Financial Bubbles | - Part 3

Big Data Missing Big

Via this story at CBS MoneyWatch come the latest readings for the Citigroup surprise index showing how things may not be so hunky-dory in the U.S. economy.

Granted, prior episodes of this index moving sharply higher or lower have failed to provide any meaningful information about where both the U.S. economy and stock market were headed – and, lately, economic difficulties overseas and the plunge in energy prices have complicated things a bit – but sometimes it works…

The Worrying Side Effects of BZIRP

The Financial Times takes a look at the blossoming of Below Zero Interest Rate Policy in Europe (aka BZIRP, where investors pay to lend money to borrowers) while wondering where it’s all headed in the short-term (e.g., currency wars) and long-term (maybe much worse).

The soothing British accents notwithstanding, this strikes me as another example of the relative calm that is experienced when venturing further out into uncharted territory (e.g., like when there was a commonly held belief that U.S. home prices never decline).

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Waiting to Exhale in Houston

Office construction data has never been anything that I’ve had any interest in, however, in light of the recent oil bust and the slow-motion reaction to the 50 percent drop in energy prices, charts like the one below from this Wall Street Journal story are hard to ignore.

A few more related charts appear in this offering from the WSJ Economics Blog and added context on the subject can be found in Oil Bust Hits Office Construction Boom, Banks, Suppliers – But Hey, “So Far” No Apocalypse.

Paul Krugman and David Stockman offer up some thoughts on Sen. Rand Paul’s much debated “Audit the Fed” bill. First, from the Nobel Laureate via this item at the NY Times.

Here’s my current thought: in some sense money is a really weird thing, which can look to individuals like a real asset — cold, hard, cash — but is ultimately, as Paul Samuelson put it, a “social contrivance” whose value is more or less conjured out of thin air. Mainstream macroeconomics acknowledges the weirdness — in particular, makes heavy reliance on the ability of central banks to create more fiat money at will — but otherwise treats money a lot like ordinary goods. But that intellectual strategy doesn’t come naturally to many people, so there’s always a constituency for monetary cranks.

Yes, anyone who questions the longevity of the world’s latest fling with a pure fiat currency is a monetary crank and, given the staunch defense of the Fed in this latest round of commentaries by the mainstream financial media, that is clearly the consensus view.

Enter David Stockman, former Reagaon Budget Director and monetary crank who teaches us (or, at least, me) a new word in this piece at his Contra Corner blog.

The reason to be fearful about the economic and financial future is that we are in the thrall of a mainstream consensus that is downright meretricious.

Folks, this whole chorus of Fed governors—–yesterday’s lineup included Richard Fisher and Charles Plossner—-defending the sacred “independence” of the Federal Reserve is downright Kafkaesque. Rather than protecting the Fed from meddling politicians, it is the American public that desperately needs protection from the depredations of an unelected monetary politburo that runs the entire financial system.

The outpouring of anti-”Audit the Fed” commentaries is something to behold, as should be clear when looking at today’s links post. I rarely read comments on news stories or blog posts, but I’ve been making an exception for this subject since you can really get a good feel for the vast Krugman/Stockman divide when doing so.

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