Check the hands
Ilargi: The YoY Case/Shiller housing index came in ugly today. "S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, after a 4.6 percent drop in the 12 months ended in May that was the biggest since 2009." Still, I saw headlines that claimed "Case Shiller: Home Prices increased in June", this one at Calculated Risk. Here's thinking that's perhaps a little more optimism than we deserve.
Now, I know Bill McBride uses seasonally adjusted numbers, while S&P doesn't, but still. Creating the impression that the numbers were somehow positive does not seem warranted by developments, unless perhaps you work at the NAR or Fox, organizations that create their own reality. My problem with it is that it may induce people to make purchasing decisions they will live to regret, possibly for the rest of their lives.
I’m a big fan of CR, don't get me wrong, but this looks too much like spinning, and I wish it wouldn't happen. That "Home Prices increased in June" headline pops up in the same daily read as this from Bloomberg, based on exactly the same sets of numbers [..] "home prices declined for a ninth month." I rest my case. Here's Bill's own graph based on the data, you decide.
At about the same time the housing report came in, US consumer confidence was reported thusly: "The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July [..]. It was the biggest point drop since October 2008."
Luckily (?!) the US isn't alone: "European confidence in the economic outlook plunged in August by the most since December 2008 as a persistent debt crisis roiled markets and clouded growth prospects. An index of executive and consumer sentiment in the single-currency region fell to 98.3 from a revised 103 in July [..] "
European stock markets didn't even notice. Only Frankfurt was down. The idea seems to be: Consumers, who needs consumers? Sort of reminds you of the days of old, when "jobless recovery" was all the rage. Not so much now.
If European markets had any sense left, they'd have paid attention to the farce performed inside the EU/IMF/ECB troika over the weekend, with guest roles for the the International Accounting Standards Board (IASB) and the European Banking Authority (EBA).
But first, before I forget it, next week, on September 7, the German constitutional court will rule on the question whether European bail-outs are in accordance with a) German law and -possibly- b) EU law. There's a real possibility that the answer to both will be "no". And then we can have some real fun.
Christine Lagarde, new at the helm of IMF and formerly Finance Minister in France, said in Jackson Hole a few days ago that European banks need urgent recapitalization. ECB president Trichet and the European Commission’s economic chief, Olli Rehn, reacted as if Lagarde was some sort of raving lunatic. Here's thinking that's not wise if you want to hold on to what credibility you have left. It's not like she's not some dumb puppet that you can sweep aside at will. Other than despair, it's hard to see what would lead to such vehement reaction. Roland Gribben at the Telegraph writes:
EU rules out fresh capitalisation for Europe's banksA fresh round of capitalisation for European banks was firmly ruled out by EU officials and bankers when they appeared before an emergency meeting of the European Parliament's economic committee.
The officials poured cold water on calls from Christine Lagarde, head of the International Monetary Fund for "mandatory" recapitalisation to avoid another financial crisis but acknowledged that the EU economy was continuing to weaken.
Jean-Claude Trichet, president of the European Central Bank, said there was no shortage of liquidity in the European banking system. EU economic commissioner Olli Rehn insisted that the health of EU banks had improved over the last year.
Ilargi: That's just hilarious. These banks all on average lost, what, 50%+ in market value over the past year, but their "health" improved?!
No shortage of liquidity whatsoever, right? I wonder about that, seeing this from FT:
European officials round on LagardeEuropean officials rounded on Christine Lagarde on Sunday, accusing the managing director of the International Monetary Fund of making a "confused" and "misguided" attack on the health of Europe’s banks.
Ms Lagarde, the former French finance minister who replaced Dominique Strauss-Kahn as head of the IMF in July, used her address at an annual meeting of central bankers in Jackson Hole, Wyoming, to call for an "urgent" recapitalisation of Europe’s weakest lenders, saying that shoring up the banking system was key to cutting "chains of contagion" across the region.
But officials said Ms Lagarde’s comments missed the point of banks’ current difficulties. "The key issue is funding," said one experienced central banker. "Banks in some countries have had trouble securing liquidity in recent weeks and that pressure is going to mount. To talk about capital is a confused message. Everybody – politicians, regulators, other officials – is quite concerned."
Ms Lagarde’s allusion this weekend to the potential use of the European Financial Stability Fund, a €440bn bail-out fund, as a means to recapitalise banks by force, would be far better directed towards a liquidity solution, some officials said. No headway has been made towards the idea of EFSF-guaranteed bank bond issuance, they admitted, though that would be the "most sensible solution", according to one.
Jean-Claude Trichet, the president of the European Central Bank, separately dismissed any idea that Europe could face a liquidity shortage in his own Jackson Hole address, saying efforts to combat the financial crisis would prevent such an outcome. "The idea that we could have a liquidity problem in Europe" is "plain wrong," Mr Trichet said.
Ilargi: What? It's not about liquidity, it's about funding, says "one experienced central banker". But then: "[..] the potential use of the European Financial Stability Fund, a €440bn bail-out fund, as a means to recapitalise banks by force, would be far better directed towards a liquidity solution, some officials said." And Ms Lagarde is called "confused" and "misguided"?! These guys seem to give the term "speaking in tongues" a whole new meaning. A forked one.
A relatively unknown source comes to Lagarde's aid, as per Der Spiegel:
Watchdog Worried About Europe's Banking SectorThe head of Europe's banking watchdog has called for the euro rescue fund to provide direct aid to ailing banks to help calm markets. The head of the IMF made a similar demand, exposing an apparent rift with EU governments on how to handle the debt crisis. Berlin and the EU have rejected such changes.
The new powers of the euro bailout fund haven't even been signed off yet by the national parliaments, but there are already calls for its remit to be broadened, causing a fresh headache for Chancellor Angela Merkel.
The European Banking Authority, a supervisory body for banks in the European Union, wants the €440 billion ($635 billion) European Financial Stability Facility to provide direct capital injections to ailing banks. It is an attempt to reassure investors worried about the impact of the debt crisis on bank balance sheets, German business daily Financial Times Deutschland reported on Tuesday.
At present, the EFSF is only permitted to extend funds to individual countries, but those nations can pass the funds on to banks. Direct finance injections by the EFSF would speed up the process, and would in effect turn the fund into a stakeholder of the banks it helps. The demand was made in a letter being sent by EBA chief Andrea Enria to the European finance and economy ministers this week [..]
Ilargi: It's all about the dance around the EFSF. Lagarde wants it used to bolster EU banks. Trichet and his ilk deny that that is even needed. Thing is, it's not nearly large enough once Italy and Spain get squeezed, and the chances that it ever will be are as slim as the facility itself. Despite claims such as these by Christian Reiermann in Der Spiegel:
'The Crisis Will Be Over in Two to Three Years'Klaus Regling, the German CEO of the euro zone's bailout fund, the European Financial Stability Facility, is confident that the monetary union can overcome the current crisis. He considers the euro zone to be in a better position than the US when it comes to public debt, and accuses his fellow Germans of "hysteria." [..]
What is now taking shape at the EFSF's offices at 43, Avenue John F. Kennedy in Luxembourg City is the nucleus of a super-authority with which the 17 countries in the euro zone hope to save their currency. The amount of money it has at its disposal in the event of an emergency -- €440 billion ($634 billion) -- is three times as large as the entire European Union budget. The EFSF and the ESM will have a similarly important effect on the stability of the euro zone as the European Central Bank (ECB).
Birth of a European Monetary Fund
If German Chancellor Angela Merkel and French President Nicolas Sarkozy have their way, Regling's bailout fund will turn into a European Monetary Fund, which, like the International Monetary Fund (IMF), would monitor the financial and economic policies of its member states and, if necessary, come to their rescue with billions in bailout funds.
In some ways, the EFSF's powers go well beyond those of the IMF. The EFSF is supposed to be able to lend money to countries experiencing short-term liquidity problems and use its billions to stabilize tottering banks. The most important of the recent changes is that Regling will be able to intervene in the markets and buy up government bonds to stabilize their prices and yields.
Because the new tasks cannot be effectively addressed with the current workforce, Regling intends to double his staff from 12 to 24 employees in the course of the next year. But he "does not see the need at this time to increase the financial framework of the EFSF," says the 60-year-old CEO. Even when Greece receives help from the fund as part of the second bailout which was agreed at the July 21 summit of euro-zone leaders, more than half of the approved €440 billion will still be left over, Regling says.
Nevertheless, when the EFSF takes over the ECB's task of buying up debt-stricken countries' sovereign bonds in the fall, it could quickly run up against its limits. But Regling shrugs off such concerns. He doesn't say it, but he knows that the finance ministers in the euro zone would beef up his funds if necessary. German Finance Minister Wolfgang Schäuble and his Dutch counterpart, Jan Kees de Jager, have already indicated their willingness to do so.
Ilargi: De Jager has recently declared his firm opposition vs a larger EFSF, and though he shuffles around the musical chairs in the game as much as any politician, plans for a €2 trillion+ EFSF will lead to severe turmoil in Europe, and cost more than one politician his or her career. And they know it. These guys are very close to a check mate.
No matter how justified Lagarde's claims may be, Europe doesn't have the means to fund its banks, has neither the financial nor the political capital, as I've said many times before. And so it has to tear apart the troika that until just a few months ago seemed to be saving Europe. Lagarde is now free to make demands that neither Merkel nor Sarkozy can meet. But that doesn't mean these demands can be met.
There are more tricks being played under the table and behind the veil. Tricks without which reality would look much harsher. Adam Jones and Jennifer Thompson at FT report:
IASB criticises Greek debt writedownsIn a private letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. [..]
Financial institutions have slashed billions of euros from the value of their Greek government bond holdings following the country’s second bail-out. The extent to which Greek sovereign debt losses were acknowledged has varied, with some banks and insurers writing down their holdings by a half and others by only a fifth.
The letter did not single out particular countries or banks. But according to one person familiar with the correspondence, it reflected concern at the approach taken by BNP Paribas and CNP Assurances.
The French bank and insurer both announced 21% writedowns, as envisaged by last month’s Greek bail-out. They argued there were no reliable market prices to guide a "fair value" for Greek government debt because of their illiquidity and instead used a "mark to model" valuation. Banks and insurers that used market prices suffered a bigger hit. Royal Bank of Scotland wiped £733m from the value of a £1.45bn Greek government bond portfolio – a 51% cut.
Mr Hoogervorst challenged the justification for a "mark to model" approach and also the valuations these produced. "Although the level of trading activity in Greek government bonds has decreased, transactions are still taking place," he said. "It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated ... it is therefore difficult to justify that those models would meet the objective of a fair-value measurement."
Ilargi: Now that we're talking credibility, one thing seems obvious. If one bank writes down Greek debt by 20%, and another by 51%, you really need to wonder what the value is of a stress test, such as the one only recently completed in Europe. If such a test allows banks to assess the value of -part of?!- their assets on their own recognizance, then the test will be seen as completely useless. Again, it all smacks of despair. And frankly, it's hard to see what else is left for Europe to do.
But, what I wrote three weeks ago is still valid: The Markets Are Not Stupid. They can try, though... Irwin Stelzer in the Wall Street Journal puts it this way:
Telling World's Bankers How It Really IsThe problem in Europe is that politicians think they can fool the markets. Spain is amending its constitution to include a deficit cap in its constitution—the first country to respond to lender-in-chief Angela Merkel's demand that all supplicant nations do so—but the amendment does not include any actual deficit cap.
France has joined Ms. Merkel's call for balanced budgets, but has not balanced its own budget in 35 years, and is unlikely to do so soon as its economy is slowing, and will slow further when planned tax increases on capital gains, businesses, and the rich—who have published a Warren Buffet-style plea to have their taxes raised "reasonably"—are put into effect. Greece has promised to privatize large swathes of its economy, but has not so far sold off any significant assets. Italy has refused to undertake the structural reforms needed to end a decade of economic stagnation. Markets are appropriately skeptical, nay, cynical.
Ilargi: Spain, France, Italy, Greece, and feel free to add Portugal, Ireland and Belgium; they all make promises they know they can't keep. And internally they can get away with doing so because everybody knows that meeting the promises will be the end of the road. For all. The problem for them is the markets will not let them get away with it.
Having no credibility left, in the situation they're in, means they're done. Accepting that is just not something politicians and other power hungry folk give in to easily. They all have the same MO as Eurozone finance head Jean Paul Juncker: "When it becomes serious, you have to lie .... " They'd rather take down their entire nations with them than admit defeat. And that's what we're looking at.
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The Bigger Picture: Primer Guide Update
A world of debt: Global liabilities grow faster than GDP
by Saifur Rahman - Gulfnews
Mankind is reeling under a whopping $158 trillion debt pile that, according to analysts and economists, might get out of hand if not dealt with carefully. Gulf News takes a look at how this massive debt pile was created and how the world can get out of this mess...
Every human being on earth currently carries a debt burden of nearly $22,733 on average, if the latest reports are to be believed. Every child is sharing the same debt burden at birth, as debt growth rates beat the global population growth rate. In fact, debt liabilities are growing faster than GDP expansion rates. Overall outstanding debt worldwide has more than doubled in the past ten years to $158 trillion (Dh580 trillion) in 2010, up from $78 trillion in 2000, according to a recent report by global consultancy McKinsey.
The global population is currently estimated at 6.95 billion, whereas worldwide gross domestic product (GDP) reached $74.54 trillion last year. This translates to a per capita GDP of $10,500, which is less than half of the per capita debt burden of $22,733. In theory, this makes the human population a ‘bankrupt' race and financially the most dangerously exposed and vulnerable in its history. If you think this is bad, then wait for the worst news: The debt toll is rising and it will be higher next year.
The global debt trap
The global debt of $158 trillion includes $41.1 trillion incurred by governments worldwide up to last year, accounting for 69 per cent of global GDP. This is expected to rise to $46.12 trillion in 2012, according to the Economist Intelligence Unit (EIU). "Debt also grew faster than GDP over this period, with the ratio of global debt to world GDP increasing from 218 per cent in 2000 to 266 per cent in 2010," McKinsey said.
Around $48 trillion of the total debt outstanding was that of governments and financial institutions. In both the US and Western Europe in 2010, the ratio of public debt stood at more than 70 per cent of the GDP, McKinsey said. "Developed countries may need to undergo years of spending cuts and higher taxes in order to get their fiscal houses in order," it added.
Many governments in the developed world have resorted to massive stimulus measures to bolster their economies since the 2008 global financial meltdown. "Public debt outstanding [measured as marketable government debt securities] stood at $41.1 trillion at the end of 2010, an increase of nearly $25 trillion since 2000. This was equivalent to 69 per cent of global GDP, or 23 percentage points higher than in 2000. In just the past two years, public debt has grown by $9.4 trillion — or 13 percentage points of GDP," McKinsey said.
The government debt worldwide was $31.7 trillion in 2008. Last year alone, government debt accounted for about 80 per cent of the overall growth in total outstanding debt. World governments owe the money to their own citizens and lenders. The rising total debt is important for two reasons.
First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future, EIU explains in its global debt clock — which is ticking every second. "Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week," it says.
"Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have."
Greece, Ireland, Portugal, Spain, the UK and the US are caught in a debt trap. For some governments, the only escape is to do the same things that an average household must do when it can't make ends meet — sell off assets, slash spending, scrape for extra earnings, downsize, and make sacrifices. They are cutting healthcare and pensions for millions of citizens, laying off hundreds of thousands of government employees, or worse. For others, like the US, the primary response so far has been to run the money printing presses — all with untold consequences.
The national debt of the United States — the world's biggest economy — reached $14.62 trillion in recent months — close to its GDP. According to the IMF, US public debt will reach 99 per cent of its $14.65 trillion GDP in 2011 and 103 per cent in 2012. In the United States, debt per citizen is more than double the global average, standing at $46,884, while its burden per taxpayer has reached a whopping $130,662 — according to US Debt Clock.
Born into debt
"Every American born today owes $46,884 to the federal government the day she or he is born. And we are transferring a tremendous amount of debt to the new generation, much of it owed to overseas creditors who expect to be repaid by our children with interest," US Senator Mark Kirk said recently. The latest push to raise America's debt limit of $14.29 trillion by $2.4 trillion earlier this month that placed the country's policymakers in direct confrontation with opposition politicians — is another example of how difficult things could become. By August 2, a possible US default was creating a worldwide panic.
But how did all this happen? The US Treasury has borrowed trillions of dollars over the past decade, much of it from foreign investors, to help finance two long wars, rescue its financial system, and promote economic growth through fiscal stimulus. "The government must be able to issue new debt as long as it continues to run a budget deficit — the current shortfall is about $125 billion per month," Jonathan Masters, Associate Staff Writer, of Council on Foreign Relations, says. The debt limit was instituted with the Second Liberty Bond Act of 1917, and Congress has raised the cap 74 times since 1962.
"It took the first 204 years of our nation's history to accumulate $1 trillion in debt. And now we are doing that every two or three years," Jim Cooper, US Congressman, said. The Budget Control Act of 2011 of the US now allows up to a $2.4 trillion rise in the debt ceiling (in three tranches), and immediately institutes ten-year discretionary spending caps totalling nearly $1 trillion.
Eurozone — the trouble zone
"In recent months the major areas of uncertainty for the global economy have revolved around the crisis in the Eurozone, the future path of monetary and fiscal policy in the United States, and the fight against inflation in emerging markets," says Ira Kalish, Director of Global Economics, Deloitte Research. "Failure to resolve these issues will have a negative impact on global growth and stability."
In its report, Deloitte Research says, despite the problems in the housing market and sovereign debt in Europe, the case for growth in the United States seems to be more compelling at the moment. "As for Europe, recovery will depend on implementing a permanent solution to the debt crisis. Lowering inflation and steadily increasing average earnings will be key to recovery in the United Kingdom," it says.
The authorities in Europe and the US must focus on radical structural reform that brings hope to the markets that the debt situation is being seriously tackled, feels Gary Dugan, chief investment officer for Private Banking at Emirates NBD. "Investors now recognise the Eurozone is at the epicentre of the world's fears. As the dust settles on problems in the United States [at least for the moment] investors have come to recognise the Eurozone as the weakest link in the global economy," Dugan says.
"Whilst the United States faces its own problems as an integrated economy it has the ability to address its problems far quicker than the Eurozone. In Europe it is incumbent upon each government to address its problems separately with only mild pressure from the European Central Bank [ECB] or the European parliament. "Rules that were in place about how much debt a country can have and how much of a budget deficit any country can run in any one particular year have largely been ignored and now lack credibility."
None of the rules are working anymore, it seems. In fact, the rules of managing economies have changed drastically. Where this will land the human race — no one knows, including bankers and economists.
Market volatility
The last two weeks have been a rollercoaster ride in the markets. Already concerned about signs of economic weakness, investors have reacted dramatically to the dysfunction in Brussels, Frankfurt and Washington. European policymakers have responded to their crisis with a series of indecisive measures, including a counter-intuitive tightening of monetary policy by the European Central Bank, said a Bank of America Merill Lynch report. "Apparently, we are told, raising interest rates can control inflation without hurting growth or financial markets.
"Closer to home, fiscal authorities have bombarded the markets with a quadraphonic message of hopelessness: 1. The US has a huge fiscal problem, 2. They are too dysfunctional to deal with it, 3. Threatening to default on the debt is an acceptable form of negotiation, and 4. We will continue to tighten policy regardless of how the economy is doing," it said.
"Unfortunately, this leaves the Fed in a familiar spot, cleaning up everyone else's mess. Back in 2008, the Fed was left to deal with the emerging financial crisis, while the ECB hiked rates and Congress refused to take any action, until the stock market was in full collapse."
Ben Bernanke, Chairman of the US Federal Reserve, has pointed out that monetary policy cannot solve all of the world's problems. Moreover, each new round of unconventional policy is likely to have a smaller effect than the last. "This is particularly the case when the Fed faces a bevy of dissent from both inside and outside the Committee," Ethan S. Harris, Economist at BofA Merill Lynch, said.
Nonetheless, the Fed is not impotent. However, there are two reasons for concern. First, a number of sectors have yet to recover from the previous crisis. Banks have rebuilt their capital and are in better shape. However, both the housing sector and state and local governments are quite vulnerable. If the economy does go back into recession, it could reignite the negative feedback loop between employment, home prices and mortgage delinquencies, BofA economists argue.
Hope against hope
The best case for a recovery is that the market panic stops and some of the recent shocks fade. Oil prices have already come off their highs and Japanese supply chains are recovering from the impact of the recent earthquake and tsunami. Moreover, while the Fed has no room to cut interest rates, the ECB and most emerging market central banks have room to ease, it says. "Europe could take the big step of fiscal integration and centralised debt financing—this is the natural end game for the union. Over the longer term, we could see a pickup in foreign investment, a re-opening of immigration to skilled workers and a productivity boom triggered by technological innovation," it says.
While risks are skewed to the downside, the economy will continue to recover slowly. "The recovery will likely come in fits and starts, and we should not be surprised if there are more dead spots that may feel like a recession. "We learned from historical episodes that the healing process from a balance sheet recession is slow and often bumpy," Harris says.
How and why did the world get into this huge ‘trap’?
To begin with, it is the advanced or developed industrialised countries that have a huge and unsustainable debt problem, says Dr Nasser Saidi, chief economist of Dubai International Financial Centre (DIFC). By contrast, emerging market economies (with few exceptions) have healthy national balance sheets, strong macro-economic conditions and sound fiscal policies. The OECD forecasts that advanced economies — without major corrective changes in fiscal policies — will have debt to GDP ratios in excess of 115 per cent by 2015.
What led to this growing debt problem? "We need to distinguish between secular, trend factors that underlie government budget deficits and debt accumulation from cyclical factors and the results of interventionist government policies," says Dr Saidi.
The trend factors are related to the demographics of ageing populations in advanced economies (Japan, Europe and to a lesser extent the US) and the role of entitlement and health policies: social security, national health programmes (Medicare, Medicaid).
The ageing population that characterises Japan, Europe and the US has contributed to the current situation in two ways. First of all, an uneven growth of working-age and retirement-age population means that a decreasing number of tax-payers have to provide the financial resources for an increasing number of people that become eligible for old-age pensions, he explains. "There is large transfer of resources from the young to the elderly causing the generation that is entering the job market now to finance not only their own future retirement, but also of their parents. Rather than increase the taxation burden [considered high already in Europe] politicians have taken the easy way out: increased borrowing," he says.
"The political cycle in advanced economies is heavily biased towards running deficits and increasing debt. The related issue is that people are living longer: life expectancy in the advanced economies has increased from an average 71 years in 1970 to 78 years in 2009. This results in higher public [and private] spending on health and medical as well as other entitlements and growing budget deficits."
The cyclical factors relate to the impact of the Great Contraction and the Great Financial Crisis. Recessions typically lead to increased government spending through the operation of automatic fiscal stabilisers (e.g. unemployment benefits) while tax revenues decline as a result of lower income; the result is higher deficit spending and debt accumulation.
This expected deficit increasing cyclical effect was exacerbated by unprecedented fiscal stimulus, bail-outs of banks and financial institutions and the ‘socialisation' of private debt, when governments and central banks took over liabilities from insolvent banks and financial institutions and other sectors (e.g. car industry). "In the US the situation was aggravated by loose monetary and fiscal policies after 2001, leading to both public and private sector dissaving and reversing a string of government budget surpluses from 1998 to 2001 [with a peak in 2000 when the surplus amounted to $236 billion (Dh866.8 billion]," Dr Saidi argues.
"A policy of low interest rates encouraged private sector dissaving and greater household indebtedness [mortgages in particular], while military spending surged in association with wars in Iraq and Afghanistan. "The US moved from being a net capital exporter to a capital importer, absorbing some two thirds of global saving over the period 2004-2006, resulting in the ‘global imbalance'."
What is the way out?
There is no easy way out.
Advanced economies will require deep and sweeping reforms to their taxation systems and to their entitlement programmes. Fiscal sustainability requires higher tax rates and the countering of demographic pressures, Dr Saidi says. "The choices are stark and limited: retirement ages need to be gradually extended to 70 or higher, given increased life expectancy; this should be accompanied by a reduction in the size and coverage of entitlement programmes," he says.
For the US, the long term fiscal sustainability menu will need to include a major reduction in military expenditures and agricultural subsidies. For Europe, dealing with the demographics will also entail loosening of the strict emigration policies in place now: Europe has to draw on the relatively young populations of the Southern Mediterranean in order to pay for its pensions.
None of the above choices are politi cally palatable and we should not expect governments to willingly take hard choices. "The lessons from history are clear: faced with large debt burdens, governments are unlikely to substantially increase taxation or effect permanent reductions in spending; they are more likely to default or reduce the real value of their obligations through inflation," he says.
To convince their creditors and financial markets, governments will need to invest in credible institutions. Increasingly, governments are turning towards setting up of independent fiscal advisory councils and the adoption of fiscal rules. "Such fiscal councils should also be adopting new and different ways of looking at governments fiscal accounts. We should move toward ‘generational accounting' systems: a method for estimating the economic impact of fiscal policy on different generations — including future ones. "The idea is to evaluate the intergenerational effects of alternative government fiscal policies," he says.
But Saidi says to keep the economic growth momentum, governments are forced to spend, rather than repay debts. Modern political systems — in advanced economies predominantly — have a built-in bias to deficit spending. Most spending once instituted is difficult to roll back and raising taxes is not a vote getter, he explained.
"This is exacerbated by the political cycle and short-time horizon of governments and elected politicians: if you are elected for three to four years or you are a government with a short expected lifetime, you will tend to spend, not tax in order to get re-elected or to pass the consequences of your fiscal follies to subsequent governments," he says.
Income disparity
Of the global population, nearly half or 3.25 billion earn less than $2 (Dh7.3) a day, whereas the number of millionaires has obly crossed ten million — reflecting a widening wealth gap that could threaten social stability. According to the latest World Wealth Report by Merill Lynch and Capgemini, the population of global high networth individuals (HNWI) increased 8.3 per cent last year to 10.9 million and HNWI financial wealth grew 9.7 per cent to reach $42.7 trillion. The global population of Ultra-HNWIs grew by 10.2 per cent in 2010 and its wealth by 11.5 per cent.
"In its beginnings, the credit system sneaks in as a modest helper of accumulation and draws by invisible threads the money resources scattered all over the surface of society into the hands of individual or associated capitalists. "But soon it becomes a new and formidable weapon in the competitive struggle, and finally it transforms itself into an immense social mechanism for the centralisation of capital."
However, the rising debt toll is becoming the single biggest headache for governments and economists worldwide and is gradually reaching a point where no one can protect humans from ‘insolvency'. The Arab spring is a reminder of how things can flare up if not dealt with properly.
Three years after Lehman, a new debt crisis looms
by Larry Elliott - Guardian
Economic recovery has proved both slow and costly, and the risk remains of a relapse into recession
The F word is back. Back in the financial markets, back in the conclaves of central bank governors, back among the manufacturers and the high-street retailers. The four-letter word is fear.
Back in the spring, few imagined that we would be approaching the third anniversary of the collapse of Lehman Brothers on 15 September with such a sense of unease. The belief in early 2011 was that economic recovery was now well enough embedded for central banks to start raising interest rates and for finance ministries to crack on with the job of reducing budget deficits.
Although pockets of optimism remain, the mood today is different. Ben Bernanke, the chairman of the Federal Reserve, has said the US central bank will discuss possible ways to stimulate growth when it meets next month. The Bank of England appears to be heading in a similar direction. There is anxiety at the International Monetary Fund that blanket austerity will tip fragile western economies back into recession. Concerns are once again being expressed about the health of the banks, about America's national debt and, above all, about whether the eurozone can survive its current crisis intact.
Standard Chartered and HSBC were the two UK-based banks to emerge relatively unscathed from the first financial crisis, partly because their global reach allowed them to benefit from the rapid recovery in Asia. This, though, is how the chief economists at the two banks see things.
