The Fed Road Show : Bernanke talks Theory and Philosophy while Main Street Sees Inflation and Mortgage Crisis

From Forbes Magazine by Maurna Desmond May13, 2008 :Bernanke Talks Big Picture As Inflation Looms
Also go to end of post to see slides selected from San Francisco Fed President and CEO, Dr. Janet Yellen's presentation on Credit, Housing, Commodities and The Economy (also on May 13, 08 at a Conference on Monetary Policy in Voncouver).

"Speaking at an Atlanta Fed conference at Sea Island, Ga., the Federal Reserve chairman voiced his theoretical concerns about the potential moral hazard that could be posed if the U.S. central bank bailed out financial companies that made mistakes. While Bernanke waxed about the Fed's rich philosophical history, other Fed officials chirped about more Main Street issues like rising inflation and the mortgage crisis.

Investors seemed to take the risk of inflation to heart. The yield on the 10-year Treasury note, a bellwether for the world's credit markets, shot up to 3.91% from 3.78% late on Monday. As inflation rises, investors demand higher returns on bonds since the purchasing power of the money invested will be eroded. The 10-year yield ended the first quarter of this year at 3.43%."

"The Federal Reserve is governed by ideas, and there is a need to look at the underlying principles guiding its actions," said Michael Feroli, an analyst at JPMorgan. "When it comes to monetary policy, you need to have a philosophy. It is important to say, 'what does it mean to be the lender of last resort?"
According to TradeTheNews.com, Janet Yellen, the San Francisco Fed president, said at a conference in Vancouver that financial stability is the core responsibility of the central bank. She added that the Fed "cannot be complacent about inflation."

CallMeASeeker May12, 2008: Also see a Presentation(PDF) by Dr Janet Yellen, CEO and President of the San Fransico Federal Reserve Bank - Credit, Housing, Commodities, and the Economy. Here are some Key slides.

The Housing Bubble - A pattern of hidden risk , high leverage and poor credit rating quality. Loan Underwriting deteriorated - loans without full documentation

Price of Commodites Rise Sharply, Oil at all time High
US Net Exports are a source of Strength

High Noon for Credit ? Uncle Ben puts the Credit Card Industry under "The SpotLight"

