Evil Ways
European governments, faced with the need to raise more money than is available to stop the spread of the continent’s sovereign debt crisis, are considering borrowing against what they have to bulk up their defenses. The Wall Street Journal writes that this could take the form of expanding the European Central Bank’s balance sheet “by buying more debt or backing debt” or some other means. “The move could provide trillions of dollars of firepower to rescue governments and banks—-but only if all 17 euro-zone legislatures approve a two-month-old agreement to broaden the bailout fund.”
Apart from the doubtful wisdom of borrowing to pay for debt that you cannot pay, Deutsche Bundesbank’s Jens Weidmann reminded officials that leveraging the bailout fund, specifically by allowing it to borrow from the ECB, would be equivalent to the monetary financing of state budgets, which is forbidden by the EU treaty. But this difficulty didn’t prevent George Soros from arguing that new institutions were required to meet the crisis.
The original plan worked out in July, according to Canadian Business, and which was supposed to have been the last word, would had been to take a partial hit of the inevitable Greek default and then managing the consequences. “The July deal, which is still being negotiated with banks and investment funds, foresees a cut of 21 percent in the value of Greek government bonds — a haircut that most analysts say is way too small.” That approach still has support, but countries afraid that the resultant pain would stall economic growth at the wrong political time, either remained in denial or advocated borrowing on the existing bailout fund.
Germany, supported by Austria and the Netherlands, is now pushing for an “orderly default” by Greece, which would involve larger losses for Greece’s private creditors than foreseen in the July deal, said a European official.
A second official confirmed that a reopening of the July deal was supported by “the usual allies,” shorthand for other rich eurozone countries. Both officials were speaking on condition of anonymity because of the sensitivity of the issue.
The push does not yet amount to a clear plan, and the European Commission and the ECB are concerned that Germany may be overestimating the eurozone’s ability to contain the crisis, said the first official. “We don’t really have strong firewalls,” he said, adding that the crisis has already affected Italy and Spain.
Both IMF Managing Director Christine Lagarde and French Finance Minister Francois Baroin insisted at news conferences during the Washington meeting that the eurozone should stick to the July agreement — signaling further divisions over the best way forward.
Greek Finance Minister Evangelos Venizelos also ruled out a default, saying Saturday that his country was working hard on implementing the July decisions. “Greece is never going to default because that would have been catastrophic for the euro area and for many other countries beyond the euro area,” he said in a statement.
But there is little real room to maneuver. Banks have expressed fears that governments are going to force them to take bigger haircuts than they have braced themselves for. Josef Ackermann, the outgoing chairman of the Institute of International Finance said, “if we now start reopening this Pandora’s box [the July agreement] we will lose a lot of time and I’m not sure people would be willing to participate.”
Like a man cornered at a roaring waterfall in a movie, faced with a choice between jumping into the rocky water far below or turning to face a voracious T-Rex hot on his heels, Europe stands poised on the edge. What is at stake is not simply whether the world enters a depression or recession soon: it is whether the old order survives.
As Ambrose Evans-Pritchard of the Telegraph put it, “Europe, the G20, and the global authorities have one last chance to contain the EMU debt crisis with a nuclear solution or abdicate responsibility and watch as the world slides into depression, endangering the benign but fragile order that has taken shape over the last three decades.”
Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.
European Central Bank President Jean-Claude Trichet warned that Europe was only the tip of the iceberg. It would be wrong, he said to define recent events as an isolated European problem. It was now morphing into a global sovereign debt crisis, with consequences far worse than the the Lehman Brothers collapse. “What we are seeing now is the illustration of a global phenomenon, the global crisis of sovereign risk. Forgetting that the euro zone is at the epicenter would be a mistake, but forgetting that this is a global phenomenon would also be a mistake.” Singapore Finance Minister Tharman Shanmugaratnam, chairman of the IMF International Monetary and Financial Committee agreed with Trichet. “We face a confluence of sovereign debt and banking risks, with the epicenter of that being in the Euro area”.
Analysts likened it to a deadly merry-go-round and were looking for a way to jump off. “They’ve got to stop the self-fulfilling spiral between sovereign risk and bank risk. They need to break that feedback loop,” said Nick Stamenkovic, fixed-income economist at RIA Capital in Edinburgh. But was there any way out? The Wall Street Journal captured the thoughts running through the mind of the man at the waterfall’s edge by reporting that even as European officials writhed in an agony of indecision, the many and extraordinary philosophical musings being uttered by observers and officials.
“It’s a very small world now. We’re like mountain climbers. We’re all roped together and we want to make sure the rope is strong,” said Irish Finance Minister Michael Noonan.
“If we start now talking about further increasing, then it’s not realistic to have it approved,” Slovakia Finance Minister Ivan Miklos said of boosting the bailout fund’s size. “It’s counterproductive to hunt too many rabbits at the same time.” …
“When you are going for such a tough program, you have very strong contraction effects” on the economy, Portugal Finance Minister Vitor Gaspar said concerning the fiscal consolidation program proceeding in his country. “It is important to prevent the economy from going into a tailspin of contraction.”
“We can’t just go save someone. We’re not saviors. We have to save ourselves,” said Gao Xiqing, president of China Investment Corp.
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“Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.”
This leads us to the question, “What is Bernanke doing right now”? What is he putting me on the hook for?
About that tied together with a strong rope analogy…The German Paratrooper gravity knife is very effective at cutting cords, straps, and ropes. It can be used one handed also.
George Will has a line about the Euro Zone being ,”a very sophisticated mistake.” Which remind me of a line from the Ken Burns “Civil War” series. Toward the last with the Union Armies closing in on Richmond one of the Confederate leaders said about the shortage of troops, “We could arm the slaves and promise them freedom if they would fight the Yankees”and I believe it was Jefferson Davis himself that said in reply, “You mean we did all of this for a THEORY!”
There is a limit to how much money there is lying around that countries can borrow. We reached that limit after the fall of Lehman when trillions of dollars in wealth evaporated. It was necessary to print money rather than borrow it: QE1, followed by son of QE1, then QE2, and now the “Twist”, to be followed by QE3.
We are approaching another Lehman moment, except that now deficit spending is not extraordinary, it is structural, and will keep on rising even as world debt approaches 100% of world GDP. In this epoch, we cannot afford to pay elevated interest rates, even for a short time.
The projected GDP of the world for 2012 is $60.25 trillion. The amount of cash available to fund government deficit spending on a world basis is $5.4 trillion. Something’s gotta give.
Where is the firebreak? There are parallels with Austria who in 1920 was shorn of growth and income [Versailles] and became overwhelmed with debt. The currency collapsed, hunger and riots followed the economic collapse. Weimar followed a few years later in similar fashion. But the separate currencies of Europe in those days provided the firebreak, today all are linked by the euro, and the globalisation of international banking which has grown like ivy over a high wall.
Best watch your words carefully from now on, y’all. Helo Ben has gone Big Brother – Bigtime!
http://www.zerohedge.com/news/here-comes-fiattackwatch-bernanke-goes-watergate-prepares-eavesdrop-everything-mentioning-fed
Lord Acton’s quote ” Power corrupts and absolute power corrupts absolutely” describes Helo Ben to a T. There are no constraints now on Helo Ben’s power, since the Pubs have sold out to the TBTF. Maybe this latest outrage will finally make Herman Cain see the error of the Fed’s ways.
Naturally, cutting government spending by 50-75% is not something that any of these would consider.
of course EU will go this way, as I’ve been saying for months, the decline is set, and the only question is as to the shape of the curve, will we hit the singularity of hyperinflation or not, will there be mass insurrection in western countries, or others, will any major institutions or governments be overthrown in the next ten, twenty years? “all those questions are beyond the eyes of the dwarves”, as Gimli would say.
if we’re “lucky” the decline is long and gradual. if we’re lucky “Bernankecare” is our next twenty years, stagflation, continued raping of the middle class by the banksters, rent-seekers and globalists, increasing dysfunctionalism at all levels of society – but perhaps no starvation or mass riots, at least for some years to come.
my “best” case, btw, is not terribly pretty either, it is a highly protectionist US and world environment, which will drive up prices dramatically, end up with a basically socialist government to manage it, but at least will stabilize the US at something like current levels. yeah I know the history books say that never works, but these are the choices, folks.
I’m afraid the old days are over, and what will come in the new days is yet to be imagined.
RE: Pandora’s Box
Another way in which the capitalist business model is inadequate.
The Business of War Opens a New Battle Front:
LANGNER: It will be costly to fix the vulnerabilities in industrial-control systems. But it will be definitely more costly if we wait until organized crime, terrorists, or nation states make their move first. Most engineers are aware of the problem, it’s just that they don’t get the budget to fix the problem. The risk is just discounted. As long as management doesn’t see an immediate threat, there is a tendency to ignore it because it costs money to fix.
[...]
CSM: Some describe Stuxnet as a “game changer” – do you think that’s true?
[...]
LANGNER: It raises, for one, the question of how to apply cyberwar as a political decision. Is the US really willing to take down the power grid of another nation when that might mainly affect civilians? Could or should military contractors, instead of soldiers, wage cyberwar? What happens when cyberweapons dealers start selling sophisticated cyberweapons to terrorists? There is also the manner in which Stuxnet was used – which could be considered a textbook example of a “just war” approach. It didn’t kill anyone. That’s a good thing. But I am afraid this is only a short term view. In the long run it has opened Pandora’s box.
