Is the Dollar a Dwarf or a Midget?

A couple of charts not seen very often in the news are the ones you can create with some Fed dollar statistics. Two of these are the "Nominal Major Currencies Dollar Index" and the "Price-Adjusted Major Currencies Dollar Index." The Fed uses a complicated set of formulas to come up with these numbers and has been doing so since the early 1970's.

The "Major Currencies" indices are "a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue." [Source]

What is in that subset of foreign currencies? The euro (remember, that includes all the major European countries), the Canadian dollar, the Japanese yen, the British pound, the Swiss franc, the Australian dollar, and the Swedish krona.

I have made two charts showing the difference between the nominal chart and the inflation-adjusted one. The first shows us the actual exchange situation of the dollar today. (Click on the image to get a much larger version.)



As you can see, this month of April 2007, our dear dollar has hit rock bottom, at 78.9902 on the scale. [Source for the nominal chart.]

Here below, we have the inflation-adjusted version of this chart. This time, the different currencies have been weighted by the statisticians so that the degree of inflation in each country is reflected on the chart. In other words, here we have what the world sees as the US Tallest-Dwarf Status. The results are not quite so drastic.



But as you can see, and no matter how you look at it, the US dollar is getting smaller and smaller. We have been in a position to claim "Tallest Dwarf" status only twice in our more recent history (i.e. since 1973.) As of today, we are flirting with the loss of the title -- again. [Source for the price-adjusted chart.]

What I believe is unconscionable on the part of the central banks of this world, is that they are beginning to talk as though inflation is a necessary evil, something every nation must just "live with" and "make the best of." And now they're even talking as though our status as tallest dwarf were actually a handicap.

Meanwhile, the speculators are having a field day and the little guy is getting raked over the coals -- in other words, Big Financial Business as usual. (This reminds me of 1929....)

Can Market Players Wal-Mart and CVS Solve our Health Care Crisis?

I've always watched the health care problem from afar. As a young and carefree adult, I didn't have insurance except when my then-current employer paid for it. Not being one to buck the odds, I lived like there was no tomorrow and no such thing as bad health luck. After all, the chances of falling ill between age 0 and 55 are really small, and I'm no gambler.

But as I've gotten older, and as I've acquired a few things that I'd rather keep than sell to pay off some inevitable medical bills, I've gotten myself into a Health Savings Account with the required high-deductible ($10,000 for a couple) insurance policy. It costs us a fortune, and it pays for nothing except for catastrophes and about $200 towards an annual check-up.

I still toy with the idea of dropping it. I convince myself that I could stay at least a week in a good hospital for what we will pay over the next five years; and at my age chances are I'll drop dead of a heart attack rather than get a long illness. But then I get scared and change my mind.

This year for the first time, in one of my more cautious moods, I went in for my check-up, fully realizing that the $200 insurance advance would not cover all of the charges. But little did I realize that not only would I receive an invoice from my doctor for well over $250, but I would also receive additional ones from the nurse who pricked my arm, the little lady that stuck the EKG wires to me, the laboratory that analyzed the blood and urine sample, the outside physicians who interpreted the test results, an X-ray technician, and the medical center that provided the X-ray equipment -- well over $500 for a simple annual physical -- and I didn't even get the mammogram, the dietitian's advice, the eye exam, the bone density exam, the colon exam, and the Pap smear, all recommended by my doctor to a greater or lesser degree.


[Thanks to oucom.ohiou.edu for the photo. Let's see, 1, 2, ....8, that makes $5 each.]

What would all that have brought the total to? Surely well over $1,400, for a simple annual exam that was supposedly covered by my insurance.

"Good grief," I said to myself. "No wonder people want a single-payor system."

[Pause]

"OH NO. What am I saying?"

Please, please, people, don't give in to this temptation. There IS a solution to this quandary other than imitating Canada, from whence people come down into the US in droves to receive a minimum of proper care.

Even my patience was coming to its limits, until today, when I read the best news I've seen in a long time:

"Wal-Mart to Open 400 In-Store Clinics"

Duh! Why didn't we think of this before?

Well, obviously because it takes the movers and shakers of the marketplace to come up with this stuff, people like the gazillionaire Waltons, or whomever they've delegated to find new ways of making money. That is exactly why they make the big bucks, and they're the only ones who could pull this off.

