Friday, May 22, 2009

Run ON the Dollar or Run TO the Dollar?

Spectacular day today here in Massachusetts. Over 80 degrees and no humidity. It is going to cool off a bit the next couple of days, but I will take it.

Overwhelming Majority of Voters Oppose State Bailouts; Too Bad For Them
The well regarded polling company Rasmussen Reports got ahead of the game and asked the following question:

Do you favor federal bailout funds for states like California that are encountering “serious financial problems.”

The results came in as you would expect with 59% of voters are opposed to helping any state in particular, and 66% opposed to helping California specifically. Full write up can be seen here.

While I appreciate both Rassmussen and the voters who gave answers for their effort, they both could have saved their time. The states are going to get bailed out no matter what public opinion is. We have seen this show before.

But wait, did I not hear the words of Treasury head Tim Geithner in which he stated that help for California is not feasible? I read his remarks, and you have to see what he really said. Mr. Geithner said explicitly that the LAW as it stands does not allow for state support by TARP or other Treasury programs. The LAW he said.

Certainly we have seen that the LAW has little bearing on the actions of the FED or Treasury. Also, the LAW could change in 10 minutes after a rushed vote by a panicked congress eager to make sure their state gets their fair share of aid. I can predict with 100% confidence that a state bailout program will be put in place either overtly through cash handouts, or behind the back through bond guarantees and loan backstops.

Run ON the Dollar or Run TO the Dollar?
In yesterdays post I highlighted a bunch of sovereign debt and/or banking debt downgrades from all over the world. With countries like the UK getting hit, how long until the USA gets the same marks? Today all across TV and the media the prospect of a lowered credit rating for the US was the top story.

If serious doubts about the dollar were taking root we would expect to see symptoms of a move away from US debt (through treasuries):
-A lower dollar (it has weakened as of late)
-Higher yields on treasuries (they have spiked up even in the face of quantitative easing)
-Higher Gold (it has moved up)
-Decreased purchases of US debt or outright sales by foreign countries

While the first 3 criteria have been met to varying degrees, the last point has not occurred at all. In fact treasury purchases have been at ALL TIME highs over the past few weeks! I know, it makes no sense, but Housing Doom crunches the numbers for us here. Some key data sets:

There is much more information at the Housing Doom site.

So what gives?

Foreign central banks are adding their treasury holding like they are gold or something! Notice the number 2, 9 and 10 largest weekly purchases all happened in the month of MAY of this year! Over the past 2 weeks over 50 Billion dollars in treasury debt was added by foreign banks, an unprecedented amount according to Housing Doom who follows this data religiously.

Perhaps along the lines of "if a bank places a secondary offering that dilutes shareholders by 20% then that stock is worth 30% more!" logic central banks feel that holding as much debt about to be downgraded as possible is just the ticket. Good luck with that.

Friday Night Entertainment
It is once again Friday night, and a long holiday weekend at that, so let's try to have some extended Friday night fun!

Too Much Time ON Their Hands
When I have too much free time I tend to start projects I cannot finish or get into other mischief. Some people have so much time on their hands, they start doing crazy things to their hands. Geekologie has some fine examples of this phenomenon:
Elephant Hand

Flying Eagle Hands

There are more animal hands at the Geekologie post.

Sci-Fi Short Story Read
I had mentioned this story last year, but I just re-read it this week and I really love it!
Try to find a copy (online or in print) of Harry Turtledove's great short story "The Road Not Taken". Great science fiction with an ending you will not believe. You could Wiki the tale here, but that would spoil all the fun!

Film Clips
I love chess, and thus I ,oved the film "Searching for Bobby Fischer" based on the life of young Josh Waitzkin. The entire film is wonderful with great acting and a good story. The ending scene is amazing and it results in a rare chess ending where white's queen is skwewered to end the match:

I have always loved the film "Joe Versus the Volcano" and I think it was missed by many for it's deep insight and helpful look at ourselves. No matter, take a glimps at the scene where Joe (Tom Hanks) quits his job after he finds out he has about 6 months to live, classic:

Rock Blogging
We need some inspiration for the long weekend, so we shall have an offering of quality tunes to lead the way.

Loyal reader Kevin requested a tune that was a surprising pick, but I most certainly know the song and in fact I like it very much! Enjoy Ace of Base and "The Sign":

The next selection I heard in the store today and I love the vocals and the old school music, so enjoy this classic from the Beatles.....HAHAHA sorry suckers!
Enjoy Bobby Darin and "Dream Lover":

As a hair band lover, one of the best was Motley Crue. Almost any song is a winner, but for a softer side try out "Home Sweet Home":

Loyal reader Watchtower realys that the only rap music he likes is from the Beastie Boys and I could not agree more. My favorite is "So Whatcha Want" but here at Economic Disconnect we do requests, so enjoy "Sabotage" complete with hilariois 70's cop show style video:

For some haunting vocals, lyrics, and acoustic guitar let me point you to Staind with "Outside":

A little more rocking to end the night. I bought the Metallica album "And Justice for All" after I saw the video for the tune "One". the first song on the album is still one of my favorite songs to get riled up listening to. Get excited for "Blackened":

Have a good night.


watchtower said...

