When investors start worrying about Warren Buffett's Berkshire Hathaway

I have already made a few posts about Warren Buffett in the past several months:

• Warren Buffett's Berkshire Hathaway hits the wall of reality
• Losing My Integrity - Warren Buffet's Next Book?
• Warren Buffet's unhappy new year

But here's a good summary of what has been happening with Berkshire and explain why Buffett has been supportive of the reckless policities pursued by the Fed and the Government:

April 28 (Bloomberg) -- Berkshire Hathaway Inc. shareholders have a chance this year to do something that’s rare among the Sage of Omaha’s followers: count their losses.
[...]
One reason: Chief Executive Officer Warren Buffett’s increasing use of derivatives [...] Buffett once called derivatives “time bombs” doesn’t calm investors.
[...]
Buffett himself has warned of an increasing possibility he might have a loss from one type of contract on Berkshire’s books. Fitch Ratings and Moody’s Investors Service have lowered their credit ratings on Berkshire, partly because of the derivatives.
[...]
Berkshire’s derivatives fall into four categories. Because they carry the greatest notional value, at $37.1 billion, most attention is on put options that Buffett sold on stock indexes in the U.S., U.K., euro zone and Japan that expire from September 2019 to January 2028. Berkshire has to pay at expiration if any of the indexes are lower than they were when the puts were written.

While analysis of these bets shows big losses are unlikely, Buffett, 78, hasn’t provided sufficient information on the derivatives to keep some investors from hitting the sell button.
[...]
Some economists compare today with the Great Depression, and some of the puts may have been written near the U.S. market’s all-time high in late 2007, according to information Buffett has disclosed. The S&P 500 in March was down 57 percent from its peak.

Berkshire hasn’t disclosed sufficient information to fully analyze its other derivatives, Shanker says. One category is simply municipal bond insurance structured as derivatives; the risks here are similar to those for his municipal bond insurer. Another type consists of credit-default swaps through which Berkshire guarantees payment of individual corporate bonds. Those bets were relatively small, totaling $3.9 billion in notional value at the end of last year.

The final category is the most worrisome, Shanker says. Berkshire has sold contracts that require it to pay when credit losses occur at companies that are included in certain unnamed high-yield-bond indexes. The notional value is $7.9 billion.
[...]
Losses on these contracts are accelerating as bankruptcies grow, Buffett said in his shareholder letter in February. “Now with the recession deepening at a rapid rate, the possibility of an eventual loss has increased,” he wrote.

Should you even start considering that the worst is over...

You might want to have a look at these two charts straight from the Federal Reserve.

The financial industry is now solvent and safe?

Inflation is not an issue, we should be worried about deflation?

UK on the brink of complete collapse

I keep on criticizing very harshly the US for their political leaders and policies of the Fed, but let's not forget that the UK is in a far worst shape than the US, and that Gordan Brown and Mervyn King are far more dangerous than even the Bernanke/Obamas they've got on the other side of the Atlantic.

You want to read these two posts to refresh your memory:

• 2009-03-26 The UK getting closer and closer to collapse
• 2009-03-27 Gordon Brown: The devalued Prime Minister of a devalued Government

Now here are two quite worrying pieces of information published by Bloomberg:

April 23 (Bloomberg) -- U.K. government support for the banking system has risen to 1.4 trillion pounds ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid.

Prime Minister Gordon Brown’s government yesterday offered to guarantee some mortgage-backed bonds, adding as much as 50 billion pounds to the bailout that began with the collapse of Northern Rock Plc in 2007. The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K.

The 1.4 trillion figure doesn’t count government pledges to stimulate the economy.

April 23 (Bloomberg) -- The U.K.’s plan to sell a record 220 billion pounds ($318 billion) of gilts this year to revive the economy may cause investor “indigestion,” according to some of Britain’s biggest bond traders.

The amount, 50 percent more than the 146.4 billion pounds sold in the fiscal year that ended March 31, may be too much for the market to absorb, according to Royal Bank of Scotland Group Plc.
[...]
“The U.K. is mortgaged up to the hilt,” Paul Day, chief market analyst at MIG Investments SA, said in an interview from Singapore yesterday.

