How To Support Ron Paul (Display It Of Course!), American Thinker Post, and MF Global Sinks

(The following is a draft for a LewRockwell.com article)

A friend of mine sent me the above picture the other day.  This driver's passionate support of Congressman Ron Paul's run for the presidency shows a dedication unmatched by the proponents of opposing candidates.  Can you imagine a Chevy Suburban decked out in "Herman Cain for President" memorabilia?  How about a Toyota Prius with a "4 More Years of Obama" sticker that takes up the whole of the rear window?  Yet somehow the above sight is not out of the ordinary when considering the dedicated base of supporters Ron Paul has.

This following of course comes from Paul's steadfast belief and record of promoting liberty. While other presidential candidates pathetically slip on their own words attempting to defend their less-than-consistent records, Paul's integrity is without question.  This is why the establishment media hates him and continues to marginalize his candidacy at every chance. 

So what steps should Paul supporters take in promoting the only candidate willing to tell the truth no matter the cost.  Load up their vehicle with bumper stickers of course!  Sure, this tactic is obvious judging by left over "Obama/Biden 2008" stickers still dotting the cars of now disillusioned supporters of a president who is both a tool of Wall Street and whose foreign policy makes George Bush look like a pacifist.  But the placing of just one "Ron Paul 2012" bumper sticker holds larger implications than informing the tail-gating driver behind you whom you support to head the federal government's executive branch.

Historically, the repressive policies of totalitarian governments have been countered through artistic renderings of resistant slogans and mottos.  Many times, such rebellion involves the use of graffiti.  The same concept applies to state-controlled media which is used to maintain the national discussion on the status quo only.  Dictators, whose lust for power mimics sociopathy, must discourage all forms of dissent to legitimize their control.  Earlier in the summer, graffiti denouncing North Korean leader, and former playboy, Kim Jong Il appeared on a wall Pyongyang Railroad College.  The message simply stated, "Park Chung Hee and Kim Jong Il are both dictators; Park Chung Hee a dictator who developed his country’s economy, Kim Jong Il a dictator who starved people to death."  Needless to say, it resulted in a rigorous investigation to uncover the culprit.

Paul fans take heed, in order to counter a political and media apparatus so entrenched in corruption that it goes to great lengths demonizing a candidate who holds the only respectable view on Constitutionalism, we must display our support proudly.  Not only do "Ron Paul 2012" stickers represent the establishment's biggest fear that the Texas Congressman has a large base of support, they relay an even more important message: it's okay to support Ron Paul.  And this is exactly what the general public needs to see.  Despite how much the mainstream media distorts Paul's views, we must let our fellow citizens know that they are not alone in wishing that a man can be elected president who truly wants to reign in the criminal Federal Reserve System, the parasitic military industrial complex, and the dependency creating welfare state.

Thankfully, we are not alone in our endeavors; a simple Google search for "Ron Paul 2012" bumper stickers yields half a million results.  And don't forget the wonderful LRC Store and its fine selection of stickers.  With the first Republican primary election fast approaching in Iowa, now is the time to show your support.

Fight the state! Buy a bumper sticker!
-----------------------------------------------------------
Got a post on the American Thinker today titled "Obama Lecturing on Euro Finance? Give Me A Break." Here is an excerpt:

Yes Mr. President, after George Bush ruined the world, you presided over the continued bailing out your campaign donators.  We have heard this narrative before and it makes no sense no matter how many times you repeat it.  The crisis occurred in late 2008, more than two years ago, and all you did during that period was win an election with empty phrases, a coal powered teleprompter, and a Hollywood smile.  Fed Chairman Bernanke and the New York Fed did most of the leg work to prop up the banks; that which certainly shouldn't be deemed a "rescue."  Heroine junkies aren't cured with another fiat injection of dopamine. 
Thank goodness another European vacation for world leaders funded by taxpayers is occurring.  Since all the world's problems seemingly melt away at G20 meetings, I expect gum drops to rain from the sky and free puppies for everyone at the close of the latest charade.

Because of the co-ordinated action the Group of 20 took then, the global economy began to grow again. Emerging economies rebounded. In the US, we've had 19 straight months of private sector job growth and added more than 2.5m private sector jobs.

Correction: Because of massive government intervention in response to fiscal disasters caused by previous government intervention, the U.S. ONLY added 2.5 million private sector jobs.  Had there been no stimulus and passage of such atrocities as Obamacare, private job growth would have been much more robust.

First, as the world's largest economy, the US will continue to lead. The single most effective thing we can do to get the global economy growing faster is to get the US economy growing faster. That's why my highest priority is putting Americans back to work. It's why I've proposed the American Jobs Act, which independent economists have said would create nearly 2m jobs, boost demand and increase US economic growth.

What Obama is really saying is that in order for the U.S. economy to lead the world, he needs to be reelected.  The best way to do this is the passage of a short sighted jobs plan that will slightly bring down the unemployment rate till after November 2012.  The American Jobs Act is essentially a bail out of his own floundering presidency.

Big news today as MF Global Holdings files for bankruptcy, via Bloomberg Businessweek:

Oct. 31 (Bloomberg) -- MF Global Holdings Ltd., the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt.

The New York-based firm listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Its finance unit, MF Global Finance USA Inc., also filed, with debt of as much as $50 million and assets of as much as $500 million.

Despite being one of the New York Federal Reserve's darling primary dealers, it will thankfully not be bailed out.  Dudley and crew are just playing the role of the stern parents by cutting it off from the printing press.  The best take on the whole issue comes from the great Charles Gasparino who actually predicted the bankruptcy over the weekend, from the HuffingtonPost:

Corzine's reputation should have been in tatters; by the end of his days at Goldman, Corzine was regarded as a lousy manager, a poor judge of risk and the reason why Goldman had to delay plans to convert from a partnership to become a public company. But he used his winnings to finance a career in New Jersey politics, first being elected as US senator and later as the state's governor.

Meanwhile, the man who booted Corzine from Goldman, Hank Paulson, went on to become Treasury secretary during a period of risk taking unprecedented in modern financial history. And you know how this story ends: The financial crisis of 2007 and 2008, where massive losses tied to housing debt caused the demise of Bear Stearns, Lehman Brothers and nearly every surviving firm before Paulson arranged for the mother of all Wall Street bailouts.

With that came a wave of regulation to reduce risk-taking. In many cases, firms simply decided the downside of losing big bucks and going out of business wasn't worth the occasional big score, so they began to reduce risk on their own.

But Corzine was clearly asleep during much of the risk-taking years, not to mention the fallout that occurred after the financial system imploded (If you live in New Jersey and witnessed how badly he ran the state, you'll know when I mean). When he took over at MF Global, he vowed to run the firm as if the financial crisis didn't happen.

We can only hope that Corzine is rightfully relegated to the dustbin of failed financial history.  The three points of former Goldman guy, New Jersey Democrat Governor, and now failed brokerage firm manager alone should be the only coffin nails needed.  I can't wait to see what his next transformation is.

