Q&A about Climate Bill, a la Associated Press

A news article from AP, or so I think, but the entire article could have been simply lifted from the PR literature published by the Democratic supporters of the climate bill (H.R. 2454) that passed the House today.

Questions and answers about the US climate bill (6/26/09 AP via Yahoo Finance) written by Dina Cappiello and Eric Carvin

You can read the article by following the above link. I particularly like the last Q&A that these writers created:

Q: Why is it so important to tackle global warming anyway?

A: Left untended, scientists say, global warming will cause sea levels to rise, increase storms and worsen air pollution. For these reasons, the Environmental Protection Agency recently concluded that six greenhouse gases pose dangers to human health and welfare. And politically, without U.S. action, developing countries like China probably will not agree to mandatory pollution limits.

Not all "scientists" say that, and certainly not all of them link all of global warming to human causes. China probably will not agree, without U.S. action? My humble guess is that China probably will not agree, with or without U.S. action. (Not only that, they will probably stop buying U.S. Treasuries to punish the U.S. for trying to impose limits on them.)

I love their very descriptive consequences of global warming: sea will rise, more storms will hit us... Sky will fall, stars will go dim, mountains will crumble, cow will jump over the moon, and little dog will laugh to see such sight..

In the meantime, we'd better hope it is indeed global warming, not global cooling, as some scientists do think (see my post from 6/23/09).

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Cap And Trade Is On - HR 2454 Passed The House

American Clean Energy and Security Act of 2009 (H.R. 2454) has passed the House, 219 - 212, closer than the trial vote but passed nonetheless. Now it goes to the Senate.

• Democrats: Yes 211, No 44, NV 1
• Republicans: Yes 8, No 168, NV 2

So now, the bill that hardly anyone in the House of Representatives read, with 300 pages missing ("but always available on the Internet" or the "cloak room" of the House), is going to dictate the energy policy of the world.

8 Republicans who voted Yes:

• Bono Mack (CA)
• Castle (DE)
• Kirk (IL)
• Lance (NJ)
• LoBiondo (NJ)
• McHugh (NY)
• Reichert (WA)
• Smith (NJ)

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"Official" Copy Of Climate Bill Missing 300 Pages

I was just watching c-span coverage of the House floor debate. It's hilarious. And they are going to vote for this bill?

You can watch it yourself at: http://www.cspan.org/Watch/C-SPAN_wm.aspx

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Consumers Are Saving More Than Spending

And that's supposedly sending the stock market lower today.

Stock market slides as savings rate jumps
(6/26/09 AP via Yahoo Finance)

"Stocks were mostly lower Friday after the Commerce Department reported that personal spending, incomes and savings all rose in May. What troubled investors, though, was that the savings rate soared to 6.9 percent, a 15-year high, while spending rose by a modest 0.3 percent.

According to the announcement released today by Bureau of Economic Analysis (Commerce Department),

• Personal income increased $167.1 billion, or 1.4 % in May, compared with April's 0.7%
• Personal consumption expenditures (PCE) increased $25.1 billion, or 0.3 %, from April's 0%
• Personal saving as a percentage of disposable personal income was 6.9%, compared with 5.6 % in April

However, the same announcement also says about wages and salaries:

"Private wage and salary disbursements decreased $12.4 billion in May, compared with a decrease of $0.7 billion in April. Goods-producing industries' payrolls decreased $12.9 billion, compared with a decrease of $12.2 billion; manufacturing payrolls decreased $9.8 billion, compared with a decrease of $4.9 billion. Services-producing industries' payrolls increased $0.5 billion, compared with an increase of $11.5 billion. Government wage and salary disbursements increased $3.9 billion, compared with an increase of $5.7 billion. "

The AP article continues:

"The trend suggests consumers are being extremely careful with their money. That's good for the individual, but not great for the overall economy in the short-term."

Why not? Because 72% of the U.S. GDP depends on consumer spending. Let's take a look again at the 2009 1st quarter GDP announced on Thursday:

Let's check what's under "Personal Consumption Expenditures" to figure out what economists, analysts, traders, investors, government officials, everyone else but the "consumers" want "consumers" to spend. Bold typed items are major ones.

• Motor vehicles and parts
• Furniture and household equipment
• Food
• Clothing and shoes
• Gasoline, fuel oil and other energy goods
• Housing service (whatever it is)
• Electricity and gas
• Transportation service
• Medical care
• Recreation
• Other services

Where can the consumer be induced to spend more, when economic uncertainty hangs over his head? Deep discounts and fire sales at GM/Chrysler dealerships must have helped the motor vehicle sales a little. But other than essentials (food, gas, electricity), do consumers want to spend just because there are bargain sales?

Private businesses, large and small, are still cutting back, trying to purge the excess from the system. Consumers, many of whom happen to be business owners themselves, are doing the same. Shouldn't the government? Why does GDP need to rise all the time?