So now I'm optimistic. I say it's a New Day, because the day Wal-Mart decides to get into the health care business is the day we anti-universal-health-care-ists have been waiting for, AT LONG LAST.

(Check out my Wal-Mart cartoon.)

With the Fed Speaking More Plainly These Days, Why Is Mishkin Still Talking Greenspan?

Former Fed Chairman Greenspan was well known for his purposeful lack of clarity when speaking to the public. In fact, he once quipped, "I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said." [Wikiquote.org]

But the public eventually tired of the game of Blindman's Bluff, and the Fed, realizing it was losing credibility, has begun to clear up its language somewhat since Greenspan's retirement.


[Thanks to nevadaobserver.com for this Nast cartoon, which I have tweaked. Click on it for a larger version.]

From time time, however, we get notable exceptions like this one found in a speech by Governor Frederic S. Mishkin on April 20, 2007. (I have already complained about this fellow before.)

Here's the quote:

"Given my estimate of the current level of long-run inflation expectations as well as the likelihood of some easing of resource pressures in labor and product markets, I expect that core inflation will slow to around 2 percent over the next couple of years. Although I believe that inflation expectations will play a primary role in determining the course of inflation, I want to emphasize that neither economists nor policymakers understand the expectations-formation process very well. However, one aspect of expectations formation that we have come to regard as crucial is the credibility of monetary policy. Consistent with its dual mandate to foster maximum sustainable employment and price stability, the Fed must therefore continue to respond aggressively to shocks that have potentially persistent adverse effects on both inflation and real activity. And we need to monitor long-run inflation expectations closely to avoid losing credibility with the markets."

At first passage, one thinks, "The sentences seem clear, he must be making sense." But after a few seconds comes the next thought, "Wait a minute. What did he actually say?"

Well, let's take another look:

"I believe that core inflation will slow to 2 percent in the near future. I also think that people's inflation expectations actually are a principal cause of inflation. No one really understands how people reach these expectations, but one thing we assume is that what the Fed does and says has a lot to do with it. Therefore, the Fed must constantly study incoming data and fiddle with the money supply at the first sign of economic disruption. That way, everyone will think we have a handle on the situation."

Or more concisely:

"At this point, only the public's misapprehensions could create more inflation; and so, because people actually take us seriously here at the Fed, all we have to do to prevent any more inflation is to continue to act as though we know what we're doing."

Oh, stop the charade, Governor. -- It is a charade, isn't it?

Looks Like a Sarkozy-Royal Dual in France

The first numbers are in. The "right wing" UMP (does France have a true and viable small-government, free-market party?) represented by Sarkozy is up to 30%, and the big-government socialists' Royal is around 25%.





[Thanks to viewimages.com for this link to Segolene Royal, and thanks to The Economist for Sarkozy.]

Bayrou is down around 18.3%, and Le Pen is floundering at 11.5%.

More as news filters in.

Once again, a nation's politics are very closely related to economics, in the sense that if the politics are not propitious, good economics cannot prosper.

Brazil: A Bird's Eye View

Just got back from a visit to Brazil, where we went to size up an opportunity to start a small hospitality business.

What a colorful country of contrasts. (Click on any photo to see a larger version.)


Recycling bins and satellite dish next to the simplest of living accommodations.
[Copyright Katy Delay]

Here's my unscientific, first-glimpse assessment, likely to be revised by future visits.

As a young Frenchman once said after his first visit to the U.S., Brazil hit me "like a brick." (Actually, what he said was, "Je l'ai pris en pleine gueule.") What he and I mean is that it was not at all as we expected.

In my case, I thought I was going to find a young, energetic, completely homogenized, enterprising country full of opportunity and opening markets. What I found -- in the northeast and mideastern coastline cities, at least -- was a social structure promising little hope of change for most, imprisoning the grand majority of the various-shades-of-brown-skinned population in a kind of Felliniesque state of rigor mortis, and catering to the same old, entrenched, oligarchic, privileged white few. I would estimate that at least two-thirds of the country are rotted by municipal corruption (which is colorblind); and the banking system dates back to the Middle Ages.

