Rage Against the Tube

The Plug-in Drug

by Mike (in Tokyo) Rogers

All parents, or soon to be parents, need to read The Plug-In Drug by Marie Winn. It is a book that explains how television is destroying our children and our families.

I have been a professional in the television and radio industry for over 30 years. I work for a company that makes nationally broadcasted programming here in Japan and we often work with the TV Tokyo network, NHK, and nationally broadcasted radio. I also have the experience of being one of the few people who has ever gone to drug rehabilitation and successfully recovered (96% of all drug addicts who enter rehab will return to drug rehab – I have never returned, nor have I needed to – thanks to my wife.)

The Plug-In Drug is a wonderfully insightful book with excellent ideas. The only problem I had with it was a small bit of a seeming compromise by the author on the issue of controlling TV watching time. I think the writer does this because she knows that a "No TV life" is a concept that is too alien in our society today and that the parents would be too adverse to the idea of throwing out the box. Unfortunately, it is the parents who need the TV more than the children. The parents use TV as a babysitter and that, in turn, gets the children hooked. I can tell you from experience that there is no practical solution to trying to control TV watching. The only practical and successful method for controlling TV is to throw the set out. Even though I work in TV, we do not have a TV set in our house.

Imagine a drug addict only doing heroin "just for a few hours a day." It won't work. They will backslide. The only realistic and practical solution is total abstinence and the only way to do this is by eliminating the device.

The TV is actually a drug. But its dangers are even worse than anyone suspects. Married couples think, "Without a TV, my husband and I would have nothing to talk about" (I've heard this many times) but these people have it backwards. Because they have a TV, the couples don't talk about important things and make the effort at spiritual growth (no I'm not talking about religion). The Plug-In Drug should be an advocate for "The TV-Free Family."

People always say that they love their children and that they will do anything for them. But, for the most part, and from what I've seen, it's not true. There is one thing that they will not do for their children: They haven't the courage to throw the TV out.

Read the rest

FMM Comment: I agree wholehartedly with this article. Trash that $%^& Tube !!!

Dow Jones Musical Chairs

NEW YORK (MarketWatch) -- With Altria Group Inc. and Honeywell International Inc. booted out, the Dow Jones Industrial Average is now getting a little less industrial and a little more oriented financial and oil, with Bank of America Corp. and Chevron Corp. joining the world-famous blue-chip index.

Read the rest

FMM Comment: Nadeem Walayat made the following point in his article:

"Don't Bet Against the Dow!".

"Investors should realise one important factor about the Dow 30 stock market index and other similar general multi-sector indices that are made up of a limited number of stocks. The Indices are designed to exhibit the long-term inflationary growth spirals. In that in the long-run the indices will always move to a new high! "

Beware the smoke and mirrors!

FX Insights EUR/USD Calendar 2/10 thru 2/15 (with commentary)

By FX Insights Moderator,

For this trade week we have a four-headed beast to do battle with:

1. U.S. & European Growth Fundamentals
2. Equities
3. Securities
4. Central Bankers

Lets start with number one and work our way down as we try to devise our battle plan for the week ahead...

Fundamental Data:

Last week we saw the market take the EUR/USD down 200 pips twice... this is not a common occurance and something to take note of as we prepare for this week...

On Friday some dude from OPEC talked about denominating oil out of dollars and into euros, which caused that spike in the late afternoon... where did we bounce? At 4550. And if you remember last week we told you several times that the 4550 level is a key level to either keep us pushing lower lows or to allow the euro to make a recovery... we'll talk more about key levels later, though...

As far as this week's fundamentals go, the reason why it's such a critical week is because the market is so intensely focused on Europe's growth situation... the market is looking for any and all signs that growth is destabilizing, that it's weakening, and whether or not this weakness will be enough for the ECB to cut rates soon...

Monday -- key Eurozone growth data by way of French and Italian industrial production data. Forecasts show some recovery there from the previous data release... I'm not quite of this opinion...

Tuesday -- ZEW... I think in the ZEW data we'll see further deterioration of Europe's investor sentiment because of weakening economic conditions... the signs of this weakening sentiment have been there for several months and I believe it's not playing out right before our eyes...

If European investors continue growing wary of economic and financial conditions in the Eurozone this could likely lead to safe-haven buying of bonds, which would negatively impact the value of the euro against the dollar... just something to keep in mind.

