25IQ

Funniest video about the fed ever  http://blogs.reuters.com/felix-salmon/2010/11/12/eat-your-heart-out-matt-taibbi/

Is QE2 A Stealthy $90 Billion Gifting Scheme To The Primary Dealers?   http://www.zerohedge.com/article/qe2-stealthy-90-billion-gifting-scheme-primary-dealers

Currency explained in hip-hop style http://www.economist.com/blogs/freeexchange/2010/11/global_imbalances

Fed Buys $7.229 Billion of Treasuries as Easing Resumes  http://www.bloomberg.com/news/2010-11-12/fed-buys-7-229-billion-of-treasuries-as-easing-resumes.html

As the Fed began its “QE2″ stimulus buying, investors sold off everything from stocks to Treasury bonds and gold. The Dow Jones Industrial Average was off 2.2% for the week. The Treasury note’s yield was pushed up more than 0.20 percentage point for the week.  http://online.wsj.com/home-page

break even rates for TIPS (and hence the expected inflation rates, under certain assumptions):  http://www.econbrowser.com/archives/2010/11/inflation_fears_1.html

“… Goldman …estimates the dollar’s value would have to drop by another 10% to bring the U.S. trade deficit down to its natural, internally balanced level. To put the world on a balanced trade footing, Wilson estimates, China’s yuan needs to appreciate 19% in real, or inflation-adjusted, terms. …  http://finance.fortune.cnn.com/2010/11/11/goldman-predicts-deeper-dollar-drubbing 

“The People’s Bank of China yesterday raised the yuan’s reference rate 0.31 per cent to 6.6242, the strongest since a peg against the US dollar was scrapped in July 2005. China’s larger-than-forecast US$27.1 billion ($34.8 billion) trade surplus last month and the G-20 meeting kicking off in Seoul yesterday combine to point to a stronger Chinese currency http://www.todayonline.com/Business/EDC101112-0000086/Yuan-rises-as-inflation-soars

Brazil’s president, Luiz Inacio Lula da Silva, warned that the world would go “bankrupt” if rich countries cut back on consumption and tried to export their way to prosperity. “There would be no one to buy,” he told reporters. “Everybody would like to sell.” http://www.businessweek.com/ap/financialnews/D9JE4E180.htm

“The S&P is already overpriced and if you push it up another 20 percent it becomes dangerously overpriced,” Grantham said in the interview, which was posted today on the network’s website. “In the not-too-distant future stocks will crack again.”  http://www.businessweek.com/news/2010-11-11/grantham-says-fed-may-push-stocks-dangerously-high.html

“[Grantham] … cash has what people don’t appreciate fully. And that is its ‘optionality.’ In other words, if anything crashes and burns in value—say the U.S. stock market—if you have no resources, it doesn’t help you. If the bond market crashes, and you have no resources, it doesn’t help you. And what cash is is an available resource. It buys you the right to buy the U.S. market if the S&P drops from 1,220 today to 900, which is what we think is fair value.”  http://www.cnbc.com/id/40115265

Bonderman warns over emerging market volatility ‘There will be despair just as there is euphoria now’ says TPG co-founder http://www.ft.com/cms/s/0/e9f209c0-ed80-11df-9085-00144feab49a.html#axzz151JLckR4

Mr. Einhorn is worried that the Fed’s recent move toward more “quantitative easing” will artificially inflate asset prices, paving the way for a new and potentially even more dangerous bubble than the technology and real estate booms of the past decade. (The Fed’s move, which will pump up to $600 billion into the economy by buying Treasury bonds, unleashed a powerful stock market rally last week.) http://dealbook.nytimes.com/2010/11/11/greenlight-finds-a-new-target-of-scorn-the-fed/?

