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This is Alice in Wonderland looking through the looking glass at debt management

Rep. Greg Walden (R., Ore.), quoted in WSJ

Walden fears the trillion dollar coin solution to Republican obstruction. Mint a coin with a trillion-dollar denomination, deposit it at the treasury, and use it to buy back treasuries. No more debt-ceiling crisis. If anyone has passed through the looking glass, though, Walden and his GOP peers have led the way.

Despite having run up a terrible tab for the many programs he and his colleagues voted through. Despite having voted Nay for the Pay as You Go rule, which would have blocked any tax cuts without any off-setting tax increases or spending cuts. Walden and his peers in the Republican-led House have decided that the nation’s debt-payment should be optional.

Walden and his peers have combined a commitment to spending with a insidious refusal to pay the bills. It’s a world set in reverse, out of kilter with our expectations: where text reads backwards, chess-pieces come to life, and the White Queen can remember events before they have happened. It’s the world through the looking glass.

A trillion-dollar coin may sound far-fetched, but we didn’t arrive at it by accident.

So, Alice, what will it be?

 

It’s here! BlackRock launched the much-discussed fixed income crossing network.

BlackRock Solutions will operate the network for the benefit of it’s own managers and a network of forty-six external clients. BlackRock, alone, manages $3.5t in assets across ten thousand portfolios, but the Aladdin Trading Network –the network’s working title– will also include sovereign-wealth funds, insurance companies and other money managers. For a small fee, participants can cross trades for corporate bonds, mortgage securities and other assets through the platform.

Fixed income trading has been a profitable mainstay of investment banks. The prospect of electronic trading through a crossing network is simultaneously laughable and terrifying. Given the vast investable universe of fixed income instruments, trading these instruments presents a far more complex problem than equities. GE has only one ticker, but it may have a dozen or more credit instruments associated with it, each with its own maturities, rates, claims, etc. Nonetheless, BlackRock is not moving forward on the basis of charity. They want to cut costs, and that means cutting into investment banking profits.

BlackRock’s magical, mystery service has many miles to go before we see the disruption people have predicted. They currently cross 3% of trades internally, and they hope to raise that number to 6-8% with Aladdin. What’s exciting is that they’re bringing forty-six external clients along for the ride.

The insider trading scandal began with shock and awe. Each week brought a raft of indictments. Well-stationed members of society were exposed as frauds and criminals. With insider trading its most visible focus, the legal violence against the finance industry continues. And like so many TV-addled teenagers, the public may now have lost the ability to respond.

An apathetic public, however, is no a reason to stop. Just because insider trading is no longer shocking doesn’t mean we shouldn’t prosecute it to the full extent of the law. But the failure to shock is also not a reason to search for a response by expanding the definition of insider trading. Read the rest of this entry »

He got it right. Des Lachman put a stake down and predicted that Greece would default in May 2010. Today, it did.

Though some had talked about it, few were willing to stake their reputation on the probability of a Greek default. Lachman said, in testimony to a Joint Economic Committee of the Congress, “There is every prospect that within the next twelve to eighteen months Greece will default on its US$420 billion in sovereign debt.” Fifteen months later, the ECB arrived at a debt accord that would give holders of sovereign Greek debt a 50% haircut – more or less, a technical default. Read the rest of this entry »

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed?

Andy Grove, former CEO of Intel. He goes on to quote Alan Blinder, who wrote, “as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.” Grove, however, warns, “…abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.”: via Bloomberg BW

Arguably, the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class. Median incomes declined outright from 1999 to 2009. For most of the aughts, that trend was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility. But that fig leaf has since blown away. And the recession has pressed hard on the broad center of American society.

Don Peck: via The Atlantic

There’s nothing that you can look at here that is signaling some revival in growth in the second half of the year, and in fact we may see another catastrophically weak quarter next quarter if things go wrong next week…[that is]…if Congress actually starts implementing a massive contraction by suddenly cutting government spending immediately”

Nigel Gault, chief United States economist at IHS Global Insight, remarking on recent revision of economic data that indicates the current GDP remains below it’s high-water mark in 2007: via NYT

The word for this report is ‘shocking.’ With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.

John Ryding, chief economist at RDQ Economics: via NYT

Apparently, contrary to what as Representative Dave Camp and EVP of the US Chamber of Commerce Bruce Josten would have one believe, neither economist is in on the joke.

we now know it is amateur hour on Capitol Hill and we don’t want to be painted in this corner again.

Christian Cooper, head of dollar derivatives in NY at Jeffries, subverting the Republican conceit that Wall Street is in on the joke: via Bloomberg

With China, you have the ultimate ‘this time is different’ syndrome. Economists say they have huge reserves, they have savings, they’re hard-working people. It’s naïve. You can’t beat the odds forever.

–Professor Ken Rogoff: via NYT

The president calls this a structural issue—we usually call it progress.

Russell Roberts, George Mason University and a research fellow at Stanford’s Hoover Institution, writing in an op-ed in today’s WSJ

The structural issue Roberts floats is innovation-led unemployment, a conceit he attributes to Obama. If technology leads to productivity improvements, and with productivity improvements, employees can produce more, then employers can also produce more, but they can do it with fewer employees. For fear of this, Roberts claims that Obama is against technology, productivity, and progress.

Roberts correctly equates technology’s impact on productivity with progress, but he is wrong to suggest that President Obama is either too dim or too backward to embrace it. Read the rest of this entry »

We’re in for 5-10 yrs of penury, pain, injustice, polarization, unrest & possibly a kind of new Dark Age.

Umair Haque, via Twitter

A frolic among the perspectives from the prognosticators of all things economic will yield a single, resonant theme. It won’t surface through facts and figures. Ranging controversies between the statistics will moot themselves in the face of it. Both left and right will agree, even while denying it. They’ll say, this time it’s different.

Ask Bill Gross or Peter Schiff. Surely the Heritage Foundation and perhaps the Brookings will also chime in. No doubt, a bleating chorus will rise to reinforce it from all sides of our bicameral incarnation of the people. The American economy has breached its balance. It’s no entropy that we face, but a new normal. Unemployment will remain intractable. The budget-busting entitlement programs will ruin us. And the shifting balance of global competitiveness will drive jarring and untold consequences upon our economy, culture and civilization. SELL!

Would it were so simple. Read the rest of this entry »

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