New Mises, Pathetic Attempt to Refute Libertarianism, Some New Numbers, and Putting the Boot on CDS in the Euro Zone

I have an article at the Ludwig von Mises Institute today entitled "Rethinking the Gold Bubble."  An excerpt:

Once QE2 ended, commodities at the consumer level continued to increase in price until the "Operation Twist" announcement.  There are a few conclusions to draw from this.  First, we are experiencing the bursting of a commodity bubble caused by interest rates being kept artificially low by central banks around the world.  These low interest rates entice large investors such as university endowments and pension funds to seek higher returns elsewhere.  For example, the University of Texas endowment took the unprecedented move of purchasing $1 billion in gold bullion last April.  Bernanke even boasted at the onset of QE2 last November that stock prices were up as more investors were willing to risk their money for better returns.  Like commodities, stock-market gains have been heavily correlated to increases in the Fed's balance sheet.  As Henry Hazlitt acknowledged, "no actual inflation happens by a simultaneous or proportional increase in everybody's money supply or money income."  New money hits the economy in stages and flows into different sectors.  The effect isn't felt all at once.  This is just one of the consequences of artificially low interest rates. 

Second, the market was expecting Bernanke and the other leaders at the Federal Reserve to do a lot more at the recent Federal Open Market Committee meeting than replicate a failed monetary trick from the 1960s.  Even Goldman Sachs was surprised by the market effects of the "Twist."  Judging by the plunge commodity prices took following the Fed's announcement, the market has become accustomed to expecting further monetary "easing" — especially given Bernanke's record of meeting any economic slowdown with more money printing.  It should also be pointed out that China's recent attempt at slowing down its inflation-driven economy has also lowered demand for commodities; yet another case of fiat boom and subsequent bust.

While I think this piece is more comprehensive than most of my material, it has admittedly been outdone by Ron Paul's great editorial in the Wall Street Journal today entitled "Blame the Fed for the Financial Crisis."  Staying true to form, Paul employes the Austrian theory to once again make the case for why Greenspan and the Fed are the true cause of the Great Recession:

The great contribution of the Austrian school of economics to economic theory was in its description of this business cycle: the process of booms and busts, and their origins in monetary intervention by the government in cooperation with the banking system. Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.

In many respects the governors of the Federal Reserve System and the members of the Federal Open Market Committee are like all other high-ranking powerful officials. Because they make decisions that profoundly affect the workings of the economy and because they have hundreds of bright economists working for them doing research and collecting data, they buy into the pretense of knowledge—the illusion that because they have all these resources at their fingertips they therefore have the ability to guide the economy as they see fit.

Nothing could be further from the truth. No attitude could be more destructive. What the Austrian economists Ludwig von Mises and Friedrich von Hayek victoriously asserted in the socialist calculation debate of the 1920s and 1930s—the notion that the marketplace, where people freely decide what they need and want to pay for, is the only effective way to allocate resources—may be obvious to many ordinary Americans. But it has not influenced government leaders today, who do not seem to see the importance of prices to the functioning of a market economy.

Paul may not win the GOP nomination or the presidency but he has done wonders to bring the Austrian view to the masses.  This editorial is just the frosting on the cake.

One of the most frustrating things I come across in my daily reading is a clueless attempt at refuting libertarianism.  A good example is the comment section in my Mises piece today where some guy is trying to make the case that a gold standard would be highly inflationary because everyone in the world would mine it.  The fact that gold came into widespread use as a currency because it took time to mine, produce, and mint and is limited in quantity doesn't seem to bother him.  Gresham's law and the overall supply and demand laws that govern commodities seem to escape his consideration as well.

Well that trend continues today as T.M. Scanlon does his best to trash libertarianism in the Boston Review.  Let's review the overall lame attempt. First Scalon makes the continually aggravating argument that a lack of regulation caused the financial crisis:

One route to libertarian conclusions appeals to an idea of productive efficiency. As Hayek argued, the market is, in an important range of cases, a more efficient mechanism for deciding what to produce than decisions by any central planner. This is so for two reasons. The first is the flow of information: no planner could acquire information about what consumers want to buy as efficiently as the market does. The second is capture by interests: decisions by state-owned industries are likely to be guided by the interests of those who run or work in those industries rather than by the goal of efficient overall production. Where they apply, these arguments are powerful. As recent financial crises show, however, these considerations do not lead to the conclusion that government regulation is always a bad thing.

As I said in my OWS article in the Press and Journal yesterday:

The belief that unfettered capitalism caused the financial crisis is absurd. Since when did the existence of the Federal Reserve, the Securities and Exchange Commission, the F.D.I.C. and Fannie Mae and Freddie Mac constitute a free market?

Yes, Wall Street gorged itself on toxic securities (approved by government sanctioned rating agencies, mind you) and brought the world economy to its knees. Yet hardly anyone who treats Keynesianism as the Gospel actually questions why this occurred.

The idea that the federal government provided an implicit backing for risky behavior is like premarital sex on “Leave it to Beaver” – it just doesn’t happen.

And unlike June and Ward Cleaver, large financial institutions don’t sleep in a separate bed from their government purveyors. Just ask current White House Chief of Staff and former JP Morgan executive Bill Daley or former Treasury Secretary and Goldman Sachs CEO Hank Paulson.

The myth that the free market caused the financial crisis has been debunked so many times it's hard to take Scalon seriously past this point.  His elementary view on the financial system is on par with a college sophomore majoring in political science yet his take is what passes off as conventional wisdom in the mainstream press.  Is it any wonder why the world economy continues on its roller coaster ride of fiat gorging when the real culprit of booms and busts goes unacknowledged?

Next Scanlon attempts to show that while individuals striving to achieve market efficiencies is a concept libertarians promote, it has the unfortunate effect of leaving some workers behind:

The productive efficiency of a market economy depends importantly on its ability to shift resources from industries that are no longer needed or efficient—such as typewriters manufacturers in an era of the computer—to those making products for which there is greater demand—such as computers and software to use on them. This efficiency is attained at a cost to workers, who must find new employment when such changes occur. Workers who are constantly subject to such disruption have less control over their lives than they would in a more stable society.

