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Starting from a simple loan (remember them), credit markets have evolved many innovations to cater to an increasing need for leverage (intrinsic firm leverage – levered loans to high-yield bond market; and extrinsic instrument leverage – securitizations and derivatives) for issuers, traders, and investors. However, as the following maze of the history of debt, NY Times shows these have led to many costly crises (and will do in the future…)

 

 

Source: NY Times

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kqMkBBujRkk/story01.htm Tyler Durden

A rhetorical question that was apocryphal a mere year ago, has emerged as a very realistic option: is Barack Obama the second coming of Dubya? Policy initiatives aside, in this case we simply look at the plunging popularity ranking of both presidents in their second term as shown on the chart below.

Driven primary by the horrifying rollout of Obamacare in the aftermath of the government shutdown distraction (whose stated motive ironically was the delay of Obamacare which one can imagine is precisely what Obama wishes would happen right now), the Real Clear Politics popularity tracker shows that as of the latest week, the president Disapproval rating has risen to a record high, coupled with a record drop in his approval rating:

This is what a recent Pew study had to say:

In contrast, the two prior presidents who won reelection – Bill Clinton and Ronald Reagan – enjoyed positive ratings over the course of the next year. At comparable points in their fifth year in office, 58% approved of Clinton’s job performance while Reagan’s job rating stood at 62%.

 

The new survey finds that majorities disapprove of the way Obama is handling four of five issues tested, with terrorism the lone exception (51% approve, 44% disapprove). For every issue, including terrorism, his ratings are lower than they were earlier this year.

Obama’s job ratings on the economy have been more negative than positive for more than four years, but the current measure is the worst of his presidency. Just 31% approve of the way Obama is handling the economy, while 65% disapprove.

 

Only about one-in-five independents (21%) give Obama positive marks on the economy, while 75% disapprove. About a third of Democrats (34%) disapprove of the way Obama is handling the economy (64% approve).

 

Obama also gets negative ratings on health care policy (37% approve, 59% disapprove). In January, views of Obama’s handling of health care policy were mixed (45% approved, 47% disapproved).

 

The administration has come under intense criticism for the flawed roll-out of the Affordable Care Act. In a recent interview with NBC News, Obama apologized to those who have lost their health insurance under the law, despite his assurances that they would be able to stay on their plans.

 

Only about a third of the public (32%) approves of the job Obama is doing on immigration policy; 60% disapprove. Obama’s ratings for this issue among Democrats are mixed: About half (53%) approve of his handling of the issue while 42% disapprove.

Finally, as Bloomberg Bloomberg News Political Analyst Matthew Dowd discusses in observing that the “campaigner in chief” may not have been the governor in chief so many expected, “when presidents drop this low in their second term, they have never recovered.” 

So as a result of a rushed rollout to cement his sterling legacy, has Obama instead doomed himself in the history books to be the second coming of Dubya?

It remains to be seen: Obama still has three more years and thus enough opportunity to make his predecessor truly shine in retrospect.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/GaEXrITH890/story01.htm Tyler Durden

Submitted by Dr. Frank Shostak, via The Cobden Centre blog,

According to the popular way of thinking, bubbles are an important cause of economic recessions. The main question posed by experts is how one knows when a bubble is forming. It is held that if the central bankers knew the answer to this question they might be able to prevent bubble formations and thus prevent recessions.

On this, at the World Economic Forum in Davos Switzerland on January 27, 2010, Nobel Laureate in Economics Robert Shiller argued that bubbles could be diagnosed using the same methodology psychologists use to diagnose mental illness. Shiller is of the view that a bubble is a form of psychological malfunction. Hence the solution could be to prepare a checklist similar to what psychologists do to determine if someone is suffering from, say, depression. The key identifying points of a typical bubble according to Shiller, are,

1. Sharp increase in the price of an asset.
2. Great public excitement about these price increases.
3. An accompanying media frenzy.
4. Stories of people earning a lot of money, causing envy among people who aren’t.
5. Growing interest in the asset class among the general public.
6. New era “theories” to justify unprecedented price increases.
7. A decline in lending standards.

