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on money - northern crock

Some background: Following a credit crunch generated by the sudden loss of confidence in the US mortgage market, the UK bank Northern Rock is having problems. NR has called in the UK central bank, the Bank of England, for cash support. Meanwhile, Northern Rock customers have so far withdrawn £2 billion of deposits, and are queuing to withdraw more.

Out there are bundles of sub-prime mortgages, tied up in shiny tinsel paper, that once looked rather cheap. They were. Would you buy a used car, nicely polished, from Arthur Daley? No-one is quite sure who is holding the dodgy bundles, and the bundles are difficult to value.

Putting all your eggs in one basket

There is no clear evidence of that Northern Rock’s problems arose because of events that occurred in US sub-prime market lending. Further, anyone buying packages of American sub-prime mortgages had a duty to assess their value. Both purchasers of such packages, and funders of dodgy (say 125% equity) mortgages like Northern Rock, had relied on the mortgage customers continuing to make their monthly mortgage payments - many have not.

The method of financing by borrowing funds from the wholesale money markets may have worked well enough for some years, but conditions change, money tightened and the music stopped. And if you are asleep, you cannot find a chair - Northern Crock were asleep.

Easy money, they thought, only there is no such thing. Why was their market share was exploding? It was because they offered cut-rate prices which wiser bankers did not, and would not. Now Northern Rock is paying for their foolishness. This was a lack of prudence in the pursuit of profits, this was gambling.

The Bank of England [BOE] in charge of regulating the UK banking system, are following, strictly, Brown the Clown’s orders. So far, Governor Mervyn King is acting rationally.

But what will prime minister Brown do now his ducks are coming home to roost? Ah yes, he’ll come out and say nothing is happening. Then he’ll say it’s not his fault. Then he’ll find someone to blame.

The Clown set up the casino years ago. This mess is entirely of the Clown’s making. There will always be Northern Crocks who gamble.

the wall of money

You cannot stop bubbles. They are part of human nature and crowd psychology. To try to stop them is foolishness. The place of a central banker is to react appropriately when they burst.

Alan Greenspan, former US Fedral Bank Reserve Governor, reacted impeccably to the bubbles, but he was not tied to a fool’s monetary policy allowed to exist by an incompetent Clown. Each time, after feeding in liquidity, the Fed. went back to its steady strong dollar policy, which has long been US government policy.

Thus far, Mervyn King of the BOE is acting well, though I am nervous that he will be forced into foolishness by the idiot in no.10 Downing Street. And Brown the Clown is already meddling, in that he has guaranteed the deposits of Northern Rock. But he is increasingly in a bind from his past behaviour.

Marker at abelard.org

Out there is a pool, or even an ocean of money. It has to go somewhere.

So this year, it’s tulip bulbs, next year it’s dot.coms, then it’s houses. In between keeping the system running through the latest bubble bursting, you put on the brakes.

Gordon Brown has been running the UK economy for years with very little in the way of brakes. He even broke the brakes when he moved to less rigorous ‘inflation’ target, and for good measure changed its label from CPI to RPI. Now that once long forgotten far distant wall called the CPI is finally appearing over the hill, what will Brown do? Move the goalposts again?

I would not trust Gordon Brown with an old fag carton.

The European Union has no realistic brakes. The US Federal Reserve does have brakes.

If the house market falls, the money still has to go somewhere. What next, back to tulip bulbs?

related material
brown the clown true to form over northern rock

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short paper by mervyn king (boe) on present credit crunch

“Third, the moral hazard inherent in the provision of ex post insurance to institutions that have engaged in risky or reckless lending is no abstract concept. The risks of the potential maturity transformation undertaken by off-balance sheet vehicles were not fully priced. The increase in maturity transformation implied by a change in the effective liquidity in the markets for asset-backed securities was identified as a risk by a wide range of official publications, including the Bank of Englandís Financial Stability Report, over several years. If central banks underwrite any maturity transformation that threatens to damage the economy as a whole, it encourages the view that as long as a bank takes the same sort of risks that other banks are taking then it is more likely that their liquidity problems will be insured ex post by the central bank. The provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises.”

