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Tuesday, May 25, 2010

Nigel Farage Warned of Euro Meltdown One Year Ago






Here is the link on the Farage speech

How sinister is the LIBOR rise?
Robert Peston | 00:00 UK time, Tuesday, 25 May 2010 BBC

The interest rate at which banks lend to each other in dollars, the famous BBA three-month dollar LIBOR rate, has been creeping up day after inexorable day since the end of February.

The cumulative impact has been a doubling of that rate during those 90 odd days, to more than 0.5 per cent yesterday - the highest three-month dollar LIBOR rate for something like 10 months.

What does it all mean?

As you'll probably recall, when LIBOR rose relative to central banks' official funding rates in an almost unbroken sequence from the summer of 2007 till the autumn of 2008 - when Lehman collapsed - the causes were sinister.

It was the most visible manifestation of perhaps the worst liquidity crisis the world's big banks had ever experienced.

A whole series of wholesale markets in which banks had raised hundreds of billions of dollars closed down. And there was no great pool of cash elsewhere to make up for this great loss of finance - so the interest rates at which banks lent to each soared.

As 2007 turned into 2008, this liquidity crisis transmogrified into a solvency crisis, as the shortage of finance led to sharp falls in the price of assets, especially property and loans to property, which generated huge losses for banks.

The horrible consequence was that a liquidity crisis became a catastrophic solvency crisis: one enormous investment bank, Lehman, went bust, and a series of other financial institutions would have followed Lehman to the graveyard if taxpayers hadn't resuscitated them with unprecedented injections of new capital.

What's more, central banks have - since the Lehman debacle - created unprecedented amounts of new money, and have lent record sums to banks.

That means it's difficult to argue that banks are suffering from a liquidity crunch on anything like the scale of 2007 and 2008.

And if you want evidence that banks really can't be chronically short of cash, just look at how little the European Central Bank has increased its loans to banks over the past 18 days or so: its net funding for banks has risen just 6 per cent or so, which is hardly proof of banks gasping for liquidity.

What's more the take-up of dollar loans by the ECB under swap arrangements with the US Fed has been paltry, even though the LIBOR prices indicate that the peak of stress for banks is in the dollar funding market.

All a bit odd. Unless you think that what's going on is the reverse of the trends of 2007-8.

It could be that this time a solvency problem is wagging the liquidity dog, rather than a liquidity shortage giving a good shake to the solvency dog.

Or to put it another way, it may be that what's persuading banks' creditors to demand a higher rate for their loans is the expectation that European banks' will suffer big losses on their holdings of assorted eurozone government bonds and their loans to assorted European property markets.

The rising price of Libor may be based on the belief that a possible default by the Greek government on its debts, or a further downward lurch in the value of Spanish property, could generate unsustainably high losses for a number of big European banks.

Or to put it another way, the LIBOR rise may be saying that the eurozone's fiscal crisis could be the precursor to the demolition of some substantial, thinly capitalised European banks.

Which would be the most worrying interpretation of the LIBOR rise.

There is however a more benign explanation.

The thrust of anticipated bank reforms - whether they're the Obama reforms or the increases in capital and liquidity ratios to be demanded of banks by the Basel Committee on Banking Supervision - are likely to have the effect of increasing the costs for banks of lending.

And if the costs for banks of lending were to rise, that would mean that banks themselves would have to pay more for their credit, along with the rest of us (ouch). Hey presto, three-month dollar Libor rises in a semi-permanent way.

As it happens, there is one more explanation of the LIBOR rise: that disunited regulators, central bankers and government heads are largely united by a single reforming ambition, which is to put in place new legal structures for big banks that would allow them to fail without crippling the economy.

Here's the paradox. If big banks can be allowed to fail, if they could no longer be certain that they'd be bailed out by taxpayers in a crisis, the risks of lending to them rise.

So in sanitising the banks, in turning them from weapons of mass destruction into more conventional businesses that can be permitted to go bust, they become less attractive to creditors, who would obviously demand a higher LIBOR interest rate.




94 comments:

  1. I guess I should check the E-mail, more often, but anyway, I was sent this note, back on the 11th.

    Full Fed Audit Amendment Voted Down in Senate

    Washington, D.C., May 11, 2010 - Today, the U.S. Senate voted 62 to 37 against an amendment to allow greater transparency at the Federal Reserve.


