This week’s rant of the week is the Audacity of Doing Nothing by Philip Greenspun.
The scale of angry comments that he has received is quite amusing. People refused to believe that pain can be good. And they refuse to believe that there is not some magical pill out there that will make the pain go away.
For a change, we are putting forth a short, simple, and easy to understand essay for this week’s essay of the week. Like all short and simple things, The German Hyperinflation by George J.W. Goodman has its shortcomings. For one thing, the author’s knowledge of economics is poor. There is nothing mysterious or hard to fix about hyper inflation. One simply has to stop running the printing presses.
But such quibbles aside, the essay is full of valuable anecdotes for those who are not well acquainted with the history of German hyper inflation. The one lesson to take from this short essay is that inflation can get very bad and still not bring about the apocalypse. The apocalypse did come to Germany, but it came after the hyperinflation had been brought under control.
In other words, hell on earth does not come from economic systems that are not functioning properly. Rather, it comes from men who have been deified.
A discussion on the latest evidence on the effectiveness of Satins. Comments more interesting then the post.
The socks that America’s special forces want to wear. Here is the company web site.
Texas tries to decided how it will deal with the fall out if Mexico collapses. The debate centers around the question of whether they should shoot them as they cross the river or build concentration camps? (I am exaggerating for shock value, but actual practices probably won’t differ too much from the spin I am putting on the choices being considered.)
But European banks may be in far worse shape. Bruno Waterfield of the London Daily Telegraph reports to have seen an eyes-only document prepared by the European Commission for the finance ministers of the various EU member countries. The problem revealed in the report is an estimated write-down by European banks in the range of 16 trillion pounds, or about $25 trillion dollars! The concern is that bailing out the various national banks for such an unbelievable amount would push the cost of government borrowing to much higher levels than we see today.
From the Telegraph (Bold Tags added to highlight the shocker)….
The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.
Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia’s central bank governor has declared his economy “clinically dead” after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.
Based on my dim understanding of what the special drawing rights are, I don’t think it is fair to characterize them as giving the IMF the ability to print money. But I am hardly an expert on the IMF so what do I know?
For what it is worth, here is the IMF description of Special Drawing Rights and here is the the IMF description of its lending constraints.
It’s been taking place slowly, week after week, but low gas prices have brought gasoline demand back up. There has been anecdotal evidence that suggested demand might be heading higher, such as recovering sales of gas guzzling cars. But for watchers of This Week in Petroleum, the data confirm the anecdotes: Gasoline demand has recovered to the point that it is now higher in the U.S. than it was a year ago. This week’s Summary of Weekly Petroleum Data (off of which This Week in Petroleum is based) shows that the 4-week rolling average has for the first time in recent memory increased above (albeit slightly) the level of a year ago.
Granted, gas prices have fallen a lot. But for gas demand to have risen above where it was at last year shows that America can’t be that badly off yet.
If the government’s stress test is anything like Creditsights’s stress test, then Wells Fargo will need another $119 billion; BofA, $99 billion; JPMorgan, $124 billion; Citi, $101 billion; Goldman Sachs, $47 billion; and Morgan Stanley, $34 billion. That’s over half a trillion dollars right there, for those of you counting along at home.
More than three million people are having to help their parents financially as the savings crisis engulfs a generation of Britons, research has revealed.
A Daily Telegraph survey – the first of its kind since the recession began – highlights the heavy toll being taken on Britain’s so-called “Babygloomers”.
Almost one in ten adults are having to contribute to their parents’ upkeep, the research found. The Norwich Union research suggests more than 1.3 million adults aged between 17 and 65 are paying their parents more than £250 each month, with some paying up to £1,000.
Many pensioners have found themselves struggling as their income from savings has virtually disappeared following the drop in interest rates. As a result, they have been forced to turn to their children for help.
If the UK is anything like America, I would bet that there are more parents helping their adult kids than there are kids helping their parents.
Still, this demonstrates the costs of trying to lower interest rates in order to stimulate the economy. This is one of the reasons why lowering the interest rates can actually increase the savings rate as I explained in this post.
China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.
Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.
You think maybe they are worrying about this?
The Obama Administration laid out plans yesterday to marshal an extraordinary $3 trillion to stabilise America’s stricken banking sector and revive its collapsing economy. US shares dropped sharply despite an unprecedented few hours of emergency government action.
The CIA has already spent 18 months developing a network of agents in Britain to combat al-Qaeda, unprecedented in size within the borders of such a close ally, according to intelligence sources in both London and Washington.
And why are they doing this? From later on in the article….
Jonathan Evans, the director general of MI5, admitted in January that the Security Service alone does not have the resources to maintain surveillance on all its targets. “We don’t have anything approaching comprehensive coverage,” he said.
In other words, America is sending spooks to its historical ally because they can’t handle their own internal threats.
But America is getting crazy enough on its own. From the Common Room….
I just came back from my local thrift store with tears in my eyes! I watched as boxes and boxes of childrens books were thrown into the garbage! Today was the deadline and I just cant believe it! Every book they had on the shelves peior to 1985 was destroyed!
The reason the books are being destroyed is that they can no longer be sold without being tested for lead first because of a law called CPSIA. We already covered this insane law earlier so hopefully you all are familiar with it. If not just go over to the Common Room and you will learn more then you ever wanted to about the law.
And speaking of insane, there is also this from Bloomberg….
Fannie Mae and Freddie Mac, the mortgage-finance companies seized by regulators, may need more than the $200 billion in funding pledged by the U.S. government if the housing market continues to deteriorate, Federal Housing Finance Agency Director James Lockhart said.
The companies’ needs will depend largely on the direction of home prices, Lockhart said in an interview in Las Vegas yesterday. His comments followed statements from Fannie Mae in November and Freddie Mac Chairman John Koskinen last week that the government’s funding commitment through 2009 may fall short of what the companies need to make good on their obligations.
This is hardly surprising and that is what is so insane. Not to long ago, the idea that 200 billion dollars might not be enough would have been front page news. Now it is hardly news worthy.