Re: Money Quote

1

And I was going to ask you to be my running-mate, Stanley. Oh well.


Posted by: ari | Link to this comment | 09-11-08 5:07 PM
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I'm 26, ari. And I blink. I'm sorry.


Posted by: Stanley | Link to this comment | 09-11-08 5:08 PM
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Alaska is very close to Russia. You don't want a leader who blinks when she's staring straight into the eyes of Putin.


Posted by: | Link to this comment | 09-11-08 5:11 PM
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3: me.


Posted by: jms | Link to this comment | 09-11-08 5:12 PM
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You're 26?


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 5:14 PM
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5: Yes.


Posted by: Stanley | Link to this comment | 09-11-08 5:16 PM
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I taught Aeschylus's Persians today! Hubris is SCARY! It destroys empires!!!


Posted by: oudemia | Link to this comment | 09-11-08 5:17 PM
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I thought you were younger than that, and also taller and more handsome.


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 5:17 PM
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I'm insulted now, Ben.


Posted by: oudemia | Link to this comment | 09-11-08 5:18 PM
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I also thought you had broader shoulders and a stronger profile.


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 5:19 PM
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Don't worry about #10, oudemia. You can always update your facebook profile to meet ben's lofty expectations.


Posted by: Stanley | Link to this comment | 09-11-08 5:21 PM
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To 8 and 10 I'd add: me, too. That's why I wanted him to be my mate.


Posted by: ari | Link to this comment | 09-11-08 5:21 PM
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It destroys empires!!!

I think the decline of the American empire is just a given here. It's a question of going out with a bang, like a troubled male youth between the ages of 16 and 25 (in which case, stock up on canned goods and rifles for the aftermath!), or gracefully fading into respectable lesser-power status in the global arena.


Posted by: Mary Catherine | Link to this comment | 09-11-08 5:26 PM
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Mary Catherine, you're pretty chatty for a fifth columnist.


Posted by: ari | Link to this comment | 09-11-08 5:28 PM
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13: We'll hold out long enough to beat the Brits, which means at least another 300 years.


Posted by: SomeCallMeTim | Link to this comment | 09-11-08 5:28 PM
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Back on the veldt, young, broad-shouldered drummers were prized by historians and philosophers for their unblinking confidence and commitment to the mission, the mission that we're on.


Posted by: Bave Dee | Link to this comment | 09-11-08 5:30 PM
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What is the Amurrican equivalent of bridging the Hellespont, I wonder?


Posted by: oudemia | Link to this comment | 09-11-08 5:30 PM
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Check out the Iran and Israel section on page 3. Polly wants a cracker!


Posted by: Minivet | Link to this comment | 09-11-08 5:30 PM
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or gracefully fading into respectable lesser-power status in the global arena.

In which case, stock up on sherry.


Posted by: Bave Dee | Link to this comment | 09-11-08 5:31 PM
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13: If we're goin' out then fuck it. 54'40" or Fight!


Posted by: oudemia | Link to this comment | 09-11-08 5:33 PM
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19: heh.


Posted by: oudemia | Link to this comment | 09-11-08 5:35 PM
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I'm consoling myself by imagining a vetting process that involved McCain fake punching each of the people on the short list, middle-school style, and then yelling "HA! YOU BLINKED!"

Until he got to Palin.


Posted by: Stanley | Link to this comment | 09-11-08 5:37 PM
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The look on Palin's face when asked if she agrees with the Bush doctrine is priceless. She sounds like a freshman who has no idea what the final exam essay question means.


Posted by: Matt F | Link to this comment | 09-11-08 5:39 PM
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America will bridge the hellest pont you can produce, oudemia!


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 5:39 PM
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gracefully fading into respectable lesser-power status in the global arena.

While bestriding the world as a Colossus may not be in the cards for much longer, I don't see the US becoming Spain anytime soon. My crystal ball is no better than anyone else's, and worse than some, but I think that the "inevitable" rise of the Chinese to eclipse the Americans has some scaling problems. They have more peasants than we have people, and it will take a whole lot more growth before that changes.


Posted by: Tassled Loafered Leech | Link to this comment | 09-11-08 5:41 PM
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Too bad. Spain seems nice.


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 5:44 PM
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Until he got to Palin.

The world-historical version of 'YAY! TITTIES!'

What is the Amurrican equivalent of bridging the Hellespont, I wonder?

I'm thinking that was the induction of Poland, the Czechs, and Hungary into NATO.

max
['Gentle spear-throwing.']


Posted by: max | Link to this comment | 09-11-08 5:49 PM
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Oh hell, troll alert.

I think the decline of the American empire is just a given here. ...I don't. We are still the biggest & smartest country. Newberry says:"Become the energy arsenal of the world."

The answer, in two paragraphs:Bruce Wilder at Thoma ...there are smart comments above & below.

Economically, it's really simple. Politically, it should also be possible. Democrats now have FDR (Truman, LBJ) as a model. and we should be able to use that history. A real Democratic candidate who cared about the people, wouldn't hesitate, equivocate, and in office wouldn't triangulate.

Health care, like SS in the 30s, would be among the smallest parts of the program.

If Obama fails to get elected or fails to grab the nettle when in office, at least 4 more years of Republicans will doom not only America.


Posted by: bob mcmanus | Link to this comment | 09-11-08 5:52 PM
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I don't see the US becoming Spain anytime soon.

Not a Spain, perhaps, but a UK, sure. It was a funny set of circumstances that propped the US up for a while, after all. Just think of it as a market correction.


Posted by: soup biscuit | Link to this comment | 09-11-08 5:52 PM
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Too bad. Spain seems nice.

They had a good run. 1492-1898. Of course, there have been a few complaints about how they treated non-Spaniards along the way, but I guess that is all water under the bridge now.


Posted by: Tassled Loafered Leech | Link to this comment | 09-11-08 5:52 PM
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We are still the biggest & smartest country

Neither have ever been true, unless you play definition games with "biggest" and "smartest"


Posted by: soup biscuit | Link to this comment | 09-11-08 5:54 PM
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They have more peasants than we have people,

Wait, is this supposed to count against them somehow?


Posted by: Brock Landers | Link to this comment | 09-11-08 5:55 PM
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Oh. And of course we will have to completely discredit the monetary & neo-Keynesians. That will be the toughest part, the enemy experts within.


Posted by: bob mcmanus | Link to this comment | 09-11-08 5:55 PM
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You are just not wired in the way.


Posted by: redfoxtailshrub | Link to this comment | 09-11-08 5:55 PM
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Look, there are plenty of reasons someone might not like Palin. But her ability to extricate herself from an interviewer's bad-faith trick question trap is not one of them.

If she had answered "Oh, yes, of course I hesitated because I wondered whether I really knew enough about international affairs," the headline on every newspaper the next day would be "PALIN ADMITS IGNORANCE!" Come on.


Posted by: Gaijin Biker | Link to this comment | 09-11-08 5:55 PM
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I still think that sane Republicans looked at the chances this year and decided not to sign onto a losing ticket. Palin was dispensible to the Party, which figured eh, why not give her a chance.

And then sometimes late at night, I have nightmares that I'll be wrong AGAIN about the sanity and decency of my country.


Posted by: Jackmormon | Link to this comment | 09-11-08 5:55 PM
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I find the idea that the US will become a second-rate power anytime soon fantastically unlikely.

TLL: You have your priorities screwed up. Spain is nice right now. The women are easy, and everyone likes to stay up late partying. Empire is a pale shadow to that.


Posted by: Walt Someguy | Link to this comment | 09-11-08 5:56 PM
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I think that the "inevitable" rise of the Chinese to eclipse the Americans has some scaling problems. They have more peasants than we have people, and it will take a whole lot more growth before that changes.

So, they eclipse the Americans with a third of their population, and then they keep going from there?


Posted by: CN | Link to this comment | 09-11-08 5:56 PM
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McManus desires national greatness, pass it on!


Posted by: Minivet | Link to this comment | 09-11-08 5:57 PM
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31:"Cite, cite"

GDP? Phds? Nobel winners? Fuck off.


Posted by: bob mcmanus | Link to this comment | 09-11-08 5:57 PM
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36: There, There Jack. You'll still have the House and the Senate. Though not a filibuster proof majority nor capable leadership.


Posted by: Tiny Hermaphrodite | Link to this comment | 09-11-08 5:59 PM
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I find the idea that the US will become a second-rate power anytime soon fantastically unlikely.

Oh, I do too. I was just snarking around on the internets.

(Ari? How'd I do? Do you think they'll believe that one?)


Posted by: Mary Catherine | Link to this comment | 09-11-08 6:01 PM
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On topic, this Matt Damon condemnation of Sarah Palin is hilarious.


Posted by: Gaijin Biker | Link to this comment | 09-11-08 6:03 PM
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GDP, sure, for what that's worth, but see 29. It's not a very good measure of "big" in a lot of ways.

You start looking at ph.d's (a bit of an odd number in itself, due to recent inflation) or academics and you have to be careful. The research money is here, and many researchers are here but a lot of them, and increasingly so in phd's too, aren't from here. And they'll only stay so long as it's the game to play. They'll be amongst the first to leave if the money goes elsewhere.

So yes, you don't want to make careless assumptions about that.


Posted by: soup biscuit | Link to this comment | 09-11-08 6:03 PM
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Not a Spain, perhaps, but a UK, sure.

Pwned by 19.


Posted by: Bave Dee | Link to this comment | 09-11-08 6:03 PM
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42: That's much better. The implant in my molar has been buzzing ever since you posted 13. It's very uncomfortable. By the way, do you have any maple candy? I haven't been able to resupply for months.


Posted by: ari | Link to this comment | 09-11-08 6:04 PM
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Palin was dispensible to the Party, which figured eh, why not give her a chance.

When I wrote "dispensible" I meant "disposable." I think.


Posted by: Jackmormon | Link to this comment | 09-11-08 6:05 PM
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But, Charlie, again, we've got to remember what the desire is in this nation at this time. It is for no more politics as usual and somebody's big, fat resume maybe that shows decades and decades in that Washington establishment, where, yes, they've had opportunities to meet heads of state

Nice move -- people without big fat resumes make up the OVERWHELMING MAJORITY of voters, they should totally connect.

I would have loved it if Gibson had pressed her on Russia's "unprovoked" attack on Georgia. "So when Georgia invaded Ossetia and attacked Russian peacekeepers, that wasn't provocation?" She would have been flummoxed.

It was exactly the interview you'd expect from a reasonably bright but uninformed random person off the street who had received some media coaching.


Posted by: PGD | Link to this comment | 09-11-08 6:07 PM
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And as to the post, you know which Presidential candidate doesn't blink? Wesley fucking Clark, that's who. It weirded the shit of me, I can tell you that. Blinking is normal human behavior.


Posted by: Jackmormon | Link to this comment | 09-11-08 6:08 PM
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Twice as much port is drunk in England in a year as is produced in Portugal.

FACT.


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 6:12 PM
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42:I find the idea that the US will become a second-rate power anytime soon fantastically unlikely.

I don't consider all that unlikely, I just think it is unnecessary and evitable.

Short, so I will quote it again.

Bruce Wilder says...

Somebody has to be screwed. My preference: screw the forex value of the dollar and screw the American wealthy and the American corporate executive class. Let the dollar slide and slide and slide; when Wal-Mart is shopping in Michigan instead of China, then the dollar is weak enuf.

Big, big fiscal expansion in U.S. infrastructure spending. 10 years to eliminate oil imports. Build an electrical transmission grid. Build a high-speed rail intercity rail network. Build urban rail mass transit: light-rail everywhere. Build a 3rd generation internet. Finance it by progressive taxation that reaches capital income and CEO mega-salaries in a big way.

It is that simple & that easy. But it is not optional, and moderation & post-partisanship?...well, will probably mean a World War.

I have said before, if that is the program, I don't care what President Obama has to do to make the Mag-lev trains run on time.


Posted by: bob mcmanus | Link to this comment | 09-11-08 6:12 PM
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Don't misunderstand me, bob, I'm certainly not claiming the US will suddenly turn into a piddling economy. It's a big country, and a lot of resources and knowhow.

But it's important to understand that the industrial and scientific dominance achieved by the US in the latter half of the 20th century has as much to do with the decimation of the European industries and economies, and the follow up importing of much of their best science as it has to do with anything the US did (damage in Asia didn't hurt either). The US capitalized well on the situation, but it was an unnatural situation, and believing otherwise is inane.

I find the idea that China will suddenly become `the US' to the US's `Spain' pretty bizarre. I also find it pretty bizarre to think that the US can maintain anything like the current domination for long. The only plausible way to even drag it out longer is to throw away everything anyone has ever claimed this country stands for and become downright evil, as far as I can see.

So no second fiddle, sure, but not standing alone for all that much longer, either.


Posted by: soup biscuit | Link to this comment | 09-11-08 6:12 PM
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Mary Catherine, if you screw around like that your credibility visavis the Danish threat will be lost. I see the Hanseans being carried off in chains to Danish slavery.


