ZIRPS CAUSED INTERNATIONAL ECONOMIC CAR CRASH

Jump to Comments

CLICK HERE LARGE PRINT EDITION:  ZIRPS CAUSED INTERNATIONAL ECONOMIC CAR CRASH « Culture of Life News 2

Periodically, I comment at Seeking Alpha.  Many, many times, the comments on an article are superior to the article itself.  The above story is typical of such things: the writer thinks he is quite clever to ‘figure something out.’  Only he is talking about the most obvious things, stuff we can see as plain as day since it is now utterly obvious.

The Economic Unwind: Speed Kills – Seeking Alpha

While today’s jobs number shouldn’t come as a huge surprise — we have been outside consensus repeatedly, and I have been writing here that double-digital unemployment is in our near future — the speed with which it is happening should give people pause. Granted, a 535,000 person reduction in payroll today is different than a similar number twenty years ago, a point too many commentators gloss, but there is no question this unwinding is happening faster and more savagely than any in memory….

On the other hand (and this is closer to my view), the optimists are akin to saying that one high-speed highway collision is better than a bunch of low-speed ones. Hey, you got it over with quickly! The trouble is, of course, a few low-speed dings are not only survivable, but may turn out to be merely cosmetic –- while one high-speed crash tends to destroy the vehicle and its occupants.

Analyzing things to see why they are doing what they are doing is much, much trickier!  President Bush, for example, thinks he is being smart when he describes the obvious.  But talking about causes is utterly beyond his ken.  

 

The debate about what is causing this present, obvious car crash, is raging across the internet as well as in the boardrooms and central banks.  Why, even economics professors are trying to figure this out!  Imagine that.

 

This debate is of utmost importance.  The people at the top, for example, would dearly love to believe that this mess is a glitch, not caused by fundamental problems they created, themselves.  They hope that after a little bit of assistance in the form of trillions of dollars of risk are dumped on taxpayers across the planet, this problem will be fixed.

 

This is because they believe that we are in a liquidity crisis and need more lending.  There are many, many people who see the obvious: we had TOO MUCH credit and we are now in a ‘paying down the debt’ mode.  This is quite correct.  But the real battle now is, who created all this debt? How did they pass it on?  Who is responsible for this surge in debts?  And most important of all, how can we prevent this from happening yet again?

 

I have spent years trying to locate the ultimate wellsprings of this epic debt creation process.  Long-term readers know that I finally, in 2006, felt I had enough hard proof to openly accuse the Bank of Japan for flooding the planet with excess dollars created via the Japanese carry trade lending spree.

 

Further proof of this was the recent G7 and G20 meetings: they demanded that the liquidity well spring restart and even openly said, they wanted the yen to get weaker so lending could flourish again!  In a nutshell, the world leaders said they wanted the status quo to return.  And in addition, they made it totally clear, they also want the international trade status quo to continue or even worsen: the US must suck up all major debts and all major trade losses!

 

Back to Seeking Alpha: Here is my comment about the story as well as other comments following it.  But I do suggest clicking on the story to see the previous comments.  Some of them are quite good and I heartily endorse them, especially Bruce Pile’s summary of the debt crisis.

 

The Economic Unwind: Speed Kills – Seeking Alpha

Elaine SupkisThe Great Unwinding of the ZIRP [Zero Interest Rate Program] Japanese Carry Trade continues!

The first time in history, a major, the #2 economic power on earth decided to create a 0% interest banking system. They clung to this despite inflation in Japan rising to nearly 3%. This is the ultimate source of much of the GLOBAL lending we saw this last decade.

The US used this fake, cheap lending to overspend. We allowed our government to go far over budget, doubling our national debt. We also personally and corporately went deep into debt because the payments of interest were ridiculously low.

Now, the entire manufacturing parts of the planet are going ZIRP. This is total insanity. People talk about how we are ’saving money’ now. But this is obviously FALSE.

We are PAYING OFF DEBTS. Not saving any money. Most discretionary incomes as well as manufacturing profits and asset value rises are gone. There are none of these happening. We see dropping incomes, dropping profits and dropping assets all over the place. 

And the only debts that are now rising are GOVERNMENT. So the great unwinding has barely begun. All negative forces are now at work and will continue. Within my own family, people with good, high paying, productive jobs are now being laid off due to frantic businesses ditching everything overboard, hoping to stay afloat and pay off crushing debts that are not supported by profits anymore.

And as everyone ditches their workers, incomes fall, the ability to even pay mortgages and credit debts collapse and everything gets only worse and worse causing businesses to drop more workers. This is the vicious debt-reduction/depression cycle we saw in 1873, 1892, 1930, 1972 and today.

skopros

great comment elaine! 

Americans are so addicted to spending, only an economic tragedy such as these DC and Wall Street fraudmeisters have visited upon the gutted taxpayers. As many keep saying, this isn’t the beginning of the end but the beginning of the beginning. 

L Moore: great idea! Thanks to both.

jlounsbury59

Elaine – - - 

Not to be a nit-picker, but here is a nit: you left out 1907. 

John Lounsbury

Elaine Supkis

1907 was an interesting bank panic. It may have paved the way for WWI. Thanks for reminding me, John. 