By this, one can only assume that the automobile should have been prevented from being produced to save all the horse and buggy jobs.  After all, stable society depends upon a lack of technological achievement, right?  If only the spear had  never been invented than hunters who relied on the brute strength of their hands to catch and kill their prey would still be gainfully employed and being living comfortably, stable lives.  Again, Scanlon makes the same often repeated mistake of treating technological improvements as detrimental to society.  I can only assume he wrote out his article with ink and quill first in order to guarantee the jobs of the manufactures who produce such outdated writing devices.  Scanlon concludes his attack on technology by stating " the choice between different systems is not something that individuals express a preference about through their market behavior."  So computers, automobiles, cell phones, and modern medicine weren't the products of consumers opting to improve their standard of living?

Next Scanlon attempts to make the case for what "rights" are in society.

The distinction involved here is one of several that can be referred to, somewhat misleadingly, as between positive and negative rights. As I have said, however, it is not a distinction between two kinds of rights but between rights and considerations that must be taken into account in justifying them. The lesson to draw from it is not that there are no “positive rights”—rights to particular benefits—but rather that not every desirable thing that is relevant to justifying rights can be directly transformed into a “right to” realize that thing.

Scanlon may not realize it but he is applying his own subjective values to determine what constitutes as rights.  While he is correct in saying "not every desirable thing that is relevant to justifying rights can be directly transformed into a “right to” realize that thing" he goes on to do just that:

If we ask what conditions are most important for having meaningful liberty—meaningful control over one’s life—in a modern society, one of the first things that comes to mind is education, which enables one to understand one’s choices and to acquire the skills needed to pursue them, including the skills needed participate in the market economy. A second important factor is a strong social safety net, including unemployment benefits, which enable people to plan responsibly for having a family despite the uncertainties of employment in an efficient market economy. Neither of these is part of the “low taxes and limited government” program normally favored by libertarians.

Scanlon himself has come to the conclusion that "meaningful liberty" in modern society includes being educated enough to make your own choices as well as a type of social insurance for protection against unseen occurrences.  How universal, compulsory education and the social safety net are achieved does not disturb Scanlon's interpretation of rights. He doesn't regard the practice of compulsion, theft, or the threat of aggression by government officials as a violation of liberty and property rights but as a necessity!  Yes, you have seen this before etched into the side of the Ministry of Truth in George Orwell's dystopian "1984."  War is peace and freedom is slavery in Scanlon's world where forcing children to attend school and using pillaged funds to pay people not to work ensures liberty.

In an odd string of double talk, Scanlon makes a peculiar case for why property rights are impractical when applied to commercial transactions:

But it is extremely implausible to think that I can, by an exercise of my will, confer upon you the right to exclude anyone else from the use of a thing, and give you the power to transfer this right to yet other people. Having this power would make me an odd kind of moral legislator.

So Scanlon has never heard of contract law whereas two parties reach a legally binding agreement in regard to a particular transaction?  Finally Scanlon goes off the deep end by suggesting that only an institution with the monopoly on force and coercion can dictate property rights:

There are no property rights independent of some institution defining them, but it is generally agreed that there should be such an institution. The question is what form this institution should take.

Scanlon has clearly never encountered Hans-Herman Hoppe's "argumentation ethics" approach to property rights whereas the virtual act of Scanlon thinking, formulating, and writing his article is demonstrative of his use of his own mind and body to produce.  Or Scanlon doesn't even consider the idea that rights are derived from one's creator (whom or whatever that may be).  Most importantly, he implies that an institution composed of fallible men should be able to determine the property rights for the whole of the population as if men are knowledgeable and endowed with enough wisdom to make such judgements.  In Scanlon's view, Jews in Nazi Germany were rightly denied their right to life seeing as how the state as an institution determine they were undeserving.

While Scanlon makes a better-than-most attempt at refuting libertarianism, he ends up utterly confused on determining the beneficial nature of property rights, why they are outside the realm of being arbitrarily picked by bureaucrats, and what a free market really encompasses.  In other words, he fails like all opponents of freedom.

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There are some new econ numbers out showing once again that the economy is slowly improving.  First is the Philly Fed Manufacturing Index, via Zerohedge:

the Philly Fed surges from -17.5 to 8.7, the biggest jump since October 1980, and 6 standard deviations above the Wall Street consensus. The index which was at -30 a few months ago, has now retraced back to April 2011 levels to supposedly confirm that Operation Twist is working even despite a massive plunge in Refinancing Applications reported yesterday. And confirming that we are now all supposed to be taking crazy pills, the Shipments index jumped from -22.8 to 13.6: the largest jump ever!

The Conference Board's leading economic index is also up:

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.2 percent in September to 116.4 (2004 = 100), following a 0.3 percent increase in August, and a 0.6 percent increase in July

The ten components of The Conference Board Leading Economic Index^® for the U.S. include:
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers’ new orders, consumer goods and materials
Index of supplier deliveries – vendor performance
Manufacturers' new orders, nondefense capital goods
Building permits, new private housing units
Stock prices, 500 common stocks
Money supply, M2
Interest rate spread, 10-year Treasury bonds less federal funds
Index of consumer expectations

Even gas prices are poised to move higher, via MarketWatch:

Gasoline prices at the pump have been creeping higher in the last few days.
On Thursday, the average price per gallon for regular gasoline stood at $3.474, up about 5 cents from a week ago, according to AAA’s Daily Fuel Gauge Report. Prices are also 64 cents a gallon higher than a year ago, AAA data showed.

It looks like this holiday season may still beat pessimistic expectations.

Yesterday I mentioned how the CFTC's new regulations on commodity speculation would ultimately be disastrous in terms of supply and price volatility in an environment of constant currency debasement.  Well it looks like the idiocy has migrated to Europe:

In a confidential preliminary plan to reform the law on credit rating agencies, EU Internal Market Commissioner Michel Barnier seeks to prohibit rating agencies from publishing judgments about ailing EU countries.

Barnier proposes that the new Securities and Exchange ESMA is granted the right "to temporarily prohibit" the disclosure of assessments of the ability to pay.

Yes, because prohibiting the ability to judge a country's true financial condition is really going to smooth out the calamity known as the Euro debt crisis.  Barnier wasn't bitching when the credit ratings of indebted countries and banks were higher than the actual market value but now that bond prices are down and yields have skyrocketed for the PIIGS, there is something terribly wrong.  Keep your popcorn handy for more political theater.