Michael Swanson, an agricultural economist at Wells Fargo. Swanson projects at least 4 percent food inflation next year. Lapp, of Advanced Economics, anticipates at least 3 percent.   http://seattletimes.nwsource.com/html/nationworld/2013400813_food11.html

The extra yield investors demand to hold Spanish 10-year bonds over German bunds jumped 25 basis points this week to 220, nearing June’s euro-era record of 232 basis points. The risk premiums for Ireland and Portugal soared to record highs of 647 and 460 basis points, respectively.  http://www.bloomberg.com/news/2010-11-11/spanish-bond-yields-at-risk-as-debt-contagion-gathers-force-euro-credit.html

“Irish yields are now well above both the levels faced by Greece just before it was bailed out in the spring  http://www.ft.com/cms/s/0/5317a8e4-ede3-11df-8616-00144feab49a.html#axzz151ImjUBs

Ireland’s borrowing costs are being pushed to unsustainable levels. The interest the government needs to pay to borrow from the international markets to fund public spending rose yesterday for a 13th consecutive day, to 9.07%. No government can afford to finance itself at this rate – meaning the country may be forced into a Greek-style bailout from the EU or IMF.  http://www.guardian.co.uk/world/2010/nov/11/question-why-ireland-trouble

The spike does not reflect bad news from Ireland. It has a simple mechanical cause: the decision by LCH.Clearnet, a clearing house, to impose steep cash margins on trading in Irish bonds. Unfair as it is, the nervousness manifest in this move and the price drop it triggered too easily catch momentum in jittery bond markets. http://www.ft.com/cms/s/0/c25b6d6e-edd2-11df-9612-00144feab49a.html#axzz151LGr4LQ 

The U.S. dollar is gaining because it is “a less bad alternative to the eurozone,” said UBS analyst Geoffrey Yu. http://www.businessweek.com/ap/financialnews/D9JE5Q4G0.htm

The rate for a 30-year fixed loan fell to 4.17 percent in the week ended today from 4.24 percent, Freddie Mac said in a statement. That was the lowest level in the company’s records dating to 1971.  http://www.bloomberg.com/news/2010-11-11/mortgage-rate-for-30-year-u-s-loans-falls-to-record-update1-.html  

The World Bank reckons that officially recorded remittances to developing countries will reach $325 billion in 2010, a 6% increase over the previous year.  http://www.economist.com/node/17467174?story_id=17467174&fsrc=scn/tw/te/rss/pe   

the 10 year yield, ten years forward (along with the five year average of each) in a graphic http://econompicdata.blogspot.com/2010/11/is-it-bubble-if-already-priced-into.html

Crawling the web to calculate inflation:  http://online.wsj.com/article/SB10001424052748704804504575606801972873866.html?mod=WSJ_hp_LEFTWhatsNewsCollection

In other words, customers aren’t necessarily paying more (price inflation), but they’re getting less for their money (value deflation). These are essentially the same  http://www.zerohedge.com/article/simon-black-growing-phenomenon-shadow-inflation-value-deflation 

One way of giving people less is to reduce quality:  http://www.economist.com/blogs/democracyinamerica/2010/11/globalisation_and_junk 

China showed inflation hitting a 25-month high of 4.4 per cent, a jump up from 3.6 per cent in the previous month http://blogs.ft.com/beyond-brics/2010/11/11/early-mover-chinese-inflation-jumps-boosting-the-rmb/

The People’s Bank of China stepped up its liquidity siphoning through its regular open market operations this week as part of Beijing’s efforts to ease inflationary pressures. The PBOC drained a net CNY30 billion (US$4.53 billion) from the money market, up sharply from CNY500 million last week. The move comes after its decision Wednesday to raise banks’ reserve requirement ratio by 50 basis points from next week, amid concerns the U.S.’s super-loose monetary policy could lead to hot money inflows and push prices even higher. The central bank has raised the ratio four times this year.  http://online.wsj.com/article/BT-CO-20101110-724683.html

Ryan Chittum of The Columbia Journalism Review noticed the epidemic of supposed gold records and urged those of us in the news media to stop. The actual record was set 30 years ago, when the price of gold, in today’s dollars, hit $2,387, or 71 percent higher than it closed on Tuesday.   http://www.nytimes.com/2010/11/10/business/economy/10leonhardt.html?src=busln

Rubber futures in Tokyo surged to a 30-year high ; Copper in London jumped to a record   http://www.bloomberg.com/news/2010-11-11/rubber-reaches-30-year-high-on-supply-concern-in-thailand-china-inflation.html

