Sunday, November 29, 2009

November 29 2009: Growth Industries

Dorothea Lange Wayfarers May 1937
"Mother and child of Arkansas flood refugee family near Memphis, Texas. These people, with all their earthly belongings, are bound for the lower Rio Grande Valley, where they hope to pick cotton"

Ilargi: It is nice for the United Arab Emirates’ central bank to say they stand behind the country's banks, but it's doubtful that the story ends there. Many if not most of the losses that are beseeching Dubai are there to stay. It’s about solvency, not liquidity, you might say. And who in Abu Dhabi (which is where the money will have to come from) is willing to throw their cash into a bottomless pit? Another aspect of the problems in what until recently was known as the "land of nothing but sand and flies", one that is easily overlooked, is that the "poor" folks who've bought property in "la-la land in the desert" have already seen the "value" of their purchases plunge by 50%. Even before the current trouble started. Think those prices will rebound anytime soon? That's many thousands of people who lost half a million, a million, that sort of money. Poof, gone. Forever.

We’ll see in the days to come how the markets react to both the debt and the Abu Dhabi "guarantees". The smarter investor will have felt an oops upside the head, scratched her/him self behind the ears a time or two and resolved to get the heebeejeesus out of there. Christmas will soon be here and the uncertainty just ain't worth the pain. Try to collect what bonus you can and lay low until at the earliest the new year. There's an avalanche of earnings numbers, losses and writedowns coming soon and they promise a very substantial risk of very substantial pain. Dubai is but an itch compared to that. Banks in the EU and the US need to raise hundreds of billions of dollars 2010, much more than Dubai could ever lose, while their governments need many trillions.

To see how things really stand, look no further than the other side of the poor folk spectrum, where the real people live. Today, one in four US children get at least part of their nutrition from food stamps. Food banks and pantries report a 30% increase in demand. And sure, there will always be a plethora of voices who proudly proclaim that only the lazy will ask for food for their children. None of these voices need to. Nor have they ever had to declare bankruptcy because of their medical bills, another one of America's few remaining proud growth industries.

Even if you "believe" in a recovery, don’t you think the people who presently hold the power would prepare for the unfortunate eventuality that maybe that recovery will not succeed? What do you think they would do to keep their hands on the wheel regardless? Bob Chapman thinks he knows what the next steps will be, and claims to have insider information to support his assertions. Cut commercial lending, abolish both the FDIC and the US dollar in a years' time, and leave no government guarantees in place other than bonds. Chapman is a bit strange perhaps, but he's also a lifelong broker and trader and not a complete fool. Chapman advises to get out of life insurance policies and annuities, since they are invested 80% in stocks and 20% in bonds. And I agree there. Your fund managers expect to turn profits in the stock markets? Supported by what? Yes, there's the herding instinct that's kept them in until now. But that same instinct can drive them out real fast too. As in any day now.

The flow of events and the reasoning behind it all is summed up once more by our perhaps soon-to-be contributor VK, who begs to differ with Chapman's conclusion that hyperinflation is the chosen path. As do we.

  1. Easy credit money leads to speculative boom.

  2. Excess overcapacity is built, asset prices soar, general feeling of goodwill and trust. People more willing to go into debt as future looks all rosy.

  3. Cash flow problems occur, as credit growth far outstrips wage growth.

  4. Minsky moment reached and the greatest fool is left holding the bag, asset prices plunge due to declining liquidity as borrowers refuse to borrow due to exorbitant costs of servicing the interest.

  5. Banks reduce lending sharply as asset price decline leads to a balance sheet recession and lots and lots of losses. Further liquidity drained from the system.

  6. Now Government steps in to fill in the gap caused by massive deleveraging. It's sole goal is to reflate, reflate, reflate.

  7. If the gap between debt to income is sufficiently small, the Government can kick the can down the road but once it grows larger, they can no longer do so.

  8. Wage price deflation takes hold as the economy simply can't handle the debt. Wages fall, asset prices fall, debt burden soars as money goes down the proverbial black hole, banks collapse as does government revenue and the cost of servicing debt soars. Unemployment shoots up thus removing any wage pressures.

  9. The Government has two options at this point, one is to print its way out, thus destroying its currency and isolating itself from the broader international community or it can allow massive deflation to occur through which it is not isolated and the value of its currency rises. In both scenarios the middle class is F***ED but in the deflation scenario the elites are saved.

  10. The elites would prefer an outcome whereby there is massive deflation; as Ilargi once mentioned, if you lose 50% of your net worth but asset prices fall 80%, you're up 30%! Buying back the country for cents on the dollar is a delicious outcome and lets the game be carried on for a little while longer.

Hyperinflation carries more risk then deflation for the elite. Both pose risks to social stability and the possible collapse of society but in a deflationary collapse the elite would have more of an advantage.

Farreaching Decision of the Federal Reserve: Banks which received TARP funds are to restrict commercial lending
by Bob Chapman

Bob Chapman reports that his source at the top of the banking industry has told him that 2000+ banks are in imminent danger of collapse, the FDIC will be closed or collapsed by Sep 2010 or year end and official devaluation will happen by the end of 2010. The source has been queried about making room for a new currency.

The following information may be the most important we have ever published. One of our Intel sources, highly placed in banking circles, tells us that on 1/1/10 all banks that have received TARP funds have been informed by the Federal Reserve that they must further restrict any commercial lending. Loans have to be 75% collateralized, 50% of which has to be in cash, which is a compensating balance.
The Fed has to do one of two things: They either have to pull $1.5 trillion out of the system by June, which would collapse the economy, or face hyperinflation. This is why the Fed has instructed banks to inform them when and how much of the TARP funds they can return. At best they can expect $300 to $400 billion plus the $200 billion the Fed already has in hand.
We believe the Fed will opt for letting the system run into hyperinflation. All signs tell us they cannot risk allowing the undertow of deflation to take over the economy. The system cannot stand such a withdrawal of funds. They also must depend on assistance from Congress in supplying a second stimulus plan. That would probably be $400 to $800 billion. A lack of such funding would send the economy and the stock market into a tailspin. Even with such funding the economy cannot expect any growth to speak of and at best a sideways movement for perhaps a year.
We have been told that the FDIC not only is $8.2 billion in the hole, but they have secretly borrowed an additional $80 billion from the Treasury. We have also been told that the FDIC is lying about the banks in trouble. The number in eminent danger are not 552, but a massive 2,035. The cost of bailing these banks out would be $800 billion to $1 trillion. That means 2,500 could be closed in 2010. Now get this, the FDIC is going to be collapsed before the end of 2010, which means no more deposit insurance. This follows the 9/18/09 end of government guarantees on money market funds. Both will force deposits into US government bonds and agency bonds in an attempt to save the system.
This will strip small and medium-sized banks and force them into shutting down or being absorbed. This means you have to get your money out of banks, especially CDs. We repeat get your cash values out of life insurance policies and annuities. They are invested 80% in stocks and 20% in bonds. Keep only enough money in banks for three months of operating expenses, six months for businesses. Major and semi-major banks are being told to obtain secure storage for new currency-dollars. They expect official devaluation by the end of the year.
We do not know what the exchange rate will be, but as we have stated previously we expect three old dollars to be traded for one new dollar. The alternative is gold and silver coins and shares. For those with substantial sums that do not want to be in gold and silver related assets completely you can use Canadian and Swiss Treasuries. If you need brokers for these investments we can supply them.
The Fed also expects a meltdown in the bond market, especially in municipals. Public services will be cut drastically leading to increased crime and social problems, not to mention the psychological trauma that our country will experience. Already 50% of homes in hard hit urban areas are under water, nationwide more than 25%. That means you have to be out of bonds as well, especially municipals.

Global sovereign debt to hit $49.5 trillion
Global sovereign debt is expected to hit $49.5 trillion by year end, a 45 percent climb since 2007 as the credit crisis takes a toll, Moody's Investors Service said on Tuesday. The expected $15.3 trillion increase in worldwide government debt is more than 100 times the inflation-adjusted cost of the Marshall plan, Moody's said in a report.

The Marshall Plan, a U.S. effort to rebuild Western Europe after World War II, cost an estimated $13 billion in unadjusted dollars. Sovereign debt ballooned during the global credit crisis as countries funded massive bailouts, shifting risk from corporate to government balance sheets. "Not surprisingly, the G7 countries account for 78 percent of the increase, as their fiscal accounts have been hit hardest by the crisis," Jaime Reusche, associate analyst in Moody's sovereign risk group, said in the report. The G7 or group of seven major industrial nations are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

Moody's said it expects global government debt to total 80 percent gross domestic product in 2010, up from a 10-year low of 63 percent in 2008. Debt will also be less affordable, as measured in terms of interest payments relative to revenue, Reusche said. For advanced industrial countries, interest payments are expected to total 6.1 percent of revenues in 2010, up from 4.3 percent in 2007. "As growth turns negative in 2009 for most countries, the relative debt load becomes harder to bear," Moody's said. In the United States, government debt is expected to rise to $14.48 trillion in 2010 from $12.29 trillion in 2009 and $10.27 trillion in 2008, the Moody's report said.

Big U.S banks will be forced to raise more capital soon
Most big U.S. banks may be forced to make public offerings soon if the Treasury demands payback of the funds it issued under the Troubled Assets Relief Program, veteran banking analyst Richard Bove said. The U.S. Federal Reserve this month asked banks that were part of its "stress tests" to submit plans to repay government money, if they have not already repaid it.

"Virtually all of the banks can easily redeem their TARP preferreds from current cash holdings. However, it may be that only 3 of the top 30 would have an adequate Tier 1 Capital ratio if they redeemed these preferreds," Bove said in a note to clients. The Rochdale Securities analyst said burgeoning fiscal deficit, which is expected to touch 9.5 percent this fiscal, and a plunging dollar are forcing the U.S. government to obtain money from wherever it can find it.

Repayment of the TARP funds would be one available source, Bove wrote. Many U.S. banks are eager to repay money borrowed under the government's $700 billion TARP. Participation in the program comes with limitations on pay, dividend payouts and share repurchases. It is believed that the Treasury was looking for Tier 1 Capital ratios of 12 percent at U.S. banks, and the banks would be forced to raise capital, without government assistance, before they are allowed to repay their TARP preferreds, Bove said.

"This raises the specter that a number of banks will be making public offerings soon despite the fact that their earnings remain under a cloud." The U.S. Treasury Department said on November 19 it would auction off stock warrants it received from three big banks that received taxpayers' funds from the government's financial rescue fund.

U.S. Treasury to Push Lenders to Finish More Home Modifications
The U.S. Treasury Department will step up public pressure on lenders to finish modifying more home loans to troubled borrowers under a $75 billion campaign against the record tide of foreclosures. More than 650,994 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed. That failure is getting the administration’s attention.

"We are taking additional steps to enhance servicer transparency and accountability as part of a broader focus on maximizing conversion rates to permanent modifications," Treasury spokeswoman Meg Reilly said in an e-mail yesterday. The Obama administration plans to announce additional steps tomorrow, including new private-public partnerships and resources for borrowers. The modification program was announced in February as a way to combat a surge in foreclosures that has pushed property values lower and curtailed economic growth. It hasn’t stopped foreclosures, which are now being driven by unemployment that was at a 26-year high of 10.2 percent in October.

The Mortgage Bankers Association, the industry’s largest trade group, predicts foreclosures won’t peak until after unemployment rates crest, some time in the second half of next year. The administration’s initiative provides a cash incentive of $1,000 to the mortgage servicer once a loan is converted from a trial to a permanent modification plus annual payments of $1,000 for as long as three years provided the loan remains in good standing.

Bank of America Corp. was among the worst performers in the program, with 14 percent of loans in modification in October, according to the Treasury. The bank, the largest in the U.S. and the biggest mortgage servicer, has 990,628 eligible loans, a greater total than any other company on the Treasury’s list. A spokesman for the Charlotte, North Carolina-based bank, Dan Frahm, has said the eligibility data may be overstated. "As many as one-in-three of those borrowers listed as eligible for the program will not actually qualify for HAMP because the home is vacant, the customer has a debt-to-income ratio below 31 percent or is unemployed," Frahm said in a Nov. 10 interview.

Eligible loans under the program are at least 60 days past due, in foreclosure or bankruptcy, and originated before 2009. The underlying property must be owner-occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans. A borrower’s mortgage payment must be 31 percent or more of their gross monthly income to qualify.

Morgan Stanley, Citigroup Inc. and JPMorgan Chase & Co. led the pack of U.S. banks modifying home loans to troubled borrowers through October under the foreclosure prevention plan, the Treasury Department said. Citigroup, the third-largest U.S. bank by assets, began 88,968 trial modifications, or 40 percent of its eligible mortgages. JPMorgan, the second-largest U.S. bank, has started 133,988 modifications, or 32 percent of those eligible, the Treasury said.

Morgan Stanley’s Saxon Mortgage Services had begun trials for 44 percent of its 80,477 eligible loans. In all, 20 percent of eligible U.S. homeowners have received trial modifications through the government program, according to the data. Bank of America’s modifications started rose to 136,994 in October from 94,918 in September. The bank also accounted for 30.7 percent of the 3.2 million loans eligible for the program and about 22 percent of the 919,965 modification offers extended to borrowers by all the participating banks combined.

The administration program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at "imminent risk" of default. Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.
President Barack Obama announced the program in February, and final criteria for administering the modifications on loans owned by Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the government, were released in April.

Specific program guidelines for loans owned by other investors were provided in June and the Treasury later gave new details for loans backed by the Federal Housing Administration. The administration’s $75 billion Making Home Affordable program includes the mortgage modification initiative and loan refinancing through Fannie Mae and Freddie Mac.

Black Friday results: Minimal growth
All the hope and hype that went into Black Friday preparations this year didn't give us much. Year-over-year, retail sales grew only 0.5%, from $10.61 billion to $10.66 billion, according to ShopperTrak. This follows a 3% gain last year, when the world was gripped by the panic triggered by the global financial crisis. In 2007, the situation was much better, with Black Friday sales leaping 8.3%.

The slight gain this year came even with the extra efforts retailers made, which included, in some cases, opening on Thanksgiving Day and making an extra push via social media. These measures effectively helped retailers tread water. Worries about the momentum from Black Friday fading through the holiday season are even tougher, now that we know there isn't much momentum on which to rely. Shopper traffic was heavy this year, according to ShopperTrak, which led to much of the early optimism. But, the lookers weren't converting at the rates retailers had hoped.

The action came online this year, even ahead of Cyber Monday. Internet shopping increased 35%, with the average order reaching $170.19, according to online retail analytics company Coremetrics. Despite the difficult results last week, ShopperTrak is maintaining its holiday season growth estimate of 1.6%, with co-founder Bill Martin saying in a company statement that the forecast "remains intact."

Richest 1% of Britons hold 70% of wealth
I missed this report yesterday but it’s an interesting one. According to consultants AT Kearney, the richest 1pc in the UK hold some 70pc of the country’s wealth. That there is this divide between rich and poor is not exactly new – but the scale of it, and the likelihood that it is not being narrowed by the financial crisis, is a big worry. Indeed, according to the report, in the US the amount of financial assets owned by the richest 1pc in the US is far, far lower at 48pc, and only 34pc in Australia.

This must, to a large degree, be due to the fact that the UK set itself up in recent years as a haven for the super-rich, with its relatively generous rules on capital gains tax, because the income tax system itself is rather more redistributive than in the US. But the Kearney report is interesting because, unlike the traditional measure of inequality, the gini coefficient, it focuses not on income (the flow of money) but on actual substantive wealth (the stack of it that sits beneath us).

Says Penney Frohling, a partner at AT Kearney: "To understand the impact of the market crash, though, you need to look at wealth – not just how much people hold, but how it is held across different asset types.  This is harder to do but drives quite different insights about how deeply and how widely the market crash and subsequent recovery have affected investors across age and wealth bands." "On an income basis, the UK and Australia have similar levels of equality according to the UN, with the US having proportionately more very high- and very low-earners. But in terms of the distribution of what people own rather than what they earn, the UK picture is more like an emerging market – though of course at a higher level."

In the latest UN report on the gini coefficient (in which a score of 0 means absolutely equal income across the population and 100 means one person has all the income), the UK scored 36.0, Australia 35.2, USA: 40.8. In part the poor score for the UK is due to its relatively ungenerous pension provision, compared with Australia where there is a compulsory pension savings scheme.

But what I find particularly intriguing (and this is something which won’t be clear for another year or more) is the question of whether this crisis has levelled out those inequality gaps. The Great Depression and its aftermath most certainly did, but despite the fact that the gini coefficient (certainly in the US, probably in the UK) are at levels comparable with the late 1920s and early 1930s, we haven’t yet seen any kind of dramatic social backlash as a result.

Food Stamp Use Soars, and Stigma Fades
With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children. It has grown so rapidly in places so diverse that it is becoming nearly as ordinary as the groceries it buys. More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.

Virtually all have incomes near or below the federal poverty line, but their eclectic ranks testify to the range of people struggling with basic needs. They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare.

While the numbers have soared during the recession, the path was cleared in better times when the Bush administration led a campaign to erase the program’s stigma, calling food stamps "nutritional aid" instead of welfare, and made it easier to apply. That bipartisan effort capped an extraordinary reversal from the 1990s, when some conservatives tried to abolish the program, Congress enacted large cuts and bureaucratic hurdles chased many needy people away.

From the ailing resorts of the Florida Keys to Alaskan villages along the Bering Sea, the program is now expanding at a pace of about 20,000 people a day. There are 239 counties in the United States where at least a quarter of the population receives food stamps, according to an analysis of local data collected by The New York Times. The counties are as big as the Bronx and Philadelphia and as small as Owsley County in Kentucky, a patch of Appalachian distress where half of the 4,600 residents receive food stamps.

In more than 750 counties, the program helps feed one in three blacks. In more than 800 counties, it helps feed one in three children. In the Mississippi River cities of St. Louis, Memphis and New Orleans, half of the children or more receive food stamps. Even in Peoria, Ill. — Everytown, U.S.A. — nearly 40 percent of children receive aid. While use is greatest where poverty runs deep, the growth has been especially swift in once-prosperous places hit by the housing bust.

There are about 50 small counties and a dozen sizable ones where the rolls have doubled in the last two years. In another 205 counties, they have risen by at least two-thirds. These places with soaring rolls include populous Riverside County, Calif., most of greater Phoenix and Las Vegas, a ring of affluent Atlanta suburbs, and a 150-mile stretch of southwest Florida from Bradenton to the Everglades. Although the program is growing at a record rate, the federal official who oversees it would like it to grow even faster. "I think the response of the program has been tremendous," said Kevin Concannon, an under secretary of agriculture, "but we’re mindful that there are another 15, 16 million who could benefit."

Nationwide, food stamps reach about two-thirds of those eligible, with rates ranging from an estimated 50 percent in California to 98 percent in Missouri. Mr. Concannon urged lagging states to do more to enroll the needy, citing a recent government report that found a sharp rise in Americans with inconsistent access to adequate food. "This is the most urgent time for our feeding programs in our lifetime, with the exception of the Depression," he said. "It’s time for us to face up to the fact that in this country of plenty, there are hungry people."

The program’s growing reach can be seen in a corner of southwestern Ohio where red state politics reign and blue-collar workers have often called food stamps a sign of laziness. But unemployment has soared, and food stamp use in a six-county area outside Cincinnati has risen more than 50 percent. With most of his co-workers laid off, Greg Dawson, a third-generation electrician in rural Martinsville, considers himself lucky to still have a job. He works the night shift for a contracting firm, installing freezer lights in a chain of grocery stores. But when his overtime income vanished and his expenses went up, Mr. Dawson started skimping on meals to feed his wife and five children.

