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“Why Were Ventura
County Residents Blocked From Voting on Pension Reform in the
Midterm Elections?“ is the latest video
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Game changer? It appears there is a mutiny afoot in Europe as Reuters and Bloomberg report that a number (rumored to be between 7 and 10) central bankers are set to challenge ECB head mario Draghi’s leadership style and question his decisions on quantitative easing. As Reuters reports, bankers faulted his secretiveness and communication style making it hard for ECB to take bolder steps.
The bankers are particularly angered that Draghi effectively set a target for increasing the ECB’s balance sheet immediately after the policy-making governing council explicitly agreed not to make any figure public, the sources said.
Even members of the ECB’s executive board – the six-member inner circle that runs the bank – were not informed in advance about two key recent policy announcements, two sources said.
“Mario is more secretive… and less collegial. The national governors sometimes feel kept in the dark, out of the loop,” said one veteran ECB insider.
* * *
Stocks are not happy:
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Prepare yourself for a zero liquidity event…
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Most Americans are viewing the midterm elections through the prism of social issues (Gay Marriage, Abortion, Discrimination, etc.)
These issues, regardless of the intense emotions surrounding them, directly affect a relatively small percentage of the US population.
The bigger issue for the US is how a GOP Senate would impact the Federal Reserve.
The Fed runs the US economy. Every American who eats food or uses energy or has a US Dollar in their bank account is directly affected by the Fed’s actions.
The current Fed is run by the very liberal Janet Yellen, who believes firmly in wealth redistribution. Yellen proudly considers herself and her policies to be liberal.
However, the Yellen Fed may soon be facing increased scrutiny and oversight.
In July of 2014, two GOP Congressmen introduced a bill that would require the Federal Reserve to follow the Taylor Rule regarding interest rates. While the details of this rule are not worth delving into at this time, the key ideas are that:
1) Interest rate policy would no longer be subject to the whims of Fed officials.
2) The Fed and its policies would be regulated by Congress for the first time in history.
In September, just two months later, the GOP-controlled House passed an “Audit the Fed” bill.
The House on Wednesday passed legislation to audit the Federal Reserve System.
Passed 333-92, the bill would require the comptroller general to conduct an audit of the Federal Reserve's board of governors and banks within one year and submit a report to Congress on the findings. A total of 106 Democrats joined all but one Republican in support of the measure.
A version of the bill sponsored by then-Rep. Ron Paul (R-Texas) passed in 2012 by a vote of 327-98. Paul's son, Sen. Rand Paul (R-Ky.), has introduced companion legislation in the Senate.
Rep. Paul Broun (R-Ga.), who failed to advance in a Senate GOP primary earlier this year, said the measure would increase transparency at the Federal Reserve.
The political winds have begun to shift against the Fed. It is telling that the US Dollar began to rally soon after this legislation was introduced. A less active Fed means a stronger US Dollar. Between the end of QE, negative interest rates in Europe, and legislation that would rein in the Fed’s lack of accountability, the US Dollar has hit a four -ear high.
If the GOP takes the senate, the days of the Fed doing whatever it wants will have ended. This may well in fact be what pops the US stock market bubble. The GOP hasn't controlled the Senate at any point since the Crisis hit in 2008. If the GOP controls both the House and the Senate, the Fed will be in for SERIOUS problems.
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While it is remarkable that the same media organization that a week ago was fawning over the rotting carcass of Keynes’ disastrous economic legacy, can today issue a warning that “Japan Creates World’s Biggest Bond Bubble”, we have long since given up being surprised by things that make absolutely zero sense in the New Abnormal.
So here is William Pesek with a less than Keynesian view on why Banzainomics’ very own Kuroda-san will be regarded as either a genius or a madman in a decade. Spoiler alert: it won’t be “genius.”
Japan Creates World’s Biggest Bond Bubble
Ten years from now, will Bank of Japan Governor Haruhiko Kuroda be regarded as a genius or a madman?
Kuroda’s shock-and-awe stimulus move on Oct. 31 delighted markets and won him plaudits as a monetary virtuoso. Japan, the conventional wisdom tells us, has finally gotten serious about ending deflation, and isn’t it wonderful. But what happens when a central bank buys up an entire bond market? We’re about to find out as Kuroda, like some feverish hedge fund manager, corners Japan’s. Neglected in all the celebrating: To reach a 2 percent inflation goal that’s both arbitrary and meaningless, the BOJ is destroying Japan’s standing as a market economy.
