The New York Times is worried about burgeoning government debt as interest rates begin to climb. Much of the newly acquired mountain of government debt was acquired at rates which were low because of the recession. Those low rates made them temporarily tolerable. Now, as those rates begin to climb, debts are interacting with demographic trends to create a potentially disastrous tsunami. Even if the government stopped spending immediately the interest payments would continue to climb, like a credit card in meltdown.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher. In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government….
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
But debt is not the only stress about to hit the system. Lost in the avalanche of news on healthcare “reform” is a possible example of the moral hazard of letting government have such a huge role in the economy: a case in point is the settlement of the AIG credit default swap negotiations with commercial banks, which Bob Pozen at Havard Business Publishing called “the secret bailout”. Essentially, the New York Fed assumed AIG’s liabilities at 100 cents on the dollar in late 2008 when the going rate was much less than that.
The financial products subsidiary of AIG had sold these banks a huge volume of credit default swaps (CDS) — obligations of AIG to pay the full face value of designated bonds if the issuers were to default. Many of these bonds were backed by mortgages, whose values deteriorated sharply during the summer of 2008. In response, AIG executives tried to persuade these banks to settle its CDS obligations at a 40 percent discount to the face value of the relevant bonds.
Then, on September 16, 2008, the federal government took over almost 80 percent of AIG’s stock in return for an $85 billion line of credit, which was later increased to over $180 billion in other loans and investments.
During the first week of November, 2008, the Federal Reserve Bank of New York — with the current Treasury Secretary Timothy Geithner as its then president — took over the negotiations with the large banks owning CDS contracts with AIG. After a week of negotiations, the New York Fed instructed AIG to settle these CDS contracts by paying the full face value of all the relevant bonds — $62 billion, as compared to their then market value of less than $30 billion. (emphasis mine)
These doings have only recently come to the public attention. The WSJ described it as a “baby-soft bargain with AIG’s credit-default-swap counterparties. The Fed’s taxpayer-funded vehicle, Maiden Lane III, bought out the counterparties’ mortgage-backed securities at 100 cents on the dollar, effectively canceling out the CDS contracts. This was miles above what those assets could have fetched in the market at that time, if they could have been sold at all.” Not that some current members of Congress have any problem with that. The WSJ reports: “Barney Frank and Chris Dodd are pushing to give regulators “resolution authority” for struggling firms. Under both of their bills, this would mean unlimited ability to spend unlimited taxpayer sums to prevent an unlimited universe of firms from failing.” But while Geithner might invoke the crisis of the moment to explain the strange doings which occured in the last months of the Bush administration, it does not explain why he wants to do even more of it. “This means a more complete explanation from Mr. Geithner of what really drove his decisions last year, how he now defines systemic risk, and why he wants unlimited power to bail out creditors—before Congress grants the executive branch unlimited resolution authority that could lead to bailouts ad infinitum.”
Some of the creditors and firms which were bailed out are foreign. Pozen at Harvard Business Publications writes:
Since federal officials have not explained why they chose to pay in full instead of negotiating discounts, we can only speculate. One theory is that the US Treasury wanted to provide financial assistance to foreign banks suffering the fallout of the American credit crisis. These foreign banks received roughly $40 billion of the $62 billion in payouts from AIG. Perhaps this was an indirect way to achieve the US Treasury’s objective since Congress would not authorize a direct bailout of foreign banks.
There are conspiracy theories as well. Some observers point out that Stephen Friedman, the chairman of the New York Fed, is a director of Goldman Sachs. Goldman received almost $13 billion in settlement from AIG and Friedman bought 50,000 shares of Goldman shortly after the federal takeover of AIG. Goldman claims that it was fully hedged against any losses if AIG had failed, but the reliability of these hedges has been questioned by the federal auditor.
One of the problems with understanding the effect of sophisticated financial decisions, whether they take the form of private or government actions, is that they occur within the framework of a time machine. Finance is a mechanisms for moving risks and rewards across groups of people and across different time frames. In consequence, events like health care “reform”, green taxes or bailouts will have effects that will not be apparent until much later those who have benefited from them today are gone from the stage. The last days of 2008 and all of 2009 have witnessed “change” on a vast scale. But what those changes truly are and how much they actually cost will become apparent only as the debt comes due and the bill arrives.
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Finance is a mechanism for moving risks and rewards across groups of people and across different time frames.
ABSOLUTELY NOT.
I don’t care what you’ve heard or who you heard it from, that is WRONG.
Finance is charging for the time value of money. It is calculated in risk terms, but it does not assuage the risk. That is THE lesson of the last two years, if there was ever any doubt.
If you want a better definition of finance, it’s the classic, “Finance is the process of moving money from hand to hand, until it is all gone.”
I’ve done very well in the stock market since the March bottom, but when I look at the economic policies embraced by the current administration, I am constantly reminded that the cart always travels fastest just before the wheels come off!
The initial bailout was a bailout due to the legal system being unable to deal with an avalanche of interrelated bankrupcies, each one causing many others.
All the capital of the West would have been in court for fifty years.
So the deal was that counterparties get their money back, which avoided the avalanche trigger.
That part of the Geitner’s actions were correct and to the point.
Everything since that is mission creep and counterproductive.
But what those changes truly are and how much they actually cost will become apparent only as the debt comes due and the bill arrives.
While this is a bit awkward, there is also a bit more subtlety than for which I’m known.
Finance as practiced by the US Government is indeed a method of moving risks across times and groups of people – because the Government has the insurance liability on so much of it, and, now, has effectively adopted a similar liability on a new host of industries and groups, including foreigners. And the Federal Government has the unique ability to confiscate property to pay for its liability – including, especially, the property of people who were not involved in the original transaction.
It is if your local bank, finding itself with a house on which itt entered into an Adjustable Rate Mortgage, and whose has owner walked off, and facing a $100K loss, helps itself to $100K out of your bank account because someone has to pay for the loss.
Someone should do a new song, “We ARM the world.”
Eh, there is no time value of money. That’s because there is no value of money. Money isn’t a thing, it’s just a measurement. Saying there’s a time value of money is like saying there’s a time value of ounces or inches (or millimeters for our Metric friends).
Money just measures other things of value. Finance is the process of bartering those other things of value back and forth using money as the way to measure the stuff being bartered. But the money itself is the least important part of the transaction. The problem, highlighted by October 2008, is when you make the money the most important thing. Instead of being a supporting piece of infrastructure, it becomes a reason in and of itself. The infrastructure is useful, but only so long as it’s trustworthy, and the transition of finance into Finance, a career choice for large numbers of people with big payouts was detrimental to that trust. There’s certainly value to be added by good financiers who match up surplus productivity with promising ventures, but it’s no where near what the Finance industry was extracting in aggregate fees. It’s like the receptionist at the doctors – a useful member of the staff, but if the receptionist is making more than the doctor, something’s wrong.
(BTW, aplogies to those BC regulars in Finance, I wish there was a less accusatory way to put this.)
Ultimately I believe it was the attempt to keep the total cut of the industry so high that led to the crash. There was no way that a straight brokerage of surplus productivity (e.g. old fashioned capitalism) could justify the extraction desired, so more and more complicated deals were created but very little of the work going on in the financial industry was productive for the economy, so it was going to topple eventually.
The myth of “having your money work for you” is the root of this mess. An accurate tape measure is really important for a carpenter, but his tape measure is never going to to the woodworking for him.
I’ll have to think about Richard’s title, which seems to be referring to the movie (via Wiki): Variety said “On one level, ‘Odds against Tomorrow’ is a taut crime melodrama. On another, it is an allegory about racism, greed and man’s propensity for self-destruction.”
“Sound of Thunder” trailer: “Once it was your world . . . now it is theirs.”
Maybe the NYT is not so sure it wants to complete the revolution, to give the world over to “them,” who are not quite the “you, me, and us” elite that F. Scott Fitzgerald wrote about. The illuminati still want to live in the world of “The New Yorker” and its luxuries of elitism and luxury goods. If the economty collapses, the illuminati will have neither.
Radical socialists are willing to starve the goose that lays the golden eggs (i.e., free enterprise), as long as they still get some of the eggs and can keep the goose laying for a while. The U. S. economic goose, however, looks like it’s getting ready for the cooker. That’s o.k. with a lot of people, those on the government dole, who kind of like the idea of a free goose dinner (e.g., “free” health care). At this point the liberals, at least the Times, may be realizing how much they are playing the role of useful idiots? Nah, I don’t think so either.
At “American Thinker” today, James Simpson has a column on the Obama and Associates Cloward-Piven strategy, a column that is a follow-up to his “September 28, 2008, “Barack Obama and the Strategy of Manufactured Crisis.”
http://www.americanthinker.com/2009/11/clowardpiven_government.html
I didn’t know that Rudy Giuliani specifically referenced the Cloward-Piven strategy when he was mayor. Rudy is not a conspiracy guy. He recognized that Alinsky-ism and its do-goodism useful idiots, were using the system against itself, especially in signing up every eligible person for welfare, and it was killing the City, to the point where 1.2 people were working for every 1 person on relief.
Are Obama and Associates stupid or vicious?
I’m going with vicious, in the sense that it results from an ideological socialism, which entails believing “America is evil, capitalism is evil.”
Obama wants to cook the goose. Partly he’s got a socialist point of view: If everyone (and this includes everyone in teh world) can’t get a golden egg, then no one will. And everyone can at least get a one-time cooked-goose dinner, or some carbon-tax drippings from the dinner. Or maybe he really hated his mother and is getting back at her. Who knows?
I think we might be seeing, I hope sooner than later, a possible Paradigm Shift moment emerging among mugged liberals. Maybe they will reject the crazy epicycle thinking involved in socialist cosmology (including among its AWG acolytes). David Rivkin at the NYT science desk seems to be trying to make sense of the severe mugging being visited upon him.
Peter Grynch said:
“I’ve done very well in the stock market since the March bottom, but when I look at the economic policies embraced by the current administration, I am constantly reminded that the cart always travels fastest just before the wheels come off!”
I went short around June and had my pants pulled down. However I still believe my decision was correct based upon market considerations. My error was not in anticipating the massive market intervention by the Federal Reserve, i.e. I naively assumed that market forces would be allowed to clear out the bad debt and the big banks forced into bankruptcy (silly me).
I firmly believe we are seeing a bubble in equity prices and a market correction will eventually overwhelm Federal Reserve manipulation. However what complicates this belief is the dollar carry trade and the price of gold. The Federal Reserve no longer needs to artificially prop up the equities market because the carry trade is doing that now. Unfortunately for the Federal Reserve, the price of gold and the DXY is telling everyone that the emperor is wearing no clothing. How long can the Federal Reserve continue to debase the dollar? OPEC has tolerated this up until now because there is no real alternative to the US dollar (they have no choice). However at some point the oil producers will no longer accept debased fiat money for their petroleum. What happens then? Will they demand payment in gold and silver?
Concerning the US governments debt: We’re hosed, end-of-story. Take a look at the plot in the linked article:
http://www.zerohedge.com/article/here-why-dollar-now-effectively-worthless
What this plot says is all of our circulating money is equal in value to the worthless mortgages bought up by the US government. From here on it’s all a Ponzi scheme.
It’s actually hilarious that the liberals want to pile on top of this Obama’s socialized medicine and carbon credits. However the nice thing about dying is you only do it once. We’re already dead, so what the hell? The US federal government might as well exempt us all from income tax. We can all “party on” until the Chinese decide to implode our economy (which could happen tomorrow).
It really is not difficult to see where this leads, even if it may be distasteful.
Argentina, Brazil, and Mexico have all been down this route before. It will never be possible to raise taxes enough to pay off the debt – it is now so big that any attempt to do so will destroy the underlying economy. It also is now not going to be possible to cut spending enough to pay this off – because so much of the cost will be interest that must be paid to maintain the faith and credit of the US. And we are not in any kind of positon to “grow” our way out of this, not with the huge overhang of government debt weighing down GDP for a long time to come.
So what will be sacrificed, since there are not many choices? The faith and credit of the US, of course. The path of least resistance is to simply inflate the currency by 10% – 20% per year. Easy to induce by simply creating new money to meet all of the interest payments that are due. This, of course, will reduce the real value of any outstanding debt by the same amount. Similarly, the problem of overpromised levels of social security payouts can be solved by simply inflating the currency without properly indexing for inflation – in real terms, the total SS liability can be cut in half in 10 years this way. So can every other obligation of the US government. Yes, it goes without saying that everyone who has a stake in this system will be royally screwed, but a 50% payout is better than a 0% payout if it collapses.
For an example as to how this will work in practice – look at what’s happening to people who had GM and Chrysler pensions today. They’re still getting paid, just not nearly as much as they thought they were promised, and when they complain the answer is “too bad, all the money’s gone and all the people who promised you that have quit or been fired, so go away.” They have no choice but to take what they’re given, and be thankful they’re getting that much.
Until recently, I had thought the threat of a US default at some point was a great concern, but I now believe there will never be a need for an outright default. Using the inflation approach *is* a slow motion default, and it will never be in any country’s best interest (ie, China) to push the US into a default where they would get nothing. They will settle for 50 cents on the dollar, and never be big enough suckers to loan us any money again.
The proof that this is happening is that Gold will begin to take off higher and will not reverse – first $1200, then $1500, then $2000, and maybe not peaking till $6,000/oz.
