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This morning, as part of the US Treasury's report on global currencies, Secretary Lew made the following remark:

• *LEW SAYS JAPAN 'APPEARS TO BE TURNING AN ECONOMIC CORNER'

Which got us thinking… when have we heard the US Treasury say exactly the same thing… (for exactly the same "policy-based" reason)…

 

The answer is 10 years ago!

None other than then-Under-Treasury-Secretary John Taylor explained how "Japan has turned the corner"

John Taylor, U. S. Under Secretary of the Treasury for International Affairs, praised the spirit of cooperation–"especially financial cooperation"–between Japan and the United States. He also noted that the recent positive economic data presages Japan's return to economic health.

 

Why is he optimistic about the data now, after so many false positives in the past decade? For Dr. Taylor, the most important reason is the change in monetary policy. When the Bank of Japan announced, in March 2001, its intention to increase the money supply until inflation was greater than or equal to 0 percent, Japan's prolonged period of deflation began to be tempered, as the monetary base grew 68 percent, or 22 percent compounded annually. Said Dr. Taylor: "It is still too early to declare victory over deflation, but it's the right direction."

 

Dr. Taylor is also optimistic about the pace of reform in the banking and corporate sectors. He cited Resona Holdings and Ashikaga Bank as positive examples of effective resolution. He praised the measures put in place to value and capitalize bank loans. "Regulators and auditors will not go easy [on the banks]," he asserted. Moreover, on the corporate side, balance sheets seem better, debt ratios have come down, costs have been cut, margins have improved, and some corporate governance concerns have also improved, he said.
 
A third reason for Dr. Taylor's optimism is the shift in growth towards the private sector on the macro-economic side. Public sector capital expenditures are negative, in contrast to the stimulant infusion of $1 trillion from 1992 to 2000. Dr. Taylor summarized the lesson learned from Japan's public spending strategy: "It didn't work. This is a problem with old-fashioned Keynesian economics."

 

Dr. Taylor acknowledged that some structural issues in Japan's economy have yet to be resolved. He said Japan still relies too much on exports for growth, although he noted with satisfaction how deregulation initiatives had taken root in certain sectors, like cell phones and retailing, thus adding to domestic investment and consumption.

 

He also lamented that deregulation had not necessarily led to a culture of risk taking: "Entrepreneurship statistics are still low. NPLs (non-performing loans) are still a problem. People think [NPL resolution] could be done faster."

 

Finally, he noted there are still fiscal problems from the era of public spending. Here, Dr. Taylor praised Prime Minister Koizumi for "shepherding" Japan's change in thinking and expressed optimism for the future: "We see a hell of a debate on fiscal policy, pensions and aging; and based on these changes, a fiscal consolidation seems able to be brought about."

 

What effect do you think stronger growth in Japan will have on the U.S. current account deficit?

 

Dr. Taylor said it would generate more exports from the U.S. "We have stressed more growth in Japan–and also Europe." This would reduce the U.S. current account, because the imbalance of savings and investment would be redressed "largely through supply side measures," he explained.

 

Japan has a target for monthly purchases of JGBs [Japanese government bonds[–1.2 trillion–as part of the quantitative easing policy, but it exactly matches the amount maturing. Might it be useful to have a net target?

 

Yes, because purchases of assets add to liquidity and increases the monetary base, replied Dr. Taylor. Although there are still difficulties getting the base translated into broader aggregate increases, it is still the best focus, he asserted.

 

Investments in repos–are those effective?

 

Dr. Taylor said repos were effective as a first step. "Of course, different types of purchases have different types of impact. This is not a one-month operation. The best measure seems to be base."

 

Why is there so much focus on base money? The base money is up 61 percent, but M3 is up single digits over the same time frame. How can the transfer mechanism be improved? 

 

"It will take time, but base growth will get translated (M2+CD) into higher aggregates… You are seeing deflation turning around, even if you don't think the rates will exceed 0 percent over the next few months." Dr. Taylor said his expectations were validated by the U.S. experience in the 1930s and Sweden's experience in the 1980s.

 

The Bank of Japan seems to be becoming complacent and to have declared victory too early. Are you concerned?