And of course, it caused the creation of the Federal Reserve. Which was supposed to stop bank crashes. What a great track record that organization has! Every 20 years, off the economic cliff! And the complete devaluation of our currency, the end of our gold based reserves, everything.

Great job of is, eh?

The original story by Paul Kedrosky talks about time.  He mentions that this unwinding of the financial systems is happening very fast.  Of course, this is due to many people being surprised by the EFFECTS suddenly manifesting themselves in public.  But the roots of the problem and the beginning of the collapse were quite obvious to astute observers several years ago.

 

I did my first cartoons about the housing bubble bursting back in late 2005.  I noted the beginning of the bear market in stocks in 2006—stocks still rose after that but it was due not to a good market but entirely due to a flood, an absolute flood of Japanese carry trade funny money being dumped on everything. 

 

Businesses that were not the target of offshore hedge fund shenanigans stagnated or even began falling throughout 2006.  But stocks of companies targeted for take overs shot up immensely fast.  I predicted back in 2006 that these take overs were going to destroy the target companies due to too much debt piled on too little future profits to pay the interest on these ‘loans’.

 

Ie: unlike in previous stock market bull runs, most if not 100% of the buying going on was due to huge investment speculator hedge funds operating out of Queen Elizabeth’s pirate coves, getting loans from the Bank of Japan and then adding more interest to the amounts due and dumping it on top of businesses.  Collecting the differential as well as scalping the businesses so they could ‘resell’ it to other hedge funds doing the same: this was corporate ‘flipping’ which operated on the same schemes house flippers used.

 

And of course, it crashed the instant that the Japanese carry trade abruptly ended in July, 2007!  The collapse did NOT begin, as Mr. Kedrosky claims, in August, 2008.  The most obvious side effects began in ernest by this September with massive bankruptcies in the investment banking/insurance systems.  This was the Derivatives Beast munching away on the carcasses of the investment system.  But the collapse started in earnest in October, 2007.  We already finished Year One of the New Great Depression.  This means, we are where things were at in 1931 now.  

 

In other words, now where near the bottom.  I remarked two years ago, how people bought houses in 2005 and were going bankrupt by the end of 2006.  I noted that this was ridiculous since unemployment was low and there was no recession.  And these people bought or refinanced their homes only a short while earlier.  So this was a crisis based on people buying things they obviously could not afford.  And they hoped to pay for their loans by flipping their houses and moving.

 

Or owned multiple houses and couldn’t sustain the costs for even one year!  Now, we are in a REAL recession and people who were quite capable of paying loans in the past and who were careful to not overextend their credit….they are losing their jobs!  This will put them at risk to defaulting on loans!  This is very, very bad.  

 

The instability has hit our own family as frantic corporations dump good workers overboard.  The hedge funds that dumped all that debt on corporations across the entire planet are now going bankrupt, themselves.  They always had this delusion that if they ‘cut staff’ at the places they took over, they could flip them and make a further profit.  But this very process of dumping debt and cutting staff has created the conditions for a depression!

 

If EVERYONE fires and no one hires, business grinds rapidly to a stop.  Just like, if everyone tries to sell after bidding up the price of something, it doesn’t merely decline, it collapses!  And if everyone is firing, this means buying slows, bankruptcies shoot upwards and things deteriorate rapidly.  Thanks to these buy-out schemes, most major and many minor corporations are frantically trying to cut staff so they can manage the new debts that were piled on top of everything.

 

And worse: these debts didn’t go to expanding businesses!  THEY CAUSED CONTRACTIONS IN BUSINESS!  If corporation X owned by Cerebus bought corporation Y, Cerebus would then force BOTH to fire people and close facilities!  If thousands of corporations did this at once, we get a collapse in business.  This is why easy lending is fatal.

 

Any time any government discovers someone creating too many loans, they must either tax the speculators borrowing money this way or shut down the lending process in various ways.  Central banks are supposed to govern the rate of lending so this doesn’t happen.  When Japan flooded the planet with lending, no central bank EXCEPT FOR CHINA, protested.  None stopped Japan.  Now, we have the carry trade ending as all the central banks imitate the ZIRP regime of Japan.

 

THIS IS BAD.  This is because it will cause a new wave of lending that will be worse than the Japanese lending since almost all the central banks of the industrial G20 will be doing it simultaneously ‘to provide liquidity.’  And the last thing we need right now is more liquidity.

 

To keep business going, nationalized banks can provide business loans for operational purposes.  NOT FOR BUY OUTS.  We know that when the Federal Reserve and Treasury gave out loans and sucked up all the bad debts of the speculative banks, they immediately restarted buy outs of each other!  They didn’t lend money to business so they could pay staff or run operations.  The government jawboned them into do this but the bankers desperately want to restart the odious buy-out garbage that destroyed our economy.  This makes them much richer than if they are mere bankers, providing important functions for transacting deals between businesses and customers.

FEEL FREE TO EMAIL ME AT emeinel@fairpoint.net

CLICK HERE TO DONATE TO THIS WEBSITE

17 Comments

Filed under .money matters

Tags: Add new tag, Bank of Japan, bankruptcy, bear market, Citigroup, depression, Derivatives Beast, Japan, ZIRP