Colorful prose like “the ambrosia of cheap capital” sure seem like something you’d read around here (on one of my better days) when describing the U.S.’s approach to the coming insolvency. But, no, it came from Dallas Fed boss Richard Fisher, who has the distinction of having differed with Ben Bernanke and the Fed-think FOMC group five times now and six wouldn’t come as a shocker.
Usually, when a Fed member speaks on this or that, it’s all over the Fed web site, or at least the regional Fed pages. But, lo and behold, on the Fed’s main speeches and testimony page, no sign of this magnificent decent. Similarly, the speech has not been posted on Fisher’s own Dallas Fed speeches page here.
Could it be that the old saying “Good news travels fast, bad somewhat slower” could apply to internet time, also?
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The US economic system is not alone with the ‘approaching insolvency” problem – not by a long shot.
Fundamental economics has a built-ion dilemma which is caused by interest.
Having taken lots of econ classes, so as to be able to parrot the “correct” answer the fact is that in fiat money systems the cost of interest is made up on the fly and created by the monetary to balance its books and make fiat currency appear to work.
Which it might except for the ugly truth: When times are good, the purchasing power of money should go back up, after being watered down in bad times via deficit spending.
Problem is, that because politicians promised major support groups a ‘free lunch’ rather than exercise prudence and thrift, they allow a budget deficit to accumulate over time. Since the founding of the Federal Reserve (and the tightly connected Income Tax) in 1913 to fund it, the difference between sound fiscal policy and watered down purchasing power has been a tad over 2.3 percent per year.
Or, to put it another way, inflation over the long term has been this amount which is the secular expression of Richard Fisher’s ambrosia. Apparently, he understands that when US debt is greater than US net income, we will be technically broke.
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But at least, we won’t be the first to go. Later on this morning, look for Portugal’s minority government to fail, as they get marched out to the proverbial wall in front of the market’s marksmen later today.
The problem, of course, as with previous economic disasters such as Ireland, is that the banker class is made whole while working people – guilty of nothing other than neglect about how economics works, mostly – carry the burdens of yet another unworkable solution which damns them to an even bleaker future while preserving the accretion of wealth to the top 10 percent
Pushing Around Markets
Not too difficult to figure out what’s ahead for the markets today. We simply line up the data points this way:
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Japan was down 158 on the Nikkei while the Hang Seng was down slightly.
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With trouble ahead for Portugal (next of the PIIGS), a modest increase except in Germany.
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Oil continues to strengthen to around $105 over developments in Libya.
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And although the latest Mortgage Bankers’ numbers were up for the week, but while “The unadjusted Purchase Index increased 3.0 percent compared with the previous week…” it was “…15.3 percent lower than the same week one year ago.”
Market seems likely to stumble along range-bound while traders away developments from the world’s hot spots.
Still, if you get time and have a forensic economist handy, you might want to read the Tuesday release of the Fed’s combined annual comparative financial statements for the Fed Reserve Banks plus the 12 individual banks, plus the LLC’s which were popped up to cover the financial crisis.
Total Reserve Bank assets as of December 31, 2010, were $2.428 trillion, which represents an increase of $193 billion from the previous year. The composition of the balance sheet changed notably. Holdings of U.S. Treasury securities increased $261 billion and holdings of federal agency and government-sponsored enterprise (GSE) mortgage-backed securities (MBS) increased $86 billion. These increases were partly offset by a $96 billion decrease in loans to depository institutions and a $23 billion decrease in loans extended under the Term Asset-Backed Securities Loan Facility, largely due to early repayments by borrowers.
The Reserve Banks’ comprehensive income increased $28 billion over the previous year to $82 billion for the year ended December 31, 2010. The increase was primarily attributable to an increase of $24 billion in interest earnings on the federal agency and GSE MBS holdings.
The Reserve Banks transferred $79 billion of their $82 billion in comprehensive income to the U.S. Treasury in 2010, a $32 billion increase from the amount transferred in 2009.
The combined annual financial statements for the Federal Reserve Banks and the consolidated annual financial statements for the Federal Reserve Bank of New York include information about the assets and income of each of the consolidated LLCs, such as overall financial results, portfolio composition, asset quality, and asset value information. The statements also contain summaries of the associated credit and market risks for each significant holding.
