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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
September 16, 2010
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While European problems are anything but resolved, the market has become much more focused on dollar vulnerability.  Talk of QE2, additional fiscal stimulus in the face of massive deficits, and June’s nearly $50bn trade shortfall worked to reenergize the dollar bears.  And renewed dollar weakness – and seemingly endless outflows of dollar liquidity – coincided with a big increase in foreign reserves held in custody at the NY Fed (foreign central banks lapping up excess dollar liquidity).  These holdings increased a remarkable $145bn in only 13 weeks to a record $3.221 Trillion.  It is worth noting that International Reserve Assets (as reported by Bloomberg) are up an incredible $940bn year-to-date to $8.572 Trillion.

I still believe the Greek debt crisis will be viewed as an important infection point with regard to market perceptions of structural debt issues.  At the same time, it is also clear that the backdrop has been extraordinarily supportive of Bubble Dynamics. 

Of course, skyrocketing bond prices have given rise to fundamental justification.  Interminable deflation risk is at the top of the list of why bond returns will indefinitely outperform cash.  I am reminded of how technology stocks and home prices were only to go higher.  My analytical framework downplays deflation and focuses instead on a debt Bubble fueled by the Federal Reserve, The People’s Bank of China, the ECB, BOJ, and the approaching one Trillion y-t-d increase in global central bank reserves.  Throw in hedge fund/speculator leveraging and the billions flowing weekly (in search of any yield) into global fixed income and one sees all the necessary financing for a historic Bubble. 

Developments and dynamics over the past couple of months have provided important confirmation for the Global Government Finance Bubble thesis.  At the same time, there are numerous fault lines.  Stress has reemerged in European debt markets, with yields rising notably in Greece, Portugal and Ireland.  Here at home, stress continues to build in municipal finance.  To what extent – and for how long – Global Government Finance Bubble Dynamics and attendant liquidity/speculative excesses mitigate some of these crisis points is an open question.