China to devalue its currency?

I said some time ago that Far Eastern creditors weren't going to let themselves be swindled by currency depreciation; now it is rumoured that China (and maybe another country also) will take their revenge and begin a dangerous round of competitive devaluation around the world.

Hurray for a radical

I sympathise with Mish; but getting it done would be like a goat persuading a tiger to turn vegetarian.

If deflation is not the problem, what is?

The problem is fractional reserve lending that allows banks to leverage lending 12-1 and broker dealers like the now defunct Bear Stearns and Lehman 40-1. It does not take much to cause a run on the bank when leverage is 40-1. Fannie Mae is leveraged many times more than that.

Without that excessive leverage, no one would be in trouble over falling prices. Actually everyone would benefit. The cure is not to defeat deflation, the cure is to embrace deflation and stop fractional reserve lending and the serially bubble blowing activities of the Fed.

I support abolishing the Fed and the elimination of fractional reserve lending. Those are the only long term cures to the problems we face.

The dangers of harmony

I'm still convinced that many in the financial community deserve far harsher treatment than they've so far received - if they didn't know what would happen, they should have.

But I've been casting about for some deeper structural reason - what allowed financiers to kid themselves that they were acting reasonably, or at least assure themselves that they had followed official guidelines and were "covered"?

So I looked for something relating to the regulation of fractional reserves, and came across references to the Basel Accords (I and II). These are an attempt to "harmonise" central banking policies in developed nations, and perhaps can serve as an object lesson (especially for EU enthusiasts) about international legislation.

Here is the conclusion of an analysis of the two Accords (highlights mine):

One very important fact to assess is the achievements and limitations of each Basel Accord. The first Basel Accord, Basel I, was a groundbreaking accord in its time, and did much to promote regulatory harmony and the growth of international banking across the borders of the G-10 and the world alike. On the other hand, its limited scope and rather general language gives banks excessive leeway in their interpretation of its rules, and, in the end, allows financial institutions to take improper risks and hold unduly low capital reserves.

Basel II, on the other hand, seeks to extend the breadth and precision of Basel I, bringing in factors such as market and operational risk, market-based discipline and surveillance, and regulatory mandates. On the other hand, in the words of Evan Hawke, the U.S. Comptroller of the Currency under George W. Bush, Basel II is “complex beyond reason” (Jones, 37), extending to nearly four hundred pages without indices, and, in total, encompassing nearly one thousand pages of regulation.

The author's concern is that the rules can permit the risk of assets in emerging markets to be understated, and as it turns out the Trojan horse came in through another gate; but in complexity lies opportunity, and in rule-following lies the illusion that personal responsibility is thereby written off.

The eyes, look at the eyes

I referred recently to some BNP supporters as "scrubbed-up thugs"; sadly, that also is the impression given by some New Labour apparatchiks.

Is it true that, like Cordelia and the Fool, Ed Balls and Nick Griffin have never been seen together?

No forgiveness?

This is not the only turkey hoping for a pardon. Watch for the last-minute ones.

"When the going was good"

Marc Faber, on Bloomberg: "US stocks will rally further he maintains, at least for a short while. In January to March next year you must get out as the economy will implode."

And he's a gold bug again - and says hold it outside the US, as many have long recommended.

Cruising for a losing

Mish's graph suggests houses could lose another 40% or so over the next 7 years.