There are many mysteries to life. One of them is NOT how we got in this economic mess. Anyone looking at the history of finance can see that credit bubbles always lead to crashes that we call ‘depressions’. And that using credit to finance wars is the #1 way of creating a credit bubble. All nations don’t need to go to war, to create a global credit bubble. Generally speaking, when major global empires go to war, they create global credit bubbles if they refuse to tax their imperial core to pay for wars. And generally speaking, no empire ever dares to tax the populace at home, for international wars. So they create immense amounts of credit based on future taxes.
The problem with all this is, if a major empire doesn’t tax its populace while going to war, if these wars never end or take forever to end like the Vietnam War or the Cold War, these quickly build up immense mountains of IOUs. So, this weekend, the G8 nations are meeting yet again, in desperation, trying to figure out how to have the pre-2008 status quo while changing nothing essential. Let’s look at some of the news stories before we visit the Bank of International Settlements:
European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to aEuropean Union document.
Germany, the world’s #2 or #3 world trade profit center, next to Japan and China, is floundering. This trio of nations depends very much on the US sucking down manufactured goods. This keeps them afloat. This has dried up nearly to $0 profits over the cost of importing raw materials. Throwing $5.3 trillion down the rabbit hole to keep the European banking and trade system going is an immense sacrifice and one that may not pay off, as far as Germany is concerned.
The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country’s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros.
The measures, designed to save banks and revive economic growth, surpass Germany’s $3.3 trillion economy, the region’s biggest. They also helped to widen the Euro area’s budget deficit to the most in three years in 2008. The commission, the EU’s executive arm, is seeking to create the first EU-wide agencies with rule-making powers to monitor risk in the economy after the crisis led to $460 billion of losses and writedowns across the continent, according to data compiled by Bloomberg.
All very, very big numbers. The EU is a bigger economic entity than the US after it foolishly expanding wildly, for geopolitical reasons: to surround Russia so Russia could be intimidated and controlled. This has fatally weakened the EU and has not weakened Russia more than it weakened the EU/NATO system. One thing that commentators often forget, is that all things are relative.
For example, the US was badly damaged by the Great Depression. But it was still stronger than all other nations, on the whole. And came out of its shell like a thunderbolt when Japan foolishly attacked the US directly. All things are relative: if both Europe and Russia fall off the economic cliff, the question is, who has the strongest potential? In this case, the fact that Russia has a stranglehold on Europe’s gas supplies means, Russia is relatively stronger than the EU. So, expanding to draw in all of Russia’s former provinces into the EU doesn’t help one bit, if they don’t provide gas directly, themselves.
Russia knows that Europe is fatally weakened. All they have to do is have a loud dispute about gas production on the coldest month of the year, yet again. The immense amount of debt taken on by Europe means, they can’t afford energy inflation, it will kill them just as it will kill the US economy. So what is happening? The price of energy is rising compared to last fall, when the crisis suddenly went into overdrive. Below is a BIS study about debt management. It gives us several options for government/central banker relationships:
Box #1: The entirety of ‘government debt’ is Treasury bonds and Treasury bills. If we look at the central bank, half is Treasury bills which are called ‘assets’ and half are bank reserves which are called ‘liabilities’. Liabilities are bad, assets are good. The liabilities in the central bank are deposits earning interest, put there by the commercial banks. Note how small this is compared to the towering government debt and non-bank assets.
The commercial banks hold half and half of what the central bank holds in the ‘asset’ column. The deficit column has bank deposits like CDs that pay others interest. They must match, too.
Box #2: With quantitative easing, which is what the EU, UK and US have been doing very heavily, the central bank’s position is double the initial situation amounts. Same asset/liability mix. But commercial banks cease having T-bills and simply have 100% bank reserves held by the central bank.
Box #3: The government basically swaps, dollar value for dollar, these T-bills and the banks hand over bonds. This internal swap meet is supposed to recapitalize the commercial banks. From Box #1 to Box #4, we see a switch: the commercial banks grow bigger and do does the central bank. So what happens to the government? Ah! It has more Treasury BONDS. The word bond is ominous. It comes from the ancient word for being tied up and enslaved. More BIS graphs:
This compares the 3 month T-bills with 10 year T-bonds. The bonds ran onwards, with a blip when all the banks collapsed at once. The 3 month T-bills went from 5%, during the time when the Fed was trying to squelch the credit bubble, to 0% after the entire banking system collapsed. On the other hand, Japan, at the height of the carry trade years, ran its 3 month bills a 0.5% to 0.25% for nearly a decade. And the 10 year bonds ran between 2% and 0.50% during the same timeframe.
