SAVING BANKS MEANS BANKING SAVINGS

CLICK HERE LARGE PRINT EDITION: SAVING BANKS MEANS BANKING SAVINGS « Culture of Life News 2

The Chinese plan to execute the executives who screwed up baby formulas.  The main reason for this sentence is the bribery of officials part of the inditement.  The Chinese people applaud this.  We are not nearly so serious about punishing corruption of officials. If we shot everyone who accepted bribes via ‘election committees’ and then did work for the bribers such as passing laws or going to war because of the bribery, DC would be a very empty city.  The economic collapse is taking down both the sad remains of the British Empire as well as the US empire.  This is the real story, not ‘can we fix the banks?’  It is, ‘Can we fix the empires?’

 

Northern Trust Interest Rate Outlook.pdf

*Paul Kasriel is the recipient of the Lawrence R. Klein Award for Blue Chip Forecasting Accuracy 

No, our title does not refer to our 43rd president. Rather, it refers to the shape of an economic scenario that is beginning to look to us as the most probable going forward. The current economic environment is indeed bleak and there are precious few signs of a recovery. But we believe that if the massive fiscal stimulus package being worked up in Congress is financed largely by the banking system and the Federal Reserve, there is a good chance the economy will begin to grow by the fourth quarter of this year and continue to do so throughout 2010.

And if we are correct on this, we also believe there is a good chance that the consumer price index will be advancing at a fast enough pace by the second half of 2010 to induce the Federal Reserve to become more aggressive in draining credit from the financial system. This could set the stage for another recession commencing in 2012, or perhaps some time in 2011. So, the shape of the path of economic activity we see over the next few years is not a “V”, a “U”, or an “L”, but a “W” – down, up, down, up, all within four or five years.

 

I always like to add important events to graphs.  This shows more clearly, what is going on.  I forgot to add the ‘Bretton Woods II dollar devaluation’ arrow which is right where the downslope ending at the ‘y’ in ‘Hyperinflation’.  Starting at the end of hyperinflation and the beginning of wild Federal spending, we see the graph going up and up and up.  But this was due 100% to hyper-spending by the government coupled with the trade deficit taking off like a rocket.  

This graph clearly shows what I keep talking about: the Japanese ZIRP carry trade business was at the root of the expansion of credit which was global, not local.  The US Treasury and Federal Reserve lost control of credit long ago as the top chart shows.  Only after the Japanese carry trade suddenly ended when the yen began it long rise, did credit vanish.  The suddenness of this vanishing credit is clearly shown on this graph.  The Reserve Bank’s credit had to rise tremendously to make up the difference between the Japanese lending, which vanished, and the US banks need for borrowing, since US savings is nil.

Chart 5 shows that in the third quarter of last year, credit creation by the Federal Reserve, the commercial banking system and the savings and loan system totaled $2.5 trillion at an annual pace. Total borrowing by the U.S. nonfinancial sector – federal and state/local governments, households and nonfinancial businesses – totaled $2.3 trillion. So, in essence, the Fed and the banking system monetized the entire increase in debt by the nonfinancial sector and then some. Chart 6 shows that it was the Federal Reserve doing the bulk of the “heavy lifting” with respect to this credit creation. The Fed created $2.4 trillion of the total $2.5 trillion credit created by the Fed, the banks and the S&Ls. If the stories are true about the Obama administration’s plan to speed-up the government recapitalization of the banking system, then the Fed will be able to throttle back in its credit creation as the banks increase their share.

The whole problem is, the banks cannot ‘increase their share’ unless they first get some capital.  The Treasuries being handed out like candy to over-stuffed little Trick or Treaters will only make them sicker.  Why is that?  

 

CounterPunch: Tells the Facts, Names the Names

By PAUL CRAIG ROBERTS

A compassionate government would handle the crisis in this way:

The trillions of dollars in credit default swaps (CDS) should be declared null and void. These “swaps” are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers.

The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices.

The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout.

Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.

To preserve the dollar’s status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.

The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates.

 

Paul Craig Roberts isn’t on Obama’s Dream Team.  I suppose, he paid all his taxes.  Automatic disqualification.  

