Is the smart Irish money leaving the euro for the dollar?

In this morning's FT, there is an interesting article entitled "Wary Irish reluctant to jeopardise recovery." In it, one Bernard O'Reilly, a retired civil servant, is said to believe that many Irish citizens are voting for the fiscal discipline treaty out of fear. This fear has other implications: "If Greece goes down," Mr. O'Reilly said, "we are next in the firing line. I know people who are trying to put their money into US dollars. We just don't know what is going to happen here." Is "smart money" going into the dollar? Does this explain the weakness of gold? The money is going into the dollar, but it's not smart. It's a trap for investors based in other currencies.

St. Louis Fed's Bullard says 1970's-type inflation is main risk to outlook

The St. Louis Fed is supposedly a bastion of monetarism. Thus, President Bullard is fearing inflation. We should take his concerns seriously. Here are his slides: http://research.stlouisfed.org/econ/bullard/pdf/BullardDialogueWithTheFedLouisvilleKYMay16_2012_Final.pdf

Best Greece option: Stay in euro and default

It puzzles me that people assume that Greece should leave the euro if it defaults. Default is the only action that will allow it to stay in the euro. When GM defaulted, did it leave the US dollar?

Inflation or Deflation?

There is a great deal of concern among policy makers that we will fall into deflation. And yet, aside from houses and natural gas, I can't think of many things that have decreased in price over the past five years. Last night we had some neighbors over in an impromptu manner and I went out for a large cheese pizza at Bertucci's. It was $18 plus tax, up from $14 the last time I bought one. (several years ago) Shoe polish (i.e. Kiwi shoe wax) has doubled in price since the recession's onset, perhaps because of the surge in job applications; pencils are way up, as are gasoline and electricity, and, here in Hingham, water rates. Yesterday the Bank of England announced that its growth expectations have been reduced from 1.3% in 2012 and 2.8% in 2013 to 0.6% and 2.0% respectively, while at the same time it raised its outlook for inflation, which is now running at 3.5%. What gives? These prices are definitely more reminiscent of the Great Inflation of the 1970's than the Great Depression of the 1930's.

Discussion of Eurozone breakup and default moves to the front burner

Charles Dumas of Lombard Street argued in a letter to the Financial Times this morning that further austerity would be "immoral" while Miller and Skidelsky say that Keynes would now be arguing in favor of default over depression. What was unthinkable two months ago is now on the front burner and will soon be accepted wisdom.

Profiles in Carnage: Luc Coene, Gov. of the Central Bank of Belgium

A refreshingly modest man, Luc Coene says that Greece may leave the Euro or stay; there is nothing central bankers can do about it: "But of course, if one member decides it no longer has a shared interest in being a member [of the euro], you must allow them to get out." Euro zone growth: "This is basically a crisis of confidence. . We [central banks] cannot stimulate the economy as such." Coene may be the only above-average central banker in the world.

JPM's trivial losses: too big to understand

JP Morgan has announced it has lost about $2 billion in its hedging portfolio. This is about 1.1% of its $183 billion of equity capital and is inconsequential in terms of the soundness of the bank. The problem is that the numbers are big; in fact, too big for the average person to understand how small they are. Let's reduce the scale. Our local bank, the Hingham Institution for Savings, is very sound and has $85 million in equity. A loss proportional to that of JPM would be about $900,000, which is 65% of the CEO's salary. Unfortunate, but not that important even for shareholders, let alone taxpayers. The problem is really one of management scale. I would estimate that Jamie Dimon weights around 200 pounds, about the same as the CEO of the Hingham Institution for Savings. Dimon would, however, have to scale up to 43,000 lbs to be big enough proportionally to manage JPM. JPM is too big for Dimon, as now proportioned, to manage.