Current TIPS yields are well below the long-term average real yield of both nominal bonds and TIPS, but the steepness of the TIPS yield curve means longer-maturity TIPS are yielding higher percentages of both the historic real return on nominal bonds of the same maturity and the historical yield on TIPS. You pick up an additional 99 basis points in yield (or about 20 basis points a year) by moving from five years to 10 years. Another five years gives you about another 11 basis points per year. However, going beyond that only earns you about three basis points a year. And with real yields well below their historic averages for TIPS, you may not want to extend maturities much further than 15 years. http://moneywatch.bnet.com/investing/blog/wise-investing/tips-update-for-november/1802/

“… Once a core policy commandment of the so-called Washington consensus and held dear by the United States Treasury, the International Monetary Fund and global investment banks, the belief that unfettered capital flows are a boon for everyone — including the country on the receiving end — has been dealt a major blow. Short-term investment is now increasingly viewed as something that needs to be controlled. “The world has learned about the perils of free market finance — global financial liberalization just does not work as advertised,” said Dani Rodrik,  http://www.nytimes.com/2010/11/11/business/global/11capital.html?ref=business

“.. Bankers, auditors, regulators, politicians—all of them made the same mistake, in Ireland, which was to believe the numbers they were being shown. Numbers are like that: once they’re printed and ratified, they become perceived as hard facts, in the way that merely verbal statements never are.  http://www.pcworld.com/businesscenter/article/210063/verizon_looks_to_video_broadcasting_on_lte.html

The US Treasury sold $16bn worth of 30-year bonds on Wednesday at a yield of 4.32 per cent — the highest since May — and compared with 3.85 per cent in, say, October. Bid-to-cover ratios were also unimpressive, at 2.31 — the lowest for a year.  mThe long bond, you’ll recall, was one of the US Treasury securities largely left out of the Federal Reserve’s QE2 programme  http://ftalphaville.ft.com/blog/2010/11/10/400576/the-lonely-long-bond-gets-lonelier/

Strong demand for raw materials from emerging markets and a flood of money promised by the U.S. Federal Reserve are pushing commodities prices to new highs. … The International Energy Agency’s chief economist said Tuesday that China’s needs could drive oil to $110 per barrel by 2015—a 27% … [behind paywall at:  http://online.wsj.com/article/SB10001424052748704635704575604443663385672.html ]

Moody’s Investors Service today upgraded China’s debt rating to Aa3 from A1 in a sign of confidence that policy makers can contain risks and sustain the fastest expansion of any major economy. http://www.bloomberg.com/news/2010-11-11/china-s-october-inflation-accelerates-to-4-4-fastest-pace-in-two-years.html

Cisco  forecast sales and profit for this quarter that fell short of analysts’ estimates, sending the shares down as much as 15 percent in late trading. Revenue in the fiscal second quarter will be about $10.1 billion to $10.3 billion, Cisco indicated today on a conference call. Excluding some costs, earnings will be 35 cents a share at most. Analysts projected sales of $11.1 billion and profit of 42 cents   http://www.bloomberg.com/news/2010-11-10/cisco-s-gross-margin-misses-some-estimates-on-component-costs-shares-fall.html

Sargent’s best paper in my opinion is his ‘Some Unpleasant Monetarist Arithmetic’, which used mere algebra to show a scenario where budget deficits imply a trade-off between some inflation now or more inflation later. I think it will be his signature economic insight. Sargent was one of the those macroeconomists who made the bad inference that since some rigor is good, rigor is not just better, but the very essence of science, and the implications of all these highly parochial, unreal models would manifest itself like a Seurat painting seen from a distance. …Smart people can be very clueless when they apply too much precision to imprecise problems.  http://falkenblog.blogspot.com/2010/11/tom-sargent-on-macro-alls-well.html