I will end by pointing out the continuing saga of the global currency race to the bottom as Japan's finance minister, Jun Azumi, has once again intervened in the currency markets to devalue the yen for the third time this year, via Bloomberg:

Japan intervened to weaken the yen for the third time this year and pledged more sales after the currency’s gain to a postwar high against the dollar threatened a recovery from the March 11 earthquake and nuclear disaster.
The yen plunged more than 4 percent to 79.20 after authorities sold the currency in a unilateral intervention. Japanese Finance Minister Jun Azumi said the move was carried out to combat “one-sided speculative moves that don’t reflect the economic fundamentals of our economy.”
Azumi pledged to keep selling the yen in the foreign- exchange market after the currency reached a high of 75.35 against the dollar earlier today. It was the first yen-selling action by Japan since August. The yen and the Swiss franc have soared to records as investors sought havens from Europe’s fiscal debt woes.

While pensioners and those on fixed income play the role of a collapsed dog, central bankers around the world are the jack booted dictators kicking them into submission for all they're worth.  Talk about throwing money away:

(Reuters) - The head of Europe's bailout fund, in Asia on a tour for potential investors, said on Monday he had been reassured by Japan's top currency official that Tokyo would continue to buy its bonds.

How these guys continue to get away with such blatant theft is hilariously heart breaking.

Update- Looks like the bankruptcy was just the beginning for MF Global, via New York Times:

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday. 

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

Put another nail in the coffin for Corzine.

Data Centers in Artic Sweden and Two Great Videos on the Euro Crisis

Talk about markets in everything, this should make the eco-fascists happy, via CNN Money:

(CNNMoney) NEW YORK -- -- The northern Scandinavian landscape is dotted with fjords, lingonberries and, if you believe some locals, elves. But another sight is increasingly common on the Arctic horizon: data centers.
Drawn by the promise of lower electricity costs, a growing number of tech companies are harnessing the region's abundant cold air to cool their servers, cutting expensive air-conditioning out of the equation.
Facebook, the latest tech company to take the polar plunge, announced this week that it will build a data center just south of the Arctic Circle in Lulea, Sweden, where the average low in January is 3 degrees Fahrenheit.
The facility, a set of three 300,000 square foot buildings, is the social networking site's first data center outside the U.S. It's scheduled to be operational by 2012.

Here is the real hitch:

Lulea's dry, frigid weather "definitely is a big part" of the company's decision to build there, Facebook spokesman Michael Kirkland said. Using outside air to cool servers is "absolutely beneficial not just from an environmental perspective, but also from a cost perspective."
Analysts agree. There are "overwhelming financial advantages" to building in the far north, according to Rakesh Kumar, an analyst with Gartner.
Utilizing free outside air can result in "tens of millions, if not hundreds of millions [of dollars], of savings per year" for each site, Kumar said. (my emphasis)

So what in the world could the left complain about here?  Data centers don't exactly provide massive employment and it's in their favorite welfare haven of Sweden.  If the environmentalists can't stand the thought of technological eye sores filing the tundra landscapes, they must face the reality that electricity usage will drastically go down as the need for air conditioning to keep the servers cool is eliminated.  This cuts back on carbon emissions.  Yet it all has nothing to do with wanting to improve the environment, it has everything to do with profits.  Saving the whales is a non issue but only a beneficial side effect.  Meanwhile the savings from electricity costs can be reinvested into other ventures.  It's a win win and it's all thanks to mother nature.

Also it is important to note that this development shows that land is indeed more scarce than labor factors, as pointed out by Murray Rothbard.  A section of the Earth that may have once been deemed unusable from an entrepreneurial perspective is now being used to meet demand and save on costs.  Man's market calculating labor process determined so, demonstrating not only the never ending capacity for demand but of innovation.  Hence labor and idea generation, when not stifled by government intervention, isn't limited in physical bounds as the Earth and land in general is. (ht Tyler Cowen for the story)

Not too much other news today besides the Czech Prime Minister shockingly announcing revelations that perhaps joining the Euro Zone might not be that greatest idea.  So I will end with these two great videos that do a fantastic job explaining exactly what is going on across the pond:

Both videos are short and highly recommended.

Update- Thomas Friedman gets it:

Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street.

Yet his solution is for the government to break up the banks as if corrupt bureaucrats know what the right size is for financial institutions.  Here I thought Friedman finally got the smarts to graduate high school but all he did was pass the 11th grade.  Keep trying Tom!  You'll get it sooner or later!

Update 2- Got an email posted at EPJ showing another sign of inflation:

Bernanke strikes again: I went to Taco Bell for lunch today and the $5 box meal is now missing from the menu. It is also gone from the website. The "Chicken Flatbread Box" which contains the same items as a $5 box is now about $6. Only a month ago, I visited Taco Bell and purchased a $5 box so this is a recent development.

Also check out this excerpt from a great interview with Adam Fergusson, author of "When Money Dies," which deals with hyperinflation in Weimar, Germany:

Update 3- Well he's finally done, Paul Krugman comes out directly in favor of ECB money printing:

I’d still like to imagine that next week Mario Draghi, newly installed as ECB president, will suddenly reveal himself as a supporter of quantitative easing and a 4 percent inflation target, not to mention open-ended lending to crisis countries. And all this would be perfectly sensible — much more so than the way the ECB is actually behaving. But it’s not going to happen.

Krugman is wrong but not for the obvious reason.  He thinks Draghi won't go for 4% inflation; I think he will be pleasantly surprised as Draghi, a former Goldman Sachs exec.,  strives to help his banker friends.

Emerging Order and Prison Gangs

(The following is a draft of an article for the Mises Institute)

A case study from David Skarbek of Duke University which analyzes how the Mexican Mafia has developed its own form of governance within the Los Angeles county prison system recently appeared in the American Political Science Review.  The following is a portion of the study's abstract:

How can people who lack access to effective government institutions establish property rights and facilitate exchange? The illegal narcotics trade in Los Angeles has flourished despite its inability to rely on state-based formal institutions of governance. An alternative system of governance has emerged from an unexpected source—behind bars. The Mexican Mafia prison gang can extort drug dealers on the street because they wield substantial control over inmates in the county jail system and because drug dealers anticipate future incarceration. The gang's ability to extract resources creates incentives for them to provide governance institutions that mitigate market failures among Hispanic drug-dealing street gangs, including enforcing deals, protecting property rights, and adjudicating disputes.

The formation of "spontaneous order" often comes as a surprise to those who see the state as the end all to civilization.  Spontaneous order was of course defined by Freidrich Hayek as:

A spontaneous order is a system which has developed not through the central direction or patronage of one or a few individuals but through the unintended consequences of the decisions of myriad individuals each pursuing their own interests through voluntary exchange, cooperation, and trial and error.