In the meantime, consumer sentiment rose unexpectedly to 70.8 in June, according to University of Michigan survey. It's the highest since February 2008.

The conventional wisdom is "If consumers feel good about things, they will spend more." There's another possibility, from my anecdotal observation: People feel better by saving more and/or reducing the debt.

One thing I can think of that will almost force consumers to spend like there's no tomorrow: massive inflation. A threat of such an event is probably enough to get them to start exchanging fiat currency into real assets - anything from toilet paper rolls to real estate.

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Mandatory IRA With Treasury-Issued R-Bonds?

Remember earlier this year when the stock market was still very volatile and the horrendous memory of September-November 2008 market crash was still fresh, there was a chatter about confiscating the IRA accounts and about creating a national IRA system where you are only allowed to invest in Treasury securities (at that time, 30-year bond was yielding 3%, currently 4.3%) ?

Well, that talk apparently isn't dead. I found this link in Lewrockwell.com blog section.

Administration explores 'R bond' as option for retirement accounts (6/7/09, Investmentnews.com) [emphasis is mine]

"Officials in the Obama administration are moving quickly to develop the investment infrastructure behind the president’s proposal for mandatory automatic enrollment in individual retirement accounts, which could be supported by the creation of Treasury-issued retirement bonds.

"J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Department of the Treasury, said that administration officials are exploring some “conservative” options for investing the assets of 78 million Americans that he estimates could be automatically enrolled in this “universal” workplace retirement system."

"He said that officials have discussed the possibility of making a low-risk life-cycle or target date fund the default investment option for these auto-IRAs, which would be mandatory for employers if they don’t offer a retirement plan to their workers.

"... there is also a chance that they could rely on a new form of bond — an “R bond” — as the basic building block for the auto-IRA, Mr. Iwry said in addressing reporters at the Treasury Department in Washington last week.

"Administration officials are discussing the exact details of these R bonds, such as their interest rates, maturities and minimums, he noted. These bonds ideally would provide individuals with a source of secure, steady returns that would protect their initial investments."

"R" for "Retirement", I suppose. So, under this mandatory IRA program, workers get to have supposedly safe and non-volatile R-bonds issued by the Treasury Department until their investment grow to a certain size (whatever the size to be determined), then they will be allowed to "graduate" to the next level (whatever that will be).

What a scam. The U.S. workers get to have their IRA accounts stuffed with low-yielding Treasury debts so the government can spend more, and they have no other choice, at least initially (however long or short that's going to be). Coaxing foreign governments to continue to buy the US government debts (Treasury bills, notes, and bonds) is one thing; it's totally another to force its own citizens to buy the government debts.

78 million Americans with mandatory IRAs that have $10,000 in this R-bonds - that would be $780 billion U.S. debt taken care of right there.

"The administration, which included an auto-IRA provision in its 2010 budget, has gained some bipartisan support for the proposal, Mr. Iwry added. However, as more specific details of the program’s features come out — such as this initial investment infrastructure — opposition could well unfold. "

You must be kidding. Opposition? But Democrats have the majority in the House, and they can simply fast-track it, just like they may be planning to do with the health care reform bill.

By the way, Mr. J. Mark Iwry is from Brookings Institution who joined the Obama administration in April.

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OT: Run With The Herd?

I posted this on my other blog, but it appeals so much to my elementary school level humor so I decided to share it here, too. It's a Japanese prank video, probably from the mid 1990s.

Sometimes it's safer to run with the herd than try to go against it or try to argue or persuade. Or you could be like an old man in the very first prank, simply letting the herd go by him and quietly continuing his way to dump the garbage bag somewhere..

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California Housing Price Turning Up?

At least the asking prices for the houses in the 75th percentile in major California cities are turning upward.

I found this handy site called "HousingTracker.net", that tracks the existing home median asking price and inventory. In their words,

"HousingTracker does not track home sale prices but rather home asking prices for select metropolitan areas. The asking (or list) price is the price that a seller is asking for their home, not necessarily the sale price they receive for their home. HousingTracker also keeps count of the housing inventory (i.e. the number of homes for sale) for the same metro areas. "

They also keep track of the asking prices of 50th percentile (median), 75th percentile (higher end of the market), and 25th percentile (lower end).

Most metropolitan areas tracked show either flat lines or still declining lines for all three. So I checked California cities (there are 6 of them tracked at the site), and here's the result:


All six cities show the 75th percentile asking price (orange line) turning up significantly, in some cases higher than June 2006 (San Diego) or just as high (San Francisco).

Of course the trick here is "asking price", and does not mean this is the price that's sold. But at least this may show the sellers' sentiment is turning bullish, asking for much higher price for their houses.

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2009 1st Quarter GDP "Not As Bad As Previously Thought"?

U.S. Department of Commerce Bureau of Economic Analysis released the 2009 1st Quarter Gross Domestic Product data, which showed the GDP contracted at an annualized pace of -5.5%, instead of -5.7% as previously estimated.