    Well, I guess there is no need for the Government to audit the Central Bank. Which is something I just find so, well, so hard to believe.

    I better go sandbag another conex.

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  2. Wall Street Journal -

    The White House and leading lawmakers came to an agreement Monday about how to end the ban on gays and lesbians serving openly in the military, likely speeding the end of the "don't ask, don't tell" policy.

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  3. May 25 (Bloomberg) -
    - US Treasury Secretary Timothy F. Geithner said he's “as confident as I've ever been” that China has a growing incentive to let the yuan gain against the dollar.

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  4. Makes you wonder, how stupid can a guy be, other than to say, well ...
    He's a Marine.

    by Alicia E. Barrón
    azfamily.com

    PHOENIX – An Arizona Marine is under indictment after he somehow comes up with hundreds of thousands of dollars then allegedly tries to hide it from the federal government.

    Major Mark Richard Fuller, 42, of Yuma was indicted Monday by the United States Attorney's office in Phoenix.
    When he was in Iraq, Fuller was overseeing some reconstruction spending but investigators think that instead of handing out the money to Iraqis, he kept it for himself.

    Dennis Burke explains, “He spent six months in Iraq as part of the reconstruction effort. He was in charge of contracting. He was in charge of cash. Clean crisp $100 bills and when he returned he had crisp clean $100 bills and he deposited over $400,000 of bills in 91 separate transactions in banks in Arizona.”

    It is still unclear how Fuller got the money back into the country.


    Guess the Marine Major had never heard of the benefits of an ammo box, buried in the backyard.

    Dumber than a rock, that super duper Marine Corps trooper.
    A careerist, of that speculation, there's little doubt.

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  5. LONDON (Reuters) -

    The euro's downward momentum is gathering strength, raising the risk that the single currency overshoots estimates of fair value and hits parity with the US dollar within the next year.

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  6. ISLAMABAD (AP) -

    A hard-line cleric suspected by India of masterminding the deadly Mumbai attacks will remain free - for now - after Pakistan's top court ruled Tuesday that the government lacks the evidence needed to imprison him, lawyers said.

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  7. So Joey, the slightly goofball, drug-addicted unemployed dockworker, embarks on a weeklong sojourn made up of equal parts euphoria and paranoia. He swears everyone he tells about his good fortune to secrecy. And he tells everyone -- bartenders and casual friends and his school-age niece.

    When it's over, the money is gone and Joey is in jail.

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  8. "Dumber than a rock, that super duper Marine Corps trooper.
    A careerist, of that speculation, there's little doubt..."



    Or it could just be that he is an Arizonian.


    :)


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  9. Almost amounts to one and the same thing, Q.

    Especially down to Yuma, it REALLY gets hot, down there.

    Bakes the brain, it does.

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  10. Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.
    At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

    Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

    The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

    The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

    The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.

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  13. Rat, I match you and raise with Michigan-stupid.


    Ex-postal worker faces mail theft charge

    Tight schedule, he says, led to letters undelivered in '90s



    "A letter carrier who left garbage bags full of undelivered mail inside an Algonac shed when he retired to Florida has been charged with theft.

    "Earl Newton Hicks, 66, faces up to five years in prison under a complaint filed Monday in U.S. District Court in Detroit.

    "An Algonac woman discovered the undelivered mail -- 544 first-class letters and 2,933 standard-rate mailings -- while cleaning out a shed, according to an affidavit attached to a criminal complaint against Hicks..."



    Going Postal


    Unfortunately, we don't have the excuse of heat here in Michigan. We come by our stupidity the old fashioned way.



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  14. Mr Coyle, happened to be in the wrong place, at the right time, then made a poor decision.

    The Marine Major, planned and executed the theft, smuggled the money out of Iraq, then deposited the ill gotten funds in US banks.
    If the allegations are true.

    Not quite the same.
    The Marine, well, he's not a victim of both bad luck and stupidity ...
    Just stupidity.

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  15. He could have, from Yuma, deposited that money in Mexican banks, easily enough.
    Could have buried the money.
    Put it in his mattress.

    He'd have skated.