In Brazil today, in spite of all you hear, you still have (1) an elite minority who control all the mineral and agricultural wealth and who split the power with a very centralist government; (2) a very small, slow-growing middle class, ironically represented on TV by those blond, blue-eyed, beautiful people who appear in endless hours of "novelas" -- "Days of our Lives" a la Bresilienne -- who must all live in Sao Paulo (from the plane, it looked like a patchwork quilt of ten New York Cities); and (3) the other 95 percent of the population (not an accurate figure) who believe that their main focus in life is survival and the enjoying of it, inasmuch as there is little hope that tomorrow will bring anything other than the neglect, disdain and abuse they've become accustomed to over the generations.

On the positive side, I also found a kind of consensus among the variegated regional amalgamations of cultures and ancestry, that has fused this huge nation into a people called "the Brazilians." A common trait has evolved among them: The capacity to evacuate awareness of their own material difficulties, replacing it by a fundamental "joie de vivre" that is as soothing as the liquid, negative-ion-charged ocean breezes that cool their shores and calm even my WASPy, uptight and perennially-agitated spirits.

More, perhaps, after a future visit. Perhaps my vision will change; but I'm too aware of South and Central America's past and present to believe that Che Guevara doesn't still hold, if not the minds, at least the souls of the vast majority of the inhabitants for the immediate future, in spite of the economic inroads of geniuses like Hernando de Soto. For the Berlin Wall to fall, there had to be a massive upheaval from the ground up. This kind of repression doesn't fall so easily when pushed from the top or the side -- the foundations are just buried too deep.

Having said all of that, the country is most beautiful and many of its world-class beaches are still undiscovered. We toured around the eastern coastline, visiting Rio, Buzios, Natal, Fernando de Noronha, the state of Ceara, Jericoacoara, and Salvador de Bahia. Here are some photos for your enjoyment. [All photos copyright Katy Delay.]

Rio



Buzios



Natal



Fernando de Noronha



Caponga in the State of Ceara



Jericoacoara



Salvador de Bahia

The Fed: Increasingly Irrelevant?

Very good article over at Seekingalpha.com, by Russell Wood. He cites John Hussman (Hussman Funds), David Ranson (H.C. Wainwright & Co.), John Tamny (Realclearpolitics.com), James Surowiecki (The Wisdom of Crowds), and Rex Sinquefield (Dimensional Fund Advisers -- the guy who said something like: "The only people left who do not believe free markets work are the North Koreans, the Cubans, and the Central Bankers.")

All make relevant points that are worth checking out at the source. Wood adds his own accurate two-cents worth: The Fed is 'the last of the socialists.... [T]he market will always be more accurate than a group of two dozen "experts" on a committee. The Fed's current model (i.e. worldview) is flawed and thus their policy is ineffective. The economy is clearly slowing as a result of the 425 basis points of rate hikes from 2004 to 2006, yet inflation is worse than when the hikes began, and accelerating. They are likely to make a big mess real soon, and that makes the Fed as relevant as ever.'

Of course they will continue to mess things up, as they have done since the Fed's inception, even if only to render themselves "relevant."

On the other hand, they are indeed irrelevant when it comes to controlling the invisible hand, because their shenanigans are simply taken into account by that hand, and folded into the results like chocolate chips (or rat droppings) in the cookie dough.


[Thanks to mccormick.com and bloggingbaby.com for the photos, which I have tweaked.]

They have no power over that invisible hand -- never have, and never will. The only thing they can do is mess things up. As Watchdog of Inflation and Godfather of Employment, they are more than ineffective; they're downright counterproductive.

Inflation-Adjusted Dow: No Record Set Yet

Here's an interesting chart from chartoftheday.com, via Barry Ritholtz at Seeking Alpha. (Click on the chart for a larger version.)


[Thanks to chartoftheday.com and Seeking Alpha for the image.]

Chart of the Day makes some assumptions that I believe are unwarranted. As Barry says, we can't be sure what it all means.

On the other hand, the chart does give us a new perspective on the Dow, mainly on these points:

1. The Dow has not broken it's inflation-adjusted 1999 record.

2. The 1980 crash ("bear market" as Chart puts it) was as bad if not worse than 1929.

3. There is a possibility -- not necessarily a probability -- that the Dow could be overvalued; but this is one of those conjectures that is difficult to prove or disprove.

Moreover, I would question the data behind the red and green lines. How did they decide where to position them, and at what angle? I suspect these very specific parameters rely on something as foolproof as wishful thinking or a throw of the dice.