Through the past 50 years, the Mexican Mafia has developed its own system of property rights, protection, and order within the Los Angeles prison system.  This phenomena began in 1956 as incarcerated Hispanics joined together for the sake of protection.  Since the government, which initially locked up the inmates, failed to enforce adequate property rights, an internal system of government emerged as a response.  From this establishment of basic protections arose an order of governance to both extract wealth over a given geographical area and provide law and order.  The Mexican Mafia has essentially created a State within the confines of the United States and the state of California.

Like many States, some have risen to positions of more influence despite the egalitarian model of members having "only one official rank...one vote, and no one can give another member an order."  No State would be complete without taxes and the Mexican Mafia doesn't disappoint.  By utilizing a form of extortion by taxing profits from drug dealers with the threat of violence upon incarceration, the Mexican Mafia still plays the role of enforcer even behind bars. This tax typically runs in the range of 10%-30% of revenues.  In exchange for tax revenues comes protection from fellow inmates if one is unlucky enough to be locked up.  In order for the Mexican Mafia to maximize tax revenue from drug sales, this practice strives to mitigate actual violence.

A system of dispute arbitration has also developed to ensure peace.  Skarbek points to an example in February of 1994 where representatives of the Mexican Mafia and the representatives of two street gangs known as "18th Street Gang" and "MS-13" met to resolve animosity stemming from one gang member killing another.  After arbitration, peace was reached and a gang war averted for the sake of maintaining cash flow from drug dealing.  This process was repeated to settle future conflicts. Drive by shootings are even regulated by the Mexican Mafia as unauthorized shootings are punishable by death upon incarceration.

Though it is based on the threat of coercion, the system of governance by which the Mexican Mafia engages in is quite entrepreneurial.  In Man, Economy, and State, Murray Rothbard describes the actions of an entrepreneur as:

In his quest for profits he saw that certain factors were underpriced vis-à-vis their potential value products. By recognizing the discrepancy and doing something about it, he shifted factors of production (obviously nonspecific factors) from other productive processes to this one.

The Mexican Mafia engages in such a process by vetting out each target's potential for incarceration.  Those with a high potential for being locked up are pressured into paying taxes.  The same goes to those whose friends or family have a high probability of being jailed.  Say what you will about this extortion but the entrepreneurial spirit pops up in even the most unlikely of places.

So what should austro-libertarians take away from this phenomena of emergent order?  After all, the Mexican Mafia has established a semi monopoly of violence and coercion over a geographical area; meaning it has become its own State even within the jurisdiction of the United States and California government.

First, the lack of basic protection and property rights by governing authorities provided the incentive and profit motive for inmates to form the Mexican Mafia and its practice of taxation.  Had adequate protection been offered, such an elaborate system of governance may not have emerged.

This takes us to the next point, the Mexican Mafia's taxation and protective model was indeed the result of spontaneous order.  As Hayek outlined, the original members of the Mexican Mafia established this system to better their own interests.

Where Hayek's insight doesn't apply is the use of coercion by the Mexican Mafia.  While emerging order as result of purposeful action is something to be celebrated when it results in peaceful, voluntary cooperation, the violent tactics employed by the Mexican Mafia are something to abhor.  As the non-aggression axiom, the foundation for austro-libertarianism, shows, unjustified aggression toward one's property is morally reprehensible.

And this leads to the final point.  The Mexican Mafia's system of governance can be attributed to the State's prohibition of narcotic usage.  If the State regarded property rights as sacrosanct, the use of all controlled substances would not be outlawed and thus lead to drop in incarceration rates.  Without the threat of jail and subsequent assault, the Mexican Mafia would lose much of its potential for extortion.

While the Mexican Mafia's system of law and order is not one libertarians should endorse, it is demonstrative of man's ability to develop protective services amongst the failure of existing governments.  Skarbek's case study is an important tool to analyze such instances of spontaneous order as mankind, possessing infinite desire, continues to transform and adapt to changing circumstances.

Obama's Advice on Europe (No Joke), China Property Bubble Bursting, and My New Mises Piece

When you are getting financial advice from a community organizer, you know you are in trouble.  First it was George Soros, then Gordon Brown, and now President Barack Obama is weighing in on what steps to take to ensure that the Euro zone crisis doesn't spread to the U.S.  How ironic that the man leading us down the same pathway of Greece is now issuing warnings on fiscal calamities.  Does the President know no bounds? (Don't answer that).  Via, yet again, the Financial Times:

When leaders of the largest economies meet next week in France, our citizens will be watching for the same sense of common purpose that allowed us to rescue the global economy two years ago from a financial crisis that was sparked by years of irresponsibility.

Yes Mr. President, after George Bush ruined the world you presided over the bailing out your campaign donators.  We have overheard this narrative before, too bad it makes no sense.  The crisis occurred in late 2008, more than two years ago, and all you did during that period was win an election with empty phrases, a fossil fuel powered teleprompter, and a Hollywood smile.  Bernanke and the New York Fed did most of the leg work, of which certainly shouldn't be deemed as a "rescue."  Heroine junkies aren't cured with another fiat injection of dopamine.  Thank goodness another European vacation for world leaders funded by taxpayers is occurring.  Since all the world's problems seemingly melt away at G20 meetings, I expect it to rain gum drops and free puppies for everyone at the close of the latest charade.

Because of the co-ordinated action the Group of 20 took then, the global economy began to grow again. Emerging economies rebounded. In the US, we’ve had 19 straight months of private sector job growth and added more than 2.5m private sector jobs.

Correction: Because of massive government intervention in response to fiscal disasters caused by previous government intervention, the U.S. ONLY added 2.5 million private sector jobs.  Had there been no intervention and passage of such atrocities as Obamacare, private job growth would have been much more robust.

First, as the world’s largest economy, the US will continue to lead. The single most effective thing we can do to get the global economy growing faster is to get the US economy growing faster. That’s why my highest priority is putting Americans back to work. It’s why I’ve proposed the American Jobs Act, which independent economists have said would create nearly 2m jobs, boost demand and increase US economic growth.

What Obama is really saying is that in order for the U.S. economy to lead the world, he needs to be reelected.  The best way to do it is passage of a short sighted jobs plan that will slightly bring down the unemployment rate till after November 2012.   

At the same time, we’re building on the nearly $1,000bn in spending cuts agreed this summer. I’ve put forward a comprehensive and balanced plan to substantially reduce our deficit over the next few years in a way that does not hamper the current recovery and that lays the foundation for future growth.

If you believe for one second this will happen, put on the "dunce" hat and proceed to the nearest corner.

Second, the crisis in Europe must be resolved as quickly as possible. This week, our European allies made important progress on a strategy to restore confidence in European financial markets, laying a critical foundation on which to build.

