviting stuff.

In far less important matters, Little Paulie is all over the talk programs humping his new book which says--among few other things--that all we have to do is build out national debt up to about $20 trillion, put some teachers back to work, accept a bit more inflation and everything will be just fine.  As to where the money comes from?  The markets, they are happy to lend it to us...until they aren't.  That's the funny thing about markets.  You just never know, but Paulie's arguments are always wonderful because you can't prove him wrong...until he is.

Today, the debt of the U.S. Treasury is the debt of last resort because at the present time it is the safest and the most liquid.  The Yuan?  Well not now but when?  Since I started warning people about this scenario 2 years ago, we have seen a remarkable internationalization of China's currency in this short period of time and an acceptance as a a currency of trade and exchange far quicker than I predicted.  Right now we are the only game in town; are we still in 18 months because that is the sort of time frame in which one measures when contemplating issues such as these.  One might also wish to look to the experience of our friends in Euroland and their fiscal efforts and the results from the same.  No structural reform, no growth. No growth...well, one sees the result.  They are back talking about a EUROBOND; a debt instrument issued on behalf of all members of the currncy union.  It will not happen not because it is illegal under the rules (it is) which is the excuse given but because of the real fear that no one will buy it, and when that happens the game is over.   So it would be here.  Paulie the economist can simply say, "Assume a receptive market."  For those of us who have toiled in the real world the answer isn't so simple.

Going to try to talk more about this later in the week and some ideas concerning our central bank which are kicking around in Congress.  FA Cup coming up.  It's really hard to focus.

...FUTURE CONTINUED

THERE IS A SURFEIT OF LIQUIDITY ON WALL STREET.  IT GENERATES FEES AND SHORT TERM GAINS BUT HAS LITTLE SOCIAL WORTH.  IT IS THE OPPOSITE OF USEFUL. IT DISAPPEARS WHEN MOST NEEDED AS IN THE 'FLASH CRASH' OF 2010, THUS EXACERBATING COLLAPSES."  So wrote Mr. Eisinger and what he wrote is really important except he hadn't a clue.

The problem with folks like he they start their writing from a premise which is uniquely their own and all then follows whether correct or not.  They are not reporters or educators in any sense but lecturers which is perfectly ok except when someone tries to apply like concepts to solve the wrong problem.  Let me digress for just a bit to illustrate thepoint.

In late 2007, I called an old regulator buddy, since retired, on the subject of Goldman Sachs and their liquidity position.  He told me that at the time he believed that Goldman had spare liquidity of over $100 billion dollars in committed facilities, meaning they were paying some sort of fee to insure availability.  My comment was, "Until they need it."  "Yeah," said he, "but nobody understands that."  I don't think that Mr Eisinger does either because this little tale is merely the tip of the iceberg.

I've said something like this before but it bears repeating.  Banking, at it's core is a pretty simple business.  A bank takes deposits and makes loans profiting from what ever interset rate diffenential they can obtain.  There is an old saying that banks "borrow short and lend long" meaning the duration of their deposit base is always shorter than the duration of the loan portfolio, and because of the duration difference they can borrow money (accept deposits) and a cheaper rate than that at which it is loaned back out.  Of course that means that banks have to constantly roll over deposits for they fund the business and if they are smart, they put into place liquidity facilities to insure that they always have funding.

Over the centuries the business of banking has changed with new products, new business lines, even entirely new business, but what has not changed is that banks have to borrow money to fund all of these things and theydo BUT there are, today a hundred--well, perhaps not that many--way for banks to obtain funding.  No longer does the banker rely upon Ma and Pa Kettle with their checking account, savings accound, certificate of deposit or Christmas Club.  Today, bankers get their deposits from people and entities thousands of miles away and, if done through a broker or a money fund, people they do not know and will never meet.  Whereas Ma and Pa's money was pretty much always there the duration of today's funding is often overnight and highly unreliable during any period of concern.  But what of liquidity facilities such as the one over at Goldman you ask?   When people get scared and you try to use them, committed or not, they aren't there.  "But I Paid a Fee!" say you.  "Sue Me," says the provider.  Welcome to October 2008.

What Mr. Eisinger missed in his very interesting piece is the most important thing of all.  The Volker Rule, indeed the whole pile of nonsense that is Dodd/Frank is supposed to regulate a multi-trillion dollar international banking system that is funded in exactly the same manner as was The Bank of New York at its founding in 1784!  This is the risk on the street and not a word is devoted to it in Dodd/Frank.  Good luck.