Wednesday -- things pick-up on Wednesday... the two biggest pieces of data is the Eurozone Industrial Production number and the U.S. Core Retail Sales... I expect both pieces of data to disappoint to the downside, which will only further confuse the markets... there's really been no sign of much recovery in the U.S. retail sector... my research shows consumers are continuing to tighten their purse strings.

U.S. consumer credit is way down! Consumers are not borrowing either because they can't get a loan, they are loaded with debt and have nothing else to borrow with, they are out of a job, they are about to get their home foreclosed on, they are scared to take on new debt, or a combination of any or all of the above... it's a very tough situation and these factors are certainly weighing heavy on U.S. retailers.

Thursday -- this is where we really get a look at the growth situation in Europe as we get German, French, and Eurozone GDP data... I believe we'll see growth contracting from the previous month in this GDP data, which will not be EUR supportive at all...

Later in the morning we get the U.S. Trade Balance which seriously needs some help... the USD's continued weakness and worthlesness should help the Trade Balance and I'm expecting the data to be USD supportive...

Initial Claims has been quite weak all year long and I see no reason why we're going to get an upside surprise on Thursday... layoffs are continuing and there's no signs of this slowing...

The other keys for Thursday are speeches by Bernanke and Trichet... Bernanke is testifying before the Senate Banking Committee and he's scheduled to speak on the economic outlook and monetary policy... the market will be listening intently to both Bernanke and Trichet for any clues and signs on interest rate policy and growth outlook...

Friday -- tons of data on Friday... most of Friday's data is USD-related... growth, inflation, foreign investments, industrial output, and consumer sentiment... is that enough for you for one day?

I'm going to reserve any commentary on Friday's data for later on this week in the Trade Team updates as I've got much more research to do on what Friday holds...

Lets move on to equities now...

Equities:

Equities is the second head of our four-headed beast we're going to do battle with this week...

I believe the correlation between the Dow, S&P/500 and the EUR/USD will stay in play this week... equities are in a precarious spot right now... have they hit a bottom? Is there more room down to go? Investors will be trying to figure this out...

The way I see it, it's pretty simple... should the equities markets make a recovery this week and see some upward momentum and upward gains, I think this will be highly supportive of the EUR against the USD...

If money flows out of equities again this week, this will likely keep the USD pressure on the EUR... I'm not an equities expert nor do I trade them, so I can't predict what those markets will do this week, but I do know how those moves can effect the EUR/USD, so I'll certainly be watching very closely...

Securities:

Have you been watching U.S. bond yields lately? If not, you might want to this week... the 10-year yield in particular has made a roaring comeback from its lows in the 3.30's... on Friday the 10-year yield closed at 3.65%... if the bond yields keep rising, this should keep the USD supported against the EUR...

Central Bankers:

For most of the week, the Fed's henchmen will be on the speaker's circuit... the market will be listening for any clues on further Fed cuts or to see if the Fed is going to start getting hawkish on inflation and scale back the talk of keeping more cuts on the table...

Same goes with the ECB and Trichet... is Trichet going to stay dovish the next few months? Is he going to signal rate cuts? The markets will be watching and listening all week...

Over the weekend the ECB's Almunia talked about concerns over the euro's strength...

Of course we had the G7 meeting with the central bankers... I've already posted the key points from this meeting, so please take a look at that info... I expect we'll see some fallout in the market from this G7 meeting...

EUR/USD Trading:

As far as trading goes, I'm not heavy short nor am I heavy long... we're close to that key 4550 level... I believe in order for the euro to make a recovery, it's going to need to sustain a break above 4550...

If the euro stays below the 4550 level, it keeps the doors open for more downside testing and correcting... other key downside levels are the 4440 are and the 4380-4360 area...

I remain overal biased to more downside testing, but as I said, I'm not loading the boat with shorts and I'm playing the shortside extremely tight and cautiously because I know this week's fundamentals and those other variables we talked about could easily send the EUR/USD back up toward the 4750 level...

Best advice is to look for those relatively safe intraday trade opportunities, using 1% or 2% entries, taking a few pips per trade, and mitigating your risk during these times of uncertainty and no clear directions...

As we did last week, we'll look for some high probability live trade calls to put in the chat, but only if the opportunity for a lower-risk trade presents itself to the Trade Team...

There's a few posts you'll want to take a moment to read:

The Yen -- the market's untamed beast

Our 1-year anniversary message

FXI's Fundamental Test Part II

That should take care of things for now... again, practice strict risk and money management as we have a potentially volatile and crazy week ahead... each and every day this week holds heightened potential for volatility and price swings...

