EASY READING CULTURE OF LIFE NEWS: ZIRP IS KILLING US BANKING FUTURE « Culture of Life News 2
Derringer and Mish Shedlock are both extremely astute economic pundits. Online, they are by far and away, the most popular of thinking minds, all of whom are bears, incidentally. We members of the bear community can’t bear all the goofy, strange and often illegal things the Federal Reserve does. Far from viewing Fed Chiefs as gods, w view them as devils. The banking sector continues to sink below the dark waves of debt and now the bond market is going under, too. Thanks to the Federal Reserve that has virtually no reserves and the Treasury that has squandered our treasures.
Bernanke: Game Over? – The Market Ticker
Consider a situation where The Fed “wants” the GSE funding cost to be, say, 2%. The market wants it to be 4%, because the market perceives more risk than The Fed would like to have it admit.
The Fed can cause the GSE paper to trade at 2%, but if it does so it will be the only buyer of said paper, because nobody else will buy at a 2% coupon.
The same thing is about to happen here. If Bernanke actually attempts to suppress the Treasury Market’s interest rates, that is, “support the long end of the curve’s price”, then he will wind up having to buy all, or essentially all, of the supply. People who own Treasuries will sell to him, surmising that he is overpaying, and gleefully taking what is an “extra” profit from his hands.
If you’re wondering why the commercial and consumer lending market has gone straight to hell, this is the reason. Bernanke has interfered with the private credit market in virtually every area, and in each place where he has “supported” the price of debt instruments (suppressing yields) he has wound up as effectively the only buyer in short order.
This is bad when we’re talking about the private credit markets but if it shifts to Treasuries then the game is literally over immediately, because at that point you have just created a circle jerk.
‘Risk’ is a funny word. It sprang up in Northern Italy, in Lombardy, as slang for ‘pericolo’ which means ‘danger’. The word ‘peril’ comes from that word and the cluster of words, ‘fear’ and ‘fare’ come out of that Italian word for danger. ’Fare’, incidentally, means to carry something on a trip. We lived for years in a world where risk was controlled via the Derivatives Beast and was being increased constantly due to the Japanese carry trade.
Even in modern times, travel has hazards. Ships sink. Planes fall into the Hudson River without much warning. Money travels. And the first bankers were doing business concerning the traveling of goods and how to fund the hazards of this travel, namely, the loss of the goods. The dangers in medieval times were extremely high. The insurance charged by the bankers who were all one clan, the Bardi family, reflected their overhead potential losses.
They ceased to be a bank when they took on too big a risk: the King of England. He skipped out on paying back a loan and the bank went under. To this day, the definition of ‘risk’ when it comes to banks is identical to back at the dawn of banking in the West and the Lombardi family. Risk is the danger of defaulting on lending. Banks can get away with lending far more than they hold. But they have to price in ‘risk’ or they might get caught in their own web.
King Edward III defaulted on his loan after the Battle of Crecy, which he won, he didn’t take over and loot Paris so he couldn’t pay off the loan in 1345. Right on the heels of this banking collapse, the Black Plague ravaged Europe.
650 Years Ago: How Venice Rigged the First, and Worst, Global Financial Collapse
And Hunt adds a shocker for the historians, based on exhaustive restudy of all the surviving correspondence and ledgers of the Bardi and Peruzzi.
He concludes that their lending to King Edward III was done with such brutal “conditionalities” — seizing and looting his revenues that his true debt to them may have been no more than 15-20,000 pounds sterling when he defaulted.
Mr. Hunt himself works for an international bank, so he knows how such “conditionalities” of lending work today. He probably knows that the true international debt of Third World countries today is a small fraction of what the banks and the International Monetary Fund claim they owe.
He definitely understands that fourteenth century England was a Third World country to the Bardi and Peruzzi and Acciaiuoli international banks. They loaned Edward II and Edward III far less than their promises — but their promises have been dutifully added up as “total loans” by historians, starting with their fellow banker Giovanni Villani.
Even if we accept the highest figures ever given for Edward III’s 1345 default against the bankers of Florence, the debt to them of the city government of Florence which they controlled, was 35 percent greater, and those bonds also defaulted.
The reason the King of England paid ‘credit card rates’ on his loans was due to him being ‘risky’. Why is that? Simple: the Bardi clan could not chop off the king’s head if he refused to pay! This is why the Mafia is able to lend to people who are very risky: the Mafia hit men whack anyone who doesn’t pay the interest on the loans.
The US financial houses set this up with Congress by passing a very brutal bankruptcy law. This then, supposedly, eliminated the risk of default and they all went nuts, lending like crazy. Of course, you can’t get blood from stones and this attempt at eliminating risk has failed with terrible consequences. People are lured into buying things that cost $100 and then end up paying more than $1,000 for it, over time. For time is money. And time clicks away, the motor is called ‘interest rates.’
‘Interest’ comes from a very old Northern Italian word for ‘damage/losses/destruction.’ When I say, ‘That’s interesting,’ I often am referring to a mess or disaster. The word has migrated, over time, to mean simply something we look at [think: rubbernecking at accidents]. So the rate of interest should be in harmony with the possibility of losses. This means, ZIRP is impossible. There is always risk! Indeed, up until Japan decided ZIRP was a great back-door way to fund US trade deficits with Japan, no bank has ever, ever had zero interest rates.