He tried to fill up on cereal and eggs. He ate a lot of Spam. Then he went to work with a grumbling stomach to shine lights on food he could not afford. When an outreach worker appeared at his son’s Head Start program, Mr. Dawson gave in. "It’s embarrassing," said Mr. Dawson, 29, a taciturn man with a wispy goatee who is so uneasy about the monthly benefit of $300 that he has not told his parents. "I always thought it was people trying to milk the system. But we just felt like we really needed the help right now."

The outreach worker is a telltale sign. Like many states, Ohio has campaigned hard to raise the share of eligible people collecting benefits, which are financed entirely by the federal government and brought the state about $2.2 billion last year. By contrast, in the federal cash welfare program, states until recently bore the entire cost of caseload growth, and nationally the rolls have stayed virtually flat. Unemployment insurance, despite rapid growth, reaches about only half the jobless (and replaces about half their income), making food stamps the only aid many people can get — the safety net’s safety net.

Support for the food stamp program reached a nadir in the mid-1990s when critics, likening the benefit to cash welfare, won significant restrictions and sought even more. But after use plunged for several years, President Bill Clinton began promoting the program, in part as a way to help the working poor. President George W. Bush expanded that effort, a strategy Mr. Obama has embraced.

The revival was crowned last year with an upbeat change of name. What most people still call food stamps is technically the Supplemental Nutrition Assistance Program, or SNAP. By the time the recession began, in December 2007, "the whole message around this program had changed," said Stacy Dean of the Center on Budget and Policy Priorities, a Washington group that has supported food stamp expansions. "The general pitch was, ‘This program is here to help you.’ " Now nearly 12 percent of Americans receive aid — 28 percent of blacks, 15 percent of Latinos and 8 percent of whites. Benefits average about $130 a month for each person in the household, but vary with shelter and child care costs.

In the promotion of the program, critics see a sleight of hand. "Some people like to camouflage this by calling it a nutrition program, but it’s really not different from cash welfare," said Robert Rector of the Heritage Foundation, whose views have a following among conservatives on Capitol Hill. "Food stamps is quasi money." Arguing that aid discourages work and marriage, Mr. Rector said food stamps should contain work requirements as strict as those placed on cash assistance. "The food stamp program is a fossil that repeats all the errors of the war on poverty," he said.

Across the country, the food stamp rolls can be read like a scan of a sick economy. The counties of northwest Ohio, where car parts are made, take sick when Detroit falls ill. Food stamp use is up by about 60 percent in Erie County (vibration controls), 77 percent in Wood County (floor mats) and 84 percent in hard-hit Van Wert (shifting components and cooling fans). Just west, in Indiana, Elkhart County makes the majority of the nation’s recreational vehicles. Sales have fallen more than half during the recession, and nearly 30 percent of the county’s children are receiving food stamps.

The pox in southwest Florida is the housing bust, with foreclosure rates in Fort Myers often leading the nation in the last two years. Across six contiguous counties from Manatee to Monroe, the food stamp rolls have more than doubled. In sheer numbers, growth has come about equally from places where food stamp use was common and places where it was rare. Since 2007, the 600 counties with the highest percentage of people on the rolls added 1.3 million new recipients. So did the 600 counties where use was lowest.

The richest counties are often where aid is growing fastest, although from a small base. In 2007, Forsyth County, outside Atlanta, had the highest household income in the South. (One author dubbed it "Whitopia.") Food stamp use there has more than doubled. This is the first recession in which a majority of the poor in metropolitan areas live in the suburbs, giving food stamps new prominence there. Use has grown by half or more in dozens of suburban counties from Boston to Seattle, including such bulwarks of modern conservatism as California’s Orange County, where the rolls are up more than 50 percent.

While food stamp use is still the exception in places like Orange County (where 4 percent of the population get food aid), the program reaches deep in places of chronic poverty. It feeds half the people in stretches of white Appalachia, in a Yupik-speaking region of Alaska and on the Pine Ridge Indian Reservation in South Dakota. Across the 10 core counties of the Mississippi Delta, 45 percent of black residents receive aid. In a city as big as St. Louis, the share is 60 percent.

Use among children is especially high. A third of the children in Louisiana, Missouri and Tennessee receive food aid. In the Bronx, the rate is 46 percent. In East Carroll Parish, La., three-quarters of the children receive food stamps. A recent study by Mark R. Rank, a professor at Washington University in St. Louis, startled some policy makers in finding that half of Americans receive food stamps, at least briefly, by the time they turn 20. Among black children, the figure was 90 percent.

Across the small towns and rolling farmland outside Cincinnati, old disdain for the program has collided with new needs. Warren County, the second-richest in Ohio, is so averse to government aid that it turned down a federal stimulus grant. But the market for its high-end suburban homes has sagged, people who build them are idle and food stamp use has doubled. Next door, in Clinton County, the blow has been worse. DHL, the international package carrier, has closed most of its giant airfield, costing the county its biggest employer and about 7,500 jobs. The county unemployment rate nearly tripled, to more than 14 percent.

"We’re seeing people getting food stamps who never thought they’d get them," said Tina Osso, the director of the Shared Harvest Food Bank in Fairfield, which runs an outreach program in five area counties. While Mr. Dawson, the electrician, has kept his job, the drive to distant work sites has doubled his gas bill, food prices rose sharply last year and his health insurance premiums have soared. His monthly expenses have risen by about $400, and the elimination of overtime has cost him $200 a month. Food stamps help fill the gap.

Like many new beneficiaries here, Mr. Dawson argues that people often abuse the program and is quick to say he is different. While some people "choose not to get married, just so they can apply for benefits," he is a married, churchgoing man who works and owns his home. While "some people put piles of steaks in their carts," he will not use the government’s money for luxuries like coffee or soda. "To me, that’s just morally wrong," he said.

He has noticed crowds of midnight shoppers once a month when benefits get renewed. While policy analysts, spotting similar crowds nationwide, have called them a sign of increased hunger, he sees idleness. "Generally, if you’re up at that hour and not working, what are you into?" he said. Still, the program has filled the Dawsons’ home with fresh fruit, vegetables, bread and meat, and something they had not fully expected — an enormous sense of relief. "I know if I run out of milk, I could run down to the gas station," said Mr. Dawson’s wife, Sheila. As others here tell it, that is a benefit not to be overlooked.

Sarah and Tyrone Mangold started the year on track to make $70,000 — she was selling health insurance, and he was working on a heating and air conditioning crew. She got laid off in the spring, and he a few months later. Together they had one unemployment check and a blended family of three children, including one with a neurological disorder aggravated by poor nutrition.

They ate at his mother’s house twice a week. They pawned jewelry. She scoured the food pantry. He scrounged for side jobs. Their frustration peaked one night over a can of pinto beans. Each blamed the other when that was all they had to eat. "We were being really snippy, having anxiety attacks," Ms. Mangold said. "People get irritable when they’re hungry." Food stamps now fortify the family income by $623 a month, and Mr. Mangold, who is still patching together odd jobs, no longer objects. "I always thought people on public assistance were lazy," he said, "but it helps me know I can feed my kids."

So far, few elected officials have objected to the program’s growth. Almost 90 percent of beneficiaries nationwide live below the poverty line (about $22,000 a year for a family of four). But a minor tempest hit Ohio’s Warren County after a woman drove to the food stamp office in a Mercedes-Benz and word spread that she owned a $300,000 home loan-free. Since Ohio ignores the value of houses and cars, she qualified.

"I’m a hard-core conservative Republican guy — I found that appalling," said Dave Young, a member of the county board of commissioners, which briefly threatened to withdraw from the federal program. "As soon as people figure out they can vote representatives in to give them benefits, that’s the end of democracy," Mr. Young said. "More and more people will be taking, and fewer will be producing."

At the same time, the recession left Sandi Bernstein more sympathetic to the needy. After years of success in the insurance business, Ms. Bernstein, 66, had just settled into what she had expected to be a comfortable retirement when the financial crisis last year sent her brokerage accounts plummeting. Feeling newly vulnerable herself, she volunteered with an outreach program run by AARP and the Ohio Association of Second Harvest Food Banks.

Having assumed that poor people clamored for aid, she was surprised to find that some needed convincing to apply."I come here and I see people who are knowledgeable, normal, well-spoken, well-dressed," she said. "These are people I could be having lunch with." That could describe Franny and Shawn Wardlow, whose house in nearby Oregonia conjures middle-American stability rather than the struggle to meet basic needs. Their three daughters have heads of neat blond hair, pink bedroom curtains and a turtle bought in better times on vacation in Daytona Beach, Fla. One wrote a fourth-grade story about her parents that concluded "They lived happily ever after."

Ms. Wardlow, who worked at a nursing home, lost her job first. Soon after, Mr. Wardlow was laid off from the construction job he had held for nearly nine years. As Ms. Wardlow tells the story of the subsequent fall — cutoff threats from the power company, the dinners of egg noodles, the soap from the Salvation Army — she dwells on one unlikely symbol of the security she lost. Pot roast. "I was raised on eating pot roast," she said. "Just a nice decent meal."

Mr. Wardlow, 32, is a strapping man with a friendly air. He talked his way into a job at an envelope factory although his boss said he was overqualified. But it pays less than what he made muscling a jackhammer, and with Ms. Wardlow still jobless, they are two months behind on the rent. A monthly food stamp benefit of $429 fills the shelves and puts an occasional roast on the Sunday table. It reminds Ms. Wardlow of what she has lost, and what she hopes to regain. "I would consider us middle class at one time," she said. "I like to have a nice decent meal for dinner."

Food banks nationwide report more 1st timers
Prentice Jones worked construction jobs around Chicago for most of his 60 years and is quick to boast of a foreman job he once held at a revamped city college and 23 years at a steel company. But these days, work has been so scarce that the man with a penchant for cowboy hats has been forced to move in with his mother and do something this week he never expected — visit a food pantry. "There's no work now," Jones said while waiting in line at St. Columbanus Parish for a frozen turkey and bags of apples, bread and potatoes. "I pray it's temporary."

A surge in first time visitors has contributed to the greatest demand in years at food banks nationwide, according to Feeding America, a Chicago-based national food bank association. Many of the first timers were middle class but lost jobs or had their wages cut. "They were doing pretty well," said Ross Fraser of Feeding America. "They've completely had the rug pulled out from under them."

Federal agencies and national organizations have just started tracking first timers. But anecdotal evidence and statistics from individual pantries is clear: More and more new faces are appearing among the approximately 25 million Americans who rely on food pantries each year. St. Columbanus Pantry, which serves about 500 people a week on Chicago's South Side, has had up to 50 new people sign up each week since February. The Friendly Center in Orange, Calif., serves 80 families a day, with about 20 new people trying to qualify each day, far more than last year. And at the Community Kitchen and Food Pantry of West Harlem, N.Y., about 250 of the 1,000 people who show up each day — up from 750 this time last year — are newcomers.

"The line has grown so long that when you walk outside, it's overwhelming," said Jesse Taylor, senior director at the pantry. "A lot of people are coming out in suits, they're carrying brief cases." Food banks across the country report about a 30 percent increase in demand on average, but some have seen as much as a 150 percent jump in demand from 2008 through the middle of this year, according to Feeding America. Reliance on food banks and the number of Americans using food stamps — at least 35 million currently — are two indicators of hunger. The U.S. Department of Agriculture said earlier this month that 49 million people, or 14.6 percent of U.S. households, struggle to put food on the table, the most since the agency began tracking food security levels in 1995.

First timers to food banks have worries others might not experience. For starters, they may not know what to do. "Some don't have the coping skills, they've never been in this situation," said Elizabeth Donovan, a director at the Northern Illinois Food Bank, which serves 13 counties. "Asking for help is difficult." Jones was cajoled into coming into the food pantry by a friend who knew where to go, where to wait and how to apply for services. But others say the experience is fraught with shame, confusion or anger.

"We're hearing from more and more middle class who have never in their life gone to a food pantry," said Diane Doherty, an executive director at the Illinois Hunger Coalition. "They're very, very frustrated and angry." About half of the almost 40,000 families who have been fed at Holy Family Food Pantry in Waukegan, Ill., about 40 miles north of Chicago, are new, services director Barb Karacic said. They include Gail Small, a 55-year-old school bus driver who got laid off from her $16 an hour job at the Waukegan Public School District earlier in the year and hasn't been able to find work since.

"It was very embarrassing," Small said. "I didn't tell my children. I didn't tell my dad." Others say at some point, the need to survive trumps emotions. Linda Herrera, 59, went to All Saints Parish on Detroit's southwest side for the first time this week. Herrera, who is on state assistance, said the embarrassment of having to pick up food was offset by her empty cupboards. "We were down to practically nothing," she said, carrying out bags containing juice, mashed potatoes, dried milk, rice and beans. "I'm trying to just make it now 'til the end of the month, until I get my check."

From the Hospital to Bankruptcy Court
Some of the debtors sitting forlornly in this city’s old stone bankruptcy court have lost a job or gotten divorced. Others have been summoned to face their creditors because they spent mindlessly beyond their means. But all too often these days, they are there merely because they, or their children, got sick. Wes and Katie Covington, from Smyrna, Tenn., were already in debt from a round of fertility treatments when complications with her pregnancy and surgery on his knee left them with unmanageable bills. For Christine L. Phillips of Nashville, it was a $10,000 trip to the emergency room after a car wreck, on the heels of costly operations to remove a cyst and repair a damaged nerve.

Jodie and Charlie Mullins of Dickson, Tenn., were making ends meet on his patrolman’s salary until she developed debilitating back pain that required spinal surgery and forced her to quit nursing school. As with many medical bankruptcies, they had health insurance but their policy had a $3,000 deductible and, to their surprise, covered only 80 percent of their costs. "I always promised myself that if I ever got in trouble, I’d work two jobs to get out of it," said Mr. Mullins, a 16-year veteran of the Dickson police force. "But it gets to the point where two or three or four jobs wouldn’t take care of it. The bills just were out of sight."

Although statistics are elusive, there is a general sense among bankruptcy lawyers and court officials, in Nashville as elsewhere, that the share of personal bankruptcies caused by illness is growing. In the campaign to broaden support for the overhaul of American health care, few arguments have packed as much rhetorical punch as the there-but-for-the-grace-of-God notion that average families, through no fault of their own, are going bankrupt because of medical debt.

President Obama, in addressing a joint session of Congress in September, called on lawmakers to protect those "who live every day just one accident or illness away from bankruptcy." He added: "These are not primarily people on welfare. These are middle-class Americans." The Senate majority leader, Harry Reid of Nevada, made a similar case on Saturday in a floor speech calling for passage of a measure to open debate on his chamber’s health care bill. The legislation moving through Congress would attack the problem in numerous ways.

Bills in both houses would expand eligibility for Medicaid and provide health insurance subsidies for those making up to four times the federal poverty level. Insurers would be prohibited from denying coverage to those with pre-existing health conditions. Out-of-pocket medical costs would be capped annually. How many personal bankruptcies might be avoided is unpredictable, as it is not clear how often medical debt plays a back-breaking role. There were 1.1 million personal bankruptcy filings in 2008, including 12,500 in Nashville, and more are expected this year.

Last summer, Harvard researchers published a headline-grabbing paper that concluded that illness or medical bills contributed to 62 percent of bankruptcies in 2007, up from about half in 2001. More than three-fourths of those with medical debt had health insurance. But the researchers’ methodology has been criticized as defining medical bankruptcy too broadly and for the ideological leanings of its authors, some of whom are outspoken advocates for nationalized health care.

At the bankruptcy court in Nashville, lawyers provided a spectrum of estimates for the share of cases in Middle Tennessee where medical debt was decisive, from 15 percent to 50 percent. But many said they felt the number had been growing, and might be higher than was obvious because medical bills are often disguised as credit card debt. "This has really become the insurance system for the country," said Susan R. Limor, a bankruptcy trustee who calculated that 13 of the 48 Chapter 7 liquidation cases on her docket one recent afternoon included medical debts of more than $1,000.

Under Chapter 7, a debtor’s assets are liquidated and the proceeds are used to pay creditors; any remaining debts are discharged, and filers are left with a 10-year stain on their credit ratings. "You can’t believe how many people discharge medical debts," Ms. Limor said. "It’s a kind of trailing indicator of who’s suffering in this economy." Kyle D. Craddock, a bankruptcy lawyer here, said his medical cases were heartbreaking because the financial devastation was so rapid and ill-timed. "They’re sick, they’re bankrupt, and if they stay sick for too long, they end up losing their jobs as well," he said.

That was the case for Ms. Phillips, 45, who said she was fired in October from her job in a shipping department because she had missed so much work while recuperating from her car accident and operations. Her firing came only 11 days after she filed for bankruptcy, listing about $7,000 in unpaid medical bills among her $187,000 in liabilities. "The medical bills put me over the edge," said Ms. Phillips, who lost her health insurance along with her job. "I had no money for food at this point. How was I going to do it?"

It was the same for the Mullinses, who have two children. They had a mortgage and owed money on credit cards and student loans. "But the medical problem is what took us down," said Ms. Mullins, who is packing to move from the two-bedroom house they will soon surrender to Wells Fargo. "Everything was due, they wanted their money now, now, now, and it just became overwhelming."

For some, like Nathan W. Hale, 34, who had an attack of pancreatitis two months after losing his job with a Nashville cable company, it is the absence of insurance that pulls them under. Others, like Robin P. Herron, 35, of Eagleville, Tenn., have insurance, but it is not enough. Her Blue Cross Blue Shield policy covered only 80 percent of the cost when her daughter needed surgery to remove a cyst from a fallopian tube, leaving her $6,000 in debt. After cortisone injections failed to cure his gimpy knee, Mr. Covington, 31, had surgery because the pain was forcing him to miss days of work as an emergency medical technician. His recovery kept him off the job for five months.

Simultaneously, his wife, a 911 dispatcher, developed sciatica while pregnant and had to take months off on reduced disability pay. Their insurance policy, with an $850 monthly premium, has a $4,000 annual deductible per family. As the bills rolled in, the Covingtons compounded their troubles by placing medical charges on credit cards, simply to make the collection agencies stop calling. They fell months behind on their mortgage, and by August had lost their house and both cars. Mr. Covington, who has taken a second job, said he found it ironic that it had not been the recession that forced them into bankruptcy. "I tell my wife that we beat the economy," he said, "but health care beat us."

Taxpayers face a generation of pain
Fiscal stimulus was the economic tool, so long disparaged by the policymaking community, that came into its own during the economic crisis, playing its part alongside monetary easing and bank bail-outs in warding off a depression. But the result of fiscal stimulus in almost every Group of 20 economy has been the rise of deficits to levels never seen in peacetime, debt so high there is not the ammunition to fight another economic war and a bill to clean up the mess that will be felt by tax?payers for a generation to come. The latest estimates from the International Monetary Fund show that advanced countries’ deficits averaged 1.9 per cent of national income before the financial crisis started in 2007. This year they are expected to hit 9.7 per cent, followed by 8.7 per cent in 2010.

Public sector gross debt is expected to explode from an average across advanced economies of 78 per cent of national income in 2007 to 118 per cent in 2014. Emerging economies with their faster economic growth and greater constraints on borrowing expect much lower build-up of debt. The greatest effect on deficits and debt has come not from discretionary stimulus measures but lost tax revenues and increases in public expenditure as unemployment has risen. The problem for advanced economies is that plans for a great fiscal consolidation are needed at the same time as they are expected to cope with the retirement of the postwar "baby boomer" generation. Few are under any illusion that this will be a difficult task. Jørgen Elmeskov, acting chief economist of the Organisation for Economic Co-operation and Development, argues that "stopping the rot is clearly necessary and will call for fiscal consolidation that is substantial in most cases and drastic in some".

Dominique Strauss-Kahn, managing director of the International Monetary Fund, said this week that fiscal consolidation should be the "top priority" for the medium term in advanced economies once recovery was firmly established, because "the threats are greater, the politics are more complicated and the machinery of adjustment is more unwieldy". The IMF chief was speaking in London, which was apt as the UK has potentially one of the most difficult feats of fiscal consolidation to perform. Its tax revenues were heavily dependent on financial sector profits; public spending had been set to rise rapidly until 2011; and the country has very strong automatic stabilisers and an extensive means-tested system of state support, which automatically kicks in as people become unemployed.