That's apparently enough to propel the stock market up today, despite worse-than-expected job loss. Jobless benefits rose last week by 15,000 to a seasonally adjusted 627,000. Economists were expecting a decline.

I decided to look into "what was less bad" in the 2009 1st quarter GDP number, and here's what I've found so far:

• Personal consumption was 72% of GDP, up 1% from 2008 Q4. One year ago, it was 71%.
• Gross private domestic investment was 12% of GDP, down 2% from 2008 4th quarter. One year ago it was 15%.
• Government consumption, expenditure and gross investment was 18% of GDP, no change from 2008 Q4 or the same quarter last year.

In absolute numbers (not percentage), personal consumption and government spending hardly changed from 2008 Q4. Government spending was constant throughout 2008 and the first quarter of 2009. So, what contributed to the "less bad" figure?

One of them is net export. Net export was "less bad", because the decrease of imports were significantly more than the decrease of exports. That's not very much to cheer about.

I cannot find any other, though. Private non-farm inventories got further reduced. Private domestic investment continued to decline across the board. Real economic recovery will not come until private domestic investment stops declining and starts to increase. Government's investment and expenditure cannot take its place, because any government spending has to be funded by the private sector and taxpayers, taking away the capital from them which otherwise could be invested.

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Ron Paul at Cato Institute 6/24/09: Audit the Fed

Is Cato Institute changing its tune? Texas Congressman Ron Paul spoke today at Cato Institute, which has been pro-Fed.

Ron Paul at Cato: ‘Audit the Fed’ (6/24/09 Cato Institute)

"When Texas Congressman and former Republican presidential candidate Ron Paul speaks about transparency in the Federal Reserve, he sums up his argument with one simple question. Why not?

“Why in the world should this much power be given to a Federal Reserve that has the authority to create $1 trillion secretly?” Ron Paul asked a standing room-only crowd today at the Cato Institute."

A standing room-only crowd. Nice. The above link has an audio podcast of Ron Paul's opening remark.

I hope the Institute is changing, and this is not a co-opting strategy to dilute H.R. 1207 (Audit the Fed bill).

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Jim Cramer: We Have Too Much Democracy Here

In case you didn't know. Here's a totally livid Jim Cramer rebutting the "allegation" of "cover-up" by Ben Bernanke regarding the "pressure" on Bank of America regarding Merrill Lynch purchase, by trashing the "baseless" accuser (Congressman Darrell Issa) and complaining we have too much democracy.

"The man [Bernanke] had a complete open book.."

[I didn't know they have audited the Fed already. Then why is Bloomberg suing the Fed?]

"They can make this completely baseless charge, that tells me we've got a little too much democracy here."

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ECB Injects $662 Billion - What Exit Strategy?

When analysts and economists, and even politicians in the U.S. and Europe are talking about an "exit strategy" of the central banks, the European Central Bank pumps more money for longer period.

ECB Injects $662 Billion into Banking System
(6/24/09 Wall Street Journal)

"The European Central Bank pumped a record amount of liquidity into its money market Wednesday, signaling continued monetary stimulus as banks jumped at the chance of locking in low-cost funds for 12 months."

Well, this doesn't look like a green shoot growing in Europe.

Now the ECB's balance sheet will far exceed that of the US Federal Reserve, at 2.16 trillion Euro (= US$ 3.03 trillion).

As of June 19, 2009, ECB's balance sheet size was more or less comparable to the Fed's, at 1.72 trillion Euro (= US$2.41 trillion). As of June 20, 2008, it was 1.44 trillion Euro. The increase was almost entirely due to the increase in "Lending to euro Area Credit Institutions". (Here's the link to ECB's weekly financial statements.)

Back to the WSJ article:

"The ECB action came as policy makers in most developed economies pondered the right timing to institute "exit strategies" to reverse the torrent of monetary and fiscal stimulus pumped into world economies to stave off the worst of the recession."

What exit strategy? is what central banks in both the U.S. and Europe are saying.

"Analysts said the high demand for the funds reflected the problems some banks are still having in funding their businesses. At the same time, it also reflected expectations that the euro zone's economy will start to recover later in the year, and that the low rates offered this week may not be around for much longer thereafter."

"some banks [still having problem in funding their businesses]" seems an understatement, if 442 billion Euro was quickly taken up.

"He [ECB governing council member Lorenzo Bini Smaghi] added that local authorities should make sure they do [financial institutions lend the money out]. Some analysts have warned that the banks are more likely in the first instance to throw money at short-dated government bonds, locking in the positive spread, or "carry," currently on offer."

How should the local authorities make sure the money gets loaned out? How could they? Unless there's a stiff penalty for hoarding, the money is likely to be used for carry trades, as "analysts have warned".

Debasing the currency and penalizing hoarding have been tried many times throughout the history, and they haven't worked. Imperial Romans tried and miserably failed, most likely prompting the collapse of the empire even before the barbarians showed up at their gates.