Now, it is spreading like wildfire! Has risk vanished? Any sane person looking at the unfolding mess sees risks accumulating. The damage, destruction and losses are growing, not shrinking! World trade is collapsing, not growing. And the danger of major governments, a multitude of King Edwards defaulting on loans, is rising rapidly, not falling.
So Federal Reserve and Bank of Japan attempts at driving interest rates to zero are irresponsible, dangerous and risky. HAHAHA. Oh, my. I sometimes wonder why people can’t see the obvious. They can’t because they close their eyes. All my life, when I am driving home an important point, often, people will close their eyes and begin babbling. It happens a lot.
I wait until they are done and say one word and the babbling resumes. This is how people protect themselves from information. When Mish or Dr. Liu or Denninger talk, the bloviators on TV begin to interrupt, babble or try to change the topic. Of course, now, people are listening but it is far too late, isn’t it? And no one listens to me. I can’t even get a toe onto TV anymore. I live in the Outer Darkness.
Now, on to today’s charts and graphs: Today, we are seeing a repeat of what happened in England at the end of the 14th century.
From Mish Shedlock, nearly exactly one year ago:
Tuesday, January 29, 2008 Mish’s Global Economic Trend Analysis: Bank Reserves Go Negative
I have been watching a chart of Borrowed Bank Reserves for several weeks. The action is unprecedented.
Borrowed Reserves of Depository Institutions
click on chart for sharper image.
The NFORBES Chart above is courtesy of St. Louis Fed.
Here’s an interesting excerpt from the book Investing Public Fundsby Girard Miller about borrowed reserves….
Now, here is the same graph, one year later. It doesn’t look the same! Why is that?
Look at the numbers on the left: in the graph from 2008, the numbers go from -$20 to +$20 billion. A $40 billion range. The 2009 graph goes from -$200 to + $600 billion! Wow, that is a $800 billion range! That is 20 x greater! An immense difference! So the big up and downs on the top chart become tiny bumps on the present chart.
Back last year, Mish was horrified at the minus $15 billion drop. Last September, when the British banking system was 3 hours away from total failure and Lehman Brothers triggered the meltdown in the derivatives markets and bankrupted AIG, the insurer of risk for all these stupid people, the Free Borrowed Reserves in the banks plummeted to -$150 billion. Then it shot through the roof as banks got loaded up with over $750 billion thanks to the Bank Bail Bill we fought so hard to defeat.
Below is a series of graphs from the Fed showing how the system went totally haywire and this is utterly new, at no time in the entire history of the Fed, has this happened. It is beyond 1,000x bigger than any previous Fed actions.
St.Louis Fed: Series: DISCBORR, Discount Window Borrowings of Depository Institutions from the Federal Reserve
The graph below illustrates the difference between the 2000 stock bubble rescue operation and today’s operation. Back in 2000, that little jag upwards looked gigantic. But now that the chart is no longer stopping at one tillion dollars, but has been increased to two trillion dollars, that huge bump is not a tiny little thing, smaller than a toad’s toenail.
The TRARR never, ever went above $20 billion before September, 2008. The tiny little jag on 9/11/1 used to look really big up until a year ago. Then, it shoots upwards to a trillion dollars.
This is obviously a major, major crash. There is no other interpretation. The Fed is now on this bizarre business of using every possible tool to drop interest rates to zero. This means, defying gravity. For risk is growing, not shrinking. Artificially suppressing this is dangerous as we shall see below. First, some more raw data:
Mish’s Global Economic Trend Analysis: Bank Reserves Go Negative
Detail comes from the Federal Reserve H3 Release.
Table 2 Not Seasonally Adjusted Reserves in Millions of Dollars
Click on chart for sharper image.
Total Reserves for two weeks ending January 16th are $39.988 billion. Inquiring minds are no doubt wondering where $40 Billion came from. It’s a good question. The answer is the Term Auction Facility. You can see that figure in Table 1 of the H3 release (not shown).
Were it not for the Term Auction Facility, banks would have had to raise $40 billion in capital by selling assets or some other means. We will look at “other means” in just a moment.
One year later, the data is nearly all negative. The only reason it is positive after December, 2008, is due to the government suddenly, after Bush endorsed this and Congress rushed it through, the release of the rest of the taxpayer loot.
Below, we can compare the first TAF auction and the latest auction:
On December 17, 2007, the Federal Reserve conducted an auction of $20 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:
Stop-out rate: 4.65 percent Total propositions submitted: $61.553 billion Total propositions accepted: $20.000 billion Bid/cover ratio: 3.08 Number of bidders: 93 Bids at the stop-out rate were prorated at 1.96% and resulting awards were rounded to the nearest $10,000 (except that all awards below $10,000 are rounded up to $10,000).
The awarded loans will settle on December 20, 2007, and will mature on January 17, 2008. The stop-out rate shown above will apply to all awarded loans.
The very first TAF auction was for only $61 billion and we thought it was absolutely huge, back then. Remember: the Japanese ZIRP carry trade ended abruptly at the end of July, 2007. This auction was supposed to replace it only look at the risk rate! Over 4%.
On January 12, 2009, the Federal Reserve conducted an auction of $150 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:
Stop-out rate: 0.250 percent Total propositions submitted: $107.747 billion Total propositions accepted: $107.747 billion Bid/cover ratio: 0.72 Number of bidders: 97 The awarded loans will settle on January 15, 2009, and will mature on February 12, 2009. The stop-out rate shown above will apply to all awarded loans.