Since European leaders put a gun to the head of Greece bondholders and forced a 50% haircut on payback and the European Financial Stability (bailout) Fund was increased to 1 trillion euros, world markets have calmed down for now.  The haircuts were hilariously labeled "voluntary" when nothing government does is ever voluntary.  Greece bond losses will end up being more than 50% and the doubling of the EFSF won't be enough to shore up a crisis with French banks, but the can has been kicked for the time being.  Time to celebrate.

Given the scope of the challenge and the threat to the global economy, it is important for all of us that this strategy be implemented successfully – including building a credible firewall that prevents the crisis from spreading, strengthening European banks, charting a sustainable path for Greece and tackling the structural issues at the heart of the current crisis.

If the crisis hits the U.S., which it inevitably will, banks may see significant losses.  This means less money for Obama's campaign and less government funding outside Federal Reserve monetization.  With his lackluster handling of the economy this far, all the President has left is buying votes.

Third, each nation must do its part to ensure that global growth is balanced and sustainable so we avoid slipping into old imbalances. For some countries, this means confronting their own fiscal challenges. For countries with large surpluses, it means taking additional steps to support growth. For export-oriented economies, it means working to boost domestic demand. A critical tool for accelerating that shift is greater flexibility in exchange rates, including exchange rates that are market-driven.

Obama is referring to China but not by name.  Since trade imbalances are the natural consequence of trading in general and the dollars lost find their way back to the U.S. in the form of other purchases, what the President is really trying to say is that China should drop its currency peg so Bernanke's printing press can work its magic.  China has had been leading the world's currency race to the bottom long enough, it's now time for the U.S. to have its turn at the front of the pack.  Little does the President realize however that China's enormous property bubble, fueled by its artificially low currency peg and cheap credit, is now in the midst of popping.

Finally, the G20 nations must deepen co-operation on the range of global challenges that affect our shared prosperity. We need to move ahead with our commitment to phase out subsidies for fossil fuels and transition to 21st-century clean-energy economies.

Yes, because crony capitalism for green energy always turns out well.  

When we met in London two years ago, we knew that putting the global economy on the path to recovery would be neither easy nor quick. But together, we forged a response that pulled the global economy back from the brink of catastrophe. That’s the leadership we’ve demonstrated before. That’s the leadership we need now – to sustain economic recovery and put people back to work, in our own countries and around the world. 

The world economy was "saved" by bailouts and liquidity injections from central banks around the world.  Structural problems weren't actually fixed but politicians need credit for performing miracles, hence the opinion article penned by the President but most likely written by a White House intern.  Expect more vague pronouncement of "coordinated action" and fantasy solutions from the next G20 meeting.  In other words, expect nothing.

--------------------------------------------------------------
As linked to in the above rant, China's property bubble is indeed popping, via Wall Street Journal:

A weekend scuffle in Shanghai over a drop in apartment prices adds to increasing evidence that China’s efforts to tame a surging property market are having an impact – even as it offers a hint of what could happen if the measures go too far.
A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.

This is it, the showdown of the century.  Will Bernanke's money printing offset China's slowdown? How will the downward pressure on commodities from China effect the money flowing into them from investments seeking returns to offset artificially suppressed interest rates?  Neal Soss, economist at Credit Suiss, is noting the upward trend in the U.S. economy, via Bloomberg:

“The American economy finally has accomplished the recovery and has now entered the expansion,” said Neal Soss, chief economist with Credit Suisse in New York, who was an aide to former Federal Reserve Chairman Paul Volcker. “But the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.”

This goes hand and hand with U.S. consumers reducing their rate of saving and increasing consumption in September, thus demonstrating their shifted time preference to not hold cash:

...in the last quarter...bringing their savings rate from a 2011 high 5.3% in June to 3.6% in September, after the BEA reported that while spending increase was in line with expectations at an unsustainable 0.6%, income was just barely above unchanged at 0.1% on expectations of 0.3% confirming that as far as the economy is concerned, the consumer is just getting worse and worse off. This is the lowest number since the depression started back in December 2007!

------------------------------------------------------

The Personal Consumption Expenditure (PCE) price index rose 2.0 percent in September, following an upwardly revised 3.2 percent gain in August. Food prices continued to elevate, climbing 6.5 percent in September, and volatile energy prices rose 28.2 percent, contributing to the overall increase.

As I have said many times before, we are living in unprecedented monetary times.  While the Bernanke and Dudley have been printing like usual to offset a downturn (though at an erratic rate), China will play the wild card in how its deterioration puts a wrench in a fiat boom.

I had an article at the Mises Institute today entitled "In Defense of Flash Trading." An excerpt:

What this demonization of flash trading really comes down to is the inability of regulators to monitor and control such a phenomenon. What the state can't control, it exerts more power and authority to tame. Like a vampire to blood, the state never gets its fill of supremacy.

The justification for regulating flash trading comes down to a brief market crash back on May 6, 2010. In the course of just 16 minutes, the Dow Jones Industrial Average dropped 1,000 points, only to rebound to its original level. It was the largest intraday decline in the history of the Dow Jones. Despite the market's quick correction to the crash, a joint panel was created and headed by the chairmen of the Security and Exchange Commission and Commodity Futures Trading Commission to investigate the matter. Their report, which was released back in February, recommended that new rules and regulations be adopted to address flash trading. Considering how successful the SEC and CFTC were at recognizing the housing bubble, it's a wonder anyone still takes their recommendations seriously.

While flash trading can lead to sudden dips in the market, the market has proven to be quick in correcting itself. The rapid disbursement of information that encompasses the stock market becomes its own self-correcting mechanism.

As society and technology progress, the instantaneous sharing of knowledge and information is not something to fear but to celebrate. In a world where, to borrow a phrase from John Tamny, "capital moves at the speed of light," flash trading ensures that resources will continue to meet more deserving hands and be put to more efficient use.

Some of the commentors pointed out that high frequency trading was a result of government intervention.  I find this very hard to believe because I don't see hft not developing on a truly free market.  Any computer literate person could develop an algorithm in a super computer for a firm to use, how in the world is that government intervention?  I can see why some might think that the big banks have unfair access to such technology but that is an issue of fair/unfair ability to raise capital in regards to cozy government relations, not the technology in itself.  In the end, I am right and everyone else is wrong as always...

2 American Thinker Pieces, Greece Headed to the Barbershop, and Is Matthew Yglesias Really That Stupid?

Had an article on the American Thinker yesterday and one today. Both are more comprehensive critiques of previous posts trashing George Soros and Lawrence Summers.  Here are the excerpts, first from "George Soros' Socialized Merry-Go-Round of a Solution to the Euro Crisis":

Banks need capital, but indebted governments can't afford to bail them out again right now (not that bailing out the banks causes any unintended consequences or anything; it certainly doesn't incentivize risky behavior).  It's too bad we can't close our eyes, click our heels together, and go back to the old days of drinking the sweet nectar of a fiat-financed bubble. 