Joe VS The Volcano

That is one of the few movies my wife and I both enjoy, we especially love the light flickering over Tom's work area as art really does imitate life at times if you know what I mean.

getyourselfconnected said...

I could not find a video of the "luggage" scene, but for some reason that snip always stands out to me. Great film and oh so under appreciated.

getyourselfconnected said...

Wow, I spend extra time to provide full entertainment, and only watchtower shows! It is bed time for me but I love tonights show and I hope you did too.

Anonymous said...

Hey Boss,

I am still here :)


PS: Hanging in there with a nice pop in the metals.

GawainsGhost said...

Well, I'm disappointed. I requested some Ray Stevens and was ignored. Maybe you guys don't like 70s nostalgia or novelty songs, but Ray Stevens is really good. "Alley Oop," "Along Came Jones," "The Streak," "Gitarzan," "Ahab the Arab," I grew up on that stuff. And I would note that Ray Stevens was quick to respond to 9-11: "Osama your mama didn't raise you right / When you were young she must have tied that turban tight." He's hilarious! And he can play a mean piano too.

Anyway, I notice that the bankrupt NYT writer has responded to Megan McArdle, on PBS of all places, and she takes him to task.

This really is a sordid story. It reminds me of that Sesame Street cartoon I watched as a child. Some sleazy guy in a trench coat on a street corner, "Psst! Hey, you wanna buy some air?" It amazes me to no end how many people my age, who no doubt watched the same cartoon, for the last decade rushed out and bought as much air as they could. Or couldn't, as the case may be. And now they're ruined.

Oh, well, stupid is as stupid does.

I also loved chess as a child, studied all the great masters--Morphy, Capablanca, Tal, et al--but I haven't had anyone to play with in years. Bobby Fischer was my hero, before he went completely nuts. I'll never forget the 1972 world championship. I've studied those games in detail.

Fischer lost the first game and forfeited the second to Spassky, the reigning champion, then finally came in and sat down for the third. It was high drama. The Cold War was on the line, after all. This was truly "The Game of the Century."

In every game he had ever played, Fischer always opened with P-K4, without exception. But when he sat down against Spassky, 0-2 in the tournament, he changed tactics. P-KB4!!!

The unexpected opening totally destroyed Spassky psychologically. He had studied every game Fischer had played, but now suddenly he had no idea how to play against him. Thus, Fischer snatched the crown.

He refused to defend his title because the chess federation wouldn't agree to change the match format and disallow the strategy of playing for draws after taking an early lead. So FIDE deposed Fischer and enthroned Karpov, who really was a great chess player. It would have been interesting to see a match between the two.

Anonymous said...


I have to agree with you on California and I don't think for a minute that this administration is going to throw that state under the bus. All of this is going to become more and more influenced by politics as the stakes are high. The US is headed down the road to fascism where the lines between government and corporation's blurs.
Gas here went up 16 cents yesterday to celebrate the start of the summer driving season, ya gotta love it.


Anonymous said...

In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."

I'll bet Benny will print him up some if he ask or then I guess he could go get a loan from his District of Corruption banking and Wall Street lobbyist pimps. This little prostitute makes me sick.


Lisa said...

A wonderful motley collection, GYSC. The rule of law has been obliterated in this country. Every day Obama and his cohorts assault the Constitution (and American values) anew. Back to bed for me, still fighting an illness. Much more fighting in the week to come, must be strong :)

Anonymous said...

...And Justice For All - More timely than ever.

Hard as it is to believe, the dollar should now start climbing as deflationary forces gather steam going into the summer. Long the "/DX".

GawainsGhost said...

Today is my birthday (I am now all of 48), and it's raining. I suppose that's good, since we definitely need the rain, but still it rather depressing to be awoken at 4:00 AM by thunder and lightning.

As if that wasn't bad enough, I made a pot of coffee only to get online and read this.

Sigh. The entire world has gone collectively insane.

Oh, well, happy birthday to me.

Anonymous said...


Happy Birthday it has been raining here for 3 days so I understand the depression, here's a tune for you.
Rainy Night in Georgia -- Brook Benton

Lisa, what the heck are American Values? Just wondering.


Lisa said...

Happy Birthday!

Lisa said...


To say "The Constitution and American Values" was redundant, on my part. :)

GawainsGhost said...

What are American values? Good question.

Most Americans would answer life, liberty and the pursuit of happiness. But one, Tom Landry, answered God, Family, Football.

I'll take an amalgamation of the two, freedom and fair play.

It is a canard that the American Dream is to own one's own home. WRONG. The American Dream is to be free. But that can only come through financial independence.

Thus did the American Dream become a nightmare. Through overleverage, cronyism, profligate spending, political favoritism, delusional exuberance, and the wreckage that promptly ensued.

I have been witness to the complete destruction of the American middle class in my lifetime. And I'm not very happy about it.

By the way, Jesse over at Le Cafe Americain has an interesting post explaining how and why we got into this mess.

watchtower said...