………..
if we’re “lucky” the decline is long and gradual. if we’re lucky “Bernankecare” is our next twenty years, stagflation, continued raping of the middle class by the banksters, rent-seekers and globalists, increasing dysfunctionalism at all levels of society – but perhaps no starvation or mass riots, at least for some years to come.
The chain breaks at the weakest link and trouble for the global system will come from the Third World, just as the thread unraveled for Europe at its outermost periphery. Just what exactly is “beyond the eyes of the dwarves”, but one can easily imagine what it might be. Starvation in the Arab world; natural catastrophe; an incident in the Taiwan Straits — some horrible, unanticipated thing — and there will be no free energy to deal with it.
Like a fire unopposed by water, backburning or firebreak the entropy will simply spread, like a germ overwhelming the defenses of an immuno-deficient patient. The irony will be that this will occur despite the vast expansion in government bureaucracies, programs and initiatives, as if the world by ‘investing’ more money in international thises and international thats had wound up having less actual capability to do something than when it used to deal with such things far more informally.
“As Ambrose Evans-Pritchard of the Telegraph put it, ‘Europe, the G20, and the global authorities have one last chance to contain the EMU debt crisis with a nuclear solution or abdicate responsibility and watch as the world slides into depression, endangering the benign but fragile order that has taken shape over the last three decades.’”
“Nuclear solution”? Sounds like a case of mutual assured destruction either way.
There is no other option but eventually to unwind debt: Defaults, austerity, deleveraging. In this game of musical chairs, almost everyone loses. “Haircuts” equals enormous losses in retirement accounts. Only survivalists, owing little and mainly self-sufficient, might get by without major bruising, but even they live in a society, and the society can disintegrate, threatening them as well as everyone else.
I see deleveraging on the local level in a lot of ways. Older kids are moving in with parents; bartering groups are forming. I see federal higher ed grants providing living money for anyone who knows how to game that system for tuition and “living expenses.” Federal funding ensures that rent-seeking sectors continue to receive funding, e.g., military, medicine, education, agriculture, social security, SSI, etc. But that rent-seeking can only function via vast federal deficit spending, i.e., more debt.
20-somethings are so screwed. They never are even going to get an opportunity to start a career to get laid off from. And they’ll owe lots of money to the federal government in loans. Maybe Obama or some other tribune of the people will declare a debt moratorium as a political maneuver, as Obama did with GM, screwing bondholders.
The clinicalition of insanity, expecting different results, applies.
Something needs to be done about Soros. He unlooks the back door, fills the basement with cans of gasoline, slips butane lighters into the pockets of idiots and hirelings, and then expects us to act as his insurer. Charge him with loitering or felony double parking or mopery.
If your neighbor had hemmoragic fever would you pay him to hang around your house and eat with your family? End this now.
6. MichaelC Naturally, cutting government spending by 50-75% is not something that any of these would consider.
I’m reminded of the scene in Atlas Shrugged, they force John Galt at gunpoint to tell them how to fix the economy.
Galt: “You want me to be Economic Dictator?”
Mr. Thompson: “Yes!”
“And you’ll obey any order I give?”
“Implicitly!”
“Then start by abolishing all income taxes.”
“Oh no!” screamed Mr. Thompson, leaping to his feet. “We couldn’t do that . . . How would we pay government employees?”
“Fire your government employees.”
“Oh, no!”
George Soros, Antichrist – I hereby charge you with Mopery and Naked Abatude.
I hope we are lucky. I fear we will be extremely unlucky. A few shocks coming together could result in a great deal of ill luck.
A key problem is that we have no idea what the “New Normal” is. The CRA and its 2nd and 3rd order effects led to incredible amounts of false wealth being created. What’s a house worth? That depends largely on the employment opportunities for that area. And the employment opportunities came to depend on what a house was worth. Much of the “corrective action” we have seen over the past 3 years has amounted to trying to keep the ball rolling for the housing and financial industries. The latest Obama jobs program is more of the same.
But no one seems to know what the New Normal is. They just assume that if they keep giving the drunk another martini he’ll eventually sober up and start paying his bills.
In Europe, the best thing I could see to happen at this point would be for Greece to have a huge garage sale.
In any case, “Stupidity corrupts, absolute stupidity corrupts absolutely.”
Well, we have reached the lobby of the Theater of the Absurd.
That was one hell of a cab ride huh fellas?!
What is on tap tonight?
Dante’s divine comedy?
It’s going to be better than the cab ride? Wow!
Hope the popcorn is good. . .
The BBC has this roundup of headlines from around the UK:
The worry may be starting to seep into the consciousness of the opinion leaders.
9) W,
“The entropy will simply spread”
We have not let “natural selection” do it’s thing for so long, that a wildfire is probably what is needed at this point.
Looks like Obama won’t even have to run for reelection.
He’ll declare an severe, extreme, critica, super-serious state of emergency and will just have to (reluctantly, no doubt) agree to stay in power to slay the dragon he helped create.
Besides, there won’t be any money to hold elections.
Well that’s one way to take over the government. Or should that be, “government”?
Guess we all misunderestimated him….
I don’t think the selection is “natural” in this case, rather this was all planned. However there is a difference between engineering a crisis, and flat-out making up stories. (Or is there?) I’d sure like to know what’s going on.
“Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.”
I pray Europe will reject Washington’s folly.
The dwarves are for the dwarves.
- C.S. Lewis
Healthy adults set priorities. They know when to be selfish and when to cooperate. In other words healthy adults Discriminate. A Leftist, I refuse to dignify them with the term Liberal, is either a raging narcisist or to high minded to take their own side in an argument. Either way being their ally is unwise.
OT, I am reading Cheney’s book. Wish I could have worked for him. Imagine if he chose to run.
Christine LaGarde
Is trying hard
To not hurt peoples’ feelings
She said let’s try
What last July
We said about debt dealings
Ah no said those
Who while morose
See not a sticky wicket
While others say
The USA
Upon them we can stick it
It’s Europe’s call
But waterfall
Now looks to be the winner
And one expects
That old T Rex
Will soon be having dinner
Another transition:
But HP is now America’s largest high-tech company with revenues of $126 billion, and its recent troubles in finding an effective CEO reflect a company caught between the Silicon Valley way and a more traditional model for big business.
In short, HP has until now remained a player in the printer and PC market that made it famous, but it has also expanded into business-to-business platforms.
[...]
But he suggests HP is now based primarily on the business-to-business model that much of Silicon Valley does not understand. And that has caused problems, he says. This lack of understanding – by both CEOs and the boards that fire and hire them – is what is behind the musical chairs of management.
…………..
Markets are not doing a good job of integrating the product flow from R&D to market share – taking the idea out of the garage, so to speak; HP being a good example of the traditional capitalist business model caught in the meat grinder.
The time for defaults that were manageable has passed us by. The reset would have been bitterly painful but fairly quick if it has happened in ’07-’08, and the financial wreckage would have been mostly cleared by now. We would be seeing actual economic recovery with the bad debt purged from the system.
The current level of bank and sovereign debts now has reached a level that can only be described as insane. Derivatives and debt now exceed 70 trillion dollars, i.e. more that the planetary GDP. The collapse will most certainly come, probably from some out-of-the-blue corner of the world just when TPTB think they have “handled” the Euro melt-down. Unwinding the Euro Zone sovreign and inter-bank debt would take years and probably a trillion Euros, they have weeks (days?) and a few billion in hand.
It isn’t as if they are operating in a void either; China has serious (and barely hidden) problems, the US is dancing on a razor’s-rdge of default, the demographics of most of the industrialized world are just terrible and we are facing a relentlessly rising tide of chaos in the MENA. One spark in the wrong place and the entire joint burns to the ground. There simply aren’t any “white Knights” to ride to the rescue, we will have to actually face the price of our folly. The can had reached the end of the road and will no longer be kicked, the magazine of silver bullets is empty, the well of liquidity is dry. It is time to turn around and confront the monster that we have been running from, and we need to try to act like grown-ups whilst doing so.
I hope that enough of civilization survives that we can serve as a warning to people a century from now.
Wolfgang Munchau of the Financial Times calls it “zero hour for the Euro”. Maybe a better comparison would have been a the moment Thomas Andrews returned to the Titanic’s bridge to tell him they ship had a 300 foot underwater gash. There’s too much broken and too little time to fix it in.
The huge range of things that needed plugging was underscored by a European Commission spokesman statement that 16 European banks had found ‘fragile’ in a stress test last year and will need shoring up. They were given 6-9 months to privately find more capital. Now there may now be no time left for that.
The EU capability to meet these multiple simultaneous challenges is belied by the fact that they didn’t even realize the extent of their problem until now, despite the slow and building Greek crisis. Can they now prove their hands be faster than their eyes had shown to be? Or have they just realized they misjudged everything from the start: their capability, the risk, the scale of the damage they were inflicting on the economy of Europe?
Captain Smith at least had the consolation of knowing his ship was sinking at the agency of an iceberg. In the EU case, they opened the sea-valves themselves.