    But to open 91 accounts, in AZ banks, and not expect anyone to notice. The Marine's understanding of Federal financial surveillance, quite lacking.

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  17. Yea, but my postal worker only had to light a match.


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  18. 'Incredibly, until The Times blew the whistle in an article on Monday, environmental waivers were still being offered for oil drilling in the gulf. What will it take for sanity to prevail? How many people have to die or face ruin, and how much of nature has to be despoiled before we rein in the cowboys of these runaway corporations?"

    BP's Checkered History proceeds It


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  20. "Is There Any Problem That Gets Better With More People?"

    Well, ya. the whole blasted economic system is underpinned by the notion of growth and without population growth it becomes very difficult to achieve any meaningful economic growth. Certainly it isn't impossible but it sure does make it more difficult and given our indebtedness demographics pose a long term problem for the markets in general.

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  21. I think I must be living in the past. A torpedo sinks a ship, and it is hardly mentioned at all. I would have thought, that's some kind of big deal, but today, it seems like, it's no deal at all.

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  22. Which must go to show, if you possess a nuclear weapon, you can get away with a lot of stuff. I almost wish I had one.

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  23. If I had one, I might, just might, blow up the headquarters of the Blessed Idaho Fish and Game Department. That's not a threat, just an imaginative act.

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  24. bob, I've made it a habit to just scroll past your comments but that one caught my eye as it fell right after my own. It is appearing that the sinking of the ship by the NORK's was a big deal and things seem to be ramping up. Could Kim be thinking that the US is in trouble (it is) and now is the time for him to make a move (his country is in particularly bad shape at the moment)? War on the Korean peninsula would be nasty but how long will folks stand down in the face of provocation?

    Anybody remember when the British Pound slid from global exchange currency to its present status? WWI and WWII.

    What would you call war in Iraq, Afghanistan, Korea, and Iran? I guess you could simply say it was a War in the ME and a War in Korea. Doesn't sound so bad then.

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  25. I scroll past yours too, Ash, be assured of that. In fact, I hardly read anyones comments anymore, other that my own. Maybe Trish, once in a while.

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  26. Why doesn't that surprise me that you would state you read only your own comments?

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  27. Cause I'm the only truly thoughtful person here, worth reading?

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  28. For humour, go to Quirk, for thought, come to me, for the inane, go to Ash.

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  29. Just joking Ash, I've loved you ever since you wanted to shut down the Marine Recruiting Center in Berkeley, California.

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  30. heh, I've got to get my ass to work, unlike the rest of you slackers.

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  32. I think there is a big divide between the NORK's and Hezbollah et al ideologically though what folks do in pursuit of cash can link them up.

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  33. I should have said "in pursuit of cash AND WEAPONS".

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  34. Ol' Farage, he told'em who ate the cabbage, eh?

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  35. I would regret WIO taking the advice of anon.

    I and I believe others, like the balance and opposition of thought and argument.

    I may have been a bit harsh in my criticism of his cut and paste being over the top and if so apologize to him.

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  37. other than sharing a common enemy in the US I don't see much in the way of similar ideologies. What similarities do you see?

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  40. I just scroll down to look at the nice pictures on the right side of the comments.

    It's really hard being a blonde.

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  41. You seem to be living in a fantasy world allen and seem to want to project all sorts of imagined ideas upon me. What the heck do Chinese jews have to do with our discussion about ideological similarities between Hezbollah, Hamas, and the North Koreans? Sure they all have a hatred for the US but that does not indicate they are ideologically similar other than in the most remote sense.

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  43. Your a blonde now Melody?

    Pictures please.



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  44. I've spent the whole morning trying to get my head around the Euro, and the Eurozone. It ain't working. All I can think about is that blonde CNBC pundit's tits.

    The Euro is beyond my intellectual capacity.

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  45. Ash is beautiful, one must admit.

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  46. I haven't watched CNBC this morning but I know which one your talking about Ruf.

    She must wear those tight sweaters by design.


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  47. Not a hair on his chest, to scare the women away.

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  48. Just a potatoe sprout, or two.

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  49. With the markets falling, one's mind naturally is drawn to other things.


    Also, sunny and low 80's projected here in Detroit all week.


    Life is good.


