COLLECTIVE MADNESS


“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Thursday, March 13, 2008

Collap$e. Where Goes the Dollar?




Time to End Our Dollar Dependence The Chosun Ilbo

Late last year I flew into Belgium, the capital of the European Union. The moment I saw the notice "1 EURO=U$1.67" at the Brussels Airport money exchange, I sighed: the dollar had depreciated so much. The standard exchange rate that day was one euro for $1.45, but the cash buying rate is naturally higher because of transport and holding costs. In any case, the euro-dollar exchange rate that day was excessively low for the dollar.
I cursed myself for having exchanged my won for dollars. I took a sizable hit on the exchange, and I wasn't happy. To make matters worse, I invited ill luck and embarrassed myself. Just as I was collecting my euro notes at the exchange counter, I noticed a different rate on my receipt: "1 EURO=U$1.70." This was more expensive than the posted rate, so I complained to the teller. But actually I had found the source of the trouble. "I'm offended that you seem to have overcharged me," I protested. The response left me speechless: "That exchange rate was posted an hour ago; the dollar has weakened since then... If you don't want to exchange, you can get your dollars back any time."

The U.S. dollar is not on the list of foreign currencies that world businesses are buying these days. Most popular in Southeast Asia is the Chinese yuan, and in world exchange markets the Swiss franc, euro, Japanese yen and Canadian and Australian dollars are attractive. These currencies grow more valuable just by holding on to them, so everyone is eager to buy them.

With us, however, the reverse is true. A junior local bank official criticized our lack of foreign exchange consciousness by saying, "Koreans prefer dollars either when they visit China on business or when they tour Europe." A foreign exchange dealer at a foreign bank commented, "Multinationals prepare their asset portfolios in various currencies including the dollar. But most local corporations, except a few conglomerates, have yet to free themselves from transactions in U.S. dollars only."

As our average foreign exchange consciousness lags behind that of the citizens of our global rivals, either a rise or a fall in the value of the dollar causes us big problems. Though a weak global currency, the dollar is strong against our won. The dollar that fell to W900 in October last year recently spiraled up to W980.

A strong dollar is evidently good news for our export businesses, but we miss out in many other areas. "The dollar was generally weak last year. As a means of hedging, we sold hundreds of millions of dollars in futures. As the dollar has strengthened recently with the contract deadline approaching, we've effectively sustained a loss of billions of dollars," lamented a foreign exchange executive at a shipbuilding company. Had they effected a swap transaction, diverting the dollar into strong currencies like the euro or yen, he regretted, his firm would have been able to minimize the loss.

Individuals also frequently sustain losses under the common misperception that "foreign currency" equals "the dollar." The biggest victims these days are those husbands who have to support their families living overseas for educational purposes. Because of the strength of the dollar against the won, when they remit a sum in dollars they now have to pay nearly 10 percent more in won than before. Had they chosen strong currency deposits like the euro at the outset, they would have avoided the damage.

Since last year China has been shifting part of its foreign reserves invested in American bonds to the euro and other currencies. It's a state strategy aimed at freeing itself from a one-sided reliance on the dollar. We also need a superior currency management strategy utilizing a diversified stable of currencies like the euro and yen and other strong currencies that appreciate if you hold them. We need to keep in mind foreign exchange experts' advice that exchange rates are not in the realm of God, but in the realm of corporations and individuals, and they can be managed.

This column was contributed by Lee Kwang-hoe from the Chosun Ilbo's Business News Desk.

82 comments:

  1. It's all good, the more we owe the Chi-Coms, the more we will control them.
    L Ron or Trish told me that.

    Bush is a results oriented guy, based on experience.
    First w/daddie's friends money,
    now w/ours.

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  2. Money has to land somewhere. After the dot-com bubble burst, they put their money in housing. Now that bubble burst, and so they're putting their money in oil futures. But that has the side-effect of pricing oil out of the reach of the people who actually need to use it to keep the economy going. It also makes oil exploration and oil sand/shale extraction worthwhile. Pretty soon there's going to be far more supply than demand, and the oil price bubble is going to collapse.

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  3. "He's sick of Negroes who do not get it? How 'bout Negroes who just blatantly LIE from the pulpit. "Pastor" Wright's bigotry at the very least - expressed in this clip - is more than enough for genuine Christian pastors across the nation to rebuke...

