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Financial Skeptic Bulletin, June 2012

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

This one year old selection of news. It's really funny to read forecasts that are just one year old.

Note: Despite doom and gloom stock market went from 1260 to 1460 in one year. This new stock and bonds bubble was supported by Fed.

NEWS CONTENTS

Old News ;-)

[Jun 27, 2012] Fed Watch- A Long Wait to The Next FOMC Meeting

Tim Duy:

A Long Wait to The Next FOMC Meeting, by Tim Duy:

Presumably one FOMC member Bernanke would like to turn is Richmond Federal Reserve President Jeffrey Lacker, who explained his dissent:

“I dissented on this decision because I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable. While the outlook for economic growth has clearly weakened in recent weeks, the impediments to stronger growth appear to be beyond the capacity of monetary policy to offset. Inflation is currently close to 2 percent, which the Committee has identified as its inflation goal. A significant increase in inflation could threaten the Fed’s credibility and make it more difficult to achieve the Committee’s longer-run goals, including maximum employment. Should a substantial and persistent fall in inflation emerge, monetary stimulus may be appropriate to ensure the return of inflation toward the Committee’s 2 percent goal

[Jun 26, 2012] Putin's question at Sanct Petersburg economic forum

"We would like to know what will happen to the dollar after the election of the President of the United States in November of this year, and how the USA plans to address the challenges they faced now and the challenges that will face soon -- they have the public debt of 15 trillion. What will happen to the world's reserve currency, and to what situation we should be ready? "

[Jun 22, 2012] Obama spending binge never happened

MarketWatch

Of all the falsehoods told about President Barack Obama, the biggest whopper is the one about his reckless spending spree.

As would-be president Mitt Romney tells it: “I will lead us out of this debt and spending inferno.”

Almost everyone believes that Obama has presided over a massive increase in federal spending, an “inferno” of spending that threatens our jobs, our businesses and our children’s future. Even Democrats seem to think it’s true.

But it didn’t happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.

Even hapless Herbert Hoover managed to increase spending more than Obama has.

Here are the facts, according to the official government statistics:

In the 2009 fiscal year — the last of George W. Bush’s presidency — federal spending rose by 17.9% from $2.98 trillion to $3.52 trillion. Check the official numbers at the Office of Management and Budget.

In fiscal 2010 — the first budget under Obama — spending fell 1.8% to $3.46 trillion.

In fiscal 2011, spending rose 4.3% to $3.60 trillion.

In fiscal 2012, spending is set to rise 0.7% to $3.63 trillion, according to the Congressional Budget Office’s estimate of the budget that was agreed to last August.

Finally in fiscal 2013 — the final budget of Obama’s term — spending is scheduled to fall 1.3% to $3.58 trillion. Read the CBO’s latest budget outlook.

Over Obama’s four budget years, federal spending is on track to rise from $3.52 trillion to $3.58 trillion, an annualized increase of just 0.4%.

There has been no huge increase in spending under the current president, despite what you hear.

Why do people think Obama has spent like a drunken sailor? It’s in part because of a fundamental misunderstanding of the federal budget.

What people forget (or never knew) is that the first year of every presidential term starts with a budget approved by the previous administration and Congress. The president only begins to shape the budget in his second year. It takes time to develop a budget and steer it through Congress — especially in these days of congressional gridlock.

The 2009 fiscal year, which Republicans count as part of Obama’s legacy, began four months before Obama moved into the White House. The major spending decisions in the 2009 fiscal year were made by George W. Bush and the previous Congress.

Like a relief pitcher who comes into the game with the bases loaded, Obama came in with a budget in place that called for spending to increase by hundreds of billions of dollars in response to the worst economic and financial calamity in generations.

[Jun 22, 2012] 10 reasons Wall Street will hit bottom, crash by Paul B. Farrell

MarketWatch

Yes, Wall Street will crash. Has to. They’re gambling addicts. Dodged the bullet in 2008. But learned nothing. Now killing reforms. Teamed up with the Super Rich, CEOs, lobbyists, and crony politicians. It’s only a matter of time.

Yes, they’ll crash, again. No matter how anemic the recovery. No matter how much more debt they pile on taxpayers. No matter who’s president. Crash.

How do I know Wall Street will hit bottom? First off, most American know somebody who’s trapped in addictive behavior. I got a front-row seat years ago as a professional helping a few hundred addicts, alcoholics and gamblers getting help from the Betty Ford Center and others like it.

Guess what: Wall Street’s behavior is exactly like all other addicts, trapped in denial, they’ll risk destroying family, friends, health, careers and even America before stopping. They’re obsessed, hooked, blind, addicted to gambling.

Second, the Treasury secretary and his wife warned us. Seriously, Tim Geithner highlighted her in a recent Wall Street Journal op-ed, “Financial Crisis Amnesia,” that made clear how addictive and clueless Wall Street and their team are: “My wife looks up from the newspaper with bewilderment at another story about people in the financial world or their lobbyists complaining about Wall Street reform.”

Yes, amnesia. Wall Street’s got a bad case of denial, blind to “the lessons of the crisis and the damage it caused to millions of Americans.” So it’ll happen again. And soon. Why? Mr. Secretary’s diagnosis: “Amnesia is what causes financial crises.” Look closely.

Wall Street has all 10 self-destructive traits of a gambling addict

Yes, Wall Street insiders need treatment. They’re like addicts who will resist treatment till the bitter end, insisting there’s no problem, protecting their business as usual high-life. Their addiction has control of them, they’re in denial, in amnesia, blind to the long-term damage they’re doing to America.

So yes, Wall Street must crash, will hit bottom. America cannot reset the economy because Wall Street won’t go willingly. So here, you do the full diagnosis. Here are 10 characteristics of this self-destructive addictive personality type. Think about what is happening on Wall Street today, stuff like their war against the Volcker Rule. See why Wall Street’s collective mental state is so damaged it’s on track to hit bottom, crash and burn, in a meltdown more damaging than 2008, as they take down the rest of America.

Don’t believe me? Check out Wall Street’s 10 personality traits today:

1. Amnesia: Since the 2008 meltdown, Wall Street’s memory erased

Begin with Geithner diagnosis Wall Street’s addiction: Banks have “no memory of extreme crisis, no memory of what can happen when a nation allows huge amounts of risk to build up outside of the safeguards all economies require.” Amnesia makes Wall Street deaf. Can’t hear. Remember, bank insiders are short-term thinkers who naturally discount long-term costs to zero, pass them on to taxpayers and future generations.

2. Overoptimistic: Wall Street casino’s blowing another megabubble

Since the dot-com crash of 2000, when the Dow peaked at 11,722, to today with the market hovering around 13,000, Wall Street’s lost an inflation-adjusted return of about 20% of your retirement money. And economist Gary Shilling sees no growth through the next decade ... Nouriel Roubini warns of a decade of dark days ... Pimco’s Bill Gross sees a long “new normal” of lower returns … GMO’s Jeremy Grantham predicts “Seven Lean Years” … Martin Weiss warns that a “historic world-changing event is about to crush the U.S. economy and stock market.” Still, Wall Street lives in a fantasy land, ignores warning signs, pushing mega-IPOs, risky junk. Protect yourself.

3. Immature: totally narcissistic, the ‘King Baby’ syndrome

Yes, Wall Street’s an immature child. Members of AA call this the “King Baby” syndrome: People who never grow up. They want what they want when they want it. Now. No compromise, like today’s politicians. In “The Coming Generational Storm,” Larry Klotnikoff and Scott Burns warn of the massive debt we’re leaving for our “kids.” Eventually these kids will rebel against the $70 trillion burden. Wall Street’s addictive spenders are at risk of a revolution that will make the Arab Spring look like a picnic.

