Friday, December 4, 2009

Job Growth From Paper Shuffling, Garbage Collection

This morning the Bureau of Labor Statistics announced its November result of number fudging by "Net Birth/Death Model", aka "The Employment Situation in November 2009".

Net job loss for November was a surprising 11,000. So where did the gains happen?

Private Sector = - 18,000
Natural Resources & Mining = - 1,000
Construction = - 27,000
Manufacturing = - 41,000
Services = + 58,000
Government = + 7,000

So it is Services and Government. What's in the Services?

Wholesale Trade = - 11,700
Retail Trade = - 14,500
Transportation & Warehousing = - 5,300
Utilities = - 2,400
Information & Media = - 17,000
Financial Svcs & Real Estate = - 10,000
Professional & Business Svcs = + 86,000
Education = + 11,100
Health Svcs = + 28,100
Leisure = - 11,000

What's in the "Professional Svcs & Business Svcs"? BLS says:

Legal Services: NAICS 5411
Accounting, Tax Preparation, Bookkeeping, and Payroll Services: NAICS 5412
Architectural, Engineering, and Related Services: NAICS 5413
Specialized Design Services: NAICS 5414
Computer Systems Design and Related Services: NAICS 5415
Management, Scientific, and Technical Consulting Services: NAICS 5416
Scientific Research and Development Services: NAICS 5417
Advertising and Related Services: NAICS 5418
Other Professional, Scientific, and Technical Services: NAICS 5419

Management of Companies and Enterprises: NAICS 55

Office Administrative Services: NAICS 5611
Facilities Support Services: NAICS 5612
Employment Services: NAICS 5613
Business Support Services: NAICS 5614
Travel Arrangement and Reservation Services: NAICS 5615
Investigation and Security Services: NAICS 5616
Services to Buildings and Dwellings: NAICS 5617
Other Support Services: NAICS 5619

Waste Collection: NAICS 5621
Waste Treatment and Disposal: NAICS 5622
Remediation and Other Waste Management Services: NAICS 5629

I can't imagine the number of lawyers, accountants, management consultants suddenly jumped in November. My wild guess is that the employment increase was in the last two categories - paper shuffling and garbage collection. Hardly the engines for robust growth.

After the initial pop, the market cratered after 11:30 AM EST. Dow is currently down 24 points at 10,342. Earlier, it was at 10,516, up nearly 150 points, highest for the year. Profit taking and locking in the year's gain is the explanation offered by MarketWatch.

Thursday, December 3, 2009

Senator Bunning to Bernanke: You Are A Moral Hazard


Jim Bunning, Republican Senator from Kentucky and the only one who voted no on the 1st confirmation 4 years ago, had some harsh words to Ben Bernanke in today's confirmation hearing.

Mish Shedlock has a partial transcript on his blogsite. Among other things, Senator Bunning said to the Fed chairman:

"Chairman Greenspan sold the Fed's independence to Wall Street on the so called "Greenspan PUT". Whenever Wall Street needed a boost, Alan was there. But you went even farther than that when you bowed to the political pressure of the Bush and Obama Administrations, and turned the Fed into an arm of the Treasury.

"Under your watch the "Bernanke PUT" became a bailout for all large financial institutions, including many foreign banks.

"And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street.

"In short, you are the definition of a moral hazard.

"You are repeating the same mistakes as Japan in the 1990's on a much larger scale while sowing the seeds for the next bubble.The AIG bailout alone is reason enough to send you back to Princeton.

"I will do everything I can to stop your nomination and drag out this process as long as I can. We must put an end to your and the Fed's failure and there is no better time than now.

"Your Fed has become the creature from Jekyll Island."


Case Against Ben Bernanke

Big Ben Bernanke's Senate confirmation hearing has started.

I am not too thrilled to have him around any longer, or for that matter to have the Federal Reserve.

This is the person who proclaimed there was no housing bubble. Bernanke insisted that the subprime mortgage problem was contained and there would be no spill-over into other mortgage types. Into a broader economy? Of course not, are you kidding? He insisted that banks had a credit/liquidity problems and nothing more, while all along it was a solvency problem. He told the Congressional leaders that unless they gave him and buddy Paulson $700 billion the world would collapse and cease to exist, and then yanked the liquidity from the struggling financial market which facilitated the fantastic tanking of global stock markets and then economies, as some speculated.

After the crash of the stock market and credit market, he proceeded to double the balance sheet of the Federal Reserve supposedly to help the economy recover. The economy at large has done no such thing, decidedly not because of the money thrown by the Fed. Bulk of Bernanke's money went to the nation's biggest commercial banks (including hastily converted banks like Goldman Sachs and Morgan Stanley, and a host of insurance companies and credit card companies), who simply parked the money at the Fed as "excess reserves".