CallMeASeeker Update May8 2008, : This post (short version) now on my new blog (Obamanomics) at BarackObama Community Blogs http://my.barackobama.com/page/community/blog/obamanomics
CallMeASeeker: May 06, 2008-" Since the Fed Cut last week, Ben Bernanke has been giving Congress and the Finance Industry something to think about, something positive - about credit cards. The target of his testimony to Congress was predatory business practices, lack of transparency on consumer policies and "stealth tactics" that credit card companies employ like "two-cycle billing" - where interest from amounts due in previous billing cycles are tagged on to the current billing cycle.
This is not Uncle Ben's first attempt at bringing about positive changes to protect the economically challenged amongst us who form the credit card industry's 'target market' for new sales. More on Uncle Ben later(A profile of Uncle Ben's time in the Fed and A Quiz on financial literacy by the man himself at end of this post)
What I want to spotlight here is the recent buzz of activity in the credit card markets and the timing of Ben Bernanke's recent pronoucements(Seattle Time May 6, 08 High Interest in Credit). Is there a showdown cooking between the Fed and the financial industry? Is Uncle Ben being-proactive to stop the next bubble?. Also crucially is the Fed itself in agreement on this direction? "If the Federal Reserve Board is not lobbied into paralysis, Bernanke's new credit-card rules could be in place by Jan. 1."
Presidential Candiate and Probable Nominee Barack Obama's Credit Bill of Rights also targets some of the same practices Bernanke has been highlighting to Congress and on that note go donate now!!! Vote Barack Obama 08
Take a look at what's been happening in the credit card industry recently and see Fed Board of Governor's profiles at the end of this post:
1. March 19, 2008 Visa IPO : JPMorgan Chase makes $1B-plus on Visa IPO - From CNN Money
"JPMorgan is the largest of six principal bank stockholders of the the card processor, who all reaped big bucks from the offering. The debut was so successful that Visa sold additional shares, boosting the banks' takes"
2. April 19, 2008 Global usage of Credit cards and news since the Visa IPO - Visa and Mastercard: The Mortgage Brokers of the Credit Card Industry(from Seeking Alpha)
"There is definitely a shift from cash to credit cards worldwide, just as there was a shift from renting to home ownership based on the wide availability of mortgages, but is only a matter of time before this comes to a screeching halt. Visa (V) and MasterCard (MA) get paid a fee which is equal to a percentage of each transaction, and have no credit risk. Mortgage brokers have no direct credit risk either and they get an upfront fee when the transaction closes.
"There are a few other issues contributing to the negative trends for the credit card industry: Retailers are getting increasingly vocal against the interchange fees and now being debated is the Consumer Bill of Rights "
3. May 2008 Ben Bernanke targets unfair and deceptive practices by credit card companies - From DowJones via NASDAQ
"Bernanke and the Fed outlined a broad proposal to crack down on unfair and deceptive practices by card companies. The joint proposal, created in conjunction with the Office of Thrift Supervision and National Credit Union Association, would prohibit or limit a number of bank and card company practices that have come under fire from consumer advocates
4. May 1, 2008 Bernanke suggests student lender subsidies review (Boston.Com)
"Fed Chairman Ben Bernanke, in a letter to Senate Banking Committee Chairman Christopher Dodd, said recent student loan market problems stem from many causes, including cuts made last year by Congress in lender subsidies......Dodd had written to Bernanke asking the Fed to consider allowing primary dealers, which buy and sell government securities, to pledge student-loan-related-assets to obtain credit through the Fed's term securities lending facility.Without answering Dodd directly, Bernanke said: "Student loan-related assets can already be pledged as collateral at the Federal Reserve's other three lending facilities."
""The Federal Reserve is working to promote the restoration of more-normal conditions across the broad landscape of financial markets," Bernanke said in the letter."
4. May 6, 2008 Target sells 47% of Credit card debt to JP Morgan in a $3.6Bln deal - From The Nashville Business Journal

5. May 6, 2008 From Seeking Alpha Big Ben's Credit Card Moves : More On Bernanke's proposals, correlations of credit card debt with the mortgage debt and a look at profiling and marketing practices of credit card companies
"Citing another pressure point in the U.S. economy, the Federal bank regulators are developing a swift action plan against abusive credit card companies.
Evidently, the threat of revolving credit card debt poses a significant risk to consumers. While credit card companies do not like additional government scrutiny, bank billing policies have become too aggressive. This does not mean the consumer gets a free ride here. However, if credit cards are going to be the future platform of electronic transactions, then there needs to be a degree of uniformity between banks.

More about Bernanke
Profiles of The Fed Board of Governors
Take a look at the profiles of the Fed Board of Governors and you be the judge of why there may be a conflict within the Federal Reserve. The Fed Board is nominated by the US President.
The current members of the Board of Governors(all appointed by George W Bush) are:
Ben Bernanke, Chairman
Donald Kohn, Vice-Chairman
Frederic Mishkin
Kevin Warsh
Randall Kroszner

Uncle Ben's Financial Literacy Program and QUIZ - Link
From The Wall Street Journal RealTimeEconomics Blog

Ben Bernanke's Financial Accelerator Theory and Research on The Great Depression
From the WSJ RealTimeEconomics Blog - Why Bernanke’s Great Depression Research Matters Today
From the Federal Reserve Board's Website - Bernanke's Speech at the Atlanta Fed June 15, 2007 "The Financial Accelerator and The Credit Channel"

India 'considers' Halting Food Futures Trading - Can FM Chidambaram do what it takes?