-FX Insights

EURUSD Financials 2-10-08 thru 2-15-08.xls

The Trouble With Child Labor Laws

Productive work imparts glorious lessons in life. What lesson do we impart with child-labor laws? We establish early on who is in charge: not individuals, not parents, but the state. We tell the youth that they are better off being mall rats than fruitful workers. We tell them that they have nothing to offer society until they are 18 or so.

We convey the impression that work is a form of exploitation from which they must be protected. We drive a huge social wedge between parents and children and lead kids to believe that they have nothing to learn from their parents' experience. We rob them of what might otherwise be the most valuable early experiences of their young adulthood.

In the end, the most compelling case for getting rid of child-labor laws comes down to one central issue: the freedom to make a choice.

FULL ARTICLE

The Revolution Steams Ahead

Ron Paul, the Lake Jackson GOP lawmaker whose Internet-driven presidential campaign has smashed fundraising records but failed to garner substantial voter support, is scaling back his White House efforts and is focusing on the primary race to retain his House seat.

In an e-mail message sent to supporters Saturday, Paul said that while he will remain in the presidential race, he must place a priority on his congressional contest, where he faces Friendswood accountant Chris Peden.

"If I were to lose the primary for my congressional seat, all our opponents would react with glee, and pretend it was a rejection of our ideas," he said. "I cannot and will not let that happen."

With Arizona Sen. John McCain on a clear path to the Republican presidential nomination, Paul said he no longer needs as big a national staff, "so," he said, "I am making it leaner and tighter."

Read the rest

FMM Comment: The MSM negative bias just doesn't end. Chuckle-chuckle...It makes you wonder what they fear.

How to Stimulate Yourself

The Bush stimulus has been approved. Scratching your head? Don't know what to do with this "free" money? I offer three suggestions:

1. Donate it to the Ron Paul Revolution or
2. Pay of your debt or
3. Buy gold, i.e. a Kruger Rand
   

I would defenitely not spend it. But hey, that's me. It's your (or someone else's tax) money. ;-)

Other suggestions are welcomed.

Words from the (Investment) Wise

by Prieur du Plessis


The past week witnessed a turnaround in sentiment as renewed recession fears dominated investors' actions. Stock markets across the globe were subjected to selling pressure, while credit spreads scaled new highs. "What the market giveth [the previous week], it also taketh away [last week]," was Briefing.com's very apt description of events.

A particularly weak ISM Services report and the specter of bond insurer downgrades further reignited recession concerns, and reminded pundits of the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."

Randall Forsythe of Barron's offered the following commentary: "The Mardi Gras that's lasted four decades for the American consumer is drawing to an end, if it is not already over. After Fat Tuesday comes Ash Wednesday, which is observed today, and is the beginning of Lent, a 40-day period of fasting, self-examination and renewal for Christians, analogous to Ramadan for Muslims or Yom Kippur for Jews. Lower interest rates are a palliative, not a cure, for the economy's woes. Time is the only healer. Economists call that time a recession, and it can no longer be avoided."

Before highlighting some thought-provoking news items and quotes from market commentators, let's briefly review the financial markets' movements on the basis of economic statistics and a performance chart.

Read the rest

Cool Tool: Election 2008 Political Dashboard

Here is a cool interactive tool if you want to follow the 2008 election results by state, party and candidate.

http://news.yahoo.com/election/2008/dashboard/?d=ST

Another Asian Crisis Brewing?

Japan is the next sub-prime flashpoint

There is still $300bn of bad debt out there, and Japan could be hiding most of it. Ambrose Evans-Pritchard reports

Just as battered investors had begun to glimpse signs of recovery in America, the next shoe has dropped with an almighty thud in Japan. Echoes are rumbling across the Far East.

The Tokyo bourse has crumbled, suffering the worst start to the year since the Second World War. The Nikkei index is down 17 per cent since Christmas, and the shares of Japanese banks are leading the slide. Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui have all been punished as hard or even harder than those US banks at the epicentre of the sub-prime debacle.

The nagging fear is that Japan's lenders - the conduit for the world's greatest stash of savings - have taken on a far bigger chunk of mortgage securities, collateralised loans obligations and other exotica from America's structured credit boom than they have yet revealed.

Americans and Europeans have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country's strict new audit codes by the end of the tax year in March.

