How many trillions?

A while ago, the pessimistic figure being discussed was $1 trillion of losses; yesterday the FT looked at the prospect of $5 trillion of liabilities emerging from off-balance obscurity, to lurch back onto already-weak bank balance sheets.

There comes a point when it gets so dire it starts to become funny. Ah well, time to clean house.

A splendid rant

Karl Denninger lays all about him vigorously today. Where are the Brit bloggers to match him? Any nominations for UK financial Jeremiah of the Year?

Democracy - a cut flower

I think we are not a democracy, but a competing selection of complex oligarchies with a mechanism for periodic bloodless overthrow.

I put the above comment about the British system on the ever-elegant Angels in Marble. Is it too cynical?

What does democracy mean here? What should it be like?

Is democracy the best system, or should we turn to authoritarianism, which seems to be working for the Russians and Chinese, as an increasing number of opinion-formers seem to be suggesting?

Is that happening anyway? Are the people watching the bottom rung of the ladder of power rise out of reach?

Why interest rates should increase - and (IMO) probably won't

Hundreds of millions of Chinese, Indian, Vietnamese, East European and other emerging market workers and many millions of enterprises have entered the global marketplace as suppliers of goods and services that are competitive with those produced by the UK (so-called "core" goods and services) and as demanders of commodities, especially energy, metals and food (so-called "non-core" goods). As a result, the price of energy, food, metals and other commodities, relative to that of manufactures and services, has risen.

Willem Buiter gives a beautifully clear and concise view of the factors affecting inflation and argues for an increase in lending rates.

But the hard, narrow path upward is often avoided, especially in "democracies" where the governing party feels its hold on power slipping.

Besides, a depreciating pound is helping maintain orders for what remains of our manufacturing industry. Why halt the pound's fall?

Maybe we should start doing our FTSE charts in Euros, so we can see the real effect of rotting currency. Like Alice and the Red Queen, when the stockmarkets stand still, they are actually falling back, once you price them against the rest of the world's money.

I note that Mish used the Red Queen's Race analogy two years ago, and presciently outlined the monetary and economic dilemma for the USA - and, I suspect, the UK:

Bernanke is trapped in "Wonderland" but unlike Alice has no way out.Bernanke gets to choose between hyperinflation and deflation. The moment he can not run fast enough, the US economy will implode. If he runs too fast, the value of the US dollar as well as the FED's power will both come to a very abrupt stop.

A long way to go yet

Equities are not cheap enough and need to decline by at least 50 percent.

These and other observations recently from Morgan Stanley's Teun Draaisma are reported here in FT Alphaville.

The return of the gods

I perceive a theme in public opinion these days, regarding democracy. Taki has a piece in the Spectator this week, saying that even in ancient Greece it was empire and aristocracy. Highly intelligent professionals like Don Boudreaux boast of their refusal to vote. It seems that people think the system will continue to run more or less for our benefit, even if we take no part in it; just as your local shop will always be there, even though you very rarely patronise it.

Yes, rule us as you wish, as long as our kettles and TVs work, as long as there is petrol for our cars and the trains run on time. What we want is broth for our bellies, now, like Esau.

We may have to re-learn our lessons the hard way, as Kipling warned... and Cavafy:

Without consideration, without pity, without shame
they have built big and high walls around me.

And now I sit here despairing.
I think of nothing else: this fate gnaws at my mind;

for I had many things to do outside.
Ah, why didn’t I observe them when they were building the walls?

But I never heard the noise or the sound of the builders.
Imperceptibly they shut me out of the world.

Oil speculation?

Pace Nick Drew's comment on the previous post, Jim in San Marcos reckons there is indeed influential speculation in the oil market.

But Karl Denninger reckons it's just money looking for a home, like the boll weevil, and ultimately deflation caused by credit writedowns should reverse the trend.