Update- A few more indicators of rising prices and growth, first is Joe Weisenthal on falling unemployment claims over at Business Insider:

It's getting harder and harder to imagine we're in a recession.
With today's initial jobless claims report, the closely-watched 4-week moving average of initial claims has fallen to its lowest level since this spring.

And of course airline prices are going up as many indicators improve, via WashPo:

NEW YORK — Holiday travelers may want to lock in airfares now, because they’re going up.
Major airlines are joining in the first widespread airfare increase since early August. The hike was initiated by Delta Air Lines Inc. late Tuesday when it raised fares by $4 to $10 on roundtrip flights across most of its U.S. routes, according to Rick Seaney of Farecompare.com. Soon after, United Continental Holdings Inc. matched the increases.

By early Wednesday, every other major airline had raised fares, including Southwest, according to JPMorgan’s Jamie Baker. Southwest had been running a fare sale for winter travel, excluding popular travel days around the holidays.

If you haven't seen it, here is the very graphic video of a very dead Muammar Gaddafi.  Warning it is pretty graphic a kind of hard to watch for those with a weak stomach:

Looks like the CIA is gonna be busy finding a new dictator to implant...

New Press and Journal Article, CFTC Caps on Commodities, and Guess What City the Top Income Average in America Resides...

Got a new article in the Press and Journal today entitled "Occupy Wall Street- They're Only Playing the Blame Game" which deals with a lot of the fallacies and misunderstandings of the OWS crowd.  An excerpt:

The solution to reform Wall Street is far simpler than locking up folks like JP Morgan head Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein. As economist Robert Wenzel so eloquently puts it, “If the government didn’t back up the banksters, these clowns would be out of business.”

The belief that unfettered capitalism caused the financial crisis is absurd. Since when did the existence of the Federal Reserve, the Securities and Exchange Commission, the F.D.I.C. and Fannie Mae and Freddie Mac constitute a free market?

Yes, Wall Street gorged itself on toxic securities (approved by government sanctioned rating agencies, mind you) and brought the world economy to its knees. Yet hardly anyone who treats Keynesianism as the Gospel actually questions why this occurred.

The idea that the federal government provided an implicit backing for risky behavior is like premarital sex on “Leave it to Beaver” – it just doesn’t happen.

And unlike June and Ward Cleaver, large financial institutions don’t sleep in a separate bed from their government purveyors. Just ask current White House Chief of Staff and former JP Morgan executive Bill Daley or former Treasury Secretary and Goldman Sachs CEO Hank Paulson.

My article was placed against a supportive OWS piece by Paul Heise, professor emeritus in economics Lebanon Valley College.  Here is an excerpt from his piece which is titled "Occupy Wall Street- They're Absolutely Right" :

The electoral and legislative processes have been purchased by corporate America, especially the Wall Street banks. Press reports, however, consist of putdowns, confrontations and sensationalism. The real story of who these people are, where their anger comes from and what they want is being suppressed.

For just a moment, President Barack Obama got it back in 2008-09 but then he lost it. Almost 80 percent of the people in this country still want that “Change You Can Believe in.’’

It is now the turn of the liberals, progressives or whatever you want to call the Left, to give up on the political process as a captive of Wall Street. They are following the example of their fellow Americans in the Tea Party Movement.

Both Occupy Wall Street and the Tea Party are Americans rising up in frustration. Though similarities to the Tea Party Movement might be embarrassing to both sides, they share a lot. In the end, in both cases, we can say proudly, it is Americans exercising their constitutional right to petition their government.

I am obviously partial to own piece but Heise's article comes off as the typical leftist endorsement of OWS.  He makes the "government would be better without special interests buying influence" argument without realizing that any form of government will eventually be manipulated.  That is the nature of the beast that has a monopoly on coercion and is run by corruptible human beings.  Heise makes no mention of the Fed of course which should instantly disqualify any judgement on the workings of the financial system.

A few months ago I wrote an article for the Shippensburg Slate titled "Speculators Are Our Friends."  I made the standard argument about how speculators play an important role in easing fluctuations in commodity prices.  It was in response to numerous calls for the Commodity Futures Trading Commission to put a boot down on commodity speculation mainly in oil.  Well it looks like the idiots got their wish, via Financial Times:

The US commodity regulator approved sweeping new constraints on speculation in food, energy and metals, in a decision riven along party lines.

The limits on the size of positions in futures and swaps markets will curb banks’ and investment funds’ ability to trade commodities, though the rules were watered down after lobbying by Wall Street.

The reform will put the US at the forefront of the clampdown on investment in commodities, an increasingly popular bet on global growth and hedge against inflation. Assets under management reached an all-time high of $447bn in August, according to Barclays Capital.

The Commodity Futures Trading Commission on Tuesday finalised the rules in a 3-2 vote, with the agency’s three Democrats forming the majority.

This isn't going to help curb volatility of course but will actually increase it in the long run.  Like I wrote last March:

In our world of limited resources, certain products fluctuate in price more than others. These items tend to be heavily relied upon commodities such as food and energy.
Whenever shortages of goods such as wheat, cotton or oil are anticipated, prices are bid-up initially to ensure a steady rise rather than a sudden and drastic fluctuation.

The more accurate the forecast, the less drastic the price increase.

Bidding up the price of a highly fluctuating product ensures that there is a sufficient amount of supply to reach potential demand. Speculators not only serve those who they buy products from by taking on the risk of predicting future prices, but actually help consumers by preserving certainty in times of extreme uncertainty.

The truth of the matter is, that an increase in the price at the pump is being driven up by a number of factors. The civil war brewing in Libya is the main cause as anti-government rebels have secured much of the country’s oil drilling facilities. The Federal Reserve’s continued devaluation of the dollar has been driving up oil prices for decades.

I will admit I took a certain view on tax breaks in the article that I have since changed my mind on.  But the message remains the same: speculators take on the risk of fluctuating prices at the benefit of consumers.  The federal government is overly reactionary to the spike in oil prices caused by Bernanke's QE2, not crazed speculators.  The elephant in the room that finances warfare and welfare continues to go unacknowledged.  What will be celebrated however is data such as this via CNBC:

U.S. consumer prices outside food and energy rose at their slowest pace in six months in September as the cost of apparel and used vehicles fell, suggesting inflation pressures remained contained.

Another report on Wednesday showed groundbreaking on new homes rose at the fastest rate in 1-1/2 years, though most of the gains came from the often volatile multi-family construction.

