Gold Daily and Silver Weekly Charts

Coiling for a move, pretty much as expected.

Watch out for the debt ceiling battle. It could be a wild ride.

SP 500 and NDX Futures Daily Charts

The indices looks a little stretched to the upside.

They can go further. Wait for it, wait until the market starts discounting the debt ceiling battle.

The wiseguys will probably want to run it up, and then suck in the funds and the pedestrian bystanders and then short it on the way down.

Democracy Now on Jack Lew's Appointment as Treasury Secretary

Word has it that Obama wanted Lew for his reputation as a 'tough negotiator.'

The progressive side dislikes him because he has a penchant for the status quo, and is no genuine reformer, which come to think of it is probably not a bad description of the President.

The conservative side dislikes him because he is a tough negotiator, and the fact that they wish to disrupt the processes of an opposition government at any opportunity no matter the cost and the benefit to anyone else. It is certainly based on no moral principles or standards.

Gold Daily and Silver Weekly Charts - Economic Goofiness and Competing Crime Families

Yet another intraday commentary here on the nature of money and the Platinum Coin solution to our debt problems. After all, modern money is just an accounting fiction, easily created and destroyed, taken from these and given to our powerful friends.

The more I thought about what Mr. Krugman wrote, the more troubled about it I became.

He seems to elevate what the central bankers do to the realm of pure science, as a purely mathematical function without resort to or consideration of morality or moral choices. As if.

That sounds like something one of the Austerians might say.  We have to do these terrible things, require people to make awful sacrifices, because the economic equations compel us. It is not our fault. And making these difficult choices is such hard work that we deserve magnificent recompense for it, as in  British MP's have asked for a 32% pay increase.

Economics deals with a set of higher level public policy choices, and a series of specific economic decisions and tradeoffs designed to implement them.  And not the other way around. 

Our current system is upside down, where those with the money and the insider connections make the decisions, and those who serve them in various ways receive power and outsized rewards from those monied interests and their institutions.  It is not all that far from what Hedges' calls inverted totalitarianism.

Consider how badly policy and monetary choices have damaged the people of the United States in the past twenty years, and a good part of the rest of the world for that matter.  Who can be confident that wisdom will prevail and justice will be done when there is no serious reform, and the perpetrators continue to write the rules for themselves.  It is as though we are witnessing the struggles of competing crime families, and not a democratic process.

I think it is a terrible canard to say that people who wish to have a stable money supply and some confidence in its value, especially with regard to their savings, wish to have a money supply that comes from God as some sort of divine money. 

Rather, I think the man is willfully misunderstanding and denigrating people who are referencing the principles of equal justice and 'inalienable rights' to freedom and property, without arbitrary confiscation by a central authority.   Money is a powerful tool as any economist should know, and it is very dangerous when wielded badly, or by the wrong hands.  The process of money needs to be transparent, and above reproach.

And especially when the monetary authority has proven itself repeatedly to be as ineffective, prevaricating, secretive, given to conflicts of interest and cronyism, and self-serving as the current crop of leadership that we have today in the Fed, Wall Street, and the government.

It is not as though these fellows do not understand what is at stake.  Today Mr. Krugman said why he prefers the Platinum Coin gimmick to hitting the debt ceiling.

"My own view is that I was willing to go over the brink on the fiscal cliff, but not here, for three reasons.
First, this is seriously risky business. The fiscal cliff would have been a known quantity: basically, a negative Keynesian shock to the economy, which is something we understand quite well, and furthermore something that would have built only gradually over time. The risks, in short, were somewhat contained.

By contrast, nobody really knows what happens if America defaults, even briefly. The whole structure of world financial markets is built around the use of Treasury bills as the ultimate safe asset; what happens if they lose that status? It would certainly be an interesting experiment, but one best carried out if you have plenty of bottled water and spare ammunition in your basement."

Paul Krugman, Thinking About the Brink

So allowing the debt ceiling to come, which is NOT a default on debt since interest can still be paid, which Clinton had done quite successfully as I recall, is to be feared to the point of doomsday. But using a dodgy method of overtly monetizing the debt, which has existed as an idea on the fringes until a month ago and has never been done before, is much less risky and will bother nobody. Are you kidding me?!

SP 500 and NDX Futures Daily Charts - Up Day

The stock markets went out near their daily highs.

After the bell American Express reported earnings about a week ahead of schedule.

They reported 1.09 EPS vs. 1.06 as expected.

They also announced that they would be laying off about 8% of the workforce.

Obama named Jack Lew as his nominee as Treasury Secretary to replace Timmy.

