How The Federal Reserve Functions and Creates Money

Filed Under (Finance, General, Video) by Kristjan Velbri on 02-08-2009

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For those who don’t how the system works, viewing this is compulsory.
This is why gold is money and fiat currency (Federal Reserve Notes printed by the Federal Reserve) is not.forex margin calculator

Additional reading: Modern Money Mechanics (.pdf)

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Wednesday Readings

Filed Under (General, Linkfest) by Kristjan Velbri on 29-07-2009

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Yesterday, Vitaliy Katsenelson wrote an interesting guest post for The Big Picture, drawing attention to the Chinese GDP growth, or rather the lack of it.

Here is what we know: exports constitute about 35% of the Chinese economy and they dropped over 20% in June, while the Chinese economy (GDP) grew 8%. So the “X” is the growth rate of 65% of Chinese non-export economy.

0.35 x (-20%) + 0.65 x (X%) = 8%. If you were to solve for X you get 23%.

I highly recommend you read the entire piece: The Simple Math of Chinese Staggering growth.

The Coming Depression Blog gives some thought to the national debt of the United States:

The National Debt is now $11.6 trillion. The National Debt in 1913 was $2.9 billion. Therefore, the National Debt has gone up by 400,000% in 96 years.

Mark Hulbert from MarketWatch reports that “corporate insiders are more bearish than at any time in nearly two years. Corporate insiders have recently been selling their companies’ shares at a greater pace than at any time since the top of the bull market in the fall of 2007.”

In other news, Russia has banned travelers from taking their children with them, citing fears of swine flu. Previously, Russians were only banned from taking their children to the UK. Could this be a taste of things to come? It could very well be if swine flu keeps spreading at the same pace that it has so far. Just take a look at this table and compare the spread of the virus between May, June and July. The threat of a worldwide pandemic is now more immediate than ever.

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Bernanke Babble Dictionary

Filed Under (Video) by Kristjan Velbri on 26-07-2009

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Weekend Finance & Podcasts – 26th July

Filed Under (Linkfest) by Kristjan Velbri on 26-07-2009

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Bloomberg had a must-read piece three days ago, parts of which Edward Harrison outlined in his article FASB Considering Requiring All Financial Assets Be Marked at Fair Values. You can expect a fierce battle from the banks to insure that the accounting rules are left unchanged, or better, changed in a way that reflects good on the banks.

Be sure not to miss Jim Puplava’s Financial Sense Newshour and Eric King’s King World News Broadcasts.

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Who is Right? Peter Schiff or Peter Morici?

Filed Under (Economics, General, Markets) by Kristjan Velbri on 18-07-2009

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Lawrence Kudlow: When will this recovery materialize?
Peter Morici: December 30th
Peter Schiff: Not a chance.
Morici: Fourth quarter recovery!
Schiff: What decade [are you talking about]?

Morici cites housing starts and housing permits as if they were up enough to confirm a speedy recovery. Not so fast. Privately owned housing units that were given building permits in June were at a seasonally adjusted 563,000, 8.7% above the revised May number. Housing starts were at a seasonally adjusted 582,000, which is 3.6% above the revised May estimate. Yet, the year on year data is much bleaker: new starts down 46%, permits down 52%. There are already over 4 million houses on the market, and by some estimates, around 1.5 million that are being withheld from the market either due to foreclosure moratorium or in the hopes of a housing recovery. Who is building these houses? 4 million houses is enough supply for a whole year. It would be much better if housing starts fell even further as there are already too many vacant houses in the US.

july housing starts
Image courtesy: Barron’s

He also talks about falling jobless claims. I don’t know where this guy gets it from. Has he been smoking too many of those green shoots?
Department of Labor:
In the week ending July 11, the advance figure for seasonally adjusted initial claims was 522,000, a decrease of 47,000 from the previous week’s revised figure of 569,000.
The advance number of actual initial claims under state programs, unadjusted, totaled 667,534 in the week ending July 11, an increase of 86,389 from the previous week.

The government plays with the numbers to make data politically acceptable, if you’re not able to accept this there is probably something wrong with you. This is not about hope or a positive outlook, this is about the real data, which is getting worse by the week.

With the death-birth model, the government estimates that over 800,000 jobs have been created this year, many of them in the finance and construction sectors. The Obama administration said the jobless rate would top out at around 8%, but it’s 16,5% already! This is all public information, but for some reason there still are people like Mr. Morici who have been smoking too much of these green shoots.