Why don’t they just make-up a new currency? Basically, they made-up the Euro. They could call the new currency the You’re Owed. Here’s my suggestion to Europe: You should make up 18 trillion “You’re-Owed.” Use six trillion to pay off your debts and the other twelve trillion to buy yourself something nice.
I should mention that I’m not a central banker. At least not yet. I’m open to offers.
But do these European “leaders” see the real problem even now?
They’ve been living in a fool’s paradise on the surplus of the US-run financial bubbles of the last twenty-plus years. Recapitalize the banks? That’s bailing the boat, what about FIXING THE HOLES?
The vapidity of the public debate is a distinguishing feature. Is it ignorance, or denial, or incapacity, or what? I guess it’s just life. The old guard simply has to die off, it will not change, or learn, or try.
The *good* thing is, we *do* have the industrial capacity to live a comfortable life, even with only a fraction of the population directly involved. The *bad* thing is we don’t seem to have a mechanism for managing this. Unless that mechanism is Bernankecare, unless that turns out not to be inflationary and only so slowly deflationary that it nets out to stability.
But no. Just as bubbles will pop, I think dysfunction must fail. Bubbles pop because if they are stable, someone pumps them up some more. Dysfunction fails because if someone bails faster, some idiot drills more holes, intentionally rams a second iceberg under the brilliant theory that it will *help*. Think I’m kidding? Do the name “Paul Krugman” strike a familiar note?
For now, The ECB or whoever will conveniently exceed their legal mandate, run some nice trillion dollar bills off their inkjets, and all will be well, … for another 90 days or so.
27. hdgreene,
Even when there was a gold standard, your idea still applies. Before 1971, would it have made any difference if the amount of gold in Ft. Knox had been misrepresented? Not in the least.
To a large degree, we have always had to have faith that information is true, unless otherwise indicated. Now that my own eyes are opened to media lies, I think it’s wise to approach news in just the opposite manner.
Got a problem with the Fedsury printing trillions for Monsieur Trichet? We’re watching you, terrorist scum.
http://www.zerohedge.com/news/here-comes-fiattackwatch-bernanke-goes-watergate-prepares-eavesdrop-everything-mentioning-fed
But hey, Putin is still the evil President of Russia. And he’s bald. Worry about him!
Unsk (#5) “latest outrage will finally make Herman Cain see the error of the Fed’s ways” If you knew Herman Cain you would be aware he has publicly state on local Atlanta/National syndicated Radio show while filling in for Neal Boortz that Herman Cain has frequently said the “Fed” has way overstepped its purpose and Herman Cain is all for phasing out the “Fed” unlike the Department of Education you can’t just close the doors over night on the “worlds” primary monetary system… Herman has spoken on how he would phase the Fed out. Get to know more than the short brief negative talking points before claiming someone needs to final see their errors. Herman Cain at least has the Balls to admit when he needs to learn more on a subject, know when to admit he’s wrong and change where change is needed!
“If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied.
The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions (having the issuing power of money) are more dangerous to liberty than standing armies.
My zeal against these institutions was so warm and open at the establishment of the Bank of the United States (Hamilton’s foreign system), that I was derided as a maniac by the tribe of bank mongers who were seeking to filch from the public.”
— Thomas Jefferson
I am thunderstuck with amazement.
How did a 2nd rate little country like Greece manage to do all this colossal damage?
Maybe “2nd rate” is too generous. Some 3rd rate “fool thing in the Balkans” has done it again: created a monumental world crisis which the “best and brightest” have no idea on how to fix.
Why do I have to be living in “interesting times”?
“Herman Cain at least has the Balls to admit when he needs to learn more on a subject, know when to admit he’s wrong and change where change is needed!”
Yeah, but he cheated:
He learned the necessity of that in the business World when he shoulda been learning how to cover his tracks with spin and talking points.
We’re talking politics, ya know.
By “recapitalization” the Yurps mean selling the banks to the Chinese Russians or especially the Arabs. The deal will include both old, historical knick knaks and art, and new, their daughters, collateral sweeteners. We are not talking toasters here.
One story is that Sarkozy is brokering unloading BNP Paribas on the Qataris. Their price included the Joooos. That explains Sarkozy’s UN performance. As the Yurps drink deep of shame and humiliation the search for scapegoats and the descent into evil will likely accelorate.
In better days the Yurps would have taken back the wealth expropriated by the totalitarians.
http://www.telegraph.co.uk/finance/financialcrisis/8788223/Christine-Lagarde-IMF-may-need-billions-in-extra-funding.html
Perfect.
“It’s a very small world now. We’re like mountain climbers. We’re all roped together and we want to make sure the rope is strong,” said Irish Finance Minister Michael Noonan.
Takes more than a strong rope between everyone. One fellow falls and the strong rope drags everyone else down the slope into a crevasse. Need a good anchor.
I posited back in 2008 that this wouldn’t be over until there is nothing left to lose. I hate being so right.
The issue is straightforward – wither the debt which cannot be paid back is monetized and written off – it is written off without monetization, or a fudge is created that will extend and worsen the results of the prior two actions. In other words the issue is that somehow the debt must be made worthless – the only question is how and who’s ox gets gored. Options are hyperinflation, or depression or assumption of losses by those with surpluses. Everything else is just an exercise in denial and / or strategic posturing in advance of the debacle.
Interconectivity is the cry of those with the most to lose: The first wave – the Leninist political structures in the far and near east, the Banks in Europe ( or with European exposure)and the Globalized companies, followed by those that will feel the effects in the second wave: Raw material exporters, and labor exporters.
It is interesting to note that Brazil and Argentina, despite surpluses, are engaging in protectionism at home – sort of like a dozen little Smoot-Hawley Acts taking the place of the big one we (America) put in place in 1930.
Let’s all hope that Marx’s extension to Hegel’s maxim still works: History does repeat itself but first time as tragedy, then as farce.
She’s just anticipating our needs, blert!
“At Baker & McKenzie, she promulgated a “client first” approach whereby lawyers anticipated client needs rather than solely reacting to exigent situations.
As a result, profits at the firm rose strongly“
33. Ignominious How did a 2nd rate little country like Greece manage to do all this colossal damage?
Not so little. The Greek default will be much bigger than Argentina or Russia was. Greece found a credit card with a two hundred billion Euro limit, and figured it was “found money”. They went on a spending spree. Internal taxation lapsed, the public sector expanded to match the “free” money. And the EU has painted themselves into a corner. If they boot Greece out of the monetary union, they have to admit this super-state they rammed through without resorting to the “messy” process of democracy was a mistake. If they keep Greece in, then it will continue to shred wealth. What to do? No one knows. There’s no leadership anymore, anywhere in the world.
7. Josh
if we’re “lucky” the decline is long and gradual.
………
Not buying it. If the decline is long and gradual then interfering process will come in the next couple years like the collapse of energy prices.(In the USA after 2013 government spending will decline.)
If the decline is quick and apocalyptic then energy prices collapse faster and apocalyptically.
imho the the Reagan economic resurgance of the early 80′s was all about dirt cheap oil prices. And the big growth of the late 90′s was also about very cheap oil prices.
What to do? No one knows. There’s no leadership anymore, anywhere in the world.
Even the bankers were muted. Bloomberg describes how some of the biggest names in finance met at the National Archives to discuss how they would solve things if given a free hand.
If they had a pat answer to the problem they didn’t share it. The next day the bankers attended a dinner in honor of “ECB President Jean-Claude Trichet, who’s stepping down Oct. 31 and will be succeeded by Mario Draghi, the governor of Italy’s central bank.” The nationalities of the men involved in the changeover seemed especially apt. If it were a painting you might call it “illusion making way for actuality”.
“Guests dined on beef tenderloin stuffed with red chard, dates and pine nuts, and truffled potato crepes,” as they listened to a recitation of Trichet’s accomplishments, only to hear the German finance minister tell them not very many moments later that “we won’t come to grips with economies deleveraging by having governments and central banks throwing — literally — even more money at the problem.” Well if only Trichet, who had only just been fulsomely praised — anybody — had known back in the days when the glowing future seemed to stretch on forever that it would all finish up like this, with the next man on the podium telling the audience that the man they’d had just praised had presided over a holocaust of wealth they would have … what? Done something different 20 years ago?
The urge to go along was too strong. Even if they could go back in time, not much would change. There was nothing to see that wasn’t before their faces from the beginning. It was always bound to end up in a room like that, with a realization like it, sooner or later. I think everyone in that selected company must have known in his heart — and known for some period — that it was a just a matter of time. And now that time had come.
Those who were still unaware of events were outside, in that more distant part of the economic food chain that uses banks for credit, to store savings, to provide security and such. To the talk show hosts, office workers, retirees and cabdrivers it may have seemed like just another day. And maybe it always is only that we notice some more than others. As Scarlett O’Hara put it, tomorrow is always just another day.
The drawbridges are coming up and whoever involved in this crisis is busily trying to make sure that they are inside of the walls. Why should a French bank sell out to Mideast interests; France is likely to nationalize them since they are on the hook anyway. Suspect that Germany will do something similar. These guys will be inside of the wall.
Like a spreading plague, people and institutions will have a duty to care for their own first. There won’t be much left to offer as kindness to others.