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How Much $100 Will Be Worth In Inflationary Economy

Marc Faber (his interview with CNBC is 4 posts down, or here) thinks hyperinflation is coming. Other people think it is deflation that's coming. I am leaning toward inflation. The monetary base is already 100% inflated, and I don't see how the Fed can collapse it back without collapsing the entire economy.

In case it is indeed inflation/hyperinflation, here's a table that tries to show how much US$100 is worth at different inflation rates. I did this exercise a while ago, but I've added a few more columns for hyperinflation possibilities.


Even a benign inflation of 2%, your $100 will be worth 20% less after 10 years, and worth only half after 30 years. If the inflation rate is 8%, $100 will be worth half after 8 years, and retain less than one-fifth of the value after 20 years. If it's a hyperinflation like Mr. Faber is talking about (10 to 20%), the value of the dollar gets halved after only 5 years. This Harvard professor will get his wish; he wants to see 10% negative return on money so people would rather spend like maniacs.

For those of you who are more visually inclined, I plotted the same data in a graph. The dotted blue line near the bottom is 95% from the top ($100).

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OT: Country Boy Can Survive

By Hank Williams Jr.

"The interest is up and the Stock Markets down
And you only get mugged
If you go down town"

Remember Jim Rogers' recommendation to buy farmland?

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Earth May Be Cooling, Not Warming

Now that's a heinous heresy, isn't it? (Now I loudly proclaim that I am not endorsing global cooling, lest a thought police comes after me.) [emphasis is mine]

The Solar Downturn
(by Richard Daughty, a.k.a. Mogambo Guru, 6/23/09 Lewrockwell.com)

"If you are one of those people who thinks that the Earth revolves around the sun and that the sun has important implications for life on earth, then I know that you are not a government employee, as everyone from the president, to the Congress, right on down to the municipal employee whose miserable job it is to clean up the filthy toilets after the government employees have messed them up, all think that they can overcome any obstacle – man-made, natural or wrath of a supernatural force – if only given more money in their salaries and budgets."

Oh boy, that's one long, loaded sentence.

"...as we mere mortals are connected to “cause and effect,” we are horrified at the news that the Solar and Heliospheric Observatory has reported that “The Sun’s visible surface has been almost blank,” meaning that it is almost completely devoid of the usual activity of bubbling sunspots, and even more dramatically, “The Sun has been quiet for almost two years, the longest period of solar minimum in about 100 years.”"

"Perhaps that is why Junior Mogambo Ranger Phil S. sent a link to Telegraph.co.uk, where I got the headline, “Crops Under Stress As Temperatures Fall,” with the chilling subhead that “the problem may be that the world is not warming but cooling.”

"The problem is the effect this cooling has on food production, especially since “Grain stocks are predicted to be down 15 per cent next year” an extreme of which is “US reserves of soya – used in animal feed and in many processed foods – are expected to fall to a 32-year low.”"

The Telegraph article he cites is right here. Crops are failing in the US, Argentina, Brazil, China, India, UK, Ukraine. The Telegraph's article is just as exasperated (if less sarcastic) as Mogambo Guru:

"... One of our biggest worries is that our politicians are so fixated on the idea that CO2 is causing global warming that most of them haven't noticed that the problem may be that the world is not warming but cooling, with all the implications that has for whether we get enough to eat.

"It is appropriate that another contributory factor to the world's food shortage should be the millions of acres of farmland now being switched from food crops to biofuels, to stop the world warming. Last year even the experts of the European Commission admitted that, to meet the EU's biofuel targets, we will eventually need almost all the food-growing land in Europe. But that didn't persuade them to change their policy. They would rather we starved than did that. And the EU, we must always remember, is now our government – the one most of us didn't vote for last week."

Back to Mogambo Guru:

"Obviously, despite my best efforts to hide it, the Telegraph has discovered that I am an idiot, and it is kind of embarrassing when they have to repeat, for my obvious benefit, “In the past two years, sunspot activity has dropped to its lowest point for a century,” which I seem to remember means that unusual “low sunspot activity” is connected to cooler temperatures, which means lower crop yields, which means higher wheat prices, which means higher prices for food, which is the problem that makes me wake up screaming in the middle of the night, bathed in sweat, reaching for an AK-47 with which to blast unseen inflation demons, only to discover that my wife has unloaded the thing while I slept!"

DBA (PowerShares DB Agriculture ETF) anyone? (No, I am not recommending or endorsing, in case they've already started blog policing...)

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Obama Wants New Council On Auto Industry

His Auto Task Force is not enough?

Obama wants new council to help auto industry
(6/23/09 AP via Breitbart.com)

"A new government council will help workers tied to the auto industry transition to new manufacturing opportunities, including jobs in alternative energy, Vice President Joe Biden said Tuesday.

"President Barack Obama was expected to sign an executive order Tuesday that establishes the White House Council on Automotive Communities and Workers. The council will be chaired by the president's economic adviser, Larry Summers, and his labor secretary, Hilda Solis.

