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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
July 14, 2010
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In a CNBC interview earlier in the week, New York Governor Patterson rose above the economics profession with his comment that the problem was “An Unavailability of Spending Crisis.”  It’s not that politicians wouldn’t prefer to stimulate; it’s that they increasingly fear they are losing the capacity to pile on more debt.  Officials recognize that they risk destroying their state’s (or city’s, county’s, nation’s) creditworthiness.  Dr. Bernanke has often referred to the role that a shortage of money played in exacerbating the Great Depression.  He argues that this dearth of money was primarily a post-Bubble policy blunder.  I would counter that a runaway (“Roaring Twenties”) Credit Bubble ensured a post-Bubble money and Credit crisis of confidence.

These days, markets have begun to protest ever expanding debt levels, and investors/speculators will now demand additional returns to compensate for heightened risk.  They’ll want more liquidity.  In a sign of today’s changed environment, ballooning government deficits may very well lead to rising risk premiums on debt throughout the system.  And higher borrowing costs, as Greece can attest, can radically alter a borrower’s risk and solvency profile.  And - especially in speculative, trend-following markets - faltering debt values tend to set in motion an exodus from those instruments, resulting in illiquidity and market dislocation.  At this point, the best policymakers can do is to focus on the longer term and endeavor to enact economic policy that will over time support our debt load – rather than further expand and impair it.

In the markets, financial conditions continue to tighten, although this flies in the face of conventional thinking that near-zero Fed funds and ultra-low Treasury yields equate to “easy money.”  Risk aversion is increasingly entrenched, which ensures that “money” is becoming a lot less easy to come by.  In particular, the leveraged players continue to be stung – hurt by faltering global risk markets, illiquidity, and acute instability throughout. 

And with policymakers – fiscal and monetary – at this point largely hamstrung, one is hard-pressed to fashion a scenario where the leveraged players are anytime soon incited into re-risking and re-leveraging.  Over the past couple of months, the speculator community has gone from playing government-induced  reflation for all it’s worth - to wishing they could somehow unwind long positions and perhaps even go short.  When the markets’ marginal source of liquidity is in the process of changing from leveraged long to bearishly short, the marketplace faces a period of tough conditions.