Nouriel Roubini's Global EconoMonitor

CNBC Interview Discussing Carry Trades and Asset Bubbles

CNBC — Roubini on Carry Trade (Click for VIDEO) [9:05]


CNBC — The mother of all carry trades faces an inevitable bust, Nouriel Roubini, chairman of, told CNBC.


CNBC —  ‘Mother of Carry Trades’ Leading to ‘Asset Bust’: Roubini

By: Jeff Cox

The “mother of all carry trades” that Nouriel Roubini warned of recently is growing and threatening to cause a global implosion, the economist warned in a CNBC interview.

For the second time in as many weeks, Roubini cautioned that investors using cheap US dollars to embrace risk will quickly reverse course once the greenback strengthens.

But he intensified his prediction, saying that the likelihood of the Fed keeping interest rates low and thus weakening the dollar will prolong the carry trade and make it all the more painful when it starts to unwind. Roubini is an economist at New York University and chairman of RGE Monitor.

“Eventually there’s going to be an end to this carry trade,” he said in an interview. “When that snapback of the dollar is going occur it’s not going to be 2 percent or 3 percent, it’s going to be more like 25 or 20 percent. And then everybody will have to close their shorts on the dollar, they’ll have to sell these risky assets across the world and you could have this huge asset bubble going into an asset bust.”

With the Fed unlikely to change its monetary stance following the close of its Open Market Committee meeting today, the dollar carry trade will grow through next year and continue to boost the prices of commodities and global equities, he said.

“It’s going to eventually occur but it’s going to be six months from now, a year from now,” Roubini said. “In the meanwhile the bubble’s going to become bigger globally and the bigger the bubble the bigger is going to be the crash.”

Another problem he cited was the market’s pricing in of a V-shaped recovery, which would see the economy improve sharply without a significant additional decline.

Instead, Roubini predicted the bounceback will look more like a U-shaped move, with the expiration of the dollar carry trade and the subsequent popping of the asset bubble exacerbating the slowness.

“It’s like a rush to the exits. When everybody tries to go at the same time there will be a stampede,” he said. “Risky assets are going to collapse, the dollar’s going to snap back. So the risk is that there’s not an orderly way of doing it unless you more aggressively signal (a change in monetary policy). That’s not what the Fed is telling us, that’s not what the other central banks are telling us.”

Yet Roubini conceded that at least part of the seven-month stocks rally has been based on fundamentals, but they’re not strong enough to justify all of the growth.

“Part of that increase in price is fundamentals, but it’s become so rapid and so perfectly correlated around the world,” he said. “Price (to) earnings ratios are out of hand. So there’s a signal of a bubble and that’s what many policy makers in this country are worried out.”

Central banks will be looking at the issue of asset bubbles more closely in the months to come, Roubini predicted.

“It’s not just Roubini’s worried about it,” he said. “Globally, people are starting to worry about it because it’s getting out of control. That’s the reality of it.”

129 Responses to “CNBC Interview Discussing Carry Trades and Asset Bubbles”

Tantric CougarNovember 11th, 2009 at 6:11 am

Stay CALM! I will decide about this! And I’ll comunicate my veredict! Sure, justice will be made… by me!Thanks for your cooperation! (for the quote, see “The 5th Element”)obs: Mister Robert J. Samuelson ( is in error! The fell in the bank loans is not the secure sign that there are not bubbles! What he didn’t ask is about the destin of the money that FED is pumping in the cash of Banks. That money don’t is going to the consumers or the industrial and commerce investiments, sure. That money is going to the bubbles in this exact moment!

The AlarmistNovember 4th, 2009 at 5:45 pm

I think I would be happy at this point if the Fed merely tried to avoid causing inflation. They seem to have always had some degree of inflation progrmmed into their agenda. I think they would be happy, however, if they could dodge the hyperinflation bullet, and many of us at this point have little confidence that they can.

GuestNovember 4th, 2009 at 11:32 am

“Every time Nouriel talks about the bear market usually coincides with a market bottom. However this also suggests when Nouriel gets bullish it will be time to head for the exits!”Wow >.<, listen to NR will BK your investment.

GuestNovember 4th, 2009 at 2:26 pm

The fact he does not participate in bubbles should not mean we shouldn’t wipe the fog from our eyes. His recent comments ring true to me. His faith in our $ however??hlowe

GuestNovember 4th, 2009 at 2:31 pm

However will his new team take part in the bubbles?”Nov. 3 (Bloomberg) — Roubini Global Economics, Nouriel Roubini’s research and advisory firm, plans to hire about 17 people to expand a new team that advises investors on stocks, bonds, interest-rate products, commodities and currencies.”

GuestNovember 4th, 2009 at 11:46 am

why exchange your precious raw materials or finished good or anything for devaluing dollar currency. answer, no one is that dumb -> less trade, transaction, or import or anything for USA that prints dollar to finance its entitlement social welfare fiscal budget.

GuestNovember 5th, 2009 at 9:55 am

You’re not trying hard enough!Maybe language education? Going to be hard to get by on such a limited vocabulary,Or, perhaps, you mother forgot to lock the computer?

ChrisLNovember 4th, 2009 at 2:53 pm

As I noted in a previous thread;Take the Gold vs SP500 index : The last two times when this index crossed and moved above its 200 days moving average were :. early August 2007, it then moved from 0.45 to 0.82 within the next 7 months (more than 90% gain). mid September 2008, it then moved from 0.66 to 1.38 within the next 5 months (more than 100% gain)So, a move from 100% for the $GOLD:$SPX index from 1.04 to close to 2.00 within the next 5 to 7 months is not an unthinkable proposition. That could mean for instance GOLD at $2000/ounce and SP500 at 1000.So Jim Rogers’ forecast seems to me to be quite possible, and far from “utter nonsense”.The thing is Prof.Roubini seems to think that Armaggeddon has been definitely averted. But what he underestimates is the fact that there are tens of millions of people throughout the world who are thinking that there is still a risk that Armaggeddon hasn’t really been averted but only postponed and are looking for a way to protect their savings, an insurance against major chaos such as a currency crisis on one of the major fiat currencies.I’m sticking with a deflationary scenario. But that doesn’t exclude the risk of a run on one of the major fiat currencies, that could propagate to all other fiat currencies within a few months. Hyperinflation is a very likely consequence of a deflationary spiral.

RGE1November 4th, 2009 at 12:16 pm

From the House Committee on Financial ServicesFor Immediate Release:November 4, 2009Financial Services Committee Approves Investor Protection ActWashington, DC – Today, the House Financial Services Committee passed H.R. 3817, the Investor Protection Act, by a vote of 41-28. The legislation is part of a broader effort to modernize America’s financial regulatory system and was introduced by Rep. Paul E. Kanjorski (D-PA), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.“In order to maintain a sound economy, we must improve investor protection and confidence,” said Chairman Kanjorski. “The Investor Protection Act aims to achieve these goals while also improving enforcement powers at the U.S. Securities and Exchange Commission and implementing a fiduciary standard for broker-dealers and investment advisers to ensure that customers’ interests are at the forefront of investment recommendations. Our financial system has failed far too many investors for far too long and we must change course. I believe this bill has the capabilities to address many of the problems we continue to face.”A summary of H.R. 3817 follows:• Protecting Investors and Righting Wrongs. The financial crisis exposed the perils of deregulation. The Investor Protection Act will right these wrongs by reforming the Securities and Exchange Commission (SEC) to strengthen its powers, better protect investors, and efficiently and effectively regulate our securities markets.• Comprehensive Securities Review and Reorganization. The failures to detect the Madoff and Stanford Financial frauds demonstrate deep deficiencies in our existing securities regulatory structure. An expeditious, independent, comprehensive study of the entire securities industry by a high caliber body will identify reforms and force the SEC and other entities to put in place further improvements designed to ensure superior investor protection.• Enhanced SEC Enforcement Powers and Funding. By doubling the authorized funding for the SEC over 5 years and providing dozens of new enforcement powers and regulatory authorities, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police today’s markets.• Fiduciary Duty. Every financial intermediary who provides advice will have a fiduciary duty toward their customers. Through a harmonized standard, broker-dealers and investment advisers will have to put customers’ interests first.• Whistleblower Bounties. A whistleblower bounty program will create incentives to identify wrongdoing in our securities markets and reward individuals whose tips lead to successful enforcement actions. With a bounty program, we will effectively have more cops on the beat in our securities markets.• Ending Mandatory Arbitration. Because mandatory arbitration has limited the ability of defrauded investors to seek redress, the SEC will gain the power to bar these clauses in customer contracts.• Closing Loopholes and Fixing Faulty Laws. The Madoff fraud revealed that the Public Company Accounting Oversight Board lacked the powers it needed to examine the auditors of broker-dealers. The $65 billion Ponzi scheme also exposed faults in the Securities Investor Protection Act, the law that returns money to the customers of insolvent fraudulent broker-dealers. The Investor Protection Act closes these loopholes and fixes these shortcomings.