Happy Birthday GawainsGhost!

GawainsGhost said...

Thanks for all the well wishes.

By the way, today is Bob Dylan's birthday too.

getyourselfconnected said...

HAppy Birthday Gawains! I hope the weather improves. Any plans for your birthday (party, dinner, etc)? I hope everyone is having a great holiday weekend. I played Tennis yesterday morning for about 2 hors and am having a little trouble with stiff legs, but I am playing again tomorrow so I am sure I will be good and sore.

Anonymous said...

If you like your nautical history, I am sure you've seen "Master and Commander: Far side of the world".

A quote from the movie: "The Devil's at the wheel of that little phantom ship. You better hold fast!"

It would be difficult to find a more apt metaphor for a bull market, such as what gold is now in.

GawainsGhost said...

Well, GYC, I really don't have any plans for my birthday, other than that it is one of the few days on which I will not work.

The way I figure it is this. A business year is 360 days, but a calander year is 365. So, since I am no longer a teacher with 3 months paid vacation, there are 5 days on which I refuse to work. They are: my birthday, the 4th of July, Thanksgiving, Christmas, and Easter.

Tonight we're having oven baked chateau briand (that's French for pork tenderloin) with mustard (Grey Poupon Country Djon), baked potatoes with butter and cheese, steamed broccoli and carrots, and my special baked beans, which I made yesterday.

Here is my recipe for baked beans: in a pot over medium heat, place some oil, then add 1 yellow onion, 1 green pepper, and 1 bag of pinto beans. While stirring, add a palm each of parsley, sage, rosemary, thyme, oregano, cumin, and bay leaves. Then add 8 cups of water and 3 palms of salt. Bring to a boil. Cover and bake at 300 degrees for 6 hours, adding water as necessary.

Mmmmm, delicious.

getyourselfconnected said...

that sounds like a good birthday feast! Have fun and take care.

GawainsGhost said...

Ah, Memorial Day. Let us all pause and give thanks to the brave fallen who sacrificied so much so that we could remain free.

Or apparently free, as the case may be, now that America has become a nation of debt slaves.

I still can't get over it, how incredibly stupid it is. If you had told me when I was 20 that by the time I was 40 the United States would be plunging headlong into the worst financial and economic crisis the world has ever seen or known, I would have told you that you were out of your mind. But you would have been right and I would have been wrong, and I would have to admit to that today.

By the way, like the Fonz, I never admit that I'm wrong. I just can't say it. "I was wrrrr...." I made a mistake. I can admit to that.

Can anyone else? As far as I can tell, not any politician or elected respresentative who has driven this once great country to the brink of disaster. Go figure.

Anyway, this morning I came across this article on the abject failure of Keynesian economics. It is an absolute must read.

Have a nice day.

Anonymous said...

Deceiver-in-Chief Darts Left, Right, Dizzies All: Kevin Hassett



GawainsGhost said...

Ha! Great article, Kevin.

Yeah, this guy's a dancing monkey, performing to whatever tune the organ grinder is playing. Problem is, there are too many organ grinders! So he never knows which tune he's dancing to. This will become a real problem as more and more people see Obama for what he really is, a clueless clown.

On a side note, check out this article on the ultimate failure of tax-the-rich schemes.

Margaret Thatcher once said, "The problem with socialism is that eventually you run out of other people's money." Yeah, and the problem with tax-the-rich schemes is that the rich simply move to a more tax friendly area. DUH. They have that ability. That's why they're rich. Double DUH.

All this "spread the wealth" crap is just that, crap. The wealthy don't share their wealth. What they do is protect it, by placing it in limited liability corporations or storing it in off-shore accounts or investing it in tax-free funds. They then grant themselves a modest income, thereby lowering their tax burden. This is why multi-millionaires often pay less in taxes than the average middle class household.

The difference is that a multi-millionaire can afford to move to wherever he wants, in order to avoid rising tax rates. But the average middle class household cannot.

This is why I favor a flat tax, say 15%, with no deductions, no exemptions, and no exceptions. I don't care if you earn $1 or $10 million, 15% goes to the treasury. And the government lives off the revenues. I don't believe in deficit spending, because I don't believe in living with debt.

I hate debt. When you have money, that is, when your money works for you, you're free. This is the American Dream. When you have debt, that is, when you work for money, someone else's money, you're a slave. That is an abomination to the American mind.

Or it used to be, anyway. Barry Ritzholt's Bailout Nation is due to be released tomorrow. From what I've read at his site, The Big Picture, this book exposes the greatest transfer of wealth (read theft) the world has ever known. I look forward to reading it.

Brittany said...

A wonderful motley collection, GYSC. The rule of law has been obliterated in this country. Every day Obama and his cohorts assault the Constitution (and American values) anew. Back to bed for me, still fighting an illness. Much more fighting in the week to come, must be strong :)

Lindastfl said...

A wonderful motley collection, GYSC. The rule of law has been obliterated in this country. Every day Obama and his cohorts assault the Constitution (and American values) anew. Back to bed for me, still fighting an illness. Much more fighting in the week to come, must be strong :)