Posted by: John Emerson | Link to this comment | 09-11-08 6:13 PM
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It was a funny set of circumstances that propped the US up for a while

It sure helps to have your major "rivals" kill each other off in ruinous wars. Even the winners are the losers.


Posted by: Tassled Loafered Leech | Link to this comment | 09-11-08 6:15 PM
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Let the dollar slide and slide and slide; when Wal-Mart is shopping in Michigan instead of China, then the dollar is weak enuf.

??

You mean when American real wages have declined closer to the Chinese level?


Posted by: John Emerson | Link to this comment | 09-11-08 6:15 PM
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52 should have read `the only plausible way to even ...'

I can imagine lots of implausibles.


Posted by: soup biscuit | Link to this comment | 09-11-08 6:15 PM
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Twice as much port is drunk in England in a year as is produced in Portugal.
FACT.

Winston Churchill won WWII by single-handedly outdrinking the Germans.

max
['FACTY!']


Posted by: max | Link to this comment | 09-11-08 6:17 PM
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Twice as much port is drunk in England in a year as is produced in Portugal.

That England has not exhausted the world's supply of Port was long considered a mystery akin to the paradox of Achilles and the tortoise. We now know that it is explained by calculus.


Posted by: jms | Link to this comment | 09-11-08 6:19 PM
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Doesn't that shoot Ricardo's theory of competitive advantage all to hell?


Posted by: John Emerson | Link to this comment | 09-11-08 6:20 PM
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"comparative"

Fuck.


Posted by: John Emerson | Link to this comment | 09-11-08 6:20 PM
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Doesn't that shoot Ricardo's theory of competitive advantage all to hell?

It was always just a put-on to keep Lucy from being in the show.


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 6:23 PM
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Interview excerpts here.

Waitaminute:

PALIN: What I think is that smaller democratic countries that are invaded by a larger power is something for us to be vigilant against. We have got to be cognizant of what the consequences are if a larger power is able to take over smaller democratic countries.
And we have got to be vigilant. We have got to show the support, in this case, for Georgia. The support that we can show is economic sanctions perhaps against Russia, if this is what it leads to.
It doesn't have to lead to war and it doesn't have to lead, as I said, to a Cold War, but economic sanctions, diplomatic pressure, again, counting on our allies to help us do that in this mission of keeping our eye on Russia and Putin and some of his desire to control and to control much more than smaller democratic countries.
His mission, if it is to control energy supplies, also, coming from and through Russia, that's a dangerous position for our world to be in, if we were to allow that to happen.
Shorter Palin: if the Russians don't give us their gas, we have to go to war with them, besides whatever happens with Georgia.

max
['Uh... no world war for oil.']


Posted by: max | Link to this comment | 09-11-08 6:23 PM
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You mean the redheaded Communist lady?


Posted by: John Emerson | Link to this comment | 09-11-08 6:24 PM
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55:Wages don't matter that much if the gov't pays for all basic needs. Ever read FDR's "Second Bill of Rights?"

Paine, in the Thoma/Tim Duy thread, got into an argument with Anne as to whether 1933-37 was a faster expansion that 1941-45. Paine preferred the latter economy. Me too.

Remember, we managed to leave it behind. It doesn't need to be permanent.


Posted by: bob mcmanus | Link to this comment | 09-11-08 6:24 PM
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59: "Comparative advantage"


Posted by: bob mcmanus | Link to this comment | 09-11-08 6:25 PM
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60. Fuck. Sorry.

Hey, I got Arthur Bentley's Process of Government and Balibar's Philosophy of Marx to read tonight. Busy, busy.

Read the Thoma thread.


Posted by: bob mcmanus | Link to this comment | 09-11-08 6:28 PM
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I find the idea that China will suddenly become `the US' to the US's `Spain' pretty bizarre. I also find it pretty bizarre to think that the US can maintain anything like the current domination for long

The only thing that worries me is if China "demands" its "place in the sun" a la Wilhelmian Germany. That only led to The Great War.


Posted by: Tassled Loafered Leech | Link to this comment | 09-11-08 6:41 PM
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53: Oh yes. Mention the Danes in an attempt to distract me from the mission that I'm on. But your fear-mongering won't work with the likes of me! I won't blink, because I'm committed and I'm just wired that way.

Hey, you know what's scary? I actually think Palin's answer to the inexperience question is "better" than the one given by Obama. "Better" in the sense of being "more likely to go over well with a larger segment of the American public." "Mission" is a keyword, buzzword, soundbyte with all sorts of religious and military resonance.


Posted by: Mary Catherine | Link to this comment | 09-11-08 7:05 PM
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On the opposite end of the decisiveness spectrum, there is a post on Ask Metafilter right now in which a dude asks what color sneakers he should buy. That's impressively feeble.


Posted by: redfoxtailshrub | Link to this comment | 09-11-08 7:10 PM
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"For a 23 year-old male," he specifies.


Posted by: redfoxtailshrub | Link to this comment | 09-11-08 7:11 PM
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70: taupe. Let him know.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 7:12 PM
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Generation Awesome will make America a second-class power.


Posted by: Bave Dee | Link to this comment | 09-11-08 7:14 PM
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I thought you were younger than that, and also taller and more handsome.

Yesterday, BR said, "Wow, that Stanley is just a child!"


Posted by: will | Link to this comment | 09-11-08 7:15 PM
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I thought Stanley was older, actually. And more dignified.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 7:18 PM
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taupe. Let him know.

Not to underestimate, all sexist-like, your fine gender, but I'm pretty sure there are a lot of guys out there who don't really know what "taupe" means.


Posted by: Mary Catherine | Link to this comment | 09-11-08 7:19 PM
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I thought Stanley was tiny and furry, like Fievel in An American Tail.


Posted by: jms | Link to this comment | 09-11-08 7:20 PM
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A taupe is a kind of animal, right? Sort of rodentish?


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 7:22 PM
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Dont trust W-lfs-n. He is mean and hurts people's feelings


Posted by: will | Link to this comment | 09-11-08 7:23 PM
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Doesn't that shoot Ricardo's theory of competitive advantage all to hell?

Ricardo's theory of comparative advantage will neither kill John McCain nor bring back 1968, hence it is of limited use to bob.

That said, Americans trying to sell stuff to Wal-Mart don't compete with just Chinese workers, but with Chinese workers plus shipping companies. You might see a return to manufacturing heavy-yet-cheap items in Michigan without relatively impoverishing Michiganers.


Posted by: water moccasin | Link to this comment | 09-11-08 7:24 PM
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A taupe is a kind of animal, right? He is mean and hurts people's feelings. Like Fievel in An American Tail.


Posted by: Bave Dee | Link to this comment | 09-11-08 7:24 PM
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79: Actually I was referring to the port consumption stats, since Ricardo's theory had Portugal specializing in Port.


Posted by: John Emerson | Link to this comment | 09-11-08 7:26 PM
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I'm supposed to hate you all, right? Okay. Cool. Just checking.


Posted by: Stanley | Link to this comment | 09-11-08 7:30 PM
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since Ricardo's theory had Portugal specializing in Port

Where was the rest of the Port made?


Posted by: water moccasin | Link to this comment | 09-11-08 7:30 PM
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As long as Portugal has multiple options for what it can produce, is it necessary for other areas to be able to produce port?


Posted by: ben w-lfs-n | Link to this comment | 09-11-08 7:36 PM
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80: but more dignified.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 7:40 PM
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I'm supposed to hate you all, right? Okay. Cool. Just checking.

Yessss. Feel the ogged flow within you.


Posted by: Bave Dee | Link to this comment | 09-11-08 7:41 PM
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58: We now know that it is explained by calculus.

That's the calculus to you, bub.


Posted by: Sir Isaac | Link to this comment | 09-11-08 7:42 PM
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i've seen Stanley's photo on flickr and imagine him exactly how he looks, a little bit on that, hairy side


Posted by: read | Link to this comment | 09-11-08 7:46 PM
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Ricardo's theory of comparative advantage will neither kill John McCain nor bring back 1968, hence it is of limited use to bob.

Ricardo famously did not consider capital flows across borders, which, ya know, figures pretty fucking prominently in any analysis of our current account deficit with China. Or maybe y'all don't have a clue.

Read the Wilder again, then look maybe at Setser or the Tim Duy post that initiates the thread, or provide your own analysis for my education of a dynamically declining dollar and its effect on the current account deficit, the Chinese pegged RMB, and the Chinese economy.

Or fuck with me enough and I'll do it here for you, mostly cut-and-paste with links, of course.


Posted by: bob mcmanus | Link to this comment | 09-11-08 7:52 PM
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"Mission" is a keyword, buzzword, soundbyte with all sorts of religious and military resonance.

This is exactly the kind of crazy shit that's going to make fiscal conservative/social moderates like my dad, my uncle, my brother, and my brothers-in-law stay home (along with the probably unacknowledged sexism). My dad was already saying he didn't think McCain was smart enough to be president during the primary, but he voted for him because he seemed most like the Republicans he used to like (that would be Ike).

The more red meat they toss to the base, the more they scare away the middle. Let Sarah be Sarah!


Posted by: mcmc | Link to this comment | 09-11-08 7:56 PM
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Apparently no one here noticed the little news item about Freedie & Fannie being taken into conservatorship. The Chines hold hundreds of billions of dollars instruments, a big percentage of those GSE bonds, and they demanded that the the GSE's be saved, not merely because of the direct loss if the GSE bonds defaulted, but because of what that default would do to the dollar.

Now, the Chinese are not propping up the dollar (SWF) to protect American jobs.


Posted by: bob mcmanus | Link to this comment | 09-11-08 8:13 PM
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I think the bold face in 91 makes it that much more convincing.

A good way to go, when you're working with vague, paranoid allusions. Bold makes them seem important.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 8:31 PM
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That's the calculus to you, bub.

Impostor! It is the method of fluxions.


Posted by: Isaac Newton, for reals | Link to this comment | 09-11-08 8:34 PM
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The taupe is a bitchy little animal, and not unlike the wolverine, though more stylish in its aspirations. Think spring season handbag, and dyed-to-match pumps, and you'll see where I'm going with this...

The name "Stanley" reminds me of a taupe or a wolverine not at all, and not one bit. "Stanley" seems solid, trustworthy, banker-approved, and quintessentially American, though probably I am wrong about this (it wouldn't be the first time, after all).


Posted by: Mary Catherine | Link to this comment | 09-11-08 8:42 PM
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According to wikipedia, a taupe is a kind of mouse, and taupe is also the name for either black, or black, or black, or dark brown, or light brown, or medium brown, or medium gray, or mauve, or reddish-purple. This is an example of a wikipedia entry reaching the length that it says all things and therefore says nothing, like drug warning labels.


Posted by: CN | Link to this comment | 09-11-08 8:44 PM
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vague, paranoid allusions

Hey, I got the time if you got the space. How much Setser you want here? Only takes seconds to cut-and-paste ten thousand words.


Posted by: bob mcmanus | Link to this comment | 09-11-08 8:47 PM
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Only takes seconds to cut-and-paste ten thousand words.

Perhaps the truest thing you've ever said.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 8:52 PM
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Ya know, I was off reading about the Theses on Feuerbach before assholes got snarky. You could have ignored me. read once said I had a terrible temper.

What Goes in Also Can Go Out

Earlier this year, many governments in emerging markets were worried that their currencies were too strong, partly because foreigners kept plowing money into their economies.

Since then, investor sentiment has shifted sharply. Fears of inflation have combined with worries over a world-wide economic slowdown. Commodity prices have fallen, bad news for countries that export everything from oil to metals, and the U.S. dollar has mounted a powerful rally. In some cases -- like Russia, Thailand and Pakistan -- turmoil at home or nearby has spurred further unease.

As investors retreat from places they used to favor, many of them emerging markets, it creates a new worry for central banks in these countries.

When too much capital was flowing in, their main problem was that such flows put upward pressure on their currencies. A stronger currency makes exports more expensive abroad, harming trade competitiveness. To curb currency appreciation, central banks would buy dollars, and that led to a large accumulation of reserves.

Now "that is unraveling the other way," says Lisa Scott-Smith of Millennium Global Investments, a London currency manager with $13 billion in assets. With investors unloading local stock and bond holdings, central banks find themselves "on the other side of the trade, trying to smooth currency weakness instead of strength."

As Slater's article notes, I expect emerging market reserve growth to slow from a level that was well above the emerging world's current account surplus to a level that is more in line with the emerging world's surplus. It might even dip below the emerging world's combined surplus for a bit, as some of the money that went in earlier comes out. In some cases the pace of the reversal in flows has surprised me: I would have thought that high levels of reserves in the periphery might damp down volatility a bit more.


A couple of bits of data will be key to understanding how strong this shift is:

China's July and August reserve growth
And Saudi Arabia's reserve growth for those months.