Let the histrionics from Republic Senators about Lew begin.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

The Sprott premiums remain under somewhat unusual pressure as compared to the two other major funds.

It's Official. Krugman Does Not Understand the Value of Money

Well I did say that Mr. Krugman should proceed, and like Mitt Romney, he did, and doubled down.

I am not quite sure I have the words.  Chris Hedges was right.

Like other progressives and independents, I have been discouraged that many old school liberal economists have had so little to say about financial reform, and the frauds in the banking system, even as they blindly pressed their case for more stimulus to be distributed without repairing a broken financial system that taxes the real economy with fraud.   It is 'whatever works' as they define and measure it. Justice and equity have no part in their calculations. They learned part of the lesson from FDR, but not the part that really matters, and that made him memorable.

They make themselves and their models willfully blind to the crony capitalism that exists between the Fed and Wall Street, and the manipulation in the markets, and the lack of any credible prosecutions for some of the most egregious financial crimes since the 1920's.  How many more scandals will have to be revealed before they end their denial?

But in grabbing this whacko platinum gimmick of overt monetization which typifies almost everything that is wrong about modern economics, and in stubbornly claiming that it can do no harm, while dismissing anyone who expresses concern as some economic Luddite, Krugman and too many others have shown the purblind ignorance of the ideologue who does not understand what is wrong, and why the people are becoming restless. 

And they answer them with sophistry and derisive baby talk.  No wonder that economics is a disgraced profession. 

The greatest irony is when we become what we hate.

This is another example of the credibility trap, and a failure in leadership.  The Emperor is naked, and the people do not quite know what to do about it except to mill about in restless and embarrassed silence.

...For many people on the right, value is something handed down from on high It should be measured in terms of eternal standards, mainly gold; [Because something is not purely arbitrary does not require that it be divine - Jesse] I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn’t kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume. 

And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn’t tied to gold is a kind of theft, not to mention blasphemy.  [Again, the intolerance of the ideologue, who is so far over on the continuum that they can only look across and see their other extreme, entirely overlooking the middle - Jesse]

For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes.  [Money is just another tool, a cool toy, to the financial engineers who govern the economy like a benevolent elite.  They do not understand value and consequences as they tinker and experiment, hoping for better luck next time.  And amongst financial engineers, Greenspan was Dr. Frankenstein. - Jesse]

It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments — and they are always up for reconsideration when circumstances change.  [The ruling übermenschen are above conventional morality in their arcane knowledge. And how does one measure 'better outcomes?' For at the end of the day, economics is no pure science, but a social science of a certain class of policies, and policy has its roots in 'justice.' This is why the financiers must operate in secret, like the great Wizard of Oz. Because they have no science, but do not wish to be encumbered by anything, and especially something as inconvenient as justice, as they conduct their experiments. - Jesse]

Now, the money morality types try to have it both ways; they want us to believe that monetary blasphemy will produce disastrous results in practical terms too. But events have proved them wrong. [Yes that's right. The credit bubble, tech bubble, and housing bubbles have been benign and not based on policy errors. All of them were facilitated by economic quackery from both sides.  But the would be elite can admit no error. - Jesse]

And I do find myself thinking a lot about Keynes’s description of the gold standard as a “barbarous relic”; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy — and why not? After all, they hate the Enlightenment on all fronts.  [As he cries for more leeches to bleed the patient... - Jesse]

The bottom line is that we aren’t really having a rational argument here. Nor can we: rationality has a well-known liberal bias. [The hubris of an ideology or a professional class in failure knows no bounds. - Jesse]

Paul Krugman, Barbarous Relics

Gold Daily and Silver Weekly Charts - The ¥100 Trillion Pair of Chopsticks

Intraday commentary on The Platinum Coin Debate here.

Here is a decent summary of the Platinum Coin chronicles from The Atlantic.

I think that the fact that this nonsense is being discussed by Very Serious People demonstrates how far off the cliff of reason our financial and political systems have already gone. Let's hope China et al. are willing to view America's antics with the same jolly forbearance.

I got a kick out of this late breaking article over at ZH, and about the ¥100 Trillion Pair of Chopsticks.

It is not enough to be willing to print money, and give it to your wealthy friends for their personal enjoyment. That looks like foreign aid being given to some hard luck third world country where the money flows primarily to their warlords, and little reaches the people. You have to find the guts and the honesty to take on the hard job of reforming the corruption, imbalanced economic structures, and cronyism between the oligarchs and the government that got to where you are in the first place. And that is where the credibility trap comes in.

What concerns me a bit is not that so many otherwise intelligent people do not understand the nature of money, because so few really do. What really concerns me is that those that do understand what is going on seem to be toying with this whacko monetization scheme, which shows a certain desperation and lack of a Plan B that should make those who are holding their paper very uncomfortable.

