Free Republic

There is no doubt the U.S. economy has hit a rough patch over the last several months. As is often the case when economic problems make headlines, pundits rush to declare that capitalism is “in trouble,” or “is ailing” or even “has failed.” This reaction to economic bad news is as old as capitalism itself. It is also consistently wrong. What the pundits fail to realize is that economic problems, from the recent housing and credit crisis to things like the Great Depression, are far more often, if not always, the result of attempts to intervene into the free market...

Sorry Barry, you've got to stay with the girl who brought you to the dance. You couldn't have been elected without the press on your side, now they expect to stand by your side . . . 24/7. From Politico. The media glare, the constant security appendage and the sheer production that has become a morning jog or a hankering for an ice cream cone – it’s been closing in on Barack Obama for some time. Now the president-elect appears increasingly conscious of the confines of his new position, bristling at the routine demands of press coverage and beginning to...

An ugly, unrecognizable recession Most of us haven't seen an economic decline like this one before, and as the slowdown gets slower, few will be unaffected. Are you ready for the 'frugal future'? [Related content: stocks, investments, recession, consumer goods, Jon Markman] By Jon Markman MSN Money Feeling frugal? You're not alone -- not by a long shot -- as butchers, bakers and billionaires alike are feeling the credit crisis this month in a way not experienced since at least 1946 or even 1938. It's not just a temporary wave of Scrooginess that's to blame for a retail-sales drop of...

<p>In March 2005, a low-key Princeton economist who had become a Federal Reserve governor coined a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending.</p> <p>The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.</p>

U.S. Schizophrenia on China As the global depression takes its toll on all trading nations, a bizarre schizophrenia has developed in U.S. opinion on China: reports of civil unrest in China are accompanied by opinions that China is poised to reap historic gains from the financial turmoil of the West. /snip Yet even as the structural problems within China's political, economic and financial systems are being bared by mainstream media reports like these-- After 30 Years, Economic Perils on China’s Path (New York Times) and China Faces Unrest as Economy Falters (Wall Street Journal), other articles like U.S. Woes Open...

T-Bills: Bubble, Bubble, Toil and Trouble by: Zacks.com December 23, 2008 The graph below shows that rates on T-bills and notes are at record lows across the yield curve. The graph covers the entire period that data is available for from the Federal Reserve of St. Louis. It shows the history for 1-month, 1-year, 5-year and 10-year notes. Investors are entirely concerned right now with the return OF their money, not the return ON their money. If you plan on holding a T-note to maturity, you can be assured that you will get your money back. You have absolutely no...

Fed unleashes greatest bubble of all: John Kemp Wed Dec 17, 2008 7:08am EST -- John Kemp is a Reuters columnist. The views expressed are his own -- By John Kemp Like the sorcerer's apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control. Now the Fed's decision to cut interest rates to between zero and 0.25 percent, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble...

15 December 2008 Rogue Nation Explanations of significant losses at investment firms are often attributed to rogue traders. These are traders who have schemed to defeat security measures. These rogues extended their trading portfolios credit exposure far beyond the limits of compliance, racking up substantial losses to be taken, if not risking the actual solvency of their firms. If they do not incur losses they are often not discovered. It is the losses that precipitate the collapse. Nick Leeson of Barings, Toshihide Iguchi of Resona Holdings, Yashuo Hamanaka at Sumitomo, John Rusnak at Allied Irish Banks, Luke Duffy of Australia...

It's been quite a year for Hubble! New galaxies, colliding stars and more... Check out the magnificent views through NASA's Hubble Space Telescope, released in 2008. Above, Hubble discovers carbon dioxide in the atmosphere of a planet orbiting another star, an important step along the trail of finding the chemical biotracers of extraterrestrial life as we know it. The Jupiter-sized planet, called HD 189733b, is too hot for life. But the Hubble observations are a proof-of-concept demonstration that the basic chemistry for life can be measured on planets orbiting other stars. Organic compounds can also be a by-product of life...

