Krugman

The inaugural Chris Martenson "Straight Talk" contributor is Mike Shedlock, author of Mish's Global Economic Trend Analysis, one of the most visited and respected economic blogs on the Web. Mish is an outspoken deflationist and outlines his rationale for being so in his answers to our questions. He is also a registered investment advisor representative for SitkaPacific Capital Management.

Gonzalo Lira picks up on a topic much discussed on Zero Hedge, if not so much elsewhere: the religulousity (thank you Bill Maher) of the "science" of economics: "It’s no great insight to say that economics—the so-called “dismal science”—has had a dismal track-record in terms of predicting macro-economic events over the last forty-odd years. And as for the last couple of years? Sheesh—a monkey throwing darts would have done a better job of predicting how the macro-economic picture would play out. But I argue that economics is not and has never been a science—what's more, it's become a religion. And just like any religion, it has adepts, denominations, and orthodoxies. Which is why it will fail in its efforts to get out of this Global Depression." —Gonzalo Lira.

Two simple charts tell it all. Bonus: at the end, we explain how to make Paul Krugman squirm.

After observing the considerable amount of interest over my most recent article, The Astounding Failure of the US Educational System that has received more than 15,200 reads thus far, I have decided to extend that article into a 3-part series. Here’s Part 2.

Some scary developments in Iceland including a 41% inflation in the past three years, 63% of mortgage is underwater, and 40% of homeowners are insolvent make me wonder how far behind is the United States?

Paul Krugman doesn't know anything about Austrian economic theory but he feels competent to criticize it. He has refused to debate the topic in the past. Now a top notch Austrian theory economist is challenging him to a debate. The lure: $100,000. Will he do it?

Today’s Keynesian economists have convinced boobus Americanus that the Great Depression was caused by the Federal Reserve being too tight with monetary policy and the Hoover administration not providing enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of reasoning to ram through an $850 billion pork-laden stimulus package, as well as the purchase of $1.2 trillion of toxic mortgages by the Federal Reserve. The only trouble is that this storyline is a complete sham. The fact that colossal stimulus spending, zero interest rates, the purchase of over a trillion in toxic assets by the Fed, and the loosest monetary policy in history have done absolutely nothing to revitalize the economy, has proven that Keynesian policies have been a wretched failure. This is not a surprise to Austrian school economists.

The unnamed official nearly fell off his chair laughing when I said "So, does the US still have a strong dollar policy?" It was meant as a joke.

• The real stock rally killer: Analysis: Bush tax cuts might just expire after all (Reuters)
• Bondholder `Immunity' to Losses Challenged as Irish Bail Banks (Bloomberg)
• Fed's Hoenig: Further Easing Poses Risk To Nascent US Recovery (WSJ)
• Fed's Bullard Favors Open-Ended Bond Purchases (MarketWatch)
• Ohio AG: foreclosure probe won't stop post-election (Reuters)
• False expectations: The historic infrastructure investment that wasn’t  (Economist)
• Democrats slam another campaign opponent: China (Reuters)

We’ve seen this movie so many times already, we can practically recite the ending: The Too Big To Fail banks are once again in the middle of another crisis—another mortgage crisis—that’s breaking like a bad rash. And this new scandal has so many moving parts!
Robo-signings!—Foreclosure mills!—Forged documents!—Attorneys General huffing and puffing!—Too Big To Fail banks tottering!—Foreclosures suspended!—Bond holders freaking out!—Credit default swaps shooting the moon!—Aaaaaahhhh!!!!! Again. As I explained in a long piece discussing the current Mortgage Mess, all of these different issues are all symptoms of the same disease: The Mortgage Backed Securities—America’s Herpes: The gift that just keeps on oozing. - Gonzalo Lira

• Banks Clueless on Foreclosure Mess Severity: Jonathan Weil (Bloomberg)
• New York Fed Faces `Inherent Conflict' in Mortgage Buybacks (Bloomberg) - as we speculated first, the FRBNY gets dragged into this as not pursuing action would be dereliction of fiduciary duties to taxpayers by Maiden Lane
• Geithner suggests major currencies "in alignment": report (Reuters)
• Geithner's Goal: Rebalanced World Economy (WSJ)
• Chinese growth slows to 9.6% (FT)
• On the "cash on the sidelines" BS and on Google's 2.4% effective tax rate (Bloomberg)
• Osborne vows not to backtrack on cuts (FT) as UK unveils dramatic austerity measures  (FT)
• Greek, Portugal Bonds Lead Peripherals Lower After Spanish Sale (Bloomberg)
• We See Totally Surreal Markets (Bob Chapman, h/t John)

For some ungodly reason, various so-called sophisticated investors still peg their hopes that gridlock in Congress/Senate will be good for stocks. Of course, never before has gridlock been the primary force preventing a new multi-trillion fiscal stimulus which is ultimately what is needed to provide the economy with a fresh sugar high (of course it won't do anything for the economy in the long run, but we will let you read Krugman for that) and as such the current situation is unlike anything else in history (and is why America's last resort for a short-term bounce continues to be the Fed and its monetary policy). Yet for all the technical pundits, here is a bit of trivia via Art Cashin's letter today, which confirms that in a split Congress regime stocks perform worse than when either party was in control. "The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House."

Chicago Fed President Evans said that we are in a Keynesian "liquidity trap" which means monetary policy isn't working. As a result the Fed hasn't been able to stimulate the economy because you stupid consumers refuse to spend and are saving money. He thinks they can carry out the Fed's mandate of "full employment and stable prices" by creating inflation. That is, we need to debase the dollar with more fake money and things will be grand.

As if we needed any further confirmation that the Fed is now willing to risk an all out bout of hyperinflation, here it comes courtesy of Chicago Fed's Charles Evans, whose comments that inflation is "acceptable", and welcome, and is the only way to battle the "liquidity trap" the US finds itself in, mirror those of NY Fed's Dudley who earlier confirmed Zero Hedge expectations that $100 billion is too low a QE2 number. Which means that very soon the Fed will buy up every single Treasury in existence. It will also kill the dollar absent Europe continuing on its path from earlier today, and saying the stress test was, in fact, a lie.

• Federal Reserve urged to act on economy (FT)
• Weil: Foreclosure Fiasco’s Trail Leads to Washington (Bloomberg)
• Few Ready For Currency War (JAD)
• ECB's Trichet Rejects Weber's Call to End Bond Purchase Program (Bloomberg)
• Banks Face Mortgage Scrutiny as $49 Billion in Value Vanishes (Bloomberg)
• Homeowners in Limbo - Mortgage Mess Means Delays for Those Facing Foreclosure (WSJ)
• BOE Will Expand Stimulus by 100 Billion Pounds, CEBR Predicts (Bloomberg)
• The Recklessness of Quantitative Easing (Hussman)
• Why a Foreclosure Moratorium Is a Bad Idea (WSJ)
• Fast Yuan Rise Will Be Short-Lived (Reuters)
• Investors Bet Fed Action Will Bring Inflation (FT)
• Hedge Funds Succumbing to Mutual Funds’ Mediocrity (Bloomberg)
• Germany Bows to Call for Political Sway Over Euro Sanctions (Bloomberg)
• Income Inequality: Too Big to Ignore (NYT)
• U.K. Readies Cuts in Defense Outlays (WSJ)