11b40November 4th, 2009 at 3:00 pm

Isn’t this nice?”Enhanced SEC Enforcement Powers and Funding. By doubling the authorized funding for the SEC over 5 years and providing dozens of new enforcement powers and regulatory authorities, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police today’s markets.”Why 5 yrears? Why only a doubling of an already extremely inadquate number? This is another one of those programs that would more than pay for itself, and the payoff would be quick if real teeth were put in place. It is also another example of effective lobbying – weakening the bills, delaying the implementation, pulling the teeth. Wall Street wants this like they want a hole in the head.Independent Contractor

The AlarmistNovember 4th, 2009 at 5:51 pm

Typical answer, i.e. more useless regulations. The Congress really needs to stop legislating and start applying more oversight to ensure that the vast body of laws that are already on the books are actually enforced. And as IC notes, that should happen now, not five years from now.

economicminorNovember 5th, 2009 at 2:17 pm

sorry!Not going to happen until the legalized bribery, I mean lobbying is done away with.This is not something that Congress can do on its own. It will require massive public intervention.. torches and pitchforks etc.Until then, we just continue to slide down the slippery slope of corruption.

SoftwarengineerNovember 4th, 2009 at 1:19 pm

Yes, Welfare to the Rich Has Propped up the Stock Market this YearBut ask Main Street what they think of Wall Street and another shoe will be flying towards Bush’s face.Ask the approx 50,000,000 Lagging Indicators [unemployed and severely underemployed] in America when is their getwell? 50 years from now, at our present welfare to the rich and elite course?And speaking of welfare to the rich and elite; why do $150K American incomes get $8000 to be a first time home buyer or the upper crust in America who buy new cars get a $4500 welfare tax credit and their old car is destroyed too….their old car availability would have given the Lagging Indicators wheels.I think its time for the new Democrat Party to drink some old fashion Democrat “Martin Luther King and John Kennedy” coffee and get off their “high horse” and start responding to all the “We the People” or face losing mass election slots to Republicans, like they did yesterday.

11b40November 4th, 2009 at 2:53 pm

Right on! We need to throw all incumbents out. Our system rotates Senate elections, so we could only get part of them in one cycle. It might wake up the ones left. We could really upend the House in 2010, though.But where will the heros come from? All we will be doing is trading one group of bad apples for another, just like we did last time. I really do not believe much will change, period.For real change to occur, we would have to elect people willing to turn the system inside out. The paradox is, once elected, all legislators are immediately vested in the system and turning it inside out is no longer in their personal best interest.So, we will never have meaningful campaign finance laws, terms limits, restricted limits on lobbying, elimination of ‘seniority’ rules, honest ethics investigations, and on and on.At the very least, no committee member should be allowed to take ANY form of funding from the industries or parties involved with legislation they write. This is a blatant conflict of interest, and if there is even a halfway fair investigation (ongoing) of the Defense Appropriations Committee, we will soon see what a huge problem this is.All our government has become is a big pool of special interest bagmen.I have made this anlogy here before, but we should require that Congress be issued uniforms, just like the military, the postal service, or the police. It might help them remember who they are there to serve. But, these uniforms should be more like the ones NASCAR drivers wear, with the logos of their top 10 corporate sponsors flashing for the cameras. These corporate badges should be sized proportionate to the % of campign funds received from each contributor. That way, at least we would know who these clowns are really speaking for.I can see it now. “Would the Senator from DuPont please explain to the Senator from Burlington Northern whay this rate incease is needed?”We can still dream, can’t we?Independent Contractor

Winston SmithNovember 4th, 2009 at 3:32 pm

I like this post Independent C and can visualize the corporate logos on our Representatives with matching hats. Howlingly funny and right on the mark. There are some reps with some guts who need not dress up that I know . Marcy Kaptur,Grayson, Sanders and Kucinich.

The AlarmistNovember 4th, 2009 at 5:55 pm

Screw elections, they’ve proven to be utterly corruptable. Why not cut tot he chase by simply issuing seats in Congress based on a national lottery. If you want it bad, you buy as many tickets as you can afford. Proceeds go to pay down the national debt.

GuestNovember 4th, 2009 at 1:22 pm

Millions of Americans are too small to save. The irony is that a lack of organization renders the millions of Americans impotent relative to the Wall Street elite who are highly organized and have purchased influence over legislators. The Replubican and Democratic leaders play a charade pandering to the sheepish American people while they live it up with help of the Wall Street cash machine. Power and money corrupt, absolutely. The thing we have to fear the most is not terrorism. It is our own government and its intentional efforts to opaque its dealings with Wall Street. It’s the loss of jobs STUPID! America needs to be about JOBS! Not lining the pockets of finacial gamesmanship roulet players. Let there be blood in the proverbial re-election streets next year. In the mean time, enjoy the kids blaming each other on the Hill. If we are to continue to be raped, we might as well lie back and enjoy the “Blame Game”. Bicker boys and girls on the hill, bicker, while you enjoy your high priced restaurant dinners in your “serious” discussions of the plight of Main Street. Get your TV dire up once in a while to put in a good showing as well to your constituents. Imply that you actually give a crap in your run to continue to have great pay, benefits and powerful priviledges on behalf of your self, oops, I mean your constituents!

economicminorNovember 5th, 2009 at 2:20 pm

Bribery rules over honor and dignity.The Lobbyists rule. The even write most of the legislation that Congress passes and the President signs… Until we get them out of the halls of government nothing is going to change.

Pecos BankerNovember 9th, 2009 at 2:13 am

In other words, nothing is going to change. What we need is to start our own citizens’ lobby. Our representatives only “hear” the sound of money. We could practically do away with voting and just have a system where we have to pay to play. Someone on this blog or another blog suggested that Congressmen be required to wear uniforms like race car drivers, showing who their sponsers are. A “Capital” idea!

GuestNovember 4th, 2009 at 3:14 pm

Did anyone wathed Neil Furgosen on charlei rose last light. He painted a very grim picture of us economy in next year and years to come. to quote him “The possibilty of US defauly cannot be ruled out”, i think main stream economists are now publicly starting to acknowledge the severity of the situation we are in.

PeteCANovember 4th, 2009 at 3:23 pm

It will never be admitted by the Gov’t or the Wall St banks. They are working together to market enormous loads of US debt. The last thing they are ever gonna’ do … is to come clean and admit the market for UST’s is a phony operation.Potential future income from US taxpayers can no longerr support all the planned debt issuance. Likewise, potential future currency devaluation (deliberate monetary inflation by Bernanke) would create soaring levels of double-digit inflation in the USA for years and years – just to cope with planned debt issuance. It’s already a no-go for all practical purposes.A lot of pension funds and ordinary Americans are going to lose their shirts when US bonds crumble.PeteCA

The AlarmistNovember 4th, 2009 at 5:59 pm

Nah, US won’t default. The looming inflation is the plan to take care of the problem. As PeteCA points out, ordinary Americans and their pension funds are going to to take the brunt of the punishment this will incur.

