Google is a monopoly threat, not Microsoft

Obama anti-trust chief: Google is a monopoly threat, not Microsoft - Computerworld Blogs:

The blogosphere regularly excoriates Microsoft for being a monopoly, but Google, not Microsoft, may be in the cross-hairs of the nation's next anti-trust chief for monopolistic behavior. Last June Christine A. Varney, President Obama's nominee to be the next antitrust chief, warned that Google already had a monopoly in online advertising.

The Bloomberg news service did an excellent job of sleuthing, and uncovered statements Varney made about Google and what she considers its monopoly in online advertising. Here's what Bloomberg reports her as saying:

'For me, Microsoft is so last century. They are not the problem,' Varney said at a June 19 panel discussion sponsored by the American Antitrust Institute. The U.S. economy will 'continually see a problem -- potentially with Google' because it already 'has acquired a monopoly in Internet online advertising.'

I'm sure over at Microsoft they're both pleased and unhappy with that quote. On the one hand, there's no doubt they're glad that they probably won't be targeted for monopolistic behavior. On the other hand, being called 'so last century' --- ouch!

Varney will most likely not be a toothless tiger; Bloomberg says that at the same conference she

advocated aggressive enforcement of antitrust laws to curb the conduct of individual companies that dominate an industry.

And there's no doubt she is worried about what she sees as a Google monopoly. She said that Google is 'quickly gathering market power in what I would call an online computing environment in the clouds.' Then she added

'When all our enterprises move to computing in the clouds and there is a single firm that is offering a comprehensive solution, you are going to see the same repeat of Microsoft.'

In other words, when it comes to monopolies, Google is the next Microsoft. Here's what the Bloomberg article says she said about that:

As in the Microsoft case, 'there will be companies that will begin to allege that Google is discriminating' against them by 'not allowing their products to interoperate with Google's products.'

Varney has yet to be confirmed as antitrust chief, and she said all this before she was nominated. Still, it spells potentially bad news for Google. It may be time for the company to start adding to its legal staff."

Fiat World Mathematical Model

Mish's Global Economic Trend Analysis: Fiat World Mathematical Model

In a fiat world, money is printed into existence by the central bank - in the United States the Fed. Given there is nothing backing up this money, it is inherently worthless. However, one can think of as real. It was printed (even if only electronically), therefore it exists.

In addition to the previously mentioned money supply, fractional reserve lending allows credit to be extended by banks and financial institutions on top of that inherently worthless money. Indeed, banks and financial institutions have leveraged credit to base money at ratios of 30-1, 50-1 or even higher.

It's pretty amazing if you think about it: Credit is extended with 30-50 times leverage on inherently worthless paper.

Ponzi Financing

Borrowers have to pay interest on the amount borrowed. However, the interest and the debt cannot possibly be paid back except by an ever expanding Ponzi scheme of lending. That scheme can last only as long as everyone believes the debt can be paid back and the market value of that debt keeps rising.

It's a faith based system in which banks extend loans and hold the credit on the books (or in many cases off the books in various structured instruments). The banks are thought of as being well capitalized as long as the value of credit on the books in relation to their reserves meets some ridiculously low minimum set by the Fed.

This is how the system works, using the term "works" loosely.

Day of Reckoning

The day of reckoning comes when asset prices start falling, defaults soar, and the value of credit on the books starts plunging. That day of reckoning has arrived.

And if leverage is high enough, as it was with Bear Stearns and Lehman, the institutions are wiped out overnight. Citigroup (C), Back of America (BAC), Fannie Mae (FNM), Freddie Mac (FRE) and AIG are essentially in the same position of Lehman except the taxpayers via the Treasury are funding the bailouts.

Deflation Economics

Conditions today are essentially the same as during the great depression. I talked about this in Humpty Dumpty On Inflation. When I wrote that piece, I listed 15 conditions one would expect to see in deflation and the score was a perfect 15-15. I recently added a 16th: bank failures. Click on link to see the conditions table.

Those who stick to a monetary definition of inflation pointing at M2, M3, MZM, or base money supply, as well as definitions that involve prices are selecting a definition of inflation that makes absolutely no practical sense.

It is the destruction of credit, coupled with the fact that what the Fed is printing is not even being lent that matters, not some Humpty-Dumptyish academic definition that has no real world application!

