Nouriel Roubini's Global EconoMonitor

RGE Content: Weekly Roundup

Check out all the great contributions that were published during the past week on RGE’s Nouriel Roubini’s Global EconoMonitor, RGE Analyst’s EconoMonitor, U.S. EconoMonitor, Emerging Markets Monitor, Global Macro EconoMonitor, Finance & Markets Monitor, Asia EconoMonitor, Latin America EconoMonitor and Europe EconoMonitor.Everybody is invited to place comments and get the discussion going!

“For the past two years Roubini, Technorati Profilea professor at New York University, has cautioned about a huge housing bubble whose bursting would lead to a 20% drop in home prices; a collapse in subprime mortgages; a severe banking crisis and credit crunch; the near-failure of Fannie Mae and Freddie Mac, and a U.S. recession of a magnitude not seen since the Great Depression.” Check out the Barron’s Interview and Video with Roubini: “Yes, That’s $2 Trillion of Debt-Related Losses” on Nouriel Roubini’s Global EconoMonitor

On the RGE Analyst’s EconoMonitor, Arpitha Bykere analyzes the July U.S. employment data and explains why job losses will get worse in the coming months. Check out her: “U.S. July Payrolls Indicate the Worst of Labor Market is Yet to Come”Mikka Pineda gives a behind-the-scenes look at data used in Newsweek’s series on global inflation, to which she and Nouriel contributed an op-ed on why inflation will stay higher for longer. Newsweek’s series gave readers a tip of the iceberg on which countries are seeing double-digit inflation and wage hikes this year, Mikka gives us more of the iceberg with extended lists on double-digit headline inflation increases and wage hikes.With the Beijing Olympics starting today, Kavitha Cherian and Rachel Ziemba survey the economics of the Olympics in “As 08.08.08 approaches

On the U.S. EconoMonitor, Brad DeLong analyzes the recent unemployment report. According to him, the U-6 measure of unemployment–reported unemployed plus part-time for economic reasons plus marginally-attached workers all divided by the labor force plus marginally-attached workers is now telling us that we are in a recession. Read his: “Another Bad Employment Report: Brad DeLong Calls Recession

It is hard to disagree on the fact that the U.S. economy clearly remains in the midst of a very soft patch and it will have difficulty gaining traction. Check out “Labor Report” by John Jansen.

On the same note, Mark Thoma explains why unemployment remained relatively low even though the economy is sputtering. Read: “Unemployment and Hours of Work over the Business Cycle.”

In “Another Quasi-Governmental Agency that’s Lending Hundreds of Billions to Troubled Banks” Mark Thoma looks into Freddie and Fannie’s Healthy Cousin, the Federal Home Loan Banks (FHLB). And check out his “Fed Watch: Anemic” where he proposes Tim Duy’s review of the U.S. economy and the Fed’s likely response to current and expected future economic conditions.

And for an update on the state of the U.S. economy, a call for aggressive fiscal stimulus “to sustain employment while the markets work off the aftereffects of the housing bubble,” and the question of why “the lousy economy hasn’t yet had more impact on the campaign” read Paul Krugman: A Slow-Mo Meltdown by Mark Thoma.

Also on the U.S. EconoMonitor this week:

On theEmerging Markets Monitor, Nirvikar Singh writes a very interesting article on the current stance of monetary policy in India, “Trying to Understand Monetary Policy in India”, while Ajay Shah’s “Responding to the credit policy announcement of yesterday” brings a valuable analysis on RBI’s recently announced credit policies. Finally, Nirvikar Singh’s “Risks for the Indian Economy” point out important matters regarding the Indian economy and its credit solvency.

Also on the Emerging Markets Monitor this week:

Economist magazine on India by Nirvikar Singh India’s oil import bill by Nirvikar Singh

On the Global Macro EconoMonitor, Jeffrey Frankel, in “Commodity Prices, Again: Are Speculators to Blame?”, analyzes the three kinds of speculation amid rising commodity prices and concludes that this decade’s commodity boom can be attributed to economic fundamentals including easy money in the U.S. and rapid growth in China and India.In “Due diligence,” James Hamilton presents an anecdotal account of the reckless practices of mortgage lenders and home sellers that led to one of the worst U.S. housing crisis in the recent times.Menzie Chinn explains that the underestimation of the U.S. Q2 GDP number is because of using GDP deflator instead of the Gross Domestic Purchases deflator, which has risen recently due to deterioration in the terms of trade. Take look at his “Is the GDP deflator for 2008 Q2 plausible?Jeffrey Miller analyzes the spike in U.S. initial jobless claims, the impact of inventory drawdown and GDP Price Index on the Q2
GDP data, and also discusses job losses taking clues from economic indicators. Read his “Economic Data and Employment Report. Also on the Global Macro EconoMonitor this week:

Has Deleveraging Even Begun? (Not For the Fainthearted) by Yves Smith Kenneth Rogoff: The Global Economy is Still Growing Too Fast by Mark Thoma The Anticommons by Mark Thoma

On the Finance & Markets Monitor this week, London Banker recounts the major points of Fisher’s Debt-Deflation theory as it was originally formulated after the 1929 crash. The author coins today’s version as ‘Reflation’, pointing out that too much of it might set over-indebted economies for an even bigger fall further down the line.

In “The FDIC’s Troubles and the New Financial Architecture” Joseph Mason points to the long-term danger of the current government interventions in the financial markets, starting with the bail-out of financial institutions, ongoing liquidity support, and ultimately a likely bail-out of the FDIC. “I fear that without private buy-in, we are crowding out the private sector and limiting economic growth and therefore recovery potential.”

In “When the best of the best start with the shenanigans, what does that mean for the rest…” Reggie Middleton examines the current state of American Express and comes to the conclusion that the credit bust is impacting more than just subprime lenders and borrowers – they might well be the tip of the iceberg.

Daniel Alpert, on the other hand, argues against “The Re-Regulation of the Financial Services Sector” in the current environment. What is needed is the proper/proactive enforcement of already existing rules and regulations. The one missing piece of regulation that might have prevented contagion on the present scale is the Glass-Steagall Act, repealed in 1999.

Also on the Finance & Markets Monitor this week:

ETF Update: A Focus on Health by Jeffrey Miller Pondering “Real” Yields by James Picerno

On the Asia EconoMonitor, Nirvikar Singh shares “More Thoughts on Indian Monetary Policy” and attempts to figure out what the RBI does, why the repo rate and reverse repo rate are both used, and, why the gap between them varies over time. He also thinks the Indian negotiators could learn something from the Chinese with respect to the Doha Round. See “China’s Turn to be Bad Guy in the Doha Round

Michael Pettis argues that even though China deserves a better sovereign rating than the A+ just assigned by S&P, some alarm bells should be ringing in light of recent bank transactions, and the responses generated in terms of market losses. See “A better rating, but more derivative losses

Rachel Ziemba wonders if China will face an Olympic slump, suggesting that a slowing global economy will have a more significant effect than the withdrawal of China’s Olympic stimulus. See Is China Suffering an Olympic Shock?

Brad Setser raises the issue that many of Asia’s currencies have decoupled from the Chinese yuan in light of the fall in Korea’s reserves. He also raises the question of why have the fortunes of China’s currency and many other Asian currencies diverged See: “ Reversal of fortune. Also on the Asia EconoMonitor

Inflation expectations in India by Nirvikar Singh Another View on Indian Monetary Policy by Nirvikar Singh The Real Competition Behind the Olympic Games by Robert Reich

On the Latin America EconoMonitor, Nicolas Magud argues that the Kirchners’ administration has consistently pursued populist economic policies that usually end in a hyperinflation episode. Read: “Is (the Kirchners’ self-inflicted) Potential Hyperinflation Possible (Again) in Argentina?”.

Otaviano Canuto writes an important piece to explain that microfinance – provision of financial services to poor or low-income people who are not “bankable” – is advancing fast throughout the developing world. Read: “Late Securitization and Micro-insurance”.Tom Trebat explains the pros and cons of the proposed energy reform in Mexico. In his opinion, Mexican politicians and the debate in Mexico often treat Pemex as a totally unique case of a state-owned oil company. He then suggests that when Mexico goes looking for positive role models, Brazil may be a good place to start. Read: ”Energy Reform in Mexico: If It Happens, Will It Really Matter?”.

For João Marcus Marinho Nunes, the Brazilian Real (BRL) is extremely overvalued. In an interesting analysis he argues that the overvaluation of the BRL is mostly due to high commodity prices. Read: “Some Additional Comments on the “Overvaluation” of the Brazilian Currency”.

Antonio Carlos Lemgruber argues that it is extremely useful to study carefully the seventies and the eighties, in order to understand what really happened then – and to try to guess what might happen in the next few years. Read: “Comparisons between 2008 and 1978.

On the Europe EconoMonitor this week, Philip Lane looks at how the dramatic decline in Irish public finances is causing the government to reconsider its commitment to pay 1 percent of GNP into the National Pension Reserve Fund, established in 2000. In “The Sustainability of Ireland’s Sovereign Wealth Fund,” Lane argues the Irish government’s long-term financial position and its credibility would be better served if it sticks to its commitment. In “Read my lips – Assessing the recent ECB’s communication,” Aurelio Maccario gives the European Central Bank’s communication high marks overall, sayi
ng it has been highly effective in signaling the course of interest rate policy. But he points to the abrupt market reactions following the ECB meetings in June and July to indicate recent communication has been lacking. Maccario suggests more frequent guidance of market expectations might be needed in uncertain times.

133 Responses to “RGE Content: Weekly Roundup”

the GuestAugust 7th, 2008 at 4:44 pm

What are the ‘opportunities’ in the coming years of the Meltdown or is hunker down and hide the best strategy? Leverage will obviously be the big challenge to buying RE low or distressed goods like cars and trucks.When stuff is 80% off though as it will undoubetly approach in some bubble markets, it will be tempting to think it’s the bottom and time for some vulture pickings.CDO derivatives may go to zero but real estate property itself will still have some value. Autos and homes will always have a use value versus the worthlessness of paper investments.How creative the financing will get later outside of FHA loans will be interesting as it unfolds.The trick to insolvency is how to keep your credit from being trashed when faced with possible underwater property holdings that are for now ‘dead assets’.Whoever has the available credit and better yet CASH even if it is in dollars in the coming Meltdown, should be able to get deals.