What’s even worse is that if and when the recovery materializes in the US, there is a high probability that it will be a jobless recovery. Already, all the jobs created since the previous recession have been done away with, many of them never to recover (most of these were in construction, services and finance anyway). Besides laying off people, companies have been cutting working hours and the national average is not at 33 hours per week. If demand picks up, the companies will not hire new workers until they’ve exhausted the available underemployed workforce.

The stream of bad data goes on: taxes and feed are rising all across the board, foreclosures are rising, credit card delinquencies are up, defaults and redefaults on mortgages are rising. If I didn’t know better, I’d say Peter Morici is wrong, but given all the data, I think he is willfully ignorant, or in other words, an idiot. Note how he defends his position by implying that Schiff is bearish only to boost his book sales.

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How America is Being Robbed Blind by Banksters

Filed Under (Video, politics) by Kristjan Velbri on 17-07-2009

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Hat tip: The Coming Depression

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The Goldman Sachs Web

Filed Under (Video) by Kristjan Velbri on 17-07-2009

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Arrrgh! What is up with you, America? When are you going to hit the streets in protest? Has the media and Mr. Obama really done such a great job at silencing you and cutting off your social nerve? Get on the streets and show them what you think of all this!

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Hedge Funds to be Regulated

Filed Under (Financial Regulation) by Kristjan Velbri on 16-07-2009

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BusinessWeek reports that politicians in Brussels are working on regulations “that might make the Continent less appealing to hedge funds and private equity firms”. I think it is a necessary step to protect hedge fund clients,the stability of the financial markets as a whole and last but not least, the hedge funds themselves. Too much leverage and not enough disclosure is a problem that not only describes the underwriters of credit default swaps but also hedge funds. The hedge funds have been keen to point out that the new regulations would hurt them and make the EU a less appealing place for hedge funds. Now isn’t that convenient? For years they’ve been allowed to run amock and now that the regulators want to take some of their guns away, they start crying like they were being pushed out of business. The theme goes that once EU regulations have been toughened, the hedge funds will move to the States. Well, too bad, because as Bloomberg reports, the Obama administration is also eyeing the hedge funds.

The legislation would require firms for the first time to report their assets, leverage, off-balance sheet holdings and investments to regulators on a confidential basis, the department said today in a statement. The law would apply to hedge funds, private-equity firms and venture capital managers with more than $30 million in assets [bold emphasis mine].

This is a tiny victory compared to all the things that have to be done to bring the banksters, the hedge funds and all the other financial institutions back to into the real world, but it’s a promising start. Next, I’d like to see a new Pecora Commission.

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Pictures From the Wall of Shame

Filed Under (politics) by Kristjan Velbri on 15-07-2009

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Clearly I’ve got too much free time on my hands – as I was browsing through the web, I found these images. This is really Photoshop at its best!
Clicking on the images will take you to flickr, where you can download the full-sized images.

bernanke helicopter, dropping moneyImage courtesy: libertariangirl

bernanke throwing money from a helicopterImage courtesy: Shiny Things

This has got to be my favorite! It looks as if someone went to the White House and caught the children right in the middle of their favorite game.

bernanke printing money, bush cutting it out, paulson pocketingImage courtesy: ipoopdaily.com

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Great Articles from Seeking Alpha Contributors

Filed Under (Linkfest, Markets, Web/Blogging) by Kristjan Velbri on 14-07-2009

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Seeking Alpha is a free provider of stock market opinion and analysis from blogs, money managers and investment newsletters, and a provider of its own financial content. For those new to finance, alpha is a financial term referring to a stock’s performance relative to the market; it is used by fund managers to describe beating their index, so stock pickers “seek alpha”.

For a few months now, I’ve also been a contributor at Seeking Alpha. Though I’m not really a frequent writer, I am a frequent reader. At Seeking Alpha, you have the option of ‘following’ someone so that everything they publish ends up on your followed list. This is a very useful tool as it has brought my attention to these recent articles, which you should all read.

Jeff Nielson: $10 Trillion in Wall Street Aid and No Investigations?

Graham Summers: Boomers in Trouble: The Unheralded Economic Mega-Trend and Part 2

J. S. Kim (one of my favorite authors on SA, by the way): Will Gensler Curb Manipulations in Futures Markets, or Is It Just Smoke and Mirrors?

I encourage you to read the rest of the articles these gentleman have writeen as they are most certainly worth your time.

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