Wow. Nearly 0% stop out rate with with nearly double the amount being auctioned. More bidders, too. Also, the temporary, emergency TAF has now been running for over a year and no end in sight. This is discussed below:
No Exit for Emergency Nationalization
Henry C.K. Liu
In other words, de-nationalization will prolong the recession. Since nationalization of the financial sector had been necessary to save the financial system from imploding, it was not a Keynesian move to stimulate economic recovery, all the misleading euphemism notwithstanding. What the Fed did was to keep the critically ill patient alive with extraordinary measures, even if the cost is a drawn out long-term recovery that requires hospitalization for the rest of his life. Small government cannot be restored by big government, even temporarily. Also, near zero interest rates can hardly be described as “unattractive” to borrowers….
The size of the Fed’s balance sheet cannot shrink unless fed funds rate target remain near zero and fed funds rate target cannot rise above near zero until Fed balance sheet shrinks. Instead of price stability, Fed actions has created a stability of near zero interest rate and expanded Fed balance sheet. Fed balance sheet cannot shrink and zero interest rate also cannot rise in the foreseeable future. The repurchase market, where the Fed Open Market Committee conducts its trading to keep the fed funds rate on target, has been essentially halted by zero interest rates.
You can’t wish away risk. If this were possible, we would never have interest rates. Remember: the very words explain themselves! Risk is danger and interest is damage. Has danger fallen or increased? Is the damage less or are more and more entities defaulting? The answer is quite obvious.
One of the gravest dangers in the risky Cave of Wealth and Death is the nature of opposites suddenly flipping. This is the Lightning Realm and lightning suddenly springs into action when negative and positive ions are making an exchange. Heh. It hurts and if very noisy, too. Deafening. I have an inner ear problem due to being hit so often.
The nature of this force is simple: when things get too unstable, they suddenly flip over. When moving physical objects, the easiest way to flip them is to use a lever and a fulcrum. The present mess we are in is due to too many people using too much leverage…ie.debt…to flip properties or stocks and make a profit on the rise in value during the time before the flipping. But now that prices are falling, all the leveraged debts are due and there are no profits from flipping. So debts flip. Namely, on the bank books, debts are called ‘assets’ but if they default, they instantly become, ‘deficits’!
The US Treasury and Federal Reserve stuck us in this coffin we can’t escape. If rates go above zero percent, the huge accumulation of risks we soaked up from the banks will be much harder to pay off. We can’t inflate the currency because, unlike in 1971 or 1933, most of this debt is held by hostile aliens, one of which has many nuclear bombs! Like the Mafia, our creditors of last resort, China, is armed to the teeth.
No Exit for Emergency Nationalization
A zero short-term rate reduces the financial incentive to lending securities. The reduction in liquidity in the $5.8 trillion Treasury market is coming at a time when financial market conditions have become strained. The problems also come as the US Treasury prepares to issue a massive amount of new government bonds for the current financial year to fund expected fiscal deficits. President-elect Barack Obama is warning the US deficit will top $1 trillion in 2009.
The point is being reached where structural damage caused by near zero interest rates outweighs any benefit from monetary policy easing through interest rate cuts. In a financial environment where the Treasury faces an additional net financing need of over $1.8 trillion, low trading volume caused by near zero short-term rates is a major problem.
Problems in the repo market will impair general trading across the entire Treasury market. A rise in “failed” trades, where a borrowed security is not returned in time, becomes a drain on balance sheets of dealers. Near zero interest rates are also hampering the ability of dealers to finance positions by matching offsetting trades. The zero interest rate environment is effectively eliminating the dealer matched-book business and crippling dealer intermediation in the repo market.
The Japanese people pay for ZIRP. The government can’t allow inflation. Sales taxes have been raised during this ‘depression’ and wages continue to collapse. The government and the central Bank of Japan didn’t even try to raise rates when inflation was over 3%. Savings in Japan are a mess, most people keep it in gold these days. This is why gold suddenly went up this last six months: Japanese are probably pouring into this market.
No Exit for Emergency Nationalization
Created to raise funds to pay for the flood of securities sold by the US government to finance growing budget deficits in the 1970′s, the repo market has grown into the largest financial market in the world, surpassing stocks, bonds, and even foreign-exchange.
At a time around 1998 when the world’s biggest government bond market was shrinking because of a temporary US fiscal surplus, the market where investors financed their long bond purchases with short-term loans continued to grow by leaps and bounds. The $2 trillion daily repo market in 1998 became the place where bond firms and investors raise cash to buy securities, and where corporations and money market funds park trillions of electronic dollars daily to lock in risk-free attractive returns. That market has since grown to over $5 trillion a day, almost 50% of GDP.
The repo market grew exponentially as it came to be used to raise short-term money at lower rates for financing long-term investments such as bonds and equities with higher returns. The derivatives markets also require a thriving financing market, and repos are an easy way to raise low-interest funds to pay for securities needed for arbitrage plays. It used to be that the purchase of securities could not be financed by repos, but those restrictions have long been relaxed along with finance deregulation. Repos were used first to raise money to finance only government bonds, then corporate bonds and later to finance equities. The risk of such financing plays lies in the unexpected sudden rise in short-term rates above the fixed returns of long-term assets. For equities, rising short-term rates can directly push equity prices drastically down, reflecting the effect of interest rates on corporate profits.
The repo market is like the FX markets: its growth ballooned after Nixon cut the golden cords that bound the dollar to Fort Knox. When anything more than doubles in size every 10 years, this is, by definition, a ‘bubble’. It is also unsustainable. To have this once-small market grow to half of our entire economy’s size is incredible. Of course, derivatives are bigger than the entire planet’s GDP.