GuestAugust 7th, 2008 at 4:55 pm

@Anonymous: Gary North –“This has kept it [the Fed] from inflating the money supply at a dramatic rate. At some point, it will run out of Treasury debt to sell to the general public in order to offset the increase of its purchase of questionable assets held by the financial system. At that point, the great inflation will begin. This could be a year away.”I quit listening to Gary North about two years ago. I can’t figure out where he’s coming from or why Lew Rockwell even uses him. Ron Paul, Marc Faber, John Williams, Alan Abelson, Peter Schiff, Robert Benson and hundreds of others tell it like it is: Inflation is on the prowl.For the government to cover up its transfer of citizen wealth to government and Wall Street wealth, it needs economists such as North who use economic obfuscation to back up its figures. Using a government ruler, IMO, would make Wilt Chamberlain measure about two foot two.Inflation doesn’t work as a tax benefiting the vested powers unless it is imposed in secret under misrepresentation.On that note, Bernanke and John Maynard Keynes understand each other. Said Keynes:“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”Speaking of inflation, because of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar. As shown below, sources say, deduction of gasoline expenses was 44.5 cents in 2006; this deduction increases to 58.5 cents by this year’s end. As measured by the IRS, we have a 32% rise in energy costs over two years. The IRS measure of energy inflation is far outstripping what the BLS has stated is happening with fuel prices. No seasonal adjustments, no hedonics for better, cleaner, ethanol tinged fuel — just a whopping big price increase.How is it that the IR has a better handle on inflation than the government department in charge of measuring inflation?IRS MILEAGE DEDUCTIONS: 1980 – 20 cents; 1981-20cents; 1982-20cents; 1983-20.5cents; 1984-20.5cents; 1985-21cents; 1986-21cents; 1987-22.5cents; 1988-24cents; 1989-25.5cents; 1990-26cents; 1991-27.5cents; 1992-28cents; 1993-28cents; 1994-29cents; 1995-30cents; 1996-31cents; 1997-31.5cents; 1998-32.5cents; 1999-31cents; 2000-32.5cents; 2001-34.5cents; 2002-36.5cents; 2003-36cents; 2004-37.5cents; 2005-40.5cents; 2005*-48.5cents; 2006-44.5cents; 2007-48.5cents; 2008–50.5; 2008-58.5 *Sept-Dec.Or, as Average Jane put it this week: I have to say that I believe we’re going down the inflation path – much the same as the stock market – by a thousand cuts. In the past couple of weeks, I’ve seen cat food (for instance) go from 79 cents a can to 99 cents a can. Pantyhose from $3.99 to $4.29. Chewing gum, formerly 17 sticks for 99 cents, now 15 sticks for $1.19.

GuestAugust 7th, 2008 at 5:04 pm

Mogambo Guru on Inflation:I don’t like to quote Alan Abelson from his Up & Down Wall Street column in Barron’s because (I admit) I am jealous of his talent and success. And while we are talking about me, I also admit that I am a petty and vindictive kind of creepy guy who is not very smart, but very paranoid and armed to the teeth.And I use not only this as an excuse for my rotten behavior, but also the fact that he never quotes me, either, as he has an obvious disinclination towards idiots like me, and has, in fact, apparently instructed his receptionists (even the temps!), to never put my calls through to him, and to never take a message, because I have simply lost count of the times when I tried to get through to Mr Abelson so that I could tell him that the damnable Federal Reserve is creating so much money and credit that the resultant rise in prices is going to destroy this country, like inflation in prices has destroyed every other economy in the entire history of the world when any country was so stupid, so brain-dead, so retarded and so deliberately obtuse that they inflated their money supply with a stupid fiat currency and the willing collusion of corrupt banks and government regulators.

GuestAugust 7th, 2008 at 5:12 pm

Guest on 2008-08-07 17:04:22 -I also admit that I am a petty and vindictive kind of creepy guy who is not very smart, but very paranoid and armed to the teeth.Uh, did you forget to list honest?

GuestAugust 7th, 2008 at 5:42 pm

Dear Roubini Webmaster: I can’t begin to tell you how much I’ve enjoyed the wonderful format innovations on Nouriel Roubini’s Global EconoMonitor. And now, the new preview format! It’s simply beautiful – first class all the way. State of the Art! How absolutely grand for me to have instant preview of my comments just as they will appear when posted and make changes should I like — all in one smooth step. Thank you. Thank you. Thank you.

the GuestAugust 7th, 2008 at 7:57 pm

@Guest concerning inflation as seen in cat food.But it’s deflation on the big items like houses which in areas like Phoenix have dropped more than 50% since say 2004 and 2005. Homes that were $375,000 recently a few years ago have dropped to $150,000!It’s deflation in housing, finance, and autos/trucks that is going to felt by consumers.The commodity bubble may have popped.All these discounted homes and very little credit availability. More walkaways from homeowners who are underwater and have Option ARM resets.Let the cats catch mice.

GuestAugust 7th, 2008 at 8:38 pm

Unfolding events support Andros’inflation outlook made more than three months ago. Thought you might be interested: “Stock Market Mega Trend and the Wolf Wave” by: Ty Andros (EXCERPTS) 17, 2008: The bills that are about to be delivered to the public from years of POOR policy decisions by public servants and central bankers are arriving on a daily basis. These bills are overdue. For thirty years public servants have created, as well as legislated, the belief that you can have “something for nothing”. In nature you cannot consume more than you produce as to do so will result in your ultimate demise. The “something for nothing” belief is now fully inculcated throughout the G7 and is a core belief of those in charge and those that elect them…Prepare for a massive dose of REALITY as Mother Nature is set to BITE!Income is collapsing, as is the sentiment of business and consumers throughout the G7. Inflation is in the PIPELINE and the policies necessary to address it are not being considered so it is set to skyrocket, signaling a coming wave of panicked policy responses by poorly prepared public servants who are being counseled by economically-illiterate IGNORAMUSES. What passes for wisdom and economic experience is actually politically correct GARBAGE and recipes for disaster. The solutions to these problems take YEARS to implement and become effective. I shudder every time I hear a leading WALL STREET or GOVERNMENT economist or public servant appear on CNBS.For over 35 years now the printing press, aka fiat currency and credit creation, have substituted for fiscal policies of growth. Nothing is going to change now. The policies of capitalism and wealth creation passed away with Ronald Reagan and the retirement of Margaret Thatcher. Why is this so important? It is because TRUE capitalism is the definition of disinflation. Capitalism works to reduce inflation, and its underlying result is wealth creation and “more goods and services for less money. This creates SAVINGS and new, hardier competitors/providers replace inefficient established businesses. It is survival of the fittest as defined by Charles Darwin in describing NATURE and EVOLUTION.In their place, asset-based economies have been increasingly substituted for the industrialization which had created the bedrock of wealth creation in the G7. To call the G7 “industrialized economies” is just one more example of headlines substituting for reality. The G7 has de-industrialized for almost 50 years, industry has now moved to better climates in the emerging world. Societies which have no savings and do not invest in their futures are like farmers who do not save seeds to plant from previous harvests and now have no harvest. The G7 has planted virtually no seeds for over 35 years and squashed new growth under the heels of public servants and their entrenched elite and corporate constituents.Corporate incomes are collapsing and cost push inflation threatens margins in the near future. Year over year inflation in the Producer Price Index is over 6.9% and RISING.Take a look at inflation in costs versus finished goods from Bill King of the King report at www. : Over the past few years he has noted that ‘crude goods’ prices are escalating much faster than ‘finished goods’. This is evidence of [future] inflation in the pipeline. The inflation spead between ‘crude good’ and ‘finished goods’ is a record. The inflation pressure from ‘crude goods’ inflation is far greater than what existed in 1979-1980…Corporations must either pass these higher costs through to consumers or their profits will crumble, so you can expect more of it…The G7 financial and banking systems are basically insolvent and in the process of passing from weak hands to stronger ones… That money did not disappear and the fiat currency creation necessary to replace it in the financial and banking system is rapidly increasing. Inflation run riot!Now we know why PIMCO’s Bill Gross has supported the government buying of mortgage securities as it is being reported that his holdings of mortgage securities has DOUBLED since last year and now is equal to over 50% of some of the bond portfolios he manages. Doing a TRY TO CATCH A FALLING KNIFE trade will put the fear of god into you. Being the biggest bond manager in the world can sometimes trick you into believing you are GOD. What a blow up that could turn out to be, believe me he has the ear of the Government Plunge Protection Team and this can never be allowed to happen as it would turn Bear Stearns into a footnote.In this week’s Barron’s [April], Alan Abelson outlines that over $4 trillion dollars of OPTION Arms (adjustable rate mortgages) are sitting on the balance sheets of small and regional banks. Option ARM’s are also known as EXPLODING arms and they are going to go off like firecrackers in the hands and BALANCE SHEETS of LENDERS and BORROWERS, further requiring lots of new FIAT CURRECY and CREDIT CREATION to rescue them and their depositors. Reconstructed M3, the broadest measure of money and credit creation, is clocking in at over 17% growth; using the rule of 72, the United States is doubling the money in circulation every 4.23 YEARS just as a banana republic would do, and it is set to INCREASE. Does anybody suspect this may be inflationary?…This on top of the repeal of the current tax rates which are slated to rise under any new administration to support CRITICAL government spending programs and FREE, FREE, FREE everything. What they can’t take through taxation they will take through confiscation by printing press while it sits in your G7 currency or bank account, robbing you to pay themselves, their deficit spending and their something for nothing constituents. Your public servants on all levels of government are about to get into a fight with you over whose money it really is YOURS OR THEIRS! Is it more important that you take care of your family and future or theirs? To them there is only one answer: Theirs…