"The executive director will be Obama's director of recovery for auto communities and workers, Ed Montgomery."

Edward Montgomery is in Obama's Auto Task Force as "official designee".

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Marc Faber on Hyperinflation

(Make very, very sure you mute the ad in the beginning.)

"The first period , from 1800 to 1930, when the price level was stable and actually moderately falling. We had a deflationary boom in that period. The United States had 4 million people in 1800 and in 1910 it already had 90 million inhabitants. In this period we had the entire industrialization of the US, the construction of railroads, electricity, the first cars, the first airplanes and so forth under a stable price level.

"Then the introduction of the Federal Reserve in 1930 and since then the US dollar has lost 95% of its purchasing power. We already had a lot of inflation. And if it took 100 years to lose 95% of its value, I think that the next 95% loss in purchasing power will be very quick."

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Ford To Get $5.9 Billion Government Loans

Et Tu, Ford.. (And Tesla, and Nissan...Nissan?)

The U.S. automaker Ford is getting the government loans, after all. The loans are for upgrading factories to produce fuel-efficient cars.

AP source: Ford to get $5.9B in govt loans
(6/23/09 AP via Yahoo Finance)

In addition to Ford,

"Nissan was receiving $1.6 billion to retool their plant in Smyrna, Tenn., to build advanced vehicles and build a battery manufacturing facility. Tesla was receiving $465 million in loans to build electric vehicles and electric drive powertrains in California."

In case you forget, Nissan is a Japanese company. Who's next at the trough? Koreans? Chinese? Germans?

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Munchausen By Proxy

This appeared as one of the "overflow" links at Zero Hedge yesterday.

Obama and Munchausen’s Syndrome By Proxy (6/22/09, PajamasMedia)

Go read the article. According to a medical site, the symptoms of this syndrome can include Munchausen Syndrome (not "by Proxy"), which is a "related disorder in which the caregiver repeatedly acts as if he or she has a physical or mental illness when he or she has caused the symptoms".

According to Wikipedia,

"The syndrome name derives from Baron Münchhausen (Karl Friedrich Hieronymus Freiherr von Münchhausen, 1720-1797) who purportedly told many fantastical and impossible adventures about himself, which Rudolf Raspe later published as The Surprising Adventures of Baron Münchausen."

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Blog Czar Is Next!?

Why it is anybody's business I have no idea but FTC (Federal Trade Commission) clearly thinks it's their business and it wants to monitor and regulate your blog.

FTC plans to monitor blogs for claims, payments
(6/20/09, AP via Yahoo Tech)

"Savvy consumers often go online for independent consumer reviews of products and services, scouring through comments from everyday Joes and Janes to help them find a gem or shun a lemon.

"What some fail to realize, though, is that such reviews can be tainted: Many bloggers have accepted perks such as free laptops, trips to Europe, $500 gift cards or even thousands of dollars for a 200-word post. Bloggers vary in how they disclose such freebies, if they do so at all.

"New guidelines, expected to be approved late this summer with possible modifications, would clarify that the agency can go after bloggers — as well as the companies that compensate them — for any false claims or failure to disclose conflicts of interest.

"It would be the first time the FTC tries to patrol systematically what bloggers say and do online. The common practice of posting a graphical ad or a link to an online retailer — and getting commissions for any sales from it — would be enough to trigger oversight."

Bye bye Google Ads, bye bye Amazon affiliate program.

"As blogging rises in importance and sophistication, it has taken on characteristics of community journalism — but without consensus on the types of ethical practices typically found in traditional media."

Traditional media is indeed very ethical.

Most ominously, the article says:

"Any type of blog could be scrutinized, not just ones that specialize in reviews. "

Clearly, blogs have become enough of a threat to "traditional" way of doing anything from journalism to advertising and marketing that it's time to ... regulate them so the high quality and ethical standard of "traditional" way of journalism, advertising, marketing, whatever, could be upheld.

"Shock and awe" blitzkrieg Obama version continues to roll. What's the next target? Message boards? Anything that dare show a sign of life?

Oh well. It's been such a short while since I started the blogs and I've been having a great time doing it but it looks like it may all end in summer.

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Potential Triple Whammy for Stock Market

Heads-up for Tuesday's stock market.

• Treasury Department will auction 2-year note, $40 billion.
• The Federal Reserve Open Market Committee will meet.
• The president will speak on Iran, North Korea, and domestic reform programs.

The U.S. stock market has been under severe pressure all day; it gapped down at the open and has kept down the entire day, with 30 minutes remaining for trading. The supposed reason for the downward pressure is the World Bank's assessment that the global economy will shrink by greater percentage (-2.9%) than it previously estimated (March prediction was -1.7%).

World Bank just got $4 billion from the U.S. government for its fight against global poverty, and looks eager to lend to struggling developing economies. That $4 billion was part of the Supplemental Appropriation Act of 2009 that passed last week.