Sooner or later, of course, this kind of system crashes. It always has, it always will. I see ways to put that off for a little while but I do not see any way to ultimately avoid it. No matter who is in power.
One way or another, this will all come to fruition within the next 10 years.
– moved this to earlier post —
Wretchard, please delete.
Josh – You wrote
“Finance is a mechanism for moving risks and rewards across groups of people and across different time frames.
ABSOLUTELY NOT.
I don’t care what you’ve heard or who you heard it from, that is WRONG.”
I do not agree with you. I think there is truth to this statement. For example, with most Investment Banks going public, beginning with Solomon Bros. in the 90′s, the risk shifted from partners betting with their own money, to betting with yours, the shareholder/taxpayer. Do you think investment banks would have invested in complex garbage with their own money? Hah.
Also, as with entitlement spending, risks/burdens have shifted to future (albeit near) generations.
Today’s Belmont Club Forecast: Cloudy, with a chance of apocalypse.
Josh
Finance is charging for the time value of money
Yes but there are risk variables that have to be considered. Why is money due in the future or money lent to Mr Sketchy worth more than money in the till or lent to the Widow Murgatroyd? If the money is in your possession then it is at less risk then if you are expecting it later and Mr Sketchy has to pay more than Mrs M because he showed up last Thursday and his promise is backed by the expectation that some greater fool is going to do business with him later while Mrs. M has never broken her word in her life and has always done the same thing at the same place. Geithner and Obama are personally a pair of Mr Sketchys. They have debased the reliability of the United States. The Treasury was Mrs Murgatroyde and now looks like an aging Tart.
To parse out the connections here we have politicians and political appointees who personally lie and fail to pay their taxes or take items of value, like Obama’s back yard, from criminals. They improperly take additional value, such as campaign money, from foreigners. They also promoted policies that created the conditions in which financial institutions took on risky loans and transferred those toxic assets to other institutions. They then created a mechanism to transfer taxpayer wealth to foreigners who may be linked to those who made the illegal donations or who otherwise may profit from America’s relative decline. At the same time they push other initiatives that weaken the United States and increase the relative power of foreigners and reward the relative economic standing of private businesses, GE and Goldman-Sachs, whose executives gave them money or who they have hired to formulate and execute policy.
Given these conditions the interest rates would have to rise as the US is seen as no longer a safe haven for value. In addition the need to pay for the massive debt that has been generated will induce both crippling taxes and regulations, which will increase risk and raise costs as the economy shrinks, and which will also generate monetary (meaning supply as opposed to risk based) inflation.
The Democrats may hope that between now and the 2010 election the inflationary bubble may produce a “wealth effect” that will tamp down unemployment over the Summer and save some of their seats. Today they were advertising that an Economists report claims that there will be recovery with modest growth next year. This I suspect will be a Suckers Rally.
To sum up, two sources of inflation are coming. 1) Monetary based Inflation from Treasury debt service, 2) Risk based Inflation from the loss of confidence as Geithner & Obama exposed as frauds. A network of corrupt corporate and hostile foreign interests are profiting from this.
——-
BTW, like several others I had a comment for the last thread ready to go and missed the closing by minutes. It is now on my blog under the title “Simple Messages.”
The real hidden deal here is that the finance system for housing and much else has been politicized. Through force of law, threats of litigation, and inneundo the markets were forced to make money available for borrowers and projects that it wouldn’t have otherwise. The unwritten agreement was that the US treasury, ie.the US public, would bail out everyone involved when the wheels fell off (“the Greenspan put”). That is what Geitner et.al. have been doing.
Now bankers do plenty of stupid things on their own however they work in a regulatory box. If you force the lid off the box by social policy/legislation so that pols can buy votes and power then the banker genie will escape the box.
This is all very simple, no naval gazing need, it all sprang from BAD Government policy. Ultimately the politicans are responsible, BOTH parties are at the trough.
The CDS market was a fraud from the begining, it was unbacked unfunded insurance by another name.
“…..bailouts ad infinitum.” or
corporate welfare. When you dont know exactly who to take care of and why you need to, you try to take care of everything. Turbo Tax Timmy knows this in the bottom of his broken calculating heart. Was AIG the last to get 100cents on the $ for anything?
I wonder if anyone on the upper Brazos will have a comment on this topic…?
Hmm.
Insurance is different from finance in exactly those ways, insurance *is* a risk management tool. Finance is not. It’s when you mistake one for the other, that you get trouble.
The ideas behind CDOs (as opposed to CDSs) is that you could monetize the risk, charge for it – as if charging for it, removed it. OK, I suppose, at the proper value it would have. So, I guess I can’t say that insurance and finance are all *that* separate. But the idea is still malignant that you can make risk go away at the right price. You can pay whatever you want for an insurance policy that pays off when you fail to jump the Snake River on a motorcycle, but it doesn’t increase your odds of making it across.
I think we have a few more busts to go. Right now, gold (and other precious metals) are getting pumped up by speculation. Gold is getting notoriously pumped up on television. (I am still annoyed by how G Gordon Liddy crumples up a dollar bill on television. Would he do that to an American flag…?)
I do hope the Federal Reserve, the Treasury, and the rest of our federal government don’t feel some “moral obligation” to rescue gold speculators when the gold bubble eventually bursts. I suspect we are heading toward something like “Black Friday” in 1869. I don’t think the American taxpayer owes speculators anything.
Al-Qaeda is trying to force the world economy onto a gold standard. Although I recognize the need to back our currency with tangible assets and move away from the temptations that fiat currency brings, gold is an essentially stagnant form of currency that consolidates control in the hands of an oligarchy. The gold bugs will have a lot to answer for if they ever get their way.
The CDS market may have indeed been a fraud, but as long as the market continued to expand, it didn’t look fraudulent and everybody made money.
1) The banks received the CDS’s which helped cover sub-prime loans that were higher risk. Which encouraged them to make MORE subprime loads, not just the ones encouraged by the CRA.
2) This also helped them package mortgage backed securities, which were wrongly rated as “AAA” risk. Another fraud?
3) The CDS’s allowed both sides to make money (sorta like Cattle Futures trading by well known brilliant politician?), for a while. Until the real estate market crapped out in California and elsewhere, then the CDS’s started draining BOTH sides (insurer AIG and the bank). Funny how that sort of thing works.
4) Lastly, as wws astutely and perceptively forsees, the only way out of this mess is inflation. Which we are going to get good and hard in the years to come. If this is really a sure thing, then go INTO debt and buy gold NOW. Inflation will depreciate your debt, and gold will hold its value against a falling dollar.
They are willfully out to destroy the Dollar. They want OPEC to reprice in a basket.
All of this IS ON PURPOSE! THIS IS WHAT OUR “LEADERS” WANT!!!
When can people get it though their minds? They are out to destroy us once and for all. They hate everything we stand for. They have more loyalty for our enemies than they do for us.
They are not stupid. They are using all their might and all their mind to destroy us.
The Dollar will be toast in three years. Get used to it. It will take us decades to claw our way back. Most likely we will never get close to where we were in the last century.
The only way out of this debt is to radically reduce government spending. That is the only honorable way. Inflating our way out in a global economy is insane. It will never work.
I do not understand why people cannot see that Obama, the American and International Left, the tranzi and our enemies are in cahoots.
We are in Big Trouble. The biggest in our history. Our elected representatives our out to destroy their own nation. They hate us. They hate America. It is as simple as that. Treason sits in the WH GRINNING at us.
Common stocks are proof against inflation, even though common stocks may perform very poorly in a time of rampant inflation. The capacity of businesses to create value will be recognized by markets over time, if not necessarily in time to meet one’s personal financial requirements.
E. Nigma #19 said:
“Lastly, as wws astutely and perceptively forsees, the only way out of this mess is inflation. Which we are going to get good and hard in the years to come. If this is really a sure thing, then go INTO debt and buy gold NOW. Inflation will depreciate your debt, and gold will hold its value against a falling dollar.”
Inflation is not a sure thing. The Federal Reserve can crash the US stock market at the flip of a switch. When that happens, everyone who shorted the dollar will get squeezed, the dollar will zoom upwards and gold will tank. There are no safe bets when politicians control the markets.
The obligations that were being traded in the expectation that the underlaying loans would possibly pay off were a form of Derivative. The first thing I learned about such instruments when I studied for a Series 7 license is that an Uncovered Call entails “Infinite Risk.” The instructor repeated that slowly to make sure that we all got it. If the value goes down then you can lose the principle invested but if it goes up and you are forced to buy the asset then there is no end to how much it might cost you. He also pointed out that by definition a “sophisticated investor” who is anybody worth over $1 million, is allowed to self destruct but poor widows and orphans are protected. The banks and governments here were not poor orphans. By paying off the foreign banks at 100% on the dollar Geithner effectively paid off their assumption of enormous risk. In effect the banks were granted a Put by the US government that they did not have to pay for.
Like it or not, the easiest way to release the pressure of Federal deficits by reducing spending is for the govt to renege on its internal obligations, such as Social Security, Medicare and other entitlements. So its ironic that those who are becoming more dependent on Federal spending are also bearing more default risk over time.
Excellent at Powerline
President Obama took office wanting to distinguish himself from President Bush. That was foolish and arrogant. Now, as Der Spiegel concludes, he is trying desperately to distinguish himself from Jimmy Carter.
steeple, how about a unlilateral “rescheduling” of treasury debt repayments. only rich bastards hold treasury debt, right? give them a little haircut on behalf of The People.
… gonna be a bumpy ride …
“The New York Times is worried”
Well, not really. The NYT is reporting the news you mention (not that it’s actually news to any of us). But you can bet that the NYT (as reflected in its editorials) is not worried, or at least not worried enough to change its “progressive” agenda.
As James Taranto puts it, “Two newspapers in one.”
LOTM, not only that but those are mostly EU banks, who are pushing the Euro as a world currency as we speak, particularly to OPEC. People need to understand that we WILL get a repricing of commodities, including oil, into an international basket. This will mean decades of stagnation and the destruction of the middle class. It is THE END of the American dream. THAT IS JUST THE POINT.
Just who is behind this? Is Obama directly on the take, or is he helping out his EU, tranzi brethren just to me one o0f the guys?
I wish people would grasp just how serious the evil Obama is up too. We have traitors in the WH. You might has well as had Hitler and Hirohito put a puppet in the WH form 1940 to 1945. It is that bad.
Why are we letting this happen? There should be a permanent protest in DC. Millions in vigil for the passing of America. How low we have fallen.
It is simple:
1) eliminate all taxes, at every level, for corporationsa (perhaps tax oversea manufacturing)
2) reduce taxation in total to 20 percent of income
3) Eliminate or radically reduce payroll taxes (suspending them for the duration might be enough)
4) eliminate or severely restrict capital gains and estate taxes
3) go to a flat tax of no mopre than 18% TOtal form all level.
AND, of course,
reduce government on all levels by 60 to 80%
This, or some variation of it, is the only way out of this. This is the only way to move toward a restoration of American wealth, prosperity and power.
And also, stop thinking that inflating away this debt will work in any meaningful way except to those who wish our destruction.
We know what happens when the democrats rule a sate for decades. What is going on now at the national level should surprise us little.
If this does not get through, go look at what Labour has done to the UK since Thatcher left power.
THAT is where we are headed.
They are out to destroy us. We must stop them.
Josh, the Treasury holders have alternatives; entitlement recipients do not. So the pragmatic approach is to skin the latter as a debtor junkie still needs his dealers. But we are talking about politicians here, so I could very well be wrong.
#20
I picked up a copy of Foreign Affairs [which I never look at ever but for some reason it caught my eye] magazine recently while killing time in a Border’s Bookstore waiting for an appointment. Anyway, there was an article in the magazine by some treasury undersecretary from the Carter administration touting the benefits of the dollar no longer being the global reserve currency. It would help the U.S. because, it would help everyone else because blah blah blah. If this is not some sort of signal/trial balloon I don’t know what is.
“Will you kiss me?”
http://www.liveleak.com/view?i=d9c_1258865433
Eggplant,
I agree that “inflation” is not a sure thing. And that you would have to be CRAZY to go into debt to buy gold. But that is just the point. The markets make no sense at all now. You said you bought short last Spring, and now where are you?
The value of the dollar against the Euro, etc is going down, yet the DJIA continues to climb. (There could be a clue in that the yaun reminbi is fixed to the dollar at this point. Clue?) Someday, the Fed is going to have to start charging for interest again (someday?), which is going to have a profound on the people speculating on currency spreads.
Currency speculation bubble coming? I would like to have a phone tap on George Soros phone, as I would bet a case of beans that he will be among the FIRST to know of an interest rate hike at the Fed.
I would, however, be willing to also bet that inflation is in our future, and not just the routine COLA kind of inflation we’ve had since the mid-80′s. I would also bet that inflation will get bad just after the 2012 election if a Republican unseats President Obama.
Mongoose, You are right. It is as bad as you imply, though I am not so sure that Yurop self-defined/declared tranzis have as much clout. I see these as tools rather than the movers. The movers stay behind the curtain–it is better to stick out necks of other people if something goes awry.
In any case, I am not that pessimistic about the future. Though, the next decade would be a time of blood, sweat and tears, with a background sound of grinding of teeth. Another world war is coming and it will surpass the horrors of the WWII. It is as if the lessons of the last century were not learned and have to be repeated.