The governments can however, provide a guarantee that is credible because they have the power to tax. It will take a new legally-binding agreement for the eurozone to mobilize that power, and that will take time to negotiate and ratify. In the meantime, they can call upon the European Central Bank, which is already fully guaranteed by the member states on a pro-rata basis. To be clear, I am not talking about a change to the Lisbon Treaty but a new agreement. A treaty change would encounter too many hurdles.

Since the government has the legal authority to pillage its citizens of their earned wealth, if it makes a financial guarantee, the market will of course buy it because the money can always be forcibly taken from the citizenry if need be.  These guarantees mean the banks are basically nationalized and prevented from going under.  The prospect of civil unrest or capital flight due to increased taxes won't happen if we ignore it.  If worse comes to worst, the ECB can always print euros.  Screw the old Lisbon Treaty; we can write a new one.

Next is "Lawrence Summers and Obama's Clueless Housing Solution":

In an effort to defend HAMP, the recently proposed overhaul of his former boss's abysmal housing refinance program, the man who ran the Treasury under President "more home ownership" Clinton offers some advice on how to fix the housing market.  In the rag of big government known as the Washington Post, Lawrence Summers penned an editorial which pins down the cause of the housing bubble but fails miserably at offering a credible solution.  Get ready for some laughs:

The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending. This is true, above all, of housing policies. Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) whose purpose is to mitigate cyclicality in housing and that today dominate the mortgage market, have become a textbook case of disastrous and pro-cyclical policy. [My emphasis.]

Right out of the gate, Summers comes out as fool.  He diagnoses the cause of the housing crisis only to recommend the same prescription that caused the dilemma to begin with.  Like a patient who is losing too much blood, Dr. Summers recommends that massive blood loss be cured by...you guessed it: more blood loss.  He makes no mention of the Federal Reserve and the abundant credit and artificially low interest rates that fueled the crisis.  Keynesian apologists never acknowledge the printing-press elephant in the room; such would be the equivalent of blasphemy.

Time for some real news, the grand non-bargain for the Euro zone reached yesterday has Greece bondholders voluntarily (you are supposed to laugh at that description) going to the barber to get half of their investment buzzed right off, via Bloomberg:

European leaders cajoled bondholders into accepting 50 percent writedowns on Greek debt and boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a crisis-fighting package intended to shield the euro area.
The 17-nation euro and stocks climbed while bond spreads narrowed after leaders emerged early today from a 10-hour summit in Brussels armed with a plan they said points the way out of the quagmire, albeit with some details still to be ironed out.

And here when I thought I had seen enough kicking of the fiscal can down to road, a big punt comes along.  1 trillion euros is a joke and the EFSF will need much more.  This is just another band aid and as Zerohedge points out, the math isn't adding up like usual:

• Greece has €350 billion in total debt including about €70 billion in Troika "post-petition" loans; these are untouched.
• Of the €280 billion, roughly €75 billion is held by the ECB: this, like the Troika loans, will be untouched.
• This leaves just ~€200 billion in actual debt to undergo a haircut.
• Apply a 50% haircut to this debt (ignoring the fact that of this about €35 billion is held by Greek pension funds, and once the realization that Greek pensions have been cut in half dawns upon the population, the result will be the biggest riots ever seen in Athens yet).
• Total debt to be cut: just about €100 billion.
• Hence, of the total €350 billion, just €100 billion is eliminated, most of it used to backstop and service Greek pension and retirement obligations
• €250, or the residual, of €350, the original, means 72%, or a 28% haircut.
• Greek GDP was €230 billion on December 31, 2010 and declining fast.
  
• And that is how a 50% haircut is "cut" almost in half

Albert Edwards of SocGen sums it up:

"The increasingly frenzied attempts of eurozone governments to persuade financial markets that they can draw a line under this crisis will ultimately fail – even if this week’s measures bring some short-term relief. I have minimal confidence that governments can turn this around within the confines of the eurozone project. You might be surprised though that I feel more bullish! Why? Both Dylan and I have come to the view that the ECB will be forced, by events, to monetise debt in the GIIPS and beyond. And if investors believe the governments in Spain and Italy are bust, then Germany, France, and not forgetting the UK and US, are far, far worse." (my emphasis)

Like I and anybody with a brain larger than kitten's has acknowledged, the European Central Bank will ultimately print to rectify bank balance sheets, Germany Supreme Court decision or not.

The most ironic thing about this voluntary (again, you should be laughing) haircut is the people who will really suffer financially, via Bloomberg again:

The European Union’s ability to write down 50 percent of banks’ Greek bond holdings without triggering $3.7 billion in debt insurance contracts threatens to undermine confidence in credit-default swaps as a hedge and force up borrowing costs.
As part of today’s accord aimed at resolving the euro region’s sovereign debt crisis, politicians and central bankers said they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new securities. If the International Swaps & Derivatives Association agrees the exchange isn’t compulsory, credit-default swaps tied to the nation’s debt shouldn’t pay out. (my emphasis)

As Janet Tavakoli points out, there is a lack of "standards" when it comes to credit default swaps with the ISDA.  Since the Greece haircut was deemed voluntary (chuckles again), it looks like those who were overly cautious of politicians in a social democracy making too many promises with taxpayer money are screwed over while the big banks who sold such credit default swaps are protected.  Sleazy contract law? Yup, smells like kleptocracy, especially with JP Morgan pulling the reigns.

So while joke after pathetic joke keep coming out of Europe, Think Progress's Matt Yglesias tries his best to figure out why tuition costs in American higher education keep going up without making a peep about government guaranteed loans and occupational licensing:

The figures on college tuition increases amidst the continuing recession are really amazing. Most of the people I interact with who are involved in the university system like to talk about cuts in public funding in this context, and if you look at the public/private gap in tuition increases, that’s clearly part of the problem. But the private non-profit four-year college sector increased prices 4.5 percent.
It’s a number that far exceeds the overall level of inflation or income growth in the economy. It’s not because America’s private non-profit four-year colleges got a lot better. Nor is it clear what production inputs saw that kind of leap. College education is not hyper-sensitive to rising gasoline prices. Schools are spending much more money, but on what?

Who cares what Universities are spending money on? What matters is how they are able to afford it and why has society become so ingrained with the mindset that fresh high school graduates need to go into $50,000 in debt to get an education in unmarketable majors like "political science" (my degree is virtually the same thing, so I can speak to such  matters).  It certainly has nothing to do with government intervention and providing a virtually endless supply of student loans, right Matt?  Take a look at this pathetic hypothesizing that would make Paul Krugman proud:

The normal hypothesis would be some kind of shortage of highly specialized labor. Just because unemployment is high doesn’t mean Google can hire software engineers for cheap. There are only so many good ones to go around. Similarly, the spike in joblessness hasn’t led to a surplus of experienced heart surgeons. So labor costs in specific markets can go way up even amidst generalized malaise. Colleges, like hospitals and innovative tech firms, employ highly skilled labor that may be in short supply. But I certainly don’t get the impression from my friends in PhD programs that the academic job market is suffering from critical labor supply bottlenecks. It’s just the reverse. You’re constantly hearing about the glut of people going on the market and unable to find work. Something has gone badly, fundamentally wrong with the basic model.