While inflation slowed during September (the CPI rising just .3%), as mentioned yesterday, the PPI soared for the month of September.  The core CPI has reached the upper breach of the Fed's stated goal (2%), and I don't see it dying down unless China finally pops or the idiots in Europe don't print their way to artificial prosperity (any day now as Portugal is ready to blow).

With all the money printing going on to finance Uncle Sam's gorge on spending, is it any surprise which city became the wealthiest metropolitan area?  Via Bloomberg:

Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.
The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.

No surprise there.  Where the hell is Occupy Capital Hill to protest this gross accumulation of wealth in one geographic area?  Meanwhile Ron Paul is considered "radical" for wanting to cut $1 trillion in the federal budget within his first year as president.  When he mentioned his plan during last night's debate, the audience laughed as if saving the country from insolvency is some type of joke.  While the debate got pretty heated last night, Paul still shined as he got more speaking time than usual.  Here are highlights:

His response on energy subsidies was clear, logical, and the highlight of the night besides Romney and Perry fighting like preteen girls.  Paul also has a great new ad out trashing his opponents for being fakes or as George Will says, versatile in conviction:

There is nothing like great political theater to take your mind off of how pathetic the other candidates are.

Insulting Government Employees, PPI Up, and Rand Paul Busts Out Austrian Econ on Geithner

Anyone familiar with my work has likely seen the barrage of insults I have thrown at government employees over the years.  Still, I gotta quasi stick up for them in this instance.  In regard to Ron Paul's great new budget plan, CNN's Wolf Blitzer interviews the Dr. and suggests that the plan would cause great unemployment by the elimination of government agencies:

The idiots at Business Insider agree:

RON PAUL: I want to immediately put another 10mm Americans out of work http://read.bi/pDjOp1 [by cutting $500B of govt spending immed.]

What these statists don't realize is that money not sapped into bureaucratic paper pushing will be better spent elsewhere.  This point is made by Paul but the benefits of eliminating government employment come down to much more than that.  If I were a government employee, I would be insulted by the fact that people in the media imply that I am incapable of doing anything else besides my present job.  When the likes of Blitzer say that laying off government workers will create massive unemployment, they are really saying that said employees would have no means by which to support themselves after being let go.  They become incapable of finding suitable employment according to short sighted government apologists.

This should be insulting to be told that you are only capable of only performing one job.  Disregarding the fact that money not squandered through the public sector stays in the private economy to be used elsewhere, claiming that government employees can only specialize in paper pushing is idiotic and disregards man's ability to adapt to changing circumstances.

New Producer Price Index numbers are out today and wouldn't you know they beat expectations by increasing at .8%:

Alas, that is precisely what it got after September PPI printed up 0.8% from the month before (following the unchanged print in August) and 6.9% YoY. The number was above even the highest expectation from Wall Street strategists (consensus was 0.2%). And while PPI ex food and energy was up just 0.2%, try telling that to those 99% of the population whose income is barely sufficient to buy the, you guessed it, food and energy, which rose by 0.6% and 2.3% respectively.

Mainstream forecasters were surprised but it makes sense given such reported trends:

Despite all the bleak economic news, a funny thing has been happening in the financial industry over the last few months: the banks have quietly turned on the lending spigot.

Loan growth is still modest. And it remains heavily weighted toward the strongest corporate and consumer borrowers. But after several quarters of having their loan balances plunge or flatten out, several of the nation’s biggest banks are reporting increases.

On Monday, Citigroup officials said the bank recorded loan growth, compared with a year ago, in almost every one of its businesses during the third quarter, and in almost every corner of the globe. Wells Fargo executives said new loan commitments to small businesses were up 8 percent, while lending to bigger companies has been growing for 14 months in a row. Across the industry, analysts expect credit card loan balances will start increasing before the end of the year.

“The narrative that banks aren’t lending is incorrect,” Timothy J. Sloan, Wells Fargo’s chief financial officer, said in an interview. “Lending is strong, and based on what we’re seeing,” he added, it will “continue to grow.”

Bernanke has the economy all revved up and ready to go at this point.  This holiday season will be very telling to see if a manipulated recovery really is in the works.  The U.K. is attempting this same feat but is getting different results:

UK Inflation Rises Again to 5.2% - Ultra Loose Monetary Policy May Lead to Stagflation
Gold is trading at USD 1,656.50, EUR 1,211.20, GBP 1,054.00, JPY 127,093.00, AUD 1,634.70 and CHF 1,494.10 per ounce.

The U.K. is probably getting hit more by the European crisis as its banks may be exposed to more euro debt than the U.S.'s.

I will end with a great video of Sen. Rand Paul grilling Treasury Sect. Timothy Geithner today:

I may not always agree with Rand on everything but he clearly demonstrates his knowledge on Austrian econ to Geithner who wouldn't know a dollar from rectangle shaped leaf.  Nothing beats watching Turbo Tax Tim squirm in his seat as he does the pandering of his boss while crying "the crisis wasn't my fault! Stop yelling at me!"

Update- Almost threw up watching the intro speeches by the candidates for the GOP debate.  This is gonna be pathetic.  Paul just said he likes that many people aren't paying taxes.  I agree completely, the half of Americans not paying income taxes shouldn't start paying taxes, the other half should not pay income taxes either.  Romney is tearing apart Cain which is hilarious.

Just wanted to point out this interesting piece from Zerohedge on the higher education bubble:

• Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them.
• The bubble in the sector is over
• Noted political dynamic of education funding
• U.S. is currently 16th in the world in degree attainment
• He notes the U.S. education secretary and U.S. president have probably looked at that number
• Nevertheless state universities are struggling because state governments are poorer: Sampson
• Says a sustained effort is underway at some schools to bring in out-of-state tuition, which typically pay 100% of the cost
• Barbara Lambotte, a senior credit officer at Moody’s said during the panel that student loan lenders are chasing the same potential borrowers
• Everybody is going after borrowers with co-signers and high FICOs, also students who may be going to the better schools: Lambotte
• Gary Santo, a MD at First Marblehead said during the panel that borrowers too are being more conservative in theirchoice of education funding
• Lambotte said Moody’s outlook on private student loan ABSmarket is negative, but newer loans should perform better

I can only hope the value of my degree goes up because of this.

