2012 February 14 | timiacono.com

There’s Gold in Them Weddings

I’ve read stories about the role of gold in Indian weddings for years now, but this 60 Minutes segment the other day put the matter into a little better context, though it would have been nice if they’d focused more on the weddings of ordinary people rather than focusing so much on how the fabulously wealthy conduct theirs.

One thing is certain – those Indians are crazy about their gold. Even at $1,700 an ounce. They’re also crazy about arranged marriages – I knew the percentage was high, but was kind of surprised to hear the figure at 75 percent. What’s the divorce rate there?

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Paper Money, Economists, and Hubris

I don’t recall how this WSJ op-ed came to my attention again the other day, but, since it did, it seemed worth sharing the paragraphs below. Originally appearing on August 15th last year – on the 40-year anniversary of Nixon closing the gold window – it reminds us of what a swell job economists continue to do for us non-economists in the world.

Most of today’s macroeconomists see surprisingly little wrong with the present system of fully elastic money. This is surprising for two reasons: First, there is the universally dismal historical record of paper money systems. Second, paper money systems are inherently incompatible with capitalism. In a state paper money system, the banking system is de-facto cartelized and the banks’ funding conditions and certain interest rates are determined administratively by a state agency—the central bank. The constant expansion of bank reserves constitutes an ongoing subsidy to the banks, which encourages further money creation through fractional-reserve banking. Credit growth in such an economy is no longer driven by the extent of saving in the economy but the result of central bank policy and the banks’ willingness to expand their balance sheets.

The belief among mainstream economists and central bankers today is obviously that they fully understand and can correctly anticipate the consequences of their monetary manipulations. The effects of money injections appear to them to be simply stronger growth and higher inflation, both neatly captured by the set of macro-statistics that modern economists follow so slavishly. All that central banks have to do, then, is target the right balance between the two. A display of such intellectual hubris was given by Federal Reserve Chairman Ben Bernanke when he explained the Fed’s policy of quantitative easing to the U.S. public in an op-ed last November. Extolling the advantages of artificially depressed interest rates and propped up asset prices courtesy of the Fed, Bernanke promised that, “lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

This brings to mind the ongoing brouhaha between econo-bloggers and St. Louis Fed President James Bullard who, over the last week, has been taken to task for saying a lot of things that most non-economists would view as simple common sense, for example, that the housing bubble created a lot of artificial demand in the economy in the last decade and attempting to restore aggregate demand to that level through money printing is dangerous.

Jan. Retail Sales Up, Prior Data Revised Down

The Commerce Department reported(.pdf) that retail sales in the U.S. rose 0.4 percent in January after downwardly revised gains in each of the two prior months, the November sales gain being reduced from 0.4 percent to 0.3 percent while December sales, initially reported as a gain of 0.1 percent were revised to a gain of just 0.02 percent.

Flagging auto sales were the primary reason for the January total coming in below consensus estimates for a gain of 0.6 percent. Auto sales fell 1.1 percent last month, pacing the declining categories, while sales at general merchandise stores (up 2.0 percent), gas stations (up 1.4 percent), and grocery stores (up 1.3 percent) led the advancing categories.

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Moody’s Downgrades Italy, Spain, Warns U.K.

Just when you thought it was safe to buy stocks again – after the Greek austerity deal was approved over the weekend amid rioting in the streets of Athens – another credit rating agency seems intent on spoiling all the fun. Following a similar move by Standard & Poor’s last month, Moody’s cut credit ratings for Italy, Spain, Portugal and three other smaller European nations and said they may strip the U.K. and France of their triple-A rating.

It seems that European policy makers are not moving fast enough for the credit rating agency, Moody’s chief credit officer Alistair Wilson noting, “We do not think they have done enough to reassure the market that we are on a stable path. What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture”.

Tuesday Morning Links

6 European Nations Get Downgrades – NY Times
Italy, Spain Cut by Moody’s; U.K. Top Rank at Risk – Bloomberg
Moody’s cuts Italy, Spain and Portugal’s credit ratings – BBC
European Doubts Growing over Greece Debt Strategy – Spiegel
Moody’s warns may cut AAA-rating for UK and France – Reuters
Another piece of the LTRO puzzle – FT Alphaville
Mortgage Settlement Saves FHA From Bailout – CNBC
Obama’s budget shows he’s no Keynesian – MarketWatch
Obama budget: Price tag for Wall St. bailout goes up -Washington Post
Greece Will Leave EU… They Should Do It Now. – Mandelman Matters
Money-Printing Has Reached Its Limits – CNBC
The Way Greeks Live Now – NY Times

Oil below $101 ahead of US supply data – AP
Gold regains $1,720/oz as euro recovers – Reuter
Markets shrug off Moody’s downgrades – Globe & Mail
Are Stocks Ready to Give Back Some of 2012’s Gains? – CNBC
Dow Jones Industrials could top 15,000 in two years – Barron’s
Gold: Faster, Higher, Stronger? – Daily Capitalist
Barclays: Gold fundamentals intact, target $1800 – Commodity Online
US gold, silver ore production hits 20 year low in 2011 – BullionStreet
Gold Has Humbled Smart Men Before – WSJ
Gold’s credibility problem – Mineweb

Dumping China for American job shops – CNN/Money
I’m not ready to move on – The Money Illusion
Bubbles and Economic Potential – Krugman, NY Times
The debate over Canadian debt data – Globe & Mail
German Investor Confidence at 10-Month High – Bloomberg
BoJ announces US$130b of additional monetary easing – Channel News Asia
Greece faces death by a thousand cuts unless it leaves the euro – Telegraph
Policy Follies: The First-Time Homebuyers Tax Credit – Baker, CEPR
Mortgage deal to provide FHA with $1 billion in cash – Reuters
Fed Scorecard: Five Ways QE2 Worked—And Where It Failed – Net Net
Williams: Fed must keep policy throttle ‘wide open’ – Reuters
Volcker defends namesake rule against banks – CNN/Money

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