Note also, how this market launched with the Floating Currency Regime, grew. It was used first, to only fund war spending. Then, corporations needed it because interest rates were too high. Then, equities joined after all the rules and regulations preventing this abusive practice were all eliminated by a corrupt Congress and signed into law by corrupt Presidents.
Faux profits proliferated. We all felt richer even though any sane person could see, the only things really growing were future obligations on present overspending at every possible level.
Commentary: How to rescue the bank bailout – CNN.com
Joseph E. Stiglitz
The question is at last being raised: Perhaps the entire strategy is flawed? Perhaps what is needed is a fundamental rethinking. The Paulson-Bernanke-Geithner strategy was based on the realization that maintaining the flow of credit was essential for the economy. But it was also based on a failure to grasp some of the fundamental changes in our financial sector since the Great Depression, and even in the last two decades.
For a while, there was hope that simply lowering interest rates enough, flooding the economy with money, would suffice; but three quarters of a century ago, Keynes explained why, in a downturn such as this, monetary policy is likely to be ineffective. It is like pushing on a string.
Then there was the hope that if the government stood ready to help the banks with enough money — and enough was a lot — confidence would be restored, and with the restoration of confidence, asset prices would increase and lending would be restored.
Remarkably, Bush administration Treasury Secretary Henry Paulson and company simply didn’t understand that the banks had made bad loans and engaged in reckless gambling. There had been a bubble, and the bubble had broken. No amount of talking would change these realities.
Stiglitz is older than me. He should know better. How could Goldman Sachs President, Paulson, and his gnome buddies not know what was going on? They created this system. They pushed it forwards. They all got filthy rich off of it. Of course, they knew exactly what they were doing just like Madoff, their role model. For Madoff blazed the path, here.
The Fed knew, too. They knew all about bubbles. Even a stupid Fed Chief knew this, anyone who reads these guys over the years can see, they know exactly what is going on. They simply don’t want to yield to reality. They, like the fraudsters on Wall Street, want things to ‘grow’ no matter what. Even if the only thing growing is debt.
Commentary: How to rescue the bank bailout – CNN.com
Leverage, or borrowing, gives big returns when things are going well, but when things turn sour, it is a recipe for disaster. It was not unusual for investment banks to “leverage” themselves by borrowing amounts equal to 25 or 30 times their equity.
At “just” 25 to 1 leverage, a 4 percent fall in the price of assets wipes out a bank’s net worth — and we have seen far more precipitous falls in asset prices. Putting another $20 billion in a bank with $2 trillion of assets will be wiped out with just a 1 percent fall in asset prices. What’s the point?
It seems that some of our government officials have finally gotten around to doing some of this elementary arithmetic. So they have come up with another strategy: We’ll “insure” the banks, i.e., take the downside risk off of them…
It is standard practice to shut down banks failing to meet basic requirements on capital, but we almost certainly have been too gentle in enforcing these requirements. (There has been too little transparency in this and every other aspect of government intervention in the financial system.)
To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk taking. Ownership cannot be a one-sided bet.
Of course, most of the employees will remain, and even much of the management. What then is the difference? The difference is that now, the incentives of the banks can be aligned better with those of the country. And it is in the national interest that prudent lending be restarted.
There are several other marked advantages.One of the problems today is that the banks potentially owe large amounts to each other (through complicated derivatives). With government owning many of the banks, sorting through those obligations (“netting them out,” in the jargon) will be far easier.
Inevitably, American taxpayers are going to pick up much of the tab for the banks’ failures. The question facing us is, to what extent do we participate in the upside return?
Eventually, America’s economy will recover. Eventually, our financial sector will be functioning — and profitable — once again, though hopefully, it will focus its attention more on doing what it is supposed to do. When things turn around, we can once again privatize the now-failed banks, and the returns we get can help write down the massive increase in the national debt that has been brought upon us by our financial markets.
This guy is totally nuts. The US people are not going to pay down our immense and rapidly ballooning national debt by selling off all these loans that are riddled with defaults. It just is not going to happen. The only way we can even attempt this is to cut expenses dramatically.
I have an easy suggestion, straight from the dragon’s mouth: cut the Pentagon. That entity is badly managed, doesn’t protect America at all…witness 9/11, just for example. And is endangering us by stirring up a hornet’s nest with a billion+ people across the planet! We can save over half a trillion a year, this way. And cut aid to Israel to $0. They don’t deserve one dime from US taxpayers.
And then confiscate all the wealth of the bankers. Even their personal homes. Make them homeless. Make them and their families suffer. I lived in a tent for ten years. They can, too.
EMAIL ADDRESS:
emeinel@fairpoint.net
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EMS NEWS
P.O. BOX 483
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Make checks out to ‘Elaine Supkis’
The bottom line is that the US economy has been pretty much destroyed, or at least permanently crippled. There are still some details to play out, and it will take quite a while before the reality of this sinks in and becomes undeniably obvious to all.
Forget about the way things were before 2008 – that economy is gone with the wind. A has-been nation in long-term decline: that is what the US has to look forward to from here on out.