While so many here are looking for massive inflation, it seems like we have to experience the deflation associated with the defaults coming first. After the distressed assets clear, then perhaps inflation of significance will follow.
#38. “there is nothing left to lose”.
The great American poet Kris Kristofferson reminds us that, “freedom is just another word for nothing left to lose”.
Kaz
Charles @31. Glad to hear it. I’ll be happy to change my views on ol ‘ herman. I like a lot of what he says.
Several months ago, when he had first announced I checked out him, and that time he had said nothing like that. I hope you are correct. Most of the internet posts on him regarding the Federal Reserve assert that he doesn’t want to audit the Fed. The only thing I have found that supports your view is an American Spectator post that says:
“At a recent Spectator press event I had the opportunity to ask Cain about his views on the Federal Reserve. His view is that the Fed’s current dual mandate is overbroad, and that it should not be tasked with promoting maximum employment. He argued that the only role of the Fed should be to stabilize the price level, and suggested that as president he would try to end the dual mandate.
While keeping inflation expectations stable doesn’t necessarily entail a specific Fed stance (for instance, during a downturn it would be necessary for the Fed to engage in very loose monetary policy to avoid deflation), Cain made it clear that he favored tighter money for the current economy. In other venues, he’s expressed approval of some kind of gold standard or other asset backing for U.S. currency. And he’s not impressed by current Fed chairman Ben Bernanke’s management of the crisis and weak recovery — he said flatly that he wouldn’t reappoint Bernanke in 2014 if he were president. ”
Please cite other examples of his views on the FED. The post above has no direct quotes from him. This is an issue that has dogged him from the beginning. Why hasn’t he clarified his stance on the subject?
i @ 33: How did a 2nd rate little country like Greece manage to do all this colossal damage?
Historic land, Greece.
But you know the old joke about two hikers who are faced by a bear, and how fast they have to run to get away? Greece was just the slowest hiker. Nobody can actually outrun the bear, … nor is it likely to stop with just one.
w @ 43: Bloomberg describes how some of the biggest names in finance met at the National Archives to discuss how they would solve things if given a free hand.
That’s cuz it is NOT a financial problem, it is a structural problem. Perhaps they have enough wisdom after all to see that. Anyway, how much of a freer hand could they *have* compared to the last ten years???? Free hand to do what, enslave western civilization?
–
Don’t mind me, I’m especially gloomy right now because the chaos down to Megabank reached critical mess for me last week, so I will shortly be leaving their hallowed halls – and am actually more depressed about *their* situation, and what it means to the economy and the world, than I am about my own situation.
Hands-down the most depressing threat in Belmont Club history.
r @ 48: you ain’t seen nuthing yet.
The following is Paul Craig Roberts, so read at your own risk, but it’s PCR on a good day IMHO and it has a big finish:
America and Europe: Saving the Rich and Losing the Economy
For four years interest rates, when properly measured, have been negative. Americans are getting by, maintaining living standards, by consuming their capital. Even those with a cushion are eating their seed corn. The path that the US economy is on means that the number of Americans without resources to sustain them will be rising. Considering the extraordinary political incompetence of the Democratic Party, the right-wing of the Republican Party, which is committed to eliminating income support programs, could find itself in power. If the right-wing Republicans implement their program, the US will be beset with political and social instability. As Gerald Celente says, “when people have have nothing left to lose, they lose it.”
Doug’s quote @ 32 seems more like Andrew Jackson who did succeed in slaying the proto-bankster beast, at least for a time, rather than Jefferson. Agree with Charles to a certain extent that two most recent booms within the Long Boom since the 1980s followed by what may prove to be an equally long Bust were fueled by cheap oil. But there’s no vastly oil-rich but underdeveloped Soviet Union to collapse in front of our eyes to ensure that the cheap crude flows, not with the Indians and Chinese lining up to buy it. Even overthrowing Gaddafi, if that was the plan, to get Libya to open the spigots is likely to prove a failed adventure if that was indeed the goal. The Iraqis certainly aren’t pumping anywhere close to the Saudi level even though they have the capacity perhaps to produce 70% of the KSA output or more.
I also agree with Unsk that Cain could be some Establishment misdirection as their internal polls reveal the hated Ron Paul aka the 13th floor of the hotel gaining on Perry/Romney. They must at least siphon off some of Paul’s supporters or wind up with an Establishment versus anti-Establishment candidate matchup and having to spend craploads of money to prop up Per-Romney in Florida after Paul pulls off a stunner in Iowa. The cracks in the ‘Rockefeller wing’ of the Republican Party which publically denounced TARP but privately welcomed it are showing. The Rockefeller RINOs got the likes of Rich Lowry to tell the public to leave poor helicopter Ben Bernanke alone (which I think would have prompted even the Establishment conservative Buckley’s shade to give Lowry a swift kick in the ass). That to me was a moment when NR revealed who its real bosses are, and it ain’t the ‘cancel your own dang subscription’ subscribers.
Incredible Popular Delusions and the Madness Chairman Bernanke. In for a dime in for $2T. Btw what comes after a trillion?
The central bankers all know the only way out is to run the presses until inflation brings the debt down to manageable levels but the politicians know that wiping out the middle classes savings and failing to protect pensions state and private will be a political killer so we are in a death spiral. literally down to trying to buy not decades or years or even months but weeks. Our ruling classes have failed us. Or betrayed us.
We all think that some unprecedented disaster is about to happen. We don’t really know what the consequences of the disaster will be. Fear of the unknown. It is a genuinely interesting feeling but I have to admit that it’s also unpleasant.
Unknown territory – nobody here but us. It seems to me that in the past people have survived, then thrived in that situation. Maybe it’s our turn at the same old game. Maybe not. It’s double-indubitably a conundrum.
I doubt DSK could have turned back the tide. The magnitude of the pending EU fallout argues against entrapment.
Too many leaders, too little leadership. (Michelle Caruso-Cabrero of CNBC who probably stole it from someone else.) But, then again, what is the proper way to inner tube over a waterfall?
About a decade ago I was in a bookstore, and they had a big book on how to get free money from the US government. That thing was three inches thick and the type was not large. The number of grants, programs, and etc. listed was astounding.
Also we’ve all read of government programs that amount to money laundering, that is grants will be given to non-profits, that will pass it on to political activists.
There is an enormous amount of fat that could be trimmed off of Federal expenditures. State, county, and city governments aren’t that much better from what I’ve seen over the years.
I remember an episode of “Yes, Minister” when the Minister was considering taking up an appointment to the European Parliament in Brussels. The perks were outstanding for not much work at the time. I wonder how much money they consume now days?
I watched the Law and Order DSK episode last night. The Law and Order scum changed the script.
Stuck on stupid! State controlled economies NEVER work. Never have, never will.
Dow futures down 100, looks like 90% chance Dow will go down to 10,000 within days, 80% chance to 9,500 within weeks, 60% chance to 8,500 with 45 days.
That’s my eye-balling of charts, nothing more quantitative. Of course PPT will try to stabilize above these levels, that’s been their pattern for years. But I think 8,500 is a realistic price level and would not be a disaster at all.
Question of the day is whether Bank of America will survive, mostly because of panic not so much fundamentals. They are the original TBTF right now, the political fallout … I dunno. I suppose Obama will dance on their grave, and the Republicans will mourn and accuse him of whatever. Bernanke, the Fed, “twist”, … I dunno.
Presume ECB will “save” Greece so there won’t be an obvious disaster in Europe over the next 90 days, just a continuation of whatever you call the current situation. If there *is* a sovereign default and a 10% or greater “haircut” to the banks, and maybe some Euro banks fail or merge, … UBS fiasco turns out to be even greater than yet admitted, … then all bets are off. I’d say then 8,500 is certain, but in that case PPT may go nuclear, who knows maybe even uncloak and admit their role.
Gonna be interesting.
All that on 100 point futures reading.
18. exhelodrvr
“We have not let “natural selection” do it’s thing for so long, that a wildfire is probably what is needed at this point.”
A little burning of the forest floor as it were…now let me see, where did I pitch that tent?
Ignominious (33), puny Greece didn’t create this crisis. Exactly like the “fool thing in the Balkans”, it merely was the spark; the disastrously flammable material has been being piled up, in many locations near to and far from Greece, for quite some time now.
33. Ignominious
Why do I have to be living in “interesting times”?
It just happens like that when you’re Ignominious.
Militarily invade Greece. Shove austerity down their throats. Shoot a few of them. More than a few. Take ‘most everything they own to get back the money they stole. Everyone in the government and on the dole starves. Or gets shot.
Draconian? Brutal? Either the blood and starvation is localized to Greece, which so richly deserves such, or it spreads to everyone. You have to weed people. There must be a brutal price for these bandits. It must be restricted to them as much as possible.
There are always bandits. When governments get good at hunting them down, they learn how to steal legally, via the government. You have to kill bandits. You just kill them wherever you find them, like you do pirates. Hostis humanis generis. Enemies of humanity. New bandits always spring up, and you have to weed them out regularly, or they spread fast.
Yeah, yeah, I am an evil, heartless Republican. Yep, I am all for killing the bad guys. To protect the good guys.
@Teresita #3
There isn’t actually any limit in the world of fiat money (Ben is enabling the US Treasury to borrow into existence gobs of money) if you’re willing to risk destroying the currency..but set that aside for a moment.