Read the rest

The drumbeat of Weak Economic Numbers

Ugly retail sales on tap, and more from Bernanke

WASHINGTON (MarketWatch) -- The drumbeat of weak economic numbers will likely continue this coming week, topped by awful retail sales figures and depressed consumer sentiment readings.

As if that weren't enough, Federal Reserve Chairman Ben Bernanke will trudge to Capitol Hill again, along with the rest of the President's Working Group on Financial Markets (a.k.a. The PPT), to explain to senators just why the financial markets aren't working.

Risks abound in both the numbers and in the testimony.

Read the rest

FMM Comment: I'm looking forward to Ron Paul boxing Ben's ears again. Is Ben dragging the PPT along as bodyguards?

The Fed and The Sorcerer's New Apprentice

Uncle Sam Crying "Uncle!"

by Antal E. Fekete

Tertium datur

People tend to think in terms of black-and-white. Many of my correspondents think that either hyperinflation or deflation is in store for the dollar; tertium non datur (no third possibility given). I would say tertium datur. The third possibility is a hybrid of hyperinflation and deflation. I described this scenario in my previous article "Opening the Mint to Gold and Silver". It is possible, even probable, that we shall witness collapsing world trade and collapsing world employment together with competitive currency devaluations, as the three superpowers compete in trying to corner gold. The lure of gold is very strong. "There is no fever like gold fever" and, contrary to conventional wisdom, governments are especially susceptible.

A large part of the problem is that the Central Bank is helpless in the face of bond speculation. The Fed is no Sorcerer. It is the Sorcerer's Apprentice. It can pump unlimited amounts of "liquidity" into the system, but cannot make it flow uphill. As we shall see, new dollars flow to the bond market causing a lot of mischief there, instead of flowing to the commodity market as hoped by the Fed.

Up to now leading commodities have outperformed gold. That could change. A select few commodities might continue in the bull-mode for a time, although gold could easily beat them. Most other commodities might go into a bear-mode similar to that of the commodity markets of the 1930's. If that's what was in store, then most investors would be totally lost. They would be navigating without a compass. There would be endless debates whether the country is experiencing deflation of hyperinflation. Your motto in this hybrid scenario should be: "expect the unexpected".

Of course, the Fed will keep printing dollars like crazy. Few of them, if any, will go into commodities. Indeed, most of the newly created dollars will go into bond speculation. Why? Because commodity bulls are running into headwind and face grave risks. By contrast, bond bulls enjoy a pleasant tailwind. Bond speculation is virtually risk-free. Under our irredeemable dollar bond bulls have a built-in advantage. The Fed has to make periodic trips to the bond market in order to make its regular open-market purchases of bonds to augment the money supply. In order to win, all the bond speculator has to do is to stalk the Fed and forestall its bond purchases. This is the Achillean heel of Keynesianism: it makes bond speculation inherently asymmetric favoring the bulls, and that will ultimately derail the economy on the deflation-side of the track.

Read the rest

Should Ron Paul Abandon His Bid for the Republican Nomination ?

McCAIN MADNESS

by Chuck Baldwin

A few weeks before Super Tuesday, my friend Howard Phillips asked me who I thought the Republican Presidential nominee would be. I predicted John McCain. With the results of Super Tuesday now history, most political pundits are also predicting that the Arizona senator will gain the Republican nomination for President. And with Mitt Romney now out of the race, McCain is all but assured the nomination. One did not need to be a seer to figure this one out.

For one thing, President George W. Bush all but destroyed whatever conservative influence was left in the GOP. Peggy Noonan is right about that.
(See http://online.wsj.com/public/article_print/SB120120952618514493.html )

Furthermore, the capitulation and compromise of principle by the Religious Right has also significantly sealed the death warrant of conservatism within the GOP. For the sake of not offending George Bush or losing whatever seat at the table the various leaders of the Religious Right felt they had, their spirit of resistance waned to the point that the very name "Christian Conservative" has lost all meaning, not to mention power.

As a result, Republicans have come to accept Big Government, runaway federal spending, the Welfare State, the Warfare State, the Nanny State, empire-building, gargantuan trade and budget deficits, warrantless eavesdropping, the loss of 4th Amendment rights, ad infinitum, ad nauseam.

Therefore, how could anyone expect the vast majority of Republican voters to suddenly rediscover a huge commitment of conviction to conservative principles? Add to that question the fact that there is only one true conservative/constitutionalist who made it to the Republican primaries: Congressman Ron Paul. And virtually the entire media and political establishment pummeled Congressman Paul to the point that his limited success in the race can be categorized as nothing short of miraculous.

