Sunday, November 7, 2010
Friday, October 29, 2010
The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications.
Friday, September 17, 2010
Tuesday, May 18, 2010
I respect Hudson and find his article fascinating. People are listening to him in some high quarters these days and I am glad of it.
On May 10, Real Clear Markets - a hot source for up-to-the-minute financial opinion - picked up his piece on the need to protect whistleblowers from The Big Money. And here the Financial Times gives 15 references to Hudson that have appeared in that paper, including two op ed pieces this year about Eastern Europe and Iceland.
And here is Hudson's March 2009 piece on the AIG bailout from Counterpunch.
Below is a ten minute interview taped in London in 2009 wherein Hudson compares the absurdity of modern debt-creation finance with the common sense of debt-limiting traditions of (get ready) ancient Babylonia. Sound crazy? It's not. Read and think. Impracticable under present circumstances, I suppose, but definitely not crazy.
Hudson describes the 2007-2008 global meltdown and its bailout aftermath managed by the Obama administration as a "once-in-a-century transfer of wealth". From whom to whom? Basically, so far as I can see, from those who can afford to invest (speculate) to those who can't.
You may not feel the alternatives he proposes to the modern system are practicable - writing down home mortgages in the midst of a housing crises to pennies on the dollar, with lenders taking catastrophic losses - but it's hard to dismiss the force of Hudson's reasoning behind them.
His May 2006 Cover Story for Harpers Magazine - "The New Road to Serfdom: an Illustrated Guide to the Coming Real Estate Collapse" - scroll down a bit to find it - is the most comprehensive description I've seen of the debt-building economic system that for decades has been relocating the cash and savings of most Americans into the pockets of the big money lenders who now manage America's so-called FIRE economy driven by intertwined Finance, Real Estate and Insurance interests. And, I might add, driven by the federal government as well, which borrows from taxpayers to lend to these big lenders. (Thought it's good to the likes of Citigroup and GM paying back their loans ahead of schedule.)
All told, I think Michael Hudson, sees it and tells it it pretty much like is.
The pace and severity of financial crises has taken an ominous turn for the worse. Over the past 30 years, a crisis has occurred, on average, every three years. Yet, now, only 18 months after the meltdown of late 2008, Europe’s sovereign debt crisis has hit with full force. With one crisis seemingly begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course.Around 1990, several years after the Japanese central bank in effect bailed out the United States after the stock market crash of 1987, economist David Hale wrote that the global economy, managed now by enlightened (as he saw them) central banks, had entered a phase in which economic progress and regress would take the form of a (manageable) succession of financial bubbles moving from one country or region to another with boom growth and burst bubbles driving movement from one area to the next.
But Hale did not anticipate what Stephen Roach, in retrospect, sees as the Achilles heal of the Hale's prediction of a succession of bubbles: the alarming fact of the acceleration of bubbles: the alarming frequency of their occurrence because central banks, in managing one bubble, are unwisely sowing the seeds for the next.
Breaking the "daisy chain" of accelerating bubbles "won't be easy," Roach says. But history will help us, he says, and he looks back to the late 1970's and suggests that a second "Volcker moment" is what the world needs now. He sets guidelines for a new approach and illustrates it:
As an example of how this approach might work, consider the task of the Federal Reserve.
Step One: Announce a target of restoring the real federal funds rate back to its long-term average of 2 per cent.
Step Two: Lay out a three-year macro forecast of the US economy. For the sake of argument, plug in average real GDP growth and inflation of 2.5 per cent and an unemployment rate that falls back to 6 per cent by the end of 2013.
Step Three: Conditional on that forecast coming to pass, announce a normalisation plan of nine moves of 50 basis points in the federal funds rate – spread out over 18 months and commencing as soon as the dust settles on the euro crisis.
I'd love to hear David Hale's take on them.
Friday, March 19, 2010
What if every senior Wall Street executive had to worry that he could lose his entire net worth at any moment — including his mansions in Greenwich, Conn., and Palm Beach to say nothing of his job — if the revenue he was generating turned out to be unprofitable or excessively risky?Does this loser-lose-all system sound impracticable today? Of course it does, given Wall Street's refusal to abandon the winner-take-all system that gave us the financial meltdown of 2007-2008. But as Cohan notes, Wall Street wasn't always addicted to risk: the Great Depression triggered a loser-lose-all system that worked just fine until 1970:
As with so many simple and obvious solutions, this one has the benefit of having a long track record of success. Once upon a time — not so long ago — this was how investment banking compensation worked. During the Golden Era of Wall Street, the years between the reforms of 1933 and, say, 1970, Wall Street was a series of small, private partnerships. If a firm made money in a given year, a partner would receive his share of the pre-tax profits. If the firm lost money, a partner was liable for his share of those losses up to and including his entire net worth. In those days, Wall Street stuck to prudent risk-taking.Cohan's column then gives a nice overview of the risk-friendly corruptions than began in 1970 "when a small Wall Street partnership — Donaldson, Lufkin & Jenrette — decided to go public." His piece, modestly titled "Lehman’s Demise, Dissected" actually focuses on Anton Valukas' recent 2,200 page report documenting the off-balance sheet machinations of Dick Fuld (cropped to look evil, at right) and his crew at Lehman Brothers. Cohan's commentary on key passages of the report is here.