May 5, 2008 Financial Times By Raphael Minder - India considers ban on Trading in Food Futures
"India is considering a blanket ban on trading in food futures, highlighting growing concerns in Asia over the role of hedge funds and financial market traders in the recent surge in commodities prices.
An emergency move by India to shut down its food futures market, proposed on Monday by P Chidambaram, the finance minister, would reverse measures introduced only five years ago to aid the development of India as a financial centre. Speaking on the sidelines of the Asian Development Bank’s annual meeting in Madrid, Mr Chidambaram also lambasted the conversion of crops into biofuel as “the single biggest reason why we are facing this [food] crisis”. His comments came a day after US president George W. Bush said India was partly responsible for rising food prices.
India has already curbed futures trading in some crops, as well as being among countries that have imposed restrictions on food exports. India’s approach, however, drew a strong rebuke ..."
"Weighing into the debate, Jean-Claude Trichet, president of the European Central Bank, said that speculation was not responsible for food-price rises. “At the source . . . was a supply phenomenon and a demand phenomenon, which was explaining most of what we have,” he said after chairing a central bankers’ meeting in Basel, Switzerland.
Food shortages have sparked social unrest in Africa and parts of Asia, as well as other impoverished nations such as the Caribbean island of Haiti."

Warren Buffet Watch: Woodstock for Capitalists (The Berkshire Hathaway Annual Meeting) and everything else on the Buffet!!

• CNBCs Live Blog of the Berkshire Hathaway Annual meeting 2008 May 2-4
• Publicly-traded U.S. stocks owned by Warren Buffett's holding company - BerkshireHathaway Portfolio Tracker
• FORTUNE Article by Warren Buffet about The US Trade Deficit and how American Assets are being increasingly owned by foreign wealth
• The Tax System is Unfair - Warren Buffet issues a Public Challenge to Fellow-Billionares and gets deathly silence in reponse Nov 9 2007 from CNBC
• Justin Wolfer Asst. Professor of Business & Public Policy at Wharton Univ and Blogger at Freakonomics tries the Warren Buffet tax challenge! - May 1, 2008 NY Times Blogs
• Charles Munger VP of BH "Stupid Things caused Financial Crisis" from San Jose Business Journal

Harpers Magazine: BUBBLES - Understanding Speculation and Hyper Price Inflation

Harpers Magazine The Next Bubble by Erik Janszen - Recommended Reading for All Especially Uncle Ben "The Fed" Bernanke!!
CallMeASeeker : "They Know Nothing" (CNBC clip via Google/Youtube) was Jim Cramer's now immortal take on the Fed and I could not agree with him more. The Fed is clearly clueless and needs a major update in what I will call Tactical Economics and Technology to actually meet its charter. In this absolutely brilliant article by Erik Janszen of Harper's magazine the yawning gap between the Fed's Theories vs Market Realities and its effect on "asset price hyperinflation" are clearly explained. Bubbles have become the Norm rather than the exception and The Fed does not yet understand how to really handle this. This is what Buffett was alluding to as well in the 2002 BerkshireHathaway Annual Report where he termed mortgage backed derivatives as Financial WMDs(See Report Page 14 ). These financial instruments need to be regulated to an extent where they do not wreak the kind of havoc we see today. The days of using interest rates as leverage to control inflation and the money supply are over. The policy and regulatory controls of the Fed should be reviewed and overhauled. The Fed should look to state-of the art Hardware and Economic Model-based Business Intelligence to monitor and pre-empt dangerous fluctuations in the money supply, the credit/asset and securitization markets that can derail the global economy. The Technology is out there but this is not your boiler plate IT implementation and thats putting it mildly, this needs a Google like approach backed 100% by every branch of government concerned.
The Googles and Apples of the world have delivered gadgets, toys, search engines and Orkut but nothing that has come out of Silicon Valley has solved any of our real problems in the 2 most critical areas - energy and the economy. The IT industry needs to rise to the occasion and work with the economists of our time to deliver innovation that allows the Fed to monitor the economy.
For that to happen the IT industry's techno-whiz kids need to understand economics - period. As dry a subject as it is , it forms the very fabric on which American and global prosperity and peace depend. Mis-informed economic and monetary policy have caused much pain to the poorest amongst us. The food price bubbles in 2008 have already triggered a civil war in Haiti and rioting in Egypt. Economics and Monetary policy is the 10,000 pound gorilla in the room that we have chosen to ignore - and when we ignore something you can be sure our politicians and leaders will do the same. So start right here, Educate yourself ...Change comes from the ground up!! Vote Barack Obama 08 '