Until the general public and TPTB finally admit and face up to this reality, we will continue to see these futile, doomed efforts to shock the old economy back to life. These efforts are worse than just futile, they are counterproductive, throwing good money after bad. Actually, at this point we have long since run out of good money, and are just throwing bad money after bad. All that our illustrious leaders are doing at this point are just foreclosing options and assuring that our future is even worse than it might otherwise have been.
i agree but instead of “cutting the pentagon” and presumably not the debts, have a jubilee emancipation and restoration after justice is done and just turtle up within our own borders, start over and “the pentagon” with its bristling weapons will make sure no-one can try anything mean with us. and instead, put all citizens INTO the military! hahahahah! YOU, ME, EVERYONE will have a place and everyone will have something to do and the military code of justice guarantees more rights than we have now and is more fair than the system we now have of “lawyers” that exist to confuse law with justice …. and we can shop at our own PX’s which would be like much better walmarts and BECOME CLEAN AGAIN.
Who knew that Greg Palast used to be an economist? This article is a must-see! And it’s hilarious!!!
Openly Hidden, remember how the Pentagon got started? WWII? It is an imperialist organization.
“I’ll take Jewish economists the work for the world bank for $100, Alex”
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“The answer is, what you call a guy that spouts the official absurd propaganda and/or some trivial obnoxious variation thereof that we get from every worthless economic pundit on the news cycle, 24 /7”.
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“Uh, what is nuts?”
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“Ooh sorry, schmuck. Schmuck is what we were looking for.”
Sorry for the long text, and for being so parochial:
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“… nowhere in the major developed world are the problems more complex and potentially out of the government’s control as the UK. Virtually all of the ills hitting the US today are similar in the UK (massive debt build up, real estate bubble, income and employment collapse). But, on top of that, the UK shoulders an incredible share of the global banking crisis. Roughly speaking, the US and UK banking systems are about the same size in dollar terms, but the economy and government’s ability to absorb the losses are of radically different sizes. Our extremely rough estimates of aggregate banking system losses in the US are $1.8 trln compared with about $1.9 trln in UK banks. These losses are proving extremely hard to bear in the US, and if they are close to right (i.e. unless there is a rapid recovery we expect they will prove close to right) they would appear near impossible for the UK to bear. If these types of losses come to pass, the possibility needs to be considered that the UK, due to pressure on both the currency and gilt markets, will begin to back away from some of its guarantees of the major global institutions in its midst. This would likely create further global financial chaos as other governments would have to step in to fill the void in some manner because the British banks are likely too big to fail globally, but also too big to save domestically. It is unlikely this can be handled gracefully. The Fed has already taken on large exposures to these banks by opening their facilities to domestic arms of international banks. ”
http://tinyurl.com/aqmfzt
(Bridgewater Associates, pdf)
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Summarised elsewhere as:
“With RBS, Barclays and Lloyds Banking Group having balance sheets worth over £4,000bn in total and stuffed with foreign assets and liabilities, the potential for enormous losses exists, raising the possibility that the UK could travel down the same terrible route as Iceland in the event of a run of foreign finance from British banks. That is one of the main reasons for the government guarantees offered for bank funding.”
This comes from a Financial Times article that attempts to be positive. This is what passes for “positive”:
“But that will feel like no new dawn. The overhang of debt is likely, in contrast to the past decade, to result in lower growth, persistently higher unemployment, lower house prices, extremely tight public expenditure, higher taxes, higher borrowing costs and a slower rise in prosperity. It is not much to look forward to.”
http://tinyurl.com/afyjml
isn’t the problem basically that the united states and england white peoples financial system has molded the entire world into what the banksters and illuminatti wanted it to be for a century now. and now “they” have fucked up. and people want things FIXED….they don’t want the system to change too much because the system basically owns them completely and their futures and all their money. and so everyone is trying to “fix it”….only if someone somehow can’t “fix it”, well, something new and radically different is going to emerge from the death of an (evil) system that everyone believed in….because once it is gone, it will never be put back together again will it now…and then who will rule us? and what will we believe in then? hahahahhaah! death to smoochie!
China will rule us. They know and love the entire concept of banking. Including being the mean banker, Mr. Potter.
Our Depression/Disintegration is no accident.
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The Lizards who planned our D/D are still in charge.
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The only obstacle to a Lizard New World Odor is the Military.
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Be careful what you wish for.
Instead of closing the Pentagon which may allow us to be easily invaded, we may just want to stop people stealing trillions of our dollars.
http://www.onlinejournal.com/artman/publish/article_1047.shtml
“Think of this as part two of Recherche du trillions perdu, my Online Journal article on Dov Zakheim, former Bush appointee as Pentagon Comptroller from May 4, 2001 to March 10, 2004. At that time he was unable to explain the disappearance of $1 trillion dollars. Actually, nearly three years earlier, Donald Rumsfeld announced on September 10, 2001 that an audit discovered $2.3 trillion was also missing from the Pentagon books. That story, as I mentioned, was buried under 9-11’s rubble. The two sums disappeared on Zakheim’s watch.”
“NO ACCIDENT!” well there is that sneaking suspicion…i.e. in every calamity there is opportunity and this could be an attempt to further take over. but i cannot imagine the banksters using these times to consolidate control over the people….NOT AS LONG AS THE PEOPLE CONTROL THE ARMIES….same as with china. usa and especially including the north americas are unique in the world i think that we could easily take care of ourselves and our peoples and mind our business and get out of debt and not get involved with foreign and bankster entanglements for a century or two. energy self sufficiency, food self sufficiency, make everything we need just re-tool, and destroy the “lizards”…..whom i presume are the evil illuminatti? the “military” can easily be US elaine because they basically are us…they don’t have to be used against US here or overseas. the military takes care of its own and they hate being used for political purposes. we could do a lot worse.