Both still have a large trade surpluses, so there should still be an underlying dynamic of reserve growth. But the pace of their reserve growth likely has slowed in line with broader moves in global markets.

Speaking of Saudi Arabia, let me recommend Robin Wigglesworth's reporting on Saudi Monetary policy. Wigglesworth reports that the unwinding of speculative bet on the riyal has created a cash squeeze in Saudi Arabia -- pushing up local interest rates. And it so happens that the Saudi Monetary Agency is quite happy to see rates rise, as they want to cool lending to help curb inflation.

Earlier this year, funding costs in the interbank market were subdued by international capital inflows. Local currencies had slumped due to their peg to the dollar, and ambiguous comments from some central bankers around the turn of the year led international banks and hedge funds to bet on currency revaluations to help curb inflation. This helped to subdue borrowing costs for regional financial institutions, but also led local banks to ignore the need to build deposits to match hyperactive lending.

The dollar's rally this summer also increased the value of Gulf currencies such as Saudi's riyal, cutting the cost of imports and easing pressure on authorities to revalue their dollar pegs.International banks therefore started to reverse speculative revaluation bets, withdrawing local currency deposits and draining away capital that had helped keep spreads between the money market and benchmark rates low.

Subsequently, Gulf banks have had to turn to local money markets to finance lending, causing interbank rates to climb far above the central banks' benchmark interest rates. Rather than try to ease the liquidity squeeze, authorities have welcomed more expensive funding costs in the fight against inflation, even abetting it in the case of Saudi Arabia.

Interesting. Reports of capital outflows from the Gulf suggest that Saudi reserve growth won't be quite as high as one might expect based on the price of oil in July and August. The Saudis also seem have a bit more monetary autonomy when money is going out than when it is coming in -- as they can allow the outflows to push up rates.

Even so, I fully agree with an anonymous Treasurer at a Gulf bank:

"the monetary policy appropriate for the faltering US economy is far from ideal in the Gulf, which has other concerns. Inflation and credit growth are soaring, but "we have monetary policies as if we were in a recession", says the head of treasury at a top Gulf bank.

Pegging to the dollar isn't quite as painful when the dollar is rising, but the dollar is still a poor fit for the Gulf's economy. The Gulf would benefit from a currency that moved in the same way as oil -- not one that often moves in the opposite direction.

This entry was posted on Thursday, September 11th, 2008 at 12:44 am and is filed under central bank reserves, emerging economies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


8 Responses to "What goes in also can go out ..."
September 11th, 2008 at 4:59 am
Cedric Regula Says:

"The Gulf would benefit from a currency that moved in the same way as oil -- not one that often moves in the opposite direction."

The only ones I can think of would be their own. Maybe they need the gold standard to keep FDI from driving them up?

September 11th, 2008 at 5:35 am
Cedric Regula Says:

You just can't believe anything OPEC says. After deciding officially that $100 sounds like the right price for oil, and the Saudis are in charge of cuts, the Saudis say they are ignoring the decision and will pump as much as they see fit.

So it looks like the Saudis still see their role as being a stabilizing influence on the world economy. Unless this is some sort of convoluted PR.

http://www.nytimes.com/2008/09/11/business/worldbusiness/11oil.html?_r=2&ref=worldbusiness&oref=slogin&oref=slogin

But more oil at a significantly lower price means lower reserve growth.

And if the US consumer decides to do something with the gasoline savings besides buy Chinese stuff, then we should see lower reserve growth for China.

Those two things would be bad for Happy Hank, who seems like he or his successor might need something around $750B next year. Up to $4 Trillion if they think they are going to reflate the housing market back to where it was. But first things first.

I think the other big factor in dollar strength and the reversal in surplus CB strategies is that corporations doing currency hedging are a major factor in the currency markets. Everyone was on the same side of the trade (short dollar) and there has to be a lot of unwinding going on there.

Interest rate futures markets have a lot of influence on decision making there, and presently they give a sort of near term probability of a quarter point hike by the Fed, and half point cut by the ECB.

Personally I don't believe it because I think Ben will play every card he has and actually give us another rate cut, while concurrently nationalizing the entire financial sector, leaving a gapping hole in the S&P 500.

And Euro and Japanese exporters just got a 10% hike in corporate profitability, so biz confidence should get a boost from that.

September 11th, 2008 at 6:57 am
a Says:

"With investors unloading local stock and bond holdings, central banks find themselves "on the other side of the trade, trying to smooth currency weakness instead of strength.""

At least I hope the CBs are making money on the trade, since they should have sold on the high and are buying lower. Or not - ?

September 11th, 2008 at 9:53 am
Cedric Regula Says:

Here's a forex note on todays US data releases. They are starting to talk of a Fed cut now too.

It's not real clear how the other of half of the twin deficit gets financed, now that HEW has gone away. As of July it's $62B. August read on that not out yet so cheap oil should help on the import side, but then we don't have a weak dollar helping exports.

========================================
US Inflation Pressures Cool And Trade Shortfall Grows
Thursday, 11 September 2008 12:48:26 GMT

Written by John Kicklighter, Currency Strategist

Speculation of an approaching recession and return to dovish monetary policy may be stepped up today (slightly). The economic docket offered three notable economic releases, and each disappointed in comparison to economists, and more importantly traders', consensuses. Measuring the steps to a possible recession in the second half of this year, both trade and employment numbers worsened. The physical trade balance for July dropped to a $62.2 billion deficit against forecasts of a $58.0 billion shortfall. This was worst trade reading for the US in 16 months as oil imports soundly overwhelmed a 3.3 percent jump in exports. The appreciation in the dollar through the month is not likely to have yet been reflected in trade figures (at least at notable levels). Taking a measure of employment, first time unemployment claims grew (from the originally reported figure) to 445,000 while total filings hit another near-five year high. Though a modest economic release, this nonetheless offers a very disappointing outlook for consumer spending (accounting for an estimated 70 percent of growth). Finally, upstream inflation pressures have tappered off as expected. A 3.7 percent drop in import prices over the month of August was the biggest drop on records going back 19 years. It comes as no surprise, petroleum products plunged 12.8 percent and industrial supplies fell 8.4 percent. Altogether, this data had limited impact on the dollar; but it certainly curbs hopes of a near-term rate hike and draws a recession state closer.

http://www.dailyfx.com/story/market_alerts/fundamental_alert/US_Inflation_Pressures_Cool_And_1221137366922.html

September 11th, 2008 at 9:56 am
pepster Says:

Brad,

I'm wondering about the effect on Agencies and Treasuries from what you've reported here. I'm not a finance or economics person, so please excuse me if this question is stupid.

If foreign CBs have fewer dollars because they continue to sell them, could demand for and purchases of Agencies and Treasuries continue to weaken such that their interest rates suddenly spike?

September 11th, 2008 at 11:14 am
Dave C. Says:

From CNBC, U.S. facing Economic Depression

the continued US taxpayer bailouts of politically-connected Wall Street banks will push the United States into a "Depression".
http://www.cnbc.com/id/26656750

" The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.

"We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange."

The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.

"We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply."

When the government can no longer pass the United States' "immense debt" on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.

"Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government," Hennecke said on "Worldwide Exchange".

September 11th, 2008 at 1:09 pm
Stuart Says:

"many countries that were resisting pressure for upward appreciation are now selling dollars to defend their currencies. I very much agree with the quote from Lisa Scott-Smith:"

Well, somebody is buying. They pushed the dollar back above 80.

September 11th, 2008 at 7:14 pm
It Aint Necessarily So « samurai no outono Says:

[...] o desempenho da economia brasileira, mas à situação desesperante das empresas americanas. Fuga que não é só aqui, Brasil, mas [...]


Posted by: bob mcmanus | Link to this comment | 09-11-08 8:56 PM
horizontal rule
99

So True

Posted on Sunday, September 7th, 2008 by bsetser

Floyd Norris in the New York Times:

Remarkably, the country that prides itself on being the beacon of free enterprise finds itself with a financial system that needs government money to finance the most important asset most Americans will ever own. There have been bailouts before, but none that seemed more crucial than that of Fannie and Freddie. The housing boom and bust have left them virtually the only sources of large amounts of money for home loans in the country.

That isn't the half of it. The US doesn't just need US government money to support the US housing market: It needs money from foreign governments as well.

And no one more than China. China's central bank borrows RMB from the state banks (whether by selling sterilization bills or by hiking the reserve requirement) and then uses those funds to buy large quantities of Agencies. The flow of Chinese savings into the US housing market is entirely a government flow. From June 2007 to June 2008, the foreign assets of China's central bank increased by $681b. That is hard number -- no fancy adjustments are required. I just added the central banks "other foreign assets" (the foreign exchange the state banks have deposited with the central bank) to its stated reserves. Adjust for valuation gains, and that works out to $620 billion or so. That is a low-end estimate for China's foreign asset growth. It leaves out the funds shifted to the CIC, and the funds used to recap the China Development Bank. A lot of this went into Agencies. A lot more than the $70 billion in Agency purchases that shows up in the TIC data.* If that is true, then China also has more than $465 billion in short and long-term Agencies as well.

Over the past few years, the Agencies were central to the process that brought the emerging world's savings to the US housing market. And governments were involved every step of the way. When the world's central banks (and other big bond investors) decided that the implicit US government backing for the Agencies wasn't enough, the US government had to make the backing explicit.

The New York Times reports:

Most worrisome, the companies' cost of borrowing was growing more expensive, and central banks in Asia and Russia were scaling back their purchases of the companies' debt


The Wall Street Journal adds:

Fannie and Freddie were still able to fund themselves, but it was getting more expensive to do so. Foreign officials, whose central banks own Fannie and Freddie debt, were calling Mr. Paulson to express concern. Sen. Charles Schumer, a New York Democrat, said he was told by government officials that foreign investors were threatening to bail out. "There was a real fear that foreign governments would start dumping Fannie and Freddie...and not buy the bonds," he said.

I suspect this is the first case where foreign central banks exercised their leverage as creditors to push the US government to make a policy decision that protected their interests. The need for ongoing central bank financing certainly weren't the only reason why the US government acted. US banks hold a lot of Agency debt too. But the need to maintain the confidence of the world's central banks -- and the attractiveness of Agencies as a reserve asset -- was certainly a factor in the Treasury's decision.

Last week (using the date for the end of the reporting week not the weekly averages), the Federal Reserves' custodial holdings of Agencies fell by another $9.75b, significantly more than the fall in Treasuries. The Fed's custodial holdings seem to account for about 90% of all known central bank Agency holdings. There are more central bank Agency holdings than show up in the survey data, but they are managed by private intermediaries -- and I don't have a good guess of their magnitude. No matter. The Fed's custodial accounts pick up enough of the world's total holdings to provide a pretty good picture of how central banks have acted over the last month.

As of Wednesday, September 3, central bank custodial holdings of Agencies were down $27.4b from their mid July peak. That is a sum comparable to the capital sovereign funds invested in US banks and broker dealers over the turn of the year.

The threat of a central bank buyers strike was real.

* The $25 billion in known purchases of long-term treasuries between June 07 and June 08 also looks low, as does the $150b in total Chinese purchases over this period. I personally would be surprised if China purchased less than $350 billion in Treasury and Agency debt over this period. I wouldn't be totally surprised if China purchased close to $400 billion in Treasuries and Agencies over this period. That is a huge, and truly unprecedented sum. I won't bore you trying to explain all the ways I have tried to stress test this number, but I will assure you that it is a robust estimate.

I also am fairly confident that China's central bank now manages, counting the banks' foreign exchange reserve requirement ("other foreign assets") a foreign portfolio of over $2 trillion. This too comes from the PBoC's own data. Dr. Cowen says China has over $300 billion of Agencies. I would say well over. $300b is only 15% of China's total portfolio. Moreover, if you look hard enough, between $460 and $465 billion of Agencies can be found in the TIC data. Take short and long-term Agency holdings in the June 2007 survey and add subsequent flows and it you want to be really crafty, assume that the same share of China's short-term holdings are in Agencies as at the time of the June 2007 survey. Then make one more adjustment: Last year's survey revisions increased China's Agencies holdings by around $70b. If that pattern holds true, China now has a bit over $530b of Agencies. And I would expect bigger revisions this time around because of the acceleration in China's reserve growth this time around.

This entry was posted on Sunday, September 7th, 2008 at 11:36 pm and is filed under China, central bank reserves. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


34 Responses to "So true ..."
September 8th, 2008 at 12:26 am
Simon Says:

Isn't it incredible how simple the evidence and outcomes are.

No one likes to have a dodgy debtor.

US housing is dodgy.

Now....how secure is the US government? How capable is the US government financially? Can it manage to pull itself out of it's debt dungeon?

Will it face the frugal reality or kick the can once more? Will it come clean about its ability to fund its social security obligations or not?

Or... will it destroy its own currency, say ha! ha! to its creditors and invite the collateral damage to the rest of the world?

