I'm a little late to the party (this is from 12 Nov.) but it is true.
Ron Paul will be keeping an eye on the Federal Reserve.
Ben Bernanke has had his hands full since his first day on the job as Federal Reserve chairman nearly five years ago. It's about to get even tougher.Another site described the move this way:
His harshest critic on Capitol Hill, Rep. Ron Paul of Texas, is about to become one of his overseers.
With the Republicans coming to power, Paul, who would like to abolish the Fed and the nation's current monetary system, will become the chairman of the House Subcommittee on Domestic Monetary Policy.
If you've never heard of the committee before, you're not alone. But Paul promises you'll be hearing a lot more from it.
"It's basically been a committee that's dealt with commemorative coins. I'm going to deal with monetary policy," he said.
The greatest critic of fiat currency perhaps anywhere in the world is about to take control of a congressional panel that would conduct oversight on the US Federal Reserve bank.Yes it could.
This could get interesting.
This book, written by Murray Rothbard, an economist and historian of fairly well known repute, is a scathing attack on not only the Federal Reserve, but the interests that created this institution. Rothbard is an adept writer, as he takes a concept that can be fairly daunting and makes it accessible to the those readers without an economics background. I considered trying to earn a degree in Economics, but abandoned it when I found out that most of it is tied to higher mathematics. I'm more interested in the conceptual side. Rothbard cuts out math and focuses on the real meat of the issue, the concepts that govern money supply and inflation.How far are we from such an eventuality? Probably too close for comfort.
The book starts by discussing the biggest problem with the Federal Reserve system, which is fractional reserve banking. Rothbard explains how this system is only functioning because people believe that it works. If there was a run on banks tomorrow, the entire financial system would collapse, because there isn't enough "real" money in reserve to cover all of the bank notes in circulation
Forbes Magazine is looking at the numbers coming out of China and comes to the conclusion that they don't add up.
China watchers have been dubious about the quality of Chinese economic data for some time. And a recent spate of seemingly conflicting data has fuelled that criticism.Craig Pirrong at Seeking Alpha comments on the Chinese numbers.
One particular quibble involves the relationship between electricity usage and industrial value added -- another measure of output. The worry is that failings in the way official data are compiled may be generating results that are giving investors misconceptions about the health of China's economy.
During the first half of this year, industrial value-added rose a robust 7 percent, while total electricity usage fell 2.24 percent. This seemingly implies that output is growing and contracting simultaneously. The divergence has attracted attention, not least because industry is half of the economy and electricity usage is one of those bits of data that is hard to massage. Even Chinese Premier Wen Jiabao has openly said that electricity usage is the data that he trusts most.
First, reported Chinese growth is a chimera. Chinese government statistics appear no more reliable than Soviet figures. The disconnect between electricity generation changes and reported growth is highly suspicious, especially for a manufacturing-intensive economy noted for its energy-intensity as well. The focus on big state firms that don’t produce what people want, and the slighting of small firms that do, in the collection and reporting of statistics also raises red flags (and not of the Red Flag of Revolution! variety).It seems to me that a number of governments around the world (especially the USA) think they can inflate their way out of the problems caused by inflated bubbles. What happens when that is no longer possible? We get the worst of all possible worlds. Low or negative growth and inflation.
Second, Chinese growth reporting is eerily like 90s-style earnings management. There’s a target, and the numbers WILL be massaged in whatever way necessary to hit the target. Indeed, some of the tactics bring sordid episodes like Enron and WorldCom to mind.
Third, it seems that the Chinese are betting on a recovery in the West, and hence a concomitant recovery in exports, and are determined to keep up the earnings management and the credit stimulus until that happens. That is a highly risky strategy. If the desired recovery doesn’t happen before the bubbles collapse, China will face both a domestic demand and a foreign demand crunch. Moreover, even if “successful” in the sense that a recovery in exports allows the government to ease up on the stimulus, it will have contributed to a substantial misallocation of capital and created the risk of substantial inflation.
Hyperinflation Watch discusses the pattern that hyperinflation takes.
1. Slow Climb: 6 months to 2 yearsZenDraken gives the details at his blog. Go read it all.
2. Ramp-Up: 2 months to 1 year
3. Crazy: 1 month to a year
4. Currency Nuked: 1 day
5. Recovery: 6 months to years
I was having a look at Innocent Bystanders and found this interesting graph:
A couple of weeks ago I wrote a post on the predicted unemployment numbers for April. Well, the real numbers came in today, and the result was exactly what they predicted: 8.9% unemployment.He goes on with a few words about Obama's economists:
Oh my. It appears that his economists can’t predict very well (that fills me with confidence), and that his stimulus package is providing absolutely no benefit.And further note that the "without stimulus" prediction shows unemployment peaking at a little above 9% just in time for the 2010 election season.
And it certainly doesn’t look like his plan has “saved or created 150,000 jobs.