Well, well, well:
“Citigroup aborts plans to spend $50m on a company plane”
http://tinyurl.com/bfvaot
(UK Guardian)
Something you said?
Iceland kicks out their government!
http://english.chosun.com/w21data/html/news/200901/200901270009.html
Things are getting wild in Icleand. Protecting the environment is not a priority when people are starving:
http://www.google.com/hostednews/afp/article/ALeqM5j9qtVenEAk1WlFdYP7Glbv76oKTA
Fetung
Iceland : The one place in the world no one else will do business with again. Ever.
Back to the O reforms:
1. Renewable energies
2. Health care cost reductions
3. Transparency with banking
4. Education funding
5. Transport funding
all very good sound bites, can he deliver?
http://english.aljazeera.net/news/americas/2009/01/200912771624892342.html
US announces heavy job cuts
Lending used to be private contracts between people with money to lend and people who needed money.
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The people with money would only lend when the return (say 10%) was greater than the risk of default (say 6%).
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If the Federal Reserve lends money at 0% when the risk is 8%, there is no F****** way I, as a private lender, and going to compete with that.
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So private lending, the foundation of private free enterprise, shuts down. The economy collapses, of course, and the only ‘solution’ is the desired end result which is giving the central banking crime families permission to print more money by purchasing government bonds.
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Until people wake the F*** up and realize when and how the criminal Fed steals our wealth by printing money, we are going continue to become a centrally planned disaster like the Soviet Union.
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When that happens, like in the Soviet Union, the economy collapses and the Tribal Gangsters end up owning everything.
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Whenever I read someone who understands the process of creating money, they gain my respect and I pay attention to their thought. Denninger definitely gets it. Here is another such person I am going to start following after reading this article.
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If you must skim, may I recommend paragraph 5.
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http://consultingbyrpm.com/blog/
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BERNANKE PAINTS HIMSELF INTO A CORNER
by Robert P. Murphy
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Unfortunately, Bernanke has gotten himself into a position where the only way to prevent massive price inflation is to cut-off the financial sector’s life support and to jack up interest rates.
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First, we should define some terms. The monetary base consists of currency in circulation, plus bank reserves held on deposit with the Fed itself. The base is the narrowest definition of money, and is directly controlled by the Fed. This is why economists often look at the monetary base to gauge whether the Fed is loosening or tightening.
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If we broaden the scope of our definition of money, we have M1, which consists of currency in circulation, demand deposits (i.e. checking account balances), traveler’s checks, and a few other extremely liquid assets. For our purposes in this article, the essential differences between the monetary base versus M1, is that the base includes bank reserves with the Fed (while M1 doesn’t), and M1 includes checking deposits (while the base doesn’t). We’ll see in a minute why these differences are important to understanding the danger of the current situation.
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At the risk of triggering nauseating flashbacks to mandatory college lectures, let’s review how the Fed creates money which in turn leads to price increases. Normally, when the Fed wants to engage in “loose” monetary policy, it engages in open-market operations by buying assets from the public. For example, the Fed might buy $10 million worth of government securities from private-sector holders. In the transaction, the Fed acquires the $10 million worth of Treasury debt, and writes a check on itself for $10 million.
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This is the precise spot where money is created “out of thin air.” When the Fed writes a check on itself, the recipient deposits it at his bank, and the bank in turn deposits it with the Fed. So the Fed bumps up that particular bank’s account balance by $10 million; in other words, that bank’s reserves with the Fed have gone up by $10 million. Yet there is no counterbalancing debit anywhere else in the system.
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When Joe Smith writes a check for $10,000 to Bill Jones, total deposits haven’t changed; Jones’ checking account goes up by $10,000, while Smith’s goes down by $10,000. Yet when the Fed writes a check for $10 million, some bank’s reserves go up by that amount, while no other bank’s reserves fall. The additional $10 million in reserves was created by changing the 0s and 1s in the Fed’s computer system.
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As readers may recall, the process does not stop there. Because of the fractional reserve nature of our banking system, an injection of new reserves can lead to a multiple increase in the overall money stock. For example, if the reserve requirement is 10%, then the bank depositing the $10 million is able to make new loans of up to $9 million. Businesspeople may come in and win approval for loans, and receive new checking accounts with a total of $9 million in their balances. They can go out into the community and start writing checks on these balances, pushing up prices. At the same time, the original person who sold Treasurys to the Fed, still thinks he has $10 million more in his checking account too. Thus, while the monetary base has increased by $10 million (i.e. that’s how much total bank reserves have increased), M1 has increased by $19 million.
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And the process continues. The merchants who receive payments from those taking out new loans will in turn deposit the checks with their own banks, and some of the “excess reserves” (i.e. the $9 million that the original bank held over and above the legal minimum needed to back up the first person’s deposit) are transferred to other banks. They in turn can now make new loans, because the 10% reserve rule applies to their new reserves as well.
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In the end, if we assume a 10% reserve requirement, and that all of the banks are fully “loaned up,” then the original purchase of $10 million in Treasurys will yield an increase of $100 million in total checkbook balances in the community. Prices for goods and services will be higher than they otherwise would have been, because there is now an extra $100 million in household “cash” chasing them.