The UK’s budget deficit is projected to rise from 2.6 per cent of national income in 2007 to 13.2 per cent in 2010, according to the IMF. Gross debt is forecast to more than double from an internationally low 44 per cent of national income to 98 per cent in 2014. The UK has records on government borrowing and debt stretching back to 1691. The expected 50 percentage point rise in the debt-to-national-income ratio is similar in proportion to that experienced during the many wars Britain fought in the 18th century and is the biggest peacetime explosion of government liabilities. In cash terms, the government expects to borrow more in 2009 and 2010 than the entire borrowing of centuries of British governments between 1692 and 1997. The pressure mounted this week when Mervyn King, the Bank of England governor, reiterated his view that official plans to reduce the deficit by half over the next four years were insufficient and not credible.

Instead, he called for "something where a really significant reduction in deficits to eliminate a large part of the structural deficit should take place over the lifetime of a parliament". Plans for deficit reduction are central to the domestic political debate, but neither main UK party has come close to providing a detailed programme for public expenditure curbs of the scale needed to cut the deficit and control debt. The scale of the cuts is, however, already clear. Under the government’s existing Budget, it is planning to halve the annual level of capital expenditure between 2009-10 and 2013-14. Road, hospital and school building will bear the brunt. Day-to-day expenditure will also be hit hard.

Over the three years from April 2011 government departments will face cuts of 1.9 per cent a year in real terms, compared with the annual rises of more than 4 per cent they were used to in the previous decade. "This would be the tightest squeeze in spending on public services since the UK was negotiating its spending plans with the IMF in the late 1970s," says Robert Chote, director of the independent Institute for Fiscal Studies. The main difference between the parties is that Labour believes that doing too much deficit reduction too soon might threaten the anaemic recovery, while the Conservatives claim that doing too little might lead to higher borrowing costs. But the big issue confronting Britain and governments in all advanced economies is that the current level of public borrowing is too high but few know when to start consolidation, or how fast it should be. Whatever happens, people in Britain will have to get used to paying much more for their public services and receiving much less.

Professor advises underwater homeowners to walk away from mortgages
Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong. That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

White contends that far more of the estimated 15 million U.S. homeowners who are underwater on their mortgages should stiff their lenders and take a hike. Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume, he says. "Homeowners should be walking away in droves," White said. "But they aren't. And it's not because the financial costs of foreclosure outweigh the benefits."

Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, "one can have a good credit rating again -- meaning above 660 -- within two years after a foreclosure." Better yet, homeowners can default "strategically": Buy all the major items they'll need for the next couple of years -- a new car, even a new house -- just before they pull the plug on their current mortgage lender. "Most individuals should be able to plan in advance for a few years of limited credit," White said, with minimal disruptions to their lifestyles.

What kind of law school professorial advice is this? Aren't mortgages legal contracts? In so-called anti-deficiency states such as California and Arizona, mortgage lenders have limited or no legal rights to pursue defaulting homeowners' assets beyond the house itself, White said. In other states, lenders may decide that it is not worth the legal expense to pursue walkaways, or consumers may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract.

The main point, he said, is that too often people's emotions get in the way of clear financial thinking about mortgages, turning them into what he calls "woodheads" -- "individuals who choose not to act in their own self-interest." Most owners are too worried about feelings of shame and embarrassment after a foreclosure, and ignore the powerful financial reasons for doing so. Buttressing these emotions is a system that White labels "the social control of the housing crisis" -- pressures and messages continually sent to consumers by the "social control agents," namely banks, government and the media. The mantra that these agents -- all the way up to President Obama -- pound into owners' heads, White said, is that "voluntarily defaulting on a mortgage is immoral."

Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers, White says: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20% to 50% in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts. Only when homeowners cut through the emotional fog and default strategically in large numbers, White argues, will this inequitable situation be seriously addressed.

How does White's 52-page manifesto go over with mortgage lenders? Predictably, not well. Officials at Fannie Mae and Freddie Mac -- investors who fund the bulk of all new mortgages in the country -- disputed White's characterization of how quickly after foreclosure a walkaway borrower can obtain a new loan. It's not three years, they said, it's a minimum of five years, absent extenuating circumstances such as medical or employment problems that caused the foreclosure.

"Borrowers who walk away from their mortgage obligations face serious consequences," including severely depressed credit scores for extended periods, said Brian Faith of Fannie Mae. In addition, he said, "there's a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community."

A Faith-Based Recovery
by Joel Bowman

Today we have something extraordinary for you to ponder. We call it, in the prescribed, politico-doublespeak of the times, a "recovery." Allow us to elaborate for just a moment…

A "recovery," as defined by the same economic talent that led us into mass speculative temptation in the first place, is a magical reversal of fortunes for the global economy.

What is this recovery based on? Glad you asked, because here comes the extraordinary part…it is underpinned by the hysterical, back-slapping delusion that comes from accepting that there is, in fact, a recovery. It is real, in other words, because we are told it is real.

Convinced yet?

As the late astronomer, Carl Sagan, was fond of saying, "Extraordinary claims require extraordinary evidence." In the absence of such evidence, let us examine the faith-based foundation on which the stability of the world’s largest economy now rests.

Below are a few tenets all sworn Recoverites must accept, any and all evidence to the contrary be damned:

1. That a consumer economy can continue to grow exponentially, even as the consumers themselves are forced to economize…

Where once manufacturing, innovation and a solid savings base held sturdy the US economy, there is now consumption, a waning service industry and a fiscally constipating accumulation of debt.

With household liabilities as a percentage of disposable income running at almost 130% for the average American family, and official unemployment bubbling over a 26-year peak of 10.2%, it’s tough going at the mall…even for the mighty US consumer…and even after the government has bribed him to go out and spend!

Already GDP estimates for the September quarter were revised downward – from 3.5% to 2.8% – after it became clear that the effects of the Cash for Clunkers program – the governmental equivalent of economic Viagra – had worn off sooner than expected. Barely had the poor consumer got his pants off and his wallet out when his many embarrassing deficits became all too apparent.

2. That the notices of liability printed by the Feds – commonly referred to as "greenbacks" – will enjoy the infinite confidence and unyielding patience of the nation’s foreign creditors…

For the past year we have heard rumblings from the BRIC nations, in particular China, over the government-sponsored debasement of the greenback. Most recently, Liu Mingkang, the Middle Kingdom’s chief banking regulator, argued that the combination of a weak dollar with persistently low interest rates had encouraged a "huge carry trade" that was having a "massive impact on global asset prices."

It is no secret that "dollar alternatives" are openly discussed among large holders of US paper. So shaky is the dollar, in fact, that even a (briskly discredited) rumor in an English paper about OPEC nations ditching the buck sent the world’s "reserve" currency into a tailspin, tipping off gold’s current trailblazing rise – itself another indicator of fear and loathing of the once almighty buck.

(As we were jotting these few words, midweek, the greenback had just fallen below one Swiss franc for only the second time ever, reaching a 15-month low on the dollar index and approaching a 14-year low against the yen.)

3. That those creditors will continue to reinvest said monies back into the increasingly regulated and overtaxed US securities exchanges…

And that’s to say nothing of the growing minority of American citizens and companies already, wisely, looking for ways to flee their own shores with the hope of doing business in more accommodating, less intrusive arenas.

4. That extorting money from current and future workers in order to allocate it to the nation’s least efficient industries is a positive long-term strategy…

Over the past year, the government of the United States of America has pumped more money into its flailing economy than the total value of all the gold ever mined in world history…doubled.

Before we go on, let us remember that each and every one of those dollars – and the trillions more splashed around by the do-gooder interventionalists of the world – are dollars that are NOT now available to private citizens or the thousands of small businesses that might have benefited from a little extra cash during this whole crisis.

The true opportunity cost of this gross misallocation of vital resources will, of course, never be known. What is known, however, is that said bailouts helped the federal budget deficit along to a post WWII record of more than $1.4 trillion in fiscal 2009. Treasury officials warn the national debt limit of $12.1 trillion may be reached and breached by as early as December.

5. That those still purchasing stocks are better informed than the industries’ insiders…

Insider selling increased during the latest week from $960 million in sales to over $1.39 billion. That compares with "buys" totaling just $160 million. The ratio of selling to buying has, at times during this stock market rally, stretched to as much as 31:1.

Is there something outsiders know that insiders don’t? Unlikely.

6. And, that the geniuses who missed the warning signs of the biggest bust up in modern financial history are the most qualified to guide us out of it…

Even up until the very eve of the crisis, elected and unelected politicians assured those who knew better that the vast and plentiful risks to the financial industry were contained. Clearly, they were not. At every juncture since then, those leaders and others have sought to impose the very measures – currency debasement, deficit spending, increased state intervention, bailouts, nationalizations etc. – that history tells us lead to outright ruin.

Sir Isaac Newton – himself a man of faith…and a devout student of alchemy – once wrote, "If I have seen further it is only by standing on the shoulders of giants."

What is perhaps the most galling of this entire financial debacle is that, with the abundance of insightful economists history has granted us, today’s leaders should appear proud to be seen standing on the shoulders of earthworms.

Get Ready for Half a Recovery
A robust economic recovery in 2010 is certainly on most investors’ wish lists as this year draws to a close. A return to prosperity would not only mean an end to our long financial nightmare, but it would also buttress a rebounding stock market, one of 2009’s few bright spots.

The news out of Dubai late last week, however — that its investment company is struggling to meet repayments on some of its $59 billion in debt — reminds us that we are far from finished with a ferocious deleveraging process that began last year. And the weight of debt that still must be worked out is one reason that Ian Shepherdson, chief United States economist at High Frequency Economics, estimates that growth in the United States’ output for 2010 will be no better than 2 percent.

Mr. Shepherdson — whose economic forecasts have been more right than wrong throughout the credit crisis — says that while cost-cutting has produced enviable productivity figures and rising earnings at large companies, continued growth in corporate output will be much harder to come by. “Looking further ahead, you can’t survive on cost-cutting forever,” he says. “We will have to see decent volume growth but we won’t see that immediately.”

Mr. Shepherdson’s 2 percent estimate for gross domestic product growth next year is roughly half what he would normally expect for a solid economic recovery. And a crucial reason is the fact that bad assets on personal and institutional balance sheets are the equivalent of a ball and chain strapped to the economy, he says. “You can pick up that ball and walk with it,” he says, “but you have to walk slowly.”

All that debt overhanging consumers and organizations is the pivotal reason we are still seeing a free fall in bank lending. And small businesses, which account for half of all jobs in this country, are taking the brunt of this credit contraction. Smaller banks are especially worried about their own balance sheets and aren’t making loans. This puts small businesses — important engines of growth — squarely on the brink.

Investors may be celebrating data that points to improvements in economic activity — this month, for example, the Institute for Supply Management said manufacturing had expanded for three months in a row. But Mr. Shepherdson worries about what he sees in monthly figures put out by the National Federation of Independent Business, a trade group representing small businesses. The N.F.I.B. data was far more prescient than that of the I.S.M. in predicting the current recession, which began in December 2007, Mr. Shepherdson says. The N.F.I.B. survey signaled a downturn in the spring of 2007, while I.S.M. studies didn’t point to a recession until after Lehman Brothers failed in September 2008.

In its survey, the N.F.I.B. asks small businesses how easy it is for them to get loans. The most recent data shows that credit tightness peaked earlier this fall — the worst levels in 23 years, Mr. Shepherdson says. Although credit continues to remain troublingly hard for small business to come by, that phenomenon is a largely untold story. “Wall Street focuses on big companies because they are in the Standard & Poor’s 500, but small businesses are still in a very grim state,” he says. “Small-company activity according to the N.F.I.B. is still at deep recession levels.”

And while small businesses do not make up the big stock indexes, they do contribute significantly to the overall economy. The tens of millions of people who work at small concerns are, after all, customers of those big, high-profile corporations like McDonald’s, Wal-Mart and Whirlpool. What we all are enduring — and what small businesses, workers and consumers continue to be pummeled by, even as Wall Street wizards jump back into the bonus pool — is the dismantling of the great credit boom of the early 2000s. This necessary but grueling deleveraging began last year and is now in full swing. But it is nowhere near over.

Bank credit outstanding peaked in October 2008 at $7.3 trillion and is now down to $6.72 trillion. Still, Mr. Shepherdson says he thinks that banking-sector loan and lease assets have to fall by an additional $2 trillion. That could take another two years. “We are in unknown territory here,” he said. “Since the peak in October ’08, bank credit has dropped by 8 percent. That is enormous and it is accelerating. The peak-to-trough drop in the early ’90s was just 1.3 percent and that was enough to scare the pants off the Fed.”

This credit cave-in is the driving force behind the Federal Reserve’s mortgage purchase program, Mr. Shepherdson says. The last thing the central bank wants to see is a decline in the broad-based money supply, because when that happens it usually means a depression is afoot. Money supply didn’t fall in the early 1990s, but it fell by one-quarter during the 1930s. The Fed’s asset purchase program is therefore not about driving down mortgage rates, Mr. Shepherdson says, but about trying to prevent a collapse in the money supply. When the Fed buys assets it creates deposits, which, in turn, helps offset the credit pullback. If the Fed wasn’t buying mortgages with both hands, Mr. Shepherdson estimates, the money supply would be falling 1 percent a month.

The message amid this gloom, he says, is that the Fed isn’t likely to raise interest rates anytime soon. In fact, he doesn’t anticipate an increase in rates until the spring of 2011. “I would be astonished if they raised rates in the heart of the credit contraction storm,” Mr. Shepherdson says. “The credit contraction will last for a couple of years and if the Fed is interested in offsetting it, they will have to buy assets through next year.” Deflating an asset bubble is never fun, and this particular specimen is one for the record books. The binge may have been a blast, but the purge, alas, sure is painful.

Freak Show
by Bill Bonner

Governments benefit from 'teaser' rates. Wait 'til they come to an end...

There are so many breathtaking things going on around us we practically suffocate. Last week, three-month US Treasury-bills yielded all of 0.015% interest. Some yields were below zero. In effect, investors gave the government money. The government thanked them and promised to give them back less money three months later. How do you explain this strange transaction? Was there a full moon?

Moonlight on the week of November 6 must have been especially intense. Bids totaled a record $361 billion for just $86 billion worth of T- bills. This was $100 billion more than the peak set during the credit crisis a year ago. What? A third of a trillion dollars, per week, gives itself up to the hard labor of government service and asks for nothing in return?

Even lending to the government for much longer period yields little to the investor. The 10-year yield is only 3.32%. Thirty-year lenders get only 100 basis points more. And this in a currency that is melting faster than polar ice. Gold, the traditional bank reserve, is soaring in comparison. Not surprising; the US dollar money supply - measured by the US monetary base - rose 147% over the past 24 months.

The only thing rising faster than the demand for government debt is the supply of it. All major governments of the West - and Japan - are now borrowing as if their lives depended on it. The IMF predicts that Britain's ratio of public debt to GDP will rise 50% between 2007 and 2014. In America, the increase is forecast to take taxpayers nearly to the debt levels of WWII. Those estimates are probably far too low, since they depend on an economic 'recovery' that will almost certainly prove to be a disappointment. The purpose of a depression is to get rid of bad debts and correct bad investment decisions. But an economy cannot correct itself unless it is allowed to enter a correction. When you try to prevent it, you get a zombie economy in constant need of freshly borrowed blood. Debts rise, but with no recovery. As reported on this back page, former US Office of Management and Budget director David Stockman expects a zombie economy in the US, with deficits twice as great as those now projected...that is, of $2 trillion per year, not $1 trillion. This will send US debt beyond WWII levels...up to Japan- like heights.

Other governments, too, are likely to see similar swelling in their public debt limbs. All right-thinking economists and commentators have come to the same conclusion - that fiscal and monetary stimulus must continue until the 'recovery' is more manifest. Worse, they've been trapped by the logic of Keynesianism itself. Now, everything is 'stimulus.' Nothing can be cut. The boils cannot be lanced.

When you come to the end of a war, spending is naturally reduced.

Deficits can go home with the troops. Debts can be paid down. But there is no end in sight for these deficits. Because only a small part of them is the direct consequence of the war against depression. Instead, they are merely the inevitable result of governments that spend too much money. In the US this "structural deficit" is estimated by the IMF at 3.7% of GDP. In Japan and Britain it is twice that amount.

Whatever else can be said of it, this freak show cannot go on forever. The US has $2 trillion worth of short-term bills that must be refinanced in the next 12 months. It must also refinance about $1 trillion more of notes and bonds. That's without adding any additional debt! So put a deficit of $1.5 trillion on top of that and you have $4.5 trillion of financing for the US alone.

But the US is not the only one fishing in this pond. Japan's national debt already measures 200% of its GDP and is increasing rapidly. So far, Japan's deficits have been financed internally. The Japanese saved 20% of their household incomes in 1980. But the Japanese are aging. When they retire, people cease saving and begin drawing on savings to cover living expenses. At the current pace, the household savings rate should fall to zero in 5 years. Then, who will buy Japan's bonds? Who will cover Japan's deficits? The same people who are supposed to cover America's deficits?

Taken all together, the world's governments will need $1 trillion per month, in financing, over the next 12 months, according to an estimate in the Financial Times. Who has that kind of money? Total US savings are only $700 billion. Even the Chinese, if they put their entire cash pile to it, could only fund the deficits for about 67 days' worth. Warren Buffett? Less than 48 hours.

There is also the problem of paying the interest on rising debt loads. Thanks to the forgetfulness or credulity of the world's lenders, borrowers now benefit from exceptionally low rates - just like the 'teaser' rates once accorded to sub-prime lenders. But the tease will come to an end soon. Even the Obama Administration forecasts interest payments to rise from $200 billion at present to $700 billion by 2019. This assumes interest rates only regress to 'normal.' But "hot money" from the feds has acted like spent nuclear fuel; every fish in the financial pond now seems to have two heads and a bag over both of them. The freaks of November 2009 may be replaced by things perhaps no less strange, but in a different way. The last time gold was over $800 lenders to the US government demanded yields in excess of 18% in order to part with their money. That was odd too. But it had very different consequences for investors.

Arab Emirates Move to Limit Crisis in Dubai
Trying to prevent a run on its banks and possible financial turmoil, the United Arab Emirates said on Sunday that it would lend money to banks operating in Dubai amid concerns about excessive borrowing around the world. The move by the group’s central bank was an attempt to head off the kind of crisis of confidence that froze credit markets last year and brought the global economy to the brink of failure, threatening everyone from hedge fund billionaires to retirees who had their savings in supposedly safe investments.

Central bankers and government officials around the world will watch for signs that fears are spreading or are being contained as markets open in Europe and New York. They are looking to see whether investors begin taking money not just from companies and banks connected to Dubai, but also from other countries that may have taken on more debt than they can afford to repay. Asian markets in their first hours were up more than 2 percent on Monday morning.

Last week, investors fled the stocks of banks with outstanding loans to the tiny emirate and its investment arm, Dubai World. Now, analysts will be watching to see whether investors desert other highly indebted companies. While Dubai is not big enough to set off financial repercussions outside the Middle East, the main fear is that investors could flee risky markets all at once in search of safer havens for their money. As in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions, they might pull back, regardless of the markets’ strength.

Those fears were allayed only after the United States announced a huge bank bailout and began guaranteeing a variety of borrowing that slowly helped credit markets begin functioning again. That many of these measures remain in place could help contain any problems from Dubai now. But while the federation is following a similar strategy, albeit on a smaller scale, analysts expressed concern that the promise of added funds to support Dubai banks might not be enough to keep anxiety from jumping to other countries and institutions.