The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.And you know what that means? Stagflation. Just as I have been predicting. And predicting. And predicting. And predicting. And predicting. And predicting. And predicting.
The economic news is not all bad. We are seeing signs the rate of contraction is abating quickly, promising a bottom to the recession sometime this summer as many forecasters have expected. But therein lies another piece of the interest rate puzzle, and the trouble ahead.
There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.
The second dangerous consequence is that President Obama is on course to double the national debt in just four years. After years of complaining about annual deficits of $300 billion or $400 billion and their effects on interest rates, liberal commentators are suddenly silent now that the deficit is heading toward $2 trillion under a liberal administration. But now the vaunted “crowding out” effect from government borrowing is almost a certainty, as are the resulting higher interest rates.
Mr. President Elect Obama is having some very strange ideas about getting the economy moving again. He is proposing tax cuts on business.
WASHINGTON -- President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.Well that is starting to sound good - until you get to the fine print.
The size of the proposed tax cuts -- which would account for about 40% of a stimulus package that could reach $775 billion over two years -- is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.
The largest piece of tax relief in the new plan would involve cuts for people who pay income taxes or who claim the earned-income credit, a refund designed to lessen the impact of payroll taxes on low- and moderate-income workers. This component would serve as a down payment on the "Making Work Pay" proposal Mr. Obama outlined during his election campaign, giving a credit of $500 per individual or $1,000 per family.The trouble with that kind of tax cut is that it doesn't stimulate much.
Economists of all political stripes widely agree the checks sent out last spring were ineffective in stemming the economic slide, partly because many strapped consumers paid bills or saved the cash rather than spend it. But Obama aides wanted a provision that could get money into consumers' hands fast, and hope they will be persuaded to spend money this time if the credit is made a permanent feature of the tax code.OK. So stimulating personal expenditures doesn't help much. In fact the DC Examiner (and some one needs to keep examining the DC folks) which has been studying the matter says that stimulating the consumer is not very effective.
One of those studies was done by Obama’s new chief economic advisor, Christina Romer of UC Berkeley, who found $3 in increased Gross Domestic Product (GDP) for every $1 in tax cuts. Increased spending generates at best a mere 40 cents of GDP growth on the dollar. Third, that 40 cents actually goes to special interests like labor unions, politically influential contractors in favored industries and state and local political allies of the party in power.In other words a stimulus plan based on pork spending creates corruption and shrinks the economy if the pork is paid for out of taxes or increases the debt load if it is paid for by floating T bills. Heaven knows Mr. Obama has enough trouble with corruption. But maybe he is one of those fearless guys like his former friend Blago, or Richardson his former Secretary of Commerce designate, or Hillary who may be tied up with the Norman Hsu corruption. Well there is plenty to go around. And there is also the little matter that voters hate Detroit and auto unions.
As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. Obama aides note that businesses would have been able to claim most of the tax write-offs on future tax returns, and the proposal simply accelerates those write-offs to make them available in the current tax season, when a lack of available credit is leaving many companies short of cash.Not only does it get more money into the economy quicker, it allocates the money most efficiently - to firms that are profitable.
A second provision would entice firms to plow that money back into new investment. The write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don't sit on their money until after Congress passes the measure.
Another element would offer a one-year tax credit for companies that make new hires or forgo layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.
William Gale, a tax-policy analyst at the Brookings Institution think tank in Washington, said the scale of the whole package is larger than expected. He called the business offerings a true surprise, since most attention has been focused on the spending side of the equation, especially the hundreds of billions of dollars being discussed for infrastructure and aid to state and local governments.
"On the other hand, it was hard to figure out how they were going to spend all that money in intelligent ways, so it makes sense to do more on the tax side," Mr. Gale said.
Bill Clinton was reported to have said in the beginning of 2008 that the economy was growing too much.
It's the economy, stupid! Former President Bill Clinton stunned Fox News commentators January 30 when he said, "We just have to slow down our economy and cut back our greenhouse gas emissions 'cause we have to save the planet for our grandchildren."Well those folks our absolutely brilliant. We can't GROW our way out of the current economic crisis. What they claim will work is shrinking our way out of it. With the new administration coming in I believe we are about to give that idea a fair test. So what do you get from a smaller economy and a bigger money supply? Inflation.
This is remarkable, unprecedented candor from a politician, especially today in the U.S. where politicians race to promote a stimulus package to jump-start our lagging economy. Before you break into applause, however, I must sadly report that Clinton went on to say, "“But if we did that, you know as well as I do, China and India and Indonesia and Vietnam and Mexico and Brazil and the Ukraine, and all the other countries will never agree to stay poor to save the planet for our grandchildren. The only way we can do this is if we get back in the world’s fight against global warming and prove it is good economics that we will create more jobs to build a sustainable economy that saves the planet for our children and grandchildren. It is the only way it will work."