By the Fed's own admission, that excess reserves were not meant to be loaned out from the beginning when the Fed started buying up assets other than Treasury bills/notes/bonds last fall. The Fed immediately started paying interest on the excess reserves so that the banks would keep the money at the Fed. It has been the Fed's policy that the excess reserves be kept at the Fed. New York Fed has even produced a research paper discussing why banks are holding so many excess reserves. The Fed needed the money there on the Fed balance sheet so that they could justify the ballooning asset portfolio of agency bonds (that no one else wants) and agency MBS (that no one else wants), commercial papers, corporate bonds, whatever else they took in as collateral, even a shopping mall and a hotel chain.

He claims it is important for the Fed to be "independent" from meddling politicians but if you look at his institution's balance sheet it is full of fiscal policy items to expressly assist the government: monetization of the government debts through open market operations; buyer of last resort for agency bonds and MBS in order to lower the mortgage rates; various lending programs to help financial firms. Definition of "financial" seems pretty broad, as John Deere, a tractor company, issued bonds with FDIC debt guarantee program, which is supervised by the Federal Reserve.

In this administration, just like the previous one, incompetency is to be rewarded. So I have no doubt that he will be confirmed for his second term. Never mind that only 21% of likely voters support his confirmation, according to Rasmussen. But when have the general public counted for anything to the politicians, other than to collect taxes from?

(Zero Hedge's poll is even worse. Only 11% think he should be reappointed.)

I am still wondering why Bernanke wanted the second term so badly. I guess it's the face issue. His predecessor, Alan Greenspan, had the job for 19 years. Paul Volcker had 8 years. A one-term Fed chairman who presided over the worst stock market and economic collapse since the Great Depression doesn't look too good on his resume.

(I would much like to see him as the last chairman of the Fed.)

Wednesday, December 2, 2009

Foreign Policy Magazine's Top 100 Global Thinkers in 2009


1. Ben Bernanke
2. Barack Obama
4. Nouriel Roubini
5. Rajendra Pachauri (climate change propagandist)
6. Bill Clinton & Hillary Clinton
7. Cass Sunstein and Richard Thaler (Sunstein is Obama's Regulatory Czar who favors "senior death discount".)
8. David Petraeus
21. Thomas Friedman

The whole list is here, for your entertainment.

House Panel 'Yes' On Dismantling Financial Firms

that pose a risk to the economy.

The House Financial Services Committee (chair: Barney Frank) has approved the legislation, by 31-27, that would give the government the power to dismantle financial firms that it thinks pose a risk to the economy, even if they are healthy. It will also force big financial firms to pay the fees upfront for dismantling.


By Timmy Geithner and Ben Bernanke, who didn't see anything bad coming their way? Or Barney Frank who insisted Fannie Mae and Freddie Mac were sound businesses? Or Chris Dodd who was a "friend of Angelo"? Or another Presidential Task Force headed by an ex-banker supported by ex-campaign staff?

As this is part of so-called financial overhaul attempt by the government, it also contains the audit of the Federal Reserve.

Panel OKs key regulatory measure; House vote next
(12/2/09 AP via Yahoo Finance) [emphasis is mine]

"WASHINGTON (AP) -- A key House panel voted Wednesday to slap new restraints on big Wall Street institutions and to demand greater openness from the nation's central bank, clearing a significant hurdle in the drive for a sweeping financial regulations overhaul.

"Motivated by the crisis that caused a near collapse in financial markets, the House Financial Services Committee approved legislation 31-27 that would give the government the right to dismantle financial firms that pose a risk to the economy, even if they are healthy.

"The legislation also would require a detailed congressional audit of the privacy-shrouded Federal Reserve and would assess fees up front on large financial institutions to pay for the failure of their competitors.

"The action sets the stage for a full House vote next week on comprehensive regulatory changes meant as a response to the financial sector's meltdown more than a year ago. That package, set to go to the House floor on Wednesday, would include the creation of a new consumer finance protection agency, restrictions on complex financial instruments blamed for feeding last year's panic and restrictions on Wall Street compensation."

Why don't we, citizens, have the right to dismantle institutions that pose a risk to the economy? The first on my list would be the Federal Reserve, IRS next, and then dismantle the entire federal government, as the biggest risk to the economy and liberty and welfare of the citizens.

Read the post on 30-day makeover of the U.S. by Lew Rockwell.

Tuesday, December 1, 2009

Michael Moore to Obama: This Is Absolutely Insane

Michael Moore is dead-set against Afghanistan surge.

Japan: Quantitative Easing Part Deux

through and through Keynesian

(and the very definition of a fool as someone who keeps repeating the same thing over and over even if it doesn't produce the result he wants).