Indeed, an analysis from Goldman Sachs on Sunday said that the failure of federation authorities to provide a blanket guarantee for all of Dubai’s debt showed that governments worldwide were less willing to bail out overextended companies and their investors. “This episode represents a timely reminder that emergency public funding support should not be taken for granted,” wrote Francesco Garzarelli, an analyst based in London for Goldman. The extent to which the federation and its wealthiest member-state, Abu Dhabi, which has vast oil reserves, appear to guarantee Dubai’s debts could affect how investors view many other companies previously believed to have the implicit backing of their governments.

“There are plenty of people around in world capitals who are tired of bailouts,” said Simon Johnson, a former chief economist at the International Monetary Fund. As a result, banks that made big loans to some heavily indebted governments and companies might start to incur more losses. The shares of HSBC and Standard Chartered, which lent heavily to Dubai, have fallen sharply in the last week, and Mr. Johnson said that the cost of insuring against defaults by big Irish banks has surged since the Dubai announcement. A fear of contagion from Dubai would further destabilize European banks that were only starting to mend.

The Dubai crisis began last week, when the emirate said Dubai World would not be able to make on-time payments for some of its $59 billion in debt. The company invested in lavish real estate projects, including artificial islands in the shape of a palm tree and a globe, and spent heavily to acquire stakes in glittering properties like Barneys in New York and the MGM Mirage in Las Vegas. Dubai was far from alone in taking on too much debt as companies and countries around the world did the same. Investors have already been alarmed by problems in countries in Eastern Europe, in Ireland and in Greece.

Dubai’s problems are also a reminder of the lasting effects of the global real estate bubble, which remains a danger in the United States, where several big banks are encumbered by souring commercial real estate loans. There is a concern that governments have responded to the financial crisis by taking on unsustainable levels of debt that they may no longer be able to finance. Even in the United States, public debt is forecast to rise to around 80 percent, from about 40 percent, of gross domestic product, the economist Nouriel Roubini said.

“Dubai could be the beginning of a series of sovereign debt issues or crises,” said Mohamed A. El-Erian, chief executive of Pimco, the giant bond-trading firm. “What Dubai is going to do is make people think more intensely about the lagging implications of last year’s crisis. It’s going to be a wake-up call to the people who thought that the financial crisis was just a flesh wound.” Many analysts expect federation authorities to release further details as soon as Monday on how they plan to restructure the debt of Dubai and Dubai World to keep markets calm.

Analysts will be watching crucial indicators of stability or alarm. The most apparent will be if money is pulled from other investments to the safe havens. Analysts will be monitoring the amount of interest that investors demand to lend money to emerging market countries. It has already risen sharply since the Dubai crisis erupted on Wednesday. A major worry, investors say, is that the global debt crisis in private debt could metastasize into a debt crisis for governments that are running mounting deficits to pay for bailouts and stimulus packages — especially in Eastern Europe but also in Britain.

In fact, a warning sign has already started flashing: the cost of insuring debt issued by Greece, a member of the euro bloc, is now as much as insuring Turkey’s debt, an investment that was once considered much riskier. One consequence of the global financial crisis is that Greece has been forced to take on shorter-term external debt. Debt securities due within a year have risen to $24 billion in the second quarter of 2009, from $14.5 billion at the end of 2007, according to figures from international economists.

Many countries may face tests in the weeks and months to come as they try to roll over their existing debts. These countries will not be able to raise money easily or cheaply. This could put pressure on stronger members of the European Union to bail out weaker members, or at least help them restructure their debts and nurse them back to health. So strung out was Latvia this year that the country barely recovered from a speculative attack on its currency, the lat, though it is a member of the European Union. As it teetered, economists fretted about a coming “lat bath,” like the Thai “baht bath” devaluation that set off the 1997 Asian crisis.

The International Monetary Fund, World Bank and European Union stepped in to prop up the weakest countries, however, and fears of true sovereign defaults in Europe’s most vulnerable countries receded before last week’s turmoil. These institutions’ guarantees, however, do not extend to state-backed companies. Hungary, Bulgaria and the Baltic states of Latvia, Lithuania and Estonia carry foreign debt that exceeds 100 percent of their gross domestic products, Ivan Tchakarov, chief economist for Russia and the former Soviet states at Nomura bank, said in a telephone interview from London.

But the problems, if any, are likely to be limited to Europe. The tremors would not immediately spread to the United States, beyond the effects of the strengthening of the dollar, and potentially a weakening of commodity prices as investors bet on a slowdown in emerging markets. However, in the long run, a global credit crisis set off by Dubai would make the cost of financing the trillions of dollars in American debt much more expensive, Mr. Roubini said. “Even the U.S. — over time — cannot run forever unsustainable fiscal deficit,” he said. “The total financing needs of the U.S. will range in the $1.5 trillion to $1.7 trillion a year for the next decade,” he said. “That is a huge amount of public debt to issue and or roll over.”

West fears fire sale of Dubai assets that will spread across world
When an Arabian consortium bought the Peninsular & Oriental (P&O) ports company three years ago, American politicians went into uproar over the perceived terrorist threat. It emerged this week, however, that the bombshell the world should have been worried about was the debt that the group was taking on to fund its growth.

The Government of Dubai said on Wednesday that it was seeking a standstill on debt repayments for Dubai World, the vast conglomerate that bought P&O (minus the American ports) for £3.9 billion in 2006. Dubai World has liabilities of $60 billion (£36 billion) and the standstill announcement, made just before most of the Arab world stopped work for the Eid religious festival, has stunned stock and credit markets. The standstill raises the possibility that Dubai World could default on its debt.

The fear in Western markets is that banks risk losing billions, causing more paralysis in the lending markets. Dubai World’s difficulties also raise the prospect that it may be forced into a fire sale of its assets, which include some famous names in the UK. Leisurecorp, one of the many subdivisions within Dubai World, bought Turnberry, the golf course that hosted this year’s Open Championship, for £55 million last year. It also owns the Chris Evert tennis centres and more than 200 golf courses across the US — all assets that could be sold quickly to help to repay debt back home.

Dubai World’s Istithmar investment fund has $3.5 billion in businesses as diverse as Irish textbook publishers and aerospace companies. Last year Istithmar also bought a 20 per cent stake in Cirque du Soleil and the Canadian circus performers have since established a permanent base in Dubai. In the less glamorous world of ports, DP World became the third-largest operator globally after its acquisition of P&O. It owns Dubai’s Jebel Ali port and various other container terminals around the world.

In Britain DP World operates container terminals at Tilbury, near London, and Southampton, and is building a port called London Gateway. Many of the goods that are imported into Europe are, therefore, transferred through ports owned or operated by Dubai — the source of US concern when the P&O deal was struck. The Arabian group bowed to pressure after buying P&O and sold the American ports to another company. Dubai World yesterday ring-fenced DP World from the rest of the company’s debts. This was seen as an attempt to protect the profitable ports division from potential creditors.

It is Nakheel, Dubai World’s property developer, that has been causing the difficulties. The company, which built the Palm Islands in the Gulf, was due to repay a $4 billion Islamic bond on December 14. Most investors had assumed that there would be no difficulty doing so as Dubai World, the Government of Dubai and Sheikh Mohammed bin Rashid Al Maktoum, Dubai’s billionaire ruler, were assumed to be supporting the developer. It now appears that nobody has the money to repay or refinance the bond and so the other $56 billion of Dubai World’s liabilities are also at risk.

This triggered a run on international bank stocks as investors worried about their exposure to Dubai World, which accounts for nearly three quarters of Dubai’s state debt. Falling share prices wiped £14 billion off the UK banking sector alone. Credit Suisse has estimated that European banks could have €40 billion (£36 billion) in loans to Dubai and much of this could be at risk if the Gulf emirate defaults. Banks including HSBC and Royal Bank of Scotland have helped to finance Dubai’s acquisitions and are now on the hook if the state cannot repay its debts.

Dubai enjoyed a bubble that made the boom years in the UK seem like postwar rationing. But the boom was built on debt and when credit markets tightened and the emirate’s growth slowed the property bubble burst. Prices have fallen by up to 60 per cent and more than 400 construction projects worth more than $300 billion have been shut down or postponed. Many expatriates facing negative equity and ballooning credit card bills have skipped the country rather than face debtors’ prison and Dubai’s reputation has taken a battering. If Dubai is forced to raise money to meet its debt repayments, the impact will be felt far wider than Cirque du Soleil and Turnberry golf course.

In recent years, the various investment companies owned by Sheikh Mohammed and the Government of Dubai have been buying up numerous Western assets. Dubai International Capital, the $12 billion sovereign wealth fund, bought Travelodge, the budget hotel chain. It also has a 16 per cent stake in Merlin Entertainments, which owns the London Eye, Madame Tussauds, Legoland and Thorpe Park. Sheikh Ahmed bin Saeed Al-Maktoum, of Dubai’s Supreme Fiscal Committee, said that the Government acted in full knowledge of how the markets would react and that further information would be given next week.

U.A.E. Central Bank Stands Behind Lenders, Adds Funds
The United Arab Emirates’ central bank said it "stands behind" the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility. Banks will be able to use a special facility tied to their current accounts that can be accessed at a cost of 50 basis points above the three-month local benchmark interest rate, the Abu Dhabi-based regulator said in an e-mailed statement today. "This is a very reassuring move by the central bank to limit the risk of any run on Dubai-based banks," said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. It will alleviate any "liquidity concerns by foreign banks about the banking system, mostly those based in Dubai."

Dubai World, a state-owned holding company struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The news led to a slump in financial markets around the world and raised prospects of new loan losses for U.A.E. and foreign banks. The benchmark three-month Emirates interbank offered rate was at 1.919 percent on Nov. 25, the last working day before a religious holiday, according to Bloomberg data. The U.A.E. has 24 local banks and 28 units of foreign lenders operating in the country, including those of Citigroup Inc. and HSBC Holdings Plc.

The cost of protecting Dubai government notes from default more than doubled to 647 basis points in three days after Dubai World announced plans to delay loan repayments, according to CMA DataVision prices. The swap contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. There are 100 basis points in a percentage point.

Dubai, the second-biggest of seven states that make up the U.A.E., and its state-owned companies borrowed $80 billion to fund an economic boom and diversify its economy. The onset of the global credit crisis and a decline in property prices hurt companies like Dubai World as they struggled to raise loans and forced the emirate to turn for help to Abu Dhabi, the U.A.E. capital and holder of 8 percent of the world’s oil reserves. U.A.E. banks are already facing rising loan losses stemming from the global recession as the economy slowed and two Saudi Arabian business groups defaulted on at least $15.7 billion of loans. Provisions for bad loans at U.A.E. banks rose to 2.76 percent of the total as of the end of October from 1.92 percent a year ago, according to central bank data.

The U.A.E.’s banking system is "more sound and liquid than a year ago" and local banks’ sale of medium-term notes and commercial paper in foreign markets has declined by 25 percent over the period, the central bank said. Foreign interbank deposits make up only 5 percent of the total, it said. Dubai World, which owns property developer Nakheel PJSC, the builder of palm-tree shaped islands off the emirate’s coast, has $40 billion of debt, two bankers familiar with the company said Oct. 21, declining to be identified because the information is private. Some $18 billion of Dubai World’s debt is with companies such as port operator DP World Ltd. that have sufficient cashflow to service their loans, the bankers said. The remaining $22 billion is of greater concern, they said.

The U.A.E.’s banking industry is already the biggest among the six Gulf Arab states including Saudi Arabia, Kuwait and Qatar, with 1.54 trillion dirhams ($418 billion) in assets, central bank data show.

Dubai Debt May Be Much Higher Than $80 Billion, UBS Says
Dubai, the Persian Gulf emirate whose state-run companies are seeking to defer debt payments, may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said. “Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” Dubai- based real estate analyst Saud Masud wrote in a note. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”

Dubai, which has said it will raise as much as $20 billion selling bonds to repay borrowings, said on Nov. 25 that state- run Dubai World, with $59 billion of liabilities, would ask creditors for a “standstill” agreement as it negotiates to extend debt maturities. The request to delay debt repayment “came as a major shock” to investors, Masud and fellow UBS London-based analyst Reinhard Cluse told clients on a conference call today. Dubai World property unit Nakheel PJSC has $3.52 billion of Islamic bonds due Dec. 14. Dubai World may seek to negotiate all its liabilities as it reorganizes the business, Masud said. “The Nakheel sukuk is the largest that has ever been issued,” Cluse said on the conference call. “Markets will take some time to digest this blow.”

Dubai accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year. The second biggest of seven sheikhdoms that make up the United Arab Emirates formed a fund to help reorganize state firms and sold $10 billion in bonds to the national central bank in February. It borrowed an additional $5 billion from Abu Dhabi government-controlled banks Nov. 25, half the $10 billion in bonds that Dubai ruler Sheikh Mohammed Bin Rashid Al-Maktoum said he planned to raise by yearend. Nakheel bondholders could demand a “significant sweetener” to renegotiate the debt and look to determine which of the real estate unit’s assets they may be able to claim, according to Masud.

There is growing interest from Persian Gulf investment funds in acquiring properties owned by Dubai entities, including Nakheel, which may be forced to sell assets to reduce debt, said Michael Atwell, head of Middle East operations at real estate broker Cushman & Wakefield. “We can sense it, and we’re hoping to have some transactions from several funds with buying requirements, some over $100 million,” he said. Potential buyers may be seeking stable cash flow from buildings with long leases. “The city is still buzzing. Dubai won’t turn into a ghost town, but there’ll be some big restructuring and reorganization, without a doubt.”

Seeking a repayment delay may indicate that Abu Dhabi, the U.A.E.’s largest sheikhdom, may not want to support Dubai further financially until the smaller emirate addresses internal problems at government-run companies, Masud said. “This could be the realization that you cannot simply buy your way out of this crisis,” Masud said. The request could also suggest that Abu Dhabi and Dubai have decided to seek to bolster long-term confidence in the market by forcing weaker parts of government businesses to take responsibility for bad decisions and could involve defaults at some Dubai firms, Masud said.

Dubai property developers may be liable for an estimated $11 billion required to build 40,000 homes that they have started, said Masud in an interview yesterday. That amount represents the off-balance sheet cost, or “funding gap” required to complete and hand over the properties, on which investors are now defaulting, by the end of 2010. Nakheel’s share of that funding gap is about $2 billion, estimated Masud. Around half of the investors in the 40,000 unfinished homes may default by the end of next year, he said. Mortgage defaults, which stand at about 3 percent of the total in the U.A.E., may increase fivefold to “the teens,” Masud said on the call today.

Greece and Dubai show the system is still unstable
by Gillian Tett

A watershed in the derivatives world could be reached this week: the cost of insuring against a bond default by Greece, using credit derivatives, may rise above the comparable metric for Turkey for the first time. Just two short years ago, that would have seemed almost inconceivable to most credit default swaps traders, never mind proud Greek politicians. After all, in 2007, the Turkish CDS spread - like that of many "emerging markets" - was trading at about 500 basis points on perceived fiscal risks.

Greece, by contrast, was nearer 15bp, because it was a member of the European Monetary Union, and its euro-denominated bonds were considered quasi-protected by other euro states. But in the past year the fiscal positions of many emerging markets nations, such as Turkey, have become more favourable relative to the western world. Meanwhile, Greece has plunged into a profound budgetary mess, notwithstanding its use of the euro.

Thus yesterday - as markets reeled from the Dubai shock and investors fled from risk - the bid-offer spread on fiveyear Greek CDSs was 201bp-208bp, according to Markit. That of Turkish CDSs was 207bp-212bp,
leaving them neck and neck (and according to Bloomberg data, in some trades the Greek CDS was even higher than Turkey). All this is a bitter blow to Greek pride. However, there is a much bigger moral here, which cuts to the heart of the Dubai saga too.

Two years ago, global investors generally did not spend much time worrying about so-called "tail risk" (a banking term for the chance that seemingly remote, nasty events might occur). After all, before 2007, when the world was supposedly enjoying the era of the "Great Moderation", the world seemed so stable and predictable that it was hard to imagine truly unpleasant events occurring. But in the past two years, a seemingly safe financial system has crumbled, and - to paraphrase Lewis Carroll - investors have repeatedly been asked to believe six impossible things before breakfast, ranging from the collapse of Lehman Brothers to the implosion of Iceland (and much else). Tail risk, in other words, has leapt into investor consciousness.

And while the financial markets have stabilised in the past six months, that lesson about tail risk cannot be easily unlearnt. The sheer psychological shock of 2007 and 2008, in other words, has left investors looking like veterans from a brutal war. Long after the fighting has stopped, the mere sound of a "bang", is apt to leave them running for cover. All this does not mean - let me stress - that it is correct to expect the world to melt down imminently. The fact that the CDS spread for Greek bonds has swung from 5bp to 200bp, in other words, should not be interpreted as a sign of an imminent Greek default, or a likely break-up of the euro. The CDS market is pretty illiquid and prices can swing on low volumes.

But what the CDS market does capture is the perception of tail risk, or low-probability outcomes. Or, to put it another way, the market projects what could occur if the current fiscal and political situations were taken to logical extremes. Much of the time investors are tempted to ignore those logical extremes. After all, investors have known for months that Dubai World was dangerously over-leveraged. They assumed that this would not be too dangerous, because they thought that foreign investors would always be protected.

Now, however, that assumption has been challenged. Tail risk has resurfaced with a vengeance. Little wonder that the CDS spreads of some other debt-laden emerging markets, such as Hungary, swung wider too yesterday. Nor that the Greek CDS moved as well. For while investors used to assume that it was just emerging market countries that were prone to suffering truly nasty fiscal shocks, the debt fundamentals in Dubai are not necessarily so different from those in developed nations, be that Greece or even the US. Suddenly the line between "emerging" and "developed" countries is becoming more blurred.

So perhaps the best way to view the events in Dubai - and the Greek CDS price - is as a welcome wake-up call. In recent months, a sense of stabilisation has returned to the financial system as a whole, as central banks have poured in vast quantities of support. A striking liquidity-fuelled asset price rally has also got under way. But the grim truth is that many of the fundamental imbalances that created the crisis in the first place - such as excess leverage - have not yet disappeared. Beneath any aura of stability huge potential vulnerabilities remain. If yesterday's events prompt investors to remember that, so much the better; not just in Dubai but in Greece too.

Ports face crisis as volumes fall
The world’s container ports industry is facing a sharp reversal in its fortunes as the sector’s first ever year-on-year fall in volumes forces an abrupt change from breakneck expansion to retrenchment. The four biggest operators – Hong Kong’s Hutchison Ports, Singapore’s PSA, Denmark’s APM Terminals and Dubai’s DP World – have cut costs, including laying off staff, and delayed or cancelled new construction projects.

London-based Drewry Shipping Consultants forecasts a year-on-year fall of 10.3 per cent in containers moved this year, compared with 4.6 per cent growth in 1982, the previous worst year since 1956, when container shipping started. "Before October 2008, our industry was used to 10 to 15 per cent annual growth in global trade volumes," said Kim Fejfer, chief executive of APM Terminals. "Not only are we in the middle of a volume crisis but our customers, the container carriers, are in an even more difficult situation because of the over-capacity in that particular sector," he added.

Mohammed Sharaf, chief executive of DP World, said the industry was facing a major change. "We have to shift gears, shift our thinking process to meet the demand." The slowdown has increased the focus on cost-cutting. "We have more time to focus on specific areas such as efficiencies of the equipment, the utilisation of the equipment and the challenge of shuffling man hours," Mr Sharaf said. All the big four operators, except DP World, have cancelled port projects.

Hutchison has pulled out of projects in Thessaloniki in Greece and Manta in Ecuador, although it insisted both were a result of efforts by the authorities to make unilateral changes to its contract. PSA is known to have cancelled some projects, but declines to comment publicly. Mr Fejfer confirmed that APM Terminals had pulled out of some projects but declined to say which. "On some projects, we had to review the proposition from a cost point of view and a capital expenditure point of view," he said. "We also unfortunately had to cancel a few projects."

