Paul Krugman Smackdown Watch: David Beckworth Says QE Is Effective

David Beckworth says that quantitative easing worked remarkably well in the Great Depression:

Macro and Other Market Musings: QE Has Worked Before: My Reply to Paul Krugman: QE has been done before in the United States and it worked incredibly well.  It was initiated in early 1934 when FDR and his treasury officials decided to (1) devalue the value of the dollar relative to gold and (2) quit sterilizing gold inflows.... [T]hat is exactly what was needed, a big permanent shock to inflation expectations that served to stop the deflationary spiral, end the liquidity trap, and allow a recovery in aggregate demand... backed up with significant and permanent increases in the monetary base over time: it went from about $8 billion right before the policy change to about $24 billion by the end of the 1930s.... FDR's QE was a smashing success when it came to shoring up aggregate spending. So those of us folks who want the Fed to increase and stabilize nominal GDP have a good reason to believe it is possible--it happened before.... QE worked  because it (i) it reshaped inflation expectations and (ii) was backed up with meaningful increases in the monetary base.  

The Fed is more than able to do the same today.  It certainly can reshape inflation expectations. Just look at what has happened to them over the last month or so when Fed officials started talking up QE2. The Fed would be far more effective, though, at shaping inflation expectations by explicitly committing to some nominal target.... The Fed, then, needs to (1) announce an explicit nominal [CPI or mnominal GDP] target and (2) say it will do whatever is necessary to hit it...

Bogus Hearings, Fictitious Court Proceedings

No, this isn’t another Fraudclosure case — it is about an action by the Pennsylvania Attorney General’s office against a debt collection company that used bogus “hearings” and fake “courtroom” in an attempt to mislead or fool consumers into believing they were in court:

“Attorney General Tom Corbett today announced that a consumer protection lawsuit has been filed against an Erie debt collection company accused of using deceptive tactics to mislead, confuse or coerce consumers – including the use of bogus “hearings” allegedly held in a company office that was decorated to look like a courtroom.

Corbett said the civil lawsuit was filed by the Attorney General’s Bureau of Consumer Protection against Unicredit America Inc., with corporate and business offices located at 1537 West 39th St., Erie, also identified as the “Unicredit Debt Resolution Center.”

“This is an unconscionable attempt to use fake court proceedings to deceive, mislead or frighten consumers into making payments or surrendering valuables to Unicredit without following lawful procedures for debt collection,” Corbett said. “Consumers also allegedly received dubious ‘hearing notices’ and letters – often hand-delivered by individuals who appear to be Sheriff Deputies – which implied they would be taken into custody by the Sheriff if they failed to appear at the phony court for ‘hearings’ or ‘depositions’.

According to the lawsuit, fictitious court proceedings were used to intimidate consumers into providing access to bank accounts, making immediate payments or surrendering vehicle titles and other assets – sometimes dispatching Unicredit employees to consumers’ homes in order to retrieve documents or have consumers sign payment agreements.

Corbett said Unicredit allegedly used civil subpoenas to summon consumers to an office in Erie, which included an area referred to by Unicredit employees as “the courtroom.”

The fake courtroom allegedly contained furniture and decorations similar to those used in actual court offices, including a raised “bench” area where a judge would be seated; two tables and chairs in front of the “bench” for attorneys and defendants; a simulated witness stand; seating for spectators; and legal books on bookshelves. During some proceedings, an individual dressed in black was seated where observers would expect to see a judge.”

The Attorney General’s Office is asking a judge to freeze the company’s assets and order it to cease operations.

Once again, I find myself pining away for jail time for the people involved . . .


Erie debt collection company sued; accused of using bogus “hearings” and fake “courtroom” to collect from consumers
Pennsylvania Office of Attorney General  
October 29, 2010

SUBPRIME BLANKENFEIN (Banzai7 Halloween Countdown Final Installment)

An assortment of images from the set of Young Blankenfein brought to you by the Banzai7 Film the music of The Edgar Winter Group.

















Yes, that is Young Ben













That's John Maynard Keynes, but who is the little twirp on the left?










Happy Hollow Balance Sheets!

and Trick or Cheats?


Get On Board With Mongolia Mining

The 3:00 am phone call was scratchy, broken, and barely intelligible. Would I be willing to accept a collect call from Ulan Bator, the capital of Mongolia? My man on the ground there was on the line with a stock idea that I absolutely had to get involved with. Mongolia Mining (975:HK) had just listed its shares on the Hong Kong Stock Exchange at $7, had already moved up to $8.30, and was headed for higher altitudes. 

Mongolian Mining is the country’s major producer of metallurgical coal, which it sells to neighboring China to stoke the insatiable demand of its steel mills. The deal came out at a rich 13.6 times 2011 forecast profits, and 9 times 2012 earnings. The issue was led by JP Morgan, lending it some extra credibility with wary foreign investors. It raised $700 million for the company, which plans to invest the funds in road and rail upgrades to its open pit at Ukhaa Khudag in Southern Mongolia.

This is expected to take output from 1.8 metric tonnes in 2009 to 15 million tonnes by 2013. Mongolia has a major price and shipping advantage over existing suppliers of coking coal in the US and Australia, so the Middle Kingdom is expected to take everything Mongolia Mining can produce.

I have written extensively about Mongolia in the past as one of the one great “pre-emerging” markets now coming on to the scene (click here for “I Told You to Buy Mongolia!” at ). Until now, investors have been limited to indirect plays, like Ivanhoe Mines (IVN) and Rio Tinto (RTP).