    The IRS checking into whether this meets the minimum requirement to revoke non-profit status is certainly fair.

    But it is unthinkable that a "pastor" of ANY other race would ever be allowed to get away with saying these types of things - especially since they are so blatantly untrue.

    Parting question: If Dr. Jeremiah Wright considers Jews like Jesus "Negroes" - then why does he support Islamic minister Louis Farakhan who openly believes that Jews (just like Jesus) are the scourge of the planet?"

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  5. A video showing St Barry Shuck'n and Jiv'n in response to that SOB would be something to see!
    ...but we won't.

    I love the way he portrays Barry as just another Po Black Man raised by a single mom, just like Barry wants us to believe.

    "Rich" White Grandparents, and Punahoe School conveniently "forgotten."
    ---
    (they only raised him, afterall.
    ...but they don't fit the narative.)

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  6. Like a Rock
    Shape up, Albob!
    Jack LaLane, 93, (born Fran├žois Henri LaLanne on September 26, 1914)
    does pushups on 3 chairs so he can go lower.
    Living, like a rock, near Moro Rock, Moro Bay, California.

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  8. "At age 93, he continues to work out every morning for two hours. He spends one and a half hours in the weight room, and half an hour swimming or walking. LaLanne and his wife Elaine (80) live in Morro Bay, California.

    When interviewed by Katie Couric on NBC's Today show, LaLanne declared that his two simple rules of nutrition are "if man made it, don't eat it", and "if it tastes good, spit it out."

    He often says,
    "I cannot afford to die, it will ruin my image."

    Interviewed on his 93rd birthday, he said his feat of strength was going to be "towing my wife across the bathtub".

    In a June 2007 interview [7], he claimed that for his 95th birthday, he'd like to swim to Santa Catalina Island from the coast of California, a distance of approximately 20 miles."
    ---
    (He once "towed" a large boat some amazing distance)

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  9. Blogger Aenea said...

    Money has to land somewhere.

    Not really; it isn't a zero sum game. Money can be created and destroyed. For quite a few years we saw an explosion in created money through leverage and now we are witnessing the destruction of money through that use of leverage. The Fed's around the world, and most desperately the US Fed, are trying desperately to keep the system afloat. Unfortunately liquidity is not capital and the recent move to accept those dodgey SIV's as collateral for 28 day treasuries is just another bandaid on the cancer.

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  10. " 'Rat is Italian, which means he's European, which means he is white,
    and the Romans ran everything, EVERYTHING in Jesus's country!
    "

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  11. "Unfortunately liquidity is not capital "
    ---
    With insights like that, Ash, how can you be a socialist?
    er, progressive?

    ReplyDelete
  12. LAT: Race Emerging As Major Campaign Issue

    One of the black Clinton backers in Congress, Rep. Emanuel Cleaver II of Missouri, said in a recent interview that he feared a "backlash" if whites see African Americans pressuring one another to vote based on race.

    "If conservative Democrats and conservative Republicans and independents start saying, 'Well, all these black people are being beaten up because they won't support Barack Obama because he's black,' " Cleaver said, " 'maybe we ought to support a candidate because he's white.' I mean what's the difference?"

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  13. Hey, guys!
    Voter for Senator Cane:
    He's White!

    ReplyDelete
  14. Thank you, bob and doug, for your thoughts.

    When my grandfather was dying of mesothelioma, my mother had him admitted to a hospice after one terrifying night in the hospital. That was eight years ago and she has donated to them ever since.

    Her treatment proceeds through early May and we are all praying because we - the widely scattered family that owes her so much - cannot afford to lose her.

    On the Pentagon's report: The Administration and Congress were very careful in the wording of this matter in the 2003 AUF. Precisely because no operational link between AQ and the regime had been established. I think Cheney earnestly believed that there MUST have been one. I wouldn't be surprised if he continues to do so.

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  15. Now, that the exploitation guys were running over hell and back looking for specific WMD material that everybody positively "knew" was there (and "knew" could be traced to some European states that had late fallen out of favor)...that's still the all-time stunner.

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  16. Ahhh..
    The sins of my forebears...

    I'm a white guy, born in chicago Hieghts, Il. Mom's folks came over on a boat, from Italy, it's true.

    So blame me, that the Jews were blackmen, back in the day.