GuestAugust 7th, 2008 at 10:38 pm

@Guest: “It’s deflation in housing, finance, and autos/trucks that is going to felt by consumers.”Yes, but it’s selected deflation. The inflation that people are forced to pay is primarily inflation on those things controlled by government or government’s friends, i.e. government protected monopolies. People and voting constituencies benefiting from this monopoly power are making fortunes. But most of their consumers are hurting – badly.Essentially these monopolies can inflate prices because they can control supply in essential areas, such as oil. You want bread? This is what it costs. You want heat? This is what it costs. You want medical care? This is what it costs. You want an education? This is what it costs. You want house insurance? This is what it costs. You want a job? This is what it costs. Take it or leave it.Man has to have medical help. But he doesn’t have to have a new car so he foregoes it; he doesn’t have to have a house, so he rents. He doesn’t have to dine at Ruth’s Chris Steak House, so he eats at McDonald’s. He doesn’t have to go on vacation, so he stays home.This is the kind of inflation they’re creating, on purpose, by their government and lobby-forced monopolies — on gasoline, heat, food, clothing, taxes, insurance, water, health care… Exxon spent more money this most recent quarter buying back its stock than on exploration for more oil. It doesn’t want more oil; it wants more money.Government entities, the utilities and the schools and their taxing structures (state, local, and federal) have a captive audience. Production that is free to develop without major government control or monopoly – houses and autos and most discretionary items — are dropping in price because people can’t afford them now that the economy is slowing, wages are stagnating and essentials are skyrocketing. To make matters worse, a government partnering with banks has allowed the central bankers to hold interest rates under inflation rates so savers and retired people can’t earn any money from their depreciating retirements to buy anything. Look around. Do you see any gray beards out consuming these days?So yes, this is stagflation with government dominance. The government is getting bigger and bigger, taking bigger and bigger bites, and consuming the public.That’s the way I see

wormyboyAugust 7th, 2008 at 11:46 pm

The gold mine I have been working at, in Elko, Nevada, for the last three months announced today the would be suspending gold mining indefinitely. The mine is owned and operated by Yukon Nevada gold, based in Canada. They will continue refining ore, until the are out of ore to process. They cited “lack of financing” as the reason for the closure. The gold mine was purchased by Yukon Nevada gold in January, and since I have been there, they have invested roughly 50 million dollars in improving the facilities. Does any one have any clue as to why, with gold prices so high, they would close down this mine? Is the Credit crunch spreading?th

MASHIACH BEN CHANAAugust 8th, 2008 at 12:35 am

DR. WILLIAM R. GRAHAMCHAIRMANCOMMISSION TO ASSESS THE THREATTO THEUNITED STATESFROMELECTROMAGNETIC PULSE (EMP) ATTACKSTATEMENT BEFORE THEHOUSE ARMED SERVICES COMMITTEEJuly 10, 2008 of the Commission to Assess theThreat to the United States fromElectromagnetic Pulse (EMP) AttackCritical National InfrastructuresCommission MembersDr. John S. Foster, Jr.Mr. Earl GjeldeDr. William R. Graham (Chairman)Dr. Robert J. HermannMr. Henry (Hank) M. KluepfelGen Richard L. Lawson, USAF (Ret.)Dr. Gordon K. SoperDr. Lowell L. Wood, Jr.Dr. Joan B. WoodardApril 2008

AfAAugust 8th, 2008 at 1:03 am

Thanks Friend of WaMu,Although StateStreet free rating is not quite reliable, it is a good start. Being a Friday early morning let’s take some bets. There are about 22 troubled banks whose name start with First, the worst ones being:1st Centenniel BkFirst Central Saving BkFirst Mariner BkFirst Tennessee BkTo which I add:Vineyard BkPlace your bets, many prizes to win

AlessandroAugust 8th, 2008 at 4:22 am

[repost from previous (?) thread]@AfA and Anonymous on 2008-08-07 22:50:33The FED $30bn are potentially even worse than Merrill’s because the number it’s not the nominal value but it is the “value” (level III, we may guess since JPM didn’t want it) of the securities plus hedges as estimated by the seller (Bear Stearns). Except the FED, JPM and BlackRock none has the slightest idea of what’s in the pile. For what we know it could very well be $200bn of nominal value of CDOs wrapped in $170bn of monoline insurance (the hedges). There is no assurance whatsoever that losses will be limited to $30bn!I don’t say losses will be higher than the nominal $30bn, but the fact that they refuse to tell the public what exactly is in the deal (and to use mark-to-market accounting) is a good indication that things smell really bad.See Steve Waldman on the subject:

ptmAugust 8th, 2008 at 7:26 am

Guest on 2008-08-07 22:38:38 – So yes, this is stagflation with government dominance. The government is getting bigger and bigger, taking bigger and bigger bites, and consuming the public.TVA electric rates are jumping 25% from $0.09/kw hour to $0.115/kw hour

MASHIACH BEN CHANAAugust 8th, 2008 at 7:32 am

THE RUSSIAN ARE COMING AS I MENITONED IN PREVIOUS THREADS.HELLO RUSSIA GOODBYE NATO.srael backs Georgia in Caspian Oil Pipeline Battle with RussiaDEBKAfile Exclusive ReportAugust 8, 2008Georgian tanks and infantry, aided by Israeli military advisers, captured the capital of breakaway South Ossetia, Tskhinvali, early Friday, Aug. 8, bringing the Georgian-Russian conflict over the province to a military climax.Russian prime minister Vladimir Putin threatened a “military response.”Georgia called up its military reserves after Russian warplanes bombed its new positions in the renegade province.In Moscow’s first response to the fall of Tskhinvali, president Dimitry Medvedev ordered the Russian army to prepare for a national emergency after calling the UN Security Council into emergency session early Friday.Reinforcements were rushed to the Russian “peacekeeping force” present in the region to support the separatists.Georgian tanks entered the capital after heavy overnight heavy aerial strikes, in which dozens of people were killed.Lado Gurgenidze, Georgia’s prime minister, said on Friday that Georgia will continue its military operation in South Ossetia until a “durable peace” is reached. “As soon as a durable peace takes hold we need to move forward with dialogue and peaceful negotiations.”DEBKAfile’s geopolitical experts note that on the surface level, the Russians are backing the separatists of S. Ossetia and neighboring Abkhazia as payback for the strengthening of American influence in Georgia. However, more immediately, the conflict has been sparked by the race for control over the pipelines carrying oil and gas out of the Caspian region.The Russians may just bear with the pro-US Georgian president Mikhail Saakashvili’s ambition to bring his country into NATO. But they draw a heavy line against his plans and those of Western oil companies, including Israeli firms, to route the oil routes from Azerbaijan and the gas lines from Turkmenistan, which transit Georgia, through Turkey instead of hooking them up to Russian pipelines.Saakashvili need only back away from this plan for Moscow to ditch the two provinces’ revolt against Tbilisi. As long as he sticks to his guns, South Ossetia and Abkhazia will wage separatist wars.DEBKAfile discloses Israel’s interest in the conflict from its exclusive military sources:Jerusalem owns a strong interest in Caspian oil and gas pipelines reach the Turkish terminal port of Ceyhan, rather than the Russian network. Intense negotiations are afoot between Israel Turkey, Georgia, Turkmenistan and Azarbaijan for pipelines to reach Turkey and thence to Israel’s oil terminal at Ashkelon and on to its Red Sea port of Eilat. From there, supertankers can carry the gas and oil to the Far East through the Indian Ocean.Aware of Moscow’s sensitivity on the oil question, Israel offered Russia a stake in the project but was rejected.Last year, the Georgian president commissioned from private Israeli security firms several hundred military advisers, estimated at up to 1,000, to train the Georgian armed forces in commando, air, sea, armored and artillery combat tactics. They also offer instruction on military intelligence and security for the central regime. Tbilisi also purchased weapons, intelligence and electronic warfare systems from Israel.These advisers were undoubtedly deeply involved in the Georgian army’s preparations to conquer the South Ossetian capital Friday.In recent weeks, Moscow has repeatedly demanded that Jerusalem halt its military assistance to Georgia, finally threatening a crisis in bilateral relations. Israel responded by saying that the only assistance rendered Tbilisi was “defensive.”This has not gone down well in the Kremlin. Therefore, as the military crisis intensifies in South Ossetia, Moscow may be expected to punish Israel for its intervention.

ptmAugust 8th, 2008 at 7:42 am

James Turk, over at pointed out an interesting trend. He had been watching the dollar in free fall, then for the last two weeks it has magically reversed and been steadily increasing. Nothing seems to explain the reversal unless you look at what the Federal Reserve is holding for ECBs…On July 16, 2008 (the closest date of the weekly reports to the July 15th low in the Dollar Index), the Federal Reserve reported holding $2,349 million of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 million, a 38.4% annual rate of growth. To put this phenomenally high growth rate into perspective, for the twelve months ending this past July 16th, assets in the Federal Reserve’s custody account grew by 17.3%, which is less than one-half the growth rate experienced over the past three weeks.

GuestAugust 8th, 2008 at 8:44 am


MASHIACH BEN CHANAAugust 8th, 2008 at 8:45 am


ptmAugust 8th, 2008 at 9:03 am

FF on 2008-08-08 08:03:54 – Thanks for the post. I thought this dollar rally smelled like rotten fish.James Turk’s numbers are off however. It seems like instead of $2,349 beforehand the Fed would had to have around $1,480 to make it a 38.4% jump.

GuestAugust 8th, 2008 at 9:52 am

I guess the conomy doesn’t matter to stocks or earnings….Reuters8-August-2008NEW YORK, Aug 8 (Reuters) – A gauge of future U.S. economic growth fell to its lowest level in five years and its annualized growth rate also declined, a sign that growth should still be a bigger concern than inflation for policy-makers, a research group said on Friday.The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 127.5 in the week to Aug. 1 from 128.1 in the previous period.The decline in the index — to its lowest since 127.3 hit in the week to Aug. 15, 2003 — was due to an increase in claims for jobless benefits and weaker stock prices, and was partly offset by lower interest rates, Lakshman Achuthan, managing director at ECRI, said in an instant message interview.”With the WLI falling to a fresh five-year low, a business cycle upturn looks increasingly distant,” he wrote.The index’s annualized growth rate slipped to a 15-week low of negative 8.9 percent from minus 7.6 percent.”While monetary policy makers would like to raise rates they can’t, because the recession is not yet drawing to a close,” Achuthan added. “So even as the Fed may continue to roar on the inflation front, it remains a paper tiger.”Privacy Policy Terms of Service

ptmAugust 8th, 2008 at 9:58 am

ptm on 2008-08-08 09:03:01 – James Turk’s numbers are off however. It seems like instead of $2,349 beforehand the Fed would had to have around $1,480 to make it a 38.4% jump.No, the numbers are correct. Turk is referring to extrapolated annual growth in the Fed’s ECB holdings compared to the previous year.