NoviceNovember 4th, 2009 at 10:32 pm

has anyone stopped to wonder why the mainstream media is now reporting on the negatives? I saw this change right after the G20 summit in PA. All of a sudden I am seeing it everywhere- even the good professor has taken this turn.What gives? It seems almost as if this happened on a cue. Let’s face it much of what happens economically is a mind game of psychology. Start telling the public that a catastrophe is in the making and soon it will become a reality.

ChrisLNovember 4th, 2009 at 11:46 pm

Sorry, but the impending catastrophe is not just the result of a psychological mind game.That’s what the powers that be want you to believe : that it’s just a question of psychology : that if we regain “CONFIDENCE” in the future, all will be fine and the catastrophe will be averted.But that is utter nonsense ! If for three decades you consume much more than you can afford and you end up with a level of debt that you can’t possibly grow nor reimburse, the troubles ahead won’t be just psychological in nature.That’s where the world’s advanced economies are today : overdevelopped and with an unsustainable level of borrowings (private AND public).

GuestNovember 4th, 2009 at 4:40 pm

PeteCaThank you for your perspective. When do you think the US bonds are going to tremble what would be the trigers and what in your opinion would be implications on globa geopolitical stage and On US foriegn policy and the war funding and what might be the conflicts arising from the resulting situation and in the end how would it impact humans on all continants?

PeteCANovember 4th, 2009 at 5:54 pm

Let me quite candid and say that I haven’t got the slightest idea. But look at the political forces that are involved in this. If interest rates on US debts soar, how on earth is the US Government ever going to make the interest payments on their huge debt??? The interest payment could easily grow to hundreds and hundreds of billions of dollars – it would mushroom to become a real problem. Very clearly, the US administration wants to avoid that outcome (and perception) at all costs.So in the end this is a titanic struggle between the forces of the Fed and its Wall Street brokers versus the rest of the world of global investors. Let’s face it – pretty much the rest of the world can see clearly what’s going on here. A collapse in US bonds would mark the end of American supremacy in world finance. It’s a huge tranition when it comes. But come it will – because the US Government has laid out a future where its debts keep ballooning.For what it’s worth … I would be more worried in the immediate future about an implosion in debt in Japan. And the UK cannot be too far behind. So you see what we’ve got here … basically a connected series of defaults on debt by the major Western economies. A pretty scary spectacle if it plays out.

PeterJBNovember 4th, 2009 at 5:17 pm

Speaking of “snap-back” – sounds great, good and terrific, all encompassing and instantaneous, yes?:”When that snapback of the dollar is going occur it’s not going to be 2 percent or 3 percent, it’s going to be more like 25 or 20 percent.”@ Roubiniand,”World trade is not going to increase in any meaningful way and the dollar will not experience a snapback in value. World trade has been growing for three or four months and no dollar rally has materialized. Foreigners are obviously sellers, not buyers. They obviously do not as yet buy the recovery scenario. How can we have recovery with unemployment rising from 21.4% and real disposable personal income falling 3.4%. One-time stimulus or inventory items represented 92% of quarterly growth.” The choice of “cool” PC words in writing opinion does evoke emotional sensations – and are ‘oft put intentionally to bias the reader. I would suggest the use of the term “snapback” be de-energized /sanitized / contained by the reader as the facts do not adequately support such a phenomena, au contraire.However sentiments such as Mr Chapman’s as follows, certainly have a ‘ring of truth’:You didn’t think that that abandonment of the gold backed dollar on 7/15/71 was an errant event did you? It was the beginning of the planning for the future death of the dollar and the beginning of a complete fiat world of money, whose value was guaranteed by the worst bunch of thieves in history.”Except of course, I believe that this a trending issue and not a conspiracy as it is clear that there is not even a speck of intellect on the World stage these days. There are, of course, forces, that may and do colour these trends, but trends are not the work of the committee of lesser men (COLM).Ho hum

GuestNovember 4th, 2009 at 11:35 pm

“Everyone who watches the market has noticed the inverse correlation of stocks to the dollar. When the dollar fades, stocks soar. And when the dollar strengthens, stocks plunge. Eventually, the dollar will reverse-course and stage a comeback, probably when Bernanke stops his printing operations. That will trigger the next severe correction which will burst bubbles across all asset classes.”

PeterJBNovember 4th, 2009 at 5:22 pm

Speaking of being on the job:Steve Keen – even has a section on Australia, the land of the sponsored gouger. On housing, I bet on Mr Keen.See Iceberg Part IIHo hum

Regan LinNovember 4th, 2009 at 7:07 pm

I don’t think the dollar is causing the biggest carry trade ever. It is a combination of low rate across the global that is feeding the asset price bubble. There is essentially no end to it if central banks around the globe continues their quantitative easing.I believe, there is no fundamental differences to the yen carry trade and the dollar carry trade. I mean there is no differences in terms of size and the nature of the trade – low rate in the home country and high rate elsewhere. But one thing that all investors bear in mind that US Fed will increase rate sometimes in the future. Until then, dollar is enjoying low even negative borrowing cost when investors factor in the depreciation of the dollar.But as people think of the yen store. It is still very much intact. Why not still carry on the yen carry trade? There is less of a risk that Japanese central bank is going to increasing rate in the future. Japan is coping with a very interesting situation. It is experiencing the lost decade. If Japan can not find a solution to its current economic problem –deflation, we might even see a more recession ahead. (just a side track).Some day, smart investors will not borrow in dollar and instead borrow in yen to execute the carry.

AnonymousNovember 4th, 2009 at 10:24 pm liking itAmerica Grows Closer to the Third World?Conclusion: It is not regulation, nor any other governmental activity that has brought this great country low (though taxes and regulation certainly hurt). It is mostly – and most certainly – the debasement of currency. Thomas Jefferson had it absolutely right. And it is the Internet that has reignited his perspective and brought Austrian, free-market economic literacy to the fore once more. Millions understand what has happened, and millions more will understand over time. Nothing is as powerful as an idea whose time has come (or come again). “Not even a government hot meal” (hehehe).Japan Spirals into Bankruptcy?

AnonymousNovember 4th, 2009 at 10:26 pm

Japan Spirals into Bankruptcy?Conclusion: There is a real solution, of course, one that would not be hard to implement. A private market-based gold and silver standard would provide a platform for real and sustainable growth. Asia (Japan and China) will learn this along with the rest of the world when the current global fiat money regime achieves the “finality of the collapse it so richly, inevitably, deserves” :).

Wolf in the WildsNovember 5th, 2009 at 1:03 am

Sometimes I wonder if people actually do their homework before they write stuff. I usually have a ton of respect for Ambrose Pritchard but this time I have to point out some problems with his conclusions (and Einhorn’s as well). They point out the demographic issues of Japan as well as the substantial government debt to gdp. What they seem to have forgotton is the total savings rate in Japan. Even though household savings have been declining, corporate savings have been rising to offset. The overall savings rate in Japan has declined but guess what? After the decline, the savings rate is still 24%! The high was 34% in the early 90s. Compare that to the deficit of 4-5% per annum. The public debt to GDP ratio is 173%. Even assuming 200%, it would require a rate rise of 20% for the deficit to increase to the savings rate.Japan is not near the debt default/hyperinflation spiral yet, though demographics will result in higher stress. Another interest point will be the stock of savings. Over the last 30 years, Japan would probably have amassed 870% of GDP in savings. So there is probably a lot of room to absorb new debt. Not prudent but that would require all these savings to come back from overseas markets (REMEMBER THE JPY CARRY TRADE?). The fear is what will happen if rates in Japan increase and bring back those savings from the US, UK, Europe etc etc..

