Weekly Wanderings 22 September 2009

As usual in these weekly musings we present you with interesting items we’ve come across during the week…

From Bill Bonner of the Daily Reckoning comes this little summary.

Let’s get this straight.

Household credit is shrinking…
Profits are shrinking…
Employment is shrinking…
Housing values are shrinking…
The wage base is shrinking…

But the recession is over!

Whoa…how is that possible?

Beats me, Bill.  Green shoots?  More like a smothering by toxic green algae…..

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The big debate of the moment in the blogosphere, and to some extent in the financial press, concerns inflation or deflation – which is winning?  On our site, we take the view that inflation is an increase in the money supply and deflation is the reverse.  But there are subtleties here…

The real question is whether or not we include debt in the equation…. It’s easy to see that with quantitative easing and the bailout packages, the Federal Reserve is definitely pouring money into the system. However, if we consider inflation to be an increase in the money supply plus debt, a very different picture emerges.

In the video below, in another brilliant piece with Max Keiser, Steve Keen discusses these issues. Based in Australia, Steve is one of the miniscule number of academic economists who understood the approaching dangers before they arrived, and warned a heedless world…..

Max Keiser and Stacy Herbert, in their weekly TV programme, “On the Edge” are rapidly becoming essential viewing.  You can watch the video (it’s in 2 parts) but we also summarize the themes below them.

1. Why are economists dangerous?
   Underlying assumptions are often not sound.
2. Often the assumption is made that debts are always repaid.
   Patently untrue.
3. At the beginning of his tenure at the Federal Reserve,  and at several later times,  Alan Greenspan “saved the economic system”,  at the expense of creating ever more debt.
4. The end of the road?  Investment banks are creating way more debt than the amount of money the Fed is pouring in…
5. The approximately $1 trillion that Bernanke has used to stimulate the economy pales into insignificance compared to the private sector debt of about $45 trillion. The bailout money is being used by the investment banks to deleverage from debt. You can see now why the bailouts have had little or no tangible effect on the economy.
6. It’s interesting to compare the US situation today with Japan’s after the collapse of its bubble back in the 80’s.
7. If we don’t abolish the debt, which should never have been allowed in the first place, and force the banks into bankruptcy, then we face a never-ending depression………

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I must admit that, in my own mind, I am uncertain….

I still recall, as I mentioned last week, a speech that Alan Greenspan, the former head of the Federal Reserve) made in Belgium during his term in office, in which he repeated 5 times: “The Federal Reserve stands ready to create money WITHOUT LIMIT…..” (Our emphasis).

There is further inflation vs deflation debate over at Financial Sense Newshour

Finally, I would like to draw your attention to an interview by Eric King over at King World News with Bill Fleckenstein of Fleckenstein Capital, which provides a view into the insights and analyses of a very smart and capable money manager.

There’s lots of other good stuff on Eric’s site as well.