GuestAugust 8th, 2008 at 10:18 am

So how do you go from the end of the world yesterday to a new bullish fervor today? All of a sudden credit card company downgrades, $2.3 BILLION losses, dividend slashing, global recession, and corrupt govt’s just don’t matter today?

FFAugust 8th, 2008 at 10:19 am

Is the widespread decrease in commodities reflecting a global slowdown and that deflation is winning? The Fed/Treasury better get serious about inflating or the U.S. is toast. The only way to service our disgusting debt is by significant inflation. If deflation takes hold, game over!

Miss AmericaAugust 8th, 2008 at 10:19 am

The USD is on steroids!!!Oil is reacting to the dollar. (not vica versa)This kind of run is not worked into any of my equations, (but continues to work with my oil predictions) and I need to see what truly lies behind the USD run. (WOW is the USD strengthening!!! WHY?!?!?!?!?!?!?!?!?!) Don’t go by those asses over at CNN/MSN/etc… that will spew crap like “ECB not likely to raise rates” or “Market reacts to oil drop”. It’s something else!This is either the ultimate sucker rally……or get your money on board every USD denominated loser from the past year! (the bigger the loser, the bigger the recovery)My personal opinion(I don’t buy the rally) is that something really bad is brewing overseas (outside the USD) and people “in the know” are moving to USD for safety. This leads me to a thought I’ve been giving a great deal of time to. Which is…I believe the next major move down will be triggered by a foreign market. (likely one that has enough capitol, but is heavily immersed in debt that hasn’t been written down. …likely a “savings society” that will be shocked to see that what they saved isn’t all there after the eventual write downs! …which causes a panic!)The basic premise of this theory is why the US has yet to really experience a panic. If you’re at negative money on average, then to “lose it all” really means nothing. In fact… you’ve gained. ….but if you’ve got savings that you’ve worked hard/responsibly for, then you will panic to save it!Hmmmmmmm Who are the biggest savers???If my theory of a overseas problem is correct… the dollar will continue to strengthen, but dollar priced things will fall. Including the market, after the euphoria of dollar strength wears off, and worldwide debt takes hold.I’ve got some homework to do! …but will be going on vacation for the next 2 weeks. (and seldom logging on)Miss America

AlessandroAugust 8th, 2008 at 10:26 am

@FF on 2008-08-08 10:19:03check your facts, with 30% GDP coming from rotten finacials the US is toast anyway, inflation can certainly save someone with tons of short-term rolling debt.

AlessandroAugust 8th, 2008 at 10:34 am

@Miss Americamarkets with savers and lots of unrecognized write-downs… China and Japan come to mind. But both have a big chunk of their savings in dollars, so panic will not bread with the USD skyrocketing. Besides Chinese market is already crushed.The Gulf?

MAAugust 8th, 2008 at 10:41 am

@ Alessandro on 2008-08-08You’re barking up the right trees… …but those savings that are in dollars are in “locked up dollars”.Debt forgiveness for immediate access credit = evapor-flation.Miss America

AlessandroAugust 8th, 2008 at 10:45 am

Miss America: “Oil is reacting to the dollar. (not vica versa)”I agree, oil is really a reverse dollar/US-debt play.”that will spew crap like “ECB not likely to raise rates””from the technical point of view the USDEUR has broken a serious resistance so speculators are going nuts. Today Mish (before much of the run) yesterday at the huge 30-year auction people were desperate to get the some bonds very strange…

tutterfrutAugust 8th, 2008 at 10:56 am

Read an article today on Dow Jones Newswire(can’t post it/copyright) in which was said the ECB is preparing to tighten the ECB window facilities to get the European securities market back to life. ECB wants thebest collateral on its books, to be traded between banks itself. Maybe they could be in for a rude awakening…

MASHIACH BEN CHANAAugust 8th, 2008 at 10:57 am


son of the paulAugust 8th, 2008 at 11:36 am

technically NO recession in the USA,technically US currency getting stronger.Otherwise who will buy US debts?do you die hard bears still get no ideas?

Hong Kong fun managerAugust 8th, 2008 at 11:45 am

I have a question :do you think if Fed needs a printing money machine, or printing machine is operated by the FED?

GuestAugust 8th, 2008 at 11:48 am

Son of Paul-don’t believe the idiot press whoare manipulated by the idiot politicians…check with real people to get the REAL STORY:According to the Akron Beacon Journal, demand for food from the Akron-Canton Regional Foodbank increased by 14% year-over-year in the first six months. At the same time, agencies that receive food are reporting an increase of 20% in the number of people being served. Food distribution at the food bank increased by 7% in the second quarter alone.The figures are out there, you just have to dig beneath Paris Hilton Presidential ad spoofs to find them. In the Sarasota, Florida Herald Tribune today there’s an interview with Vicki Escarra, president and CEO of the nation’s largest food bank network. The network feeds 25 million people annually through food banks around the country.Escarra says a survey of the network’s 200 food banks in January showed a 20% increase in demand over the prior year. Escarra estimates there are 35 million Americans “living without knowing consistently where their next meal will come from.” Escarra said she expects this to be “pretty severe for the next 18 months at least.”

GuestAugust 8th, 2008 at 12:00 pm

About this market, remember Abelson’s warning of “caveat emptor.” Buyer beware!The Fed and Congress have thrown everything but the kitchen sink at this market to keep it levitated – savings, the dollar, inflation, the integrity of the U.S. treasury, nationalization of GSEs, privatization of profits and socialization of losses for the financials, the SEC’s heavy thumb on the scale to tip sides in the market… But, it isn’t working; they can’t control the economic numbers as they continue on their way downward. No matter what kind of stock market they and the PPT manufacture in the short run, the economy is going down.As Alan Abelson said this week: “Revulsion, not denial, will define the end of the bear market.” What we’re hearing these days are the siren songs of the financial media, of the Morgan Stanley’s, of UBS, of Citigroup, of Banc of America Securities, Goldman Sachs, J.P. Morgan, Lehman Brothers and Deutsche Securities issuing buy recommendations, upgrading ratings and opinions, just as they did knowing General Motors was on life support.*As Karen De Coster said, “Wall Street has little to do with disseminating competent securities analysis and advice to average ‘investors,’ and has much to do with transferring wealth from Main Street to Wall Street—and, for the most powerful Wall Street brokerage houses, doing the bidding of the government’s Plunge Protection Team,” milking the economy and the taxpayers.As Albert J. Nock said: It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services.*General Motors and the Intellectual and Moral Bankruptcy of Wall Street” by Karen De Coster and Eric Englund

MASHIACH BEN CHANAAugust 8th, 2008 at 12:03 pm

Nuriel will be interview on fox business channel today at 3 pm eastern standard channel hopefully he will make a comment about the Russian rapist.Hello Russia goodbye NATO.

helibenAugust 8th, 2008 at 12:15 pm

yes stong usd can save the world.cheer!ok weak usd can save the usalovely!How beautiful is the wrold!?

GuestAugust 8th, 2008 at 12:53 pm

Only in Bear markets do you have up-moves like this. In a bull, never in the past has there been such forceful moves. Today rally, tomorrow hard fade. Just like yesterday…

AnonymousAugust 8th, 2008 at 1:06 pm

Dr. Roubini:In your prognostics of a long drawn-out recession, you have always mentioned high energy prices as a factor.Well, now that energey prices are coming down, do you see things differently?It is clear everytime the oil prices fall, the equity market will go up.So if oil prices fall to around $80/barrel, are we looking at another Dow 14000?

GuestAugust 8th, 2008 at 1:08 pm“Drug prices up 100% — or higher” Spikes bring legal, political scrutiny — by Julie Appleby USA TODAYDrug companies are quietly pushing through price hikes of 100% — or even more than 1,000% — for a very small but growing number of prescription drugs, helping to drive up costs for insurers, patients and government programs.The number of brand-name drugs with increases of 100% or more could double this year from four years ago, researchers from the University of Minnesota say. Many of the drugs are older products that treat fairly rare, but often serious or even life-threatening, conditions.Among the examples: Questcor Pharmaceuticals last August raised the wholesale price on Acthar, which treats. spasms in babies, from about $1,650 a vial to more than $23,000. Ovation raised the cost of Cosmegen, which treats a type of tumor, from $16.79 to $593.75 in January 2006.The average wholesale price of 26 brand-name drugs jumped 100% or more in a single cost adjustment last year, up from 15 in 2004, the university study found. In the first half of this year, 17 drugs made the list…In a decision awaiting approval by the 9th U.S. Circuit Court of Appeals, drugmaker Abbott agreed last week to pay up to $27.5 million to settle a lawsuit over a 400% price increase on its HIV/AIDS drug Norvir. Settlement did not lower the price.Sen. Amy Klobuchar, D-Minn., and Sen. Charles Schumer, D-N.Y., asked the Government Accountability Office last week to investigate large price hikes. Klobuchar asked the Federal Trade Commission in April to investigate Ovation Pharmaceuticals, which raised prices on four drugs in 2006 by up to 3,436%…

GuestAugust 8th, 2008 at 1:21 pm

Dow is going to close up 500 points today. Oil trumps all as every day it drops, the consumer gets a “tax” break and consumer spending is 2/3 of GDP.

GuestAugust 8th, 2008 at 1:33 pm

@Guest: “Questcor Pharmaceuticals last August raised the wholesale price on Acthar, which treats spasms in babies, from about $1,650 a vial to more than $23,000…”The government is the enemy. When they will go into another country and kill a million people for their own power and profitability, you think they won’t kill some babies by pricing out treatment?