Bond Bubble Hits Manic Stage by Michael Pento, Delta Global Advisors, Inc. | December 12, 2008 Print This week marked the beginning of what I believe is the manic bubble stage in the nearly three decade long Treasury bull market. On Monday, the U.S. Department of Treasury sold $27 billion of three month bills at a discount rate of .005%. That rate is the lowest since the auction began in 1929. On Tuesday, $30 billion of four-week Treasury bills were sold at 0%! Again, the lowest yield ever recorded for that security. According to data compiled by Bloomberg, 41 U.S....

Swiss Finance Guru sees bankruptcy for the U.S Image Swiss financial guru Marc Faber tells swissinfo he sees hard times ahead for the world's stock exchanges and even state bankruptcy for the United States. He also believes that stock exchanges will stay at low levels for a long time. Faber, otherwise known as Dr Doom for his contrarian views on the economy, has lived in Asia for the past 35 years. He is a jack-of-all-trades: investment adviser, financier, best-selling author and the compiler of a monthly economic publication called The Gloom Boom and Doom Report. Faber sits on various boards...

Fueled by easy credit, the real-estate market had been rising swiftly for some years. Members of Congress were determined to assure the continuation of that easy credit. Suddenly, the party came to a devastating halt. Defaults multiplied, banks began to fail. Soon the economic troubles spread beyond real estate. Depression stalked the land. The year was 1836. The nexus of excess speculation, political mischief, and financial disaster—the same tangle that led to our present economic crisis—has been long and deep. Its nature has changed over the years as Americans have endeavored, with varying success, to learn from the mistakes of...

The bigger the party, the longer it takes to clear up the mess Do you remember 1982? Beer cost 62p a pint, petrol £1.59 a gallon and the average house £23,600. Prince William was born, Channel 4 was launched, and British forces liberated the Falkland Islands. By Jeff Randall Last Updated: 12:59PM GMT 29 Oct 2008 Comments 60 | Comment on this article Labour's unsuccessful candidate in the Beaconsfield by-election, Tony Blair, lost his deposit. Unemployment broke through 3m, a post-war record. It all seems a very long time ago, yet not everything has changed. In October 1982, Japan's main...

LAS VEGAS There are 6 million empty homes in the United States. Or 6.2 million, to be slightly more precise. Empty houses are normal to some extent -- part of the usual friction of building, selling, renting. But ask the people who study the numbers, and who understand the "overhang" in housing inventory, and they'll tell you: This country has about a million homes too many. The solution, local executives say, will come not from Washington policymakers but from the market itself. When there are too many houses, builders stop building them. That has already happened, and many Vegas home...

A financial is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative...

Do cycles exist in the financial markets? Take a look at the black line in the graph below. The U.S. stock market had a gigantic bubble back in 2000. When it burst, stocks came crashing down. Over the next several years, policy makers did all they could to get things going again, focusing mostly on monetary policy and increasing homeownership. This had the unintended consequence of creating too much inflation, which caused central bankers to tighten aggressively. Thus began what will almost certainly be declared a recession. This mimics the US stock market bubble back in 1929...

Ten reasons why it's all going to go horribly wrong By Jeff Randall Last Updated: 12:37AM BST 03 May 2006 In my first year as business editor of the BBC, 2001-02, I became known by Television Centre veterans, such as Michael Buerk and Peter Sissons, as a harbinger of gloom. Whenever I turned up at the Ten O'Clock News desk with a business update, it seemed always to presage a corporate disaster. The implosion of dot.com dreamland, the subsequent shake-out in global stock markets, revelations of some heavy-duty corruption in America and the atrocities of 9/11 led to a remarkable...