Neil Davidson, ports analyst at Drewry Shipping Consultants, said that, while terminal operators had suffered falling revenue, their profit margins were "largely unchanged". Mr Sharaf said he believed the downturn could prove ultimately healthy for operators if it helped them to learn to control costs better. "I think this is something good which is happening, in a way," he said.

NYSE Invokes Rule 48 In Anticipation Of Extreme Volatility
by Tyler Durden

The NYSE hedged its bets earlier by invoking the rarely used Rule 48, which "provides the exchange with the ability to suspend the requirement to disseminate price indications and obtain floor-official approval prior to the opening when extremely high market-wide volatility could cause delay opening securities on the exchange." The full disclosure was made on the NYSE blog:
Rule 48 is intended to be invoked only in those situations where the potential for extreme market volatility would likely impair floor-wide operations at the exchange by impeding the fair and orderly opening of securities. Accordingly, the rule sets forth a number of factors to be considered before declaring such a condition, including:
  • Volatility during the previous day’s trading session;
  • Trading in foreign markets before the open;
  • Substantial activity in the futures market before the open;
  • The volume of pre-opening indications of interest;
  • Evidence of pre-opening significant order imbalances across the market;
  • Government announcements;
  • News and corporate events; and,
  • Any such other market conditions that could impact floor-wide trading conditions.

And some other "do not panic, we have nothing under control" information dissemination by the NYSE:
The invocation of Rule 48 is in effect only for today. Previously, the NYSE invoked the rule on 11 March, 2008; 23 Jan., 2008; 22 Jan., 2008; and 12 Dec., 2007. The rule was approved by the Securities and Exchange Commission on 6 Dec., 2007. Now add 17 March, 2008 to the list. I kind of had an uneasy feeling all weekend about Bear Stearns, and felt even worse upon seeing the announcement on Sunday night. To my train buddy at Bear Stearns and his colleagues, I'm sorry to see this happen.
And just for reference, here's a link to our circuit breakers. Here's hoping we don't need them today. Or any other day, for that matter.
Good luck today, everyone.

Good luck indeed. 

Keeping Derivatives in the Dark
by Floyd Norris

Opaque markets breed insider profits and abuse of investors. Sunshine can bring competition and lower costs even if regulators do little beyond letting the sunlight shine. You might think that as Congress considers just how much regulation is needed for the shadow financial system — the one that largely escaped regulation in the past — letting in such light would be an easy and uncontroversial move. But it is not proving to be easy at all, and is one part of the Obama administration’s financial reform package that is most in jeopardy.

Timothy Geithner, the secretary of the Treasury, will testify before the Senate Agriculture Committee next week in an effort to hold on to important provisions of the proposal that have come under attack by banks fearful of losing one of their most profitable franchises — the selling of customized derivatives to corporate customers. Remarkably, the banks have persuaded customers that keeping the market for those products secret is in their interest.

Last week, Gary Gensler, the chairman of the Commodities Futures Trading Commission, faced the same panel, and ran into questions that indicated at least some senators were sympathetic to efforts to keep large parts of the derivatives market in the dark. Those markets allow companies to bet on — or, if you prefer, hedge themselves against losses from — changing interest rates and commodity prices. They also allow investors to use credit-default swaps to bet on whether a company will go broke. The administration wants to standardize those products when possible, and force the trading of them onto exchanges when possible.

Banks want to whittle away the reforms if they can, and to minimize the roles of the C.F.T.C. and the Securities and Exchange Commission, experienced market regulators who have been generally kept away from over-the-counter derivatives in the past. Instead, the banks would like to leave it to banking regulators to oversee the dealers, something regulators totally failed to do in the past. Unless Mr. Geithner can persuade legislators otherwise, one of the great bank lobbying campaigns will have succeeded, in large part because some companies that buy derivatives from banks have been persuaded that their costs will rise if needed reforms were made.

The opposite is probably true. The history of nearly all markets is that customers suffer if dealers are able to keep them ignorant of what is actually going on. Until the beginning of this decade, that was true in the corporate bond market, where actual trades were kept confidential. That made it easy for bond dealers to charge big markups when they sold bonds to customers. After regulators forced timely disclosures, the bid-ask spreads — the difference between what customers paid when they bought bonds and what they could get when selling them — declined significantly. The result was smaller profits for bond dealers, and better returns for bond investors.

"It is now time," Mr. Gensler testified, "to promote similar transparency in the relatively new marketplace" for derivatives traded over the counter. "Lack of regulation in these markets," he added, "has created significant information deficits." He listed "information deficits for market participants who cannot observe transactions as they occur and, thus, cannot benefit from the transparent price discovery function of the marketplace; information deficits for the public who cannot see the aggregate scope and scale of the markets; and information deficits for regulators who cannot see and police the markets."

In the listed markets for derivative securities, like futures, there are margins that must be posted every day if markets move against the buyer of the derivative. Corporate customers of over-the-counter derivatives fear that they might face similar margin requirements if their contracts were to be traded on exchanges, and have persuaded some legislators that would be horrible.

Of course, because prices aren’t made public, we can only hope that the banks currently are pricing the credit at reasonable levels. The banks say they are. Robert Pickel, the chief executive of the International Swaps and Derivatives Association, an industry group, assured me this week that "the cost of credit is taken into account in the collateral relationship and in the bid-ask spread."

In layman’s terms, that means that customers with worse credit would face different prices than customers with excellent credit, which Mr. Pickel argued would make price disclosure of limited value. Mr. Gensler, the C.F.T.C. chairman, argues that customers would be better off if the two markets — for the derivatives and for the credit — were separated and had clear pricing. "How else," he asked in an interview, "can customers know if they are getting fair prices?"

Remarkably, big corporations like Boeing, Caterpillar and many others that use derivatives to hedge risk have been persuaded by bankers that they should not worry about that. If over-the-counter derivatives were to be traded on exchanges, or centrally cleared, or subject to margin requirements, a host of corporate trade associations and companies said in a recent letter to legislators, such reforms "would inhibit companies from using these important risk management tools in the course of everyday business operations. These proposals, which would increase business risk and raise costs, are at cross purposes with the goals of lowering systemic risk and promoting economic recovery."

Reflected in that letter is a belief that the banks, in designing and selling derivatives to customers, are acting as trusted advisers, looking out for the best interests of their customers. Every so often, one of these deals blows up and winds up in court. Then the banks argue that they were simply counterparties, with no responsibility for the wisdom, or lack of same, shown by the customers.

If, as seems likely, Congress chooses to eliminate or minimize the disclosure of customer trades, and if it allows custom derivatives to remain almost completely opaque and without visible pricing of credit, that will encourage some corporate customers to prefer customized contracts. Such contracts will probably cost them more, but the cost of credit will be hidden, and they may not have to post collateral immediately if they are losing money.

For Mr. Geithner, this legislative battle may indicate whether he still has the ability to persuade legislators, or whether he has become the political liability that at least some Republicans think he is. When he ventured to Capitol Hill earlier this month, one congressman suggested he should resign. If Mr. Geithner is vulnerable, it is because the efforts of the administration and the Federal Reserve to save the banking system worked too well. The fears of collapse that were present early this year have faded away, and been replaced by a general feeling of resentment. The banks seem to be on the verge of harnessing that feeling of resentment to preserve a major profit center. In terms of lobbying, it will be a remarkable achievement.

As one crisis recedes, the fiscal one may be only beginning
It is hard to recall a time when opinion on asset markets was more sharply polarised between bulls and bears. But then it is also hard to recall a time when the future course of the world economy looked so uncertain. The bulls point to resurgent growth in the emerging markets of Asia and Latin America, and reckon the developed world will soon be following, albeit it at a slower pace. The bears focus instead on burgeoning fiscal deficits, still shrinking private credit availability and a basic lack of demand in once buoyant deficit nations. For them, the big menace is "out of control" public debt. Yet for the moment there is no doubt which view is triumphing. Since the nadir of the crisis in March, the price of virtually all assets has risen strongly. I say virtually all, but of course one of the biggest asset classes of the lot – government bonds – has not. Bond prices are quite a bit lower than they were last March. And therein lies a large part of the bear case.

If all governments have done in fighting the crisis is replace private debt with public debt, then they have not addressed the underlying problem. The most that can be said is that they have smoothed and stretched out the adjustment, but they have not removed it. What's more, governments must soon start the process of rebuilding their finances, which in turn is going to act as a brake on demand for possibly years to come. In the meantime, fiscal deficits throughout the developed world are rising to levels which even the most sanguine of observers find truly scary. Some idea of the scale of this deterioration is given by the latest edition of Moody's sovereign debt "statistical handbook". Preliminary estimates suggest that the total stock of sovereign debt will rise by nearly a half to around $15.3 trillion by the end of next year.

Sovereign debt of such magnitude is not entirely without precedent. Britain emerged from the Second World War with debts of 240pc of GDP. IMF forecasts of around 100pc in five years' time for the UK look almost pedestrian by comparison. But for this country at least, it's still a peacetime record by a long way. Fiscal adjustment after a major war is a relatively straightforward matter. Military spending is simply switched off and things return quite quickly to normal. But when a country has been routinely spending beyond its means, then the correction in terms of tax rises and spending cuts becomes considerably more difficult and painful. Given these challenges, the wonder is not that bond prices have not risen in tandem with equities and other assets, but that they haven't fallen a good deal further. The UK Government alone plans a record £220bn of debt issuance this fiscal year and not much less in each of the next four.

This is a mere bagatelle against the trillions being raised across the developed world as a whole. There must surely be limits both on investors' appetite for such a mountain of public debt and on the ability of governments to service and repay it. And yet, despite the fact that these limits are being stretched to breaking point, bond markets remain remarkably calm. How come? After the collapse of Lehman Brothers, bond yields in the US and other countries seen as safe havens fell sharply. High demand for government debt as a result of risk aversion was reinforced by liquidity injections and in some cases, including the US and UK, outright purchases of bonds by central banks. With the return of risk appetite, investor demand for sovereign debt waned, but yields have remained substantially below pre-crisis levels. Quantitative easing, under which governments borrow with money created by the central bank, has plainly helped.

Demand is also supported by a massive carry trade which allows investors to borrow at next to nothing from central bank funds and then lend it out for more further down the yield curve. The authorities have conspired to create other artificial sources of demand too, by for instance, requiring banks to hold bigger liquidity buffers. These have to be held in so-called "risk-free assets", which means effectively government bonds. Regulatory demands for more exact liability matching has further encouraged a herd-like movement among insurers and maturing pension funds away from productive investment into government debt. Only, of course, bonds are not risk- free. The main threat is usually from resurgent inflation, which can destroy capital more effectively than even the idiocies of miscreant bankers.

For the moment, nobody's worrying too much about inflation. The margin of spare capacity in the economy – the output gap, in the jargon – is too big. That joyous moment in which output again catches up with capacity is still regrettably many years away. The other risk is fiscal, where again market perceptions are still remarkably tame. If bond markets do crack over the next year, this is where the trouble will start. Investors will demand more for their money even in conditions where there is outright price deflation if they see rising risk of default. Markets remain accommodative only because they expect governments to come up with and deliver on credible plans for fiscal consolidation. Those that show signs of failing to do so – notably Greece – are already being hammered in the bond markets.

Across the board, the cost of insuring against default on sovereign debt has risen markedly. How real is this danger? In countries which are monetarising the deficit – again mainly Britain and America – risk of default is reflected more through currency weakness than yields. Sterling depreciation means that it is now 25pc cheaper for foreign investors to buy UK gilts than it was before the crisis, all other things being equal. For higher-risk countries in currency unions (think Greece, Italy and Spain) or with inherently strong currencies (think Japan), yields are already on the march. My own guess is that fiscal risk will be one of the big defining stories of the next year, and that this in turn will create lots of difficulties for governments. Common sense alone suggests you cannot create such an oversupply and expect markets to pay the same. The key thing to watch out for is the rising burden of interest payments as a percentage of government revenues. Most major economies are still well below the danger point of 10pc, where without radical action debt begins to compound, but such is the accumulation of borrowing that some will be perilously close or even through it in four years' time.

On present projections, some smaller countries will also breach the 12.5pc level which credit rating agencies judge to be the point of no return. What makes the position doubly worrying is that it only requires interest rates to rise a bit to put Britain and others in just such a debt trap. The flip side of economic recovery would be government bankruptcy. For nearly all developed economy governments, simply allowing the fiscal stimulus of the last year or two to expire will not be enough. Nor will return to growth fix the problem. Debt would still be left on an explosive course. For the time being, nobody seems to care. Yields are still tame. But, as the IMF has remarked, markets tend to react late and abruptly to changed fiscal circumstances. Small wonder that the bears have not yet been driven back into the woods. One crisis has been averted, but the fiscal one may be only just beginning.

China, gold, and the civilization shift
Stephen Jen from the hedge fund Blue Gold Capital has a warning for those who think that gold has risen far too high, is necessarily in a speculative bubble, and must soon come clattering back down. Mr Jen is an expert on sovereign wealth funds from his days at Morgan Stanley. The gold story — essentially — is that the rising economic powers of Asia, the Middle East, and the commodity bloc are rejecting Western fiat currencies. China, India, and Russia have all been buying gold on a large scale over recent months. Why should that stop when the AAA club of sovereign debtors is pushing towards the danger threshold of 100pc of GDP?

These new players account for almost all the accumulation of foreign currency reserves worldwide over the last five years, so what they do matters enormously. After crunching the numbers, Mr Jen found that the share of gold in their reserves is just 2.2pc compared to 38pc for the Old World (perhaps we should just call them the deadbeats from now on). They would have to buy $115bn of gold at current prices to raise their bullion to just 5pc of total reserves, and $700bn to reach just half western levels. The killer-term here is at current prices since any such move in the tiny global market for gold would send prices into the stratosphere.

Mr Jen says that you know where you are in the currency markets — more or less — because there are concepts of "fair value" used by experts. Ditto for the equity markets, where you have P/E ratios (warts and all I might add, since the actual reported P/E of the S&P 500 was a record 141 in September before the agency stopped publishing the figure — a far cry from the forward earnings in vogue). How on earth do we determine what fair value should be for gold? "We have no such concept," he said. Actually, that is not quite true. You can use the dollar monetary base as a proxy. Mr Jen said China alone accumulated $150bn in reserves in the third quarter, pushing the total to $2.3 trillion. These are colossal sums. China is amassing almost as much each month as the United States ($63bn) has built up in the entire history of the country. True, the US understates the value of its gold, but you get the picture. Something big is going on.

So far, China has just 1.7pc of its reserves in gold, or 34m troy ounces. I was told by a top Chinese official that they are buying on the dips so as not to crowd out the market, which means of course that gold cannot "crash" unless you think China itself is going to crash — or stop building reserves (which is possible: Albert Edwards from SocGen says China may be in current account deficit next year, leading to a yuan move — down, not up). The gold proportions are: Hong Kong (0), Singapore (0), Korea (0.2), Brazil (0.6), India (4.8) after its shock purchase of IMF gold, and Russia (5.5). Yes, the West still has a lot in percentage terms — US (86), France (78), Italy (72), Switzerland (33), Germany (25) — but they don’t count for so much any more.

It is true that the Old World could meet demand for a while (a short while actually) by selling some of their gold. But will they do so? They did not use up their quota for the last year under the Washington accord. My own guess is that they too are wondering whether it makes any sense to keep selling metal in order to buy the fiat paper of the bankrupt peers (note that the Bank of England’s own pension fund has got rid of almost all its Gilts, buying inflation protection instead). Britain may become a net buyer of gold under the Tories, Who knows? Bottom line: "The scope for EM central banks to buy more gold is substantial, if they choose to do so," he wrote cautiously in a note to clients. Will they choose to do so? "I suspect they will," he told me. Personally, I have been feeling vertigo with gold near $1180. All my contrarian instincts cause me to dislike momentum stories — but there again, maybe this is not momentum. Perhaps it is a civilization shift. Can’t make up my mind.

ING to Raise $11.2 Billion at 52% Discount
Dutch Financial Company ING Group NV said Friday that has priced its €7.5 billion ($11.2 billion) rights issue at a hefty discount in a move aimed at repaying half the €10 billion state aid it received during the financial crisis. The company said it will issue new shares at €4.24 each, representing a 52% discount to Thursday's closing price, or 37.3% after taking into account the dilution once the new shares start trading. "This rights issue is a critical component of the measures we announced to regain our independence and to chart a clear course forward," ING's Chief Executive Jan Hommen said.

ING follows a number of other European banks that have taken advantage of more buoyant capital markets to raise funds as a way of reducing government involvement in their businesses. The U.K.'s Lloyds Banking Group, which is 43% state owned, on Thursday won shareholder approval for a £13.5 billion rights issue priced at a 60% discount. European bank rights issues have been priced at a 40%-45% discount to their share prices before the offer announcement, according to analyst estimates.

At ING, existing shareholders can subscribe for six new shares for every seven subscription rights they hold from Nov. 30 to Dec. 15. ING shares closed Thursday at €8.92. In addition to repaying half its state aid, ING has to pay a penalty to the Dutch government of up to €965 million due to early repayment as well as an extra payment of €1.3 billion related to state guarantees on its Alt-A portfolio. The€1.3 billion will be booked as a one-off pre-tax charge in the fourth quarter of 2009.

The rights issue is fully underwritten by a syndicate of banks led by Goldman Sachs and J.P. Morgan. Earlier this week ING's shareholders approved the rights issue and gave the green light for a radical restructuring of the company marking the end of its formerly praised bancassurance model. In negotiations with the European Commission over competition concerns, ING agreed to divest some of its assets, leaving it to focus mainly on its banking activities.

Bundesbank fears relapse as German banks face €90 billion fresh losses
The Bundesbank has told German banks to take advantage of renewed confidence while they can to prepare for likely losses of €90bn (£81bn) over the next year, warning that the delayed shock waves of the economic crisis still pose a major threat to global recovery and bank finance. The venerable bank said in its Stability Report that the world had narrowly averted a "virtually uncontrollable" collapse in the late summer of 2008. While the credit system has partly stabilised, the underlying problems "are still far from being overcome" and money markets are not yet functioning properly. "It is already clear that the financial system will be severely tested going forward. Downside risks remain pre-dominant," said the report.

The danger is that a long phase of stagnation and rising job loses in the West sets off "spiralling loan losses in both industry and in the residential and commercial real estate markets. In such an unfavourable scenario, negative feedback between the real economy and the financial system could gain added momentum." The Bundesbank said the next wave of bank write-downs will come from loan book losses as the default rate on lower-tier companies tops 14pc in the US and 12pc in Europe. German banks alone will have to write down €50bn to €70bn of loans over the next year. Losses from sub-prime securities are mostly in the open already. Further write-down from collateralised debt obligations (CDOs) - mostly tranches of mortgage debt packaged as securities - are likely to be €10bn to €15bn.

Dominique Strauss-Kahn, the head of the International Monetary Fund, told Le Figaro on Wednesday that banks worldwide have so far admitted to just half of the $3.5 trillion (£2.1 trillion) of likely damage. "There are still large hidden losses: perhaps 50pc tucked away in balance sheets. The proportion is higher in Europe than in America. The history of banking crisis, notably in Japan, shows that there won't be healthy growth again until the banks have been cleaned up completely," he said.

The Bundesbank report came a day after Berlin agreed to inject up to €4bn to rescue WestLB, the country's third largest state bank. Commerzbank, HSH Nordbank, and Bayern LB have all run into trouble, requiring large bail-outs that have angered German taxpayers. The state Landesbanken emerged as the most reckless, building large liabilities `off-books' through Irish-based investment vehicles. Paradoxically, Europe's bank problems help explain why the euro has risen to a 15-month high of $1.51 against the dollar. Hans Redeker from BNP Paribas said distressed banks are having to sell assets overseas and repatriate the money to shore up their capital base, pushing the euro towards the pain barrier for many European exporters.