Harper's Magazine Feb 2008 Erik Janszen : The next bubble:Priming the markets for tomorrow's big crash - Absolutely Brilliant Article - A must Read!
"The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being. Spurred by the actions of the Federal Reserve, financed by exotic credit derivatives and debt securitization, an already massive real estate sales-and-marketing program expanded to include the desperate issuance of mortgages to the poor and feckless, compounding their troubles and ours.
"The crash, the Great Depression, and World War II were a brutal education for government, academia, corporate America, Wall Street, and the press. For the next sixty years, that chastened generation managed to keep the fog of false hopes and bad credit at bay. Economist John Maynard Keynes emerged as the pied piper of a new school of economics that promised continuous economic growth without end. Keynes’s doctrine: When a business cycle peaks and starts its downward slide, one must increase federal spending, cut taxes, and lower short-term interest rates to increase the money supply and expand credit. The demand stimulated by deficit spending and cheap money will thereby prevent a recession. In 1932 this set of economic gambits was dubbed “reflation.”
CallmeASeeker adds on May 03, 2008 :And you dont have to wait for long for the next bubble. Here's the kick-off :The Dallas Morning News - Rockefellers call for Exxon to invest in alternative energy

Uncle Ben Does the Two-Step! Annouces Quarter Point cut , Indicates Pause in Future

Fed cuts rates as economy slumps, hoping to stop recession CNBC April 30, 2008
" Chairman Ben Bernanke led a divided Fed, in an 8-2 vote, in slicing its key rate by one-quarter percentage point to 2 percent.
"The substantial easing of monetary policy to date ... should help to promote moderate growth over time and to mitigate risks to economic activity," the Fed said, strongly hinting that more cuts may not be needed.
Although the Fed didn't take another reduction off the table, a growing number of economists believe the central bank is winding down its rate-cutting campaign. Barring another hit to economic growth, they believe rates probably will stay where they are -- perhaps through the rest of this year -- in part because the Federal Reserve is concerned that further cuts could join with galloping energy and food prices and spread inflation dangerously higher.

The Fed's Bender - Commentary on the Uncle Ben's Inflation Bender 2 days before the rate cut from the Wall Street Journal Opinion Forum April 28, 2008
"Eight months into the Fed's most recent rate-cutting spree, the evidence is overwhelming that it has been a major policy mistake. Aggressive rate cutting – taking the fed funds rate to 2.25% from 5.25% last September – has had little effect on the banking crisis it was supposed to ease.

...the Fed's decision to open the general monetary spigots has inspired a global commodity boom unlike any since the 1970s. Oil has climbed to nearly $119 a barrel today from $70 in late August, a 70% increase. Farm and other commodities have seen a similar surge, with corresponding increases in food prices leading to shortages and riots in Egypt and other places, and to rice hoarding even in Southern California.
The popular media explanation is that this price surge is a result of rising global demand, greedy speculators and human profligacy. All of a sudden, without warning, the world is said to be running out of food. After 30 years in intellectual hibernation, Thomas Malthus and the Age of Scarcity are back in style."

Fed Up! Has the Fed had enough?

Treasury eyes stronger powers for Fed - FinancialTimes (By Gillian Tett in London and Krishna Guha in Washington) April 29, 2008:

The Federal Reserve could use proposed new regulatory powers to try to stop credit and asset market excesses from reaching the point where they threaten economic stability, the US Treasury said on Tuesday. David Nason, assistant secretary for financial institutions, said the Fed could even use its proposed “macro-prudential” authority to order banks, hedge funds and other entities to curtail strategies that put financial stability at risk. By “leaning against the wind” in this way, the US central bank could “attempt to prevent broad economic dislocations caused by potential excesses”, he said. His comments come amid debate inside the Fed as to whether it should try to do more to contain asset price bubbles, following the housing and dotcom busts. Some see enhanced regulatory powers as a better tool for this than interest rates."

