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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Doug Noland
March 19, 2012
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For now, the markets are betting that no serious impediments exist to ongoing global central bank largess.  Here at home, the view is that Bernanke is steadfast and ingenious – one could argue covertly authoritarian - and that his critics remain powerless and out of mainstream economics.  After this week, the markets are only more emboldened that Chairman Bernanke is keen to intervene at the first sign of trouble.  Perhaps not within the voting ranks of FOMC, but the Federal Reserve system is both divided on policy and susceptible to harsh criticism.

At the ECB, President Draghi went to extraordinary lengths at his Thursday press conference to convince the world that the ECB and Bundesbank are on the same page.  This followed several reports that German central bankers have serious issues with measures taken by the Draghi ECB.  A letter questioning policy sent by Bundesbank President Jens Weidmann to Mr. Draghi was leaked to the press.   And former ECB board member Juergen Stark was quoted as saying, “The balance sheet of the euro system isn’t only gigantic in size but also shocking in quality.”  Despite the smiles and comforting words, Draghi and the Germans don’t see eye to eye – and the markets face the prospect of a much more constrained ECB.  For now, however, the markets are focused on the time bought with a Trillion plus of newly “minted” liquidity resting on the European banking system balance sheet.  I won’t be surprised that the ECB in hindsight regrets that it didn’t limit the scope of the LTROs, while wishing it had retained more firepower for later.  The European debt crisis certainly did not end with tiny Greece’s giant restructuring.

LTRO has not altered my view that the euro doesn’t make it.  Actually, it seems to me that $1.3 TN of additional bank liquidity has upped the ante.  If serious worries reemerge with respect to structural debt and economic problems in, say, Portugal, Spain or Italy, those banking systems may be viewed as only more vulnerable after boosting sovereign debt exposures.  LTRO may have goosed the markets, yet European economies continue to really struggle.  And after recent liquidity measures have run their course, for me it still comes back to the fundamental issue of how such divergent economic structures and sovereign nation states (that don’t seem to like each other and have demonstrated they don’t work well together) can share a common currency – i.e. how do the Spanish, Italians, French, Germans and others manage the myriad and complex political, economic, financial and monetary issues in support of a sound euro?

And if a weak euro lends support to a resurgent U.S. currency, what does this mean for global risk markets that over years have become reliant upon ongoing dollar devaluation?  Friday was notable for the dollar’s favorable response to strong payroll data.  Stock prices, for a change, were not bothered by dollar buoyancy.  Are stock prices “decoupling” from currency market worries?  Or was it more a case of the dollar gaining much of its headway against the euro and yen – with the favored “developing” and “commodities” currencies for the most part holding their own?  Is the U.S. economic expansion “decoupling” from a global slowdown?  I can’t help but to believe that the backdrop is nurturing fragilities – global market risk to a dollar rally; risk to another bout of faltering euro confidence; market vulnerability to a surprising jump in bond yields; risk to surging oil and gas prices; fragilities associated with a highly speculative U.S. stock market.  Truth be told, I guess I just don’t buy into the notion that unprecedented ongoing market intervention and egregious inflationism somehow avoid their comeuppance.  

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”  Do the Keynesians ever deeply, seriously contemplate perhaps Keynes’ greatest - and certainly most pertinent - monetary insight?