Krugman

The EURDLR closed at 1.3225. Some blood on that price.

Global macroeconomic policy seems to be veering between world-historic deficit spending (as is the case in the U.S.) to near-Dickensian austerity measures (as is the case in the United Kingdom). But both policies fail to understand what got us to the current mess—which is why both policy prescriptions are misguidedly trying to recapture the good ol' days before the current depression. But those days of Hummers and McMansions are not only gone—they were a lie. Here's why. - Gonzalo Lira

I just got off the horn with the Ruling Elite. We had an emergency conference call and to tell you the truth, they ain’t happy. You little people are not responding the way you are supposed to. A significant portion of you are not getting more optimistic because they tell you to. Instead of just reading the headline on Bloomberg that durable goods orders skyrocketed in June, you actually read the details that said durable goods orders plunged. It is getting difficult for the ruling elite to keep the masses sedated and dumbed down. These damn bloggers, with their facts and critical thinking, are throwing a wrench into the gears. Obama and his crack team are working round the clock to lock down the internet, but it will take time. Not that they are totally dissatisfied. They’ve been able to renovate their penthouses and purchase new mansions in the Hamptons with the billions in bonuses you supplied through TARP. The $1.2 trillion supplied by your children and grandchildren to buy up toxic mortgages off their balances sheets was a godsend. They will never call you suckers, to your face.

Marc Faber closed out this week's Agora Financial Symposium with a speech that pretty much recapitulated the view that the end of the world is if not nigh, then surely tremendous dislocations to the existing socio-political and economic landscape are about to take place (with some very dire consequences for the US). His conclusive remarks pretty much summarize his sentiment best: "We've had a trend for most of the past 200 years: GDP of countries like China and India went down while the West surged. That's now changed. Emerging economies will go up, and your children in the West will have a lower standard of living than you did. Absolutely. We won't sink to the bottom of the sea. But other countries will grow much faster than us. The world is very competitive, and the odds are stacked against us. Americans, with their inborn arrogance, will not let it go that easily, so there will be lots of tension going forward." While long-time fans of Faber will not be surprised by the gloom and doom (not much boom) here, anyone else who still holds a glimmer of hope that at the end of the day the CNBC spin may be right, is advised to steer clear of Faber's most recent thoughts.

• E.U. Test May Need to Fail Some Banks (NYT)
• BOE's Posen: More Bond Buys the Most Likely Next Move (WSJ)
• Vince Reinhart: Setting the table for fiscal restraint (American)
• The View From Bernanke's Perch at the Fed (WSJ)
• Fed in Hot Seat Again on Economic Stimulus (NYT)
• Krugman versus Ferguson: round two (Telegraph)
• European Bank Stress Tests Said to Describe Three Scenarios (Bloomberg)
• Derivatives reform to punish property industry (FT)
• Double dip in the baltic (Telegraph)

In his op-ed dated June 30, Paul Krugman declares Iceland as a "post-crisis miracle". That is totally screaming for a rebuff considering even Greece vowed not to be the next Iceland.

If you've been too busy to pay attention to the details, and if you're hoping that the financial reform bill which has just been passed will fix the economy, this essay will bring you up to date.

In September 2009 it appeared like there may be some hope for CNBC yet. The channel had just received its latest import in the face of one Simon Hobbs, whose first appearance on the station involved him making a total mockery of the ridiculous momentum chasers on Fast Lost Money. Unfortunately, in the subsequent 9 months, it appears the GE Goebbels crew visited Mr. Hobbs in the deep of the night, resulting in an ideological and propaganda transformation that makes Dr. Jeckyll and Mr. Hyde look tame by comparison, and is more reminiscent of Jeff Goldblum walking through a teleport device. Luckily, today Delta Advisors' Michael Pento proceeded to provide a smackdown of the currently unrecognizable Simon Hobbs that only rivals his own friendo treatment of TV's best-tanned man, Joe Terranova, back in 2009. We hope, for Simon's sake, that he takes this opportunity, to finally get his act straight.

Technically, we misspoke. The US is most certainly not in austerity... Yet. Which is why one can imagine the fallout that will occur once the country does cross the Rubicon into prudent spending, especially after recent disclosure that certain Pentagon accounts are about to run dry as soon as August as is. Reuters reports that the Pentagon said on Wednesday it may be forced to take extreme measures -- like not paying salaries -- if the Democratic-led Congress fails to pass a $37 billion defense spending bill before lawmakers begin an August recess. In retrospect this looks like the best straw man to be used by various splinter groups terrified of what austerity would mean for their salaries - just throw out that America would be defenseless and all talk of non-excess spending would cease immediately. Furthermore, what is the big deal - the US issues between 2 and 3 times that amount in various auctions each week. Surely Chine would be very happy to know a third of a week's tally is going to support the unparalleled (and broke) US military machine.

Why isn't our economy recovering? I ask that question often and have written about it many times. Perhaps a better question is: what needs to happen in order to make our economy grow? I offer some solutions.

I have often said we can never eliminate risk, only manage it based on what the market is telling us. Our tactical asset allocation is directed towards the active management of risk versus reward in defining how we approach the financial markets. Our focus is to preserve wealth by controlling our exposure to risk assets, based on a number of quantitative and qualitative data points. In my opinion, a buy and hold allocation is a dead decision during markets such as we have now. Asset allocation, in my opinion, is an art involving quantitative analysis of financial markets combined with common sense. One critical factor in our process is finding the “sleeping point,” which I define as that level of risk exposure that allows you to sleep at night. Or, as one of my clients stated recently, “Cliff, I do not want to go back to eating spam.” We are here to make sure your investment process protects against the spam effect. We have had the worst May in stocks since 1940. No credit still equals no jobs. China is destined for turmoil as its real estate market unwinds. The Consumer Confidence Index is down to 52.9 in June from 62.7 in May. Fair value on the S&P for me is 950, which would indicate another 7% decline in stock prices from here. - Cliff Draughn, Excelsia Investment Advisors

• Kan election loss may impede effort to cut debt (Bloomberg)
• Chinese Dagong credit rater gives China higher credit rating (AA+, stable) than US (AA, neg outlook) (BusinessWeek)
• Staring into the abyss (Economist)
• Bank profits depend on debt-writedown abomination (Bloomberg)
• Niall Ferguson: "A US debt crisis is on its way" (TechTicker)
• If BP asset purchase rumors are true, Apache is about to incur a whole lot of extra debt (Bloomberg, WSJ)
• Housing gets sick on Keynesian rollercoaster (Bloomberg)

Do you think this will work? I am not sure, but willing to try.

Recent data from the Fed's balance sheet indicates that even with the Fed no longer printing money directly since March, a dramatic reduction in bank Excess Reserves to the tune of $200 billion over the past 2 months has provided the same net benefit in liquifying the markets. And since none of this money is making its way to end consumers and small business borrowers, it is more than realistic to speculate that banks are merely using the formerly "excess" cash to purchase treasuries, thereby continuing the Treasury purchasing infinite Ponzi loop.

Today, Freddie Mac announced that the 30 Year FRM declined to a new all time record low, dropping by 1 bp to 4.57% from the week before. Yet even as mortgage rates hit fresh weekly records courtesy of the Fed's undisputed control of the mortgage market, the only thing increasingly more certain is that even at 0.00% there is precious little marginal demand in the primary market for housing. Here are the latest observations from Rosie on precisely this phenomenon, and much more.