"America is drowning in debt, Europe is imploding as problems in the euro area intensify, while, in contrast, Asia's economy is cooling, as growth rates moderate from a strong to a solid pace," says Gerard Lyons at Standard Chartered. Putting the possibility of a recession in the US as high as one in three and of an eventual euro crisis as high as one in two, Lyons adds: "It should be little surprise that there is increased uncertainty and heightened risk aversion across financial markets."
Stephen King at HSBC describes the world as a "frozen economic tundra", with the power of central bankers to influence events on the wane. "After the Great Recession, there has sadly been no 'Great Recovery'," King says. He too is unsurprised that investors are rushing for the exit, given the bickering between Democrats and Republicans on how to tackle America's budget problems, and the inability of Europe's politicians to sort out the single currency.
"The west is increasingly looking like a bad version of Japan. And, like Japan, our political leaders are offering few answers."
Collapse
This is not how it was supposed to be. It took time for policymakers to comprehend the enormity of the shock administered to the global economy by the collapse of the US housing market, but once the penny dropped in the autumn of 2008, they were at pains to show that lessons had been learned from the 1930s. Banks were recapitalised to prevent them from going bust, interest rates were slashed, money was created, public spending was increased.
To widespread relief, there was no second Great Depression. Unemployment in the US rose to almost 10% but not the 25% seen in the 1930s. Industrial production and international trade started to pick up in the spring of 2009. By and large, countries resisted the temptations of protectionism.
Over time, however, it has become clear that the recovery has been both slow and costly. If it is aborted, the risk is that the global economy will return to where this all started in 2007, with another crisis in the banking system. The recovery has been slow because the crisis was caused by over-indebtedness among private individuals and banks.
Both, in the jargon of the markets, were over-leveraged: they had borrowed an awful lot of money, in other words, in anticipation of asset prices going up and up. When the bubbles burst, households and banks realised how exposed they were. As a result, they started to pay off their debts and even when the cost of borrowing came down to virtually zero, the demand for credit remained weak.
As HSBC's King notes: "The ambient noise of deleveraging is now deafening." But western economies have become so dependent on debt-driven growth in the good years that they are finding the sobering-up process painful. As things stand, it will take the UK longer to return to pre-recession levels of output than it did in the 1930s.
What's more, this lacklustre recovery has not come cheap. As private demand fell, governments stepped up their spending. They cranked up the electronic printing presses, they bought shares in banks and they allowed budget deficits to balloon, gambling that any damage to the public finances would be temporary. Again, things have hardly gone according to plan.
Quantitative easing has proved a double-edged sword: it has flooded financial markets with cash and may well have underpinned activity. But it has also pushed up commodity prices, leading to higher inflation and a squeeze on real incomes that has held back recovery.
By effectively nationalising a good chunk of the debts accumulated by the private sector, western governments have now raised concerns about their own solvency. The US has seen its credit rating downgraded; Europe's problems are even more acute after bailouts for Greece (twice), Ireland and Portugal, followed in the past month by emergency action by the European Central Bank to drive down the interest rate on Italian and Spanish bonds.
Just as in the summer of 2008, the assumption is that the global economy will experience a slowdown but not a full-blown contraction. Central banks are still providing massive amounts of monetary stimulus through record-low interest rates, even though finance ministries are tightening fiscal policy by raising taxes and trimming spending. Large corporations outside of the banking sector have money in the bank that could be used for new investment. And consumers should feel better off next year as inflation falls.
Soft landing
Financial markets want to believe the "soft landing" scenario but somehow can't quite bring themselves to do so. The fear comes from the knowledge that commercial banks in Europe are up to their eyeballs in sovereign debt from the weaker peripheral countries, so a default would trigger a feedback loop back into the financial system. Banks have more capital than they had three years ago and are less heavily leveraged. Yet there are doubts about whether they could survive a double-dip recession. And until consumers are spending more freely, there will be a temptation for companies to hoard their cash rather than invest it.
Economic downturns usually go through five distinct phases: bubble, denial, acceptance, panic and recovery. This fifth phase officially started two and a half years ago, but the drip-drip of disappointing news from the around the world in recent weeks has made financial markets highly averse to taking risks. Higher unemployment, slower growth, currency tensions have all led to a rush for safe havens.
The markets are now wondering whether this is one of the rare crises that has a sixth phase – relapse. At root, the suspicion is that the problems that caused the crisis in the first place have not been solved, that politicians are offering weak leadership, and that the next few months could see the start of phase two of the Great Contraction.
IASB criticises Greek debt writedowns
by Adam Jones and Jennifer Thompson - FT
Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules.
In a private letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. "This is a matter of great concern to us," Hans Hoogervorst, IASB chairman, said in the letter, which was seen by the Financial Times.
People familiar with the IASB’s letter said the intervention was unprecedented and reflected its belief that some European companies had not been making enough provisions for Greek sovereign debt losses.
Financial institutions have slashed billions of euros from the value of their Greek government bond holdings following the country’s second bail-out. The extent to which Greek sovereign debt losses were acknowledged has varied, with some banks and insurers writing down their holdings by a half and others by only a fifth.
The letter did not single out particular countries or banks. But according to one person familiar with the correspondence, it reflected concern at the approach taken by BNP Paribas and CNP Assurances.
The French bank and insurer both announced 21 per cent writedowns, as envisaged by last month’s Greek bail-out. They argued there were no reliable market prices to guide a "fair value" for Greek government debt because of their illiquidity and instead used a "mark to model" valuation. Banks and insurers that used market prices suffered a bigger hit. Royal Bank of Scotland wiped £733m from the value of a £1.45bn Greek government bond portfolio – a 51 per cent cut.
Mr Hoogervorst challenged the justification for a "mark to model" approach and also the valuations these produced. "Although the level of trading activity in Greek government bonds has decreased, transactions are still taking place," he said. "It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated ... it is therefore difficult to justify that those models would meet the objective of a fair-value measurement."
Separately, EU officials insisted on Monday that bank capitalisation levels were adequate. "EU banks are significantly better capitalised now than they were one year ago," said Olli Rehn, the European Commission’s economic chief.
Watchdog Worried About Europe's Banking Sector
by Spiegel
The head of Europe's banking watchdog has called for the euro rescue fund to provide direct aid to ailing banks to help calm markets. The head of the IMF made a similar demand, exposing an apparent rift with EU governments on how to handle the debt crisis. Berlin and the EU have rejected such changes.
The new powers of the euro bailout fund haven't even been signed off yet by the national parliaments, but there are already calls for its remit to be broadened, causing a fresh headache for Chancellor Angela Merkel.
The European Banking Authority, a supervisory body for banks in the European Union, wants the €440 billion ($635 billion) European Financial Stability Facility to provide direct capital injections to ailing banks. It is an attempt to reassure investors worried about the impact of the debt crisis on bank balance sheets, German business daily Financial Times Deutschland reported on Tuesday.
At present, the EFSF is only permitted to extend funds to individual countries, but those nations can pass the funds on to banks. Direct finance injections by the EFSF would speed up the process, and would in effect turn the fund into a stakeholder of the banks it helps. The demand was made in a letter being sent by EBA chief Andrea Enria to the European finance and economy ministers this week, the newspaper reported.
The move is intended to help to calm markets after French and Italian banks suffered steep share price falls on worries about their financial health, prompting France, Italy, Spain and Belgium to impose short-selling bans on financial stocks. Pressure on European banks to raise more capital increased in July after European stress tests found that eight banks failed to meet capital requirements.
Enria's letter fuels pressure on euro-zone governments to do more to tackle the European debt crisis after the new head of the International Monetary Fund, Christine Lagarde, urged the EU on Saturday to force its banks to beef up their capital.
Rift Between EU and IMF?
Lagarde, speaking at a meeting of central bankers in Jackson Hole, Wyoming, on Saturday, urged politicians to "act now" to counter global economic risks. "Banks need urgent recapitalization," said Lagarde, the former French finance minister. "The most efficient solution would be mandatory substantial recapitalization -- seeking private resources first, but using public funds if necessary."
EU and German officials rejected Lagarde's demand on Monday, saying there was no need for further recapitalization over and above measures that have already been taken after the last stress tests. The apparent rift between the EU and IMF in the assessement of the risk to banks and the measures needed to contain them could heighten market concerns about how the debt crisis is being handled.
"We see the concern but have already taken measures," a spokeswoman for German Finance Minister Wolfgang Schäuble said on Monday in response to Lagarde's comments. The spokeswoman added that tougher equity capital standards were already being adopted under the Basel III accord on capital adequacy, agreed in response to the 2008 financial crisis.
Merkel can ill afford to back even greater powers for the EFSF because a number of parliamentarians in her center-right coalition are already unhappy with planned changes to the fund agreed at the EU summit on July 21. Merkel's majority is at risk in a crucial parliamentary vote on those changes due to be held at the end of September.
The July 21 deal gave the bailout fund new powers to assist countries before they are shut out of credit markets and to buy government bonds in the secondary market. Those changes, commentators say, have put the euro zone on the path to a fiscal union, and lawmakers from Merkel's coalition are worried that the reforms will enshrine a lasting system in which German taxpayers are made to foot the bill for rescuing spendthrift nations.
'The Crisis Will Be Over in Two to Three Years'
by Christian Reiermann - Spiegel
Klaus Regling, the German CEO of the euro zone's bailout fund, the European Financial Stability Facility, is confident that the monetary union can overcome the current crisis. He considers the euro zone to be in a better position than the US when it comes to public debt, and accuses his fellow Germans of "hysteria."
The picture, a Balinese island landscape, is still leaning against the wall where it was a year ago. Back then, the European Financial Stability Facility (EFSF) had just recently been set up, and its chief executive officer, Germany's Klaus Regling, was too busy to hang the souvenir from Indonesia on the wall.
He is still just as busy today. Three European bailout packages later, it is clear that the EFSF and the European Stability Mechanism (ESM), which will succeed it in 2013, will have even more to do in the future. European heads of state and government recently decided to substantially upgrade both funds.
What is now taking shape at the EFSF's offices at 43, Avenue John F. Kennedy in Luxembourg City is the nucleus of a super-authority with which the 17 countries in the euro zone hope to save their currency. The amount of money it has at its disposal in the event of an emergency -- €440 billion ($634 billion) -- is three times as large as the entire European Union budget. The EFSF and the ESM will have a similarly important effect on the stability of the euro zone as the European Central Bank (ECB).
Birth of a European Monetary Fund
If German Chancellor Angela Merkel and French President Nicolas Sarkozy have their way, Regling's bailout fund will turn into a European Monetary Fund, which, like the International Monetary Fund (IMF), would monitor the financial and economic policies of its member states and, if necessary, come to their rescue with billions in bailout funds.
In some ways, the EFSF's powers go well beyond those of the IMF. The EFSF is supposed to be able to lend money to countries experiencing short-term liquidity problems and use its billions to stabilize tottering banks. The most important of the recent changes is that Regling will be able to intervene in the markets and buy up government bonds to stabilize their prices and yields.
Because the new tasks cannot be effectively addressed with the current workforce, Regling intends to double his staff from 12 to 24 employees in the course of the next year. But he "does not see the need at this time to increase the financial framework of the EFSF," says the 60-year-old CEO. Even when Greece receives help from the fund as part of the second bailout which was agreed at the July 21 summit of euro-zone leaders, more than half of the approved €440 billion will still be left over, Regling says.
Nevertheless, when the EFSF takes over the ECB's task of buying up debt-stricken countries' sovereign bonds in the fall, it could quickly run up against its limits. But Regling shrugs off such concerns. He doesn't say it, but he knows that the finance ministers in the euro zone would beef up his funds if necessary. German Finance Minister Wolfgang Schäuble and his Dutch counterpart, Jan Kees de Jager, have already indicated their willingness to do so.
Profitable Business
Regling believes that the bond purchases are a profitable business for the ECB, as they will also be for the EFSF later. The central bank, he says, buys the bonds at a discount. If it held the securities until maturity, it would receive their face value. "It keeps the difference as profit," he explains.
Of course, such demonstrative confidence is all part of Regling's job. In a sense, he is a global salesman for the euro. His goal is to make it clear to international investors that an investment in the common currency is worthwhile in the long term, because the member states, with his help, will do everything in their power to keep the euro.
At times, Regling exudes optimism to the point of excess. "The fundamentals are improving in all countries in the euro zone," he says. According to Regling, the currency zone is in a better position than the United States and Japan when it comes to government debt and budget deficits. "For example, the US deficit is three times as high as the deficit in the euro zone," he says. In addition, he points out, austerity plans have been approved for each country in the currency zone, something which the United States is a long way from doing.
Does it concern him that the financial markets are in turmoil because of the problems in Europe? Not really, it seems. Ireland, for example, has already overcome the worst, he says, adding that the country has regained a large part of its competitiveness. "The financial markets just need to properly recognize that."
With regard to the financial markets, Regling says, "the crisis confirms that markets sometimes act unpredictably and irrationally." Now that he is on the subject, the rescuer of the euro takes aim at his fellow Germans. "To a certain extent, hysteria reigns in Germany," says Regling. The Germans, in his view, believe that things can always get worse. "But that isn't true. The signs point toward improvement."
'The Currency Union Is Not Going to Break Apart'
Regling also views all the manic fear in Germany of a so-called transfer union as "nonsense." In the "only case of insolvency in the euro zone," namely Greece, only private-sector creditors -- and no public ones -- have been asked to contribute so far. "Only if Greece was expelled from the currency union, as some economists have demanded, would there be a high probability of transfer payments," he says. At that point, the country would no longer be able to pay back the loans it had taken out from its partner countries, which would continue being denominated in euros.
Indeed, Regling's long-term faith in the euro remains unshaken. "The currency union is not going to break apart, because strong and weak countries have a common interest in its survival." The economic price of its failure would be too high, he says. "The chances that the euro will be abandoned by anyone, no matter who, are practically zero."
The fact that things have already almost reached that point in the past doesn't change Regling's mind. A year ago, he predicted that "the most likely scenario" was that he and his EFSF would not actually have to intervene. The facility's very existence would be enough to calm the markets down, he argued at the time.
However, things turned out differently. Sometimes an optimist is nothing but a person who refuses to let themselves be discouraged by their own mistakes. Indeed, Regling believes that there is "good reason to hope that the crisis will be over in two to three years' time." The precondition for this, he adds, is that the euro-zone countries continue their austerity and reform plans and that the global economy doesn't collapse.
Lagarde spells out ugly truth on debt
by FT Editorial Staff
Jackson Hole may be a central bankers’ conference, but the most important thing to come out of this year’s gathering had nothing to do with central banking policy.
Christine Lagarde has said publicly what most policymakers have avoided addressing since the crisis began. Using her new bully pulpit at the International Monetary Fund she has conceded that the common problem facing the developed world is an excessive overhang of claims on debt that financed worthless investments. These claims will have to be liquidated, and the quicker the better.
Ms Lagarde deserves praise for spelling out the problem and issuing a call to action. But to resolve it also requires policymakers to decide where the losses should fall. She thinks they should land on taxpayers; this is wrongheaded. She focused on two big risks: the continuing frailty of European banks, and the continuing house price falls in the US and the growing number of homeowners trapped in negative equity.
Both threaten the recovery. Doubts about the health of European banks, could, if untreated, lead to another credit squeeze. The recent round of stress tests has not dispelled fears that undercapitalised institutions have been banking on a recovery to allow them to retain sufficient earnings to repair balance sheets. Meanwhile, the US mortgage mess crimps consumer spending by saddling distressed homeowners with excessive liabilities and preventing them from moving to where the jobs are.
What is welcome is Ms Lagarde’s willingness to embrace radical responses to both. In Europe, she endorses tougher stress-tests and a more coercive approach to balance-sheet repair. This newspaper could not agree more. In the US, she calls for writing-off more of the principal on mortgages. It will be vital to distinguish between mortgages that were recklessly extended and those that were not.
Where the FT disagrees, is in Ms Lagarde’s willingness to allow taxpayers to act as unpaid lifeguards for the financial system – rescuing the banks if private investors will not. This shifting of risk from bondholders was a bad idea in Ireland and generalising it across the eurozone will not improve it. It would be better to fill capital holes by mandatory debt to equity swaps that put unsecured bondholders where they belong – behind both taxpayers and depositors.
But if Ms Lagarde does not have all the answers she has at least started the debate. Now politicians need to show similar courage and look reality unsparingly in the eye.
Telling World's Bankers How It Really Is
by Irwin Stelzer - Wall Street Journal
She came to Jackson Hole, Wyo., to speak truth to the confessedly powerless. And because Christine Lagarde, head of the International Monetary Fund, is not a central banker, but a politician, she could speak truth in the simple language that politicians understand.
Here we have Jean-Claude Trichet, head of the European Central Bank, on Saturday: "Smooth factor sustainability could rid us of the Harrod-Domar boom-bust cycle." Surely a rallying cry that will resonate in the corridors of power in Berlin, Washington, Brussels, Paris and wherever policy makers gather. Add to that Federal Reserve Chairman Ben Bernanke's confession of virtual impotence and his insistence that the next moves to prevent another recession are up to politicians, not the central bankers, who have almost run out of ammunition.
This is a view in which Mr. Trichet implicitly concurs when he says that future growth will depend on the pace of technological progress, productivity, the removal of economic rigidities and all of the things repeatedly addressed at the serial meetings and by the serial pronouncements of European politicians, but beyond the purview of central bankers.
Since central bankers feel they can do little more than fiddle while the European and U.S. economies burn out, and often speak in a language that is inaccessible, it is worth attending to Ms. Largarde's (mostly) plain speaking. The IMF managing director said straight out what the central bankers could only hint at, that the "dangerous new phase" into which the world economy is entering is exacerbated by the fact that "policy makers do not have the conviction" to take the decisions necessary to meet the crisis.
Most of all, they need to force the recapitalization of Europe's banks, using public funds if need be, a view vehemently rejected by Brussels. Ms. Lagarde was implying that the stress tests imposed on euro-zone banks only a short while ago were a nonsense—almost all banks passed muster, something she hailed as a sign of the sector's strength when she was France's finance minister. But new office, new perspective.
There is no question that the Greek banking system has proved to be the Achilles' heel of the euro zone: We can't yet tell whether this weekend's merger of the nation's second- and third-largest lenders will significantly strengthen the sector. With the economy likely to decline this year by 5% or more, rather than by the 3.8% Greece's finance minister predicted only last month, panicked depositors are withdrawing funds, moving them out of the country or into vaults and mattresses, or simply using the savings to make up for lost wages. All in all, some €50 billion ($72 billion) has been pulled out of Greek banks by households and businesses, a 20% drop from the September 2009 deposit peak.
But Greece shouldn't bear all of the blame for the 25% decline in European bank shares this year. Investors worry that German banks are exposed to shaky sovereign debt and French banks even more so, and that all of Europe's banks are having trouble raising funds. U.S. money-market funds are fleeing European exposures; banks are refusing to lend to one another, preferring to hoard cash by depositing it at Mr. Trichet's ECB; and what lending there is is for short periods, often shorter than a week. As the Economist puts it, in the markets on which the banks rely for funding, "the life is being squeezed out of Europe's banks."
This and the impending recession are avoidable, say the trio of Mr. Bernanke, Mr. Trichet and Ms. Lagarde, if only the politicians would act. In America, address the issue of "fiscal sustainability" without disregarding "the fragility of the current economic recovery" (Bernanke), and cut the deficit with both tax increases and spending cuts (Lagarde); in the euro zone vigorously implement structural reforms in the labor market and distribute wealth so as "to ensure some acceptable social balance" (Trichet); in Europe recapitalize the banks, and in China allow the currency to appreciate, boosting domestic demand and "rebalancing" world trade (Lagarde).
Which brings us back to the IMF managing director's charge that policy makers lack the conviction to make these policy decisions. It is fruitless to ask Europe's politicians to honor the broken promises of reform enshrined in EU treaties for two decades, or to ask President Barack Obama to restore civility to American political discourse by holding a tea party for his Republican opponents. They won't, at least until—or perhaps even if—bad morphs into worse.
The problem in Europe is that politicians think they can fool the markets. Spain is amending its constitution to include a deficit cap in its constitution—the first country to respond to lender-in-chief Angela Merkel's demand that all supplicant nations do so—but the amendment does not include any actual deficit cap.
France has joined Ms. Merkel's call for balanced budgets, but has not balanced its own budget in 35 years, and is unlikely to do so soon as its economy is slowing, and will slow further when planned tax increases on capital gains, businesses, and the rich—who have published a Warren Buffet-style plea to have their taxes raised "reasonably"—are put into effect. Greece has promised to privatize large swathes of its economy, but has not so far sold off any significant assets. Italy has refused to undertake the structural reforms needed to end a decade of economic stagnation. Markets are appropriately skeptical, nay, cynical.
It would have been easier for Italy and other countries to make the needed changes in policy when rapid growth enabled Ms. Merkel to call on Germans' better natures and willingness to support them and the euro. With growth halted, any such generosity she might have been able to coax out of her electorate is a thing of the past. We might yet see a downsized euro zone.
European officials round on Lagarde
by Patrick Jenkins, Megan Murphy, Ralph Atkins and Peter Spiegel - FT
European officials rounded on Christine Lagarde on Sunday, accusing the managing director of the International Monetary Fund of making a "confused" and "misguided" attack on the health of Europe’s banks.
Ms Lagarde, the former French finance minister who replaced Dominique Strauss-Kahn as head of the IMF in July, used her address at an annual meeting of central bankers in Jackson Hole, Wyoming, to call for an "urgent" recapitalisation of Europe’s weakest lenders, saying that shoring up the banking system was key to cutting "chains of contagion" across the region.
But officials said Ms Lagarde’s comments missed the point of banks’ current difficulties. "The key issue is funding," said one experienced central banker. "Banks in some countries have had trouble securing liquidity in recent weeks and that pressure is going to mount. To talk about capital is a confused message. Everybody – politicians, regulators, other officials – is quite concerned."
Officials, nervous that Ms Lagarde’s statement would further spook bank investors, said they planned to urge the former French finance minister to clarify her statement.
European politicians and regulators are still struggling to come up with a mechanism that will calm investors’ skittishness about banks’ exposure to sovereign debt across the southern eurozone. A high-profile pan-European "stress test" of bank balance sheets has failed to allay investors’ concerns about their ability to withstand a default by a European government, or a severe deterioration in their credit portfolios across the region.
"We have to break the link between the sovereigns and the banks, particularly in Spain and Italy," said one regulator.
Ms Lagarde’s allusion this weekend to the potential use of the European Financial Stability Fund, a €440bn bail-out fund, as a means to recapitalise banks by force, would be far better directed towards a liquidity solution, some officials said. No headway has been made towards the idea of EFSF-guaranteed bank bond issuance, they admitted, though that would be the "most sensible solution", according to one.
Jean-Claude Trichet, the president of the European Central Bank, separately dismissed any idea that Europe could face a liquidity shortage in his own Jackson Hole address, saying efforts to combat the financial crisis would prevent such an outcome. "The idea that we could have a liquidity problem in Europe" is "plain wrong," Mr Trichet said.
The results of last month’s stress tests revealed that nine of the 91 banks tested "failed", with a core tier one capital ratio – a key measure of financial strength – of less than 5 per cent. National regulators are due to report back in October on headway made in forcing through recapitalisations at banks that failed, or came close to failing, the tests.
European banks set cash test by IMF chief
by Ambrose Evans-Pritchard - Telegraph
European banks face ordeal by fire this week after the International Monetary Fund called for "urgent" action to shore up their defences, if necessary with state money and under legal compulsion.
Christine Lagarde, the IMF’s new chief, set off tremors at the Jackson Hole summit over the weekend with warnings that the global financial system is on very thin ice and vulnerable to the slightest shock. "We are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed, so we must act now," she said.
"Banks need urgent recapitalisation. If it is not addressed we could easily see the further spread of economic weakness to core countries, even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalisation," she said.
Europe’s lenders are already reeling from a share price collapse since the debt crisis spread to Italy and Spain, threatening to overwhelm Europe’s bail-out fund and leave banks exposed to sovereign defaults. Shares of Intesa SanPaulo, Credit Agricole and Commerzbank are all below the extremes seen during the panic in March 2009.
Europe’s inter-bank market is effectively frozen and EMU banks have lost access to America’s $7trillion (£4.3trillion) money markets. Lenders have parked €126bn (£112bn) at the European Central Bank for safety rather than risk exposure to peers.
The IMF exhorted Europe’s banks over the last two years to beef up their capital base while the rally lasted. Many failed to do so and will now face harsher terms. Some may fall under state control, wiping out shareholders.
The eurozone economy ground to a halt in the second quarter, tightening the noose on EMU’s weaker states and their banks. Julian Callow from Barclays Capital said Europe is already in "industrial recession" and risks tipping into outright economic slump. "The recent slide is eerily reminiscent of the pattern during the third quarter of 2008," he said.
Mrs Lagarde issued a thinly-veiled attack on the ECB’s rate rises and Europe’s fiscal austerity drive. "Monetary policy should remain highly accommodative, as the risk of recession outweighs the risk of inflation. Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery," she said.
Tim Congdon from International Monetary Research said it is folly to force Europe’s banks to raise money too quickly or crystallize losses abruptly. This will cause a monetary implosion and a repeat of the 2008 disaster. He said the ECB’s restrictive policies over the last 18 months and the lack of EMU fiscal union have doomed the euro. to certain break-up.
"It cannot be saved. Banks will suffer large losses," he said.
EU rules out fresh capitalisation for Europe's banks
by Roland Gribben - Telegraph
A fresh round of capitalisation for European banks was firmly ruled out by EU officials and bankers when they appeared before an emergency meeting of the European Parliament's economic committee.
The officials poured cold water on calls from Christine Lagarde, head of the International Monetary Fund for "mandatory" recapitalisation to avoid another financial crisis but acknowledged that the EU economy was continuing to weaken.
Jean-Claude Trichet, president of the European Central Bank, said there was no shortage of liquidity in the European banking system. EU economic commissioner Olli Rehn insisted that the health of EU banks had improved over the last year. Mr Trichet declared: "There is no liquidity or collateral shortage for the European banking system." Both urged eurozone Governments to move faster to implement the July 21 heads of agreements which makes provision for a second bail out for the weaker states.
Mr Rehn said targets set for privatising state assets in Greece might have to be revised because of the weakness of the Athens stock exchange. MEPs were told that faster progress was being made by other countries. Ireland's competitiveness has improved considerably while Portugal was said to be "progressing well." Mr Rehn was gloomy about the economic outlook warning that after expanding by just 0.2pc in the second quarter the short-term indicators pointed to a "further moderation of growth." He said he was seriously concerned that the financial turbulence would spill over and harm the recovery of the "real economy."
MEPs were critical about the way the debt crisis had been handled with many calling for closer integration to reduce the risks of a collapse of the euro. Mr Rehn made it clear that there would be no rush to push ahead with the proposals to use euro-zone bonds, opposed by Germany and France to ease the crisis. He said they would have "unavoidable implications for fiscal sovereignty".
Jean-Claude Juncker, Luxembourg prime minister and Eurogroup president, joined by Mr Rehn in acknowledging that the markets had not been convinced by the euro-zone action programme. They admitted "we dragged our feet behind the financial markets."
Polish finance minister Jacek Rostowski, said he was well aware of the catastrophic consequences of a failure of the euro-zone recovery programme and "the dramatic consequences for the UK." He added: "That is why George Osborne and I are saying we have always been fully in favour of deeper (euro-zone) integration."