After that, people will reevaluate their current attitudes and misconceptions. That is, those that will be left to do so. Hopefully one lesson will be enough.
BTW, thought that this would be one of the never again, but alas, here we go, just the place changed. I see this virus spreading beyond its legislated territory.
Is it possible to destroy the “American Dream”? I don’t believe so. Even if temporary derailed and suppressed, it will live on, it is more resilient than you give it credit for. There would be a price to pay by the next lost generation, the one that toys with the ideas that were already once proved to be a dead fork.
Mankind in amnesia. I no longer question why. It just is.
I’ve read that the reason the stock market goes up when the dollar goes down is because the stock market is pricing in devalued dollars. ie it takes more dollars to buy the same goods in foreign markets. there for the US stock market reflects the inflated value of the dollar. even as the real economy is flat to down.
Portable Nuclear ‘Hot Tubs’ Could Power America
Another way you could use portable nuclear reactors would be to run a string of them west from the confluence of the mississippi river and the missouri rivers. the reactors would be used to power huge pipelines that would run for one month a year during the spring flooding to pipe water to the front range of colorado or even west through wyoming to the continental divide…to run the water into the colorado basin.
It might take a bunch of these pipelines. The idea would be to pump enough water during the spring flood to keep the mississippi from jumping its banks. (no more flood maintenance and damage.)
Colorado and the inter mountain and deserts states would be charged for the extra water. during the 11 months of the year when there is no flooding the portable nuclear power plants would be used to feed the grid.
20. Mongoose:
They have more loyalty for our enemies than they do for us.
You want loyalty? Buy a dog.
I do not understand why people cannot see that Obama, the American and International Left, the tranzi and our enemies are in cahoots.
You want to see recognition?
Daily Recognition
All kidding aside Mongoose, you and I have a similar dark vision. There are a multiple of damn good reasons for me to have invoked Hemingway in the manner I did up at no. 4. While I may wonder that I was too subtle, I’m consoled that life has hard edges, and there are very few fools here. The merely smart learn from the mistakes they make.
I can’t help but feel I am witnessing chair shuffling on the decks of a doomed vessel of yore.
Charles @ 35,
There is undoubtedly logic in what you say. But I also wonder if some of our ‘trading partners’ (like China?) are parking their excess dollars in the stock market, until the day when the Fed reverses present interest rate policies and the dollar begins to rise in value. Then, the stock market will fall as the foreign holdings cash out and those dollars leave the country. And at that time, the currency speculator’s bubble will begin to burst, and inflation will return with a vengeance. Which again will be counter-intuituve to rising interest rates. But that is my theory for today.
It could all change tomorrow.
Mongoose,
In 1988 Gov. Jerry Brown of Ca. ran for the Democrat nomination for President calling for the abolishment of all Federal Taxes to be replaced by a 13 percent flat income tax and a 13 percent sales tax. I dunno, maybe Governor Moonbeam was trying the discredit the idea. We can say with confidence that the Democratic Party took a different turn. How’d he do as mayor of Oakland, by the way?
The person who promoted the 28 percent maximum income tax rate in the 1980′s was not Ronald Reagan, but rather the Democrat Senator from New Jersey, Bill Bradley. That was the 1986 tax reform. Deregulation was also a bipartisan effort back then. Now economic illiteracy is bipartisan.
David Goldman (Spengler) has said the stock market is working as a dollar hedge. Foreign holders of dollars think the stock market will go up as the dollar goes down (the assets will hold their value in relation to other currencies). He thinks this “foreign valuation” helps account for the market going up. Of course, I don’t do him justice here.
It’s depressing to think about what the actual floor of human behavior might be. There are two sorts of honest people in the world. There those relatively rare individuals who are inherently honest — the sort of people you can give the keys to fifty million dollars in cash to who will never take a dime, even if they could — and the more common sort of honesty: those who won’t actively steal what is declared off limits.
Honesty for most of us, consists of not robbing a bank or stopping an armored car. It consists of not actively performing criminal acts. Honesty for most of us consists of not consciously busting down the barriers. To assist us in remaining ordinarily honest society keeps temptation out of sight. It puts locks on doors, vaults in banks, guards in armored cars. And if man can go through life without once saying “stick em up” he is accounted a good citizen.
But in reality not many of us are really all that honest. So when morale breaks down and it suddenly seems ‘OK’ to help yourself, a surprising number of crimes ensue. This is how looting occurs. Restraint breaks down and a large number of people cross over the line from honest citizenry to greed crazed pillagers. To get the system back to working honestly again the organizational culture will have to be repaired because individual virtue is never enough to keep the bad things in check. Recently Andrew Breitbart described how ACORN dumped masses of documents to cover its misdeeds up, but did so incompetently, so that the dumpsters were recovered by investigators. That illustrates how a culture of malfeasance can get a hold of an organization and make it “OK” to do funny stuff. Probably only a small fraction of the ACORN people were worse than most, but with an anything goes culture things probably went downhill rapidly.
The problem is whether there is some way of getting a grip on the kind of madness that seems to have seized some people in the political class; remaking the culture so that they will return to “ordinary” honesty — that sullen, half-fearful state where they dare not go too far; so that they’ll return to that bubbling primitiveness is which is not very far beneath the surface at any time, but which may be all over the place in political culture today.
2×4: well i certainly hope that you are right. I have a tendency to trust you and understand you as, like me, you lived under the Soviets. I was an American living there for completely different reasons and with broader options than you, granted, but still I feel a certain kinship with you. (I will say though, that I might have been in graver danger than many a Russian most of the time, so it is a bit of a wash, your experience and mine.) I can rather wryly read between the lines of your posts and get it. People that have not had that experience of the overarching, communist state have not the faintest idea what it means no matter how good their intentions might be or no matter how right thinking they may be.
I see the same thing happening here as in the USSR. People tend to think of the Soviets as ugly, old men odd fur hats–the caricatures of the Cold War made up in Hollywood. You and I both know that it is the modern day democrats that most resemble the Soviet Hierarchy and Nomenklatura. Sometimes I have to pinch myself, the language, the art, the incessant agitprop and the tone of it, the rhetoric and manipulations are exactly the same. Sometime I wonder if there is something wrong with my brain. I think my mind plays tricks with me. I ask myself, for just a second,” why is their English so good? so American?” (the old Soviet spooks were so clumsily obvious.) or “Wait, where am?” or “what? this does not look like the light in Moscow.,”. It last only a second , but sometimes I have the eeriest of illusions of time and place shift.
This is because they are exactly the same sort, in fact, they are their epigones and disciples, and quite literally so too.
It is no joke.
I hope that you are right, I really want you to be right, and believe me I am not a pessimist by nature, but I just do not see it as you do. We are in the gravest danger.
(Also, it must be a while since you have lived in the EU. The EUocrat tranzis have a great deal of growing power new and it grows apace: they are literally destroying the nations of Europe. They sure got the better of the US Government and put one over ion the taxpayer. Hoe did they manage that if they are so “weak”.)
Allow me to point out a few clear but often muddle in the media advertising world a few truisms…. Brokerage firms are not working in your interest or in your favor. They want to control the largest amount of OPM (other people’s money) Money they can gamble with…..your money or more currently, truly huge amounts of taxpayers’ money. You don’t need to have a brokerage account because now they’ll simply have a reckless and larcenous government TAKE your money under penalty of prison time and then go gamble it in their own parlor.
Just two days ago I excoriated a contributor for citing in the same paragraph, the Fed, Wikipedia and a few other very shady sources. It was insulting, and in light of today’s revelation that Wiki has had 46,000 editors’ resign this year,
totally irresponsible writing.
What we have today is the cultivation and nurturing of Karl Marx and his warped and pettifogged world of pseudo intellectual “scientific” history. We in the USA have now have fulfilled the entire top Marxists goals as outlined in the :Communists Manifesto : and we‘re still attempting to put a finer edge on the blade that will cut our throats. Ergo:
1. Abolition of private property and the application of all rent to public purpose.
The 14th Amendment of the U.S. Constitution (1868), and various zoning, school & property taxes. Also the Bureau of Land Management.
2. A heavy progressive or graduated income tax.
Misapplication of the 16th Amendment of the U.S. Constitution, 1913, The Social Security Act of 1936.; Joint House Resolution 192 of 1933; and various State “income” taxes. We call it “paying your fair share”.
3. Abolition of all rights of inheritance.
We call it Federal & State estate Tax (1916); or reformed Probate Laws, and limited inheritance via arbitrary inheritance tax statutes.
4. Confiscation of the property of all emigrants and rebels. And now the KELO case.
We call in government seizures, tax liens, Public “law” 99-570 (1986);
Executive order 11490, sections 1205, 2002 which gives private land to the Department of Urban Development; the imprisonment of “terrorists” and those who speak out or write against the “government” (1997 Crime/Terrorist Bill); or the IRS confiscation of property without due process.
5. Centralization of credit in the hands of the State, by means of a national bank with state capital and an exclusive monopoly.
We call it the Federal Reserve which is a credit/debt system nationally organized by the Federal Reserve act of 1913. All local banks are members of the Fed system, and are regulated by the Federal Deposit Insurance Corporation (FDIC).
6. Centralization of the means of communication and transportation in the hands of the State.
We call it the Federal Communications Commission (FCC) and Department of Transportation (DOT) mandated through the ICC act of 1887, the Commissions Act of 1934, The Interstate Commerce Commission established in 1938, The Federal Aviation Administration, Federal Communications Commission, and Executive orders 11490, 10999, as well as State mandated driver’s licenses and Department of Transportation regulations.
7. Extention of factories and instruments of production owned by the State, the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.
We call it corporate capacity, The Desert Entry Act and The Department of Agriculture. As well as the Department of Commerce and Labor, Department of Interior, the Evironmental Protection Agency, Bureau of Land Management, Bureau of Reclamation, Bureau of Mines, National Park Service, and the IRS control of business through corporate regulations.
8. Equal liablity of all to labor. Establishment of Industrial armies, especially for agriculture.
We call it the Social Security Administration and The Department of Labor. The National debt and inflation caused by the communal bank has caused the need for a two “income” family. Woman in the workplace since the 1920′s, the 19th amendment of the U.S. Constitution, the Civil Rights Act of 1964, assorted Socialist Unions, affirmative action, the Fedral Public Works Program and of course Executive order 11000.
9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country.
We call it the Planning Reorganization act of 1949 , zoning (Title 17 1910-1990) and Super Corporate Farms, as well as Executive orders 11647, 11731 (ten regions) and Public “law” 89-136.
10. Free education for all children in government schools. Abolition of children’s factory labor in its present form. Combination of education with industrial production, etc. etc.
People are being taxed to support what we call ‘public’ schools, which train the young to work for the communal debt system. We also call it the Department of Education, the NEA and Outcome Based “Education” .
So I ask you…does changing the words, change the end result? By using different words is it all of a sudden OK????? We are so “smart,” aren’t we??
None in the Democratic- Communist Party dare call this treason…I do.
You – you – you mean those debts we agreed will eventually have to be PAID OFF? Bummer.
HDgreene. I seem to be missing your point. Yes it is true that even JFK or Truman would not be welcome in the Democrat Party today nor would they want to find a home there. FDR, Wallace and LBJ, on the other hand, would be right at home in the modern Democrat party and would make a beeline to its doors (and coffers too).
If you are saying that the Democrat party was ever the party of the conservative movement, you are quite wrong. In any event, after the New Left, mentored by the New Dealers and deep cover, direct action Communist operatives, co-opted the Party in the 1960′s all discussions which aims to finely parse the loyalties and ideological basis of the Democratic party are pointless wastes of time.
They are Bolsheviks pure and simple, and have been so for generations. It matter little if there was an errant apostate or two along the way. The so called “blue dog democrat” is nothing new, nor is the con-game that they represent.
Nothing could be more clear or obvious.
Stephen 21 said:
“Common stocks are proof against inflation, even though common stocks may perform very poorly in a time of rampant inflation.”
Provided the company is heavily invested in material infrastructure, e.g. heavy machinery, electric arc furnaces, etc. Nucor will probably get seriously whacked when the sucker’s rally ends but afterwards it will be an excellent investment. I plan on buying-and-holding Nucor after the economy fully implodes and possessing the actual stock certificates.
Nigma 33 said:
“I would, however, be willing to also bet that inflation is in our future, and not just the routine COLA kind of inflation we’ve had since the mid-80’s. I would also bet that inflation will get bad just after the 2012 election if a Republican unseats President Obama.”
Even though I believe the value of the dollar will zoom up after the Federal Reserve crashes the stock market, I suspect we’ll eventually be in a Weimar Republic inflation situation with all the follow-on political consequences.
The timing of the stock market crash last year was extremely suspicious (it terminated McCain’s presidential campaign). Anyone who has been paying attention can see that our stock markets are very closely controlled by the Federal Reserve and yet they allowed the stock market to crash last year.
Given the level of control, why did this happen?
We’re they asleep at the switch?
Was the crash so hard and fast that not even the Federal Reserve could prevent it?
–or– Did someone want to see Obama elected as messiah?
Concerning my opinions about finance: Keep in mind that I’m, standing here with my pants pulled down to my ankles because I went short in June.
Your path to infinite wealth: Listen to what I say and do the exact opposite!
“Then, on Septembr 16, 2008, the federal government took over almost 80 percent of AIG’s stock…”.