Now, it is fortunately still time to take your side and maybe protecting the remaining little value that is still given by the market to your GBPs. I am short the GBP against the EUR and long Gold and Silver.

Word Gold Council reports huge inflows into Gold

The New issue of Gold Investment Digest — which you can download for free from Gold.org - reports very bullish investment trends for gold. Here are some excerpts:

Inflows into gold exchange traded funds reached another quarterly record in Q1 09. Investors bought 469 tonnes of gold via this channel, dwarfing the previous record, of 145 tonnes, set in the third quarter of last year.[...] Inflows into the gold ETFs continued to grow throughout the quarter, despite the downward correction in the gold price, indicating that, as in past price corrections, ETF holdings tend to be “sticky”.
[...]
Investors also increased their holding of gold futures during the first quarter. Net long non-commercial and non-reportable positions on COMEX, a proxy for investor flows, rose to a high of 19.6 million ounces in mid-February, from 14.3 million ounces at the end of last year. This was the highest level since August 2008, though remained well below the peaks reached between October 2007 through July 2008.
[...]
Anecdotal reports from coin and bar dealers point to another strong quarter in retail demand for coins and bars in Q1 09, after a 396% year-on-year increase in Q4 08.[...] Dealers report continued shortages in the availability of both official coins coming from the world’s mints and small bars coming direct from refineries. As a result, premiums on many products remain high.

Got Gold?

At last, China announces it's been buying Gold

It seems like China may awaken to the realization that its holding of US dollar paper and debt might be completely wiped out and would finally buy gold and — who knows — starts selling the useless Treasuries back to Ben Bernanke? Of course, I consider this news very bullish for Gold and Silver but also extremely bearish for the USD and the Treasuries.

April 24 (Bloomberg) -- China boosted its gold reserves by 76 percent since 2003 and has the world’s fifth-biggest holding by country, said Hu Xiaolian, head of the State Administration of Foreign Exchange.

The nation increased its reserves by 454 tons to 1,054 tons through domestic purchases and refining scrap metal, Hu said in an interview with the Xinhua News Agency today. The amount is more than Switzerland’s 1,040 tons, World Gold Council data show, and is worth $31 billion at current prices.

China has the world’s largest foreign exchange reserves at $1.95 trillion as of March 31, according to state administration data. The holdings have climbed about sixfold in the past six years as the country had record trade surpluses and inflows of foreign investment. Gold prices have almost tripled to more than $900 an ounce from $337.

Chinese Premier Wen Jiabao has expressed concern the dollar will weaken, eroding the value of China’s holdings of Treasuries, as the U.S. borrows unprecedented amounts to spend its way out of recession. China is the biggest overseas owner of U.S. government debt, holding notes totaling $744 billion at the end of February, according to U.S. data.

For previous related posts, please read:

• 2009-03-24 The US find some hope in China's cluelessness
• 2009-03-13 China warns the US - 1st official warning
• China warns the US - 2nd semi-official warning?
• China warns the US - 1st semi-official warning?

Is TARP a criminal enterprise?

TARP, The Criminal Enterprise? The question asked by Larry Kudlow.

As Don Luskin (with which I happen to disagree 99% of time) puts it: You can be sure that the $700 billion to $3 trillion dollars is enough to corrupt all the politicians and private enterprises who will be on the way.

Is the whole TARP plan a criminal enterprise? Sounds farfetched, I suppose. But after reading about Special Inspector General Neil Barofsky’s report, it may well be that TARP is just one big criminal problem.

Listen to this: Barofsky’s investigators reported Monday that they have opened 20 criminal probes into possible securities fraud, tax-law violations, insider-trading, and mortgage-modification fraud related to TARP. Yup, those are criminal probes. Barofsky is the special IG overseeing the bailout program. And for some reason the mainstream media refuses to report this on the front pages where it belongs.

Barofsky’s report spans 247 pages. And it says that the very character of the bailout program makes it “inherently vulnerable to fraud, waste and abuse, including significant issues related to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering.”

YouTube video part 1


YouTube video part 2 (please follow the link as it cannot be embedded).