In announcing that it will boost purchases of government bonds to a record annual pace of $709 billion, the central bank has just added further fuel to the most obvious bond bubble in modern history — and helped create a fresh one on stocks. Once the laws of finance, and gravity, reassert themselves, Japan’s debt market could crash in ways that make the 2008 collapse of Lehman Brothers look like a warm-up. Worse, because Japan’s interest-rate environment is so warped, investors won’t have the usual warning signs of market distress. Even before Friday’s bond-buying move, Japan had lost its last honest tool of price discovery. When a nation that needs 16 digits in yen terms to express its national debt (it reached 1,000,000,000,000,000 yen in August 2013) sees benchmark yields falling, you’ve entered the financial Twilight Zone. Good luck fairly pricing corporate, asset-backed or mortgage-backed securities.
Considered in relation to gross domestic product, Kuroda’s purchases make the U.S. Federal Reserve’s quantitative-easing program look quaint. The Fed, of course, is already ending its QE experiment, while Japan is doubling down on one that dates back to 2001. Kuroda’s latest move means Japan’s QE scheme could last forever. The BOJ has willingly become the Ministry of Finance’s ATM; reversing the arrangement will be no small task.
All this liquidity has made for surreal events in Tokyo. Take the news that Japan’s $1.2 trillion Government Pension Investment Fund will dramatically rebalance its portfolio away from bonds. Japan has enormous public debt and a fast-aging population, and now the world’s biggest pension pool is shifting to stocks. Yet somehow, 10-year yields are just 0.43 percent. The explanation, of course, is that the parts of the market the BOJ doesn’t already own are sedated by its overwhelming liquidity. The BOJ is now on a financial treadmill that’s bound to accelerate, demanding ever more multi-trillion-dollar infusions to keep the market in line.
To Japan bulls, the end justifies the means. If Kuroda changes the deflationary mindset that’s stalked Japan for 17 years now, then his gambit was worth it. One problem with this argument is that deflation isn’t the cause of Japan’s malaise, but a side-effect. Consumer prices rising at 2 percent or more will be a big problem if Prime Minister Shinzo Abe doesn’t push ahead with plans to deregulate the economy and prod companies to raise wages. That’s doubly true as Tokyo mulls another growth-denting rise in the consumption tax.
Another problem is that Kuroda is turning the BOJ into the world’s biggest asset-management company. The BOJ won’t admit it, but it’s monetizing Japan’s debt on a massive scale, and probably even retiring large blocks of it — just as the government did in the 1930s. What happens when the BOJ decides Japan needs a credible and functioning bond market in the years ahead? Kuroda’s successors face terrible odds disengaging from a market he’s effectively nationalized.
Perhaps history will vindicate Kuroda’s genius. That depends on whether Abe musters the courage to attack structural impediments to growth in employment, industry, trade and energy. More likely, Kuroda is demonstrating that it’s one thing to go long on a market, and quite another if you have to stick with that bet forever. To avoid being remembered as a madman, Kuroda had better devise an exit strategy from history’s most audacious bond trade.
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Factory orders in September printed a drop of 0.6% MoM following August’s 10.0% revised tumble off the spurious spending in July. This is the first 2-month-in-a-row drop in factory orders since January – amid the economy-crushing polar vortex.
Did it snow in Septmeber?
Charts: Bloomberg
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With French youth revolting, Spanish regions seeking secession, and GREXIT back on the cards, Europe’s social unrest concerns are starting to rise once again to troubling levels. However, it is in Europe’s poorest nation, Bulgaria that the message of dissatisfaction is loudest. As The BBC reports, a woman has set herself ablaze near the presidency building in the Bulgarian capital Sofia. There were six similar self-immolations in Bulgaria last year, amid anger over chronic poverty and alleged corruption.
When it comes to this, you know there is a problem (Warning: Graphic)
A woman has set herself ablaze near the presidency building in the Bulgarian capital Sofia and is now in hospital being treated for severe burns.
It is not yet clear why the 38-year-old woman doused herself in a flammable liquid and torched herself.
She was engulfed in flames before bystanders managed to put out the blaze and load her into an ambulance.