    See what a little time and crossbreeding will do. A hundred or two generations in the melting pot, and it turns out we all come of African descent.
    Based upon DNA studies.

    Now I'm considered Roman, when my family hailed from the North of Italy, damned near barbarians, really. And little old me, never even seen Itally, let alone Rome.

    There is an injustice there, somewhere.

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  17. As is oft said, trish ...

    Absence of evidence is not the same as evidence of absence.

    Could'a been, should'a been, but we didn't find hide nor hair of it. After five years and thousands of documents translated and read.

    Pesky rabbits.

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  18. Desert Rat: Absence of evidence is not the same as evidence of absence.

    Yes, but Bush invaded a whole country (which a Pentagon report now says had nothing to do with Osama and the 9-11 attacks) based on a hunch that Saddam was lying when he said he no longer had WMDs. The invasion itself was supposed to uncover the WMD evidence to justify itself as it progressed. We kept waiting and waiting. Bush joked around about looking under the carpet. It's 3,974 US lives later, no WMD. The Donks want to get out of that Iraq dead-end and get back to the real War on Terrorism in Afghanistan.

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  19. Somebody at DIA sadly, embarassingly tried to keep alive the AQ/Iraq connection last year by dumping garbage at the Weekly Standard (Hayes) and at the office of some distinctly bent Congressperson whose name escapes me, and who I'm sure is bubbling and frothing with incredulity - and perhaps a little disappointment that the report didn't come from a government institution that he likes less. (Take your pick.)

    Just wouldn't let it go.

    The world is full of true believers and Spooky Mulders. Whatever would we do
    without them?

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  20. The Donks want to...get back to the real War on Terrorism in Afghanistan.

    Thu Mar 13, 02:50:00 PM EDT

    Yyyyyyyeah, I don't think the Donks know what they're in for on that end.

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  21. "...based on a hunch..."

    Oh, no. Not a hunch. The same single-sourced intel cycling through the US system and others, year in and year out. The slam dunk, the safe bet, the thing everybody thought they knew, but didn't.

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  22. Wordcheck, Albob!

    Liaised With ?


    Doug, I think that's when a priest gets a good defocking by the congregation, and loses his black robes, or somethin'.

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  23. Sorry I have not had time to post...

    The amount of American Made stuff I am exporting is amazing..

    Just hired 3 more part timers & now looking for a new warehouse!

    no bullshit...

    the last 7 months we have doubled our sales! (verses last year) and we've been in business for 8 years!

    well, enough jaw jaw, time to ship ship!

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  24. WiO--I've got more time, than money, myself. Time to jaw, jaw, and sip, sip.

    ReplyDelete
  25. I'm a northern mutant albino out of good African stock, myself.

    Albino Pride!

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  26. Spitz just wanted some Albino Pie.

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  27. From Cato:

    [...]

    Dollar users do not experience "core" inflation. What people purchase every day is precisely what is excluded from the core measure. For parents with growing children, milk, eggs and bread are not optional purchases. For millions of Americans, especially in the West, a long daily commute by car is a reality.

    The Bush administration and its supporters have long pondered why it has not received credit for good economic policies. Perhaps this is in part because the benefit of tax cuts has been offset by rising energy prices, and now rising food prices.

    The use of the core rate has lulled both the administration and the Fed into complacency, disconnecting them from the experience of ordinary consumers. Until recently, inflation doves pointed to the flat yield curve (long-term interest rates close to short-term ones) to buttress their case that inflation and inflationary expectations are low. But the bond market was slow to pick up on the new era of inflation in the 1970s. Not until 1974-75 did the long-bond yield and the yield curve finally flash an inflation warning signal. From July 1974 to May 1975, the Fed funds/long bond yield spread went from negative 466 basis points to a positive 300 basis points.

    [T]he core inflation measure has become a misleading statistic at best.

    Economists Manuel H. Johnson and Robert E. Keleher found that only in late 1977 and early 1978 were "all the key market price indicators [commodity prices, exchange rates and bond yields]" signaling "a significant deterioration of the value of money."

    The bond market was late to the game in the 1970s and may once again be a lagging indicator. The retirement savings of millions are meanwhile gradually being confiscated.

    The Federal Reserve now confronts a serious economic problem with limited scope for action. Asset prices, especially those linked to housing, are falling. Financial institutions are capital-constrained and risk-averse, and are not lending. Economic growth is flagging. The classic response would be first to reflate the banking system and then the economy. But current inflation is rising. Excess money creation will translate quickly into even higher inflation.

