Monthly Archives: April 2012

Time to Pull the Plug

Foreign Policy Magazine (FAM) published an article today titled The Jet That Ate the Pentagon. This ‘supersonic albatross’ as they call it continues to escalate in price while missing deadline after deadline. Canada’s proposed procurement of this aircraft to replace its aging CF-18s has been in the news lately, particularly over confusion of estimated costs for acquiring it.

This article confirms in our mind that the F-35 is a flying money-pit. Until we develop a rational defense policy, we should not even be doing anything more than kicking the tires – and we have already done that. Canada is essentially a maritime nation, an island (since an attack across our single land border by our neighbour is indefensible and need not be considered). It doesn’t take much to understand that our navy is our primary defensive instrument and our air-force then falls into a supporting role. For more on this boondoggle, read on.

Quote of the Day: 20120430

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged.

— Mark Spitznagel quoted by Zero Hedge.

If You Thought You Had All Bases Covered …

Cumberland Advisors sends out email free commentary fairly regularly. These are well connected and smart people that run money, their own and others. Their commentaries are somewhat erudite but always insightful and well informed. The latest we thought we would reproduce most of since it will be a couple of days before they have a link on their home page. Titled Stock Market Outlook – Shocks, it lists 5 events that are likely to come to pass that may create a major shock in the economy and markets. They provide their own commentary on each event.

To the Sheep of Canada: When the Shepherd Approaches You from Behind, Watch Out

This post serves as an introduction to the International Monetary Fund (IMF), Canada’s involvement to date, and your involvement in IMF activity as a Canadian taxpayer. If you are a taxpayer in another country, you have a similar involvement. As the shepherd of the global economy, the IMF works behind the scenes and never in the parliaments and governing institutions of the member countries.

Quote of the Day: 20120429

The following is a collection of statements that Fed Chairman Ben Bernanke actually made to the public over the last seven years (click on the number at the front of each for its source):

  • #1 (July, 2005) We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.
  • #2 (October 20, 2005) House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.
  • #3 (November 15, 2005) With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.
  • #4 (February 15, 2006) Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.
  • #5 (February 15, 2007) Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.
  • #6 (March 28, 2007) At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.
  • #7 (May 17, 2007) All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.
  • #8 (January 10, 2008) The Federal Reserve is not currently forecasting a recession.
  • #9 (June 10, 2008) The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.

— This is the wisdom of the head of the Federal Reserve, the institution that manages the US economy and influences strongly, the global economy.

Quote of the Day: 20120428

You can lead a Socialist (or Liberal) to knowledge, but you can’t make him think.

— The POOG

The Collapse of the European Economy

We have several posts tracking isolated aspects of the overall European economy. These include Placing Spain on Deathwatch, Tracking The Downgrade of Europe (and Others), and Tracking the Next Recession. Today’s post by Mike Shedlock, Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008; German Retail Sales Plunge Into Contraction; French Retail Sales Plunge at Record Pace; Record Job Losses, Record Retail Plunge in Italy, gives a more comprehensive picture of the economic situation there. Basically, the entire European economy is slowing down. This will move countries not already in recession, towards that state. None of this is good for a financial crisis who’s only hope of a solution other than default, is vigorous economic growth.

The Great European Train Wreck continues in slow motion.

The higher context is the global economy. The decision by the BoJ to print 5 trillion yen shows that Japan’s economic problems continue (forever it seems). In the US, Q1 GDP at 2.2% missed estimates of 2.5% by a mile showing all is not happy with that economy (a late report suggests a Q1 GDP number of zero: GDP Miss Far Bigger Than Announced; Real GDP is 0% Using More Reasonable Deflator). These are not isolated occurrences. With global trade and money flows, they all feed into each other. The risk is a self-feeding downward spiral. And central banks around the world are left with tools that can only exacerbate the problem, not fix it.

Ontario, You Are In Really Deep Trouble

In December, we wrote in Ontario, You Are In Deep Trouble:

So Dwight, tear up all those projections of GDP growth, deficit reductions and balanced budget time frames and start over. If you can’t do it, Moody’s will.

Well he didn’t and they did!

Following on the heals of an S&P’s downgrade of the outlook on Ontario’s debt (see S&P ratings agency puts Ontario on credit watch; Moody’s did same last fall), Moody’s has downgraded Ontario’s credit rating from Aa1 to Aa2.

Credit Bubble Bulletin: 20120420

In this letter, An Eye on France, Italy and the Speculators, Doug Noland enters the monetary policy “rules vs. discretion” debate motivated by John Taylor’s March 29, 2012, Wall Street Journal op-ed, “The Dangers of an Interventionist Fed – A century of experience shows that rules lead to prosperity and discretion leads to trouble.”

He examines in particular, the relationship between Fed expansionary policy implementations and inflation.

Stratfor Geopolitical Weekly: 20120424

Russia’s Strategy

April 24, 2012 | 0859 GMT

By George Friedman

The collapse of the Soviet Union in 1991 reversed a process that had been under way since the Russian Empire’s emergence in the 17th century. It was ultimately to incorporate four general elements: Eastern Europe, Central Asia, the Caucasus and Siberia. The St. Petersburg-Moscow axis was its core, and Russia, Belorussia and Ukraine were its center of gravity. The borders were always dynamic, mostly expanding but periodically contracting as the international situation warranted. At its farthest extent, from 1945 to 1989, it reached central Germany, dominating the lands it seized in World War II. The Russian Empire was never at peace. As with many empires, there were always parts of it putting up (sometimes violent) resistance and parts that bordering powers coveted — as well as parts of other nations that Russia coveted.

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