4. Greedy: Yes, “greed is still good” … for Wall Street’s gamblers

Michael Douglas’ famous indictment is truer today than ever. Vanguard’s founder Jack Bogle confronted the toxicity of out-of-control greed in his “Battle for the Soul of Capitalism.” Wall Street has become a soulless, amoral culture that cares nothing about the rest of America. Wall Street has sunk back deep into their business-as-usual culture of greed, blind to the public consequences of their behavior. Ethics? Integrity? Fiduciary duty? No. Investors come second. Insiders first. Always. And nothing will change till Wall Street hits bottom, crashes. Then we can truly reform Wall Street as we did in the 1930s.

5. Compulsive liars: Never trust Wall Street to tell the truth

Members of AA use a simple test: “How can you tell when an alcoholic or addict’s lying?” Answer: “His lips are moving.” You can’t believe anything said on Wall Street. Why this culture of lying? Simple: To create illusions, like “investors come first,” “you can trust us,” and “we the best interests of America at heart.” Wrong. Their sole loyalty is to insiders. Period. Carole Geithner sees through the illusions.

6. Insatiable: Wall Street’s hooked on ‘more is never enough’

Wall Street is past the point of no return, an addict incapable of stopping, must hit bottom. In “American Mania” psychiatrist Peter Whybrow says we’re a nation of addicts, we’re insatiable, “more is never enough.” Trillions in new debt annually, big bonuses, zero savings, as bank bailouts roll on, with the Fed feeding Wall Street cheap money. Forget reforms. No change till the banks hit bottom. A return to the Glass-Steagall might help, but Wall Street hates that as much as addicts hate Betty Ford.

7. Macho-macho: Regardless of the facts, they can’t admit failure

Addicts cannot see their weaknesses. In “Confronting Reality” Larry Bossidy and Ram Charan warn: “The greatest consistent damage to businesses and their owners is the result not of poor management but of the failure, sometimes willful, to confront reality.” Like Wall Street insiders, they simply cannot admit the gross mistakes, moral lapses and catastrophic errors in judgment that triggered the 2008 crash. They’re blind to their faults.

8. Unpredictable: Wall Street gamblers haven’t a clue about the future

In “Stocks for the Long Run” Jeremy Siegel studied market history from 1801 to 2000, comparing the biggest up and down days. Bottom line: Markets are random. There were no obvious reasons for 75% of the moves that trigger either long-term gains or long-term losses. Wall Street cannot predict crashes. But they can create them. Finance professors Terrance Odean and Brad Barber did some long-term research on both American and China investors. Conclusion: The “more you trade the less you earn.” Yes, returns for buy-and-hold investors are a third higher than heavy traders. No wonder Wall Street pushes active trading.

9. Irrational: Wall Street gets rich off investor irrationality

Behavioral economics is the psychology of investment decisions, based on Nobel Economist Daniel Kahneman who proved investors are irrational. That was 2002. Investors are still irrational, Wall Street as well as Main Street. And yet we still assume we’re making rational decisions! Admit it, investors are irrational. As behavioral finance guru Richard Thaler once admitted: Wall Street “needs investors who are irrational, woefully uninformed, endowed with strange preferences, or for some other reason willing to hold overpriced assets.” Main Street’s naive irrationality makes Wall Street very rich.

10. Myopic: Failure to think long-term guarantees another crash

Wall Street’s addiction to short-term thinking guarantees another crash. But worse, Wall Street’s shortsightedness is setting up an inevitable global catastrophe and self-destruction of their capitalist ideology. In “Collapse: How Societies Choose to Fail or Succeed” Jared Diamond warns that throughout history surviving cultures are always the ones that focus on long-term planning, far in advance of crises. Failed societies are the ones whose leaders “focus only on issues likely to blow up in a crisis within the next 90 days.” And that fits Wall Street’s blind obsession with quarterly earnings, annual bonuses, 1% rates, no Volker Rule, no reforms, ever, more is never enough.

So how did your “Addictive Personality Rating Score” add up? Chances are you diagnosed Wall Street with a perfect 10 out of 10. No wonder Wall Street’s insiders need treatment for their gambling addiction, at a Betty Ford Center.

How Wall Street Financial Companies Stole Billions From Main Street

Funny how these stories of widespread and systematic financial corruption are so undercovered by the main stream media. Maybe it is because 'truth is a dagger pointed at their heart, which is their pocketbook.'

This is a long piece of investigative journalism, but well worth reading.

It is too bad that the Banks had their major nemesis, Eliot Spitzer, taken out by the Feds under Bush II. And they were able to buy off the White House and the Congress so that no one of substance is touched by indictment, much less conviction.

Later in the story Matt Taibbi mentions the LIBOR rigging scandal, and suggests the broader rigging of markets and the real economy by the financial interests.

In a way a brainwashed vocal minority of the people are to blame for this. Every time the move is made to reform this rotten system, and bring the banks and large financial corporations under control of the law,they pipe up, often hysterically, on cue that government has no business interfering with 'private enterprise.' These are the kind of unthinking used by the powerful as paid propandists, intellectual brown shirts, and even the unthinking and unpaid, known in the power trade as 'useful idiots.'

In political jargon, useful idiot is a pejorative term used to describe ordinary people serving as propagandists for a cause whose goals they do not truly understand, who are used cynically by the leaders of the cause.
The politicians and regulators are bought or cowed, and the people shout slogans calling for their own downfall.

Don't feed the sharks. Don't let them turn you into a useful idiot. Stop watching the propaganda stream and start thinking for yourself.

Stop letting these wiseguys play you for a fool, a sucker, a muppet, and a cockroach. Because that is what they think you are. You really don't deserve it. It just encourages them to be bolder, and discourages those around you from thinking that reform is possible. Think twice before you speak.

This is an old story, with the bad guys wearing different, more expensive suits, but the game remains the same.

"Do not fear your enemies. The worst they can do is kill you. Do not fear your friends. At worst, they may betray you. Fear those who do not care; they neither kill nor betray, but betrayal and murder exist because of their silent consent."

Bruno Jasienski

Rolling Stone
The Scam Wall Street Learned From the Mafia
By Matt Taibbi
June 21, 2012

Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.

But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America.

The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

Barroso blames US banks for eurozone crisis

Baltic News Network

Unorthodox policies of American capitalism are to blame for the eurozone financial problems, says EU commission president José Manuel Barroso.

The G-20 summit participants are meeting in Los Cabos, Mexico, to discuss solutions to the eurozone crisis. The goal is not to receive lessons on how to handle the economy, he said.

Apparently, Barroso did not like the question why North Americans should risk their assets to help Europe, reports The Guardian.

“Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy.”

“This crisis was not originated in Europe. This crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market,” he said.

Dean Baker David Brooks Says That Mitt Romney and the Republicans Are Not Very Good at Arithmetic

Brad DeLong

June 16, 2012

Daddio:

Brooks doesn't have an inverted reality, it is an 'Invented' reality. Only ideas that work against government programs and public spending are valid. Any other ideas are ignored. He is a hack, part of the right wing megaphone. If he didn't write for the nyt, he would be on fox noise as an 'intellect'.

Donald Pretari:

The Welfare State isn't going anywhere. Conceptually & Practically, it's hard to imagine a realistic alternative. How to organize the Welfare State is the only real question. My guess is that in order for a Welfare State to function well, you have to admit it's here to stay. That doesn't mean Govt can't be smaller or less intrusive over time. It can. But only if that means citizens Need Less Help, not that we give them less help if they need it. The GOP position is that average citizens need to be poorer in order for the wealthy to remain wealthy. The idea that anyone who can use Govt to further his ends won't do so is a pipe/bong dream.

Will :

David Brooks's popularity has confused me for years now. I can understand Thomas Friedman's rockstardom: he's glib and triumphalist, and there's an audience for that. Brooks's writing has a cadaverous quality to it. It is a sustained effort to demonstrate serious, ponderous thought, to cover up the essential death of thought that it stems from.