Montana Policy Institute Piece, Bill Frezza on Corporations, and Ron Paul's Specific Budget Policy

Big thanks to Nick Schwaderer for getting a piece of mine up at the great Montana Policy Institute today.  Entitled "More Lies from the Lying Class," here is an excerpt:

During a recent “State of the Union” interview with Candy Crowley, White House Senior Adviser David Plouffe attempted to defend his boss’s new jobs plan. Crowley brought up a quote from “never right, yet still trusted” Mark Zandi of Moody’s Analytics, which asserted the jobs plan would be short lived; “"Beginning in 2013, and certainly into 2014, the plan is a drag on the economy because the stimulus starts fading away. So by 2015, the economy is in the same place as now, as if there were no jobs package." Anyone would be fool to listen to Zandi. But like a broken clock, a Keynesian quack can be right at least twice a day. And it doesn’t take a genius to figure out that stimulus spending ultimately runs out and leaves behind the dead carcass of undelivered prosperity.

Even in the face of such common sense, Plouffe doubled down and twisted Zandi’s message to say that “we” must act now to rejuvenate the economy. In a direct appeal to the democrat base, Plouffe warns of massive teacher layoffs and a lack of students being taught myths such as F.D.R. saved capitalism.

When reason fails, fear mongering makes for great cover. Especially when it involves children.

But as Crowley rightly asserts, “his point is that they (the teachers) will still be laid off once the stimulus money runs out.” Plouffe, knowing full well his goose is cooked, gives the viewer two options: take the pain now, or put it off till next election so that he doesn’t get a pink slip next November. He calls it “we can act right now, or not act right now.” My translation is more accurate.

Plouffe, like all bureaucrats in his position, claims that economic growth is coming without a shred of evidence to prove otherwise. He boasts that the Obama’s jobs act will drop the unemployment rate by one percent. Having the Fed print off a few thousand sheets of Benjamin Franklins to pay the unemployed to dig ditches would drop the unemployment rate to 0%; what’s Plouffe’s point? Despite what is taught in college economics classes, jobs don’t represent wealth creation, especially those funded through tax dollars.

Thanks again Nick!

Bill Frezza has a great piece on RealClearMarkets today focusing on the importance of limited liability corporations.  Like most commentators whom posses a big enough brain in their skull to be overly skeptical of some Occupy Wall Streeters (namely of the Marxist variety) that claim to hate capitalism while scheduling marches on their iphones, Frezza takes them to school:

Prior to the invention of corporate structures that allow companies to operate behind legal firewalls protecting third party investors, it was difficult to achieve scale in any business that required large amounts of capital. This may not be an issue for subsistence farmers, independent craftsmen, sole proprietors, closely held partnerships, family dynasties, landed nobility, or the King. But without modern corporate forms that concentrate capital from disparate shareholders, the industrial revolution could not have occurred. And without the industrial revolution most of humanity would still be bound to the land - rising with the sun, going to bed when it sets, and laboring like mules in between.

Utopians may idealize our agrarian roots, but there are good reasons such yearnings are confined to utopians.

First, our ancestors did not flock from the farms to the factories because farm life was so peachy. Voting with one's feet to escape the drudgery of living off the land is a process that continues in developing countries to this day. Progress is all about substituting machines for backbreaking labor. Ban the limited liability corporation and you reverse that process.
Second, a pre-industrial, corporation-free economy cannot support the billions of humans that currently live on planet Earth. Just who would you kill off in order to return to our noble agrarian past? I know an Al Gore-inspired environmental activist who openly wishes a flu pandemic will decimate the human race. Such intellectual consistency in a hardcore progressive is as rare as it is horrifying.

This is in the vein of one of my all time favorite quotes from Ludwig von Mises in regards to the Industrial Revolution:

The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them…. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.

Not only does the quote embody both the principles of self ownership and cooperation, but it also demonstrates how basic standards of living by today's measures were only accomplished through participating in the process of production.  One could "live off the land" in brutal, back breaking conditions, or toil in a factory for a higher standard of living.  For those who demonize deplorable work conditions as the by product of evil capitalism, they never had the "luxury" of experiencing such an agrarian lifestyle.  Their mind would most likely change if given one day to relive such paradise.

Frezza is a phenomenal writer and makes the great case for capitalism but on any random peruse of libertarian blogs, one notices some who are reluctant to embrace "limited liability corporations" as they seem them as products of the state.  Without government legislation "creating" them, they simply wouldn't exist or so it's argued.  Like any advocate of statism who thinks schools, roads, prosperity, etc. wouldn't exist without the government first pillaging taxpayers to pay for them, they are simply wrong for denying the market's ability to replicate such a phenomena as "limited liability corporations" without the use of coercion.  Murray Rothbard explains:

"These corporations would not, of course, need any charter from a government but would "charter" themselves in accordance with the ways in which their owners decide to pool their capital.  The could announce their limited liability in advance, and then all their creditors would be put amply on guard.

There is a strong a priori reason for believing that corporations will be superior to cooperatives in any given situation.  For if each owner receives only one vote regardless of how much money he has invested in a project (and earnings are divided in the same way), there is no incentive to invest more than the next man; in fact, every every incentive is the other way.  This hampering of of investment militates strongly against the cooperative form.

In brilliant prose as always, Rothbard shows just how beneficial and democratic (in the non-violent, voluntary sense) corporations actually are and how they can be perfectly compatible with libertarian principles.  Just like how government legislation doesn't "create" anything, limited liability corporations are not creations of the state but another mechanism for pooling risk and capital together brought about through the desire to produce and the ingenuity of human intelligence.

Speaking of intelligence, check out Ron Paul's newly proposed detailed plan for an immediate cut in $1 trillion of federal government expenditures, via Politico:

Paul will elaborate on the plan during an afternoon speech in Las Vegas ahead of Tuesday’s debate. He’ll say that his plan for $1 trillion in cuts will create a balanced federal budget by the third year of his presidency.

Many of the ideas in Paul’s 11-page “Plan to Restore America” are familiar from Paul’s staunch libertarianism, as well as tea party favorites like eliminating the departments of education and energy. But Paul goes further: he’ll propose immediately freezing spending by numerous government agencies at 2006 levels, the last time Republicans had complete control of the federal budget, and drastically reducing spending elsewhere. The EPA would see a 30 percent cut, the Food and Drug Administration would see one of 40 percent and foreign aid would be zeroed out immediately. He’d also take an ax to Pentagon funding for wars.