It is ironic (and more than a touch hypocritical) that Germany chastises its neighbors, like Greece, or its trading partners like the U.S., for their “profligacy”, but relies on these countries “living beyond their means” to produce a trade surplus that allows its own government to run smaller budget deficits. http://www.nakedcapitalism.com/2010/11/auerback-how-do-you-say-%e2%80%9chypocrite%e2%80%9d-in-german.html

envy could have its origin in the fact that the resources obtained from work, for example, are used afterwards in some type of interpersonal conflict, such as when selecting the best partner or dominating the herd. In these cases, it is important to have accumulated more resources that the other, so that victory not only depends on having a lot, but on having more than the other. “For this reason it is important that education and professional training correct these tendencies because of their potentially dreadful consequences for the individuals and the group, as they have done from the Ten Commandments to Shakespeare’s Othello”, he recalled.  http://www.eurekalert.org/pub_releases/2010-11/ciuo-tec110810.php

Rodrik: “Economists teach the virtues of open trade because it benefits us… Exposing the domestic economy to global markets … brings its own rewards. A world economy made up of countries that pursue their own national interests will perhaps not be hyper-globalized, but it will, by and large, be an open one.   Certainly, the global economy needs some traffic rules where there are clear cross-border spillovers. But the balance between national prerogatives and international rules must make a virtue of political reality. If we veer too far toward global governance, we will end up with meaningless rules that beg to be flouted. http://www.project-syndicate.org/commentary/rodrik50/English

Wolf: “Now turn to the argument that the Fed is deliberately weakening the dollar. Any moderately aware person knows that the Fed’s mandate does not include the external value of the dollar. Those governments that have piled up an extra $6,8000bn in foreign reserves since January 2000, much of it in dollars, are consenting adults. Not only did no one ask China, the foremost example, to add the huge sum of $2,400bn to its reserves, but many strongly asked it not to do so …”  http://www.ft.com/cms/s/0/93c4e11e-ec39-11df-9e11-00144feab49a.html#axzz14qyMikFh

A summary of the structural vs. cyclical unemployment debate is here: http://voices.washingtonpost.com/ezra-klein/2010/11/our_unemployment_crisis_is_not.html

More here:

“… Is Structural Unemployment on the Rise?, by Rob Valletta and Katherine Kuang, FRBSF Economic Letter: An increase in U.S. aggregate labor demand reflected in rising job vacancies has not been accompanied by a similar decline in the unemployment rate. Some analysts maintain that unemployed workers lack the skills to fill available jobs, a mismatch that contributes to an elevated level of structural unemployment. However, analysis of data on employment growth and jobless rates across industries, occupations, and states suggests only a limited increase in structural unemployment, indicating that cyclical factors account for most of the rise in the unemployment rate….” http://economistsview.typepad.com/economistsview/2010/11/frbsf-is-structural-unemployment-on-the-rise.html\

Lost decade chart  http://dshort.com/articles/2010/approaching-break-even-in-the-SP500.html

 Small business problems:  http://globaleconomicanalysis.blogspot.com/

Felix Salmon: “Is the Fed engaging in a currency war?” http://blogs.reuters.com/felix-salmon/2010/11/08/is-the-fed-engaging-in-currency-war/

Bove:  “My view is that the United States is in a financial war with China. This war is being fought in two arenas. They are the budget deficit and the trade deficit. The United States is losing both wars and, therefore, may be taking some relatively dramatic action to adjust the battlefield.”   …   The shadow banking system has been effectively crippled. This makes it difficult to understand how the stock and bond markets are now going to supplant the banks in generating new capital to spur economic growth. One cannot argue that it cannot be done. …” http://ftalphaville.ft.com/blog/2010/11/08/397536/dick-bove-on-qe2-as-a-bank-less-financial-war-with-china/

Lenders are on pace this year to buy the most Treasury and agency debt since the Fed began tracking the data in 1950, adding $186.2 billion of the securities through Oct. 20 and bringing the total to $1.62 trillion. At the same time, commercial and industrial loans fell by 5.3 percent to $1.23 trillion, Fed data show.  http://www.bloomberg.com/news/2010-11-08/record-treasury-purchases-by-banks-frustrate-bernanke-easing-for-new-loans.html