Was it Lehman Bros. that collapsed on that same day? Isn’t it the day congress was told
the government was broke,and the push for TARP bagan?
“Inflation is not a sure thing. The Federal Reserve can crash the US stock market at the flip of a switch. When that happens, everyone who shorted the dollar will get squeezed, the dollar will zoom upwards and gold will tank. There are no safe bets when politicians control the markets.”
Let me explain why I think the above scenario cannot now happen, at least not in 2010, and it will explain why I believe massive inflation is now inevitable.
Yes, of course the Fed has the *theoretical* capability of doing what you say – but have you seen the recent shot across the Fed’s bow, the hearings in which this Congress is going to discuss taking away some of the Fed’s power? If the Fed were to do what you say, the ensuing economic carnage would *destroy* the political careers of anyone in office at the time, especially if the Fed did it during an election year such as 2010! Suppose the Fed *were* to try and tighten with unemployment still at 10% or higher next year – I guarantee that this Congress will jump in and strip most, if not all, of the Fed’s powers from it, and then we would *really* go from the frying pan into the fire. Enough Republicans dislike the Fed so that Bernanke knows that it would be institutional suicide for him to cross the Dem leadership these days. He does not dare.
It is, in fact, astounding that the Fed is *still* keeping interest rates this low when gold is already flashing the inflation signal so strongly – and yet we are guaranteed that this policy is going to continue for at least another year no matter what happens economically. The Fed knows that rates should be going up to protect the dollar, and yet they are doing nothing. They will continue to do nothing, because they are no longer powerful enough to cross this Congress and this President.
The great irony, of course, is that by giving them what they want – cheap and easy money throughout an election year – they are going to guarantee that the long term fall will be so much greater than it otherwise would have had to be.
wws 47 said:
“It is, in fact, astounding that the Fed is *still* keeping interest rates this low when gold is already flashing the inflation signal so strongly..”
That’s the mechanism for crashing the stock market. The Fed only needs to bump up interest rates by a tenth of a point and the stock market would implode.
$64,000 question: What market signal (if any) are they waiting for?….
Bernanke will commit hari-kari on the day t-bills yield 2% again.
And Geithner will conveniently be found visiting Switzerland.
“Signal” will be a failed treasury auction, of course.
“The Fed only needs to bump up interest rates by a tenth of a point and the stock market would implode.
$64,000 question: What market signal (if any) are they waiting for?….”
I agree with your observation completely, but I believe we can answer your question.
I argue that the evidence shows that there is *no* signal they are waiting for, because every possible signal of trouble has already flashed red. And yet the Fed has done nothing, other than to say that current policies will continue. I believe they know that they are in a horrible bind, but that they see no way out other than to wait, do nothing, and hope that a miracle happens. If they were to crash this market, they would be accused of throwing next year’s elections and the Fed would not survive.
Remember G. William Miller, Fed Chairman in ’78 and most of ’79? He followed *exactly* these policies, and he was the cause of the wave of inflation that resulted. He actually believed that inflation was *good* for the economy, since it made nominal revenues grow.
“Miller succeeded Arthur Burns as Fed Chairman in January 1978. He inherited a high inflation economy, still suffering from the increase in oil prices from OPEC. The change in the Consumer Price Index was 4.9% in 1976 and 6.7% in 1977.[3] Nevertheless, Miller maintained a Keynesian belief that inflation could “prime the pump” of the economy, and would at any rate be self-correcting.[4] He thus pursued a strongly dovish policy and opposed raising interest rates. The effect of this was to send the dollar’s value spiraling downward. In November 1978, only 11 months into his term, the dollar had fallen nearly 34% against the German mark and almost 42% against the Japanese yen, prompting the Carter administration to launch a “dollar rescue package” including emergency sales from the U.S. gold stock, borrowing from the International Monetary Fund, and auctions of Treasury securities denominated in foreign currencies.[5][6] This proved only a short-term fix; while temporarily steadying the dollar, it soon resumed its fall.[7]”
http://en.wikipedia.org/wiki/G._William_Miller
I do believe that Bernanke now hopes that he can maintain a kind of plateau until after next years elections, when the Fed can start to tighten with elections still 2 years off. So far, as stocks go up things look good on the surface and the main street pain from high unemployment really hasn’t percolated to the top yet. He may think he has some breathing room because of this. The problem with this plan – we do not have a year left before the shite really starts to hit the fan, and by the time they start to raise rates it will be too late to create anything other than that theoretical impossibility – the inflationary depression.
There is one bright spot for unemployment, however, and I would be remiss to leave it out – as the dollar collapses, it will become economically impossible for the US to continue to afford to import so many goods, and so a great deal of home grown supplies will need to be restarted, even for simple things such as food and clothing. This, of course, will transfer our pain onto the backs of all of our trading partners and may start a new round of 30′s style beggar-thy-neighbor policies, but that’s a story for another day. Will it end in war? Most likely, this kind of thing usually does.
Allow me to point out a few clear but often muddle in the media advertising world a few truisms…. Brokerage firms are not working in your interest or in your favor. They want to control the largest amount of OPM (other people’s money) Money they can gamble with…..your money or more currently, truly huge amounts of taxpayers’ money. You don’t need to have a brokerage account because now they’ll simply have a reckless and larcenous government TAKE your money under penalty of prison time and then go gamble it.
Just two days ago I excoriated a contributor for citing in the same paragraph, the Fed, Wikipedia and a few other very shady sources. It was insulting, and in light of today’s revelation that Wiki has had 46,000 editors’ resign this year,
totally irresponsible writing.
What we have today is the cultivation and nurturing of Karl Marx and his warped and pettifogged world of pseudo intellectual “scientific” history. We in the USA have now have fulfilled the entire top Marxists goals as outlined in the “Communists Manifesto”, and we‘re still attempting to put a finer edge on the blade that will cut our throats. Ergo:
1. Abolition of private property and the application of all rent to public purpose.
The 14th Amendment of the U.S. Constitution (1868), and various zoning, school & property taxes. Also the Bureau of Land Management.
2. A heavy progressive or graduated income tax.
Misapplication of the 16th Amendment of the U.S. Constitution, 1913, The Social Security Act of 1936.; Joint House Resolution 192 of 1933; and various State “income” taxes. We call it “paying your fair share”.
3. Abolition of all rights of inheritance.
We call it Federal & State estate Tax (1916); or reformed Probate Laws, and limited inheritance via arbitrary inheritance tax statutes.
4. Confiscation of the property of all emigrants and rebels. And now KELO.
We call in government seizures, tax liens, Public “law” 99-570 (1986);
Executive order 11490, sections 1205, 2002 which gives private land to the Department of Urban Development; the imprisonment of “terrorists” and those who speak out or write against the “government” (1997 Crime/Terrorist Bill); or the IRS confiscation of property without due process.
5. Centralization of credit in the hands of the State, by means of a national bank with state capital and an exclusive monopoly.
We call it the Federal Reserve which is a credit/debt system nationally organized by the Federal Reserve act of 1913. All local banks are members of the Fed system, and are regulated by the Federal Deposit Insurance Corporation (FDIC).
6. Centralization of the means of communication and transportation in the hands of the State.
We call it the Federal Communications Commission (FCC) and Department of Transportation (DOT) mandated through the ICC act of 1887, the Commissions Act of 1934, The Interstate Commerce Commission established in 1938, The Federal Aviation Administration, Federal Communications Commission, and Executive orders 11490, 10999, as well as State mandated driver’s licenses and Department of Transportation regulations.
7. Extention of factories and instruments of production owned by the State, the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.
We call it corporate capacity, The Desert Entry Act and The Department of Agriculture. As well as the Department of Commerce and Labor, Department of Interior, the Environmental Protection Agency, Bureau of Land Management, Bureau of Reclamation, Bureau of Mines, National Park Service, and the IRS control of business through corporate regulations.
8. Equal liablity of all to labor. Establishment of Industrial armies, especially for agriculture.
We call it the Social Security Administration and The Department of Labor. The National debt and inflation caused by the communal bank has caused the need for a two “income” family. Woman in the workplace since the 1920′s, the 19th amendment of the U.S. Constitution, the Civil Rights Act of 1964, assorted Socialist Unions, affirmative action, the Fedral Public Works Program and of course Executive order 11000.
9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country.
We call it the Planning Reorganization act of 1949 , zoning (Title 17 1910-1990) and Super Corporate Farms, as well as Executive orders 11647, 11731 (ten regions) and Public “law” 89-136.
10. Free education for all children in government schools. Abolition of children’s factory labor in its present form. Combination of education with industrial production, etc. etc.
People are being taxed to support what we call ‘public’ schools, which train the young to work for the communal debt system. We also call it the Department of Education, the NEA and Outcome Based “Education” .
So I ask you…does changing the words, change the end result? By using different words is it all of a sudden OK????? We are so “smart,” aren’t we??
None in the Democratic- Communist Party dare call this treason…I do.
Habu, seems you are firmly in the camp of “Repetitio est mater studiorum”.
Mongoose,
Sorry I was not being clear. It was your suggestion of an “18 percent flat tax” (@29) that triggered the memory of former Governor Jerry Brown’s tax proposal. At the time I thought it a good proposal from the wrong politician.
I was not suggesting that the Democratic Party was ever “the party of the conservative movement.” If they were, advocating a 13 percent flat tax by Brown (who’s quite liberal) and pushing a 28 percent top marginal rate into law by Bradley would not be note worthy. Their actions no doubt had to do with the drumming they took in the ’84 election. Perhaps the Democrats were trying to show that they were “strong on the economy.” And perhaps, in a few years, they will have to demonstrate that again. But not until all else fails, of course.
FED DIRECTORS IN THE NEWS TODAY:
Stock futures are up after St. Louis Fed President James Bullard said the central bank should extend its purchases of mortgage-backed securities past its March deadline
In a story by The Wall Street Journal, Bullard said his reasoning is that the program should continue, albeit at a slower pace, in order for the Fed to remain flexible.
A voting member of the Federal Open Market Committee next year, Bullard admitted that the central bank hasn’t decided on the program’s fate. He also suggested that the Fed could likely keep interest rates unchanged until 2012.
related news item: http://www.bloomberg.com/apps/news?pid=20601103&sid=act_vr3x0Ofc
“The dollar fell the most in two weeks against the euro on speculation the Fed will keep its stimulus measures in place and ensure interest rates remain at virtually zero.”
It looks like the economy and the administration are each heading for a coffin corner.
If the economy falls out of the sky first, the administration will not survive for long afterwards despite their beliefs that they will, in my opinion. If the administration falls out of the sky first it is a now a toss up now on whether the economy survives or not, in my opinion.
52. twobyfour
Well, when it takes grammar school through college and your audience still doesn’t know that it lives in a republic and not a democracy then yes, you are absolutely correct.
It’s just small insignificant stuff to many but those are classified as real idiots. Knowing the form and how the form was shaped and its meaning is, how do I put this …. important. At least every philosopher of the Enlightenment period thought so. I’m not sure the followers of John & Kate+8 have a clue; yet they are entitled to an opinion we must often suffer.
Mongoose, how do you propose to do all of that and still fund Medicare? Unless you reduce expenditures there by 60% also, which would constitute a defacto default. IIRC (months ago) when I suggested that we default on Medicare you said there would be a revolution first. I apologize in advance if that is incorrect, my memory on this point is hazy.
With all the talk about gold going to $3000 and wagon-hauled bricks of reichsmarks right around the corner I think we’ve lost sight of the fact that there has been slight deflation during the financial crisis despite massive quantitative easing (i.e. ‘printing’ money) by the fed to recapitalize the banks. I suspect the deflation would have been severe if they had not done so.
There was no question that the financial sector had to be supported during the crisis. It accounted for much of the GDP growth during the last 10 years. If only we had some other industry to fall back on! Was Bush’s Ownership Society really about helping ordinary Americans? Or was it simply about funneling more money to Wall Street? So the damage had to be contained.
IMO the best thing would be to put the investment banks into receivership i.e. nationalization. A populist oriented press would make sure none of the Blanksteins kept their jobs. But thanks to cries of ‘oh noes! socialisms!’ from the proles prevented that from gaining any steam.
It was pretty clear from the beginning what the consequences of the various financial bailout schemes would be. The morons at the top whose greed caused the problem would get to keep their lifestyle.
Mongoose @ 44 – even though I am someone younger when it comes to memories of the LATE Cold War, I too sometimes feel something very eerie in how certain things in the US(S?)A resemble its fallen adversary. I feel in some ways the Alan Greenspan personality cult in the Nineties resembled the genuine affection for Papa Brezhnev in the heyday of Soviet stagnation in the Seventies. Even the demonizing propaganda you occasionally still find against Russia you find in the U.S. (just look at the PJM contributor who calls some people ‘hero journalists’ and uses other Soviet terms) is sometimes similar to how the USSR once portrayed America.
If you start asking even very simple questions (and my foreign friends have) like: why does America need JUST three major credit bureaus? (That is, how can employers use your credit score against you for life?) the sheeple say you’re promoting irresponsibility and the nearly impenetrable quasi-private bureaucracies of TransUnion, Experian and Equifax are as all-American as apple pie. And so is the data gathering banks make on you, with the government probably knowing more. And before you laugh at the comparison remember that by the 1980s the Soviets weren’t sending so many people to the Gulags or firing squads anymore, the control was much softer than under Stalin.