GuestNovember 5th, 2009 at 10:16 am

A private market-based gold and silver standard would provide a platform for real and sustainable growth“Sustainable growth” is no different than “housing prices will/can only go up!” Same trajectory. Same outcome: crash!”Sustainable” and “growth” (in a finite environment) are opposing terms/words.If people are really looking to “solve” our problems then they need to start with factual fundamentals. Entrusting economists, who only see numbers, numbers which can go on forever, to come up with fact-based solutions is like giving insolvent banksters money and expecting that they loan it back out!

ChrisLNovember 5th, 2009 at 3:07 am

The UK Telegraph more than any other mainstream newspaper we read (at least on the ‘Net) seems to make the occasional stab at analyzing what’s really going on in the world. It’s covered the desperate difficulties of Eastern Europe, the deepening troubles in Ireland (resulting in the unfortunate pro-EU vote), the unrolling depression in Spain and now, the terrible problems that Japan is facing.

Maybe the UK Telegraph should start first looking at its own country : of all the world’s major currencies, the £ is probably the one which is at the highest risk of ending in a hyperinflationary death spiral.

Little SaverNovember 5th, 2009 at 12:55 am

More on compulsive value seeking: as politicians, economists can’t help it, but being compelled to seek value for themselves. They even sacrifice sound economic theory for it:>But I would go further in my criticism of the economic profession by arguing that the decisions to use faulty models was an economic and political choice, because it benefited the economists and those who hired them.For example, the elites get wealthy during booms and they get wealthy during busts. Therefore, the boom-and-bust cycle benefits them enormously, as they can trade both ways. Specifically, as Simon Johnson, William K. Black and others point out, the big boys make bucketloads of money during the booms using fraudulent schemes and knowing that many borrowers will default. Then, during the bust, they know the government will bail them out, and they will be able to buy up competitors for cheap and consolidate power. They may also bet against the same products they are selling during the boom (more here), knowing that they’ll make a killing when it busts.But economists have pretended there is no such thing as a bubble. Indeed, BIS slammed the Fed and other central banks for blowing bubbles and then using “gimmicks and palliatives” afterwards.It is not like economists weren’t warning about booms and busts. Nobel prize winner Hayek and others were, but were ignored because it was “inconvenient” to discuss this “impolite” issue.Likewise, the entire Federal Reserve model is faulty, benefiting the banks themselves but not the public.<Economists, as politicians, will never come to sound theories and sound economic practices if this fundamental compulsive behavior is not taken into account. But perhaps, many of them even don’t want to?

GuestNovember 5th, 2009 at 10:21 am

If you take the belief of nearly every economist (anyone know of one who believes otherwise) he/she believes that sustainable growth is possible. From this position it can ONLY result in a bubble popping!

Wolf in the WildsNovember 5th, 2009 at 2:15 am

Japan: Debt Default and hyperinflationary death spiral?THINK AGAIN!I initially responded to a post earlier on Japan and I think there should be more elaboration here.When one considers whether a country is going to default on its debt, one must always look at 2 things: the flow item and the stock item.The flow item is the annual savings rate vs annual deficit rate. In the case of Japan, the gross national savings rate (IMF Data) as a percentage of GDP has averaged 29% over the last 30-40years. The last level was 24%. The trend is clearly lower. The focus on household savings to me is somewhat distorting the real savings level. While it is true that household savings have declined to 2.2% from 18% 37years ago, corporate savings have more than made up the difference. While the decline in household savings is a demographic issue that is hard to reverse, the overall gross domestic savings level remains one of the highest in the world. Compare that with the US, which has an average of 16.17% and the last level of 12.64%. The budget deficit for Japan is currently is around 4-5% of GDP, there is a lot of room to maneuver. Furthermore, once I touch on the stock issue, the numbers become even more comfortable. The US, on the other hand, has had its defict to gdp approach the actual savings level. This is very ominous. The deficit has only been sustained because of Federal Reserve monetisation.Apart from looking at flow, one mustn’t forget stock. The total public debt to gdp ratio of Japan is 174% as last count. But has anyone bothered to look at the stock of savings to GDP. Here, the number changes dramatically. Assuming a 25% average savings level is the conservative number (actual average is 29%) for the last 25 years, the total stock of savings is a whopping 625% of GDP! Where did the remaining stock of savings disappear to?? Clearly some of it is held as property domestically but more importantly, a lot of it is held as foreign government issued bonds (ie UST, Gilts, ANZ bonds etc) via the carry trade. Mrs Watanabe is one of the world’s biggest investors. The only reason this savings have flowed out is the ZIRP adopted by the BOJ. So if the government of Japan decides to increase borrowing rates to issue new bonds, expect a huge inflow back into Japan as this carry trade is unwound. The world better hope this doesn’t happen, for this will surely hasten the destruction of the US and UK.There was some talk that a rate increase will push Japan into default. Lets look at the numbers. Currently the 10yr JGB rate is 1.44%. Assuming rates rise to 5%, this will increase the deficit by 6%, to 10%. Not good economic news but will within the ability of the country to fund with its 24% gross savings rate. FURTHERMORE, that will attract savings held in foreign currencies to return to JPY, pushing that rate back down again. This just goes to prove, A STRONG BALANCE SHEET CAN TAKE A LOT OF HITS. If Japan ever decides to normalise its rates with the rest of the world, do not expect it to enter into a debt default/hyperinflationary death spiral. Instead, expect that to happen to the countries which have borrowed most from the Japanese savers. The first country that comes to mind is the US. Australia and NZ too have used Japan as a funding source. I aam not too certain about the UK.So, just to reiterate the point, Japan is not the one to be concerned about. We can all hope that they don’t have to push rates higher to issue new debt but if they do have to, the ones that will suffer will not be the Japanese.

ChrisLNovember 5th, 2009 at 2:51 am

Absolutely correct !If there is to be a run on a major currency and a hyperinflationary death spiral, it will start with that of a nation that has been running large current account deficits. A large debtor nation with a weak currency, such as the UK seems the most likely candidate, and certainly not a large creditor nation such as Japan.

PeteCANovember 5th, 2009 at 1:58 pm

WolfYes, I did read Ambrose Pritchard-Enas article on Japan, and indeed the numbers on personal savings in that country were surprising. I was not aware of the much high savings nukbers in Japanese companies and corporations. But I wonder how this plays out in their society. If Japan’s exports take a beating (haven’t thwey already??), then surely unemployment goes up. And if personal savings are miniscule, doesn’t this mean an increase in delinqunecies on personal credit in Japan So the end result is what … does the Gov’t tax the corporations more – so it can scale up support for unemployment benefits? It sems like there should be a considerable increase in stress in Japanese households because of this situation.PeteCA

ChrisLNovember 5th, 2009 at 3:44 pm

Private debt has gone down in Japan from a high of 274% of GDP in 1996 to only 113% today (about a third of what it is in the USA !).