Also See from CNN Money -Fed could burst oil's bubble :

"Central bank rate cuts have devalued the dollar, fueling the rise in crude prices; but if rate slashing stops, oil's rise may ease.One factor that has sent the dollar down and oil up recently has been the Federal Reserve's months-long round of rate cuts. In an attempt to stimulate the ailing U.S. economy, the central bank has cut rates by three percentage points since September. But the rate cuts are also inflationary, weakening the dollar and sending oil prices higher. The weak dollar is a major detriment to the price of oil," said Stephen Schork, publisher of the energy industry newsletter The Schork Report. "It's keeping prices artificially high."

OPEC President Says Oil Could Hit 200$ - Cites Weak Dollar and Global Insecurity

Excerpt from Financial Times April 28, 2008 by Carola Hoyos in London:

"Opec’s president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help.The comments made by Chakib Khelil, Algeria’s energy minister, came as oil prices hit a historic peak close to $120 a barrel, putting further pressure on global economies. His remarks suggest Algeria wants Opec to continue to resist calls by US and European leaders for the cartel to pump more oil to help ease prices. But Mr Khelil blamed record oil prices on the weak dollar and global political insecurity. " "He added: "The prices are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value of the dollar. Each time the dollar falls 1 per cent, the price of the barrel rises by $4 and of course vice versa.”
Also See the BBC Article on the same news: Opec warns oil could reach $200
CallmeASeeker notes :The BBC article chooses to mention the dollar only in passing and focusses mostly on the oil supply side!! Whats the Fed Thinking about this :
From CNN- Fed Expected to Cut Fed Funds Rate this Week to 2%

The Oracle of Omaha - Warren Buffett in 2002"Derivatives are Financial WMDs..." Amen! Sir Amen!!

Via myprops.org From Berkshire Hathaway's Inc. 2002 Annual Report:
Direct Link to Report at BerkShire's site - see page 14
"Derivatives:Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system. Having delivered that thought, which I’ll get back to, let me retreat to explaining derivatives, though the explanation must be general because the word covers an extraordinarily wide range of financial contracts. Essentially, these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices or currency values.
The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen). At Enron, for example, newsprint and broadband derivatives, due to be settled many years in the future, were put on the books. Or say you want to write a contract speculating on the number of twins to be born in Nebraska in 2020. No problem – at a price, you will easily find an obliging counterparty.
Errors will usually be honest, reflecting only the human tendency to take an optimistic view of one’s commitments. But the parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid (in whole or part) on “earnings” calculated by mark-to-market accounting. But often there is no real market (think about our contract involving twins) and “mark-to-model” is utilized. This substitution can bring on large-scale mischief. As a general rule, contracts involving multiple reference items and distant settlement dates increase the opportunities for counterparties to use fanciful assumptions. In the twins scenario, for example, the two parties to the contract might well use differing models allowing both to show substantial profits for many years. In extreme cases, mark-to-model degenerates into what I would call mark-to-myth.

The Death Knell for Reckless Speculation? Has the Financial Industry's Heyday Come and Gone?

CallMeASeeker: " The finance industry is just begin to sober up after a Caligulasque orgy of speculation on everything from gold, mortages and food. The euphoria was at its peak in 2007 and then like all orgies it had to end. The ensuing chaos skewed the real world economy with massive price inflation driven by speculation on oil, wheat, corn, rice and metal futures. Speculation and hoarding always tend to shadow each other and are further incensed by market forces and psychology. Cost Cutting, profit motive, price gouging and cartelization drive up prices even without any change in the supply-demand fundamentals of commodities." Update April 29, 08 : FT.COM - Fed considers Regulation of Credit and Asset Markets - Is this officially the beginning of the end of wild fluctuation in the global economy.?..maybe not but its a damn good start for a otherwise typically reticent Federal Reserve.
From: TheWallStreetJournal April 28, 2008: by Justin Lahart
"The role of finance in the economy is going to come down significantly in the coming years," says Carlos Asilis, chief investment officer at Glovista Investments, a New Jersey money manager. "From a societal standpoint, we got carried away with finance." Finance was lifted by deregulation, globalization and technological innovation. Combined, these forces allowed capital to flow far more freely around the globe, brought flexibility to the economy and made finance lucrative.
The creation of securities backed by mortgages and other loans and other innovations made it easier for financial firms to spread risk, and thus they became more willing to lend to households to fuel spending.
In the 2000s, finance went into overdrive, creating an alphabet soup of derivatives that, it turned out, didn't have the risk-reducing properties they were supposed to have. Mr. Philippon compares some to "sheep with fifth legs -- something you would see in a zoo and wonder what Nature was thinking."