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distrust leading to illiquidity

“During two exceedingly prosperous decades, that theory seemed to work just fine. But the swings in almost all financial markets this month have made dispersed risk suddenly morph into dispersed mistrust. The uncertainty has been magnified by the way that bad risks have become so hard to value. Investors have bought asset-backed securities that use shaky subprime mortgages in America as collateral, but as defaults have risen, the value of that collateral has tumbled.”

“ [...] Working out who has won and who has lost in this round will take a long time.”

If the hidden hand will not operate effectively as complexity grows, what then?

This has the appearance of a panic attack, rather than rational behaviour, with the growing proportion of those in the market having very little idea of what they are doing. How can the market rebalance without intervention, when a large proportion of the actors do not act rationally?

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e-gold explained - interview with one of the founders - download of 44MB mp3 file
The download takes a little over 8 minutes to conplete on a 1GB connection. It then plays as a 48-minute sound interview.

This in-depth interview with Douglas Jackson ranges over many aspects of using e-gold, its advantages and benefits, including as a potential reserve currency. Douglas Jackson also discusses the various negative smears that are currently appearing in the fossil media.

abelard.org has a document on e-gold: a developing example of an independent monetary system. This explores e-gold as a method for transferring value (‘money’) on the Internet. The page includes graphs for gold prices and the RPI and CPI, as well as links to independent exchange market-makers (gold traders).

related material
new blog by e-gold founder, Douglas Jackson

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live earth concert - increasing or reducing carbon footprints?

Another long, whining outpouring from the tree-guzzling, hysteria-generating, fossil Daily Wail:

“Live Earth is promoting green to save the planet - what planet are they on?

“As Madonna bounds on to the huge Wembley stage to save the planet, how the assembled Greenies will cheer.

“The superstar is today fronting the massive Live Earth event, with nine concerts played over 24 hours across seven continents before an audience of two billion.

“The much-hyped bid to save the world is being masterminded by formerU.S. vice president Al Gore - who helped focus attention on the environmental movement with his Oscar-winning film, An Inconvenient Truth - and features artists including The Police, Red Hot Chili Peppers, UB40 and Metallica.

No doubt to rapturous applause, Madonna will call for mass global change to reduce carbon emissions and to tackle 'climate crisis'.”

This article is obviously written by a complete economic illiterate. But then this is, of course, the fossil Wail - so what else is to be expected?

Given the assumption that the event’s carbon footprint is a problem -

Any carbon footprint from these events will be utterly trivial compared with any effective results of “getting the message out” .

Live Earth is claiming a 2 billion people reach.

An absolutely central concept of politics and economics is ‘the mass effect’.

If even a small percentage of the Live Earth audience made even fairly inconsequential changes, such effects would far overwhelm any carbon costs from the event.

What is particularly ironic is that it is sources like the Daily Wail have spent decades undermining reasoned discussion towards building a sane energy infrastructure, and undermining any sort of thoughtful culture.

It is the fossil media that long castigates the hippy culture that sought to walk gently upon the Earth. It is the fossil media that gives oxygen to the moonbats who, for decades, have been claiming that there is no problem.

The ultimate lunacy is that if their nostrums, reassurances and denials of the serious ecological problems were taken to having any merit, why then would there be any problem with the carbon footprint of this mass event?

So just why this highly driven denigration of a fun event? I do wish they would make up their ’minds’, whether it is the fun they hate they most, or the message.

These people are so lacking in any ability to reason that their very arguments contradict one another.

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(just some of) the lying nonsense spun by gordon brown the clown over the bank of england

Clarification on the interest policies of UK Chancellor of the Exchequer, Gordon Brown (the clown).