                                                  ---------------------------------------------------



Little Paulie Krugman was at it again in the Times this morning.  Desperate to justify an increase in the national debt by $5 trillion in the past 3 years, he has been arguing that fiscal dicipline is the wrong way to go...just look at Europe.  A few weeks ago he was effusive in his prais for Mario Draghi in opening the ECB with its version of Free Money For Everybody in order to stimulate the economy.  Today, he tried to quote every Republican economist he could think of to support his case.  Readers of this space will no doubt remember my opining that the real reason for Paulie's desperation was that the democratic socialism model of western Europe was about to end and with it The Leader's dreams for the U.S.  Poor Little Paulie.  While he was babbling away in the Times, Super Mario gave his first inerview in the Wall Street Journal.  What did he say?  Only that the European model had to end.  Oops.

LITTLE PAULIE'S LAMENT

While calling yet again for the opening of the ECB spigot, and speculating that it wasn't going to happen because of silly things like constitutions, laws and regulations, Krugman finally came clean about his beliefs, agendas and as I have urged all to recognize, the true dogma of The Leader and the present administration.  It was an remarkable unveiling and I wonder what the commentary will be if, indeed, The Times will print any, but I shall print the operative paragraphs and follow with my own commentary.

"The broader problem, however", Krugman writes, "is that the whole euro system was designed to fight the last economic was.  It is a Maginot line built to prevent a replay of the 1970's which is worse than useless when the real danger is a replay of the 1930's...

That of course is utter crap.  The Euro system was not in any way designed to address anything in the 1970's and had no thought of the 1930's except in the context of a study of economic history.  The idea was a monetary union to be followed, as the midwives believed, by an inevitable political union in some shape and form not, to avoid another economic catastrophy but a political one as the wise men realized that Europeans, taken seperately, don't like each other very much.  The facilitation of trade and the creation of wealth thru the mechanism of a common currency was the rational that drove the process.   Krugman continued...

"The story of postwar Europe is deeply inspiring. Out of the ruins of war, the Europeans built a system of peace and democracy, constructing along the way societies that, while imperfect--what society isn't?-- are arguably the most decent in human history."

To say he is merely delusional would be inaccurate.  He is a fool.  Now being a fool doesn't mean one is unintelligent, it just means that one is a...well, a fool.  The most decent in history?  Hardly.  The implication that the Europe's recovery was accomplished solely by Europeans...a monstrosity of a historical perversion.  Little Paulie will no doubt point to things like universal health care and ignore the viscious racial incitement, violence and discrimination that has existed and appears on the increase since the War ended.  Nor will he consider for a moment that the very freedom and existence of Western Europe hung by a thread at one point and was preserved only under the umbrella of American military might.  He continues...

"Yet that achievement is under threat because of the European elite, in its arrogance, locked the Continent into a monetary system that recreated the gold standard...[and]...The bitter truth is that it is looking more and more as if the euro system is doomed...Europe might be better off if it collapses sooner rather than later"

No Mr. Krugman, what will collapse is the soft socialism of the welfare state that collapsed under its own weight as it was destined to do.  What has collapsed is the belief that pitting class against class is a winning political strategy that can be counted upon to continually purchase votes with the false promise of social peace.  What has collapsed is the false premise that everyone is "deserving" regardless of effort and that there is in every society an intellectual elite such as yourself whose duty in life is to guide the lessfortunate as to the manner in which and by what rules life should be lived.  What has collapsed is Plato's false belief in the wise men.  There are none so wise.  And lament though you might, your "most decent society" is no more.  It spent itself to death.  

The flailing about on the part of The Leader and this adminstration, so painful to watch, is because of the beliefs shared with Mr. Krugman.  It would appear that reality has finally interveened in the grand design and the fear, shock and desperation is almost palpable.  They may survive politically, but the concept will not.  If we fail to learn from the Euros we will almost certainly face even a graver crisis in the coming years...no matter what the political bent of the governmental leadership.  

Enough of the Gospel according to St. Charlie.  Barring something REALLY important, we'll go back to the Euros tomorrow and their wonderfully insolvent banks.  It was a fun time over the week-end: Nikki and Angie jumped all over Silvio...a sure sign to the conoscenti that L'affair est mort...which is another way of saying they are just sick of one another.  Anon.

ENTER LAUGHI...ERR...LIESMAN

Tuesday morning, CNBC opened with an exclusive from Steve Liesman which appeared to quote European sources that an agreement had been reached in principal for a European debt solution involving, among other things, the setting up of a new financial institution to be capitalized by the Euro members which would act as the purchaser of soverign debt to perhaps in excess of 2 trillion Euros in conjunction with an agreement for a TARP-like recapitalization of the European banking system.  Steve appeared quite pleased with himself, the crisis was declared nearly over and market futures went through the roof in anticipation of the financial equivalent of "Peace in Our Time."  None of it was accurate.