PeteCANovember 5th, 2009 at 6:46 pm

ChrisL: But interesting that personal savings are still terrible. It doesn’t sound like Japanese consumers have been having much fun over the last decade.PeteCA

Wolf in the WildsNovember 5th, 2009 at 8:05 pm

Don’t get me wrong. I am not bullish Japan. They have demographic problems that will lead to the demise of the country in the long term. Without new immigration into the country, Japan will cease to matter in 50years. The personal savings problem issue is to a large extent due to this demographical problem. Personal credit is not high in Japan. Asians in general are not as levered (at least from consumption) So personal credit deliquencies are not massive. Mortgage deliquencies on the other hand can be. In japan, they have had that for 20years, property prices are a lot lower than the peak still. Since 1992, property prices have dropped an average of 6% per year, despite the largest monetisation experiment in the world. It is not in the culture for asians to go deliquent and the mortgage structure in Asia is not ringfenced (ie you cannot just walk away). I still remember multi-generational mortgages in Japan. So the problem is dragged out. It could be that the lower savings rate is in part due to the amount of savings tied up in declining property assets. In any case, deliquencies are not a major issue in Japan.The cost of dragging this out is clearly the extended deficit issue in Japan. It took Japan 20years to get to 173% debt to GDP, which they funded from domestic savings. By cutting rates to zero, in an open capital flow system, the consequence is 2-fold: lower cost to the deficit, and sustained savings flight from Japan to every where else in the world. This is classical economics gone really wrong. Instead of leading to increased borrowing domestically, and increased investments, domestic savers decided to move their assets away from the JPY. This could have exacebated the deflation problem. Conversely speaking, the ZIRP policy led to asset inflation everywhere else but Japan. After 20years of adopting the wrong policies from both monetary and Keynesian perspective, they have a outsized public debt to GDP, massive savings, and are one of the leading actors in the imbalances of the world today. A reversal of that will probably benefit Japan more that everyone else.I would watch Japan very closely.

Public Debt bubbleNovember 5th, 2009 at 4:34 am

From now, the government bond yield will move much higher from the rising inflation and higher public debt. The biggest bubble is the uncontrollable public debts globally. No one can tell how every government can pay back or reduce their debts from here and the public debt/GDP is increasing every year; for example, Japan is more than 200% of GDP, Italy 120% GDP and US 100% GDP next year.FED now stop monetize the treasury bill, meaning the government bond yield should reflect the fundamental price that should move higher to 5% under the case of inflation at 3%. However, we all know that FED is still printing money, the inflation will be much higher. Currently, ISM price at 65 and grow at faster rate shows the higher inflation expectation. The commodities price is also higher signaling the higher inflation. Therefore, I am confused the low inflation exception that FED mentioned I think it should rather be the last six months.The bubble is in debt and the rising government yield from the higher inflation will kill the economy and all assets price from the higher discounted rate.The biggest bubble is already on and will burst in the next 3-6 months from the higher inflation and higher growth.

ChrisLNovember 5th, 2009 at 5:40 am

Gee, what you are writing is exaxctly what the FED/Govt wants you to believe : that its actions will cause inflation and future rates to rise so that people start spending and private credit demand starts rising again.

GuestNovember 5th, 2009 at 5:06 am

Dollar is likely to increase from no more FED monetization of government debt. Bond yield is likely to increase and all carry trade will be unwinded. Bubble will end.

BubbleNovember 5th, 2009 at 5:30 am

Asset BubblesRoubini is right – why else would Warren Buffet invest in a railway systemand not on the stock market ?Surely $25 billion spent on the market ( it is big enough to absorb this amount ! )will offer better annual returns than a railway system !

GuestNovember 5th, 2009 at 7:12 am

Equities are illusory wealth. How many “stock holders” have the physical stocks?Even if they have the stock certificates, who will purchase them in troubled times?The Fed and its primary dealers, are the only ones buying stocks in volume andthat tells the whole story.A railroad is tangible. It’s value is immutable and immune to the variability ofthe dollar. Buffet did not “bet on the future economy of the USA” rather he hedgedhis stock with tangibles. He could have bought gold or land, but that would haveset off the panic bells.Now the former owners of Northern Burlington and Santa Fe can “invest” in the stockmarket. Ha!

MichelleNovember 5th, 2009 at 8:06 am

A railroad is a hard asset and Mr. Buffett made a very smart move as the profit margins are high and this mode of transportation is very “green” compared to highway transportation, helping to protect this industry against political environmental pressures.

wethepeepleNovember 5th, 2009 at 3:10 pm

This is an example of Von Mises “Indirect Exchange”. Buffet is making an indirect currency play, against the long-term weakening dollar and fiat paper assets, into inflation-hedging hard assets. Look and learn.

FEDupNovember 5th, 2009 at 8:01 am rallies as Jobless claims in U.S. decrease more than forecast to 512,000.Yes it’s time for jubilee, recession over, all problems are just going to magically disappear as the treasury keeps the printing presses running 24/7. You see, debt is just a word, an illusion and even if it was real, we can just grow ourselves out of debt-how, who knows, but this is what the TPTB tell us. Years ago when national debt was 1/10th of what it is today, our leaders were SCREAMING about how we are bankrupting our country and selling it off to foreigners and now when debt is 10x greater we are just WHISPERING about it while we are trying to sell ALL WE CAN to foreign countries. For those who are not deceived by the Washington doublspeak, I can only say, SAVE, PAY DOWN YOUR DEBT AND CONSIDER INVESTING IN A BASKET OF CURRENCIES, GOLD and other natural resources.

JLarkinNovember 5th, 2009 at 8:47 am

Confidence is improving… a lot is based on confidence. Credit may loosen a bit. Some major bankruptcies, e.g. munis, corporate, banking, development, might turn things south again. For now, the virtuous up cycle has momentum.

GuestNovember 5th, 2009 at 10:38 am

Yeah, I see that Citi Group’s stock is up 2% today!Bankruptcies mean haircuts to creditors and the axe to employees. Party on!

ChrisLNovember 5th, 2009 at 11:49 am

Confidence is improving… a lot is based on confidence.

I’ll believe in this bullshit that TPTB want us to believe when I see private credit demand growing again.Meanwhile, it’s just propaganda.

JLarkinNovember 5th, 2009 at 2:51 pm

I agree – credit expansion is dead, and until that changes there can’t be much growth; but isn’t the bounce amazing?

11b40November 5th, 2009 at 4:25 pm

Right, ChrisL. MM CA constantly points out NO JOBS. I say essentially the same thing when I keep coming back to NO DEMAND. 2 sides of the same coin, almost.Of course, most people do have jobs, and there is a certain level of demand. But when this recovery does happen, it is questionable if we will get back under 5% unemployment in the next 15-20 years without a major war. On the demand side, we may not see the kind of demand we witnessed over the past 10-15 years in our lifetimes. Booomers don’t want as much stuff anymore, as it’s time to downsize. The younger generations have different values, and this is going to affect their perspectives for a long time, much as the depression affected my parents and grand parents. By the time it’s over, debt will be seen by many more people for what it really is – slavery.Independent Contractor