 

Well!  All his suggestions are OK except for one teeny, weeny, little problem: we owe most of our money to foreign powers who can squeeze our nuts if we even suggest, we won’t pay them off.  And what, pray tell, is the pay off for China and Japan, both of whom hold between themselves, over $1.5 trillion in US government debts?

 

Take a wild guess.  If we retreat on allowing a flood of imports into the US, they will hammer us, good.  Our government will  have to declare bankruptcy or pay its own way like most governments.  This means, we must see taxes rise sufficiently to pay off the trillions [China and Japan are the tip of the iceberg, here] we owe foreigners.  This is over $10 trillion and rising, fast.  Then, hyperinflation will hammer us.

 

Mark to market can’t be suspended, either.  This is because our creditors demanded this.  They want to know what things are worth.  Our worthless banks do NOT want to know how much their paper products are worth!  They want to assign an artificial worth to them so they can pretend to be capitalized.

 

I sigh with despair as I see one easy solution after another offered.  There is no easy solution.  None at all.  The solution is painfully obvious: we have to end corruption in DC.  Note the Chinese methodology here.  We must recapitalize our banks via DOMESTIC savings.  We can’t borrow any more.  We now have to pay as we go until the banks are recapitalized, properly.  We also have to bring our government into fiscal sanity.  No more imperial wars.  No more aid to nations that have a higher living standard than the US [Israel comes instantly to mind, here].  END THE WAR ON DRUGS.  This is tremendously expensive.  CUT CIA/DARPA SPENDING.  

 

News today is, the damn CIA, military and Homeland Security were spying on EVERYONE.  These idiots have no Constitutional right to do this.  Our Founding Fathers were very firm about spying on Americans.  This is utterly illegal and very expensive and should be terminated along with the fools who did this, being arrested and I do mean Cheney.

 

I do very much agree with Paul Craig Robert’s suggestion of taxing imports.  100%.  

 

http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0901/document/us0109.pdf

If monetizing nonfinancial debt were costless, economically speaking, the Zimbabwean economy would be the envy of the world. But, of course, there are economic costs.Monetizing debt means printing money. And printing money ultimately leads to accelerating prices – prices of goods, services and assets. As well intentioned as it may be, the government does not use economic resources as efficiently as the private sector. This inefficiency from government spending worsens the trade-off between aggregate demand and goods/services price increases. And finally, with the Federal Reserve holding the price of credit below its free-market equilibrium, malinvestment, as the Austrian economists say, occurs. That is, the
lower-than-equilibrium interest rate structure encourages investment projects that cannot profitably be sustained when the interest rate structure ultimately must adjust upward. When the interest rate structure finally does adjust upward, unprofitable investment projects are abandoned and economic activity slumps.

Yes, the report is correct.  I recall, when hyperinflation began, the US media ignored the story.  Even now, it gets very little coverage.  This is because our entire economic system depends on inflation.  Now, let’s go off to London where all the bridges are falling down like dominoes.

 

Turner attacks growth of financial innovation – Business News, Business – The Independent

Lord Turner said that much of the growth in financial services in the last decade was of little economic use and had increased risks. He added that the FSA and the Bank of England had failed to spot the systemic risk created by the combination of various economic and financial developments.

The increased role of financial services in driving economic growth was due to a surge in activity between financial institutions rather than in providing services to companies, he said. The sector’s importance was swollen by rising asset prices which boosted bank profits and bankers’ pay, encouraging the creation of even more complex products that allowed financial firms to cream off unjustified profits, he added.

Lord Turner is correct only this is global.  The growth in ALL ‘financial services’ wasn’t just of no economic use, it was TOXIC AS HELL.  All it did was take debts from the Bank of Japan and dump it all over the planet on every possible business, property, person or commodity.  The Derivatives Beast betting game went from $1 trillion in 2001 to $66 trillion.  This is utter insanity.  

 

Sharks, pirates, hell hounds and gnomes went totally nuts and seized a good percentage of all the Japanese carry trade loot they were handling and stuffed their pockets with it.  This was all 100% funny money that created a massive burst of inflation.  Which popped the bubble.  We are now seeing this deflate. Our leaders are trying to start a new global bubble.  They are desperate so they are creating massive amounts of government debt to do this foolish thing.  No one respects the concept of ‘capital’ anymore except, perhaps, the Chinese commies.

