Gold Daily and Silver Weekly Charts

"Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants - but debt is the money of slaves."

Norm Franz, Money and Wealth in the New Millenium

Charles Ferguson: MIT Brunel Lecture on Economics and the Financial Crisis

See Charles Ferguson's documentary Inside Job when you have the opportunity.  I understand that the DVD may be released sometime around March 2011.

Ferguson starts his presentation at about 7 minutes in.

I was glad to hear him admit that he was wrong, honestly wrong, about his assessment of Japan Inc. and the Japan asset bubble. He also goes on to make a rather pointed observation about economics which needs to be heard dispassionately by related institutions in particular, whose own credibility and integrity is at risk.

"It is one thing to be honestly correct or not correct about something; it's another thing for an academic discipline to have a systemic corruption problem. And that's what I will be talking about in part later, because the economics discipline in my view does have that problem."

In Charles' defense he is only saying publicly what is being said privately amongst academic scientists and mathematicians about the inordinate effect of power and money on the integrity of economic opinions and research.

As you may recall Alan Greenspan was caught up in the Keating Five S&L scandal. The point of this is that the 'empirical objectivity' of the Federal Reserve in setting policy is a myth as egregious as the trickle down theory and the efficient markets hypothesis.

At the heart of the current financial crisis is the weakening and even corruption of a number of institutions, both public and private. And their reform and restoration to a fully functional state remains to be accomplished. Reforms risks disclosure, and coverups protect the status quo against such the effects of such a disclosure. This is why reform from within is problematic.

Yes, there is always the need for some discretion and privacy in executive decisions. But it must be limited and exceptional, subject to overview by a more relatively impartial third party, always.

The Fed, and particularly the New York Fed, is a largely private institution making decisions not only about its own industry, but is taking actions with public funds that approach and sometimes become de facto public policy decisions with far reaching effects, and is doing so largely in secret. It is therefore highly vulnerable to insider dealing and conflicts of interest. Excessive secrecy is inimical to a free society, for wherever secrecy and power exist, corruption quickly follows.

The only cure for these conflicts of interest is a balance of power and above all, transparency. Sunlight is a marvelous disinfectant. Disclosure, disclosure, disclosure. The more that a bureaucratic organization resists even routine disclosure the more likely it is that they have become internally focused, less effective, and probably have some things to hide.




Link to original video at MIT here.

h/t to Paul Kedrosky and Yves Smith.

The China Miracle: Forex Reserves Hit Record $2.87 Trillion

In the 'Japan Miracle' of the 1980-1990's it is said that Japan essentially 'monetized its real estate.' There was also a mythology of the superiority of Japanese management, with an emphasis on quality management ironically pioneered by the American W. Edwards Deming.

It gained some traction because it was of course a very real and highly useful innovation.  It succeeded in particular because so many Western manufacturing concerns were still under the influence of the management philosophy nurtured during the second World War of production in sheer quantity, and repair and correction of defects later in the field.  Consumer had risen in living standards and preferences and such arrogant treatment by the auto companies in particular was no longer considered acceptable.

But at the end of the day, Japan Inc. was a bubble fueled by a mispricing of risk and assets. I can remember arguing with my business school professors at the time about this, with all their familiar theoretical arguments about efficient markets and the inevitability of the Japanese.

So, with regard to China, it is not an enlightened management prowess, and few make that argument which would just seem silly to anyone who has been there. And it is not the superior quality of their products.

It certainly is fueled by Western investment, particularly driving by companies like Walmart who insisted on suppliers moving production to China starting in the 1990's. A favorable and sizable devaluation in the yuan and a relaxation of US trade rules by Clinton helped to spark the 'miracle' which we are seeing today.

It seems to me that China is monetizing cheap labor, and playing an arbitrage against the middle class sensibilities and public policies of the West. China is exporting deflation and lower living standards for workers in massive quantities, and acquiring sizable foreign reserves in the process. Multinational corporations find this attractive because in the short run it breaks the power which labor and the middle class had gained in the reforms after the 1930's. And it comes complete with vendor financing by China et al., and the promise of fresh economies for exploitation to come. As Bill Gates noted, China represented his kind of capitalism, if only they could start enforcing intellectual property laws. Oligarchy requires pliant labor and obedient and law-abiding consumers.

Unfortunately China and other developing nations must now start growing their domestic markets, and a consuming middle class of their own, or face an economic collapse that will make the Japanese deflation look like a cyclical recession. This is not easy for a oligarchical non-democratic government to manage gracefully. It is harder to control a healthy and wealthy and better educated rising middle class.

Miracles like China and Japan are made possible by a currency system that is broken, subject to manipulation and mercantilist trade policies that protect domestic markets while promoting exports. It is promoted by economic quackery that is funded by Wall Street that is masquerading as a scientific approach to maximizing the common good.

This remnant of the efficient markets hypothesis is creating even more dangerously destabilizing imbalances than those which provoked the collapse of Russia and the Asian currency crisis, and will be at the root of the global currency crisis to come, most likely later this year.

Never one to waste a crisis which they created, the oligarchs will put another emergency offer on the table, as they did with the American TARP bailout. Adopt our solution, one world currency, or suffer the consequences. The econo-parrots will quickly fall into line behind this latest twist in financial engineering, and there will be an hysterical antagonism towards all other competing solutions, anything that runs counter to a larger monetary authority.

With one monetary policy comes the necessity of one fiscal policy, as has been most recently shown in the European union. And with one fiscal and monetary policy, sovereign government becomes increasingly irrelevant.  Ponzi schemes by their nature must continue to grow and consume all, or collapse and be exposed for the fraud which they are.

AFP
China's forex reserves hit record $2.87 trillion
January 10, 2011

BEIJING (AFP) – China said Tuesday its foreign exchange reserves hit a record high at the end of 2010 as new loans topped an official target, highlighting Beijing's difficult task of stemming a flood of liquidity. The country's stockpile of foreign currencies, already the world's largest, expanded 18.7 percent from a year earlier to $2.847 trillion at the end of December, the central bank said in a statement.

New loans issued by state-owned banks in 2010 reached 7.95 trillion yuan ($1.2 trillion), exceeding the government's full-year target of 7.5 trillion yuan but less than the previous year's explosion of lending.

M2, the broadest measure of money washing around the world's second-largest economy, reached 72.58 trillion yuan at the end of last year, up 19.7 percent from a year earlier.

Analysts blame China's huge trade surplus -- $183.1 billion in 2010 -- and its massive stimulus measures since late 2008 to combat the financial crisis for the flood of credit that has been fuelling inflation and property prices.

Foreign exchange earned by Chinese exporters is changed for yuan with the central bank so it can control the value of the local unit -- a policy long criticised by China's trade partners for grossly undervaluing the currency.

The foreign exchange is added to China's growing coffers, while the yuan fuels the amount of money flowing into the economy.

Ever fearful of inflation's potential to spark social unrest, top leaders have been pulling on a variety of levers to rein in consumer prices and calm growing anxiety about soaring food costs and property values.

In December, the central bank hiked interest rates for the second time in less than three months. It has also ordered lenders to keep more money in reserve, effectively limiting the amount of funds they can lend.