I have long been arguing that we are in deflation based on the following definitions: Inflation is a net expansion of money and credit. Deflation is a net contraction of money and credit. In both definitions, credit needs to be market to market.

Mathematical Model

I can express the above mathematically.

Fm = Fb + MV(Fc)

Fm = Fiat Money Total
Fb = Fiat Monetary Base
Fc = Fiat Credit, the amount of credit on the balances sheets of institutions in excess of Fb

MV(Fc) is the market value Fc

Inflation is an expansion of Fm
Deflation is a contraction of Fm

If only base money was lent out (no fractional reserve lending), MV(Fc) would equal zero. The equation ensures we do not double count credit in Fm.

MV is a function of time preference and credit sentiment (ie. Belief that one can be paid back). As long as that belief was high, banks were willing to lend.

Because (at the moment) Fc (credit) dwarfs Fb (base money), the system can only hold together as long as there is belief credit can be paid back and as long as there are not defaults. Needless to say, the perceived belief that Fc can be paid back is under attack, both by rising defaults, and by sentiment. That is why MV(Fc) is collapsing.

In other words, the mark to market value of credit is contracting faster than base money is rising.

What About Deposits?

Some may point out that base money is not the only real money out there. Deposits are real.

Actually most deposits are fiction, borrowed into existence via an accounting entry and lent out with the miracle of fractional reserve lending time and time again. Moreover, savings accounts have zero reserve requirements and the bulk of checking accounts which are supposed to be available on demand are swept nightly into savings accounts so that they too can be lent out.

However, the FDIC guarantees those deposits up to the FDIC limit, now at $250,000 per account. Because of FDIC it might seem that deposits up to the guarantee limit should accounted for in the above equation. One could do that by adjusting the right side of the equation to allow for FDIC guarantees. This would result in a peculiar formula of adding credit extended with 30-50 times leverage on inherently worthless paper to guarantees promised on that which does not really exit.

From a practical standpoint however, the economy seems to be acting as if base money and FDIC guarantees are irrelevant and the only thing that matters is the market value of credit.

Let's explore why that is using a magical printing press as an example.

Magical Printing Press

Assume for a moment you invent a magical printing press. Your machine can print hundred dollar bills so good that the US Treasury cannot distinguish them them from the real thing. The bills are perfect in every way. Now assume you print $5 trillion worth of those bills and bury them in your back yard. Is this inflation? Surely not. Would it be inflation if $5 trillion in bills were spent and entered the economy? You bet. The key then is not how much the Fed prints, the key is how much of that money makes its way into the economy.

Please consider this audio with Austrian Economist Frank Shostak on Mises on September 30, 2008 discussing recent actions by the Fed.

Will this printing create [price] inflation? This is dependent very much on what money will do next. If banks will not lend and banks sit on that cash forever and ever like the great depression because the risk is too high and the banks do not know if the lending will end up in good assets or bad assets, and because banks are in so many bad assets now they probably will not lend at all.

That is the observation that Murray Rothbard made, that during the Great Depression that banks have chosen not to lend because the risk of accumulating bad assets was far to high. So they were sitting on massive reserves. That is what is developing right now.

A good example is what happened in Japan in 2001-2002 where the Bank of Japan pumped 300% at one stage and lending continued to collapse. I expect similar things to happen here. If lending will not increase we can conclude this will not be inflationary.

I agree whole heartedly with Shostak and suggest we are following the Japanese model. This has been my thesis for years.

Don't Ask, Don't Sell Policy

The Fed tries to hide the contraction in the market value of bank credit by its Don't Ask, Don't Sell policy. See Fed and BOE Shell Games to Bailout Insolvent Banks for more discussion of the aggregator bank shell game and the Don't Ask, Don't Sell policy.

Many point out that base money is rising at an amazingly high rate. However, as we have seen, base money is irrelevant until the money is lent. The key issue is that the market value of credit is collapsing at an amazing rate.

This is deflation.

One can choose to say in strict Austrian terms there is no deflation because money supply is rising. However, the money supply theory falls flat on its impractical face when it comes to accurately explaining what is happening in the real world.

The inflation model simply does not fit. Conditions one would expect to see during inflation, stagflation, hyperinflation, and disinflation are nowhere to be found.

The US shows 16 symptoms of deflation for the simple reason deflation is at hand.