Earth may be trapped in an abnormal bubble of space-time that is particularly devoid of matter. Scientists say this condition could account for the apparent acceleration of the universe's expansion, for which dark energy currently is the leading explanation. Dark energy is the name given to the hypothetical force that could be drawing all the stuff in the universe outward at an ever-increasing rate. Current thinking is that 74 percent of the universe could be made up of this exotic dark

She was only 21 when she decided to become a mortgage broker. A newlywed, Michelle LaPiana felt that her own broker had misled her and her husband during the daunting purchase of their first home in Hialeah. She claims she fell prey to a bait and switch. The closing costs were nearly double what the couple previously had been told. By the time they sat with a title agent to sign the loan documents, it was too late to walk away without losing thousands of dollars. ''The closing costs were $9,680,'' recalled LaPiana, now 38 and divorced. ``I remember everything....

Having difficulty coping with financial stress? Forget Bernanke and Paulson. Think Rogers & Hammerstein. In the excellent production of South Pacific at the Lincoln Center in New York (something tells me tickets there will be easier to get soon), one of the highlights is the song "Happy Talk." "Happy talk, keep talking happy talk," sings Bloody Mary. "Talk about things you like to do." Elsewhere in New York, there's a sense afoot that the real problems we face aren't the crippled financial system or the slowing economy, but rather all the bad stuff people are saying about them. In other...

They keep telling us that this is the worst financial crisis since the Great Depression. But there is at least one difference: in the Great Depression, nobody needed to be told they were in a depression. Today, except for relatively few investment bankers and somewhat more middle-class homeowners, who would guess that things are so dire? Life goes on, reasonably normally. Maybe it's easier to get a cab in New York City--a reliable real-life indication of an economic downturn--but then maybe the effect of the financial crisis is canceled out by the effect of that other crisis, the one about...

DEVELOPMENT of alternative energy should create more than 20 million jobs around the world in coming decades as governments adopt policies to address the depletion of resources, according to a UN report. Some 2.3 million people around the world already work in alternative energy jobs with half of them in biofuels, said the report. Speedy creation of the jobs will depend on countries implementing and broadening policies including capping emissions of greenhouse gases, and the shifting of subsidies from the oil and natural gas sector, to new energy including wind, solar and geothermal power, it said. "If we do not...

Stock brokers will know exactly what I mean when they see the word "bubble" attached to the name Sarah Palin. The Republican Party is riding quite the high. In fact, if I were a pollster wanting to deliver good news to a Republican client, this would be the week I’d want to put the poll in the field. Here's a good rule of thumb for the next few days: If a Republican candidate isn't in the lead in a survey conducted right now, he or she can’t win in November. The combination of an excited Republican base and a depressed...

Real Estate Woes Spread to China By KEITH BRADSHER GUANGZHOU, China — China has joined the United States, Britain, Spain and others on the list of nations suffering a real estate decline. Although the last national statistics showed single-digit growth from July 2007 to July 2008 in the average price of commercial and residential real estate, real estate brokers say prices are down from peaks reached earlier this year, while the number of transactions has plunged. This downturn comes as the growth rate of Chinese exports has slowed — sharply in yuan terms — and stock markets have plummeted. The...

The Obama campaign seems to have experienced a "Minsky Moment." That, as any financial bubblologist worth his weight in tulips knows, is the particular point in time when no more "greater fools" can be found to support a bubble and a Great Deflation finally begins. Sssssss. (The financial phenomenon is named after economist Hyman Minksy.)Now Obama's Minsky Moment is morphing into the McCain Moment. The evidence? Here goes: 1) The final 10 national polls in June had Barack Obama up by an average of 7 percentage points. The past eight polls this month have John McCain up by a bit...

Jack Risko of Dinocrat.com charts oil and gas prices, showing a pattern that looks very much like a speculative bubble. Notice in particular the freefall of natural gas prices (the red line), suggesting that oil prices may fall even further. Jack speculates that one motive for the Soviet invasion of Georgia is to threaten the major pipeline supplying Europe, thereby helping to sustain oil prices. A major fall of oil prices to pre-run-up levels would severely cut the income of Russia, not mention the oil states of the Gulf and Hugo Chavez.