So after wasting a paragraph on the non-lack of associate professor candidates, Yglesias remains baffled.  After all, government apologists can't ever fathom the simple fact the easy money from the government creates market distortions and mixed pricing signals.  Why is this guy famous again?

I will end with mentioning Jonathan Weil's great piece on the revolving door between Washington and Wall Street and specifically the Big Four accounting firm Deloitte & Touche LLP in Bloomberg today:

This isn’t only a Deloitte problem. On its website, Baker Botts says it also represents Big Four auditor Ernst & Young LLP and Grant Thornton LLP. Gibson Dunn counts all four Big Four firms as clients, including PricewaterhouseCoopers LLP and KPMG LLP. The board won’t say if Doty or Ferguson has been disqualified from any matters as a result.

And talk about being wired: The SEC’s chief accountant, James Kroeker, is a Deloitte alumnus. At the Financial Accounting Standards Board, which writes U.S. accounting rules, the wife of one board member, Russell Golden, is a Deloitte partner.

Other Big Four firms have had similar kinds of links over the years. (One former oversight board member, Kayla Gillan, became SEC Chairman Mary Schapiro’s deputy chief of staff in 2009, then quit this year to join PricewaterhouseCoopers’ “regulatory relations” group.) It’s something special, though, when a single firm can knock out most of its chief regulator’s board. In that respect even the bankers at Government Sachs, aka Goldman Sachs Group Inc. (GS), would have reason to envy the auditors at DeFeds & Touche.

No news here except to maybe Yglesias who believes only angles run the government.

Update- By far the best description of the Euro crisis yet via Charles Hugh Smith:

The best way to understand the EU's current situation is to imagine an astoundingly dysfunctional family of deep-in-denial-addicts, screaming co-dependent parents, and grown-up grifters acting like spoiled brats, all trapped in a rat-infested, flooded flat that's had the gas turned off for lack of payment--and there's a plutonium life preserver glowing in the knee-high water.

Hmmm, I wonder which child represents Greece.  Obviously the bread winning father is Germany.

Update 2- Albert Jay Nock's insanely accurate description of the current education system Yglesias can't seem to pinpoint the problem with:

Then the general estimate, the currency value, of education — the generally-accepted idea of what education is and ought to be — was set by the worst form in circulation, a form which had virtually nothing to do with education, but only with training; and those forms which had more to do with education were forced out. Then finally, after the system had passed a certain point of development in size, power, and prestige, the percentage of net profit (putting the matter in commercial terms) began to show a steady decline.
Furthermore, the curiously composite public character of the system, as I observed it in the late '20s, interested me as having likewise come out inevitably according to pattern; the pattern set in earlier times by the Church, and now by the State. As a State-controlled enterprise maintained by taxation, virtually a part of the civil service (like organised Christianity in England and in certain European countries) the system had become an association de propaganda fide for the extreme of a hidebound nationalism and of a superstitious servile reverence for a sacrosanct State.
In another view one saw it functioning as a sort of sanhedrim, a levelling agency, prescribing uniform modes of thought, belief, conduct, social deportment, diet, recreation, hygiene; and as an inquisitional body for the enforcement of these prescriptions, for nosing out heresies and irregularities and suppressing them. In still another view one saw it functioning as a trade-unionist body, intent on maintaining and augmenting a set of vested interests; and one noticed that in this capacity it occasionally took shape as an extremely well-disciplined and powerful political-pressure group.

In regard to Thomas Jefferson's push for universal education:

I think, however, he would have risked a wry smile at the spectacle of our colleges annually turning out whole battalions of bachelors in the liberal arts who could no more read their diplomas than they could decipher the Minoan linear script.

Damn, now I know why Rothbard loved this guy.  He was decades ahead of many people and still puts fools like Yglesias to shame even from the grave.

Marc Faber "I Would Commit Suicide In View...Of the Governments We Have Nowadays," Merkel Caves, and Michael Maloney on Money

Got home from work today, turned on CNBC, and to my great pleasure the great Marc Faber was being interviewed.  Good thing I caught it because it was a doozy of an interview, see below:

Like any Faber interview, this one was full of great quotes with this being the standout:

“I think I’m very constructive and I’m a great optimist in life. Otherwise I would commit suicide in view of the kind of governments we have nowadays...For sure they will take wealth away from the well-to-do people one way or the other, and from the middle class they will take it away through inflating the economy and lowering the standard of living.”

You can hear both awkward silence and amusement from the interviewers after this wonderful insight.  Faber sees the financial system for what it is: a collusion of elite financial interests who have Washington D.C. locked to their teets sucking campaign donations and guaranteed employment positions after their terms, all of which is run with a printing press and guns.

“When you print money everything goes up at different times, different asset classes...I think that stocks may still continue to go up, and I would rather own equities than government bonds for the next 10 years.”

In reality Bernanke has three children: his first two with his wife and the stock market.  He showers the Dow with more love than his actual kids with every hint of QE.  Like Faber said, the "print our way out" solutions will continue and German Prime Minister Angela Merkel confirmed it today:

As Merkel ends her speech to the Bundestag on her way out to the Euro Summit, here are the main rhetorical conclusions:

• MERKEL SAYS JUSTIFIABLE TO MAXIMISE EFSF FIREPOWER
• MERKEL SAYS GERMANY `IS NOT THE NAVEL OF THE WORLD'
• MERKEL SAYS EURO CAN'T BE ALLOWED TO FAIL
• MERKEL CITES 'HISTORIC DUTY' TO PRESERVE EUROPE, EURO

And like Lemmings marching toward a cliff, German politicians have followed suit:

BERLIN (MNI) – Germany’s lower house of parliament, the Bundestag,
on Wednesday approved with a large majority the broad outlines agreed to
at the EMU leaders’ summit last weekend to enlarge the capacity of the
European Financial Stability Facility (EFSF) without extending the
guarantees underpinning the E440 billion fund.

No mention of the Supreme Court decision that was supposed to put an end to more bailouts but if the Germans have any spine at all, they will be handing pink slips in mass to the 503 bought-and-paid-for politicians who voted to enlarge the EFSF.  Ambrose Evans-Pritchard over at the Telegraph really let it rip on Merkel:

Dr Merkel has won her vote. She secured an "own majority" for proposals to leverage the €440bn bail-out fund (EFSF) into the stratosphere, with the support of some very sheepish looking law-makers from posturing Free Democrats and Bavaria’s Social Christians.
But what a price she paid. The credibility of her team is shattered. Europe has all but destroyed her, even if she manages to limp on to the next crisis.