Now Liesman is a pretty good reporter who has won many awards including a Pulitizer so one may ask just how he could have gotten this wrong and it would be a damn good question.  The answer in my mind would be that he trusted his source implicitly.  As we discussed yesterday it is highly unlikely the story originated in Europe for none of the people I talked to in Euroland had any knowledge of such an agreement and while my sources are not nearly as extensive as Mr, Liesmans', they generally have a pretty good idea of what's going on.  Further, I doubt that Liesman would have gone with the story in such a completely positive manner with nary a disclaimer unless he was absolutely certain that the source was unquestioned.  In my mind that points to the source being no other than The Suit himself, the Secretary of the Treasury of the United States.

Remember that Mr. Geithner was interviewed by Liesman prior to his trip and said with nary a doubt that Greece would not default and that the Euros had a plan which wrong footed everybody as all signs would have led one to an opposite conclusion.  Off he goes to Poland, lectures the Euros as to what they should do (which looks very much like our acts c. 2009), back he comes and lo and behold Liesman announces a solution very much along the lines of what The Suit was suggesting.  Except it wasn't real.  Poor ol' Steve Liesman was bagged.

What Liesman suggested was never remotely possible to achieve and he should have known it.  I have no sympathy for him but nothing but distain for CNBC for allowing crap like this to be broadcast, influencing markets and allowing itself to be used for the bases of purposes.  That was my view yesterday and still is, but I got a call today from my political friend Jerry, that got me thinking about something that had been troubling me but which I couldn't quite articulate.

"Good one yesterday, Charlie.  I laughed like hell."

"Thanks.  Praise is always welcome."

"I know where you're going with this but you better ask yourself something."

"What?"

"Why."

"Why what?"

"Why did he do all this.  He's out of character. There's a reason and not a simple one.  Think about it."

...and he rang off.  So I REALLY thought about it all morning because Jerry had articulated it for me and then I read the leading article in the NY Times and a terribly uncomfortable thought occured.

Remember, just a few days ago in writing about Little Paulie lastest shill job for The Leader I mentioned that one should watch what the Times prints because there is a tendency for its words to reappear in the not too distant future as a major position of The Leader and his party.  Today's editorial was about--among other things--the failure of Europe and its finances.

At Ft. Benning, Georgia, the home of the Infantry,  as you enter  there is a bronze statue of a  soldier with a rifle waving to his colleagues behind him with the inscription, "I am the Infantry, FOLLOW ME!"  The Suit was never an infantryman.  The Suit is never out front.  He is not unintelligent but he establishes consensus rather than demanding agreement.  He doesn't lead, he agrees. And so, all of his statements and actions over the past few weeks have been completely out of character and I missed it, flat missed it.  Then why, I asked myself, and Self came back with an answer that troubles me greatly.  Perhaps the Geithner/Liesman interplay wasn't about self-esteem but about creating a legend.  Perhaps it wasn't about financial solutions at all, but all about creating a fall guy if you think, nay, truly believe that things are going to get a lot worse between now and next November.  Dubya doesn't work any more; you need a REALLY BIG fall guy. How about Europe, and if the New York Times begins to blame our decline and the global financial decline on Europe and China (unimportant for these purposes) so much the better.  And this morning, there it was in the Times.    I'm not sure, but it just may be that The Suit didn't go to Europe, he was sent.




Last evening, Frau Merkel received the supporting votes she needed for Germany to agree to the bail-out package of nearly 500 billion Euros which had been in considerable doubt.  The promises and deals she had to make I'm sure cost her dearly in a political sense but she got it done.  Good on her.  Of course it changes little: Greece will get the money they need for the next payment and down the road will go the can.  It's still all about the banks and perhaps they can work on that in the time that I think has been created but without the soverign debt situation rationalized...

A POLITICAL FRIDAY

As loyal readers know, I try to the greatest extent possible to stay away fom direct political commentary except as it relates to finance or bankingand to the extent that those comments might be more negative towards the Dems than the Repubs, it is, I think, because since I started this blog the former have been running thigs and it is they, therefore, who bear the brunt of critical comment.  Not today.  Today is outright political commentary and because it is Friday it is of course the fault of Little Paulie Krugman and his piece in the Times today.

If you read the Times and I have since I was able to read (that was at a very young age...I used to be smart) you look for a guy like Little Paulie because the Times is a heavy slog day-to-day, it not having any funny pages and Little Paulie makes up for that.  But these days one has to read Little Paulie, for as the Times is the Procurer in chief for all ideas Liberal and Democratic (forgive the redundancy) on the political scene, Little Paulie is the head pimp on the financial sidewalk (can I say that)?  So when Little Paulie comes up with a new one, take notice.  You will be hearing a lot more about it in the future.

