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Posts Tagged ‘financial crisis’

There’s a good piece on Seeking Alpha today on the prospects for global commodity appreciation if and when the Chinese Yuan starts appreciation vs. the US dollar.

At the same time, there’s also a sentiment of unease about inflation given the amount of new currency created in the wake of the financial crisis but it puzzles some that this hasn’t kicked in yet. Also from Seeking Alpha:

Logic dictates that we should all be gearing up for inflation, now, but the data does not lie and I can pull the most aggressive data I want and it shows ultra low inflation rates, which is scary, frankly. With the massive printing and monetization of debt that we have seen over the past 2 years, we should see some inflationary pressure, somewhere, but nothing.

There’s already an obvious relation between the two ideas, but we might have to rely on Kedrosky to hammer the point. In order to keep the Yuan stable, China has been buying greater and greater amounts of US Dollars over the years.

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Ergo: the biggest reason why inflation hasn’t hit, is because all the new dollars are in China.

Ergo: if the Yuan appreciates, dollar drops, inflation hits, interest rates rise,

recession worsens??

Wait, I thought the Yuan thing was supposed to be a good thing?

“Sent from my BlackBerry® wireless handheld”

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On MarketWatch, an interesting recap of Alan Greenspan’s testimony regarding the financial crisis:

NEW YORK (MarketWatch) — In one of the most dramatic moments in the global financial crisis, former Federal Reserve Chairman Alan Greenspan testified before Congress in October 2008, just weeks after the collapse of Lehman Brothers spread fear and panic around the world.

Rep. Henry Waxman (D-Calif.) bluntly asked him, “Were you wrong?”

“Partially,” replied the humbled Greenspan, who once sat at the commanding heights of the world’s economy.

Read the rest of the account here.

We were witness to this fateful testimony before and with interesting discussion as well. Just as the exercise of juxtaposing Greenspan’s execution against the tenets of Ayn Rand’s Objectivist philosophy. Hubris is a virtue to Objectivists, arguably the same hubris that brings us ever closer to the brink with every new crisis.

“Sent from my BlackBerry® wireless handheld”

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British Prime Minister Gordon Brown outlined the reforms that the largest world economies agreed to in the G20 summit. The call is for greater global economic cooperation to self-regulate and to prevent banking excesses from happening again.

Has history finally changed us for the better?

Some of the reforms mentioned by Gordon Brown:

  • New reforms of the global banking system, including institutions such as hedge funds, and other parts of the so-called “shadow banking system” coming under global regulatory control for the first time
  • Tighter regulation for credit rating agencies, to prevent conflicts of interest
  • A list of tax havens to be published immediately, and sanctions to be deployed against countries that do not comply with anti-secrecy regulations
  • Completion of the creation of international colleges of supervisors for national regulators
  • An agreement to do whatever is necessary to promote growth in individual countries, allowing for the possibility of the further use of fiscal stimuli in the future
  • The injection of an additional $1tn into the global economy through measures including a $500bn increase in the funding available to the IMF, an increase in the availability of money for developing countries through the IMF’s “special drawing rights” to $250bn and a total of $250bn being set aside for trade assistance
  • Reform of institutions such as the IMF to allow countries like China to have greater influence. Senior posts at the IMF and the World Bank will open to candidates from the developing world.
  • Renewed commitment to the millennium development goals.
  • $50bn for the world’s poorest countries.

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Stagflation is an economic phenomenon characterized by slowing economic growth and rising inflation. It is an interesting economic problem since the traditional medicine for inflation–rising interest rates–is what chokes off economic growth, thereby aggravating stagflation.

In the aftermath of the global credit crisis following the crash of the housing market, interest rates have fallen dramatically as central banks throughout the world have pumped liquidity into the system by bailing out troubled financial institutions.

However, with excessive liquidity comes inflationary fears as excess money supply will generally increase market prices (Zimbabwe being an extreme case). As inflationary fears increase, central banks will eventually be constrained to raise rates to contain inflation, which might be too soon to allow the world economies to recover–thereby creating: stagflation.

In the following clips, two notable industrialists: Richard Branson of the Virgin Group and financier George Soros share their thoughts on stagflation.

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Here is a collection of 2004 statements of impassioned defense of the mortgage institutions Fannie Mae and Freddie Mac, and how the Democrats downplayed any notion of crisis.

Notable is 6:05: Democrat Barney Frank, whom we’ve seen in recent news actively involved in the bailout of failed banks and mortage institutions, brushing off any idea of impending danger back in 2004:

But I have seen nothing in here that suggests that the safety and soundness is an issue, and I think it serves us badly to raise safety and soundness as a kind of general shibboleth when it does not seem to be an issue.

- Barney Frank

Flash forward in 2008, Frank is blasted on O’Reilly for his continued denial of responsibility in this crisis. Check out 0:58 where Frank states something that contradicts his original stance in 2004:

I’ve always felt two things about Fannie Mae and Freddie Mac, that they had an important role to play but that the regulations should be improved. Now from 1995 to 2006 when the Republicans controlled Congress and we were in the minority we couldn’t get that done.

- Barney Frank

I would say shouting and screaming are hardly hallmarks of critical thinking and discourse, however it’s useful taking O’Reilly’s accusations in the context of 2004. If anything, O’Reilly is playing out is role as the sensational voice of outrage in this mess.

Hindsight 20/20.

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Ever hear how “no one saw this crisis coming”?

A Fox-News report in September 2008 shows that as far back as 2002, members of the Bush administration as well as Republican senators were raising red-flags on the potential regulatory problems in Fannie Mae and Freddie Mac with threat of serious repercussions to the financial markets.

Hindsight is 20/20, but the irony we see in our backvision is chilling.

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In the wake of the 1929 stock market crash, economist professor Irving Fischer explains how the crash was precipitated by excessive speculation using borrowed funds.

His lesson: don’t buy stocks with borrowed money.

Did anyone listen?

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