January 9, 2014

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Peter Schiff says the party will be over soon.

… Based on nothing but pure optimism, the market believes that the Fed can somehow contract its $4 trillion balance sheet without pushing up rates to the point where asset prices are threatened, or where debt service costs become too big a burden for debtors to bear. Such faith would have been impossible to achieve in the time before the crash, when most assumed that the laws of supply and demand functioned in the market for mortgage and government debt. Now we “know” that the demand is endless. This mistakes temporary geo-political paralysis and financial sleepwalking for a fundamental suspension of reality.

The more likely truth is that this widespread mistake will allow us to drift into the next crisis. Now that the European Union has survived its monetary challenge, (the surging euro was one of the surprise stories of 2013), and the developing Asian economies have no immediate plans to stop their currencies from rising against the dollar, there is little reason to expect that the dollar will rally in the coming years. In fact, there has been little notice taken of the 5% decline in the dollar index since a high in July. Similarly, few have sounded alarm bells about the surge in yields of Treasury debt, with 10-year rates flirting with 3% for the first time in two years.

If interest rates rise much further, to perhaps 4% or 5%, the stock and real estate markets will be placed under pressure, and the Fed and the other “Too Big to Fail” banks will see considerable losses on their portfolios of Treasury and mortgage-backed bonds. Such developments could trigger widespread economic turmoil, forcing the Fed to expand its QE purchases. Such an embarrassing reversal would add to selling pressure on the dollar, and might potentially trigger an exodus of foreign investment and an increase in import prices. I believe that nothing can prevent these trends from continuing to the point where a crisis will be reached. It’s extremely difficult to construct a logical argument that avoids this outcome, but that hasn’t stopped our best and brightest forecasters from doing just that.

So while the hallelujah chorus is ringing in the New Year with a full-throated crescendo, don’t be surprised by sour notes that will bubble to the top with increasing frequency. Ultimately the power of monetary policy to engineer a real economy will be proven to be just as ridiculous as the claims that housing prices must always go up.


Peter Schiff was notable for predicting the 2008 collapse. He did that in 2006 and 2007. Here’s a video of him getting ridiculed by all the bien pensants in the financial media.



Roger Simon posts on Dem losers. 

It shouldn’t be that much of an embarrassment to lose a U.S. presidential election.  After all, you made it to the top of the ticket in one of the two major parties in the most powerful country on Earth (at least for now).

Yet, if you judge by the post-defeat activities of Al Gore and John Kerry, you would think their losses were a personal disaster of untold proportions that had to be made  up for in some monumental manner that would cement their (positive) reputations into posterity.  Call it Extreme Narcissism Deficit Disorder (ENDD).  And the closer the election, the more severe the symptoms.

These days, both men’s compulsive need to make their mark against all odds are highly on display — and very much to all of our detriments.

The more ludicrous example — when the wind chill factor is approaching record lows of minus fifty and a group of  so-called climate scientists have been stuck in Antarctic ice for weeks with much of the MSM trying desperately to hide that they were there to investigate global warming in the first place –  is Mr. Gore’s determination to insist that anthropogenic global warming is settled science, that the world must stop everything it’s doing and devote its scant economic resources to preventing this looming catastrophe (not to mention filling Mr. Gore’s bank account).  Only an imbecile, a corrupt UN diplomat, a New York Times or Guardian reporter, or a scientist on the dole could believe that.

Scratch that.  A number of members of Congress plus our president seem to sort of believe it too. …

… The bigger problem is the other presidential loser who, also at this moment in time, is wielding a much greater influence in the world, thanks to our president — John Kerry.  The nonsensical and actually inscrutable Obama foreign policy from  Clinton through Kerry has taken our country — and the world — from bad to worse.  But an announcement from Mr. Kerry today trumped all.

Today our secretary of State informed us that one of the countries at the table at the Syria peace talks this month might be… Iran. …



Bret Stephens with a history lesson about Frank Kellogg U. S. Secretary of State who abolished war in 1928 when 62 countries signed the Kellogg-Briand Pact. Similar foolishness abounds today in John Kerry’s wake. 