Medicaid, the children’s health insurance program, food stamps, family support programs and the children’s nutrition program would all be block-granted to the states and removed from the mandatory spending column of the federal budget. Some functions of eliminated departments, such as Pell Grants, would be continued elsewhere in the federal bureaucracy.

And in a noticeable nod to seniors during an election year when Social Security’s become an issue within the Republican primary, the campaign says that plan “honors our promise to our seniors and veterans, while allowing young workers to opt out.”

The federal workforce would be reduced by 10 percent, and the president’s pay would be cut to $39,336 — a level that the Paul document notes is “approximately equal to the median personal income of the American worker.”

Paul would also make far-reaching changes to federal tax policy, reducing the top corporate income tax rate to 15 percent, eliminating capital gains and dividends taxes, and allowing for repatriation of overseas capital without tax penalties. All Bush-era tax cuts would be extended.

Wow, I have to say I am genuinely impressed.  I wasn't expecting Paul to come out with a firmly detailed plan such as this till later but it shows he clearly has his eyes on the prize.  His plan makes clueless Cain's 9-9-9 plan look like a pile of puke.  The reduction of the president's salary is still $39,336 too high but it makes a great point: if public service is really about "serving the public and putting its needs above your own prosperity" than it shouldn't garner any sort of above average pay.  It's not like the position doesn't come with free lodging, security, food, and babysitting already.  This is gonna make Nevada' debate great to watch.

Update- The man speaks:

Funny, I don't see any other candidates speaking with such young and attractive females in the background.

Jokes and Hilarity All Around

Lots of hilarity all around today so let us get into it.  First up, someone give Nigel Farage a medal:

Does Trichet seriously believe his own bullshit at the end?  He was quoted directly as saying you need to lie in the face of serious fiscal situations and then takes a lesson from Bernanke by trying to play it off as a misunderstanding with a bunch of academic babble.  How theses guys can wake up everyday and look at themselves in the mirror is beyond me.  Here is one individual for which millions of livelihoods depend on the horseshit that comes out of his mouth and he gets up and lies about how he was quoted about saying one has to lie in serious situations.  I trained 14 year olds in food service who had more integrity than this guy.  Here is Farage again (ht Mish):

Brilliant.  Maybe Farage should take a look at George Soros' "Circle Jerk" of a plan to save the Euro Zone.  If the citizens of Serbia really want to join the Euro Zone, why not just put the guns to their heads now and save themselves the trouble?

The impeccable Caroline Baum is out with another great Bloomberg piece, this time it's on the absurdity of Obama's proposed job bill.  Perhaps the best and most insightful excerpt:

Section 4 of the jobs bill, titled “Buy American,” would do just that. It specifies that government funds would be available only to infrastructure projects that use manufactured goods (iron and steel, for example) produced in the U.S. It doesn’t specify that such a provision would raise the cost of those projects.

Every legislative proviso has exceptions. In the case of “Buy American,” the rules wouldn’t apply if complying was “not in the public interest” (who decides?); if there was an insufficient amount of American-produced iron and steel available (who’s counting?); or if it would “increase the cost of the project by more than 25 percent” (23 percent is OK?). One can only imagine the time and opportunity cost for small business to stay abreast of the relevant provisions.

Obama wants to protect the unemployed from discrimination in the workplace. A noble goal, to be sure, but his bill would have the opposite effect by making it illegal to use a candidate’s employment status as a qualification for work.

How would the crafters of the jobs bill expect a reasonable businessman to behave when confronted with the prospect of a discrimination suit for failing to hire an unemployed applicant? He wouldn’t even grant that candidate an interview, according to Kenneth Langone, the founder of Home Depot Inc.

Look at the bright side: This provision is certain to provide enough billable hours for law firms to justify hiring new lawyers.

The part about making it illegal for employers to discriminate against the unemployed is the worst and most devastating part of the bill when it comes to helping the unemployed.  It will literally make the unemployed "untouchable" as no sane employer will risk a lawsuit for even interviewing a potential employee.  Think about it.  If you own a business and are looking to expand your number of low skill employees, would you call the applicant back who has been unemployed for one year to have an interview where if you were to fight him/her unsuitable for work, than they could find some TRIAL LAWYER (there is a reason that is capitalized, think about that too) to make their case that they were discriminated against?  Those who parade under the banner of egalitarianism and push for such "protections" aren't doing their targeted class any favors.  They are buying their electoral support with a raw deal to financially benefit their real target for campaign funds.  Fantastic piece as always Ms. Baum.

In regard to California Rep. Barbara Lee's completely moronic justification to not use computerized checkout lanes in supermarkets because "I know that’s a job or two or three that’s gone," Don Boudreaux responds with another fantastic letter.  The last paragraph is the most pointed:

You must, indeed, be distressed as you observe the appalling amount of labor-saving technologies in use throughout our economy.  It is, alas, a disturbing trend that has been around for quite some time – since, really, the invention of the spear which destroyed the jobs of some hunters.

Indeed, one can imagine a primitive Robert Reich running back in forth telling all his hunter neighbors that jobs are going to be lost with their crafting of spears.  The thing is, his suggestion sounds just as ridiculous now as it would have back then yet the prevailing wisdom of idiocy still remains for some of our purveyors in Washington.

To end, I wanna point out the hilarious continuation of SNL's skit on the GOP presidential debates.  This time Ron Paul gets the respectful portrayal he deserves while Herman Cain gets the ignorant portrayal he justly deserves:

Update- Looks like Time is finally catching up with the glorious inaccurate predictions of Herman Cain. In regard to the financial crisis:

He took a similar tack in a March 3, 2008, piece. “The media’s factually unsubstantiated claims of an impending recession have been going on for over a year now,” he wrote. “Many news journalists hurt people’s outlook about the economy with inappropriate comparisons and sensationalism.”

In April 2008, Cain admitted that the economy was skidding, but only, he argued, because Democrats and the mainstream media had spooked everybody with its negativity. “This writer believes that a major portion of the job losses are due to media pessimism, and employers who have swallowed the negative outlook and have hesitated to fill existing jobs or new positions” Cain wrote on April 7.