For a decade, the United Kingdom has had a socialist government which says one thing and constantly does another. It is an extremely dishonest government and has been led, and controlled, by Blair and the Clown. The credibility of Bliar has sunk so low that nobody sane believes a word he says; to the extent that the habitual reaction is ‘oh no, more words’.

Now we have a risible media campaign, aimed at persuading the UK public that, “It all had nothing to do with me, I’m innocent. All that spin stuff was him in the corner. I’m serious, I have substance ; It’s that Tony Baloney that’s been responsible for all the fluff and misdirection.”.

Recommended reading.

“His strict claim is to have made the Monetary Policy Committee of the Bank independent, giving them the right and the duty to influence the level of UK short-term interest rates once a month by setting a lead rate. Mr Brown tells us this has given us an era of low interest rates and low inflation.

“He always supports this contention by comparing the last 10 years' record with selected times in the past when we did badly - a simple spin device to portray something in a good light.

“What really matters is how the UK has done compared to the rest of the world. The UK has paid more to borrow money: one percentage point more per year than the US, two points more than euro land and 4.5 more than Japan.

“The UK has also grown more slowly than the US, and has ended up with the highest inflation of these four key currency areas. We need to ask why house buyers and businesses have had to pay more for credit and why inflation has recently been higher. The answer is that the MPC is not truly independent, and that Mr Brown's interventions have been unhelpful.

“The worst case of interference was the Chancellor's decision before the last election to change the target for inflation....”

related material
The mechanics of inflation

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positive thinking! - “it’s never going to snow again, and the waves are going to get bigger and bigger”

Read backwards - it puts hair on your palms!

“We're in the middle of a revolution. Every ten years we have to blow this place up.”

“I don't want a Wall Street greaseball running my company.”

“If you're not pissing off 50 percent of the people, you're not trying hard enough.

From page 3:

“The reason for the upheaval? Climate change. "We're getting into the surf market, because it's never going to snow again, and the waves are going to get bigger and bigger," Chouinard says. "I see an opportunity." In response, he is opening Patagonia watersports shops along the coasts and in Hawaii. The first, in Cardiff-by-the-Sea, Calif., opened in June 2006.”

“As Chouinard sees it, there's only one downside to this good news: It's probably too late. "There's a race between running out of water, topsoil or petroleum. I don't know what's going to be first. Or maybe it will all happen at once.” [Quoted from Fortune Magazine, p.3]

From page 2:

“In the early 2000's, the Japanese fabric company Teijin, a partner of Patagonia's, invented a process by which used polyester can be almost endlessly recycled. Patagonia, which makes a line of polyester base layers known as Capilene, encouraged customers to send back their worn-out underwear. (It now also accepts products made from fleece, nylon and organic cotton.) Recycling polyester, Chouinard says, is a home run: "We use 76 percent less energy than if we'd made it out of virgin petroleum."

“The questioning continued. Chlorine disappeared from Patagonia's wool products, replaced by a patented slow-wash technique. Instead of adding antimicrobial silver, a groundwater pollutant, to its underwear lines, it used a product made of crushed crab shells for odor control. It became the first California company to use renewable sources like wind and solar to power all its buildings, and one of the first to print catalogs on recycled paper.

“After discovering that airfreight requires more energy than shipping by ground or sea - at least eight times more, according to Luke Tonachel at the Natural Resources Defense Council - the company advised customers to "ask yourself if you really need that pair of pants sent overnight." ” [Quoted from Fortune Magazine, p.2]

From page 1:

“There is no business to be done on a dead planet. ” [Quoted from Fortune Magazine, p.1]

related material

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fascinating analysis of the us economy

New chairman of the Federal Reserve, Ben Benanke, gives his (half-yearly) report to Congress on the US economy, February 2007.

It’d be great if other economies produced such clear and available statements.

the web address for this article is

opting out of the euro currency

“This unofficial local currency, the colourful notes of which are carefully designed to be almost as hard to forge as the euro, is accepted across the Chiemgau region of southern Germany.