September 8th, 2008 at 12:48 am
KnotRP Says:

So the US home buyer, who couldn't afford the mortgage loan, will somehow be able to afford the taxes necessary to make that same loan whole again? I wonder if they can devalue the currency fast enough to break the currency pegs but not crater the dollar....

September 8th, 2008 at 1:45 am
Cedric Regula Says:

If I were any foreign holder of F&F corp bonds, I would be thinking the current dollar rally is good to sell into.

Then if the US gov came along and told me they can pay my interest on my F&F bonds, if I buy ,say, 2-3 times as many Treasuries to fund it all, I would be sure its a great time to sell.

It's just that I'm not sure I think the same way as a Chinese central banker.

But I remember an old Bill Gross blog topic from late 2004 (don't worry, I don't read him often), when concerns about the magnitude of foreign treasury holdings were beginning.

Flight and the impact on the dollar was a concern back then and Bill Gross proclaimed "Whoever bolts first wins."

So sometimes he makes sense.

September 8th, 2008 at 4:59 am
anon Says:

From Tim Duy today:

"the bailout provides an important policy lesson - nothing truly bad can happen as long as the US Treasury is willing and easily able to float debt onto the global financial markets. Presumably, Treasury will finance any cash injections into Fannie and Freddie by issuing debt that will be forced fed to foreign central banks, the same way Treasury financed the now forgotten stimulus package. The US can always inflate away the real value of that debt at a later time. As long as foreigners are willing to continue to take that risk, let them."

September 8th, 2008 at 5:55 am
qingdao Says:

People who think about U.S. China economic relations seem to fall into four, mutually exclusive camps:
1. Both C and US win
2. Both C and US lose
3. C wins; US loses
4. US wins; China loses
In the first group I would include those who accept Bretton Woods II and employees of the US Treasury. Group II includes those on the Left who believe that globalization simply feeds the Beast to the detriment of the environment and the overwhelming rest of us. I'm not sure who to put into category three (US labor?). I find myself squarely in the last basket, as do most Chinese. In spite of the recent financial turmoil, I am far more worried about the Chinese economy - near, medium and long term - than I am the US economy.

September 8th, 2008 at 7:26 am
Rien Huizer Says:

Qingdao,

What about 1, some of the time and 2, some of the time. I would be worried about any economy right now, but probably a bit less about China's than the US. That is, what exactly means "worried about an economy". My economy is perhaps different from yours. I like my economy to provide stable growth, adequate incentives for productive behaviour, some money left for good communal goods, like education and health care. Also it must make sure that what we do in our lifetime does not put future generations outside the reach of technological advances to repair whatever damage we humans do to our habitat whilst being economically active. Finally, the government should not give hand outs, except to the excusably (very) poor, and let people pay for what they consume, even where the state produces those goods and services, but that the state should organize efficient (yes, of course states can be efficient, in the sense of industrial efficiency. Just take a look at Singapore's public management practices) insurance and savings schemes to provide for that. I am not quite sure that any of those conditions exists in either China or the US. But no doubt, some people like the economic environment they live in, and thrive. Some make money on the way up, and others on the way down. And then there are the ones who do both or neither.

September 8th, 2008 at 8:28 am
Ethan Says:

So the Agencies, which paid an interest premium because they were NOT guaranteed, are now guaranteed. Isn't that a financial windfall to the banks that bought a risky asset but can now transfer that risk to the taxpayer?

What is the value of that windfall?

We could have financed the whole mess at a lower rate with Treasuries - but now we're stuck with the spread. How much EXTRA interest will be paid to Agency creditors, over and above the Treasury rate? How many billions of dollars to China and the Petro-States?

September 8th, 2008 at 8:37 am
John Katz Says:

Paulson has skilfully managed to avert an imminent financial crisis that would have shiprecked the so called Bretton Woods II arrangements and sunk the America spends Asia lends paradigm.

However the Fannie &Freddie arrangements involve recognising as US Federal liabilities implicit (not legal) obligations for Fannie and Freddie debt.

The arrangements made up to now have been the easy part of the exercise. The challenge will be maintaining credibility and dealing as well with the far larger implicit liabilities on unfunded social obligations.

After the glitzy party conventions politicians, legislators and number crunchers will have to satisfy US voters and creditors how this is going to be done. Analysis in my book The Goldwatcher http://www.thegoldwatcher.com suggets this will not be challenging.

September 8th, 2008 at 8:39 am
John Katz Says:

Correction to last 2 lines of previous post - please delete 'not - should read 'suggest this will be challenging.'

September 8th, 2008 at 9:17 am
Dave C. Says:

Mish Shedlock on his Global Economic Analysis blog details the blatant lies surrounding the federal taxpayer bailout of Fannie Mae and Freddie Mac.
http://globaleconomicanalysis.blogspot.com/2008/09/paulson-rolls-dice-at-taxpayer-expense.html

The GSE deal has been announced. Here is the Statement by Secretary Paulson on Treasury and FHFA Action to Protect Financial Markets and Taxpayers.

The title of the statement suggests two things.

1. This agreement will not reduce risk on the financial markets
2. This agreement will not protect the taxpayer

Let's take a look at excerpts to see how long it takes to verify that cynicism. The US Treasury is willing to risk up to $200 billion taxpayer money ($100 Billion for each GSE) on this absurd bailout for Wall Street. Assuming the GSEs do borrow $200 billion, exactly how are they supposed to pay it back December of 2009?

Taxpayer Risk Defined

And what does the government (taxpayer) get for a potential $200 billion in lending while allowing the GSEs to add another $320+ billion of systemic risk?

The answer is a mere $1 billion of senior preferred stock in each GSE and Warrants for the purchase of common stock of each GSE representing 79.9% of the common stock of each GSE on a fully-diluted basis at a nominal price.

In other words taxpayers are rolling the dice on $200+ billion in risk backed by a lousy $1 billion in senior preferred stock and warrants on shares of common that are likely to be worthless.

September 8th, 2008 at 11:54 am
Cedric Regula Says:

If anyone ever believes that the markets know what they are doing, print this and tape it to your computer monitor.

1)Stock dives
2)Bonds climb almost to treasury levels
3) $62 Trillion in Credit Default Swaps are triggered because of negative credit event!!!!!!!!!

Fannie, Freddie shares dive, debt rallies on bailout
Monday September 8, 10:15 am ET
By Pedro Nicolaci da Costa

NEW YORK (Reuters) - Fannie Mae's and Freddie Mac's stocks took a dive while their debt soared Monday, as investors bet the U.S. government's takeover of the mortgage finance firms would wipe out shareholders but fully guarantee their bonds.

Equity markets around the world surged on the bailout news as hopes rose that the U.S. Treasury's plan to take control over the companies, which together back about half of the country's $12 trillion in mortgages, might put at least a temporary floor under troubled financial markets.

The Dow Jones industrial average (DJI:^DJI - News) surged over 2 percent, but Fannie Mae's (NYSE:FNM - News) stock got hammered, swooning more than about 80 percent to $1.30. Freddie Mac (NYSE:FRE - News) shares fell more than 75 percent to $1.25.

any on Wall Street said the takeover of the institutions was merely a symptom of the dismal state of credit markets.

"This euphoria might fade, because Fannie and Freddie (NYSE:FRE - News) are not the problem," said Christopher Low, chief economist at FTN Financial. "Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision."

Treasury Secretary Henry Paulson, who made a number of television appearances Monday, said he could not estimate exactly how much of a burden the bailout would be for taxpayers. Speaking to CNBC, he said this would be impossible to tally until the extent of declines in the mortgage market were fully known.

The takeover came as welcome news to officials in Asia, where central banks are some of the biggest holders of the agencies' bonds. They had plenty of reason to cheer.

The yield premium on agencies' debt against Treasury bonds narrowed by at least 20 basis points, traders said. Bond prices move in inverse relation to yields.

"This is the biggest event in my 21 years in the business," said Arthur Frank, director and head of mortgage-backed securities research at Deutsche Bank.

EDITED FOR LENGTH

September 8th, 2008 at 12:01 pm
Twofish Says:

DC: And what does the government (taxpayer) get for a potential $200 billion in lending while allowing the GSEs to add another $320+ billion of systemic risk?

Protection from angry mobs that are unable to sell their houses at any price because the mortgage market is dead.

September 8th, 2008 at 12:50 pm
Rien Huizer Says:

Indeed, Twofish, indeed. The US is very much like China, full of normal human beings

September 8th, 2008 at 1:14 pm
Cedric Regula Says:

Brad:

I was wondering about Plan B.

Take the scenario that:

1) The off chance that China and Arab CBs don't play ball and don't buy all our debt next year. Or worse yet, become believers in central bank diversification.

2) The triggering of 62 Trillion in CDS has the odd effect of putting valuable GSE debt in the hands of the underwriters, and perhaps they decide to lock in profits and sell.

3)The Treasury needs to all of a sudden buy a whole lot of GSE paper to support the price, and the program. (I know I am lumping MBS and corp paper together here, but I don't know what the CDS are written against.)

I'm trying to think of where the money comes from.

It's not considered kosher to just print it, ever since German Hyperinflation days. So modern governments do everything with credit strings attached, which makes it ok.

Around 2004, the BOJ did the "soft" printing trick. Forgot the econ name for it, but it's the one where the treasury prints up bonds, can't sell them to the real market for whatever reason, and the the central bank steps up to the falling knife and buys them for their own account with printed money.

Do you think that would be our last and final "backstop" to keep the game from reaching end game?

Or is there some other trick you can think of?

September 8th, 2008 at 1:31 pm
Cedric Regula Says:

Also, here is a Jimmy Rogers interview. Boy, are his feathers ruffled.

http://www.moneymorning.com/2008/08/19/jim-rogers/

September 8th, 2008 at 1:32 pm
Dave C. Says:

"Protection from angry mobs that are unable to sell their houses at any price because the mortgage market is dead." - Twofish

Hank Paulson "corporate welfare" ploy to bailout his Wall Street cronies at Goldman Sachs with a $200 billion taxpayer bailout of the GSEs doesn't help the average American Joe6pack crushed by rising monetary inflation. As a result of the Federal government assuming the GSE debt and doubling the federal debt load overnight by a staggering $5 trillion, yields on 2 year Treasury bonds increased by 0.5% overnight. Further market-driven interest rate increases will be forthcoming as the Federal government AAA-bond rating comes into question. The new result will not be a lowering of mortgage interest rates, but a overall rise in all US dollar denominated interest rates.

September 8th, 2008 at 1:37 pm
Dave C. Says:

US Is "More Communist than China": Jim Rogers
http://www.cnbc.com/id/26603489

The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is "more communist than China right now" but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday.

"America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich... it's just bailing out financial institutions," Rogers said.
Rogers said in the long term the move spelled trouble.

"This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this," Rogers told "Squawk Box Europe."

September 8th, 2008 at 2:19 pm
Cedric Regula Says:

A trillion in CDS so far, but its not even lunchtime yet.

++++++++++++++++++
SAN FRANCISCO (MarketWatch) - The U.S. government's seizure of Fannie Mae and Freddie Mac has triggered more than $1 trillion of credit default swaps tied to the mortgage giants.
The International Swaps and Derivatives Association said in a memo on Monday that 13 major credit default swap dealers unanimously agreed that a credit event had occurred.
After a conference call this morning, the ISDA said it will launch a protocol to help traders settle these derivatives contracts. The protocol will contain details of an auction that will take place to determine the value of the agreements to be settled.
Credit default swaps are a common type of derivative contract that pay out in the event of default. Fannie (FNM:
) are major counterparties in the derivatives market, with roughly $2.3 trillion of notional exposure built up by efforts to hedge the interest-rate risk of their mortgage operations.

September 8th, 2008 at 2:54 pm
gillies Says:

you all know what i think -

sarah should let her hair down, and cindy should wear her hair up.

as for economic matters, it is too late to paddle back up niagara. a philosophical resignation is in order. a fiat reserve currency unattached to gold or responsibility, is access to free credit. not to free money.

you cannot print spare money without bubbling asset prices somewhere, and making a leveraged free ride both available andirresistably attractive. growth in the bubble goes exponential and ponzi fashion reaches a crisis when it is starved of new entrants to the game.

at this point the bubble bursts and those who can flee to the next one. but the real bubble is in leveraged borrowing. if the music stops a right to free credit would leave mountains of money. this does not happen. what is left is near bottomless lakes of debt.

to me this proves the thesis that fiat money is free credit not free money. it is only free money until the moment when the recipients spend it in their turn.

in detail i do not follow what the fed is doing. but in outline i can see that they have just created the potential for a $5.4 trillion hole. who falls into that hole ? lots of people.

i cannot see the north korean (alleged) dollar counterfeiters acting as irresponsibly as this. perhaps they can see from the far side of the world, that unlimited free credit creates bottomless chasms of debt.