If anything could bring a couple million people with torches and pitchforks to Washington in protest, the Platinum Coin pretension might just do the trick.

Editorial comment on the state of modern economics in the video clip below.

The twilight of ancien régimes and dying empires may embrace extravagant fashions in thought and produce eccentric, démodé behaviour, but sometimes they are set to catchy tunes.

As for the rest of the world:

“The burning question that I always have, I’m amazed at their ongoing willingness to continue to accumulate, and hold, such large amounts of US denominated bonds. It’s been my view that they are basically playing a Ponzi scheme.

I’ve had that confirmed when I’ve had long discussions with different sovereign wealth funds and different government agencies around the world. They’ve been willing to play this game, but more and more now, as their domestic economies have grown and the US portion of their exports becomes smaller, and with the amount of T-Bills that they have (already) accumulated, I believe they’ve reached the boiling point where they are really going to be unwilling to grow their reserves (of US Treasuries).

Just the process of not growing their reserves is going to be very disruptive. If they are not willing to accumulate more T-Bills, this is going to force the trade deficit closed. I think that is really going to rock the financial world at some point in the near future..."

Sprott President Kevin Bambrough in today's KWN Interview

SP 500 and NDX Futures Daily Charts

What if they rigged a market, and nobody came?

What if all the honest players either left or were broken, as the people finally realized that the Emperor was naked?

Would that be winning?

For an evening diversion, Matt Taibbi suggests that Hank Greenberg Should Be Shot Into Space For Suing the Government Over the AIG Bailout.

More on the Platinum Coin? Please Proceed, Mr. Krugman...

"Well, the trillion-dollar-coin thing — deal with the debt ceiling by exploiting a legal loophole to have the Treasury mint one or more large-denomination coins, deposit them at the Fed, and use the cash in the new account to pay bills — has really taken off. Last month I spoke with a senior Fed official who had never heard of the idea; these days it’s all over. [It has been around for quite some time in monetary theory circles, where P.K. apparently does not dally - Jesse]

There seem to be two kinds of objections.

One is that it would be undignified. Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

[Is that like 'The Committee to Save the World?' I would not call it disarming the maniac so much as shooting the hostage to nullify the maniac's leverage. And the clown suits have already seen quite a bit of wear by economic policy whizkids in the past twenty years. Have you ever heard the one about how a US housing bubble is impossible? Or that markets do not need regulation because they are naturally efficient? Or that economics is, as Jamie K. Galbraith said, a 'disgraced profession?' - Jesse]

The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution. [There are no methods of argument so childish and often viciously petty than those that roam the halls of university departments, or talk radio. - Jesse]

Joe Weisenthal says that the coin debate is the most important fiscal policy debate of our lifetimes; I agree, with two slight quibbles — it’s arguably more of a monetary than a fiscal debate, [I can't believe you went there to grab a cheap point but one must do what one must when they don't have anything else. - Jesse] and it’s really part of the broader debate that has been going on ever since we entered the liquidity trap. [It has been going on for time immemorial, for those that have looked at the history of money more deeply than the pages of the NY Times. - Jesse]

What the hysterics [DeLong derided them as 'puritans' when they brought up the moral hazard of TARP, and they were right - Jesse] see is a terrible, outrageous attempt to pay the government’s bills out of thin air. This is utterly wrong, and in fact is wrong on two levels.

The first level is that in practice minting the coin would be nothing but an accounting fiction, [a fiction has more weight than thin air? - Jesse] enabling the government to continue doing exactly what it would have done if the debt limit were raised."

Paul Krugman, Rage Against the Coin, 8 January 2013

No this is not correct Mr Krugman. IF the debt limit is raised, the Treasury can continue to issue more debt subject to the same constraints of the marketplace.  But once they take the step of erasing the existing debt through the ridiculous gimmick of over monetization, the process can never be the same again.

The current monetary expansion and system at least maintains a pretense of virtue, and the virtue of Caesar's wife must be above suspicion.

As an experiment I talked with a few intelligent people, mostly engineering types, who don't really have the time to follow the details of economics. I asked them about 'the platinum coin' and they mostly said, 'Oh I heard about it but don't really understand it.'

When I explained what it actually was, they all thought it was barking mad, and found it hard to believe. You see, the vast majority of people still hold to their illusions about how things are in the world.

Personally I think the whole debt limit concept and debate is ridiculous, because the spending has already passed through the appropriations process in Congress where it belongs. If they wish to change something they should do it there.