“Anyone who prefers not to use the euro in this area of 500,000 people can buy a car, rent a room, have a haircut or do their weekly shopping by paying in Chiemgauer. "I want us to be more independent from the euro," said Mrs Schutz, 59, who offers therapy to 110 people every week.

“ "If a crash comes or if there is an economic depression, it would be a great help to us to have our own money and to be more independent from the system."

“After her customers have paid in Chiemgauer, Mrs Schutz can spend the notes, decorated with the artwork of children from local nurseries, in 550 companies across the region. Some banks allow customers to use Chiemgauer debit cards.”

related material
EMU (European Monetary Union) and inflation – a civil liberty issue

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google: evil doesn’t pay - the auroran sunset

Google finds that cooperating with repressive dictatorships is not good for the bottom-line:

“Google's decision to censor its search engine in China was bad for the company, its founders admitted yesterday.

“Google, launched in 1998 by two Stanford University dropouts, Sergey Brin and Larry Page, was accused of selling out and reneging on its "Don't be evil" motto when it launched in China in 2005. The company modified the version of its search engine in China to exclude controversial topics such as the Tiananmen Square massacre or the Falun Gong movement, provoking a backlash in its core western markets.

“Asked whether he regretted the decision, Mr Brin admitted yesterday: "On a business level, that decision to censor... was a net negative."

“The company has only once expressed any regret and never in as strong terms as yesterday. Mr Brin said the company had suffered because of the damage to its reputation in the US and Europe.”

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an interesting mudslide of statistics

While interesting and approximately accurate reading, do not forget to pick up your crap detector on entry.
Dozens of simple charts, don’t miss the appendices near the end.

“Europe’s economy is weak because government is too big. Excessive levels of government spending result in the misallocation of labor and capital for unproductive uses. The taxes needed to finance these counterproductive outlays exacerbate the problem, particularly since many European governments impose high marginal tax rates on work, saving, investment, and entrepreneurship.

“ [...] government spending consumes nearly 50 percent of economic output in EU nations, compared to 36 percent of GDP in the United States. This is regrettable for Europe since academic research indicates that government spending has an adverse impact on economic performance, particularly when the public sector climbs above 20 percent - 25 percent of GDP.”

“In 1980, foreign direct investment in the United States totaled $127 billion, according to the Bureau of Economic Analysis. Today, it totals more than $1.7 trillion. In 1980, there was $90 billion of foreign portfolio investment (just counting holdings of government and private securities) in the United States. Today, there is more than $4.6 trillion. Much of that money - capital that finances new investment comes from Europe and at least partly reflects the more market-oriented policy environment in the United States.

“As noted by Jean-Claude Trichet, president of the European Central Bank (ECB), "When comparing the euro area’s economic performance to the US, there is evidence of increasing disparities in growth. Since the beginning of the 1990s, the gap in per capita income growth between the US and the euro area has continuously widened - by 0.8% on average per year during the 1990s, increasing to 1.3% per year from 2002 onward.

“ "Over a period of 20 years," admits Trichet, "we have been the witnesses of a very significant structural change across the Atlantic. From the eighties to the first years of the twenty first century the growth of labour productivity per hour has been multiplied by more than two in the US when it has been divided by two in Europe. Overall in this respect the relative position of the US and of Europe has changed by a factor 4 to the detriment of Europe."

“Women lag behind in Europe. Reporting on a study from the International Labor Organization, Newsweek noted that "women account for 45 percent of high-level decision makers in America, including legislators, senior officials and managers across all types of businesses. In the U.K., women hold 33 percent of those jobs. In Sweden - supposedly the very model of global gender equality - they hold 29 percent. Germany comes in at just under 27 percent, and Italian women hold a pathetic 18 percent of power jobs." Europe is killing its women with kindness - enshrined, ironically, in cushy welfare policies that were created to help them.”

And much more.

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