Europe’s Big Mistake
by James Surowiecki - New Yorker
In July, 2008, on the eve of the biggest financial crisis in memory, the European Central Bank did something both predictable and stupid: it raised interest rates. The move was predictable because the E.C.B.’s president, Jean-Claude Trichet, was an inflation hawk; he worried about rising oil and food prices and saw a rate hike as a way of tamping them down. But the move was also remarkably ill timed.
The crisis was already under way, European economic growth had slowed to a crawl, and within a couple of months the global economy had collapsed, inflation had disappeared, and the E.C.B. was forced to slash interest rates, in an attempt to avert economic disaster. That July rate hike was like kicking the economy when it was down.
One might have thought that the E.C.B. would learn from the experience. No such luck. This year, Europe has been wrestling with high unemployment, slow growth, and a continuing debt crisis, with the economies of Portugal, Ireland, Italy, Greece, and Spain (the so-called PIIGS) struggling to avoid default.
Given the situation, Trichet could have decided to keep interest rates where they were, as both the Federal Reserve and the Bank of England have done. Instead, the E.C.B. raised interest rates in April and, once more, in July. Again, as if on cue, European economic growth stalled and the continent’s debt crisis deepened, which has created problems for markets around the world.
Policymakers make bad decisions all the time, of course. The E.C.B.’s failures, however, are the result not of mere bad judgment but of obsession. That obsession may not have created Europe’s problems, but it has amplified them. The continent’s economic woes boil down, really, to two issues: too much debt and too little growth.
These things are connected to each other: the PIIGS are struggling with their debt loads largely because their economies are growing too slowly. By raising interest rates, the E.C.B. increased borrowing costs and slowed economic growth—the opposite of what was needed. And, while the E.C.B. did step up and buy Italian and Spanish government bonds last month, in order to keep those countries afloat, by doing this it was plugging a hole that its own actions had done much to create.
The E.C.B.’s actions have been especially damaging because they’ve come at a time when, in response to the debt crisis, European countries have been forced to take austerity measures, slashing government spending and raising taxes. When fiscal policy is contractionary, expansionary monetary policy can help make up the difference. This is what the Federal Reserve has tried to do in the U.S.—albeit not aggressively enough. The E.C.B., by contrast, has decided to tighten, which means that both fiscal policy and monetary policy are hitting the brakes on the economy.
The perplexing thing about the E.C.B.’s approach is that it’s hard to see who benefits. The traditional explanation for the bank’s anti-inflationary zeal hinges on the fact that the continent’s stronger economies, in particular Germany’s, don’t need any help growing, and don’t like the fact that inflation reduces the real value of assets. So while the PIIGS might prefer a monetary policy that shrank debts and spurred growth, Germany wants low inflation, and Germany wins.
Yet right now the entire continent would benefit from easier money. Germany’s economy may have been doing well earlier this year, but it isn’t anymore; in the past quarter, it grew just 0.1 per cent, more slowly than the U.S.’s. Germany is heavily dependent on exports, including exports to the rest of Europe, which means that it can prosper only if other countries do. On top of that, the debt crisis has hurt German banks, which had lent heavily to the PIIGS. Once upon a time, you could argue that the E.C.B.’s approach was helping Europe’s big economies at the expense of the smaller ones. But the current tight-money strategy is making every country a loser.
To be fair, the E.C.B. isn’t alone in its paranoia about inflation. That bias reflects the preferences of many voters, whose hatred of inflation tends to be disproportionate to its real costs. (Cue Rick Perry saying that looser monetary policy would be "almost treasonous.")
Most studies of moderate inflation find that its costs are quite small, but a study of elections in thirteen European countries from the nineteen-sixties to the nineties found that voters were far more likely to toss out politicians when inflation rose than when unemployment did. Inflation hits everyone, after all, even those who have jobs, and it’s easier to get angry about expensive gasoline than about that raise you might have got if the economy were stronger.
Still, the fact that the E.C.B.’s attitude is widely shared doesn’t make it any more excusable. In times of crisis, policymakers need to identify the threats that matter most. Today, rising prices are not a real threat to Europe; recession and debt default are. Trichet is fond of pointing out that the E.C.B.’s primary mandate is to maintain "price stability." But prices in Europe, where inflation is around 2.5 per cent, are not unstable.
And, by acting as if Europe were in danger of repeating the nineteen-twenties, when Weimar Germany succumbed to hyperinflation, Trichet is running the risk of repeating the mistakes of the early thirties, when central bankers’ tight-money policies and zeal for austerity made a bad situation much, much worse. (It’s worth remembering that it was the Depression, not hyperinflation, that toppled the Weimar government and brought Hitler to power.)
The E.C.B. has spent this year fighting off the phantom danger of inflation. It’s time for it to face up to the real danger of recession.
Euro bail-out in doubt as "hysteria" sweeps Germany
by Ambrose Evans-Pritchard - Telegraph
German Chancellor Angela Merkel no longer has enough coalition votes in the Bundestag to secure backing for Europe's revamped rescue machinery, threatening a consitutional crisis in Germany and a fresh eruption of the euro debt saga.
Mrs Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country's constitutional court rules on the legality of the EU's bail-out machinery. If the court rules that the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty, it risks setting off an instant brushfire across monetary union.
The seething discontent in Germany over Europe's debt crisis has spread to all the key institutions of the state. "Hysteria is sweeping Germany " said Klaus Regling, the EFSF's director. German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel's own coalition plan to vote against the package, including twelve of the 44 members of Bavaria's Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.
Christian Wulff, Germany's president, stunned the country last week by accusing the European Central Bank of going "far beyond its mandate" with mass purchases of Spanish and Italian debt, and warning that the Europe's headlong rush towards fiscal union stikes at the "very core" of democracy. "Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies," he said.
A day earlier the Bundesbank had fired its own volley, condemning the ECB's bond purchases and warning the EU is drifting towards debt union without "democratic legitimacy" or treaty backing. Joahannes Singhammer, leader of the CSU's Bundestag group, accused the ECB of acting "dangerously" by jumping the gun before parliaments had voted. The ECB is implicitly acting on behalf of the rescue fund until it is ratified.
A CSU document to be released on Monday flatly rebuts the latest accord between Chancellor Merkel and French president Nicholas Sarkozy, saying plans for an "economic government for eurozone states" are unacceptable. It demands treaty changes to let EMU states go bankrupt, and to eject them from the euro altogether for serial abuses. "An unlimited transfer union and pooling of debts for any length of time would imply a shared financial government and decisively change the character of a European confederation of states," said the draft, obtained by Der Spiegel.
Mrs Merkel faces mutiny even within her own Christian Democrat (CDU) family. Wolfgang Bossbach, the spokesman for internal affairs, said he would oppose the package. "I can't vote against my own conviction," he said.
The Bundestag is expected to decide late next month on the package, which empowers the EFSF to buy bonds pre-emptively and recapitalize banks. While the bill is likely to pass, the furious debate leaves no doubt that Germany will resist moves to boost the EFSF's firepower yet further. Most City banks say the fund needs €2 trillion to stop the crisis engulfing Spain and Italy. Mrs Merkel's aides say she is facing "war on every front". The next month will decide her future, Germany's destiny, and the fate of monetary union.
Why yes, the Greek collateral grab is a big honking default risk
by Joseph Cotterill - FT
Over a week after FT Alphaville first revealed how Greece’s Finnish collateral “deal” threatened a default on its foreign-law bonds, given negative pledge clauses in the contracts…From Handelsblatt on Thursday:
The eurozone will not agree the agreement between Finland and Greece on collateral. “This is off the table,” ["Das ist vom Tisch"] Wolfgang Schaeuble, the [German] finance minister, said to a meeting of the CDU/CSU parliamentary group, sources told Handelsblatt.
Financial experts have warned [the Eurogroup] against allowing donor states to receive collateral on EFSF loans. In this case, Greece could get a wave of lawsuits from private creditors, the Handelsblatt learned from diplomatic circles in the EU. Private investors could rely on a so-called “negative pledge clause” in Greek government bondsWhich would be the clause we’ve picked over here, here, and here.
In a nutshell, the negative pledge clause provides that Greece must secure the bonds on an equal basis, if it should ever secure ‘external indebtedness’, as defined in the contract. The definition covers any money borrowed under a foreign law, it would appear. (Though it’d depend on what a court would say, if it comes to that!) EFSF loans are governed under English law for example. (There might be ways for Greece to pledge collateral via a Greek-law vehicle of some sort, although we aren’t sure.) But essentially, the Finnish demands for superior collateral currently stand to jeopardise the clause.
We’ve considered the pros and cons of the argument for whether it might be a CDS credit event as well as whether the collateral would be an event of default. Handelsblatt misses one big nuance though: this affects Greece’s foreign-law bonds, not the circa 90 per cent of Greek bonds that are governed by Greek law. But it’s a huge, huge deal not only for holders of these bonds, but possibly for holders of bonds and other contracts (repos?) that also contain cross-default clauses. Net notional on Greece CDS is relatively small, but there’s also a serious problem for the eurozone’s supposed commitment to avoid any trigger of credit default swaps on a member-state, not to mention the stigma of default on any part of a member’s debts.
The point is, this goes way beyond the fear (enunciated by Moody’s recently) that the Finnish collateral deal will delay or even stop the bailout. (Though that would risk a default on all of Greece’s debt.)
The rot’s gone a bit deeper than that now because of the complexity of the negative pledge issue. That’s why we wouldn’t put much store by Schaeuble’s peremptory statement that the issue has gone away.
Wait to see what the Finns say first of all. They have been insisting throughout this week that collateral (in some form) is a red line for them, but collateral in just about any form will trigger this negative pledge clause. Notably at pixel time an EU spokesman said that the talks on Greek collateral had no deadline. Therefore, no decision!
Just ask yourself one question. If you were an investor considering whether to trust Greece and take part in an expensive bond swap, the point of which is to avoid a disorderly default, what would you think about the kind of credibility and commitment shown in this Finnish farce? (Reuters was reporting that this bond swap had 50 per cent participation at pixel time, below the actual 90 per cent target. Not much time left.)
We’re not sure. Is ‘hoist with one’s own petard’ a popular phrase in Brussels?
Finland’s Greek collateral plan breaks negative pledge [updated]
by Joseph Cotterill - FT
You might have heard of the latest Finnish proposal to collateralise loans to Greece. This would transfer Greek privatisation assets to a Luxembourg-based société anonyme to be held as security against default, according to Reuters, which also has the proposal text.Here’s a nice diagram of it all works:
Here’s a not-so nice bombshell that seems to have been missed:
We’d hate to say we told you so. But we did. This is firstly another official acknowledgement that the negative pledge clause — which forbids Greece securing foreign-law or foreign-currency “external indebtedness” on terms prejudicial to its foreign law bonds — does present a serious problem. Notably, it’s a serious problem even for proposals based on SPVs, which had been seen as a way to avoid a negative pledge trigger.
Still. What Finland has unfortunately omitted to add: if there is no bondholder waiver, and if Greece does not secure the foreign-law bonds on the same basis, Greece will default on these bonds. It would be the first sovereign default in modern Western Europe. Possibly a credit event too.
We’re not even sure that Greece could actually provide sufficient assets to collateralise both the EFSF loans and foreign-law bonds. These assets are already marked for privatisation and there may simply not be enough to go round even if they weren’t being sold.
Amazingly, Finland has spun the negative pledge problem and its massive risk of default as an opportunity for credit enhancement:
You couldn’t make this stuff up.
Update 10:25am UK time — You can still consider ways around the negative pledge issue however, surmounting the current Finnish proposal.
One idea suggested to us on Monday is for the EFSF to lend to the SPV itself rather than to Greece directly. In that case, the EFSF is not a secured creditor of Greece per se. It’s not a million miles from how current Greek government securitisation vehicles work. These have existed for years without triggering negative pledge clauses so we’re interested to see if there is a solution here. We’ve altered the diagram above with our rubbish MS Paint skills to note the EFSF change…
Thoughts?
Finland's demands for collateral could leave Greek bailout in ruins
by Heather Stewart - Observer
Row over collateral for emergency loans to Athens reveals cracks in the eurozone
For Greek politicians, the past month must have been a blessed relief, as the centre of Europe's sovereign debt crisis moved elsewhere. Italian trade unionists are gearing up for a general strike against austerity measures; Nicolas Sarkozy is slapping a supertax on the super-rich; and Spain is promising to make it unconstitutional to let the public finances get out of control. But as September rolls around and the beaches clear, Greece is once again the focus of financial markets' fears.
In July, Athens secured a second bailout package worth €109bn (£96bn), which involved "haircuts" for holders of Greek debt, and contributions from its eurozone neighbours. Both parts of that deal now look distinctly shaky. Finland, where the anti-European True Finns party scored well in recent elections, has demanded that Athens put up collateral against the Finnish share of the latest loan.
Other small but angry nations, including Austria, Slovenia and Slovakia, responded by saying that if Finland was getting collateral, they wanted some too. Eurozone finance ministers were discussing the issue this weekend; but the Finns appear reluctant to back down.
When questions emerged about what collateral Athens has left, given the €50bn privatisation plans it has already signed up to as a condition of the bailout, one Finnish minister reportedly said they would accept assets already earmarked for privatisation. Great swathes of Greek infrastructure are up for sale, from airports to casinos.
Setting aside collateral will reduce Greece's room for manoeuvre by tying up its assets; but, much more importantly, the row has laid bare the disarray in the eurozone. "At every step, we're seeing the authorities pushed back further," says Neil Mellor, of BNY Mellon. "It's fire-fighting, pure and simple, and it's not obvious what happens next."
The resulting alarm among investors sent the yield on Greek bonds – the interest rate the government would have to pay to borrow in the open markets – back to record highs last week. It's as if the July rescue never happened – and it raises doubts about other elements of the emergency deal agreed at the time, including the new role of the European Financial Stability Facility (EFSF), which Sarkozy suggested was a fledgling European International Monetary Fund.
Changes to the EFSF need to be agreed by all member governments, and the squabble about collateral underlines the wide political divergences across the single currency zone. The "voluntary" bond swap at the heart of the bailout also appeared to be in doubt this weekend, after Greece said it would pull out unless 90% of its creditors – mainly European banks – agreed to take part. Greek banks start reporting their results this week, and with government bonds making up much of their capital, they are expected to warn of losses of up to €5bn if the haircuts go ahead.
Greek banks have also suffered rapid declines in deposits in recent months, as consumers withdraw savings to spend, and wealthy Greeks squirrel away their assets in safe havens abroad.
This fresh outbreak of the jitters is happening against a sharp deterioration in the economic outlook right across the continent. Even in Germany, GDP growth has slowed to a crawl, and business confidence has plunged. The latest round of tax rises and spending cuts, with France, Spain and Italy all announcing new fiscal tightening since the beginning of August, are only likely to depress growth yet further.
In Greece, weaker growth could mean the fiscal sums no longer add up. Analysts are beginning to speculate that even after passing a highly contentious package of austerity measures in June, the government could miss its deficit reduction targets.
"There are signs that the Greek deficit is still not on track, despite the latest package that was agreed in July," said Julian Callow, of Barclays Capital. Athens' tax and spending plans are based on the assumption that the economy will contract by 4.5% this year. That is a catastrophic recession by any standard but it now looks too optimistic: Callow expects a contraction of 5.5%, perhaps even 6%.
Europe's sovereign debt crisis is far from over. It's not clear exactly what will spark the next outbreak of panic in financial markets but, with the banks due to report, the Finns digging their heels in, and the IMF flying in to assess Athens' compliance with its fiscal targets in the next few days, Greece looks like a pretty good bet. As Callow says, "Greece is really the epicentre right now, and has a lot of capacity to be a very negative force for financial markets in Europe in the weeks ahead, if things don't go exactly according to plan."
Finland’s Collateral Demand Fueled by Greek Bailout Fatigue
by Kati Pohjanpalo - Bloomberg
Finland’s demands for collateral on new Greek loans leaves European Union leaders putting the rescue plan at risk by appeasing the AAA-rated nation, or helping bring an even more anti-bailout government to power by defying the Finns.
Prime Minister Jyrki Katainen "can’t back down on the collateral demand as his government would likely collapse," said Timo Tyrvaeinen, Chief Economist at Aktia Oyj in Helsinki. "That could mean new elections quite soon" and risk the euro- skeptic Finns party, which has rejected all bailouts, coming to power.
Luxembourg Prime Minister Jean-Claude Juncker, who also chairs the euro-area finance meetings, said yesterday he was "confident" an agreement could be reached by mid-September, while criticizing the call for collateral. "I don’t like this mechanism and I don’t like the bilateral arrangements," he told the European Parliament’s economic committee in Brussels, referring to Finland’s agreement with Greece for protection.
The collateral flap reflects the bailout fatigue that is spreading particularly in the more fiscally prudent countries of northern Europe, fueling support for political parties opposed to aid to the region’s more profligate members. National politics is increasingly at odds with efforts to forge European unity, complicating a comprehensive response to the debt crisis that now threatens Spain, Italy and France.
July Summit
EU leaders initially agreed to Katainen’s demands for protection at the July 21 summit that hashed out the 159 billion-euro ($231 billion) rescue for Greece. Then details of the collateral deal Finland negotiated with Greece emerged this month, triggering a backlash and demands for similar treatment from nations including Austria and the Netherlands, threatening to delay or scupper the Greek plan.
Far from resolving the debt crisis, contagion continued after the summit and the European Central Bank began buying Spanish and Italian bonds to help bring down yields that reached euro-era records. Divisions over collateral contributed to a further slump in Greek bonds with the yield on the country’s two-year notes topping 45 percent yesterday. "What’s at stake is ultimately, if you were to put this to the extreme, the entire second rescue package for Greece by the euro area," Frank Engels, co-head of European economy at Barclays Capital in Frankfurt, said by phone on Aug. 26.
German Backlash
Chancellor Angela Merkel also faces a growing storm in her coalition over the bailouts of Greece, Portugal and Ireland. Her Free Democratic Party coalition partner has threatened to oppose the start of a permanent EU bailout mechanism set to take effect in 2013.
Anti-bailout forces were already on the ascendency in Finland prior to the new Greek deal. It took Katainen two months and he needed backing of six parties to build a ruling coalition after winning elections in April that saw a surge in support for the Finns party. Finance Minister Jutta Urpilainen, who heads the Social Democrats, campaigned on the collateral issues as she tried to beat back the challenge from the Finns, who emerged as the third-biggest party in the vote.
It would be "totally irresponsible" of the Finnish government "to throw in the towel" and back down on its demands, Urpilainen said on Aug. 25. Her Social Democratic party is the second-biggest in the coalition. Finland responded to the criticism from its EU partners, by offering to broaden a collateral deal to include other nations who might want similar protection.
'Excessive Collateralization'
Extending the deal could "blow-up" the rescue plan, Austria’s Finance Minister Maria Fekter said on Aug. 18. European Commission spokesman Amadeu Altafaj said on Aug. 19 that the EU must avoid "excessive collateralization" in the Greek bailout.
Greek Finance Minister Evangelos Venizelos on Aug. 21 called on European Union officials to quickly resolve the issue of additional countries following Finland in calling for collateral to participate in a new Greek aid package.
Greece received a three-year, 110 billion-euro rescue in 2010 from the European Union and International Monetary Fund that anticipated the country returning to financial markets next year. With its 10-year bond yielding about 18 percent, financing in the markets proved unrealistic and the EU was forced to draw up a second rescue package to fully fund Greece for three years.
"It’s getting very tight in terms of the time lines" for approving the economic measures to stabilize the region, Engels said. "By end September we could be very close to agreement on all this and then move forward, if there is a willingness to agree on this, that is a big ‘if’ I think."
Doubts over German role in Greek debt deal
by James Wilson - FT
German "bad bank" agencies holding billions of euros of Greek debt have still to decide whether to join a bond swap designed to cut Athens’ refinancing burden as part of an EU bail-out. Two of the German banks that are among the country’s largest holders of Greek bonds have also to commit themselves to the €135bn debt swap plan set to be launched next month.
The uncertainty over which institutions will support the deal comes as Greece is warning that the swap might not go ahead if fewer than 90 per cent of private investors agree to participate. Some of Germany’s biggest holders of Greek debt are agencies set up with public sector support to wind down toxic and unwanted assets that had to be unloaded from stricken banks’ balance sheets during the financial crisis.
About €7.4bn of Greek sovereign debt is held by FMS Wertmanagement, a "bad bank" to which €175bn in assets were transferred from Hypo Real Estate, a property lender. Erste Abwicklungsanstalt, to which assets from WestLB were transferred, has a further €1.1bn of Greek public sector exposure. Because the agencies are not banks and are backed by public sector guarantees, the extent to which they may take part in the bond swap aimed at private creditors remains unclear, in spite of their large holdings.
FMS holds more than twice as much Greek debt as Commerzbank, which is Athens’ biggest private-sector German creditor. EAA has taken a 21 per cent writedown on its Greek holdings, in line with advice from a German accounting body following the announcement last month of the private-sector restructuring offer, which is being co-ordinated by the Institute of International Finance, a global banking sector lobby group.
However, EAA has said it "remains to be seen whether or to [what] extent EAA will participate...in the IIF offer of private creditors and suffer losses from the restructuring of Greece’s liabilities". FMS also told the Financial Times that it had not taken a decision on participation.
All of EAA’s Greek debt matures before 2020 and so would, in theory, be eligible for the IIF-backed swap, under which bonds due by that date would be exchanged or rolled over. Most of FMS’s Greek assets mature after 2020.
Germany’s largest co-operative bank, DZ Bank, and its largest public-sector bank, Landesbank Baden-Württemberg, have also yet to confirm whether they will support the IIF-backed deal. Greece has set a deadline of September 9 for banks to make non-binding offers. DZ Bank, which in last month’s EU bank stress tests reported €731m of Greek exposure, is likely on Monday to announce partial writedowns along with its financial results for the first half of 2011.
LBBW said last week it had written down its Greek state exposure by around 50 per cent to about €400m. Commerzbank, Deutsche Bank and BayernLB have all given explicit backing to the IIF initiative, as have insurers Munich Re and Allianz and DekaBank, an asset manager.
"Commodity Prices Seem Much Too High"
by Cullen Roche - PragCap
I rarely use technical analysis in my work, but there are times when a picture really is worth a thousand words. Sometimes a chart can help an investor to visualize market relationships better than raw data can. In this way, technical analysis can be particularly helpful in gauging risks and potential mean reverting situations. One such potential mean reverting situation is the long-term outlook for commodity prices. This is, in my opinion, particularly important given Wall Street’s recent attempts to push the “commodities are an investment class” theme.As I’ve previously mentioned, betting on the actual commodities is never an investment. In fact, over the long-term, commodities have very poor real returns. Rather, an investor who is looking to benefit from a commodity bull market or the negative correlation of some commodities, is better off investing in the ingenuity of the corporations that benefit from these markets. In this manner, you are actually buying human ingenuity rather than buying physical commodities which are the equivalent of selling human ingenuity.
In a recent strategy note, analysts at Societe Generale discussed the long-term surge in some commodity prices and why it could be foreshadowing of a mean reverting event:
“Commodity prices seem much too high as economic growth is slowing. Over the past three years, all commodities have touched historical highs. The most recent high seen for Gold, in August, was sparked by forex fears.
Oil prices used to be very sensitive to US growth, but things are different this time, as emerging market demand partly outpaces that of the US, maintaining global oil demand at high levels. But, now the surge in Gold suggests that markets are looking for safe haven investments, as was the case in the 1930s and the 1970s.
Hence, financial markets begin to doubt that the current forecast for global growth of 4% pa is sustainable, thus, commodity prices seem much too high at this stage of the economic cycle.”Now, I don’t like lumping gold into this analysis because I think gold has some intangible components that make it more unique than other commodities, but I am generally skeptical of the idea that broad commodities are going to sustain high real prices in the same manner that other asset classes have historically.
As Jeremy Grantham believes, this time would truly have to be different in order for this to persist. Of course, this is not my way of saying that one should go out and short all commodities. Quite the contrary. It just means that you have to recognize that you’re speculating when you buy raw commodities and if you’re trading that might suit your needs perfectly fine.
If instead, you are an investor with a long-term diversified focus you would be wise to focus on the underlying ingenuity that benefits from commodity markets by investing in the actual corporations themselves. Don’t fall for Wall Street’s latest sale’s pitch which is trying to push investors into physical commodities of all sorts. History is not on your side.
Iceland Revives Carry Trade as Swaps Show Default Risk Is Below EU Average
by Omar R. Valdimarsson - Bloomberg
Iceland’s decision to break with global crisis-fighting efforts and raise interest rates this month may presage the return of the very same carry trade that channeled fast money into the country before its banking crisis.
Iceland raised its main interest rate on Aug. 17 by a quarter point to 4.5 percent, the first increase since its banks collapsed almost three years ago. The central bank, which also raised its economic forecast for 2011, is increasing rates as it eases capital controls that have locked in $4.3 billion in krona assets since 2008. The move may revive a trade popular before the crisis: borrowing in low-yielding currencies and carrying the funds into higher-yielding markets such as the krona.
"The central bank has stated that it wants to open the door to the carry trade," said Asgeir Jonsson, an economist at Reykjavik-based asset manager Gamma. "As greed knows no boundaries, carry traders will always return as long as the yield is favorable."
Iceland, where a 2008 banking implosion left bond investors trying to recoup $85 billion, can now boast a lower risk of default than the average for the European Union. The central bank signaled this month it may continue to raise rates to support the currency as the U.S. and the euro area resort to emergency easing to keep their economies afloat. Iceland’s rate rise comes as investors are turning to emerging markets to tap into faster growth rates and lower debt levels. The Icelandic krona strengthened for a second day, rising 0.3 percent to 113.14 per dollar as of 9:33 a.m. London time.
'Redefining Risk'
Credit default swaps on Iceland’s five-year debt were at 278 basis points on Aug. 26, compared with a 345 basis point average for the 27-member European Union, CMA prices show.
"Investors are redefining risk," Jonsson said. "Now bonds issued by sovereigns in the emerging markets are more desirable than those of countries such as Italy."
Iceland’s economy will next year outgrow the euro area and maintain a smaller budget deficit in the process, the Organization for Economic Cooperation and Development said May 25. The island’s gross domestic product will expand 2.9 percent in 2012, compared with 2 percent in the 17-member euro area. Iceland’s government deficit will narrow to 1.4 percent of GDP, versus a 3 percent shortfall in the euro bloc in 2012, the OECD estimates.
'Road to Recovery'
The island completed a 33-month International Monetary Fund program this month after the Washington-based lender established that all economic "objectives have been met and the country is on the road to recovery," according to an Aug. 26 statement marking the island’s final review. The IMF praised the central bank’s decision to raise rates as an appropriate measure to tame inflation as import prices rise. Consumer price growth held at 5 percent in August, the highest level since June 2010. The krona has lost 6.5 percent versus the euro this year.
By raising rates "we’re making the Icelandic krona more attractive than it otherwise would be," said Thorarinn Petursson, chief economist at the central bank.= While higher rates may boost the krona, such tightening won’t "reduce inflationary expectations, on the contrary they could worsen," saidAsdis Kristjansdottir, an economist at Arion Bank hf. Raising rates will instead hurt "the fragile recovery ahead," she said. Though Iceland has signaled it needs to keep some form of capital controls in place until as late as 2015, the central bank is already easing the restrictions in phases.
Krona Flows
"The moment the market opens up in Iceland, carry traders will return," Jonsson said. "Investors’ risk appetite has increased and is increasing and investors are increasingly putting their money into emerging markets."
Monthly krona flows peaked at 1.2 trillion kronur ($10.6 billion) in March 2008, seven months before Iceland’s biggest banks failed. Iceland’s gross domestic product was 1.5 trillion kronur for that whole year. Flows surged as the central bank pursued a tightening cycle that brought the benchmark rate to 15 percent in March 2008. The rate reached 18 percent that year before the bank finally imposed capital controls to protect the currency from a sell-off after the banks failed. Monthly krona turnover in July 2011 was 5.6 billion kronur.
