ENGLAND’S ETERNAL DEBTS

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England is still paying interest on ancient loans from WWI.  These loans are INFINITE.  They will never vanish.  The interest paid has paid off the loans many times over.  England has a long history of falling into depressions that sometimes last for more than a generation.  Seems that Japan likes to do the same.  

 

So today, we read very old newspapers and talk about very old debts.  And how depressions are beloved of coupon clippers and other people who rely on collecting rents and holding bonds.

 

CLICK HERE LARGE PRINT EDITION: ENGLAND’S ETERNAL DEBTS « Culture of Life News 2

 

Hedge Fund Manager Hendry Bets on British Deflation, Buys World War I Debt

(Bloomberg) – Hugh Hendry, who oversees about $500 million as co-founder of Ecletica Asset Management in London, said he’s buying World War I debt on the bet the U.K. is due for its worst round of deflation since the Great Depression.

The gilts, known as perpetuals because they have no maturity date, have a coupon of 3.5 percent compared with the U.K.’s 4.5 percent inflation rate. Investors hold about 1.9 billion pounds ($2.9 billion) of the securities that still pay interest 90 years after the end of the Great War, according to the U.K.’s Debt Management Office.

“If you have a deflationary shock, the only instrument that will perform will be government debt,” said Hendry, 39, whose Eclectica Fund returned 38 percent this year, putting it in the top 1 percent of 1,817 funds tracked by Bloomberg. “Inflation is going to be back some day. But forget the next 12 years; it’s the next 12 months that matter.”

 

This is how welfare systems really work: coupon clippers who get their hands on government debt that is NEVER paid off!  If one has enough of these debts, one can sit back and enjoy life….but ONLY if there is a depression!   Here is an extremely old newspaper story from the beginning of the Long Depression:

 

THE TRADE DEPRESSION IN ENGLAND. – The New York Times  December 1, 1878

 

Two years ago, I decided the key to understanding the present international collapse is to understand previous ones.  Many people refer to the Great Depression.  Some refer to the Panic of 1907.  Fewer talk about the 19th century collapses.  The post-Civil War collapse that enveloped all of Europe as well as the US and South America and even extended deep into Asia and Africa is of greatest interest to me.  It was the first ‘developed capitalist nations’ collapsing and causing a cascade of monetary as well as trade woes.

 

What makes me sit back and laugh very hard is the last paragraph of this story:  ’Without going further back along the chain of causes, we find that prior to 1874, an era of SPECULATIVE ACTIVITY, DURING WHICH CONSUMPTION WAS ABNORMAL, both profits and wages correspondingly high.  In other words, the business reporters over a century ago were quite clear about what was the cause of these crashes!  WHAT THE HELL???

 

HAHAHAHA!  Well!  Haven’t we all matured over the centuries?  Sad, isn’t it?  Today, we have a parade of pirates and gnomes, none of whom want to be punished for creating and inflating one of the worst speculative bubbles in history, all of them claiming, ‘NO ONE KNEW THIS WOULD HAPPEN!’  All of these clowns are ‘geniuses’ yet a humble, ill-paid business reporter in 1878 could figure out what is obvious.    This hyper-smart reporter is a million times smarter than today’s economic geniuses running our systems into the ground.  He even figures out another obvious thing: the bubble that burst didn’t affect any one country nor industry: it was global.  The entire article is a good read because it was written by an intelligent, now anonymous reporter who obviously had a better grounding in the dynamics of economic systems compared to the lunatic crew that is destroying us today.

 

England slid into this depression after the collapse of the 1878 speculative bubble.  This was called ‘the Long Depression.’  Indeed, the Great Depression didn’t start in England in 1930.  It began at the end of WWI.  The debts from that war were supposed to be paid off by the Germans.  So England felt certain, just like Germany in 1873, that war reparations would bring in wealth and it didn’t matter if the government handed out INFINITE debt notes in 1914.  

 

The French ran a lottery/subscription to pay the war reparations to Germany [this whole business led to WWI, by the way].  This lottery was so popular [note how they used gambling tools to dig themselves out of difficulties!] it was grossly over-subscribed so there was two floods of money flowing suddenly in Europe.  This, in turn, spurred speculative deals where people poured this loot into various industries, rail road building, etc across the planet.  

 

Like all speculative bubbles, this was very delicate and when the US needs for more money for war ended with the surrender of the South, the whole system had one last run up to infinity and collapsed very suddenly in a matter of days, starting in Vienna and rapidly moving across the world as speculators were forced into default and banks closed their doors.