Bank of Japan held an emergency meeting on December 1 afternoon (their time) and decided to embark on the second round of quantitative easing. The first one was from 2001 to 2006, with dubious results (more later in the post). Just like the first one, BOJ wants to induce further decline of longer-term interest rates to stimulate borrowing and spending. This time, there is an added purpose of stabilizing Japanese yen (i.e. reversing the recent rapid rise of yen). Here's the BOJ statement in English.

BOJ intends to roughly double the size of "current deposits" at BOJ (Japanese equivalent of "excess reserve") by introducing a new 10 trillion yen (US$115 billion) lending program in which financial institutions can get a 3-month loan at 0.1% fixed rate (overnight call rate). Eligible collateral includes Japanese government bonds, corporate bonds, commercial papers, and loans on deeds.

Looking at BOJ's latest balance sheet, they have about 40 trillion yen (US$460 billion) of various lending programs. Unlike the U.S. Federal Reserve, its balance sheet size has remained steady at about 110-115 trillion yen (US$1.26 - 1.32 trillion) since 2007.

Federal Reserve Bank of San Francisco has a paper on the last quantitative easing by Bank of Japan. Their conclusion was that it did lower the longer rate somewhat, but it was hard to tell whether it was the direct result of quantitative easing or the future expectation. They also said that Japan's quantitative easing probably had an unintended consequence of helping weaker banks stay afloat and encouraging further risk-taking, thus delaying the real structural reform.

From the Japanese consumers' perspective, price deflation has been the only good thing that has happened since their real estate bubble burst in 1989-90. But Keynesians in the government and at Bank of Japan would have none of that. Price must increase.

(John Maynard Keynes, who didn't even have a degree in economics...)

It's safe to assume they know nothing about Austrian economics.

Monday, November 30, 2009

N. Korea Carries Out Currency Redenomination

100 to 1. Citizens panick.

The news is from Japan's Yomiuri Shinbun.

North Korea carries out currency redenomination, citizens in panic (12/1/09 Yomiuri Shinbun, original in Japanese)

"(Seoul - Masahiko Takekoshi) South Korea's Yonhap News Agency reported that North Korea redenominated their currency (North Korean won) on November 20, citing several North Korean trade representatives in China.

"100 units of old North Korean won are to be exchanged for 1 unit of the new currency. It is the first new currency issue in North Korea since 1992.

"According to experts in Korea, North Korea's partial market reform that started in 2002 has resulted in the price of rice rising 50-fold, and the price of daily goods rising 20 to 30-fold, as the value of the currency plunged.

"In addition to supressing inflation, the redenomination is aimed at crack down on the private assets in the black market. According to Yonhap News, the currency exchange started on November 30 at 2:00 PM. Citizens, fearful that the government would find out about their hidden assets, flooded the black market in a panic to exchange into Chinese yuan and U.S. dollars.

"Korea's Daily NK, Internet newspaper specializing in North Korea says the exchange covers both paper currency and coins, and the exchange has started at North Korean central bank and its branches. Korea's Ministry of Unification says it cannot confirm the redenomination at this time."

China: Dubai Crisis Good for Buying Gold, Oil

call it "Beijing Put"...

Chinese are counting on the Dubai crisis to linger for a while so that they can buy gold cheaper. Will they get their wish?

Dubai crisis gives China chance to buy oil, gold: report (11/30/09 Reuters via Washington Post)

"BEIJING (Reuters) - Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.

"No Chinese banks have yet reported exposure to debt from Dubai World, a flagship firm that last week said it was seeking to delay debt payments by six months. Some Chinese real estate and construction firms have limited exposure to projects in the emirate, state television reported this weekend.

"China's $2.27 trillion in foreign exchange reserves are mostly parked in U.S. treasuries, despite calls from some in China to invest the reserves in oil and other natural resources that the fast-growing Chinese economy will need in future.

"While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily.

""That could give China a buying opportunity to put some forex reserves into gold or oil reserves," Ji was quoted as saying by the paper, which is widely read by Chinese officials.

"Another paper, the China Youth Daily, quoted Ji as saying that a team of experts from Beijing and Shanghai had set up a task force last year to look at the issue of gold reserves.

""We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him as saying."

Currently, China's gold reserve is 1,054 tons, making it the 6th largest gold reserve holder in the world just above Switzerland. The U.S. gold reserve, in comparison, is 8,133 tons, the world largest. The second largest gold reserve holder is Germany, with 3,408 tons.

"Beijing put" is indeed on gold price.