Confusion due to delays?

Steve Saville chimes in on the The Inflation-Deflation Debate with a thesis that suggests there are lengthy and variable time delays between changes in the monetary trend and changes in prices. Let's take a look.

For many years we have been expecting inflation (growth in the supply of money) and nothing but inflation as far as the eye can see, but there have been times, such as the past 12 months, when we have felt more affinity with deflation forecasters than with most other inflation forecasters. The reason is that monetary inflation, when measured correctly, was minimal during the first half of 2008 and during the two preceding years, thus setting the stage for a US$ rebound and large price declines in the investments that had been bid up to astronomical heights.

Based on our observation, a lot of confusion on the inflation/deflation issue is caused by the lengthy and variable time delays between changes in the monetary trend and changes in prices. It will often be at least 2 years before the effects of a major change in the monetary trend start to become apparent in the prices of commodities and everyday goods and services. Consequently, during the first 2 years of a new monetary inflation cycle the outward evidence will often point to deflation (even though the inflation threat is rising), and for 2 years following the END of an inflation cycle it will seem as if the inflation threat is growing (even though it is falling). ...

Current Situation

We agree with much of the analysis presented by the well-known deflationists. The main point of contention revolves around the ability of the monetary authorities (the Fed and the Treasury in the US) to keep the total supply of money growing. Our view has been, and continues to be, that the Treasury-Fed tag team has the power to promulgate monetary inflation under almost any economic circumstances and will use this power. The bond market could eventually impose a practical limitation on the government's ability to inflate because increasing the money supply becomes counter-productive once the bond market begins to anticipate rapid currency depreciation, but if price-related evidence continues to favour the deflation view over the coming year then this limitation will not arise anytime soon.

The case is not yet closed, but the evidence presented to date supports our view. For example, the monetary base has expanded at an astronomical pace over the past five months. Mike Shedlock has attempted to counter this by pointing out that a sharp increase in the adjusted monetary base (AMB) also occurred during the early 1930s, but the St. Louis Fed's updated long-term chart of the AMB shows that the recent increase has been many times greater than anything during the 1930s. In any case, the overall monetary situation today could hardly be more different to the early 1930s. During the early 1930s the Fed increased the monetary base, but the total supply of money plunged.

Discussion On Points Of Contention

I agree wholeheartedly with Steve Saville that the Fed can print money at will. However, getting banks to lend is another thing indeed as the following chart of Reserve Bank Credit shows.

Reserve Bank Credit



click on chart for sharper image

Simply put, the Fed cannot force banks to lend or consumers and businesses to borrow. Congress can force the issue with TARP funds and other so-called "stimulus" measures. Then again, writeoffs of bad loans are going to increase at a massive rate, especially credit card defaults and foreclosures in conjunction with rising unemployment.

What About The Lag Theory?

Saville states "a lot of confusion on the inflation/deflation issue is caused by the lengthy and variable time delays between changes in the monetary trend and changes in prices."

Another way of phrasing Saville's theory is that growth in credit (and prices) follows the creation of money, with a lag. This is the money multiplier model.

Money Multiplier Lag Theory Is False

Please consider commentary from Steve Keen’s Debtwatch, Roving Cavaliers of Credit.

Two hypotheses about the nature of money can be derived from the money multiplier model:

1. The creation of credit money should happen after the creation of government money.
2. The amount of money in the economy should exceed the amount of debt, with the difference representing the government’s initial creation of money.

Both these hypotheses are strongly contradicted by the data.

Testing the first hypothesis takes some sophisticated data analysis, which was done by two leading neoclassical economists in 1990.

If the hypothesis were true, changes in M0 should precede changes in M2.

Their empirical conclusion was just the opposite: rather than fiat money being created first and credit money following with a lag, the sequence was reversed: credit money was created first, and fiat money was then created about a year later:

“There is no evidence that either the monetary base or M1 leads the cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the cycle slightly."

Thus rather than credit money being created with a lag after government money, the data shows that credit money is created first, up to a year before there are changes in base money. This contradicts the money multiplier model of how credit and debt are created: rather than fiat money being needed to “seed” the credit creation process, credit is created first and then after that, base money changes.

Solid Evidence Credit Is Created First

Solid evidence that credit is created first and reserves later can be found by reviewing Fannie Mae’s and Freddie Mac’s Financial Problems, an article written July 15, 2008.