There is a solution in plain sight. The Greeks have assets (islands, anyone?) and the discussions should center on what assets the Greeks will give up (and to whom) to satisfy which debts. Discussions of expenditure cutbacks are pointless.
Italy and Spain have even more assets (national treasures, even).
There’s some fear among the so-called cognoscenti that discussions about forfeiting assets will yield strife and war. But, with what armies will these rickety states go to war? Put together, they couldn’t quell a domestic riot, much less take down a third-rate regime in North America.
250 Trillion and counting…
Derivatives Ownership Even More Concentrated Than Ever
As I noted in 2009, 5 banks held 80% of America’s derivatives risk.
Since then, the percent of derivatives held by the top 5 banks has only increased.
The latest quarterly report from the Office Of the Currency Comptroller is out [shows] that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system.
Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding…
…the top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure.
Comments
“Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge.
Also, be sure to create straw men and argue against things I have neither said nor even implied.
Any irrelevancies you can mention will also be appreciated.
Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”
Ah, Josh, even before your last post I was sure you were talking about B(uggers) of A. They’re boned. Mozillo should be put in stocks, but so should every exec in B of A who thought buying Countrywide was a good idea. Oh yeah, the Fed promised them everything would be ok.
Here’s what anyone with a brain should have known the Gub’mint was gonna say a coupla years down the road:
http://www.youtube.com/watch?v=zOXtWxhlsUg
rundown of what a bad deal B of A made; basically this decision is gonna cost them the company.
http://dealbook.nytimes.com/2011/08/11/for-bank-of-america-countrywide-bankruptcy-is-still-an-option/
Unsk (#46) like I said Mr. Cain was on the Radio show where he fills in as a regular for the Host (before running for Prez), Herman had been asked several times over many guest fill-in about his days in the Fed and his remedy, Cain did talk about the Gold standard but also wanted everyone to know that you could not flip a switch on the Fed over night that it would like the Fair Tax take several years to phase the Fed out and the new standard(s) in, just like the 9-9-9 plan would be an immediate solution while the support built for a more permanente tax change like the “Fair Tax” (This is the fairest), “Flat Tax” or something better then what we have today!
Doug (#34) So what are ya say’n? you want the same ole process of electing deception and spin over straight talk (truth) and real business experience???
I strongly suggest that we drastically step up the tempo of our search for intelligent life elsewhere in the universe…So that we may borrow money from them. If we could just leverage some alternative resources, we would be fine.
in the meantime we here at the BC should form a VLLC* and bid on the RFP linked above:
Sentiment Analysis And Social Media MonitoringSolution RFP
Request for Proposal (Event-6994)
*Very Limited Liability….
First question does anyone here have any experience producing graphs and charts featuring negative values?? Or in other words, How low can you go? Sentiment Limbo anyone?
“Deutsche Bundesbank’s Jens Weidmann reminded officials that leveraging the bailout fund, specifically by allowing it to borrow from the ECB, would be equivalent to the monetary financing of state budgets, which is forbidden by the EU treaty. But this difficulty didn’t prevent George Soros from arguing that new institutions were required to meet the crisis.”
Though ECB was the german government bank (that forgot Germany’s failings for overpassing the stability plan in 2003/2005), until it had to change its policies since the 2008 world money crisis. Too bad for these rigorist Germans, they don’t represent the majority of votes in ECB anymore (ECB being the 27 states bank, while the euro money is only implemented in EZ)
“Germany, supported by Austria and the Netherlands, is now pushing for an “orderly default” by Greece, which would involve larger losses for Greece’s private creditors than foreseen in the July deal, said a European official.”
not at the ordre du jour anymore !
“Merkel rejected Greece leaving the euro area, saying that “we can’t force it, but I don’t believe in that in any case” because it would send a signal to financial markets that attacks on euro-area sovereigns can succeed.”
http://www.bloomberg.com/news/2011-09-25/merkel-can-t-rule-out-euro-area-sovereign-default-after-esm-fund-in-place.html
“Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.”
hmmm, AEP is displaying BS cuz this scenario was forecasted by “Bruegel” institution before:
http://www.bruegel.org/publications/publication-detail/publication/606-resolving-the-european-debt-crisis-conference-summary/
#4 BoiledCabbage
hmm the WW1 losers didn’t repay Versailles treaty war reparations, but Versailles war reparations became their godwin argument for all the evilnesses:
“In order to pay for the “passive resistance” in the Ruhr, the German government began the hyper-inflation that destroyed the German economy in 1923″
http://en.wikipedia.org/wiki/World_War_I_reparations
“The ECB’s Jean-Claude Trichet was magnificent today.
Asked by a German journalist what he thought of growing calls by German economists for a return to the D-Mark, he showed his Gallic spirit.
43. wretchard
What AEP said:
“We have been called upon by the democracies of Europe to deliver price stability, and we have delivered price stability, impeccably.
“I wan’t to hear congratulations for the institution. It has delivered better stability over 12 years than ever obtained in that country (Germany) over fifty years,” he said, almost choking with emotion”
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011820/in-defence-of-chevalier-trichet/
49. Josh
it’s so right
check what Jean-Michel Quatrepoint says in “dying for the yuan” :
http://www.dailymotion.com/video/xl4pq0_jean-michel-quatrepoint-mourir-pour-le-yuan-comment-eviter-une-guerre-mondiale-bfm-business-12-09-20_news
The western world is losing the economical war, and it’s its own fault !
59. Kirk Parker
yes,
http://streetlightblog.blogspot.com/2011/09/what-really-caused-eurozone-crisis-part.html
Greece was sacrified at the big banksters Altar (and at the greedy German corporations that bribed Greece Elite)
61. Marc Malone
you’re kidding of course, or I pity your ignorance
The Greeks will not comply to the German diktats, they are going to win the resistance battle and put the german econy at the abysses hedge.
Remember, Greek maritime fleet represent 40% of the world traffic capacity !
mc @ 73: On more carefully reading that close from PCR that I posted, it’s inflammatory and untrue. The big faults of the left are not regarding “income support programs”, and the right is not necessarily against things that *are* “income support programs”. Not to mention that “income support programs” do not address either chronic or acute problems in the economy.
5 of 4 but it’s a long-standing thread and point of privilege to respond briefly.
67. joe buzz
If they are intelligent, they won’t lend us money. The first thing you learn in lifeguard training is never go in after a drowning man in a panic. He’ll drag you down. Every time. If you can’t calm him down you can’t save him. Despite that, the lifeguards keep jumping in. Anyone drowning is ALWAYS in a panic.
October is coming. That is the traditional month for stock market crashes. This October will be a doozy. IN 2008, the DJI fell 18% starting the week of October 06.
This October will be much much worse.
47: “Josh @ Don’t mind me, I’m especially gloomy right now because the chaos down to Megabank reached critical mess for me last week, so I will shortly be leaving their hallowed halls”
Good luck, Josh. Nil illegitimis carborundum.
Maybe the world is approaching the point that we can have a rational discussion about what constitutes “wealth”. Money is not wealth. Real wealth is farmland and mines, steel mills and aircraft factories, roads and telecommunications systems, and the human beings who can make those assets produce. All of that will still be there the day after Bernanke & Obama dance the polka on the grave of the European monetary system.
The question is: are we westerners going to behave like Palestinians given Israeli greenhouses, and destroy that real physical wealth? Or are we going to build new networks that allow the existing physical wealth to carry on producing? Interesting times, indeed! I suspect the answer willl vary — pointless looting in London; starvation in Washington DC; a rebirth in Texas and Brazil.
Maybe Texas can succeed from the Union this time around without any questions asked. Washington DC can continue down the path of communism and Texas can carry the torch for capitalism. It will be about slavery again, this time slaves of the Washington elite versus freemen earning their own wage.
The first act by the president of the nation of Texas; “Dear occupiers of Washington DC, we respectfully request that you give us the US Constitution, it appears that you aren’t doing anything with it.”
Morgan Freeman wants to enslave the white race.
Charles, Both Ron Paul and Herman Cain say they want to be president. Both assert they are inflation hawks, and prefer some sort of gold standard. Paul talks about the evils of our fractional reserve banking system and fiat money.
OK, great. NIce theoretical arguments.
The time for theory is over. We have a Federal Reserve that is out of control, grabbing extraconstitutional powers left and right, essentially setting foreign policy, restricting the flow of capital to investors, entrepreneurs, and small banks, crushing all incentives to save and invest and all the while granting trillions in close to free money to the TBTF, Big Foreign Banks and sovereign nations. The Federal Reserve is essentially threatening the viability and long term balance of power of our constitutional Republic.
Neither Ron Paul or Herman Cain has got done to cases regarding the problems plaguing our financial system. Both talk of strongly supporting the consitution; well, we have a constitutional crisis and both are AWOL.
Ron Paul’s subcommittee responsibility is monetary policy oversight. These extraordinary moves by the Fed demand some extraordinary hearings regarding those actions. It’s his job. Paul, so far, hasn’t done much.
