notes jan 11

January 12, 2009 § Leave a comment

raw notes from the day.

From http://www.atimes.com/atimes/Global_Economy/KA06Dj07.html

Again, an injection of liquidity to forestall an imminent financial crisis was administered by the Fed, notwithstanding that the crisis was in essence an insolvency problem of too much debt with insufficient revenue.

The credit crisis that imploded in July 2007 was not a Black Swan event that could not be predicted. It actually began in late 2006 when inevitable residential subprime defaults that had been warned by a few lonely voices on the Internet from a few sober analysts years earlier were finally being reported in the general print media and popular TV programs on finance.

The trend was hailed as a successful soft landing by mainstream pundits while in reality any slight loss of upward price momentum is lethal for a debt bubble. 

Large US investment banks had pooled subprime residential asset-back securities (ABS) totaling $383 billion and sold the paper to investors worldwide in 2006.

There were $18 trillion of all forms of outstanding ABS, and market analysts estimated at the time that marked-to-market losses would be in the range of $400 to $600 billion.

The Greenspan Put does not work for a stalled economy facing a liquidity trap of absolute preference for cash.

Bernanke’s futile monetary moves to save wayward financial institutions only managed to increase the immunity of the deeply wounded economy against any Keynesian fiscal cure by the next occupant of the White House and his economic team.

Unfortunately, the rescue approach by the Bush administration led by Treasury Secretary Henry Paulson and the Bernanke Fed has been focused on saving distressed financial institutions by providing taxpayer money to restructuring bad debts and de-leveraging overblown balance sheets.

Trillions of good taxpayer money are being thrown after bad debts concocted by unprincipled financiers into a crisis black hole. This money would have to be repaid in coming years by tax payers while Supply-siders are clamoring for tax cuts for corporations, on capital gain and for high income earners. This means the future tax bill to pay for the Greenspan put will be borne by low and middle income wage earners. Thus far in this financial crisis, the Bernanke Fed has not sowed the seeds for a quick recovery but for a decade or more of stagflation for the US and the global economy. 

The brutal collective punishment inflicted on Gaza will likely strengthen Hamas and reverse any hopes of a Middle East peace in the coming years.

Pasted from <http://www.lewrockwell.com/margolis/margolis131.html>

And

Omitting facts

As usual, this cartoon-like version of events omits a great deal of nuance and background.

While firing rockets at civilians is a crime so, too, is the Israeli blockade of Gaza, which is an egregious violation of international law and the Geneva Conventions.

According to the UN, most of Gaza’s 1.5 million Palestinian refugees subsist near the edge of hunger. Seventy per cent of Palestinian children in Gaza suffer from severe malnutrition and psychological trauma.

Medical facilities are critically short of doctors, personnel, equipment, and drugs. Gaza has quite literally become a human garbage dump for all the Arabs that Israel does not want.

Gaza is one of the world’s most-densely populated places, a vast outdoor prison camp filled with desperate people. In the past, they threw stones at their Israeli occupiers; now they launch homemade rockets.

Pasted from <http://www.lewrockwell.com/margolis/margolis131.html>

http://www.williamgaddis.org/jr/index.shtml

The NYT, WSJ, and Paul Krugman take a look at the emerging details surrounding President-elect Obama’s stimulus package, particularly the roughly $300 billion in proposed tax cuts.

Overall, the package will cover a two-year period with a price-tag of $675 billion to $775 billion, $270 billion to $310 billion of which would be spent on tax cuts. The balance — $405 billion to $465 billion — would be spent on infrastracture, health care, and other programs.

One thing to keep in mind is that in early 2008 Congress passed a $131 billion tax cut stimulus plan covering one year. Therefore, while $300 billion over two years might seem like a lot, it’s actually the same level of spending as we saw in 2008.

The problem, of course, was that the 2008 tax cut stimulus didn’t do much, if any, good.

Since the tax cut portion of the stimulus will more or less be a continuation of the 2008 tax cut stimulus, the real change from 2008 will be the $405 to $465 billion in spending on infrastructure, health care, and other projects.

On an annual basis, this is about $203 to $233 billion dollars in actual stimulus spending.

In 2007, the U.S. GDP was roughly $13.8 trillion, so that means the "new" part of the stimulus package will be about 1.5% of GDP.

Pasted from <http://www.dailykos.com/>

The news here I the 1.5%. Very little.

" human evolution is guided by the

The only way we could increase debt by $100 million, and hold assets constant, is if the whole of that $100 million was borrowed from foreigners.

Pasted from <http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/the-burden-of-the-debt-is-always-the-opposite-of-what-people-think-it-is.html>

There is an implied assumption here that there is a limited supply of money to lend. It is true that some financial institutions (e.g., banks) do have reserve requirements that limit their ability to create money but it is also true that they create money when they create a loan. If banks can "sell" their loans to financial institutions that have no reserve requirements (e.g., hedge funds) then there is no practical limit to the amount of money they can create.

Pasted from <http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/the-burden-of-the-debt-is-always-the-opposite-of-what-people-think-it-is.html>

he above scenario happens in a closed economy. It encapsulates the "tail risk" described above.