The unpleasant truth is that the EFSF leverage proposals are idiotic, the worst sort of financial engineering, legerdemain, and trickery. (my emphasis)
As countless economists have pointed out, it concentrates risk. Germany’s €211bn commitment to the fund is not technically breached but the risk of suffering large and perhaps total loss is vastly increased. Creditor states switch from protected senior status on Greek, Portuguese, or Italian debt to the bottom rung on new slabs of sub-prime structured credit. The bluff might well be called.

Far from preserving the peace of Europe for another fifty years, her policies are more likely to bring about the very mischief and grief she warns against.

And of course such a move isn't without a nice chunk of political posturing:

"Shameless abuse of the truth," was the verdict of SPD (Social Democrats) leader Frank-Walter Steinmeier. The government had acted "tactically" at every turn, "misled the people", "held back information", "crossed every red line", brought Europe "to its knees" with botched policies, and lied blatantly about EFSF leverage.

I find it hard to believe the Social Democrats, if in power, wouldn't pursue the same course.  It all makes for great political theater.

Dr. Pippa Malmgren, an economic advisor to George W. Bush, President to Principle Asset Management, and overall banking insider, is speculating Germany will eventually return to the Deutschemark:

If the ECB under the new leadership of Mario Draghi buys so-called PIG bonds or attempts to print money, Germany will feel it has a central bank that has no "rules" and which simply serves as a blank check to the other member states. This means permanent price instability. If the ECB refuses to monetize the debt and no other white knight can be found (the IMF cannot fill the hole, Germany and China won't fill the hole, Tim Geithner would love to but the American public won't permit it, and the idea that the G20 can do it provokes howls of laughter from G20 government officials), then multiple sovereign defaults will occur well beyond Greece. The Greek default will continue with new haircuts leaving investors lucky to get 20 cents on the Euro. That would mean a substantial fall in the Euro and no possibility of recovery until the last element of default was done. That will feel like permanent price instability to the Germans.

A return to the Deutschemark will not mark the end of Europe, the European Union or the effort to enhance integration. Instead, Germany has already begun to emphasize the need for a new EU Treaty that would compel fiscal harmonization, penalties for those that break the Maastricht Treaty rules and other undertakings that would harden Europe's defenses against economic default risks going forward.

Replacing one printing press with another would only bring short term relief and would likely be a boon to Germany's large export market but it would create many unintended consequences like any fiat intervention does.  The guillotine of diminishing living standards known as central banking is just as damaging in the hands of someone else; the goal should be to set fire to it and not replace the owner.  The powers that be will fight tooth and nail to stop such from occurring however. 

Michael Maloney explains the core issue with government currency creation and fractional reserve banking in this great excerpt of a recent speech give at Casey Research's "When Money Dies" Summit:

He does a pretty good job summarizing the practice of creating money out of thin air though delves into Modern Monetary Theory toward the end.  While he is technically correct that government debt must be continually enlarged to pay off previous debt and that the stopping of such behavior would be highly deflationary and destructive for those who rely on cheapened currency, he hardly touches on the morality of such a system and the need for such a correction.  The whole issue of ethics with state-run fiat systems is never addressed by MMTers (I am not saying Maloney is one) because if they had to deal with such an issue, they would sound like fools.  Who really thinks it's a good thing that a small number of people in society use the threat of theft and coercion to dictate the money legally allowed to be used in a country?  But that's precisely what MMTers use to justify fiat currency systems.  Because the government forces the citizenry to pay taxes in dollars, euros, yen, etc., then that in turn dictates such currency be used as a unit of exchange.  If you think salvation through coercion is a moral system, than you clearly wouldn't have a problem with a gang or organized crime unit putting a gun to people's head, handing out slips of paper with numbers on them, and then promising to provide protection as long as they give those slips of paper back in return as payment.  Oh, and you can only use those slips of paper for all commercial transactions.  If you refuse, well there is a metal cage waiting for you.  Sounds like paradise.

Where the Economy is Going, Harrisburg Being Taken Over, and Bizzare Herman Cain Ad

Charles Hugh Smith has an interesting post at Zerohedge today which contrasts the signs of an improving economy in the U.S. with the literal chaos going on in China and Europe.  I have pointed out a number of times on the MGD that everything being equal (meaning Europe and China don't implode), the U.S. looks raring to go with Bernanke's money printing at the helm.  James Altucher had a pretty good summary of the upward trend a few days ago:

Right now, with everyone so pessimistic, is the best time to be optimistic. There’s $1.6 trillion extra dollars lying around in the banks. Corporate America has an extra $2 trillion and there’s untold trillions in pension funds, retirement accounts, etc that are completely in cash. ALL of that money will eventually hit the economy. Any business started now that is halfway good will get their hands on that money.

Rail traffic is up! What does this mean? It means people are shipping commodities all over the country. Steel, oil, food, etc. Which means companies are about to start building things, which means companies are seeing demand pick up so they are getting ready to restock inventories, which are at lows. This indicator is almost never talked about in the media outlets. All they talk about is a beach resort in Europe called Greece which has nothing to do with us. -          Hotel occupancy is up. What does this mean? It means business people are traveling again. They are traveling because they are selling something. They don’t travel to sell without companies asking for those sales, putting out proposal requests, etc. Things are moving.
-          Look at the statistics for fedex.com (using a site like compete.com). It’s up. It slipped a little when manufacturing dropped 15% in the summer in Japan because of the Earthquake but now it’s back up. This means things are being shipped. Goods are being sold. This doesn’t mean the economic statistics will be good for last quarter. It means it will be good for NEXT quarter.
-          Housing starts up huge. HUGE. The biggest since 2006. That means people will get hired again to BUILD houses. That’s a huge part of our economy.
-          Earnings are killing it. Intel is the bellwether for all technology. Technology has driven the market (for better or for worse) for fifteen years. Intel is killing it. This means people are buying computers and phones. Which means businesses are expanding. AAPL, one of the fastest growing companies, trades for just 8 times forward earnings and has $116 billion cash in the banks. These companies aren’t going bankrupt and demand is not going down for their products.
And let’s forget all about the basic economic statistics. Google is making cars that drive around on highways without drivers. MIT scientists are working on quantum computers. Every day there’s more evidence on how to diagnose and cure various cancers.

Smith also makes the same observance, albeit in a more pessimistic tone:

There are five basic arguments in favor of a "real thing" rally that runs higher for months to come: 1. Stocks almost always rally in November-December, and end in positive territory in the 3rd year of the presidential cycle (2011)
2. September data in the U.S. was mildly positive, fears of recession have faded
3. Corporations like Google and Catepillar are posting blow-out earnings
4. Europe is finally solving its debt crisis in a comprehensive fashion
5. China is still growing and thus is still the tugboat pulling the global economy ahead

The last two points are not accurate.  Europe is anything but solved (implicit money printing and bailouts aren't announced but most likely assumed, the IMF is already strapping up) and China is like a dangerously inflating balloon attached to a helium tank with the release nozzle still set on high.  Smith acknowledges this:

Question: if China's growing so wonderfully, then why isn't it own stock market soaring? Perhaps the data supporting the official story of 8-9% growth (as usual) is more "perception management" than reality. If it was real, then why aren't Chinese stocks soaring along with other global markets? Once again, Bulls have to explain this disconnect; ignoring it is not an option for any risk-conscious investor.