Japanese debt management since 2000 and BoJ JGB purchases
At the bottom of the Japanese recession in the early 2000s, there was discussion in some quarters on the possible contribution of debt management to macroeconomic stabilisation…. The stated general purpose of the MoF’s debt management (2008) is to “maintain markets’ confidence in the capacity of the government to manage stable issuance of JGBs [Japanese government bonds] and Financing Bills and to repay its outstanding debt”. The report’s Japanese language version is more pointed: “lowering interest payment cost on JGBs is a serious policy goal”….
The popping of the US credit bubble in the Dot Com collapse hit Japan quite hard. Instead of bracing themselves for a deteriorating US economic situation, the Japanese noted that Bush cut taxes and at the same time, redoubled government spending and most importantly, pushed even harder for the ‘free trade’ Doha Rounds to completely destroy the last traces of US barriers to global exploitation of US domestic markets. So, they decided to launch a ZIRP regime that could fund exports.
Some argued in the early 2000s that debt management might contribute to price stability by concentrating issuance at the short end, where yields would be held down by Bank of Japan (BoJ) policy. This would leave less issuance of JGBs at the long end and might allow longer-term bond yields to fall further. At its extreme, such an approach might have meant to “target” bond yields in an attempt to lower them and to stimulate the economy. The idea did not become policy probably because of doubts about the practicality of controlling bond yields by merely changing the composition of debt.
Was Japan suffering from inflation in 1999? 2000? Obviously, no. On the contrary, the US and EU both were holding to the modern monetarist model that we need around 3% inflation. The reason the Japanese export powers who control the LDP wanted ‘price stability’ was so they could have low interest rates, preferably, zero. This is why they didn’t do anything during the entire GLOBAL inflation surge that ran from 2003-2008.
Even in the pursuit of the goal of interest cost minimisation, officials struggled to respond to the environment of near-zero short-term interest rates. This was the case especially after 1999, when the BoJ adopted the so-called zero interest rate policy (ZIRP). Some argued for much larger issuance of financing bills and short-term bonds, while others recognised the rollover and interest rate risks inherent in such a strategy. In the event, they adopted a middle of the road approach. —HAHAHA—not. The ZIRP system is quite radical, especially when Japan had over 3% inflation!—In the MoF’s cost-at-risk analysis, an optimal debt issuance structure is determined by the trade-off between cost minimisation and interest rate risks, especially when short-term rates are unusually low (Ministry of Finance of Japan (2008)).
Thus, fiscal years 1999 and 2000 saw a shortening of the maturity of JGBs issued, perhaps in response to the ZIRP (Graph 6, left-hand panel). The next few years (2000–03) seem to have been a period in which the MoF, in an attempt to maintain stable issuance of JGBs in the face of ballooning budget deficits, introduced various new types of debt instruments: 15-year floating rate notes (2000), three-year discount bonds and five-year coupon bonds (2000), and JGBs for individuals and inflation-indexed bonds (2003). These innovations helped to limit the tension with monetary policy. In 2003–04, however, the economy and tax revenue subsequently rebounded and the MoF’s attention shifted to medium-term control of interest payments. Hence, the average maturity of issuance lengthened during this period.
The US now has this damn ZIRP system. The US is also issuing different kinds of bonds because no one trusts the old style bonds. There is no future stability. Everyone knows this ZIRP system will collapse into something rather ugly. Thus, the need for ‘inflation index bonds.’ The last sentence is interesting. Despite the rebound in 2003, the Bank of Japan kept its system going. And this way, could have their cake and eat it, too. It could finance government debts with cheap loans while at the same time, giving out interest payments reflecting real inflation. In other words, this is a convenient fraud that makes the banks and the government happy.
Why is this? Well, ‘liabilities’ is when a bank or a government has to pay interest to OUTSIDERS. Not each other. But outsiders. If outsiders can’t get any or very little return for doing business with the banks, this makes the bank’s overhead smaller and allows them to buy government bonds, keeping the deficits growing. For these deficits are ‘assets’ for the banks.