September 8th, 2008 at 3:02 pm
gillies Says:

there's an error in that last posting. you can probably correct it yourselves.

September 8th, 2008 at 3:22 pm
Jian Feng Says:

Dear Brad,

Could you give us the lay people a simple rundown on whether the housing bubble will get worse even with the explicit guarantee of the US government? It looks like that once foreigners finally realize that US government is trying to defy the gravity of economic laws, they may view holding the US fiat as an extremely stupid, thus regrettable, past action. How much does the full faith and credit of Uncle Sam worth? Is there a number? Is this housing bubble fundamentally different from the Black Tulip thing or the South Sea Treasure thing several hundred years ago?

There will be lots of frictions between US and China when more and more Chinese know that poor people in China are lending astronomical amount of money that they earned (in selling shoes, toys, etc.) to rich people across the ocean to buy big houses so that Wall Street geniuses can earn money on top of that. When China stops buying US debts, US government will try to pop up the virtual value of these debts until it creates an unsustainable situation. What will happen then? Will United States be prepared to issue visas to any willing Chinese buyers to purchase foreclosed houses in the US directly? When we are talking about money in terms of 10e9 US money units, it is no longer an economic issue, especially between two strange bedfellows with different dreams. To avoid a mutually assured financial destruction, what will US and China do?

Brad, please stop just giving us the data. Give us your two cents on what will happen? You are a smart guy. It is not easy for a guy without a formal education on economy to parse your data. Please share with us your thoughts. Some cheeky guy said that prediction is a risky business, especially about the future. But human would still live in caves if we do not love to predict.

Best,

Jian Feng

September 8th, 2008 at 3:30 pm
Jian Feng Says:

Sorry about my typo. It should be 10E12 (trillion) dollars. So mind-numbing that I could not believe it.

September 8th, 2008 at 3:34 pm
bsetser Says:

ugh -- china has shown no willingness to stop buying us debt. the july data indicates $50b of additional foreign asset growth at the central bank, which mostly goes into treasuries right now. As long as China is resisting RMB appreciation, it has to buy large quantities of foreign assets.

And china would far rather have $1.2 o r $1.3 trillion of Treasuries and Treasury backed Agencies than $650 of treasuries and $550b of agencies that stand of fall on their own.

Long-term, both China and the US can manage a world where china buys less us debt, subsidizes its exports less and spends more at home. the challenge is how to get from here to there. I have plenty of views on that, but, well, i have spouted on and on about them to no avail, and have decided to stick to presenting the facts most of the time!

September 8th, 2008 at 5:18 pm
Twofish Says:

DC: Hank Paulson "corporate welfare" ploy to bailout his Wall Street cronies at Goldman Sachs with a $200 billion taxpayer bailout of the GSEs doesn't help the average American Joe6pack crushed by rising monetary inflation.

Actually it will, if there is inflation then the value of hard assets like houses will increase and the value of consumer debt will decrease. If Joe Sixpack has a house and a job, and owes huge amounts of money in credit card and mortgage bills, he really wants massive inflation.

September 8th, 2008 at 5:21 pm
pseudorandom Says:

---
KnotRP Says:
So the US home buyer, who couldn't afford the mortgage loan, will somehow be able to afford the taxes necessary to make that same loan whole again?
---

The US taxpayer can easily afford the taxes - if they are targeted correctly. Delinquent homeowners are usually (except for the small number of flippers/speculators) poor. If the rich pay more in taxes, then absolutely yes, the loans can be made whole again.

September 8th, 2008 at 5:22 pm
Twofish Says:

Regula: A trillion in CDS so far, but its not even lunchtime yet.

It's actually notational. If I owe you a trillion but to get that trillion I have to surrender one trillion in securities, we are even.

September 8th, 2008 at 6:18 pm
Cedric Regula Says:

2fish:
Aw c'mon now, why would anyone do that?

September 8th, 2008 at 6:22 pm
KnotRP Says:

Pseudorandom: you believe the rich will not move assets out of reach, after the historically low taxation rates cease? Taxing the wealthy and corporations is like herding cats, imho...and the big rise in earnings at the top happened already...or were you advocating retroactive taxation of the rich?

I think we may get the worst of all possible worlds, where many home owners lose their homes, after which the homes nominally appreciate while on the bank's ledger.
But real wages will still go no where, since
the 2 billion laborers are not yet integrated
into the global system....

My guess is that protectionism kicks in eventually, when the political pain becomes
overwhelming....

September 8th, 2008 at 6:57 pm
Twofish Says:

Jian Feng: Is this housing bubble fundamentally different from the Black Tulip thing or the South Sea Treasure thing several hundred years ago?

No. You don't even have to look back several hundred years. There has been a financial crisis every few years ago for the past several hundred years. There will probably some sort of crisis every few years for the next several hundred years.

Jian Feng: To avoid a mutually assured financial destruction, what will US and China do?

By very, very nice to each other. Which isn't a bad thing.

Jian Feng: Will United States be prepared to issue visas to any willing Chinese buyers to purchase foreclosed houses in the US directly?

My guess is that there are going to be massive purchases of US companies and hard assets over the next few years.

Also, I don't think that people are talking about the really big problem which makes the housing situation seem like a tiny firecracker. Around 2030, a lot of old people are going to start withdrawing their money from the US at the same time people get old in the US and Social Security and Medicare costs start becoming a major drain.

September 9th, 2008 at 7:03 am
Greg Says:

Qingdao,

I think even scenario number four is a relative term.
US may only win relative to China. Chinas economy is gonna get hurt worse but ours is gonna get hurt.

Seems to me a very hollow victory. "Yeah we suck but you suck worse"

Unfortunately this is where American culture has driven itself to. We take solace even in ugly victories.

September 9th, 2008 at 9:56 am
Jian Feng Says:

Dear Brad and Twofish,

Thanks for the information and comments. As might see, I have been following Burton Malkiel's book with my own investment, which relies on the long-term health of the US financial market. It is very unnerving to see United States practicing "socialism" to its financial system. Like it or not, a Darwinian system seems to be the only way to survive and prosper. Maybe the 21st century will see the coming of Karl Marx to New York and Adam Smith to Beijing.

Professor Malkiel urgently needs to update his book on the efficiency of the market, so little guys like me who have a day job outside economics won't be sucked into any Black Tulip-styled games.

Jian Feng

September 9th, 2008 at 10:25 am
bill Says:

"I have plenty of views on that, but, well, i have spouted on and on about them to no avail, and have decided to stick to presenting the facts most of the time!"

Brad, would it be a pain asking you to summarize these very views? Or-less painfully-provide a couple of links where one could dig them up?

Thanks v much

September 10th, 2008 at 11:12 pm
don Says:

Now, if only the foreign lenders could bully the U.S. into acting responsibly with its government debt. That would really be nice.

September 11th, 2008 at 8:07 pm
Roland Says:

What twofish forgets is that more than a third of Americans pay taxes but don't own their own homes.

So the poorest one-third subsidize wealthier people who took bad risks.

So both booms and downturns widen the gap between rich and poor, and smart entrepreneurship has nothing to do with it. Rather, it seems to be deliberate policy to create and widen social gaps!

Marx and Lenin are just sounding wiser and wiser with every passing year.


Posted by: | Link to this comment | 09-11-08 9:00 PM
horizontal rule
100

"vague, paranoid allusions".

Mark Thoma once said he quoted so extensively because people don't click thru links.

Read these three articles, with bsetser's very intelligent informed commenters. You might learn something. I did.

Yes Virginia, Sometimes Creditors Get a Vote

Yes, Virginia - Creditors do sometimes get a vote ...
Posted on Tuesday, September 2nd, 2008 by bsetser

This is Brad Setser again. Thanks to Christian Menegatti and Rachel Ziemba for filling in when I was away. It is only fitting to return with one of my pet themes: central bank demand -- or rather, the current lack of central bank demand -- for Agencies.

In August, central banks added close to $46 billion ($45.92b) to their custodial holdings of Treasuries at the New York Fed. In August, they reduced their holdings of Agencies by a bit over $13 billion ($13.33b).

A chart showing the monthly change (using the end of period data rather than the weekly average, and taking the weekly period closest to month end as a proxy for the end of the month) shows the recent change clearly.

No wonder that the options market is now implies a significant probability that the Agencies existing common equity will be worth zero; look at this chart produced by Paul Swartz, a colleague of mine at the Center for Geoeconomic Studies.

If these trends continue for much longer, US Treasury Secretary Paulson will be forced to show his hand. The Agencies won't be able to rollover their debt -- at least not at a spread that works for them. The US government will then either have to step or let the Agencies fail. And, well, letting the Agencies fail, in the sense of default on their debt, is probably more than the US government is willing to consider right now. Any restructuring though would likely be bad for the holders of the Agencies common equity.

Dan Drezner argues - in a recent paper on sovereign wealth funds - that the importers of capital can still set the rules of the game.* He draws an analogy to the fact that larger consumer markets often set global norms in a host of markets for goods and services. In this case, the US -- as a consumer of savings -- has the market leverage, not the producers of savings.


Drezner is at least partially right, though I rather doubt the good practices that sovereign wealth funds are currently trying to hammer out will amount to much. Big emerging economies cannot easily limit their financing of the US without making dramatic policy changes at home. There really aren't that many places that can absorb the huge surpluses China and the oil exporters are now generating. They do need places to invest.

In this case, though, the world's central banks have a fairly clear alternative to buying Agencies: buying Treasuries. Shifting from Treasuries to Agencies cost them a few basis points, but it didn't require a wholesale change in the currency regimes. It doesn't require any big policy decision on their part. It is just a technical decision about reserve management - and probably a prudent one at that.

A chart showing the cumulative increase in the Fed's custodial accounts since the end of December show this change almost as well as the chart showing the monthly changes.

The impact of such a shift, by contrast on the US is far more pronounced. Without central bank financing, the Agencies cannot exist in their current form. They certainly cannot be a conduit between the large pools of savings in the hands of emerging market governments and the US housing market. And right now, that is exactly what the US government wants them to do. Private demand for mortgages - and most other forms of household receivables - has dried up. The Agencies are the mortgage market.

Now, if the US could credibly threaten to allow the Agencies to fail - and by fail, I mean default on their debt, not their equity - the story would be a bit different. Foreign central banks would be faced with a true collective action problem. They all would prefer that everyone add to their Agency holdings, allowing the Agencies to refinance their maturing debt - and all their creditors to avoid taking losses. At least for now. Deferring losses isn't the same as avoiding losses. Each individual central bank though would rather some other central bank take the risk of holding Agency debt.

This, of course, is analogous to the situation the world's central banks face with respect to the dollar: if they don't keep adding to their dollar holdings, the value of their existing dollar holdings will fall. Barry Eichengreen argued back in 2004 this meant that every central bank had an incentive to get out of the dollar. That obviously hasn't happened.
In large part because of dollar pegs - and because diversifying out of the dollar is probably difficult if you peg to the dollar, and not pegging to the dollar has generally meant allowing your currency to appreciate against China not just the US. And that is costly.

And while central banks seem to have stopped buying Agencies, they certainly haven't stopped buying dollars. Over the first 8 months of 2008, central banks have added an average of $43.14 billion to their custodial holdings at the New York Fed. Annualized, that works out to a pace of over $500 billion. That far exceeds the pace of early 2004, back at the peak of Japanese intervention.

The Fed's custodial accounts don't tell the whole story either. My guess is that most of the large oil exporters don't make heavy use of the Fed's custodial services. The Fed's data consequently leaves out a lot of money. The increase in central bank and sovereign fund holdings outside the Fed's custodial accounts - in my judgment - is about equal to the observed increase in the custodial holdings.

In some sense though that doesn't matter.

Central banks don't have to stop financing the US to have a bit of influence over US markets. The scale of central bank purchases is now so large that all they need to do is shift from buying one asset to buying another ...

Call it a buyers strike by central banks on assets other than Treasuries.

*An aside: Back in the 1990s, the US didn't exactly think that Argentina and Brazil got to set the rules just because they were importing large amounts of capital ...

UPDATE. With Paul Swartz's help, I was able to get the monthly data on the FRBNY's custodial holdings back to 2001. The 12m change in FRBNY holdings -- broken down into the increase in Treasuries and the increase in Agencies -- makes for an interesting picture.

This entry was posted on Tuesday, September 2nd, 2008 at 9:02 am and is filed under central bank reserves. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


26 Responses to "Yes, Virginia - Creditors do sometimes get a vote ..."
September 2nd, 2008 at 9:29 am
Dave Chiang Says:

Federal Reserve policy paper states that deficits don't matter under the US Dollar hegemony regime.

http://www.federalreserve.gov/newsevents/speech/kroszner20080901a.htm

"For more than 20 years, the U.S. net international investment position has been negative." Yet, this condition seems to be of little consequence to the US economy. International trade so favors the US, that America's deficits could continue to run far into the future without the US having to pay the piper. According to Fed Governor Randall S. Kroszner, the United States, United Kingdom, Canada, Australia, and New Zealand can, apparently, run up all the international debt they want, and still not have much of a real deficit to pay off. Krosner writes that other nations actually pay for the privalege of lending to the US and those other English speaking nations."