 

Back to the news about Britain STILL not paying off the 100 year old war debts: coupon clippers owning debt, especially government debts, like to do this to infinity.  To passively sit there and wait for the money to pour in is paradise!  But they hate inflation!  Governments can’t sell debt unless they promise people they will get infinite returns over hundreds of years.  This is why government debt goes so cheap: people figure, governments will be around a long, long time.  Whereas, businesses go belly up.

 

Bloomberg.com:

The 1917 notes were first sold with a coupon of 5 percent, a rate Prime Minister Lloyd George regarded as “penal,” according to Johnston’s book, first published in 1934 and republished by Ossian Publishers Ltd. in 1994. Neville Chamberlain, then Chancellor of the Exchequer, cut the coupon payment to 3.5 percent in 1932, where it has remained ever since.

The U.K. is unlikely to call the debt or retire it early because it would have to buy the bonds back at par, Hendry added. The gilts trade at about 78 pence today.

“The vast majority of this is locked up with retail investors,” said Diebel. Were the government to call the loans “they would be taking it away from households, rather than banks,” he added.

 

Savers love depressions and spenders love inflation.  Systems waver between one or the other.  If any one or the other gets their way, totally, we get to live with the terrors of either the Goddess of Inflation or the Goddess of Depression.  Instead, we must strive to balance these forces.  The entire excuse for a central bank was, they would do this service effortlessly via interest rate manipulations which controls the money supply.

 

One thing is absolutely certain: no one should ever be allowed to issue infinite debt.  England has been politically paralyzed by the coupon clippers who want this ridiculous debt to go forwards, forever.  This is like using a damn credit card!  And never paying off any of the balance, ever!  Credit card companies hate people who pay up.  They love people who are deep in debt and keep paying over and over again, for years, for things that cost very little compared to the compounding payments that double, redouble and so on to infinity.

 

The more a system relies on these sorts of open-ended infinite loans [credit cards are infinite!] end up in depressions because people have to spend precious income on paying interest on things that dwindled in relation to the debts to nearly nothing.  After paying interest for 100 years, the principal is not paid down even one penny!  This is very destructive.  This is why there has to be limits on debt issuance.  The US, like England, is simply piling more new debts on old debts and turning the old ones over and over so they become a bigger and bigger dead weight on the present.

 

Yields `Next to Nothing’ Lure Treasury-Only Funds to Goldman, Morgan Bonds

(Bloomberg) — In the best year for Treasuries since 2002, fund managers who only buy government bonds are seeking permission to invest in corporate debt they considered toxic just a month ago….

While U.S. government debt returned 10.1 percent on average this year, the most since 11.6 percent in all of 2002, Merrill Lynch & Co. index data show, yields dropped so low that fund managers have little chance of offering anything but subpar returns in 2009. Two-year Treasury note yields fell to a record low 0.95 percent on Nov. 20.

That helps explain why BB&T, BlackRock Inc., T. Rowe Price Group Inc. and Sage Advisory Services Ltd. are looking elsewhere for returns, including bonds of the banks that were almost ruined by $967 billion in losses and writedowns since the start of 2007. Treasury funds are receiving permission to buy debt of Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. after the Federal Deposit Insurance Corp. finalized plans on Nov. 21 to guarantee their debt.

 

This is the game today: have the government take all responsibility for insuring against losses so the guys whose over-speculation actions caused this mess can buy up each other’s profit making systems.  The government is the bank.  But we still don’t run the Federal Reserve which remains firmly in the hands and the control of….Morgan Stanely, JP Morgan, Chase, etc!  They are selling to themselves the good stuff while sticking us with the crummy stuff.  They get to be the ‘good bank’ and the taxpayers are the ‘crappy bank.’

 

This is a classic transfer of wealth.  Via moving risks and losses off of the books of the speculators and onto the taxpayers.  

 

Company Bonds Return Most Since ‘03 With Record Yields to Government Debt

Investment-grade U.S. bonds returned 3.6 percent this month, after losing 7.4 percent in October, as Treasury yields declined on concern the recession is deepening, according to Merrill Lynch & Co. indexes. European notes returned 1.5 percent, the most since September 2003. The positive returns were the first since August, before the collapse of Lehman Brothers Holdings Inc. sent company debt tumbling. Sales of new debt rose.

Increased issuance is “the best possible news for the market,” said Santiago Rubio, who helps oversee 14 billion euros ($18 billion) as the Madrid-based head of asset allocation at a unit of La Caixa, Spain’s biggest savings bank. “There was a chance that premiums offered wouldn’t be enough to attract investors,” but they “are working,” he said.

The extra yield on investment-grade debt over government bonds in the U.S. rose by 0.33 percentage point to an average 6.39 percentage points, the highest since Merrill started collecting the data in 1996. Spreads on European bonds rose 0.21 percentage point to a record 4.14 percentage points.