Our current economic retraction is actually a perfect opportunity to ratchet down our carbon emissions and ecological footprint. Any stimulus should go exclusively toward replacing lost carbon-intensive jobs with clean energy jobs. And we should be applauding (and adjusting to) lower rates of consumption. So Clinton wasn't too far off, other than leaving us with the impression we can GROW our way out of a climate crisis.
Yesterday I was looking at oil prices and found something interesting. The price of WTI oil was about $7 or $8 below the price of the other two contracts listed. I asked if any of my readers could explain such a big difference in prices and reader Bill came to the rescue.
Yes it is what is know as cantango. when the futures prices end up with a much higher spread level. It has been going on if you look not just the cash and feb contract but out 6 months it has been widening.Reader Frank had something else of interest to add.
It is because there is no storage available and no real credit to buy the oil to store. In normal times the out prices are in line with what can be made after paying the cash price the interest charge and storage charge, Then you sell the out contract and lock in a profit. None of these are available, It has been common knowledge that many oil producing controuies have been leasing tankers to just float on the sea and hold the oil they have no market for.
This is a very bearish setup. Until it breaks oil with go lower.
Bill is correct about oil. The exact opposite is happening in gold futures, that is, backwardation. There are more buyers for physical gold than there are sellers.So what does it all mean?
So in order to buy gold coins for example, you must pay a good premium above the current spot price to get delivery now - and that's IF you can find a seller.
Iran is in a world of hurt according to Dr. Nimrod Raphaeli in an article published by The Middle East Media Research Institute on October 30th.
At its two-hour emergency meeting in Vienna on October 24, the Organization of Oil Petroleum Exporting Countries (OPEC) decided to lower crude production by 1.5 million barrels/day (b/d), effective next month.Trending lower is right. The current trading range is $55 a bbl. and I have seen it as low, in trading, as $50 a bbl. And this is just the beginning of the economic collapse. So I expect to see prices going even lower with further production cuts as well. OPEC has had problems in the past maintaining supply discipline when prices are low. The temptation to cheat and try to squeeze out some extra dollars at the expense of the other members is great. Generally the Saudis maintain discipline and the rest of OPEC not so much.
The reduction in production was OPEC's response to plummeting crude prices, which peaked at $147 a barrel last July but are now hovering in the mid-$60s a barrel, and appear to be trending downward.
A recent study by the International Monetary Fund (IMF) has suggested that in order for Iran to balance its budget, the price of crude oil must not fall below $95 a barrel. The equivalent figure for Saudi Arabia is $50 per barrel and for the United Arab Emirates and Qatar even lower. One should keep in mind that Iranian oil sells at a discount compared with the higher quality benchmark West Texas Intermediate.And why is Iran importing gasoline? It lacks refining capacity for one. One reason for that is that it subsidies gasoline. Gasoline in Iran costs under 50¢ a gallon. Another reason it lacks refining capacity is that instead of spending on infrastructure, Iran prefers to spend its money on foreign adventures. Supporting Hizballah in Lebanon, Hamas in Gaza and various insurgent groups in Iraq - among others. That is why Ahmadinejad has to dip into the till. Wars cost money. It appears that they may become more costly than Iran can afford at least long term.
Countries whose economies rely on the production of natural resources, such as oil, generally establish a stabilization fund for retaining windfall profits, such as when oil went over $140 a barrel, to be used in time of economic shocks, such as a sharp decline in the price of the commodity.
Iran has established such a fund to be managed by its central bank. It would appear, however, that President Ahmadinejad has dipped into the till too often, causing the departure/resignation of two consecutive governors of Iran's central bank in a little over one year. The assets of the Iranian stabilization fund are kept secret; however, a member of the Majlis (parliament) recently revealed that it has a balance of $7 billion, which would just about cover the cost of imported gasoline for one year.
Oil revenues comprise 80% of Iran's foreign exchange. If oil prices continue to plummet in the face of the world's worsening economic crisis - a crisis which may be just in its early stages - Iran, unlike the Arab oil-producers with hefty sovereign wealth funds to cushion their national economies, could face politically destabilizing events that could threaten the survival of the regime.The inflation rate is a problem. It is about 2.2% a month, barely tolerable for those living from hand to mouth. However, rates like that discourage investment in production capacity which ultimately makes inflation rise all the faster. A business would have to have a 40% or 50% rate of return in a year to make investments worthwhile in that kind of climate. And even that is problematic if the government decides to run the printing presses faster. What does the money get invested in? Currencies that are inflating at a much lower rate for one. Tangible goods for another. One thing you do not do in a situation like that is park your money in a bank.
On the economic front, Iran could resort to terminating oil subsidies and restricting the import of non-essential consumer goods to conserve foreign currency. In fact, news from Iran last week suggests that both steps are under consideration.
Iran may also seek to reintroduce a 3% value-added tax (VAT) which it was forced to suspend after shopkeepers in the politically influential bazaars closed shops in protest, arguing that the VAT would further aggravate inflation which reached 29.6% in October.
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. I can use the money - well actually I will use the proceeds to buy something from Amazon. I get a better deal that way.