    Yet Fed Chairman Ben Bernanke has in recent days promised further interest-rate cuts and monetary largesse. San Francisco Fed President Janet Yellen promised the Fed will tighten later at the right moment — easier said than done. Charles Plosser, Philadelphia Fed president, was closer to the mark when he recently said "once the public loses confidence in the Fed's commitment to price stability, it is very costly to the economy for the Fed to regain that confidence."

    The Fed needs to return to its mandate of controlling inflation. The first step is for the Fed to shed an inflation measure that misleads itself, other policy makers, and the markets. We do not need a rerun of the 1970s. Once is enough.

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  28. I'm a pure bred mongrel of pure bred mongrels.

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  29. Wretchard said...
    "Eventually there will be so many sensitivities to pander to it will be impossible to say anything about anything.
    And this is where we are rapidly going.

    Pretty soon the ideal public facility will have footbaths, directions to Mecca, ramps for the disabled, seeing-eye dogs, instructions in Spanish, and an ATM which doesn't require a card to make a withdrawal.

    And best of all, nobody will be able to discuss how the facility came be designed in this way."

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  30. I always knew you were a top dog, Mat:)

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  31. I come from a very long line of very distinquished horse thieves. My family tree resembles a telephone pole.

    We are pure bred Heinz 57, but in no way are we related to John Kerry's wife.

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  32. What's this I see, a strange sight indeed, a cowboy, lean as a desert rat, riding, in a toga, oak leaves around the brim of his hat, imperial staff in hand....

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  33. Cutler,

    Ioz has an interesting little blurb on Golberg

    http://whoisioz.blogspot.com/

    Trish,

    That Cato article was interesting. I'm not sure what discarding core inflation is really going to do to help the current situation. If abandoning it means accepting that there really is a higher rate of inflation then that would signal a tightening of monetary policy i.e. interest rate increases. The author also notes the deflationary problems occurring via the mortgage crises which begs for the opposite. Are the falling home prices, stock prices, and capital structures offsetting the inflationary problems caused primarily by high oil prices? I dunno but the systemic risk that threatens the financial system seems to have the various central banks willing to throw caution to the wind by tossing gas on the fire. will they succeed in staving off a major collapse? I guess time will tell.

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  34. On the topic of mountains blowing up--Right about at the time St. Helens popped, my wife popped my daughter, so she's named after that. We were fishing on the Grand Rhonde, by Troy, Oregon, that day, when this godawful dark cloud came drifting over. Then it started snowing dark ash, and not having a radio, we drove to a tavern about 25 miles away, where the proprietess was in panic. We thought for a little bit, and headed south, a good move. My cousins in Ritzville, Washington really got clobbered, six, eight inches of the stuff. Never will forget it.

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  35. Actually the ash was kinda grey, looked dark, as a cloud.

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  36. Dang me dang me they oughta take a rope and hang me.

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  37. Crazy, I have cousins in Ritzville also. I remember our family driving to Spokane to our grandparents house about 6 months after the event. Must have been Thanksgiving or Christmas, or something. Still lots of ash piled up along the side of I-90. I remember going through Ritzville and it seemed like it was the thickest there.

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  38. Jerimiah Wright informs:

    "It just came to me, with, within the past few weeks y'all,
    why so many folks are hatin on Barack Obama:

    He ain't white, he ain't rich, and he ain't privileged,
    He doesn't fit the mold!

    Giuliani fits the mold:
    Rich white men fits the mold.

    Hillary was not a black boy raised in a single parent home, Barack was.

    Barack knows what it's like to be a black man livin in a country and culture that is controlled
    BY RICH, WHITE PEOPLE!
    "

    ---
    Michael Gerson on Hewitt says that's why many Black Folk identify with Barry, he comes from a different background than some of the other leaders.

    ---
    Of course it is all a myth, sometimes known as a LIE, since Barry was raised in far more affluent circumstances than was Giuliani, by "rich" white folks!

    ...and Barry went to an expensive private school, surrounded by rich white folk, rich Japanese folk, rich Filipino folk, rich Hawaiian folk, and so on.

    Rudy went to a Catholic School surrounded by poor folk, where he was given a priceless education and life lessons by a less than rich white priest.