The great thing about Mongolian Mines is that being a local company with substantial government ownership, it will get first priority of essential licenses, permits, and approvals, putting it at the head of the queue, in front of foreign competitors. In developing economies, who you know is often more important than what you know.

I keep hearing things that are incredibly bullish for Mongolia. It has the world’s biggest unexploited coal reserves and the richest untapped copper deposit. It is poised to become the fifth leading gold producer. It has large latent oil fields in the south, which begin production next year. And it has the world’s largest customer sitting on its doorstep. With emerging markets, natural resources, and hard assets definitely the flavor of the decade, there is an easy double in Mongolia Mines --once this market picks up a head of steam.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

The Market Ticker – Beware The Eurozone….

In an interesting piece AEP opines....

Bondholders will discover burden-sharing. Debt relief will be enforced, either by interest holidays or haircuts on the value of the bonds. Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk.

Really?  We shall see.  I know, I know, there's going to be some sort of "Cramdown" in the EU Treaties through Article 48.  So it is claimed.  Let's see it happen first.

Mrs Merkel needs a treaty change to prevent the German constitutional court from blocking the bail-out fund as a breach of the EU law, and a treaty change is what she will get. This will strengthen my position with the Karlsruhe court, she admitted openly.

Ah, but is it enough?  I'm not yet convinced.  It may well be, but let's see the proof in the pudding before we go jumping to conclusions.

One might argue that bondholders should have been punished for their errors long ago. The stench of moral hazard has been sickening, on both sides of the Atlantic. An orderly bankruptcy along lines routinely engineered by the International Monetary Fund is exactly what Greece needs. It makes no sense to push Greece further into a debt compound spiral by raising public debt from 115pc of GDP at the outset of the rescue to 150pc at the end of the ordeal.

Well yeah.  So when does it happen?  And why do you think it will happen now?

Yet opening the door to bondholder haircuts at this delicate juncture -- with spreads reaching fresh records in Ireland last week, and Portugal struggling to pass a budget is to toss a hand-grenade into the eurozone periphery.

We now know that that ECBs Jean-Claude Trichet warned EU leaders on Thursday night that it was dangerous to stir up this hornets nest, and moreover that the politicians did not understand what they were unleashing. He was slammed down acrimoniously by French President Nicholas Sarkozy, who later denied that he lost his temper.

Ah, so now China stepping in to talk to Greece - and others - about buying their debt might be some sort of.... engineered "solution"?  What does China get in return for their "graciousness", if they could be exposed to haircuts?  Do you really think this is simply "an investment" decision to buy said bonds?

Neither do I.

Local banks have stepped into the breach, borrowing cheaply from the ECB to buy their own state debt at higher yields in a `carry trade that concentrates risk. These four countries account for the lions share of the 448bn in ECB funding for banks (Spain 98bn, Greece 94bn). Frankfurt is propping up this unstable edifice. Mr Trichet may well fret.

There's nothing like a Carry Trade within one's own borders.  Oh wait - we're doing that too, aren't we?  Uh, Primary Dealers borrowing from The Fed at 1/4% and then buying our bond issues at 2.5 or 3.5%.  Yeah, that kinda looks like a carry too, doesn't it?  And it makes for an interesting discussion as to exactly how and when one can unwind said "extremely low rates for an extended period" language without detonating all the banks instantly, doesn't it?


It’s Time to Punch China in the Face

On October 16th, I recommended the punch-in-the-face strategy:

“Personally, I would just punch China directly in the face rather than spray the whole world with QE2 monetary shrapnel as the Obama Administration’s ‘dirty bomb’ strategy is doing right now.”

But Jim Rodgers disagrees. At the 2:21 mark of the video below he says:

“Any time you bash somebody in the face, they’re gunna say, wait a minute, I’ve got to protect my face, I’ve got to protect myself. So, sitting here and hitting the Chinese over the head is not going to do much good. It’s just going to make things worse. I would stay out of the way if I were the US in this case.

“Stay out of the way?” Are you kidding me? Rodgers acts like it’s none of our business. What about our quarter-trillion dollar trade deficit with China, Mr. Rodgers? Is that our business?

If you keep watching the video, you will see that Rodgers is one of those globalists who warns of the dire consequences of protectionism – but only American protectionism. When the Chinese do it, it’s just fine, and none of our business.

Note to Rodgers: China’s currency peg is a protectionist blanket that automatically raises the prices for all US exports to China. Stop apologizing for it.

In July 1994, the Clinton Administration cited China as a currency manipulator. That was only six months after Beijing adopted the peg. We have been diplomatically expressing our displeasure for 16 years. That’s why we have to punch them in the face. Rodgers would have us kowtow for another 16 years, “bow-tie” style.

We also need to punish China for their rare-earth mineral embargo, which was extremely rude behavior here in our globalist utopia. So, I have come up with a clever punishment: a naval blockade of Iran.

Now that the Democrats are poised to lose control of Congress, President Obama will have to turn to the foreign-policy arena to do “presidential stuff”. George Friedman thinks that Iran presents the best way for Obama to score political points, and Iran is a top supplier of oil to China.

So, a naval blockade of Iran would pinch China’s energy supplies, and Obama could act as if it were an unintended consequence. If the tankers bound for Japan were somehow able to sneak through the blockade, then a message would be sent to China: You may want to reconsider your commitment to living by the mercantilist sword because we have swords of our own.

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