BofA's Lewis Threatened Over Merrill By Bernanke And Paulson

What was already obvious back in October 2008 when I wrote in BofA Merrill Lynch - The creature of Bernankenstein is now being confirmed true by the WSJ (Thank you Mr Denninger):

Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.
[...]
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead.
"Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript.
"It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.

Obviously, hoping that these criminals will ever be brought to justice is just wishful thinking...

Freddie Mac CFO Found Dead

My guess would be: remorse. R.I.P.

April 22 (Bloomberg) -- Freddie Mac Acting Chief Financial Officer David Kellermann, 41, was found dead early today in the basement of his home in a Washington suburb, police said.

Let's hope that no accounting fraud will be discovered in the next several weeks...

Pedge Fund Performance 200903

Just a quick post to relate the performance of PedgeFund for the month of March 2009. Feb 2009 returns are available here.

Summary:
Pedge Fund USD
March performance: -1.44% (gross, approx)

Highlights:
No real highlights as it's pretty flatish. The big rebound in equities has been missed in this portfolio which I am not particularly proud of, but I wasn't short neither, so no loss incurred.

• Some losses on gold
  
• Some gains on short GBP/long EUR
  

HFR Macro Index return in Mars 2009 was: -1.98%
S&P 500 return in Mars 2009 was: +17% (amazing!)

To understand those poor returns, you might want to read this post from MacroMan

Volcker Assumes Smaller-Than-Expected Role With Obama

Volcker Assumes Smaller-Than-Expected Role With Obama is the title of an article on the WSJ that a friend forwarded to me following my post earlier today on Volcker.

As an early supporter of Barack Obama, Paul Volcker gave the young presidential candidate gravitas and advice. He frequently sat by Mr. Obama's side at key economic events, and started carrying a cellphone for the first time, just to be able to brainstorm with the candidate from the campaign trail.

In the Obama White House, the role of the 81-year-old former chairman of the Federal Reserve has been more limited.

The one-time central banker has been put in charge of a presidential advisory board that hasn't yet had a formal meeting. It has been nearly a month since he has seen Mr. Obama. Mr. Volcker hasn't been a main player in key decisions handling the global financial crisis.

Interestingly, one should wonder smaller-than-expected by whom? Because I was expecting him to be window-dressing. I was expecting that outcome so much, that I even wrote it in a post back in February:

I am among the people who believe that Volcker will resign in a matter of months. Interestingly, I have also heard the same coming from Peter Schiff. I believe realists are getting this one right as well : Volcker has a great reputation and will not allow it to be tainted by the current establishment.

So obviously, it looks like as bright and skilled Paul Volcker is in his area, he managed to get duped by Obama. That would be the sad truth, and only himself can be disappointed and surprised, because many others knew it since the beginning. I would have been quite glad to be proven wrong on this one, as I think he might be single person in this whole administration capable of doing what needs to be done. But that is also probably the reason why they won't let him.

Here is the full report from the WSJ.

As an early supporter of Barack Obama, Paul Volcker gave the young presidential candidate gravitas and advice. He frequently sat by Mr. Obama's side at key economic events, and started carrying a cellphone for the first time, just to be able to brainstorm with the candidate from the campaign trail.

In the Obama White House, the role of the 81-year-old former chairman of the Federal Reserve has been more limited.

The one-time central banker has been put in charge of a presidential advisory board that hasn't yet had a formal meeting. It has been nearly a month since he has seen Mr. Obama. Mr. Volcker hasn't been a main player in key decisions handling the global financial crisis.

Former Federal Reserve Chairman Paul Volcker says he has no complaints about his new role.
Treasury Secretary Timothy Geithner unveiled the administration's plans for handling troubled financial institutions and the housing crisis without seeking input from Mr. Volcker, associates say. "Paul was surprised" at the failure to consult him, particularly on issues of financial rescue after his dominant role in resolving financial crises in the 1980s, says one person who has spoken to Mr. Volcker recently.

On the eve of one announcement, a Wall Street executive ran into Mr. Volcker at a cocktail party and asked what he expected from the Treasury secretary's imminent announcement. "I have no idea what Tim's going to say," he responded, according to somebody there.

A Treasury spokeswoman said Mr. Volcker was "briefed" on all plans, including the latest one addressing banks' toxic assets. A White House spokeswoman said that Mr. Volcker "is a valued economic adviser to the president and the administration." She said that his "advice on issues including regulatory reform and financial stability are invaluable to the administration."