September 2nd, 2008 at 9:40 am
Dave Chiang Says:

Asia Times Article on US Dollar Hegemony
by Economist Henry Liu
http://atimes.com/atimes/China_Business/JG30Cb01.html

"The vast expansion of US-led globalized trade since the Cold War ended in 1991 had been fueled by unsustainable serial debt bubbles built on dollar hegemony, which came into existence on a global scale with the emergence of deregulated global financial markets that made cross-border flow of funds routine since the 1990s. Dollar hegemony is a geopolitically-constructed peculiarity through which critical commodities, the most notable being oil, are denominated in fiat dollars, not backed by gold or other species since President Nixon took the dollar off gold in 1971. The recycling of petro-dollars into other dollar assets is the price the US has extracted from oil-producing countries for US tolerance for the oil-exporting cartel since 1973. After that, everyone accepts dollars because dollars can buy oil, and every economy needs oil. Dollar hegemony separates the trade value of every currency from direct connection to the productivity of the issuing economy to link it directly to the size of dollar reserves held by the issuing central bank. Dollar hegemony enables the US to own indirectly but essentially the entire global economy by requiring its wealth to be denominated in fiat dollars that the US can print at will with little monetary penalties.

Under dollar hegemony, exporting nations compete in global market to capture needed dollars to service dollar-denominated foreign capital and debt, to pay for imported energy, raw material and capital goods, to pay intellectual property fees and information technology fees. Moreover, their central banks must accumulate dollar reserves to ward off speculative attacks on the value of their currencies in world currency markets. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. Only the Federal Reserve, the US central bank, is exempt from this pressure to accumulate dollars, because it can issue theoretically unlimited additional dollars at will with monetary immunity. The dollar is merely a Federal Reserve note, no more, no less.

Dollar hegemony has created a built-in support for a strong dollar that in turn forces the world's other central banks to acquire and hold more dollar reserves, making the dollar stronger, fueling a massive global debt bubble denominated in dollars as the US becomes the world's largest debtor nation. Yet a strong dollar, while viewed by US authorities as in the US national interest, in reality drives the defacement of all fiat currencies that operate as derivative currencies of the dollar, in turn driving the current commodity-led inflation. When the dollar falls against the euro, it does not mean the euro is rising in purchasing power. It only means the dollar is losing purchasing power faster than the euro. A strong dollar does not always mean high dollar exchange rates. It means only that the dollars will stay firmly anchored as the prime reserve currency for international trade even as it falls in exchange value against other trading currencies. "

September 2nd, 2008 at 12:29 pm
Twofish Says:

I'd be very curious to know how the default probability based on option prices was calculated. The graph makes no sense to me since it doesn't say default over what time period. The other problem is that it's not obvious to me how you can distinguish based on option prices between a default and the stock price getting really, really low.

Finally, those three lines should be more or less the same. The fact that they have the same shape but are scaling differently suggests to me that there is something wrong with the calculation.

September 2nd, 2008 at 12:35 pm
bsetser Says:

2fish -- Paul can answer your questions better than I. I know he assumed that equity holders would get nothing back in the event of an "event". The lines though shouldn't be the same as there is a high probability that the US government would step in to prevent any haircut on the debt -- thus there is a high probability that the agencies equity will prove to be worthless (it currently trades as an option in a sense, as it could be worth a lot -- or zero -- depending on what happens) and that the agencies debt will be honored in full thanks to a government cash infusion.

September 2nd, 2008 at 1:15 pm
Twofish Says:

bsetser: The lines though shouldn't be the same as there is a high probability that the US government would step in to prevent any haircut on the debt.

But in that case the axis isn't "probability of default" but rather something different "expected loss" In any case, the numbers are very, very different what you get when you look at the price of credit default swaps. You can get a five year credit default swaps for 50 basis points, which makes that the probability of default based on credit default swaps is 0.5%.

If people really were selling options with implied 80% default rates and credit swaps with 0.5%, you could make some serious money (i.e. hundreds of millions) by buying massively discounted equity options and credit swaps and then selling options insured against default, and this sort of mispricing would cancel itself out in very short order.

September 2nd, 2008 at 1:49 pm
Cedric Regula Says:

Here's amount and timing on the sum of F&F corporate debt to be rolled over end of sept.

I guess Paulson was already given authority to do whatever he pleases. Another reason to keep IBs and Toll Bros. out of the Greater Washington DC area.

++++++++++++++
Fannie, Freddie Bailouts May Hinge on Debt Rollover (Update4)

By Dawn Kopecki
More Photos/Details

Aug. 20 (Bloomberg) -- Fannie Mae and Freddie Mac's success in repaying $223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bailout.

Rest of very long Bloomberg article:
http://www.bloomberg.com/apps/news?pid=20601087&sid=axNdvQ5TQLwI&refer=home

September 2nd, 2008 at 2:00 pm
JKH Says:

-

Brad -

David Chiang linked to an interesting speech by Fed Governor Kroszner in his first comment above. Nothing really new in it, but it offers a good analytical overview of the US international balance sheet.

(This is not quite on topic; although it's hard for the US international deficit to be off-topic.)

You were doing some detailed work in this area about a year ago, following your paper with Nouriel Roubini a few years before that.

I was wondering if you had any further general thoughts on the sustainability question, as much from the perspective of the US international financial condition, as from that of foreign funding sources, whether be they central banks or others. Do you think this type of analysis remains useful?

There's a lot of marked to market risk in that balance sheet. But it always seems to go in favour of the US. Kroszner seems to take some comfort in this perspective.

I think your analysis has always prioritized the income perspective, which I think is the right way to go.

The relationship between marked to market risk and income risk is an interesting one. It resurfaces persistently in different manifestations. On the credit crisis, there are those who quite intelligently caution against the use of full bore marked to market measures to appraise the likely true degree of asset deterioration. I've noticed recently that BIS is among these. And there are those who quite intelligently counsel bold implementation of marked to market in order to see what's really happening and respond to it. I think the same tension exists implicitly in the case of the US international balance sheet and its income. But it's not talked about very much. Perhaps the issue is incubating.

Any more thoughts on this while you were at the beach, or elsewhere, then, or now?

September 2nd, 2008 at 3:23 pm
confusedkid Says:

Brad: Central banks seem to have stopped buying Agencies, they certainly haven't stopped buying dollars

When you say they have not stopped buying dollars - is that achieved through buying treasuries? I am a little confused - if they buy treasuries, that would mean the FED is selling treasuries and buying back dollars.

September 2nd, 2008 at 3:34 pm
bsetser Says:

confused -- i'll post a chart showing what i mean. Cbanks first buy dollars in the fx market, then they invest in interest bearing assets -- and the fact that FRBNY's custodial holdings of treasuries are increasing so fast tells up that central banks are still buying dollars.

the dollar's rally in the fx market also suggests that CBs, at a minimum, haven't been big sellers of US dollars

September 2nd, 2008 at 3:43 pm
Cedric Regula Says:

The second article DC posted, Asia Times Article on US Dollar Hegemony
by Economist Henry Liu, explains why its working.

It is basically regurgitating the observations of Richard Duncan in his book "The Dollar Crisis", first published in 2004.

In years since, Duncan said that he underestimated the willingness of the world's central banks to finance the US, and this has postponed any real severe crisis.

So it is the central banks that continue to grow the US dollar denominated credit bubble. China has said they need to employ the remaining third of their country, and now seem willing to live with inflation and maintain a low dollar peg to maintain their growth rate. So I guess that means we lose about 400M jobs in the US, or both Germany and Japan go on permanent holiday.

When you say income has something to do with sustainability, I assume you mean a positive current account. I have heard people use Japan's large trade surplus as the reason they can seem to take on debt at 140% of GDP without dire consequences, even though they are not really a reserve currency.

September 2nd, 2008 at 5:16 pm
bsetser Says:

Cedric -- I am guilty of the the same underestimation as Richard Duncan. China's current decision to essentially halt RMB depreciation against the $ plus the recent fall in oil prices seems likely -- barring a huge fall in chinese exports -- to keep China's current account surplus in the $350-400b range. that together with $50-100b in FDI inflows implies -- barring big hot money flows one way or another -- chinese state asset accumulation of $400-500b.

recently the rise in Chinese exports (And surplus) has all come from selling more to europe/ the emerging world. us imports from china are flat. if that changes, pressure on china will go up quickly.

JKH -- good questions.

I have though a bit about the question.

on the asset and liabilities side, US liabilities are still rising, with most of the rise in liabilities taking the form of low yielding debt. the net debt position of the us consequently will continue to deteriorate.

US assets aren't rising as fast as they have been though. the dollar's rebound means there aren't any currency gains. and us equities have fallen by less than most foreign equity markets. so all other things equal, the NIIP will deteriorate this year -- and maybe even give back some of the "valuation gains" of 07. I have never thought the kind of valuation gains the us has enjoyed since 02 were sustainable -- if for no other reason than it didn't make sense to fund the us deficit rather than deficts abroad if us assets produced so much worse returns than global assets. Krozner doesn't exactly lay out the real reason the us has been able to attract funds despite the underperformance of us assets, namely central bank inflows, as explicitly as he should. it isn't a market outcome.

as for the income side, it is moving in the opposite way as the liabilities side. the interest rate on us external debt is falling, and falling fast enough to offset the rise in stock. us fdi abroad is outperfoming foreign direct investment in the us. the european slowdown should cut into us returns, but not by enough to change the basic trend this year.

I am though worried about a future shock on the income side. say the US has $10 trillion in debt that pays an average rate of 3% (in part b/c a lot if short-term). then say the debt goes up to $12 trillion and the average rate rises to 5%. Total interest payments -- in $ billion, double: they go from $300b to $600b. And i suspect that kind of shock is in the united states future should us rates ever normalize.

September 2nd, 2008 at 5:44 pm
pswartz Says:

Twofish - The option line is using a strung together history of as far out of the money and as far from maturity put options as one can go and still have pricing. Given a far out of the money put option it not completely unreasonable to think of the world as having two plausible outcome, one where the option is worthless and one where the option is worth the strike (thus equity zero). (if you pretended normality because the price distribution is truncated at 0 you could argue that the zero point assumes all the negative probabilities and this assumption becomes somewhat reasonable). Also the stock should have at least the optionality value of the company and thus, unless it is very clear that it is toast, will not go to zero. A better argument is that acknowledging the non normality of returns it seems very reasonable thinking about the way this plays out and looking at other financial failures (although not all), BSC for example) that this two state world is reasonable. Once that assumption is made backing out the probability of the 'event' or price is zero world is trival...far from perfect but it is means to help look at the numbers and pull out the picture.

I then annualize that probability as to make it comparable to the standard spread implied probabilities. Sorry about that; we are working straddling the fence between cramming too much text on the chart and not having enough explanation.

'You can get a five year credit default swaps for 50 basis points, which makes that the probability of default based on credit default swaps is 0.5%.' The right hand axis is probability of default but the analogous line in the chart to the CDS is the green debt line. I don't know what the reference security is for the agency CDS or what would technically trigger a default on the CDS but the right comparison is the CDS spread vs the agency spread, not much difference. A trade exist if you have a view on how it plays out but no arb between the options and the CDS that I'm aware of.

September 2nd, 2008 at 6:35 pm
Cedric Regula Says:

Brad & JKH

OK, I understand what kind of income is being talked about here. US FDI abroad, and I have a vague recollection of Milton Friedman saying that was a very important component of floating rate currency valuations.

The US is forecasting 480b in the next fiscal budget plus another 90b or so in off budget war costs. So it looks like if the Chinese do well and the Arabs kick in a little extra we will cover that.

But Japan is kicking around a 100b stimulus package and we still have Europe to hear from, so are we sure there is enough to go around?

The other thing I've been wondering about ever since Greenspan had his conundrum, is why hasn't the US Treasury tried to take advantage of the apparent low long term rates and lock them in with 10 or 30 year treasury sales? If no takers is the answer, does that mean Greenspan had his conundrum for no reason at all?

The reason I think about these things is that I have the same worries about a interest rate shock that Brad just pointed out. And if CBs are all in 3 year and less treasuries, it would come fast and furious.

September 2nd, 2008 at 7:32 pm
julieng Says:

I think it's a bit premature to speak about a shortfall in agency bonds, those huge trends have inertia and should be followed on a 6 months rolling avg period.
The story of early 2008 is a "stealth bailout" has you name it. And what we are observing now is more the end of this timely an useful foreign help than the beginning of a serious dumping. Some questions remains about this "bailout", was it effective and is there any other trend behind ?
This help wasn't in fact a full bailout regarding the financial institutions, the inflow "package" was fifty fifty Treas/Agency and the agency part was reduced by a heavy selling from offshore centers.
Adding this another trend, which is a shift
from equities to ... treasuries again.
So finally we end up with a strong support for treasuries which helped to stabilize long term rates at a low level. And a average support for agencies. In any case the GSE's are a trillion dollar story and remain a inner border problem to solve.