Jeremy Rifkin may have idealized “The European Dream” (pretending that America’s collapse will somehow be good or at least not god-awful for Europe) but I cannot help but admit he was dead right in his book published in 2000, The Age of Access. That is, his thesis that Americans would continue to find themselves with access to a virtual everything (and owe everyone) but increasingly own NOTHING. The implications for Gen X and Gen Y in terms of delayed marriages, living with parents through the 30s, and stunted careers, EVEN BEFORE all this debt and joblessness was piled on them, are clear.
At any rate, the similarities between the U.S. and Russia has been my harping theme at Belmont Club and elsewhere at PJM for a while now. Especially the comparisons between our AlGore/Goldman Sachs oligarchs and the oligarchs of the Nineties who stripped the choicest parts of carcass of the Soviet Empire.
Okay, I am STILL holding out for deflation.
With all those upside-down mortages (81% of all mortages in Las Vegas) and with similar private-sector debt problems everywhere, the de facto money supply continues to shrink.
Remember that as horrifying as governmental debt may be, it is a drop in the bucket next to private debt totals. Therefore, private debt defaults, private debt shrinkage and reluctance to borrow means bank assets decline
while bank deposits remain fairly stable. To cover withdrawals banks have to increase their reserves. De facto reserved requirements have at least doubled or tripled (IMHO) in the last year and show no signs of abating. Increases in reserve requirements
are N-O-T inflationary.
And all this government spending looks like it is going to various and sundry places that again increase said reserve requirements.
So unless the country gets flooded with banknotes (or personal checking accounts get
tens of thousands deposited therein) there will be more deflation ahead.
That is not what the Lord High Muckety-Mucks
want to do, but anybody who thinks they are astute has another think coming.
Well, work time again. So when I return, shall check and see if you guys think am (a)Ludwig von Dave or (b) Frederich Hayek Dave. (and if anybody dares say John Maynard Dave, I’ll have a conniption fit.
Well I am all for shutting down Medicaid/medicare, but it will never happen, or at least not until the last boomer goes. As LOTM said a while back, what we need is a consensus to wind it down over 20 years or so. This, of course, is a rather tall order given our national political life. Yes, I think we would have the boomers out in the streets whacking the rest of us with their walkers should we go after it now. But I am all for it, I do not believe in entitlements at all; I am not a “moderate”, which, as far as I am concerned, is a socialist that just cannot really grasp what he actually “believes”– a sort of “math teacher” that does not understand algebra.
I think the best that we can hope for is to have it go back to a safety net program for the elderly an gradually shrink it.
But we can shut down 80% of the Federal and State bureaucracies, and that will save trillions. If one adds in to this the savings from breaking of the unions and the end of this awful regulator regime of the last 70 years, then it really adds up fast in terms of boosting national wealth, particualrly if we turn back from globalism and revisit NAFTA, and Clinton’s “Backdoor Nafta with China”.
I would even ban the NEA and pull the federal funding out of public schools. I would force competition here at the state level too. I am really talking about winding down the New Deal, and limiting the entitlement programs where it is impossible to end them entirely.
That government employee union constituency is small enough to be overcome. And I mean essentially shut down the New Deal and ost of its accretions. The DOE, HUD, Dept of ag., FTC FCC, BATF, etc., ALL GONE. Me, I do not even think the FBI is constitutional, at least as “national police force” goes. Let them coordinate information between the states. The only Federal crime should be treason, and the way thing are going that will be around for a while. Let the DoD and the intel community handle the WOT. I think that the Dept of Homeland Security was a mistake too. (I would keep the intel community, but radically change it). I would also take all the “national land” and give it back to the states, and force them somehow to sell it back to the people of the of the country.
All of this will save trillions in a handful of years, and the liberty that would result by a limited government would lead to a boom such we have never seen. Energy? Education? Health care? They would solve themselves. The disease is collectivist tyranny and Communism. The cure is liberty, capitalism and, from my point of view, the faith of our fathers. It is really not very complicated.
If we could get to what I am suggesting, the boom would be enough to handle the Medicare, medicaid, SS until the boomers go.
Ultimately, we have to rollback all of the socialist nonsense and go back to excellence, meritocracy, private ownership, personal liberty and wealth creation (you will note that I have said nothing about “equality” or “diversity” here).
As for the Ibanks and other financial institutions, I hardly see how receivership means nationalization. This is a contradiction in terms. If we had let them fail last year, every thing would be fine now, and we would be pulling out of this mess now.
Me? I would put the crooks in jail (or maybe force them to work on rickshaws up and down Manhattan), seize all their assets, their personal assets to, and the assets of their whole clans, and even have a look at the shareholders. I would certainly seize the wealth of all of their government enablers. I would go after whatever foreigners were involved to, even if I had to send SEAL teams after them to make a point. But nationalize? why? let the rot in jail. It is a complete myth that they were too big to fail. At the very least, it was just the a bunch of Wall Street elitists who thought that they were to powerful and important to fail. These are a handful of institutions, and they have been parasitic ones since the 1990′s. Main street banks would be OK and Wall St. could get back into the business of capitalizing American businesses,instead of capitalizing our competitors and in general running a casino. Just let them go broke. I could frankly care less if we took the whole lot of them and tarred and feathered them across every county seat in the nation.
Hang em high, I say.
But nationalizes them? Heavens no.
The only “money” there is is inside your head.
Those with a deeper curiousity about the inflation of the late 1970′s may want to read a working paper from the St Louis Fed: The Great Inflation of the Seventies: What Really Happened? by Edward Nelson.
Oh, fasten your seatbelts….it’s about to get bumpy.
I have to agree with Mongoose and Habu about the nefarious nature of our current political leadership. We appear to be in the second great push towards Socialism (Great Depression was the first) with our enemies taking advantage of the current economic crisis to accumulate more and more power. Geithner and Obama and company are not “incompetent” if you see their goal as the accumulation of power. Everything they’re doing tends toward greater consolidation of power in the Federal Government. Socialized medicine will be passed (even at the cost of temporary loss of political seats) because it is the ultimate binding of the people to the government in a subject manner. Every political battle going forward will be over who will promise to spend more on health care to fix the “problems” – a battle which Democrats cannot lose.
I draw your attention to the classic book on the true goals of the New Deal, “The People’s Pottage”. Reading this is like reading today’s newspapers and provided me a “matrix-like” awakening about what’s really going on. Literal chills. From the introduction to the first chapter:
“There are those who still think they are holding the
pass against a revolution that may be coming up the
road. But they are gazing in the wrong direction. The
revolution is behind them. It went by in the Night of
Depression, singing songs to freedom.
There are those who have never ceased to say very
earnestly, “Something is going to happen to the
American form of government if we don’t watch out.”
These were the innocent disarmers. Their trust was in
words. They had forgotten their Aristotle. More than
2,000 years ago he wrote of what can happen within
the form, when “one thing takes the place of another,
so that the ancient laws will remain, while the power
will be in the hands of those who have brought about
revolution in the state.”
Worse outwitted were those who kept trying to make
sense of the New Deal from the point of view of all that
was implicit in the Amercan scheme, charging it therefore
with contradiction, fallacy, economic ignorance,
and general incompetence to govern.
But it could not be so embarrassed and all that line
was wasted, because, in the first place, it never intended
to make that kind of sense, and secondly, it took off
from nothing that was implicit in the American scheme.
It took off from a revolutionary base. The design was
European. Regarded from the point of view of revolutionary
technic it made perfect sense. Its meaning
was revolutionary and it had no other. For what it
meant to do it was from the beginning consistent in
principle, resourceful, intelligent, masterly in workmanship,
and it made not one mistake.
The test came in the first one hundred days.
No matter how carefully a revolution may have been
planned there is bound to be a crucial time. That comes
when the actual seizure of power is taking place. In
this case certain steps were necessary. They were difficult
and daring steps. But more than that, they had to
be taken in a certain sequence, with forethought and
precision of timing. One out of place might have been
fatal. What happened was that one followed another
in exactly the right order, not one out of time or out of
place.
Having passed this crisis, the New Deal went on
from one problem to another, taking them in the proper
order, according to revolutionary technic; and if the
handling of one was inconsistent with the handling of
another, even to the point of nullity, that was blunder
in reverse. The effect was to keep people excited about
one thing at a time, and divided, while steadily through
all the uproar of outrage and confusion a certain end,
held constantly in view, was pursued by main intention.
The end held constantly in view was power.
In a revolutionary situation mistakes and failures
are not what they seem. They are scaffolding. Error
is not repealed. It is compounded by a longer law, by
more decrees and regulations, by further extensions of
the administrative hand. As deLawd said in The Green
Pastures, that when you have passed a miracle you
have to pass another one to take care of it, so it was
with the New Deal. Every miracle it passed, whether
it went right or wrong, had one result. Executive power
over the social and economic life of the nation was increased.
Draw a curve to represent the rise of executive
power and look there for the mistakes. You will not
find them. The curve is consistent.”
http://mises.org/books/pottage.pdf
There may be a time in the future to worry about inflation. It is not now.
We should be worrying about deflation. A Japan style Deflationary period. Japan has not recovered from their ’89 crash, and still are in a deflationary mode . Still.
Deflation takes hold when demand for goods and services drops consistently over a substantial period of time. That is what we are looking at right now.
Yes the Fed has jacked up the money supply thru the kazoo. And yes, gold is climbing. Gold should be climbing. Buraq and Bernacke are trashing America, the Dollar and America’s economic system. But that does not necessarily mean inflation. The cost of foreign commodities and goods may inflate. But here at home we are in a deflation, because the velocity of money has plummeted below 1.0. ( long term average 1.67, high 2.12 in ’97). For a growing money supply to cause inflation, the velocity of money can’t be flirting at the 1.0 level.
In our economy, banks need to lend to get the velocity of money moving upward. But, the banks are not lending, no matter how much money the Fed throws at them. Credit is contracting, unemployment is growing and businesses are failing, by the truck load. There is less demand for credit and more and more people are considered, rightly or wrongly, credit unworthy.
The Fed wants inflation desperately, but can’t get it. It’s like pushing on a string. Most banks are insolvent, and they are hoarding the cash the Fed is giving them to stay afloat. Instead of cleaning out the insolvent banks, the Fed is protecting the banks, buying up a whole lot of their bad investments and debt, contrary to the Fed Reserve charter. Bernacke and Geithner are converting all those bad private debts into bad public debts with you and me on the hook in the process. And this mountain of bad debt is growing by leaps and bounds, not shrinking. Unless we clean up this mess soon, we are going to be in a hellish world of hurt. That is what we should be worried about.
for the several folks above wondering about timelines & such re recent events, resource shelf dot com is a librarian’s site for gov’t docs. Here see St Louis Fed’s (distr. specialty is economic data collection & dissemination) timeline prominently displayed. this is the Fed writing its own history, of course, but, heh heh, its history is your history.
also, re willie g’s rec above, St Louis Fed’s pdf here:
https://research.stlouisfed.org/wp/2004/2004-001.pdf
***
PtD/#4; submitted for your, J Donne’s, & E Hemingway’s approval:
‘Ask not for whom the bill stole; it stole from thee’
Unsk, you sound like you know what you’re talking about.
So, how is it Bernanke & Geithner thought they could ignite inflation at will, did they not know what you have just recited about velocity?
And since they do not have that weapon to fire at will after all – are we in more trouble than before?
God Bless your humorous soul brother larsen; I was tuned to your wavelength when I conjured up that gem in the rough. Leave to the master to improve upon it.
I had not meant to slight the poet by not mentioning him at no 37, because he was in mind too at no. 4 where I had multiple meanings.
In no. 37 as I was seeking to draw a bit from the novelist’s milieu for my double entendre for Mongoose.
Donne’s defense of intrinsic casuistry was cause for Pascal’s attacks of the Jesuit extrinsic casuistry. The very predicament upon which this thread is based is the consequence of extrinsic casuists (i.e., those who exploit esteemed men to sell a morally questionable course of action — TARP) who conjured the meme “too big to fail” that now seems to have a life of its own.
So I bless you again humorist Larsen, as you gave me cause to explain a bit more of the multiple meanings with which I was toying. Like I feared at the start, too subtle, maybe still.
—-
There are many members who understand finance far better than I, and are not so quick to point up human failing. Tell me how I’m wrong to see the TARP and associated band-aids as issuing from morally corrupt gamesters.
W: “The problem is whether there is some way of getting a grip on the kind of madness that seems to have seized some people in the political class…”
Unfortunately evil is embedded in human nature; it is somewhere in our genetic code and cannot be changed. Fortunately, God is also embedded in our genome and human nature. As I see it the balance is tipping toward evil and away from God, but hopefully not past the tipping point.
(Who bends not his ear to any bill which upon any occasion blings? but who can remove it from that bill which is crassing a piece of himself in this world? No man is an island, entire of itself; every man is a piece
of the constituency…)
Buddy, couldn’t find that prominently displayed timeline you linked– maybe I need the country to buy me specs or the W of O to grant me a brain
2X4 @ 34,
That is a scary article you linked to, but somewhat dated. It referred to “UN President Kofi Anan,” who is no longer UN President. So I checked the date of the article and it was May, 2006.
Geithner and Burnanke are not gods. They have a limited set of tools they can use to fight deflation and inflation i.e., stabilize the money supply. Yes they have jacked up the supply of M0 but even shadowstats shows the M3 supply contracting slightly. How much more would M3 have contracted had the fed not done this?
