This Time is Different.

Another important difference between 1994 and today is that presidents George H.W. Bush and Bill Clinton and Democrats in Congress had already done the heavy lifting of getting the federal budget onto a sustainable path. In the 1990 and 1993 budget deals — both enacted against the strenuous opposition of congressional Republicans — taxes were raised and strong deficit controls put in place that led naturally to surpluses so long as the budget remained on auto-pilot, with no big new spending programs or tax cuts. Under these circumstances, gridlock was just what the doctor ordered.

It should be remembered also that Republicans had the very good fortune to take power right on the brink of the 1990s technology boom, which raised the real gross domestic product 4.7 percent in 1995, 5.7 percent in 1996 and 6.3 percent in 1997 — which sent tax revenues cascading into the Treasury.

But today the situation is quite different. The economy is in the tank and the budget is clearly on an unsustainable path, in large part due to actions taken by Republicans when they were in power. They completely dismantled the deficit controls put in place by the elder Bush and Clinton so that they could cut taxes willy-nilly without paying for them, and in the process thoroughly decimated the government’s capacity to raise adequate revenue to fund its essential functions.


Bruce Bartlett, Fiscal Times.

What Happens Next.


In truth the only window of opportunity is 2011. Here the president deserves credit for setting up a bipartisan debt commission, which is most likely to propose a sensible combination of entitlement spending cuts and increases in taxes. But sadly the chance that these recommendations will be implemented in 2011 is close to zero. Republicans will veto any tax increase, while Democrats will resist unpopular entitlement reform.

The upshot is that the current gridlock in Congress will soon get much worse. Of course, Mr Obama cannot entirely be blamed for his limited progress, when the Republicans take that Leninist approach of “the worse the better”, and offer no co-operation on any issue. That they now see Mr Obama as a one-term president will soon mean the worst open warfare inside the Beltway in 30 years.

The coming stalemate will only be made worse by the lack of a reason to act on the deficit. The bond vigilantes are asleep, while borrowing rates remain unusually low. Near zero rates will continue as long as growth and inflation are low (and getting lower) and repeated bouts of global risk aversion – as with this spring’s Greek crisis – will push more investors to safe dollars and US debt. China’s massive interventions to stop renminbi appreciation will mean purchasing yet more treasuries too. In short, kicking the can down the road will be the political path of least resistance.

The risk, however, is that something on the fiscal side will snap, and the bond vigilantes will wake up. The trigger could be a debt rollover crisis in a major US state government, or perhaps even the realisation that congressional gridlock means bipartisan solutions to our medium-term fiscal crisis is mission impossible. Only then will our politicians suddenly remember that, on top of our federal debt, the US suffers from unfunded social security and Medicare liabilities, state and local government debt, and public pension bills that add up to many multiples of US GDP.


Nouriel Roubini, in the Financial Times.

And Then What Happens?


The entire police force of a small Mexican community resigned after its headquarters were attacked by a drug cartel.

Prop Trading


Michael Lewis on how major banking institutions elide what has come to be known as the Volcker Rule. It all depends on the meaning of the words: "as a principal."
(via Business Insider)

And Then What Happens?


Presumably, the government of Yemen will deal with its water crisis before the fateful day arrives. But if it does not, then its capital city will run out of water in (roughly) 2025. (via Paul Kedrosky)

Lending E-Books.


One of the complaints people have had about the Amazon Kindle is that you can't loan someone a "Kindle" book. If I buy a bound copy of a book and I want to lend it to my brother, I can do that. If I buy a "Kindle" copy of a book, I can't lend my brother the book, unless I lend him my Kindle.

Complain no more. The problem has been solved. Amazon will soon begin enabling the lending of a book from, say, my Kindle to my brother's Kindle. This also solves another major book problem: the unreturned loaned book.

An Amazon Kindle "book-loan" is only good for two weeks. After 14 days, the digits evaporate from my brother's Kindle. The only downside is that I can't read what I've loaned out while it is out on "loan."

Cooking Up A Storm.


Vlad Guerrero was once the most ferocious hitter in Major League Baseball. He was scary good when he played for the Expos. Now he's just a very good hitter, as Joe Girardi found out the hard way in the last game of the American League Championship Series.

Where Vlad goes, so goes his mom. He's never married. His mom's been looking after him since he moved up to the Major Leagues all those years ago. And where she goes, great food follows.

I prefer Euros in Small Denominations.


Afghan President Hamid Karzai confirmed yesterday that "his office" accepted bribes from the Iranian government. He said "his office" was short of cash, so it needed more of it. He added that the United States also gave him "bags of money."

They Knew What They Were Selling.


Nothing makes a banker's blood run colder than the mere mention of the word: putbacks. They're coming in the billions of dollars.

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.