To make certain that the GSEs have adequate funds to cover potential losses, OFHEO (like all financial regulators) imposes capital requirements. At the end of 2007, the two GSEs had a $24.8 billion surplus over the regulatory capital requirement of $58.4 billion; they had a surplus of $50.8 billion over the risk-based capital requirement of $38.8 billion.

These amounts can be compared with the combined retained mortgages portfolios of $1.434 trillion and the $3.501 trillion in MBS that the GSEs guaranteed for a total of $4.934 trillion.

The regulatory capital surplus amounted to 0.50% of the $4.934 trillion and 1.03% of the risk-based capital surplus. If the GSEs were to face losses in excess of their income by these percentages, they would be forced to either reduce their capital requirements by selling mortgages and MBS from their portfolios or to raise new capital from investors.

The Secretary of the Treasury is authorized to lend the GSEs $2.25 billion each, but this is more a symbolic amount than a total solution. Based on Fannie Mae’s issuance of $1.588 trillion in short term debt in 2007, the $2.25 billion would have lasted less than 12.5 hours. Based on the $598.6 billion issued of short term debt that Freddie Mac issued in 2007, the $2.25 billion would have lasted just under 33 hours.

Fannie Mae's capital surplus was 0.50% on close to $5 trillion in assets. In other words, Fannie extended credit at will with virtually no reserves behind it. The Treasury provided reserves later, after Fannie and Freddie imploded.

Base Money Yet Again

Steve Saville points out that recent increase in base money has been many times greater than anything during the 1930s. Steve is correct as the following chart shows.



click on chart for sharper image

Note that the pattern leading up to the great depression and the pattern before the latest spike are nearly identical. There is no other similar pattern on the chart. And most certainly the recent spike as Saville points out is unprecedented.

Base money is indeed soaring. However, so is debt.

USA Money Stock Measures and Debt

Here are some more charts and commentary courtesy of Steve Keen’s Debtwatch.

Measured on this scale, Bernanke’s increase in Base Money goes from being heroic to trivial. Not only does the scale of credit-created money greatly exceed government-created money, but debt in turn greatly exceeds even the broadest measure of the money stock—the M3 series that the Fed some years ago decided to discontinue.



Bernanke’s expansion of M0 in the last four months of 2008 has merely reduced the debt to M0 ratio from 47:1 to 36:1 (the debt data is quarterly whole money stock data is monthly, so the fall in the ratio is more than shown here given the lag in reporting of debt).

To make a serious dent in debt levels, and thus enable the increase in base money to affect the aggregate money stock and hence cause inflation, Bernanke would need to not merely double M0, but to increase it by a factor of, say, 25 from pre-intervention levels. That US$20 trillion truckload of greenbacks might enable Americans to repay, say, one quarter of outstanding debt with one half—thus reducing the debt to GDP ratio about 200% (roughly what it was during the DotCom bubble and, coincidentally, 1931)—and get back to some serious inflationary spending with the other (of course, in the context of a seriously depreciating currency). But with anything less than that, his attempts to reflate the American economy will sink in the ocean of debt created by America’s modern-day “Roving Cavaliers of Credit”.

I agree with Steve Keen in regards to money vs. credit, with credit being far more important, at the present time. Furthermore, rising unemployment is only going to exacerbate the problems of imploding credit. Expect to see massively rising credit card defaults, foreclosures, and walk-aways, all on account of unemployment that is soaring.

Finally, it is important to consider the role of attitudes going forward. Attitudes affect the willingness of consumers to take on debt and banks to extend it.

Attitudes

• Boomers are heading into retirement. A significant portion of their retirement plan (home prices) has already been wiped out. Another portion of boomer retirement plans is being wiped out in the stock market crash. Toy accumulation is out. Fears of insufficient saving is in.
  
• Boomers will be traveling and spending less than they planned.
  
• A secular shift to frugality and risk aversion in all age groups has begun. Signs are everywhere.
• The lend to securitize model at banks is dead. So are toggle bonds where debt is paid back with more debt, and a myriad of other financial wizardry schemes.
  
• Children who have seen their parents wiped out in bankruptcy or foreclosed on are going to have a completely different attitude towards debt than their reckless parents did. Expect to see more frugality from parents and their children alike.

