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Richard Koo's Latest: "Europe And US Have Learned Nothing From Japan's Lessons And Will Repeat Its Mistakes"

Nomura's inimitable macroeconomist, Richard Koo, whose views we have often repeated on Zero Hedge, is out with his latest prediction which unfortunately has nothing good to say about the future of the US: "We have shown—using the example of the ¥2,000trn in output that was saved in Japan and the fact that the fiscal stimulus provided by World War II quickly pulled the world’s economies out of depression—that fiscal stimulus can be a potent tool during a balance sheet recession. Unfortunately, participants in the US fiscal debate remain oblivious to this point and continue to discuss the pros and cons of fiscal policy using fiscal elasticities measured when the economy was not in a balance sheet recession. This implies that economists are heavily underestimating the elasticity of fiscal stimulus during such recessions—just as their counterparts in Japan did a decade ago—making policymakers reluctant to implement further stimulus. This reluctance leads to further economic weakness. The situation in Europe is no different from that in the US. I therefore have to conclude that the western nations have learned nothing from Japan’s lessons and are likely to repeat its mistakes." To be sure, Koo is more in the Krugman camp when it comes to rescuing a fallen Keynesian regime, and believes that stimulus at any cost is the only resolution. That said, the US now exists in a universe in which all the incremental debt issuance is being monetized directly by the Fed: an event is unparalleled in the history of the country. As such we fail to see how one can extrapolate arguments from even a bearish case that may be applicable to the current global state of affairs, which courtesy of Reinhart and Rogoff, we know is at or beyond a tipping point in terms of sovereign leverage.


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Frontrunning: December 13

  • Must read: The eurozone is in bad need of an undertaker (Ambrose Evans-Pritchard)
  • If China Blows Up, So Will Every Other Market (Forbes)
  • China Risks `Rush' to Tighten in 2011 After Inflation Surges (Bloomberg)
  • China Said to Plan for at Least $1.1 Trillion of New Lending (Bloomberg)
  • Spotlight On Banks' Exposure in Europe (WSJ)
  • Backers and critics see passage of Obama tax deal (Reuters)
  • Irish Sovereign Debt Default Would Be Far From Armageddon (Bloomberg)
  • Paul Myners Op-Ed: Break up Britain’s uncompetitive big banks (FT)
  • No New Normal for 2011 in Forecasts for 11% S&P 500 Gain (Bloomberg)

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Chinese Rate Hike Rumblings

With just 48 hours left until the rumored rate hike by the PBoC either this Friday or over the weekend, the verbal war in China is second only to the hacker war currently gripping the internet. First, the China Securities Journal, the same publication that warned that a rate hike was imminent earlier in the week, quoted Ba Shuson, a researcher with the State Council's Development Research center, who said that China's inflation in November may have peaked at a stunning 4.8%. He also added that "it will take time for the government’s measures to fight price gains to take effect." Of course the government would actually have to institute measures to fight price gains: if the just released Australia payrolls number is accurate, Chinese inventory stockpiling hit an all time high this month, and in exchange the country will likely see a huge influx of capital, making its inflationary problems even worse, although we won't know for sure until the trade surplus data is released later this week.


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Summers Goes M.A.D., As Krugman Contradicts Bernanke And Says Both Low And High Rates Are Good For Economy

The person who according to many, if not all, has been the most destructive presence in Obama's economic advisory team, and is luckily getting out of the White House soon, has decided to remind the world yet again of his worthless and capital destructive presence, throwing out yet another Mutually Assured Destruction bomb. As Reuters reports, citing the man who almost destroyed Harvard's endowment, and subsequently, America, "Failure by Congress to pass a tax deal in the next couple weeks would "materially increase" the risk of the economy stalling and a double dip recession." And just to make sure that people don't forget him as the person who was 100% confident that a stimulus is the response to everything, he also added that Obama would like to see the Build America Bonds program extended.