The new one today was Elizabeth Warren and upon reading that I said , "Whow!"  Now Ms. Warren is running for the Dem nomination for candidacy for the Senate Seat previously held by Ted Kennedy and lost to the Repubs last year.  One would not expect to see Little Paulie supporting one Dem against another but there he was urging all to check out some "eloquent" comments made by Ms. Warren in some campaign speech, so I got on the internet and did.

I wouldn't catagorize anything Ms. Warren said as eloquent but it was a good stump speech.  Little paulie quotes Ms. Warren directly as having said, "There is nobody in this country who got rich on his own.  Nobody"  Remarkably, Ms. Warren was gender specific; I guess she doesn't believe women get rich...except for her...but I digress.  Litlle Paulie then gets a bit fuzzy as he usually does when he doesn't want  the reader to get all the facts, a preferred trait of his to the occasional half-truth or outright whopper that he sometimes relates.  He continues that Ms. Warren, "pointed out that the rich can only get rich thanks to the "social contract" that provides a decent, functioning society in which they can prosper."  In fact Ms. Warren went considerably further.  In her mind the "factory owner" is protect by a police force, ships his good on rail and roads, gets water and electricity, all paid for by the government so that factory owner is in partnership with the government.  The fact that the factory owner has chosen along with the trucking guys, the rail guys, the water guys and the electricity guys to pay taxes to the government so the government can do these things making the government an employee rather than a partner seems to have eluded both of them.  Then again they think the factory guys exists for the government.  That's the dopy, but not the important part.

What Little Paulie left out because it is too soon in the process, is Ms. Wassen's remarkable idea that since the factory owner and the government are in partnership, the former should pay in advance for all the things he gets which enable him to become rich.  You have to sneak up on the folks with an idea like this one.  Not even The Leader dares broach an idea like this at this time because it would immediatly be catagorized for what it is: a wealth tax--and that might not go over too well in the present political enviorment.  But there it is and Little Paulie and the Times have now put their imprimatur...perhaps an inappropriate designation...on the idea.  As I said, we shall hear more of it.  Be on the look-out.



The world lost one of the really good guys the other day and I and a number of his friends are to see him off to his final rest in the next couple of days.  I'll be back on Tuesday.

L'ETAT C'EST MOI

No, this isn't about Looie 14.  I am referring to what the head of French banking might say if one could be found.  For years there has been very little to choose between the banking sector in France and the government of France.  All of the leaders come from the same class; all of the leaders went to the same school; all of the leaders come from the same party more or less.  The French banking system was...and is, tho to a lesser extent...an arm of the state and does the state's bidding.  Want some proof?  Well, Mme. Lagrande, former head of the Tresor and therefore head of the banking system, became head of the IMF and before one could say "Zut Allores," called for a vast increase in tier one capital on the part of all Euro Banks which is not a bad thing for the head of the IMF to propose.  Of course it would have been better said when she was running things but that's another story.  She was immediately told to shut up and did.  That is why Jim Kramer is an idiot when it comes to all things international for proclaiming how wonderful was Mme. Lagrande.  He was advised to shut up and he did.  Anyway, we now find ourselves in the interesting position of a swirling controversy regarding the funding capabilities of the French banking system which, by definition, brings the credit standing of France into play as well.  

Greece is supposedly the problem and the French news guys immediately debunked the story claiming that the exposure to Greece on the part of French banks was less than 50 billion Euros.  So what's the problem?  Well, as the guy on the pre-game says, "Not so fast my friend."  That is the cross-border exposure.  The Frence banks are the largest contingent of foreign banks inside Greece.  What do those banks/subsidiaries have on their books?  I haven't a clue.  So is there a problem?  Yep.  Could it be a REAL problem?  Yep.  Will it be a REAL problem?  I don't think so or at least I hope not because the French state will pull out all stops to cover it's banking system.  As to it's funding?  Well, in regard to dollars, that's what swap lines between central banks are for boys and girls. As long as their liquidity in Euros is maintained, it will be a rough ride but probably turn out ok.  Remember, banks die on the liability side of their balance sheets; the viability of Greece's credit can be delt with over time.  At the end of the day it might be necessary for a bank to disappear ala Credit Lyonnais (or Debit Lyonnais as it was known in the trade) in 2008.  C'est dommage, but these things happen.  Let's see if I'm right.

Yesterday, Little Paulie Krugman was at it again in the Times, in a stupid and ad homonim attack on the ECB and Jean Claude Trichet.  Now JCT needs no help from me to defend himself against attacks from Little Paulie but a few words must be written in any case.