 

Dr. Taylor reported good communication with the Bank of Japan and ongoing willingness to stick to their policy. "Markets expect to see 0 percent rates for awhile, even after deflation has substantially gone away," he cautioned.

 

As an economist, do you believe central bank purchases of foreign assets are an effective base money stimulus?

 

"Yes, it's the sum of assets, not the mixture," Dr. Taylor replied.

 

Fiscal stimulus didn't work in the U.S. What's your interpretation?

 

Public works spending is very different from tax reduction regimes; the latter brings more powerful effects, especially if they are permanent, because they create an expectation of a lower tax bill, said Dr. Taylor. He said that he and other economic advisers worked with President Bush during the 2000 campaign on changing the tax rates, especially marginal rates. That marginal tax cut was very timely and made the recession a lot less severe, he asserted.

So ten years later – nothing has been learned… nothing has changed… and the exact same indicators of a "turnaround" then (that was shown to be a total and utter failure) are once again put forward as evidence that the "turnaround" is here again…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/MYExLdYd7Rw/story01.htm Tyler Durden

This morning, as part of the US Treasury's report on global currencies, Secretary Lew made the following remark:

• *LEW SAYS JAPAN 'APPEARS TO BE TURNING AN ECONOMIC CORNER'

Which got us thinking… when have we heard the US Treasury say exactly the same thing… (for exactly the same "policy-based" reason)…

 

The answer is 10 years ago!

None other than then-Under-Treasury-Secretary John Taylor explained how "Japan has turned the corner"

John Taylor, U. S. Under Secretary of the Treasury for International Affairs, praised the spirit of cooperation–"especially financial cooperation"–between Japan and the United States. He also noted that the recent positive economic data presages Japan's return to economic health.

 

Why is he optimistic about the data now, after so many false positives in the past decade? For Dr. Taylor, the most important reason is the change in monetary policy. When the Bank of Japan announced, in March 2001, its intention to increase the money supply until inflation was greater than or equal to 0 percent, Japan's prolonged period of deflation began to be tempered, as the monetary base grew 68 percent, or 22 percent compounded annually. Said Dr. Taylor: "It is still too early to declare victory over deflation, but it's the right direction."

 

Dr. Taylor is also optimistic about the pace of reform in the banking and corporate sectors. He cited Resona Holdings and Ashikaga Bank as positive examples of effective resolution. He praised the measures put in place to value and capitalize bank loans. "Regulators and auditors will not go easy [on the banks]," he asserted. Moreover, on the corporate side, balance sheets seem better, debt ratios have come down, costs have been cut, margins have improved, and some corporate governance concerns have also improved, he said.
 
A third reason for Dr. Taylor's optimism is the shift in growth towards the private sector on the macro-economic side. Public sector capital expenditures are negative, in contrast to the stimulant infusion of $1 trillion from 1992 to 2000. Dr. Taylor summarized the lesson learned from Japan's public spending strategy: "It didn't work. This is a problem with old-fashioned Keynesian economics."

 

Dr. Taylor acknowledged that some structural issues in Japan's economy have yet to be resolved. He said Japan still relies too much on exports for growth, although he noted with satisfaction how deregulation initiatives had taken root in certain sectors, like cell phones and retailing, thus adding to domestic investment and consumption.

 

He also lamented that deregulation had not necessarily led to a culture of risk taking: "Entrepreneurship statistics are still low. NPLs (non-performing loans) are still a problem. People think [NPL resolution] could be done faster."

 

Finally, he noted there are still fiscal problems from the era of public spending. Here, Dr. Taylor praised Prime Minister Koizumi for "shepherding" Japan's change in thinking and expressed optimism for the future: "We see a hell of a debate on fiscal policy, pensions and aging; and based on these changes, a fiscal consolidation seems able to be brought about."

 

What effect do you think stronger growth in Japan will have on the U.S. current account deficit?

 

Dr. Taylor said it would generate more exports from the U.S. "We have stressed more growth in Japan–and also Europe." This would reduce the U.S. current account, because the imbalance of savings and investment would be redressed "largely through supply side measures," he explained.

 

Japan has a target for monthly purchases of JGBs [Japanese government bonds[–1.2 trillion–as part of the quantitative easing policy, but it exactly matches the amount maturing. Might it be useful to have a net target?