I would like to see Obama take a principled stand, as that wily politician Clinton did, and call them on their threats as he ought to have done on the fiscal cliff, but deferred out of concern for the unemployed, the middle class, and at least eight important corporate subsidies.

The 'platinum coin' permits direct monetization of debt in a non-market transaction between the Treasury and the Fed, which is something that the supposedly independent Fed does not allow.   This is the mechanism which, in Greenspan's words, emulates the rigor of the and external standard like gold in imbuing confidence to the process.

The MMTers address this risk in confidence with arguments similar to a reaction I saw recently to a comparison of such gimmicky monetization to Weimar. 'Their currency failed because the debt they had to pay was denominated in foreign currency.'

And this is correct. In an increasingly brazen monetization, political control over the users of the currency and holders of the debt becomes increasingly important. And Germany did not have the power to exert control over those countries, England and France in particular, which held their debt. That attempt at expanding their control was to come later.

When faith falters in a false proposition based on the need for ever increasing expansion, first fraud and then force must ensue, or it fails. Just ask Bernie Madoff or Jon Law.

Now I think I understand that Mr. Krugman is doing the time honored thing that many publicly important economists tend to do,  which is carrying the analytical water for his political team, which is all good and well.   I am not opposed to many of the things he recommends, if only he could bring himself to realize that reforming the system as Roosevelt did while providing stimulus is a sine qua non.

But what Mr. Krugman forgets is that when the other side makes themselves look silly and irresponsible, there is some merit in acting like an adult and taking the higher ground, refusing to stoop to the same level.  When you deal with thugs, they can drag you down to their level, and then beat you with experience.  It is no accident that the Congressional approval rating, driven largely by the House Republicans, is at all time lows. 

People may be slow to react, but they are not entirely stupid. "You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time."

And I think, or perhaps even fear, that Mr. Krugman does believe what he is saying. At first I was skeptical, but then I read back a little and found this initial flaw in his assumptions.

"...the Federal Reserve is not obliged to tie the dollar to anything. It can print as much or as little money as it deems appropriate."

This is correct, but one must add, subject to the valuation assigned to that money by those portions of the marketplace that the monetary authority cannot otherwise intimidate, manipulate, or control, if confidence unravels.

I am not a hard money advocate. But if Mr. Krugman wants to keep making the case for hard money, and provoke a reaction that we all may eventually regret, he should keep making the case that our current system of money is little more than 'an accounting fiction.' People are already suffering financial repression because of the Fed's misguided policies of stimulus without sufficient repair and renewal.

And the argument of 'where is the inflation' is not all that dissimilar to the arguments we heard while the credit bubble was pumped up, the financial sector expanded beyond all reasonable measure, and fraud inflated bonuses from 2003 to 2007, 'where is the financial crisis?'

I know this may sound harsh, but when one is in a very public position of power, and standing for what remains of the liberal conscience and the tattered liberal class, it does provide a very loud amplifier, and brings some additional responsibilities.  

I have little doubt that what I say will be ignored, because you still consider this some sort of policy debate, and why would call attention to the salient counter-argument?  And that is what is important, right?  Winning.  We seems to have been winning a lot as a country lately, and losing everything that really matters in the process.

I will give credit to Obama that he rarely descends to such silliness.   Although he does seem to lack the higher leadership skills and unshakable principles for which he clearly stands, in the manner of an FDR, a JFK, Jackson, or a Lincoln.   He is a Chamberlain, a cynical dealmaker, and not a Churchill.

And that is a pity, because that is what the times require.

Without substantial reform, there will be no sustainable recovery.

Chris Hedges: Propaganda, Endless War, Repression, Greed, and Betrayal

“If you can feel that staying human is worth while, even when it can't have any practical result whatsoever, you've beaten them.”

George Orwell

This video below is not new, but someone asked me for a summary of Chris Hedges' narrative of modern US history, and what he sees as the dwindling death of the American dream.

This video is a fairly decent example. I obviously do not agree with everything Hedges says. But I find his perspective much more plausible than other 'alternative histories' and viewpoints that come from left of center, and certainly moreso than those from the right.

I look at the political party to which I had belonged for most of my life, and I am disbelieving and ashamed. But I can find no easy home in the other. There are few places for the independent thinker to rest their head in rational moderation with decency. Hysteria, polarization, and division seem to be the order of the day.

I do not think that things will change until they get bad enough, and then we will finally see the change that will be required to forge a sustainable economic recovery.

Enjoy.

"We who lived in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms -- to choose one's attitude in any given set of circumstances, to choose one's own way.”