Little Paulie didn't like JCT responding to a question with the thought that the ECB had behaved "impeccably" as a guardian of price stability claiming that the ECB's action was the reason that the Euro was in danger of collapse.  You see, Little Paulie thinks that the ECB should be buying up the debt of all of Euroland because in his mind there is a "run" on the nations themselves for some reason that he just doesn't understand. Let's see if we can put Little paulie straight.

To begin, unlike the Federal Reserve, the ECB has a single mandate: price stability.  They are not in the business of fixing economies...that is the business of the politicians or as the late Freddie Prinze used to say, "Is not my Yob."  But of course, Little Paulie, like his "progressive" friends could care less for the niceties of laws or regulations.  Being the brightest among us they have carte blanch to interfere where ever needed.  Further it is never, NEVER the fault of the debtor; personal responsibility is never a consideration be it individual or statist in nature.  This is only for moralizers.  The fact that Greece had lied through its teeth as to the state of its finances is of no concern.  Spain?  Spain was doing just fine...forget about the fact that their savings banking system is bust because of speculative real estate lending.  Buy Spanish debt with German money!  And while you're at it buy Italy too!

And so Little Paulie must distort and reshape both the facts of today and the facts of the past.  The reason why he must do this is that, dear Lord, he was wrong.  He is smart enough to recognize that what he is looking at both here and in Euroland is the end of the welfare state that he so dearly loves, the end of the soft socialism that lesser mortals had told him would end when it could not be supported by other people's money.  He was wrong and do you know what life is like for Little Paulie when he has to admit to himself that he was wrong?  Unbearable.  And for we lesser mortals?  Sheer, unbridled joy!

CHANGE OF PLANS

I know I promised to return to Regulation but today's international stuff was just too good.

Joey Ackermann, the CEO of Deutschebank really dropped one on the markets today.  Speaking from a secret hideaway somewhere in Frankfurt he revealed some of his deepest, darkest thoughts regarding Greece.   You might remember that it is estimated that the German banking system has some 25-30 billion Euros in exposure although one must take notice that there are substantial assets of Greek banks' German branches in that figure.  Nevertheless, the number is bigger than a breadbox and a Greek bail-out wouldn't be a bad thing for Mrs Ackermann's little boy Joey.  And he seems to have received it.


Did Joey go away and stay silent?  Nah.  For some reason he felt it his duty (Germans are big on duty) to express the view that to pile more debt on top of what was already there in Greece's case may not really solve the problem because Greece's economy was simply not big enough to grow its way out of the burden that has been placed upon the poor country.  Joey, Joey, Joey: the elucidation of the obvious has never done anybody any good.  When you get a freeby, just take it and shut up.  The markets, acting as though this was a revelation from the Gods, once again destroyed the Euro inasmuch as there was nothing else left to destroy as the entire European sovereign debt bond market has been sterilized by this piece of political stupidity.  The Yen went through the roof as did the buck and things at this stage are so far out of joint that no one really knows what the future might bring.  Amazingly, the U.S. stock market geniuses seem to have gotten the vibe that something bad might be afoot and have reacted accordingly.  Somehow I just don't think anybody is into this weekend with a substantial position on either side, but I've been wrong before.  That's why I'm poor.

The Leader, of course, remains above the fray sending out Krugman in the Times to assure America that we are not Greece.  Most of us have figured that out but for sheer wanton political stupidity, all should read Krugman today.  You can now get a slug of Gold in a cash machine in the Gulf, there is more invested in Gold ETFs than exists in the commodity at 2x the current price and Congress still believes that trading basis swaps on an exchange will ensure safety in the future.  As I have said before, I should have retired to Bedlam.

More tomorrow.

A DAY FOR INTROSPECTION

I'm doing something wrong and I'm paying for it.  Just got the forecast for the weekend: rain for two days straight.  No breaks, no let-up.  That means the tomatoes don't get planted outside.  That means we lose a week.  Damn.  And all because I write something with which the whole damn entire New York Times agrees, from the front page, to the first business page to even Paul Dumbo Krugman.  Every thing I have written about Greece and sovereign risk the past week they have parroted.  Krugman even picked up on the fact that Spain's debt profile is markedly different.  Back to the drawing board 'cause the New York Times couldn't be agreeing with me which would mean they are right, could they?  This is a bad day guys, all around.

My comments about the effect of Goldie's actions even are beginning to prove correct.  Rumors abound that a criminal action is being explored by the Fed and you can be certain that States' Attorneys General are licking their chops.  Of course GS absolutely went in the tank today closing below 144.  The market exacts a heavy price.  I still find it difficult to believe that their actions are "actionable" in a legal sense but they were sure arrogant and stupid.  We shall see.