Mr. Volcker, who recently had a pacemaker implanted in what he told friends was a "trivial procedure," said in a brief telephone interview Wednesday that he has no complaints about his role. "How they use me is up to them," Mr. Volcker said. "I'm conflicted about wanting to go fishing and being responsive....I might get busier than I want to be." He declined to comment about specific areas where he was or wasn't consulted.

When Mr. Obama announced the blue-ribbon advisory group on Feb. 6, he praised Mr. Volcker as "one of the world's foremost economic policy experts." With big names like General Electric Co. Chief Executive Jeffrey Immelt, the group, Mr. Obama said, would provide "voices to come from beyond the Washington echo chamber...." At a ceremony in the White House's East Room, the president added that the group would "meet regularly" with him.

So far, the full group hasn't met. "The whole organizational side of this has been a nightmare," Mr. Volcker says. A White House spokeswoman says it will hold its first quarterly meeting in mid-May.

In the meantime, Mr. Volcker and his members have divided themselves into subgroups such as financial regulation, employment growth and housing, and are holding conference calls, two members say.

When Mr. Volcker was in town earlier this week, he met with Mr. Geithner, Lawrence Summers, the chief White House economic adviser, and Christina Romer, the chairwoman of the Council of Economic Advisers, to discuss financial regulation.

A key ally for Mr. Volcker inside the White House is Austan Goolsbee, the chief economist of his panel, and a member of the council. The pair grew close during the campaign when Mr. Goolsbee, Mr. Obama's chief economic adviser, worked to bring in Mr. Volcker after he indicated his support for the underdog candidate.

Mr. Goolsbee says he talks with Mr. Volcker three or four times a week and helps get his views to the president and to senior administration officials. The task force, and particularly Mr. Volcker's input, "is meant to serve a role akin to an economic version of the president's BlackBerry," Mr. Goolsbee says. Messrs. Volcker and Goolsbee also send periodic memos to the president on the issues.

Mr. Volcker's advice hasn't always been heeded. The former Fed chairman urged the administration to "slow down" its push for regulatory changes. "Paul thought it was important to take enough time to fill holes in the regulatory framework and not get caught up in the current atmosphere," says former Securities and Exchange Commission Chairman William Donaldson, who's on the Volcker panel.

When a former Fed official, attorney John Walker, recently met Mr. Volcker, Mr. Walker told him the administration "isn't getting the best use of you." Mr. Volcker shrugged it off, saying he's comfortable with his role. Mr. Walker says Mr. Volcker added: "I'm 81 years old."

Trichet should resign

New episode on the series I started about a year ago now: Trichet's inability to keep words and actions synced and also his failure with his mission: protecting the value of the EUR.

• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

Trichet has been saying one thing just to do the opposite for quite some time now, which is quite annoying and has tarnished his reputation quite substantially for that matter. He has also miserably failed to protect the value of the Euro, specially if you compare its value against Gold or if you do grocery shopping. And now that the Euro has managed to fall substantially against two of the most mismanaged currencies in the world (Japanese Yen and US Dollars) one wonders why he doesn't just hand his resignation.

Nonetheless, I am suspecting that he is not doing what he wants to do, but rather what the politicians want him to do, because of all the pressure he must be baring and the need to do something. But then, it means that he has thrown the independence of the ECB away and is now just following the route decided by politicians who have no incentive in protecting the currency at all.

Then again, if he is not doing what he thinks he should be doing, why doesn't he just hand his resignation letter? Or if he has thrown the ECB's independence into oblivion, why hasn't he been asked to leave?

April 17 (Bloomberg) -- The euro fell to a one-month low against the dollar after European Central Bank President Jean- Claude Trichet said the central bank must do everything possible to restore confidence, signaling further interest-rate cuts.
[...]
Trichet said in a speech in Tokyo today that any ambiguity in the direction of policy will delay a recovery in the 16- nation region’s economy.