Herman Cain is only Fed Governor to run for President in I don’t know how long. He should have extraordinary knowledge of the inner workings of the Fed and should be able to give us valuable insights into what should be appropriate Fed Policy. His insights on the original bailouts were that they had a high probability of success and that there was little downside risk to the bailouts. That didn’t work out so well and despite claims that he has changed his mind about bailouts, there are several internet videos where he has dodged questions about them.
The TBTF have obviously put tremendous pressure on the media and our elected officials, including Ron Paul and Herman Cain, to stifle any debate regarding their role in our financial crisis. They have been so far very successful. The Fed is now even actively threatening those who question it’s actions- see my post # 5.
But we absolutely need a vigorous debate as to how to solve our financial crisis. The likelihood of solving this crisis without an informed public and a vigorous debate is pretty close to nil. Herman Cain and Ron Paul are the ones who should be leading that debate, not hiding from it. We need Presidents that lead from the front, not from behind like Buraq. Even as candidates, Paul and Cain could have great influence of Fed Policy.
We now are embarking apparently on another massive bailout; this time of the Euro. 99% of the public are totally unaware of what is happening. We have been given no details and there has been no official discussion. The Republicans should be screaming bloody murder, but once again they have gone into hiding. Our system of government does not work when the loyal opposition, meaning the Republicans, refuses to discuss important, problematic issues of great consequence like this one. This is not going to end well as a result.
Pols are locked into a dilemma. According to the Krugman Paradox, if the fed pumps more money into the system all will be saved and the spending party can be sustained infinitum. This is economic sustainability voodoo as defined by tax and spend shamans. If you stifle this plan by questioning it, it erodes the confidence of the financial system and it will fail. It is like having faith in Schrodinger’s Cat. You better have faith or you will be isolated and punished. If you argue against US Fed policy, you are responsible for the inevitable failure of the system. Pretty strong poison there. If you do not have faith then you are not likely to believe when they tell you; “It was all of George W. Bush’s fault.”
The pilots of the world economy are at the controls and having lost altitude will not relinquish their command so they are flying into terrain.
I would like to tell you all to remain seated. We have a bomb aboard, and we are going back to the airport, and we have our demands. So, please remain quiet.
Unsk @ 80 said:
“We now are embarking apparently on another massive bailout; this time of the Euro. 99% of the public are totally unaware of what is happening. We have been given no details and there has been no official discussion. The Republicans should be screaming bloody murder, but once again they have gone into hiding. Our system of government does not work when the loyal opposition, meaning the Republicans, refuses to discuss important, problematic issues of great consequence like this one”
I keep seeing this happen again-and-again. Why is the “loyal opposition” sleeping? I see only three explanations:
1) They’re corrupt.
2) They’re incompetent.
3) After seeing all the facts, they realize there is no alternative to current policy.
My guess is 3) is the explanation. Based upon that suspicion, we’re probably already past the point of no return, i.e. the cancer is already past stage IV and all they can do is provide pain medication and happy talk.
1+2=3
TBTF = Fascism
first, note to Annoy Mouse: I can’t resist being pedantic here, and must note that Texas always will Succeed. The question is whether we could secede again and make it work. Personally, I think Texas would Succeed even if it has to Secede.
Unsk, I agree with you on a lot, but like a lot of people who partially see how decrepit the current system is,you really don’t understand how far gone the system is. Inflation is bad, but not as bad as the total collapse of our financial system. (which, by the way, I think is very likely no matter what choices we make at this late hour)
The thieves are the only ones left holding the system together, which means that if we take them down, we all go down together. They *are* the system.
Here’s what true credit collapse means: you go to your electronic banking, and all you see is that the site is dead. You go to your bank, and the doors are locked. You go to write a check, and no one will take it because it is just funny paper. You try to use a credit card, and all cards are denied because the credit systems are crashed worldwide.
Maybe greenbacks still work – how many thousands of $1 bills do you have around? Enough to even last a week when all credit and all other paper currency is gone? Oh, and if you get any regular check – pension, SS, whatever: all gone, not just because they can’t afford but because as the banks crash the entire nationwide check clearing system goes down with them.
You, and everyone else, will have nothing but what you can grow in your backyard, or make, or steal from your neighbors. (and don’t think your neighbors won’t be eyeing you)
That’s what the collapse of the credit system and the imposition of true hard money means. How long would you, or anyone, survive in that world?
btw, don’t forget that I think we’re headed there sooner or later, no matter what.
The whole world financial system and the financial markets have grown so complex and “house-of-cardsy,” that us ordinary folks have no idea what these alchemists and their fool’s gold formulas are all about. All we know is that instinct tells us that something is very, very wrong, and the wrong kinds of people are in charge.
A couple of organizational layers down from the top of this pyramid are probably many capable, disciplined individuals who ought to actually be running things. It’s not unlike a large military bureaucracy where the Colonels have the solutions the Generals don’t want to implement.
“Deutsche Bundesbank’s Jens Weidmann reminded officials that leveraging the bailout fund, specifically by allowing it to borrow from the ECB, would be equivalent to the monetary financing of state budgets, which is forbidden by the EU treaty. But this difficulty didn’t prevent George Soros from arguing that new institutions were required to meet the crisis.”
Soros is probably shorting the Euro as we speak.
@HD Green (27) who said “I should mention that I’m not a central banker. At least not yet. I’m open to offers.”
I was sure that after saying you’re not a central banker you were then going to say…”But I stayed at a Holiday Inn Express last night.” I’m increasingly unsure whether some of those making the decisions have any better qualifications than that.
Josh@76: PCR has a political “losing is not an option” style that evokes Lee Atwater Lite. It is worth noting that the “income support programs” were passed with bipartisan support in Congress, and ruled constitutional by the Supreme Court, which, of course, was a long time ago. Reform remains on the table, as it should, but the nasty underbelly of politics is that some measurable fraction of Washington wants the programs gone. Limited Government is something to debate – USA is badly over-governed and under-governed at the same time. But nuking these programs in the name of Limited Government as the Grand Unified Solution to Everything is a no-starter in this country. The current deficit debate just reeks of blood-letting hypocrisy.
dr @ 85: The whole world financial system and the financial markets have grown so complex and “house-of-cardsy,” that us ordinary folks have no idea what these alchemists and their fool’s gold formulas are all about. All we know is that instinct tells us that something is very, very wrong, and the wrong kinds of people are in charge.
A couple of organizational layers down from the top of this pyramid are probably many capable, disciplined individuals who ought to actually be running things. It’s not unlike a large military bureaucracy where the Colonels have the solutions the Generals don’t want to implement.
Take the rocket scientists who created all the bad derivatives and the market that collapsed. The CEOs of all these financial giants swore they were shocked, shocked, when this happened. Did ANYBODY see this coming? It being the way of such things, I’m sure there were some, who were probably fired for saying so, as it would get in the way of the banksters paying themselves BILLIONS for their cleverness and industry in – destroying the western capitalist system, as it worked out.
I work with these people, have on and off for many years. Trust me, very few of them understand wtf they are doing.
And, as wws @ 84 already said: The thieves are the only ones left holding the system together, which means that if we take them down, we all go down together. They *are* the system.
And that was the real reason for TARP.
But it cannot go on forever, because these thieves turn out to be not nearly so clever as they thought. They have throttled the golden goose in search of a cheap, momentary thrill. There is no such thing as an original sin.
But then, …. what happens next?
wws and Eggplant, “The thieves are the only ones left holding the system together, which means that if we take them down, we all go down together. They *are* the system.”
I fear you are right. But the system of the thieves is still unraveling anyway. We are all going down with it then.
It kinda reminds of the Franklin quote “Those who would give up Essential Liberty
to purchase a little Temporary Safety, deserve neither Liberty nor Safety.”
wws @ 84 said:
“The thieves are the only ones left holding the system together … Here’s what true credit collapse means: you go to your electronic banking, and all you see is that the site is dead. You go to your bank, and the doors are locked. You go to write a check, and no one will take it because it is just funny paper. You try to use a credit card, and all cards are denied because the credit systems are crashed worldwide. Maybe greenbacks still work – how many thousands of $1 bills do you have around? Enough to even last a week when all credit and all other paper currency is gone?”
I agree with this analysis and description. Now refer to the following:
http://www.kitco.com/charts/popup/ag0030lnb.html
Gold, silver and copper are crashing. If you pull all your money from the bank and convert it into Krugerrands, you will lose a huge amount of cash. My guess is the thieves who control our economy have deliberately crashed the precious metals markets to keep people from pulling their cash from the banks. To some extent, this is their “end game”.
Out guessing these bastards is almost impossible. They’re very intelligent, utterly ruthless, have excellent computer models and been stealing billions for many decades. After the market bottoms, I plan on buying lots of silver and gold, provided I have the opportunity (huge assumption) and can convince myself that hyper-inflation is on the horizon (probably).
Ah.. Texas. The fictional red-headed Texas Ranger, Hopalong Cassidy, used to declare “One Texan is worth ten Americans”
What would he say today?
Perhaps in a sign of things to come, I just heard that a lady in Saskatchewan had an exorcism but couldn’t afford to pay for it, and they re-possessed her!