But as Barry says, it's still "interesting stuff" if only because it brings the Dow's seemingly vertical nominal explosion since the early 1900's back into perspective.

Excellent Analysis for French Voters

Anyone who is faced with the quandary of choosing the next President of France should profit from taking a gander at a series of analyses offered up by Liberte Cherie, my favorite French political group. These people (and they're all very young) really understand economics, better than most older and supposedly wiser Ph.D.s.


[Thanks to liberte-cherie.com for the photo of their original masthead, Sabine Herold.]

The above photo reminds me of that famous Delacroix painting of Liberty, which I offer you below. And it's not just the pose.


[Thanks to artunframed.com for the image.]

You will find:

1. Here an amalgam of the best proposals from all four major candidates;

2. Here a discussion of why Liberte Cherie does not endorse any one candidate, but rather supports the free-market ideas of each;

3. A detailed analysis of each platform, separating the wheat from the chaff -- and there is a bit of both in each of them:

Here for Sarkozy,
here for Royal,
here for Bayrou, and
here for Le Pen.

I apologize for the non-French-speaking readers who could benefit from and who would love to be able to read these articles. At some point, I may do a consolidated version of it all, because many of the points are relevant to the American elections coming up in 2008.

And for you economists and economics afficionados, economics is merely the blood that runs through the veins of the body politic. Without an unencumbered circuitry, the market flow becomes thick, and risks arise: Clots, heart attacks, strokes and other debilitating or fatal diseases. That is why I spend some time on a subject that I otherwise would eschew out of distaste.

Russia: Been There, Done That: 1917 To Be Repeated in 2017?

This article appearing today in French newspaper Liberation deserves to be translated for the American audience, as a reminder to all free peoples of this earth how very fragile freedom is.

Economics is always subordinated to tyranny. Healthy economics depends upon freedom. Free markets and the resultant rise in a people's standard of living both are vitally linked to democracy and its inherent control over government.


[Thanks to Reuters and Liberation for this photo.]

Read my translation:

"Our Country is Dying, But Most People Couldn't Care Less"

On the edges of Pouchkine Square, in the center of Moscow, all you had to do this Saturday at noon was to wear a tattered jacket and cry out, "Liberty!" or say "Shame!" to be arrested by the OMON, riot police harnessed up like Ninja turtles. Several hundred demonstrators, or mere bystanders who assembled with the opposition movement called "The Other Russia," were held up, sometimes gently, sometimes by baton whacks, and thrown into police cars.

The former world champion chess player Garry Kasparov, leader of "The Other Russia," was detained just as he arrived at Pouchkine Square. "The Russian police state shows its real face!" sighs an old lady on the other side of the street, not too loud so as not to be noticed by the police who were raking up the crowd all around the square. Garry Kasparov was released three hours later, while a few hundred of his partisans were gathered in front of the police station where he was being detained, crying "Liberty!"

To prevent the opposition from forming a large mass of supporters on Pouchkine Square, the Russian authorities had imagined that this Saturday there would be at least three concurrent demonstrations, and deployed several thousand policemen and soldiers to the center of Moscow. They also provided a few rabble-rousers, like that group of fellows disguised as prostitutes, filmed by obliging film crews from Russian television, gathering evidence that what were assembled here were bacchanalian "transvestites" and not the political opposition.

A small gathering of pro-Putin youths, for whom Pouchkine Square had been reserved, were allowed access to the roof of Izvestia's building, to display a banner directed at the opposition: "Salutations to the political prostitutes paid by foreigners."

Confronted by this very impressive display of force, the "march of those who are not in agreement" was quickly disbanded: bystanders and demonstrators who tried to approach the Square today at noon were taken away, or became discouraged. "The problem is that the majority of Russians stay quietly at home," admitted Louri, a retiree of 61, observing this sad spectacle. "Our country is dying, but most people couldn't care less. They say that they can't do anything about it." Nelly and Viktoria, two cute 19-year-old students, passed by the Square coincidentally on their way to the movies, admitting: "We don't agree either with what's going on in Russia today. Nobody obeys the laws. And look: We can't even demonstrate freely!" They themselves also admit that "all of this is scary..." and they scurry off to their film.

"This is all a repeat," said Waldemar, a 70-year-old veteran of opposition movements, in an attempt to console himself. "As a former ministry employee, I'm supposed to live today with a retirement income of 2,500 rubles" (about $95), he explains. "Today, people are afraid: For every demonstrator, Putin sent us 5 or 6 cops. But the revolution will come," he assures us. "At the latest in ... 2017, for the anniversary of of our 1917 revolution!"