KPMG: Brussels puts European banks on sale
Many banks are surprised by the way Europe's competition commissioner Neelie Kroes intervenes in the sector, consultants at KPMG say. "They didn't know they would be sanctioned like this because of state aid." The European Commission is turning the European banking landscape into an enormous all-you-can-eat buffet for financial institutions in the United States and Asia, according to accounting giant KPMG. "They see all these nice little snacks laid out for them," says Marcel van den Broek, a Dutch consultant at the firm.

Van den Broek and Age Lindenbergh analysed the effects of state aid on European banks and draw one clear conclusion: "The aid was initially helpful and brought stability, but the actions the Commission took after that were too harsh," says Lindenbergh. "They have gone overboard, they are pulling down banks instead of helping them." European banks have been more restricted after receiving state aid than their American counterparts. As a result of the European Commission's interference the European banking sector is now highly fragmented and weakened, the consultants say. "Anglo-Saxon investors - mainly private equity firms such as Lone Star [a Texan company that was in the race to take over part of bankrupt DSB bank] - come to us for information on future bargains. They are mostly funds that specialise in managing credit portfolios," says Lindenbergh. The KPMG consultants fear this won't contribute to a strong banking industry desired by all, including the European Commission.

Lindenbergh and Van den Broek's criticism counters the accolades antitrust commissioner Neelie Kroes has been getting for her handling of the banks. Kroes' directorate general has scrutinised the state aid for ING, KBC, Commerzbank, Lloyds, Royal Bank of Scotland and others who were thrown a lifeline by their governments. Her fans praise Kroes' approach because it helps restore competition between European banks. "Banks think they are treated unfairly," Lindenbergh says. "It is obvious they have to do something in return for the bailouts. But at the time the banks received the support, it was completely unclear what the sanctions would be. They had to wait months to learn the consequences." "The rules were only drawn up while the game had already started," Van den Broek adds. The toughness of Kroes' policies has now become clear. ING, Commerzbank and WestLB, for example, have to divest 45 percent of their assets.

That is out of proportion, according to the KPMG men. "The government interference is experienced as imperative," says Lindenbergh. Kroes does refer to existing EU treaties in her restructuring proposals, KMPG acknowledges, "but the way a company is finally broken up is subject to negotiations. There are no rules for that. The only similarity [between the different cases] is the measures are substantial and the part where the problems originated is usually hived off," Lindenbergh says, referring to ING subsidiary ING Direct USA. Furthermore, the banks are not discharged of their obligations even when they repay the state aid. "The consequences of the reform plans from Brussels will weigh on the banks for years. ING can reimburse the bailout, but it will still be cut into pieces," the consultants say, adding this will distort the banking landscape for years to come.

Lindenbergh: "The European Commission stepped in to prevent state aid from distorting free competition, but as a result a level playing field will be a long time coming." KPMG says the Commission is too focused on small banks and not enough on the risks of its policies. But despite their criticism towards Brussels, not a single bank has actively opposed the harsh measures. "They have not reported to us," says Van den Broek. But there is a logical explanation, he admits. A bank cannot file a case before the European Court; that is up to the member state where the bank has its headquarters. And although the banks feel disadvantaged, it is unlikely governments will act on their behalf right now. The damage done by the financial industry is too big to justify that.

French jobless total jumps 52,400 in October
France's headline unemployment rose 52,400 in October, the largest rise since April, data from the economy ministry showed on Thursday, confirming expectations for a worsening labour market. The monthly data showed the headline jobless total in the euro zone's second largest economy rising to 2.627 million compared with September. That was a 2.0 percent monthly increase and represented a 25.0 percent rise year-on-year.

'We have a figure for October which is not good and which confirms our diagnosis that we have exited the recession but the recover is still fragile, that the economy is still in crisis and continues to destroy jobs,' Economy Minister Christine Lagarde said at a news conference in Lyon. Lagarde has repeatedly argued the recovery was fragile and therefore it was too soon to remove economic support put in place to help economies through the financial crisis.

The rise in unemployment hit workers over 50 and under 25 the hardest. There was a 28.1 percent year-on-year increase in the number of jobseekers among under 25-year-olds and a 28.3 percent rise among over 50-year-olds. Recent unemployment data has surprised economists, many of whom had been expecting larger increases after the recession which France left behind in the second quarter. The jobless total rose 21,600 in September. Ministers had warned of further increases through 2009 and 2010.

The monthly figures reported by the economy ministry do not include an unemployment rate but according to the most recent data from the European Union statistics office, France's unemployment rate stood at 10 percent in September. Economists worry that if the unemployment rate jumps sharply, it could hurt consumer spending, the mainstay of France's economic growth. Spending on manufactured goods rose 1.1 percent in October, above expectations, boosting hopes for fourth quarter growth.

Third quarter gross domestic product showed the French economy grew by 0.3 percent between July and September, and economists expect stronger growth in the fourth quarter. But unemployment is a lagging indicator of economic health and companies have been forced to cut jobs to stay competitive. Lagarde also said on Thursday the strong euro was making it particularly difficult for European exporters. The government has said tackling unemployment is a priority and has not looked favourably on companies shifting jobs abroad.

In one current case, the planned sale of nuclear operator Areva's transmission and distribution unit, foreign bidders have made promises to protect local jobs in a bid to outweigh the perceived advantage of a French offer for the business. France's jobless data is not prepared according to the widely used International Labour Organisation standards and does not include an unemployment rate. However, it is politically significant because it is the mostly widely reported domestic jobs indicator.

Kazakh Bank Lost Billions in Western Investments
In the last few years, big banks have found many surprising ways to lose billions of dollars by making loans that turned sour. But few can match the odd tale involving Kazakhstan and a little-known bank that many Western financiers wish had remained so to them. From 2003 to 2008, the likes of Credit Suisse, Morgan Stanley, Royal Bank of Scotland, ING and others funneled more than $10 billion in loans into Kazakhstan’s largest bank, Bank Turalem, as the large Central Asian country enjoyed a growth boom spurred by its rich deposits of oil and natural gas.

So many of these loans are now bust that many foreign banks are facing write-offs of as much as 80 percent of their value, prompting investigations into why the loans went so bad so fast, according to officials at Bank Turalem, which was taken over by the government earlier this year. Hoping to become the dominant bank in the region, BTA, as the bank is known, cast its eye well beyond Kazakhstan and lent billions of dollars to finance vast real estate projects in Russia and Ukraine, as well as offshore companies with vague business plans and no trading histories to speak of, according to executives at BTA who did not want to be identified because of the sensitivity of the matter.

The money went to companies with names like Best Catch Trading and Sandown Holding, based in places as diverse as the Seychelles, the British Virgin Islands and England, that offered up little in the way of collateral, according to these executives. Among other things, prosecutors in Kazakhstan and a team of international lawyers and accountants hired by Bank Turalem are investigating whether the foreign banks may have unwittingly financed a scheme by BTA’s former chairman, Mukhtar Ablyazov, to direct between $8 billion and $12 billion worth of BTA loans — about half of the bank’s loan book — to companies that he secretly controlled, according to lawyers representing BTA as well as prosecutors in Kazakhstan.

Mr. Ablyazov denies the allegations, insisting that the loans were proper and that the investigation is politically inspired because he has been a critic of the government. Mr. Ablyazov is a longtime political opponent of Nursultan Nazarbayev, Kazakhstan’s authoritarian president, and he fled Kazakhstan for London just days before the government took over BTA this February, fearing a government crackdown.

Whether the investigation reveals the foreign banks to have been careless, naïve or hoodwinked about how the loans would be used, the losses point to a recurring problem for supposedly smart and sophisticated international bankers. In past decades, international banks have rushed headlong into hot markets like Mexico and Argentina, and later into Thailand and Russia, only to suffer huge losses.

Ignoring or forgetting lessons learned from those debacles, institutions poured billions of dollars to help finance property developments in Ireland, the global expansion of Icelandic banks and subprime mortgages in the United States, only to see much of that money evaporate. "Capital markets have no memories," said Richard Portes, a professor of economics at the London Business School. "Bankers simply charge premium spreads high enough to take defaults and still end up, on average, with profitable lending."

Currently embroiled in arduous talks with BTA over restructuring their debt in hopes of trimming their losses, foreign bankers claim they did their homework before making the loans, although none would publicly discuss their relationship with BTA and its controversial chairman. Deloitte, the accounting firm that is advising a steering committee representing the foreign banks, did not respond to a request for comment. In a statement, Credit Suisse, which lent close to $1.1 billion to BTA, the most of any bank, said its current exposure to BTA was immaterial to its financial condition and that "all transactions with BTA went through established due diligence procedures." But, while BTA may have been the flavor of the day for international lenders, questions were being raised about it closer to home.

"BTA was one of the least transparent banks here, and there were a whole bunch of transactions prior to the seizure that indicated extremely lax banking," said Michael Carter, the chief executive of Visor Capital, an investment bank based in Kazakhstan. "But Kazakhstan was very sexy at the time, and foreign banks were just shoveling in money, so much so that that banks here had more money than they knew what to do with."

Mr. Ablyazov, 46, a small, energetic man who made his first fortune importing cars from Lithuania, maintains that the loans that BTA made were legitimate. He claims that the $9 billion charge against profits that the bank declared after he left — as well as the government takeover of the bank — represent the final stage of a plot by President Nazarbayev to wrest BTA from him. "We have been a profitable and transparent bank, with $538 million in profits in 2007," said Mr. Ablyazov in an interview through an interpreter in London.

As he sees it, the robust support he garnered from international banks was an endorsement of his plan to remake BTA in the image of HSBC, the hugely successful international bank that grew from its roots as a colonial bank financing trade between China and Britain. He scoffs at the allegation that his ultimate aim was to siphon off profits. "We would do all this just to misdeal money? That would be a strange criminal to make a plan like this," he said.

It may be some time before investigations determine if Mr. Ablyazov did anything illegal at BTA or is just the target of a political witch hunt. But BTA has already filed a civil suit against Mr. Ablyazov on a narrower claim in a British court that he misappropriated $295 million in bank funds last year; a judge ruled this month that the charges were serious enough to support the continued freezing of his assets.

What is not in dispute is that, even by the loose standards of the credit boom, few banks lent as aggressively as BTA. Between 2003 and 2007, the amount of its loans outstanding grew by an extraordinary 1,100 percent. Like many other banks in less developed countries, BTA relied heavily on foreign funds, as opposed to customer deposits, to propel its loan growth — so much so that its ratio of loans to deposits peaked at 3.6 to 1 in 2007, one of the highest anywhere in the world.

Mr. Ablyazov maintains that BTA would have paid off its loans had he remained at the helm and that the enormous charge-off was a ploy by Mr. Nazarbayev to seize control of BTA and damage a political rival’s reputation. Lawyers and BTA executives contend that many of the offshore companies were controlled by Mr. Ablyazov, and BTA lawyers are now trying to determine whether the loans were used to provide billions of dollars to Mr. Ablyazov’s own real estate projects — in particular, a 4,700-acre development outside Moscow in which BTA has a $1.5 billion credit exposure.

Although his title was chairman, Mr. Ablyazov took a hands-on approach when it came to the bank’s lending, even sitting on the regional credit committee that oversaw many of the questionable loans. In its 2008 report on BTA, Ernst & Young, the bank’s auditor, highlighted this unusual arrangement, citing it as a conflict of interest that "potentially contributed to the issuance of loans to offshore companies, which became uncollectible in 2008."

Mr. Ablyazov disputes this claim, saying that he had headed this committee for three years without complaint from his auditor, and that the bank’s credit operations were transparent. Nikolay Varenko, the deputy chairman of BTA and the executive leading the bank’s internal investigation into Mr. Ablyazov’s activities, disagrees. "The bank was like an investment fund for his own personal projects," he said.

For Mr. Ablyazov, the question of how he deployed BTA’s loan book is just the latest in a series of battles he has been waging with President Nazarbayev. And while he may well have his enemies, few question his bravery. In 2001, he and several other reform-minded businessmen founded the Democratic Choice of Kazakhstan Party, the first opposition party to challenge Mr. Nazarbayev on the ground that he and his network of family insiders were monopolizing economic and political power. A year later, he was sentenced to six years behind bars on charges related to his time as head of the government electricity company. Mr. Ablyazov claims the charges were politically motivated. He served a little over a year in Kazakhstan prison, where he says he was subjected to numerous beatings and other forms of torture.

After pressure from international human rights organizations, Mr. Ablyazov was released in 2003. In 2005 he took full control of BTA. These days, he rents a 15,000-square-foot mansion on Bishops Avenue in London, one of London’s most exclusive neighborhoods, where security guards stand day and night. Unlike other oligarchs here, Mr. Ablyazov keeps a low profile in London. He says that his ultimate aim is to overthrow Mr. Nazarbayev, even though he could be caught up in British courts for years to come. "I am just here temporarily," he insisted. "In the end I will return to Kazakhstan."

Blame Larry Summers
Barack Obama's chief economic advisor, Lawrence Summers, is determined to sabotage a second round of stimulus. And, he's getting plenty of help, too. Congressional Democrats are dragging their feet because they're worried about the political backlash and midterm elections, the GOP deficit hawks are looking for a way they can derail the Obama agenda and reestablish their bone fides as fiscal conservatives, and the bailout-traumatized American people are simply opposed to anything that generates more red ink. Even Obama has joined the fray and started badmouthing stimulus stressing the importance of living within our means and trimming the deficits. So it looks like a done-deal; no more stimulus. There's only one problem, without another blast of stimulus the economy is headed for the skids.

Summers knows this because he is an extremely bright and competent economist. With Summers, the issue is loyalty, not intelligence. To prove this point, consider Summers comments in a Washington Post editorial (September of 2008) where he explains what needs to be done to put the economy back on track:
"Indeed, in the current circumstances the case for fiscal stimulus -- policy actions that increase short-term deficits -- is stronger than ever before in my professional lifetime. Unemployment is almost certain to increase -- probably to the highest levels in a generation. Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system. Global experience with economic downturns caused by financial distress suggests that while they are of uncertain depth, they are almost always of long duration.

“The economic point here can be made straightforwardly: The more people who are unemployed, the more desirable it is that government takes steps to put them back to work by investing in infrastructure or energy or simply by providing tax cuts that allow families to avoid cutting back on their spending.” ("A Bailout Is Just a Start", Lawrence Summers, Washington Post)

To repeat: "Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system."
Bingo. Zero-percent rates don't give any traction in a liquidity trap. That's why economists push for fiscal stimulus; jobs programs, state aid, and extended unemployment benefits. That's the only way to narrow the output gap and rev up economic activity. Summers doesn't even challenge the idea; in fact, he makes the case for fiscal stimulus. Of course, that was then, and now is now. Here's another clip of Summers stirring up the masses at the Brookings Institute with his  thundering Fidel Castro impersonation:
"Between 2000 and 2007 – a period of solid aggregate economic growth – the typical working-age household saw their income decline by nearly $2000. The decline in middle-class incomes even as the incomes of the top 1% skyrocketed has a number of causes, but one of them is surely rising asset prices and the fact that financial sector profits exploded to the point to where they represented 40% of all corporate profits in 2006.Confidence today will be enhanced if we put measures in place that assure that the coming expansion will be more sustainable and fair in the distribution of benefits than its predecessor."

Larry Summers carrying-on about "distribution of benefits"? Huh?  So how does the Redistributionist-in-Chief feel about stimulus now? Here's a clip from Thursday's Wall Street Journal:
 "The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit, administration officials said. “Mr. Obama is keen to avoid any measures suggestive of a second, big-ticket stimulus. With about half of the February stimulus spending spoken for, the measure has created about 640,000 jobs, fewer than the number of jobs lost in January alone.

"There is no discussion of a package like a second stimulus, but we are working closely with Congress and consulting with outside experts to determine the right policies and the right steps," said White House deputy press secretary Jennifer Psaki. ("Weighing Jobs and Deficits", Elizabeth Williamson, Wall Street Journal)

Apparently, Summers has had time to rethink his populism and do a 180. Team Obama plans to create jobs by initiating tax credits and lending to small businesses. Sound familiar? In other words, the only way that millions of dejected workers will get any relief is if private industry can be enriched in the process. That's why "there is no discussion of a second stimulus." Because Summers is an industry rep who primary task is to ensure the smooth transfer of public wealth to corporate plutocrats. He even opposed the extension of unemployment benefits believing that greater hardship would push wages down even further.

Indeed, from Summer’s point of view, the America Rescue and Recovery Act has worked out just dandy. The unions are getting walloped, 8 million people are out of work, the labor market is in the worst shape it's been since the Great Depression, and the blood-flow of stimulus is about to get choked-off sometime in the next two quarters.  Hey, it's morning in America! But, as we noted earlier, Summers is a good economist, so maybe there is an economic reason for his opposition to more stimulus. Could it have to do with the output gap? 

Since Lehman Bros collapsed, the output gap (which is the difference between an economy’s actual output and its potential output) has been at record lows. That means that there is not sufficient demand to take up the slack in the economy. The only way to resolve that problem (when the Fed is in a liquidity trap and consumers are slashing spending) is to get money into the hands of people who will spend it. That means more government spending, thus, more stimulus. But how much more?

Here's economist Robert Skidelsky with an answer:
"But how large must such a stimulus be? The United States Congressional Budget Office (CBO) estimates that American output will be roughly 7% below its potential in the next two years, making this the worst recession since World War II. American unemployment is projected to peak at 9.4% towards the end of 2009 or the beginning of 2010, and is expected to remain above 7% at least until the end of 2011.

“The US government has pledged $787 billion in economic stimulus, or about 7% of GDP. Superficially this looks about right to close the output gap – if it is spent this year . But it is in fact a three year-program. Some $584 billion is allocated for 2009-2010, leaving perhaps $300 billion of extra money for this year. Even so, it is not clear how much of that will be spent.

 “ ....A double round of stimulus packages is needed to counteract the real prospect of a double-dip recession. “The time to start worrying about inflation is when the recovery is entrenched. To pay back the debt without strain, we need a booming economy.  Talk of government spending cuts is premature. ‘A boom not a slump is the right time for austerity at the Treasury’ said Keynes. He was right." ("Is Stimulus Still Necessary?" Robert Skidelsky. Project Syndicate)

Surely, Summers made the same calculations as Skidelsky, but decided to go with a smaller stimulus package for political reasons. Fair enough. He was probably afraid that a larger bill wouldn't get through congress. That's reasonable, but it doesn't change the fact that more stimulus is needed now. The White House should be preparing itself for a major public relations campaign. But there's no PR campaign on the drawing board at all; just more blabber about cutting deficits and reducing long-term government spending. ( attack on Social Security) So as soon as this stimulus-injection wears off, the economy will slip into a coma once again. Here's Paul Krugman breaking it all down:
"Second estimate of third-quarter GDP out; growth rate marked down to 2.8%. This is really quite grim. At this growth rate it’s far from clear that we’re doing anything to reduce the output gap — the gap between what the economy could produce and what it’s actually producing. Correspondingly, there’s no reason now for even a bit of optimism on unemployment.

When the 3.5% advance number came out, I took to warning people that even if the economy continued to grow at that rate, we wouldn’t see anything like full employment until late in Sarah Palin’s second term. Given the latest number, the date at which we can expect to see a return to full employment is … never.

And that’s if growth continues at this rate. The odds are good that growth will slow down next year: the stimulus has already had its peak effect on growth and will turn into a net drag in the second half, the inventory bounce — which was a major factor in 3rd quarter growth, such as it was — will fade out. Basically, we may be in a technical recovery, but we’re not recovering. (Paul Krugman, "Gee, that’s De Pressing" The Conscience of a Liberal, New York Times)

There's no recovery. Figure it out. Bank profits went up last quarter, but lending went down significantly. Now, that's a neat trick. How did they manage that? They did it with the money they're getting from the Fed. Bernanke has provided broken banks and other financial institutions with trillions of dollars that are being diverted into high-risk assets, carry trades (with the zero-rate dollar as the funding currency) and speculative derivatives bets. The same bubble that just blew up a year ago has been reflated thanks to Bernanke's largesse and gigantic re-leveraging. Main Street is in a Depression, but Wall Street is doing just fine.