GuestNovember 5th, 2009 at 10:48 am

This is the best ever describtion of Bernanke,Geithner,Summers,Rubin and all the other pundits from Matt Taibbi:…. Absolutely the dumbest people in the world, always and without fail, are intellectuals. Anyone who has ever sat in with a bunch of Yalie grad students while they discuss Kafka– they’ve read every book in the world about him, right down to the nineteen different Marxist critical interpretations of The Castle, but it’s somehow eluded them that Kafka’s stories are funny — knows what I mean.It’s a particular kind of mental disability. This is dumbness that doesn’t know how to connect the information coming in from their other sensory organs, i.e. from the outside world, to whatever flowery kaleidoscope of overwrought horseshit their professors sent hurtling on a permanent lifelong spin-cycle in their empty skulls back when they were eighteen.We all go through the same phase at the same age and most all of us fall for more than a few dumb ideas in the same way. The difference is that most of us normal people end up having soon after to go out into the world, where we get rudely introduced to the fact that life is mean and unforgiving and confusing as hell and that if you try to go through it leaning on some neat, gift-wrapped package of intellectual theories given to you by some preening old clown in a cardigan, you will very quickly become ridiculous and incompetent to manage your own life.You’ll notice it, your friends will notice it, the opposite sex will notice it, and certainly the meritocracy known as the capitalist job market will know it.This is true in every case, with one big exception. If you happen to be a rich dweeb who went to the right schools and hung around with the same group of people your whole life, and those people actually run the world, well, then, you’re in the very happy position of having your own bullshit adolescent belief system become self-reinforcing.You think that reality coincides with your beliefs because your beliefs are true, whereas in truth it’s because you spend all your time with people who believe the same nonsense you do, and generations of your cultural ancestors just happen to have built very high walls all around you fools to keep reality from getting in and spoiling things.Nothing else explains people like Alan Greenspan and Megan McArdle and all those other idiotic Ayn Rand devotees, big and small, who continually go out there in public and flog pseudo-religious beliefs about the self-correcting free-market as a cure-all for anything and everything, even as evidence to the contrary rains down from the sky like volcanic ash. These people actually believe this shit and they believe it with the imbecilic ferocity of teenagers, even the ones who are 190 years old like Greenspan (who incidentally finally conceded a “flaw” in his thinking, but only after the entire world exploded and even all the reality-proof friendly data sources he had relied upon for his whole life told him his ideas were fucked), and it’s nearly impossible to get them to let so much as a sliver of their belief systems go.There are lots of different varieties of evil in the world. On the extreme end of the spectrum you’ve probably got your Ted Bundy-at-Lake-Sammamish brand of evil, torturers and such, people who actually take pleasure in the suffering of others. You look at people like that and they defy rational explanation; you have to just chalk that up to the universe basically being a horrifying place where there’s either no God at at all or a God who’s just incompetent and/or explaining himself really, really badly.On the other end of the spectrum, not nearly as evil comparably but still pretty bad, are people like this clown from Goldman. They lie to themselves and think up elaborate reasons to do the bad acts they were already hoping to do anyway. Some day, when historians finish peeling back all the different onion-layers of this financial disaster we’re living out right now, they’re going to find at the heart of it all this social Darwinist mantra wherein a very small group of overeducated twerps agreed to believe that stealing every last dime they could get their hands on was something other than what it looks and sounds like to the rest of us. That protective delusion was the first of the many luxuries they bought with all the money they stole, and see if it isn’t the last they agree to give up. What a bunch of assholes!

Guest42November 5th, 2009 at 11:38 am

I don’t believe the majority of them are delusional (except in possibly believing that the people will continue to put up with it for all time). And the Greenspan/Rand part doesn’t jive because once he got into his central banker role, he completely abandoned any belief in a free market. Unless, of course, the author meant to imply that he was delusional that it was ever much of a free market to begin with; I would certainly agree with that. I have my own ideas about free markets and gold standards, but I hesitate to totally believe in them as solutions, as it seems apparent to me that no system can be one-size-fits-all, without flaws. I have absolutely zero arguments with the last sentence in the piece, though.

MedicNovember 5th, 2009 at 12:53 pm

Guest -Taibbi is on to the real issue here, which is that the people currently in charge are devotees of a particular religion that encourages them to continue to believe in falsehoods despite all evidence to the contrary. That religion, the one of “free market idealism”, like all other religions is powerful in controlling the devout. They believe exactly what has been taught to them from the beginning and never bother to question it.The rest of us (though not all) have our own religions we follow without question. The same single-minded devotion to what we are told by religious leaders has led to all wars and more deaths than any other cause.No one is inclined to question authority (read: religious beliefs) until it ceases to serve them well. The reason TPTB have not changed their thinking is that they have yet to stop benefitting from their devotion. If the rest of us do, that’s O.K. because they still prosper.This will not change until they suffer.

MedicNovember 5th, 2009 at 1:22 pm

BTW -Before too many start to pray for my eternal damnation, my above comments are meant to include the “religions” of blind patriotism and economic theory.Understanding only comes from questioning and challenging that which is accepted as true.There. My rant is over…….

MANovember 6th, 2009 at 1:30 pm

Medic, I couldn’t be more on board with you. It’s what lead to so much of my recent disinterest. The more you learn/know, the more disheartened you become.For some like me… we have lost all faith. …and lost all hope …especially when I wonder if change or justice will ever come.Miss America

MedicNovember 5th, 2009 at 2:03 pm

Pete -I am not familiar, but after a Google search, I am hoping that tongue of yours is planted firmly in cheek……BTW – It’s snowing here. Winter is well on its way…….

PeteCANovember 5th, 2009 at 6:43 pm

Medic … to some extent.I believe he’s at http://www.theburningplatform.comHis articles are generally supported by a lot of well-researched data.Based on what I see in his work, I believe he has come to the conclusion that the financial and political system in Washington DC is incapable of reforming itself. That’s what i was getting at … it’s compatible with your words that said “they will not reform until they suffer”.PeteCA

MedicNovember 6th, 2009 at 5:07 am

Thanks for the clarification Pete. I’m all better now.And heading out to shovel a couple of inches of wet & heavy snow……

ChrisLNovember 5th, 2009 at 12:48 pm

What don-t we believe in ?FED QE target 0% forever : what does that mean ? Forever ?And TAX and SPEND ? That’s what every government in history has been doing…

GuestNovember 5th, 2009 at 2:03 pm

what? o.O you dont understand “forever”? man, go check dictionary. after checking the definition, try to read “FED QE target 0% forever.” again to see if you understand. if still dont, check into hospital.

ChrisLNovember 5th, 2009 at 3:01 pm

1. I know what forever means.2. I don’t know where you get the idea that the FED will maintain rates at 0% forever.3. I don’t understand what you mean with FED QE target 0%4. and what about TAX and SPEND ?You seem to be very confused, a bit like Rush Limbaugh.

GuestNovember 5th, 2009 at 10:31 pm

OMG, you are really a retard, arent you? plz checkin to hospital. no wonder USA is falling apart with people running around ruining the country.

MichelleNovember 5th, 2009 at 12:53 pm

Dollars are in short supply right now, we’ll see where the dollar goes from here. See the stock short squeeze is hurting some folks today. Ouch!

MichelleNovember 5th, 2009 at 3:44 pm

No, got plenty, but ever since you mentioned that cash was a form of a hedge, I’ve been thinking that next time I’ll ask to exchange my stocks for something like M&M’s, but then that would be considered a hedge because of the price of cocoa…

11b40November 5th, 2009 at 4:36 pm

Cash in and of itself is not my definition of a hedge. Cash is a noun.However, when you ride the market up, take profits, then sit on the cash(or park it in a low-return safe investment) ’cause you are afraid to put it to keep it long – I call that a hedge – a verb. Your M&M’s analogy is a little like Buffet’s railroad & might be a good idea…affordable luxury and comfort food are always in demand. ;~)Independent Contractor

CaponeNovember 5th, 2009 at 1:19 pm

False Profits from False ProphetsSo bankers are using faith to justify bonuses? St.Paul’s Cathedral hosts investment bankers describing how they must have their billion in bonuses to retain talent? Another amazing episode in these truly unbelievable times. Ironically, when all faith in their system of skimming was lost on the people they turned to another type of faith to justify their means.I have not seen any reports on the level of toxic assets held on the books of the investment banks lately? You know the ones too hard to value so keep them on the books as assets – ‘level 3’ I think was the term. One of three things may have happened :1) they left them hidden on their balance sheets at incorrect values2) they transferred them to the American People / people directly via the Federal Reserve / central banks3) trillions in taxpayer bail outs actually increased their market valueI am a CPA and understand very simple basic concepts. If an asset is marked down, the income statement is decreased. I am not interested in debating whether someone who is skillful at gambling on the markets leaves one thieving investment bank to join another therefore justifying the high bonuses to retain the ‘talent.’ I am equally disinterested in this highly distracting witch hunt that is now going to take place singling out NON-establishment that is NON-investment bank hedge fund inside traders.However, I am interested in operating profits being accurately recorded on each and every banks’ books. Failure to do so would according to truth, justice, common sense and any moral ruling since the beginning of time handed down from true prophets across every faith known to mankind deem these financial reports as false, negligent and above all else illegal. Prior to another feeding at the billion dollar bonus trough of false profits for the professional gamblers, it would be great to see the truth reported. This is corporate criminal behavior in plain view of the entire world.If #2 or #3 is the case, fine – PAY it back! It is not yours to begin with!