What Shiller outlines here are various factors that he holds are observed during the formation of bubbles. To describe a thing is, however, not always sufficient to understand the key factors that caused its emergence. In order to understand the causes one needs to establish a proper definition of the object in question. The purpose of a definition is to present the essence, the distinguishing characteristic of the object we are trying to identify. A definition is meant to tell us what the fundamentals or the origins of a particular entity are. On this, the seven points outlined by Shiller tell us nothing about the origins of a typical bubble. They tell us nothing as to why bubbles are bad for economic growth. All that these points do is to provide a possible description of a bubble. To describe an event, however, is not the same thing as to explain it. Without an understanding of the causes of an event it is not possible to counter its emergence.

Defining bubbles

Now if a price of an asset is the amount of money paid for the asset it follows that for a given amount of a given asset an increase in the price can only come about as a result of an increase in the flow of money to this asset.

The greater the expansion of money is, the higher the increase in the price of an asset is going to be, all other things being equal. We can also say that the greater the expansion of the monetary balloon is, the higher the prices of assets are going to be, all other things being equal. The emergence of a bubble or a monetary balloon need not be always associated with rising prices – for instance if the rate of growth of goods corresponds to the rate of growth of money supply no change in prices will take place.

We suggest that what matters is not whether the emergence of a bubble is associated with price rises but rather with the fact that the emergence of a bubble gives rise to non-productive activities that divert real wealth from wealth generators. The expansion of the money supply, or the monetary balloon, in similarity to a counterfeiter, enables the diversion of real wealth from wealth generating activities to non productive activities.

As the monetary pumping strengthens, the pace of the diversion follows suit. We label various non-productive activities that emerge on the back of the expanding monetary balloon as bubble activities – they were formed by the monetary bubble. Also note that these activities cannot exist without the expansion of money supply that diverts to them real wealth from wealth generating activities.

From this we can infer that the subject matter of bubbles is the expansion of money supply. The key outcome of this expansion is the emergence of non wealth generating activities.

It follows that a bubble is not about strong asset price increases but about the expansion of money supply. In fact, as we have seen, bubbles – i.e. an increase in money supply – can take place without a corresponding increase in prices. Once we have established that an expansion in money supply is what bubbles are all about, we can further infer that the key damage that bubbles generate is by setting non-productive activities, which we have labelled as bubble activities. Furthermore, once it is established that formation of bubbles is about the expansion in money supply, obviously it is the central bank and the fractional reserve banking that are responsible for the formation of bubbles. As a rule, it is the central bank’s monetary pumping that sets in motion an expansion in the monetary balloon.

Hence to prevent the emergence of bubbles one needs to arrest the monetary pumping by the central bank and to curtail the commercial banks’ ability to engage in fractional reserve banking – i.e. in lending out of “thin air”. Once the pace of monetary expansion slows down in response to a tighter central bank stance or in response to commercial banks slowing down on the expansion of lending out of “thin air” this sets in motion the bursting of the bubbles. Remember that a bubble activity cannot fund itself independently of the monetary expansion that diverts to them real wealth from wealth generating activities. (Again bubble activities are non-wealth generating activities).

The so-called economic recession associated with the burst of bubble activities is in fact good news for wealth generators since now more wealth is left at their disposal. (An economic bust, which weakens bubble activities, lays the foundation for a genuine economic growth). Note again that it is the expansion in the monetary balloon that gives rise to bubble activities and not a psychological disposition of individuals in the market place.

Psychology and economics

Psychology was smuggled into economics on the grounds that economics and psychology are inter-related disciplines. However, there is a distinct difference between economics and psychology. Psychology deals with the content of ends. Economics, however, starts with the premise that people are pursuing purposeful conduct. It doesn’t deal with the particular content of various ends.

According to Rothbard,

A man’s ends may be “egoistic” or “altruistic”, “refined” or “vulgar”. They may emphasize the enjoyment of “material goods” and comforts, or they may stress the ascetic life. Economics is not concerned with their content, and its laws apply regardless of the nature of these ends.[1]

Whereas,

Psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value?[2]

Therefore, economics deals with any given end and with the formal implications of the fact that men have ends and utilize means to attain these ends. Consequently, economics is a separate discipline from psychology. By introducing psychology into economics one obliterates the generality of the theory, and renders it useless. The
use of psychology is counterproductive as far as economic analyses are concerned.