The Dollar's "Death March"

I like that phrase. It comes from this article at Forbes.com, quoting Peter Grandich.

Gold is pushing upward again, and the dollar is testing new recent lows.

This weekend should be instrumental, what with the G7 meeting taking place. Will they decide to allow the dollar to sink? Or will they try to prevent it from doing so? This rarely succeeds anyway, but are they ready to accept that reality?


[Thanks to ils.unc.edu/daniel for the photo that I have tweaked.]

Recent noise suggests that the central bankers might just try to change the color of their interventionist stripes this time and jawbone, at least, about how a lower dollar helps the US trade balance by lowering the price of our exports. Okay, but what about the price of imports, and the fact that all kinds of markets now exist (many of them backed by our own globalized US industries) that depend upon a strong dollar but that would be wiped out by a sudden drop in our currency?

They might answer, "Oh don't worry, we'll control the drop." Yeah, right.

In that case, I guess those foreign exporters who depend upon our strong dollar will just have to bite the bullet over a slow drop, like those subprime borrowers in the housing market and the buyers of ABS who are soon going to be holding the short stick. (ABS stands for "asset-backed securities" that are the secondary source for the funding behind the housing boom of recent years. With recent foreclosures, some of these securities are drying up like raindrops in Death Valley.)

Once again, I'll repeat the scenario as I see it. The Fed is stuck between a boulder and a granite wall. Inflation will surely continue its inexorable climb to unacceptable territory, while at the same time expansion will slow as market players try to second guess the Fed. They won't dare invest in a climate where the Fed might raise rates.

What will the Fed do? Raise the target rate to stop inflation? This would eventually help the dollar, but at what price? Because it would also precipitate the housing crisis into a deeper chasm as it hurts the burgeoning expansion of US exporting industries. Will they lower rates to encourage exports and save housing and the stock market? This would encourage inflation and kill the dollar in the long run, making us "just another player" in the global fiat currency game and risking the shortening of our "tallest dwarf" advantage. It could also damage our creditors like Japan, China, our oil partners (Saudi Arabia, et al.), and others who hold mucho mucho dollar instruments as foreign reserves. It might cause a flight from the dollar, and that is a massacre that you don't want to see.

In fact, neither choice is a good one. The only third option is to do nothing. I personally would opt for this -- in fact, I would abolish the monetary role of the Fed altogether and restrict them to surveillance of the banking industry on a private level. But who's listening to me?

They may just keep the rates where they are for a good long time in the hopes that the problem will go away. This might be the best tactic, because they might preserve their job, too. At least for the time being.

This weekend should be very interesting. We won't get a transcript of what will be said behind closed doors, but even their jawboning will have everyone's ears pointed in the same direction.

And in the meantime, gold anyone? -- although it's interesting to note that everything is historically high right now: the Dow, the S&P, and gold. Looks like investors have spread out some portion of their chips on all the spots as they wait for the "denouement."

The Economist Mag and I Agree About Nicholas Sarkozy: He's France's Best of the Bunch for President

The Economist has endorsed him, finally, but only after much internal debate according to this article at The Figaro (French newspaper) and to this interview with Sophie Pedder, Director of The Economist's French office.

As she carefully points out, TE's editors find that he has the economic program most capable of raising France's living standards, but they hesitated for two reasons:

1. The candidate has a protectionist past;

2. He is making an embarrassingly obvious play for the followers of Le Pen, the extreme right candidate who is presently fourth in line according to the polls (position probably due to his reputed dislike of France's evolving immigrant population, and to rising social unrest.)

I agree that Sarkozy is the only candidate who might do a better job than the others of clearing out a few of the cumbersome socialist cobwebs that have been fettering France's economy for the last 35 years; but as The Economist says, "in the absence of a better choice," he is only "the best of the lot." Hardly high praise.


[Thanks to kitten.cardio.ru for the image. Who is the tallest dwarf?]

I've also heard Sarkozy make Global Warming noises -- probably just another attempt to seduce the Greenies. He is indeed somewhat windmill in style; but on top of that, his efforts as Minister of the Interior, in charge of national security and police forces, have been populist in direction but heavy-handed in style (almost frighteningly fascist in style, in fact) -- not the best way to make friends and influence people.