Apparently, this is the best stab that the modern right has at intellectual respectability. Brooks would say that he's an intellectual descendant of Hume and Burke. I would say that he is correct, and that he has descended very much indeed.

Gibbon1:

"Why oh why can't we have a better press corps?"

You ain't going to get a better press corps till Brooks and the NYT shuffle off into oblivion. I've been listening to those fools blather for the last forty years. I have a good memory, they've been wrong about everything except scribbling things that please their patrons

Zach:

It's always a blast when folks point out that we'll obviously have to cut Medicaid/Medicare/Social Security benefits at some point. These are untouchable programs (Medicaid included, despite what the GOP thinks). Social Security and its projected shortfall are tiny, so forget about them for now. Medicaid and Medicare have this wonderful quality of being defined benefit rather than defined cost programs. Come up with a way to provide the same benefit at a lower cost and you'll eliminate opposition from beneficiaries. It happens that we have a way to halve that cost that's proven effective in about two dozen countries, many of which have extremely similar demographics to the States.

There are losers in this equation: people who combine their efforts to take $2 from someone and give them $1 back. It's true that they're politically powerful. But they're not as powerful as, say, the 50 million people on Medicaid, many of whom don't vote and many of whom vote Republican, who could through their efforts alone demolish national Republican political power.

There's a trillion dollars a year sitting on the table. Picking it up and setting revenues somewhat above their current levels (but way below their projected levels before the Bush cuts) instantly fixes the entire long-term budget problem. Very, very few people are objectively hurt by this change. If there's anything that's inevitable in American policy in the next few decades it's that we're not going to axe the welfare state before we stupidly stop spending twice what's needed for healthcare.


[Jun 13, 2012] Retail Sales decline 0.2% in May

Debt jubilee is not an option for the Empire...

shill:

Another not-recession report. Real retail sales will confirm this. (Retail sales are deflated by CPI-U to derive real sales, but the latest CPI reading isn't due out until tomorrow.) Assuming no big surprises on CPI, real retail sales will probably be around +3.8% (give or take) year-over-year.

Many a prediction gets washed down the toilet with revision...TA in this Typical whipsaw action of a bear market is usless.

Just saying.

shill

Business inventories climb 0.4% in April - MarketWatch

Business inventories rose 0.4% to a seasonally adjusted $1.58 trillion, the Commerce Department reported Wednesday. The ratio of inventories to sales stayed the same at 1.26. Most of the inventories gain came from motor vehicles and parts, where inventories jumped 1.9%. The worst showing came from food and beverage stories, where inventories fell 0.4%. Excluding motor vehicles and parts, inventories edged up 0.1%.

RATM

black dog wrote:

schedule a FOMC meeting every... day?

Already is. They act whenever they want, starting with opex of August 2007.

Their cover-their-ass clause:

The Committee also stated that it will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

energyecon

GDD9000 wrote:

hey ee - what's your take on the latest oil price differential article from casey research?
The Tricky Calculus of Oil Price Differentials | Credit Writedowns

This is not entirely correct:

One of oil’s most important characteristics is its fungibility, which means that a barrel of refined oil from Texas is equivalent to one from Saudi Arabia or Nigeria or anywhere else in the world. The global oil machine is built upon this premise – tankers take oil wherever it is needed, and one country pays almost the same as the next for this valuable commodity.

Well, that’s true aside from two factors that can render this equivalency void. In fact, crude oil prices range a fair bit according to the quality of the crude and the challenge of moving it from wellhead to refinery. Those factors are currently wreaking havoc on oil prices in North America: a range of oil qualities and a raft of infrastructure issues are creating record price differentials. And with no solution in sight, we think those differentials are here to stay.

The fungibility is quite a bit overstated. There are roughly three tiers of quality, and the ability of refiniries to handle lower tiers can be quite limited particularly for those geared for light, sweet oil. The article actually makes this point down page:

This chart tells the story perfectly. The vast majority of Canada’s bitumen is ending up in PADD II – in Cushing – where it simply sits in tanks because there is no heavy oil refining capacity in the Midwest, and there is very limited pipeline capacity to move oil south.

Otherwise, it seems to be reasonably well researched, though I am less sanguine that the differential is here to stay. That $15-$20 a barrel uplift by getting your barrel to tidewater will incentivize substantial investment in transportation.

shill

Central Bank Money-Printing: $6 Trillion...and Counting

http://www.cnbc.com/id/47792734

Just one more hit and I am off the stuff for good.

energyecon:

Jackdawracy wrote:

The emperor has no way to close it down.

Zero bound FTW! .

Blackhalo:

josap wrote:

He has one shot left with a large load of powder. But there has to be blood to justify him "saving" us.

Not to mention the political fallout for taking such action in an election year. He surely wants to avoid any charge of playing politics or providing Paul any traction for "Audit the Fed." .

Preparation H:

The emperor has no way to close it down.

Why would TPTB want to close it down?

"Money for nuthin', chicks for free" is an addictive drug, and coupled with the drug "Power" the combo is totally irresistible for sociopaths...

Ready for WWIII?

Cause jubilee is not an option for the Empire...

t r orwell

Yeh Mish, let's all live together w/o rules of law so that you can f...k us and steal our money cuz your shit don't stink. Free trade is NOT fair trade, but don't let us eva, eva tell you that cuz you're just gonna tell us that the economy stinks because it's our stink, not yours.

And as Mike "Mish" Shedlock, you wail away about the lack of jobs cuz you just do not have a clue nor the intelligence to see its direct connection to free trade's outsourcing. What a dope! Ya can't see the correlation of the long term, secular bull market for bonds with outsourcing and consequent concentration of wealth? Where do you think the recent Hewlett -Packard's 26,000 job cuts "worldwide" and the 6,000 by RIM jobs are ultimately going? And how about the 18,000 Hostess Twinkie jobs?

Oh, and you are so right. It was Greece's fault and is the villain and not Goldman Sachs which fudged their numbers to gain their entrance into the EU and license to steal from the Germans who also are no damn good.

Those Greeks are filthy, corrupt, and no damn good just like the rest of the PIIGS who used Goldman. Long live Israel and the Jews!!!!

[Jun 11, 2012] Sunday Night- Asian Stocks and US Futures Up

Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda. This excessive power has damaged not only the economy but the financial sector itself. One way to combat this excessive power, if only partially, is to bring Glass-Steagall back.
km4:
The second reason why Glass- Steagall won me over was its simplicity.

The third reason why I came to support Glass-Steagall was because I realised it was not simply a coincidence that we witnessed a prospering of securities markets and the blossoming of new ones (options and futures markets) while Glass-Steagall was in place, but since its repeal have seen a demise of public equity markets and an explosion of opaque over-the-counter ones.

Last but not least, Glass-Steagall helped restrain the political power of banks. Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda. This excessive power has damaged not only the economy but the financial sector itself. One way to combat this excessive power, if only partially, is to bring Glass-Steagall back.

The writer is a professor at the University of Chicago Booth School of Business and author of ‘A Capitalism for the People: Recapturing the Lost Genius of American Prosperity’, published this week

sm_landlord

Well, well, what do you know:

Spain's Handling of Bankia - WSJ.com

Bankia's problems have their roots in Spain's real-estate bust. The country's savings banks—many controlled by politicians—lent heavily to developers and local governments. When the housing market began to tank in 2007, small banks were left with heaps of bad loans and investments. "Having politicians in management positions at the cajas was the real cancer of the Spanish banking system," said Jordi Fabregat, a professor of finance at ESADE, a Barcelona-based business school.

It also turns out that Bankia sold a bunch of stock to their domestic customers when they realized that they were in trouble. Customers took 75% haircuts on the stock.

Interesting article...