 

British government mounts new bank bailout amid warnings of economic collapse

Britain’s Labour government announced another massive bank bailout on Monday. It comes just months after the same banks received a £500 billion “aid” package from the government that included buying up shares in Britain’s leading high street banks and providing loan guarantees and credit facilities.
Prime Minister Gordon Brown had claimed of his October bailout that it had “saved the banks”. In reality, the global economic crisis has intensified, plunging the UK into the worst recession since World War II.
The latest measures came as the Royal Bank of Scotland (RBS), one of Britain’s largest banks, posted a loss of £28 billion for 2008—the largest corporate loss in UK history. This includes a £20 billion write-down of its purchase of Dutch bank ABN Amro and US bank Capital One.
Banking shares collapsed due to fears about further losses and the expiry of the short-selling ban at the weekend, threatening to pull down the entire banking sector, Britain’s largest and most important industry.
RBS’ shares are worth just 10 percent of their value two years ago. On Friday, Barclays Bank, which has so far avoided part-nationalisation by the government by seeking funds from Middle East investors, saw its share price collapse by 25 percent.

When a deep in debt government bails out banks by going deeper into debt, this is pure insanity, it leads to BOTH going bankrupt.  How stupid is this?  Britain still has a navy.  I suggest Parliament take their tubs and invade the islands swearing fealty to Queen Elizabeth II and raid them.  Close down the faux banks and investment houses that have PO boxes there.  Then, tax the hell out of the corporations locating their faux headquarters there.

 

To do this, we have to first arrest and punish all politicians taking money from these pirates.  HAHAHA.  Like I said, if we do that, Parliament would be an echo chamber, just like DC would be a ghost town.

 

Gordon Brown brings Britain to the edge of bankruptcy – Telegraph

By Iain MartinThe country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.
The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.
This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their “financial innovation”.

Like so many analysts, Martin doesn’t bother to track down, where this funny money came from.  If anyone thinks that the Tories would have done better, are fooling themselves.  ALL governments across the planet, were sucked into the Japanese ZIRP carry trade business.  China, at least, could see it and took steps to stop the flood of this money pouring into China from Japan.  The first measures were taken in late February, 2007.  Global markets took a brief nosedive.  

 

This is why voting in opposition parties will fail in ALL nations unless they first figure out what the Chinese figured out last year!  Instead, the G7 want the Japanese carry trade to start again!  They said so in their last three meetings!  China won’t let them.  China will have hyper inflation if they allow this.

 

Sterling plunges on public debt concerns – Times Online

Sterling today fell below $1.40 to its lowest point in seven and a half years because of concerns about the depth of Britain’s banking crisis and the Government’s rising debt levels as it seeks to bail out the struggling sector.

The pound, which declined by 2.67 cents to $1.4529 yesterday, fell further to $1.396 this morning over fears that the Government’s borrowing levels may exceed £118 billion, equal to 8 per cent of national income, for the next financial year.

The British don’t have much time left to figure out this riddle.  If they do, they will see how they were colonized by Asia.  This is revenge for 250 years of British colonization of Asia.  Payback will be a bitch.  The sins of the Empire will be taken off the hide of the present occupants of Britain.  There is more to come, trust me on this.  The Middle East still has to get its piece of flesh.

 

Dollar worries a theme in Geithner hearing – Capitol Hill- msnbc.com

Testifying in support of Geithner, former Federal Reserve chairman Paul Volcker warned that “several trillions of dollars will be necessary” from taxpayers and from the Federal Reserve to resuscitate the U.S. financial system.

“Obviously, commitments made of that magnitude raise very large questions,” Volcker told the committee. It’s not only the potential waste of taxpayer money, “there are also risks of undermining confidence in the dollar and raising the fears of future inflation.” 

And as the British domino falls, the US domino will begin to teeter and fall.  We are not at the bottom, we are still very high up this cliff face.  We have a long ways to fall.  We can’t ‘resuscitate’ ourselves if we don’t figure out how to save our industrial base and our work force.

 

Report: BofA to cut 4,000 from capital markets unit – Silicon Valley / San Jose Business Journal:

And the job cuts in finance continue.  Hundreds of thousands of money making jobs are down the drain.  Saving the banks can’t work if we have no savings.  End of story.  ZIRP means, no savings.

 

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