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The process works in reverse, too. If the Fed grows concerned about price inflation, it can slam on the brakes by engaging in open-market operations to sell off assets from its balance sheet. When the public buys an asset from the Fed, the transaction ultimately reduces the reserves that member banks hold with the Fed, meaning that they will need to contract the total outstanding checking balances of their customers. (We are assuming the banks had originally been fully loaned up, i.e. that they held no excess reserves.) Assuming a 10% reserve ratio, if the Fed sold $10 million of securities that it had been holding, that could lead to a reduction of $100 million in the quantity of money held by the public.
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Now back to the current situation. The chart below shows the banking system’s total excess reserves, meaning how much banks are holding that could be used as the base on which to pyramid loans to customers.
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The above chart is startling. Notice that the timeline goes back to 1929; nothing even remotely close to our current situation has occurred, even during the depths of the Great Depression.
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What is happening is that the Fed has allowed its balance sheet to explode during the last year, from $920 billion in December 2007 to $2.3 trillion in December 2008. (See this excellent summary article.) Yet because of general fear, as well as various gimmicks (such as paying interest on reserves held with the Fed), the banks are sitting on these huge injections of reserves, rather than granting new loans to their customers. This is why prices have been falling, even amidst this unprecedented expansion in the monetary base.
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Another way to see the discrepancy is to contrast the growth in the monetary base with the growth in M1. Remember that the Fed directly controls the base, whereas it is M1 (a measure that includes checking deposits) that most accurately captures how much money the public has available for immediate spending. Look at how much more the base has grown, compared to M1:
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Sometimes when economists focus too much on the supply of money, it leads to a neglect of the demand for money. As the second chart above illustrates, M1 has indeed grown remarkably in the last year, even while prices have been fairly stable. This is because the recession and general panic has led the public to demand greater cash balances. In other words, people want to concentrate much more purchasing power in extremely liquid assets (including Treasury debt as well as currency and FDIC-insured checking accounts). Thus, even though the total stock of money has risen considerably, prices haven’t followed suit.
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The general price level is the flip-side of the dollar’s strength, and so if the demand to hold dollars goes up, then its “price” goes up too, meaning its exchange value versus real goods and services goes up. In the summer, one U.S. dollar traded for a quarter-gallon of gas. Now that the dollar has considerably strengthened against gasoline, one dollar fetches (say) three-quarters of a gallon. The “gas-price” of a dollar has risen, meaning that the dollar-price of gasoline has fallen. The same is true – to a lesser extent – with other goods and services.
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Even though increases in the demand for U.S. dollars can offset increases in its supply – so that its market value doesn’t plummet – this observation is no cause for comfort. Using back-of-the-envelope calculations, the year/year growth in demand deposits (i.e. checking account balances) was about 38% in December. In contrast, the year/year growth in reserves was more than 1,400%. If the banks became optimistic about the future of the economy and began loaning out their excess reserves, right now there is enough slack in the system for the public’s money supply to increase by a factor of 14.
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There is nothing conspiratorial about the points I have made above. (Indeed, I have run these thoughts by other economists who are experts on the banking system and they generally endorse the analysis.) Analysts simply assume that once the recovery begins, Bernanke will wisely suck the excess reserves back out of the system, in time to tame price inflation.
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But is that really going to be politically feasible? The federal government is currently borrowing money at amazing rates: if we include not just the on-budget (cash flow) deficit, but also the government’s overall long-term financial liabilities, then the total federal debt increased by more than $1 trillion in 2008 alone. When we consider that Bernanke and Paulson have extended more than $5 trillion in new taxpayer exposure with all of their bailouts, the pressure on Uncle Sam in the coming years could be enormous.
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Why is the federal debt relevant to our discussion? Well, recall that in order to soak up excess reserves from the banking system, the Fed will need to sell off its assets. If it uses its vast holdings of Treasury debt to do so, then the massive dumping will raise U.S. interest rates, just as surely as if the Chinese government decided it no longer thought the U.S. government were creditworthy and dumped all of its Treasurys. Bernanke will therefore be reluctant to go that route.
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But his other options won’t be pretty either. The Fed has acquired all sorts of dubious assets in the last year, in an effort to provide “liquidity” to the financial sector. Is Bernanke really going to paralyze the big banks by throwing billions of mortgage-backed securities onto the market, just as the economy limps out of recession and into recovery?
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The Federal Reserve under Ben Bernanke’s leadership has painted itself into a very tight corner. He has cleverly managed to stave off utter disaster so far, but he is running out of options. Ironically, the effects of his incredible injections of new reserves have been masked simply because the financial sector is still paralyzed. If and when the economy begins to improve, Bernanke will have to decide whether to allow double-digit price inflation or instead contain prices by strangling the incipient recovery.
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Regards,
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Robert P. Murphy
for The Daily Reckoning
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Editor’s Note: Robert P. Murphy has a PhD in economics from NYU and is author of The Politically Incorrect Guide to Capitalism (Regnery 2007).
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He runs the blog Free Advice .
“War is a Racket”
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“By General Smedley D. Butler”
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” His riveting 1935 book War is a Racket”…
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http://tinyurl.com/6ygbeq
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A man ahead of his time…and he still is.
Zounds! Those graphs are CRAZY!!!!
Even with Poole departed for the Cato Institute, the St. Louis Fed is still reporting truthful data. Or, letting it out now that Bush and Cheney are gone. last quarter of ’08 looks like when everything began to totally collapse, just like the twin towers falling down on 9/11. Of course, there is an original cause of this collapse similar to the that committed by the 9/11 “kamikaze pilots”…
question. the “end the fed” photos you post sometimes, are they all pictures from the same protest sometimes in the past, or is there now more awareness of the federal reserve banks and more than one protest…which could be a good thing methinks.