The Group of Eight nations said they began considering how to reverse the emergency steps they took to rescue the world economy as signs of recovery mount.
Again, the Cave of Wealth and Death is of great use here: there are two goddesses, both of them very deadly. One is Infinity and the other is Zero. They are sisters. When we decide we have had enough of the Goddess of Zero, the Depression Goddess, and we want to grow, we beg the Goddess of Infinity, that is, Inflation, ‘Please help us get rich again!’ And she says, ‘It is easy: if you use this magic spell, Quantitive Easing, you will get lots and lots of money.’
Governments are under pressure to turn their attention from fighting recession to smoothing a recovery as investors worry more than $2 trillion in stimulus programs may spark inflation if left unchecked. The officials also clashed over whether Europe was engendering a rebound by refusing to impose stricter health checks on individual banks….
This juggling of bonds versus bills was a nifty trick, wasn’t it? If it is so useful, why did we have this depression so far? These acts of desperation are not really working, they are merely moving the problems of today into the future where they will do immense mischief unless we figure out how these things always end. The banking gnomes think, if they reverse the Quantitative Easing spell, things will return to where they were, before the world economy crashed into the wall.
THIS IS INSANITY. For something has changed! First, all major governments are much deeper in debt. Second, the waves of defaults have not ceased, they continue. And third, we can’t get out of this hole if Japan insists on running a ZIRP banking/economic system. Note that the G8 don’t even dare mention ZIRP at all!
“We want stress tests, but stress tests of the system not related to individual banks,” German Finance Minister Peer Steinbrueck told reporters in Lecce. “The European banking sector, and the German one in particular, is a lot more heterogeneous than the North American one.”
HAHAHA. They want to see if their banks are solvent? But not individual banks? This is laughable, obviously. Why even bother? Why not just outright, lie about things? After all, this is how the US operates.
French Finance Minister Christine Lagarde said that while she backed greater transparency, European leaders are not yet ready to commit to deeper probes, arguing that their banks are too diverse to evaluate by a single standard and that publishing results could rekindle the crisis.
HAHAHA. They are ‘diverse’ and thus, not the same as all other banks across the entire planet? Do we wait until they ape Zimbabwe before giving up this fiction? And why would knowing the truth ‘rekindle the crisis’? The ‘crisis’ happened because of secrecy, the Derivatives Beast and bankers lying about nearly everything.
Again: the Cave of Wealth and Death does have someone who can save us. It isn’t the Goddess of Inflation who is already flexing her claws in the oil markets, nor is it the ZIRP system run by the Goddess of Depression. It is Libra. And what does she want? The truth! No lies. Accurate numbers, good statistics, a balanced budget, a well-capitalized banking system and temperance. All things the gnome community hates with a passion. They will pretend to obey her rules but try sneaking past her so they can run into the Cave of Wealth and Death and embrace the dangerous goddesses within.
“Where we have seen improvements, they are the result of the unprecedented scope and intensity of policy actions to support demand and financial repair,” Mr. Geithner said in a statement. “These early signs of improvement are encouraging, but the global economy is still operating well below potential, and we still face acute challenges.”…
The finance ministers said they “discussed the need to prepare strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured.”
They did not identify any particular measures, like cutting spending, raising taxes or reducing borrowing. Instead, the G-8 ministers said they had asked the International Monetary Fund to help plan exit strategies.
HAHAHA, the G8 want the IMF to tell us what to do? All third and second world nations know that the IMF’s rules are extremely cruel and usually decimate populations and cause death, doom and destruction. They always order higher taxes and reduced borrowing and starving the population and handing off resources to creditor nations. Oops…this means, China!
The G8 still control the IMF. And are in a hurry to use the IMF wealth to make themselves strong again and not do what the IMF does to all other debtor nations! Also, if they tell us, ‘The IMF orders us to cut Medicaid, Medicare and Social Security’, they will act all innocent about this. ‘Sorry, the international bankers are forcing us to do this.’ Hell, they may even blame the Chinese! And the Chinese know this.
German Finance Minister Peer Steinbrueck signaled concern that some European countries may have their sovereign credit ratings cut as tax revenue shrinks and borrowing costs rise.