Even so, there is no sign of inflation anywhere and the government is able to borrow capital at record low costs. Last week 3-month Treasuries went negative while the 2-year T-bill has fallen off a cliff. Why? Because Bernanke ended the guarantee on money markets so investors are fleeing to safety again. Ordinary retail investors who can't do bigtime cross-border currency transactions or High Frequency Trading, need a place to hide. Hence, USTs. They're forking over their money to Uncle Sam for under 1 percent interest. It's highway robbery.  At the same time, consumer credit is shrinking, bank lending is down, and 1 out of 4 homeowners is upside-down. Money is not moving and the economy is on a ventilator. We need more stimulus.

But there won't be another round of stimulus because Summers and his sniveling companion Geithner won't allow it. They have other plans. Oh yeah, Wall Street and the banking Goliaths will still get as much monetary stimulus as they need (under the phony moniker of "quantitative easing", liquidity swaps, or excess reserves) But as for the working slob --  zilch.

Summers’ assignment is to bring the broader economy to its knees; to crush big labor by keeping unemployment high,  to force state and local and governments to privatize more public assets and services, and to generate as much human misery as possible. In short, Summers is laying the groundwork for structural adjustment within the US, a policy which reflects his ongoing commitment to multinational corporations and neoliberalism. It's the shock doctrine redux. These people are monsters.

How Social Mood Trends Define Popular Culture
Studies of the stock market and of trends in popular attitudes support the premise that trends in aggregate stock prices directly reflect the mood and mood changes of investors collectively, and by extension, society at large. The stock market is the optimum place to study mood change because it is the only intersection of mass behavior that offers specific, detailed, and voluminous numerical data. It was with such data that R.N. Elliott discovered the Wave Principle, the analytical method which reveals that mass mood changes are natural, rhythmic and precise. The stock market is a literal drawing of how mass mood unfolds.

In the following two clips from The Socionomics Institute's documentary History's Hidden Engine,you'll see how extremes in popular cultural trends coincide with extremes in stock prices: they peak and trough coincidentally in their reflection of the popular mood. Regarding music, for example, Robert Prechter said "You can almost hear the Dow going up and down over the airwaves." In this three minute video montage, see how music trends from the Beatles to Jimi Hendrix to Britney Spears reveal a startling connection between pop culture and finance:

At the theaters, Disney released another adaptation of Charles Dickens's "A Christmas Carol" this year that many parents found too dark and scary for kids. Disney's iconic Mickey Mouse himself got an edgier makeover recently. What could be behind Disney's new marketing strategy? Successful Disney films and themes have more in common with horror movies and dark themes than you might think. This three minute clip from History's Hidden Engine explains that connection -- and why it's as relevant to stock markets and broad social trends as it is to movies:

Watch the full 90-minute documentary, History's Hidden Engine, online right now. In just 59 minutes and with the help of pop songs, news footage and cultural images, you'll see how social mood drives trends in movies, music, fashion, economics, politics, the media, and even the stock market.

Martin Armstong – Forced to Move to a High Security Prison to Silence Him?
Frankly, I cannot believe that I have to write the words that follow. I just learned that Martin Armstrong is being moved, possibly as early as Monday, from his current holding facility to a much higher security facility, MDC Brooklyn, which is similar to the facility he was in when he was in solitary confinement and where he was beaten nearly to death! This goes against the prison’s own rules and is against the law as he has two Habeas cases open in the Supreme Court.

Why would this be happening now with a little more than a year before he is eligible for parole? I and others contend that it is because of his recent writing activity and because of his recent interview with the New Yorker Magazine (The New Yorker - "The Secret Cycle…"), and also because there are now several media outlets requesting to do interviews with him – the prison simply does not want, for whatever reason, the access that we have been enjoying lately to continue. I spoke directly to Martin’s younger sister, Nancy, and this is her opinion as well. She is very upset over this move as she, “fears that he may not make it out.” She claims that Martin is very much afraid of this move and for good reason…

First let’s review the facts… whatever you believe about his innocence or guilt or innocence of any crime, the facts are that he was never put on trial for any crime. He was held in contempt of court for not producing what the judge ordered him to produce, something which he claims he didn’t have. He was placed in MDC Manhattan and was basically TORTURED. According to Nancy, he was locked in solitary confinement for almost the entire duration, suffering days on end and at times was intentionally awaken every hour or so all night long, night after night, in an attempt to get him to sign a confession. He was repeatedly told that he would not get the chance to see his 91 year old mother alive again if he did not sign the confession. This took place off and on for SEVEN YEARS. Then one day a huge convict, “a known homicidal maniac” named George, was locked in his cell with him where he proceeded to beat and strangle him until he thought he was dead. Later, according to Armstrong, a fellow inmate stated that the guards watched the beating and refused to open the door to stop it. He lost most of his teeth, and now, over two years later is still missing them because the prison system only has one dentist for over 5,000 inmates. He suffered a detached retina, broken ribs and other internal injuries that left him in intensive care.

They offered him a plea agreement to TIME SERVED if he would plead guilty and after 7 years, he could take no more and agreed, obviously under heavy duress. However, after pleading guilty, the judge instead of living up to the plea agreement sentenced him to the maximum amount allowable and he is now not scheduled for release until September of 2011, first eligible for parole in March 2011. His current location is at Ft. Dix, New Jersey where he is only 20 minutes from his mother and sister, a relatively safe facility. His sister takes his infirmed mother to visit him once a week, but she will not be able to make the journey into Manhattan. He is now under great stress as he believes he may not survive while inside the new location.

Inside this facility, I am told, he will be basically strip searched with nearly every movement, and he is not granted some of the “privileges” that he currently has access to, thus producing his work will be impaired, if not eliminated all together.

The question is WHY would they break their own rules and the law to move him now?

For a refresher, Habeas Corpus is defined as follows: “Habeas corpus (Latin: You (shall) have the body) is a legal action, or writ, through which a person can seek relief from their unlawful detention or that of another person. It protects individuals from harming themselves or from being harmed by the judicial system.”


1 – 200 of 206   Newer›   Newest»
K said...

Borrowers who walk away from their mortgage obligations face serious consequences," including severely depressed credit scores for extended periods, said Brian Faith of Fannie Mae. In addition, he said, "there's a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community."

Oh, that's rich. A Fannie Mae 'official' lecturing underwater homeowners about their moral obligation to society.

california womanl said...

Ilargi or Stoneleigh

What do you think of his comment - Three old dollars to be traded for 1 new dollar. If you agree, when do you think this would occur, and how can we protect ourselves?

Thanks !

el gallinazo said...


"And who in Abu Dhabi (which is where the money will have to come from) is willing to throw their cash into a bottomless pit?"

The operational word is "their." They don't have a pseudo-democracy where they can throw OPM into the black hole. long suckers; been nice to know ya!

Top Hat Cat said...

Food Stamp Usage Across the Country Interactive map

Play with it, roll your cursor over each county to get stats. Squint your eyes to 'grok' the larger patterns, to damn bad it has no animated features to show trends over time to give that cool 'pandemic' effect to dynamic hunger stats.

Food stamps are a canary in the mine shaft if you ask me. As they rise by county, the economy sinks in those counties.

IMO, counties by the way are closer to 'localization units' than states (or nations)

"Halliburton is opening its corporate headquarters in Dubai while maintaining a corporate office in Houston"

Remember back in March how Darth Cheney's Death Star corporate shell moved it's extortion racket to Dubai and left a store front open in Houston? Sweet aye.

∞ A small note on the 'Keeping Derivatives in the Dark' article. Well, I've always thought of the dark global unregulated derivative's market as a Monster that is larger than all the wealth of the planet combined. It's the Rosemary's Baby of the Shadow Banking Mafia, it's 'love child' of compounding interest, and it's still growing. It aspires to Infinite Wealth, it will deliver widespread Death.

john patrick said...

I remember I&S saying "Cash will be king" in the 40 ways... I wonder how this will be affected if we have a currency conversion? Or, will the conversion really occur?

I've spent the last year prepping (knowing I'll be sharing with girlfriend/kids/family) and one option I've pondered is purchasing a used RV for cash (park it on friends/family property) rather than continue to pay rent. But my concern is, taxes, insurance, and fuel could go through the roof. So perhaps it's better to just double-up on a current rental situation, i.e. have everyone live under one roof.

Any thoughts? Thanks!

el gallinazo said...


Mish did a long analysis in October on how the banking industry was using the "moral issue" to inhibit people from acting in their own best interests. Of course the bankers have shown morals that would embarrass a wolverine.

I don't have the link but I saved the article to my hard drive. It is titled, Financial Logic of Walking Away ." Worth as careful read. It also analyses real estate bubbles, and indicates that if the selling price of a house is well over 16 times the annual rental, then you are in a bubble. The asking sales price right now of the house that I am renting in Costa Rica is 100 times the annual rent. Is there a message there?

John said...

Our local food bank in Central Texas is planning on a 100% increase in families for Christmas food needs. We have folks who buy up to 50 loaves of day old bread and distribute those with other limited food resources to 50 plus families once a week in less than 4hours. We are also see many first time families that are in need of just the basics to get by. John

EconomicDisconnect said...

another top flight intro!

Mortgage mods are a zero, who could have seen that??

Reality is upon us, but I expect another push up before that happens.

Anastasia said...

"And who in Abu Dhabi (which is where the money will have to come from) is willing to throw their cash into a bottomless pit?"

I guess that all depends if they feel it's a bottomless pit. After all isn't it the underlying presumption that growth will resume?

ric2 said...

Actually, I'd like to hear Stoneleigh's take on the entire Chapman excerpt.

It seems like some of the things he claims will happen because of Fed action are actually already happening or will happen due to deflation, and you've already described them:

-further restriction on commercial lending by TARP recipient banks without substantial collateral (commercial lending is already dead, right, so are any further "restrictions" even required?)
-stock market going into a tailspin without a second $400-800 billion stimulus (it's poised to drop and there is no money for a second stimulus)
-2000+ banks in trouble
-FDIC collapse

I know anything can happen, but how realistic is to believe that the Fed has the choice to "opt for letting the system run into hyperinflation" with complete currency devaluation and replacement by the end of next year? (Maybe Chapman is telling us this last bit about hyperinflation because he wants to sell us some gold or have us buy Canadian or Swiss Treasuries through one of his brokers?)

BTW, would love to see VK become a regular front-page contributor. His generation will be coming of age as young adults in these tragic and traumatic times, and it will be on their shoulders to do most of the work in creating workable and just communities no matter where they may be in the world. His thoughts matter, and for being such a young man, he sure is keen with words and ideas.

KLR said...

Stuart Staniford, of Oil Drum fame, is posting once again at his Early Warning blog. One of the sharpest knives in the drawer over there, glad to see him up and at it once more.

Joseph j7uy5 said...

Referring to the photo in the introduction: there were people leaving dirt farms in Arkansas for dirt farms in the lower Rio Grande valley. They were going to pick cotton. I noticed this because that is where I live. (I can see the Rio Grande cotton fields from my porch!) Such a movement strikes me as random. What difference does it make, a cotton field is a cotton field.

I wonder how much of the maneuvering we see is really just random movement. Not kicking the can down the road, rather kicking it in a circle, hoping that things get better in the meantime. Maybe someone bails out Dubai, but it is just moving money in a circle. Perhaps the hope is that the propaganda can keep people going.

We'll see positive spin on the Black Friday numbers. Up 0.5%. But the population of the USA has increased ~0.9% since last year. We need at least that much growth, just to stay even. Anything less, you have more people laying claim to a smaller pie. Spin it any way you want, even the best numbers show that things are getting worse.

I am thinking about donating some nut trees to the local food bank. They already have a large vegetable garden, but no renewable source of good protein. Somebody, somewhere, has to actually produce something, and that would increase the amount of food available. Not just move it from one place to another.

Nelson said...

Fascinating take by VK, although this sentence in (8.) needs an edit:

"...banks collapse and government revenue and cost of servicing debt soars."
Nope, it's :"...banks and government revenue collapse and cost of servicing debt soars."

I agree that it's in the elites' best interest to deflate, not inflate, but history holds that governments lack the will and/or controls to prevent a run at the printing presses. We can argue whether it'll succeed, but IMO monetization of the debt is the most likely avenue for the government to pursue.

el gallinazo said...

Most of what Chapman is saying is basically assigning specific dates and numbers to what I&S have been predicting for a year.

The one thing that doesn't make any sense to me is why would they "devalue" the dollar to one third, and what exactly does that mean? When we were on the gold standard and FDR devalued the dollar from $20 per troy ounce to 35, at least one could understand what that meant. But with a fiat currency, what exactly would be issuing a new dollar for three old dollars do other than create a huge amount of confusion. Would debts still have to be paid back in the old dollar amount making it three times as hard? That would be time for Snuffy to lock and load :-) Can someone explain this to me? As Vinnie Barbarino would say, "I'm so confused!"

I mean, I can understand if with a currency like here in Costa Rica, where years of inflation have moved it to over 500 to the USD, that a government might, say, want to reissue a currency divided by 100 just to make the math easier. But other than keeping numbers smaller and reasonable, what is the point?

Mad Max is saying that there is global warfare going on right now between Gollum Sucks and the Peoples Republic of China, and that is the heart of trying to understand the current moves going on in the world markets. China allowing domestic companies to default on Gollum's fraudulent derivatives could be a wooden stake through its heart. Hmmmm....

Asian stock indices up 2.5 to 3% in Monday morning trading. The pundits saying the the Doobie default is overblown.

Nelson said...

Ahh, it's fixed now, I see.

Y'all might be interested with the happenings here in Beaverton OR, and how even the most fascist of bedfellows sometimes have to yield to the electorate.

Hank Paulson's son Merritt owns the local AAA baseball team ("Beavers"), and he wants a new stadium, courtesy of the taxpayers. All the hype and propaganda couldn't distract the homeowners from the fact that they'd be paying tens of millions of dollars in increased property taxes as a gift to Merritt Paulson to help his dream materialize.

The stories I read showed at least 15:1 opposition to the stadium plans, 20:1 is more like it, but the Beaverton mayor, one Denny Doyle, was adamant that the Council could and should decide without interference from the voters. Eventually a couple members of the city council got the message that their jobs were on the line, so they backed away, telling the mayor that they supported a referendum.

And that was it! The plutocrats and their servile shills folded their tents and left overnight, refusing to suffer the kind of public humiliation of an overwhelming loss. It's so thoroughly vanished as an issue that no one is left to ask the bigger question about hijacking the public trust.

Local action = small victories.

snuffy said...

I will keep track of what happens to that ass hat Doyle.Once a tool ,always a tool.

Chapman has had some startling insider calls...I only hope he is dead wrong on this one...

That little bit from l.summers has got me boiling.His advice will lead to more harm for the people of America than anything i can think of .He is the tool here...lent to O-man from the- powers-that-be to make sure he makes the "right" decisions.

That fat piece of dogmeat should have to go out and find a job...a real job..where he was required to produce a product and sell it..

Before he decided what the un-employed "need"

[long scream]

If o-man is taking this guy seriously,and it appears he is,this is why P.Volker is on the shelf,and all the shit is still going controls on wall sreet,and kick the American worker down to third world standard...

[more screams]

If they play some kind of funny games with the currency....that WILL blow the system up.

If the Chinese have decided to kill gold-in-sacks...I put my money on the Chinese.They know that it has taken over the us .gov now...soooo if they kill it...they cut the head off the good old USA...
And they Chinese play for keeps,and have forgotten more about the subtleties of low-level warfare than those boyos at G.S.will ever know.

Time for dreams please.


Ps...Stoneleigh,I would love to meet you if possible out here on the left coast....I am sure that those of us TAEs in the Portland area could show you a good time[big grin]

barnaby33 said...

Your comment about elites benefiting more from deflation flies in the face of 80+ years of history.

Maybe you need a clearer definition of Elites, because in inflation, those who stand closest to the printing press win, that would be my definition of elites.

In deflation everyone loses except savers. Who says the elites are savers any more than the work-a-day slobs? They may have more savings in absolute terms, but in their own minds, most feel just as vulnerable to loss as J6P.

APC said...

Do you folks buy into Bob Chapmans illuminati discourse?

Just wondering...

MikeB said...

The documentary about the stock market and social mood is shockingly bad. Are we to assume this site subscribes to the pseudo-science presented in the film?

The fallacy of filtering or "observational selection" and blatant cognitive bias are in full regalia here.

From Robert Carroll's "Skeptic's Dictionary":
A chartist looks for patterns in charts, patterns he believes are predictive. Is there any scientific evidence that there are some truly predictive patterns in stock price charts? No, but there is scientific evidence that chartists see patterns in random processes.

This stuff is just Jesus on Toast all over again.

Skeptic's Dictionary
Very disappointing to see it here.

Hombre said...

El G - "Mad Max is saying that there is global warfare going on right now between Gollum Sucks and the Peoples Republic of China..."

And guess who is the most criminal, elitist, and least democratic. And guess who I hope emerges. The "eternal growth" capitalists are taking us all down the road to hell. Some kind of brakes have to be applied, from whatever source!

Stoneleigh said...


I'm not sure what would be possible, but I'll look into it. Wiki tells me that Portland is 5-6 hours south of Vancouver.

el gallinazo said...

From the Evans-Pritchard article

" Paradoxically, Europe's bank problems help explain why the euro has risen to a 15-month high of $1.51 against the dollar. Hans Redeker from BNP Paribas said distressed banks are having to sell assets overseas and repatriate the money to shore up their capital base, pushing the euro towards the pain barrier for many European exporters."

Nothing is what it appears to be in these markets. And when will the US banks like Citi have to sell off overseas assets and set up a counter-flow.

Through Denniger;

Reuters post of an FT leak of FSB and central bankers list of world financial corporations viewed as TBTF. Karl made the interesting point that Citi and WF were not on the list.


Never heard of Chapman before but don't recall that he mentioned the illuminati. I have already questioned the dollar devaluation thing. Would you care to be more specific on others issues that the collective unconscious of this site might " buy?"

Ilargi said...

I see that Wall Street is opening positive, lifting Europe with it. And I think perhaps investors haven't been paying attention. Yet.

What I think the UAE central bank, Abu Dhabi and Dubai have all said is that they'll take care of their own, and that's where the line is drawn.

Dubai rejects guarantee for Dubai World

The government of Dubai on Monday said it would not guarantee the debt of Dubai World as it sought to clarify comments made last week by the state-owned entity that sent shockwaves through global markets.

In its first public comments since the crisis erupted over the liabilities of its public companies, Dubai’s department of finance on Monday outlined its policy towards the outstanding loans, which total $59bn.

Abdulrahman al-Saleh, director general of Dubai’s department of finance, said in an interview with Dubai TV that creditors had to take responsibility for their own lending decisions and differentiate between advances to companies and the state. He also said global markets had overreacted to the news.

Mr Saleh admitted that creditors of Dubai World, which owns DP World, the ports operator, and Nakheel, the property investment company, would be affected in the short-term but claimed there would be long-term benefits as the government restructured the business.

[..] Nakheel, the company at the centre of Dubai’s financial woes, on Monday asked for all three of its sharia-compliant bonds worth $5.25bn to be suspended from trade “until it is in a position to fully inform the market”.

Sentiment was not helped by a note from EFG-Hermes, a local investment bank, which said that the estimates of Dubai’s $80bn debt burden, consisting of bonds and syndicated loans, could rise to $120bn-$150 billion if bilateral loans and other missing information [sic] were included.


Anonymous said...