Read the rest

The Mother of All Bubbles

By Peter Schiff

In contrast to the dismal forecasting record of mainstream economists over the last few years, the forecasts that I have made regarding the dollar, oil, commodities, precious metals, global stock markets, inflation, and the U.S. economy have all come to pass. In addition, unlike the top economic oracles on Wall Street and in Washington, I can also point to similar accuracy in predicting the bursting of growing bubbles, first with technology in the late 1990’s, and more recently with real estate. However, my long-standing prediction about the fate of the bond market has fared much worse. I still do believe this prediction was not wrong, but simply premature.

For years I have predicted that the falling dollar, persistent trade deficit, and the lack of domestic savings would combine to send long-term interest rates sharply higher. The effects of these fundamental drivers would undermine the Fed’s efforts to lower short-term rates and compound the problems for the housing market and the U.S. economy. Yet as of today, the yield on the thirty-year Treasury bond still stands below 4.5%, within 40 basis points of a generational low. Either this is the one piece of the puzzle that I somehow got wrong, or other factors are working to temporarily confound fundamental economics and prop up the bond market. As you might imagine, I am confident that it is the latter and consider the U.S. Treasury market to be the mother of all bubbles.

I have often said that the only thing worse than holding U.S. dollars is holding promises to be paid U.S. dollars at some distant point in the future. However, this is precisely what U.S. Treasuries represent. Given all of the inflation that already exists, and all of the additional inflation likely to be created over that time period, why would anyone pay par value for the right to receive $1,000 in thirty years in exchange for a mere 4.5% coupon? Although it looks like the sucker bet of the century, the fools have been lining up to buy. Alan Greeenspan called this a "conundrum." I simply call it mass delusion of the same variety that brought us pets.com, and $800,000 tract homes in the middle of the California desert.

Just like dot coms or real estate, today’s bond prices reflect a fantasy world. In this "Bizarro" reality, the dollar will remain strong, inflation will stay low, economic strength will persist uninterrupted, and Fed policy will be predominantly hawkish for the foreseeable future. But when the fog finally lifts, and investors come to grips with a sagging dollar, recession, gaping budget and current account deficits, and the most accommodative Fed imaginable, bond prices will collapse, sending long-term interest rates skyrocketing higher. Unfortunately, for investors who hitched their wagons to benign government CPI statistics and ignored real world evidence of inflation [rapid money supply growth, surging gold, oil and other commodity prices (wheat and soy beans prices catapulted to record highs this week), the sinking dollar, and actual increases in consumer prices,] the losses will be excruciatingly real.

It is important to remember that for every borrower there has to be a lender. For example, if a homeowner wants to refinance his mortgage, there must be someone willing to loan him the money. Practically everyone on Wall Street is hailing the Fed’s recent rate cuts because they believe it will allow strapped ARM holders to refinance into more affordable mortgages. However, while low rates are great for borrowers, they are lousy for lenders. Why would anyone want to offer a thirty-year mortgage at an artificially depressed interest rate? As soon as the Fed raises rates again, as it clearly intends to do once the crisis ends, all that low yielding mortgage paper will collapse in value. Lenders can surely figure this out and will therefore refuse to volunteer to be the patsy in this plan.

Eventually, the world’s lenders will reach similar conclusions with respect to U.S. Treasuries. No matter how low the Fed funds or discount rates get, private savers around the world will simply refuse to lend given the inherent risks and paltry returns. At some point the sheer absurdity of holding long-term, low-yielding receipts for future payments of depreciating U.S. dollars will be apparent to all. After all, it was not too long ago that investors thought holding subprime mortgages from financially strapped borrowers who could not possibly repay them was also a great idea -- so great in fact that many leveraged themselves to the hilt to buy them. Judging from the extremely poor demand at this week’s $9 billion auction of thirty-year Treasury bonds, the day of reckoning may not be too far off.

For now there are a host of factors temporarily propping up the Treasury bond market, such as unrealistically sanguine inflation expectations, foreign central bank and hedge fund buying, short covering, credit spreads, problems in the mortgage market, recession fears, and flight to what is falsely perceived to represent the ultimately in safety and quality. When these props give way, look out below! As we have learned from previous bubbles they can inflate for a long time before they burst. As this one has been inflating longer then most it has amassed quite a bit of air. When it ultimately finds its pin the popping sound will be deafening.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

******

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for over twenty years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.