All from the protest last month. I wish I could go out and get more pictures but severe winter has confined me to my mountain, for now.
WNC Observer said:
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“Forget about the way things were before 2008 – that economy is GONE WITH THE WIND. A has-been nation in long-term decline: that is what the US has to look forward to from here on out.”
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I like the first sentence, but not he last.
The “gone with the wind” analogy is very appropriate, and few gnomes and elites can presently come close to understanding the long-term implications of what total collapse (WITHOUT ANY FRIENDS OR SUPPORT FROM ANYONE) means. They think they do, but it is impossible without seeing it firsthand.
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Whether this collapse was intentional or due to plain old human greed is going to be totally irrelevant if, more like when, a collapse comes.
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Here in the South, older Southerners like me understand what long term economic collapse really means. When I was a child in the late 40s and early 50s, we were poor…and I do mean everyone, if he/she was an original Southerner. Sure, we had the few doddering, reclusive, old South families living in dilapidated mansions on vast tracts of land still held from pre civil war days. These old elites income usually came from sales of timber or crops harvested by freelance, traveling sawmillers or sharecroppers…and sold to buyers who had rigged prices so low that everyone, even elites, lived in relative poverty, and no recovery was ever possible. Elites children hung out at drinking/prostitution shacks called honkey tonks (remember the song, “House of the Rising Sun”)and became depressed alcoholics and prostitutes like you saw in the movie “Cat On a Hot Tin Roof.” If you were not old money or a sharecropper, you were a slave in a Northern owned textile mill or furniture factory for $1.25 to 1.50 per hour while Northern union employees earned $8 to $12 per hour.
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When the Marshall plan was implemented in Europe, it was also implemented in the Old South…especially after the civil rights movement came about and government realized that rebuilding the South was less expensive than providing welfare and federal troops to keep order.
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Folks, that was 90 years after the Civil War, and we Southerners were struggling the entire time to pull ourselves up by our very thin bootstraps.
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Once a nation loses power, it takes centuries to ever regain wealth or rebuild it.
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I hope I’m entirely wrong, but I do think we will fall…simply because our elites and leaders will not change their thought paradigms and do business in a straightforward manner with our creditors and they keep trying to prop up the private financial systems that have and are destroying us.
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Possibly, Russia could be our model for our rebuilding after a collapse. I agree with Openly Hidden that we need to retain the very best of our military, and not let it slip into disrepair. I truly hate the prospect of war like nothing else except the prospect of being enslaved by distant foreigners.
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If we don’t preserve our military strength, we’ll live for generations like defeated Confederates did in the Old South!
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Sure, if we collapse, we cannot afford to rule the world, but we can’t afford to rule it now…doing so is killing us economically.
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President Obama needs to ditch those financial entities who are draining the nations remaining wealth..and drastically change course.
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While we still have military strength left, we need to go to our trading partners, not arrogantly, but in a straightforward manner, and we need to mutually work out solutions all can live with and they can save some of the wealth they will lose if we collapse…if we are still armed, we might still pull this off if we are very careful.
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Then, we need to divert half of our defense contractors from overproducing five times the amount of military hardware that we really need, and use it to return to producing domestic, value-added, no-frills survival products that will sustain our nation… Half of the Pentagon’s planners and employees can take over overseeing this monumental task since Congress is too self absorbed with collecting fucking bribes to do this job.
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My son plays music and one of his favorite guitar distortion pedals has a big red star on it…produced by Russian state defense contractors after the fall of the Soviet Union and exported for income…the Blue brand high quality microphones that many recording studios use are also produced by former Soviet defense contractors. So too the finest microphones in the world, Neumann, are the same ones used by Hitler before WWII, and sold after the war to bring in export cash…still the very best made.
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Can anyone get some sort of picture from these ramblings?
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I hope so, because we need a realistic vision put before us to guide us out of this mess.
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Note:
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As far as words are concerned, MESS is a great word…can be used in many ways. Bush made a mess, and he was a mess himself. We are in dire straits right now, but if we don’t make the mess bigger, we might mess around and get this mess cleaned up before this century ends. If we preserve the best of our military, nobody will want to mess with us.
hmmm… the banks are flooded with capital theres no way out at some point shit and money are going to look more and more identical IF they fix this with those 2 pillars as there tools for this charade. The military I would keep them and I know this sounds small brained BUT BRING THEM HOME NOW there is A REAL CHANCE THEY COULD GET STUCK OUT THERE WITH OUR ARMS IF THE DOLLAR COLAPSES HANDING OVER 10Z OF THOUSANDS OF STATE SECRETS FUCK THE CIA… if we cant get 1 million barels of refined oil a day to these regions and there is a tektonic shift we could loose EVERYTHING INCLUDING OUR WORLD DOMINANCE KEEP THE PENTAGON WE NEED TO HAVE PLANS FOR A QUICK ORDERLY RETREAT FROM 2K MILES AWAY FROM HOME TO OUR FUKING BORDERS…
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this may not be the outcome but you CANT trust the banks they have destroyed relationships and war does no better… someone better be prepared if Iceland can fail tell you what Iraq CAN Iran CAN Saudi Arabia CAN Greece CAN Mexico CAN China CAN Pakistan CAN… blame the banks i do
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http://video.google.com/videoplay?docid=-181259944046452879&q=iluminati&total=111&start=0&num=10&so=0&type=search&plindex=4
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but its to easy ive got food an a job