AnonymousAugust 8th, 2008 at 1:34 pm

Guest on 2008-08-08 13:21:55It looks like that! Dow 500+ today?? Whatever happened to recession??

AlessandroAugust 8th, 2008 at 1:36 pm

After MBIA other players choose to renegotiate and seattle CDS privately. It might become a trend, worth keep an eye on.2:32 p.m. [ACAH] Aca Financial deal include swaps on exposure to ABS, CDOs2:32 p.m. [ACAH] Aca Financial to discharge claims on credit default swaps2:30 p.m. [ACAH] Aca Financial in global deal to settle structured credit

PhilTAugust 8th, 2008 at 1:58 pm

From previous thread@AfA and Anonymous on 2008-08-07 22:50:33@ Alessandro on 2008-08-08 02:17:00@ ALLI think that Elisa Parisi-Capone does a fine job of explaining this issue in her recent article on this site entitled:”Is Merrill’s CDO Transaction With Lone Star Consistent With Markit ABX Pricing?”Entire article ==> posed a similar question to her in her blog – her answer is available there.Best ~Written by PhilT on 2008-08-08 12:25:52 (Original)

GuestAugust 8th, 2008 at 2:03 pm

How can Congress jumpstart the American economy simply by taxing the producers and using that money to finance Wall Street gaming houses? They’ve done nothing else to put this train wreck back on track. And the Fed is out of bubble scams.For instance: All the airlines are losing money except for Southwest. People are picking the cheapest fares possible when they fly. To compete with SW for the cheapest fare spot, others airlines are charging $15 and $30 extra for bags so the costs won’t show up when the computer selects the cheapest rate for fare shoppers. Airlines say they are losing money on every flight because of fuelMy point is, you tell me how the Fed, Bernanke and Paulson are going to fix this by seizing the treasury for personal use and by creating fiat money? How will they get people to fly? They keep on saying the airlines need to raise rates. But what the airlines eventually will do is to cut down on flights until they have all full loads, and then raise rates. But guess who had a record year? Amtrak.This is just one instance of the disconnect between the real economy and the financial system’s paper-pushing shell game. Eventually, you can’t sell product unless you bring resources and labor to it, i.e. people’s wages. The people have earned this money and want something for it. When the Fed and Wall Street steal it and put it into their pockets either directly or via inflation, it reduces what people can do and it reduces the economy — airlines reduce flights, grocery stores provide fewer products, auto manufacturers go bankrupt, clothing stores close stores, small businesses shut their doors, people go without health care, restaurants fold…The economy has turned a corner and a shakedown’s coming.“People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.” J.K. Galbraith

GuestAugust 8th, 2008 at 2:14 pm

@Naked CaptitalismA BusinessWeek article by Matthew Goldstein (hat tip to Calculated Risk commenter “synthetic-guarantee groupie”) describes a proposal to…transfer ownership of closed pension plans from Main Street firms that find them burdensome to Wall Street firms that see an opportunity. Why am I (along with the article’s author) not entirely enthused?:The folks who brought you the mortgage mess and the ensuing hedge fund blowups, busted buyouts, and credit market gridlock have another bold idea: buying up and running troubled corporate pension plans. And despite the subprime fiasco, some regulators may soon embrace Wall Street’s latest scheme…[T]he world’s biggest big investment banks, insurers, hedge funds, and private equity shops have been quietly laying the groundwork for such deals over the past year. They would be a big prize for Wall Street. The $2.3 trillion pension honey pot has $500 billion in “frozen plans” that are closed to new employees and whose benefits are capped… By managing those troubled plans, Wall Street also gains entrée to an appealing set of customers to whom it can sell a broad array of fee-generating products…The concept of off-loading pension funds sounds great. For businesses it’s a chance to rid themselves of struggling plans, which can weigh down a balance sheet. It’s especially good timing now. New accounting rules take effect in the next year or so that will require companies to mark their pension assets to prevailing market prices each quarter—a change that could devastate some companies’ profits…Critics, including some on Capitol Hill, worry that financial firms don’t have workers’ best interest at heart, which would put some 44 million current and future retirees at risk… The biggest fear is that Wall Street could use retirement portfolios as a dumping ground for its most toxic and troublesome investments. It’s not unlike what regulators allege UBS officials did with its stockpile of risky auction-rate securities by trying to off-load them to wealthy clients.If Wall Street gambles with those pension assets and loses, U.S. taxpayers would probably foot the bill. When a company with a pension goes belly up today, the PBGC, under federal law, has to take on the fund’s obligations and dole out money to its beneficiaries. It’s a costly burden: The PBGC currently runs a $14.1 billion deficit…The federal agencies that oversee the nation’s pension system are expected to weigh in on the issue—potentially paving the way for big firms that have been pursuing it, such as Aon, Cerberus Capital Management, Citigroup, JPMorganChase, Morgan Stanley, and Prudential… Regulators are almost certain to put the kibosh on buyouts by free-standing, independent firms that aren’t tied to the books of any big firm…

GuestAugust 8th, 2008 at 2:32 pm

London Banker’s new post, “Snake Oil and Deflation” on RGE’s Finance and Markets Monitor, has many of the answers many here are seeking today.It begins:We are likely in future to have great debates on the who, how, why and wherefore of the coming recession/depression, particularly if it leads to global conflict and currency realignments that mark the end of Bretton Woods II and US economic hegemony. At base we have the quote I opened with last week:“Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works”. – John Stuart MillThe difficulty is that the policies which financed highly leveraged unproductive works are extremely popular to the extent of representing the culture of at least two generations. While a deflationary recession/depression will make such policies even more costly and destructive than they have been in getting us to the critical point of failure, the same policies are such basic political drivers that without a culture change political and economic change become almost impossible…Says LB: [T]he system which has for sixty years precipitated the greatest debt cycle in history may be inadequate to address the greatest deflationary cycle in history if it chooses to prescribe the same snake oil which sickened the economy in the first place rather than the balanced (fiscal) diet and (strict economy) exercise we all know would be better for us. monitor/253292/snake_oil_and_deflation

GloomyAugust 8th, 2008 at 2:37 pm

SURPRISE PARTY TONIGHT?WaMu is down 8.5%, seemingly missing today’s party. Maybe it will party with the FDIC tonight.

Miss AmericaAugust 8th, 2008 at 2:44 pm

Nouriel…Maybe I didn’t get enough hugs from my mom as a kid???…so maybe that’s why I’m dying for a little acknowledgement from you?With regards to my oil call, how about a: Hell yeah! F’in A! Boooyaaaa!Where’s the love?An excerpt from my June 10th post:“Now, at the beginning of hurricane season… at the beginning of USA/EU summer time when consumption of oil peaks… when Morgan Stanley is calling for $150 oil… and GS ups the odds for $200 oil… I’m putting my RGE reputation on the line again!I truly believe oil will make a rapid decent to the $96-110 range! (a 20-30% drop from peak) …and in the event of a flare up (major event), I don’t picture oil breaking $145.”C’mon!!!Throw me a bone Nouriel.I don’t post hundreds of times. I only post when I’ve got something big to say… and I ONLY POST HERE. (well… 99.9% exclusive.)My resume on this website: Since the crunch began, I’ve…Called all major market turns accurately. (Top and bottom turns)Called surprise Rate cuts IN ADVANCE!!! (…and before it became a common guess)Called peak gold…and have done well for my friends in the market with summer predictions for commodity stocks, followed by winter predictions for Multinats (who produce small priced goods, and can pass along inflation price increases to the consumers at higher percentages!)What else do I have to do? Create the piano necktie? Bring you 7 minute abs?Miss America – Vanity, it’s my favorite sin!How about a “bloggers roundup”?

FFAugust 8th, 2008 at 2:49 pm

@ Miss AmericaIf I only invested in your calls, I could retire. You have definitely beenincredibly accurate. Any new calls?

GloomyAugust 8th, 2008 at 2:50 pm

TODAYS MORTGAGE WILL BE UNDERWATER TOMORROWEconomist Gary Schilling predicts housing will fall by 42% before this is all over. Housing is already down 21%. Homes purchased with a 20% down payment today will have no equity left in a year or two. In other words, tomorrow’s foreclosed properties are being purchased today.

AfAAugust 8th, 2008 at 3:14 pm

Miss AmericaDoes an acknowledgment from a total anonymous person enough for you? I guess not.By the way, interesting theory concerning USD recent move. Do you mean European economy has nothing to do with it?

Miss ItalyAugust 8th, 2008 at 3:15 pm

Please, everybody, a round of applause for Miss America.I haven’t followed all of his suggestions, but I did the gold, XLTC, got out of temptation to get into oil at the peak and especially got an interesting point of view about how TPTB worked from the Aug 07 crisis on and made some good bucks keeping that in mind.I just wish I completely understand his last comment on “Debt forgiveness for immediate access credit = evapor-flation”. Sorry MA, I’m slow (not in financial/economics), still learning a lot.Miss ItalyP.S. How lame that the big rally is exactly at the lucky chinese number 08.08.08. Better choreographed than the olympics opening ceremony….

GregAugust 8th, 2008 at 3:34 pm

MA,Thanks for all of your posts. I made some quick $ on XLTC, bought all of the way down to $29. Please continue to post here and hopefully Roubini grants you your wish on the blog on RGE.