Currency Devalution and Price Inflation - The New Economics of Hunger

The New Economics of Hunger -By Anthony Faiola April 27, 2008: "The globe's worst food crisis in a generation emerged as a blip on the big boards and computer screens of America's great grain exchanges. At first, it seemed like little more than a bout of bad weather."
"But within a few weeks, the traders discerned an ominous snowball effect -- one that would eventually bring down a prime minister in Haiti, make more children in Mauritania go to bed hungry, even cause American executives at Sam's Club to restrict sales of large bags of rice."
"As prices rose, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as global demand entered a fundamentally new phase."
"Investors fleeing Wall Street's mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. Foreign buyers, who typically seek to purchase one or two months' supply of wheat at a time, suddenly began to stockpile. They put in orders on U.S. grain exchanges two to three times larger than normal as food riots began to erupt worldwide

The Fed's Golden Opportunity to Reduce Commodity Price Inflation

Fortune (via CNN Money) by Colin Barr: April 23, 2008 - "NEW YORK (Fortune) -- The soaring price of crude oil isn't good for most people, but it could spell opportunity for Ben Bernanke. The Fed chief's inflation-fighting credentials have been in doubt since he said in a 2002 speech that central banks could prevent deflation by dropping money out of a helicopter.
Since then, Bernanke's critics have only been emboldened by the Fed's aggressive response to the current credit crunch. While six rate cuts since last summer and expanded lending plans have helped forestall a broader financial crisis, they haven't quieted skeptics who fear a sharp rise in inflation. Some think the Fed is partly to blame for the spike in commodity prices since rate cuts have helped to weaken the dollar. Despite this, investors are betting the Fed will cut rates when it meets again next Tuesday and Wednesday.
But one economist believes Bernanke could reap huge benefits simply by standing pat. By holding the line on rates, the thinking goes, the central bank's policy-making committee could send the prices of oil, gold and other goods tumbling - while serving a timely reminder that the Fed isn't letting inflation out of its sights

Predators And Prey Of The Banking Sector

Investopedia Community April 22, 2008 By Wayne Pinsent: Winners and losers in the banking sector from an stock-market investors point of view.
Also see - Analyzing A Bank's Financial Statements by Hans Wagner on Investopedia

Sub Prime Crisis in TechniColor - NY Times

NY Times: April 06 2008 - Sub-prime mortages and foreclosure statistics for the major real estate markets in the US - by Hannah Fairfield in the NY times
Watch this space for more updates on the lending practices and the speculation on real estate based debt instruments that got us here !
Sub Prime Crisis 101 -
Part 1 From- Wikipedia - Structure of Securization process that allowed real-estate lenders to sell mortgage backed debt as SIVs, CDOs etc

Speculation gone Wild - Food Price Inflation and Shortages hit Japan

The Age (Australia): April 21, 2008: "While soaring food prices have triggered rioting among the starving millions of the third world, in wealthy Japan they have forced a pampered population to contemplate the shocking possibility of a long-term — perhaps permanent — reduction in the quality and quantity of its food.
A 130% rise in the global cost of wheat in the past year, caused partly by surging demand from China and India and a huge injection of speculative funds into wheat futures, has forced the Government to hit flour millers with three rounds of stiff mark-ups. The latest — a 30% increase this month — has given rise to speculation that Japan, which relies on imports for 90% of its annual wheat consumption, is no longer on the brink of a food crisis, but has fallen off the cliff."
"Last week, as the prices of wheat and barley continued their relentless climb, the Japanese Government discovered it had exhausted its ¥230 billion ($A2.37 billion) budget for the grains with two months remaining. It was forced to call on an emergency ¥55 billion reserve to ensure it could continue feeding the nation. This was the first time the Government has had to take such drastic action since the war," said Akio Shibata, an expert on food imports,...."
"In view of recent predictions by Goldman Sachs analysts that commodities could experience "explosive rallies" in the next two years, many are wondering if Japan could become an example to other rich nations that have relied too much on foreign supplies to put food on their tables."