Viktor E. Frankl


"Upon her recent passing at the age of 76, I took the opportunity to reread Bubby's memoirs. In four different instances, my grandmother had stood—amid the smoke of the crematoriums, the barking dogs, the trampling boots and swinging clubs—on the infamous "selection line" at the head of which Mengele and his minions stood, pointing left and right, sentencing some to back-breaking labor, and sending others to the gas chambers. In each of those instances, somebody would come along and say or do something that would change Bubby's fate from certain death to tenuous life. In one such incident, she already had been sent to the line of those marked for death when a man appeared as if from nowhere, physically removed her from that line and shoved her into the other, without saying a word.

Indeed, the miracles and the mysteries of the events of those days abound along with the horrors and the tragedies. In contrast to the vile actions of the "Angel of Death" were the noble and heroic actions of many "Angels of Life" who stood ready to risk their own lives for the sake of saving that of a stranger.

It is thanks in no small part to "Angels" like these, who stepped out from behind their own misery and grief to come to the aid of others, that generations now live on to tell the story. How clearly we see the infinite ripple effects of single acts of kindness and compassion, even if accomplished in a split second..."

Yossi Refson, Angels of Light

"Maximilian Kolbe, a Polish Franciscan friar, provided shelter to refugees from Greater Poland, including 2,000 Jews whom he hid from Nazi persecution in his friary in Niepokalanów. He was also active as a radio amateur, with Polish call letters SP3RN, vilifying Nazi activities through his reports.

On February 17, 1941 Kolbe was arrested by the German Gestapo and imprisoned in the Pawiak prison, and on May 25 was transferred to Auschwitz I as prisoner #16670.

In July 1941 a man from Kolbe’s barracks vanished, prompting SS-Hauptsturmführer Karl Fritzsch, the deputy camp commander, to pick 10 men from the same barracks to be starved to death in Block 13 (notorious for torture), in order to deter further escape attempts. One of the selected men, Franciszek Gajowniczek, cried out, lamenting his family ["My poor wife! My poor children! What will they do?"], and Kolbe volunteered to take his place.

During the time in the cell he led the men in songs and prayer. After three weeks of dehydration and starvation, only Kolbe and three others were still alive. Finally he was murdered with an injection of carbolic acid [14 August 1941] ...

Kolbe is one of ten 20th-century martyrs from across the world who are depicted in statues above the Great West Door of Westminster Abbey, London."

Jewish Virtual Library, Maximilian Kolbe

Gold Daily and Silver Weekly Charts

A nice bounce today.

The manipulation that we have seen since December is still holding on a bit.

We may hit a rough patch when the debt ceiling discussions begin in earnest in late January or February.

SP 500 and NDX Futures Daily Charts

I think the US equity market is in for a stiff correction sometime in the first quarter. It will probably be tied in with the debt ceiling fandango.

Alcoa put in respectable results after the bell.

Gold Daily and Silver Weekly Charts - The Silly Season

“So comes snow after fire, and even dragons have their endings.”

J.R.R. Tolkien, The Hobbit


"This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men."

John Perkins

Earnings season tomorrow after the bell with Alcoa.

The silly season continues as the debt ceiling has caught the can which was kicked down the road by the fiscal cliff.

It will only get stupider as the year goes on.

You can read some commentary about 'The Platinum Coin' if you scroll down for the last few postings.

I suspect strongly that this is all jawboning and political posturing. Who can take these jokers seriously excepting for the power of the office that they hold? The approval rating for Congress is around a disgraceful ten percent. But since they do not care what the people think, but only those few wealthy patrons who pay them their millions in contributions, it ought not surprise us all that much.

But in the interest of keeping it 'real' I think that all those who promote this Platinum Coin idea should be paid this year with a nice shiny single platinum coin, as a symbol in lieu of their normal salary.

Perhaps that will help them to understand why people who have saved their money and are receiving almost no interest for it are so aghast at this latest frivolous idea coming down from the economic sophisticates and their fellow travelers.

The lying and looting will continue until confidence improves.

SP 500 and NDX Futures Daily Charts - Earnings Season Begins

Earnings season kicks off tomorrow with Alcoa after the bell.

The VIX chart is included to show its dramatic drop back to complacent lows since the end of December and the 'fiscal cliff.' Almost time for another wash and rinse.

The debt ceiling fight looks to be bloody, with both sides already talking trash about threatening debt default, shutting down the government, and platinum coins.

Never waste a crisis they say.

Common decency and humanity are in short supply.

Chris Hedges speaks about the fiscal cliff and financial system here.

The Legacy of the Fed and the US Experiment with Fiat Currency In One Chart

Please notice that the CPI really 'gets some legs' when Nixon closed the gold window and released the modern monetary theory from its next to last restraint, the bond vigilantes being the last thin blue line.