I agree that some people on Wall Street belong in jail. But what is wrong with temporary nationalization along the lines of the resolution to the S&L crisis?
So far most people affected by the housing crisis are either subprime or (coming to a neighborhood near you) alt-a borrowers, those who put so little down (3.5% or less) that as soon as the real estate bubble stalled, their equity evaporated and they went underwater.
Imagine how bad it would be for those who put 20% down to see all their equity gone and the value of the balance going up in real terms. Those who had paid faithfully for 15 years, no second mortgages, no re-fis, the same? That is what happens during extreme deflation. It is easy for us to say let the banks fail, but a severe contraction of the money supply would have harsh consequences for even responsible people.
There was no such thing as commercial banks vs investment banks at the time of the crisis. The insulation separating them was gone thanks to our good friends in the republi-crat oligarchy. The only way you will get long term behavior changes on Wall Street is to re-do Glass-Steagall. Separate commercial banks from investment banks and reintroduce reserve requirements.
Government programs like the NEA are obnoxious to be sure but the cost of discretionary spending is frankly a drop in the bucket when compared to the 50T estimated medicare liability looming over us. Unless some economic miracle happens we aren’t going to pay that off with anything other than a tax increase, a default or a combination of both.
folks need to bear in mind a crucial distinction between “inflation” and price inflation. inflation is here –the supply of dollars per underlying value has already been tremendously inflated. what we don’t see in the general economy is a commensurate ‘price’ inflation –and we can thank falling demand for that. Curing that hangnail by cutting off that finger, sorta. the needle that has to be threaded given the premise of economic recovery is that when employment and output begin to rise, the Fed can start ramping up interest rates to damp inflation. if not for the need for mortgage rates to stay low, Fed should start this so-called ‘exit strategy’ too soon rather than too late, as too late may ignite rates at the long end of the bond mkt — which the marketplace controls, as opposed to the short end, which the Fed controls. mortgage rates peg to the ten year benchmark –and the higher the rate goes, the less affordable the mortgages, and the less value of the real estate in bank portfolios.
So banks look at the parabolic money supply growth, see higher rates ahead and depreciating rather than appreciating loan portfolios. In order for the fiat money to appreciate these real estate portfolios, housing demand has to rise, which requires job creation, which requires business expecting better sales, which the fiat money is supposed to create, but can’t until it is lent, which it won’t be because banks are worried about money inflation = asset deflation. This is the ‘what’s different this time’ –and it has everything to do with the system operating within a powerfully anti-market politics. Price deflation is like a union –great if you have one of the fewer and fewer jobs your system is allowing.
setting aside the debt tsumami and just in terms of current cash flow, maybe it will all work out –the stock market seems to be saying so. But look closely at the daily trading volumes. Volume verifies price –price without volume comfirmation is best seen as dangerous information. dangerous in either direction, buy or sell –when you want to buy and don’t, even tho price says to but volume doesn’t, you stand a good chance of missing the train. Which if the train pulls out of the station and explodes, you were lucky to have missed.
lawrence/69;
Lawrence/69; http://timeline.stlouisfed.org/index.cfm?p=timeline
PtD/67; yep, that’s what i was trying to say, alright –what you said in bolding –that’s the nut (i think)
CR/71; but remember what Glass/steagall repeal (done in 1999, signed by B Clinton) was done in order to accomplish –an economic growth rate that would possibly be able to fund the future entitlements. this same cause/effect is operant all over many if not all the in-hindsight-reckless changes made in the system –a political stablishment unable to reform entitlements and thus forced to hype growth –or try to. the risk ever rising for the reward of merely keeping an extravagant ill-conceived promise.
LOL. That’s the ticket. My cat’s recognition, while always a bit patronizing, also [s]never[/s] rarely misses the point.
72, “…setting aside the debt tsumami” this only works in the northern herisphere. in the southern himisphere you have to set aside the debt tsudadi.
L/69; note when you scan that timeloine that the SEC rule changes made in 2007 –the uptic rule change which lack of which allowed teh September Panic (the big banks lose 70% stock valuation in a week) is not mentioned, and neither is the extension of allowable leverage of the securitized tranches’ underlying asset –from the decades of a successful max of 12 on top assts, to 40, and that on practically everything the zany guys at Moody’s and S&P could stamp ”AAA” on.
also, I didn’t on quick scan see any reference to the iirc 2007 return –for the first time since it was dropped in 1938 for the same reason it was so destructive in 2007-2009 –of FASB 157, the “mark-to-market” which at a stroke technically busted thousands of banks by repricing daily their r/e loan porfolios to the last firesale of a bad subprime foreclosure –forbidding the fact to enter thr accounting that the sale was an anomaly unlikely to have any bearing on the future values.
not that the St Louis fed would be bending history, but only that the timeline’s focus is a little on the narrow side, as far as the general utility of seeing the whole picture thru the listed event points.
24. steeple:
“…release the pressure of Federal deficits … renege on its internal obligations, such as Social Security, Medicare and other entitlements.”
Others have suggested this later on in the thread. The answer is in the 800 lb gorilla that — surprise, surprise — ties to that subject I often bring up that nobody (except for maybe Habu and Mongoose) is receptive to.
Healthcare bill that robs money from Medicare, has end-of-life counseling, has a treatment prioritization that declines with age, has wound up with shortages of available treatments (except for VIPs) everywhere it’s been tried. Hmmm.
If only SS recipients did not, somehow, for some unknown reason, live as long as their parents? That would reduce SS payouts, and even less money [s]squandered[/s] paid out for Medicare too. Nah. How could that happen?
“So its ironic that those who are becoming more dependent on Federal spending are also bearing more default risk over time.”
How do you define “default” and “risk” Steeple? Bueller? Anyone?
Jim Cramer had Gary Gensler on his show tonight –Gensler the Clinton Treasury Dep’t whiz kid who had arrived via designing Enron trading systems then designing the Sarbox cure for his own work. Gensler, now Obama’s whiz kid regulator from his chair of the CommodityFuturesTradingCommission, is (like the Summers/Geithner team which has done repeats known as Asian Crisis, Peso Crisis, Russia Bond Crisis) doing a repeat now, repairing the damage from his several Clinton era works which formed many of the sleeper seven-year locusts now upon us.
Cramer led him to recount his recent testimony to Congress:
Cramer: “Didn’t you do something unprecedented –din’t you apologize to the American people?”
Gensler: “Well, what I said was, I said I could’ve done more, I could’ve done more –I see now in hindsight I could have done more to protect the American people.”
–such as not having designed his Commodity Futures Modernization Act of 2000, which deregulated (‘hid’) the Credit Default Swap and let the risk grow in the dark, OTC, out of reporting, clearing, settlement sight –from a few hundred million dollars worth in yr 2000 to SIXTY TRILLION in “AIG’s toxic assets” alone by yr 2007.
Anyhoo Cramer (no doubt returning a chit from his fellow Government Sacks alum Gensler), managed to avoid busting out laughing, choosing to instead cheer for Gensler’s proposals (which ARE fine as long as no evil politics ever enters their ‘strong man’ structure).
“Judge, I wish I’d done more to protect those murder victims. All i was doing was aiming a pistol at them and pulling the trigger. Then suddenly shots rang out!”
Captain Ramen #71: Be informed sir that I have gone from 40% equity to at least $70G upside down ($100G if you calculate current loan value). While our nostrils remain slightly above the H2O, our consumer confidence ain’t all that great.
And since it took almost two full decades to accumulate that which gave us the now vanished equity, well at least the shelves at the grocery store are still well-stocked.
I more than ever appreciate my childhood and cultural background in the West Texas oil patch. It hardened me to an even larger degree than did three VN tours and I sure ain’t one to downgrade the latter.
Hello again Buddy: Wonder if either of us ever gets to bed at a decent hour.
Your sermon on monetary vs price inflation seems pretty passable, Parson Larsen. Phil Gramm might even give you an Aggie Sheepskin if you keep up the good work. Who knows? You might even get Dickie Flatt to spring for a dash of Colorado Kool-Aid one fine day. However, “la cervesa con vida” still appears a little stout for you.
My #59, Unsk at #64 and your ruminations are all saying the same thing. When Unsk talks about monetary “velocity” he means does money
circulate (inflation) or is it stored under the mattress (deflation.)
That is why, guided by the ghostly voice of Milton Friedman, I coined, or concocted, the term “de facto money supply”. It means that while the official statistics show one thing,
a more discerning (perhaps broader?) outlook shows something else. Best I could come up with.
My hunch is that when inflation gets out of hand, it is analgous to compressibility. I can be met with certain countermeasures (lower pitch, full throttle, drop flaps, fire .50s). However, deflation is much more like
a stall, including a high-speed stall. You have to go in the direction of the trouble and get her nose down, right away. That means liquidate debt, drop prices, lower wages and all this other unpleasant stuff.
And raise, not lower, interest rates. For borrowers that means inspire them to get out of debt, not increase it and for savers it means pay them enough to make saving worthwhile thereby keeping deposits in the bank and shoring up liquidity.
Do all this, and velocity will drop to zero
and demand will drop like a stone and everything hits bottom by Thursday after next. Don’t do all this and you will spin and gyrate completely out of control for a good long time to come.
From what I read and hear, the citizenry is doing the right thing. The government? Maybe we ought to go get a new one.
Hi, Wretch.
Pajamas Media is costing you money.
Their payment system is obtuse, rigid, dumb and impossible for me to use.
It won’t let me use my Australian Visa Cards because their billing addresses are Post Office boxes which I have to use because I live in the bush and have no postal service.
And they won’t let me use my American Visa Card which has a California street address for billing because the payment page recognises I am in Australia. I change the country line to United States OK and then when I get to state it only allows me to pick an Australian state even though the country reads United States.
I hope my credit is good with you, Wretch.:)
D/79; I would get some sleep if it wuzn’t fer this durn insomnia, which is always hell on sleep. Yes the stall is a good way to see it –if visibility is poor enough (and no IFR) you might even think youre fine until you run out of airspace. Another way of understanding the gravity of it without using an example with actual gravity in it, would be the cost of credit. If you’re paying 6% for yore credit money and inflation is at 4% you’re effectively paying 2%. however if deflation is at negative 2%, then your working capital (and your consumption) costs 8% or four times as much. This would be ruff enuff inside fixed costs but out there in the next moment at the discretionary margin –which is where it’ll be on new transactions –it’s a killer, bad enough to destroy a very large amount of demand. and then there’s the olde M1 and M2 convergence – divergence ”rhythm” method which as with any such calendar based joinings carries with it the chance of creating an initially small but very actively expanding error.
BTW –for the several Lightning admirers around here, this was on the web a few days ago. http://maggiesfarm.anotherdotcom.com/archives/12923-P-38-replica.html
not the real deal of course of course but there’s those cool, charged, art deco lines alright –
Sure, we are braver than hell.
On the ground, all is swell.
In the air, it’s a different story,
We fly our track through fighters and flak
And we are willing to split up the glory.
There is nothing to do but to see things through
Until this shooting abates.
So, God, give us the courage to fight ‘em,
And could you spare one other small item?
An escort of P-38s.
(Google up that last line and you will see the whole poem. I gotta learn how to link
one of these days. Right after I take lessons in procrastination)
I have a very good friend, retired surgeon,
who as a youth in Central Luzon was around when the Japs got tired of guerilla harassments and decided to mass a major force
and exterminate every living thing in the “bandit area”. Guerrillas could do nothing against this. Adults did their best to try and hide the kids, but little of that could have worked either. MacArthur had not yet returned. Bull and Spruance out of range.
So the desperate radio plea for help would seem to be in vain.
Sun came up. Japs started their heavy sweep and it was a massacre all right. The “Dual Bodies” as Filipinos called them had been informed and took it upon themselves to
see what they could do. Kelly Johnson’s Cavalry ripped the Hapons to pieces. Wasn’t but one plane with the speed, range and armament for that mission.
Well, nothing like a good war story to bring the sandman on. Gotta get some sleep now.
These times are scary Buddy. But I do believe that we will pull through okay. Enemy intentions are very evil to be sure, but enemy capabilities are not so hot.
I personally think that the bozos have hurt us all they can and now they are going to hurt themselves more and more.
Pull leather. This is not a rodeo ride.
Catch yours in the AM.
The Sound of Blunder
That’s what Barney Frank, Nancy Pelosi, and Barack Obama have given us. The big O’s attempts to “spend our way out of a recession” will do nothing but devalue the dollar as more dollar are dumped on the market (in the form of debt or printed currency). But, maybe that was the big O’s plan?
Unfortunately, the markets have a nasty way of sensing massive inflows of debt and automatically lower the dollar and increase interest rates before any economic stimulus can occur.
Now, that is not to say insiders like George Soros can’t front-run the Treasury sales of bonds, notes, and bills and become rich but, the average person will suffer.
Here is a modest proposal to stimulate the Real Economy: Freeze all spending bills and health care bills that enrich limited sectors of the economy and implement a 35% across the board cut in politician’s and government employee’s wages.
There are far too many over-paid politicians and attached staff in this country. The weight of government “Over-head” is crushing the economic life out of us.
To stop the economic waste we must stop spending money on those who cause the economic waste.