There were six similar self-immolations in Bulgaria last year, amid anger over chronic poverty and alleged corruption.
Last month Bulgaria’s centre-right GERB party won a snap parliamentary election but failed to get an overall majority. The party led by former Prime Minister Boyko Borisov is trying to form a new ruling coalition with smaller parties.
Last year Bulgaria, the poorest country in the EU, was rocked by weeks of protests over low living standards, a banking crisis and allegations of high-level government corruption.
* * *
Maybe she should have bought stocks in US small caps? or the Alibaba IPO?
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It is legal to publish stories about
Sherlock Holmes and Dr. Watson without the permission of their
creator’s estate, because those characters are in the public
domain. That’s what the Seventh Circuit
ruled in June, and it’s now clear that the judge’s
decision is going to stand: The U.S. Supreme Court
has declined
to hear an appeal filed by Sir Arthur Conan Doyle’s heirs.
As I
wrote when the Seventh Circuit ruling came down, this is
a welcome decision. The argument offered by Arthur
Conan Doyle’s estate rested on the fact that 10 Sherlock stories
were published after 1923 and therefore have not yet entered the
public domain. Because those stories introduced new elements to
Holmes’ and Watson’s fictional lives, the estate’s attorneys
claimed that the characters were not fully created until
after 1923 and therefore aren’t in the public domain after all. At
a time when copyright terms are constantly being
extended into the future, the estate was effectively attempting
to enact a stealth extension into the past.It was an absurd argument, and Judge Richard Posner swatted it down
gracefully.
Absurd though its argument was, the Doyle estate had been
getting away for years with asking writers for fees they were not
actually legally obliged to pay. Indeed, this case began with the
Doyle estate telling Leslie
Klinger that he and his publisher had to cough up $5,000 for
the right to use Holmes and Watson in a book. Now the money will be
flowing in the opposite direction: In August, Judge Posner ordered
the estate to give Klinger $30,679.93—the amount he incurred in the
circuit-court stage of the legal fight. Klinger is also asking to
be compensated for the costs of an
earlier stage of the battle, before a lower court; if that
request is granted, Doyle’s heirs will be on the hook for another
$39,123.44.
I hope that happens. As Posner
wrote in August,
The Doyle estate’s business strategy is plain:
charge a modest license fee for which there is no legal basis, in
the hope that the “rational” writer or publisher asked for the fee
will pay it rather than incur a greater cost, in legal expenses, in
challenging the legality of the demand. The strategy had worked
with Random House; Pegasus was ready to knuckle under; only Klinger
(so far as we know) resisted. In effect he was a private attorney
general, combating a disreputable business practice—a form of
extortion—and he is seeking by the present motion not to obtain a
reward but merely to avoid a loss. He has performed a public
service—and with substantial risk to himself, for had he lost he
would have been out of pocket for the $69,803.37 in fees and costs
in-curred at the trial and appellate levels ($30,679.93 +
$39,123.44). The willingness of someone in Klinger’s position to
sue rather than pay Doyle’s estate a modest license fee is
important because it injects risk into the estate’s business model.
As a result of losing the suit, the estate has lost its claim to
own copyrights in characters in the Sherlock Holmes stories
published by Arthur Conan Doyle before 1923. For exposing the
estate’s unlawful business strategy, Klinger deserves a reward but
asks only to break even.
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Chill
out, America. Whether the Republicans win big or the Dems hold the
line, both major parties are on the path to extinction, at least in
their current forms.
Whichever side emerges victorious, both Republicans and
Democrats should face up to a much bigger truth: Neither party as
currently constituted has a real future. Fewer and fewer
Americans identify as either Republican or Democratic
according to Gallup, and both parties are at recent or
all-time lows when it comes to approval ratings. Just 39
percent give Democrats a favorable rating and just 33 percent do
the same for Republicans. Not coincidentally, each party has also
recently had a clear shot at implementing its vision of the good
society. If you want to drive down your adversary’s approval
rating, just give him the reins of power for a few years.What’s going on? The short version is that political, cultural,
and even economic power has been decentralizing and unraveling for
a long time. Whether you like it or not, The Libertarian
Moment is here, a technologically driven individualization of
experience and a breakdown of the large institutions—governments,
corporations, churches, you name it—that used to govern and
structure our lives. The result is that top-down systems, whether
public or private, right wing or left wing, have less and less
ability to organize our lives. That’s true whether you’re talking
about the workplace, the bedroom, or the bar down the street (that
may now be serving legal pot). This is mostly good, though it’s
also profoundly disruptive too.