And below that a quote on the modern monetary system, in which I detect the root of Paul Krugman's confusion about money.

To his credit, Krugman does recognize the liquidity trap, which sets him head and shoulders apart from the Austerians. He just does not understand the markets and how they work in practice rather than theory, and the absolutely compelling need for reform. But that puts him in with most regulators, central bankers, and the herd of academic economists.

Shifting Mandates: The Federal Reserve’s First Centennial
Carmen M. Reinhart and Kenneth S. Rogoff

For presentation at the American Economic Association Meetings, San Diego,
January 5, 2013

Session: Reflections on the 100th Anniversary of the Federal Reserve

Read the entire paper in PDF form here.


h/t Bill P and Business Insider

"The current world monetary system assigns no special role to gold; indeed, the Federal Reserve is not obliged to tie the dollar to anything. It can print as much or as little money as it deems appropriate [History suggests that while they technically can print as much as they wish, there is an effective upper bound along with a law of diminishing returns in there somewhere. Weimar and John Law, amongst others, tended to show that. - Jesse]

There are powerful advantages to such an unconstrained system. Above all, the Fed is free to respond to actual or threatened recessions by pumping in money. To take only one example, that flexibility is the reason the stock market crash of 1987—which started out every bit as frightening as that of 1929—did not cause a slump in the real economy.

While a freely floating national money has advantages, however, it also has risks. For one thing, it can create uncertainties for international traders and investors. Over the past five years, the dollar has been worth as much as 120 yen and as little as 80.

The costs of this volatility are hard to measure (partly because sophisticated financial markets allow businesses to hedge much of that risk) [O brave New World, that has such derivative sophisticates in it. - Jesse] but they must be significant. Furthermore, a system that leaves monetary managers free to do good also leaves them free to be irresponsible—and, in some countries, they have been quick to take the opportunity." [Yes, THOSE countries may experience a financial collapse because of a monetary credit bubble, no doubt because of a lack of economic sophisticates. - Jesse]

Paul Krugman, The Goldbug Variations, 22 November 1996

Why Paul Krugman Should Not Be Treasury Secretary

As you may have heard, there is a petition making the rounds to suggest to Obama that he appoint Paul Krugman to be Treasury Secretary. As if. Obama is a CEO president, and no idealistic progressive.

I wanted to memorialize this column by Paul Krugman because I have the feeling that five years from now he will have forgotten that he wrote it, or handwave it away, suggesting that it was merely a sarcastic fancy or some clever political ploy.

To me this speaks to the silliness, careerism, and political immaturity that infests the heart of the economics profession. There are no politics so petty, and yet so vicious and yet silly, as those that often infest academic departments.

What Krugman suggests here is that in response to the Republicans taking the nation's credit rating and debt hostage, that Obama should take the nation's currency hostage and threaten to use seignorage to erase the debt and thereby render the debt ceiling moot. If this were a pickup football game, it is the equivalent of calling 'Statue of Liberty play!'

While I feel his pain and frustration at the current political climate in Washington, this is not some minor league blogger spinning their latest fantasy, but a Nobel prize winning economist writing in the NY Times who is using his bully pulpit to endorse extreme economic nonsense.

For him to say that it is 'silly but benign' to threaten to take the step of overtly monetizing the nation's debt without market involvement to evade the debt ceiling, and to institutionalize the notion that the currency is nothing more than the squeaky toy of the Treasury, is almost as incredible as it is reckless and immature.

But it does demonstrate that all too often we tend to become what we despise.

Be Ready To Mint That Coin
By Paul Krugman
January 7, 2013

Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.

For those new to this, here’s the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit — tax and spending bills the president is legally required to implement — and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.

And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can’t pass through normal constitutional processes.

Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all...

Read the rest here.

Platinum Coin: Crossing the Monetary Rubicon

You may be reading more and more commentary about the platinum coin solution, and arguments why it doesn't really matter if the US does it or not.

To summarize the concept, the Treasury creates one special platinum coin, with a stated face value of $500 billion or so.

They trot down to the Fed and deposit the special coin(s), redeeming that amount of US notes and voila. It is a overt monetization, but the platinum coin adds a novel touch, and a bit of shiny misdirection.

Some mainstream economists seem to be toying with the idea of climbing aboard the train with the Modern Monetary Theorists. Enthusiasm Builds for Trillion Dollar Coin . Paul Krugman has a typically obtuse take on this in a recent column titled Monetary Rage.

I am not going to argue the pros and cons of this approach at this time. I have said quite a bit about this, and MMT, before. For me it shows that economic silliness is not the exclusive domain of the Austerians.

