Tuesday, January 26, 2010

Oompa Loompa Bankers

Oompa Loompa Bankerdee doo
I've got another puzzle for you
Oompa Loompa Bankerdah dee
If you are wise you'll listen to me

What do you get from a Ben Bernanke?
A flood of reserves and spreads greater than three
Why don't you try simply cooking your books?
Regulators would not dare to look

You'll get no
You'll get no
You'll get no subpoenas

Oompa Loompa Bankerdee Dah
If you are greedy you will go far
You will live in happiness too
Like the Nineteen
Oompa Loompa Bankerdee do

Saturday, January 23, 2010

Added Steve Keen's Debtwatch

Steve Keen is an Australian economist, who is a luminary in a more advanced school of economic thought, post neoclassical. He is extending the work of Hyman Minsky through dynamic system models and shows compelling data on the effects of too much debt.

I am about half way through his Debunking Economics book, gaining better insights into neoclassical theory and why much of it doesn't work in the real world.

There is a treasure trove of lectures, models, and articles at his Debtwatch site.

Friday, January 15, 2010

Q4 Hoisington Economic Review and Outlook

The Hoisington Investment Group publishes a quarterly review and outlook.

The outlook has not changed much from Q32009, with a strong case made for continued drops in money supply, credit, and asset prices. They recommend US long bonds to take advantage of disinflation (or even deflation).

What remains a mystery is under what circumstances a lack of foreign buyers would create a huge interest rate spike. Treasury rates, especially long rates seem particularly vulnerable.

On the other hand, the dynamic that seems to be at work presently is Fed monetization that is feeding banks, who recycle that money not into loans, but into stocks, bonds, and commodities. The Fed is threatening to withdraw support of the mortgage market, which could pull a lot of money and leverage out of the system. This would tend to push rates up, but could also spur a flight to safety in Treasuries. I'm not sure how the dynamic is going to play out.

Wednesday, January 13, 2010

Gold charts 1/1/2010

All charts start from a number greater than zero to better show monthly changes.

M2/World Gold Supply (oz)

M2/Gold Price

In all charts, money stock values come from the St. Louis Fed. Gold stocks come from the Gold Council and gold prices from Kitco. These comparisons are for US money stock vs. World gold supply. Starting this month, I removed the MZM charts since they really told the same story as M2 vs. gold.

After peaking in December, gold pulled back more than $100 to start the new year at $1,121.50. The pull back, along with an increased M2 for the month, made it [relatively] more affordable than December 1.

At the beginning of the month, the M2/Price ratio was 7.49. During the stagflation crisis in 1980, the ratio went under 3.

Saturday, January 9, 2010

One of these things is not like the other

Can you spot the broken promise in the picture?

This is a picture of a 1957 silver certificate and the reverse side of an 1879 Morgan silver dollar. Both are US legal tender with face values of 1 dollar. The silver certificate is supposed to be backed by silver in the US Treasury and convertible to silver on demand.

In 1965, the US Mint began debasing silver coinage and circulating coins contain no silver today. After 1968, the US Treasury reneged on its promise to honor conversion and the purchasing power of the silver certificate steadily declined while the purchasing power of the Morgan silver dollar increased. The Treasury has sold off all 16 million ounces of silver it once held as reserves. The Mint must purchase silver on the open market in order to create silver Eagle bullion and other collectible coins.

This scenario has played out time and again throughout the history of government issued money. Do not believe for a moment that the US government won't break its monetary promises. It has done so in the recent past.