>> Click here for Mr. Schiff's video interviews.

Ron Paul Speaks at Liberty University

Intro


Part 1


Part 2


Part 3


Part 4

Passing the Buck back to the Future

The BIG Kahunas are getting plans in place to postpone the inevitable market collapse to an unknown future date. It will be interesting to see what plans these fools come up with. It's either "Inflation or Death!"

******

TOKYO (Reuters) - Financial leaders from the world's richest nations stood ready to discuss a global policy response to the credit crisis, which has unleashed economic downdrafts and market turbulence that knows no borders.

Aggressive action by the United States to cut interest rates and taxes to ward off recession has tested the limits of cooperation in the Group of Seven.

A question of how far other major economies should follow has provided a tense backdrop for finance ministers and central bankers as they gather in Tokyo to seek ways to repair damage to their economies and financial markets wrought by the U.S. subprime mortgage crisis.

But officials arriving on Friday for G7 meetings this weekend showed a readiness to begin tackling problems together.

Read the rest

The Economic Incompetence of Socialism

Gordon Brown's reputation for economic competence has been dealt a severe blow as £100 billion of taxpayers' money used to shore up Northern Rock was added to the national debt.

The Treasury has broken one of its jealously guarded borrowing rules after the National Statistician ordered Alistair Darling, the Chancellor, to put the stricken bank's liabilities on the Government's books.

The ONS said it was classifying Northern Rock as a public corporation

The total amount of public money involved in rescuing Northern Rock is the equivalent of saddling every family in Britain with £3,000 of debt.

It means the national debt will rise as high as 45 per cent of gross domestic product, well above the limit set by Mr Brown in his sustainable investment rule when he was Chancellor.

The Conservatives said Labour's claim to economic competence had been "blown to pieces".

George Osborne, the shadow chancellor, said: "Gordon Brown has staked his reputation for competence on meeting his own fiscal rules. Those rules have been blown to pieces as a result of his economic incompetence. Gordon Brown has effectively saddled every taxpayer with a second mortgage as a result of his mishandling of the Northern Rock crisis."

Read the rest

FMM Comment: The following comment is also made in the article:

"However, when historians look back at the Northern Rock saga the broader question of how the Government allowed this to happen will be more important than whether one borrowing rule was broken."

How the British Government allowed this to happen is an easy answer. Any country with a Central Bank allows this to happen. It's called fractional reserve banking or the money-multiplier effect.

If you have never heard of these terms, read part 1 and 2 of how this system works.

The following is an excerpt from an article, written in MARCH 1991, by the late Murray Rothbard.

"A fascinating phenomenon appeared in these modern as well as the older bank runs: when one unsound" bank was subjected to a fatal run, this had a domino effect on all the other banks in the area, so that they were brought low and annihilated by bank runs. As a befuddled Paul Samuelson, Mr. Establisment Economics, admitted to the Wall Street Journal after this recent bout, "I didn't think I'd live to see again the day when there are actually bank runs. And when good banks have runs on them because some unlucky and bad banks fail . . . . we're back in a time warp."

A time warp indeed: just as the fall of Communism in Eastern Europe has put us back to 1945 or even 1914, banks are once again at risk.

What is the reason for this crisis? We all know that the real estate collapse is bringing down the value of bank assets. But there is no "run" on real estate. Values simply fall, which is hardly the same thing as everyone failing and going insolvent. Even if bank loans are faulty and asset values come down, there is no need on that ground for all banks in a region to fail.

Put more pointedly, why does this domino process affect only banks, and not real estate, publishing, oil, or any other industry that may get into trouble? Why are what Samuelson and other economists call "good" banks so all-fired vulnerable, and then in what sense are they really "good"?

The answer is that the "bad" banks are vulnerable to the familiar charges: they made reckless loans, or they overinvested in Brazilian bonds, or their managers were crooks. In any case, their poor loans put their assets into shaky shape or made them actually insolvent. The "good" banks committed none of these sins; their loans were sensible. And yet, they too, can fall to a run almost as readily as the bad banks. Clearly, the "good" banks are in reality only slightly less unsound than the bad ones.

There therefore must be something about all banks--commercial, savings, S&L, and credit union--which make them inherently unsound. And that something is very simple although almost never mentioned: fractional-reserve banking. All these forms of banks issue deposits that are contractually redeemable at par upon the demand of the depositor. Only if all the deposits were backed 100% by cash at all times (or, what is the equivalent nowadays, by a demand deposit of the bank at the Fed which is redeemable in cash on demand) can the banks fulfill these contractual obligations.