That’s from my new column at
The Daily Beast, which argues that the future belongs
to
…politicians and parties who champion policies that embrace
economic and social decentralization will own the future, even as
they wield less power by letting people discover how they actually
want to live. Whoever wins tonight would do well to remember that.
Because if they don’t, they’ll be losers again, and sooner than you
think.
Conservatives/Republicans can live with some decentralization in
economic issues and education policy, but they really can’t abide
by rapidly proliferating lifestyle choice. Liberals/Democrats are
desperately trying to structure commercial life and restrict
choices when it comes to health care, school lunches, and more. If
both sides don’t realize the impossibility of their positions, they
will become even less representative of contemporary America. If
that’s the case, it was nice knowing them.
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British Prime Minister
David Cameron is
under fire from a bipartisan coalition of M.P.s over his
refusal to re-evaluate Britain’s 40-year-old drug laws.
The issue arose following the release of a report from the Home
Office (a government department responsible for immigration,
security, and law and order) comparing the U.K.’s drug policy
with the approaches of 13 other countries. The report found that
“there is no apparent correlation between the ‘toughness’ of a
country’s approach and the prevalence of adult drug use.”
This led to the first major House of Commons debate on drug
policy in a generation. During the debate, M.P.s from across the
political spectrum stood up to denounce the current policy and call
for reform.
This disparate group included a succession of members from
Cameron’s own Conservative Party. The most prominent of these was
Peter Lilley, a former cabinet minister and Deputy Leader of the
Conservative Party, who bypassed talk of decriminalization and
called for the outright legalization of cannabis.
An even more influential figure to come out for reform was Nick
Clegg, who voiced his support through the media. As leader of the
Liberal Democrats, Clegg is the Deputy Prime Minister of Cameron’s
coalition government. In
an op-ed for The Independent, he argued it was clear
the war on drugs was being lost and that a new approach was
required:
Instead of looking at evidenced-based solutions successive
government’s have ratcheted up the rhetoric–talking tough but
failing to tackle the problem.The consequences of sticking rigidly to the same old solutions
will not bring about the change we badly need. It would mean more
young addicts carted off to jail. More people in need of help
unable to free themselves from the grip of drug abuse. And those
emerging from jail even more vulnerable to the pushers.
Perhaps most encouraging of all was Clegg’s claim that the
debate in the U.K. had reached a tipping point:
Westminster has finally reached a tipping point in the drug
debate and change is in sight.As my colleague [the now-departed Home Office
minister] Norman Baker said, “the genie is finally out of the
bottle” and people have realised if you are anti-drug you must be
pro-reform.
Despite the findings of the Home Office report, Cameron is
refusing to re-evaluate existing policy.
His response to the report was characteristic of a politician
with his head in the sand:
“The evidence is, what we are doing is working. I don’t believe
in decriminalising drugs that are illegal today,” he said. “I’m a
parent with three children—I don’t want to send out a message that
somehow taking these drugs is OK and safe because, frankly, it
isn’t.”
Such a stock-standard response is unlikely to surprise anyone
familiar with the anti-drug rhetoric of political leaders. However,
this represents a complete backflip for Cameron. As The
Independent reports,
Cameron was once a prominent advocate for drug reform:
As a new MP in 2002, he said there was a “powerful argument” for
legalising heroin and said it was “baffling” the Labour government
was not considering the case for decriminalisation…
This statement in favor of reform was not a one-off:
During the 2005 leadership campaign – in which he refused to be
drawn on his personal drug experience – Mr Cameron said:
“Politicians attempt to appeal to the lowest common denominator by
posturing with tough policies and calling for crackdown after
crackdown. Drugs policy has been failing for decades.”
The reason for this dramatic reversal is unclear. It’s possible
that Cameron honestly re-evaluated his beliefs and came to a
different conclusion, but he would also hardly be the first
politician to change a position for electoral reasons. However, if
Baker is right and the genie really is out of the bottle, there
will soon be far less reason for M.P.s to conceal their support for
drug reform. That can only be a good thing.
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