If the world economy is irreparably bollocks-up, doesn’t that make it more or less to futile to try to fix it? Should the economy be rebuilt upon pockets of stabile sanity by states using state issued currency? I am way out on a limb here but the interconnectedness of the system seems to only suggest short term fixes and patches while the system inexorably crashes. There was a time when things that must fail would fail. Now it appears to me from the sidelines that we are trying to save the un-savable at the cost of destroying everything that isn’t broken. All because the TPTB could not accept the idea of “peak government” and when the economy took a turn for the worst refused to take a haircut. Now we have public labor unions all doubling down refusing to pay “their share”. We need a system reset and bankruptcy seems to be the only way forward. I suppose that will lead to many years of martial law but that is how the Democrats will hold on to power and if you do not agree with that then you are a racist and racists go to prison. Republicans abide.
“My guess is the thieves who control our economy have deliberately crashed the precious metals markets to keep people from pulling their cash from the banks.”
I have been predicting this. Not because I know how they’d do it because I was certain that they could and that it was a way to capture wealth to throw into the maw of economic collapse.
#78 Kinuachdrach – “The question is: are we westerners going to behave like Palestinians given Israeli greenhouses, and destroy that real physical wealth?”
Some of us, yes. When (not if – it’s just a matter of time) the banksters take my shop off me, and a little later when another company take my house as well – both companies are going to find what is now their property trashed.
One can only go bankrupt once, and it won’t matter to me then whether I owe £50,000 or £250,000. Except that I’ll feel a little better if the banks lose more money.
#82 Eggplant writes:
…I see only three explanations:
1) They’re corrupt.
2) They’re incompetent.
3) After seeing all the facts, they realize there is no alternative to current policy.
These are not mutually incompatible. I suspect all of them are true, but as to alternative three I would add “that would maintain their status, power, and privileges.” Because as far as they are concerned that is the prime directive and anything that would compromise that will be placed on auto-reject.
Unsk@80,
I’ll repeat info I posted in another recent thread:
The Monetary Control Act of 1980 apparently gave the _Reserve_ a bunch of authority not used until recently. E.g., they can set reserve requirements to any level including 0%.
I have seen from more than one source (although primarily Zero Hedge) a couple credible reasons for Gold and Silver to be crashing. First, Asian trading boards jacked up the margin rates in order to force leveraged traders to liquidate quickly. That was manipulation.
What’s more worrisome, and actually something I think is *bullish* for gold in the long run, is that it appears that some large banking systems are liquidating gold holdings just to stay solvent. The worst part of a bankrupt institution is that towards the very end, the debtor is forced to start liquidating his very best assets just to stay alive, because everything else he owns is worthless.
In this case we may be talking about several of the largest Euro banks, like maybe UBS, who revealed that a “rogue trader” managed to lose over $2 billion recently. (imagine that phone call: “hey boss, I got a little problem. I misplaced $2 Billion of the companies money.” “WADDYA MEAN MISPLACED??” “Okay, ya got me, I lost it. Ooopsy!”)
It’s the same thing as a ship’s crew chopping up it’s upper decks to keep the boilers stoked, but it’s always a last resort. If this is what is happening – and it looks like it is – then we are very, very close to the end.
and something new after that, of course. But the death of the old comes before the birth of the new.
http://www.zerohedge.com/news/bbc-speechless-trader-tells-truth-collapse-comingand-goldman-rules-world
Must see video…
Just wow.
Over 20 years ago I saw a news item on TV about an honest, decent, but stupid family that got themselves into a predicament. They got one of those “You are a winner!” pieces of junk mail, but failed to notice that they were only one of two dozen “winners” and only one would receive the million bucks. The other 23 people would get a cardboard grandfather clock or something of similar value. But based on that junk mail they went to a bank, showed them the Winner letter from Ed McMahon and got a loan for $200K or so. And with that money the wife quit her job, rented a building, and started her own church, while her husband bought the boat he had ways dreamed of.
Then they heard that someone else had won the money. How could this be? Then they found out they had won basically nothing and were in debt beyond their ability to pay. “Now we HAVE to win a sweepstakes!” they tearfully said to the reporter.
I wondered how people could be that stupid, not only the false “winners” but the bank as well.
Well, now we have whole countries, … yea, whole continents, that have adopted the “But we MUST be winners! And if not before we HAVE to be now!” And they did not even get the letter from Ed McMahon.
Kinuachdrach #78:
On the first day of my masters program at USC the professor got my attention when he asked what was wealth. It was not paper money, nor precious metals but traditionally was thought of as land, natural resources, and a workforce. Then he said, “Have I not just described the Third World? Don’t they have most of the land, natural resources, and people there are in the world? So how can they be poor?”
The answer he gave was that the poverty stricken Third World countries lacked competent management to make use of those physical resources.
As for the Gaza greenhouses, the Union that is trying to stop the Boeing plant in South Carolina from going into operation has outside its HQ a statue of picketing workers clustered around a burn barrel for warmth, rather than one showing its members building airplanes.
Josh #88:
Did anyone see it coming? Some did. See the book The Big Short, which I heard about in these very pages.
Thanks Doug @ 64,65.
Derivatives are recent (a dozen years old?) layers, upon multiple layers of leverage. Pure financial fiction, designed I fear to bring the house down.
Doing part time teaching, I normally leave out of class discussions the planetary “blockhead” game in progress. Nor do the looming precarious imbalances intrude into any of the faculty discussions to which I’ve been party. But it’s impossible to believe the folks who run these institutions – especially the for-profit schools – are blind to the imminent tumbling of all those careless teetering towers.
There are probably a lot of folks who can see the direction of things, and maybe are trying to prepare without calling attention to themselves, or contribute to a sense of doom, gloom, panic, etc. In the run-up to Y2K just the panic among people who didn’t realize the farce could potentially cause a certain amount of chaos.
In this case though, the most sober and thoughtful preparation for disruption to services defies the ability of individuals to assess the depth and persistence of a depression. How many people have storage for even a year’s food under the best of circumstances even if they have the foresight? What about looters? What about martial law, with proclamations declaring hoarding a capital offense?
Any collapse of the economy on the scale of nations and continents means working out a new barter economy along with whatever solutions emerge for governing at all levels.
People will learn very quickly what things are essential and what things are frivolous.
Annoy Mouse @ 92: “If the world economy is irreparably bollocks-up, doesn’t that make it more or less to futile to try to fix it?”
The silver lining is that the world economy is NOT bollocksed-up, only the world financial system.
The day after the Too-Big-To-Fail do in fact fail, Saudi oil wells will still be flowing; Japanese auto plants will still be extruding Toyotas; Alaskan fishermen will still be on the water. All the massive productive capacity of the human race will still be there. Human ingenuity and overwhelming opportunity will make sure that the still-existing global productive capacity gets used eventually.
Might get a little rough for today’s elite in the meantime. Won’t be much need for chambers full of lawyers, or Congresses full of spineless creatures. Retired civil servants will find that their promised pensions don’t show up, and anyone needing medical attention had better have something to trade.
On the other hand, lumberjacks & plumbers – they will be in demand. Life will go on. The melt-down of the financial system will not be the end of the world; merely a reshuffling of the cards by which individuals share in the fruits of production. There will be winners & losers. But then, there always have been winners & losers.
“Greek police protest troika, German and French embassies”
http://euobserver.com/19/113739
Have any of you seen this?
HEART OF DARKNESS?
European Companies throw African farmers off their land to grow carbon offset trees:
http://pajamasmedia.com/tatler/2011/09/26/carbon-credit-outrage-carbon-offset-pushers-push-africans-off-their-land
Kinu@78: Real wealth is farmland and mines, steel mills and aircraft factories, roads and telecommunications systems, and the human beings who can make those assets produce.
As per the video link (end of Whose Side thread), the thesis is that economic growth in a post-fossil fuels economy is not feasible. (“Sustainable” is the word that is used – a knee-jerk word that extends a not irrational idea outside of the highly unpopular environmental applications.)
The economic battle between the next generation of fossil fuels (shale, tar sands, maybe deep sea, and nat gas) and the so-called renewables, as well as a third longer distance player represented by nuclear fisson and fusion, will be Lee Atwater on steroids. The mix of time scales, technological constraints, finance and billing structures, economic business models surprisingly unique to each energy technology, and the ability to afford lobbyists and marketing campaigns, translates into something essentially unpredictable.
Getting manufacturing back stateside won’t be of much benefit without the energy to run the factories. The gist of the video concept is that, short-term, we can do almost anything, which effectively translates into almost literally nothing – the technological and energy uncertainty looms as huge an obstacle as so-called regulatory uncertainty, but, long term, the theory is that the economic growth curve will bend under the weight of the energy curve.
I do not completely agree with the long term thesis but I do agree that whatever transpires will be conditioned on the energy profile.
……………………………..
v@100: Derivatives are recent (a dozen years old?)
No.
So ideally, life goes on. The FISA economy, ie: the unproductive parasitic economy, will do what the rest of the productive economy has been doing for the past 20 or 30 years and that is down scaling as corporate raiders and government sent labor offshore. In essence, the so called service economy is proving itself to be only useful in ever expanding economic conditions. It is not so useful in sustainable economic activity.
102. Kinuachdrach:I wholeheartily agree with your assessment. I’m not much of a conspiracy enthusiast, but there are some things going on that makes one say, “Hmmmmm?”