Paradigm Lost:

Mary: regarding the City of London "Corporation":

"...the City of London Corporation, the local-government authority for the 1.2-square-mile slab of prime real estate in central London that is the City of London. The corporation is an ancient, semi-alien entity lodged inside the British nation state; a "prehistoric monster which had mysteriously survived into the modern world", as a 19th-century would-be City reformer put it. The words remain apt today. Few people care that London has a mayor and a lord mayor - but they should: the corporation is an offshore island inside Britain, a tax haven in its own right.
The term "tax haven" is a bit of a misnomer, because such places aren't just about tax. What they sell is escape: from the laws, rules and taxes of jurisdictions elsewhere, usually with secrecy as their prime offering."

"When people ask - as they often do these days - which is the biggest tax haven in the world, our answer is almost invariably the City of London. The City hosts Britain's largest offshore financial centre and is intimately linked to satellite tax havens across most time zones, ranging from Hong Kong and Singapore in the East, to the British Virgin Islands, the Turks & Caicos Islands, Bermuda, the Cayman Islands and the Bahamas in the West. All of these havens are in some respects the Frankenstein creations of the City, as are the Crown Dependency islands (Guernsey, Isle of Man and Jersey) which are easily accessible in less than one hour by jet from London."

It's historical. Check it out. AIG, JPM's London Whale. There's a good reason they're there, and not somewhere else.

Phone call...gotta go. Later, possums.

Mary

courtesy eurotrib subscription: Greek and Spanish crypto-fascists

Pasok leader is in a desperate last-ditch attempt to form a government of national unity with New Democracy and the small Democratic Left; that would establish Fotis Kouvelis, leader of the pro-euro, anti-austerity DL, as the kingmaker in Greek politics; Kouvelis wants a government that stays in office until 2014; the push for a unity government comes as the latest polls gi party a large lead over all the other parties; but platform of a new unity government would still include "disengagement" from the EU-IMF memorandum; Alexis Tsipras, Syriza Pigged leader, toned down his demands from rejection to re-examination of the memorandum; Bankia's auditors discovered another black hole, relating to tax credits of €2.5bn, which may need to be charged against equity; the governing PP has embarked on a blame game campaign to deflect attention from its own role in the collapse of Bankia; among those under attack from the government is the chief of Spain's central bank; the European Commission is ready to grant Spain an extra year to meet the deficit target, but demands a number of quid-pro-quos, including an external supervision of the bank restructuring process;the German government is expected the highest tax revenues in the country history, due to falling unemployment and rising wages; Angela Merkel categorically rules out any debt financed growth measures; Francois Hollande wants to impose his tax on the rich as of June; Daniel Cohn-Bendi[t] warns of a return of military dictatorship in Greece; Germany's Bild is freaking out over the Bundesbank's acknowledgement that German inflation may temporarily exceed the eurozone average; Samuel Brittan, meanwhile, proposes a nominal GDP target (for the umpteenth time), this time as an alternative to austerity.

A few month's earlier El País ran an informative story about the Franco family's RE operations and continuing "transfer payment" schemes among republicans. It's in Spanish though.

aleister perdurabo

Spain's banks: Just don't call it a bailout | The Economist

Yet several details of the bailout are still fuzzy. First, it is not clear exactly what conditions would be attached to the aid. The government claimed there were no conditions for the rest of the economy. Other European ministers might disagree. The Eurogroup praised Spanish reforms but said it would also be monitoring deficit procedure and structural reform carefully." Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance," they said. The Eurogroup also mentioned "horizontal structural reforms of the domestic financial sector", which could mean something.

Second, the Eurogroup did not specify whether Spain would be borrowing from the existing rescue fund (the European Financial Stability Facility or EFSF) or from the new European Stability Mechanism which is due to start in July. This matters because loans from the EFSF are not senior to other bondholders, whereas the ESM loans do have priority over privately held debt. A loan from the latter could spook investors in Spanish sovereign bonds.

Rajesh

Greece Threatens Wall Street Jobs in Third Trading Plunge - Bloomberg

Greece is prompting declines as banks face questions about whether they’re experiencing a so-called secular, or lasting, shift in their capital-markets businesses amid new regulations and slower global growth. The industry will see little-to-no growth in the total revenue pool over the next few years and needs to cut 20 percent to 30 percent of its managers, Boston Consulting Group Inc. said in an April 26 report.

JPMorgan Chief Executive Officer Jamie Dimon, 56, and Goldman Sachs CEO Lloyd C. Blankfein, 57, are among top bankers to argue the current slowdown is a cyclical decline that will bounce back.

“We’re in a cyclical business, we’ve always said we’re in a cyclical business,” Goldman Sachs President Gary Cohn, 51, said at an investor conference last month. “And we’re in that part of the cycle where our client base is tending to be more conservative than it is in the up parts of the cycle.”

Rickkk

Why Spain's bank rescue could bring only brief respite

11 Jun 2012

"If Spain got into a catastrophic situation, you could forget French and German banks," Luxembourg Finance Minister Luc Frieden told broadcaster RTL on Sunday. Stress has risen again on financial markets as the effects of the ECB's injection of 1 trillion euros in long-term cheap loans into euro zone banks in December and February have worn off. "It feels as if it is just a matter of time before more issues will erupt, especially if growth remains sluggish," Morten Spenner, CEO of fund of hedge fund manager International Asset Management told Reuters. "To that end, a more holistic and much deeper political and financial solution is ultimately required rather than a continue band-aid by band-aid approach."

aleister perdurabo

Treasuries Drop as Spanish Bailout Call Saps Safey Demand - Bloomberg

Treasuries fell after Spain became the fourth member of the euro bloc to seek a bailout since the start of the region’s debt crisis, damping refuge demand.
Benchmark 10-year yields touched a more than one-week high as Asian stocks rallied after Spain asked euro-region governments for as much as 100 billion euros ($126 billion) to rescue its banking system. The U.S. is scheduled to auction tomorrow $32 billion of three-year notes, followed by $21 billion of 10-year securities and $13 billion of 30-year bonds later in the week.
“The news on the Spanish bailout is triggering a relief rally in stocks,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third- largest listed bank. “The bias is for Treasuries to be sold to some extent in the risk-on environment.”
The 10-year yield rose eight basis points, or 0.08 percentage point, to 1.72 percent as of 10:44 a.m. in Tokyo, Bloomberg Bond Trader data show. The 1.75 percent security maturing in May 2022 sank 3/4, or $7.50 per $1,000 face amount, to 100 9/32. The rate earlier matched the May 30 high of 1.73 percent, following an 18 basis point increase last week, the most since the period ended March 16.
“Fed speakers today could add another dimension to how U.S. rates move along with the latest development in the euro crisis,” Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London, wrote in a note dated today.
The Fed is replacing $400 billion of shorter-term Treasuries in its holdings with longer maturities by the end of this month to keeping borrowing costs down. The central bank plans to sell as much as $1.5 billion of Treasuries due from April 2013 to April 2015 today as part of the effort, according to the Fed Bank of New York’s website.

sm_landlord

pavel.chichikov wrote:

Reverse has been removed from the gear box.

In the pumping madness
Of the locomotive breath,
Runs the big-time Bankster,
Headlong to his death.
He feels his finance failing –
Sweat breaking on his brow –
Sir Alan stole the handle and
Bernanke won't stop going –
No way to slow down.

---Apologies to Jethro Tull

pavel.chichikov:

Why Me wrote:

You're right, a casino wouldn't be able to change a six into a face card to achieve blackjack without the gamblers revolting.

You got it.

ResistanceIsFeuda:

dryfly:

The revolution is between the 5% and 0.1% and its on TV everyday - on CNBC. Class war baby!

The war among the top echelons will be quite the thing to witness. 0.1% versus 0.1% in particular. When you develop sufficient economic inequality and regulatory capture to get a nobility, we can reasonably expect that they'll behave like a nobility - political infighting, backstabbing, treachery, blackmail, marriages to consolidate power... the list goes on...