By summer, Cain was claiming that the looming financial crisis was a similar media fabrication. In a July 21, 2008, column, Cain referred to Wall Street’s troubles as “the mainstream media’s it’s-not-a-crisis-but-we-are-going-to-make-it-look-like-one banking crisis”. In less than two months, Lehman Brothers would declare Bankruptcy and, a few weeks later, Congress would pass a massive bailout to rescue the nation’s largest banks.

And even in September, Cain was upbraiding Democrats for ignoring great economic news. “We still have not had a recession since 2001,” Cain wrote early that month. “But don’t tell the Democrats and the mainstream media. You might disrupt their imaginary recession.”

George Soros' Socialized Circle Jerk of a Solution to the Euro Debt Crisis

(Another rough draft follows)
George Soros came out with a dandy solution to solve the European debt crisis a couple of days ago in the Financial Times.  I read it then but upon rereading and considering it further I figured I would rant about the ridiculousness of it.  Here is how Soros determines Euro banks should be shored up on capital and saved:

Let me stake out more precisely the narrow path that would allow Europe to pass through this minefield. The banking system needs to be guaranteed first and recapitalised later. National governments cannot afford to recapitalise the banks now. It would leave them with insufficient funds to deal with the sovereign debt problem. It will cost the governments much less to recapitalise the banks after the crisis has abated, and both government bonds and bank shares have returned to more normal levels.

Banks need capital, indebted governments can't afford to bail them out again (not that bailing out the banks again 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 mobilise 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 wealth, if it makes a financial guarantee, the market will of courses buy it because the money can always be forcibly taken from the citizenry if need be.  These guarantees mean the banks are vaguely 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.  Screw the old treaty we can write a new one.

In exchange for a guarantee, the major banks would have to agree to abide by the instructions of the ECB. This is a radical step but necessary under the circumstances. Acting at the behest of the member states, the central bank has sufficient powers of persuasion. It could close its discount window to, and the governments could seize, the banks that refuse to co-operate.
The ECB would then instruct the banks to maintain their credit lines and loan portfolios while strictly monitoring the risks they take for their own account. This would remove one of the main driving forces of the current market turmoil.

Since the banks are now being backed by their respective governments, they will have no choice but to bend down to the whim of bureaucrats and politicians.  It helps to imagine the likes of Angela Merkel and Jean Claude Trichet brandishing chains and whips.  If the banks refuse to cooperate, then resistance becomes futile as they will be completely nationalized.  Before they were nationalized but under the guise of being privately run.  With explicit nationalization however, this is when the fun begins.

The other driving force – the lack of financing for sovereign debt – could be dealt with by the ECB lowering its discount rate and encouraging countries in difficulties to issue treasury bills and prompting the banks to subscribe. The bills could be sold to the central bank at any time, so that it would count as cash. As long as they yield more than deposits with the ECB, the banks would find it advantageous to hold them. In this way, governments could meet their financing needs within agreed limits at very low cost during this emergency period, yet article 123 of the Lisbon Treaty would not be violated. I owe this idea to Tomasso Padoa Scioppa.

That pesky problem of sovereign debt could be dealt with by ECB money printing.  The debt can be inflated away. Again, if the banks don't want to play then they will be taken over.  The Lisbon Treaty doesn't apply as long as we say it doesn't.

These measures would be sufficient to calm markets and bring the acute phase of the crisis to an end. The recapitalisation of the banks should wait until then. Only the holes created by restructuring the Greek debt would have to be filled immediately. In conformity with the German demands, the additional capital would come first from the market and then from the individual governments. Only in case of need would the EFSF be involved. This would preserve the firepower of the fund.

So let's sum it up: if the undercapitalized banks want to be shored up by corrupt politicians giving away taxpayer money, than they become wards of the state.  If they take the deal and refuse to play along, than the explicitly become wards of the state.  That way the banks are recapitalized to fund the paying down of the debt of Euro governments in order to shore up the banks so the banks fund the paying down of the debt of Euro governments.....oh, and the ECB inflates and inflates to help the process (circle jerk) along.  This can all start after Greece goes into a controlled default where bondholders are protected against massive losses of course.

So there you have it, George Soros has delivered to us from the higher echelons of financial know-how a solution that only an orgy of banksters and politicians could only fall in love with.  What a guy!

Update- Big congrats to Ron Paul for taking the Republicans of LA Country straw poll:

(HT Greg Mankiw) How adorable, it looks like Paul's message is really getting to the young crowd.

Gary Johnson Fails, LewRockwell Article, and More Euro Madness

Just finished watching Gary Johnson make a fool of himself during the center seat panel on Fox News Special Report.  When you claim to want a non-intervetionist, non-warmongering policy, you can't support such interventions as this surprising new development from the Obama administration:

President Obama has deployed troops to central Africa to aid in the fight against the Lord's Resistance Army.  In a letter to Speaker of the House John Boehner, Obama says 12 troops with "appropriate combat equipment" were deployed on October 12 and approximately 100 in total will be deployed including a second combat team and headquarters, communications and logistics personnel.  The forces will provide information and advise and assist "select partner nation forces," Obama explains.  The troops will not fight except in self-defense.

Unfreaking believable.  This new "war" spans across 4 countries including Uganda, South Sudan, the Central African Republic, and the Democratic Republic of the Congo. Surprisingly enough, Congress actually authorized and passed a bill for Obama to do just this back in 2010.  Obama certainly makes Bush look like a dove on foreign policy, but Johnson got caught up by Charles Krauthammer for supporting such humanitarian efforts while being critical of the Libyan intervention.  Like the U.S. Senate chastising China for manipulating its currency, Johnson looks like a moron playing the "well I support this in certain circumstances but not the other" card.  Johnson did have a good ending rant about the size of our defense spending but ultimately failed to impress.  He doesn't hold a candle to the real man whom I have an article about today over at LRC titled "Why Ron Paul is Dominating." An excerpt:

Ron Paul has consistently polled third place in most major polls yet has the least amount of speaking and face time compared to other candidates. Romney, the perceived front runner, has oodles of face time and media coverage to make his case. Though Paul is often treated as untouchable by debate moderators, he has maintained a steady position in virtually every national poll.