11b40November 5th, 2009 at 3:22 pm

Is there anything stockholders could do to demand full and proper accounting from the uber banks? Seems like they could sue to claw back any bonus that was paid due to cooked books. What is the statute of limitations on this kind of fraud?Independent Contractor

tutterfrutNovember 5th, 2009 at 4:16 pm

That’s why the “audit the Fed” had to be avoided, no?You don’t expect the illusionists of the world to tell you their tricks.It’s just a pitty we’ll have to wait a little longer to see you girlfriends bottom, although I’m sure she looks great in her 10+rated top.:)

11b40November 5th, 2009 at 4:44 pm

Mel Watt took care of the FED audit – gutted the bill.No, I mean starting something in a lower court by suing for specific damages and working up the Judicial system, not against the FED, but against one of the TGTF banks. If huge bonuses are paid against fraudent earnings, and the fraud can be proven, why couldn’t damaged stockholders sue?By the way. Where is SWK? Have not heard from Kilgores lately. He is pretty good at helping me control my self-righteous and aggressive impluses.Independent Contractor

CaponeNovember 5th, 2009 at 5:21 pm

ha ha. i got in trouble with her the other day i hope this analogy would not get me in more trouble 🙂 for my sister’s sake i was fortunate enough to buy 670 in the spx with some of her cash. i have not even bothered with this circus and seeking a potential correction or even a ‘top’ until we got up to the 1,000+ in the SPX. as usual i am early, but hopefully just a little early. no matter what level we go, there are always one too many people out there including ours truly the great Professor coming on TV calling bubbles and top, top, top. from a contrarian perspective i do not like to see these top calls. however, it is hard to imagine what price we have to see in the SPX before people go away with their top calls and STAY off of tv talking about declines on the way so we can have the lousy sell off already.

PeteCANovember 5th, 2009 at 9:15 pm

Looks like the volatility index ($VIX) has definitely put in a minimum value in recent weeks. Heading up from here.Chris Puplava had a nice article about the market today. It’s here …Puplava Article – Dow OverextendedHard to believe that folks are willing to gamble on the Dow when it’s this far overextended. The US market looks like it’s going to be a crap shoot all the way until the house comes down.PeteCA

ChrisLNovember 6th, 2009 at 2:56 am

“Yeah, yeah, initial claims are down a few thousand, so there’s a party in the markets. Long-term unemployment keeps going up by at least as much as initial claims decrease, but that has no effect on investors. After all, productivity is on a roll. While hours are down, and so are wages. More work for less pay. Who could refuse such a deal? Extensions for homebuyer credits and long-term benefits. Extend and pretend, the economic version of don’t ask don’t tell, rules the day.There are many different regulatory reform plans, in several phases of the pipeline, for the financial world (or at least the financial US). Those from the Obama administration, which look hugely different from Sen. Chris Dodd’s Senate proposals, while Rep. Barney Frank hangs somewhere in between with his House ideas. All three purport to address both the regulation of the banking system and the regulatory agencies themselves.But without having read much of the details, I have zero faith in any plan that originates with Goldman’s choice puppets Tim Geithner and Larry Summers, I wouldn’t want a second hand car from Chris Dodd if he gave it away), and Barney Frank, smart and amusing as he can be, is as steeped in Washington establishment and campaign donations as they come. No matter what sort of plan will eventually be adopted, it will do nothing at all to address what’s really going wrong.As Dylan Ratigan says, the Obama/Geithner/Summers plan suggests we continue to hide 80% of the derivatives trade, so nobody will see that it consists of worthless paper. William Black on the plan:If you took everything that would absolutely maximize the risk of producing a new and bigger crisis, every single policy, that would be the bill.Ratigan this week issues a highly eloquent and passionate plea to fire Tim Geithner. Senator Maria Cantwell wonders why the Treasury Secretary still has his job. And Prof. William Black suggests Larry Summers should ride into the sunset at Geithner’s side. These are calls I haven’t seen before at that level, granted.Ron Paul makes a lot of noise about a Fed audit, gets a ton of support, and then expresses (feigns?) surprise at the fact that his audit bill is watered down enough to lack any flavor. Does he really still now know where the wind blows from, after all these years? He seems smart and likeable enough, but I find that hard to swallow.Paul’s bill is probably most useful as an example of what happens to any proposal that goes through the Capitol Hill wringer. Everything comes out in 2-D, without any depth perception, assuring that nothing is done to hurt the interests of the capital that owns the 3-D machine and keeps it lubricated.And that’s where the real problems are. You can come up with all sorts of grandiose plans on how to regulate or re-regulate regulatory agencies and the fields they are supposed to regulate, but you will never get any results, at least not positive ones, if you let these plans be drawn up by people who have or represent vested interests and resist any meaningful change every step of the way.Firing a few people or writing up new regulation are things that miss the point. Auditing the Fed would be better, but is a fantasy under current conditions. Losing folks like Geithner, Summers or Bernanke doesn’t change anything, they are merely well-groomed facilitators for the existing system. And it’s that system that would need to be changed, not the faces that represent it.What makes the econo-political system in the US (and other countries) such a failure in the eyes of the average citizen is that money can buy political power, in the US to an almost unlimited degree…”read more : here

Octavio RichettaNovember 6th, 2009 at 6:58 am

A good complement to thE SUBJECT OF THIS thread is McCulley’s latest. IMHO, this one is among Paul’s best ever. I was amazed that I could take his views and “back of the envelop” models as a footprint of the rationale behind my investment strategy. However, IMO, Paul’s writing does not provide a solid rationale for his conclusion, BUT quite the opposite:Simply put, big-V’ers should be wary of what they wish for. U’ers, meanwhile, must be mindful of just how bubbly risk asset valuations can get, as long as non-big-V data unfold, keeping the Fed friendly. But that’s no reason, in our view, to chase risk assets from currently lofty valuations. To the contrary, the time has come to begin paring exposure to risk assets, and if their prices continue to rise, paring at an accelerated pace.

Tom from MaineNovember 7th, 2009 at 7:32 pm

Octavio, Caballero, you mean: you will stay invested in the false-V as long as the fed and the administration keep rates super-low and stimulate. Is that it? If so, and I’m partly doing the same, what will be your signal to leap off the train in time? (before the second dip). Isn’t that…risky? Nouriel made some remark recently about people supposing they could perform that trick–and that they usually failed. There really is some kind of psychological strength (faith in U.S. resilience, inventiveness, etc.?) that we who have hung around with the bears for two years (thank goodness) may have lost touch with. I’ve learned a lot from your comments, Octavio. What are you watching for–if that’s the right term–that will signal time to start getting out? Thanks! Tom, from Maine