G7 takes a stand on sharp fluctuations in major currencies

The Telegraph UK April 19 2008: "Jean-Claude Juncker, the EU's 'Mr Euro', has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds. Momentum traders have blithely ignored last week's accord by the G7 powers, which described "sharp fluctuations in major currencies" as a threat to economic and financial stability. The euro has surged to fresh records this week, touching $1.5982 against the dollar and £0.8098 against sterling yesterday."
"European industry has managed to live with the high euro so far, but the damage of major currency shifts can take years to surface. "The moment will come where the exchange rate level will start to cause serious harm to the European economy," said Mr Juncker."
"Louis Gallois, head of the Airbus group EADS, said his company is already taking dramatic steps to shift plant to the dollar-zone. "The euro at its current level is asphyxiating a large part of European industry by shaving export margins," he said. The European Central Bank revealed in its monthly report that foreign direct investment (FDI) into the euro zone has contracted by €269bn over the last two years. Foreigners are gradually winding down operations. This will have powerful long-term effects."

Bank of England - £50bn bailout plan funded by British Taxpayers!!

Update: April 21, 2008 Link to AP-Yahoo Finance : The Bailout doubles to £100bn!!
BBC News April 20 2008 : "The BBC understands that the Bank will announce the plans to swap about £50bn worth of government bonds for British banks' mortgages. Business editor Robert Peston said it would be the biggest ever special initiative by the British monetary authorities to supply liquidity to the British banking system."
"The move would help ease the funding problems which many banks face, opening up the mortgage market to benefit householders and would-be buyers, Mr Darling said. (Alistair Darling is the Chancellor of the Exchequer - British Cabinet member in charge of all economic and financial affairs - appointed in June 2007 by British PM Gordon Brown ).
Also see the Norther Rock rescue - the first major British bank collapse precipitated by the US sub-prime mortgage crisis .
From Wikipedia Profile of Alistair Darling : "In September 2007, for the first time since 1860, there was a run on a British bank, Northern Rock. "
" The 2007 subprime mortgage financial crisis had caused a liquidity crisis in the UK banking industry, and Northern Rock was unable to borrow as required by its business model. Darling authorised the Bank of England to lend Northern Rock funds (£20bn) to cover its liabilities and provided an unqualified taxpayers’ guarantee of the deposits of savers in Northern Rock in an attempt to stop the run. "

From CBS News: An Inside look at the Treasury Dept's Auction Room - The mind-numbing logistics of Financing the National Debt

Blog Entry Updated April 17th 2008: From CBS new April 1, 2008 (Videos, Photos) -
"CBS News entered the auction room of the Treasury Department's Bureau of Public Debt -- the first time a TV camera has ever been allowed inside. "It is where the U.S. government raises the money it needs to pay its bills. In other words, it is the world's biggest borrower flashing its credit cards.
"There is real money at stake," Ryan said. "Today we're auctioning off $13 billion of 10-year Treasury notes." Treasury notes are basically IOUs that the government pays back with interest. Without that money, and a few of these auctions every week, the government would shut down. Debt is now this nation's lifeblood.
Who's buying the debt? Pension funds, mutual funds, individuals, institutions and foreign governments compete to buy the U.S. treasuries by offering the cheapest interest rate.
See also: The Treasury Auction Process - Detailed , Abstract at SSRN- From The Social Science Research Network

Will the Real Dow Jones Please Stand Up??

Sources : http://homepage.mac.com/ttsmyf Via http://itulip.com/realdow.htm
Trend Charts of the Real Dow Jones Industrial Average (DJIA) adjusted for inflation and compared to Real economic growth from the 1930s'. This chart clearly shows the extent to which the stock market is inflated due to rampant speculation on the real economy. The speculation economy is a multi-tiered system...which basically means we speculate on the speculation as well.