Anyhoo, the fascinating thing about what's going on across the pond is that the rumblings about whether the EU and the Euro really have a future have intensified.  Even Krugman was in a speculative mood today which for that arrogant bugger is really rare.  Usually he tells you what is going to happen and then when it doesn't he forgets that he told you.  I guess this is too big a deal even for him, hence the musing-only.  He did remind us that he warmed about the absence of fiscal control by individual nations faced with a common currency but then again, so did my four-year old granddaughter albeit she is very bright for a four year old.   In any case, this is a real test and it aint multiple choice.  No guessing here; that mob better begin to get it right before the general populace really figures out what the true situation is because at this stage they haven't.  As I keep saying, there is nary a leader in sight--let's hope one emerges over the week-end, then again it's May Day and they'll probably all be marching with the proletariate (AKA "The Unwashed") so maybe not.  As for me I'M going to ask my really smart friend Larry what he thinks and report back next week.  If it's not raining where you are, put your tomatoes in the ground and think of me.

Have a great weekend

BIRDS OF A FEATHER

Poo Bair and Paul Krugman spoke out today on the regulation of the banking system. As usual Poo hadn't a clue but oddly, Krugman got it right. Poo thinks that resolution authority will solve the TBTF problem because it will an orderly dissolution of an institution with expense to the taxpayer and not result in panic in the markets. According to her it was the bankruptcy of Lehman than caused all the problems.

In my mind, what causes panic is the thought that this dope would be allowed within 100 miles of the next mess. Size is what causes systemic risk; size which results in the involvement of the institution in multiple facets of the financial markets. She obviously has missed it so here's a head's up to Poo: there are A LOT of big banks out there that go to bed every night with a prayer of thanks that you are not one of their regulators. They are called French banks, British banks, German banks and a whole lot of other banks. Through no fault of their own one of our banks could wind up in deep do-do because of its involvement with one of those. Now what do you do. Resolution authority? By definition, we are in the sthook again and this time it's not our fault...not hat it was entirely our fault the last time. Not that she and her two-bit organization has a clue as to how to deal with the impending failure of a massive financial institution but she still misses the fact that when the balloon goes up what has to be done has to be done...right...now. And to think that this dumb-ass idea that $50 billion collected from the top 50 is going to anything to assuage the frenzied masses is beyond stupid. Think of it this way: Bank A in LA LA Land gets it all wrong and comes clean to the fact that they are a bit short of the ready. Big Bank B is their correspondent in the U.S. and clears for them. Everybody knows that Bank B has a big settlement risk with Bank A but nobody knows how much. If you are the rest of the bank alphabet he first thing you do is try to limit your exposure to both A & B; there goes B's liquidity and guess what? We are at the start of systemic risk. Now Poo what do you do? Announce that you are going to wind up Big Bank B like the 7th. National of Buttburn Alabama? No my love, because some adult somewhere will have said to the markets, "We have Big bank B covered." I bet the adult is in the Federal Reserve. Nobody likes it but that's the price of being in the regulatory business.

Now Krugman, for a change announced that the bill coming out of the Senate would actually CONFIRM the status of TBTF on the part of a number of banks. Could he have been reading the blog again? Whatever. He actually got it right. What he also got right was the concept that maybe TBTF is endemic in the business as it exists today. Of course his solution to this risk is more regulation as we will perhaps see from Barney's Boys in the Band...oops...House. Again, regulation governing U.S. financial institutions alone is about as useful as...well, let's not go to the barnyard. In fact it's about that useful in general. But like his hero, The Leader, Krugman is convinced of the power, intelligence and effectiveness of the government. Perhaps someone should ask Krugman how the GSEs got into such trouble under the direct oversight of Barney and Chris the Crook? I'm sure his answer would be they were just too lax. No, Paul. Politicize oversight and you have a recipe for failure, but he will never learn. What's the definition of mixed emotions? Watching a bus filled with economists going over a cliff and realizing their are three empty seats?

Anyway, Ky lost over the weekend and looked bad doing so. There is still justice in the world. Go Bulldogs. Woof! Woof!

DON'T BLAME ME!

Blame George Bush. Hell, I don't know why the Euros didn't do a deal over the weekend with the Greeks. Because nobody wants to? Could be. As Paul commented, "It's Greece, who cares?" Aside from the bond holders I suspect that there are a few hundred members of the European Parliament in Brussels earning a couple of hundred thousand Euros a year for doing sweet fanny adam care even though in the best of weather Brussels is a God-awful town even when the trains don't run into one another but in the winter it's unlivable. Good Grub, though. Sensational if the truth be known but only if you like butter and cream like me.