While the central bank’s Petursson says Iceland is still "quite far away from having to worry about the carry trade," Jonsson warns the transaction "will begin immediately" once the country opens its capital markets. He’s not alone in voicing concerns.
'Iceland’s Demise'
"Iceland should be careful when it comes to opening up the doors for the carry trade, as those kinds of transactions played a role in Iceland’s demise," said Jon Bjarki Bentsson, an economist at Islandsbanki hf. "It would be better if foreigners were drawn to Iceland because of an underlying profitability, not just because short-term interest rates are high."
Not all analysts agree that the carry trade is a bad thing. Lars Christensen, chief analyst at Copenhagen-based Danske Bank A/S, said speculative krona purchases shouldn’t hurt the economy provided the extra yield the central bank offers exceeds the risks associated with holding the currency.= "Fundamentally it could be a good idea for Iceland to attract the carry trade, if the carry trade reflects that interest rates are higher than the perceived risk by investors," he said.
Berlusconi Bows to Demands to Overhaul Austerity Plan
by Chiara Vasarri - Bloomberg
Prime Minister Silvio Berlusconi agreed to overhaul the 45 billion-euro ($66 billion) austerity plan that persuaded the European Central Bank to support Italy’s bonds, dropping a tax on the highest earners and limiting funding cuts to regional governments.
Berlusconi and Finance Minister Giulio Tremonti agreed to the changes after a seven-hour meeting yesterday with officials of the Northern League, a key coalition ally opposed to parts of the original plan that aimed to balance the budget in 2013. The overhaul comes as Italy auctions 8 billion euros of bonds today, the first benchmark sale since the ECB began buying on Aug. 8. A spokesman for the Frankfurt-based ECB declined to comment.
"The ECB will raise its voice if there aren’t further guarantees that it’s completely covered," said Marco Valli, UniCredit’s chief euro-zone economist. "It seems now that there will be some kind of revenue shortfall, but we still don’t have all the details and it’s probable that for now, the ECB will be keeping a close eye on this."
The original package was the second austerity plan in a month adopted by the government as Italy tries to convince investors it can tame the euro region’s second-largest debt and avoid following Greece, Ireland and Portugal in seeking a bailout. The plan was thrown together in days and passed by the Cabinet on Aug. 12 after the ECB demanded additional austerity measures to buy Italian bonds, Tremonti has said.
Bonds Decline
The yield on Italy’s benchmark 10-year bond has fallen about 100 basis points since the ECB began buying. The yield rose 2 basis points today to 5.11 percent, the highest in three weeks.
"This is the third time since the middle of July that the Italians have seen different austerity measures imposed on them, and in some aspects this is extremely different from the version passed on Aug. 12," said Alberto Mingardi, director general of the Bruno Leoni institute, a Libertarian research institute. "How can the economic players plan their decisions if the politicians shuffle the deck every week."
The new version of the package, which is due to be voted on by the Senate next week, drops the "solidarity tax" of an additional 5 percent on income of more than 90,000 euros a year, rising to 10 percent for income above 150,000 euros, Berlusconi’s office said in an e-mailed statement.
No VAT Increase
The new plan does not include an increase in value-added tax to compensate for lost revenue, which some lawmakers had called for. The solidarity tax will be replaced with unspecified levies aimed at the wealth of those evading taxes, the note said.
Cuts in funding to regional and local governments, worth 9 billion euros in the original two-year plan, will be scaled back. Those reductions will be trimmed by about 2 billion euros, Roberto Calderoli, minister for legislative simplification, told the Ansa news agency.
"About the credibility of the measures, there is implementation risk," said Silvio Peruzzo, euro-area economist at Royal Bank of Scotland Group Plc in London. "The growth outlook is weakening globally. Some of the measures have to be qualified in terms of the details. This is a feature of any fiscal effort you see anywhere in the globe." The International Monetary Fund will cut its forecast for Italian economic growth next year to 0.7 percent, Ansa news agency reported, citing a draft of the fund’s World Economic Outlook report. Tremonti forecasts growth of 1.3 percent for 2012.
Robin Hood Tax
The statement didn’t say whether plans to raise the capital gains tax to 20 percent from 12.5 percent had been modified, or whether a so-called Robin Hood tax on profit of electricity utilities had been altered.
"Maybe this is not all we wanted, but it is also important to keep a solid majority," Undersecretary for Defense Guido Crosetto, one of the most outspoken critics of the original plan among Berlusconi’s allies, told Ansa.
The new package will go ahead with efforts to reduce the size of the parliament, the statement said. And legislators will still have to pay a solidarity tax of 10 percent on income over 90,000 euros.
Venetians see their economy sink as subsidies dry up
by Phillip Inman - Guardian
Venice gets none of the cash levied on the cruise liners' operators so the city is introducing a tourist tax to help plug the funding gap
Bare brickwork on many of the finest homes in Venice graphically illustrates the funding crisis gripping Italy. Forced to copy the costly techniques of their forebears by regional heritage regulations, homeowners have chosen instead to let their 15th-century palaces crumble.
Before the banking crisis there were subsidies that helped buy costly pink and mauve plasters, pay artisan builders and erect canal-side scaffolding, but Giulio Tremonti, finance minister and chief cost-cutter in Silvio Berlusconi's government, has spent the last three years quietly stripping Venice residents of central government support.
Sandro Simionato, deputy mayor of Venice and its finance chief, says the historic city has seen almost all its central government grants disappear over the last three years, forcing local politicians to introduce means-tested social care for the first time for its rapidly ageing population. Simionato, a member of the leftist Democratic party, argues that the head-in-the-sand attitude of Berlusconi has forced Rome into a headlong panic that has turned a measured programme of cuts into a torrent. The biggest losers are local governments.
It is the same story in many parts of Europe, where politicians look for the easiest and least painful, at least form their perspective, ways of reducing government debts. The picture is closely mirrored in the UK, where local authorities must cope with larger cuts than Whitehall departments and over a tighter timeframe. In Spain, local municipalities have collectively run up debts of €35bn (£31bn) and are struggling to pay their bills. The Zapatero government says it cannot afford to help out.
The scramble for funds in Venice is intense. Tax receipts are down after the collapse of the local casino business. Five years ago casinos provided €104m in taxes to the city; last year it fell to €70m and this year is expected to hit €60m. Simionato hopes to make up the shortfall with a tourist tax he announced last week, which could raise €25m a year from people staying in hotels and apartments. The tax should also limit a surge in tourism that has trebled visitor numbers over 20 years from four million people a year to 12 million in 2010.
Much of the tourism boom comes from the popularity of cruise ships that dock in the port and churn their way between St Marks Square and the Lido for a good look at the city. All the cash from the cruise operators goes to the port authority and not the city coffers.
Other Italian cities are facing a similar squeeze. Rome and Florence have introduced tourism taxes. Berlusconi's administration has also pursued tax rises. A tax on banks and insurance companies is expected to raise €1.8bn over the next three years. The plan raises the corporate tax rate by 0.75 percentage points for banks and by two percentage points for insurance companies. This year the tax authorities warned that it planned to chase €50bn in unpaid tax on money sent abroad, mostly to Switzerland and Luxembourg.
However, many commentators said the situation was likely to worsen after the government agreed to increase capital gains tax (CGT) from 12.5% to 20%. Cost-cutting is also well underway. Teachers have been told to expect larger class sizes of 30 to 35 in the coming year after decades of schooling 25 children a class at most.
Education cuts and the CGT rise are part of a wider €45.5bn package of measures designed to balance the budget and try to convince investors the country can tame the region's second-biggest debt. Further cuts to local and regional government are also planned – saving €9bn over two years – along with an extra 5% tax on people with incomes of more than €90,000 a year and 10% on incomes exceeding €150,000.
What is left of the Venice subsidy could disappear this year. Tremonti has told Venice that a previous commitment to build a £3bn flood barrier, named Moses, consisting of 78 giant steel gates and due to be completed in 2014, has meant an end to all other subsidies. According to Simionato, there will not be much of a city to defend if a lack of maintenance funds means all the damaged buildings have crumbled into the lagoon.
U.S. Consumer Confidence Falls to Two-Year Low
by Timothy R. Homan - Bloomberg
Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured. The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month.
Treasury yields dropped on concern consumers will pull back on the spending that makes up about 70 percent of the economy, increasing the risk of a recession. An unemployment rate above 9 percent, partisan bickering over the budget deficit and a volatile stock market weighed on sentiment. “This paints a picture of underlying demand weakening,” said Bricklin Dwyer, an economist at BNP Paribas in New York, whose forecast of 45 was most accurate in a Bloomberg News survey. “Consumers are seeing their wealth deteriorate. We’ve seen a huge decline continuing in the housing market. They’ve also been hit on the chin by the equity markets.”
Treasuries climbed, pushing down the yield on the benchmark 10-year note down to 2.18 percent from 2.26 percent late yesterday. After declining as much as 1.2 percent, the Standard & Poor’s 500 Index was down 0.1 percent to 1,209.07 at 12:16 p.m. in New York.
Global Confidence Slump
American consumers aren’t the only ones feeling more glum. European confidence in the economic outlook plunged in August by the most since December 2008 as a persistent debt crisis roiled markets and clouded growth prospects. An index of executive and consumer sentiment in the single-currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said today.
The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, after a 4.6 percent drop in the 12 months ended in May that was the biggest since 2009.
Federal Reserve Bank of Chicago President Charles Evans urged easier monetary policy to keep the recovery going after the central bank on Aug. 9 vowed to keep its benchmark interest rate close to zero at least through mid 2013.
“I would favor more accommodation,” Evans, a voting member of the Fed’s policy-making committee, said today in a CNBC television interview. “I am somewhat nervous about the economic recovery and where we stand at this point.”
Survey Results
Economists predicted the Conference Board’s gauge would fall to 52 in August, according to the median forecast in the Bloomberg survey. The index averaged 98 during the economic expansion that ended in December 2007.
The share of consumers who said jobs are currently hard to get increased to 49.1 percent, the highest since November 2009, from 44.8 percent in July. Confidence dropped in all nine U.S. regions.
“If you were advised to lean on one side or the other, I’d say it’s more likely to be slightly more negative from a sentiment perspective in consumers in the United States,” Glenn Murphy, chief executive officer of Gap Inc., said in an Aug. 18 conference call with analysts. “Maybe the holiday season could be slightly positive, but we’re not counting on it right now.”
San Francisco-based Gap, the largest U.S. apparel chain, reported a 19 percent decline in second-quarter profit as price increases failed to keep up with higher costs to make clothes.
Other Measures
Today’s confidence report is in line with other figures. The Thomson Reuters/University of Michigan final index of consumer sentiment dropped this month to the lowest level since November 2008. The Bloomberg Consumer Comfort Index has been hovering at levels previously consistent with recessions.
A struggling labor market is weighing on consumer sentiment. Employers added 75,000 jobs in August, compared with 117,000 in July, as the unemployment rate held at 9.1 percent, according to the median estimates in a Bloomberg survey ahead of a Sept. 2 report from the Labor Department. “Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Fed Chairman Ben S. Bernanke said Aug. 26 at the Jackson Hole, Wyoming, central bank symposium.
The Conference Board’s data showed a measure of present conditions declined to 33.3, the second-lowest this year, from 35.7 in July. The measure of expectations for the next six months slid to 51.9, the weakest since April 2009, from 74.9.
Job Concerns
The percent of respondents expecting more jobs to become available in the next six months fell to 11.4, the lowest since March 2009, from 16.9 the previous month. The proportion expecting their incomes to rise over the next six months declined to 14.3 from 15.9. The percent expecting a drop rose to 18.7, the highest since November 2009. Fewer respondents in the Conference Board’s survey indicated they were planning to buy a house, while more intended to purchase cars or major appliances in the next six months.
The cutoff date for the survey responses in this month’s calculation was Aug. 18, Lynn Franco, director of the Conference Board’s Consumer Research Center, said in an interview. The group looked at the responses received before and after the downgrade of U.S. debt by Standard & Poor’s and saw very little difference, she said. “The decline we saw was already in place before the downgrade, and there was really already a significant change in confidence,” said Franco.
All of the 20 cities in the S&P/Case-Shiller home-price index showed a year-over-year decline in June, led by an 11 percent drop in Minneapolis. Any recovery in home values is probably years away as foreclosures dump more properties onto to the market, while a jobless rate hovering around 9 percent and strict lending rules hurt sales. “Prices aren’t going to rebound back rapidly,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.
182 comments:
DBS
You lost me at one of the switchbacks (when I went careening over the cliff). Are you implying that the price of gold in terms of nominal USD will be much, much higher in the near to mid future?
Muchtoolooose
You **seem** to be implying that oil will shoot up in terms of nominal USD. (Of course, what you are actually writing is that crude and gold pricing are tightly positively correlated, so if crude goes down as I&S expect, so does gold). I&S are rather sure that the price will implode during this time frame. Once again time to grab the beer and popcorn and your favorite easy chair.
Whether you hold cash or gold you are at the mercy of someone.
Either way you are vulnerable.
Illargi,
Thanks for the post. I’ve excerpted part of a recent ZH article that dovetails nicely with your analysis:
"So let's see if we can make sense out of this:
Greek banks exist only due to the National Bank of Greece funding their operations by providing cash in exchange for Greek bonds as collateral; Greek bonds are trading at or around 50 cents on the dollar, which however results in nearly par cash; the NBG goes and pledges the same Treasuries to the ECB, in another collateralization operation. However, even that has failed to satisfy the full Greek bank system capital shortfall (remember that whole bank run and collapse in bank deposits?), and a €20 billion gap has opened up, which is where Bailout #2 is happening. The issue is that Greek banks can not offset selling interest and the SMP is forced to buy up eligible collateral which means there is a liquidity crisis. The only thing that could help this would be a greater deficit, which would be funded with more issuance, yet the IMF is forcing Greece to slash its budget deficit, thus substantially reducing future bond issuance, and repoability by local banks with the ECB, as final NBG-intermediated, counterparty. So instead the country's banks need direct foreign capital. However, this capital needs hard collateral pledged. Collateral which would have value in a worst case scenario, i.e., liquidation. Instead, what the EFSF has offered as "collateral" is the equity of the very same firms which will be immediately insolvent once this house of cards collapses, sending the bank equity collateral worthless, and buried under billions of debt liabilities, and in turn impairing the ECB which suddenly finds itself with hundreds of billions in worthless Greek paper, making additional funding for Finland, once it finds itself in a liquidity crisis, next to impossible.
……
Whoever said watching massive ponzi scheme unwind is not entertaining obviously had no idea what they are talking about. "
http://www.zerohedge.com/news/europes-ponzi-takes-twist-wacky-greek-bank-equity-be-used-loan-collateral
I need a minute to digest all of this, but it seems to all boil down to the truism that you have pointed out: politicians cannot fool the market forever.
politicians cannot fool the market forever
but they do make a fool of the market
On top of having to deal with corrupt politicians we have the corrupt executives.
Something is wrong with humans
Jack said 'On top of having to deal with corrupt politicians we have the corrupt executives.
Something is wrong with humans' and here's what's wrong: http://www.youtube.com/watch?v=MgGyvxqYSbE&feature=player_embedded
El G,
Yes, I sure hope they are correlated, I sure would hate to try to to store oil in the back yard.
Until human power is cheaper than oil I think gold will track oil, and then, in some far future, when that cross occurs, gold will be back to tracking the navvy (or to be edgier the 'slave trade').
Only thing I remember, from a 101 economics course, was that a dollar bill is not wealth. Neither, for the most part, is an ounce of gold, but at least gold can't be printed.
Garlic powder on that buttered popcorn, huh? Yum!
ilargi, are the titles in your today's Post not linking to
the originating articles, or is that happening at my end?
Christine Lagarde is The Bankster Babe
Sovereign debt has reached unsustainable levels, in many instances such as Ireland because during the 2008 crises, governments shifted private debt to public debt to save the banks. Now the banks are in trouble because they are about to take "hair cuts" on the sovereign bonds. Bankster Babe's solution at Jackson's Hole, shift more bankster debt to public debt. Makes sense to me. As ocmszr points out, collapsing Ponzi's are a hoot. The outrage of the a-holes at Jackson's Hole is a black hat / white hat con to slip the K-Yed idea of another bankster bailout into the meme. Perhaps it was Christine in black face cleaning DSK's room in Manhattan.
Ilargi, very excellent lead today. You make sense of the senseless. We are nearly at the endgame of business as usual. However, so many of the articles spout the convention idiocies. Particularly that first one from Dubai. More like from a doobie. Asking permission, Sir, to apply them to my tomatoes.
The WBC (world banking cartel) is going to do its damndest to lever the upcoming crisis in the Eurozone into a coercive and tyrannical European government with taxing and bonding privileges and NATO as its Enforcer.. Perhaps David Rockefeller can make this dream come true while he is still vaguely alive. To paraphrase Plato, the best form of government is that run by the enlightened bankster king. Let us hope that they fail, though I have little faith in the power of the outraged screams of the "voting" public.
muchtooloose
Your end. I tried five and they all worked fine.
Thanks, el Gal!
Inside information from Japan, via NHK. All their economic "numbers" have been marching steadily down, of course; but they've been keeping up appearances, business-wise, not too badly so far. Here's one of the ways they do it:
"Temporary workers hit record 40% in Japan
A government survey shows that temporary employees made up nearly 40 percent of Japan's private-sector workforce last year, a record high.
"The labor ministry polled about 10,000 offices and businesses with 5 or more workers as of October last year. 38.7 percent of the employees covered in the survey were identified as temporary staff. The number includes contract workers and part-timers."
http://tinyurl.com/3zl43s6
That Gulf News feature was a good read despite falling into the typical pattern of nearly every "sober" assessment of The Long Emergency. From documentaries like the 11th Hour, to a number of Peak Oil docs, to our friend Alan2012- no matter how dire the objective facts, no matter how recalcitrant the momentum of the trends, no matter how evident the utter corruption and incompetence of TPTB; the default conclusion is that somehow through ingenuity, renewable energies, and the magical guidance of the invisible hand we can grow ourselves to a solution.
Taint going to happen folks. The idea of a global economic system predicated on exponential growth built with non-renewable energy within the physical framework of a finite system (the planet earth)was a giant ponzi scheme from the word go. It just took a long time to build to climax.
Clearly the vast majority of the people who ought to understand what concepts like, "exponential growth", "economic growth", "debt", "compound interest", and "ecosystem" don't have an F'n clue what these concepts mean. And up until now they didn't really have to care much what these concepts mean. I am convinced that the vast majority of college graduates couldn't explain what exponential economic growth means and therefore have not the first clue what it means to arrive at the point where aggregate exponential economic growth is NO LONGER physically possible (as has most likely been the case for a number of years now). Yes, this is where all the exploding debt came from. When returns on REAL, productive economic activity began to decline, as the physical constraints on growth began to make themselves felt in terms of price and EROEI and resources ROEI, if not in terms of actual physical energy and resource extraction rates; taken together with declining marginal returns on increasing complexity- Debt and the Great Financial House of Derivative Cards filled the gap to buy time for the magic of the Invisible Hand to find a solution to the problem of Growth. Needless to say, it hasn't.
So, if we accept that Growth is no longer possible, what happens to the ridiculous amounts of debt? The status quo power/wealth structure depends on some kind of orderly disposition of all this debt. But the rest of humanity is being increasingly crushed by it. The vast interconnected and inflexible global system of trade depends on the continuance of economic relationships that are crumbling.
Skip Breakfast said...
I too want to find a way to get back to the land. But the learning curve for a white-collar academic type like me is very very steep ... I have made a commitment to myself to learn to butcher an animal myself, if I'm going to continue to eat meat. It's ridiculous how far removed I am from my own food chain!
There are bound to be a lot of us in this boat. It's like living in two worlds – the strange veneer one of modern life, whilst doing your best to get acquainted with the raw and much more satisfying one.
Another good analysis of Libya
Economic contraction is inevitable. Our interconnected, overextended, over-leveraged, anti-ecological economic system which up until 2007 or so was doing a reasonably good job of providing food, water, and shelter for 6.7 billion humans is collapsing in on itself. Whatever kinds of motley, cobbled-together systems rush in to fill the void left by this disintegrating economic system of ours are going to take time and will invariably be clumsy and unstable in and of themselves.
Just look at the attempts by the existing crop of Masters o' the Universe trying to keep the EMU from imploding. Even under circumstances that still RESEMBLE business as usual, they can't even manage to convince the world that collapse is not imminent. In the wake of massive system failure they will be as useless as tits on a boar hog to deal meaningfully with the multiple physical, social, political and economic crises that will descend upon their fine-haired noggins.
Oh, I don't doubt for a minute that the ranks of TPTB are well-stocked with plotters and craven conspirators angling for global domination. But what they don't understand is that their whole Paradigm is going extinct and many of them will precede and follow it. Some will manage to enrich themselves in the process, but in a world of declining resources and energy, conquest is maladaptive as costs exceed benefits and will invariably undermine long-term survival. This is a lesson from Mother Nature who as we know bats last. The solution, the best survival strategy lies in a new Paradigm- Cooperation with each other and Mother Nature. This is the answer, the natural law in a world of declining energy. Attempts to circumvent this basic principle no matter how ingenious or motivated are doomed to fail.
@pro-pop
" ......no matter how recalcitrant the momentum of the trends, no matter how evident the utter corruption and incompetence of TPTB; the default conclusion is that somehow through ingenuity, renewable energies, and the magical guidance of the invisible hand we can grow ourselves to a solution."
Hahaha
Great observation. We can do it if we just had more entremanureal 'pluck' (which coincidentally rhymes with Clusterfuck)
This is the work of the "Invisible Handjob"
.
@ El G
You wrote : “ You lost me at one of the switchbacks (when I went careening over the cliff). ”
Sorry about the unmarked curve , Mr G . Good time to be a buzzard, though, huh? What with the wings and all. Not to mention possible free lunch at the bottom if anyone else missed the turn.
It's hard to squeeze a long thought into a 4096 character nutshell, and efforts at surgical editing can become slash and burn as I try to trim my inborn verbosity down to size. Stuff gets lost and hashed up.
You asked : “ Are you implying that the price of gold in terms of nominal USD will be much, much higher in the near to mid future?”
I wasn't trying to say anything at all about future gold prices, in dollars or otherwise. I was aiming for the broadly strategic (not narrowly tactical ) point that the value of ANYTHING is relative to one's frame of reference at the time of transaction, that unconscious shifts of frame (especially those intentionally induced by criminals for destructive purposes ) lead to predictably wrong financial choices, and that some frames of reference are pathetically mistaken in any case. As wrong as still thinking that the sun orbits the earth.
Gold for instance, has been, is now, and in all likelihood will in the future be worth exactly the same thing : shit . ( other than as a commodity for jewelry, electronics and art.)
Which has exactly ZERO effect on peoples' efforts and beliefs about turning it into money... or not.
Primates will be primates.
I do have one specific theory though about the future price of gold priced in nominal dollars, and I will watch the markets with interest to see if it pans out.
I think the Oligarchs need gold to run a little higher to complete the extraction operation that they have started. It's already beyond the range of ordinary mortals, so there can be no price support from that sector, but to persuade debtor nations to give up their bullion as collateral will require that the gold be priced SO high that the debtor thinks he's cheating any lender who accepts it as collateral.
And of course the current holders who are selling gold at those prices ... Lord & Lady Oligarch... aren't complaining. Why should they ? They're making OCEANS of cash now, and are going to get the gold back practically for free when the price eventually does collapse.
More of a psychological theory than a technical one, but I know so little about the technicalities it's the best I can do for now.
I hope to get better at it over time.... but it will take some time. I'm doing the homework, but it is both difficult and painful to force my thoughts into the art and pseudo-science of deliberate murder/suicide that is modern economics.
" I'm doing the homework, but it is both difficult and painful to force my thoughts into the art and pseudo-science of deliberate murder/suicide that is modern economics."
It's these brilliant turns of phrase and clever one-liners like "the Invisible Handjob" that are half the reason I religiously read these posts from the TAE commentariat.
progressivepopulist said...
“Clearly the vast majority of the people who ought to understand what concepts like, "exponential growth", "economic growth", "debt", "compound interest", and "ecosystem" don't have an F'n clue what these concepts mean.”
---
When did the concept of interest on loans start?
Or if you prefer, compound/exponential growth of debt?
jal
Greenwood said...
@pro-pop
Great observation. We can do it if we just had more entremanureal 'pluck' (which coincidentally rhymes with Clusterfuck)
This is the work of the "Invisible Handjob"
The best bit is that "human ingenuity" might have done a lot more to limit the down-side of the slope and extend the game if only the populous had actually been taught to think, instead of just being programmed for jobs and market acceptance.
Of course we-the-sheep wouldn't have accepted the fleecing for so long if most people could think critically and rationally.
Lira said Europe crisis will push gold price up while TAE said gold price will go down in coming deflation.
"Therefore, it is reasonable to infer that, if and when there is a Lehman-like event in Europe that triggers The Sequel, the flight to safety will be to gold, which Europeans traditionally see as a financial refuge as surely as Americans consider Treasuries their financial refuge.
Hence in my estimation, gold will rocket on. I would not be surprised if gold crosses $2,000 an ounce when the Lehman-like event happens, and goes on quickly to $2,500 before the end of the year. On my scale of augury, this is head-and-shoulders above a Strong Hunch, just shy of a Fearless Prediction: $2,500 by the New Year’s. After that?"
http://www.zerohedge.com/news/guest-post-%E2%80%9C-sequel%E2%80%9D-how-2011-repeat-2008%E2%80%94only-bigger-longer-and-uncut-bailouts
D. Benton
"Gold for instance, has been, is now, and in all likelihood will in the future be worth exactly the same thing : shit . ( other than as a commodity for jewelry, electronics and art.)"
What Ho, that is a good idea to dis gold! So now,after economic collapse, if I want to take my cow 20 miles to market some hot summer day and the only person who wants my cow is some guy with 250 lbs of herring he trucked in from Pooskapay three days ago, now, there is big problem there, nobody in my village likes fish, particularly herring, (ever eat fried herring ... gah!) and besides they like fish that has been packed in the hot sun for twenty five miles even less. Also, If I bring home that fish my wife would undoubtadly lock me out of the house until I got rid of the smell of those fish.
There was one other guy at the market, but all he had was some lump of metal he called gold and the stupid bugger expected me to take a little quarter ounce for my cow. What a sap! Tell me, have I just as much smarts as D. Benton who also, it seems, knows shit!?
Cullen Roche: " ... an investor who is looking to benefit from a commodity bull market or the negative correlation of some commodities, is better off investing in the ingenuity of the corporations that benefit from these markets. In this manner, you are actually buying human ingenuity rather than buying physical commodities which are the equivalent of selling human ingenuity."
Seeing how human ingenuity has managed to botch economic activity, self-governance and spaceship life support, shorting ingenuity is more genteel than marching it into an alley and shooting it in the head, like it deserves:
"Iceland raised its main interest rate on Aug. 17 by a quarter point to 4.5 percent, the first increase since its banks collapsed almost three years ago. The central bank, which also raised its economic forecast for 2011, is increasing rates as it eases capital controls that have locked in $4.3 billion in krona assets since 2008. The move may revive a trade popular before the crisis: borrowing in low-yielding currencies and carrying the funds into higher-yielding markets such as the krona.
"The central bank has stated that it wants to open the door to the carry trade," said Asgeir Jonsson, an economist at Reykjavik-based asset manager Gamma. "As greed knows no boundaries, carry traders will always return as long as the yield is favorable.'"
Anything more is putting mayonnaise on apple pie ...