September 2nd, 2008 at 8:11 pm
Judy Yeo Says:

Brad

precisely, when rates normalize and the current "crisis" is deemed to have blown over, will there be a nasty shocker of a debt and the necessary financing that goes along with it? Will that in turn lead to an economy waking up to slow pain after the morphine wears off?

cedric may have a point regarding europe, what seems to be taking place in the markets is this round robin chase after short term gain/protection partly 'cosw fund managers who still have their jobs can't twiddle thumbs indefinitely; it may not be the capital flight of the 90s but the line between long term and short term investments seems to have more or less disappeared , unless you're a SWF - in which case, you emphasize the long term perspective which will hopefully fend off criticism over short term losses?

if the pound and the euro suffer a beating, the US $ will almost certainly have to rise, almost every other target has gone south; NZ and Aus have been seeing more realistic levels, asian currencies, well, hope whoever's playing them has a good heart. If one were paranoid, one might well suspect that Mr Soros revisiting the pound for pocket change.Hmm, would next year see the headlines " Darling no more"? Wonder what Ladbrokes thinks the odds are?

September 2nd, 2008 at 8:18 pm
Judy Yeo Says:

apologies brad, was off topic there

September 2nd, 2008 at 8:32 pm
julieng Says:

I haven't seen the last graph so you have it

September 2nd, 2008 at 8:56 pm
bsetser Says:

judy -- not really off topic. i grant a lot more latitude for comments on currency markets, the financing of the us and global capital flows than for topics on other subjects, b/c i think of those topics as central to this blog. and the USD's rally is relevant going forward to the magnitude of likely central bank flows (a weaker USD v the euro is reasonably correlated with asian reserve growth)

julieng -- i like the term "stealth" bailout better than my term (the quiet bailout). i basically agree with your point, but also think there has been a meaningful reallocation away from agencies on a high frequency basis, and in this case, there is good reason to think it is more than noise.

if others disagree, i am all ears.

i also incidentally think your point that the agencies are an inner border problem (i.e. lots of us financial institutions hold lots of agencies) is true, and i plead guilty to the charge of emphasizing the china and russia angle a bit too much. they matter more on a flow than a stock basis. that matters. but it is important not to loose sight of the extensive domestic holdings of agencies.

September 2nd, 2008 at 11:31 pm
running bear Says:

Brad, Julie..

Stealth bailout of whom/what? What is the present cost?

September 3rd, 2008 at 2:49 am
ndk Says:

Hey, Brad, think you could spare a post on the Santiago Principles just agreed by a consortium of SWF's if it's within your new purview? I think this is pretty important stuff.

September 3rd, 2008 at 3:46 am
a Says:

Naive questions here. Is the Fed able to help in the rollover by swapping Treasuries for the GSE debt that needs to be rolled over? How long could this last? Long enough until Jan 2009, when the Republicants pass the ball to the Democrats?

Also, you say there is a rate at which the rollover doesn't "work" for the GSEs. I think the GSEs will be willing to rollover even if it loses them (a bit of) money. So they lose a little money, so what? What they have to avoid IMHO is a rate or an auction which indicates a lack of confidence, because then things will quickly snowball out of control.

September 3rd, 2008 at 8:24 am
A B Says:

Yeah sustainability could be an issue. The Chinese factory worker makes maybe 30 cents an hour in shitty conditions and lives in a hundred person dorm. Saving away to lend to a Joe houseflipper. Someday he or she may want his own ipod, perhaps a small room, maybe even one car for 3 families. They are not starving now but how long before they guillotine their cap- I mean Communist leaders? The ant and the grasshopper is pure fable. We all know an army of ants cooperating can kill a horse.

September 3rd, 2008 at 8:38 am
bsetser Says:

a -- there presumably is a difference between the rate that the agencies can afford to pay for a short period of time and the rate that they can afford over time. with their funding costs rising as the start to accrue losses on their retained portfolio, they would face a nasty squeeze. moreover, in order to support the mortgage market as they have over the past year, the agencies need to be able to grow their book -- not just rollover existing debt.

ndk -- i don't quite know what to say about the santiago principles, as the actual principles haven't been disclosed. i don't have high hopes tho. I think SWFs need to agree to something that would in effect create a SWF COFER data base, i.e. data on their aggregate currency split and bond/equity/alternatives/ perhaps commodities split. And if the biggest firm still isn't willing to disclose its size (and the potentially fastest growing fund -- the cic -- hasn't disclosed anything yet either, including just how much fx it has bought and when from the central bank) I don't think you will get very far through this exercise. I hope to be surprised though -- the evolution of ADIA's disclosure via its website is one test, ADIC's disclosure is another. And I am still waiting for the CIC to match norway's transparency.

moreover, recent events suggests state banks and state firms probably warrant as much attention as SWFs, so their are lots of vehicles for state investment that won't fall within the scope of the good practices.

September 3rd, 2008 at 1:54 pm
John McLeod Says:

At our blog we took the FRBNY data that Reuters uses to track weekly trends in central bank net buys of treasuries and agencies. We constructed a data set going back to when FRBNY started posting these numbers in February 2000.

The resulting charts tell a story like the one in the second chart above. We put up those charts last Friday in an article which also included a link to the data set as a comma separated values (CVS) file.

http://housingdoom.com/2008/08/29/foreign-central-banks-and-agency-debt-2000-to-present/

September 4th, 2008 at 1:53 am
Bond investor Says:

Brad, the mortgage principal paydowns that FNMA and FHLMC receive total ~$25 B per month anyway. So they won't need to refinance as much debt as you suggest, and if they can keep getting the ever-decreasing amounts done, even at widening spreads, then they can avoid further pain from the liquidity crisis. Basically, I'm talking about an involuntary reduction in the size of their portfolios through paydowns.

Hey, isn't that what Greenspan, Bush and GOP congressmen have been wanting to occur for 8 years? Maybe they'll get their wish, with the "only" collateral damage the demise of an orderly consumer market for mortgages.

September 4th, 2008 at 2:39 am
Marlow's Listener › Brad Setser: Follow the Money » Blog Archive » Yes, Virginia - Creditors do sometimes get a vote ... Says:

[...] Which mattress? This was written by admin. Posted on Wednesday, September 3, 2008, at 11:40 pm. Filed under Malthus. Tagged GSE. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback. [...]


Posted by: bob mcmanus | Link to this comment | 09-11-08 9:08 PM
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It's occasions like this that "tl;dr" was invented for.


Posted by: essear | Link to this comment | 09-11-08 9:13 PM
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FOR CHRIST'S SAKE, BOB, CUT IT THE FUCK OUT


Posted by: OPINIONATED | Link to this comment | 09-11-08 9:13 PM
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bob, not even a Kobe metion there? c'mon, bro!


Posted by: Stanley | Link to this comment | 09-11-08 9:13 PM
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er, mention.


Posted by: Stanley | Link to this comment | 09-11-08 9:13 PM
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bob, el boberino, the bobmeister, bringing the cut'n'paste, bobster.


Posted by: | Link to this comment | 09-11-08 9:21 PM
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Done. Sorry. They really are worth reading, the lat about "Creditors getting a vote" especially important.

Ya know, I came on this morning and there was a 9/11 post up that seemed to be an opportunity, if an embarrassing one, to discuss conflicts between Eastern Urban elites and flyover schmoes. But then it was gone.

AFAIK, all my comments from the last 5+ years are still around. I don't get to cleanse my record.


Posted by: bob mcmanus | Link to this comment | 09-11-08 9:25 PM
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105 was me.

to discuss conflicts between Eastern Urban elites and flyover schmoes

Fuck me some fucking flyover narrative, asswipe. Tired of that fucking shit. You know there are 10 million "flyover" shmoes right in the NY Metropolitan area that you and David Brooks couldn't find with a stick.


Posted by: JP Stormcrow | Link to this comment | 09-11-08 9:31 PM
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||

Any advice re Oklahoma City? I may have to be there in a month or so.

|>


Posted by: Nápi | Link to this comment | 09-11-08 9:33 PM
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Saw an old movie last night with Tony Goldwyn & Lynn Whitfield, just a wtness/cop vs mob action B, with this long scene of boats moving under the Twin Towers.

Hurt all the way here in Dallas.


Posted by: bob mcmanus | Link to this comment | 09-11-08 9:33 PM
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Any advice re Oklahoma City?

Don't go. Seriously, cancel the trip. And if it's job-related, quit the job. But if you have to go, let me know. We still have a bunch of friends in Norman, and if you're willing to hang out with people who have little kids, you'd probably think these people are nice. But fuck nice; cancel the trip.


Posted by: ari | Link to this comment | 09-11-08 9:35 PM
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You know there are 10 million "flyover" shmoes right in the NY Metropolitan area

And they are real Americans, worth twice as much as Dallasites.

Wish that post had stayed up. Coward.


Posted by: bob mcmanus | Link to this comment | 09-11-08 9:37 PM
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Yeah, Oklahoma City is a small step up from Detroit.


Posted by: pdf23ds | Link to this comment | 09-11-08 9:38 PM
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I'm trying to figure out who bob just called a coward. Puzzled, I settle on bob.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 9:46 PM
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Dog carcass in alley this morning, tire tread on burst stomach. Newberry says Obama is the Pumpkin King; all too true. Will Yglesias crawl across barbed wire for revolution? Will Klein? I will be there when it comes, commenting all the while.

Began watching Berlin Alexanderplatz last night; turned it off after a few minutes and decided to watch Police Academy 4 instead and pretend it was Berlin Alexanderplatz. Steve Guttenberg presents a searing vision of the dark, fascist heart of modern man.


Posted by: rob folkmanis | Link to this comment | 09-11-08 9:47 PM
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I assumed, because I made Becks take down her 9/11 post, he was talking about me. Also, I hate real Americans.


Posted by: ari | Link to this comment | 09-11-08 9:49 PM
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No, I made Becks take down her 9/11 post.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 9:50 PM
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Jesus Christ, Bob, I'm always inclined to defend you on these threads, but your over-lengthy cut-and-paste taxes my powers of persuasion most mightily, to be sure.

I don't mind being called a coward. Up the line, up the Opeongo Line, I mean, is where we may or may not blink.


Posted by: Mary Catherine | Link to this comment | 09-11-08 9:54 PM
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You, sir, are a coward.


Posted by: ari | Link to this comment | 09-11-08 9:55 PM
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Began watching Berlin Alexanderplatz last night; turned it off after a few minutes

Good decision.


Posted by: Blume | Link to this comment | 09-11-08 9:55 PM
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I'm trying to figure out who bob just called a coward.

I believe he's referring to Noel.


Posted by: apostropher | Link to this comment | 09-11-08 9:56 PM
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Shorter 100: Kobe!


Posted by: M/tch M/lls | Link to this comment | 09-11-08 9:58 PM
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120: apo, we missed you on the stupid dirty pun thread.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 9:58 PM
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Bob hates Christmas?


Posted by: ari | Link to this comment | 09-11-08 9:59 PM
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Which one was that? I've been trying to catch up at work after being out sick for a day.


Posted by: apostropher | Link to this comment | 09-11-08 9:59 PM
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So, having read both of bob's cut-and-paste comments...

heh!


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:00 PM
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124: cliticklish.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:00 PM
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I guess that should have been self-evident.


Posted by: apostropher | Link to this comment | 09-11-08 10:00 PM
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Oklahoma City sucks.

This is possibly the greatest quote in the English language:

Began watching Berlin Alexanderplatz last night; turned it off after a few minutes and decided to watch Police Academy 4 instead and pretend it was Berlin Alexanderplatz. Steve Guttenberg presents a searing vision of the dark, fascist heart of modern man.

Posted by: Walt Someguy | Link to this comment | 09-11-08 10:01 PM
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Wait a minute. Did we stop talking about Sarah Palin again?


Posted by: apostropher | Link to this comment | 09-11-08 10:02 PM
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128: yeah, 114 deserves to be treasured.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:04 PM
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I'm seriously wracking my brain about OKC. There's a really fancy mall -- in Dallas. There's an okay museum of Western art -- in Tulsa. There's an odd and delicious Mexican restaurant -- in Norman. There's a seedy casino -- in Concho. And on and on. I'm sorry. I wish I could do better. I can't. Don't go. You're too good a person to suffer like that.


Posted by: ari | Link to this comment | 09-11-08 10:06 PM
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OKC has some river walk thingee. It's more interesting than sitting in your hotel, but only if your room doesn't get HBO.

America will never be a second-rate power as long as Sarah Palin dresses like a hooker.