But I do want to firmly draw your attention as to why this particular solution and approach to the debt is important, and why it raises concern among many, even though that concern is often scorned and ridiculed by the economic savants. And by the way, this is very reminiscent of the same reactions to Alan Greenspan's policies, TARP, and the housing bubble with many of the same players in similar roles.

From a Bloomberg story entitled: Why We Must Go Off the Platinum Cliff.

"In case you're not familiar with this idea: In general, the Treasury Department is not allowed to just print money if it feels like it. It must defer to the Federal Reserve's control of the money supply. But there is an exception: Platinum coins may be struck with whatever specifications the Treasury secretary sees fit, including denomination.

This law was intended to allow the production of commemorative coins for collectors. But it can also be used to create large-denomination coins that Treasury can deposit with the Fed to finance payment of the government's bills, in lieu of issuing debt."

Currently it is against the laws of the land for the Treasury to issue debt, and for the Fed to buy it directly, as opposed to running that debt through the test and discipline of the markets. I researched this a number of years ago, and do not recall the particular law offhand, but in effect the Treasury cannot sell debt directly to the Fed. It must pass through the marketplace first to be valued.

This is all the difference between a democracy, as imperfect and occasionally corrupted as it may be, and a diktat by a central authority.

The platinum coin solution uses a statute regarding commemorative coins to evade that law of money. If the Treasury creates money out of nothing on its own volition, whether it be by assigning a purely whimsical value to a platinum coin, a wooden nickel, or a magic money wand, and deposits that symbolic object with the Fed, it is a game changer. It is purely arbitrary monetization.

And that step requires debate and a proper law, if the country chooses to accept it.

Now one might argue that this sort of overt monetization means nothing. And the MMTers have plenty of convoluted arguments why it does not matter, at least to them. And if anyone objects to their sophistry, they are ridiculed. They might say that the Fed is monetizing the debt already, and inflation has not resulted. But that is not the point. The Fed are pretending that they are NOT doing it, and are thereby maintaining appearances and some level of deniability.

But what people forget, or rather, what they would like us to forget, is that a modern fiat currency is based on the full faith and credit of the issuer, and the willingness of people in the market place to trust them, their word as contract, and the integrity of their actions.

Trust is a funny thing. One can bend it, twist it, and strain it by their actions over time. But at some point it may break, and the parties expected to maintain that trust may say, 'enough!'

And trust is gone, broken. And retracing one's steps to regain it is not a simple matter of a apologizing for and remediating their latest transgression, but a long slow climb back through what in many cases are years of continuing abuse and broken promises.

It is good to note that when dealing with people's resistance to accepting this monetization and artificiality of value, the MMTers quickly resort to arguments that involve the use of force, legal but even physical, in order to stifle dissent to an arbitrary monetary power.

That is the significance of taking the step of overt monetization at will, which is what the gimmicky platinum coin solution is all about. And those who promote it best understand that this is what they are doing, and be prepared for the consequences.

Taibbi: Secret and Lies of the Bailout

This is a long piece from Matt Taibbi about the financial crisis and the bank bailout.

It is under-reported, too often overlooked, and well worth understanding.

I find it remarkable and almost disturbing that discussions by economists and thought leaders so rarely mention and account for the epic fraud and distortions created by the banking system. They occasionally mention it for the footnote of history, as they did the housing bubble and Greenspan's policy failures, so that they can go back at some future date and say that they did 'speak out.'

Big money has polluted the political process and stifled discussion in the corporate media. And they treat this like some embarrassing cousin whom the family rarely discusses in public.

It is the credibility trap. And it is crippling the Anglo-American economic system.

Rolling Stone
Secret and Lies of the Bailout
By Matt Taibbi
January 4, 2013

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?

Wrong.

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

How Wall Street Killed Financial Reform

But the most appalling part is the lying. The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue. Money wasn't the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us. And it was all done in the name of helping regular people and creating jobs. "It is," says former bailout Inspector General Neil Barofsky, "the ultimate bait-and-switch."

The bailout deceptions came early, late and in between. There were lies told in the first moments of their inception, and others still being told four years later. The lies, in fact, were the most important mechanisms of the bailout. The only reason investors haven't run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed. Investors may not actually believe the lie, but they are impressed by how totally committed the government has been, from the very beginning, to selling it.