I suspect it just hasn't gotten bad enough yet. It will, rest assured. Carter asked, "Who's next?" and to be honest, I hadn't thought about it. I guess the felling over there is let's not have a next one, let's try to end it with the Greeks but to an extent it's sort of like putting the toothpaste back in the tube; the problem has been exposed and a lot depends upon how much international co-operation is present. One thing you might keep a eye on, however, is how this mess over there is affecting things over here. Last Wednesday, we had a perfectly stinking auction of $16billion worth of long bonds Primary dealers were forced to take down almost 50% of the issue. Now I recognize with the economic conditions being what they are all around the world, 30 year bonds should not be expected to be the smell of the week but this auction was bad with a capital B. I keep going back to the point I've been trying to make over and over; this business is ll about trust and perception. It really doesn't make a difference what the reality of, say, Spain's finances might be. If the perception is Spain's finances stink, they stink. In today's world, Greece affects Spain, Spain affects Portugal, Portugal affects God knows who and they all affect us...at some point, even if it means nothing more than paying up for a 30 year issue.

As to this little Euro mis-understanding, there was a tiny miracle today in the New York Times. Paul Krugman actually got it right and wrote something that actually made sense. Seems as though he's cottoned on to the fact that when your fiscal policy originates in Athens but your monetary policy is set about 1000 miles away you may have a problem. He also thinks that political union may not be a bad thing to go along with monetary union but that might be hard to come by. Way to go Paulie, Bay-bee! Some of us had that germ of an idea some 20 years ago but welcome to the party. Wonder way he's saying this now when his guy is in deep do-do? Maybe I'm too suspicious, oh well. Anyway, Carter, my loyal reader, the real answer to your question may not be Spain, Italy, Portugal or any of the usual suspects. The real answer may be the EU itself, as impossible or unreal as that may seem. It's a good story. We'll be watching it this week.

THE BLOGGER'S BUDDY

He did it again! Krugman is simply a joy for somebody like me. After a weekend of terrific football, where you're all worn out and hung over, comes this jackass to lighten your life and give you something to write about. Today, he gave a luke-warm thumbs-up to Ben Bernanke calling him a "superb research economist"--takes one to know one. But he's too complacent says Paul, as he was before the crisis, and it was his complacency that caused the same. Seems that Paul thinks Ben didn't speak out on sub-prime lending. Ah, Paul. The origin of sub-prime was always Fanny and Freddie and the Fed had been speaking out against their policies for years--you and your boys just didn't listen. Now the problem is too much complacency about under-employment. It seems that Ben is going to have to adopt policies to create jobs.

How the hell a central banker is supposed to do that Paulie doesn't tell us...which of course begs the question entirely as to whether that is a central banker's job at all. What it does do, however, is avoid the difficult conclusion that The Leader's administration, for the first year at least, has been more or less a disaster on the job and fiscal front which is the real purpose of the piece. Krugman concludes that Bernanke should be reappointed nevertheless because a successor would face too hard a battle in congress. He right there. What he's really saying is that if Ben stays around we can blame him forever...just like george Bush

YO, PAULIE!

Wow, what a gig you got yourself. Dis is as good as that Tom Clancy Guy or james Patterson. Write a couple of best sellers or get a Nobel and pretty soon you can get people to write stuff for you and all you gotta do is put your name on it for it to sell. But I gotta tell ya Paulie, the difference wit you and dose utter two guys is dat dey put the utter guys name on the stuff so ifin it really stinks dey can say, "Well, you know how it is...I told ya I didn't do it." Take like da ting in da Times dis morning. Paulie, it's only got your name and whilst we knows you didn't write it 'cause you being a Noblist an all can't be dat stupid, you shouda put the guys name what wrote it so...what? You DID write it? Ah, Paulie, say it aint so.

If Paul Krugman had an ounce of street smarts that's what he would be hearing out where the real people live. While repeating the Big Lie that the stimulus package was too small but even at this level created jobs and stimulated the economy , he continues with the theory that it's really the banks that caused the entire thing and the lack of regulation during the Bush years.

It s becoming increasing apparent to anyone who isn't a Democratic Toad that there are multiple bad actors in this scenario but first and foremost was the Congress led by Barney and Chris. Fanny and Fred, constantly ignored by Krugman are key to an understanding of what went on. Remarkably, little interest has been paid to the fact that the worst offenders in the private financial community were not the banks, or more accurately, those institutions regulated by the Fed, but the other-regulated actors, the Bears, and the AIGs of this world.

