The Mess That Greenspan Made - Part 415

“Sell Everything Immediately … Quickly”

In light of what’s been going on in Europe over the last few days, perhaps it’s worth reviewing this Clark and Dawe video from last year on the area’s sovereign debt crisis.

Since this was originally aired, it would appear that about the only things that have changed are the actual debt totals for each nation and my guess is that they’ve all probably gone up.

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Tuesday Morning Links

Markets rise despite continuing debt concerns – BBC
Ackermann Says Market Reminiscent of 2008 – Bloomberg
Swiss bid to peg franc to the euro stuns currency traders – Guardian
European Bankers Urge Leaders to Move Quickly on Debt Crisis – NY Times
UBS Warns Of Collapse Of Banking System And Civil War on Euro Break Up – Zero Hedge
Zoellick: World in ‘Dangerous’ Period With EU Turmoil – Bloomberg
U.S. banks offered deal over lawsuits: report – Reuters
Postal Service warns it could lose $10 billion this year – Washington Post
Food stamp use in U.S. rises to record level as economy remains sluggish – xinhuanet
Rhode Island considers radical moves as pensions put state on brink – Washington Post
Governments increasingly buying gold – Mineweb
I AM 63 and I AM TIRED –

Oil falls to near $84 on global slowdown fears – AP
Gold falls from record after Swiss peg franc – Reuters
Treasuries Surge as 10Y Yield Falls to Record – Bloomberg
Metals stock volatility to increase but, so will opportunity – Mineweb
Investor Confidence Down Sharply Following Jobs Report – Rasmussen
Pension funds in new crisis as deficit hole grows – Reuters
Where does gold go from here – $1,500 or $2,000? – Mineweb
Exactly where we are in this gold bull market – StockHouse

Is the Need for Stimulus “Undeniable”? – Mises
Is California economy improving, or worse than ever? – LA Times
Krueger and Krugman: It matters which is going to Washington -Washington Post
G7 to seek ways to prop up global growth: source – Reuters
Leaving Euro Would Cost Each German €8,000: UBS – CNBC
Berlin Lays Groundwork for a Two-Speed Europe – Spiegel
China growth may slide below 9 percent in 2012 – Reuters
German Factory Orders Fall More Than Expected – Bloomberg
House Prices falling at 9.5%: Don’t Buy Now! – Prosper Austalia
Herbert Hoover: On Bank Liquidity and Solvency, 1931 – Credit Writedowns
Fed’s Lacker: More stimulus higher prices, growth doubtful – FXStreet
Savers get burned by Fed’s zero interest rate policy – Kansas City Star
Please, no more QE until really needed – Telegraph


More “Lack of Demand” Nonsense

As the nation laments the dim prospects for its labor market on this Labor Day, we see another example of how the fundamental problem behind the bleak jobs picture fails to be understood, this story by Zachary Roth at The Lookout regurgitating what passes for conventional wisdom these days when it comes to root causes, citing a lack of consumer demand (irrespective of how the prior demand levels were attained) and providing more evidence that conventional wisdom is often wrong.

Right now, what’s holding back the economy is a lack of demand, in the form of consumer spending. And that lack of demand stems largely from the enormous loss of housing wealth that occurred in recent years. Until the housing sector picks up, the economy as a whole will struggle. And a successful mortgage modification program could have helped quite a lot.

But there’s something else worth keeping in mind: Economic shocks like the one we went through with the housing bust and the financial crisis take a long time to recover from. In a paper written last year for the Federal Reserve Bank of Kansas City, the economists Carmen and Vincent Reinhart, experts on the history of such crises, concluded that the effects typically linger for around a decade. “Income growth tends to slow and unemployment remains elevated for a very long time after a severe shock,” they wrote, predicting “a lengthy period of retrenchment.”

Until you start hearing policy makers and economics writers say, “Much of the economic growth we’ve seen in recent decades has been due to the unsustainable rise in asset prices and an unhealthy increase in debt at all levels – government, corporate, and personal. We must acknowledge these as the root causes and restructure the economy and financial markets accordingly before we can move forward in a meaningful way”, we’re not likely to make much progress in creating jobs or restoring the once robust levels of economic growth the U.S. has become accustomed to, if that’s even possible.

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Gold Still Under U.S. Investors’ Radar

More evidence that U.S. investors are still largely unaware of the ten-year old bull market in gold that has been occurring right before their eyes comes via this graphic in the local paper (presumably from Associated Press) in which the meager gains on gold stocks this year are characterized as a “summer survivor” while basically ignoring the metal itself.

While gold stocks have struggled, the metal has gained 32.5 percent this year as of Friday and silver has done even better – returns that any investor could have achieved by buying one of the many bullion ETFs. This point may have been worth mentioning if you’re going to go to the trouble of creating a table where one of five items is “Precious Metals”.

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