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  39. Obama is given a free pass not only to not be criticized as yet in the MSM, but to be given the "right" to have a group set up to monitor hateful racist outrages like Ferraro's, in order that such haters can be denounced, in public, and be called upon to apologize.

    One of the members of this group is none other than Jeremiah Wright, on sabbatical from his/Barry's church!

    One might say Jerry Wright monitoring, condemning, and demanding apology from Ferraro is a rather extreme case of the pot calling the kettle black!

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  40. Goldwater, the John Birch Society and Me
    By William F. Buckley Jr.
    How we marginalized Robert Welch.

    The WSJ is free, today, btw, fwiw.

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  41. Jackson's own State Rep. Martin Griffin saw the stupidity in all this. Griffin called for canceling the sham primary and replacing it with party caucuses.

    This would have saved taxpayers millions of dollars and guaranteed Michigan had a voice at the convention. His idea went nowhere.

    Michigan is getting exactly what it deserves. And if we were serious about challenging process, we should love every second of this national spectacle.


    Who Feels Relevant Now?

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  42. Here's a classic from Whiskey for you Trish!

    "[Contrary to most I consider LBJ a GREAT President, one who tried his best to avoid both nuclear war with the USSR/China, and victory in Vietnam, and achieved at great cost Civil Rights that were deemed a fantasy years before.]"

    I agree w/Sowell, who describes LBJ's programs as just one more example of the Government stepping in, just as the problem was being resolved, and made solution of the problem, at least by those means, impossible.
    (and very often exacerbates the very problems it sets out to resolve)

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  43. Albob and Sam, two more perfect examples of Ritzy white folk that are runnin, and ruinin, the country!

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  44. Ritzville was just gettin what it deserved!
    ...like 9-11.

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  45. So what's fair? Redo's in Michigan and Florida would help.

    Clinton "won" Michigan on Jan. 15, but Obama was not on the ballot. And she "won" Florida on Jan. 29, but neither campaigned there and Obama was comparatively unknown.

    As a result of party rules, without a redo nearly 2.8 million voters in those two crucial general election states would be deprived representation at the Democratic convention -- another gift to McCain.


    Ammo to McCain

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  46. We have discussed the problem of "core" inflation, previously. It is a statistical compromise, designed to lessen the rate of inflation reported to the public.

    It is a "good news" number.

    Based upon a gold standard, oil is priced the same, since before Jimmah was President.

    Oil and gold prices move in tandem.
    Real money and real commodities are solid. Fiat currency, produced by the Federal Reserve is in free fall.

    The cause, I think, of the housing value decline is the income stagnation that has been occurring during the past six years. This was wallpapered by the rising home prices and refinancing, to spur consumer spending. The prices of the homes finally reached a point of unaffordability. Compared to current incomes.

    The folk have maxed out their capacity to borrow and repay.

    Median income in the US for a family is $45,016 of which 7.5% is taxed to Soc Sec and 15% to Income tax, netting the family around $35,000. Say $3,000 per month.

    A median value home is $225,000.
    - LendingTree®
    200,000 for Only $1,074/Month!

    Plus taxes & utilities
    Another $450 per month, minimum.

    Half of the median income to buy and sustain a median value home.
    That will not work for a society, long term.

    Median incomes have to rise,
    or median values have to fall.


    Median home value

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  47. Desert Rat: Half of the median income to buy and sustain a median value home. That will not work for a society, long term

    This chart divides median home price by median income, and it does show a small rise, but then the square footage of a median home has grown too. The house I grew up in would be the garage of the houses they make now.

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  48. Top 20 places to live and enjoy the outdoors by Outdoor Life Magazine--

    1. Mountain Home, Ark. (where the hell is that?)
    2. Lewiston, Idaho
    3. Sheridan, Wyo.
    4. Cody, Wyo.
    5. Pocatello, Idaho
    6. Lewiston, Montana
    7. Marquette, Michigan
    8. Dillon, Montana
    9. Page, Arizona
    10.Bismark, N.D.
    11 Richfield, Utah
    12.Logan, Utah
    13.Livingston, Montana
    14.Fort Collins, Colorado
    15.Cedar City, Utah
    16.Helena, Montan
    17.Rifle, Colorado
    18.Williston, N.D.
    19.Bemidji, Minnisota(I agree with this, Bemidji was a nice place, college town, clean, nice lake--first time ever there, last summer)
    20. Rogers, Ask. (where the hell is that?)