“Public authorities, executive branches, and central banks must do all they can to restore, preserve and foster confidence among households and corporations in order to pave the way for sustainable prosperity,” Trichet said.
[...]
“Traditionally, the U.S. economy picked up ahead of the U.K., Asia and the euro zone,” Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. “Accordingly, we would favor to be long the U.S. dollar and the British pound against the euro.”

I particularly like that guy Benedikt who seem to be a complete idiot and really understanding nothing in economics — but then you wouldn't be surprised to hear that he's a currency strategist and that he is working for UBS which was particularly good at forecasting the collapse and profiting from it, right?

Volcker wants the Fed authority to be reviewed

We are starting to get to interesting points, with Tea Parties, threats of secession from Texas, and now Volcker - the legendary Fed Chairman who avoided a collapse of the dollar following the reckless actions of his predecessor: Arthur Burns who probably deserves the 3rd place on the podium of the most disastrous Fed Chairman after Bernanke who amazingly in just two years manage to beat Greenspan who reigned for 18 years.

This is fantastic news, and I hope that things are going to move in the right direction: reducing as much power as possible, or even better but quite unlikely, abolishing it.

April 18 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said Congress will probably review the authority granted to the Fed following emergency credit programs doubling the central bank’s balance sheet to $2.19 trillion.

“I don’t think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken,” Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said today at a conference at Vanderbilt University in Nashville, Tennessee.

U.S. lawmakers from both political parties have expressed concern in recent months that the central bank has overstepped its authority by creating several emergency credit programs aimed at reviving lending and ending the recession.

“I think for better or for worse we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed,” Volcker said.

Under the act the central bank may in “unusual and exigent circumstances” lend to “any individual, partnership, or corporation” as long as the loans are secured “to the satisfaction” of the Fed.

Lawmakers including House Financial Services Committee Chairman Barney Frank have said Congress should consider revising the Depression-era emergency provision.

The central bank has been using such powers “with great abandon,” Frank, a Massachusetts Democrat, told reporters in January. “Ultimately we have to do something about this statute.”

Volcker didn’t predict the future powers of the central bank.

“It’ll be very interesting to see what the role of the Federal Reserve will be,” Volcker said. The possibilities “range all the way from giving the Federal Reserve more supervisory and regulatory responsibility to largely taking away” those powers.
[...]

Fannie Mae CEO to Run Treasury’s TARP

Should you need any more prove of the complete blindness, corruption and incompetence of Geithner and Obama, here's quite an amazing piece of news:

April 18 (Bloomberg) -- President Barack Obama nominated Fannie Mae Chief Executive Officer Herb Allison to run the Treasury office overseeing the $700 billion bank rescue.

Allison, 65, a former Merrill Lynch & Co. president, would replace Neel Kashkari, a holdover from the Bush administration, as assistant secretary for financial stability. If confirmed by the Senate, the choice gives Treasury Secretary Timothy Geithner the counsel of a Wall Street veteran as he confronts the biggest financial crisis since the Great Depression.
[...]
Allison, who was tapped in September to head Fannie when it was seized by federal regulators, may face some tough questions in Congress on his defense of $112 million in retention bonuses awarded to Fannie employees last year.

Fannie and Freddie, which own or guarantee 56 percent of all residential home loans in the U.S., lost more than $108 billion last year and were placed into conservatorship in September.

Just in case you forgot already, Allison drove Fannie against the wall, with hundreds of billions of USD of losses and the Bush administration had to not only inject those hundreds of billions of dollars in the company, but also had to guarantee several trillions of USD of the securities they sold, on the back of the US-taxpayer and the USD-holder.

Bernanke is a failure

Bernanke is not only completely out of control - and out of legality - but he is also a complete failure. Please see the bottom of the post for links to previous posts about this fool. Thankfully, it appears that more and more people are doubting about his skills and his abilities to do anything right...

Hopefully, Bloomberg true to itself, features some great reports. The vocabulary used in the article has changed, and what used to be considered a mathematical science (Keynesian economics and monetary policy) is now betting, gambling, experimenting.

Bernanke Bet on Keynes Has Meltzer Seeing 1970s-Style Inflation
April 13 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money.

If history is any guide, says Allan Meltzer, the effort will end in tears. Inflation “will get higher than it was in the 1970s,” says Meltzer, the Fed historian and professor of political economy at Carnegie Mellon University in Pittsburgh. At the end of that decade, consumer prices rose at a year-over- year rate of 13.3 percent.