 

As the spread between one month government bonds and 10 year bonds narrows to nothing, the spread between business and government bonds widens.  This sets into motion the ‘depression’ cycle systems.  I would suggest, since so many investment [I wrote 'infestment' ] banks hold a lot of this stuff, they will want a depression cycle to enhance these bonds.  If they hold mostly stocks, for example, they want inflation.  

 

This is why, when systems reset, it is so hard to change them.  The bankers and investment houses at the center of the messes they created in the past hang on for dear life to whatever new system they have created.  For example, Japan could have ended its own ‘Long Depression’ easily when the rest of the world was going into a wild bubble/inflation cycle.  But they didn’t because of political power in the upper reaches as well as an army of coupon clippers who loved the depression.  Even as it kills off the next generation.

 

Last year, the financiers wanted to resume the inflation cycle systems.  This year, now that they all hold a lot of long-term government debt that was granted so they could ‘recapitalize’ themselves, they will want zero or negative inflation!  DUH.  So they will lock us in a low-interest but NO LENDING cycle!  Like in Japan.

 

Tudor’s $10 Billion BVI Suspends Withdrawals, Plans Split Into Two Funds

(Bloomberg) — Tudor Investment Corp., the firm run by Paul Tudor Jones, temporarily suspended redemptions from the $10 billion BVI Global Fund Ltd. as it splits the hedge fund into two, according to a person familiar with the matter.

Tudor is planning to put hard-to-sell investments, mostly corporate bonds and loans from emerging markets, into a new fund called Legacy, said the person, who asked not to be identified because the information is private. BVI Global, which started in 1986, would focus on easier-to-trade stocks, bonds, commodities and currencies.

More than 80 firms have liquidated funds, restricted redemptions or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages. Emerging-markets securities have fallen as commodity prices plunged and investors shunned riskier assets on concern the global economy is entering a recession. The MSCI Emerging Markets Index has dropped 58 percent this year.

 

Another example in today’s news of the ‘bad bank/good bank’ way of eliminating losses or moving it to a secure place [the central banks and the government] so the speculators can create a new mess.  The fact that the hedge fund fiends are now going into ’safe’ investments mean, they will want a depression so the earnings they get will ‘grow’ via dropping prices.

 

All of this will work only if there are no wars in the Middle East.  The biggest generator of inflation, bar none, is wars in the oil pumping regions of the planet!  Every burst of domestic inflation has its origins in sudden price hikes in oil due to wars.  The US and Israel stopped menacing Iran last summer due to the high oil prices.

 

The more they harassed Iran, the higher the price of oil went.  This dynamic was ridiculously obvious.  Iran knew this and egged everyone into doing it.  Now, the US has fallen silent…but not for long.  As I will explain later.  The dynamics driving the Middle East into wars are very powerful and getting worse, not better.  We will have another disruption in global oil markets.  This is 100% certain.  In the next 10 years.  

 

Yen Gains Against Dollar, Euro as Manufacturing Slump Weakens Yuan, Ruble

The yen rose versus the British pound and New Zealand dollar as reports showed a slump in South Korean exports and a decline in Japanese wages. China’s yuan fell the most in seven weeks as manufacturing contracted by a record, while the ruble slid to a 2 1/2-year low as output shrank more than during the 1998 crisis. Central banks in the U.K., the euro region, Australia and New Zealand are forecast to cut interest rates by as much as 1.5 percentage points this week to stem the slump.

 

“There’s evidence that the global slowdown is getting deeper,” said Michael Klawitter, a currency strategist with Dresdner Kleinwort in Frankfurt. “Central banks across the globe will converge at extremely low levels and that’s firmly positive for the yen.”

 

All systems are dynamic.  The yen was riding a weak currency/depression dynamic that allowed the Bank of Japan to flood the planet with epic amounts of speculative funny money lent to pirates and gnomes of every breed and origin.  Now, this is unwinding rapidly and very violently.  The yen is now at 93 to the dollar.  This is far too strong for the exporters of Japan to stomach for long.  They are seeking every possible way to undo this and restart the status quo.  But despite having the G7 and even G20 declare, they want this too, it won’t happen.  

As I said in the past, when all nations are at 0% interest, Japan has nothing and can’t stop the yen from strengthening.  For the strength of a currency is supposed, in the floating currency regime, strengthen.  Japan and Germany both had the world’s biggest trade profits in 2007.  Both are feeling the pain of a loss of sales power during the last year.  This is inevitable.  They can’t run their systems so they get all the profits, forever.  Anymore than coupon clippers should get interest on 100 year old debts forever.

 

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