World's seven billionth person about to be born
RE: gold and oil:
- Oil is an economic necessity ... at an affordable (profit inducing) price. Gold is not a necessity. Oil prices can only rise so high before business activity slows and oil demand is constrained.
Gold is not economically important, it can rise to any price without effect on the economy, although at some price PM prices can effect systemically important speculators.
- Oil is not practical for investors to store, nor can it be made use of without processing (refinery). Gold can be stored indefinitely with little costs (unless there is an increasing surplus of it as related costs rise faster than value of the surplus).
- Oil is liquid, very much so in the ordinary sense, less so financially. A life-changing amount of oil is costly to ship, warehouse and manage meaning ready buyers are limited to a few large corporations.
Gold is always liquid and can be sold easily, bought with difficulty -- the opposite of oil. In fact, gold is more liquid than cash at any given time with a 'liquidity premium' that increases with time. This aspect is not considered by those who always assume liquidity in all things is a birthright.
- The physical crude market is deep and wide but dependent upon a deep and wide industrial infrastructure base ... which is eroding due to funds flowing away from maintenance toward producers. The market for gold is deep and wide: note the paper gold market which is filled with physical gold wannabes.
- A drop in oil price means demand destruction with nobody with the means to 'buy the dips'. A drop in gold price is an opening for newly wealthy Chinese and Indians to buy the dips.
With the Chinese economy a) flush with trillions of cash dollars, and b) coming apart at the seams, the flight to gold looks good ... for now.
As I am going back on the road soon,I have been watching the debate on gold vs "anything"fairly closely.I expect to see a drop of 20-30% in the next year or so,a retrenchment,due mostly to people trying to cover other outside debt...and may use that as a buy[small quantity]signal for a couple/few of coins,and or some silver.Most of the funds from this trip will go to erasing ALL consumer debt that I have,as well as replenishing,recapitalization of "The bank of the Green Sock."
With so many "trial balloons" being flown in Europe,they probably have a shortage of helium..
Everyone has a idea.Nobody has the horsepower to make it work.[This is a excellent post and commentary Ilargi.You are using a real sharp knife today].
The markets will make a call.
There wont be any doubt then.
Ilargi's has pointed out the most damning truth to come out of all the bullshit that's been flying out of the Euro bankers mouths...that when the chips are down they will lie though their teeth to cover their own ass..then take a early retirement ,with a stop in whatever hidy-hole they have their cash stash at...then its pretty girls and drinks with little umbrellas in them..and let someone else get ripped apart by the crowds dragging banksters out for a "necktie party".Another sign that its going to start getting hairy is when you start to see some of those in power,for no good reason,just walk away.Smart folks know when its time just to walk away.
We are getting down to the end game here,and lots of folks are stating to see it.
We were real close to that kind of stuff during the bailout..I remember to tour buses showing up at big wig banker houses when the real stories came out.Lots of nasty words.Lots of nasty stories.All it would have taken was a spark.The way all of the wall street boys are getting lawyered up,O-man might have decided to start playing some serious games with "The boyz"..When it all goes to hell it would be nice to have a few "some ones" to throw to the wolves,so they don't come for him...yet.
DYI is Right as far as what I think will be a FOR REAL SIGNAL. Going for the .mil budget,and curtailing out wars of choice..I only found out about the Chinese "techs" that have just been given their walking papers by the new rebel .gov in Tripoli
.Hmmm.1.5 million BBl of sweet crude all daylong/ all with null and void contracts w/China.Hmmm.Stranglehold on Chinese/Libyan Oil production/supply.. and drop in oil prices for USA.I understand the win,win,win for the west out of this and I have not seen the counter-move yet by the Chinese.Oh,and I bet there will be one,and and a doosy
Time to watch the shells close now...
Bee good,or
Bee careful
snuffy
progressivepopulist said...
"That Gulf News feature was a good read despite falling into the typical pattern of nearly every "sober" assessment of The Long Emergency. From documentaries like the 11th Hour, to a number of Peak Oil docs, to our friend Alan2012- no matter how dire the objective facts, no matter how recalcitrant the momentum of the trends, no matter how evident the utter corruption and incompetence of TPTB; the default conclusion is that somehow through ingenuity, renewable energies, and the magical guidance of the invisible hand we can grow ourselves to a solution."
This and your next comment are right on. I must express my disappointment too re the last comments by Alan2012 on the previous post of Illargi. I expected more from him and thought him better informed than that.
Disappointingly,
Robert 1
NZSanctuary quoted...
'Skip Breakfast said...
I too want to find a way to get back to the land. But the learning curve for a white-collar academic type like me is very very steep ... I have made a commitment to myself to learn to butcher an animal myself, if I'm going to continue to eat meat. It's ridiculous how far removed I am from my own food chain!'
SB, don't be discouraged you can learn such skills rapidly. However, if you live in city without garden or animals it will be very difficult.
There are plenty of resources on the IN on such subjects and perhaps there will be in future here if S and Il develop a subtopic devoted to such subjects.
Myself, I grew up hunting and cleaning small game, fishing and cleaning fish and moved on to larger game and road kill and home farmed animals. Much of what I know I learned my self. I have been gardening since a young age (about 12) in spite of parents who never did such activities. And yes Snuffy I used to raise bees too hehe :-) .
Should such a subtopic develop
under TAE, lots of help will be available.
Best,
Robert 1
Osmium
You want it good and dense. Solid Osmium bars are going to be the best store of value yet. You need a good solid bar of osmium tucked up between the rafters in case of emergency and high waters. If you face competition, just smack the offender between the bell bottoms and then have at it with wild abandon. You never know what good a bar of dense transition metal will do you until it's too late Irene.
el g,
A while back, you asked about the current property market in Melbourne. I just saw a couple of contradictory articles that may interest you.
Melbourne homes led the July downturn with a 1.4% fall to $475,000, taking the home price fall in Melbourne to 5.3% in the past seven months.
House prices ease in softening market with rebound in sight: RP Data-Rismark
Rank Suburb Median Price* Trend (past year)
1 Cranbourne South $545,000 +43%
2 Williamstown North $775,000 +36%
3 Attwood $610,000 +31%
4 Sandhurst $540,000 +26%
5 Spotswood $640,000 +22%
Fastest Growing Suburbs in Melbourne
As you can see, it is not very obvious that they are looking at the same part of the world.
Is there a way out of the (debt) problem?
Sure, there is!
War.
What else?
@Robert 1
You'd be far ahead of most folks I know, in terms of your basic survival knowledge. I have moved to a more rural area than I was living, so I am more proximate to farming than I was. I now have a vegetable garden. Alas, one can't live on lettuce alone. I have taken up fishing too. Cleaned and filleted my first fish recently, and I was terrible at it. Learned a few things though....like the fact one needs a really, really sharp knife to do it properly.
I think it is time to kiss carol goodbye. IMHO
If you are interested in exchanging knowledge on said subject, please send your e address to Illargi or Stoneleigh who can forward it to me.
Best regards,
Robert 1
To make sure there is no misunderstanding, I was talking to SB not carol (who should be pleased at the rendition of her at top of current post).
http://andrewgavinmarshall.com/audiovideo-interviews/
According to Andrew Gavin Marshall
the timing of the our recent wars in the middle east,housing bubble and other similar events were discussed in the meeting of the billberg or (whatever their names are) before it happened.
If that is the case than those people know the timing of the future market collapse that is about to happen
Re: gold fever
This is moving to mainstreet.
Just yesterday I heard about a former colleague who has apparently made a small fortune selling gold he had bought a few years ago.
And a week ago a visiting relative regaled me with investment advice on mining stocks (not ETFs) and assured me the USD was toilet paper, etc.
I'm also informed there are television adverts offering to accept even broken and unwanted gold ;-) for cash.
This seems eerily familiar......
From the Gulfnews article
"Debt also grew faster than GDP over this period, with the ratio of global debt to world GDP increasing from 218 per cent in 2000 to 266 per cent in 2010,"
To be honest I would have thought it was worse. Considering that interest rates are now so low it would not be surprising if the debt service cost was little higher now than a decade ago. Throw in that so much new government debt is being taken at a near zero rate, in order to pay off old debt, suggests perhaps over simply that the game can go on a lot longer.
There is an old saying at Capital Stool. 'Nothing has happened yet'. Referring to a significant rise in the real interest rate on Treasury borrowing. Sure there is a whole world beyond the US shore and countless other things going on but at the end of the day this simple idea should not be forgotten.
When Treasuries rates break their 30 year downtrend something will have happened.
More from ZH on the Cdn economy. I guess the Globe reporter didn't realize when he took on ZH that ZH is a " fight club".
Canada is in Tyler Durden's sights now....
" Canadian Economy Shrinks For First Time Since 2009;Recession Next? "
http://www.zerohedge.com/news/
canadian-economy-shrinks-first-time-2009-recession-next
The Q
He sold his gold and now he is holding toilet paper
muchtooloose
" Tell me, have I just as much smarts as D. Benton who also, it seems, knows shit!?"
We don't have a problem here with your intellectual and economic arguments though they are contrarian to most here. However we have a major problem with the basic nastiness of your comments directed to our other commenters, devoid of even a partially redeeming humor. We have noticed this since your appearance here and that it just has approached the red line. Here you have gone over it.
If you wish to comment here,stifle yourself in terms of the nastiness content toward other commenters. Otherwise - move on.
So Nancy Pelosi allegedly said: When we won the election in 06', and we came in, the first day, in the first 100 hours we raised the minimum wage. It was the first time the minimum wage was raised in eleven years. I bring that up for this reason, it wasn't kept down because people just, you know, small businesses said 'I can't afford", it was kept down for a purpose, it was kept down for the purpose that people would not be able to live on that, they'd have to borrow, against home equity loans, against their mortgages, there this and that, they'd have to live on credit cards, and what are they doing when they do that, their paying fees to the banks, their paying fees to them, so it's a contrived dependence on private credit for millions, tens of millions of working people in our country, and who they are is who they bring to that table, protect the tax breaks for the wealthiest people in our country, do not allow wages to rise with productivity, keep people dependent on paying fees to banks for the use of their own money, for the use of their own money...
Sounds close to something we would hear here at TAE. Unfortunately she doesn’t often walk the talk. Yes we have a political crisis and the theater goes on…
From Chris Hedges: Rick Perry and John Boehner overtly make war on Social Security. Barack Obama and Nancy Pelosi say they would like to save Social Security but are sadly powerless before the decisions of a congressional super committee they helped form. The result, of course, is the same. We get to choose the rhetoric and manner in which we are deceived and disempowered. Nothing more.
The essence of any transaction is trust. When I hire you to paint my fence, I trust you to do it right, and you trust me to give you the $100 that we agreed upon. When you deposit that $100 in the bank, you trust that it will be there when you need it, and the “value” of that $100 will remain somewhat constant relative to the labor it took to paint the fence. In this particular case, money serves several functions. First, it is a practical solution to the problem of exchange. You have nothing I need or want, so I take your money with the expectation that I can use the money to get something I truly need or want. Second, the money symbolically represents that an exchange of equal value has taken place when in fact that is not actually the case: I have expended labor and you have given me a piece of paper. The money therefore represents a form of symbolic bookkeeping for one-sided transactions, with me trusting that in the future I will be able to “use” the money for a different transaction with someone else.
We get confused when we equate this money stuff with something of actual value. The money only has value if everyone continues to believe that it has value. The hyperbole surrounding discussions of deflation, hyperinflation, or ordinary deflation are all conversations that distract from the need for a stable system of bookkeeping for one-sided transactions.
It is possible to separate the notion of money-as-wealth from notion of money-as-means-of-exchange for one-sided distractions. How? Eliminate the money and just do the bookkeeping. The concept is called a “Community Exchange System” and it is available right now. A Community Exchange System (CES) is an online-accessible, money-less system of exchanging goods and services (for future purchasing credit) in a community-based market designed to serve participating community members. What follows is a detailed description, taken from the CES website, of how a CES works:
Seems to me this blog is being weighed down by the unbearable heaviness of gold.
And I'm sure you'll all notice I have not partaken of the dis and con cussions.
Here, for those yearning for my insight, is my opinion on gold:
http://tinyurl.com/3myfel7
The object of the Community Exchange System (CES) is to facilitate trade without using our conventional national currencies, and build a sense of community at the same time.
By 'trade' we mean the normal economic activity of selling goods and providing services by 'producers', 'sellers' or 'providers', and the purchase of these by 'buyers', 'customers', 'clients', 'patients', 'consumers', etc.
The CES serves two basic functions:
• it is an online money and banking system
• it is a 'marketplace' where people sell goods and services
Although the CES is internet-based it also works for those who do not have computers. Each user gets an account number and a password, and this gives them access to their account on the CES web site. The site works like a true on-line banking service. Participants can view their current balances and obtain statements of account. They can also keep track of the trading position of others.
Goods and services are advertised on the web site through an 'Offerings List'. Participants look through this list, or do a search, and if they find anything they want they contact the seller who then provides the goods or service. Payment is effected through a Trading Slip which serves both as a means of payment and a receipt for the goods or service. The information on the Trading Slip is entered by the seller into a transacation form on the web site. This credits the account of the seller and debits that of the buyer. Accounts record these debits and credits, giving a balance after each transaction.
Those without computers can interface with the system through 'branches' where everything is done manually and information is available on paper.
This is actually part 2. (Blogger doing weird things with this post...)
The object of the Community Exchange System (CES) is to facilitate trade without using our conventional national currencies, and build a sense of community at the same time.
By 'trade' we mean the normal economic activity of selling goods and providing services by 'producers', 'sellers' or 'providers', and the purchase of these by 'buyers', 'customers', 'clients', 'patients', 'consumers', etc.
The CES serves two basic functions:
• it is an online money and banking system
• it is a 'marketplace' where people sell goods and services
Although the CES is internet-based it also works for those who do not have computers. Each user gets an account number and a password, and this gives them access to their account on the CES web site. The site works like a true on-line banking service. Participants can view their current balances and obtain statements of account. They can also keep track of the trading position of others.
Goods and services are advertised on the web site through an 'Offerings List'. Participants look through this list, or do a search, and if they find anything they want they contact the seller who then provides the goods or service. Payment is effected through a Trading Slip which serves both as a means of payment and a receipt for the goods or service. The information on the Trading Slip is entered by the seller into a transacation form on the web site. This credits the account of the seller and debits that of the buyer. Accounts record these debits and credits, giving a balance after each transaction.
Those without computers can interface with the system through 'branches' where everything is done manually and information is available on paper.
...continued
(I'm having trouble with Blogger in posting a longer explanation of a CES.) You can actually read the details of this amazing system (distributed freely by CES) at their website: http://www.ces.org.za.
We are attempting this system via our nonprofit in Southeastern North Carolina. Our version is called the SEACC Community Exchange System. We haven't yet reached a critical mass of users, but we're getting there!
board
The blogspot spam monster has gone on a rampage again lately eating valid comments. We will keep as close an eye as possible on the spam box and return the comments to their rightful position as we can. The spam control on blogspot is a black box which individual bloggers have little to no control over.
A great discussion by Naomi Klein and Joseph Stiglitz on the subject of
economic power:
http://jessescrossroadscafe.blogspot.com/2011/08/time-for-review-economic-power.html
Snuffy
"that when the chips are down they will lie though their teeth to cover their own ass..then take a early retirement ,with a stop in whatever hidy-hole they have their cash stash at...then its pretty girls and drinks with little umbrellas in them..and let someone else get ripped apart by the crowds dragging banksters out for a "necktie party".Another sign that its going to start getting hairy is when you start to see some of those in power,for no good reason,just walk away.Smart folks know when its time just to walk away.
We are getting down to the end game here,and lots of folks are stating to see it."
Michelle Shocked - The Secret to a Long Life is Knowing When It's Time to Go
Pity there isn't a full, quality version on youtube. Michelle is my favorite - she rocks.
http://www.youtube.com/watch?v=mSZq5Uy5KjI
DBS,
Very insightful post re: human psychology and frames of reference, as usual. I would add that the collateral value of loans must collapse for the collateral to be properly extracted. I believe that was implied in your post, but not explicitly stated. People tend to forget that, in a dying system, the very big players don't really mind being "under-secured" by hard assets, because short-term liquidity is provided by governments/CBs and extraction is their goal. When liquidity mechanisms fail, the relevant institutions are either bailed out or acquired. Either way, the relevant individuals continue accumulating both paper and hard assets.
One commenter here referred to gold as follows:
Gold for instance, has been, is now, and in all likelihood will in the future be worth exactly the same thing : shit . ( other than as a commodity for jewelry, electronics and art.)
Another commenter then posted on how superior money was as a means of exchange to barter. The obvious implication was that gold is the only proper form of money.
I would like to point out that colonial America, and particularly Pennsylvania, had a very, very successful form of money not based on precious metals which fostered great prosperity, namely scrip. Despite the fact it was "fiat paper" it kept stable value and was not counterfeited. The Crown viewed this with alarm, outlawed scrip, and demanded that all fees and taxes be paid in gold. This drove Pennsylvania almost instantly into a depression. Ben Franklin regarded the Crown's demand for payment in gold and the outlawing of scrip as the primary cause of the American Revolution.
No one would argue that some sort of money is necessary beyond simple barter for an economy from the city state onward to flourish, though some might argue that humans on a median average were at their happiest and healthiest as hunter gatherers.
Jubillees are not possible in our complex economicaI and political systems.
What is this world coming to???
What kind of reset are we into?
Are we heading into a world where there will not be interest paid on debts?
Would the defaulting on interest due and the application of the interest already paid to the reduction of the outstanding loan be considered a “default”?
In order to make your money grow, it is necessary to go into profit sharing (and loss), joint ventures, or simply put grubstaking.
Hehhh!
Guess what?
The model already exists that could save our society from ursery/exponential growth/debt/compound interest/slavery.
Timmy and Ben are not giving any interest for money deposited with the gov.
I get no interest by putting my savings in a bank.
http://en.wikipedia.org/wiki/Islamic_Banking
Islamic banking
Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. Because Islam forbids simply lending out money at interest (see riba), Islamic rules on transactions (known as Fiqh al-Muamalat) have been created to avoid this problem. The basic technique, to avoid the prohibition, is the sharing of profit and loss, via terms such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar).
Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future growth.[14] Islamic banks have more than 300 institutions spread over 51 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 250 mutual funds that comply with Islamic principles. It is estimated that over US$822 billion worldwide sharia-compliant assets are managed according to The Economist.[15] This represents approximately 0.5% of total world estimated assets as of 2005.[16] According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010.[17]
The Vatican has put forward the idea that "the principles of Islamic finance may represent a possible cure for ailing markets."
---
March 4 2009 (Bloomberg) -- The Vatican said banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis.
“The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Vatican’s official newspaper Osservatore Romano said in an article in its latest issue late yesterday.
Author Loretta Napoleoni and Abaxbank Spa fixed income strategist, Claudia Segre, say in the article that “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London,” they say.
Pope Benedict XVI in an Oct. 7 speech reflected on crashing financial markets saying that “money vanishes, it is nothing” and concluded that “the only solid reality is the word of God.”
The Vatican has been paying attention to the global financial meltdown and ran articles in its official newspaper that criticize the free-market model for having “grown too much and badly in the past two decades.”
Nassim
Thanks for your links. I think that when a giant real estate bubble busts, and Oz is a giant one for sure, the market goes into a Mexican stand-off for a while where every property has a for sale sign and few are sold. The flippers can't believe what is happening and don't have the sense to take their losses fast and get the hell out. Only the most naive people think that the modest decreases are a bottom and buy, particularly now that countries like the USA and Ireland have set a template. One major symptom of a "mature" stand-off is that rental prices are a fraction of what they should be based on the asking price. Costa Rica last year was an example of this. I was renting a modest house with 8 gorgeous and well cared for hectares for $250 a month for which the owner, a gringa, was listing it for a half million. My rent only covered the salary of the groundskeeper.
El G,
Regarding Script,
My understanding is that what stopped the German Hyperinflation following WWI was that the Germans issued their own version of script (called the Rentenmark) which could only be used within Germany’s borders, and removed international speculation/printing in/of the dm. There was more to it than that and I’m hazy on the details other than the Rentenmark was based on the estimated mortgage value of the German farms and factories. This still didn’t restore what the creditors/savers lost to inflation earlier.
All money is a matter of belief. Credit derives from Latin, credere, "to believe." Belief was there for the Rentenmark.
Also CHS has another good post up today for fans here.
http://www.oftwominds.com/blog.html
Punxsutawney,
You beat me to it. The CHS piece is self-described as "one of the most important things I've written in the 6 years I've been writing the blog". It is indeed a very critical post. Here's a snippet:
"Marx's genius was to recognize the historical inevitability of these internal forces within advanced Capitalism. He also recognized the inevitability of finance-capital's dominance of industrial capital--something we have witnessed in full flower over the past 30 years.
Finance capital now dominates not just industrial capital but the machinery of governance, rendering real reform impossible. Instead, the Status Quo delivers up simulacrum "reform" which change nothing but the packaging of the Central State/Cartel Capitalism's exploitation and predation.
Add all this up and you have to conclude the final crisis of finance-based advanced Capitalism is finally at hand. All the "fixes" that extended its run over the past 70 years have run their course. Life will go on, of course, after the Status Quo devolves, and in my view, ridding the globe of financial predation and parasitism will be a positive step forward."
A little bit of lost news; from Nature (UK science publication)
"Turkish decree: The Turkish government unexpectedly shook up national research politics on 27 August with a decree that gives it the power to nominate the president and vice-presidents of the previously autonomous Turkish Academy of Sciences. The government will also appoint four members of the academy's 14-strong, decision-making council. The decree requires the academy to establish and finance a series of new basic-research institutes, and enables the government to nominate top personnel in TÜBİTAK, the Turkish research-funding agency."
It's creeping Islamic fundamentalism, most likely. If Turkey becomes another religious state, instead of the secular one it has been... sigh.
An amusement; for those who find Pee Tarty politicks entertaining; the pundit here is smarter than the average-
http://tinyurl.com/3kdscrc
eg: "They also want giant insurance corporations to decide who gets health care and Jesus to tuck us all in every night. "
my own opinion; this pundit gets it.
And. getting back to the very timely and accurate post by Ilargi...
Gree Itself Now Openly Ridicules Europe's Lies of Greek "Stability"
"Compare these two statements: first from Reuters- "Greece's debt has run out of control and government policies are failing to restore finances, an independent parliamentary committee of experts wrote in a report released on Wednesday." And second, from Bloomberg: "Greece’s debt is on a “durable declining path” and new projections will show that the second rescue program reduces net liabilities, European Union Economic and Monetary Commissioner Olli Rehn said." Sorry Europe: your credibility, whatever was left of it, just ran out. When the indirect object of your bail out effort (the direct one being naturally your central bank and your various local banking oligarchy of course) says in your face that you are full of excrement, it is time to put a fork in it."
Ash,
As soon as CHS quoted “Marx” I thought of you.
Interesting that his thoughts are similar to what Jesse’s from Robert 1’s link, Progressive Populist’s own comments, and Chris Hedges thoughts that I posted. I hadn’t read either Jesse or CHS when I posted earlier.
Is the understanding that the system is too corrupt / broken to be saved starting to sink in; at least with the more thoughtful among us? I&S were way ahead of the curve here, or am I misunderstanding them.
I can say that trying to get people to stop and think out of the media-glazed, over indebted box their brains live in doesn’t make me popular at times, either at work (where I keep it way toned down) or at home at times. The really scary thing to me is the readiness of many to blame others, often even less fortunate for what they can sense is happening to them.
On Greece - My understanding is that market rates on 2 year Greek bonds are around 40%. How can that be paid from a contracting economy? Or even one growing at 10% a year. It can't of course, unless the actual amount of the loans was small in relation to the economy. A few mill Euros and it would be painfull perhaps, but there's enough wealth to make the payments, but here we are talking billions.
Hi Greenpa
Turkey is headed in that direction and the USA has already taken that into account.
Turkey is eager to be a super power in that region and their plans do not include any USA or Israel involvement.
This is not a big secret.
If USA and Israel is showing any sympathy for Armenia that is the only reason for their actions.
"is the understanding that the system is too corrupt / broken to be saved starting to sink in; at least with the more thoughtful among us?"
Yes, in a few more years this feeling will be prevalent throughout society. I have noticed a coalescing of visions amongst alt-media that was not there two years ago. This is a positive development.
Polls indicate the same thing, actually on a global basis - which is a loss of faith in institutions. I don't imagine this trend turning around.
Couple this with increasing global protest, a financial system on the precipice and you have a recipe for epochal change in a blink of an eye, historically speaking.
My previous couple of posts' reference to gold was incidental. I'm sorry for even using the word.
All I was trying to do was talk about frames of reference as they apply to Economics.
Stand in the middle of an economy and look at the stock market, gold, or currencies ( valued as you choose. ) That is a frame of reference.
Within that frame things look a certain way and have their own internal logic relative to other things within the frame.
For example, from that vantage it makes logical sense to trade with greater fools more cleverly then they, so that I can get a big yacht and a beautiful wife.
But I refute that frame of reference as archaic and false. I've already got a beautiful wife, and if I ever want a yacht ( unlikely ) without consequent pain and suffering beyond measure, then I will just have to build one or swap for it or something like that.
In my frame of reference exchanges balance out easily, because neither I nor anyone else can receive more real value than they produce, without setting in motion a sequence of consequence that must end badly.
I don't cheat or play dirty because of the INCREDIBLY ENLIGHTENED PHILOSOPHY of knowing that it will come back to bite my ass. Real esoteric, huh?
Any surplus above a certain low threshold I give away. ( Many will disbelieve that, but so it goes. ) My wife does the same thing. Not only does it feel good , but surrounding ourselves and family with people who are surviving well seems very sensible to me. The risk is small and comes at the end. The benefits are big and I enjoy them every day. I call that good investment. We live right at the official 'poverty line.'
Getting back to the point; According to the 'current system' frame of reference it is accepted practice to play those markets to the material disadvantage of others so as to monetarily profit and/or avoid decimation oneself.
Look around. That isn't going to work now. Might as well fight a High-Rise fire from the top floor, with buckets.
Would people benefit from a stable currency? Yes.
Could gold be the base of such a currency ? Only if human beings aren't involved in it's management. Maybe God could lend a hand. ( Nah. The Catholics tried that already, and God bailed out around the time of the Black Death and now won't answer his voice mails.)
Would the value of that currency fluctuate relative to real products ? Not if it's stable ... by definition of the word stable.
“ Ah Hah !” (they exclaim joyously, leaping for my throat with knives gleaming, ) “ So you are in some kind of denial about obvious established facts like the law of supply and demand and Adam Smith's metaphorical 'unseen hand' !!
Nope.
I'm not denying them at all. I'm saying that they only make sense from WITHIN the imaginary world of Capitalish System (spelling intentional) . Their “logic” is internal to that discredited frame of reference. And that crumbling world is a very very temporary condition if my reading of the world scene is anywhere close to right.
I try to maintain my own frame of reference OUTSIDE of the Capitalish marketplace, to the degree that's possible. Pretty hard to manage, since it permeates every pore of the living world at the moment.
Within the frame of reference that I employ to make sense of the world around me, things like markets, money, gold, currencies and the lot of it are just experiments.
Too often the experiments are merely two sides betting against each other. Like with this gold thing. I have no idea which side will win, but I do know that the other side will lose... and there goes a bunch more of the world's so-called wealth. Just great. Win by torching the other guy's crops. I see so many burned fingers in the near future that typing comments into TAE may require gripping a stylus gripped in one's teeth.
USA: The Coming Unrest...
The largest transfer of wealth in the history of human civilization...
what is next?
Wasn't Libya already selling oil to America and why did they decide to get rid of Gadafi all of a sudden.
