Bubble After Bubble, They All End the Same!

Will this bubble burst anytime soon? Will we have inflation or deflation? There are lots of questions up in the air… but they’re the wrong questions. I’ll never understand how economists and financial analysts don’t get the most basic principle of cycles. We’ve been in this bubble era since 1995. How could so many be arguing that we’re not in a bubble when we have seen one bubble after the next rise and then burst as they always do? Japan’s Nikkei index peaked over a quarter century ago in 1989 at its all-time high of 38,916. At the time analysts […]

Read More

A Recession Within A Recession

On Friday, the federal government announced that the U.S. economy contracted at a 0.7 percent annual rate during the first quarter of 2015.  This unexpected shrinking of the economy is being primarily blamed on “harsh” weather during the first three months of this year and on the strengthening of the U.S. dollar.  Most economists are confident that U.S. GDP will rebound back into positive territory when the numbers for the second quarter come out, but if that does not happen we will officially meet the government’s criteria for being in another “recession”.  To make sure that the numbers for Q2 […]

Read More

Baltimore Has Descended Into A State Of Lawlessness – And More Cities Will Soon Follow

Did you really think that Baltimore would return to normal after everything that has happened?  On Thursday, a mother and her 7-year-old son were both shot in the head in a double murder that has shocked the entire nation.  Police believe that the son may have been shot in order to prevent him from identifying the individual that shot his mother.  So is this what America is turning into?  A place where 7-year-old kids are executed in cold blood?  That mother and son were the 37th and 38th murder victims in the city of Baltimore so far this month.  That […]

Read More

Emergency Powers Give Barack Obama Authority Over Just About Everything During A Major National Crisis

Presidents have always exercised emergency powers, but now thanks to dozens of new laws, regulations, court decisions and executive orders, Barack Obama is the most powerful president in all of U.S. history.  Of course the U.S. Constitution does not actually give the president any special powers during a time of national emergency, but over time presidents have decided that they should be able to exercise such powers and the courts have generally agreed with them.  During World War II and prior to that, these emergency powers were largely uncodified and were primarily used during times of war.  But since World […]

Read More

Central Banks: The Root of All Economic Evil

France was in a bind. In the early 1700s, the country had run up astronomical debts from endless wars with the British. They needed money… desperately. So, John Law — the first central banker in France — turned the Mississippi territory France had just acquired into a stock company. Stocks were a new trend. People weren’t prepared for the crash that comes when stocks teeter too high. So, they went all in… and what resulted was one of the fastest, most exponential bubbles to build and just as quickly burst that the world has ever seen. It took just two […]

Read More

Stocks Began Falling Right At This Time Of The Year Just Prior To The Last Financial Crisis

Have you heard of the saying “sell in May and go away”?  Traditionally, the period from May through October has been a time of weakness for stocks.  In fact, on average stocks hit their lowest point of the year on October 27th.  And most people don’t remember this, but the Dow Jones Industrial Average actually began plunging right at this time of the year just prior to the financial crisis of 2008.  Most people do remember the huge stock crash that happened in the fall of that year, but the market actually started to slide in May.  Throughout the first […]

Read More

How do you say “dead cat” in Latvian?

This, my third post on Latvia, looks at its recovery from the 2008-9 recession. Latvia is often held up as the “poster child” for harsh austerity measures as the means of returning to strong economic growth. In order to hold its currency peg to the Euro, it embarked on a brutal front-loaded fiscal consolidation in 2009, sacking public sector workers, slashing public sector salaries, cutting benefits and raising taxes. Between 2010 and 2013 it cut its fiscal deficit from 10% of GDP to a respectable 0.8%, a remarkable achievement by any standards. Much of this was due to an equally remarkable […]

Read More

Reflections on death and immortality

This week saw the deaths of the great mathematician John Nash and his wife Alicia in a car crash and the suicide of terminally-ill businessman Jeffrey Spector in Switzerland with the help of Dignitas. This post is written in their memory, and also in memory of my friends and musical colleagues Gavin Williams, who died last week, and Lindsay Purcell, who died at the beginning of April. May they rest in peace. This post is unashamedly long. After all, death is forever.  From time immemorial, humans have been obsessed with death. Or, more correctly, with the mess that death leaves in […]

Read More

Is The 505 Trillion Dollar Interest Rate Derivatives Bubble In Imminent Jeopardy?

All over the planet, large banks are massively overexposed to derivatives contracts.  Interest rate derivatives account for the biggest chunk of these derivatives contracts.  According to the Bank for International Settlements, the notional value of all interest rate derivatives contracts outstanding around the globe is a staggering 505 trillion dollars.  Considering the fact that the U.S. national debt is only 18 trillion dollars, that is an amount of money that is almost incomprehensible.  When this derivatives bubble finally bursts, there won’t be enough money in the entire world to bail everyone out.  The key to making sure that all of […]

Read More

Property, inequality and financial crises

At the end of my previous post, I posed the question: why did Latvia experience the deepest recession in the world in 2008-9? The first puzzle is that Latvia’s banks were in no worse shape than anyone else’s and better than some. Among small countries, Iceland, Ireland and (in 2013) Cyprus all experienced bigger banking collapses relative to the size of their economies than Latvia. Larger countries did too, notably Germany and the UK, both of which suffered widespread damage across their large and arguably over-developed banking sectors. In the US, the big banks were bailed out, but literally thousands […]

Read More