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  50. I think what the markets are sensing is that this whole thing is no longer about Greece, or Portugal. Nor Spain. It's Italy, and, THEN, horror, or horrors France.

    In short, it's the viability of the Eurozone, And All of its Banks. All of its Banks.

    Maybe, everyone's just in a bad mood.

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  51. You live in Detroit, Quirk, and can say "LIFE IS GOOD"? You're out of your fucking mind.

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  52. Don't forget the Markets are likely to start contemplating the Korean situation as well.

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  53. WE are going to get "hammered" on our "China" Trade. There's no way anything manufactured in the United States will be able to compete in China with anything manufactured in the Eurozone.

    Meantime, our Domestic manufacturers are fighting off $2.00/hr labor, and a huge currency subsidy trying to compete with Chinese goods. Fucking Euros. Fucking Chinese. Yikes.

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  54. The Koreans are so far down the radar, they might as well not even exist.

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  55. The markets don't like uncertainty and if Korea and the chance of war keeps popping up it won't be good for the markets.


    You keep harping on about productivity rufus and given the built in cost problems as you just noted above US productivity competitiveness doesn't look good at the moment.

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  56. Actually I live some miles north of the actual combat zone bob.

    But when I travel and hang out in bars, I tell everyone I'm from Detroit. It tends to keep people away from you.

    Except the chicks. Hell, you can't get away from them no matter what you tell them.



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  57. Lucky you, hell I can't buy a date. Nor beg one.

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  58. Productivity doesn't tell you much in todays market.

    Heck if you lay off enough people and continue to cut your costs, productivity will go through the moon.

    Doesn't mean your doing especially good. Or, at least, that your people are doing any good. Or actually, that your ex-people are doing very good.


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  59. Just kidding Bob.

    I gave that up when I got married.

    Still it is fun talking and kidding around with them. Just a few giggles.


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  60. Greater productivity is a great thing, Ash; but it takes a while to work for the average guy. As Ash said, in the meantime he's just "laid off."

    We can compete against "slave labor," and we can compete against "subsidized" products, but it's hard to compete against them both when they're wrapped in the same package.

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  61. Giggles, wiggles, sometimes it's more than just jiggles.

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  62. Uh, As Q said, in the meantime he's just "laid off."

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  63. In the meantime, we are going to catch a large break on the price of commodities, and energy. That'll help some.

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  64. What is worrying to me is watching Geitner in inverviews talking about China.

    Today I saw one on CNBC where he indicated he expects China to follow through with revaluing the yuan.

    No projected date. No time limits. Just their word.

    This is the response we have seen constantly with this administration on any number of subjects, dithering.

    Wait long enough and the bad stuff will take care of itself goes the thinking it seems.

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  65. Q, the Yuan just appreciated about 20% vs the Euro. Geithner can talk until he's blue in the face, but the Chinese aren't about to appreciate the Yuan any further, right now, against "anything."

    Geithner is just trying to put as pretty a face on it as he can.

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  66. I dunno rufus - there could be some solid benefits to their domestic situation if they let it rise against the US dollar.

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  67. Desalinization deal signed in China

    AEHI CEO Don Gillispie signs nuclear desalinization deal with CNNC (click to enlarge)
    On May 18th we announced the company's official partnership through AEHI China with China National Nuclear Corporation (CNNC), through its subsidiary China Zhongyuan Engineering Corporation (CZEC), to produce and market nuclear desalinization reactors at the international level.

    The product will be the largest, cleanest, most efficient, most cost-effective converter of salt water to drinking water on the market and will be available to order in the summer of 2010. It will be advertised under the name "Green World Water™".

    The reactors that power these units come in 650 and 1,100 MWe sizes and can be tailored to produce water and electricity at a desired ratio. The designs are very safe, as they evolved originally from Westinghouse designs currently operating in the U.S., and were further evolved by the French before being built in China.

    The partnership and reactor design was an idea by AEHI CEO Don Gillispie, who began working with CNNC's subsidiary on the project more than a year ago. While there have been some small units built in Asia, mostly for domestic consumption, a larger commercial version was not readily available to the world.

    "I had the idea many years ago to build and market a desalinization unit powered by a commercial nuclear reactor, but when I first met with CNNC, the design was still in my head, so I sketched it onto a piece of paper. Since then, it has evolved into a design that can solve water problems around the globe. This is something I'm very proud of knowing it can help millions of people gain access to clean, potable water," said Don Gillispie, AEHI CEO.