Here is some humor based on Barney Frank and his cronies at Fannie and Freddie.
http://tinyurl.com/n6ab6l
L/84; know thy (thine?) enemy
(and note, he’s not much worried about any faults but America’s)
Well I’ve been ridin’ a winning horse for a long, long time
Sometimes I wonder is this the end of the line
No one should take advantage of who they are
No man has got it made
If he thinks he does, he’s wrong
(chorus)
Every mother’s son better hear what I say
Every mother’s son will rise and fall someday
I’ve seen it happen so many times, so many times before
Some man got so much money he doesn’t worry no more
Or he’s got such a pretty woman that’ll treat him fine
Well my friend has been a fool
It happens every time
(chorus)
I’m not tryin’ to preach to no one, to no one at all
I’ve seen so many of my good friends just rise to fall
‘Cause they got so much money or a woman so fine
Well my friends have all been fools, it happens every time
h/t to James Joyner at Outside the Beltway for reminding me of this bit of wisdom from the 1970s delivered by some southern good old boys. Video Here
When the first implosions of banks and brokerage houses began in 2007, I thought back to the Long-Term Capital Management debacle of the mid-1990s. I’m not a finance guy, but I do remember it being the last time the United States’ economic system was said by the press to be at great peril.
I bought and eventually read Roger Lowenstein’s When Genius Failed: The Rise And Fall of Long-Term Capital Management long about the time of the second, greater implosion in the third quarter of 2008, and was rather surprised to see that nearly all of the firms called together by the New York Fed chief to bail out LTCM in the mid-1990s had gone and done in-house precisely what LTCM did: made hugely-leveraged bets on the direction of the market, backed by derivative contracts and credit-default swaps. Rather than one LTCM that nearly took down the web of banking relationships in the mid-1990s, we had half a dozen or more.
Bear Stearns and Lehman Brothers’ operations melted down and took billions in assets as well as pretty much all of Wall Street’s confidence. The half-melted core at AIG sits in a government-funded sarcophagus, much like the failed reactor at Chernobyl, propped up and shielded by enormous amounts of taxpayer money. Merrill Lynch was shotgun-wed to Bank of America and may still collapse, Citibank managed to ‘scram’ their reactor only with huge taxpayer cash infusions that will probably all be lost in bankruptcy. About the only players left on the field intact are Goldman Sachs and JPMorgan.
So this is all very stupid from my external point of view, and so very preventable. LTCM made money hand over fist for its first couple of years, and despite nearly every investment house except Bear Stearns chipping in hundreds of millions in order to wind down LTCM in an orderly manner nearly the entire financial industry apparently forgot what comes at the end of the “Confidant, Cocky, Careless” progression. They hired quants, built models and invested like idiots into positions they could not unwind. There are some parallel perils in computer modeling for the AGW debate, but at least that particular crisis is not upon us immediately the way the aftereffects of the financial meltdown are.
I share your concern, Wretchard, because there are a couple of problems I see on the horizon.
1. The smartest guys in the financial field already blew up the economy. Tim Geithner is not the most brilliant financial mind on the planet. Ben Bernanke is not, either. The ‘A’ Team was in the whole first half, they got smoked. I think it was Einstein who said, “We will not solve our problems with the same level of thinking that caused them in the first place,” or words to that effect. We will not work our way out of this with the less-clever folks who left industry for government leading the charge. Maybe there is a difference in the level of risk aversion for the governmental folks, but if so I would still rather put the CEO that did not bite on the mortgage racket, Jamie Dimond from JPM, in charge.
2. The concept that ‘An elegant system will work, if the right people are running it’. This is an unfortunate synchrony between the financial world and the current government. LTCM blew up in part because the market proved to be less-predictable than Black and Scholes believed, but the concept was apparently so seductive that most of the rest of the financial world followed LTCM into the void. Socialism has failed wherever it has been tried, but this does not prevent our current government from seeking to graft portions of that diseased tree onto our own. This is a fundamental blind spot shared by the government and those it is both financing and seeking to regulate.
3. The credit-default swap market is at least partially funded by the ‘lender of last resort’. There are no firewalls left. AIG has been supported by the taxpayer to allow for the careful unwinding of a trillion dollars in CDS contracts that AIG was party to. If AIG blows up, or even loses some critical personnel, either AIG fails with resurgance of the financial uncertainty, or the Treasury has to monetize the debt. The latter may have already occurred, the Tallboy may already be falling from 20,000 feet headed for the sub pen containing the huddled assets of the middle class, supersonic and undetectable until the bomb hits and the T-bill auctions begin to fail. The foolishness of allowing people to make leveraged side-bets on economic outcomes and on outcomes they can influence is astounding, I wonder how many CDS were paid off on the failure of General Motors, and paid to people who shorted the stock in the first place? Bad enough that this is happening, worse that the Treasury is a counterparty.
4. Knowing why a past disaster occurred has limited applicability to future disasters. I will grant that Ben Bernancke is the Smartest Guy In The Room when it comes to avoiding deflation and the disasters that befell the US economy in the 1930s. He is precisely the person you want to be the Fed Chief — seventy years ago. Smart people are at the greatest danger when they believe they recognize a parallel situation to one they have previously experienced, and act accordingly. We are never going to suffer deflation under Ben Bernanke — unfortunately, that seems to be putting us at even greater peril for inflation. The fact that you are committed to not repeating the mistakes of the past only means that you will go on to make new and probably worse mistakes in the future.
I’m barely old enough to remember Paul Volcker and the inflation of the late 1970s. I’ll certainly cede the mantle of experience to many of the commenters here, but this seems to be the most perilous financial period in my lifetime, but even though the Paul Volcker is still with us I do not see a Paul Volcker-style inflation hawk at the tiller any time soon, and we’re at least three years away from any Reaganesque leader that seems to have a grasp on the danger of the times. Our current President is only making the debt situation worse, planning a budget-busting national insurance program and talking about a ‘jobs summit’ that will temporarily employ the fillers of water glasses, but likely accomplish little else. Every step he takes makes monetizing the debt a greater likelihood, and he appears to not care.
The good news is that a Reset Button will probably work.
Economies are based on three (you can count on me) factors, otherwise called Capital Assets.
1) Physical Capital, that is plants, equipment, and transportation and communications lines.
2) Natural Resource Capital, oil, minerals, water, seaports, fertile soil and climate.
3) Human Capital, the training and the culture of the people.
Finance Capital is a poor and distant component of what determines countries long term wealth.
While there has been some neglect and investment is always needed the United States still has the best infrastructure for a country of it’s size. The second category is also one in which the US has no peer competitor. For the third, and really the most critical factor of Human Capital while many hear bemoan the fecklessness of 20% to 30% of the population the fact is that on average the American worker is skilled and productive and has the accumulated capital of a culture that encourages productivity and self reliance to guide them.
Germany and Japan bounced back from the devastation of WW-II within 10 years of when their economies were unchained. What is needed is an American Ludwig Erhard to spark another Wirtschaftswunder. Note the Wiki mendaciously ascribes post war growth to the benefits of nationalization.
To be blogged under the title “Good News.”
More good news from Professor Roubini
Damned if you do, damned if you don’t, apparently.
Apparently, when Volcker was in charge he instituted pretty hard controls on the amount of money, thus clamping down on inflation.
Another thing to think about is the correlation between inflation and bubbles/booms – when the bubble bursts, won’t it make sense for the reverse of inflation -> deflation to occur?
I’m actually not very concerned about deflation. It actually empowers and enriches the prudent ones who have guarded their investments and savings carefully, instead of spending incessantly on useless consumerism. In this respect, you could say I veer left.
The austrians were right when they argued against the fractional banking system backed by the state, which is a huge cause of our present woes. Mencius Moldbug was even more spectacular in calling it outright fraud.
Josh @ 66,
Buddy knows what he is talking about. I’m just a dumb architect who reads Global Economic Trend Analysis, ( Mish Shedlock) and Market Ticker (Karl Denninger) every day.
Buddy 72, that was an excellent post and a great refutation of common misunderstandings around inflation. Inflation doesn’t imply that all goods move up in tandem. The incremental money goes to the most attractive asset on the margin; today that seems to be hard commodities like oil and gold. In the 70s, it was real estate. So no two inflationary pressure phases have to be alike nor does every asset class have to participate. As you clearly state, the constraint on housing is not the financing but finding the willing and qualified buyers.
Pascal 76, default can mean anything from changing the rules (moving the Social Security retirement date up much faster, changing the payouts on Medicare treatments, etc…) to a complete abandonment of the scheme. Whenever someone doesn’t live up to the original bargain, that’s a renege in my opinion.
Darren 88, another strong post. Many people don’t realize that Wall Street is usually good at coming up with a profitable Big Idea, but then everyone else on the Street just simply copies it. Someone smart figured out that AIG was mispricing credit risk, and then everyone jumped into the game to trade against AIG. The trick with any trade though is in the getting out of it, and this required AIG to be solvent.
Good morning all.
Unsk, you still speak well! Buddy @ 72 re inflation/deflation, that sounds right to me, too, BUT our geniuses (not) Bernanke and Geithner loudly announced six months ago they wanted some inflation, and they haven’t got it. Inflation wipes away the CDO problem becaue principle amounts are not indexed.
But the CDO problem, the problem that made it critical, was the financial market failure, exacerbated if not entirely caused by the shift to mark to market at exactly the wrong time, and then further aggravated by naked (illegal, fraudulent) short selling on wall street that had apparently reached epidemic proportions over the last ten years, with nobody noticing – certainly nobody trying to stop it.
But the underlying CDOs generally retain some value, 50% or more, sometimes much more. And might even be worth a speculative buy right now.
But the CDSs are a ten times larger market, with zero intrinsic value. Some of the externals in the CDO system were not priced in properly, but the CDS is entirely synthetic. And the CDS are still out there, undepreciated, and our fearless leaders are trying to set up an EXCHANGE for the bloody things, rather than outlaw them and roll them back immediately, which is what should be done.
(ok, I tend to confuse CDO and MBO, as CDOs can be synthesized from the hair of a frog in some cases, but I guess I mean CDO’s that are standard residential MBO’s in the above)
Finance Capital is a poor and distant component of what determines countries long term wealth.
The Dutch did pretty well with primarily financial capital for many years. They had some skill in shipbuilding and navigation as well, but their financial innovation was the key to their success.
They were superseded by the British, who arguably met them in human capital and beat them on physical capital, but I’m not sure who the ‘British’ to our ‘Dutch’ would be. India and China have the potential to swamp us with human capital in terms of higher numbers of well-trained high-IQ people, but our culture is (or at least, has been to this point) more flexible in allowing the intelligent and hardworking to achieve their potential. From a mineral resources and agricultural standpoint, we’re still in excellent shape until/unless we’re prevented from getting at our mineral resources or have our agricultural bounty diverted into replacing the minerals we can’t access.
Financial capital may be a notional concept, but it can influence the physical world to a tremendous degree.
Buddy: To thine own (false) self be true?
Someone smart figured out that AIG was mispricing credit risk, and then everyone jumped into the game to trade against AIG.
That may be the case, but my gut feeling is that the first call to go against AIG was also an intuitive, gut call. The formulas were in AIG’s favor — they became a victim of what Naseem Nicholas Taleb’s example of the Turkey Fallacy. And since it’s seasonally appropriate, it’s worth discussing.
The turkey has a wonderful life right up until Thanksgiving. Every time he sees the farmer, the farmer brings him more food. He has shelter, and reliable access to water. From the turkey’s perspective, life on the farm is really good, right up until it isn’t. Turkeys are unable to distinguish a farmer carrying a feed pail from a farmer carrying a hatchet.
AIG (and the rest of the CDS counterparties) started small in the CDS market. They wrote a contract, collected the fee, and all of the sudden their CDS business began to grow and contribute to the bottom line. They had David X. Li’s Gaussian copula formula to allow them to predict their risk, and even if the formula wasn’t foolproof, they had already done X hundred million in business, collected their 2% of X for signing some papers, and nothing bad had happened.
As time went on and they accumulated more and more ‘experience’ with the CDS business, all of their (only positive) experience folded into the copula formula or whatever their in-house quants used told them, with PowerPoint slides and everything, that this was a good business for AIG. There was no feedback to tell them that they were doing anything wrong. By the time the CDS risk became apparent, AIG had become the ‘experts’ in writing CDS contracts by virtue of doing the most business as a counterparty. Who was going to tell them they were foolish or wrong?
The underlying problem with bubbles is that all the data is running one way, and people who stand in the way of that data rapidly become unpopular. Meredith Whitney got death threats for noting that Citibank specifically and the mortgage market in general were badly oversold. You can be reasonably sure that there was someone at AIG-FP who was nervous about the amount of CDS exposure the company had, but knew that to write that down in a message to their superiors was a career death sentence.
It’s sad, but it’s also entirely predictable in hindsight that people working with six years of positive data could forecast nothing other than positive results. The other sad part of it is that had AIG known about the risk and priced accordingly, they could have slowed down the housing bubble significantly. There is no risk that cannot be priced, but a more sober (and informed-of-the-downside) risk pricing would have made the CDOs and their ilk largely unsellable. It would have knocked the market for a loop, and either AIG would have been blamed or other counterparties would have come in to fulfill AIG’s counterparty duties at a slightly lower price, or both. Either way, AIG loses — credibility or business or both — so why does any one particular person want to attempt to be the party pooper? It’s arguable the party would have continued to its eventual end in any case, just with less exposure at AIG and more elsewhere.