Instead of this sound, noninflationary policy of 100% reserves, all of these banks are both allowed and encouraged by government policy to keep reserves that are only a fraction of their deposits, ranging from 10% for commercial banks to only a couple of percent for the other banking forms. This means that commercial banks inflate the money supply tenfold over their reserves a policy that results in our system of permanent inflation, periodic boom-bust cycles, and bank runs when the public begins to realize the inherent insolvency of the entire banking system.

That is why, unlike any other industry, the continued existence of the banking system rests so heavily on "public confidence," and why the Establishment feels it has to issue statements that it would have to admit privately were bald lies. It is also why economists and financial writers from all parts of the ideological spectrum rushed to say that the FDIC "had to" bail out all the depositors of the Bank of New England, not just those who were "insured" up to $100,000 per deposit account. The FDIC had to perform this bailout, everyone said, because "otherwise the financial system would collapse." That is, everyone would find out that the entire fractional-reserve system is held together by lies and smoke and mirrors, that is, by an Establishment con."

You can read the full article here

Rejoining of the Unholy Matrimony

ECB may follow Fed and BoE in rate cut
By Ambrose Evans-Pritchard

The European Central Bank has ditched its bias towards interest rate rises, preparing to join the US Federal Reserve and the Bank of England in easing monetary policy to head off a sharp downturn.

Jean-Claude Trichet, the ECB's president, acknowledged that risks are now largely on the "downside" after January's precipitous fall in Italy and Spain's services index.

"It is a total capitulation," said Jacques Cailloux, eurozone economist at the Royal Bank of Scotland.

"The ECB was wrong in thinking that Europe could decouple from the US and has misjudged the loss of momentum. We think they will start cutting rates in April," he said.

Ken Wattret, an economist at BNP Paribas, said cuts could come as soon as March, warning of a "vicious spiral" as the credit squeeze and sliding confidence feed on each other.

The euro plummeted to $1.4450 against the dollar as Mr Trichet's comments flashed across traders' screens. Funds have taken massive 'short' positions, betting that the euro's six-year march to record highs is over.

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Looking Into a Gifted Horse's Mouth

Gift Card Sales Backfire

The whole idea of gift cards seems kind of silly. Why give someone a $50 gift card when it can only be used at one spot, while $50 in cash can be used anywhere? And if a person gives you a gift card back what's the point of it all?

Why not trade $50 bills and be done with it? Heck, why not save the effort and not exchange anything at all? I guess attitudes have not sufficiently evolved for that yet.

For whatever reason gift cards have become increasingly big business. People like them. Perhaps it's because they can buy whatever they want instead of having to go through the hassle of returning something too big, too small, too red, too blue, or too pink.

And Businesses like them too! Or at least they did.

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Moral Obligations Of Walking Away

Walking away is certainly a hot topic. I brought up the issue of walking away on October 2nd 2007 in Mortgage Forgiveness Act - The Seen and Unseen.

The winner in the debt forgiveness provision (if there is a winner) is the struggling homeowner. The unseen loser is the mortgage holder, the NAR and the NAHB. Prior to this legislation a homeowner had to worry about tax liabilities of just handing over the keys and walking away. If debt was forgiven prior to bankruptcy, there was also a tax liability. Such considerations have been removed. At the margin, more people will be tempted than before to hand over the keys and walk away.

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FX Insights Trade Team Update 07/02/2008

By FX Insights Moderator

Did you enjoy today's 200 pip drop as much as you enjoyed it on Tuesday? I hope so... we surely did, these are the kinds of days we live for as traders!

So what drove the euro down today? Very simple -- his name is Jean-Claude Trichet, and right now, I'd love to shake his hand!

As expected, the ECB held interest rates at 4.00%, but it was what Mr. Trichet had to say at his press conference that caused the euro to get beat up in today's trading... lets re-cap:

Back in November we started giving warnings that European growth would slow in 2008 and that the ECB would eventually be forced to cut interest rates, hopefully those of you who were around back then and read the updates will remember... in fact, I've probably devoted a dozen or more updates over the past few weeks talking about this and now we're finally starting to see the market respond to Europe's weakening fundamentals and the market's speculations of ECB rate cuts.