blindmanNovember 6th, 2009 at 7:08 am

“We may reason on to our heart’s content, the fog won’t lift.”(Samuel Beckett (1906-1989), Irish dramatist, novelist. First published in 1967. The narrator, in “The Expelled”.Breaking News AlertThe New York TimesThu, November 05, 2009 — 9:23 PM ET—–Army Says Shooting Suspect Is Not Dead, but Is in Custody and in Stable ConditionThe suspect in a shooting that killed 12 people Thursday atFort Hood, Tex., is alive and is in custody, contrary toearlier reports, the commanding officer at Fort Hood said.Read More: story is in fluxxxxx.) details changing…….”It raised new questions about the toll that six years of continuous fighting in Iraq and nearly eight years fighting in Afghanistan have taken on the U.S. military and on individual soldiers, many of whom have been on several combat tours.In Thursday’s incident, the shooter opened fire at about 1:30 p.m. CST at the Soldiers Readiness Processing Center, where soldiers were getting medical check-ups before leaving for overseas deployments, the Army said.The shooter was killed by police, but not before he killed one civilian police officer, Cone said..OBAMA CONDEMNS ‘HORRIFIC OUTBURST’U.S. President Barack Obama called the event a “horrific outburst of violence” and promised “answers to every single question about this horrible incident.”.., September 7, 2009That Three-Legged Stool of American Foreign PolicyMusings on the 3Ds, 3D+ and those legs ……”But — we’re here now with two wars sitting at the top of this stool. And one more Marine died bravely in the battlefield and controversy has flared up whether the public should see this shocking side of war. And officials are going back and forth about how many more uniform and civilian personnel should be sent over to fight and reconstruct a warzone or how fast the military drawdown should occur in Iraq. And here I am. Talking about a stool.Yes, it is rather silly isn’t it?”…..October 18, 2009Rahm Emanuel, Senator Kerry, Senator Cornyn on “Face the Nation”By Face the Nation I want to start with something Senator Kerry said, which we’re going to play later in the show in an interview. He said that he didn’t think the president should make a decision whether he adds troops or not in Afghanistan until there’s stability in the government. Is the president going to delay his decision?EMANUEL: Well, it’s not a matter of delay. The review will continue. He has had a meeting just yesterday with his national security team or parts of his national security team. And the review will continue the next week and the following week. So there will not be a delay in the review. Obviously what I think Senator Kerry was pointing to, which is absolutely correct, which is the essential part of the strategy or a key component or a leg on the stool, is an Afghan partner that is ready to take control of both the security situation in Afghanistan, and the civilian side of that..SEN. JOHN CORNYN (R), TEXAS: Well, deliberation is a good thing when it comes to fighting wars. But of course we’ve been at war for eight years in Afghanistan following 9/11. We know that we’ve got young men and women on the ground now. We’ve got our blood and treasure at stake there already.And so at some point, deliberation begins to look more like indecisiveness which then becomes a way of emboldening our enemies and allies and causing our allies to question our resolve. So we shouldn’t let one component of this determine our national security here which depends on providing an Afghanistan which denies a safe haven to terrorists as well as stabilizing Pakistan. Those are our two national security interests at stake in Afghanistan.DICKERSON: Senator, to make sure I’m hearing you right. You say there’s the possibility we could embolden our enemies. Do you think that’s happening yet?CORNYN: Well, I think, you know, the problem is, you have to look at Afghanistan also in a global context where we’ve canceled basically our missile defense system undercutting the Czech Republic in Poland. We’ve I think not dealt with Iran with the kind of resolve that would show that we understand the nature of that threat.I think all of these are data points that begin to create a narrative or begin to create a picture that shows a lack of resolve when it comes to our national security. So that’s my biggest concern………KERRY: Well, I asked him as many questions as I could in a few hours. I wanted to test his own assumptions and predictions about what is possible here. I think the most important thing for us to make judgments about is what can we really do? What can we achieve?And in order to achieve what we need to here, we don’t just need the fabulous troops we have and their extraordinary ability — and we have that. What we really need in addition is the government that has the capacity to be able to deliver at a local level as well as do some of the rebuilding of both the national army as well as the police.And then we need a construction, civilian program, at a level yet to be determined. That’s part of why I’m here. I want to know what it’s going to take to be able to support the fundamental mission that the president has defined. And I think there are a lot of questions still outstanding about that….DICKERSON: But, Senator, just very quickly there, you’re not suggesting scrapping counterinsurgency; you’re just suggesting modifying it?KERRY: That’s correct. I — I do not believe that a counterterrorism strategy all by itself, without a sufficient level of counterinsurgency, will work. Because, if you don’t have a presence on the ground that’s effective, it’s almost impossible to collect the kind of intelligence that you need to be equally effective in your counterterrorism.(CROSSTALK) KERRY: And, obviously, one of your components of counterterrorism is avoiding collateral damage, civilian casualties. So knowledge and relationships and intelligence are really critical components of that kind of a mission.I think there’s a lot I’ve learned about how we can recalibrate that part of it. But that’s not the whole mission. Counting the numbers of troops is not going to define our success here.There is no military success, ultimately, to Afghanistan. The Afghans themselves are going to define what happens here. And we have to convince ourselves that we have a strategy in place that empowers them to do that and that is realistic in what our expectations are from them and on what schedule.DICKERSON: OK. Senator Kerry, thanks very much. We’ll have to leave it there.. it appears that the critical leg of the stool, if thisparticular stool has any legs at all or perhaps is just a commonlegless stool, will be for the people of afghanistan to first realizethat they are merely a leg in a stool of someone else’s construction/analogy/conception.we assume they can accept this analogy and then fulfill thebush, obama, clinton, kerry “expectations”,bearing the weight of other person’s, after all they constitutebut one leg of the seems less like foreign policy and more like an extensionof domestic policy.keywords: nation building / stool dynamics,pipeline laying / money making / natural resources /on going unconscious stupidity.skip post due to blithering in the “penny farthingyou call your mind”. s. beckett. i like that phrase.

blindman blitheringNovember 6th, 2009 at 7:44 am the Scam WorksBy MICHAEL HUDSONNewspaper reports seem surprised at how high banks are bidding for the junk mortgages that Treasury Secretary Geithner is now bidding for, having mobilized the FDIC and Fed to transfer yet more public funds to the banks. Bank stocks are soaring – thereby bidding up the Dow Jones Industrial Average, as if the “financial industry” really were part of the industrial economy.Why are the very worst offenders – Bank of America (now owner of the Countrywide crooks) and Citibank the largest buyers? As the worst abusers and packagers of CDOs, shouldn’t they be in the best position to see how worthless their junk mortgages are?That turns out to be the key! Obviously, the government has failed to protect itself – deliberately, intentionally failed to do so – in order to let the banks pull off the following scam.Suppose a bank is sitting on a $10 million package of collateralized debt obligations (CDOs) that was put together by, say, Countrywide out of junk mortgages. Given the high proportion of fraud (and a recent Fitch study found that every package it examined was rife with financial fraud), this package may be worth at most only $2 million as defaults loom on Alt-A “liars’ loan” mortgages and subprime mortgages where the mortgage brokers also have lied in filling out the forms for hapless borrowers or witting operators taking out mortgages at far more than properties were worth and pocketing the excess.The bank now offers $3 million to buy back this mortgage. What the hell, the more they bid, the more they get from the government. So why not bid $5 million. (In practice, friendly banks may bid for each other’s junk CDOs.) The government – that is, the hapless FDIC – puts up 85 per cent of $5 million to buy this – namely, $4,250,000. The bank only needs to put up 15 per cent – namely, $750,000.Here’s the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a mortgage worth $2 million, for which it receives $4,250,000. It gets twice as much as the junk is worth. ……..

ChignosNovember 6th, 2009 at 10:51 pm

There is no new thread.FIRST!Why is it surprising that economics is a “dismal science?” Fiat currency is worth nothing. How can an intellect value anything in fiatscos?

ChignosNovember 6th, 2009 at 11:30 pm

Here’s the deal, folks. The only trouble with using drugs is that sooner or later, no matter what….you have to come down. Don’t bother to ask me why. For any number of reasons, that’s just the way it always is.Now, there’s no arguing with the notion that if yo could just keep using drugs, even if it meant you’d have to use higher and higher doses, you’d be ok. Just use more drugs—–forever, essentially–and you’ll be ok–nothing else will matter. Theoretically……..this is absolutely true……………………………………however………………………..The Fed can’t keep monetizing the debt forever. Sooner than now later there is a crisis of confidence (who knows why? just pick your choice) in the dollar and……………voila…………gold and silver are the world’s reserve currency!!!!!

NedNovember 9th, 2009 at 2:06 pm

Bloomberg said in 20 to 30 years the dollar will not be the world reserve currency. Does that mean the US will have little or no growth for 20/30 years??