So bad news is bad again? Or is this more like a strike by large market makers (who happen to be Treasury's Primary Dealers and COMEX (gold and silver) dealers), protesting against the gigantic financial industry overhaul proposed by the administration? Or is it total opposite, and they are doing the service for smooth Treasury auctions by tanking the stock market and precious metal market?

Wait, I have the third explanation... Treasury Primary Dealers (who happen to be market makers and COMEX dealers) had to come with money to buy Treasuries today, so they sold their stock holdings and their commodity holdings to raise money.

The trading volume is less than the elevated Friday level (due to quad witching).

It looks like a minor battle is going on to keep Dow Jones Industrial Average above the 50-Day Moving Average, which sits at 8,378. Dow is currently at 8,374, with 25 minutes left.

(1:00 PM EST) No. It was a selloff at the end. Dow ended down 200 points (-2.3%) at 8338, well below 50-DMA. S&P 500 went down 28 points to 893, the first below-900 close since May 27. Nasdaq fared worst, down 61 points to 1,766, but it remains the only major index that still sits above its 50-DMA and 200-DMA.

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50,000-Won Bank Note Debuts in South Korea

50,000-won Banknotes Debut Today (6/22/09 Korea Times)

"South Koreans will not have to carry a fat wallet full of 10,000-won notes anymore, with a new 50,000 won, the highest denomination bill, going into circulation from today.This is the first issuance of high-valued notes in 36 years since 1973 when the 10,000 won note was first introduced. Until now, 10,000 won notes were the highest-denominated bills, followed by 5,000 won and 1,000 won."

50,000 won sounds like a lot of money, but it is about US$39. Bank of Korea shelved the plan to introduce 100,000-won bill for now. The highest denomination for the Japanese currency is 10,000 yen, about US$104.

Korea Times seems to think the bill with large denomination is a good thing.

"The 50,000-won banknote is expected to have a positive impact on the economy and people's daily lives. The higher-valued bills are expected to encourage private spending, stimulating the local economy. In addition, the notes may substitute for 100,000-won checks. Banks currently spend a total of 280 billion won a year to issue checks."

So their thinking is that South Koreans will feel rich holding a large bill and spend more. To their credit, they do mention inflation in their article:

"In contrast, there are concerns that the higher-valued notes may stoke inflationary pressure and make bribery easier."

Considering Korea's economic growth in the past 36 years, the introduction of the new note may be way overdue.

"The introduction of the 50,000-won notes came on growing demand for higher-valued notes to reduce unnecessary economic costs and minimize people’s inconvenience. The 10,000-won note has been the highest-denominated bill for the past 36 years. During that period, prices and national income jumped 12-fold and 150-fold, respectively."

I would worry inflation, when Bank of Korea decides to go ahead with 100,000-won bill.

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Healthcare Reform To Be Fast Tracked?

It sure sounds like it, if you listen to Senator Chuck Schumer.

Democrats may go it alone on gov't insurance plan
(6/22/09 AP via Yahoo Finance) [emphasis is mine]

"Democrats generally are standing behind their position that a health care system overhaul must include a government-sponsored plan that would be available to middle-class workers and their families.

"A key Democrat, New York Sen. Chuck Schumer, said this option now seems even more of a necessity in view of unsuccessful behind-the-scenes attempts to get a deal with Republicans on nonprofit co-ops as an alternative to a public plan.

"Schumer told The Associated Press Sunday night that those efforts have proved frustrating, saying that he and his Democratic colleagues now may have to go it alone."

What does Senator Schumer mean by "go it alone"? I suspect he means using a legislative process called "reconciliation". It is a process that allows a contentious budget bill to be considered without being subject to filibuster. If this process is used, the floor debate will be restricted to 20 hours, and the bill will only need a simple majority to pass.

The co-op proposal was floated by a Democratic Senator Kent Conrad (ND) as a compromise plan.

"The public plan that most Democrats envision would be offered alongside private plans through a new kind of insurance purchasing pool called an exchange. Individuals and small businesses would be able to buy coverage through exchanges, but eventually businesses of any size might be able to join.

"Proponents say the option of a public plan in the marketplace would put a brake on costs and check the power of insurers. But Republicans, insurers and many business leaders say a government plan could drive private insurance companies out of business."

The Republicans' opposition, though, does not question the need for a reform. The response from the House Minority Whip Eric Cantor is rather lame:

""The most important thing for us to make sure is that we do increase coverage to a basic plan for more Americans and the way we're going to do that is starting with where people get most of their health care, and that's their employer," House Minority Whip Eric Cantor, R-Va., said Monday. "We've got to be sure to make it so those employers can keep their health care costs down.""

There seems to be public support behind the health care reform, although it is doubtful that people actually know what's in it.

"Two recent news media polls have found public support for a government plan, even if many people are unsure about its implications. The most recent survey, a New York Times-CBS News poll released Sunday, found that 72 percent supported the idea, including half of those who identified themselves as Republicans."