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities, widened to 2.13 percentage points from this year’s low of 1.47 percentage points set in August. The five-year average is 2.10 percentage points.  http://www.bloomberg.com/news/2010-11-08/goldman-s-hatzius-says-qe2-off-to-a-very-good-start-inflation-unlikely.html

Asset-price inflation is tricky because it doesn’t feel like inflation. When the price of bread doubles, it feels like it’s getting harder to make ends meet. When condo prices double, it looks like smart investors are getting rich. But it’s only a matter of time before asset inflation starts working its way through the rest of the economy as broader price inflation — and puts China’s policy makers in a serious bind.  http://www.businessweek.com/news/2010-10-19/china-hides-rampant-inflation-in-money-binge-patrick-chovanec.html

‘Dumb Money’ Returns to Stocks-  Individual investors are wading back into the U.S. stock market.  http://online.wsj.com/article/SB10001424052748704405704575596803894464906.html

TIPS have the peculiar feature that they are a one-sided bet — while the principal is adjusted upwards for inflation, it is not adjusted downwards for deflation. This makes TIPS more attractive when there is a risk of deflation, pushing their price up and yield down. At present, adjusting for this “insurance against deflation” would lower the implied breakeven rate of inflation to even less than 1.5%. http://blogs.wsj.com/economics/2010/11/08/guest-contribution-what-do-bond-markets-expect-on-inflation/

Consumer indebtedness totaled $11.6 trillion at the end of September, down $110 billion, or 0.9 percent from the end of June, according to the New York Fed’s quarterly report on household debt and credit. Households have slashed about $1 trillion from outstanding consumer debts since the peak in the third quarter of 2008, the New York Fed said. http://www.bloomberg.com/news/2010-11-08/household-debt-in-u-s-declined-0-9-in-third-quarter-new-york-fed-says.html  

During the housing bubble, people thought of their mortgage payments as a type of savings — building up equity in their homes. Those figures never showed up in the personal savings rate statistics, but helped to explain why the savings rate was so low: people felt that they were saving in bricks and mortar rather than dollars.  http://blogs.reuters.com/felix-salmon/2010/11/08/did-a-rising-savings-rate-kick-start-the-recession/

S&P 500 & earnings  http://www.crossingwallstreet.com/archives/2010/11/sp-500-to-1500.html

 Is there a bargain that would allow for short term fiscal stimulus in return for some form of long-term guarantee that spending would be reduced in areas palatable to the R’s.  It would require the R’s to trust that the D’s would actually deliver since the time scales are not the same.   The situation remains very ugly, for example:

Lacy Hunt: “headline 159k increase in the payroll employment measure. The broader household employment fell 330k. The only reason that the unemployment rate held steady is that 254k dropped out of the labor force. The civilian labor force participation rate fell to a new low of 64.5%, indicating that people do not believe that jobs are available, but this serves to hold the unemployment rate down. In addition, the employment-to-population ratio fell to 58.3%, the lowest level in nearly 30 years.”  http://www.creditwritedowns.com/2010/11/a-few-thoughts-on-the-employment-numbers.html

Would Bernanke say something different in Hyde island than on Jekyll Island?

“I have rejected any notion that we are going to raise inflation to a super-normal level in order to have effects on the economy,” Bernanke said today in a panel discussion at a Fed conference in Jekyll Island,” http://www.bloomberg.com/news/2010-11-06/bernanke-says-fed-s-monetary-expansion-won-t-spur-super-normal-inflation.html

Bernanke and others have an exaggerated view of the importance of the big money center banks since that is their echo chamber in which they live. In contrast,  

“The depression in small businesses explains pretty much everything in the weakness of this cycle,” Mr. Shepherdson said. “I reckon in the last cycle they accounted for two-thirds of all new job creation. Not only are they big, they are better job-creation engines than big companies, which are more inclined to do their new hiring offshore.”  http://www.nytimes.com/2010/11/07/business/07gret.html?ref=business

If the banks take the gift that is QE2 and just buy more government debt…

Germany asserts that its economic competitiveness was not based on “exchange rate tricks.” http://www.ft.com/cms/s/0/c0dca084-ea6c-11df-b28d-00144feab49a.html?ftcamp=rss#axzz14cyNBH4K

Hello, the Euro is an exchange rate trick.  Germany got an artificially low exchange rate and the PIGS  got access to credit that quickly put them in dire straits.