What About Zimbabwe?

In Zimbabwe, credit does not exist. You simply cannot walk into a bank and get a loan. Nor would anyone in their right mind deposit money in a Zimbabwe bank as part of a saving program. The money would be worthless in a month.

In the US credit is not being extended for a different reason. Banks are not afraid of being paid back with cheaper dollar, banks are afraid they will not be paid back at all. Cash is being hoarded by banks and consumers alike. This is the opposite of what happened in the Weimar Republic and what is happening now in Zimbabwe.

Global Stimulus Kicker

There is yet another kicker to this model. And that kicker is the Eurozone, the UK, Japan, and essentially every county on the planet is all attempting some sort of stimulus plan or other. This is bound to cause a major distortion at some point, as no country has anything remotely close to an exit strategy for this. What kind of distortion and when cannot be certain because we are indeed in uncharted territory, worldwide.

Political Will vs. Consumer Psychology

What happens next depends somewhat on the political will of the central banks and politicians. However, it depends more on the psychology of the borrowers. If consumers and businesses refuse to spend and instead pay back debts (or default on them along with rising unemployment), the picture simply is not inflationary, at least to any significant decree.

The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model.

At some point the market value of credit will start expanding again, but that is likely further down the road, and weaker in scope than most think.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

How the NDP lost my vote with York University vote

Urban scrawl: How the NDP lost my vote with York University vote - Posted Toronto

Commentary by Lyndon Koopmans

Two days ago I joined more than 100 York University students outside Queen's Park to demonstrate in support of back-to-work legislation that ended the 85-day long strike at the university. The mood at our demonstration was mixed. We are all happy that the end of the strike appears near, but frustrated that the back-to-work bill was delayed. Many students were especially annoyed that the party of the student turned out to be our greatest opponent, keeping us out of class.
Of course, I am referring to the NDP. Not only did the NDP decide to vote against the back-to-work bill, they used their full share of debate time to delay the bill, adding a number of days to the strike and keeping us out of class until Monday.
No one can blame the NDP for representing the perspective of labour. But a party that talks about representing 'working people' and 'ordinary people' might have given more consideration to the students and our families.
York is a heavily working class university. Many parents saved for years, and students spent evenings and summers at minimum wage jobs, to pay for their education at York. In this strike, 'ordinary people' include the students and families that have struggled and made sacrifices to obtain a university education.
The NDP has revealed its true nature to students, as a party that will turn its back on workers, families and students if a union asks them to.
Even worse, the over-heated rhetoric in the NDP speeches shows that they haven't bothered to get to know York University, or to get the facts. Andrea Horvath compared our university to Walmart. Cheri Dinovo claimed that the striking workers have 'less in benefits than a Tim Hortons worker.' Paul Miller spoke about 'slave wages' at the university.
By the admission of union leaders, the striking workers at York have one of the best pay and benefits packages out of all the universities in Canada, including a benefits package far beyond what would normally be given to part time workers. It's true that the union wants to improve its contract, but nobody who bothered to become informed about the strike would have characterized York as a sweatshop. Overblown rhetoric that unfairly tarnishes the whole university doesn't help, and will alienate many York students.
There are some students that the NDP was never going reach, of course. But many students are just like me: political blank slates who have no party ties and who have never had the chance to vote before. This week the NDP lost my vote, and probably many more.
• Lyndon Koopmans is co-organizer of YorkNotHostage.com"

Marc Faber Blames the Fed

Marc Faber Says the Federal Reserve's Easy-Money Policy Caused the Global Financial Crisis - WSJ.com
Bad U.S. monetary policy had global consequences.

By MARC FABER

The world has gone from the greatest synchronized global economic boom in history to the first synchronized global bust since the Great Depression. How we got here is not a cautionary tale of free markets gone wild. Rather, it's the story of what can happen when governments ignore market signals and central bankers believe in endless booms.

Following the March 2000 Nasdaq bust, the Federal Reserve began to slash the fed-funds rate from 6.5% in January 2001 to 1.75% by year-end and then to 1% in 2003. (This despite the fact that officially the U.S. economy had begun to recover in November 2001). Almost three years into the economic expansion, the Fed began to increase the fed-funds rate in baby steps beginning June 2004 from 1% to 5.25% in August 2006.