The turkey could run for it, but that would mean losing the comforts of regular food delivery, shelter and possibly female companionship. Turkeys would bolt at the first chance if they knew the hatchet was coming, but nothing in their experience leads them to believe the good times will ever come to an end.
Darren, that’s a good synopsis. Like Enron, financial companies such as AIG, commercial and investment banks, etc… need to be capitalized for what can occur when their trades go wrong. Instead, they leverage up their balance sheets to maximize their exposures to environments when things are trending in their favor. But when their trades reverse on them, they run to borrow Uncle Sam’s balance sheet rather than perish as they should in the economic triage of life. If that would have happened, Goldman Sachs for example would think twice about having $11B+ in credit exposure to a single entity like AIG.
Nothing is too big to fail, or more accurately, nothing should be too big to fail. The question before the markets and the government is how to allow economies of scale associated with bigness without the fail part. The current (and latter stages of the former) government seem to be drawn to a corporatist model (some would say fascist) of investment and taxpayer equity, but that does not change the underlying problems, or the business models.
Everyone who decries ‘deregulation’ usually blames the Bush Administration, and can rarely point to a single deregulation that caused the collapse. People with more economic numeracy blame the repeal of Glass-Stegall, but other folks with more econ degrees than I have say that the repeal of Glass-Stegall may have cushioned the blow. It’s not clear-cut.
The Europeans had the Basel Accords, which did not appear to serve them any better in terms of meltdown prevention than our own standards, and some of our banks were expected to meet Basel Accord standards in terms of capitalization. The problem there occurs with banks holding anything other than cash or gold as capital — when the ratings agencies kick the ball into the dugout so badly as they did with CDO/MBS ratings in the last decade, any other investment held as capital becomes suspect.
The only real option I see is to close the Fed to financial companies above a certain size, and remove the moral hazard of a bailout. Companies can get large, but they can’t hold a gun to the taxpayer if things go south.
Darren, you left out the punchline on AIG.
They *carefully* priced their CDS according to their special incantations, collected the premiums, and then spent every cent on whiskey. Their plan, in case anyone ever asked them to pay off on a CDS contract, was to leave the saloon, stand on the dusty main street, and announce to the public, “WE ARE AIG! BUY THESE BONDS! WE ARE AAA!”
So, what happened? One rainy day, EVERYONE showed up on their doorstep, demanding payment. Their incantations had totally failed. So, they went outside and announced to the public, “WE ARE AIG!” And, nothing happened. No public. No bonds. No – zip, zero, nada – money to pay off the contracts. They were no longer AAA. Maybe they were ZZZ. In fact, there’s never been a rating low enough to signify the shape they were in.
And then along came Paulson. Or was it Bernanke? Same difference.
… there is more backstory to who on Earth allowed them to start selling these contracts in the first place … but in a free-market economy, the “allow” is not really supposed to be the question, and therein hangs a tale, but to stay on this topic the question is, what kind of idiots ever WANTED to get into this in the first place?
Eh, insurance is insurance. The problem in this case seems to be that the actuarial certainty exceeded the limits of the real world.
The deals were going to get done. AIG stood to make a percentage by facilitating the deal. Most CDS business prior to 1999-2000 was in the municipal bond market, from what I read. Do you really want to own part of the new sewage treatment plant in Perioa? Yeah, me neither. So if Peoria goes belly-up, it would be nice to have a way to recover some or all of the capital invested in the municipal bonds that paid for Peoria’s new sewage treatment plant. Enter the credit-default swap, a contract with an insurance company that lowers risk for investors by tapping some of their return in order to protect against default. This is reasonable, and makes for a more efficient municipal bond market.
The problem came when people were allowed to make side bets on pretty much anything. One hedge fund made $15 billion betting against subprime mortgages they were not party to — they just put up the money and bought contracts against indexes declining. They found a counterparty willing to bet that all was well. This is, well, crazy.
It gets crazier when you consider that people can buy a CDS against a company going belly-up, and then go out and short the stock, cutting off captial and winning both on the short and the CDS. It is the equivalent of me being able to buy a life insurance policy on some random person, and then being able to kill them to collect on the insurance policy.
It’s not a silly business for AIG if they price their risk properly. Pricing risk is a signal, just like credit ratings are a signal and interest rates are a signal. Bad ideas have greater currency when interest rates are lower. If AIG and other CDS insurers sent the signal through pricing of risk that while they would back your bet, they would take 10% instead of 2%, a lot of deals suddenly become less palatable, and the amount of leverage one is willing to employ is signaled downward. What appeared to happen is that all the signals were green, all over town — the results of that constellation of bad judgment are as predictable in an economy as they are in a trainyard.
The problem with bailouts is that they interfere with effective signaling. Over-regulation also prevents effective signaling, and so does bad data compiled into convincing graphs and charts, and so does irrational exuberance.
A smart bookie offers parimutuel odds where he has no position but takes a percentage for being the house, but generally holds all the action in cash.
As soon as there is ANY question of collecting from losers, you’re into an entirely different game. When the bets are in the billions, and all the bets are done on the honor system, the system itself can be gamed, as in the naked short-selling in the stock market these days.
AIG made no attempt to hold any kind of capital reserve, their quants told them they didn’t have to. And of course, if they did, it would have raised their contract prices very significantly, probably made the whole concept impractical. AS IT SHOULD BE. The basic model does not work. Period. You can quantify risk, but you cannot make it go away. Balancing contracts is not the same as banishing risk. The laws of thermodynamics in layman’s terms: you can’t get ahead, you can’t break even, and you can’t get out of the game.
But of course, AIG got into the business because they saw a chance to pocket billions in fees and executive bonuses, and the turkeys lived high, for a while. I mean, all these quants said it would work, right, and who wants to argue with a rocket scientist who says you could be rich? I dunno, ask Bernie Madoff and his customers.
I am taking the extreme view that there is NO way to properly price CDS, at least no way that leaves the concept intact. CDS should be illegal for any publicly traded company as embodying too much risk for fiduciary duty, and certainly no government-backed entity like a bank (in a non-Glass-Stegall world) should be allowed to buy or sell them.
CDOs can probably be done correctly, but at much higher rates, especially on the tranched deals. Will there be a market for CDOs at a realistic rate? Yes I think so, because they are fully collateralized by real property. Probably have to repeal or modify the mark to market rules, however.
71. Captain Ramen
” But what is wrong with temporary nationalization along the lines of the resolution to the S&L crisis”
The best reason is is that nationlionalizing is just an incremental step seeming so benign , but in realaity so insidiously damaging to the economy as to be irretrieveable.
The smartest guys in the financial field already blew up the economy. Tim Geithner , Ben Berneke and Paulson turned out to be first rate, second rate, financial minds…kinfolk to the Griswalds…. And all from Bear Stearns house of Financial Horrors and Hoaxs’
….but the concept was apparently so seductive that most of the rest of the financial world followed LTCM into the void.
….but the concept was apparently so seductive that most of the rest of the financial world followed LTCM into the void.
That my friend could be said about every financial rocket whose trajectory is in the near perfect vertical, only to watch it eventually nose over and crash back to Earth in tiny tiny pieces. It happens every time. Wall Street elevates gurus predicated on one good call and then follows that person until the inevitable implosions…..
Wall Street is a giant crap game played by a few players who fix the game as best they can and the play with OPM. Other people’s money initially is theirs but since money is fungible after a few successfully fixed rolls of the bones the money is now their money from which they convince the investor they can keep the winning numbers coming up. Of course it’s horse crap.
I understand about 1% of finance talk, but I do recognise the sound of thunder:
http://www.youtube.com/watch?v=MP60UJlmTbA
Habu,
Agree completely with the ‘one good call’ point. Meredith Whitney and Nouriel Roubini may never be right again. Taleb makes the point that whatever biases lead to ‘good calls’ are only operational so long as those calls parallel the behavior of the markets. His example was Russian bond traders that made a whole lot of money in the early 1990s. The characteristic they all shared, whatever their justifications, was that they bought into declines. That worked great and they were geniuses right up until they bought into the Russian default. Then they lost all their money, all the OPM they were using, and were escorted from the building.
This why Bernancke scares me. He knows the answer to a seventy year-old problem. This is, IMO, not a predictor of success, it is just a tangled knot of biases, and what you know is never as important as what you do not know. He may truly be a genius, but applying solution A to problem A’ can have disastrous results.
I have three kids, none of them even teenaged yet. This is not the kind of world I want to leave them. I will do my best to teach them Jeff Cooper’s big three (ride, shoot straight, speak the truth) and get them introduced to God, I guess that’s all any parent can ever do — but the circumstances they are about to inherit appear more dire than I would choose for them
To TXProle #63: I have an original edition of The People’s Pottage, published by Caxton Press, founded by my great grandfather and the first publisher of Ayn Rand. I first read this book some twenty years ago, and thought Mr. Garrett was extreme. The end notes state that Mr Garrett was living in a cave.
Now we are living through the political conditions of which he warned.
This is the level of commitment to liberty and independence, and a disavowal of materialism that will be required of our soft generation.
Fjordman is writing of the Coming Crash at Gates of Vienna. In “The Fourth Turning” the authors write that this will be a generation of revolution.
I have no illusions about what the future may bring. I just pray that my health will hold out so that I can continue to work.
Hang on, it’s going to be a bumpy ride.
When the going gets tough, you are better off hoarding food and water than gold. When you are starving, how much gold would you trade for a loaf of bread. A lot of ammunition is a good idea too.
If the US declared bankruptcy, what could anyone really do besides declaring war on us? Maybe that is what Obama meant by giving the Russians a reset button.
I heard an idea on Sirius (do not recall originator, sorry) that made sense for cancelling our debt to China. Drill like crazy and sell the oil to China in a special deal to reduce the debt effectively. I ask the more knowledgable of the BC contributors, is this a smart/good idea?
re: 105, Darren who said “what you know is never as important as what you do not know”–
“It ain’t what folks know that gets them into trouble. It’s what they know that just ain’t so” variously attributed to Mark Twain, or Will Rodgers.
Alvin,
That concept was the biggest thing I got from “The Black Swan”. It kind of stands the world on its head for me, I went to med school and residency and knowledge is the sword and shield I pick up daily. It turns out to be less important than I believed during the college-med school-residency axis.
Half of what we know is wrong. We just don’t know what half. This has broad application to science in particular, and any uncertainty proposition in general.
Estrogen was a miracle drug up until about 2000 — it was cardioprotective, put calcium on bones and was thought to reduce the risk of Alzheimer’s. Then we find out it’s nowhere near cardioprotective, the bisphosponates put calcium on bones much better, has no effect on Alzheimer’s and it’s implicated in breast cancer as well. In a couple of months, decades of assumptions were destroyed. And that’s just one drug in one field. Plate tectonics was dismissed as a crank theory for decades. What’s next? Abiogenic origin of petroleum and natural gas could be the next thing we thought was crazy that turns out to be true, and something we thought was inviolate could be completely wrong. People who say “the science is settled” on AGW research are whistling past the graveyard of fad science, more convincing arguments have been fielded for concepts that later proved to be wrong.
I just sit by the side of the river and wait for the abandoned concepts to float by. Life is entertaining.
the correct quote is: “It ain’t what folks don’t know that gets them into trouble. It’s what they know that just ain’t so.” Sorry. I wish our “leaders” “knew” a lot less.
#106 Happy Girl
Wow. What an internet-facilitated coincidence!
I tracked down some info about that cave story…
“And the cave? “Once when he was near death’s door, a girlfriend — Dorothy something — kept him alive by making his bed over and over,” Cornuelle writes.
When he had somewhat improved, she tore the necessary pages out of the yellow phone book and prayed for his survival in every church in Detroit. He told me, “You can’t not marry a woman like that.” But she was an alcoholic and a pest, so he built a cement-block study near the river about fifty yards from the house. It had insulation and heat and water, but no toilet. When I asked him why, he said, “I want to go home that often.” He called it “the cave.”
Re the video. I think we should put a tax on Hollywood’s ‘sudden-fade-to-black’ technique. It is being done to death.
Speaking of wretchard’s allegorical (oh no, not another algore ithm) vid picks, i had meant to compliment the Shelly Duvall (as mrs. Jack Torrance in “The Shining”) snip as just sublimely perfect for the post to which it attached. What a powerful illo of that sudden slow dawn of night awakening into nightmare feeling we all remember so well, without remembering we remember it, from the Zed birthday. “What the hell, where am I?” we would have asked, were we born talking. Instead we just cry, LOL.
anyhoo, no one’s appreciation of the Great Meltdown should exclude the obscure name of Brooksley Born.
(Oh these names –to the brooksley born, was shay, the darrrlin’ of wall street until the day, the bonnie highland lassie said, “these derivatives bust and we’re all dead!”)
re “one good call” –anybody remember Joe Granville ?
Elaine Garzarelli ?
(actually, since they made/make good calls and bad too –the catch phrase oughtta be “one BIG call”)
To: TXProle #113
Aha. Thanks for the enlightenment!
And yes, the internet is a wonder! I did like the idea of a libertarian living in a cave though ~ courage of his convictions and all that;-)
Grateful this thread is still open. Would like information, opinion on Swiss insurance annuities. It seems evident that at some point one should get out of the dollar .Hope some value left for children.
Thanks, John Singleton