An American secretary of state was once awarded a Nobel Peace Prize for outlawing war. In describing how 62 countries came to sign (and 85 U.S. senators to ratify) the 1928 Kellogg-Briand Pact, the Scottish historian D.W. Brogan observed: “The United States, which had abolished the evils of drink by the Eighteenth Amendment, invited the world to abolish war by taking the pledge. The world, not quite daring to believe or doubt, obeyed.”

John Kerry hasn’t yet captured Frank B. Kellogg’s crown. But he’s trying.

Mr. Kerry announced last week that he’d like to see Iran participate “from the sidelines” in the talks, scheduled to begin in Geneva later this month, to end the Syrian civil war. He’s working overtime on a “framework” agreement for Israeli-Palestinian peace. And then there’s the nuclear deal to finalize with Iran.

Geneva II, as the Syrian talks are known in diplospeak, is based on a June 2012 international communiqué calling on the Syrian government and the opposition to come together and form a “transitional” government. When the communiqué was issued, then-Secretary of State Hillary Clinton insisted that its terms barred Bashar Assad from remaining in power, while Sergei Lavrov, her Russian counterpart, insisted the contrary.

Otherwise, solid agreement.

Eighteen months, multiple chemical attacks, a spiraling regional crisis, tens of thousands dead and two million refugees later, we come to Geneva II. …



Walter Russell Mead says the higher ed bubble will burst soon too.

Megan McArdle has an excellent essay up at Bloomberg about the sorry state of the job market for PhDs that’s very much worth your time. The crux of her argument:

“The fundamental issue in the academic job market is not that administrators are cheap and greedy, or that adjuncts lack a union. It’s that there are many more people who want to be research professors than there are jobs for them. And since all those people have invested the better part of a decade in earning their job qualifications, they will hang around on the edges of academia rather than trying to start over. Such a gigantic glut of labor is bound to push down wages and working conditions.”

The business model for PhDs is functionally off. Graduate schools are minting far more PhDs than the market can absorb.

The problem as we see it is that the post-World War 2 university system was built on the assumption of an ever expanding population of students needing more and more higher ed. Therefore there was a need for each generation to produce more professors than the last. (This is not all that dissimilar, by the way, to the way many pension systems and social programs like Medicaid were built on the assumption that a bigger generation would roll around to pay the bills for the current enrollees.)



The situation is just as bad for bachelor degrees. WSJ OpEd with the story.

… A college degree’s declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25-34 age range the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525.

Meanwhile, the cost of college has increased 16.5% in 2012 dollars since 2006, according to the Bureau of Labor Statistics’ higher education tuition-fee index. Aggressive tuition discounting from universities has mitigated the hike, but not enough to offset the clear inflation-adjusted increase. Even worse, the lousy economy has caused household income levels to fall, limiting a family’s ability to finance a degree.

This phenomenon leads to underemployment. A study I conducted with my colleague Jonathan Robe, the 2013 Center for College Affordability and Productivity report, found explosive growth in the number of college graduates taking relatively unskilled jobs. We now have more college graduates working in retail than soldiers in the U.S. Army, and more janitors with bachelor’s degrees than chemists. In 1970, less than 1% of taxi drivers had college degrees. Four decades later, more than 15% do.

This is only partly the result of the Great Recession and botched public policies that have failed to produce employment growth. It’s also the result of an academic arms race in which universities have spent exorbitant sums on luxury dormitories, climbing walls, athletic subsidies and bureaucratic bloat. More significantly, it’s the result of sending more high-school graduates to college than professional fields can accommodate.

In 1970, when 11% of adult Americans had bachelor’s degrees or more, degree holders were viewed as the nation’s best and brightest. Today, with over 30% with degrees, a significant portion of college graduates are similar to the average American—not demonstrably smarter or more disciplined. Declining academic standards and grade inflation add to employers’ perceptions that college degrees say little about job readiness. …


Good day of Cartoons.

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