For example, there were two incidents recently, probably timed with precision before the elections to show his political courage, where the police forces came out in an excessive show of might. One involved an illegal immigrant who refused to show his metro ticket. The bullet-proof vests arrived rapidly, creating havoc on the scene and turning many of the onlookers against the "forces de l'ordre" and for the harried illegal.

The second involved another foreigner (a Chinese, I believe) who came to a school to pick up his child. Somehow, another disproportionate scuffle occurred between this man and an excessively enthusiastic swarm of armed forces, bringing out the enmity of the crowd, not against the perpetrator of the unknown crime, but against Sarkozy's own overzealous army.

His poll numbers keep improving in spite of the fact that Le Canard Enchaine (a newspaper noted for its accurate sleuthing of political scandal) recently reported his involvement in a plan calculated to permit present-President Chirac to avoid legal proceedings once he leaves office. (Legal authorities suspect his involvement in illegal activity that took place many years ago, and he has been protected by presidential immunity all these years.) The charge is that Sarkozy or his people schemed to slip this clause imperceptibly into another legislative bill, for the express purpose of obtaining Chirac's endorsement, which in fact Sarkozy did finally and grudgingly receive only a few days ago. Of course, Sarkozy denies the report.

In the meantime, I've heard that a number of France's more industrious and/or wealthy citizens have already begun to prepare their departure from the country should the elections veer to the left. Companies are setting up temporary offices in Switzerland and elsewhere, and private parties have planned their exodus with finances in tow, just in case.

In other words, the smarter rats are preparing to abandon ship if she leans too far portside.

Just to be Fair, The Good News

I've been harping since this blog's inception about disguised inflation and the Fed's handling of our money supply and credit, and I will continue to do so until they stop manhandling the dollar.

The US dollar is searching out new lows. I've moaned and groaned that this is the fault of the excess US purchasing media in circulation, due to Fed looseness and other factors. (See my article originally published at Prudent Bear here.)


[Thanks to myfourthirds.com for this silver-lining image.]

On the other hand, we've squeaked by over the years. It's that old "Tallest Dwarf" thing. Today at Bloomberg, we get the illustration of how that works.

Simon Kennedy tells us of the rise in exports now that the dollar is cheaper, and that for the first time in many years a few optimists are opining that the world economy is acting independently of the US economy. (There are pessimists who do not believe this, however.)

Now, if our major trading partners the Japanese would stop pegging their yen, and the Chinese their yuan, to our dollar, then we would have the full expression of this phenomenon. Unfortunately, they have too much at stake to do so. It would spell havoc at home. (See previous post. A similar scenario applies to the Japanese situation.)

So the games continue. And who pays for all of this? It is the little guy, the fellow who, to his own great surprise, was finally able to afford his own house, only to be told a year later that he must renounce it through foreclosure. For some reason, these individual tragedies, even though collectively they represent billions of dollars, don't manage to touch the heart and/or mind of our central bankers.

Insider Reaction from China

[Thanks to trekearth.com for the photo.]

Andy Xie, Chinese economist, reacts here to some questions at Bloomberg. (Look for the Audio/Video report in the list for today's date.)

The two points I found most interesting were:

1. The Chinese financial authorities might be making noise about letting the yuan float; but in the long run, their main focus is their employment situation. They have a conflict between their international relations and their internal relations. While on the one hand they might want to play fair with their trading partners and let the yuan out of its pegging straightjacket, they cannot allow a sudden blow-back that might disrupt their employment progress to date, because there are too many Chinese looking for work and a hitch would destabilize the whole country. This is understandable. (Katy comment: The Chinese got themselves into this pegging straightjacket in the first place, not us -- although no one here seemed to object while it was starting up. There was just too much profit on the horizon for our own outsourcing manufacturers. As Xie points out, a pair of Nike shoes priced at $40 is probably selling at $120 in the US [my figures.])

2. The US trade sanctions against certain paper commodities are a symbolic gesture. When the US starts to put tariffs on Nike shoes, then we'll know they're serious.

Interesting interview.

Here's a Nice Summary of the French Elections

For those who want to bring themselves up to date for the French presidential elections that will take place at the end of the month, here at Angus Reid Global Monitor is a nice summary.