All that's old is new again!

dwb

Mary wrote:

The guys in the conference room x-Pond know exactly what's feasible --and some of those terms are contigent on real-time "bond market" signals between now and 30 June. That's reasonable, wouldn't you agree, if it were your money being "mutualized"?

  1. A significant amount of money is already mutualized via the ECB, whether Germany is willing to admit it or not. The fact that they are not willing to admit it and just allow the ECB to buy sovs outright and bring down rates speaks volumes.
  2. the lack of details means that they could not agree them, which means that there is a high probability that one of the 17 members (like Finland) demand something silly that Rajoy will not agree to.
  3. as has happened numerous times, the credibility of the "firewall" will be questioned. what if the "bond market signals" indicate that the bailout needs to 200, 300, 400, 500... at what point do we call the whole thing off?
  4. a bona fide EU-wide banking solution involves having German banks merge with periphery banks. does not seem to be on the table. probably it'll take another crisis...
aleister perdurabo

A.J.P. Taylor's English History, 1914-1945

Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country for ever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. For that matter, a foreigner could spend his life in this country without permit and without informing the police.

Unlike the countries of the European continent, the state did not require its citizens to perform military service. An Englishman could enlist, if he chose, in the regular army, the navy, or the territorials. He could also ignore, if he chose, the demands of national defence. Substantial householders were occasionally called on for jury service. Otherwise, only those helped the state who wished to do so.

The Englishman paid taxes on a modest scale: nearly £200 million in 1913-14, or rather less than 8 percent of the national income. The state intervened to prevent the citizen from eating adulterated food or contracting certain infectious diseases. It imposed safety rules in factories, and prevented women, and adult males in some industries, from working excessive hours.

The state saw to it that children received education up to the age of 13. Since 1 January 1909, it provided a meagre pension for the needy over the age of 70. Since 1911, it helped to insure certain classes of workers against sickness and unemployment. This tendency towards more state action was increasing. Expenditure on the social services had roughly doubled since the Liberals took office in 1905. Still, broadly speaking, the state acted only to help those who could not help themselves. It left the adult citizen alone.

aleister perdurabo

Very good, citizen. You can eat this week.

Speculators Fail to Reap Rally in Crops After Wager Cut - Bloomberg

Speculators cut combined bullish bets across the S&P GSCI by 13 percent to the lowest this year on mounting concern that Europe’s widening debt crisis will derail global growth and curb demand for commodities. Agricultural prices rallied as dry weather harmed the corn crop in Iowa and Illinois, the biggest U.S. growers, and Russia’s government declared a state of emergency in some areas because of drought.
“People don’t look at fundamentals when the crisis overshadows everything,” said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York- based Aegis Capital Corp. “The tug of war gets tough when the correlation between the economy and agricultural commodities is very high.”
Global food prices had their biggest drop in more than two years in May as the cost of dairy products slumped. An index of 55 food items tracked by the United Nations’ Food & Agriculture Organization fell 4.2 percent, the agency said June 7. The gauge dropped 14 percent from a record in February 2011, when higher costs coupled with rising unemployment helped spark protests across the Middle East and North Africa.

pavel.chichikov:

This european episode will be studied for quite some time, and perhaps it will afford some entertainment for posterity, in case there should be one.

Nanoo-Nanoo:


OH and the Greek vote is coming up in what, about 7 days?

Italy Moves Into Debt-Crisis Crosshairs After Spain - Bloomberg

....

Italy has more than 2 trillion euros of debt, more as a share of its economy than any advanced economy after Greece and Japan. The Treasury has to sell more than 35 billion of bonds and bills per month -- more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.

Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros in emergency loans from the euro area to shore up a banking system hobbled by more than 180 billion euros of bad assets. Mounting concern about the state of Spain’s banks and public finances drove the country’s borrowing costs to near euro-era records last month, dragging up Italian rates in the process.

[Jun 10, 2012] Brzezinski lists components of the USA decline in his book Strategic Vision America and the Crisis of Global Power

"Six critical dimensions stand out as America's major, and increasingly threatening, liabilities":

  1. "an unsustainable national debt",
  2. "flawed financial system",
  3. "widening income inequality coupled with stagnating social mobility",
  4. "decaying national infrastructure",
  5. "a public that is highly ignorant about the world",
  6. "America's increasingly gridlocked and highly partisan political system."

You've got to agree with this analysis (even though I think the analysis in WINNER TAKE ALL POLITICS by Jacob S. Hacker and Paul Pierson presents the same problems with root causes much more effectively).

Interesting book but creates impression of no hope for CHANGE, March 14, 2012

By

Sengil - See all my reviews

Amazon Verified Purchase(What's this?)

This review is from: Strategic Vision: America and the Crisis of Global Power (Hardcover)

I will advise this book to understand that for USA to 'CHANGE' will not be easy. Although the Author,Zbigniew Brzezinski-ZB is very experienced,knowledgable and well respected famous elite American, but he holds himself not changed and unimproved conceptually and keeps staying as old-fashioned. Whenever any other country or the region is remarkably progressing then it is assumed by him, as could become America's principal competitor in global political influence and even eventually in economic and military might.

To deal with geopolitics worldwide has made gains earlier for USA due to involvement in 1rst,2nd World Wars,even American people had paid much during corresponding decades. Further, consequences of Vietnam War and latter Iraq and Afghanistan Invasions, although cold war had ended, were totaly negative for American people's social and economical benefits for which ZB confesses the same in his book.

I presume, it is not a fair attitude, at least against American people, to introduce and tackle worldwide and/or regionally expected conflicts or awfull scenarios which definetely increase the antipathy to America, as already occured in almost half of the world. While having existing serious inhouse liabilities of America such as 'Huge National Debt, Flawed Financial System, Widening Social Inequality, Decaying Infrastructure, Public Ignorance, Gridlock Politics-ZB and Crucial Unemployement' are being to be taken care of, wouldn't be better to leave the other nations and regions alone, to solve by themselves, their occured/occuring conflicts between them and not to spend any time of American's governments and money of taxpayers.

Instead, it will be far useful for American people to utilize America's own assets as 'Overall Economic Strength,Innovative Potential,Demographic Dynamics,Reactive Mobilization,Confort of Geographic Base and Democratic Appeal-ZB'. The other nations will normally buy and/or get use of these very valuable assets and then American people will make further benefit out of them. By having '600 billion usd Current Account Balance Deficit(2011) and close to 15 trillion usd National Debt-CIA World Factbook', now it is time for elites like ZB to perform efforts to guide and convince American people how to spend less,save more,work hard and invest wisely. As being the largest and sole power of the world,if USA wants to care its 'National Interests' and further to contribute for the other nations and world humankind, better to cooperate with the other nations to find solutions, only to secure nuclear non-proliferation and to solve global environmental problems.

I don't agree with ZB's ethics. His 'highly ignorant public about the world-ZB' the American people who is, according to my opinion fully innocent and is not responsible and do not have any obligation to pay for his and his type of conservative elites' very long term projections about the destiny of USA and other nations.I advise the book but with one star only.

F. Oliveira: One bright political hit-man, April 13, 2012

Zbigniew Brzezinski is a bright man so bright he was chosen to work for the Club of Rome (UN founders), The Bilderberg Group (the media up to few years said never existed) and for The Trilaterial Commission so he's basically a political hit-man like his fellow Henry Kissenger working for the same old Rochefellers and Rothschilds.
What got my attention the most in this book is that the New World Order is cooking many more wars and Brzezinski stated 'The choice for the 21st century is not hegemony or peace, but it's a choice between chaos and cooperation'.
The book is a good read to help you see the big picture and prepare yourself for what is underway. I would suggest watching in youtube End Game: Blue Print for Global Enslavement as it makes this book much more clear to the eyes.