But because interest rates during this time continuously lagged behind nominal GDP growth as well as cost of living increases, the Fed never truly implemented tight monetary policies. Indeed, total credit increased in the U.S. from an annual growth rate of 7% in the June 2004 quarter to over 16% in early 2007. It grew five-times faster than nominal GDP between 2001 and 2007.

The complete mispricing of money, combined with a cornucopia of financial innovations, led to the housing boom and allowed buyers to purchase homes with no down payments and homeowners to refinance their existing mortgages. A consumption boom followed, which was not accompanied by equal industrial production and capital spending increases. Consequently the U.S. trade and current-account deficit expanded -- the latter from 2% of GDP in 1998 to 7% in 2006, thus feeding the world with approximately $800 billion in excess liquidity that year.

When American consumption began to boom on the back of the housing bubble, the explosion of imports into the U.S. were largely provided by China and other Asian countries. Rising exports from China led to that country's strong domestic industrial production, income and consumption gains, as well as very high capital spending as capacities needed to be expanded in order to meet the export demand. An economic boom in China drove the demand for oil and other commodities up. Rapidly accumulating wealth allowed the resource producers in the Middle East, Latin America and elsewhere to go on a shopping binge for luxury goods and capital goods from Europe and Japan.

As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms -- of the 19th century under colonial economies, or after World War II when 40% of the world's population remained under communism, socialism, or was otherwise isolated -- were not nearly as global as this one.

Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world -- real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.

The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.

Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact -- except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) -- because the private sector tightened monetary conditions.

In 2008, a collapse in all asset prices led to lower U.S. consumption, which caused plunging exports, lower industrial production, and less capital spending in China. This led to a collapse in commodity prices and in the demand for luxury goods and capital goods from Europe and Japan. The virtuous up-cycle turned into a vicious down-cycle with an intensity not witnessed since before World War II.

Sadly, government policy responses -- not only in the U.S. -- are plainly wrong. It is not that the free market failed. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them.

The bad policy started with the bailout of Mexico following the Tequila crisis in 1994. This prolonged the Asian bubble of the 1990s, because investors became convinced there was no risk in growing current-account deficits and continued to finance Asia's emerging economies until the bubble burst with the start of the Asian crisis in 1997-98.

Then came the ill-advised bailout of Long-Term Capital Management in 1998, which encouraged the financial sector to leverage up even more. This was followed by the ultra-expansionary monetary polices following the Nasdaq bubble in 2000, which led to rapid and unsustainable credit growth.

So what now? Unfortunately, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner were, as Fed officials, among the chief architects of easy money and are therefore largely responsible for the credit bubble that got us here. Worse, their commitment to meddling in markets has only intensified with the adoption of near-zero interest rates and massive bank bailouts.

The best policy response would be to do nothing and let the free market correct the excesses brought about by unforgivable policy errors. Further interventions through ill-conceived bailouts and bulging fiscal deficits are bound to prolong the agony and lead to another slump -- possibly an inflationary depression with dire social consequences.

Mr. Faber is managing director of Marc Faber Ltd. and editor of 'The Gloom, Boom & Doom Report.

Coronary bypass patients have greater chance of dying in Ontario than most U.S. states

Coronary bypass patients have greater chance of dying in Ontario than most U.S. states

Release Date:

February 9, 2009

TORONTO, ON— Ontario patients undergoing coronary artery bypass graft surgery could have reduced their risk of dying by having it performed in any one of 27 U.S. states rather than Ontario, according to a new peer-reviewed study from independent research organization the Fraser Institute. The average risk of dying in hospital for patients undergoing coronary artery bypass graft surgery (CABG) in Ontario in 2004 was almost twice as high as Minnesota and Massachusetts and considerably higher than Colorado, Michigan, Maryland and Arizona, says the study, A Comparative Analysis of Mortality Rates Associated with Coronary Artery Bypass Graft (CABG) Surgery in Ontario and Select U.S. States. “For a patient choosing where to have surgery, the main objective is to minimize risk. Minimizing risk means avoiding hospitals and jurisdictions that have high rates of risk-adjusted mortality. Since the estimates that are calculated have a range, avoiding risk means choosing the hospital or jurisdiction that has the lowest maximum probable mortality rate,” said Nadeem Esmail, Fraser Institute director of health system performance studies and study co-author. An Ontario patient who had the surgery performed at an average Minnesota or Massachusetts hospital would have reduced their probable upper limit risk of mortality by about 41 per cent. Among the 32 US states whose mortality rates were compared to Ontario’s, only Vermont, Arkansas, New Hampshire, Utah, and Oregon had higher upper limit risk-adjusted mortality rates than Ontario in 2004. “By simply crossing the border to either Michigan or New York, an Ontario patient could have reduced their probable upper limit mortality rate by 39 or 36 per cent,” Esmail said. The coronary artery bypass graft (CABG) surgery mortality rate is a widely used health outcome measure since the surgery is performed in high numbers, requires complex surgical and perioperative care, and has easily measurable rates of adverse events. The methodology used for calculating bypass surgery mortality rates in a standard way was developed by the US Agency for Healthcare Research and Quality (AHRQ) with Stanford University. This measure has been shown to reflect the quality of care in hospitals where better processes of care may lead to lower mortality rates. The study also examined average risk-adjusted mortality rates, and found that 20 of the 32 U.S. states for which data were available had statistically significant lower average risk-adjusted mortality rates than Ontario. This was also true for the United States as a whole. Only Arkansas had a statistically significant higher average mortality rate following CABG surgery than Ontario in 2004. “Just as troubling as Ontario’s relative performance to that of the majority of U.S. states in 2004 is the fact that the gap between the performance of hospitals in Ontario and of those in many U.S. jurisdictions widened markedly between 2003 and 2004. For example, Minnesota’s average mortality rate as a proportion of Ontario’s went from 69 per cent to 52 per cent between 2003 and 2004. The average for the United States fell from 89 per cent of Ontario’s risk-adjusted average mortality rate to 71 per cent between 2003 and 2004,” Esmail added. The study, which used publicly available outcomes data from the peer-reviewed Fraser Institute Report Card on Ontario Hospitals, also found that the risk of death for patients undergoing coronary artery bypass graft surgery varied widely from hospital to hospital within Ontario. The variation was large enough to make a material difference in the likelihood of mortality for a patient of a given risk-adjusted health status. From 2002/03 to 2004/05, patients experienced the lowest risk of dying by having coronary artery bypass graft surgery at the University of Ottawa Heart Institute. On the other hand, patients undergoing coronary artery bypass graft surgery had the greatest chance of dying if the procedure was done at Sunnybrook and Women’s College Health Sciences Centre in Toronto or Anonymous Hospital 104 (not all hospitals agreed to be named in The Fraser Institute’s Hospital Report Card). The University of Ottawa Heart Institute, which had a maximum probable risk-adjusted mortality rate of 2.82 per cent over the three-year period, was overall the least risky hospital for CABG surgery. Hospital 10, St. Mary’s General, and Hospital 50, which had risk-adjusted mortality rates of 3.51 per cent, 3.61 per cent and 3.65 per cent, respectively, were also less risky. Sunnybrook and Women’s College Health Sciences Centre and Hospital 104, with probable mortality rates as high as 6.23 per cent and 7.36 per cent respectively, were the most risky. “While we can’t explain why hospitals have different mortality rates, it is clear that changing hospitals or jurisdictions can have a significant impact on the likelihood of whether a patient lives or dies,” Esmail said. “Though it may be possible for a patient to have a less risky procedure at a higher-risk institution due to the variance in mortality rates among surgeons, it is nevertheless true that an average patient of average risk would be better off in some Ontario hospitals than others, and would be better off in the majority of U.S. states than they would be in Ontario.”

Buffett SELLS America

Buffett Sells America | Jim Cramer Blog | Financial Articles & Investing News | TheStreet.com

02/18/09 - 06:33 AM EST

Struggling. I'm struggling this morning with some of the things that Warren Buffett is doing with his cash these days. I am struggling because he is selling America, selling Johnson & Johnson (JNJ) and Procter & Gamble(PG), selling ConocoPhillips(COP) and selling U.S. Bancorp(USB).

What's more American than these stocks? These are not small trimmings. He sold more than half of his 52 million shares of Johnson & Johnson and he sold it at a 20-year low relative to its yield. That doesn't sound like "Buy America." That sounds like "Sell America." Yet, on Oct. 16, 2008, with the Dow Jones Industrial Average at 9000 and the S&P 500 at 950, Buffett penned a now-famous op-ed submission to The New York Times saying it was time to buy America. Those who bought America that day are feeling ... well, downright un-American. Or at least they're feeling poorer.