Bernanke’s gamble that the highest jobless rate in 25 years and the most idle factory capacity on record will hold down inflation is straight out of the late British economist Keynes. Should late Nobel-prize-winner Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon” prove right, the $1 trillion or more in liquidity Bernanke has pumped into the financial system by expanding the Fed’s balance sheet may leave him to cope with surging consumer prices.
[...]
And Meltzer, 81, who has written an 800-page history of the Fed’s first 38 years and is now working on volume two, isn’t alone in seeing a return of sky-high inflation as a result of Bernanke’s policies.

Behind investors’ caution: a ballooning Fed balance sheet that has climbed $1.2 trillion in the past year to $2.09 trillion and expanded the nation’s money supply. It is poised to increase even further after last month’s Fed decision to buy an additional $1.15 trillion worth of assets, including $300 billion in Treasury securities.
[...]
Meltzer says political pressure will prevent Bernanke, 55, and fellow policy makers from withdrawing liquidity quickly enough as the economy recovers. That’s similar to the pattern that occurred back in the 1970s, he says. Then-Chairman Arthur Burns allowed excessive money-supply growth because he was unable or unwilling to resist pressure from President Richard Nixon’s White House to hold down unemployment, leading to the “great inflation” of that era, he says.

Now, Bernanke and fellow policy makers have “squandered their independence” by becoming involved in bailouts of financial firms and by taking long-term and illiquid assets onto their balance sheet, Meltzer says. “They don’t have the political ability to control inflation.”

John Ryding, founder of RDQ Economics LLC in New York and a former Fed economist, agrees that the central bank will be slow to soak up all the cash it has injected into the financial system, in part because policy makers will be fixated on still- high unemployment. The rate rose to 8.5 percent in March, compared with 7.2 percent in December.

“They pay lip service to inflation being a monetary phenomenon,” he says. “But they’re too much concerned with the Keynesian explanation of inflation.”

There are signs that the Fed’s stimulus -- combined with the efforts of central banks and governments elsewhere in the world, including China -- is starting to lift some commodity prices. Copper rose to a five-month high and platinum reached a six-month peak on April 9.

“All that money is going to find a home,” says Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. He sees oil prices increasing to “$80, $90, $100 before the end of next year” from $52 a barrel now.
[...]
Some Fed policy makers seem more worried about deflation than they do about inflation. [...]

“For some time to come, disinflation, and even deflation, will represent greater risks than inflation,” San Francisco Fed President Janet Yellen said in a speech on March 25.
[...]
The Fed is “running a laboratory experiment” on what drives inflation: the money supply or the output gap, says Laurence Meyer, a former Fed governor and now vice chairman of St. Louis-based Macroeconomic Advisers

“How it turns out will do a lot to influence the economic debate,” he says, adding that his money is on Bernanke.

Previous posts:

• 2009-03-19 Bernanke doing his best to crash the US dollar
• 2009-03-05 Nothing but lies from Bernanke, Paulson, and Geithner
• 2009-02-25Bernankerama
• 2008-12-16 Bernanke has lost it
• 2008-12-16 Bernanke is out of control

Geithner, Bernanke and Summers are the rotten apples, says Marc Faber

Marc Faber during this interview on Bloomberg TV was asked how he would see the end game for the zombie banks and he replied very straightforwardly, as usual: "Tim Geithner who wants to identify the bad and the rotten apples in the system. Well, he should buy a mirror and stand in front of the mirror himself with Mr Ben Bernanke and Mr Larry Summers. There you have the rotten apples." (set the cursor to 7 min 10s).

Tax receipts collapse by 28% in the US

Last month, tax receipts were collapsing in the US at a rate of 17%, which is already quite a remarkable rate of decline, but since are getting a lost worst, no one should be surprised to see this rate of decline rise to unprecedented levels at an ever accelerating pace.