Summary and conclusions

Contrary to Shiller, in order to establish that a bubble is forming we don’t need to apply the same methodology employed by psychologists. What we require is the establishment of a correct definition of what bubbles are all about. Once it is done, one discovers that bubbles have nothing to do with some kind psychological malfunction of individuals – they are the result of loose monetary policies of the central bank.

Furthermore, once we observe an increase in the rate of growth of money supply we can confidently say that this sets the platform for bubble activities – for an economic boom.

Conversely, once we observe a decline in the rate of growth of money supply we can confidently say that this lays the foundations for the burst of bubble activities – an economic bust.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UchWVH2Tcks/story01.htm Tyler Durden

It seems, as Jim Quinn notes, the 99% are not cooperating with the 1% plan for economic recovery. As Gallup reports, average Americans plan on spending 10% less for Christmas gifts this year than last year. Not only that, but they are spending 19% less than they spent in 2007 and 18% less than they spent in 1999. The average American is spending less because they have less as the talking heads on CNBC and the rest of the MSM tell me that things are great. Opening stores on Thanksgiving will not save anyone and perhaps more critically, the last 2 times the November forecast for holiday spending slumped – the US entered recession!

 

 

(h/t @Not_Jim_Cramer)

 

and Jim Quinn's Burning Platform take on this…

So the stock market is at new all-time highs. GDP is at an all-time high, well above 2007 levels. Unemployment has supposedly fallen from over 10% in 2009 to only 7.3% today. Corporate profits are at all time highs. Wall Street bonuses are at all-time highs. The talking heads on CNBC and the rest of the MSM tell me that things are great. Interest rates, at least for some people and banks, are at record lows. Bernanke pumps $2.5 billion of heroin into the veins of Wall Street on a daily basis.

 

So why so glum average Americans? It seems average Americans plan on spending 10% less for Christmas gifts this year than last year. Not only that, but they are spending 19% less than they spent in 2007 and 18% less than they spent in 1999. Didn’t you people get the message? Stop with the goddamn austerity, whip out that credit card, and buy Chinese shit you don’t need with money you don’t have. Don’t you realize Wall Street bankers and mega-retailer CEOs are depending on your recklessness materialism to generate their $7 million bonuses?

 

It seems the 99% are not cooperating with the 1% plan for economic recovery. Maybe they are little depressed because their health insurance policy just got cancelled and their new Obama policy is going to cost 40% more. Maybe it is the $1,000 less the average household has to spend this year versus last year because the 2% Social Security tax reduction expired. Maybe it is because they lost their $80,000 per year job at Merck and are now working at the Dunkin Donuts across the street for $9.00 per hour – but they get free donuts at the end of the shift. Maybe it’s the fact that the real median household income is 10% below the level of 1999.

 

You see, reality is a bitch. Your owners can prop up the stock market and spew propaganda on the corporate media outlets, but they can’t create wealth for you. The average American is spending less because they have less. It really is that simple. And the less they spend, the more retailers will suffer. The JC Pennys, Sears, Radioshacks, Barnes & Nobles, Best Buys and many more will be forced to shutter stores, fire employees and in some cases file bankruptcy. You can smell the desperation among the mega-retail conglomerates. They over-expanded based on the delusional belief that this credit based fantasy could go on forever. They will pay the price.

 

Opening stores on Thanksgiving will not save their sorry asses. They fucked up and they will pay the piper. It’s a zero sum game. The average American is running on empty. The Wall Street/Hamptons crowd can not sustain the nation with their extravagant spending. I love the smell of desperation in the morning. It smells like bankruptcy and disgrace for delusional retail CEOs.   

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/azgaFbxh1s0/story01.htm Tyler Durden

UPDATE: 23 minutes later – Self-Help is revoked…

Well that didn’t take long…

• *BATS OPTIONS DECLARES SELF-HELP AGAINST CBOE
• *CBOE: CT BC85 HAS BEEN SWITCHED TO ITS BACK-UP

But, as CNBC previously noted, we are getting used to these “broken markets” by now so it doesn’t matter…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/S8mX_DRWvLo/story01.htm Tyler Durden