Dagong International Credit Rating, a new Chinese credit rating agency, purports to adhere to “fundamental principles of truthfulness, timeliness, and consistency.” It warns that “over-reliance on financing income and debt roll-over will ultimately lead to a strong reaction of bond market, thus when the borrowing costs and difficulties increase, the credit risks will burst dramatically.”
[Read more...]America Invicta
July 12, 2010 By Leave a Comment
America is still quite strong, and most of its fiscal problems stem from entitlements, which might be reduced or eliminated. So it is possible that war might be financed and armies manned. But war usually causes debt and tax rates to increase. America is for the first time fragile on both accounts before facing such a crisis. We should heed the words of George Washington from his farewell address of 1796:
[Read more...]Keeping the Genie in the Bottle
July 8, 2010 By Leave a Comment
The fiat currency system is elegant and innovative. It has served us well, and might continue to do so if we could as a society change our culture so drastically that we might reign in credit growth — both public and private — responsibly.
This would be the fairy-tale solution, one where the paper and electronic money supply behaves as if it were backed by gold, but actually isn't. But that restrictive system would institutionalize mild deflation as the deterrent against runaway credit.
[Read more...]Unaware of $60 Trillion in National Obligations
July 3, 2010 By Leave a Comment
The mellow stock market decline through mid-2008 (measured by historical yardsticks) and the bull market in U.S. Treasuries of all maturities belied not a crisis but some dreadful disease that had been effectively quarantined.
Perhaps as in history's great epidemics, the doctors in this case had not seen this sort of sickness before and had yet to understand completely what strain of bug was at work. Although having DNA similar to pathogens seen in wartime debt buildups, this season's strain encoded itself with the pattern of socialism: entitlements, bloated and intrusive government, and punitive taxation exclusively directed at the top brackets. Its vector of transmission is fiat currency.
[Read more...]Radical Money Printing Just Like the Continental Congress
June 29, 2010 By Leave a Comment
From within the Fed in the days that the policy of quantitative easing became official, Philadelphia Federal Reserve Bank President Charles Plosser alerted us that “(recent economic statistics) prompted some commentators to suggest that the United States is facing a threat of sustained deflation, as we did in the Great Depression or as Japan faced for a decade.
[Read more...]The Wants and Fears of George Soros
June 27, 2010 By Leave a Comment
George Soros has demonstrated to the world that he has one of the brightest financial minds of our era. He articulated a framework that he dubbed “reflexivity,” which inconveniently argued that forces in the financial system could periodically become unstable rather than always tending towards equilibrium. His famous winning bets such as against the British or Thai currencies made his opinions not only respected by money managers such as myself; they instilled fear within powerful politicians and central bankers. Those on the wrong side of Soro’s wagers are not only speculators, they can be simple businessmen and their employees who pursue trade using the only thing available: government fiat currency. Yesterday, I had lunch with a businessman, who in the Asian contagion of 1998, lost his 125 year old company when a major contract for sale of equipment into Thailand failed because letters of credit were not available. Fortunately, after a modified bankruptcy he recovered from the experience many painful years later.
[Read more...]Bending to the Modern World
June 25, 2010 By Leave a Comment
J.P. Morgan rose to influence in an era when the accumulation of great wealth began to astound the ordinary man.
As Nassim Nicholas Taleb observed in his book, The Black Swan, life is unfair, a theme the economist Sherwin Rosen, author of studies about the economics of superstars, develops as credited by Taleb.
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The New Commandments, Part 1
Most Americans don't know it, but the financial industry may be the most highly regulated sector in the economy. Because each new rule passed by FINRA, the SEC, or the five national banking regulators unquestionably works to the good of the hapless investor or depositor, none may be removed and only more may be added.
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