Krugman compounds his mythical tale by leaping into the present claiming that the banks non-lending stance is complicating the problem for the poor Leader seemingly having no knowledge of the fact that before the crisis the banks, or at least the ones he so despises, were hardly the supplier of credit to the system. In 2007, the percentage of C & I loans (commercial and industrial) from commercial banks stood at 21%. Credit to American industry was not supplied by the banks but by a myriad of other sources all of which collapsed in the Crisis, but have now, to a goodly extent, returned.

To be sure, Mom & Pop businesses relied on banks for credit but not the Krugman-hated institutions. Guess what? They have withdrawn from local lending--especially real estate because

1. There clients are so uncertain of governmental policies going forward, few if any, are planning expansion, or to put it another was, there is little demand.
2. What policies have been discussed are contrary to economic growth
3. Why take a risk when monetary policy allows one to make a profit in the carry trade with little risk and NO USE OF CAPITAL (buy govvies and capital allocation is zero and The Leader and his deficits are creating A LOT of product to buy).

or so the bankers in my neck of the woods tell me. Krugman, like the mob surrounding The Leader are brilliant academic economists. Unfortunately, the real world is not something they understand or for that matter have any interest in understanding. If they did what they would hear is: "Yo Paulie! Get outta da way would ya! We done this before wit out you. We can do it again!"

THE GIFT THAT KEEPS GIVING

Paul Krugman announced today that he will begin writing extensively in the future weeks about reforming financial regulation. I can't wait. Coming up with stuff every day isn't easy but when you have a guy with this reputation supplying high comedy, life has just gotten well worth living. As the NYT and it's op ed page is often closely read as the horn book for the Democratic Party's positions, we may be able to get a real insight has to who has climbed onto of the heap by reading him.

Now as far as I can determine, Krugman has no real expertise in Banking but of course that has never previously stopped him from commenting on...whatever. Of course the West End Avenue crowd assigns him an Ex Cathedra status on all matters as a result of his Nobel but we may also learn just where The Suit stands with the Boss of Bosses as well through Krugman's thoughts. Anyway, I'm stoked, the NFL playoffs are here and it stopped snowing. Corse it's going to zero tomorrow night but what the heck. Things are looking up.

See you next week.

ANYBODY SEEN MY OLD FRIEND AL?

Got halfway through yesterday and the power went out. It's so damn cold the squirrels clime into power transformers to get warm and POW! They normally don't survive the experience, but screw the little buggers, it causes us to freeze our buns off until the get the damn things fixed. Which brings me to the heading. Anybody seen Fat Al? I think he must have frozen to death along with the Polar Bears up north. Sad. Anyway this is what I was writing...


While we were away, Paul Krugman did it again. Writing, as usual, on the op ed page of the NYT, created a new bad word: mercantilism, or Chinese mercantilism to be more precise. He's on the same old kick; one of the reasons that we are having so many problems is that the Chinese refuse to revalue their currency, choosing instead to leave it pegged to the U.S. dollar and gaining an unfair advantage against all other trading currencies...mercantilism. The really funny thing about this piece is that Krugman begins with this statement: "Actually, the biggest problems with China involve climate change..." Now Krugman is a hell of a smart guy so you really have to wonder why he can't see what it is that is staring him right in the face; the Chinese don't think climate change is THEIR problem, but if they must appear to be cooperating with the U.S. they would rather appear to cooperate on climate change as we pointed out in this space some weeks back. I say "appear" because you all must have read the nonsensical crap they put out in Copenhagen which, at best, was playing the ball square. No the biggest problem with China if you were to ask the Chinese is the 600,000,000 or so who don't have jobs. And yet, people read this crap and based upon his well-deserved Nobel for his work on international trade, the assumption is that he's right on this as well. Amusingly, in support of other arguments throughout the article he quotes Paul Samuelson who he says "more or less created modern economics," conveniently forgetting that the late Professor also "proved" that the centrally planned economy of the Soviet Union was more efficient than that of the U.S. and would soon surpass the same. I guess we all get it wrong every once in a while. By the by, did you know that Larry Summers is Samuelson's nephew?" He invented endowment investing, you know.

I can't help but get the feeling that Prof Krugman is beginning to get a sense of the possible outcome of he fiscal policies of this administration and without Bush 43 to kick around for much longer the boys in the back room are looking around for some one to blame if things go sneakers-up. The Chinese look like the perfect patsies. Problem is these guys always seem more interested in who to blame when things go wrong that getting it right the first time around. The Chinese are not going to shift their emphasis; we had better figure out just how we are going to deal with it. So far we haven't; indeed, we haven't much tried.


__________________________________


Big surprise. Chris the Crook announced that he's going to pack it in in November. What does this mean for regulation We'll try to explore that tomorrow.