What is happening now is that the Federal Reserve is attempting a "fire break" of the animal spirits. Their goal is to make the financial sector "feel secure" about its leverage by providing a bid for their levered assets. The thought is the financial sector will not shrink, but instead choose to keep leverage constant by extending loans to businesses (and consumers). The problem, of course, is that the more the Fed effectively "de-levers" banks by buying their assets, the more liquidity the banks have that can potentially leak into unproductive activities such as specul
ation. Take the case of Brazil: Brazilian banks kept loan-to-asset ratios at around 60% for much of the 80’s and 90’s. The other 40% of its balance sheet was geared towards speculating on inflation, and that is where most of the bank sector’s profits came from. The result of this speculation was, of course, a soaring velocity of money that contributed to chronically high inflation.

Pasted from <http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/the-burden-of-the-debt-is-always-the-opposite-of-what-people-think-it-is.html>

There’s been a lot of discussion about how the lack of "shovel-ready" infrastructure projects puts a constraint on government investment spending as a mode for delivering stimulus, since most infrastructure projects take a long time to plan and build. But what if the negative output gap is going to be deep and long-lived? Is this concern so pertinent? I don’t think so.

Pasted from <http://www.econbrowser.com/archives/2009/01/is_the_implemen_1.html>

The only way we could increase debt by $100 million, and hold assets constant, is if the whole of that $100 million was borrowed from foreigners.

Pasted from <http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/the-burden-of-the-debt-is-always-the-opposite-of-what-people-think-it-is.html>

There is an implied assumption here that there is a limited supply of money to lend. It is true that some financial institutions (e.g., banks) do have reserve requirements that limit their ability to create money but it is also true that they create money when they create a loan. If banks can "sell" their loans to financial institutions that have no reserve requirements (e.g., hedge funds) then there is no practical limit to the amount of money they can create.

Pasted from <http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/the-burden-of-the-debt-is-always-the-opposite-of-what-people-think-it-is.html>

he above scenario happens in a closed economy. It encapsulates the "tail risk" described above.

What is happening now is that the Federal Reserve is attempting a "fire break" of the animal spirits. Their goal is to make the financial sector "feel secure" about its leverage by providing a bid for their levered assets. The thought is the financial sector will not shrink, but instead choose to keep leverage constant by extending loans to businesses (and consumers). The problem, of course, is that the more the Fed effectively "de-levers" banks by buying their assets, the more liquidity the banks have that can potentially leak into unproductive activities such as speculation. Take the case of Brazil: Brazilian banks kept loan-to-asset ratios at around 60% for much of the 80’s and 90’s. The other 40% of its balance sheet was geared towards speculating on inflation, and that is where most of the bank sector’s profits came from. The result of this speculation was, of course, a soaring velocity of money that contributed to chronically high inflation.

Pasted from <http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/the-burden-of-the-debt-is-always-the-opposite-of-what-people-think-it-is.html>

There’s been a lot of discussion about how the lack of "shovel-ready" infrastructure projects puts a constraint on government investment spending as a mode for delivering stimulus, since most infrastructure projects take a long time to plan and build. But what if the negative output gap is going to be deep and long-lived? Is this concern so pertinent? I don’t think so.

Pasted from <http://www.econbrowser.com/archives/2009/01/is_the_implemen_1.html>

miha

http://www.berlin-school.com/mid-winter-rose/

www.mihavision.com

http://economistsview.typepad.com/

s in a higher tax bracket this year. With a tanking economy, streetwalkers, pole dancers and gold diggers alike are going to have to give it up for less. So are the online dating sites, as they compete with free sites like Plentyoffish.com, Okcupid.com, and DateHookUp.com. It’s like they’ve been working a corner for years and now some hussy’s going to do the job for free. Oh, my

The other major cause for concern is that the federal government has taken on massive "contingent liabilities" — loans and guarantees that don’t become actual costs until the borrower defaults and the federal guarantee has to be honored. For example, Washington has purchased $45 billion of preferred stock of Citigroup but has also agreed to backstop up to about $240 billion of its losses. Bianco Research, a Chicago financial research firm, puts the total of such contingent liabilities (as of Dec. 29) at more than $8 trillion. The U.S. government won’t shell out anything close to that, of course; it may not pay out any money and might even turn a profit. But the worse the economy gets, the more likely it is that some of those contingent liabilities will become actual liabilities.

Pasted from <http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010902325.html>

Once the recession is over, getting our debt burdens down will hinge on Obama’s and Congress’s willingness to confront the looming cost of Social Security and Medicare benefits for the aging U.S. population.

Pasted from <http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010902325_2.html>

This very important. It show a contiuous trend to think of the poorer part of the population paying of the debt, when a small correction, such as raising the limit of taxable income for SS, would solve the problem. The powers that be willr educe the majority to poverty in order to keep their life style. That is hard because it takes many of us getting poorer for the fewer rich to get richer. A rise in income of one million for one requires a fall in income a hundred dollars for ten thousand.

and

"It’s sad to say, but we really went nowhere for almost ten years, after you extract the boost provided by the housing and mortgage boom. It’s almost a lost economic decade."

Mark Zandi, chief economist of Moody’s Economy.com

Pasted from <http://www.calculatedriskblog.com/>

totaling $383 billion and sold the paper

http://www.atimes.com/atimes/Global_Economy/KA06Dj07.html

http://www.dailykos.com/storyonly/2009/1/11/162635/168/536/682898

here naomi kline suggests Israel boycott. I think t
his is importnat, and, in a quick world, a policy to support.

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