The answer is that China's stock market was heavily correlated with CBoC money printing:

The U.S. is starting to replicate this trend as investors are becoming more optimistic thanks to Bernanke and Dudley.  But like every fiat boom, a bust will surely follow.  In regards to Europe, Smith asks:

If the E.U. solves its debt problems by effectually transferring bad bank debt to the sovereign balance sheets of Germany, France, Finland, et al., then taxpayers will see their incomes significantly reduced by austerity and higher taxes, in both debtor and "savior" nations. 

Incomes and GDP are already declining in the weaker EU nations which have supported Germany's export-dependent economy by importing billions of euros of goods from Germany. What happens to German exports in Europe as its customers' economies contract?

Question: how can lower incomes, and thus lower sales and lower profits, possibly be supportive of higher stock market valuations? There is no free lunch; the hundreds of billions, and possibly trillions, of euros needed to save the banks and bondholders from losses will come out of the pockets of taxpayers and recipients of State/government payments. That necessarily means those taxpayers/recipients will have less income and thus less money to spend. More government revenue will be devoted to interest payments, and so less will be available to transfer to citizens.

Smith neglects to mention that ECB money printing ultimately flows to the big banks first and is then used to bid up the stock market.  Of course there is no free lunch, that's why inflation, malinvestments, and market distortions occur with artificially low credit and central bank monetary policy.

Though the Economic Cycle Research Institute declared the U.S. is falling into recession yesterday, other indicators are saying the opposite.  This holiday season will be very revealing to the true direction of the U.S. economy as long as Europe and China don't melt down first.  Thankfully with my part time retail stocking job (temporary till I get a full time job) I have an upfront view of consumer sentiment.

It's been slowly building, but it looks like Governor Corbett bit the bullet yesterday:

HARRISBURG, Pa. — Gov. Tom Corbett launched a state takeover of the heavily indebted capital city on Monday by declaring a fiscal emergency in Harrisburg — a move viewed as the state’s most aggressive intervention yet into the affairs of a Pennsylvania city and one that raises new legal questions.
Corbett, a Republican, made the declaration four days after signing a law that grants him the ability to take unprecedented control over much of Harrisburg’s finances, including the ability to use the city’s money to ensure that government continues to operate services, issue paychecks to employees and make pension and debt payments.

Like I wrote back in July, this is a bad maneuver and the bankruptcy which Harrisburg's City Council tried to pursue which would have forced bondholders to take the hit they deserve for throwing money at an undeserving city was the right option.  State takeovers of a city and municipality are never a good thing as local, and more accountable, government loses control to bureaucrats even further away from the problem.  Like Europe where the PIIGS could declare bankruptcy and get the pain over and done with, Harrisburg's troubles will only be prolonged with Corbett's latest lust for power.

While watching MSNBC this morning, this creepy campaign ad from Herman Cain made it rounds:

What in God's name is this?  It's unbelievable that this is an actual campaign ad.  Cain's smile at the end is definitely the type of thing that keeps children up at night.  Good thing it's Halloween season.

I will end with some great news as Robert Wenzel over at EPJ has announced he is starting the "Robert Wenzel Radio Show."  This is gonna be great!

Update- As the global currency race to the bottom continues, the Bank of Japan has stepped up its efforts to screw over the public:

Case in point: the Nikkei just reported that the BOJ "will discuss additional monetary easing measures to help blunt the mighty yen's impact on the economy when its policy board convenes for a meeting Thursday." Specifically, the BOJ may (read) will, expand the existing 50 TRN yen asset-purchase program by 5 TRN yen, and also may consider the purchase of bonds of more than two-year maturity, thus expanding scope of program and converting it into Japan's own Operation Twist.

Citi's Steve Englander knows what's up:

"Eurozone weakness has also generated indications that policy will be eased elsewhere (even if not in Europe). Policymakers in the US, UK and elsewhere are using the euro crisis as cover to ease policy. For example, the FRBNY's Dudley yesterday characterized even the improved US numbers as disappointing and pointed to further measures if growth did not improve. Chinese growth targets and policy maker comments imply that measures might be taken if there is any sign of slowing. The BoE has already expanded it QE program. At a minimum the comments are suggesting that the policymakers are willing to take aggressive action to offset any weakness.

Update 2- Kelly Evans has an interesting piece in the Wall Street Journal today that reflects a lot of the attention market monetarist Scott Sumner is getting lately:

If you can't hit it, try a bigger target. That, at least, is the latest cry from some economists as the Federal Reserve falls well short on one side of its dual mandate: maximum employment.
A growing number of proponents are pushing for the Fed to replace its employment and inflation targets with a single, simpler one. The one being touted is a level of nominal gross domestic product: GDP without stripping out inflation.

Such a move would trigger even more aggressive monetary policy to stimulate the ailing U.S. economy. Goldman Sachs chief economist Jan Hatzius, who has endorsed this target, estimates the economy's current shortfall relative to its long-run nominal GDP growth rate stood at about 10% as of the second quarter. By his estimates, the quickest way to close this gap, or to get the economy back on the path it was prior to the Great Recession, would be for the Fed to roughly double its balance sheet to $5 trillion via more quantitative easing and keep interest rates on hold through at least 2016.

The "target NGDP" strategy has been gaining prominence lately, especially with Keynesian fools who think such a statistical measure can really be achieved by money printers with limited knowledge.  But as Pater Tenerbrarum points out in this great post, such policy is wishful (really naive and stupid, but I am trying to be nice) thinking:

..this is the main – and insurmountable – problem central planners face in a nutshell. It is not possible to even collect, never mind correctly interpret the 'plethora of data' and bring them into context with a 'variety of scenarios' in such a manner that the 'correct policy' for a correctly foreseen scenario ends up being picked

The blind faith that a mathematical construct can actually be used to determine how much monetary pumping there should be is entirely misguided. How does Evans (a Fed governor Tenerbrarum is critiquing) know that – given the lack of a crystal ball which he admitted to earlier in his speech – he actually interprets the economic situation correctly? Even if he did so, it would not follow from this that more monetary pumping can 'fix' the economy.

Also another sign of an economic recovery in the works in the U.S. was revealed in this speech by Dallas Fed President Richard Fisher:

Even surveys of small businesses—for example, the U.S. Chamber of Commerce’s survey of companies with less than $25 million in sales and fewer than 500 employees conducted in July, or the National Federation of Independent Business survey of September—indicate that fewer than 10 percent of small enterprises (which employ half of the private sector’s workers) are having problems accessing credit.

Expansionary credit from Bernanke is here, more inflation won't be far behind.