CalculatedRisk points to the following report on MarketWatch:

Budget deficit triples to $957 billion for year
March deficit hits $192 billion has receipts drop 28%, outlays rise 41%

WASHINGTON (MarketWatch) -- The U.S. federal budget deficit rose to a record $956.8 billion in the first six months of the fiscal year after the government stepped up spending to cope with a recession that has depressed tax receipts, the Treasury Department reported Friday.
The deficit is well on its way to the $1.75 trillion -- or 12.3% of gross domestic product -- that the White House has estimated for the full fiscal year, which ends in September.
The deficit through the first six months is more than three times higher than it was at this time last year. The government has borrowed $1 trillion from the public so far this fiscal year.
In March, the deficit widened to $192.3 billion from $48.2 billion in March 2008. Outlays rose 41% to $321.2 billion from $227 billion, while receipts dropped 28% to $129 billion from $178.8 billion.

Receipts from individual income taxes fell 27% in March, versus year-earlier figures. Individual refunds are up 14% so far this year. Compared with a year earlier, corporate income tax receipts fell 90% to $3.4 billion.
Much of the increase in outlays in March came from extraordinary investments by the government in banks and Fannie Mae and Freddie Mac, loans to credit unions, and increased spending from the stimulus package for unemployment insurance and Medicaid. Some of those investments should be repaid over time, but the government is booking them as cash expenses for now.
In March, Fannie Mae received $15.2 billion, Freddie Mac received $30.8 billion, and unemployment benefits totaled $10.6 billion.
Through the first six months of the fiscal year, outlays are up 33% to $1.95 trillion. Receipts are down 14% to $989.8 billion. Corporate income taxes are down 57% to $56.2 billion, while individual income taxes are down 15% to $429.7 billion. Payroll taxes are up 0.3% to $430 billion.

Official US outstanding debt above $11 trillion

It's not a big news since it was so obvious and it's not even actually a news since it happened on the 16th of March 2009, but the total outstanding US debt reached $11 trillion on that day ($11,033,157,578,669.78 according to the official figures) and is now even above the $11.1 trillion, which is an increase of more than 10% in less than a month confirming the exponential ascension of the debt...

I am wondering what is the actual amount of debt that will lead to such a burden that we will see a complete collapse of the economy...

Zimbabwe dollar officially disappears

I wrote about the Zimbabwe dollar a few months ago because I think this is the kind of live experiments that have already happened in the past many times (Argentina and the Weimar Republic being the last ones I can think of) and interestingly, the US and UK Central Banks seem to be taking Zimbabwe's central bankers as mentors. So it's interesting to follow what happens there to get a grasp of what we might get here...

• Zimbabwe - inflation hits 15 000 000% and new currency
• Zimbabwe to introduce 100 bln dollar bank note

So it is likely that the government and central bank of Zimbabwe have decided to give up their worthless paper and admit the reality: foreign currencies and black market had taken over the white market and the local currency. Let's be realistic: there's no way they can bring back their dollar in one year if they do not completely build from ground up the government and central bank...

Here's the news from AFP:

HARARE (AFP) — The Zimbabwean government has decided to suspend the country's national currency for a year, which has in fact already disappeared from circulation, state-run media reported Sunday.

"The Zimbabwe dollar will be out for at least a year ....because there is nothing to support and hold its value," Economic Planning Minister Elton Mangoma told the Sunday Mail.

In January, in response to unprecedented hyperinflation, Zimbabwe legalised the use of foreign currencies including the Botswana pula, the South African rand, the United States dollar, the Euro and the British pound. The Zimbabwe dollar immediately went out of circulation.

In the past two years Zimbabwe's central bank knocked 22 zeros off the local currency as the country's economy plunged info freefall.

The highest note previously in circulation, a 10 trillion Zimbabwe dollar note, was not even enough to buy a loaf of bread.

Prime Minister Morgan Tsvangirai, who joined his long-time rival President Robert Mugabe in a power-sharing government, has prioritised rebuilding the shattered economy since taking office in February.

Quick update about the blog

Dear reader,

I will be off to Spain for a week so I might not be able to post even though I will do my best to do so. Please bare with me, specially since I didn't had a lot of chance to post during the past few days neither...

I have also received the approval from my editor to write a book which is due in September 2009 so again, I will do my best to avoid any negative impact on the blog, but as you know, there are only 24 hours in a day, and I need to sleep for about 6 of them :-)