Guest post by Azizonomics.
Hayekians and Minskians agree on one key thing: an increase in debt beyond the underlying productive economy is unsustainable.
In my view, the key figures in defining this are total debt as a percentage of GDP, and its relationship with industrial production. Debt as a percentage of GDP tracks how much debt there is relative to one measure of economic activity, GDP. Yet GDP is a very limited tool of measurement; all GDP really tracks is the circulation of money. To get a clearer sense of the true relationship with underlying productivity, it is useful to compare the ratio of debt-to-GDP with the level of industrial production.
Meanwhile in Madrid things are heating up. From El Pais.
Two days after the central government delegate in Madrid, Cristina Cifuentes, noted that the “black march” organized by protesting miners had been entirely without incident, the denouement of the 430-kilometer journey descended into violence in the center of the capital.
The 200 marchers were joined by thousands of sympathizers and members of the labor unions as they marched from Colón square to the doors of the Industry Ministry along nearby Paseo de la Castellana on Wednesday. Among the newcomers were members of the 15-M protest movement, teachers protesting cuts in education, families and politicians. Also among the throng — which the CCOO and UGT labor union expected to be 25,000 strong, although no official figures were available — were what an Interior Ministry spokesman described as “anti-system groups, armed with bottle rockets and bricks.”
With all the focus on LIBOR and imploding Europe, investors have almost “forgotten” about China. How is the Chinese monetary policy run and much more, courtesy Also Sprach Analyst.
Just how different China’s monetary policy is run compared to the West? Perhaps not much. They cut and raise interest rates just as everyone else does.
China is not different from the rest of the world in a sense that Newton’s three laws of motion and law of universal gravitation work in China just as everywhere else and basic principles of economics hold in China just as in everywhere else. Chinese central bank, just as every other central bank around the world, would like to see better growth in credit when they want to stimulate growth, and tighten monetary policy when they need to fight inflation. In that sense, they are the same. The difference is just how monetary policy is run.
Some thoughts by Biderman.
In my opinion, the US needs a new constitutional convention. The first constitutional convention occurred in 1787. The government created back then has obviously done fantastically well. However, if we continue forward in the direction we are headed, what lies ahead is an almost certain major economic calamity.
In last week’s July 4 video I said that the representative form of government set up in 1787 is not working today and has been taken over by the special interest groups. If you doubt that, read convicted lobbyist, Jack Abramoff’s Capitol Punishment, The Hard Truth About Washington Corruption. If as Abramoff claims it no longer matter who wins elections, because the special interest groups control, and in some cases own, the representatives; well then our current form of representative government, has to be changed before calamity hits. (Video below).
Peter Tchir on the LIBOR scandal, FSA and Barclays.
Here is the FSA’s report from June 27th.
I will admit when I first looked at it, it seemed pretty damning. The dialogue was awful and the charts looked bad. But as I look through the details I have to say, Barclay’s seems incompetent in its own defense. I owe some of this report to Simone Foxman who looked at one of the trades in some detail, but here is a closer look at some of the accusations in the report and what impact it had.
My assessment so far is that Barclay’s was incompetent at moving LIBOR and was incompetent at defending itself against the FSA. I expect that the financial crisis period will be a lot more interesting as there is some real divergence and the potential influence on LIBOR is big and real.
Lost Reputation with Little Accomplished is what analysis of FSA examples demonstrates
58. Barclays’ Derivative Traders would request high or low submissions regularly in emails, for example on 7 February 2006, Trader C (a US dollar Derivatives Trader) requested a “High 1m and high 3m if poss please. Have v. large 3m coming up for the next 10 days or so”. Trader C also expressed his preference that Barclays would be “kicked out” of the average calculation. Trader C’s aim was therefore that Barclays’ submissions would be high enough to be excluded from the final average calculation, which could have affected the final benchmark rate.
Guest post by Azizonomics.
The obvious thing, though — even if we take central bank buying out of the equation altogether — is that total demand for gold is still increasing. And the price of gold has increased faster than sales, illustrating that the market has struggled and continues to struggle to keep pace with underlying demand.
And it’s not just demand for gold-denominated paper (i.e. ETFs or other such as-risky-as-anything-you’ll-get-from-MF Global assets) — it’s recently manifested as demand for hard physical gold:
Fascinating reading by the FSA on the LIBOR scandal.
Barclays acted inappropriately and breached Principle 5 on numerous occasions between January 2005 and July 2008 by making US dollar LIBOR and EURIBOR submissions which took into account requests made by its interest rate derivatives traders (“Derivatives Traders”). At times these included requests made on behalf of derivatives traders at other banks. The Derivatives Traders were motivated by profit and sought to benefit Barclays’ trading positions. (Full report here with charts.)