Bad news from the Baku-Tbilisi-Ceyhan pipeline - an installation that may not normally draw much of your attention, but which is a throbbing artery of global energy supply, carrying vital oil supplies from Central Asia towards a tanker terminal on the Turkish coast. On some remote, sun-baked plain of Anatolia, an explosion sparked a fire earlier this week, temporarily cutting the flow through the pipeline. But guess what? Here's the good news: the oil price did not zoom upwards in response, not a blip, barely a flicker. Actually the price of a barrel of crude has been falling: from a...

Everybody Gets a TrophyEconomic perils of the Nanny StateBY TONY ALLISONLet me take you to a magical land called NannyState, where once upon a time everyone was happy, inflation was low and real estate always went up. Or did. Times are a’ changing in NannyState and all is not well.   Everyone was elated in NannyState in 2002-2006, because real estate really went up. Way up. There was no need to sacrifice or save because you could buy a home with no money down. Everyone could enjoy the American Dream! In fact, banks offered a 125% loan so you could upgrade...

Pulte Homes applauds President Bush for signing into law today a comprehensive housing bill passed earlier by Congress. With record amounts of housing inventory and stagnant consumer demand continuing to drive down prices nationwide, Pulte Homes believes the $7,500 tax credit for first-time homebuyers included in the legislation can provide a much-needed shot in the arm to the housing industry. "We expect the $7,500 tax credit to get more first-time homebuyers off the sidelines and into a home," said Richard J. Dugas, Jr., president and CEO of Pulte Homes. "That, in turn, will free up home sellers who can then...

There's been a lot of discussion about how much the new housing bill passed by Congress will help individuals facing foreclosure. Some will be able to keep their homes, to be sure. But there's a different provision of the Housing and Economic Recovery Act that I want to focus on -- the much-trumpeted tax credit for first-time homebuyers. A tax credit is much more valuable than a deduction. A credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable. Under the new law, certain homeowners will be...

The collapse of the housing bubble is likely to eliminate most, if not all, of the gains that families had made in accumulating wealth over the last two decades, according to a new study from the Center for Economic Policy & Research in Washington, DC. In the report, entitled The Impact of the Housing Crash on Family Wealth [pdf file], the authors project that the sharpest falloffs are projected to occur for the youngest families. If housing prices fall another 10%, as they seem likely to do, the study estimates that families will have a net worth anywhere from 56%...

BENTONVILLE, Ark. -- Dennis Pflueger and his wife won a rent-free year in a nice new house in an expensive subdivision not far from the headquarters of Wal-Mart Stores Inc. As part of the prize, they then have the option to buy the four-bedroom home for $452,000. Mr. Pflueger, a telephone-cable installer who describes himself as an "old redneck," is in the middle of his free year. But the Pfluegers are a bit lonely. Just one other family lives in any of the 28 new or unfinished houses on Foxboro Court. ...Since real-estate tanked, many new planned communities across the...

Highlights: 1. In time, history will provide a fulsome overview of the twin housing and debt crises, perhaps the most challenging debacle since the Great Depression. At this early stage, however, Westwood tallies a “top 10� list of underlying causes and considers what can be done to reverse the situation. 2. Ranging from an unprecedeted level of debt creation that fueled massive asset inflation, to insane lending practices and, ultimately, exploring the last 20 years of the American debt-culture, this report outlines just how the economy arrived at this juncture, and how our business and government leaders mistook debt-driven liquidity...

Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs crash The housing market has fallen hard but it's not time to buy, no matter what you hear. Depending on where you live it's time to decide if you can afford not to sell before prices go lower, or grin and bear it. The choice depends on your likely future employment prospects and where you live. In our first major update in our series of housing bubble forecasts since 2006 that began with our August 2002 Yes, it's a housing bubble analysis, we delve into the next phase...