THEY LIED TO PASS THE BAILOUT

Today what few remember about the bailouts is that we had to approve them. It wasn't like Paulson could just go out and unilaterally commit trillions of public dollars to rescue Goldman Sachs and Citigroup from their own stupidity and bad management (although the government ended up doing just that, later on). Much as with a declaration of war, a similarly extreme and expensive commitment of public resources, Paulson needed at least a film of congressional approval. And much like the Iraq War resolution, which was only secured after George W. Bush ludicrously warned that Saddam was planning to send drones to spray poison over New York City, the bailouts were pushed through Congress with a series of threats and promises that ranged from the merely ridiculous to the outright deceptive. At one meeting to discuss the original bailout bill – at 11 a.m. on September 18th, 2008 – Paulson actually told members of Congress that $5.5 trillion in wealth would disappear by 2 p.m. that day unless the government took immediate action, and that the world economy would collapse "within 24 hours."

To be fair, Paulson started out by trying to tell the truth in his own ham-headed, narcissistic way. His first TARP proposal was a three-page absurdity pulled straight from a Beavis and Butt-Head episode – it was basically Paulson saying, "Can you, like, give me some money?" Sen. Sherrod Brown, a Democrat from Ohio, remembers a call with Paulson and Federal Reserve chairman Ben Bernanke. "We need $700 billion," they told Brown, "and we need it in three days." What's more, the plan stipulated, Paulson could spend the money however he pleased, without review "by any court of law or any administrative agency."

The White House and leaders of both parties actually agreed to this preposterous document, but it died in the House when 95 Democrats lined up against it. For an all-too-rare moment during the Bush administration, something resembling sanity prevailed in Washington.

So Paulson came up with a more convincing lie. On paper, the Emergency Economic Stabilization Act of 2008 was simple: Treasury would buy $700 billion of troubled mortgages from the banks and then modify them to help struggling homeowners. Section 109 of the act, in fact, specifically empowered the Treasury secretary to "facilitate loan modifications to prevent avoidable foreclosures." With that promise on the table, wary Democrats finally approved the bailout on October 3rd, 2008. "That provision," says Barofsky, "is what got the bill passed."

But within days of passage, the Fed and the Treasury unilaterally decided to abandon the planned purchase of toxic assets in favor of direct injections of billions in cash into companies like Goldman and Citigroup. Overnight, Section 109 was unceremoniously ditched, and what was pitched as a bailout of both banks and homeowners instantly became a bank-only operation – marking the first in a long series of moves in which bailout officials either casually ignored or openly defied their own promises with regard to TARP.

Congress was furious. "We've been lied to," fumed Rep. David Scott, a Democrat from Georgia. Rep. Elijah Cummings, a Democrat from Maryland, raged at transparently douchey TARP administrator (and Goldman banker) Neel Kashkari, calling him a "chump" for the banks. And the anger was bipartisan: Republican senators David Vitter of Louisiana and James Inhofe of Oklahoma were so mad about the unilateral changes and lack of oversight that they sponsored a bill in January 2009 to cancel the remaining $350 billion of TARP.

So what did bailout officials do? They put together a proposal full of even bigger deceptions to get it past Congress a second time. That process began almost exactly four years ago – on January 12th and 15th, 2009 – when Larry Summers, the senior economic adviser to President-elect Barack Obama, sent a pair of letters to Congress. The pudgy, stubby­fingered former World Bank economist, who had been forced out as Harvard president for suggesting that women lack a natural aptitude for math and science, begged legislators to reject Vitter's bill and leave TARP alone.

In the letters, Summers laid out a five-point plan in which the bailout was pitched as a kind of giant populist program to help ordinary Americans. Obama, Summers vowed, would use the money to stimulate bank lending to put people back to work. He even went so far as to say that banks would be denied funding unless they agreed to "increase lending above baseline levels." He promised that "tough and transparent conditions" would be imposed on bailout recipients, who would not be allowed to use bailout funds toward "enriching shareholders or executives." As in the original TARP bill, he pledged that bailout money would be used to aid homeowners in foreclosure. And lastly, he promised that the bailouts would be temporary – with a "plan for exit of government intervention" implemented "as quickly as possible."

The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old "it'll help ordinary people" sales pitch. "I feel like they've given me a lot of commitment on the housing front," explained Sen. Mark Begich, a Democrat from Alaska...

Read the rest here.

Gold Daily and Silver Weekly Charts - The Usual Jobs Report Shenanigans

The metals were hit yesterday and today after a weak jobs report and an uptick in unemployment made a bit of a canard out of the Fed minutes suggesting that they will be able to cease their monetary easing and bond buying anytime soon.

They may shift to some other mechanism, but they will continue to expand the money supply.

The smackdown in silver was particularly heavy handed and obvious, but gold was not far behind.

A trader suggested that the bullion banks are trying to shake out the big open interest on the Comex with these intraday raids, hitting stops and discouraging further buying and, God forbid, delivery.