Entries in currency (2)


Jim Rickards on the latest Federal Reserve Rate Decision and Operation Twist 2.0

For a lucid view of the recent Fed action in global context watch this:

Jim Rickards on the latest Federal Reserve Rate Decision and Operation Twist 2.0

It's a bit long, but worthwhile. Of particular interest at the back end are his comments on structural rent seeking and the costs it creates for our economy. Rent seeking translates into the political form of your risk, my return.   Moral hazard, the kudzu of our current regulatory framework, is the fountain of rent seeking, and it's everywhere ... 

  • Too Big To Fail whereby the entire loan & swap books of the TBTF institutions are underwritten by the US taxpayer
  • the failure to reform money market funds and the repo market and  the consequent expectation of federal support for funds which have no independent capital or collateral to support trillions of dollars of credit,  counter party & clearing risks
  • Fannie & Freddie which were essentially untouched by Dodd Frank and comprise about 95% of the entire US mortgage market and
  • pick a sector: health carer, automotive, education, pensions, energy etc.

We missed a lot, but you get the picture. We continue to manufacture boatloads of systemic risk by moral hazard. It is not a cost or risk free proposition.  And our politicians monetize for their own benefit their ability to allocate the privilege. No one seems to address the loss of freedom which accompanies the growth of moral hazard, but it is very real.

Lastly, an excerpt from an article on the SEC & money markets in today's WSJ:

Money market mutual funds have been rescued from financial trouble by their parent companies more than 300 times since the 1970s, about 100 more than previously reported, according to a new Securities and Exchange Commission study.

The study, which isn't being released to the public, appears to bolster SEC Chairman Mary Schapiro's contention that the $2.6 trillion industry needs stronger regulation

Wait a minute: "The study... isn't being released to the public"? One might reasonably ask, why not?  How are citizens to make informed decisions about what might be one of the most important regulatory & structural issues of the decade when key information is withheld? 

And if you're considering your freedom you might want to ponder the answer implicitly proffered: you don't need to know... if we wanted your opinion, we would ask.




WWB's book of the year award: Currency Wars by James Rickards

Currency Wars by James Rickards  is a well written, understandable & exquisitely logical explication of the economic theory, policy & political economy that currently drives Fed policy. It is stunning in clarity, understandable and reflects the knowledge & perspectives of an obviously seasoned market practitioner who also has a detailed command of current scholarship & theory. The book is not the studiously inaccessible, self-referential work of an academic.

If you have ever had the unpleasant task of telling a sovereign state that… “we regret that in light of current conditions in the market, we have no bid for your paper and do not anticipate a change in that posture in the near to intermediate term. As your staff knows we have no available capacity with respect to our trading lines. We are seeing from time to time your paper trade away from us in the secondary markets at significant discounts and in disorderly manner. We will continue our dialogue and keep you apprised of market conditions as they develop”… you tend to develop a certain sensitive and personal understanding of liquidity.

So, if you’d like to follow how game theory, including war games, foots to the non-linear responses of chaotic systems, give it a go and partake of a very public  & needed sheep dipping of the policies of Bernanke & Timmy Geithner.  A complete reading in one sitting is a rare event, and you might just do it. 

We recommend the book to promote a broader, more accurate understanding of monetary policy & risk management in the context of global dynamics, and that to bring about constructive and timely reform.