Price Limits on Trading?



Hedge Fund manager Paul Tudor Jones says "absolutely yes." Not what you would expect to hear from the hedge fund frontier.

Another Reason to Vote For Mitch Daniels.


"This [Indiana Governor Mitchell Daniels’ support of a VAT] is outside the bounds of acceptable modern Republican thought, and it is only the zone of extremely left-wing Democrats who publicly talk about those things … Absent some explanation, such as large quantities of crystal meth, this is disqualifying. This is beyond the pale."

Thus spake Grover Norquist, GOP lobbyist and "thought leader." Why a value-added-tax is "beyond the pale" has to do with idiotic Republican orthodoxy which you can read about here. Inevitably, the US will adopt a VAT to help pay down its debts.

The QE2


Quantitative Easing is one of those subjects that bloggers dare not raise, knowing that it will send readers fleeing to other sites. Ellisblog, however, is fearless and directs you to this discussion of what QE2 might entail. It's possible that the Fed will buy up muni bonds from states like California and Illinois. Watch this space. (via Business Insider)

A Ray of Hope?

If Proposition B does pass in San Francisco, then at least we will have taken the first step toward pension reform (and therefore solvency). If Proposition B does not pass, bond markets take note.

Municipal Bankruptcy.

So the question is: what happens?

Chicago is bankrupt. It cannot meet its obligations. This is not a matter of opinion. It is a matter of fact.

So how does the restructuring work? Who presides over it? The question obviously doesn't just apply to Chicago. It applies to countless cities and states across the country. (via Business Insider)

The Avalanche.

Mid-term elections are, generally speaking, a zero sum game. The out-of-power voters are highly motivated to vote, to express their exasperation with the in-crowd and send a message. The in-party's voters are disheartened and discouraged and therefore less likely to vote. Three percent more of the former and three percent less of the latter adds up to a six percent swing and some number of Congressional seats (usually around 20) changes hands.

What is unusual about the 2010 mid-term elections is that this "normal" turnout differential may be as much as 8 percent, which adds up to a 16-point swing, which puts a lot of otherwise safe Congressional seats in play. And in some cases the "swing" may go higher. Which is why the best political forecasters, like Charlie Cook and Stu Rothenberg, are predicting that roughly 50 seats will change hands in two weeks, leaving the GOP in control of the House and quite possibly the Senate as well.

This is, on paper, good news for President Obama. He's the president and commands attention by virtue of his job. His Administration can speak with one voice. And for all of his woes, Mr. Obama still enjoys relatively high esteem.

A GOP Congress, on the other hand, is a collection of many voices, not all of them sensible. The GOP's Congressional leadership is not what one might call formidable. It's not at all clear that they can deliver on whatever deals they might cut with the Administration. It's not at all clear that the base of the party will allow them to cut any deals at all.

To make matters more prickly, there is every reason to believe that the GOP's activist wing will interpret the mid-term results as a mandate, not as a by-product of turnout differential. Thus emboldened, the activist wing will likely promote ideas and legislative schemes that re-energize and re-unite the Democratic base. Once again joined in common cause, Democrats will begin to narrow the turnout differential, the political narrative will subtly change, Independents will begin to get nervous about GOP "extremism," and the terrain will likely shift back to the President's advantage.

This would be, in the normal cycle of things, the likeliest narrative for the next two years. It's what happened in 1974 (although President Ford fell short in the last week of the 1976 campaign) and it's what happened in 1994 (Clinton won easy re-election, although with less than 50% of the total vote).

The question on the table is: are these times normal? Or is something much more profound and much more unsettling going on? If you believe that the new normal is not normal at all, as I do, then "normal" narratives no longer apply.

What might be an alternative story line? One answer would be: increased volatility. A darker answer might be: political instability and unrest.

As a nation, we are struggling with overwhelming debt at every level of governance and across a vast swath of the electorate. There are at least (at the very least) 15 states and countless municipalities that are functionally bankrupt. The states that are bankrupt, by any real accounting, include New York, New Jersey, Massachusetts, Connecticut, Illinois, California, Nevada, Arizona, Colorado, Ohio, Wisconsin, Louisiana, Missouri, Oregon, Washington and Michigan. They can't (literally can not) meet their pension obligations. They won't be able to pay for their ever-rising health care costs. Education costs are eating up too much money (although this will abate somewhat as the echo boom generation matriculates) and virtually every state (and municipality) has huge bond obligations, the proceeds from which papered over previous shortfalls. Oh, and one other thing, the economies in all of those states are stagnant, at best.

Once the last infusions of stimulus money run dry, what remains is a vast desert of debt. The idea that an over-leveraged electorate can be called upon to make up the shortfall is a non-starter. They can't pay down their own debt and municipal debt and state debt and federal debt. The math simply doesn't work. They end up with no take home pay.

This is the real avalanche that is about to hit American democracy. The avalanche in two weeks results in Nancy Pelosi no longer being the Speaker of the House. The avalanche of debt that hits beginning in 2011 and keeps on coming will shake our political system to its foundation. That's the avalanche that matters.

President Obama can either get ahead of this avalanche by proposing a vast restructuring of government debt and obligations while aggressively promoting a venture-based economic growth agenda or he can be consumed by the rubble. The same holds true for the next Republican presidential nominee. He or she needs to be ahead of the avalanche to survive its inevitable onslaught.

It is unlikely that either President Obama or the future GOP nominee will even address the avalanche. So the narrative will write itself. It will make the autumn of 2008 look like a day at the beach.