Miss AmericaAugust 8th, 2008 at 4:26 pm

Miss Italy… The whole debt forgiveness thing is part of my Evapor-flation theory.(sorry to keep beating people over the head with this)Likewise, I threw this together rather quick, so it’s not my best work…Today’s situation is unique. People try to draw historic parallels that don’t have true comparable variables.You’ve got:Inflation CampsDeflation CampsStagflation CampsReflation CampsDisinflation CampsHyperinflation CampsStagnation CampsWithin these camps, you have people that follow:Keynesian, Austrian, NeoClassic, ACME theory…None of it is invalid. …in fact, it’s all valid. …but no theory or camp, can account for the seen and unseen variable that now confront us. It will be a combination of many “flations” that we see, rooted from the base worldwide currency.What we have today is unique for new reasons:The base currency that rules the land is the USD (which is ground zero for the problem)The debt ratio has gained a perpetual self fulfilling momentumThe flight to safety is also the USD (through the US Gov’t)The flight to commodities is all priced in USD!The US Markets (through Counterparty Risk) have created the ultimate safety netThe USD markets have become Globalized and so interwoven with every country that their downward spiral affects EVERYONE!(this list goes on quite longer…)…but yet, the population grows.…and needs more food…more shelter…more jobs…and more credit…and more debt…but what if the debt today is already too big???Simple!You eliminate it. Poof!You shall see. The FASB has already started working this magic. By allowing corporations to write down their debts on level 3 assets, you are seeing the back door to this “disappearing man in the box” routine. (The FASB has allowed this as the counterbalance to writing down their assets on level 3 assets. BUT IT’S NOT!!! …and that’s the beauty.) In much the same way, as these corporations take back auction rate bonds back onto their books, they will also mark up, their write down of overall debt.Eventually, in round robin fashion, you will see the off balance sheet debt being paired off against other counterparty debt to eliminate overall debt. Debt will evaporate. It has already started. It is the only answer for a debt that can’t be paid. Sorta like Chapter 11, it’s a restructuring that’s going on.This, along with many other smaller factors are where I come to my Evapor-flation call!(years from now, you can say you heard it here first)Personally, instead of these stimulus plans that will help mask this evaporation (by adding money to replace evaporated money) I’d rather see some sort of public write down of debt. (Something like: an across the board 10% principal reduction of all home loans. This puts extra money in the consumer’s pockets on a monthly basis. This enables them to make more payment on mortgages, and pay more taxes, which trickles up to the government. …whom can then use that additional cash flow to keep bailing out the TPTB that made the bad loans in the first place. Where we’re at now, the Gov’t is going to keep bailing out the corporation regardless… so why not start at the bottom, and trickle up.)Miss America – gone fishingp.s. If Nouriel provided me a blog, I may better be able to articulate the complete cycle.p.p.s. Gloomy, as far as gold goes, and the miners, and their stocks… It’s all too heavily played by now. Whatever move you make in these arenas will have to be coupled with luck of beating the flow. Since it’s already played, I fear the manipulator’s needs more than the fundamental pressures. Good luck. If you can spare the money, a little hard asset gold might be good to always keep stashed… but nothing in excess. (at least today’s prices are more reasonable.) Overall… I’d rather own land.p.p.p.s. From a RiskvReward stance… I’d profit take XLTC since there’s very little upside room.p.p.p.p.s. Don’t forget to read LB’s new thread on Snake oil and Deflation. (even though I’m in the ultra exclusive Evapor-flation Camp)

AlessandroAugust 8th, 2008 at 5:25 pm

I don’t buy your evapor-flation theory as a whole, but I agree that net debt is much less than the raw numbers appear to show. For example the ominous notional value of the CDS market really masks much smaller net positions (still far too huge, but not in the hundreds of trillions).In favor of your evapor-flation, looks like the CDS market is moving in that direction, people sharing losses and evaporating unsustainable gains and losses.But what do you do when two parties do not have matching liabilities. For example, what if you own a trillion to your Olympic host?I’ll be gone for two weeks as well. Happy holiday.

GloomyAugust 8th, 2008 at 6:04 pm

@MAI have 5% of my assets in gold stocks. Although I am not a good trader (my timing is frequently off), I am a damn good long term investor (if I do say so myself). I would not be surprised to see further large declines in gold in the short term. On the other hand all of my assets (including puts and shorts) are denominated in dollars. The system is highly leveraged and appears to destabilizing. Black swans are definitely in season.

GuestAugust 8th, 2008 at 6:22 pm

if dollar rally above $77, then it seems it will break the downturn move. but dollar rally without backing of FED’s rate hike? looking at 10 years yield, it is still deciding to go up or down in the triangle. until oil support is taken out at $110, is kudlow’s talk about strong dollar completely crap talk?

GuestAugust 8th, 2008 at 6:53 pm

Wow, model for walking away from CDS mess and dump the mess on creditors?ACA Capital Holdings Inc., the bond insurer that lost its investment-grade credit ratings in December, terminated $65 billion in credit-default swap contracts and turned over most of the company to creditors.ACA Terminates $65 Billion of Credit-Default Swaps

GuestAugust 8th, 2008 at 8:27 pm

Talking of interesting wide “rumours” and such stuff:”Rumours” in Australia suggest that the Commonwealth Bank through its Malta Offices purchased USD5 billion worth of Subprime from Countrywide – a year or so ago. Now after almost a year of Australian Bwhankers and associated politicians and bureaucrats (ad nauseum) repeatedly publically stating that Australian Banks have no exposure to the Subprime subset crisis (“Our Banks are Strong”), it appears that 4 other Australian Banks colluded under the government lead to take on USD1 billion EACH from the Commonwealth Bank, of this Subprime subset exposure – sort of a warm “Bank of Brothers” thing.Now, from Mish, we get that the Reserve Bank of Australia – Chief gunslinger of interest rates, Glen Stevens – has been feeding all the Banks cash to prop up their books for quite a while now and promises, more and much more and faster, if they securitize their mortgages er quickly.Now, we get to get: a review of the Tax Laws of Australia so we can guess what comes next; while Bush and Tin Tin Rudd chow down with the Chinese over an Olympic charade to ensure that China continues to play the “Sport of Kings” er global collusion.There can be no doubt now that every government and Central Wank throughout the World is contributing their peoples resources and future energies of their unborn children’s children, to the continued life support of Wall Street and all that hangs off it and where euthanasia appears the only promising remedial action for “Those that would be King” (and get caught) – remembering where the king’s head finally, lays silent.Ho humPeterJB

GloomyAugust 8th, 2008 at 8:54 pm

WARLet me get this straight. Oil, the primary engine of the Russian economy is tanking and with it the Russian stock market. And conveniently a nice little war arrives. I’ve watched from the sidelines as many of you write about the US going to war in order to cure our economic ills, thinking that this seems a little crazy. Now I’m watching Russia, wondering if it is following this game plan and wondering if we might do the same. Maybe you guys aren’t so far out in left field after all.

AnonymousAugust 8th, 2008 at 9:39 pm

With oil prices falling and stock run up this week, is this sucker’s rally or real rally?

hazletonAugust 9th, 2008 at 12:53 am

@Miss America, Dr. Roubini, and London Banker and many others.You are some of the few people I trust in the economic sphere. Please keep the truth coming.

kilgoresAugust 9th, 2008 at 2:07 am

@ Anonymous on 2008-08-08 21:39:39>With oil prices falling and stock run up this week, is this sucker’s rally or real rally?For what it’s worth, seems to me it is a sucker’s rally. The markets are all giddy because oil prices have dropped, but that’s only temporary, as the reason oil prices have fallen has to do with falling global demand, not any bursting bubble in oil prices. When the markets check back into the realities of the credit crisis and various other problems outlined by Dr. Roubini, stock prices will resume their drop. Dr. Roubini has predicted a 40% drop peak-to-trough in the DOW. The high point for the DOW was 14146 on 9 October (as I recall), so I guess we could expect the DOW to fall to around 8500 before it really starts resuming any sustained climb. We’re probably in for a rough couple of quarters in the market yet, at LEAST (presuming that the recession bottoms out by the end of the second quarter of 2009 — Dr. Roubini has predicted a minimum of 18 months of recession from inception at end of 4th quarter last year or beginning of 1st quarter this year — and further presuming that stocks start to pick up around 6 months before the actual bottom, since they arguably tend to be a leading indicator of economic conditions).This being said, I would defer to other, more financially savvy posters to this blog who may have substantially different views (though I suspect most of them are far more pessimistic that I).SWK

Client #9August 9th, 2008 at 4:18 am

@Gloomy on 2008-08-08 20:54:38I find it hard to believe that Russia wanted this now, sure they want Georgia, Ukraine and the baltic states back but not now. Instead (tinfoil on) Georgia gets a green light from US to attack, Russia gets tangled up…at the same time in a different part of the world a couple of battlegroups have a little gathering…(tinfoil off)

GuestAugust 9th, 2008 at 4:42 am

“Debt will evaporate.”I don’t understand this.If debt can evaporate that “simple”, why are we in this big mess anyway?If you owe me $1,000 and you can’t repay, how are you going to “evaporate” this?Are there any examples in financial history that support your thesis?”We have spend the credit on useless, unproductive crap, but we can’t repay it, so, let’s evaporate the debt, the other side of credit! Now, everything is fine.”Weird.

GuestAugust 9th, 2008 at 5:01 am

“Crybaby capitalists whine for more” — Freddie Mac’s CEO collected $38 million while the company he ran fell into a financial morass. He’s just one example of corporate chiefs who want taxpayers to bail them out. By Bill FleckensteinEXCERPTSAnd it’s not just Fannie and Freddie that feel entitled to a bailout. As reported by Bloomberg last week, Mark Mobius, a very successful investor and wealthy man, believes the Fed should cut interest rates to 1% in order to fuel growth.Now why — with inflation running at somewhere between 6% and 10% a year in this country and raging higher around the globe (even if oil has backed off its 18% pace) — would any sane person advocate that sort of policy, especially given what happened the last time the Fed drove rates to 1%? The answer is: Because his closed-end fund is down about 17% on the year. (I don’t mean to single out Mobius. He’s just a recent example of a long list of folks advocating similar policies.)It is just despicable that under the guise of capitalism this kind of behavior is permitted. Multimillionaires whine for bailouts and get them. CEO Daniel Mudd at Fannie Mae has pocketed $42 million since he took over in 2004. That, of course, doesn’t count what ex-CEO Franklin Raines and his crew in the previous regime skated off with…When historians look back at the summer of 2008, they will find the mind-set even harder to comprehend than the goings-on of the summer of 2007, when there was so much denial about the deflating of the housing bubble in the first place. (It was, of course, originally deemed to be just a subprime problem)One individual decidedly of another persuasion is economist Nouriel Roubini. In the Aug. 2 issue of Barron’s, he predicted that before all is said and done, the financial sector might be facing $2 trillion in write-downs because banks have not yet factored in the losses that have extended beyond subprime…Roubini also believes that the consumer credit side of the banks’ business — specifically HELOCs, home equity lines of credit — might turn out to have insufficient reserves. He thinks that hundreds of banks will go bust — the implication being that other banks will become scared, credit will further contract and business will get worse. That process feeds on itself, and it’s all part of what happens as the real-estate and credit bubble collapses and affects the economy…

FlandersAugust 9th, 2008 at 6:30 am

From A Bubble That Broke The World:”That debt need never be paid, that it may be infinitely postponed, that a creditor nation may pay itself by progressively increasing the debts of its debtors — such was the logic of this credit delusion.”This debt evaporflation theory seems very close to “the logic of this credit delusion”.