Also read this excellent article posted earlier from MR Venkatesh on REDIFF.COM which describes the size, scope and impact of the speculative economy.
http://www.rediff.com/money/2008/mar/14mrv.htm

WallStats.com Where your Federal Dollars Go

Detailed graphic showing goverment spending by department and federal program

Rising Food prices , Gold and the Dollar

"On a broader level, countries (whether developed or developing) are now battling for the same type of food commodities. Whereas many nations (like China) used to be net exporters of food commodities (like corn), they have now become net importers. This means, they have to look elsewhere to import food commodities just to meet their internal demand. In short, the same way that history has many examples of battles and wars that have broken out over water, oil, and other natural resources, one can imagine that, if this crisis would continue- there will be battles that erupt over food."

Sold for A Song !! JP Morgan acquires Bear Stearns

JP Morgan-Morgan Stanley Rescue Societe Generale

The inside story of how 31-year-old trader Jérôme Kerviel nearly destroyed French giant Société Générale, bank CEO Daniel Bouton's dramatic rescue, and the surprising aftermath of the affair.
SG trader Jérôme Kerviel found elaborate ways to mask what he was doing He explained in detail to prosecutors how he created a separate account of fictitious trades that mirrored his real profits and losses, making it appear as though his books were almost always balanced. Kerviel always seemed able to wriggle out of trouble, including by faking e-mails that confirmed fictitious positions
Also see Jerome Kerviel on Wikipedia for a full history of the Societe Generale fiasco.

How Hunger Could Topple Regimes

"......when the source of their hunger is not the absence of food supplies but their inability to afford to buy the available food supplies"
World Bank president Robert Zoellick noted last week that world food prices had risen 80% over the past three years, and warned that at least 33 countries face social unrest as a result.

Making IT Infrastructure Decisions? Its still the economy stupid!!

From WIRED.COM - 2006 Article on information security by Bruce Schneier CTO of Counterpane Internet Security
"And economics has a lot to teach computer security. We generally think of computer security as a problem of technology, but often systems fail because of misplaced economic incentives: The people who could protect a system are not the ones who suffer the costs of failure."
" When you start looking, economic considerations are everywhere in computer security. Hospitals' medical-records systems provide comprehensive billing-management features for the administrators who specify them, but are not so good at protecting patients' privacy. ...... And one reason the internet is insecure is that liability for attacks is so diffuse."

In all of these examples, the economic considerations of security are more important than the technical considerations.

Money for Kids as explained by the Federal Reserve

From OCEE-OK.ORG : The Oklahoma Council on Economic Education and the Federal Reserve Bank of Kansas City- Oklahoma City Branch are “partnering to ensure Oklahoma’s economic and financial future by supporting today’s educators with free student resources!”The Federal Reserve offers educators a variety of tools, publications, and resources to supplement and support classroom curriculum…all at no cost!One of the most fun and original ways the Federal Reserve teaches kids about money is through colorful comic books.

Federal Reserve Publications Catalog - with comic books for Kids - 100%!! FREE Your tax Dollars at work!
Money and Banking Simulation for School Kids - published by the Federal Reserve Bank of NY
Detailed History of Central Banking - from Economic Education material - Federal Reserve

Derivatives: Dangers of Speculation to the global economy

REDIFF.com(India) - Derivatives trading (commodities, currency, corporate bonds) is now allowed in the Indian financial markets under Union Budget 2008-2009 presented by the Indian FM in March 2008. MR Venkatesh discusses the dangers of derivates particularly as relates to the US dollar, actual value of goods and services vs. speculative valuation

read more | digg story

Security and the Falling Dollar : Judy Shelton - Wall Street Journal

from WSJ - It's not every day a former Navy vice admiral steeped in the culture of the defense intelligence community talks like a central banker In his report to Congress last week(2nd week of Feb 08) , Director of National Intelligence Michael McConnell went beyond the conventional world of spycraft. Mr. McConnell specifically acknowledged "concerns about the financial capabilities of Russia, China, and OPEC countries and the potential use of their market access to exert financial leverage to achieve political ends." He noted, in particular, the impact a weak dollar can have on national security:

read more | digg story