    Ritzville, Washington is dry, hot, wheat fields, and sage brush, despite the name.

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  49. Turkey's got market worries also:

    ING Bank Turkey General Manager Hakan Eminsoy told Today's Zaman that the central bank's recent 0.25 basis-points decrease was concerning key interest rates while banks provide long-term loans, they are not one and the same thing.

    "It is not realistic to expect a decrease in long-term finances during a period when global markets fluctuate. The central bank may cut down short-term interest rates; however, banks use them only for some small-scale funding.

    There is no system in Turkey that takes overnight loans and delivers them long-term housing financing.


    Market Worries

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  50. But did they tear down the house you grew up in, or is it still there?

    One house I have is a 1963 model, old for Phoenix. Not all that large, but still part of the median home valuation.

    During the height of the frezy, it got to be valued around $215,000, down to about $185,000 to $190,000, now.

    Was not that long ago, it was worth $55,000.

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  51. That chart - Who here bought there house in '70? Looks like that was the ultimate time to buy.

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  53. Bobal: My cousins in Ritzville, Washington really got clobbered, six, eight inches of the stuff. Never will forget it.

    I saw the whole thing from Vancouver, 40 miles upwind of the ash cloud.

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  54. This comment has been removed by the author.

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  55. :) gotta know when to hold 'em, sam

    And be in the right place.

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  56. Indicates a P/E rise of 80% from trough to peak.

    From a P/E of 2.6 to 4.9
    Almost a doubling of the valuation of the homes, compared to income.

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  57. We couldn't understand what in hell it was. Was a clear day. What's this, on the horizon? Some odd storm coming. Hmmm, never seen a cloud quite like that. Hmmm, kinda widening out. Doesn't take all that long for the winds to move that far. Then the first light dusting of stuff coming down. What the hell is this? Then we started to move:)


    Could you hear it, T?

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  58. Entirely makes my case, thanks, A.

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  59. I've been listening to Obama's 'pastor'. Guy is mad as a hatter.

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  60. Tonite on Coast to Coast
    -------------
    Pastor Wright makes Farrakhan sound like a good guy. "Goddamn America."

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  61. Goddamn America

    And long live the Japanese Imperial Army.

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  62. This comment has been removed by the author.

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  63. ""In a statement to ABC News, Obama's press spokesman Bill Burton said,
    "Sen. Obama has said repeatedly that personal attacks such as this have no place in this campaign or our politics, whether they're offered from a platform at a rally or the pulpit of a church.

    Sen. Obama does not think of the pastor of his church in political terms.

    Like a member of his family, there are things he says with which Sen. Obama deeply disagrees.
    But now that he is retired, that doesn't detract from Sen. Obama's affection for Rev. Wright or his appreciation for the good works he has done.
    "
    ---
    When my spiritual mentor David Duke retires, I hope that's how I'll feel about him.

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  64. Also from Cato:

    [...]

    the Fed’s money pump might not work this time around. The current US downturn has all the hallmarks of an Austrian business cycle. In this type of cycle, a credit boom spawns an asset price boom which eventually sows the seeds of its own destruction-- a slump.

    The US and European business cycle of the late 1920s and early 1930s was a classic Austrian cycle. The Japanese boom and bust of the late 1980s was also a manifestation of the Austrian cycle.

    With an Austrian cycle, banks play a key role -- both on the way up and down. As the downturn unfolds asset prices begin to deflate. In consequence, banks’ capital becomes impaired and banks scramble to rebuild it.

    The economy is vulnerable to what economists of the Austrian school of economics terms a “secondary deflation,” where banks call in loans and are stingy about extending credit.

    Households produce their own version, liquidating riskier assets (like stock mutual funds) and moving into cash and government bonds. In the economy at large, investment and consumption suffer.

    If this scenario plays out, the Fed’s rescue package will be thrown into doubt as the banks become averse to creating credit, build reserves and use their liquidity to purchase government bonds. In short, the credit creation mechanism clogs up and becomes inoperative.

    If there is a chance that monetary policy might fail to rescue the slumping US economy, what about fiscal policy? President Bush signed a $170 billion fiscal stimulus package on February 13.

    Most of this involves tax rebates— checks from the government. The idea behind this is that people will rush out to spend their windfalls and consumption will get a boost.