One common feature, after the euro was launched in 1999, is that all four enjoyed years of plenty in the form of easy foreign credit to finance transport infrastructure, home construction and the consumption of imports. The single currency, however, turned out to be what one Lisbon-based diplomat calls “a deadly painkiller”. All four are now suffering a painful hangover from the credit binge and seeking to bring order to public finances after their fragility was brutally exposed by the global financial crisis. http://www.ft.com/cms/s/0/dbe3dbfe-ea9e-11df-b28d-00144feab49a.html#axzz14d4OVU6J

The PIGS joined the Euro to get cheap credit but that is gone. Why should they stay? If they leave, the Germany loses its artificially cheap currency.

The U.S., however, has only its economy to consider. Mr Trichet’s predicament is that he has 16 different economies wrapped inside his single currency and they are not all alike. An outside observer, uncommitted to the Grand Project that is the euro zone might conclude that the PIGS need to move into a different sty.  http://online.wsj.com/article/SB10001424052748703805704575594653556224356.html

“…if the world’s biggest economy stagnates and the second-biggest keeps its currency cheap and its capital account closed, a rigid monetary system will eventually buckle….”  http://www.economist.com/node/17414511?story_id=17414511&fsrc=scn/tw/te/rss/pe

“What the U.S. accuses China of doing, the U.S.A. is doing by different means,” the German finance minister

Absolutely.   

China says today:

The U.S. “owes us some explanation.”

The US reaction is likely to be: “Sure dude.  You go first.”

And regarding this:

“The Fed has the right to make its own decision … but they should not only address their economy, but also take into account the impact on other countries,” said Cui. http://online.wsj.com/article/SB10001424052748704353504575596551047525606.html?mod=googlenews_wsj

Again the US reaction is likely to be: “Sure dude. You go first.”

As for the Germans, they gave the PIGS artificially low interest rates when they let them join the Euro so they went into a borrowing binge.  And what Germany got is an artificially low currency which drives their export driven economy.  Germany took advantage of the myopia of the PIGS.

Macroeconomics is so hard that Warren Buffet does not even attempt to invest based on predictions regarding its implications.  Microeconomics, by contrast, is relatively easy.

The phase change between micro and macro is straight not straight forward. You sort of know it when you see it.  What you are looking for is an indication that something greater than the sum of the parts is emerging.  The uncertainty and ignorance quotient skyrockets once the phase change starts which gives you a big clue that macroeconomics is kicking in.

Easy to understand are the economics underlying, for example, a brand new completely empty building across the freeway from the old federal court house in downtown Seattle. The building is very big and has a big sign on it that says “Your company name here!” Building costs were about $350 a square foot.   It just sold to a new buyer for $150 after the bank took it back from the developer.  Even at $150 the new buyer must fill it as $25 a square foot on a “serviced” to get $15 net that enables the building to generate a return for the new owners.

Up a level of complexity to ward macro are the economics faced by the Bank of America, which would be more straight forward of you actually had a transparent picture of its finances.  In the absence of that transparency, the market is assigning a market capitalization of Bank of America equal to only half of its book value. No one (including the bank itself) really knows the value of the loans that at the bank holds and what sort of collateral backs those loans. And no one knows what put backs and other costs of the bank  may be.  And how many buildings like the one in the previous paragraph are out there in the economy at large. And how many miniature versions of Madoff are out there that don’t make the papers?  And how many little clubs of investors have been wiped out as the one of two apartment buildings they owned were taken back by the bank, wiping out their savings? But most importantly, Bank of America is big enough to affect the economy itself and that is where feedback effects kick in that create complexity as well as uncertainty and ignorance.

Definitely on the other side of the phase change toward macroeconomics is QE2.  Nobel prize winners  in economics scream at each other about diametrically opposed macroeconomic conclusions to a degree just not seen in other disciplines.

So what is a person to do? Protect the downside of course.  It is far better to be “not poor” than rich or just richer that you are.  Another way to put this is: having a margin of safety is important.