Sunday, November 29, 2009

9,000 Marines Heading to Afghanistan Immediately

after Obama announcement on Tuesday

I wonder what will happen to that brilliant idea of taxing all Americans to support the Afghan war. I also wonder (in shudder) what will happen in Pakistan. (Read this Seymour Hersh article on Pakistan and her nukes and American role in destabilizing Pakistan.)

9,000 Marines Heading to Afghanistan Immediately After Obama Announcement (11/29/09

"The United States is wasting no time in throwing more troops at the war in Afghanistan. Officials say as soon as President Obama makes his Tuesday announcement of the escalation of the war, 9,000 additional Marines will depart for Afghanistan.

"The 9,000 Marines will head to the Helmand Province, roughly doubling the number of marines on the ground in the tense province. It will also be a significant portion of the estimated 34,000 additional troops President Obama will commit to the war.

"Defense Secretary Robert Gates had said the escalation would come quickly, despite caution that it was complicated to add so many troops to a war in a landlocked, virtually infrastructure free country on the other side of the globe. Still, most assumed it would be at least January when the troops started arriving.

"That the troops are all heading to Helmand will no doubt be troubling news to Pakistan, as Prime Minister Gilani cautioned only two days ago that he was worried a US escalation in Helmand could destabilize the nation’s Balochistan Province."

"Might makes right, until they see the light..."

Bernanke Defends Self, the Federal Reserve

in a very ineffectual op-ed piece.

Big Ben (Bernanke), aka the chairman of the besieged Federal Reserve, wrote an op-ed piece that appeared today in Washington Post. The arguments that he gives in support for his institution are the same old, tired ones he's already given elsewhere already. I'm wondering why he has bothered to write them up as an op-ed.

The danger that I see is this: He sounds rather anxious to keep his job and keep his institution intact, and he may intentionally let the next market crash happen sooner than later so that the Fed retains its credibility. ("See what happens when you try to mess with the Fed?") You can read it for yourself, by clicking on the link below:

The right reform for the Fed (Ben Bernanke, 11/29/09 Washington Post)

Ben wants to design a system of financial oversight that will embody the lessons of the past two years. Past two years? Only two years, during which you insisted that there was no big problem in just about everything - from subprime to soundness of nation's banks to commercial real estate.

He believe the legislative proposals circulating in Congress are "out of step with the global consensus". What global consensus? Of the like-minded central banks and B.I.S., bank of central banks which is totally unaccountable to anyone?

He also believe that the Fed played a major role in arresting the crisis last year and that now it's time to preserve the Fed's ability. He just wants to keep all the goodies (policy tools) that he grabbed last year with the help of Hank Paulson, then Treasury Secretary. Kevin Warsh of the Fed board already said as much.

Whenever I hear that argument that the total meltdown was averted thanks to the Fed, it reminds me of some rogue firefighters setting fire intentionally so that they can "fight" it. The Federal Reserve withdrew liquidity from the market just when such liquidity was needed in September last year. (See this post by Karl Denninger of the Market Ticker from last year.) It was after the Lehman Brothers bankruptcy and huge withdrawal from money market funds, and after Ben and Hank went to Congressional leaders to demand $700 billion. It was right before the market started a spectacular crash. Yes, the Fed the hero.

Curiously, he seems to think the Fed's expertise conferred "stress tests" done in spring this year a great deal of credibility and clarity. I guess he didn't watch Saturday Night Live.

He makes statements without citing actual examples that justify such statements. He says that "Many studies have shown that countries whose central banks make monetary policy independently of such political influence have better economic performance, including lower inflation and interest rates." Ok, where? Can anyone name one country?

A central bank was born in Great Britain in 1694, so that the British government would have endless supply of money (Britain was near-broke from the Nine Years' War) as the central bank monetized the sovereign debt. Flush with newly minted money, Great Britain went on to fight the War of Spanish Succession. Not the paragon of independence to me. The Federal Reserve was modeled after the Bank of England.

Also, this particular statement in the article, that "[the Fed's] supervision is also informed by the grass-roots perspective derived from the Fed's unique regional structure and our experience in supervising community banks", is highly dubious and misleading. Majority of the U.S. banks ARE NOT the Federal Reserve member banks. (See the chart on this wiki page.)

Again, why did he write a lame article like that? Why now?

Ben Bernanke seems to lack the tact and finesse of the bankers before the Glass-Owen act (that became the Federal Reserve Act) was enacted. Big bankers, who wanted the Federal Reserve, publicly spoke vehemently against the Glass-Owens act. The public perception was that if the greedy bankers opposed, it was because they would be hurt by it, so let's pass it. Total opposite was true, and we are where we are today, with the U.S. dollar's purchasing power having plummeted by more than 95%. If Bernanke wants to be the top dog in the new monstrous financial regulation organ, he should oppose it.