    There is a problem with this type of Keynesian fiscal policy. People adjust their consumption with respect to variations in their long-term expected (or permanent) income, and pay little heed to transitory variations.

    In consequence, one-time tax rebates (such as those adopted in 1975) do not result in more consumption because they do not alter people’s permanent income.

    As the US economy sinks, the monetary and fiscal life buoys have been deployed. Beware. There are good reasons to question the efficacy of these rescue operations.

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  65. 'Rat,
    If that chart is before taxes, the reality would be far worse.

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  66. Kudlow sounds a lot like that now, Trish, after years of being damn near eternally optimistic.

    ReplyDelete
  67. Larson was long on Oil 10 days ago, bet he cleaned up!

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  68. A fractious Wall Street rebounded from an early plunge to finish moderately higher Thursday, after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have devastated the stock and credit markets.

    ...

    Oil hit a record high, the dollar sank again, and consumers stopped buying pretty much everything.

    ...

    Economic policymakers on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into recession.


    Business Highlights

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  69. SUPER DELEGATES LINING UP FOR BARACK OBAMA

    By DICK MORRIS & EILEEN MCGANN

    A funny thing is happening. While Hillary and Bill appeal to super delegates to override the will of the voters and back Hillary, the super delegates are doing just the opposite.

    The latest delegate count posted on realclearpolitics.com shows that Hillary’s lead among super delegates, once a comfortable 60 votes, has now been cut almost in half to 36 delegates. The latest tally has Hillary leading among super delegates by 247 to 211. So, with 57 percent of the super delegates decided, Hillary’s lead is shrinking.

    In fact, Obama’s total delegate lead has swelled to 163 votes among elected delegates and 127 among all delegates. With 1,614 votes, he isn’t far from the 2,025 he would need, without Florida or Michigan, to win the nomination.

    Of the remaining 566 delegates to be selected, Hillary should enjoy a slight edge. She’ll probably win Pennsylvania (158 delegates), Indiana (72), Kentucky (51), West Virginia (28), and Puerto Rico (55). Obama will likely win North Carolina (115), Oregon (52), Montana (16), South Dakota (15) and Guam (4). If this turns out to be so, Clinton would lead in states with 364 delegates while Obama would prevail in states with 202. But even if we assume 10 point wins for each candidate in each state (and the margin will likely be much tighter), all Hillary would get from her states is 36 more delegates while Obama would get 20 from his — still leaving Obama with a lead of 147 in elected delegates.

    At that point, Obama would have about 1,900 votes, within spitting distance of the 2025 he’d need to win. Hillary would have to win the remaining super delegates by a top-heavy margin of 2:1 in order to win (steal) the nomination from Obama, who will have won the most elected delegates.


    Even if we factor in possible do-over primaries in Florida and Michigan, the nature of the proportional representation process is not likely to change this outcome significantly. Hillary might get an extra 20 delegates if she wins both states, but she’s not likely to get more.

    Can Hillary carry the remaining super delegates by 2:1 when she is carrying the ones who have committed by only 247 to 211? Not very likely. The pressure on these delegates to vote as their states voted will be very intense and few are likely to stand up to it.

    Remember that these super delegates are either elected officials in their own right, which means that they need to get reelected or party officials in the various states whose ears are very close to the ground. Particularly in caucus states that Obama carried heavily, they are not about to antagonize the party activists who backed Obama by undercutting their will and switching to Hillary.

    In fact, the track record of the super delegates so far indicates that they are abandoning Hillary and signing up with Obama as his delegate lead mounts.

    So even if the Clintons try as hard as they can (and they will) to steal his election, their chances of doing so are getting increasingly remote.

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  70. Well, when I said yesterday evening that we are habituated to crisis and the media feeds it (because CRISIS sells) that wasn't to deny that there are legitimate crises. Sometimes upon us and sometimes impending. Sometimes long-standing. And the difficulty most often seems to me correctly understanding their respective causes, which goes the longest way in avoiding counterproductive, or destructive, remedies. It also goes the longest way in being able to counter the patent demagoguery by which destructive remedies are often introduced. (Clinton and Obama and the sub-prime crisis come to mind.)

    My affinity for Cato, I admit, is ideological. But you already knew that.

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  71. And just one more:

    Pesos Problemos

    [...]