Mind you, this isn't Boone Pickens selling almost all of his energy positions while predicting oil will double, although that's some benchmark. Who knows why Pickens is selling? I think the market's given him a real whopping. But whenever you say that any rich person has lost money, one whom we respected, you can expect to get corrected posthaste. So, I will simply leave the sales and the facts out there and let Pickens arrive at a story arc.

No, these are sales by Buffett. The "out" Buffett always has is that he buys for the long term. I have no problem with that if you are really rich because you aren't worrying about losing your house or putting food on the table or putting a kid through school. I have argued mightily that it isn't a fair time frame for the hundreds of millions of Americans -- lotsa people -- who aren't rich. However, as long as Buffett was buying and not selling, or as long as he was at least holding, you couldn't knock him.

But now it turns out he's putting a terminal value on something we thought we were to hold forever.

I am sensitive to this missive of his because the same time that he wrote it, I said it was time to exit stocks. And as they rallied after I repeated that multiple times, finally culminating in a call at Dow 10,000 that amounted plain and simple to if you needed money for a major purchase for the next year then you should exit American stocks.

Now, Buffett doesn't have to answer for anything. He has had a long and distinguished career and is obviously a tremendous investor. But it is fair to say that many, many people relied on his judgment to buy stocks just like the quintessential American names of Procter & Gamble and Johnson & Johnson.

To them, what can I say? "Don't worry about it"?

In that now-fated editorial, Buffett wrote that those in cash are making a bet that they will be able to get in again, and that's often a foolish bet. He continued that those waiting for the comfort of good news are ignoring hockey great Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."

Looks like those who waited can now buy all the JNJ and PG they want. They are much lower than Oct. 16, 2008. The puck never got there. And, in this horrible market, cash and patience will beat "buy high and sell low" any day of the week. American or not. Sobering.

I think that Buffett's actions should be scrutinized just like anyone else's. I have been turned on to this view by my good friend Doug Kass, who has been on this case for months now. In fact, I have talked to the editors and we are starting a "Buffett Watch" to see what is happening with Berkshire Hathaway (BRK.A) as it lurches from Johnson & Johnson and U.S. Bancorp to General Electric (GE) and Goldman Sachs (GS) and Tiffany(TIF) and Harley-Davidson(HOG).

We need to know what's happening. Buffett's firm is too big, and he is too important to ignore. We need to know daily and some institution has to have the guts to do it. Glad it's us.

At the time of publication, Cramer was long Johnson & Johnson, ConocoPhillips, General Electric and Goldman Sachs.

Germany may rescue debt-laden EU members

Germany may rescue debt-laden EU members - Telegraph:
Germany has acknowledged for the first time that it may have to rescue eurozone states in acute difficulties, marking a radical shift in policy by the anchor nation of Europe's monetary union.


By Ambrose Evans-Pritchard
Last Updated: 7:18PM GMT 17 Feb 2009

Finance minister Peer Steinbruck said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. 'We have a number of countries in the eurozone that are clearly getting into trouble on their payments,' he said. 'Ireland is in a very difficult situation.

'The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty.'

Credit default swaps (CDS) measuring risk on Irish debt rose to 386 basis points yesterday despite Berlin's show of support, suggesting that the markets remain sceptical over hard-line German financier's change of heart.

The CDS on Austrian debt surged to 180 on fears of banking contagion from Eastern Europe, while Greece, Belgium, Italy and Spain have all seen a surge in default costs.

However, it is clearly Ireland that is now in the eye of the storm as Dublin struggles to prevent the budget deficit spiralling up to 12pc or even 13pc of GDP as the economy contracts. Fears are mounting that Ireland may not be able to cover the massive liabilities of its banking system.

The Maastricht Treaty prohibits eurozone bail-outs by EU bodies but Article 100.2 allows for aid to countries facing 'exceptional occurrences beyond its control'. The European Investment Bank is already providing aid by steering project finance to regions in distress. This could be expanded subtly into short-term help.

Ultimately, the European Central Bank could purchase bonds from vulnerable countries in the open market. That would amount to a full monetary bail-out, and the de facto creation of an EU debt union. Such proposals have been anathema to Germany in the past."