 

Yes, because purchases of assets add to liquidity and increases the monetary base, replied Dr. Taylor. Although there are still difficulties getting the base translated into broader aggregate increases, it is still the best focus, he asserted.

 

Investments in repos–are those effective?

 

Dr. Taylor said repos were effective as a first step. "Of course, different types of purchases have different types of impact. This is not a one-month operation. The best measure seems to be base."

 

Why is there so much focus on base money? The base money is up 61 percent, but M3 is up single digits over the same time frame. How can the transfer mechanism be improved? 

 

"It will take time, but base growth will get translated (M2+CD) into higher aggregates… You are seeing deflation turning around, even if you don't think the rates will exceed 0 percent over the next few months." Dr. Taylor said his expectations were validated by the U.S. experience in the 1930s and Sweden's experience in the 1980s.

 

The Bank of Japan seems to be becoming complacent and to have declared victory too early. Are you concerned?

 

Dr. Taylor reported good communication with the Bank of Japan and ongoing willingness to stick to their policy. "Markets expect to see 0 percent rates for awhile, even after deflation has substantially gone away," he cautioned.

 

As an economist, do you believe central bank purchases of foreign assets are an effective base money stimulus?

 

"Yes, it's the sum of assets, not the mixture," Dr. Taylor replied.

 

Fiscal stimulus didn't work in the U.S. What's your interpretation?

 

Public works spending is very different from tax reduction regimes; the latter brings more powerful effects, especially if they are permanent, because they create an expectation of a lower tax bill, said Dr. Taylor. He said that he and other economic advisers worked with President Bush during the 2000 campaign on changing the tax rates, especially marginal rates. That marginal tax cut was very timely and made the recession a lot less severe, he asserted.

So ten years later – nothing has been learned… nothing has changed… and the exact same indicators of a "turnaround" then (that was shown to be a total and utter failure) are once again put forward as evidence that the "turnaround" is here again…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/MYExLdYd7Rw/story01.htm Tyler Durden

Via Paul Singer of Elliott Management,

In the U.S., states cannot file for bankruptcy. Cities can, however, and there is a special provision in federal bankruptcy law reserved for cities. Furthermore, unlike countries, states and cities cannot print their own currency. When they overspend or overpromise, they beg for money from the federal government (or state government, in the case of cities), reduce their spending and/or default on their obligations. When the cash register is empty, it is lights out – literally. By contrast, the ability to print money allows countries to get away with long-term insolvency (at least until markets wake up and force them to restructure their obligations).

What is happening in Detroit – a combination of poor and corrupt civic leadership, shortsighted business leaders and overreaching labor unions – is interesting because it was 40 years in the making, but just months in the denouement. It turns out that Chapter 9 of the Bankruptcy Code gives judges tremendous leeway to chop obligations quickly and severely, regardless of the expectations of pension-holders and bondholders.

We see Detroit as the “coming attraction” to a significant number of municipal insolvencies in the months and years to come. Perhaps the pain of the restructurings will improve the behavior of city governments, labor groups and businesses, and perhaps it won’t.

But there is no question that this episode is a precursor to what will happen on the federal level as national promises prove to be empty.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Po2E8yxhwrM/story01.htm Tyler Durden

Via Paul Singer of Elliott Management,

In the U.S., states cannot file for bankruptcy. Cities can, however, and there is a special provision in federal bankruptcy law reserved for cities. Furthermore, unlike countries, states and cities cannot print their own currency. When they overspend or overpromise, they beg for money from the federal government (or state government, in the case of cities), reduce their spending and/or default on their obligations. When the cash register is empty, it is lights out – literally. By contrast, the ability to print money allows countries to get away with long-term insolvency (at least until markets wake up and force them to restructure their obligations).

What is happening in Detroit – a combination of poor and corrupt civic leadership, shortsighted business leaders and overreaching labor unions – is interesting because it was 40 years in the making, but just months in the denouement. It turns out that Chapter 9 of the Bankruptcy Code gives judges tremendous leeway to chop obligations quickly and severely, regardless of the expectations of pension-holders and bondholders.