The consolidated LLCs also contributed to the increase in Reserve Banks’ 2010 comprehensive income, with net earnings of $8 billion for the year ended December 31, 2010, a $2 billion increase from the 2009 net earnings of $6 billion.
Who said a good financial crisis wasn’t good for the central bankers?
Remarketing the Libya War
As the war in Libya continues with reports of Gaddafi forces using tanks and snipers against the uprisers, so to come reports of how the Libyan financial underpinnings are becoming contested in Europe.
Notwithstanding my notes on the presidential use of the War Powe4rs Act (which was arguably passed through congress under false pretenses, namely the purported twin attacks in the Gulf of Tonkin (there was only one and even that…) we can see the need arriving quickly to remarket this war to the American people.
Sadly, I can’t claim credit for this astute observation; it came from my retired SF bro-in-law, Panama Bates at breakfast yesterday as we watched the live reports on Al Jazeera via satellite.
The gist of his expectation? Expect to see a quickly developing language shift to being calling the Libya military action support of a civil war.
Reasoning is quite simple: Americans will support indigenous peoples in a civil war a lot easier than they will support one side or the other fighting over oil resources – which is what this international intervention is.
Already the leading edge of the language change is evident in stories like these.
Cool thing about lingo-lango? People tend only to remember the last label applied and thus, by the time we get to the 2012 elections, the memory of mass consciousness will have been corralled into thinking it was a civil war and, of course, helping the downtrodden and oppressed….well, you get the idea.
This comes with a new national sport emerging: Showing clips of Fearless Leader or VeepJoe making promises about seeking congressional approval before deploying force, in this case against Iran was the context.
Like the old saying goes: things change.
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With the use of ‘cruisers’ in the air over Libya, maybe the story about how the British navy is running through its Tomahawk stocks will mean an extra shift somewhere.
Don’t think of the sandbox as a series of wars, just remember it’s just as much (OK, more then) an employment program.
Political Correctness Department
Ah, nice to see the democorps are planning to hold hearings on Muslim civil rights. Comes within weeks of republicorp grandstanding on the threat posed by Muslim terrorists.
All sideshow stuff. I’m waiting for the three ring circus to get to the real threats to the world, namely the impact on world coffee and sugar markets posed by Danish Lutherans and the the carbon load on the atmosphere caused by de Rasta-boyz. Although maybe, these two groups could work out their differences as a coffee house in Amsterdam, but then how would that build network ratings? Please invite us.
I keep coming back to the idea of a unity political party that would simply make sense to everyone. The more I look, the more I feel like Giogenes.
Tweaking Iran
Of course, off in the background Iran is about tied with Canada for world’s largest holder of petroleum reserves which means the whole Libya exercise may come around to them next.
So we half pay attention when Turkey busts an Iranian plane with light arms aboard, or when China sticks up for Iran in nuclear discussions.
We can see the West’s play pretty clearly as “Obama denounces Iran’s ‘campaign of intimidation‘ on the one hand, while it gets repackaged as “Obama sends message of solidarity to Iran’s youth” on the other.
One could wryly note that politicians have done much the same in America, slicing the nation into the long-term aging stakeholders versus the promises of change for the younger folks who see dead-ends for their futures.
Gaming Silver
With silver pushing back toward $37 this morning, we’d offer the article by Avery Goodman under the title “Will JPMorgan now make and take ‘Delivery’ of its own silver shorts?“ to be worth a little study.
If you don’t mind a little more direct use of street-level explanations, the SilverGoldSilver blog continues to chronicle events with the occasional fine cartoon to boot.
Google’s Alexandria
Yes, there go the plans for the world’s biggest online library as a judge has ruled against Google’s mass digitization of books.
Grounds were pretty simple: copyright violation.
Unfortunately, I expect that a lot of the really, really interesting books – like the Vatican’s extensive library, were not on the shopping list. Still, 150-million online books is something to look forward to, except for one small problem: the decreasing amount of time people have for reading, anymore.
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