FlandersAugust 9th, 2008 at 6:38 am

From A Bubble That Broke The World:”Since John Law and his Mississippi Bubble, individuals have been continually appearing with the same scheme in new disguise. The principle is very simple. You have only to find a way to multiply your creditors by the cube and pay them by the square, out of their own money. Then for a while you are Nabob. One fish cut up for bait brings three. Two of these cut up for bait bring eight, the cube of two. Four of these cut up for bait bring sixty-four, the cube of four. Sixteen of these for bait bring 4,096, and 256 of these, which is the square of sixteen, will bring 16,777,216, which is the cube of 256. The fatal weakness of the scheme is that you cannot stop. When new creditors fail to present themselves faster than the old creditors demand to be paid off, the bubble bursts. Then you go to jail, like Ponzi, or commit suicide, like Ivar Kreuger. There is nothing new in the scheme. What is new is that for the first time the whole world tried it. The whole world cannot put itself in jail, nor can it escape the consequences by suicide. When the delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard credit, and debt becomes debt again, as it always was.”Repeating the last sentences:”There is nothing new in the scheme. What is new is that for the first time the whole world tried it. The whole world cannot put itself in jail, nor can it escape the consequences by suicide. When the delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard credit, and debt becomes debt again, as it always was.”

GuestAugust 9th, 2008 at 7:18 am

@ gloomythe following article from Wayne Madsen Report provides details on the logic behind the war between Russia and Georgia…last night AP also reported that the Black Sea port of Poti, which is an important energy transport point, has been bombed and a major oil pipeline is vulnerable…the fall in the price of oil could be short-lived…Bush just said the stability of the region is threatened…i wouldn’t be surprised if he escalates the situation with a naval blockade of Iran…note in the WMR report the sale of the gas utility by Georgia to an American-Israeli firm and the Israeli military involvement with Georgia…AP reported that Georgia has asked the United States to assist in the transport of its troops from Iraq back home and that a base in Georgia has been bombed where only a month ago 1,000 U.S. troops were conducting training exercises…from Wayne Madsen Report:Russia’s government, which has always been prepared for a showdown with neocon contrivance governments established on its periphery by the Bush administration and neocon and “democracy manipulation” support mechanisms established by international financier and “faux progressive” George Soros, is striking back at the Georgian government of neocon puppet Mikheil Saakashvili.After Georgia attempted to stage an invasion of the pro-Russian secessionist Republic of South Ossetia, Russian military forces are striking back at Georgia and U.S. and Israeli special forces in the country that have been helping to prop up the Saakashvili regime, a regime that gained power in a “themed” Rose Revolution instigated by neocon think tanks in Washington and Soros’ operations in New York, Prague, and other countries.Earlier, Georgia tried to stage a border incursion on another secessionist republic, Abkhazia. Abkhazia has now invoked a mutual defense pact with South Ossetia and has said it will open up a second front against the Tbilisi government of Saakashvili.The not-so-hidden hand of Soros can now be seen in the anti-Russian diatribes beginning to appear in the expected cyber-propaganda campaign against Russia. The pro-Georgia neocons are condemning Russia, the sworn enemy of the Russian-Israeli mafia and their aiders and abettors, including Boris Berezovsky, Marc Rich, George Soros, Rupert Murdoch, in its attempt to prevent Georgia from occupying a vestige entity of the Soviet Union that wished to remain allied with Russia. These condemnations are showing up on Soros-funded sites, including DailyKos and Democratic Underground, two entities that this editor long ago determined were advancing dangerous “group think” in the service of neocons and “democracy manipulators” like Soros.WMR learned that Soros’ Open Society Institute (OSI) has been working for years stirring up problems in South Ossetia and advancing the cause of the Tbilisi government of Saakashvili to weaken the pro-Russian government of South Ossetia. Soros’ gambit has failed with the quick military response of President Dmitry Medvedev and Prime Minister Vladimir Putin. Putin is at the Beijing Olympics opening ceremony along with President George W. Bush.One Soros “bagman” in the Democratic Party, former US ambassador to the UN Richard Holbrooke, who negotiated a bribe settlement with Bosnian Serb leader Radovan Karadzic, and later denied it, has called on the United States and NATO to come to the military assistance of Georgia, something that could trigger a major war.Russia has, in fact, shown a great deal of patience with America’s neocon foreign policy. It did not recognize, as previously threatened, the independence of South Ossetia, Abkhazia, or the Trans-Dniestrian Republic after neocons saw through the unilateral declaration of independence of Serbia’s breakaway Kosovo region.WMR has learned that the “Georgia shop” at the “National Security Agency (NSA) Texas” complex, the former Medina Regional Security Operations Center in San Antonio, has issued orders that in the event of a full-scale Russian invasion of Georgian territory, all signals intelligence (SIGINT) equipment stationed in Georgia and which has been aimed at intercepting Russian communications in the Caucasus region, is to be destroyed and NSA personnel evacuated.UPDATE 1X: Greater power politics may be at play in Russia’s decision to hit hard at Georgia’s military incursion into South Ossetia. Israel warned Russia that it would do “everything possible” to prevent Russia supplying S-300 anti-aircraft/missile equipment to Iran. Georgia, which has a number of Israeli security advisers training its military, soon invaded South Ossetia, Russia’s allied secessionist republic, formerly part of the Georgian Soviet Socialist Republic under the old Soviet Union. Ossetians are ethnically distinct from Georgians and they speak a language related to Farsi.Russia’s foreign intelligence service, the SVR, is also aware of a number of Israeli agents-of-influence in the Saakashvili government. They include the Jewish Georgian Defense Minister David Kezerashvili who lived in Israel as a boy and speaks fluent Hebrew. The late Georgian Prime Minister, Zurab Zhvania, a Saakahshvili ally, was Jewish and close to the Israelis. Zhvania died in 2005. His body was discovered in his apartment and police ruled that he died from carbon monoxide poisoning from a natural gas leak from a heater. Another identified Israeli agent-of-influence in Tbilisi is the Minister of “Reintegration,” Temuri Yakobashvili, also a Jew who speaks fluent Hebrew and is the person Saakashvili has relied upon to bring to heel Abkhazia and South Ossetia, after having previously “re-integrated” the Republic of Adjaria on the Black Sea. Yet an additional Israeli agent is George Arveladze, Georgia’s Minister for Economic Development. Saakashvili sold Georgia’s natural gas utility off to an American-Israeli company called Tahal.There are links between Sakashvili’s Israeli agents and exiled Russian-Israeli Mafia tycoon Boris Berezovsky and George Soros. Saakashvili is also personally supported by Daniel Fried, Assistant Secretary of State for European and Eurasian Affairs.Israel’s Elbit Systems Ltd. sold some 40 Hermes-450 advanced remotely piloted vehicle (RPV) spy planes to Georgia before Russian pressure resulted in Israel stopping the sales. The Abkhazians and Russians shot down seven of the aircraft over Abkhazia earlier this year. The deal was worked out by former Israeli Cabinet minister Roni Milo and his brother, former Israel Military Industries director Shlomo Milo. The two also tried to sell 200 Merkava tanks to Georgia, but the Russian government nixed the deal after bringing pressure on Jerusalem. Israel Military Industries (IMI) has sold the Tavor Tar-21 assault rifle to Georgia’s security troops and provided training in their use.

kilgoresAugust 9th, 2008 at 8:25 am

@ Guest 04:42:22I’m not sure I get it either, this term ‘evaporflation’ being used. I can see how hyperinflation could wipe out debts, because you could pay off the nominal value of the debt in inflated currency worth virtually nothing in real terms. Deflation, on the other hand, would make the repayment of debts more expensive, since the currency would be appreciating in real value. Maybe ‘evaporflation’ just means everyone has so much debt and so little money that nobody can ever pay off their debts, so everyone just decides collectively that all debts just go away, and society starts from scratch.SWK

GuestAugust 9th, 2008 at 9:20 am

“If you owe me $1,000 and you can’t repay, how are you going to “evaporate” this?”why not, you default what you cant pay and your credit get hurt. consequence of default, only retard will lend you any money in the future. in this world, there are plenty retards, so why not just default?

GuestAugust 9th, 2008 at 9:23 am

“That debt need never be paid, that it may be infinitely postponed, that a creditor nation may pay itself by progressively increasing the debts of its debtors”should we call this default indirectly? this method is workable too, or just debase currency.

GuestAugust 9th, 2008 at 10:16 am

Evapor-flation – Imploding Debt and Debt Defaults Do Not Collapse Money Supply – Once a loan is issued, the cash is in the bank account and spent. Events leading to a subsequent loan default rarely have direct impact on money measures. However, a loan default can affect money supply when a losing bank has to reduce its new lending.