YIKES! More news about countries losing their AAA ratings! And they think the crisis is over? Talk about wishful thinking!
“What’s going to happen to our friends in the European Union that are not getting the same conditions” as Germany when borrowing money from capital markets, Steinbrueck said in Lecce, Italy, where he’s meeting counterparts from the Group of Eight nations. “I’m hinting at this now so that nobody asks in half a year or so whether I was blind and whether that wasn’t an issue in international discussions.”
The warning follows the widening of the yield spread earlier this week between 10-year Irish government bonds and equivalent German securities after Standard & Poor’s lowered Ireland’s credit rating for the second time in 2009.
Nations around the world are borrowing record amounts to finance bank-rescue plans and stimulus packages to fight the worst economic recession since World War II. That’s partly responsible for pushing down the price of government bonds.
The Germans still have AAA ratings. Eventually, they may be the only EU entities to have this. Norway is doing fine, too, so far. But the UK, Ireland, Spain, Greece, Italy and all of the new members in Eastern Europe are sliding off the cliff.
Treasury Secretary Timothy Geithner said Group of Eight governments should maintain efforts to pull the world economy out of the worst slump since World War II and set aside concerns about budget deficits for now.
“Growth should remain the principal focus,” Geithner said in a press conference today after a meeting of G-8 finance ministers in Lecce, Italy. “It is too early to shift toward policy restraint.”
The problem is, this ‘growth’ can’t be like 2007’s growth. The US is still spending wildly on wars, for example. Instead of cutting Pentagon spending, we are increasing it. And now, we are back to threatening nuclear North Korea and possibly nuclear Iran. And what a brave way to start WWIII! As if this will fix anything. The US is talking wildly about cutting spending on Americans while still spending nearly a trillion a year on military silliness. So naturally, Geithner wants this wild spending to continue, totally unabated. Back to the BIS report:
Graph #1 is the Japanese carry trade year. Graph #2 is the collapse of global finances year. Note that London funneled massive amounts of foreign money into the US. Now, it is flowing the other way. And Japan funneled most of its international funny money which was denominated in dollars, to Europe in 2006-2007 while a year later, the flow switches suddenly from Europe straight to the US.
China is the ball at the top and the US flow to China was big in 2006 and then, this money flowed to the pirate islands in the Caribbean which is the ball near the bottom. OPEC is the ball at the very bottom of the graph. Notice that the Chinese money flowed from the pirate coves back into the US. Now, the OPEC nations are using euros so money is flowing from Europe to OPEC while money is flowing OUT of the US to the PIRATES [thanks to Bernanke and Geithner bailing out all these criminals!] and this money is flowing to…CHINA!!!
Now, isn’t that funny as hell? Money is NOT flowing at of China at all.
Credit commitments peaked when the money flow switched in 2007. Guarantees also peaked at the same time. But derivatives only leveled off and… ARE NOW GROWING AGAIN! It was in the multiple trillions, again. This means, of course, the money credit bubble has not really vanished but was swallowed up by the derivatives systems and is still moving about the planet, seeking a safe haven where it can grow like weeds again.
The notational amounts peaked in 2008. But the gross market values grew even faster, look at the scales here! One is $800 TRILLION and the gross value is $40 trillion! Amazing and unbelievable. I know that no one can really explain all of this without sounding utterly insane. They are insane.
Most of this goofy business is in either euros or dollars. $150 trillion in each currency. This is just baffling. It makes me sick and frankly, very angry. And the vast majority of this is ‘interest rate swaps.’ And what happens if the Goddess of Inflation suddenly takes it into her head, to take off? This is, after all, her fundamental nature. She loves to fly, the faster, the better. Zimbabwe already melted down and no longer honors her by adding endless zeros to worthless paper currency. So she needs a new victim.
Geithner is daring everyone. He thinks, he can wait until the last second and then stop this extremely powerful Goddess who eats empires for lunch, by tweaking things a tad! Yes, this is true delusional thinking. And pray tell, what will happen in the interest rate swap meets run by sex-crazed banking gnomes when this happens? Say, if interest rates suddenly shoot up to over 18% like it did 30 years ago?
Credit-default swaps traders settling contracts that protected against a General Motors Corp. default set a value of 12.5 cents on the dollar for the automaker’s bonds.