The Congressional Budget Office estimated that "enacting the proposal would result in a net increase in federal budget deficits of about $1.0 trillion over the 2010-2019 period.When fully implemented, about 39 million individuals would obtain coverage through the new insurance exchanges. At the same time, the number of people who had coverage through an employer would decline by about 15 million (or roughly 10 percent), and coverage from other sources would fall by about 8 million, so the net decrease in the number of people uninsured would be about 16 million or 17 million."

So, it would cost about $60,000 to cover one uninsured person. A rather pricey health insurance, wouldn't you say?

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US Treasury Bond Smugglers Employees of Japan's Finance Ministry?

That's what I just heard on the radio program, so I searched the Internet. I found this from Turner Radio Network, the same network who reported the "leaked" results of the bank stress test back in May. (By no means I am endorsing the network or the validity of the news by posting the link below.)

Employees of Japan Finance Ministry arrested in Italy trying to smuggle $134 Billion in U.S. Treasuries in suitcases (6/20/09 Turner Radio Network)

"Two Japanese men arrested by Italian Police while trying to smuggle $134 Billion in U.S. Treasury Bonds concealed in suitcases, out of Italy into Switzerland, are employees of the Finance Ministry of Japan.

"Despite assurances from Japanese Finance Minister Kaoru Yosano about Japan's "absolutely unshakable” confidence in the credibility of the U.S. dollar, it is now confirmed based upon the serial numbers of the Bonds, that the $134 Billion is part of the $686 billion of U.S. debt officially held by Japan.

"According to Italian Law Enforcement, authorities originally thought the men were part of the "Yakuza", a Japanese organized crime syndicate similar to the Italian Mafia, which lead officials to believe the Bonds were forgeries But after the men who were arrested were forced to remain in jail for more than a few days, they discarded their cover story and admitted to being employees of the Finance Ministry of Japan."

I searched the news in Japanese mainstream media. None about this particular news, and very little about the whole strange episode. But bloggers are a different story, and speculations are rampant in the Japanese blogsphere - "yakuza", Korean smugglers (both South and North), or ministry officials doing the bidding of some political faction within the Japan's ruling party.

The first thing the Japanese bloggers who are following this event ask is: Why is it taking so long to disclose whether the US Treasury bonds are real or fake, or who the two Japanese are? It's been over 2 weeks since the arrest. Many speculate that the very fact that so little has been disclosed means these bonds are genuine, and these two Japanese are indeed government officials.

One Japanese blogger asks an interesting question: Who leaked? He says that the Italian authority does not routinely conduct a search on carry-on luggage of a departing passenger at the border crossing, UNLESS they were told to search by someone higher up.

Hardly any report either in the US press on this strange case. I thought myself that this was just a routine "yakuza" operation, but I'm not so sure now.

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What the @#$% Happened in September-November 2008: Part III

This is Part III of What the @#$% Happened in September-November 2008 (here are Part I and Part II), which covers from September 29 to October 3, 2008. It was the week in which Paulson's bank bailout plan was first rejected, re-worked, and finally passed despite the strong opposition from the public. It was the beginning of the cascading market crash of 2008.

This was also the week in which the Federal Reserve's balance sheet grew exponentially in its effort to support the global financial system.

With that in mind, let's go to the headlines of Investor's Business Daily front pages. As before, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

Headlines from:

Tuesday, September 30, 2008
(Dow Jones Industrial 10,365, S&P 500 1,106, Nasdaq 1,983)

• Rescue Rejected; Stocks Dive. House says No To $700 Bil
• Divided House Rejects Rescue by 228-205. More than two-thirds of Republicans and 40% of Dems opposed it.
• Fed Will Pump $630 Bil Into Money System
• Citi Mops Up Wachovia With U.S. Guarantees
• Apple Falls 18% on Downgrades
• Picture of House Democratic leaders after the vote, with Nancy Pelosi and Rahn Emanuel in center

Wednesday, October 1, 2008
(Dow 10,850, S&P 500 1,164, Nasdaq 2,082)

• Market Rebounds As Congress Retools $700 Billion Rescue
• SEC Gives 'Fair Value' Guidance
• Even Good Corporate Borrowers Getting Caught in Credit Crunch
• Money Market Rates Spike Again: The actual fed funds rate hit 7% overnight - vs the official 2% target - but retreated to 0.5% on added liquidity from the Fed
• Confidence, Factories Improve in September, above forecast
• Picture of a trader on NYSE floor working the phones

Thursday, October 2, 2008
(Dow 10,831, S&P 500 1,161, Nasdaq 2,069)

• Mortgage Rescue Returns To Senate; House Vote Friday
• Buffett Will Buy $3 Bil GE Stake
• Factory Index Hits A 7-Year Low: Sept's ISM manufacturing index dived 6.4 points to 43.5, the lowest since Oct. '01.
• Automakers' Set. Sales Plunge
• Picture of Army General David McKiernan, commander of NATO forces in Afghanistan stressing the need for more troops and aids