[Thanks to news.yahoo.com/Reuters for the photo montage.]

The results of these elections will be critical to the French economy and social life. If the left is voted in, you can be sure more capital will flee the country and certain stocks will take a plunge. (Not all: See this comment at Seeking Alpha about which industries will be hurt and which will be helped.) On the other hand, if the right wins, there will be unrest in the streets.

Keep your eyes and ears open on April 22, when the first round of voting takes place. I'm betting on Sarkozy (right) at the moment; but you never know with French politics. It's pretty sure we'll get two finalists, but who they will be is still uncertain. Maybe Sarkozy and Bayrou (right and center), or Sarkozy and Royal (right and left), and I suppose there's a chance of a Sarkozy/Le Pen situation (right and far right.) And who knows, maybe we'll get a Royal/Bayrou or Royal/Le Pen. From there on in, it's anyone's guess.

Roller Coaster Real Estate Graphic Fun

Here's a fun ride to give you an idea of how the real prices of real estate in the US have fluctuated over the years since 1890.

Roller Coaster Ride

Underneath the video you have the actual graph, in case you don't get it.

Thanks to Seeking Alpha for this reference.


Have a great ride!


[Thanks to australianamusementfanatics.com for the image.]

Look Behind the Curtain

So you think that at 5.25% (Fed target interest rate), the Fed is being bearish about inflation, especially with all their "jaw boning" about it.

James Picerno over at Seeking Alpha submits that the M2 figures suggest an increase of money supply that may be just as important to inflation as the target interest rate, and we all know that the Fed has more than one tool its kit.


[Thanks to kennethhunt.com for the image.]

As Picerno puts it, with a nominal GDP increase of 4.1% (current dollar rate), M2's increase at a rate of 6% is almost 2% above production, implying some generosity on the part of the Fed, perhaps to help housing's soft landing. It's true that money doesn't seem to be tight in spite of the 5.25%, which historically isn't that high after all.

This is all speculative; but it's interesting and it makes sense to me. History has certainly tended to show us that a government will inflate at every opportunity, especially when they are in debt.

But as I have pointed out before, there will come a time when the wave will hit the wall, when the dollar can't take any more inflating; i.e. when the US reputation for being the "tallest dwarf" will dissolve into a mirage. After all, others are out there, and they all covet the title: Europe, Great Britain, the Aussies. We are no longer alone on this currency podium, and we had better watch out for the competition.

And when they all slide at the same speed, there's always gold.

When in Doubt, Ask the Government to Get Us Out

Latest news says that over 13% of all subprime borrowers are falling back on their payments, according to Bloomberg's Yalman Onaran.

So, let's just get the government to freeze all foreclosures on subprime borrowers. Now there's an idea whose time has come, in this era of bigger government.


[Thanks to moonbattery.com and Van Helsing for the image.]

May I suggest that this, once again, is killing the messenger?

Banks and lenders were only the middlemen in the distribution of credit that led to this situation. Their coffers were full of credit galore, and under my economic logic, greater supply means lower prices -- not good if you're a mortgage lender.

So the solution? Find a way to increase demand; and that is exactly what the mortgage companies and banks did, by scraping the bottom of the borrower barrel so as to increase demand for mortgage dollars and keep things flowing at a decent rate. It looks to me more like a survival tactic than a "reckless" or mean-spirited trick.

Meanwhile, no one stops to ask where the lenders are getting the funding.

Among the possibilities is the one I favor: The money flood was caused by the creation of excess credit by the American and other central banks. No one has come up with proof of my hypothesis yet; so I will be clear to state that I am working with a conjecture, but one that fits.

The American Federal Reserve loosened the credit spigot (once again) back in 2001 (the last of many that collectively have destroyed the dollar, converting the 1900-dollar to a few 1900-cents since the Fed's inception.) They have now reversed the faucet and tightened it back up, for "fear of feeding inflation" (but the damage is done.) It is these actions, in my opinion, that have caused the housing market to spread and then crunch, and therefore the Fed is directly to blame for the excessive lending that the mortgage companies have been doing.

Too bad that a scapegoat is always at hand when the weak plead for protection from a legislative body, and that the legislators have a symbiotic need for these same scapegoats to do their grandstanding and power-grabbing.

Thus inflation of the money supply has far-reaching consequences beyond those immediately apparent, such as the encouragement of the growth of bigger government.