A realist assessment of the American position: Where is Stilicho when you need him?, January 29, 2012

By

J. Miller (Fayetteville, NC (Legionnaire Outpost)) - See all my reviews
(REAL NAME)

This review is from: Strategic Vision: America and the Crisis of Global Power (Hardcover)

To mention a few scattered points:

To understand Brzezinski's vision, it would probably help to have read some of Michael Klare's books. Control over energy supply is the key to understanding a number of suggested initiatives. The desire to maintain some presence in Afghanistan, the desire to maintain the independent status of Georgia and Ukraine, and the importance of Turkey, are all designed to secure an alternative source of energy supply for Europe, other than Russia. Brzezinski argues that American disengagement will open space for Russia to increase pressure on these states. However, I would argue that pursuit of this strategy also incurs risk . The Russo-Georgia war of 2008 is an indication that the US could get drawn into conflict in the Caucasus. Would you view Mikheil Saakashvili as a stable partner? How about the modern-day 'Phalaris' Islam Karimov? Key to the success of this Eurasian initiative, Brzezinski states, is Turkey finally entering the EU. This does not appear to be likely in the foreseeable future. Just look at the current state of Franco-Turkish relations.

One area Brzezinski rightly points to as critical in the future is the resolution of the issue of Arctic Energy resource allocation. This is a potential source of future dispute with Russia.

The author indicates support at further centralization of power in the EU. The EU "acts as if its central goal is to become the work's most comfortable retirement home"..Brzezinski makes a number of these kind of statements, which would indicate to me that he is in support of austerity measures and is in favor of greater consolidation of power for the banking houses of Europe, since this is the logical outcome of more centralized control. I would go further and say that Brzezinski hints that such sacrifices are in order for America's "cornucopian culture that worships materialism".

The author supports a "mutually acceptable two-state solution" to the Israeli-Palestinian conflict. While such a solution would incur undoubted advantage to the US, there is no indication such a solution lies in the future. The longer such a delay exists, it can be argued that the potential viability of any Palestinian 'State' is gradually eroded away. It can be argued that the longer impasse exists, the greater possibility the ideas of Brzezinski's former boss will gain currency (Carter's apartheid thesis).

Brzezinski has little to say about the current Af-Pak War (a term he would shy from using). It would seem 'officialdom' has declared the war on a path to conclusion, but one might be excused for seeing this as wishful thinking. Brzezinski, like most foreign policy officials, cite the fear of "the rise of Islamic fundamentalism in nuclear-armed Pakistan" but he offers little advice other than avoiding an expansion of the war (this would have "no clear end in sight"). In regard to Pakistan he tends to stress the role that nation plays in China's strategic calculus. I would have liked to see the author discuss some possible paths towards ending the Afghan war.

As far as South Asia, he is critical of arms sales to India, and cautions against a US-Indian Alliance as too provocative. He advises the US to avoid taking a position on the Kashmir dispute. Another, perhaps intractable dispute. Yet..reaching a solution here, like the Israeli-Palestinian dispute, would do much for regional stability. Brzezinski, regarding India, is not laudatory. I think a mild disdain for India is a long-standing tradition in US foreign policy circles.

In East Asia, he takes a stand on the Taiwan issue, seeing this as perhaps one of the few issues that, mishandled, could result in Great Power conflict. He thinks arms sales to Taiwan only cloud a long-term US-Chinese accommodation and provoke Chinese enmity. He suggests a future where "it is doubtful that Taiwan can reject..a PLA presence on the island". On Korea, he envisions a possible scenario where China facilitates various stages of reunification with a corresponding reduction in security ties to the US.

In general, the author advises avoidance of conflict. On Iran, he takes the view that the US can respond to Iranian acquisition of Nuclear Weapons by simply extending a US Nuclear Umbrella over the Gulf States. This seems a more reasonable approach than the current one adopted by the Administration. The Administration has taken a risk with a forward Naval Deployment into the Persian Gulf in the current tension-filled moment. One over-aggresive naval officer ('Robo-crusiser' anyone?) could end the Obama Presidency.

With regard to China, the author mentions the usually cited issues of contention, such as the Paracel and Spratly Islands. He suggests mutual cooperation to resolution of these outstanding issues. He suggests negotiation to avoid an arms race in the region. Yet this seems to be the path the US has decided upon. Note the recent announcements by the President and Defense Secretary of a 'pivot towards Asia' (while simultaneously negotiating new troop deployments to Australia). How to maintain closer ties with Far Eastern nations, while avoiding the appearance of Chinese strategic encirclement is not so easy to determine. Basically Brzezinski says the US should avoid additional commitments that might result in the US fighting another Asian land War.

In summary, his argument is that the continued engagement by the US globally is in the interests of the US, and the World. Peace would be threatened by the failure of the US to maintain this role. However, Brezezinski paints the argument in terms of US will. In other words, 'Can a US "highly ignorant about the world" overcome their limited knowledge in order to fulfill their global destiny' (my paraphrase). While the author acknowledges the global financial crisis (and argues for reforms) he, in my opinion, underestimates the capacity of the global economy to function as it has been functioning. While he mentions climate issues, population issues, societal structural problems (in Pakistan, India, China, Russia, Mexico etc)...his general view is that the global system will continue because it is desired by all parties that it continue. Yet it is possible that this massive global economic system might come apart. There have been numerous subtle (and not so subtle) indications that this is the future that awaits us all. Perhaps his next book will be suggestions on how to pick up the pieces of what remains?

Brzenzinski compares our national situation to that of Rome in the fifth century. Hmm..I wonder how far away our 'Crossing of the Rhine' moment is, when it simply becomes impossible to avoid a Chaotic denouement of the Global Commons?

LA Times- "Shortage of homes for sale creates fierce competition"

6/10/2012

josap

The downturn in Europe has been matched by decelerating growth in rising economic powers such as China, India and Brazil.

“We are seeing a global slowdown,” said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis

The effects are already evident in relationships with key trading partners. U.S. exports to the European Union, for example, fell 11.1% in April. And exports to China dropped 14%.

Europe’s impact on U.S. hangs like cloud - Economic Preview - MarketWatch

josap:

How close to the edge are families, governments and economies when the price of gas (up or down fifty cents) makes a large difference to profits, discretionary spending and health of the economy?

Jackdawracy

ac wrote:

Still you have to appreciate the irony of a how the president who won the Nobel Peace Prize his first day in office is now sending out killer drones all over the world to assassination people.

...thus assuring long lasting peace amongst those so targeted

Mary: re: currency war

He accounts for his unpopularity amongst mainstream economists by saying that it’s understandable that “economists would reject a new system that challenges their monopolistic knowledge system.”...

EO: What do you mean we didn’t realize the importance of money?

Song: ...When I initially proposed this concept, people were confused and asked, “how could a war break out between currencies?” However, as people became more aware of the world’s economic environment, they started accepting the possibility.

There is no systematic research on the competition of currencies and money in China. Only monetary theories or economics are studied. China has neglected the importance of finance as a tool, a measure and a weapon, which could be vital for her development, economy and national security in the future. Therefore, my central point in all four books is actually the influence that money has on the fate of a country and the world....

EO: What’s have you found?

Song: Based on a recent survey that I did at ETH Zurich University ...

The graphic is ubiquitous. Try to find credit for Song Hongbing in the PR.

we analyzed the equity structure of 37 million transnational enterprises and found that 147 of the biggest financial institutes exercise control over 37 million enterprises.[...] Many big financial families set up funds and donated their fortunes, especially after 1930. What they want is the control instead of the ownership. Although there might be some philanthropists, the common practice of setting up charity foundations doesn’t seem logical to me....

EO: In your supposed era of warring states, does China have a decisive role? Song: I’m not so pessimistic about that. The core idea is that a large domestic market is the base for a country’s ascent. Some have mentioned the internationalization of the yuan, however it’s obvious that the yuan can’t become the world’s reserve money if China’s domestic market isn’t the largest in the world. The Chinese economy is dependent on exports, which means the currency will flow back when goods are exported. Japan and Germany both tried the internationalization of deutschmarks and yen. However, their share in the international currency never exceeded 7%, which is also because of their export-orientated economies.