Friday, October 3, 2008
(Dow 10,482, S&P 500 1,114, Nasdaq 1,976)

• Stocks Fall Sharply On Economic Data, Deep Credit Freeze; Nasdaq Undercuts Mon. Low. 3-month dollar LIBOR rate rose to 4.21%
• Commodities Eat Dollar's Dust. Gold copper, oil, natural gas and grains all tumbled as investors fled to dollars and Treasuries. The CRB index hit a 1-year low.
• Wells Fargo Rides Through Crisis After Avoiding Subprime Slime
• GE Falls 10% [to $22.15!] on Stock Offering
• Picture of Nancy Pelosi

Monday, October 6, 2008
(Dow 10,325, S&P 500 1,099, Nasdaq 1,947)

• Rescue Bill Passes, But Stocks Sell Off [to 3-year lows] As Economy Slows; Dow Dives 4% After Vote (263-171)
• "Markets are not celebrating because although this is good news, it does not signal that the tough times are behind us,' said Hugh Johnson, chief investment officer of Johnson Illington Advosors.
• U.S. Cuts 159,000 Jobs, A 5-Year High, With Losses Spreading Across Industries; Fed Rate Cuts Seen in Oct.
• Wells Fargo Targets Wachovia. [The bank] announced a $15.1 bil, $7-a-share deal to buy all of Wachovia, which had agreed on Sept. 29 to sell its banking assets to Citigroup. No federal support needed.
• Calif. May Ask Treasury For Help
• Picture of confident-looking Hank Paulson shaking hands with President Bush who looks like he just ate something bitter

The initial rejection of the bailout bill by the House on Monday reflected the unprecedented objection from the general public, who let their Congressmen/women know of their objection by letters, emails, and calls.

The market tanked after the rejection, and the campaign by the supporters of the bill, the media, both mainstream and alternative (i.e. Internet), was unleashed. The main messages of the campaign were:

• We have to do something.
• The market will collapse if we don't do something (pointing to the Monday's stock market results). It will be a disaster!

Around this time, even the financial sites that I frequented whose analyses and views I respected started to divide. On one of the sites, the founder of the site was for the bailout, the chief editor was against it. The founder's view was that it would be better to have a cancer and get treated rather than to have a car crash.

It sure feels like we ended up with both; a cancer patient had a head-on collision with a big tree.

Also, even some of the sites with bearish outlook on the market started to say "The stock market will go up on the passage of the bailout bill." So when the market went down on Friday after the bill was passed, it was treated as a "sell the news" event, with the assumption that the market would now go up. Boy we were wrong...

Stay tuned for Part IV.

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Back In The U.S.S.A.

Peter Schiff's article as appeared in Lewrockwell.com.

Back in the U.S.S.A. (6/20/2009, lewrockwell.com): [emphasis mine]

"Harry Browne, the former Libertarian Party candidate for president, used to say: “the government is great at breaking your leg, handing you a crutch, and saying ‘You see, without me you couldn’t walk.’” That maxim is clearly illustrated by the financial industry regulatory reforms proposed this week by the Obama Administration."

"In seeking to undo the damage inflicted over the past decade by misguided government policies, the new regulatory regime would ensure that the problems underlying our financial system will only get worse.... Ultimately, the structure will put the entire U.S. financial industry at a global competitive disadvantage."

Injuries will be not just to the US financial industry but also the US citizens, particularly those residing outside the U.S. (Read this article: Lloyds Bank of London already started kicking out the U.S. clients.)

"As is typical of government attempts to control economic outcomes, Obama’s plans focuses on the symptoms of the disease and not the cause. The American financial system imploded for two reasons: cheap money and moral hazard – both of which were supplied by the government. Under the proposed new regulatory structures, these toxic ingredients will be combined in ever-increasing quantities."

"Obama proposes to entrust the critical job of “systemic risk regulator” to the Federal Reserve, the very organization that has proven most adept at creating systemic risk. This is like making Keith Richards the head of the DEA."

Keith Richards as head of the DEA may work better, though. But that aside, I can sense Mr. Schiff's exasperation getting bigger and bigger in each paragraph. He ends the article with these remarks:

"Unfortunately, despite their intent, my guess is that the new regulations will most severely impact smaller firms, like my own, that never engaged in reckless behavior. This will further reward those “too big to fail” firms, whose economies of scale and cozy relationships with regulators leave them better positioned than their smaller rivals to absorb the costs of the added red tape.

"With the transition now fully under way, I propose we end the pretense and rename our country: “The United Socialist States of America.” In fact, given all the czars already in Washington, we might as well go with the Russian theme completely: appoint a Politburo, move into dilapidated housing blocks, and parade our missiles in the streets. On the bright side, there’s always the borscht."

At some point, you start to wonder: "What's their true intent?" Is it to save the system, or is it to destroy the system?

Or does the "intent" really matter? The road to hell is paved with good intentions, it is said.

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