ALTHOUGH the price of oil continues to hit new records, it has in one respect been a quiet week on the oil markets. America’s lawmakers are celebrating Independence Day by taking a few days off. That has led to a brief interruption in the torrent of proposals aimed at curbing speculation. Ten different bills on the subject are in the works in Congress. Before the House of Representatives shut up shop, it approved one by a vote of 402-19. America’s politicians are not the only ones to have fingered speculators for the feverish rise in the price of oil and...

Home-price declines continued to get steeper in April, according to the S&P/Case-Shiller indexes and the Ofheo home price index, which showed at least three years of gains erased. Separately, consumer confidence dropped like a stone in June, and expectations hit an all-time low, according to the latest survey from the Conference Board. Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. In a separate report, the Office of Federal Housing...

ACCORDING to Shell Oil president John Hofmeister, the “proper” range for oil should be somewhere between US$35 - US$90 a barrel. Based on that statement and assuming it’s more or less accurate, what do you think we should make of the current oil price of US$130 - US$140 per barrel? How much of the spectacular rise in oil is due to speculation? That is important to determine as excessive speculation could basically drive prices much higher than its real demand-supply equilibrium. Open interest in WTI oil futures has been growing exponentially at 18% per annum since 2001, thanks to the...

The Bubble How homeowners, speculators and Wall Street dealmakers rode a wave of easy money with crippling consequences. By Alec Klein and Zachary A. Goldfarb The Washington Post Sunday, June 15, 2008; A01 Part I · Boom The black-tie party at Washington's swank Mayflower Hotel seemed a fitting celebration of the biggest American housing boom since the 1950s: filet mignon and lobster, a champagne room and hundreds of mortgage brokers, real estate agents and their customers gyrating to a Latin band. On that winter night in 2005, the company hosting the gala honored itself with an ice sculpture of its...

Stacey Korn arrives just before 10 a.m. to unlock her shop on Northwest 23rd Avenue. She hoists orange molded plastic benches from the back and places them outside under the windows. Then she sets up her sidewalk sign: "Shop 'Hello' -- nifty gifts for the whole family," it says. "Patronizing us is like flirting with a wealthy widow. You can't overdo it." Korn needs her sense of humor now more than ever. As the economy slumps, sales at her Hello Portland store at 525 N.W. 23rd Ave. are half what they were soon after opening in late 2005. Her family...

....Speculative bubbles are fueled by the social contagion of boom thinking, encouraged by rising prices. Sooner or later, some factor boosts the transmission rate high enough above the removal rate for an optimistic view of the market to become widespread. Arguments that this boom is unlike past bubbles—I call them “new era” stories—become more prominent and seemingly credible. A survey that Karl Case and I conducted in 2005, for instance, found that on average, San Francisco home buyers expected housing prices to increase by 14 percent a year over the next 10 years. About a quarter of the respondents reported...

The dramatic surge in oil prices—including a $16-per-barrel jump in just two days last week—has left Washington regulators scrambling to exert new oversight on futures trading in oil and other commodities. The U.S. regulatory agency's abrupt shift toward more rigorous oversight in the past two weeks also represents a stark example of how the pinch from high gasoline prices has changed the political landscape and made energy traders prime suspects in congressional inquiries. As recently as May 20, the U.S. commodities regulator, the Commodity Futures Trading Commission (CFTC), insisted at a Senate hearing that speculation was not causing the...

NEW YORK (Fortune) -- High-flying tech stocks crashed. The roaring housing market crumbled. And oil, rest assured, will follow the same path down. Not everyone agrees. In an echo of our most recent market frenzies, some experts pronounce that the "world has changed," and that the demand spikes, supply disruptions, and government bungling we face now will saddle us with a future of $4, $5 or even $10 a gallon gasoline. But if you stick to basic economics, it's clear that the only question is when - not if - prices will succumb. The oil bulls are correct in their...

