Are we there yet?

Does it strike anyone as odd that, during a time when the very solvency of European governments is in question, the ASX goes nowhere for a year and a half? I mean this is the most turmoil in a lifetime and nothing happens in the stock market! Just back and forth.

But the bond markets haven't been anywhere near as dull. The 10 year yield, which most American mortgage rates are pegged to, jumped the most in years, according to blend to any (big) company anywhere in the world, what does that do to your downside risk in equities? It takes out a big chunk of your worries. But for bondholders, it means the inflation specter looms.

The Daily Reckoning Solves the Crisis

Yes, dear reader. Apparently printing money is a solution. Based on that assumption, we have a solution to the EU's funding crisis and the US states' funding crisis. Acquire the power to print money ... and print it. Ok, so we were inspired by Chris Whalen. As Madsen acknowledges, US states coming up with their own currency would imply dissolution of the American union. The EU would probably go the same way if several of their members broke from the Euro. Whalen reckons it's only a matter of time before someone does.

And heck, if you have a funding problem, why not print your own money....

Too big to Bail

So Ireland got there in the end. Angela "Teflon" Merkel, as the CIA refer to her, backed down and let the money flow. Germans will wonder why the Irish are protesting on their tab. But relations between the nations have been good since the Germans gave Irish working families jobs at munitions factories.

Even if you didn't donate to the bailout (Australia provides about 1.5% of the IMF's funding), it seems rather odd for the Irish to protest now. They should have protested about the loss of independence when the Euro was being introduced. Instead, the Irish protest against the bailout that is required to clean up the mess of a "one size fits all" monetary policy. In other words, they protest over the conditions attached to a monetary benefit instead of the conditions attached to a loss of independence.

So has the bailout solved Europe's problems? Nope, the vigilantes have merely moved on to their next victim. The entire Iberian Peninsula,

The Austrian Business Cycle theory contends that inflationary monetary policy leads to a boom, followed by a bust. But what if we don't start from a "neutral" point. What if the economy is on course for a crash and inflationary monetary policy merely props things up. Do you still get the same kind of distortions, which lead to the bust?

The answer is probably yes. The same distortions that happened under Greenspan's put era are happening under the Bernanke put era. Only the symptoms aren't higher prices this time. Instead, the symptoms are in prices that are higher than they would have been without Bernanke's meddling.

That implies we will have another crash, without even getting a boom. In the 2000s, we got a boom instead of organic growth. This time, we get slow growth instead of a correction. Soon we will have a recession instead of a depression....

In Praise of Bernanke

How is admissions of what sort of an economy he has conjured up in his tenure as a Congressman.

"We want investors to feel that when they invest they're totally safe. And if investors get a feeling that the game is rigged, then that's a problem."

Yes, Barney admits that investors must be conned, or else the game will be up. If they realize how rigged the markets are, then there will be a problem. And why should investors feel their money is at risk?

Barney continues with a discussion of his latest efforts: "The new laws will prevent the loans that shouldn't have been made to people who can't pay them back."

Frank admits to the blunder his affordable housing policies turned out to be and is now trying to correct his past mistakes. And when asked whether he was concerned 600 billion would fuel a bubble, he pointed out that we shouldn't worry: "No, a huge amount would. I don't think the amount they talk about in the context of the global economy is all that significant."

600 billion isn't significant to a man of stature like Barney...

What authority is backing the public authority with authority?

Central bankers around the world have been doing some serious soul searching. The result; they couldn't find them. Most likely, it is too difficult a task for econometricians. No data to look at, so no trend line to draw. They don't know much else. So they pull at straws, making statements as though they had any credibility left to discount.

Jean Claude Trichet reckons that markets "are tending to underestimate the determination of governments." Yes, apparently governments are determined enough to bring back their balance sheets from the brink. We can't think of an example in history where this was the outcome. Usually political pressure became too much and central bankers began printing money to fund the government deficits. Hence Trichet's hint at more QE.

"We have to reinforce the authority of the public authority," Trichet said. "It is on the authority of the public authority that we can continue the resistance to an environment which is very demanding and will continue to be demanding for a period of time."

Trichet can "authority" all he likes. In the end, governments must fund their deficits and roll over their debt. And the money to do so is in the hands of greedy bankers who don't want to go the way of their comrades at Lehman Brothers. So if the sovereigns are a losing trade, then they will not be bought.

"To some extent the ECB is being held hostage by financial markets," one of those greedy bankers the list! And obesity itself, in the form of McDonalds, was bailed out too. Poor old Lehman Brothers employees must be really grumpy now. But among the clarity, there remain some questions. Like whether JP Morgan holds $4 billion of Washington Mutual securities or not. They can't

Civil wrongs?

Here is an interesting thought to round off this week: As discrimination laws have grown more and more intrusive, more and more employers have to discriminate. That's because discrimination laws are a cost of hiring someone who can sue under them.

Here is an example. You can choose between hiring a black and a white, who are otherwise, the same. Under the law, if you fire the black person, they have a significantly better chance of suing you successfully. Who do you hire? If you can't work it out, ask your lawyer. Apparently, it is the norm for lawyers to advise people (off the record) that they should avoid hiring minorities!


Until next week,

Nickolai Hubble.