Saturday, March 26, 2011

Catalyst for Jawboning

Over the last several days, the Fed has trotted out multiple spokesmen to suggest there might not be another round of trash credit creation (quantitative easing). The Dallas Fed's Fisher came out on Tuesday and suggested the program should not be extended when it ends in June and that things may already have gone too far. Lockhart of Atlanta stated "it's a high bar" in response to questions about QE3. Minneapolis' Korcherlakota stated the economy would have to "worsen materially" to extend the bond market manipulation. Finally, Plosser of the Philadelphia Fed recommended not merely stopping or even reversing the bond buying but also raising interest rates.

The central bank should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates, Plosser said today in a speech in New York. He suggested selling $125 billion for every 0.25 percentage-point rise in the benchmark rate to almost eliminate $1.5 trillion in bank reserves.
So why is the Fed so concerned suddenly after abusing their authority in blatant fashion for more than two years? Clearly they don't care about inflation - having inflicted a tripling of oil prices, a doubling of most grains and even worse in some commodities upon the world. It would seem that they are concerned that people are catching on to what they are doing and starting to point the finger in the right direction. So now they need to very publicly posture as "inflation fighters" until people's attention wavers. And the spotlight is definitely turning their way. As the Financial Times reports:

The finger of blame is increasingly pointing toward central banks and the US Federal Reserve in particular. By printing money through quantitative easing, there are supposedly more dollars, yen and pounds chasing the same number of Beefy Crunch Burritos. Fed chairman Ben Bernanke actually was asked during a speaking engagement last month whether the central bank was culpable for the revolution in Egypt.

“I think it’s entirely unfair to attribute excess demand pressures in emerging markets to US monetary policy because emerging markets have all the tools they need to address excess demand in those countries,” said the clearly annoyed banker.

But an increasingly common view is that, with the very best intentions, he is at fault. Critics regularly cite the words of Milton Friedman, who said that “inflation is always and everywhere a monetary phenomenon”.
Essentially, the Bernak is standing over the body with a bloody knife in his hands and the lights have just turned on. He seems determined to brazen it out and has sent out his minions to talk about all of the wonderful things he's done and will do if we just leave him alone with his power. This is all an attempt to distract attention for the Fed's culpability in the destruction of purchasing power worldwide.

It is all about perception. That is why the Fed cares about inflation expectations, even while deliberately inflicting inflation on the economy. They can more effectively steal the value of your savings and income if you don't know what is going on. That job becomes much harder when the population starts to adjust their thinking and behavior to account for the destructive acts of the Fed. It is so important to prevent that change in thought and deed that Paul Volcker once raised short-term interest rates above 15% to prevent it.

With the spotlight now focused firmly on the Fed, this weeks' jawboning is just the first act of their attempt to change the subject. If that doesn't work, they might actually be forced to DO something. In particular they will need to act to stymie commodity speculation - which is the portion of the iceberg that everyone can see, as it affects the daily life of nearly everyone. While they are also likely to attempt to prop up the stock market, it will be tough to do both at the same time since commodity producers and related firms have been a key driver of the new equity bubble.

With private lending in the US essentially dead, the government is the sole source of credit growth right now. If the debt limit interferes with further bubble finance at the same time as the Fed is forced to try and look responsible, the speculative markets could be in for a rough ride indeed.

Friday, March 25, 2011

Federal Debt and the Bank of Timmy

There has been much breathless discussion lately surrounding the national debt ceiling as total government debt approaches the legal limit. Treasury Secretary Timothy Geithner said there was "no alternative" and threatened Congress with unspecified "catastrophic" consequences if the limit was not increased. Of course, he is merely following in the tradition of terroristic threats by corrupt Treasury officials.

But just as the implied threats of martial law were used by Henry Paulson as cover for one of the biggest thefts in history, we must now ask what lurks behind the current spate of threats out of Treasury? Paulson lied about what the TARP was to be used for - which is why he demanded immunity in advance. Geithner is lying about the need for an immediate increase in the debt limit. What is being hidden is many activities that aid speculators and bureaucrats that will have to end if the limit stays in place.

In the real world there is a problem that a lot of money is being spent that has nothing to do with the operations of the federal government. This can be seen clearly in the recent announcement that the Treasury will be selling off some of its $142 billion of MBS (mortgage backed securities). There really is no legitimate function of government that relates to manipulating the price of bonds. It's good that they are looking to get rid of them but there is no reason to have them in the first place other than to overpay to help sellers and also to make continuing holders look more solvent by deliberately distorting the "market" price.