    So where is inflation coming from? Back in the 1980s and early 1990s, it was fueled by the severe fiscal imbalances of regional governments. As public spending grew exponentially and revenues stagnated or even declined, Latin American politicians turned to central banks to feed their binge. The result was catastrophic: hyperinflation devastated Argentina, Bolivia, Peru, and Nicaragua. National currencies collapsed and were replaced with short-lived new ones.

    Today, the outlook is quite different. Latin American governments are enjoying a rare fiscal bonanza. Most countries have small budget deficits or even surpluses. External debt is generally under control, and foreign reserves are steadily increasing.

    But the export boom, and the flow of dollars that's fueling it — along with a surge in foreign direct investment and remittances from nationals living abroad — has had an unwelcome consequence, at least in the mercantilist view that still prevails in much of the region.

    Every Latin American currency except the Argentinean peso appreciated against the dollar in 2007, in some cases by almost a quarter: the Uruguayan peso jumped by 23.5 percent, the Brazilian real by 23 percent, and the Colombian peso by 22.1 percent. The Peruvian sol, the Paraguayan guarani and the Chilean peso each also appreciated by more than 10 percent last year.

    Currency appreciation has generated grievances from exporters who complain that their products are becoming less competitive in international markets. Latin American manufacturers are already facing strong competition from China, and many claim that their economies are suffering from "Dutch disease" — that is, high commodity prices that hurt the manufacturing sector by raising the exchange rate, making exports more expensive.

    This has led state monetary authorities to intervene heavily in currency markets in order to keep their exchange rates "competitive" — that is, artificially low. The central banks of Argentina, Colombia, Peru, Bolivia, Costa Rica, and Guatemala, among others, have all purchased billions of dollars in an effort to prevent their national currencies from further appreciation. Central banks have pumped up their economies with extra money, which is in turn pushing up prices.

    Latin American governments are enjoying a rare fiscal bonanza.

    Monetary authorities from these countries argue that measures have been implemented to avoid a rise in inflation as a consequence of these interventions, such as sterilization (selling bonds to banks in order to soak up the excess liquidity) and increasing mandatory bank reserves. However, Latin America can only use these tools up to a point. As data shows, the more dollars continue to flow into Latin American economies, the more trouble central banks have sterilizing and controlling inflation.

    Inflation can spell serious trouble for the region. In countries that have lost monetary discipline, the inflationary spree can easily get out of control, especially once higher prices are embedded into people's expectations. Even worse, governments in the region are punishing Latin American consumers in two ways: by eroding both the domestic purchasing power and the foreign exchange value of their currencies.

    Latin American governments are following the mercantilist credo that holds exports as good and imports as bad. The resulting inflation is essentially a hidden and highly regressive tax that punishes those who have the least.

    Of course, not every country in the region follows the same pattern. In Chile, the rise in inflation has more to do with an increase in public spending than the manipulation of exchange rates. But most Latin American governments are succumbing to the temptation to tamper with their currencies, and thus exacerbating inflation.

    These governments should stop decreasing the foreign exchange value of their currencies and restore price stability by pursuing monetary stability. As local currencies appreciate, imports will increase the demand for dollars, putting downward pressure on foreign exchange rates. Governments can accelerate this process by unilaterally reducing their own trade barriers to foreign goods — a win-win scenario.

    Latin American governments must realize that free trade means much more than just exports. Consumers also benefit from imports. And even more importantly, the officials should remember what they learned about monetary mismanagement in the not-so distant past.

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  72. Brooke Capital Corp. (BCP) reported net loss for the fourth quarter of $2.3 million or $0.27 per diluted share, compared to a net income of $1 million, or $0.13 per diluted share in the same period last year.

    ...

    In response to inquiries directed from various unitholders, KKR Private Equity Investors LP (KPEQF.PK) announced clarification that it its investment portfolio has no exposure to residential real estate, mortgage-backed securities or subprime mortgages.

    ...

    Democratic presidential hopeful Barack Obama on Thursday lashed out at Arizona Sen. John McCain, accusing him of caving to political pressure to clinch the Republican presidential nomination.

    The Illinois senator was referring to McCain's change of opinion on tax cuts pushed through Congress by President Bush. McCain opposed the tax cuts in 2001 and 2003 but now says they are needed to help the U.S. economy.


    Financial Quick Facts

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