We see Detroit as the “coming attraction” to a significant number of municipal insolvencies in the months and years to come. Perhaps the pain of the restructurings will improve the behavior of city governments, labor groups and businesses, and perhaps it won’t.

But there is no question that this episode is a precursor to what will happen on the federal level as national promises prove to be empty.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Po2E8yxhwrM/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

Do you remember the $700 billion bailout of the financial system in 2008?

It seems these days that most investors do not. People are partying like it’s 1929… as if all the issues and challenges that plagued the banking sector just a few years ago have miraculously vanished.

This thinking is absurd, and even a casual glance at the balance sheets of so many banks in the West shows objectively that the entire system is still precariously leveraged, undercapitalized, and illiquid.

In the wake of the bailout, Congress created a special position to oversee how the funds were spent. Like anything else in government, they used an unnecessarily long name followed by a catchy acronym –

Special Inspector General for the Troubled Asset Relief Program, or SIGTARP.

(The first SIGTARP was a former federal prosecutor who had previously indicted 50 leaders of the Revolutionary Armed Forces of Colombia… just the right man to keep a watchful eye on bankers.)

SIGTARP just released its quarterly report to Congress… and it’s scatching, suggesting that “the toxic corporate culture that led up to the crisis and TARP has not sufficiently changed.”

There are some real zingers in the 518 page report, including:

• “[F]raudulent bankers. . . sought TARP bailout dollars to have taxpayers fill in the holes on their fraud-riddled books.”

• “Some bankers cultivated a culture of self dealing, criminally concealing that the bank was funding their luxury lifestyles, believing they were entitled to the finest money could buy. . .”

• “They were trusted to exercise good judgment and make sound decisions. However, they abused that trust. Many times they abused that trust for their own personal benefit.”

Moreover, the report calls into question the Treasury Department’s administration of the bailout.

For example, many banks have been delinquent in making TARP payments, or payments to one of TARP’s sub-programs.

Yet while many banks are delinquent by 1-2 quarters, according to the report, roughly 3% of the banks who received funds under the Community Development Capital Initiative are more than –two years– behind in their payments.

Yet the Treasury Department has done nothing to enforce terms on behalf of taxpayers.

Most alarmingly, though, the report throws a giant red flag on the Treasury Department’s deceit.

In 2011, the report states, 137 banks took in billions of dollars of funding from the Treasury under the Small Business Lending Fund (SBLF). They then used those funds to repay their TARP loans.

In other words, they repaid taxpayer money with more taxpayer money.

But the Treasury Department still reported that TARP was being repaid, suggesting in a May 2013 press release: “Taxpayers have already earned a significant profit from TARP’s bank programs.”

Total BS, says the report.

SIGTARP writes that “Treasury should not. . . call these funds “repayments” or “recoveries”. Treasury owes taxpayers fundamental, clear, and accurate transparency and reporting on monies actually repaid.”

Something tells me this woman isn’t going to have a particularly long career in government.

And given the Obama’s administration’s track record against whistleblowers, SIGTARP had better start booking her flight to Moscow. Or better yet, marry a Brazilian.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/x7Cw26UciY8/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

Do you remember the $700 billion bailout of the financial system in 2008?

It seems these days that most investors do not. People are partying like it’s 1929… as if all the issues and challenges that plagued the banking sector just a few years ago have miraculously vanished.

This thinking is absurd, and even a casual glance at the balance sheets of so many banks in the West shows objectively that the entire system is still precariously leveraged, undercapitalized, and illiquid.

In the wake of the bailout, Congress created a special position to oversee how the funds were spent. Like anything else in government, they used an unnecessarily long name followed by a catchy acronym –

Special Inspector General for the Troubled Asset Relief Program, or SIGTARP.

(The first SIGTARP was a former federal prosecutor who had previously indicted 50 leaders of the Revolutionary Armed Forces of Colombia… just the right man to keep a watchful eye on bankers.)

SIGTARP just released its quarterly report to Congress… and it’s scatching, suggesting that “the toxic corporate culture that led up to the crisis and TARP has not sufficiently changed.”

There are some real zingers in the 518 page report, including:

• “[F]raudulent bankers. . . sought TARP bailout dollars to have taxpayers fill in the holes on their fraud-riddled books.”