This 80% loss is now ripping through the global banking system. The US is celebrating the glorious fact that stocks rose all the way back to the miserable, low level they were at in 2008! Whoopee. Of course, this is now minus quite a few major, major, historical corporate entities which are now dead, dead, dead and whose bones are now part of the bed the Goddessses of Infinity and Zero sleep.
The price, the result of a second round of an auction by 13 dealers including Deutsche Bank AG and Morgan Stanley, means sellers of the swaps will pay 87.5 cents on the dollar to buyers of the protection, according to data fromadministrators Markit Group Ltd. and broker Creditex Group Inc. Dealers also set a value of 97.5 cents on the dollar for the automaker’s senior secured loans after GM Chief Financial Officer Ray Young said last week those creditors will be paid at par.
Guess who is bankrolling these losses? THE TAXPAYERS. All those foolish Americans who didn’t want to save GM are saving the GNOMES who bet on GM going under. Isn’t that sweet?
Credit swaps traders are facing the largest settlement of the derivatives since the collapse of Lehman Brothers Holdings Inc. last year. Banks, hedge funds, insurance companies and other investors bought or sold about $2.4 billion of protection on GM with the derivatives and roughly another $776 million through indexes that include the automaker, according to data from the Depository Trust & Clearing Corp., which runs a central registry that captures most trades.
This won’t have any instant bad feedback the Lehman Brothers collapse caused. This is due to two things: we own AIG and are funding everything via AIG and the fact that we are…paying for everthing, I guess this is the whole business. Ack.
JPMorgan Chase & Co., Royal Bank of Scotland Plc and at least five other banks are considering rules to require sellers of credit-default swaps on mortgage bonds to disclose when they may have the power to render the contracts worthless, according to people familiar with the situation.
ARRRGH. Once we got to be the AIG insurance company for a bunch of crazy gnomes, they are now going to rip us a big one as they dump everything into our laps while suing each other so none of them get stuck with the bill. Hell, if these things are going to be paid for via the Treasury, why not drive them all down to zero and collect a 100% payment???
The American Securitization Forum, a New York-based trade group, arranged a conference call yesterday with officials of the companies after the Wall Street Journal reported that JPMorgan and other banks lost “millions” of dollars in credit- default swaps tied to bonds backed by home loans. The value of the contracts, which were sold by Austin, Texas-based Amherst Holdings LLC or its clients, evaporated when the bonds were called at the behest of Amherst, the people said.
“This was like a freshman mistake in college,” Andrey Krakovsky, the chief investment officer in New York at Tacticus Capital, said of the banks. Krakovsky is raising money for a hedge fund that plans to use loans from the Federal Reserve to buy asset-backed securities.
It pays to read all these gnomes who sometimes let the truth slip out. All the PIRATES are now sucking down US money via our Federal Government RESCUING these damn criminals! Damn! Look at the graph with all the arrows above! The money is flowing OUT of the US and being replaced with LIABILITIES!
Another Democrat invested in bailed-out institutions is Sen. Chuck Schumer (N.Y.). Schumer has assets valued between $15,001 and $50,000 in Morgan Stanley and $1,001 to $15,000 in Citibank, according to his financial disclosure report. Morgan Stanley received $10 billion in TARP money while Citigroup was given $25 billion from the program.
Sen. Herb Kohl (D-Wis.), another Banking Committee member, also invested in some of the banks that received federal money. In a separate trust that the senator does not oversee, Kohl had assets valued between $15,001 and $50,000 and another valued from $1,001 to $15,001 in JP MorganChase funds, which received $25 billion in bailout money.
Few Republicans on the committee have significant holdings in companies that have received federal bailout money.
Arrest them all. In the news: some of our Gitmo victims are being moved to BERMUDA where they will be ‘rehabilitated’. Bermuda is a major pirate cove. Our money is going there. I suggest these Muslim ‘terrorists’ go into banking! Get rich. Get lots of babes. Have lots of sex. Have fun destroying the US economic and banking system. Join in the fun! Buy bad bonds and then force the US to buy them with Treasuries and then ship that to China! HAHAHA. The world spins out of control. I can’t take this!
Forget the bombs in the WTC. The gnomes are busy undermining everything from the inside. Like termites that can eat steel and concrete.