Posted by: Walt Someguy | Link to this comment | 09-11-08 10:08 PM
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131: you can throw a single rose at the site of Timothy McVeigh's martyrdom.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:09 PM
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Wait a minute. Did we stop talking about Sarah Palin again?

Yeah, just for a sec. Then, there was some chatter about sex and stuff. Now the new plan is, if Sarah Palin blinks—seriously, like at a all—we launch nukes at the future. Got it? Good.


Posted by: Stanley | Link to this comment | 09-11-08 10:10 PM
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131: There's a very interesting unique building you can tour - in Bartlesville.


Posted by: CN | Link to this comment | 09-11-08 10:10 PM
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125:There's three.

117:The PTB's have my permission to delete them

115:I, being gone for half the day, had no idea of how and why the 9/11 post got deleted. For ari to claim he made Becks remove the post is certainly sexist. I, not have such phony chivalry or patriarchal privilege, consider Becks a free agent and was calling Becks a coward.

It may have been defensible. It was certainly authentic and interesting. Too bad it's gone.


Posted by: bob mcmanus | Link to this comment | 09-11-08 10:11 PM
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you can throw a single rose at the site of Timothy McVeigh's martyrdom.

Have to go to Terre Haute to do that.


Posted by: CN | Link to this comment | 09-11-08 10:11 PM
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133: Right, the empty chairs. Go at dusk; if you squint, it's moving.


Posted by: ari | Link to this comment | 09-11-08 10:12 PM
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137: dammit.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:13 PM
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118: O come all ye boys,
that wish to hear,
how we got back
to the woods last year...

Yeah, I'll meet you in Dacretown (or in Renfrew, the Jewel of the Bonnechere), nice boy from Montreal, and we'll see what's what, eh?

The landlord's treat,
went merrily around,
And we drank a health
to Dacre Town.
To me' rantin', o,
fol-a-do-a-day,
Rant and roar
and drunk along the way.

Courage! Ari. And have a doughnut.


Posted by: Mary Catherine | Link to this comment | 09-11-08 10:14 PM
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I, not have such phony chivalry or patriarchal privilege,ing any idea what happened consider Becks a free agent and was calling Becks a coward.

You stay classy, bob. It's what Marx would have wanted.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:15 PM
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So the Becks post really did disappear? I clicked over here and saw it, but it was gone when I clicked back later. I've been having some memory problems lately, and the experience freaked me out. Is there some discussion of what happened? I'd be genuinely interested, given my scholarly pursuits, if there is. But I don't want to pry if the documents have been sealed.


Posted by: ari | Link to this comment | 09-11-08 10:16 PM
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118 was to 116, MC, because Jetpack made Becks take the post down. But you're a coward, too, I guess.


Posted by: ari | Link to this comment | 09-11-08 10:18 PM
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But you're a coward, too, I guess.

Oh well, yes, to be sure. But I'm confused by the numbering (though what else is new?).


Posted by: Mary Catherine | Link to this comment | 09-11-08 10:26 PM
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142:It could have been construed as offensive. But having watched a long panel on why Schindler's List should not have been made, when I first read:"Those who weren't there don't comment.", I didn't comment. I consider the attitude interesting and defensible, or at least worth discussing. And leading to further discussions about personal experience or involvement being necessary for remembrance or criticism. The post continued in that vein, with Becks moving to Washington.

When it disappeared I assumed it was considered too controversial.


Posted by: bob mcmanus | Link to this comment | 09-11-08 10:26 PM
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Remember, when you make an assumption you make an ass of U and Mption.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:28 PM
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I'm hoping not to go, ari. For which reason the litigation gods will surely send me.


Posted by: Nápi | Link to this comment | 09-11-08 10:28 PM
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147: Bring a good book. Visit the memorial. Have a beer or two. And really, if you want to go to Norman (20 minutes south of OKC), let me know. There are many nice people there. I know several of them.


Posted by: ari | Link to this comment | 09-11-08 10:35 PM
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I will say that, while there are many good reasons for deleting a post, it can (selfishly) be a shame sometimes that lines of discussion disappear. That said, I've deleted a post just because I was drunk when I wrote it, which is way lamer than anybody else here.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:38 PM
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Oklahoma is seriously the only state that doesn't contain a single place where I would want to live for more than a week. Even Mississipppi, Alabama, South Carolina have places that are fascinatingly significant to the history of music, literature, America in general, etc. And all the states out west have some great scenery. North Dakota...well, I don't know of anything that recommends North Dakota, but at least it wouldn't be horribly hot for more than month out of the year.

If I enter the program where the CDC ships people out to somewhere in the country to do field work and enter the fraternity of experienced epidemiologists, the only places I'm going to completely rule out being assigned to are
A) Oklahoma
B) Anywhere that contains sparsely populated deserts where I could get severe heatstroke if my car breaks down
C) Anywhere populated predominantly by extremely conservative Mormons.


Posted by: CN | Link to this comment | 09-11-08 10:47 PM
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What about some combination of A, B, and C?


Posted by: Sifu Tweety | Link to this comment | 09-11-08 10:49 PM
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Yo, Boberino, just to help with the paranoia:

We probably bailed out pension funds and rich individuals as much as we bailed out China and the petrostates, since this smart-ass motherfucker had about 70% of his portfolio in mortgage-backed securities (most notably FNMA and FDMC bonds) when the announcement was made. That news story just talks about the $80-90 billion stake he held in those bonds within his $130-something billion Total Return fund, but Bill Gross runs hundreds of billions in separate accounts and other money pools for major institutional investors. His accounts probably held over $150-200 billion in those mortgage companies' bonds, which is nearly half of the $380 billion stake I've heard mooted for China's reserves. And that's just one dude's bond funds.


Posted by: Po-Mo Polymath | Link to this comment | 09-11-08 10:51 PM
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Is there a place described by all 3?

I guess my reservation about Mormons applies to any other places where extremely conservative people from a religion I am unfamiliar with are the majority. So this includes much of Idaho and Utah, as well as that town in the Hudson River Valley with all the Jews who have 12 children per household, and...I don't know what else.


Posted by: CN | Link to this comment | 09-11-08 10:52 PM
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150: Yeah, there's some parts of southwest Oklahoma that I think would sweep the board. Good thing there aren't enough people there to produce anything that could even generously be called "an epidemic".


Posted by: Po-Mo Polymath | Link to this comment | 09-11-08 10:52 PM
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Hantavirus?


Posted by: jms | Link to this comment | 09-11-08 10:54 PM
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The Crazy Blonde I Dated was a clinical monitor and flew all over the county all the time. Oklahoma was far and away her least favorite place she'd been. Never been there myself.


Posted by: apostropher | Link to this comment | 09-11-08 10:57 PM
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Oh, and the category "Oklahoma" also includes the western half of Texas. I find that scenery there extremely unenjoyable, and you can't even escape it by driving anywhere.

And category D) Lakeland, Florida. I've been there enough to know it is extremely depressing. And I'd have to visit my demented great-aunt, who is even more depressing.


Posted by: CN | Link to this comment | 09-11-08 11:01 PM
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My folks, who drive across the country every year, say there are a number of transcendentally good steak places in OKC. The one they return to is reassuringly close to a slaughterhouse.

extremely conservative people from a religion I am unfamiliar with are the majority
Why the qualifier? It's not like Mormons are going to sacrifice you.


Posted by: foolishmortal | Link to this comment | 09-11-08 11:01 PM
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I've lived, for stretches at least, almost everywhere. Nothing comes close to Oklahoma's awfulness. It really is a special place. That said, there are a number of sovereign tribes that are very attached to it. So there's that.


Posted by: ari | Link to this comment | 09-11-08 11:02 PM
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It's not like Mormons are going to sacrifice you.

So you say.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 11:04 PM
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157: In north central northeastern Oklahoma there is a pretty nice remnant of tallgrass prairie of the type found in the Flint Hills of Kansas. Really spectacular stuff if you can get past the vertical scenery and body-of-water chauvinism we've all internalized due to the machinations of the crypto-fascistic tourist industry.


Posted by: | Link to this comment | 09-11-08 11:05 PM
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The place I was thinking of is called "Bricktown". It would be an okay place to have a beer on a nice day.


Posted by: Walt Someguy | Link to this comment | 09-11-08 11:07 PM
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157: me again. other people's computers suck.

159: I've lived, for stretches at least, almost everywhere. Nothing comes close to Oklahoma's awfulness.

I guess you could say you bombed in Oklahoma City?


Posted by: JP Stormcrow | Link to this comment | 09-11-08 11:08 PM
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Nothing comes close to Oklahoma's awfulness.

And this from a man who lives in the Central Valley. The soul shudders.


Posted by: foolishmortal | Link to this comment | 09-11-08 11:09 PM
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163: 157 161! I blame Sarah Palin.


Posted by: JP Douchebag | Link to this comment | 09-11-08 11:10 PM
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163: 157 161!

165, 7.


Posted by: Sifu Tweety | Link to this comment | 09-11-08 11:12 PM
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I've thought about this some more, and there are other places that seem unenjoyable (Huntsville, Alabama; Fayetteville, North Carolina; Albany, NY), but they're all within a short drive of somewhere acceptable. Indiana has always seemed pretty devoid of interest, but it seems similar to Ohio, so it gets the benefit of the doubt.

Whereas Oklahoma has terrible weather and a startlingly high number of wealthy homeschooling mega-church patrons; is immersed in the mythology of the cowboy, which doesn't interest me; and consistently votes for the nation's most objectionable congressional delegation. There's no mountains, constant humidity, the rain either doesn't come at all or there's way too much of it, and the only bodies of water are mockingly named "Canadian", seemingly designed to make us wistful for a far better place. The only sporting traditions are based on the logical fallacy of recruiting people from Texas to represent Oklahoma colleges in their battles against Texas. And even the cities are named after the most boring people and concepts imaginable. "Norman"? "Enid"? "Stillwater"? "Oklahoma City?" Oklahoma gets the gas face. If anyone wants me to live there, I'd have to be living within walking distance of at least three of these alleged amazing barbecue restaurants. Good night.


Posted by: CN | Link to this comment | 09-12-08 12:06 AM
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I interviewed for a job in Texas, not far from the Oklahoma border. I called Mr. B. and said "please god don't let me get this job."


Posted by: bitchphd | Link to this comment | 09-12-08 12:07 AM
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While in the process of getting my first job, at the University of Oklahoma, I began crying, alone, in my hotel room late at night following the first day of the interview. I called my then-fiancee and said, "Should I tank the final part of the interview? Should I just tell them that I don't want the job? Should I just not show up tomorrow?" She counseled against such self-destructive behavior, suggested that if it was as bad as it seemed (it was) we'd quickly move on (we did), and generally was very kind to me. Of course, she was wrong: I should have left at once. Spectacularly tanking the interview might also have been fun. On the other hand, we made some really good friends there.


Posted by: ari | Link to this comment | 09-12-08 12:17 AM
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But apparently it made Davis look good, so there's that.


Posted by: foolishmortal | Link to this comment | 09-12-08 12:29 AM
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164 and 170 proves foolishmortal does not know the meaning of suffering.


Posted by: Walt Someguy | Link to this comment | 09-12-08 1:31 AM
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I heard Palin's interview this morning, and fuck, if I had a spare minute between scrounging up port I'd volunteer for Obama's campaign. At least there is a bright side:

PALIN: What I think is that smaller democratic countries that are invaded by a larger power is something for us to be vigilant against. We have got to be cognizant of what the consequences are if a larger power is able to take over smaller democratic countries.

So at least the US won't be invading Iran then.


Posted by: W. Breeze | Link to this comment | 09-12-08 1:53 AM
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168:Now wait just a minute here. We were talking about the flat desert hellhole Oklahoma, not the beautiful plains, verdant forests, and lush grasslands of North Texas Lake Country.


Posted by: bob mcmanus | Link to this comment | 09-12-08 6:27 AM
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I know our regulars disdain lowbrow humor, and rightly so, but in case any lurkers wanted to see something snarky-funny I recommend this.


Posted by: Tripp | Link to this comment | 09-12-08 10:34 AM
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Crap, correct link here.

My bad.


Posted by: Tripp | Link to this comment | 09-12-08 10:43 AM
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||

A junior member of the Labour Government has called for a leadership election to challenge Gordon Brown. Not just a back bencher, but an assistant whip.

|>


Posted by: Bostoniangirl | Link to this comment | 09-12-08 12:31 PM
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131: There's a very interesting unique building you can tour - in Bartlesville.

I made a huge detour en route from KC, MO to Denver, CO to see that. Totally worth it, even though it meant getting in to Denver at something like 2 am CDT.

Not that any of you should be surprised.


Posted by: JRoth | Link to this comment | 09-12-08 1:37 PM
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168: Hey, that's right around where I used to live!


Posted by: pdf23ds | Link to this comment | 09-12-08 4:40 PM
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Shim-Sham the Liberal Media Elite Dummy


Posted by: apostropher | Link to this comment | 09-13-08 9:30 AM
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