When it comes to straw poll victories however, Paul has been dominant. Despite his outside-the-conservative-mainstream views on foreign policy and drug legalization, Paul recently won the Values Voters straw poll. He came, in the words of Jack Cafferty, "within an eye lash" of beating Michele Bachmann in the Ames Straw poll. Just a few weeks ago, he came in first at the California Republican straw poll. Meanwhile, flash in the pan candidates such as Herman Cain who manage to win one straw poll become darlings of the mainstream attention despite their pitiful record of recognizing major economic problems. Paul’s straw poll victories are dismissed largely because his passionate base of supporters show up in droves in order to support their candidate. What the media fails to consider is why Mitt Romney and Rick Perry don’t attract such support. After all, straw polls are about showing how popular candidates are, not reflecting whom the mainstream media has already dubbed as the top tier contenders.

While Paul may be marginalized and considered an impossibility in the sphere of being a major player in the race, he continues to poll in the top 3 while driving the topics of discussion in every debate.  Four years ago, who in the world would have predicted Newt Gingrich, the man who rallied an impeachment offense against Bill Clinton while committing adultery on his own wife, would be issuing such a pointed and critical attack on an institution that was hardly mentioned in the confines of conventional policy discussion?  Political pandering or not, Gingrich’s tirade is the direct result of Paul's decades long endeavor to put the Federal Reserve directly in the limelight of mainstream talk.  Chairman Ben Bernanke can't utter one word now without the talking heads of CNBC dissecting its meaning and consequence for hours on end.

Great news as the Revolution SuperPAC ad "Plastic Men" will run before the next CNN debate on October 18.  As long as it changes a few minds, it will well be worth it.  Big thanks to all the reader emails.  Some felt compelled to point out these figures from Wikipedia:

As Of 10/14/2011...

All Online Polls Follow

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

Finish   Candidate      Percent      

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

1        Ron Paul        49%

2        Herman Cain     12%

3        Sarah Palin     8.7%

?        Tim Pawlenty    4.4%

         Other           25.8%   

Combined Straw Polls Follow

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

Finish   Candidate      Percent  Votes

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

1        Ron Paul       36%       581

2        Herman Cain    16%       256

3        Sarah Palin    9.2%      149

4        Tim Pawlenty   8.8%      143

         Other          30.1%    1616

I should also point out that the "Black This Out" money bomb is coming up on October 19, I am definitely throwing my $20 in.

Enough with Ron Paul, let's take a look at the continuing sideshow known as the Euro debt crisis.  After first agreeing to 21%, it looks like Greece bondholders and investors are ready to take up to a 50% haircut, via Bloomberg:

European officials are considering writedowns of as much as 50 percent on Greek bonds, a backstop for banks and continued central bank bond purchases as key planks in a revamped strategy to combat the debt crisis, people familiar with the discussions said.

50% is not enough of course, but if this follows through, it will be touted as the final resolve which will be a blatant lie.  Greece is going to enter into a controlled default while the rest of the PIIGS's default will be fought but will inevitably occur.  Like any crisis, the powers that be try to put it into slow motion as much as possible to ride out the good times while they can.  The dominoes continue to slowly collapse, via Bloomberg:

French bonds slumped, with 10-year yields rising the most since October 2008, amid speculation European nations will need to backstop their banks, placing an additional burden on state finances.
Ten-year French yields climbed 38 basis points this week, the most since the euro was introduced in 1999.

There is some sanity out there judging by this excerpt from a new UBS report:

For more than a year we have argued that Greece will not be able to avoid a default. In this piece, we look at how this could be done. We think a 50% haircut makes little sense: if we take into account the lenders that cannot participate in the haircut (IMF, bilateral loans) and the bank recapitalisation it would trigger in Greece, we find that a 50% haircut would actually reduce the stock of debt by only 22%. Rather, we think a large restructuring of the debt (i.e. a “super PSI”) is the solution. It would reduce the financial needs of Greece, postponing for decades the redemption of bonds. It would also cut the deficit if coupon payments were reduced sufficiently. This would come with manageable needs for bank recapitalisation. Finally, such a step would remove the need to default, or rather, it would be akin to the default we expect.

...why a 50% haircut does not work At the time of writing, Greece has total debts of €346.4bn. About a third of this debt is in public hands (34.8% is attributable to the IMF, ECB and European governments), roughly another third is in Greek hands (28.8%, essentially for banks) with the remainder (36.4%) held by non-Greek private investors.

For more great commentary on the Euro madness, see Jonathan Weil's recent pieces (here and here).  An excerpt:

Consider Dexia’s balance sheet as of Dec. 31, which is the date the banking authority used for its tests of 90 banks in 21 EU countries. Dexia’s tangible common shareholder equity was 6.7 billion euros, compared with 564.5 billion euros of tangible assets. (Both figures exclude goodwill and other intangible assets.) That gave it a 1.18 percent ratio, meaning Dexia had little hard capital available to absorb future losses.

Dexia nonetheless managed to show a capital ratio of 12.1 percent, based in part on its calculation that it had 17 billion euros of what the regulators call core Tier 1 capital. Dexia pointed to this figure in its latest annual report as proof that it “enjoys robust solvency.”

Dexia got that ratio mainly by excluding the bulk of its assets -- a process speciously referred to as risk-weighting -- along with billions of euros of pent-up losses on soured holdings such as Greek government bonds. The denominator in the ratio got smaller, the numerator got bigger, and Dexia wound up looking like one of Europe’s safest banks.

Using Dexia’s regulatory math as a starting point, the European Banking Authority then generously estimated Dexia’s core Tier 1 ratio would fall to 10.4 percent in 2012 under the “adverse scenario” it contemplated. The details of the scenario don’t matter now because Dexia is toast.

Bottom line, if Europe’s leaders want to further undermine public confidence in the region’s banks, then they should keep doing exactly what they’ve been doing the past couple of years. A few more put-ons like the last two rounds of stress tests and we’ll have the global financial crisis back to peak form in no time. Dexia’s demise is only the start.

As for an improving U.S. economy:

WASHINGTON-- U.S. consumers stepped up their spending on retail goods in September, a hopeful sign for the sluggish economy.

They spent more on autos, clothing and furniture last month to boost retail sales 1.1 percent, the Commerce Department said Friday. It was the largest gain in seven months.

Auto sales rose 3.6 percent to drive the overall increase. Still, excluding that category, sales gained a solid 0.6 percent.

This holiday season is going to be key in determining where this economy is really going.  I will end by pointing out another Chinese made wonder:

I wouldn't trust a jet fighter from Walmart either.