Howard Marks put it beautifully in a letter that Bloomberg got its hands on today:

“Never forget the 6-foot-tall man who drowned crossing the stream that was 5 feet deep on average. Prudent financial management doesn’t get you through ‘on average’ — rather, it enables you to survive the low points.” http://www.bloomberg.com/news/2010-11-04/bank-of-america-edges-closer-to-tipping-point-commentary-by-jonathan-weil.html

QE2 translated into English = http://www.npr.org/blogs/money/2010/11/03/131043062/federal-reserve

Unfortunately, in monetary policy, as in many other things, there are no do-overs.  http://www.nytimes.com/2010/11/04/business/04leonhardt.html?_r=1&hp

the markets were expecting more, at least on the long end of the curve, and 30-years got shellacked like Democrats  http://ftalphaville.ft.com/blog/2010/11/03/393416/qe2-analyst-reactions/

The Mountain Labored, and Gave Birth to a Mouse… The five-year note carries an interest rate of 1.17% per year. The Federal Reserve is thus changing the supply of assets by taking onto its own balance sheet… wait for it… wait for it… duration risk that the market is currently willing to pay $7 billion a year to avoid. To take $7 billion a year of duration risk off of the private sector’s books in a global economy that still has more than $60 trillion of financial assets is a change in “credit conditions” equivalent to what would be achieved in normal times by a coordinated one basis point reduction in short-term interest rates by the world’s central bankers. Unless this moves inflation expectations in a serious way, it is hard to see why they came out here. http://delong.typepad.com/sdj/2010/11/the-mountain-labored-and-gave-birth-to-a-mouse.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BradDelongsSemi-dailyJournal+%28Brad+DeLong%27s+Semi-Daily+Journal%29

“The Federal Reserve is under-performing on all of its objectives — by law it has to do something,” said Allen Sinai, chief global economist at Decision Economics Inc. in New York. “I don’t think we pay them to sit on their hands and wait for good times. I will take any mistakes they make in return for the effort.”   http://www.bloomberg.com/news/2010-11-04/bernanke-experiments-with-crisis-tools-to-boost-an-expanding-u-s-economy.html

it could cause markets to lose confidence the Fed will keep inflation under control. Fed officials are worried inflation levels are too low right now, but its possible markets could conclude much higher inflation is in the pipeline and drive long-term yields up to compensate. That would require even larger Fed purchases to counteract this impulse, leaving the central bank chasing its own tail. http://blogs.wsj.com/economics/2010/11/03/new-fed-treasury-buying-program-is-defined-by-uncertainty/

People don’t realize they made a mistake, so they don’t learn from that mistake — and keep making the same errors, said the researchers. http://paul.kedrosky.com/archives/2010/11/misremembering.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29

“[Obama’s] presidency began its fatal downward spiral once he allowed Robert Rubin to determine his initial financial appointments. By passing over more pragmatic candidates not tied to banks and Wall Street, the president missed his opportunity to rise to greatness. http://www.ritholtz.com/blog/2010/11/the-tragedy-of-the-obama-administration/

The vast majority of Americans have very little money tied up in equities. The median family’s portfolio is worth well under $50k  http://www.ritholtz.com/blog/

The level of aggregate net government debt in the world rose from $23 trillion in 2007 to an expected $34 trillion in 2010. IMF forecasts indicate the level will reach $48 trillion in 2015. The ratio of world debt to world GDP rose from 44 percent in 2007 to 59 percent in 2010, and is expected to climb to 65 percent in 2015.  http://www.brookings.edu/articles/2010/1101_government_debt_prasad

Tyler Cowan on Liquidity trap arguments:   http://www.marginalrevolution.com/marginalrevolution/2010/11/why-i-assign-less-weight-to-the-liquidity-trap-argument.html

Nearly 3 million fewer Americans now own homes compared to the first quarter of 2005, when homeownership peaked at 69.1%,

For only the second time in the 12-year history of inflation-adjusted savings bonds — known as Series I bonds — the guaranteed fixed rate on newly issued securities was cut to zero.