Then there are the loans which Treasury has extended to the states to cover their own spending. The state unemployment funds are in hock to Washington for $46.3 billion as of March 23. This is problematic in that it undermines the constitutional requirements that many states must balance their budget every year. It also undermines the ability of the states to function as sovereign entities when they are financially so beholden to the central government. Thus it is a direct attack on the our Federal system of government.

Secretary Tim Geithner is not running a Treasury Department. He is in fact running a bank under the aegis of the federal government and Congress needs to keep that in mind as he goes begging them for more money. Treasury should not be in the business of lending money to the states or of buying private market debt. Those are functions for commercial banks and bond markets. Worse still, those banking functions have been performed using the credit of the American People. If Geithner was not playing these games, the Treasury would have another $190 billion in borrowing authority remaining.

Any increase in the debt limit should be conditional on the Treasury ceasing all interference in state finances and public financial markets.

Saturday, March 19, 2011

Panic Room

We will be breaking from our normal practice of commenting on economic issues to address something that is bigger and more important today. That is growing panic over radiation from Japan. Trace levels of radioisotopes have been detected in water and food near the Fukushima plant site. In one case, it exeeded the legal limits so if you are in Japan, you should take some precautions - and especially so in Northern Japan. The governments involved have no one to blame but themselves since they have destroyed their own credibility and many people won't believe them even when they tell the truth. As of today, the truth is this:

There is no threat of radiation in North America and with a couple tiny of exceptions, there is no measurable increase above background levels.

One of the sources I see quoted often by the panic-mongers is Radnet - a data gathering program of the EPA. But most people have no idea what the data means and there are many problems with the data itself. The most serious problems with the Radnet data are as follows:

1) Collection is by volunteers and by agencies that often specialize in other things. For instance, most of the California data is gathered by regiona agencies like the Bay Area Air Quality Management District. BAAQMD certainly knows what it is doing with regard to routine air pollution issues but they are hardly specialists in radiation exposure.

2) Inconsistency of the data due to the varied and non-specialist nature of the data gatherers. The data should be comparable over time at any given location but may not be comparable between different locations gathered with varying practices.

3) Timeliness is weak. The typical collection method is to use air filters to gather particulate matter and then apply a radiation detector after a 5-hour field deployment period.

4) The data is difficult to interpret. Because of we do not know with certainty the exact equipment used to measure beta and gamma exposure at a given location, we cannot be certain what conversion factor should be used for CPM to millirems or milliseiverts.

Also, the gamma exposure is divided into energy ranges. Due to the normal slope, we can feel confident that the lower ranges are lower-energy (longer wavelength) gamma rays. This is a typical pattern for background radiation. In fact, many of the less energetic "gamma rays" detected by a typical geiger counter are not technically gamma rays at all. Quite often the detection threshold for a geiger is 20 kEv or less - at a wavelength more associated with X-rays so the lower bands of gamma reported by Radnet are actually mostly X-rays. Even so, I cannot locate a chart showing the frequency or wavelength with which each gamma energy range is associated.

Nevertheless, Radnet can be a valuable tool to measure changes over time in a single location. If better data were not available, I would be forced to use it for other purposes as well. Fortunately, we have something run by people who are focused on radiation and the only real weakness is that the network is only regional.

The Department of Energy and the Desert Research Institute maintain a network of radiation monitoring stations across Nevada and western Utah known as the Community Environmental Monitoring program. The explicit purpose of CEMP is to monitor sites downwind of the underground nuclear test site in Nevada. Thus, CEMP is "focused like a laser" on radiation. Most stations update every 10 minutes and the rest do so hourly.

The data is comparable between stations and presented in an easily analyzed format. Exposure dosages are measured in microrems per hour (uR/hr) and measured constantly. The only downside is that only gamma radiation is measured, not beta but this is not a severe drawback in my opinion. There is even a tab on the display for each monitoring station that allows you to display the data from the past week in graphical format.

I checked a sampling of the monitoring stations and all of them showed gamma radiation steady as a rock for the past week. There is NO EVIDENCE of any increase in ambient radiation in Nevada or Utah at least.

The website can be found here:

I want everyone to be safe and informed. Don't panic out of ignornace. If the data call for you to take precautions you should absolutely do so but rationally and based on facts. Good luck.

--- dataSlave