In your scenario, who is in the catbird seat? The blue collared workers. Good at performing jobs but easily led. By whom? Big Brother of course. The Progressives- hell, let’s just call it accurately- the Global Communists are getting what they have always dreamed of having, namely a global reset. (That reset switch from Hillary makes a little more sense now maybe). When money no longer has any value, everyone is equal- no more rich, no more poor. At least on day one. The rich no longer have the power. And those without skills like the throngs of inner city youth? Well, they know how to steal, beat and kill. Those are skills too. And the Fed has been making them totally dependent on the government tit for quite some time. The only thing missing is rounding up all those pesky firearms. I’ll believe my own zombie apocalypse scenario if this is implemented too.
Proof-reading the above it seems too unbelieveable but I wonder how many in the Soviet states could read the tea leaves until it was too late? God I hope I am wrong. Just in case, I have been investing in precious metals for some time- Brass and lead.
“The Progressives- hell, let’s just call it accurately- the Global Communists are getting what they have always dreamed of having, namely a global reset.”
So have fiscal conservatives. So have pro-business people. Plumbers aren’t communists. Plumber unions are and the government regulations that require hiring them. The shock troops of government are communist labor unions and they have been doing a lot of saber rattling lately. The second amendment looks like the perfect foil against labor-union thugs. Law abiding citizens will have to protect themselves. The armies of Mordor are putting on their marching shoes.
50. Mr. X
Doug’s quote @ 32 seems more like Andrew Jackson who did succeed in slaying the proto-bankster beast, at least for a time, rather than Jefferson. Agree with Charles to a certain extent that two most recent booms within the Long Boom since the 1980s followed by what may prove to be an equally long Bust were fueled by cheap oil. But there’s no vastly oil-rich but underdeveloped Soviet Union to collapse in front of our eyes to ensure that the cheap crude flows, not with the Indians and Chinese lining up to buy it.
………….
If the world economy suddenly goes into a tail spin as a result of European bungling then its not unreasonable to see the same scenario as happened in 2008 when oil prices peaked at $140@ barrel and trough-ed within a year at under $40@barrel. The boom in oil prices was not unrelated to the economic bust nor was the bust in oil prices unrelated to the sharp economic break down.
If the money guys can keep things from falling apart then oil prices won’t collapse. Rather what will happen is that US demand for foreign oil will steadily decline because of increased domestic production and the change over to bio-fuels. A couple years ago oil imports accounted for 2/3 of US consumption. Now its down under 50%. You can see the trend here
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTIMUS2&f=W
The US army right now has initiated a 7 billion dollar plan to become energy independent. There is a mix of dumb solar and wind but also significant biofuel component.
http://idealab.talkingpointsmemo.com/2011/09/us-army-embarks-on-7-billion-renewable-energy-overhaul.php
For the really bad things that are being discussed here to happen starting from a conflagration in Europe–the European governors would have to sit around week after week, month after month–doing nothing while the world burned down around their ears.
Is this likely?
Right now we are not seeing leadership because the level of pain and fear is insufficiently high.
I listened to Larry Kudlow interview Doug Kass last night and their view was pretty similar to what I’ve seen here–that the problem in Europe is structural & caused by the euro. They sketched out a series of scenarios–all of which I’ve forgotten by which the problem could be solved–as well as the likelihood of these policies being implemented.
What struck me was that Kudlow & Kass thought the European leaders as well as American leaders would rise to the occasion & do what was needed to maintain financial stability. (whatever that is.)
They further thought that stocks are about where they were–give or take a couple months–near the bottom in early 2009.
http://www.zerohedge.com/contributed/new-study-–-traders-are-worse-psychopaths
This makes me feel so much better — knowing that the markets are in the hands of saints doing God’s work.
Charles…
The imports figure is distorted — because Canadian trade with America is counted as all other imports.
But for the purposes of Araby ramping Canadian production is anti-OPEC.
The other big metric: Nat Gas — of which America is now the world’s largest producer.
A soft economy and ramping fossil fuels production is the exact opposite of the Oil Drums working theory.
Instead of the price of oil telling us what we may achieve — it’s us that’s throttling the economy.
—–
There’s no way that the economy will grow with Financial Repression running full bore.
Google it.
Charles@109: There is a mix of dumb solar and wind but also significant biofuel component.
There is no reason for statements like that. The solar market is not running the industrial (energy-intensive) factories (yet) – it is running the commercial (admin and retail) buildings, and the off-grid operations. Corporate management is “getting it.” Goggle Walmart. Biofuels, which I also support, will never have much more than a slightly positive energy balance (energy out only slightly greater than energy in) but they are near-term critical in furthering the liquid fuel transition away from foreign suppliers.
For the record, I am not bunkered in.
http://www.doctorhousingbubble.com/financial-siren-call-of-low-mortgage-rates-federal-reserve-continues-to-artificially-lower-mortgage-rates-inflated-shadow-inventory/#more-4948
He said so I don’t have to post it.
Charles – “ European governors would have to sit around week after week, month after month–doing nothing while the world burned down around their ears.
…. thought the European leaders as well as American leaders would rise to the occasion & do what was needed to maintain financial stability. (whatever that is.)”
Whatever that is should have been letting the markets take care of themselves. It is this panicked reaction that is killing capital markets by rewarding bad behavior. In other words, it is compulsion to do something at all cost that is screwing everything up.
A little anecdotal story – For years I have been trying to pay off my credit, one of the most onerous debtors was Citibank. I finally got them off of my back and out of my back pocket and in comes the government to pay them some 60b USD that I am now on the hook to pay back in taxes. If I so much as miss a payment I eat it. The same should apply to all players, not just those who pay the highest campaign contributions. It is downright evil.
Intuitively, the Euro crisis will reduce competition with the US dollar and the dollar will rise (and so will US denominated securities). I would take this opportunity to sell into the rallies and get into cash and gold.
Once 0bama’s Zero Interest Rate policy comes to the forefront in the news the dollar will decline and necessity goods and commodities such gasoline will cause inflation spread through the economy and the markets will fall.
Keep your powder dry. It is going to be a long 13+ months until 0bama is gone (assuming he is ether kick-out of office or voted out of office). If he is not gone it will be a very difficult economic environment for years to come.
Yes, there are real productive assets in the world and then there is money.
Money makes claims on those assets and their output, enforcable by law and by custom.
The financial system is just our way of creating and managing money. Without money, the productive assets and transactions involving them becomes expensive and time consuming. Money is therefore the lubricant of real asset exchange.
We in the West have long had a historically high level of rule of law for our productive assets – government stands behinds title and contracts. The weakness of money is that government controls it and so is too often tempted to abuse the trust of those with real productive assets.
When the French and the German goverments admitted Greece and other weaklings into the Euro Zone, they allowed those political actors to debase the financial system of the Euro. In the US, a similar politically driven debasement has occurred in housing and in derivatives.
I’d predict that the financial system will reset in ways that make money holdings less valuable. The wheels of commerce that money lubricates will gum up, much like lube oils solidify in low temperatures.
However, the animal spirits of those who create wealth will devise workarounds to the failures of government and business will pick up, if with higher transaction costs and lower net productivity. Remember in “The Forgotten Man” by Sholes where communities responded to the collapsing money supply in dollars with local script of their own creation? Something like that will take place around the globe. Those second tier countries like Brazil that are laying on protective tariffs are taking the first steps to innoculating themselves against mismanagement of the US and Europe.
Global free trade is wonderfully productivity enhancing as Smith taught. Comparative advantage is a real phenomenon and a useful theory. But the players have to be trustworthy and too many big governments are not.
It all reminds me of the “free love” advocates of the 60′s. Great fun for awhile but ultimately, the parasites discover the party and kill the joy.
111. blert
Charles…
A soft economy and ramping fossil fuels production is the exact opposite of the Oil Drums working theory.
Instead of the price of oil telling us what we may achieve — it’s us that’s throttling the economy.
—–
There’s no way that the economy will grow with Financial Repression running full bore
…………..
Production will ramp as long as the price oil/gas is high enough to justify it. Right now even the most expensive drilling in deep water gulf of mexico — is profitable when the price of oil is 60@barrel. In the last couple years the USA has become an exporter of natural gas. The gas terminals in the US that were designed for import have instead been used for export. The cost of natural gas is about a third of equivalent btu’s as of that of oil.
I don’t think much will happen economically over the next 15 months or so. Or until after the pubbies come in 2013. The biggest thing they can do will be to undo Obamacare. I have seen graphs which showed big job growth stopped on a dime in the very month that obamacare was enacted in May 2010.
The news yesterday was that Obamas lawyers moved to have the Supreme court come in for an early decision on Obamacare — ie before the election in Nov 2012. Who knows how that will go. court reporters say it depends on which side of the bed Justice kennedy wakes up on decision morning.
After, undoing Obamacare, the second biggest thing the pubbies can do is get rid of the regulatory blocks on drilling of all kinds. And generally accelerate US domestic production of oil/gas as well do stuff like encourage conversion vehicles to nat gas–so as to get US energy independence.
Those two things alone will yield big growth while the pubbies throttle federal spending.
Throw in stuff like changing tax & regualatory policy to encourage US corporations to invest their overseas profits in the USA–and the making for a very big boom are in the offing.
Likely all three of these things will happen in 2013. But the next 15 months will likely be the same old same old.