At this morning's press conference, Trichet was the most dovish about European growth as I've ever seen him... in addition, he basically said that current interest rates would be just enough to stabilize European inflation... plus, he indicated European inflation would subside while downside risks to growth would grow! He almost seemed relieved to get all this off of his chest, it was very odd to watch and observe his body language, but that's an important thing we do because it can signal how the market will decide to react, which was clearly to bring the euro down...

In nutshell, Trichet told the markets the following:

*Rates are on hold and will not need to be raised = EUR-
*M3 growth is slowing = EUR-
*Inflation pressures will subside this year = EUR-
*Growth facing serious risks to the downside = EUR-
*Risks to GDP are on the downside = EUR-
*ECB will not surprise markets = EUR-

Basically, Trichet gave the market six major, mega, no-brainer reasons to short the living crap out of the EUR/USD and to likely keep shorting it in the near-term...

With Trichet giving the market the greenlight to unload euros today, his comments triggered a chain reaction of profit taking, loss taking, and shorting of the EUR/USD, which took us down another 200 pips from yesterday's topside resistence at 1.4638... and as far as today's down move goes, the EUR/USD held to its very reliable pattern of not making a move (up or down) of more than 200-220 pips during a trade day. It moved exactly 201 pips from the top of the range at 1.4638.

As we indicated, sustained break of 1.4550 would open the doors to the downside and we certainly saw this play out in today's market action...

So now we have the EUR/USD making two 200-pip moves down so far this week... if patterns hold true, we'll likely see a retracement back up as the market is slightly overextended and exaggered itself this week... that being said, we have seen EUR/USD patterns where it'll move 500 points in a week, but this is very rare and I'm not expecting this to play out before we see a bit of retracement...

EUR/USD trading...

As we indicated, the break below 4740 took away the market's momentum to push the euro up any higher and now the break below 4550 has opened the doors to test lows we haven't seen for weeks and months.

For most of last year the market punished the dollar for its weak fundamentals and then for the Fed rate cuts... the dollar has recieved the worst of its punishment in the near-term...

The market has yet to fully begin punishing the euro for it's weakening fundamentals because the Eurozone's fundamentals have just barely started to show signs of decline and weakness, which means we have a potentially long road ahead of us... then, the market will need to punish the euro for the ECB rate cuts that are likely coming this spring or sometime early in the second half of this year...

By that time, we'll be in a full-blown U.S. recession, and the global markets as a whole will be crumbling all around us... we've already talked about what a recession will do to gold and the dollar, so I'm not going to take time to get into that now, you can read those posts...

As far as trading goes, I'll be shorting the rises, as indicated in yesterday's update and in the chat today... the only time I'll likely take a euro long is when we trigger a signal... on an intraday trade basis, I will likely be short when I trade within a range...

I would love to tell you where the market will decide to find a bottom or find the next top, but please understand that the landscape is in the beginning stages of shifting...

The dollar's been beaten up left and right, up and down all last year... the market already knows the fundamentals are crap, that interest rates are abysmal, that the jobs market is fickle, and that growth is slowing to recessionary paces -- there are no more big secrets to reveal about the sad state of affairs with the U.S. economy...

For Europe, on the other hand, the secrets are just now coming out and the market has just begun licking its chops to do to the euro what it did to the dollar... at least this is how I see things playing out... I could be dead-wrong, but I'm going to stick with this same forecasting we've had since last November and I'll have to trade it accordingly and consistently...

Lets look at some key levels to keep an eye on:

Downside:

4429
4401
4384
4364

Upside:

4495
4512
4538
4554

For me, the plan is simple, short the rises unless price action dictates otherwise...

Early this morning Yeno gave those in our chat a killer EUR/USD short on a live trade call:

Click on Image

And I just have to give a big congrats to one of our community members who goes by the screename CK33 -- this smart and patient trader took the live trade call, shorted at 4636 and held his short all the way to 4445, picking a perfect bottom to close out and bank 191 pips... we love hearing those success stories!

Fundamentally tomorrow, we only have one noticeable piece of data which is German Industrial Production, which very likely could disappoint this go around...

As far as the market goes, I don't expect another 200 pip move tomorrow, but I'm ready for continued volatility should the market decide to stay active...

Currently, we are in a signal which will close out at 1.4513 should we stay above our last buy level of 1.4420... so far, we've held above this level... I feel confident this signal will payout just as all the others have... if this signal is making you squirm, find me in the chat so we can discuss it

I think that's all for now... see ya in the chat...

-FX Insights