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Charles High Smith Explains To Chris Martenson Why The Status Quo Is Unsustainable

In this week's Straight Talk episode, Chris Martenon interviews Charles Hugh Smith, both very insightful individuals who have repeatedly appeared on the pages of Zero Hedge with unique and always original perspectives. Of all issues that dominate CHS' outlook on the economy, society and politics, the top two items that keep Smith up at night are "demographics and Peak Oil...which cannot be massaged away by policy tweaks or financial engineering." Much more in the enclosed interview.


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Frontrunning: December 6

  • Reuters 2011 Investment Outlook Summit LIVE (Link) John Taylor speaking now.
  • Irish Vote Likely To Pressure Euro (WSJ)
  • Bernanke Says Fed May Take More Action to Curb Joblessness (Bloomberg)
  • Jobless Report Is Death of Keynesianism (IBD)
  • European Officials Split Over Bailout Fund Increase, EU Bond (Bloomberg)
  • WikiLeaks' Swedish servers may be under attack (AP)

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Rosenberg: "I Think The Dramatic Fiscal Tightening We Are Seeing In Ireland And Others Is Insane"

Rosie enters the "future of the euro" speculation race, and sees a "devastating deflationary shock" when Europe finally accepts the inevitable: "U.S. companies would likely confront a huge appreciation in the dollar, which would cut into their foreign-derived earnings base. Commodity prices would undoubtedly correct and safe-haven flows would certainly redress the loonie’s overvaluation gap. Treasuries would rally big-time." Stocks, of course, would plummet, and "Gold would remain bid — yesterday’s rally in the face of the USD rally is a case in point." On the other hand, the fact that we are starting to see traces of Krugman in Rosie's thinking is very. very worrisome.


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Chris Martenson And James Howard Kunstler Explain How "The World is Going to Get Rounder and Bigger Again"

In this week's Straight Talk with Chris Martenson, contributor is James Howard Kunstler, author and social critic. His better-known works include The Long Emergency, in which he argues that declining oil production will result in the decline of modern industrialized society and compel Americans to return to smaller-scale, localized, semi-agrarian communities; World Made By Hand and its sequel, The Witch of Hebron, all published by The Atlantic Monthly Press. He writes a weekly blog is also a leading proponent of the movement known as "New Urbanism."


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Book Review: The Courage to Do Nothing by Bill Flax

Despite a full-time job, frequent opinion pieces, not to mention a wife and children, Bill found time to write what I think is an essential book, The Courage to Do Nothing. Flax’s excellent book is a moral defense of markets and freedom, and if read it will greatly strengthen the arguments made by existing free-market advocates, while possibly converting more than a few skeptics.


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Frontrunning: November 12

  • Fed's Lockhart Says Tax, Regulatory, Fiscal Uncertainty Hurts Employment (Bloomberg)
  • Globalized "cooperation" proves it is completely worthless as usual as US loses all leverage - G20 Closes Ranks but Skims over Toughest Tasks (Reuters)
  • ...As is US foreign trade policy, as Obama is humiliated once again: U.S. Hit by Trade Setback (WSJ)
  • Krugman stunned deficit commission wants to cut deficit (NYT, h/t Fernando)
  • Bankrupt California searching for idiots to sell $14 billion in bonds to (LA Times)
  • As Zero Hedge has been saying for over a year, Taxes May Solve U.S. High-Frequency Trading Mess: Peter Coy (Bloomberg)
  • Fed Efforts to Revive Economy Find Critics (NYT)
  • Why Oil Could Top $100 a Barrel (Bloomberg)

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Cliff Notes Of Hedgeye's Take On A Paul Krugman Lecture: A Good Charlatan Who Still Doesn't Get It

In attending a Paul Krugman lecture yesterday, we came away with two main takeaways: 1) the Perceived Wisdoms of academic dogma run rampant throughout U.S. monetary policy; and 2) Keynesians really don’t get it. - Hedgeye Risk Management


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