This could serve as a lesson for China. A third of China’s GDP comes from its domestic market, which is only a ninth of the size of the American market. The best outcome for export-oriented countries can’t be better than was the case for the deutschmark or the yen.

What’s the strategic purpose of promoting the internationalization of the yuan? In my opinion, the answer is to replace the dollar. However, is it possible to guarantee an efficient supervision of yuan trading abroad now? The more yuan that flow abroad, the more dangerous it will be. The same applies when pricing the yuan. If the State Administration of Foreign Exchange and the People’s Bank of China set up the exchange rate at 6.36, while the deal in New York 5, which standard will the market follow? As there are many financial derivatives abroad, the number of the deals there may exceed those in Beijing. In this case, China may lose the pricing right.

This is precisely why I look into the past. Looking back, we can observe how the pound and dollar rose. When comparing the domestic market in the U.S. and Great Britain to the one in China, it’s impossible to argue that the yuan could replace U.S. dollar in the next 30 years. It would be better to promote an Asian currency and benefit from the indirect internationalization of yuan. However, there are also problems, such as how Asia should be integrated.

Interview: "Currency Wars" Author
t r orwell

Banks are back to their old MO and SOS with $100 down or 3% down, 30 year home loans @ 3.7% in 22 states, and they are selling these loans to HUD and FHA as I had posted months ago....even loaning out extra money to remodel. Who else would ultimately own these loans long term at full price (certainly not the hedge funds who are buying on the cheap) but the corrupt and bankrupt govt? No wonder the Denver home market is booming with sales up 25% over the last year, prices up 12%, and inventory dropping like a rock. When you don't put the criminal bankers behind bars, they'll do the same thing over and over again. And the same, desperate, stupid people with no savings will gladly gamble at future taxpayers expense and accept the same stupid loans that caused the problems during the earlier housing bubble. If you look at M-2, it is still going up parabolically even w/o QE3 and even with the monetary base flatlining due to termination of QE. Why? With interest rates artificially low thru QE1 and 2, Ben cherry picks and uses short term treasuries to "twist trade" for the long term treasuries to lower them even further. Who else but our corrupt govt would initially print via QE and then "twist trade" for the majority, around 61%, of these debt instruments and then go out and buy the new home loans generated by these 3.7% rates plus the huge leverage provided by the $100 down and the 3% down payments. This humongous leverage certainly provides the counterbalance for Wal-Mart and McDonalds pay scale jobs. And of course, we've got the other bubble with student loans. Those running this country are putting the tab for this new bubble up on our children and their progeny since you've already been screwed. And if this newly enhanced bubble hasn't reached your area yet, maybe you should stay tuned, be patient, and give it a little time. I mentioned a few weeks ago wouldn't it be sumpin if the economy weakened and home sales exploded up with these bogusly low interest rates. Ben is attempting to balance the world on half a pinhead.
HUD Offers REO Homes for $100 Down in Select States
Denver home sales continue to climb - The Denver Post
The Financial Crisis Timeline
M2 Money Stock (M2) - FRED - St. Louis Fed

[Jun 10, 2012] Steve Keen Why 2012 Is Shaping Up To Be A Particularly Ugly Year ZeroHedge

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we're now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall -- which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

The reason that we have this trauma for the asset markets is because of this whole relationship that rising debt has to the level of asset market. If you think about the best example is the demand for housing, where does it come from? It comes from new mortgages. Therefore, if you want to sustain he current price level of houses, you have to have a constant flow of new mortgages. If you want the prices to rise, you need the flow of mortgages to also be rising.

Therefore, there is a correlation between accelerating and rising asset markets. That correlation applies very directly to housing. You look at the 20-year period of the market relationship from 1990 to now; the correlation of accelerating mortgage debt with changing house prices is 0.8. It is a very high correlation.

Now, that means that when there is a period where private debt is accelerating you are generally going to see rising asset markets, which of course is what we had up to 2000 for the stock market and of course 2006 for the housing market. Now that we have decelerating debt -- so debt is slowing down more rapidly at this time rather than accelerating -- that is going to mean falling asset markets.

Because we have such a huge overhang of debt, that process of debt decelerating downwards is more likely to rule most of the time. We will therefore find the asset markets traumatizing on the way down -- which of course encourages people to get out of debt. Therefore, it is a positive feedback process on the way up and it is a positive feedback process on the way down.

He sees all of the major countries of the world grappling with deflation now, and in many cases, focusing their efforts in exactly the wrong direction to address the root cause:

Europe is imploding under its own volition and I think the Euro is probably going to collapse at some stage or contract to being a Northern Euro rather than the whole of Euro. We will probably see every government of Europe be overthrown and quite possibly have a return to fascist governments. It came very close to that in Greece with fascists getting five percent of the vote up from zero. So political turmoil in Europe and that seems to be Europe’s fate.

I can see England going into a credit crunch year, because if you think America’s debt is scary, you have not seen England’s level of debt. America has a maximum ratio of private debt to GDP adjusted over 300%; England’s is 450%. America’s financial sector debt was 120% of GDP, England’s is 250%. It is the hot money capital of the western world.

And now that we are finally seeing decelerating debt over there plus the government running on an austerity program at the same time, which means there are two factors pulling on demand out of that economy at once. I think there will be a credit crunch in England, so that is going to take place as well.

America is still caught in the deleveraging process. It tried to get out, it seemed to be working for a short while, and the government stimulus seemed to certainly help. Now, that they are going back to reducing that stimulus, they are pulling up the one thing that was keeping the demand up in the American economy and it is heading back down again. We are now seeing the assets market crashing once more. That should cause a return to decelerating debt -- for a while you were accelerating very rapidly and that's what gave you a boost in employment -- so you are falling back down again.

Australia is running out of steam because it got through the financial crisis by literally kicking the can down the road by restarting the housing bubble with a policy I call the first-time vendors boost. Where they gave first time buyers a larger amount of money from the government and they handed over times five or ten to the people they bought the house off from the leverage they got from the banking sector. Therefore, that finally ran out for them.

China got through the crisis with an enormous stimulus package. I think in that case it is increasing the money supply by 28% in one year. That is setting off a huge property bubble, which from what I have heard from colleagues of mine is also ending.

Therefore, it is a particularly ugly year for the global economy and as you say, we are still trying to get business back to usual. We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process.

In order to successfully emerge on the other side of this this painful period with a more sustainable system, he believes the moral hazard of bailing out the banks is going to have end:

[The banks] have to suffer and suffer badly. They will have to suffer in such a way that in a decade they will be scared in order to never behave in this way again. You have to reduce the financial sector to about one third of its current size and we have to also ultimately set up financial institutions and financial instruments in such a way that it is no longer desirable from a public point of view to borrow and gamble in rising assets processes.

The real mistake we made was to let this gambling happen as it has so many times in the past, however, we let it go on for far longer than we have ever let it go on for before. Therefore, we have a far greater financial parasite and a far greater crisis.

And he offers an unconventional proposal for how this can be achieved:

I think the mistake [central banks] are going to make is to continue honoring debts that should never have been created in the first place. We really know that that the subprime lending was totally irresponsible lending. When it comes to saying "who is responsible for bad debt?" you have to really blame the lender rather than the borrower, because lenders have far greater resources to work out whether or not the borrower can actually afford the debt they are putting out there.

They were creating debt just because it was a way of getting fees, short-term profit, and they then sold the debt onto unsuspecting members of the public as well and securitized their way out of trouble. They ended up giving the hot potato to the public. So, you should not be honoring that debt, you should be abolishing it. But of course they have actually packaged a lot of that debt and sold it to the public as well, you cannot just abolish it, because you then would penalize people who actually thought they were being responsible in saving and buying assets.

Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create 'central bank money' (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down -- no choice. Therefore, if you have debt, you can reduce the debt level, but if you do not have debt, you get a cash injection.

Of course, this would then feed into the financial sector would have to reduce the value of the debts that it currently owns, which means income from debt instruments would also fall. So, people who had bought bonds for their retirement and so on would find that their income would go down, but on the other hand, they would be compensated by a cash injection.

The one part of the system that would be reduced in size is the financial sector itself. That is the part we have to reduce and we have to make smaller. That is the one that I am putting forward and I think there is a very little chance of implementing it in America for the next few years not all my home country [Australia] because we still think we are doing brilliantly and all that. But, I think at some stage in Europe, and possibly in a very short time frame, that idea might be considered.

Click the play button below to listen to Chris' interview with Steve Keen (48m:50s):

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veyron

Applying Birinyi's Ruler on my time series of ugliness

...

[Jun 04, 2012] How Slow Can the Economy Go?

NYTimes.com

There are two unavoidable conclusions from the May jobs report: The slow economy is getting slower, and there is no help on the way.

Republicans in Congress seem more determined not only to block any boost that President Obama wants to give the economy, but they are preparing to take the nation’s credit rating hostage again over the debt ceiling. Mitt Romney, the Republican presumptive presidential nominee, has no new ideas.

The statistics on Friday were daunting. Only 69,000 jobs were created last month, far lower than what’s needed just to keep up with population growth. The job tallies for March and April, shabby to begin with, were revised down, for an average monthly tally of 96,000 over the past three months, versus 252,000 in the prior three months.

The weakness was not only displayed in job growth. Average weekly wages declined in May, to $805, as a measly two-cents-an-hour raise was more than clawed back by a drop to 34.4 hours in the length of the typical workweek.

Similarly, the rise in the number of people looking for work is normally considered a sign of optimism, but, on closer inspection, it appears to be simply the reversal of a drop in job-seekers in April.

[Jun 03, 2012] S&P 500 PE Ratio

Jun 1, 2012 Current S&P 500 PE Ratio: 14.70 -0.37 (-2.46%)
Mean: 15.48
Median: 14.45
Min: 5.31 (Dec 1917)
Max: 123.79 (May 2009)
Price to earnings ratio, based on trailing twelve month “as reported” earnings.

Current PE is estimated from latest reported earnings and current market price.

Source: Robert Shiller and his book Irrational Exuberance for historic S&P 500 PE Ratio.

[Jun 03, 2012] The Fat Lady Is Clearing Her Throat

In fact "a complex system of hoaxes, inaccurate data and false financial reports that have been for the most part believed but that belief system is now crumbling as every quarter" is not limited to Europe...

ZeroHedge

A Loss of Credibility

Once at a social gathering, Gladstone said to Disraeli:

"I predict, Sir; that you will die either by hanging or of some vile disease".

Disraeli replied,

"That all depends, sir, upon whether I embrace your principles or your mistress."

We have reached a point where the shepherd has shouted “wolf” one too many times, where the theatre goer has shouted “fire” one too many times and the crowd no longer believes the jargon and is standing pat. From one politician to the next in Europe the words are strikingly the same; “bold actions, courageous decisions, decisive plans” which are meant to stoke the propaganda machine and assure the world that all is well. We have had the bank stress tests; the first pockmarked by inaccurate data checked by no one and the second humiliated by an inaccurate construct which discredited it by its own shameless manipulation. We face a world where contingent liabilities, promises to pay and guarantees of debts are NOT counted and where asset guarantees, illusionary firewalls and unfunded rescue programs ARE counted and in some cases counted more than once.

Europe has, in fact, provided a complex system of hoaxes, inaccurate data and false financial reports that have been for the most part believed but that belief system is now crumbling as every quarter presents new data that proves the inaccuracy of what we have been told.

... ... ...

Looking Backwards

If the American experience taught us anything it should be first that ”best of class” will sink right along with the “rest of class” and that looking backward, when facing a financial decline has about the same benefit as dipping your body in the Ganges river and hoping for salvation. In a recession what was will not be and all of your attention has to be shoved forward to look at what will come and not what has come.

Percentage Increase, 1922-29

Industrial Production: +70%
Gross National Product: +40%
Per Capita Income: +30%
Output per factory man hour: +75%
Corporate Profits: +62% (1923-1929)

"Financial storm definitely passed."

-Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

Greece has hit the wall and its financial engine lies in tatters. Spain has hit the wall and just not made the announcement yet. Portugal has hit the wall and will bang it again for good measure. Ireland has hit the wall and is bathing in its national self-pity. Germany is staring at the wall, declared “no Eurobonds under any circumstances” over the weekend while Monti says Eurobonds “will come” and so we are about to have a re-do of the Battle of Verdun. France is warming up to the wall and wants to spend even more to climb the damn thing. America is in self-denial that there is any wall at all. China is about to hit the wall and is adjusting its parachute.

Treasuries are the needle on the speedometer and if there is one clear indication of very serious trouble ahead you can read it there.

The fat lady is about to sing. If you don’t wish to listen then don’t show up later and say I didn’t warn you.

CommunityStandard:

From Gospel of Matthew, ch 13:

10. And the disciples came, and said unto him, Why speakest thou unto them in parables?

11. He answered and said unto them, Because it is given unto you to know the mysteries of the kingdom of heaven, but to them it is not given.

12. For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.

13. Therefore speak I to them in parables: because they seeing see not; and hearing they hear not, neither do they understand. 14. And in them is fulfilled the prophecy of Esaias, which saith, By hearing ye shall hear, and shall not understand; and seeing ye shall see, and shall not perceive:

15. For this people's heart is waxed gross, and their ears are dull of hearing, and their eyes they have closed; lest at any time they should see with their eyes, and hear with their ears, and should understand with their heart, and should be converted, and I should heal them.

16. But blessed are your eyes, for they see: and your ears, for they hear.

17. For verily I say unto you, That many prophets and righteous men have desired to see those things which ye see, and have not seen them; and to hear those things which ye hear, and have not heard them.

My witness to you in these Final Moments is: If You Love Christ Jesus, it is not your money or safety that matters. Living In God's Accord is the only Deliverance and Preservation any, anywhere will Know.

You must find that Relationship NOW, because the tune the legendary fat-lady mezosoprano is going to sing, will be the end of The Age of Faith. All will Know The Father IS Real and HIS Son Already Is Embarked Upon HIS Return.

Either In-HIM/Of-HIM, or apart.

There is no solution. Europe will default. The US will eventually default. Sure, a "hanging" could make an example and possibly prevent another MF Global, but it wouldn't fix the problem.

LawsofPhysics

Wrong, there will be a solution, it simply won't be one you like. Nature seems to always find one and I have no doubt it will again.

CommunityStandard

By solution, I meant a way to continue the status quo - to continue having large banks with large lobbies, (one) two political parties, cheap goods from China, gas in our cars, hot water in our showers, etc. Yes, there will be a RESOLUTION. I'm simply hesitant to call the major upheavals and required shared sacrifice a solution.

LawsofPhysics

Wrong again. There is never a resolution in Nature. That would imply an end and Nature is always evolving. Unless of course you are talking about the end of the earth when the sun runs out of fuel and implodes.

CommunityStandard

Bleh. I'm not talking about nature (or Nature or the end of the universe or God's ultimate plan, etc), I'm talking about the math problem that is the current economic situation. When given a math problem, the goal is to find a solution, i.e. an answer that solves the equation. There is no answer for this one. There is no solution that makes the math problem viable. There is only removing the problem entirely. That's not a solution.

However, I do understand your point - that civilizations rise and fall, countries prosper and default, and if you were to compare these economic cycles to nature, life will go on. At least I think that's what you're trying to say.

rwe2late

C - Standard. Removing from office and handing out appropriate sentences for the financial and war criminals who currently wield power may well be a necessary step both to "fix" things and "prevent" the recurrence.

 



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