    Several countries have already begun contacting Gillispie about the desalinization reactor, and AEHI hopes to have several projects underway within a year.

    "These deals are huge for AEHI, but they will also provide a tremendous benefit for many developing countries as over three billion people, half the world's population, don't have clean drinking water, according to National Geographic Magazine. These reactors will solve water issues, but they can also create needed power and produce thousands of jobs where they are desperately needed," said Gillispie.

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  68. Not a chance, Ash. They do more business with Europe, I think, than they do with us. They've already taken one hit to their "bugger thy neighbor" policy. They're not about to self-inflict another one.

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  69. It is kinda funny you are accusing them of 'bugger thy neighbor' when it is the US that is intent on devaluing.

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  70. Mark Twain's autobiography is coming out soon. This is a big thing in the literary world.

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  71. Bullshit, Ash. We're just asking for a "float."

    Letting your currency "float" is just the opposite of manipulation.

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  72. even floating currencies can be manipulated - just print more. Quantitative easing. In addition the Central Banks can wade in and supplement their manipulations with purchases, and, setting interest rate policy.

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  73. It's strange. You seem rational, sometimes; and then you say the damnedest things.

    Look at our relationship with Canada, and the Looney. When the Looney was very weak against the dollar we didn't bug Canada about it. Then, when it strengthened, we accepted that, also. It was the "market" adjusting the currencies to where they needed to be.

    But, when a "Major" power like China starts controlling their currency, things can get "out of balance" in a hurry. They are severely damaging Our Economy (and, theirs in the long run) for short-term political gain. That is no way to "be a friend."

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  74. Twain's autobiography-----http://trueslant.com/colinminer/2010/05/25/mark-this-100-years-since-twains-death/-----a great man, and a great American

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  75. Sure, you can turn yourself into Zimbabwe, but the Political price for that can be huge. It's not an option that's normally taken.

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  76. The US has been doing it for a long time. Look at the steady downward trajectory of the value of the US dollar against a basket of currencies. The only thing that has interrupted this decline has been the effects of 'flight to safety'.

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  77. Depends on where you're looking. Against the British Pound, we've strengthened. Against the "Commodity Countries," Canada, Australia, etc. we've weakened. Track the Euro back to its predecessor German Mark, and we're probably about even.

    Over that time our inflation rate has been about 3% - a more or less reasonable number for a fiat currency.

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  78. During that time we spent a horrendous amount of money keeping the "Bear" out of Europe, keeping the Crazies out of the Oil Fields, and policing the Sea-lanes.

    In the meantime, Americans paid more for "Drugs" so the Europeans, and Canadians could buy them at a discount through their Socialist Medical Systems.

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  79. The thing I'll never understand about Liberals is, they'll figure out a way to turn every discussion into an attack on America. Kind of like bright, but spoiled children.

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  80. I wish Mark Twain were alive today, he'd have something to say.

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  81. Wow, S&P came back 30 points. Finished up. Amazing.

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  82. no attack intended rufus just simply stating the facts. It is you who are interpreting the falling value of the US dollar as a negative. In fact it appears to be the only way out of the current fiscal problems.

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  83. He also had a wonderful moustache, though you wouldn't want to eat soup with it.

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  84. The Dollar's not "Falling," Dumbo; it's Rising.

    We were already held at an artificially high level because of China, and now we've been pushed up vis a vis the Euro. We could stand one, but the two of them are giving us the old "high/low."

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  85. Eh, sorry about the "Dumbo." I wuz jest bein "snarky."

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  86. Whoever would name their kid Nigel?

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  87. "Tensions rose when a happily beaming Obama demanded to be riddled. After a string of well-received topical posers, Motley asked the following:

    A pocket-hole that grew so large,

    A giant couldn't eat it.

    A cache of gold that never was,

    But nonetheless depleted.

    When the President confessed to being stumped, Motley revealed the answer to be "the National Debt, of course."


    White House Jester Executed


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  88. allen said...
    WiO,

    Have you decided to follow the advice of Anon? I ask because you have taken down many of your posts.



    In part...

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