AnonymousAugust 9th, 2008 at 11:54 am

As a newbie here, would someone kindly summarize Miss America’s take on “peak gold” and long term view on price of physical?thanks

GuestAugust 9th, 2008 at 12:25 pm

Miss America is a trader first and saver second. As a trader, he sees that gold peaked at $1,000 and will not be going back there soon, especially with the low selling volume and central banks dumping gold.As a saver, he thinks you should have some physical gold, not too much, on hand. That means NOT in a bank safety deposit box where it can be seized by the government.So why are there so many gold bugs on this forum? Because it’s the ultimate insurance policy if (when) the bovine waste material hits the rotating air movement device. Look at the gold volume when prices go down ( nobody is selling their gold no matter how low the price goes. An if (when) things do fall apart, it will happen within days as opposed to weeks or months. So it’s a good time to buy gold. One more thing, the gold bugs are long since any investments are negative given a 11.6% inflation rate using the 1980 BLS method. Although something could happen Monday, most think the real disaster is probably at least a year away.

GuestAugust 9th, 2008 at 12:59 pm

Thanks Miss AmericaI just closed out my CNY just in case you are saying what I think you are saying.

AfAAugust 9th, 2008 at 2:21 pm

For me, just like MA, I am not really satisfied by any of the explanations given by traditional schools: deflationists, (hyper)inflationists, monetarists, Austrians … Although each presents strong case for what is going on, all have gaps and counterarguments.MA’s “theory” about evaporflation may be compelling: since many owe many (not all owe all) who would never be able to pay it back, why not just “forgive” that debt and start over? The problem I think with this theory, or to be correct the problem with implementing this theory, is that debt-credit is not bilateral any more: my liabilities are my assets which becomes other people’s’ liabilities … In this environment it is difficult to forgive debt even if one wants to: if one counterparty decides to unilaterally write down its contracts it will have to either run the risk of default or bankruptcy or go through a multilateral negotiations with other counterparties to write down the value of their assets/liabilities (I think the discussion is somehow similar to the discussion about whether the nominal value or the net value of CDS contracts (and other derivatives) is the source of risk)I hope MA does not talk about Foreign governments forgiving US Treasury debt: It is just too much money at stake. FCB’s could rather give up hope for the face value of their debts to be paid, but they can play on yields: making their US debt a perpetuity (by rolling them over) but with higher nominal and real coupons/dividends. So probably yes if evaporflation = forgiving face value but not interests on the nominal/face value or US = corporation where the rest of the world is stockholders. I wonder if this is a good or real bad news.

AnonymousAugust 9th, 2008 at 2:25 pm

thanks guest re Miss America view on gold.I’m agnostic on short and intermediate term direction. But I talked to a local coin/bullion dealer yesterday. He says retail buyers are buying hand over fist with the latest swoon. That, of course, may or may not be a harbinger of things to come given that he’s probably talking about hard core gold bugs.The interesting thing was his claim that there is very little physical to be found (consistent with your claim that nobody is selling). This guy deals with the largest wholesale dealers in the country and he says they’re out as well. He’s now up to a five week wait to get his physical orders filled. Nor is there any investment grade gold eagles (Libs and Saints) at the wholesalers.

AlessandroAugust 9th, 2008 at 2:51 pm

Guys, check your facts before spreading misinformation. The graph on the following URL (cited twice lately) is price and volume of future contracts for August delivery! is not spot price and volume. Futures volume from speculators is supposed to pick up some time before the closing of the previous contract and to fall to zero before delivery when speculators roll on the following month.

GuestAugust 9th, 2008 at 3:40 pm

“BTW: for what I know Miss America is not a trader, he called himself a banker.”Miss America not a She???

MedicAugust 9th, 2008 at 3:57 pm

@ Guest on 2008-08-09 15:40:58No, Miss America is not a She – but he is beautiful. At least to many here who have benefited from his advice:-)

AlessandroAugust 9th, 2008 at 4:06 pm

LOL!Miss America: “”Miss” can be misinterpreted. I use it meaning: “missing or long for” America, knowing people can make that misinterpretation”

GloomyAugust 9th, 2008 at 4:42 pm

WHY GOLD MINING STOCKS AND NOT GOLD?Since mid 2006 the gold mining ETF (GDX), is DOWN 5% while gold is up 35% (check out a chart comparison). IMO gold mining stocks are much better, looking at risk/return.

GuestAugust 9th, 2008 at 7:19 pm

The Latest news in this comedy; Yawn… sigh humPeterJB

GloomyAugust 9th, 2008 at 8:36 pm

O.K., if MA can come up with his cryptic theory of evapor-flation, let me take a run at it with my own cryptic crack pot idea.How can inflation and deflation be one in the same? This can only occur when money is worth 0.

wormyboyAugust 9th, 2008 at 8:40 pm

@PeterJBThanks for the excellent link, I sent it to everyone I know, in hope it will wake some people up…

AfAAugust 9th, 2008 at 9:02 pm

@ Gloomy”O.K., if MA can come up with his cryptic theory of evapor-flation, let me take a run at it with my own cryptic crack pot idea.How can inflation and deflation be one in the same? This can only occur when money is worth 0.”How about this one: The Ununiform Diffusion of MoneyExplainations coming soon.

SennaAugust 9th, 2008 at 9:23 pm

@Miss America, MAIf commodities are undergoing bust, it would stand reason that currency would appreciate in a breakout move (but unsustainably). Historically an very severe equity crash usually follows. But, as with dominoes, crashes occur with those first in line to receive momentum. In global atmosphere (though we know US is in for punishment) are weaker entities first in line? And their taking the hit reduces the shock wave and buys time?World’s greatest savers? China, Japan?Nice Russian wooden babushka doll type riddle.

JLCAugust 9th, 2008 at 11:44 pm

Yeah, “savers” makes me think Japan or China. Both have lurking bad debts in the banking sector. Japan’s is infamous, China’s is mostly under the radar.I wonder what this means for the Yen carry trade.

MASHIACH BEN CHANAAugust 10th, 2008 at 12:25 am


GuestAugust 10th, 2008 at 1:26 am

Talking about LB and economic solutions:””Everything we shut our eyes to, everything we run away from, everything we deny, denigrate or despise, serves to defeat us in the end. What seems nasty, painful, evil, can become a source of beauty, joy, and strength, if faced with an open mind.”: Henry Miller – (1891-1980) American writerI suggest he talks of ‘denial’. Like, you can’t fix structure in a systemic collapse by transferring money into the offices of those organizations built on that structure, which you prefer; it just doesn’t work. You have to fix the “structure”; this is physics.Ho humPeterJB

MarkAugust 10th, 2008 at 1:50 am

MASHIACH BEN CHANA give it up!Bad systems cannot prevail! Mankind is totally unable to create any system that can scale. Therefore, any attempts by the Russians, or anyone else for that matter, to organize into ever-increasing monolithic structures is DOOMED -D-O-O-M-E-D- to failure!I laugh at all the right-wing nut jobs who were screaming commie this commie that about the U.S.S.R. If it’s such a bad system, which it was, then it was impossible for it to spread!It’s easy enough to test my comments. Look to nature. Go ahead and see if you can spot anything that remotely reflects any organizing principles that mankind uses. Not going to find it. Nature works because of diversity. Mankind, globalization et al, looks to homogenize, which is a clear path to ultimate failure.So, enough of the Commies are coming already!MarkDisclaimer: I have no vested interest in ANY government, communist or otherwise.

MarkAugust 10th, 2008 at 1:53 am

PeterJB, perhaps this quote from Buckminster Fuller is more apt:“You never change anything by fighting the existing. To change something, build a new model and make the existing obsolete.”With the concentration of power this seems the only viable angle for real improvement.Mark

AlessandroAugust 10th, 2008 at 2:35 am

Either Andy at The Yellow Brick Road has read Miss America comments 🙂 or he came to very similar conclusions independently.Dollar up == flight from emerging economies.He gives some more explanation too, he sees bond downgrades coming (with all they imply) for ex-USSR block caused by the war and for the exporting economies starting with Argentina caused by lower future demand.

AnonymousAugust 10th, 2008 at 3:32 am

“@gloomy,…lol,..almost the same posting from me in a daytrade forum,…1min beforeWritten by Guest on 2008-08-08 14:45:32″Yeah, I’ve had problems communicating with Gloomy. I now tend to focus more on the other posters here.

AnonymousAugust 10th, 2008 at 3:35 am

Everyone I’ve read is looking at the oil price action in USD terms. There’s a particular emphasis on how the USD is the reserve currency.But in euro terms, the oil price moved much less on Friday. Doesn’t that suggest that the euro is acting as reserve currency?

GuestAugust 10th, 2008 at 4:10 am

“Nature works because of diversity. Mankind, globalization et al, looks to homogenize, which is a clear path to ultimate failure.””You never change anything by fighting the existing. To change something, build a new model and make the existing obsolete.””With the concentration of power this seems the only viable angle for real improvement.”@ Mark on 2008-08-10 01:53:56I am an admirer of Buckminster Fuller and agree with your comments here; you may notice that the new model is building itself from the phoenix rising from the ashes; I just serve to remind readers that “physics” is Nature’s way; being in accord and that there is no place for stupid ‘ideologies’ bringing ‘Utopian’ nonsense from the mouths of morons; this time around, ‘neocons’ and the same old religious fruitcakes.Diversity is life as culture is food and civilization is culture within diversity; something that the West doesn’t have.Ho humPeterJB

GuestAugust 10th, 2008 at 4:12 am

for a proper definition of inflation and deflation, listen to this lecture at MISES institute.. (40th minute on is abt deflation and boom-bust cycles)..Miss America’s definition of evapor-flation sounds alot like deflation by Austrian economics…Or at least, i can’t tell the difference between Austrian’s deflation and Miss America’s evapor-flationmrskeptical

MedicAugust 10th, 2008 at 5:15 am

Is this “evapor-flation” theory we seem to be discussing really another way of describing debt forgiveness in exchange for something else? In a hospital struggling to find medical staff, the administration will often offer to pay off student loans for providers while they are working (in whatever capacity is needed) at the institution. It becomes a barter system – both sides get something they want/need and the medium of cash is not exchanged between the two.Perhaps the medium of currency is not going to be the standard for exchange as we move forward. Therefore, those who wish to trade / barter better have something others want, need or desire. The US may be in trouble here……..

curiousAugust 10th, 2008 at 7:01 am

Fed member banks, PPT members, massive liquidity not reaching borrowers, dark pool operators. 1+1+1+1=5? Can some discuss how easy it is to manipulate trading?