Gadafi has always been unpredictable and a pain in the ass. There was an organic revolution brewing and they saw it as an opportunity. Plus war mongers are always pushing for money for bombs.
Hi SecularAnimist
Thanks for your reply.
The reason I asked is because I see the potential of conflict in Azerbaijan and that area is more complicated.
You have rich oil fields there
The Russians and Americans have their eyes on that place.
I don't know whether the Americans are happy with the Azeri's and that they would like to change the regime there.
Also you have the Armenian's that can get involved and turn this into big war
Punxsutaney,
"On Greece - My understanding is that market rates on 2 year Greek bonds are around 40%. How can that be paid from a contracting economy? Or even one growing at 10% a year. It can't of course, unless the actual amount of the loans was small in relation to the economy."
I just read this from Puru Saxena:
"In Greece, government debt now represents almost 160% of GDP and the average yield on Greek debt is around 15%. Thus, if Greece’s debt is rolled over without restructuring, its interest costs alone will amount to approximately 24% of GDP. In other words, if debt pardoning does not occur, nearly a quarter of Greece’s economic output will be gobbled up by interest repayments! Looking at this simple maths, it is obvious to us that unless the Germans or the French comes to its rescue, Greece will default within 2-3 years."
http://www.321gold.com/editorials/saxena/saxena082211.html
Now, if he changes that last part to "2-3 weeks", we're looking good. The best thing that could happen for Greece now is outright, raw default. No sugar coated "voluntary haircuts" like they came up with in the June plan. The merger attempt to salvage Greek financials lasted a whole two days before they are once again falling apart. I wrote this statement earlier in an article ("Welcome to Slaughterhouse-Finance"):
"The cities of Greece continue to erupt in violence as its citizens are forced to bail out European banks, and, meanwhile, Americans continue to mistake their own reflections in the global mirror. Earlier this year, Standard & Poor's rating agency downgraded the outlook for the triple-A rated status of Treasury bonds (from "stable" to "negative"), in what was nothing less than an act of aiding and abetting the politicians, bankers and major corporate executives who strive for the imposition of austerity on everyone but themselves. The only difference between Greece and the U.S. is that the latter is not a "weak player" in the eyes of elite institutions, such as the IMF. Which means that, while the Greek taxpayers may soon be put out of their misery, we will die a much slower death, choking on our own debt for years to come."
Here's hoping the Greek people have finally managed to escape the vicious cycle, after more than a year of financial torture. A default won't be pretty, of course, but the sooner it happens, the better for them.
Belarus now into true hyperinflation. Russians are moving in with Russian rubles and USD snapping up everything in sight at bargain prices like hungry locusts. Similar to Argentina 10 years ago.
http://www.bloomberg.com/news/2011-08-30/belarus-runs-out-of-meat-amid-currency-plunge.html
Re Libya
NATO knocked it over because they could. A giant piece of strawberry short cake for the multinationals. Any humanitarian argument can't get past the laugh test. The rebellion was western intelligence inspired from the start, and most of the fighters were al Qaeda types who made their bones shooting at the US military in Iraq. Not a little irony here until you realize that al Qaeda is a CIA asset. Tons of gold, financial assets, and the world's best oil. What's not to like? When analyzing it, best to paraphrase the Bill Clinton campaign, "keep it simple, stupid." Everyone benefits except the Libya people who apparently were getting a fairly good deal from Gadaffi.
Now to roll east to Syria to liberate the Gay Girl from Damascus!
Western banks could use tools such as the Islamic bonds, known as sukuk
IMHO, the whole sukuk business is a racket. Essentially, it is a bond that pretends to be risk-capital/equity. The "religious scholars" who "bless" these instruments are charlatans - the same way as Western rating agencies are. Under islam risk-capital/equity is the approved way of carrying on business and commerce. Anything that resembles bonds and money-lending for interest ist Verbotten no matter what these very wealthy and greedy "scholars" have to say.
The modern version of sukuk is quite divorced from the classic version which was much used in the middle ages. This whole shadow banking business has its islamic flavours.
Please don't forget that greed, avarice and the manipulation of beliefs are not an exclusively Western attribute.
@Alexander AC...the video you posted speaks to me.
I have decide to stand with Maud Barlow, Naomi Kein and others on Sept 26th in Ottawa. We protest the Cdn Tar Sands.
After the police response against protesters at the Toronto G20 I confess to feeling anxious.
Nasisim said ...
The modern version of sukuk is quite divorced from the classic version which was much used in the middle ages. This whole shadow banking business has its islamic flavours.
---
I thought that my posts got buried in all the chatter about gold. :-)
I admit to not being the smartest cookie in the jar.
BUT
There are definite signs that timmy and benny KNOW that our present system is collapsing and they must have an end game plan.
The fact that individuals are getting almost zero interest on their deposits and the fact that timmy and benny are giving almost zero interest for gov. to keep your money safe and the fact that benny announced that he will be doing the same thing for the next 2 years, (if not forever), says that we will end up with an improved model of Islamic Banking.
This could be their end game plan.
---
Getting rid of paying interest on loans without declaring a default is a workable option.
Will the lawmakers be able to make it happen? Let’s wait and see if there will be a transition or chaos.
---
http://www.zerohedge.com/news/it-time-financial-world-panic-25-reasons-why-answer-may-be-yes
Is It Time For The Financial World To Panic? 25 Reasons Why The Answer May Be Yes
---
Those who missed my presentation could look up, jal, at
http://pleasemessageme.co.uk/cgi-bin/blog.dll/history?jal
for my latest entries.
Just in case you are the worrying type, here we have the certainty that the earth's magnetic field will flip in the future:
The magnetic poles could wander to the equator for example, and take with them the spectacular Northern Lights. It would not be out of character - the shifting flows of the core have reversed Earth's field hundreds of times before.
"It's not a question of if the Earth is going to reverse the magnetic field, but when," says Lathrop.
Magnetic mysteries of Earth's Core
@jal,
>>Because Islam forbids simply lending out money at interest <<
That is, until the Islamic nation is conquered by the West.
One of the first things they set up is a bond market.
That and force Monsanto suicide / GMO / pesticide "food" onto the commercial producers.
@I&S
You seem sure that QE3 will not be offered up.
Can I be so bold as to inquire why you believe that?
TIA...
@Robert 1
I agree that the Internet will be the absolutely essential resource for understanding how to re-shape our lives in a more local, less credit-dependent existence, including food growing. And I appreciate your offer to exchange info, except that it sounds like you know a lot and I know almost nothing about growing or anything else that is all that useful in a true survival situation.
I'm trying to learn from friends who seem to have grown up building and hunting and fishing, but it is quite far from my natural inclination. The report card from first grade explicitly warned my parents that "Skip doesn't like to get his hands dirty." It's not my fault, but I'm not exactly proud of it!
Of course, survival necessities will have trump my "natural inclinations" in the end. I was probably built to be someone who designed better tools and stayed close to the campfire. But sadly in the past half-century, we've all been trained to be lazy "creative-economy" workers (i.e., dependent and nearly useless) and so the skill-sets across society are grossly lop-sided, and not in favour of withstanding the coming shit, I might add.
My friend who can build ANYTHING from wood is called on several times a day by "real men" who don't know how to hang a door. I'm afraid I'm one of those. So I'm going to have to be a bit smarter, and probably a bit richer, if I'm going to survive the great unwind. I helped be-head a chicken once and couldn't eat meat for a week. We've grown soft, and I have little to offer in the way of survival information, but want to support the movement towards sustainability and independence, and have little more than my energy and ideas to offer.
Europe: U.S.A., we need more trillions pronto!
U.S.A.: No.
Europe: Go to HELL!
U.S.A.: You first.
here's something from ft alphaville. methinks it has something to do with finance: the opaque collateral swaps market as private-style QE, short duration collateral swaps cum overnight black swan, and a williambanzai7 suggestion that it's the new shell game. (h/t SFV.)
http://ftalphaville.ft.com/blog/2011/08/31/661311/the-overnight-black-swan/
I don't know if its my imagination,but its as if everyone in the blogosphere is really firing on all cylinders the last few days..Folks are starting to "see behind the curtain"and its fugugly.
CHS comments seem to be right on the mark,with his showing the Marx worldview of capitalism contradictions...
We are now not in control of our country.
I fear its only a matter of time before we see more of the unrest that the link referred to.
Will it happen when they go for SSN? medicare or medicaid? or when we,the american taxpayer are told we have to bail out the rest of the world?
I know the powers that be have planned carefully for the civil unrest.One of the most telling points is when effective blackouts of political demonstrations are public policy of the corp media
Zero hedge has a good read that I linked.
(http://www.zerohedge.com/contributed/slave-nation-nature-or-nurture)
We all have a point when we say
BASTA!(enough!)
I honestly dont know when the greed of the ones in front will trigger a reaction so swift and so mean that they pull back a bleeding stump and say "Maybe we wont take this,now..."
It might be to the point where they will never say it,and the horror of revolution will come to america again.
The wisest saying of politics that I know is that "Those who make peaceful revolution/reform impossible,make violent revolution inevitable".Its plain the political system we have has been corrupted past repair,or so says many.I don't know."The gilded age",The Roaring 20's...even prior to those times corruption of whatever political system ..existed.Reform happened when a few dedicated people got up and said Basta!
Yes,a lot of them got their heads chopped off.This is when the numbers thing counts.[I still remember the words of one bastard who said he would hire one half of the poor to kill the other half]
The warped vision of America that s being presented to the public as being the only way forward scares me spitless.They want this country to get Mean as a snake again,and screw the poor,the old ,the sick anyone who cant take care of themselves,or that does not have 6 figures behind their name.
And I know of no way to stop them now.They have compromised the voice of the people so badly that they come up with a sick idea,and count all the yeas...and ignore the roar of no from the public at large.I see no good way out of this forming nightmare.They formulated the plans to deal with the public back in the 60s when demonstrations changed the face of the political landscape.That scared the hell out of the powers that be.There was 100eds of millions spent by the spooks and others to figure out how to compromise the leaders,and dull the edge of public opinion to "just let this one go by"
.Now we are in a web so tight,and things are so hard,that effective political action to correct the built in injustice is impossible.
If there is a bright spot,it is that the system they built is so strong..its brittle.
Its possible to make steel,for instance, many,many times stronger than what is used for a table or a motor,ect,but the price is the metal will become brittle,and will lose impact strength,or "toughness".
I believe the old Taoist train of though that associates strength,hardness and rigidity,with death...and flexibility, suppleness,with life..
The absolute control the wealthy have been using to rule our nation has gotten more ideologically ridged,and perverse...with no attempt to compromise,and moving wealth and power to fewer and fewer hands.At some point,and I do not know where it is,someone will make a bad decision that causes real grief to the majority of the citizenry...not just loosing 100ed of thousands quietly off the unemployment rolls...or more 100ed of thousands loosing their homes and all they have worked for.
Something big and mean and it will be in your face.And they wont back down.Thats when I expect to amount of radicalized people out in the public grows day by day.And is a big,big problem for those who want it all.
Time to sleep...no dreams please
Bee good,or
see trouble,in spades,because the Bee careful
snuffy
The UK has just delivered a plane load, $230 million Libyan dollars. The carpetbaggers have been busy behind the scenes.
Snuffy said: "The wisest saying of politics that I know is that "Those who make peaceful revolution/reform impossible,make violent revolution inevitable"
---------------
Yes, indeed. Thank you for your last series of posts. I think working with bees, working alone, or hiking remote mountain trails alone does much to clear the mind and see the big picture.
Too few take the time to calmly contemplate the world around them. I think this is one of the curses of modern life. People are too busy doing trivial things and developing trivial goals. This kind of thinking, or lack of thinking, results in individuals with a very narrow vision of life and the surrounding world.
I also appreciate comments by Bosun Cookie who obviously is influenced by Buddhist philosophy. I admire much of Buddism and Native philosophy and think they have much to offer this disturbed world.
Saying that, I have never seen sadder people then those in Burma where my wife and I spent a month wandering around. The problem with the gentle philosophies is they get swallowed by the violent and aggressive. However, in the long run the meek will inherit the Earth of that I am sure. (Hm, am I going religious? No, I don't think so certainly not in the modern "Christian" sense).
And DBS thank you for your comments too: "I don't cheat or play dirty because of the INCREDIBLY ENLIGHTENED PHILOSOPHY of knowing that it will come back to bite my ass. Real esoteric, huh?"
Only through honesty and sincerity can there be positive progress and I think you understand that well.
I am glad to see individuals share such personal thoughts.
How US Firms Profited From Torture Flights
Interactive: The CIA Rendition Flight Network
Fortunately, these types of details are made public in court documents well after the torture transport for cash transactions are ancient history, the taxpayers have been bilked and lobbyists/politicians on the Hill are busy scheming ways of slashing social spending programs to keep the defense largess and interest payments flowing and, eventually, privatizing every single function of government. What more efficient way of enslaving the masses?
Just one piece of evidence that Stoneleigh's call might come to pass:
Gold and the Swiss Franc are hitting a major technical resistance line, at which point they have tended to decline for years.
If gold and the Swiss Franc decline, and the Euro has trouble, this can only mean dollar strength.
"The problem with the gentle philosophies is they get swallowed by the violent and aggressive"
Also, as appealing as the concept of Anarchy may be on some levels, any attempt to live this way will probably be impossible in an overcrowded world where psychopathy is genetically rewarded. (And it is probably a big mistake to think peak oil issues will conveniently make all those annoying neighbours disappear soon....)
The Celts of 2000 years ago could be considered Anarchic societies? (Possibly my conception of Anarchy does not match the generally accepted definition?)They were no match for the organized psychopathy of the Romans.
The Q
People and groups transform.
On the surface they seem gentle but deep down inside they are bastards.
This is only for some groups
What happened to the barbarians.
I don't know but my guess is that they transformed
@ The Q
you wrote: " The Celts of 2000 years ago could be considered Anarchic societies? (Possibly my conception of Anarchy does not match the generally accepted definition?)They were no match for the organized psychopathy of the Romans. "
Quite true, but one-on-one or in small groups they were Hell On Wheels ( or Hell In Small Boats, to be more precise ) and ate Romans for breakfast. Indeed, even the organized Roman Legions were frequently forced to negotiate when they ran into bigger numbers of these guys. Roman literature is full of references, and many aspects of Romes incessant confrontations with Celts left tracks all over both our culture and language.
Rome never did solve the "Celtic Barbarian Problem " and ultimately fell to their raids and invasions. So, did Rome rot and become easier prey, or did the Barbarians finally wear Rome down til it rotted ?
Good question, I think, and one we should keep in mind... Because when Pax Americana finally does bite the dust once and for all, it will be Celts or someone quite like them who move in to fill the vacuum.
Who will that be ? Afghan Muslims or the like ?
Now that I think about it a little more, the mujahedeen are an awfully long distance from here.
Locally, the vacuum is more likely to be filled by Red Neck Armies Of The Lord in camou, with a beer in one hand, deer rifle in another and the King James version in a hip pocket... bookmarked with a laminated, robo-signed, autographed picture of Sarah.
Amongst us we already have those barbarian kinds who have already transformed and are doing their stuff on us.
I will not give any names but we know who they are and they know who they are.
We have come to term with the reality and it is an ugly sight but for now this is it.
What will happen in the future is everyone's guess.
Like all big groups and empires they too will have their place in history.
D. Benton Smith
You must be joking about the red necks and the mujaahdeens(whatever their names are)
Jack
Defining "human nature" is so difficult and usually involves 90% Freudian projection of one's own nature and 10% data. Stanford physiologist, Robert Sapolsky, spent several months over a 20 year period studying a baboon troop in Kenya. The academic purpose of his study was to correlate blood hormone levels, and cortisol stress levels in particular, with social position and interaction and changes in social position. In order to do this, he had to make detailed observations of social interactions (as well as become a blowgun dart marksman). However, his troop after many years was subject to a tuberculosis epidemic from a neighboring resort garbage dump. The epidemic was mainly centered on the highest ranking males, as scavenging the dump involved fierce combat with scavengers from neighboring troops, so only the toughest and meanest hombres participated. Sapolsky had strong affectionate ties with the members of the troop, and decided to move to another troop a long distance away after the epidemic since the deaths truncated the continuity of his research as well. Sapolsky wrote up his anecdotes in a wonderful lay book a few years ago titled "A Primate's Memoirs."
By human standards, baboon society is quite vicious. To paraphrase Sapolsky (my copy is several thousand miles away at the moment), baboons need to spend about 4 hours a day taking care of their basic needs. The remaining 20 hours is spent making each other as miserable as possible.
OK, cutting to the chase. After many years, Sapolsky decided to visit his old troop and was in for an intense shock. The society was totally different than when he studied it. It was completely chilled out. It was as if he had left Mad Max and come back to a bunch of pot smoking hippies sniffing flowers.
What is interesting is that most primate behavioralist would have scoffed at any chance that this transition would be possible because baboons have been behaviorally genetically modeled on Dick Cheney and thus, must remain Dicks. Since they cannot deny Sapolsky's report, they now say that it is a very transitory artifact caused by human interference, i.e. the tuberculosis epidemic. But in most universities, these guys are located quite close the economics department.
If anyone finds this interesting, I recommend his book as one of my ten favorites, partially because it has parts that are incredibly funny. As to the social transformation caused the by death of all the high ranking male Cheneys, check out:
http://www.radiolab.org/2009/oct/19/
A heads up
If nothing blows up the markets in the next week, then keep your eye on Germany on Sep. 7, next Thursday. That is when the Constitutional Court, the German equivalent of the US Supreme Court, will release its ruling on the legality of many aspects of the EMU and ECB grab for power over individual national sovereignty. If the court comes out and says it is blatantly illegal, all shit could break loose in the markets. That it is a complete violation of standing EMU treaties, any drooling cretin could figure out in a nanosecond. But by the same token, such drooling cretin could also figure out that an American corporation is not a flesh and blood person. So go figure. This is also the day that a bill to expand ESFS funding and rights to buy huge amounts of toxic landfill is entered into the Bundestag. As I have mentioned before, the only thing saving Ms. Merkel right now is that the German constitution only permits a vote of no confidence with the approval of the Chancellor, which is rather unlikely at the moment due to her failing popular support. However, she may find it near to impossible to govern shortly if she keeps backing the NWO cartel.
As Ambrose E-P points out, the German consumerate is in a state of open rebellion. TBTB made a serious mistake by not dropping the level of education in Germany as was done in Usanistan. As the late George Carlin pointed out, the working public needs to be dumbed down to the point that they can just operate the machines (since deindustrialization that could be changed to machine guns) and process the paperwork. Allowing a higher level of cognitive education in Germany, in the hopes of enhancing their international competitiveness, may yet bite the Oligarchs in the ass.
http://www.youtube.com/watch?v=acLW1vFO-2Q
credit analyst said what?
"The fear of another credit crisis is receding…..and even though Europe’s inability to get its act together might cause days of pain…we expect the risk of 500pt DJIA moves is materially diminishing. Why? The resteepening of BAC’s, as well as GS’ and MS’, CDS credit curves is more important than casual observers of the credit markets might realize. The inversion of BAC’s credit curve indicated that BAC was at risk of defaulting within the next year. Whether you believed BAC was truly a default risk or not, the credit market began to price in the risk that BAC could spark another LEH type event….this forced the equity markets to price in this risk. That risk is dissipating…(We were always more concerned with BAC’s credit risk profile than whether Italy is paying 5% or 7% on its latest bond offering.) The stress on BAC’s credit curve profile was not limited to the CDS at its holding company level. Pricing action in subordinate BAC, BAC preferreds, as well as Legacy MER and CFC obligations (and CDS) indicated that BAC would stop paying “optional” dividends as well as jettison the MER and CFC businesses as the newly developing credit crisis got rolling. IF BAC DEFAULTED THAT IS PROBABLY WHAT THE FDIC AND FED WOULD HAVE DONE….However, as the risk of a BAC default decreases the spread differential between corp and subordinate BAC, BAC preferreds, as well as Legacy MER and CFC obligations is decreasing. Based on recent trading trends …we expect this spread compression to continue.. Additionally, many causal observers of the credit markets seem to have forgotten that the credit crisis actually began when investors stopped buying structured products because of higher than expected loss rates, concerns over underwriting standards, and ultimately the value of the underwritten assets. A BUYERS STRIKE!!!THAT LASTED FOR A LONG TIME!!! These concerns are not present in the credit markets at this time, and the relative strength of the ABS market during the recent recession/credit crisis scare this summer is likely to make these concerns seem foolish. (The sell-off in RMBS securities and mortgage-REIT securities was driven primarily by expectations that the federal government would pursue policies that would artificially increase prepayment speeds…policies that would have been stupid if followed and they have been denied…) The inversion of BAC’s credit curve put the equity and credit of US Money Center Banks under stress… We expect the resteepening to do the opposite…as well as drive the VIX under 20 again…. The reopening of the debt capital markets after the labor day holiday will speed this process along..."
ben said...
credit analyst said what?
It's all because the CIA is flying in hopium by roof top helicopters to downtown Manhattan.
North Dakota has a working public bank, has had it running since 1917 (or so). Here's a nice text by Ellen Brown about how things are proceeding over there. Of course this is not very welcome story to certain factions of the current society...
There are 14 other US states that are trying get similar institutes running. I wonder how they will fare during Debtpocalypse.
Yes, things could be run very differently to present system but this is very, very hard uphill battle. I've tried talking about this kind of money creation and the reception --- um --- varies very much (^_^)
Somebody is getting even.
Not that I approve.
LG, that hopium drop must explain why retired spook stepdad just got some contract work back east. that dog. fooling a lowly credit analyst like that. he's running a psy-op on me with that great dad act. and I distinctly recall suggesting to mom on the phone last year that perhaps she could gently steer him towards the local marine mammal center or some such redemptive work. the sound of a helicopter really makes my blood boil.
I've had really weird week - still "suffering" from a kind of hang-over after the 3 weeks rowing trip. I feel strangely detached from the turmoil of the system and my mind keeps on wandering into scenaries I enjoyed. The economic system as we know is in dire need of the last rites but probably keeps on steamrolling over the decaying society for a long time. This observatory position gives - well, I don't know if it's peace or what - but some kind of serenity, anyway.
Time to understand that we don't need to be slaves to this. I'm inclined to think that quite a many people in here will just slip through the system. Perhaps they (me?) will morph in the reborn Celts or something (^_^)
"May you live in interesting times" old Chinese proverb
@el gallinazo
You wrote : "... most primate behavioralist would have scoffed at any chance that this transition would be possible because baboons have been behaviorally genetically modeled on Dick Cheney and thus, must remain Dicks. "
TAE is always interesting, often amusing, and occassionally profound ... but this is the first time in a long time that anyone has packed all three into one wallop and made me belly laugh.
You are the Buzzard King.
This just in from the Main Stream Media Cognitive Dissonance Center:
Bloomberg , 9/1/2011 - “ Manufacturing in the U.S. unexpectedly expanded in August, allaying concern the world’s largest economy is headed for another recession.
The Institute for Supply Management's factory index fell to 50.6 last month from 50.9 in July … ”
BBC , 9/1/2011 - “ US manufacturing output slowed to its lowest rate of growth in two years in August, a report has said.
The Institute for Supply Management's (ISM) index of national factory activity declined to 50.6 last month from 50.9 in July. ”
Ben,
Just curious, who is the "analyst" you quoted? I'm not sure we should use that term for anyone who thinks BAC has miraculously escaped the potential for imminent bankruptcy. Maybe credit "buffoon" or "jester" is more appropriate.
Will we end up with an improved model of Islamic Banking.
http://www.oftwominds.com/blog.html
Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy
September 1, 2011
Finally serious economists are considering a position I have been maintaining and writing about since the 2008 financial meltdown. Whatever its name— erasure, repudiation, abolishment, cancellation, jubilee—debt forgiveness, will have to eventually emerge forefront in global efforts to solve an ongoing systemic financial crisis.
@ Lauttturi, we have an expression over here for your detached from reality feeling. It is " bushed " You are " bushed ":)
I had a simlar almost crisis after my journey across the Sahara. I returned to a world obsessed with product. In a way I have never fully returned as in buying into the value system.
@ Jack
You wrote : " D. Benton Smith.
You must be joking about the red necks and the mujaahdeens(whatever their names are)
I'm not some kind of smartass genius who keeps an unabridged dictionary tucked away in my skull just so I can use fancy words like "mujahedeen" .
In other words, I knew there was a word for what I wanted to say and I'm not too proud to go look it up ... or to admit that I had to go look it up.
By the same token it really annoys me when someone implies that there is something wrong with using the right word for the right idea.
Like you just did, Jack.
Your implied criticism is as plain as day, but it was snide and not at all direct and plain spoken as you present yourself to be.
There was no need for you to deliberately misspell the word [ "... mujaahdeens(whatever their names are." ) ] when the correct spelling was right there on the screen in front of you. And as for the words " ...whatever their names are... " , you know damned well what their names are. First of all I just wrote the name, and if you are unclear what it means then go look it up! Google is a only a couple of keystrokes away.
You are obviously well informed and adept at internet research, as clearly evidenced by a number of your posted comments. So don't pull the "I'm just a good 'ol boy" stuff with me because we both know that's not who you are... and it REALLY pisses me off!
If you don't like my fancy-pants way of making some unpleasant reality a little earier to face by making it funny... then just say so, straight up.
In the meantime, let's make a deal. I won't mess with your style, and you don't mess with mine. Got it ?
Oh, yeah, about the Red Neck Armies of The Lord.
I made it sound funny because it is not funny at all. When collapse of civil order occurs they are precisely who are most likely to be the foot soldiers used to fill it, and they are being groomed for that role as we speak. Tune in a Country Western station or Right Wing Radio if you don't believe it.
Open your baby blues and READ the messages printed on literally tens of millions of T-Shirts and bumper stickers.
You need to go read a little Joe Bageant, or spend some time drinking with red necks like I do from time to time.
So no, I'm wasn't joking.
Hello,
El G
You have written a number of times that "the German constitution only permits a vote of no confidence with the approval of the Chancellor".
That is not accurate. Article 68 of the Grundgesetz says:
Findet ein Antrag des Bundeskanzlers, ihm das Vertrauen auszusprechen, nicht die Zustimmung der Mehrheit der Mitglieder des Bundestages, so kann der Bundespräsident auf Vorschlag des Bundeskanzlers binnen einundzwanzig Tagen den Bundestag auflösen. Das Recht zur Auflösung erlischt, sobald der Bundestag mit der Mehrheit seiner Mitglieder einen anderen Bundeskanzler wählt.
That means:
If the request of the federal Chancellor for approval (vote of confidence) is not approved by a majority of the Bundestag, the federal President may, at the request of the Chancellor, dissolve the Bundestag within 21 days. The right to dissolve the Bundestag ceases if the majority of the Bundestag elects a new federal Chancellor.
But there is also article 67 which says:
Der Bundestag kann dem Bundeskanzler das Mißtrauen nur dadurch aussprechen, daß er mit der Mehrheit seiner Mitglieder einen Nachfolger wählt und den Bundespräsidenten ersucht, den Bundeskanzler zu entlassen. Der Bundespräsident muß dem Ersuchen entsprechen und den Gewählten ernennen.
Which means:
A vote of no confidence in the federal Chancellor by the Bundestag is possible only if the Bundestag with the same majority vote elects a successor and petitions the federal President to dismiss the federal Chancellor. The federal President must give assent to the petition and appoint the newly elected Chancellor.
In short, the Bundestag may on its own and at any time proceed with a vote of no confidence if it is capable of electing a successor.
And the federal Chancellor may on his/her own and at any time request a vote of confidence. If it is not granted, he/she may request that the Bundestag be dissolved.