• “Some bankers cultivated a culture of self dealing, criminally concealing that the bank was funding their luxury lifestyles, believing they were entitled to the finest money could buy. . .”

• “They were trusted to exercise good judgment and make sound decisions. However, they abused that trust. Many times they abused that trust for their own personal benefit.”

Moreover, the report calls into question the Treasury Department’s administration of the bailout.

For example, many banks have been delinquent in making TARP payments, or payments to one of TARP’s sub-programs.

Yet while many banks are delinquent by 1-2 quarters, according to the report, roughly 3% of the banks who received funds under the Community Development Capital Initiative are more than –two years– behind in their payments.

Yet the Treasury Department has done nothing to enforce terms on behalf of taxpayers.

Most alarmingly, though, the report throws a giant red flag on the Treasury Department’s deceit.

In 2011, the report states, 137 banks took in billions of dollars of funding from the Treasury under the Small Business Lending Fund (SBLF). They then used those funds to repay their TARP loans.

In other words, they repaid taxpayer money with more taxpayer money.

But the Treasury Department still reported that TARP was being repaid, suggesting in a May 2013 press release: “Taxpayers have already earned a significant profit from TARP’s bank programs.”

Total BS, says the report.

SIGTARP writes that “Treasury should not. . . call these funds “repayments” or “recoveries”. Treasury owes taxpayers fundamental, clear, and accurate transparency and reporting on monies actually repaid.”

Something tells me this woman isn’t going to have a particularly long career in government.

And given the Obama’s administration’s track record against whistleblowers, SIGTARP had better start booking her flight to Moscow. Or better yet, marry a Brazilian.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/x7Cw26UciY8/story01.htm Tyler Durden

BofAML’s NacNeill Curry remains bullish gold. He notes the impulsive gains from the 1251 low of Oct-15 and break of the 2-month downtrend (confirmed on the break of 1330) imply the medium-term trend has turned bullish. We look for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long-term resistance. Curry suggests traders buy this dip at around 1310 – warning that this view is nagated with a break below 1251. For those awaiting, a break of 1375 (Sep-19 high and right shoulder off a multi-month Head and Shoulders Top) is additional confirmation of the trend turn.

Buy Spot Gold at 1310, risking 1250, targeting 1450, potentially beyond

And beware, he notes, the S&P 500 is “ripe for near term stalling”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/A7I83qkv1ak/story01.htm Tyler Durden

BofAML’s NacNeill Curry remains bullish gold. He notes the impulsive gains from the 1251 low of Oct-15 and break of the 2-month downtrend (confirmed on the break of 1330) imply the medium-term trend has turned bullish. We look for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long-term resistance. Curry suggests traders buy this dip at around 1310 – warning that this view is nagated with a break below 1251. For those awaiting, a break of 1375 (Sep-19 high and right shoulder off a multi-month Head and Shoulders Top) is additional confirmation of the trend turn.

Buy Spot Gold at 1310, risking 1250, targeting 1450, potentially beyond

And beware, he notes, the S&P 500 is “ripe for near term stalling”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/A7I83qkv1ak/story01.htm Tyler Durden

Just a few weeks ago, President Obama (and his right hand men in the Treasury) issued what was about as explicit a “sell” signal on US equities as is possible. His goal was to ‘scare’ congress into action on the back of an equity market collapse… of course, the Republicans folded with no such collapse in stocks (though bonds did implode). Today, following his “Buy Obamacare” pitch yesterday, the President delivers remarks to the SelectUSA Investment Summit – we assume his message will be BTFATH…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Bx92YjIQVGQ/story01.htm Tyler Durden

Just a few weeks ago, President Obama (and his right hand men in the Treasury) issued what was about as explicit a “sell” signal on US equities as is possible. His goal was to ‘scare’ congress into action on the back of an equity market collapse… of course, the Republicans folded with no such collapse in stocks (though bonds did implode). Today, following his “Buy Obamacare” pitch yesterday, the President delivers remarks to the SelectUSA Investment Summit – we assume his message will be BTFATH…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Bx92YjIQVGQ/story01.htm Tyler Durden