recession

Delusions of Normalcy 2011 - Dismal Scientists Cheer Up

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Could a recession occur in 2011? Under the current state of the US economy and its heavy reliance on federal spending, we could answer this question quite simply if we knew when the US government credit card will reach its limit. At some point it must; the compelling reality of mathematical compounding alone makes it impossible for any country to continue to rack up new principal and interest obligations.

The consensus is in and there is strong agreement: the US economy is on the path to a sustained recovery. 2011 will be a year of surprises on the upside, and 2012 will be even better. Among a list of the top 25 economists surveyed, not one of them predicts a recession in 2011. There is hardly any investment strategist or economist to be found who sees any risks serious enough to derail the US economy. Here is just a sample of the consensus thinking that is to be found in end-of-the year forecasts:

*Economists in universities and on Wall Street have raised their growth projections for next year. Retail sales, industrial production and factory orders are on the upswing, and new claims for unemployment benefits are trending downward. Despite persistently high unemployment, consumer confidence is improving. Large corporations are reporting healthy profits, and the Dow Jones industrial average reached a two-year high this week. – New York Times

Show me the title! Strategic Defaults and the Homeowners Revenge

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By Numerian Posted by Michael Collins

If strategic defaults spread in part because of this new uncertainty over foreclosure and who has the title to the home, the banks and the mortgage backed securities market would be put in a dreadful position. The day in and day out cash flow expected from millions of mortgage principal and interest payments would be impacted far more than it is already, with the banks unable to access their collateral to stanch the bleeding. Insolvencies among the banks and the investors holding mortgage securities would certainly rise. Numerian

Why Economic Growth in the United States Cannot Happen

By Joaquin posted by Michael Collins


So, you cut back on your lifestyle; performed a so un-Greek personal austerity reset but your credit card balance is still creeping up; or perhaps you are slowly burning through your savings; or you are at the end of the line; abandon ship. Whatever, you have a lot of company out there. (Image)

Why is it so hard to make ends meet these days? The days of living high on the credit hog are over and we all have to get small but in the end, we still have to make ends meet; we have to pay for food, pay for utilities, buy gas, etc. How to make that work?

We all bought a lot of stuff during those days of easy credit. Debt driven demand drove up the value of lots of things. Homes increased in value so much that they became a kind of income harvested through a home equity line of credit. Autos got big and powerful again making them unaffordable to buy and operate now that we have to live within our means. Cell phones replaced land lines and cost a lot more; especially when everyone in the family has to have one. Maybe you have a home that you cannot sell and you are stuck living 20 miles or more from your workplace and your car is fast reaching the point when you will need a new one just to get to work.

The Money Party - The Essence of our Political Troubles

Michael Collins
Originally published in "Scoop” Independent News
on September 30, 2007

The Money Party is a small group of enterprises and individuals who have most of the money in this country. They use that money to make more money. Controlling who gets elected to public office is the key to more money for them and less for us. As 2008 approaches, The Money Party is working hard to maintain its perfect record.

It is not about Republicans versus Democrats. Right now, the Republicans do a better job taking money than the Democrats. But The Money Party is an equal opportunity employer. They have no permanent friends or enemies, just permanent interests. Democrats are as welcome as Republicans to this party. It’s all good when you’re on the take and the take is legal.

Fed begins monetizing the deficit

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By Numerian

The Federal Reserve, in announcing the results of this week's meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice - wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities - is a form of monetizing the debt.

The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson's efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason - perhaps the major reason - why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates.

Fraught with risk

Another dumb idea to avoid reducing work time: $5000 for an ounce of gold

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This particularly dumb idea is from Paul Brodsky and Lee Quaintance of QB Partners.

They suggest: Rather than reducing hours of work, why not have Washington offer to buy gold at $5000 an ounce:

A coordinated global currency devaluation. The Fed, for example, tenders for private gold holdings at $5000/oz and maintains that bid/offer. As the Fed purchases gold, the gold flows to the asset side of its balance sheet. The Fed funds these gold purchases with newly-digitized money, which flows to banks in the form of net new deposits. This would be a discrete monetary inflation event (devaluation) and a simultaneous deleveraging.

Once the Fed acquires enough gold from the markets, a gold price peg for the US dollar is established. Would this be a gold standard? Yes, if that nominal exchange value is maintained in the open market by the Fed. No, if the Fed decides to periodically adjust that $5000/oz. level following the original exchange. (In fact, tinkering with the official gold price would be a pure example of a monetary agent conducting monetary policy.)

Where are the Populists?

Where are the Populists?

Michael Collins

"There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it."  William Jennings Bryan, 1896

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