It is article 67 that represents a real progress in constitutional law in that it avoids the instability of many regimes, e.g. during the French Fourth Republic, when majorities could be found to vote against the Président du Conseil (Chancellor), but no majority could be found to elect a durable successor.
I hope this clears things up. Sorry to have taken so long, but things are busy here.
Ciao,
FB
Scandia,
Maybe it’s the opposite. Being “bushed” is not a feeling of being detached from reality. Maybe when returning from the “bush”—be it sand or foam—you are returning to sur-reality. The feeling of detachment from the sur-reality may actually a longing for the recently-experienced, grounded, and physical reality of the “bush.”
After a number of years of mindfulness meditation practice, returning from the cushion to the cacophony of urban life has the same quality of being “bushed.” For me, however, such a practice has helped prevent a full return to the dominant value system.
DBS has it right:
I try to maintain my own frame of reference OUTSIDE of the Capitalish marketplace, to the degree that's possible. Pretty hard to manage, since it permeates every pore of the living world at the moment.
Within the frame of reference that I employ to make sense of the world around me, things like markets, money, gold, currencies and the lot of it are just experiments.
Trips to the bush help to maintain an authentic frame of reference.
The USD may have started to rally. Today it moved above its 50 day moving average, which indicates a possible change in trend.
I&S have said for a long time how USD will act as a safe haven. So far, in the euro crisis it has not done so, but that may be changing.
I enjoy reading about "what should happen" by I&S but I always like to watch what is ACTUALLY happening by looking at market prices.
Currently, the markets are telling me that safe havens are Gold, and long term US treasuries. How do I know? I don't have any fancy theoretical essays like I&S, I just watch what prices do when there is "trouble." Right now, when those Italian bonds crash, gold goes up. Thus, it is acting as a safe haven. Same for treasuries.
And in the past few days, the buck has started rallying (and the euro dropped as well). This bears close observation. You can see the daily movement at:
http://stockcharts.com/h-sc/ui?s=$USD&p=D&b=5&g=0&id=p90319823565
The blue line is the 50 day moving average.
Hi D. Benton Smith
It looks like you got offended by what I said but that was not my intent.
I personally don't feel threatened by any group or organization that tries to do harm to their neighbours or others.
Fanatical groups eventually destroy themselves.
These people kill their own kind for the advancement of their goals.
The only thing I would like to concentrate on doing is respecting my neighbours and the people around me.
Bosuncookie said, " Trips to the bush help to maintain an authentic frame of reference."
I agree and love the way you integrated DBS's comment with Lautturi's experience.
Hi davefairtex
To me those charts and graphs don't have much meaning.
Some people do benefit from them that's for sure.
Then there are formulas
I try to use logic instead.
Either way there is not guarantee.
This is the way I am looking at gold.
The CB will keep it high and maybe even go higher because when panic hits the market than people will flock to gold as safe haven.
There are still people that will buy gold at these prices.
When there are no more people willing to enter gold that will be the time when the price will crash.
We have to take this one day at a time.
A crash is obvious but not now.
progressivepopulist said...
"From documentaries like the 11th Hour, to a number of Peak Oil docs, to our friend Alan2012- no matter how dire the objective facts, no matter how recalcitrant the momentum of the trends, no matter how evident the utter corruption and incompetence of TPTB; the default conclusion is that somehow through ingenuity, renewable energies, and the magical guidance of the invisible hand we can grow ourselves to a solution."
Hi, PP! Maybe you should ask me what I think before imputing to me things I never said? Just a silly idea.
@ Jack
I was offended, but I tend to cool off as fast as I heat up. So long as intentions are good, I'm good.
For a fresh start, let me say I fully agree with your closing sentence, " The only thing I would like to concentrate on doing is respecting my neighbours and the people around me."
Robert 1 said...
"I must express my disappointment too re the last comments by Alan2012 on the previous post of Illargi. I expected more from him and thought him better informed than that."
I must express my disappointment re your comment, Robert. I wrote about 5,000 words on the last thread. If you cannot indicate what, very specifically, you are "disappointed" about, then what am I supposed to do?
I expected more from you and thought you better able to engage responsibly.
Alan,
Your words:
" There may be a global financial collapse, or even to some degree (for a short time) an economic collapse or moment of great crisis, but there will not an industrial/infrastructural collapse. Global demand is not going to retreat on any sustained basis. If it does, it will be a brief spike, like 2008. The fundamental reasons are these: The world is filled with billions of young, energetic people who want, and deserve, a better life. The world is also filled with resources, technologies, manufacturing and other productive capabilities, and intelligence, easily sufficient to allow that. People will not be denied a better life. "TPTB" can modify and give shape to mass will and desire, but cannot thwart it. People will not march silently back to feudalism and bitter constraint. They simply won't, no matter what the TV starts barking at them, and no matter what anyone tells them about debt, and "living within our means", and global warming. If global capital markets collapse, they will re-organize and find another way, probably a quite creative one. They will not be denied. They've been awakened, in both good ways and bad, by modernity, and there is no turning back, now."
Jack -
Its cool if you don't like charts. To me, its like looking at the road while driving. To others, its just a bunch of squiggles on a screen.
One point though. If you have a theory that says "the dollar will rise when a certain condition occurs", might you benefit by looking at what the dollar is actually doing? If in fact the dollar is falling, and it continues to fall day after day, what then?
Not all theories are correct. We all like to think we have a good grasp on what is really going on, but I like to check my grasp against reality just to make sure - especially when money is involved. And that's why I use charts.
Alan,
I'm not insulting you, I'm just pointing out what I see as a pattern of thinking prevalent these days among intelligent and informed individuals who are aware of some of the many existential crises bearing down on modern industrial civilization. The pattern is this: recount the numerous forces of destructive change impacting anything from our collective psychology, to our greatly expanded abilities to burn the planet to a crisp to the accelerating damage we are doing to the ecosystem- but then! point out that all hope is not lost because humans are super amazing and we have so much ingenuity, and we are so adaptable, and we have all this amazing technology and so many of the answers to our problems already figured out. So it's only a matter of time before we get things all sorted out no problem, and we'll just seamlessly transition to some technofantasy green future, yadda, yadda.
PP: Yes, thanks for the quote. Perhaps you can point out for me where I said anything about "the magical [or any other] guidance of the invisible hand"? My words had nothing to do with the [supposed] "invisible hand"
of the free market. They did have to do with human action and desire. I'm sure you're familiar with those things.
Regarding "ingenuity" and "renewable energies" (and more): My points and specific illustrations went unanswered. If you wish me to quote specifics from the last thread, I will.
PP: "I'm not insulting you"
And I didn't think you were.
PP: "existential crises bearing down on modern industrial civilization."
I think they are existential crises bearing down most hard on the U.S., and the West in general, and on the global capitalistic system that is largely sustained/perpetrated by the West, with it's centers in New York and London, and a few other places. The U.S. and the West will fall, and it won't be pretty, and it will last a long time -- a generation at least; maybe forever (can't see that far). I don't see this as an existential crisis of industrial civilization, globally. There are plenty of resources to power industry for many decades and -- yes -- renewable energies will come online (ARE coming online) to power it after that. That does NOT mean that the wild excesses that have characterized the last 50 years of turbo-capitalism (or whatever one might call it) can be sustained forever; of course they cannot. But wild excesses are just that: 1) wild, and 2) excess. Because someone cannot tolerate a quart of hard liquor per day does not mean that they cannot handle a couple glasses of wine with dinner.
PP: "..... So it's only a matter of time before we get things all sorted out no problem, and we'll just seamlessly transition to some technofantasy green future, yadda, yadda."
Jeez! You really haven't been paying much attention to my posts, have you?
Hi davefairtex
I have thought about trading currency and metals but my timing is always wrong.
Like you said you expect a commodity or a certain currency to move in a certain direction and the reverse happens.
I knew somebody and he said he can trade and it is a sure way to make money all you have to do is know the techniques and tricks but the funny thing was that he was not doing this full time and I am not sure if he was trading it part time.
Gravity is a recursive algorithm again.
Skip Breakfast said...
We've grown soft, and I have little to offer in the way of survival information, but want to support the movement towards sustainability and independence, and have little more than my energy and ideas to offer.
May I suggest traditional martial arts training – apart from other obvious benefits, the reason I have pursued it for over two decades, and am getting the kids into it, is for mental discipline and to harden up all the soft edges that come with comfortable modern living.
davefairtex,
"I don't have any fancy theoretical essays like I&S, I just watch what prices do when there is "trouble." Right now, when those Italian bonds crash, gold goes up. Thus, it is acting as a safe haven. Same for treasuries."
This approach is the most assured way to be deceived by the volatile, irrational and heavily manipulated short-term movements of markets. A "fancy" theoretical foundation is absolutely necessary to make meaningful predictions in our complex society. It doesn't necessarily have to be a popular or well-established theory, but it must be a theory that incorporates broad socioeconomic dynamics. I'm not saying financial paper prices don't have real effects on your investments or even your daily expenditures and your life in general, but we cannot look at short-term price trends and extrapolate them into the future. So to say that something has become a safe haven because it has been going up over the last few days/weeks when something else is going down, is not a credible statement IMO. In fact, that's how the last greatest [non "sovereign"] fools are manufactured by the system, even when they used to know better. The superficial market trend pressures them to the point where they fear that there is no way that they are on the "right side" of a trade, or they feel that they are not benefiting from something so obviously true when everyone around them is, and they capitulate.
Alan,
It's a general pattern. You fit it. The fact that you don't agree, does not in any way make you less of an exemplar of the pattern.
"...the global capitalistic system that is largely sustained/perpetrated by the West, with it's centers in New York and London, and a few other places. The U.S. and the West will fall, and it won't be pretty, and it will last a long time -- a generation at least; maybe forever (can't see that far). I don't see this as an existential crisis of industrial civilization, globally. There are plenty of resources to power industry for many decades and -- yes -- renewable energies will come online (ARE coming online) to power it after that."
The particular flavor of your rationalizations (or bargaining) does not distinguish you from the general pattern. I could have listed any of a number of various rationalizations put forth by other intelligent well-meaning folks such as yourself. It's a long list of reasonable solutions that don't stand a chance of being implemented on an adequate scale or within an adequate time to stop the Growth/Domination Paradigm's logical progression of self-destruction.
I'm not sure why this pattern of thinking is so persistent. Perhaps it is some kind of psychological shield, a basic coping mechanism to keep panic and despair at bay. But ultimately this pattern represents an impediment to the changes/evolutions/revolutions that need to take place in our thinking about our relationships to nature and to each other- because the implication is that we don't need to radically transform the way we organize ourselves socially and economically; we just need to change some of the ways we do business. The only thing that grows forever is cancer. The only way to insure the long-term survival of humanity is to find a way to use only what the ecosystem can sustainably provide, and this is impossible under the demands of industrial civilization.
PP: "The particular flavor of your rationalizations (or bargaining) does not distinguish you from the general pattern."
OK. Put me in whatever general pattern that pleases you.
Alan,
You can't really blame anyone for interpreting your comment to me in the last thread, quoted by PP, as implying an excessive level of faith in the capitalist market system of production and exchange. The words you chose weren't exactly supportive of a different interpretation. We were discussing about near-term consumer price inflation, and you began supporting your argument by referencing the general ingenuity and passion of human beings. But, the whole premise behind many of our near-term arguments is rooted in the fact that individual human beings or small groups do not exist outside of the broader society, and in fact are heavily dependent on its structures. The complexity of our current global and extremely inter-connected society has evolved under the dictates of that market system. It was the twisted logic of credit/equity markets which determined where capital flowed and how it was invested (mis-allocated). The so-called "emerging economies" have followed the logic of this system with reckless abandon for short-term and short-lived rapid growth, sacrificing their environments and the health of their populations to an even greater extent than many developed nations. There is no East without a West, at least nothing close to the model of financial, economic (industrial) social and organization it has right now.
Thanks Ash, you summed it up better than I could.
If we don't know where it is that we now stand, and we don't know how was that we got here, we have little hope of ever getting to where we want to be.
Ash: "we cannot look at short-term price trends and extrapolate them into the future."
TRUE.
gold:
15 aug 1971... $35/ounce
15 aug 2011... $1820/oz
40-year gain... $1785, 5100%
doublings...... 5.7
annual gain.... 10% (approx)
"What cannot be created is additional surface area of Earth" - T. Wayburn
([STEREO])Spirits in the Material World - The Police VINYL
I've been living off grid for a few days. No problems. Canned some peaches today. Those should make for a good barter item further on up the road.
Ogardener,
Do you do any dehydrating? I was able to fit 1/2 a bushel or more peaches into a handful of quart mason jars this way. They won't taste quite the same as canned peaches (though I haven't yet tried to rehydrate them, I might be surprised).
Alan,
I'm glad you posted that, because it further strengthens the case for having a solid theoretical foundation. Even (especially) long-term price trends in this system can be extremely deceiving near-term, never more so when the system is breaking apart at the seams. Case in point, average US RE prices adjusted for inflation:
1940: ~$70k
1990: ~$120k
2005: $200k+
I don't have to tell you what happened after that. And non-Western economies are not immune to such price collapses.
Ash: "individual human beings or small groups do not exist outside of the broader society"
I was not talking about individuals or small groups. I was talking about BILLIONS of people. I used the word "billions". Billions IS "broader society". Did you even read my posts?
Ash: "It was the twisted logic of credit/equity markets which determined where capital flowed and how it was invested (mis-allocated)."
This mostly describes the West, yes. It is much less descriptive of e.g. China.
Ash: "The so-called "emerging economies" have followed the logic of this system with reckless abandon for short-term and short-lived rapid growth, sacrificing their environments and the health of their populations to an even greater extent than many developed nations. There is no East without a West, at least nothing close to the model of financial, economic (industrial) social and organization it has right now."
Typical Western hubris and bluster -- widespread characteristics that are guaranteed to intensify the collapse. You're in for some big surprises, IMO, along with most people in the West.
"Sacrificing the health of their populations"? In what way? China's life expectancy is a VERY healthy 73+ -- trailing the U.S. by a few years, but what do you expect? It is a country of 1.3 billion, just having clawed its way out of feudal backwardness (with life expectancy of 35; yes, 35!) over the last 60 years.
On the last thread I replied to your arguments in moderate detail (or I guess great detail, given how blogger keeps cutting me off after a piddling 4000 characters!); you had no response.
Ash: "Even (especially) long-term price trends in this system can be extremely deceiving near-term,"
I agree. Gold will take a BIG hit, probably fairly soon, over the next year or two. It will likely run up to 3K or more before that happens, but it will be a doozie, like 2008. That hit, which shakes out the weak hands, will be followed by the next big leg up. And that leg up -- probably the final spike, which will be a mania of overbuying -- will itself be followed (inevitably) by a major correction.
FB
Thanks for the correction. I only knew about article 68 but not 67. But has article 67 ever been used? I read that 68 was used three times.
Davefairtex
I have to agree with you that a theory is not worth a bucket of piss unless it explains past events and can predict future events. The proof is in the pudding. I&S also subscribe to this view. You must construct your theories from studying the past, and then see how they work out with future predictions. If they don't work, it's back to the drawing board. Of course in the world of markets and economics, you have so many non-linear factors, things get difficult.
But I must agree with Ash, that simply following trends without a theory, for a speculator (and I agree with CHS that investors do not exist - we are all speculators), can lead to a world of pain. In a Ponzi expansion, it can lead one to holding that bag of dog droppings when the music stops.
PP
"I'm not sure why this pattern of thinking is so persistent. Perhaps it is some kind of psychological shield, a basic coping mechanism to keep panic and despair at bay."
I wish its origins were so innocent. It is a deliberate PR ploy of the ruling corporatacracy for mental control. You are instructed that only moderation is good and permissible and then moderation is defined to be what they wish. Similar to "conspiracy theory" to invalidate any ideation that might suggest that the emperor is nikked, regardless how airtight the case.
The blogger understand that main stream media is feeding the info and their opinions on the info according to their well established service to the power that be.
Therefore, why did the following get into mainstream media before the bloggers had their say about it?
http://4closurefraud.org/2011/09/01/federal-reserve-board-announces-a-formal-enforcement-action-against-the-goldman-sachs-group-inc-and-goldman-sachs-bank-usa/
The Federal Reserve Board on Thursday announced a formal enforcement action against the Goldman Sachs Group, Inc. and Goldman Sachs Bank USA to address a pattern of misconduct and negligence relating to deficient practices in residential mortgage loan servicing and foreclosure processing involving its former subsidiary, Litton Loan Servicing LP.
---
On the same subject of controlling the info and the discussions on blogs.
I’m sure that many people have gone to the comment sections of zero hedge, calculated risk, naked capitalist, etc. and noticed that there is very little extra info being supplied by the commentators. By now, I’ve learned to do a quick scan to try and spot info from an occasional blogger. They are few and far between.
Therefore, has main stream media found new ways of controlling the flow of information on the comment sections of the blogs by directing a conversertion away from the blog subject?
jal
Alan2102: "China's life expectancy is a VERY healthy 73+ -- trailing the U.S. by a few years"
It is worth adding that, to achieve that life expectancy, the U.S. spends over $8000 per capita per year on healthcare -- an incredibly high figure, far higher than other developed countries. And China? Their per capita health spending, to achieve nearly the same thing in life expectancy terms? Drumroll...... $300. Yes, THREE HUNDRED dollars! Less than 4% of the U.S. That, my friends, in a very small nutshell, explains why the U.S. is going down, and China and the developing world is rising, and will keep rising for a long time. The U.S. is not only impossibly indebted, but it has an impossible cost structure, with multiple layers of corruption, bloat and all manner of waste, firmly built-in and guarded by forces that would rather die than reform. It is not that places like China are intrinsically better or smarter than us. It is that they have simply not been rich enough for long enough to become as decadent and fat and sick as we are. When they are as rich as we have been, for as long as we have been, then they will probably destroy themselves in the same way we are destroying ourselves. (They actually will not get that rich, because of resource and environmental constraints, but rich enough to precipitate the process of decay.) China already has serious corruption problems, and getting worse. They will continue getting worse for many decades, I'm sure. But that $300 figure reflects where they are in the big picture. Namely, a LONG way from where we are. They've got maybe a century, or more. We've got maybe 10 years, if lucky. (Or sometimes it seems like 10 months!)
Alan,
I actually didn't see your reply from last thread, since it was posted after the new post was up and Ilargi had put a link to it on the last thread. You really should re-post those comments on the new thread if you want people to take notice of them.
I'm not sure where to start with your reply. You do have an unrelenting faith in the capitalist system, even if you don't know a capitalist system when you see it.
Alan:"I don't know where that came from. Perhaps you missed the passage that I wrote: "If global capital markets collapse [i.e. IF CAPITALISM COLLAPSES], they will re-organize and find another way, probably a quite creative one." Do those words strike you as coming from a capitalism idolizer?"
Uh, yes. Perhaps you are not appreciating the severity and wide-ranging implications of a systemic collapse of globalized capital markets. It will take down entire political and social orders with it, and the essence of idolizing capitalism is idolizing the inherent ability of "rational agents" to re-organize failed structures in an efficient and "creative" manner. "All else being equal", of course, which it never is.
Alan:"The phenomenon is called "decoupling" -- as in decoupling of China from its trade benefactors, heretofore -- and it is coming right along."
No, the phenomenon you are referring to is called "delusion", and it is particularly useful for the psychological stability of money managers who desperately want to believe there are markets out there just dying to offer up relatively high rates of return on capital, even when the global banking system is imploding or shortly thereafter and the world's ecology is following not far behind. I imagine when Chinese property prices collapse, its ghost cities grow unfathomably large, its banks look like those in Europe/US, 50% of the Chinese population doesn't have access to clean drinking water and the urban peasant population is revolting in the streets, the Great Decoupling will still be "coming right along".
Alan:"As just one example, you might want to google up the Chinese "Great Green Wall" project, one of the most ambitious ecological restoration/development initiatives in history. It is an incredible project, reflective of their ability to think in VERY long terms: it is planned to be completed in 2074! Amazing."
Now you have really lost sight of the scope, scale and rapid progression of collapse, if you are holding out for some bureaucratic pipe dream propaganda "Green" project that will restore their ecology by... 2074. 62 years is an epoch of unprecedented events and general chaos in this dying system. These projects don't just materialize into some unstoppable force of progress once they are announced by a few corrupt politicians trying to stave off/mitigate peasant uprisings in major cities. This project may even be less likely to succeed than Obama's plan to double US exports in 5 years, and that's saying something. It's not gonna happen, buddy. If you want to know why, then I suggest you pay more attention to what I&S have been writing about for years now re: the intersection of economics, finance, energy and the environment.
Cont...
Cont...
Alan:"If I were forced to characterize my political views in a phrase (ug!), I might settle for "Maoist Third-Worldist".
I do have "faith" of a sort in the developmental potential of capitalism, just as did Karl Marx. It has proven its mettle in that department, and it is a step up from feudalism. But of course it is not the end of the line; far from it."
The Chinese politicos are Maoist like George Bush was a devout follower of Christs' teachings, or Obama/Bernanke are disciples of Keynes, or any other countless examples of people embracing a scientific or spiritual foundation, while their every day actions have absolutely no relationship to the core principles that allegedly guide them. Karl Marx had faith that the "development potential" of capitalism would lead it straight into a fatal culmination of its internal contradictions, marked by worldwide revolutions by the disenfranchised workers of the proletariat class. I say again, there's nothing to suggest that China, India, Russia, Brazil, etc. are going to survive this collapse in some heroic fashion while the West crumbles, and everything to suggest they will be coupled to the same sinking ship we are in for some significant period of time. By the times that over, ambitious restoration or renewable energy programs will be long forgotten and dead last on a list of priorities that must be done to get the world making any sort of sense again.
I got a dehydrator this year. So far, I have only dehydrated tomatoes. I also got a vacuum sealer w/plastic bags to store them in.
Maybe this next batch, I will store the dehydrated tomatoes in a few mason jars to compare results.
OpenID progressivepopulist said...
Ogardener,
"Do you do any dehydrating?"
Every time I work on the wood pile.
"I was able to fit 1/2 a bushel or more peaches into a handful of quart mason jars this way. They won't taste quite the same as canned peaches (though I haven't yet tried to rehydrate them, I might be surprised)."
The only experience I have with dehydrating food is with mushrooms. They rehydrate pretty well. You'll probably get a longer shelf life with the dried fruit versus canning. And it's probably a more efficient way to go. I have not invested in a food dehydrator but I have considered it.
China's life expectancy falls quite close to the world median with Japan (pre-fukashima) on top at 82.6, the USA at 78.3 and Swaziland taking up the rear at 39.6. If you eliminate Africa and Afghanistan, the lowest country is Papua New Guinea at 57.2. These are UN numbers. To call China's number "VERY healthy," reminds me of Garrison Keillor of Lake Wobegone, whose children are all above average, Scanning these numbers at:
http://tinyurl.com/49om4gp
gives one pause for reflection. I think what they demonstrate first is that advanced medical procedures are a much smaller factor in life expectancy than one is lead to believe by popular mythology. Nutrition and sanitation are much larger factors. Not murdering your neighbor also plays a part. Remember - The Caribbean Plumber protects the health of the Island!!!
Bluebird and Ogardener,
In addition to the Excalibur dehydrator we also bought a Gamesaver vacuum sealer with an attachment to seal wide mouth mason jars. In addition to the 150lbs of beans and grains that we sealed into 1/2 gal mason jars we have used the same technique to seal the dried peaches and tomatoes. I've been given to understand that vacuum sealing mason jars is not a 100% perfect process it seems to have a very low fail rate so far. I also bought some silica gel to add to the dehydrated stuff (possibly overkill). This is the first season that we have used these two food preservation appliances, but I've been happy with them so far.
I just finished watching the film, "What A Way To Go: Life At The End Of Empire." What a film. Very powerful, profound and challenging. It's available in it's entirety on the Youtube. Most here will not likely learn much new on a factual level, but conceptually and philosophically it's very interesting and engaging and potentially consciousness expanding.
note: it does contain some adult language and information regarding Global Warming.
I made a solar dryer a couple years ago like this one on the bottom of the cover:
http://www.amazon.com/Solar-Food-Dryer-Performance-Sun-Powered/dp/0865715440/ref=sr_1_2?ie=UTF8&qid=1314935883&sr=8-2
I had to change the size a little to fit the window I got from a friend. It works like a champ. If you cut up the fruit, vege, whatever in the early morning and keep it more or less pointed at the sun, the stuff will be dry by dark ... YMMV depending on lattitude and cloud cover. I have apple slices from 2009 that I just put in baggies (no vacuume) and they are still good for snacks.
I should add that here in the high desert our relative humidity is very low ... typically less than 20% and often down to 5%. This is one reason the solar dryer works so well here. You will have to play with it for your area but it doesn't cost much to build and two trays of tomatoes / whatever can be dried at a time.
On the dehydration front...
Mrs snuffy dragged out the small one and put me in charge of making a few pounds of dried pears out of the over-abundant Umbileen pears.I missed the timing by a week and lost 300 lb of pears to damage and decay.Just gave 40 lb [2 big boxes] to some friends who offered to can them in exchange for half[yippy!free sweet treats]
In truth the dried pears come out as the best candy I know of.[My grandfather taught me how to dry...and I have built a REAL dehydrator the sizes of a large china closet that will handle 15-20lb at a time..instead of this rinky-dink Toy I am using now.]
This year is so weird.The normal "scheduled"progression of ripening of fruit is all mixed up.I have never seen this before.The spring was so long and so cold that all the fruit trees are going to drop fruit at nearly the same time.Weird.
Sleep time
Bee good,or
Bee careful
snuffy
@ Scandia
Sahara, oooOOOHHH (^_^)
Always wanted to get lost in there, LOL
@ Bosuncookie
I agree - I re-entered into Matrix and I can see way through the sh!t way better now (not that there was any doubt before). What a world we're living in...
@ Progressivepopulist
I second that movie recommendation though it's several years since watching it. "What A Way To Go: Life At The End Of Empire." Go here.
Ash -
A "fancy" theoretical foundation is absolutely necessary to make meaningful predictions in our complex society.
"we cannot look at short-term price trends and extrapolate them into the future. So to say that something has become a safe haven because it has been going up over the last few days/weeks when something else is going down, is not a credible statement IMO."
Two excellent points. I come here to get the fancy theories. I certainly don't have any myself, so I steal those from other people who have thought about it longer than I have. Then I watch price movements over months and years and compare them to what the theory suggests should happen.
Secondly, I definitely agree that a few days does NOT make a trend. SImple tools such as moving averages however DO help describe trends, and when I said that the price of the USD moved above its 50 DMA, that was an indication of a possible trend change. I think I was not clear enough in stating this.
For instance, gold is off this past week maybe $80 from its high. Looking at the long term (weekly) price chart its clear gold is still in an uptrend - it would have to close below $1600 for this to change. A week price fade does not a trend change make.
I watch prices every day. It is instructive to see what prices do when news hits the market. Currently, when "default" news hits the market, gold reacts up. Its like doing one of those reflex tests - hit the knee with a hammer, the leg moves.
Gold did not used to do this. This is a new behavior, and has become more pronounced over the past year. If anything, intervention in gold happens in the down direction. (I've seen that too). Do you have a theory to explain why gold reacts up to default news now, but didn't before?
And now, the USD may be changing its behavior too. Past three days it has been moving up. Something new, possibly interesting.
As for "manipulation and control" - intraday prices can be controlled, but longer term some markets are just too big to control. If markets were so easy to control, then why are Greek 2-years trading at 45% when the euro PTB want them at about 4%? Why are bank stocks going down when the Fed really, really wants them to be up?
For control to work, the firepower available has to be a substantial fraction of the total market. You have to know how big the market is, and how much firepower the interventionists have. Rule changes can have a temporary effect ("shorting is banned") but it does not last.
