Last Updated: Nov 19th, 2009 - 11:07:39 Newsletters : 2008 Newsletters : 22 February 2008 Thought for the Day Everyone comes and everyone goes. Why is it happening, nobody knows. The Cosmologist Feb 18, 2008, 10:54 Newsletters : 2008 Newsletters : 22 February 2008 Nope, That’s Not Money Prudent Bear’s Doug Noland has for years been pointing out that one of the drivers of the credit bubble has been the ever-broadening definition of money. As the global economy expanded without a hiccup, more and more instruments came to be used as a store of value or medium of exchange or even a standard against which to value other things—in other words, as money. Thus mortgage-backed bonds and even more exotic things came to be seen as nearly risk-free and infinitely liquid. In Noland’s terms, credit gained “moneyness,” which sent the effective global money supply through the roof. This in turn allowed the U.S. and its trading partners to keep adding jobs and appearing to grow, despite debt levels that were rising into the stratosphere. For a while there, borrowing actually made the world richer, because both the cash received and the debt created functioned as money. With a few months of hindsight, it’s now clear that debt-as-money was not one of humanity’s better ideas. When the U.S. housing market—the source of all that mortgage-backed pseudo money—began to tank, hedge funds found out that an asset-backed bond wasn’t exactly the same thing as a stack of hundred dollar bills. The global economy then started taking inventory of what it was using as money. And it began crossing things off the list. Subprime ABS? Nope, that’s not money. BBB corporate bonds? Nope. High-grade corporates? Alas, no. Credit default swaps? Are you kidding me? No longer able to function as money, these instruments are being “repriced” (a slick little euphemism for “dumped for whatever anyone will pay”), which is causing a cascade failure of the many business models that depend on infinite liquidity. The effective global money supply is contracting at a double-digit rate, reversing out much of the past decade’s growth. But here’s where it gets really interesting. The reaction of the world’s central banks to the freezing-up of the leveraged speculating community has, predictably, been to create massive amounts of new fiat currency and hand it to the banking system. They’re not dropping twenties out of helicopters yet, but functionally it’s the same thing. By swapping dollars, euros and yen for no-longer-money bonds that are plunging in price, creating some paper profits where there once were catastrophic losses, the Bankers hope to revive the animal spirits of the leveraged speculators. Specifically, they hope to stop the financial community from going further down the moneyness checklist and eliminating any more instruments. But you don’t forget a brush with death that easily. The process of debt reclassification has a momentum that a few hundred billion new dollars won’t stop. And once corporate bonds and agency bonds and emerging market bonds have been crossed off the list, the system will start eyeing the dollar. Is it really a store of value after falling by half against oil and gold in the past five years? Didn’t the Fed just create a tidal wave of new dollars and promise to create infinitely more if needed? Isn’t the U.S. economy hobbled by the implosion of housing and mortgage finance and hedge funds and (soon) derivatives? Don’t Americans owe more per capita than any people in human history? And a realization will begin to dawn: Maybe the paper currency of an over-indebted country isn’t money either… Feb 22, 2008, 12:15 Newsletters : 2008 Newsletters : 22 February 2008 Complexity Theory and Environmental Management You may have read one of Michael Crichton's novels. He tells a good yarn. Now he is telling them for free on the internet! Well worth reading. You will then be able to look at the newspaper each morning without panicking about the "End of the World"! [ Visit Website ] Feb 18, 2008, 14:00 Newsletters : 2008 Newsletters : 22 February 2008 The Epistemological Case for Capitalism Don't let the big words scare you. Epistemological means knowledge. So if you read this article just put knowledge in place of epistemology and all will be revealed. We make every effort to produce an interesting and topical newsletter which illustrates sound economic principles while telling a modern real story from around the world. However, some subjects are very important and this is one such. Current economic theory as believed by many economists seems to based on "knowledge" that has not been certainly proven as a fact. Unfortunately, logical arguments from axioms unrelated to reality will not produce information - just misinformation. Such is the current world condition. [ Visit Website ] Feb 16, 2008, 13:53 Newsletters : 2008 Newsletters : 22 February 2008 Fading the IMF Economists these days seem to regard gold as "that barbaric relic" and Central Bankers seem to agree with them as they sell off their gold at an agreed rate of 500 tons per year. Now the IMF is keen to sell off its gold. It sold 1600 tonnes in the late 1970s and now wants to sell another 400 tonnes. Why? Feb 16, 2008, 11:52 Newsletters : 2008 Newsletters : 22 February 2008 Government The Destroyer. The long-standing battle between Austrian and Keynesian economists is one that will most likely rage on forever. But why? Well, as Lew Rockwell points out, seeing the fundamental differences between these two schools of thought can be fairly easy. Just look for the broken windows. Read on... Feb 15, 2008, 11:59 Newsletters : 2008 Newsletters : 22 February 2008 That Healthy Glow How much radiation is safe? Our search for the truth goes on. How many people died at Chernobel? How many cancer deaths resulted from the fall-out? The Greens become hysterical, nuclear reactor salesmen will of course have their theories and the truth is floating in the middle somewhere. It is likely that the world will move towards more use of nuclear energy and we should keep an open mind so that we can weigh up the options with more clarity and less emotion. Here are some facts and opinions plus estimates which may interest you. Feb 13, 2008, 15:45