(NECN) - Maybe, just maybe, the oil speculators are cashing out. Oil prices fell sharply in New York on Tuesday, a fall sparked by declines in U.S. oil and gas consumption, and a rebound in the U.S. dollar. Light, sweet crude for July delivery fell $3.45 to settle at $124.31 a barrel on the New York Mercantile Exchange, and dropped below $124 in after-hours electronic trading. Oil prices have fallen by 8 percent from their peak of $135 per barrel on May 22. Gasoline prices at the pumps, which often lag behind oil prices, have shown no sign of letting...

I see nothing in the present situation that is either menacing or warrants pessimism. . . . I have every confidence that there will be a revival of activity in the spring and that during the coming year this country could make steady progress. --Andrew W. Mellon, U.S. Secretary of the Treasury, December 31, 1929 The bursting of every bubble is followed by statements suggesting that the worst is over and that the real economy will be unharmed. The weeks since mid-March have been such a period in the United States. The underlying problem--a bust in the residential real-estate market--has,...

U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday, a somber indication that the housing slump continues to deepen. Standard & Poor's/Case-Shiller said its national home price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988. The quarterly index covers all nine U.S. Census divisions. Prices nationwide are at levels not seen since the third quarter of 2004, according to Maureen Maitland, a S&P vice president. However, the index is still up 60 percent versus 2000. Two...

After being buffeted by the dot-com, housing and credit bubbles -- not to mention the Chinese stock-market bubble -- there is a readiness by people on Wall Street and elsewhere to ascribe the term "bubble" to all sorts of things. But when it comes to commodities like crude oil and corn, that may be off the mark. ...But figuring out whether a commodity exceeds its fundamental value is difficult: Because there is no income stream, there is no equivalent to the price-to-earnings ratios that people use to value stocks. Prices, to be sure, are soaring -- crude oil fetched $132.19...

...Many banks and investment firms have come out to defend the rise in oil prices, saying that it is based on fundamentals and that prices could rise much further. While they go on saying this and prices move upward, open interest in crude futures contracts has been moving steadily downward since a high of 1.58 million last July to 1.36 million now. What’s more, in the recent oil spike, open interest actually fell 8% in a week as oil moved up over 2.6%. Could this be a sign of a short squeeze, with small traders who had shorted oil closing...

With home values continuing to plummet across the country, it's become clear that the real estate meltdown is far from over. Values for single-family homes in 14 major U.S. cities posted double-digit declines from their respective peaks, according to the Standard & Poor's/Case-Shiller Home Price Indices, which tracks prices of single-family homes. On a national level, home values are down 12% since December 2006. And according to Beth Ann Bovino, a senior economist at Standard & Poor's, they could drop another 10% by the end of the year. "Things are accelerating downwards [and] in most cases the fall gets steeper...

The Village of Imagine has fallen victim to the local and nationwide housing slump. The project's developer is reconsidering plans to build the mixed-use complex of shops, restaurants and residential units across from the Orange County Convention Center. The project -- originally hailed as Orlando's version of the famed San Antonio River Walk -- is spearheaded by Intrawest Corp., a Canadian developer known mostly for its ski resorts. The planned village, across Universal Boulevard from the county's giant convention center, was to include more than 40 boutiques and restaurants along waterfront walkways. But all that has materialized is a 315-room...

The House passed two bills attempting to rehabilitate the housing and mortgage market this week. There doesn't seem to be any shortage of criticism and blame for the bad decisions, and rightly so. Lenders and banks do share much of the blame for the overheated market. Lending standards were relaxed, or even abandoned altogether, creating an exaggerated pool of homebuyers that led to ballooning home prices that many, especially real estate investors, expected to continue forever. Now that the bubble has burst, the losses are staggering. However, many in Washington fail to realize it was government intervention that brought on...