You guys do great work here. Theory work isn't easy. When I say "prices aren't cooperating with your theory" it just means that's what is happening at the moment. As soon as this changes, I'm the first to take note.
Well, blogger has been active while we sleep.
But here goes.
Alan2102 said...
quoting El G: "Previous generations have eaten almost all the low hanging fruit, not just in terms of fossil fuels, but mineral ores, good top soil, destroyed forests, rain and other, ad infinitum."
"This is not the place for a detailed examination of every item you raise. But in very brief:
-- topsoil is easy to regenerate
-- reforestation efforts are growing apace (pun not intended) and authoritative reports to which I can refer you indicate that deforestation has slowed, encouragingly, over the last 20 years
-- some fossil fuels (light sweet crude) are going to be a problem, but others (natural gas) are available in great abundance for at least the next century, on the eurasian land mass
-- meanwhile, alternative energies are growing exponentially and becoming MUCH more economically viable, even compelling, with high EROEI and great ROI
-- and so on!"
The list, above, of how great things are is what disappointed me abour your post.
"1)topsoil is easy to regenerate"
Really, as a grower for many years I believe this to be total BS! Please provide well documented links to this. BTW do you have a farm background? If so, please provide a description of how much topsoil you have regenerated.
"2) reforestation efforts are growing apace (pun not intended) and authoritative reports to which I can refer you indicate that deforestation has slowed, encouragingly, over the last 20 years"
Again, please provide reliable links to support this statement. If deforestation has slowed, it is because there is less and less left to deforest. How much of SE Asia have you visited? And if you have visited SE Asia, how much of your travel was in areas off the usual tourist route and in the areas where deforestation is rampant?
3) "some fossil fuels (light sweet crude) are going to be a problem, but others (natural gas) are available in great abundance for at least the next century, on the eurasian land mass"
I too have been following issues re hydrocarbon resources. If you are mainly referring to shale gas development, you have swallowed the MSM and petroleum industry propaganda hook, line and sinker. I CAN supply you with plenty of recent links casting significant doubts about the validity of their claims. We could also go into problems with transporting natural gas overseas but I won't here at this time. And extraction of petroleum products from sources such as tar sands are an abomination to the planet and have very poor EROEI.
4) ".. meanwhile, alternative energies are growing exponentially and becoming MUCH more economically viable, even compelling, with high EROEI and great ROI"
Yes, these sources are growing rapidly but so far solar does not provide the advantages you claim above. And, as you know these energy sources are only good when the wind blows and the sun shines. Do you have good references as how to store the energy from these sources when the wind does not blow and the sun is not shining?
Your trust in these panaceas is rather disturbing.
Robert 1
Odd I posted a comment, it showed up, and then vanished. Did I break some rule that I'm not aware of? Or perhaps it was eaten by some software bug?
@ Alan2102
I am generally interested in and sympathetic to what you have to say, but the quote below strikes me as improbable:
"There are plenty of resources to power industry for many decades and -- yes -- renewable energies will come online (ARE coming online) to power it after that."
Assuming you mean a sizable fraction of current industrial production, I do not see renewables scaling up to cover the loss of hydrocarbons.
@ Ben
I very much liked the dog analogy, but have to say that I have a dog right here that spends a lot of time chasing its tail. I am not sure what that says about the analogy.
@ ProPop
We just built a dehydrator the other day and it seems to work well, though some adjustments and adaptations are required (particularly improving the chimney effect so there is both a push (hot air from the collector) and a pull (chimney effect in and above the drying chamber)). Currently, we are drying herbs and flowers, while waiting for the tomatoes to ripen (we are at over 1000 m altitude).
@ Lynford and Snuffy
The dryer shown by Lynford looks interesting, but where does the air exit? Out the front?
We built a fairly big one (1.7 m tall) where the hot air exits out the top. The long heat collector in front looks like a child's slide. It injects the hot air at the bottom of the drying chamber in which the food is placed on racks. I understand you are having a strange year for fruit? This is the second year that we have had zero plums. A great loss.
@ El G
There have been two instances of Article 67 being used.
The first was in April 1972, when the CDU attempted to unseat Willy Brandt due to his Ostpolitik. That attempt failed.
The second was in October 1982 when the CDU succeeded in removing Helmut Schmidt. The new Chancellor was Helmut Kohl.
About Article 68, it has been used five times, but succeeded only three times.
Note that there was one very particular use of Article 68 in December 1982. For political reasons, Helmut Kolh, the new Chancellor, needed a new Bundestag, so he called for a vote of confidence and told his party friends to vote against him. That caused great debate (scandal) and went to Karlsruhe, but the court declined to explicitly declare the procedure illegal.
Ciao,
FB
el gal -
"simply following trends without a theory, for a speculator ... can lead to a world of pain. In a Ponzi expansion, it can lead one to holding that bag of dog droppings when the music stops."
Theories are good, and fun, and interesting. Its why I come here. You guys have awesome theories, and I love to read them.
However there are some schools of thought that suggest its probably not a good idea to be too wedded to one's theories when trading (or speculating, or investing), since people tend to buy into their own genius so deeply they end up overlooking or making excuses for contrary evidence.
I believe the real losses with most long term ponzi schemes is because of the rigidity of people's belief systems in the permanence of the ponzi. "Housing will always go up." In spite of evidence that housing prices were dropping in 2008, people still stayed in because of their belief systems. They were trapped not because it was difficult to get out, but by their own inflexible certainty.
Same thing could happen with gold. Gold bugs assume "hyperinflation is a given", etc. They could ride a gold "correction" back down to $250, awaiting the big hyper-inflationary spike that theory says must happen.
Me I don't know how it will turn out. Gold could spike, it could drop, it could move sideways, it could be a safe haven, or it could be dumped in order to pay down debt.
Having a theory is fine, but turning that theory into a rigid belief system invites disaster. I say, stay flexible, watch what is happening, and then go with the flow.
Perhaps that's a bit too Taoist for this group?
FB,
Thank you for your lucid explanation of German constitutional law - all new to me.
I think I should have said I use mostly logic and some data to try to predict the price of gold because when I am observing the flow of capital going into the USD than I am using data.
Either way it is a gamble
Blogger Robert 1 said...
"1)topsoil is easy to regenerate"
Really, as a grower for many years I believe this to be total BS! Please provide well documented links to this. BTW do you have a farm background? If so, please provide a description of how much topsoil you have regenerated.
I agree with you Robert1. The assumptions were so ludicrous I did not bother responding.
See that gold is up today by 35 dollars and I was saying that it is going to go up higher before it drops.
The things is this time I got it right and there were many times I was wrong so I would not be able to play the market with this strategy.
El G: "China's life expectancy falls quite close to the world median... If you eliminate Africa and Afghanistan..."
Why would one eliminate them? To skew the data in favor of a desired thesis? Developmentally, China WAS Africa, not long ago -- and that is the point. The numbers are most meaningful in relative terms.
El G: "To call China's number "VERY healthy," reminds me of Garrison Keillor of Lake Wobegone..."
Perhaps you didn't notice the fact, as I mentioned, that China's life expectancy before the revolution (only 60 years ago) was about 35. No one could reasonably expect China, or anywhere else at that miserable level, to have done better than they've done. The leaders of the PRC could not wave a magic wand over that backward land and -- shazinnng! -- suddenly push the L.E. from mid-30s to a Japan-like 85. This is planet earth; things don't work like that. (Actually, they almost DID work like that! 35 to 73 is nearly a magic-wand thing.) Hence Ash's slight about how they are "sacrificing the health of their people" was senseless.
Yes, 73 is very healthy. For third-world backwaters emerging from feudal misery, over 50 is fair; over 60 is good; over 70 is fantastic. India is still at 64 -- good, but they can and will do better. Russia is at 65. They've done better in the past, and will do better again. Their numbers took a dip during the economic liberalization, but are now recovering.
Even more stunning is that China was able to achieve that L.E. so cheaply; as I pointed out, less than 4% of U.S. health spending. That's phenomenal efficiency.
El G: "advanced medical procedures are a much smaller factor in life expectancy than one is lead to believe by popular mythology. Nutrition and sanitation are much larger factors."
Spot on. Advanced medicine makes a modest contribution, if any. Public health programs and infrastructure are much more important, and also much cheaper.
Alan2102 said: "Even more stunning is that China was able to achieve that L.E. so cheaply; as I pointed out, less than 4% of U.S. health spending. That's phenomenal efficiency."
I expect, like El G. that the main reason for increasing life expectancy is better nutrition.
Yes, they do it so very cheaply. According to native Chinese friends in mainland China they do not have universal health care, ie they must pay directly for health services. Nor, and this really surprised me, are schools free of charge. Children's parents have to pay tuition and I suppose for books too if in fact they use any. I do know they have preprinted exercise books as our friends have sent scanned copies of them to us. I did not ask if they had to pay for these. Anyway, not having Universal health coverage makes health care very cheap.
And of course they do not have bloodsucking squid health insurance providers. That of course keeps cost down too.
How much have you traveled in China? How many just ordinary folks do you know from there? Have you studied over there?
Frankly, I think you are yet another (probably paid) troll and I fell for some of your nonsense. Your comment on soil regeneration is absolute ludicrous. Someone with an IQ same as my shoe size knows that is utter c***
I am embarrassed to have fallen for this. I wonder if the real reason for your posts is for you bosses to establish that there is a leftist, pinko, following on this site.
Well, sorry to disappoint you. Most of the people commenting here are just trying to understand all the fraud that is going on in this world. Most are just curious people who just want answers. But of course this is frowned on if the answers do not follow party lines.
These commenter’s may vote Democrat or Independent or some even Republican. America is one of the few countries in the world who consider Democrats to be anti-democracy leftists. Outsiders look in disbelief at the nonsense that passes for campaigning and elections in America. They laugh at the thoughts that Democrats are considered to be leftist in America. By any other measure, in most of the world, the American Democrat party would be considered right wing.
I would like to finish by saying that I admire the incredible progress that has taken place in China. Truly the individual, on average, in China is very much better off than pre WW2. However, there are still large populations in China who have been left out off most of the progress. I am speaking of the large rural population and many minority groups. I am not going to discuss the abuses and authoritarian politics that go hand and hand with much of the progress.
I really like the Chinese people I have met over the years and am looking forward to more visits to China.
I can't help but wonder if the paid trolls on this site get paid piecemeal based on the number of posts. Almost without exception they post very heavily and have little to say and virtually nothing to back up their claims.
Cheers,
Robert 1
@Jack, I've know several Armenian-Americans. You are underestimating them. It's un-PC to put it this way, but they have spent the last 1200 years studying the Jews and taking notes.
Hi Frank
I don't know what you are referring to maybe you can explain this a bit more
Thanks
Since we are on the subject of Armenian's did you know that we were on those lands more than anyone else and there is archaeological proof for this.
Abraham and Noah were from Ancient Armenia
We were not called Armenian's but we were the same people
@Board In defense of Alan, if he is not an experienced 'grower', it would be easy to be taken in. There are plenty of snakeoil salesfolk out there that claim their magic methods will accumulate 2.x centimeters (an inch) of topsoil per year.
I'm pretty sure the Holistic Management International people believe what they're saying.
It's unfortunate that the best North American practitioners seem to get about 25% the results claimed from Afica.
Alan2102
First, when I said that China's life expectancy lay near the world median, that median number **included** Africa and Afghanistan. So I was NOT skewing any averages. ( And BTW, that is not how I operate. I DO NOT manipulate statistics deceitfully to make a point and resent the implication). I did give the number of the lowest African country. The point of giving the number for the lowest non-African country was to emphasis what a mess Africa is right now, for those who did not want to take the time to follow my link and scan the numbers for themselves. One could write a series of books as to why Africa is such a mess.
China's gains from their feudal, pre-revolutionary past in this area are undeniably impressive. If you had written that their post revolutionary gains were "VERY impressive," I could not have found fault with the statement. But that is not what you wrote. You wrote that the current statistic is "VERY healthy" despite it being right on the average of the global number (INCLUDING AFRICA).
There are many here that maintain that China is about to have a very "hard landing," and these numbers may reverse. The pollution poisoning of much of their land area as a trade off for rapid industrial expansion is undeniable. Also, as with the Bureau of Lying Statistics, one must take the Chinese official statistics with a grain of salt.
Anecdotally, a couple of my friends visited China (mainly the cities) a couple of years ago and told me that after a few hours outside, they both looked like Al Jolson and started wheezing. They left earlier than scheduled.
Though you regard yourself as an ultimate empiricist, I find much of your predictions to be quite "faith based." I gave a few details of my objections in previous postings. I would regard our dialogue as unproductive.
FB
Thanks for the history of the German Bundestag votes of no confidence. I suspect that we may see a future event as the economic crisis continues. You are a wealth of information regarding Germany and France and their languages. Also, I wish I could write in English as properly as you do :-)
davefairtex,
"Do you have a theory to explain why gold reacts up to default news now, but didn't before?"
The closest thing I have to a theory about short-term market movements is Elliot Wave Theory (popularized by Prechter), which of course includes consideration of various technical indicators. Prechter also makes clear that the market is never reacting to the news, but merely following its own endogenous dynamics. We only think that specific news items are moving the markets because that's how our linear mindset works, thanks to years and years of social conditioning.
That being said, I don't even like to rely on EWT or any other theory to look at short-term price movements. They are almost completely unpredictable as far as I'm ooncerned, and too specific to provide instruction on how broader path. My broader theoretical perspective tells me that USD and spot gold cannot stick together in either direction for too long. That is a function of how the debt-dollar system was originally designed and altered under Breton Woods, and then how it has subsequently evolved with the explosion of paper derivative instruments employing massive amounts of leverage.
My theory also tells me that it is very likely that the USD will spike in value over the upcoming years, due to global debt leveraging and capital flight from more risky assets/currencies that were traditionally considered safe (Euro, Yen... gold??). According to my theory, there is very little ability or desire for authorities to print dollars to the extent that they completely undermine confidence in the currency and eventually offset the plunge in money supply and velocity.
We have A LOT of concerns about default risk and rapidly slowing economic activity, but so far there has not necessarily been another "credit event" like Lehman. However, there is every reason to think such an event is likely to occur before the end of the year, if not the end of the month. Once that occurs, the countdown for dollar/gold separation has begun IMO, and its very likely that the former goes up while the latter plummets.
I believe, In the early years of the Chinese Revolution there was health care for all, it was introduced in 1949.
Beijing's initiated the "pay as you go" policy, for the new market friendly China in the 90's, I believe. Along with mass privatization programs of health care and other industries.
When China took the road of capitalism it polarized - and now there is this growing wealth at the top and a grinding poverty for the peasants below.
"" I wonder if the real reason for your posts is for you bosses to establish that there is a leftist, pinko, following on this site. ""
I've been trying very hard to establish this
Capitalism is a nightmare based on global theft and sweatshop misery. At this point, it's also a social pathology that needs fraud and increasing social ills to survive in the west. China is not as pathological as the US, yet, but that is not a reason to root for their success in doing so.
I'm pretty convinced the more egalitarian world the better. And we are trending the opposite direction with a vengeance.
4) ".. meanwhile, alternative energies are growing exponentially and becoming MUCH more economically viable, even compelling, with high EROEI and great ROI"
Yes, these sources are growing rapidly but so far solar does not provide the advantages you claim above. And, as you know these energy sources are only good when the wind blows and the sun shines. Do you have good references as how to store the energy from these sources when the wind does not blow and the sun is not shining?
Furthermore, we currently have solar companies biting the dust, not because of poor EROEI (though it certainly can't match light sweet crude), but because of financial troubles. Seems they can't compete with Chinese solar panels made of melamine.
And there are some promising battery technologies, e.g., NaS. But the renewables don't lend themselves to centralized authoritarian control, so they will be damned with faint praise until it is way too late.
Brace for impact.
Hi Ash
Thanks for that post
You say that Euro,Yen,Gold were traditionally safe and there will be a flight from those assets into USD.
We don't know how much gold will fall and it is anyone's guess .
I am not an economist but they would be able to say how much the Euro,Yen will fall.
How about the Canadian dollar now it is a touch above the USD.
Would you be able to tell me how much it will fall and would it be a smarter thing if I changed to USD
davefairtex
Your comment was captured by the blogspot spam monster and put in its spam cage. When we saw it, we released it back to the wild.
Other than using unapproved html code beyond font styles and linking, we have no idea why the spam monster does what it does.
DIYer
For the moment people are very comfortable with oil and gas.
I am doing research on geothermal and over there the price for the installation of the system is very expensive
Around $30,000 for a small home
that's installation and machinery
Robert1: "not having Universal health coverage makes health care very cheap."
Like in the U.S.? $8000 per capita is "very cheap"?
These numbers are for healthcare spending society-wide, the whole system.
Robert1 "of course they do not have bloodsucking squid health insurance providers. That of course keeps cost down too."
Agreed. That is but one layer of corruption and waste, of several, that they don't have, but we do.
Robert1: "Your comment on soil regeneration is absolute ludicrous."
I'll get to it. Later today.
Robert1: "I wonder if the real reason for your posts is for you bosses to establish that there is a leftist, pinko, following on this site."
Someone wants leftist pinkos on this site? I hereby volunteer. Its a dirty job, but somebody's got to do it!
Robert1: "I can't help but wonder if the paid trolls on this site get paid piecemeal based on the number of posts."
Yes. We get $25 bucks per post. Not much, but hey... it's a living!
;-)
@IMN Harvesting my first dried beans. Cultivar "Jacob's Cattle" (they're spotted.)
The "original" seedstock was a birthday gift from the Passamaquoddy tribe to the first Mainiac of European ancestry.
I'll have to weigh to be sure, but it looks like a 20 to 1 bean return on beans invested.
New post up
@Jack The Armenians, while they have always had a recognizable "Armenia", have also survived and prospered for many centuries in an extensive diaspora.
In particular, here in the States they have been able to make noise about the Turkish genocide all out of proportion to their numbers, and more than once when the government was trying to make nice with Turkey.
And where, by the way, do I send my resume and writing sample? I could live comfortably on 20 hours work a week at $25/post. ;)
DIYer: "these sources are growing rapidly but so far solar does not provide the advantages you claim above."
In good time, in good time.
You know, I really can't afford to spend full-time writing educational posts on TAE, since my Masters just cut my pay from $25 per post to $5. Bummer!
DIYer: "as you know these energy sources are only good when the wind blows and the sun shines."
That is a compelling argument indeed.... in a world in which solar and wind have to supply 100% of our energy. In other words, a compelling argument in some other world, not this one. But even in that world (of total dependence on solar and wind), it would be possible to arrange things accordingly: place main/heavy production at suitable latitudes; schedule labor/production patterns for heaviest energy requirement at appropriate times; etc. It won't be necessary to actually do that, since other power sources will fill in the gaps, but it would be possible.
Many of the old battery problems are solved by the new vanadium-redox battery technology: MUCH more durable (10-20 times better than lithium ion), capable of storing much more power, and other advantages. The only problem is physical size: larger than other batteries, though that is not an issue in most applications. Actually that is just one of a number of new battery technologies under development. It will not be a question of whether or not the problems are solved, but rather which specific technology does the best job at the best price, and which is most sustainable. Vanadium may not be the best in the long run, due to limits on available vanadium (so far, no problem, but could become one). On the other hand, no vanadium is lost in battery production or use; once vanadium is retrieved for those purposes, we've got it forever.
DIYer: "Furthermore, we currently have solar companies biting the dust, not because of poor EROEI (though it certainly can't match light sweet crude), but because of financial troubles."
Yes, solar companies biting the dust -- in the West, where everything is subsidiary to immediate profitability, rather than being informed by strategic long-term thinking.
PVs have a calculated/estimated EROEI of 3.75 to 10, ( http://www.theoildrum.com/node/3910 ) -- not bad at all. Some estimates are much higher: 15 to 37.5 ( http://www.societalmetabolism.org/aes2010/Proceeds/DIGITAL%20PROCEEDINGS_files/PAPERS/O_122_Marco_Raugei.pdf )
The authors of the last-cited paper suggest that "photovoltaic (PV) technologies have long been shunned because of supposedly low EROI. We show that the latter is an artifact of inconsistent calculations, and that switching from burning fossil fuels as feedstock in thermal power plants to using them for building large-scale PV systems would increase the associated EROI by at least one order of magnitude."
"AT LEAST" one order of magnitude? Hmmm.
[...continued on next...]
[...continued from last...]
As for crude oil EROEI: I'm sure it varies; typical range is 11-18 ( http://netenergy.theoildrum.com/node/467/ )
Much more significant than static figures, however, is the trajectory. PVs have been gaining for decades, with no end in sight. Oil has been declining for decades, with no end in sight. It is not so much where you are, as where you will be -- and with acceleration, as time goes on and economies of scale increase, and as technologic enhancements (which have have been continuous, and show no signs of slowing) continue to be employed.
Most solar PV skepticism is based on dated information and unawareness of recent developments, including economies of scale now in evidence (and shortly to become massive). Such skepticism may have been appropriate in 1995, but not now. Back in the late 1990s, Jay Hanson (dieoff.com) claimed that PVs were net energy losers -- and he was right. Based on data from 1991, they were. I remember reading that stuff and being very impressed. That was the beginning of my conversion to peak oil doomerism -- now just a memory. Neither Hanson, nor I (at the time), accounted for the very rapid change that was happening in the PV world. We were going by old numbers and assuming them to reflect some fixed limit -- idiotic, and fatal, in such an immature and technology-dependent area.
PV prices have declined steadily and they are now falling off a cliff. PV is getting so cheap that it is even displacing solar thermal! See links below.
The only thing that could stop it would be a TAE-style GLOBAL mega-deflationary meltdown that brings EVERYTHING to a halt. Possible, but I would advise against holding your breath.
http://www.smartplanet.com/blog/intelligent-energy/solar-price-free-fall-part-deux/7212
Solar price free fall, part deux
By Mark Halper | June 21, 2011, 4:50 AM PDT
http://www.smartplanet.com/blog/intelligent-energy/shock-technology-shift-at-huge-california-solar-plant/8156
Shock technology shift at huge California solar plant
By Mark Halper | August 22, 2011, 4:47 AM PDT
"Solar Millennium AG announced late last week that it is forsaking its trademark deployment of solar thermal technology in favor of photovoltaic panels at the 1GW Blythe Solar Power Project in California...." end quote
By the way, even the majority of our peak oil community friends think that solar pv is viable "now" or "soon":
http://peakoil.com/forums/viewtopic.php?t=20682&p=309135
.... and that was way back in 2006! Lots has happened since then.
Again, most of the nay-saying is just based in ignorance and/or old data and/or deep emotional commitment to doom scenarios. But the world doesn't care about the nay-saying. It is racing ahead with solar development, and wisely so.
Alan2102,
Thank you for the links to PV developments.
While I do not wish to dispute the fact that the cost of these modules is dropping fast, I would like to point out the distinction made between the requirements of the USA and that of the rest of the world.
This plant in California is being built for PV rather than Concentrated Solar Power (CSP) because the US needs the electricity to meet peak demand for air-conditioning. The selling-price of electricity during peak-demand periods (early afternoon in the summer) is so high that it offsets the low prices at other times of the day and other seasons. CSP remains the preferred option for base-load - which is why the rest of the world prefers it.
I suspect that it is a matter of time before air-conditioning in California (and southern Australia) is treated as a "luxury" rather than an "entitlement". If people adapt somewhat and don't insist on wearing suits and ties, the thermostat could be raised somewhat. Just a thought.
Worth noting: In countries with high infant mortality rates, the life expectancy at birth is highly sensitive to the rate of death in the first few years of life. Because of this sensitivity to infant mortality, simple life expectancy at age zero can be subject to gross misinterpretation, leading one to believe that a population with a low overall life expectancy will necessarily have a small proportion of older people.
This aspect of the life expectancy calculation is often commonly misunderstood, particularly when we pat ourselves on the back for having a much higher life expectancy than did our distant ancestors or when when concluding that people of a few hundred years ago were considered old at 40.
the bit "worth noting" is quoted from Wikipedia
Nassim: "This plant in California is being built for PV rather than Concentrated Solar Power (CSP) because the US needs the electricity to meet peak demand for air-conditioning. The selling-price of electricity during peak-demand periods (early afternoon in the summer) is so high that it offsets the low prices at other times of the day and other seasons. CSP remains the preferred option for base-load - which is why the rest of the world prefers it."
You're right. PVs still are not competitive for base loads except in unusual situations. And something I neglected to point out: the base vs. peak load thing is the flipside of the "no continuous power" (or "no power when the sun is not shining") argument against PVs. True, not continuous; but the other side of it is that they deliver the most power at the exact times when it is most needed. In that respect they are an ideal part of an energy generation mix.
Robert1's requests for detail:
1) topsoil
2) reforestation
3) fossil fuels, natural gas
4) alternative energies, EROEI, etc.
......................
1) topsoil: I'll get to it over the weekend
2) reforestation: maybe tomorrow
3) natural gas: see below
4) solar PV: done for now; see posts above
......................
Natural gas: This is an easy one.
Alan2102: "some fossil fuels (light sweet crude) are going to be a problem, but others (natural gas) are available in great abundance for at least the next century, on the eurasian land mass"
Robert1: "I too have been following issues re hydrocarbon resources. If you are mainly referring to shale gas development, you have swallowed the MSM and petroleum industry propaganda hook, line and sinker."
No, I'm not referring to shale gas. I mentioned Eurasia, where reserve estimates have not been based on newer geological and technological ("fracking") stuff. Iran and Russia, and some countries in central Asia, have enormous reserves, and they don't need to "frack" to get it. That's why I said "great abundance". You can verify this easily with standard reference materials.
However, regarding the U.S. and the newer findings: I consider this still very much up in the air, and we cannot draw conclusions yet. Of course it is unwise to swallow uncritically the excited press releases; but it is also unwise to sink into knee-jerk rejection of the whole thing, based on personal ideology (as I am sorely tempted to do!). I want to see more and better research and thinking. Here's a recent item, FYI:
http://www.technologyreview.com/energy/38463/?p1=A1
If by chance the optimistic estimates are real or near-real, and if this gas were recoverable without unacceptable environmental harm, then it would be something of a game-changer for the U.S., I have to (reluctantly) admit. It would not make ALL the difference; but it would make a difference, surely.
Robert1: "I CAN supply you with plenty of recent links casting significant doubts about the validity of their claims. We could also go into problems with transporting natural gas overseas but I won't here at this time."
I'm familiar with the transport issue; liquid natural gas.
My point was, and is, that there is plenty of natural gas for electric power generation to support industrial civilization -- at least in the East -- for a very long time. They don't need to transport natural gas from anywhere else; they have plenty. It is true that coal is still the main source of energy for electric power generation, particularly in China, but that can and will change over the decades.
Robert1: "extraction of petroleum products from sources such as tar sands are an abomination to the planet and have very poor EROEI."
I agree. And places like the U.S., that are extremely dependent on oil, are going to be hurting bigtime as peak oil kicks in. Other places are not nearly as dependent on oil.
In past posts I've emphasized what I believe to be a critical distinction: between East and West, or between the U.S. and most other places. Same with this post. If that distinction is not made, then the discussion loses a lot of meaning. You say, for example, that "oil from tar sands is low EROEI", etc. -- AND YOU'RE RIGHT. It is just that it is not as relevant elsewhere as it is here. Other countries have not sunk dozens of $trillions into a vast auto/truck stock and infrastructure requiring vast amounts of oil just to keep the whole ridiculous thing rolling. Other countries are not nearly as vulnerable as we are to peak oil. But, since we're here, we tend to look at things through "here" spectacles. We think that if the U.S. MUST have large quantities of cheap oil, then everyone else MUST have the same thing. We think that if the U.S. is on the verge of collapse, then everyone else is, as well. Not true.
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