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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

So, We Got That Going For Us, Which is Nice…

On March 12, 2012, in Currencies, Debt, by Tim

Prompted by last week’s trial balloon about “sterilized bond purchases”, I went looking for that clip from a few years ago when Fed Chief Ben Bernanke told Congress during the early stages of the financial crisis that central bank’s asset purchases would be “sterilized” (as if Congressman understood what that meant). I never did find that clip, but, I did find this:

The post title is a paraphrasing of words of wisdom from Caddy Shack’s Carl Spackler:

So I jump ship in Hong Kong and make my way to Tibet, and I get on as a looper at a course over in the Himalayas. You know, a caddy, a looper, a jock. So, I tell them I’m a pro jock, and who do they give me? The Dalai Lama, himself. Twelfth son of the Lama. The flowing robes, the grace, bald… striking. So, I’m on the first tee with him. I give him the driver. He hauls off and whacks one — big hitter, the Lama – long, into a ten-thousand foot crevice, right at the base of this glacier. And do you know what the Lama says? Gunga galunga…gunga – gunga galunga. So we finish the eighteenth and he’s gonna stiff me. And I say, “Hey, Lama, hey, how about a little something, you know, for the effort, you know.” And he says, “Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consciousness.” So I got that goin’ for me, which is nice.

I wonder what that was that Austan Goolsbee muttered to himself there…

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Higher Education in Greece

On March 12, 2012, in Debt, Europe, by Tim

This Bloomberg story about campus life in the new, more austere Greece makes you wonder about the future of the Occupy Wall Street protests in the U.S. and about higher education in places like California where budget cuts will continue to be felt for years to come.

In the universities of Athens, the city where Plato taught and Cicero studied, campuses are covered in anarchist graffiti, stray dogs run through buildings and students take lessons in Swedish with the aim of emigrating.

Higher education in Greece, as in much of Europe, has been battered by the recession and austerity measures. Budget cuts of 23 percent since 2009 mean buildings aren’t heated in the winter, schools have slashed faculty salaries and newly hired professors can wait more than a year to be appointed.

Students say it’s hard to be hopeful with youth unemployment surpassing 50 percent and protesters seizing university buildings.

“People are pessimistic and sad,” said Konstantinos Markou, a 19-year-old law student, speaking in a lobby at the University of Athens, where dogs fought nearby and students say drug dealers and users congregate. “The sadness is all around the air.”
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As universities in Greece reduce salaries and slow hiring, young academics are rethinking their careers there, said Leonidas Karakatsanis, 39, who received his Ph.D. in political science last year from the University of Essex in England and has a research fellowship at Panteion University in Athens.

“My initial plan was to spend some years abroad and return back to Greece,” Karakatsanis said. “Now it seems like it’s impossible to return to Greece. I’m starting to imagine myself living abroad for the next 15 to 20 years.”

While no one is expecting any U.S. states to follow the path of Greece, there are already some important parallels, namely, how policy makers continue to pass on a disproportionate share of the pain to the younger generation who have little political power and how people are adjusting to recent changes by relocating within the U.S.

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Nothing to See Here… Move Along…

On March 7, 2012, in Debt, by Tim

Now, admittedly, long-term projections about economic growth and the rise in government debt are notoriously unreliable, but, nonetheless, the data in this chart from a new Mercatus Center report is a little shocking. I mean, it’s like we’re not even trying.

Fast Growing Debt

… and I guess, since it’s an election year, there won’t be much of an effort to do anything about this until after all the voting is done in the fall, if then. Oh well, as long as the Federal Reserve keeps buying Treasuries, we shouldn’t have any problems…

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Stock Market Plunge Spurs Fed to Action

On March 7, 2012, in Bonds, Debt, by Tim

Well, actually, I hope that’s not what happened, but, after the dive equity markets took yesterday (see this item from earlier in the day), it wouldn’t come as too big of a surprise to learn that Fed Chief Ben Bernanke rang up Jon Hilsenrath at the Wall Street Journal and their conversation led to the filing of this report($) today that makes clear, lest anyone get the impression otherwise, that the central bank is still thinking about printing up another half trillion dollars or so for the greater good.

Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Ben Bernanke Wields the Printing PressUnder the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed’s previous efforts to aid the recovery.
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In the new novel approach, the Fed could print money to buy long-term bonds, but restrict how investors and banks use that money by employing new market tools they have designed to better manage cash sloshing around in the financial system. This is known as “sterilized” QE.
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Unlike Operation Twist, the size of the program wouldn’t be constrained by the Fed’s own holdings of short-term Treasurys. This approach would also give officials an opportunity to try out some of their new tools to see how they work on a large scale.

I don’t know about you, but, to me, the idea of an “unconstrained” Fed trying out some of their new money printing tools on “a large scale” sounds pretty bullish for just about everything that isn’t the U.S. dollar.

Note that the image above is not the one offered up at the WSJ. It is from this interesting collection of images that are returned when you do a Google image search on Bernanke Money Printing. It actually took a little while to pick one out – the selection was vast.

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More Amazing Student Loan Statistics

On March 5, 2012, in Debt, Our Culture, by Tim

The cost of a college education has been in the news a lot lately, what with Fed Chief Ben Bernanke telling a Congressional committee last week that his son is about to graduate from medical school with $400,000 in student loan debt as recounted in this Huffington Post story the other day and with Catherine Rampell documenting the dramatic rise in the cost of attending state colleges in this New York Times report.

Another data point comes today in this item at Sober Look in which the dramatic rise in government involvement in student loans is made clear in the graphic below:

I’ve known that rising student loan debt has been doing a pretty good job in recent years of offsetting falling credit card debt in the Fed’s monthly report on consumer credit, but I didn’t know that the gubment was on the hook for so much of it, though, with all the other money that has been gushing out of the nation’s capital since the Great Recession started in 2008, it really shouldn’t be too surprising.

Of course, it would be nice if a college degree was worth what it used to be in the workplace. It used to be that for little or no money you could go out and get an engineering degree at just about any state college and you’d be rewarded with a pretty decent standard of living (I should know, I did it). But, that doesn’t seem quite as easy any more.

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David Stockman: “The Fed is a Patsy”

On March 5, 2012, in Debt, Stocks, by Tim

David Stockman, White House budget director under Ronald Reagan and erstwhile critic of all things financial, is not at all optimistic about the U.S. economy and has a rather dim view of the nation’s central bank, going on at length on these and other topics in this widely distributed interview with the Associated Press.

Q: But the unemployment rate is falling and companies in the Standard & Poor’s 500 are making more money than ever.

A: That’s very short-term. Look at the data that really counts. The 131.7 million (jobs in November) was first achieved in February 2000. That number has gone nowhere for 12 years.
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Q: What will 10-year Treasurys yield in a year or five years?

A: I have no guess, but I do know where it is now (a yield of about 2%) is totally artificial. It’s the result of massive purchases by not only the Fed but all of the other central banks of the world.

Q: What’s wrong with that?

A: It doesn’t come out of savings. It’s made up money. It’s printing press money. When the Fed buys $5 billion worth of bonds this morning, which it’s doing periodically, it simply deposits $5 billion in the bank accounts of the eight dealers they buy the bonds from.

Q: And what are the consequences of that?

A: The consequences are horrendous. If you could make the world rich by having all the central banks print unlimited money, then we have been making a mistake for the last several thousand years of human history.

Q: How does it end?

A: At some point confidence is lost, and people don’t want to own the (Treasury) paper. I mean why in the world, when the inflation rate has been 2.5% for the last 15 years, would you want to own a five-year note today at 80 basis points (0.8%)?

If the central banks ever stop buying, or actually begin to reduce their totally bloated, abnormal, freakishly large balance sheets, all of these speculators are going to sell their bonds in a heartbeat.

That’s what happened in Greece.

Here’s the heart of the matter. The Fed is a patsy. It is a pathetic dependent of the big Wall Street banks, traders and hedge funds. Everything (it does) is designed to keep this rickety structure from unwinding. If you had a (former Fed Chairman) Paul Volcker running the Fed today — utterly fearless and independent and willing to scare the hell out of the market any day of the week — you wouldn’t have half, you wouldn’t have 95%, of the speculative positions today.

I guess it shouldn’t come as too big of a surprise to learn that Stockman owns no stocks at present – he says his assets are mostly in cash with a smaller portion held in gold.

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