Is Chapman anticipating hyperinflation too soon? Shouldn't we move into hard goods before then? If I remember correctly, you have said that hyperinflation will come not earlier than two years from now, after deflation runs its course.

Oh my, we're in trouble if by the end of 2010 three Franklins will equal one!


Great contribution! Welcome! :)

el gallinazo said...


Could you respond to my post on today's comment section on the Chapman video and the "dollar devaluation" part. If it is just to absurd to deal with, could you mention that in a sentence or two.

Ilargi said...

El G,

Click the link, you'll see the illuminists talk. Chapman is in a strange right side funk. But he was also for years one of the world's biggest gold and silver brokers. He may be a nut, but he's not a fool.

And I don't think he says what he does to make money, he's too old, well-off, that sort of thing.

NB: some "nice" listening material here.


Unknown said...

Oh bloody lord, I saw this CBC headline and I burst out laughing, quite inappropriately, in my office:

0.1% GDP growth signals recession's end

Ilargi said...

No, Chapman, is way off on his hyperinflation assertion. And if anyone thinks the USD can simply be replaced by another currency in an attempt to get out of debt, de facto as US sovereign default, try to see things from a less US centric point of view. What would keep Japan and the EU from doing the same thing? And if they all do it, what will be the net result?

el gallinazo said...

Mish has an excellent, long rant against Uncle Ben this morning, worth a read. Nothing new, but he ties it together.

Stoneleigh said...

El G and others,

Could you respond to my post on today's comment section on the Chapman video and the "dollar devaluation" part. If it is just to absurd to deal with, could you mention that in a sentence or two.

While I agree with much of what Chapman said, I don't agree with his hyperinflation and dollar devaluation assertion. I agree that liquidity will be in short supply and everyone will be looking for it. I agree that getting loans will be extremely difficult and expensive, with collateral requirements rising dramatically as Chapman says, and also much higher interest rates, which he doesn't explore. I also agree that commercial real estate will implode and that muni bonds will be wallpaper.

We should see much larger credit spreads, as riskier bonds crash, while short term treasuries see high demand and low (or even moderately negative) interest rates on a fight to safety. I would also expect a sharp divergence between long and short term rates, even for government debt.

While I agree that the banking cabal would like to see a single global currency and more central control at a global level, I don't think it will happen. The trajectory they have been on is leading in that direction, but we are at or near a trend reversal. The destructive force of deflation will make further 'progress' in that regard impossible IMO. Deflation comes with fragmentation, not consolidation.

Likewise, Chapman's forecasts for hyperinflation and dollar devaluation are extrapolations of the rising trend we have experienced since March. The imminent/occurring trend reversal will change that view.

el gallinazo said...

Two contiguous article headlines on Bloomberg this morning:

U.S. Stocks Gain as U.A.E. Backs Banks, Business Activity Rises
By Mary Childs

Dubai World’s Debt Not Guaranteed by Government (Update2)
By Zahraa Alkhalisi and Ayesha Daya

I would like the following article headline in Bloomberg:

U.S. Stocks Gain as Most Pension Fund Managers Had Sex Over the Long Holiday Weekend
by El Gallinazo

Ilargi said...

Well, it's probably me, but I see that sort of writing by Mish as nothing more than pretentious and utterly futile humbug.

jal said...

@ Stoneleigh
Re. : trip west coast
Save yourself a lot of hassle ... use Abbotsford International Airport (YXX).
Schedule permitting ... come early to met with readers of TAE.

Logistics can be coordinated for Seattle, Portland area readers.

Stoneleigh said...


In order to judge Prechter's work, you really need to see/read more of it. The whole documentary History's Hidden Engine is available free online. Snippets do not do it justice. His books also flesh out the concepts to a much greater extent.

Snippets tend to be dismissed facile, but this theory is anything but that. Prechter is not saying that popular music, or hemlines, or film genres etc, drive markets. What he is saying is that there are many manifestations of social mood and they all move together as they have a common driver. Markets are one such phenomenon, as are many disparate cultural trends.

There are optimistic behaviours and pessimistic behaviours which occur in clusters. Optimistic people buy stocks and becomes less risk averse, they start businesses, they have more children in anticipation of good times ahead, they wear bright colours (and show more skin), they listen to cheerful music, they like films with happy endings, they tend to identify with strong heros in a black and white fashion, they behave in a more socially inclusive manner, they build alliances with diverse people, they favour peace etc etc.

In contrast, pessimistic people do the opposite. They become much more risk averse, they sell stocks, do not start businesses, wear sombre colours (and cover up), have fewer children, listen to sad/angry music, watch angry/horrific films, identify with anti-heros, see the world in shades of grey, become socially exclusive/insular/xenophobic, favour aggressive behaviour internationally, vote for populist extremists etc etc.

Just watch as we pass the trend reversal and move into a new pessimistic phase. One can predict a lot about groups of people merely by knowing whether they are collectively optimistic or pessimistic, and what degree of trend one is looking at. As the new trends pick up momentum, we are going to see a side of people that we are not used to, and it will be profoundly disturbing.

Anonymous said...

El G,

Re skunk smell (yesterday)

Sorry to perhaps alarm you unnecessarily, but pesticide drift can smell like skunk, especially when the smell awakens you in early morning because of an open window. Are there commercial farms nearby that might be applying pesticide overnight? If so, it's probably methyl bromide.

I live downwind from corporate farms, around 2 or 3 miles away and beyond. The smell of methyl bromide in my area has been confused by residents as "skunk smell" or "swamp gas", but indeed, it is methyl bromide, applied to fields before planting. The smell is a bitter-sweet caustic smell that lingers until the sun breaks it down. We haven't slept with open windows for the last 13 years because one cannot predict when the corporate farms will use it.

To our dismay, my husband and I smelled methyl bromide while visiting Craftsbury, Vermont last June. Apparently, dairy farmers apply methyl bromide to fields before planting corn. Unless you are surrounded by organic farms for miles around, most rural areas in the USA (and worldwide) are polluted by the use of pesticides and herbicides.

Unknown said...

So a lot of the talk here is about what wealthy people can do? Selling stocks, insurance policies, etc. But what about little guys? What about people with say $5,000 to play with? While that is nothing compared to a lot of people, I debate myself on what I should do with that money. Do I finish paying off my credit card debt? Do I finish paying off my back tax debt? (About $3000 each) Or do I save it and prepare?

Many people of little means see what is happening but we feel that there is little that we can do. What can we do?

ric2 said...

I am wondering if one should include "appreciation of dark/black humor" (what a former writing teacher of mine called "the laughter of the damned") in the list of behaviors of pessimistic people. Wasn't there some gruesome stories in Turnbull's account of the Ik where people found great amusement in the miseries of their fellow man?

Along those lines, I found Kunstler's latest to be chock full of laugh-out-loud dark humor. (He also claims he is a "deflationist.")

Should I be worried that I found his latest to be so funny?

Bukko Boomeranger said...

Well, it's probably me, but I see that sort of writing by Mish as nothing more than pretentious and utterly futile humbug.

It's not just you, mate. I think Mish's fame, such as it is, has gone to his head. You'd think the knock-back his anti-Paulson bailout faxing campaign got would have shown him the futility of "dialogue" with TPTB, but he keeps on with the imaginary conversations (i.e. "monologues with the voices inside his head")...

As for music and economic conditions, remember that the music community is so diverse that it's illusory to link what's popular to what's going on. Didn't hear much country/rap/folk/classical etc. used for those examples. What I heard was the stuff that got played on radio, which is what the corporate music forces were foisting on the listeners. What's "popular" is what the record biz WANTS to be popular. It's more a reflection of THEIR mood than ours. With the fragmented, downloadable music world now, though, it's harder for the biz to set the tone, and the tune.

Re: alternatives sources of skunky smell -- strong (un-smoked) marijuana can have a whiff like that too. You got any Rastas in the 'hood, ElG?

Ilargi said...

Jim Kunstler is a faithful TAE fan and follower. And we may therefore have helped him find these poignant words:

"Frankly, I have no idea whether the Dubai fiasco will send seismic ripples thundering through a global banking establishment that is already crippled in more ways than you can count.

But it does remind those in thrall to the dazzlement of "green shoots" that debt comes a'creeping, and runs so far, deep, and wide through the broken system of mutual assurances constituting international finance, that Ben Bernanke and his counterparts in central banks 'round the world could drop helicopter loads of paper cash on every rooftop, intersection, parking lot, field, forest, and camel raceway and never make a dent in the fatal web of false obligations we have woven for ourselves."

Ilargi said...


Debt is the hangman's noose during deflation. Many jobs will disappear, so you shouldn't count too much on continuing pay, certainly not at the present level.

Still, there is also something to be said for investing in what can make you less dependent on the current system, certainly when it comes to food. It's a bit of a toss-up, the choices depend on your preferences, your appetite for risk and of course your present situation.


sv koho said...

Item #10 of VK: The statement is hard to follow. If you lose 50% of your net worth and assets deflate 80%, you up 30%? Whaaaat?! Let's see.Say you have $2 Mil in your mattress. Your net worth is 100% in cash and you hold no debt and rent a container and walk to a soup kitchen. In this scenario you still have $2 million and you can now go out and buy, what? Citi stock for $1/share? Or perhaps Krugerrands? Or perhaps a McMansion in the burbs for an 80% discount? These models do not reflect reality because some percent of your net worth would be tied up in asset classes which lost 80% so saying you are in effect up 30% after you have lost 50% when asset classes have lost 80% is a little hard to follow. Am I missing something?

John Hemingway said...

Ciao Stonleigh!

You know, perhaps I'm wrong, but I don't recall you wearing somber clothing the last time we met in Montreal;-)


Gravity said...

In the first years of the 21st century, a third world war broke out. Those of us who survived knew that man could never survive a fourth, that our own volatile natures could simply no longer be risked.

And so we have created a new arm of the law; the graviton cleric, whose sole task it is to seek out and eradicate the true source of man's inhumanity to man; his ability to leverage beyond 5:1.

APC said...

At 10:12 AM El G asks:

'Would you care to be more specific on others issues that the collective unconscious of this site might " buy?"'

Not really, the body of the man's youtube work sorta speaks for itself. You know, the RNB, Alex Jones Prison Planet circuit.

No need to get snitty m8. Seeing as how I refer practically everyone I care for to this site, (and then some) I thought the question was legit.

One needs learn to distinguish between an affirmation and an honest inqiry.

Ilargi said...

sv koho,

"A little hard to follow?" You can say that again. It makes me think of Groucho:

"Well, Art is Art, isn't it? Still, on the other hand, water is water. And east is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does. Now you tell me what you know. "

VK's point, which quotes me, stands of course. If your net worth falls 50%, it makes no difference whether some of it is tied up in 80% losing assets, or whether you parked it on the moon. 50% is 50%. Keep it simple.

Gravity said...

If the municipal bond market collapses, wouldn't that be hyperdeflationary, in that available credit streams to compensate for missing tax revenues would be instantly cut off, reducing municipal spending to naught?

Several more years of deflation should cause the amount of goods and services in circulation to strongly decrease as a function of decreased moneys in circulation, perhaps making eventual inflation easier by removal of most purchaseable physical goods from circulation more quickly than currency credits can be absorbed, whereby tensile stresses between money and purchaseables could be altered. Increasing price levels by actual lethal scarcity is not inflation as such, but close enough.

Greenpa said...

Sunffy- "If they play some kind of funny games with the currency....that WILL blow the system up."

As usual, you're just a crazy optimist. :-)

The system HAS BEEN blown up. No kidding, really- it's over.

It's just that we're still only in the first twenty nanoseconds after the explosion. People are looking around, and saying, "hey, we can fix this! Just stuff it all back in that little bomb thingy!"

You really can't stuff a Hellfire missile explosion back inside the original container; no matter how much people want to- or who is promising they can. It'll be way way more obvious in 6 months (i.e. the next 10 nanoseconds)

Yeah, I know, hard to get used to. But I do think that's truly the case. There are no fixes.

Greenpa said...

Anastasia: "I guess that all depends if they feel it's a bottomless pit. After all isn't it the underlying presumption that growth will resume?"

Not if you're culturally an Arab. Really. I wouldn't presume to say what their expectations are at this point; but I do know they truly do not have the same starting points in life expectations. They've been following the Western Rationale for a couple decades- and it's just failed- hugely.

If I were them, I'd go right back to Arab cultural basics- which generally are far more "steady state" than "growth".

Greenpa said...

ric2- "I am wondering if one should include "appreciation of dark/black humor" (what a former writing teacher of mine called "the laughter of the damned") in the list of behaviors of pessimistic people."

The Germans call it "Galgenhumor" - "gallows humor".

It's pretty definitely a symptom of despair- nothing left to do but laugh; no power to do anything else.

@whut said...

I posted what I know about Robert Chapman on TheOilDrum

Be suspicious of this guy is all I can say.

TechGuy said...

My Comments on todays text:

"10. The elites would prefer an outcome whereby there is massive deflation; as Ilargi once mentioned, if you lose 50% of your net worth but asset prices fall 80%, you're up 30%!"

This assesment is dead wrong. The elites have most of their wealth in assets not cash. They own businesses, stocks, and other assets that will collapse in value if deflation happpens. The elites want price inflation not deflation.

Hyper-inflation is inevitable:

1. The Fed must keep rates very low because of interest rate swaps. Consider that the average prime 15/20/30/40 mortgage was issue with a rate below 6.5% during the bubble years. If short term rates rise, virtually every lender will go broke since they need the rates to remain well below the mortgage rates. Even today, more loans are being issued at low rates so the problem continues to be piled on.

2. The gov't is broke and there is a tsunami of entitlements that are about to soar. The gov't has been relying on the Social Security surplus for 40 years and it still wasn't able to ever balance its budget. How does anyone expect the gov't to pay entitlements once the outlays been to soar in a few years. Congress and the administration isn't going to abandon their biggest voting block by reneging on their entitlement promises. Virtually every politican has promised bigger and better entitlements to buy voters.

3. Zimbabwe and Weimar had huge credit contractions. Nobody wanted to lend money to Zimabwe or Weimar. Even the local banks refused to loan out money except for very short term loans. The credit contraction accelerated inflation as the gov't was forced to print money to keep its doors open. Credit contraction does not equal deflation.

4. Japan is not the US. Its gov't debt is nearly 100% financied by its citizens and it has a very strong export market to support its debt. The US is dependant foriegners for 60% of its debt and has been running trade deficits for more than 30 years.

5. Chapman is an idiot. He's been making all sorts of predictions for 20 years and the majority have been proven to be dead wrong. Every year Chapman and Sinclair have predicted a total economic meltdown for every year, going back to 1997. In 1997 they said the stock market was going to crash in 1998 and gold was going to soar past $1000 by the end of 1998. It taken more than 10 years since that predict.If you keep making the same prediction forever they will eventually be right, just as a broken analog clock displays the correct time twice a day. Chapman and Sinclair are nothing more than broken clocks!

So far every single person that has provided a date when the economy will collapse has been dead wrong. The deflationist said in Dec 2008 that interest rates would be in double digits but the fall of 2009. Well they are still at Zero. Jim Sinclair predicted that on October 29th, 2009 the Dollar was going to completely collapse causing Gold to soar over $5000. There is that Russia professor that said the US was going to break up by the end of 2009, Now hes saying its going to happen in 2010. Please stop listening and quoting to these people.

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury"

el gallinazo said...


I didn't think my question was snitty. After I asked, Stoneleigh came back and stated that many of his predictions are basically in line with TAE, with the major exception of a "new currency" and near term hyperinflation. And my original comments were highly skeptical of a new currency. And the vast bulk of TAEers are deflationistas. So I was just wondering what else you thought was beyond the pale.

Furthermore, as Stoneleigh indicated, what will happen and what the central banking cartels wish to happen are quite different. If you wish to disparage the recognition of the goals of these cartels, such as globalization and a one world currency with the term Illuminati ideas, well, you are welcome.


Back in my university chemistry days, I had to use methyl bromide all the time as a standard reagent (under a hood - it is nasty). So I sort of remember what it smells like and I don't think this is it. Also, farmers here are up with the sun, but this was before 3 am and we do not have "corporate" farms here, just small holders.

Also would doubt there is a pot of (Acapulco) gold here. There was no wind and I am hundreds of meters from other properties.

I just think it was a skunk that was spooked by some sort of big cat.

sv koho said...

Thanks Illargi for the hilarious LOL quote from Groucho. And thanks to you and Stoneleigh for your feedback comments which are as witty as they are instructive.I( have never checked the comments section of TAE and I thus had no idea what I was missing. You folks have unusual names which give no clue to your gender and I do wish you would post a pic or two so I could post them on my desk alongside my wife and family pics. I just returned from outer Mexico where some of the houses have pictures of their favorite saints prominently displayed and I would like to do the same. Stoneleigh makes so much sense that I wonder if he/she? is a woman. I have become a fan of late of some women economists like Elizabeth Warren, Brooksley Born and Gretchen Morgenson. Do you think an extra X chromosome helps economists think straighter? I mentioned this on one of my blogs, incidentally. Thanks again for your good work and I will try to paypal you Canadians when I can afford it but if the greenback keeps tanking, it won't amount to much.

el gallinazo said...

Tech Guy

If your analysis is correct, I think one's best bet is to buy assets now, leveraged as high as you can. I think for the average non-zillionaire, the best way to do this is to buy as much real estate as one can, and let the FHA give you an infinitely leveraged mortgage. So I assume, being a rational tech guy, that is what you are doing. Good luck!

Ilargi said...


it doesn't matter what the elites want. Deflation cannot be avoided.

Kunstler understands why:
"[..] debt comes a'creeping, and runs so far, deep, and wide through the broken system of mutual assurances constituting international finance, that Ben Bernanke and his counterparts in central banks 'round the world could drop helicopter loads of paper cash on every rooftop, intersection, parking lot, field, forest, and camel raceway and never make a dent in the fatal web of false obligations we have woven for ourselves"

When that phase is done, sure, someone will start to print. But it's terribly naive to think we can opt to skip it. It doesn't matter what Congress or the White House want either, not as long as the US depends on international markets. They can all start to print, and then what have you got?

Zimbabwe and Weimar are invalid comparisons. It doesn't take that much to recognize that. Just find the differences.

And examples of people who have been wrong? We all know thousands of those. It's weak to grab a few at will and try to make your point using them. Though I will admit that in that light
"The deflationist said in Dec 2008..."
is hilarious. As is
"There is that Russia professor...".

They just don't prove anything. Sort of like another Groucho:

"I had a great evening. But this wasn't it."

One last thing, and I should really write more on it: in 2010, there will be huge increases in taxes and utility costs, among other things. People will claim this is inflation. It is not.


Steve From Virginia said...

RE; Bob Chapman ... I realize Chapman may have made some "good calls" vut a stopped clock is correct twice a day.

James Grant called for a deprssion for thirty years before he surrendered and became a bull earlier this year.

Chapman is beneath your level, he simply doesn't know what he's talking about. The 'devaluation' rumor has been on the internet for a year. There is no evidence to support it, rather deflationary trends suggest that the opposite of a forced devaluation is taking place.

If the central banks and the Treasury are running a money laundering operation that allows participants to trade money- like securities for cash, the payout is in US dollars. It would be counterproductive to devalue those same dollars after the effort of setting up the trade.

Chapman should read Steve Keen. You should read more of Chapman's nonsense here


As you can see, the Illuminist program is going to come quicker than we anticipated. That in part is because they have had to expedite their program, due to exposure in the IF, other publications and especially via talk ratio and the Internet. There is no doubt we have the elitists on the run.

We are reaching the masses. On we were on the Rumor Mill this past week and out of 50 talk radio programs we were 5th behind, Rush (Limbaugh), (Sean) Hannity, Dr. Laura and we were tied with (Glenn) Beck. On the Sovereign Economist on Wednesday night we were 5th behind Beck and (Michael) Savage and ahead of Hannity. Both these programs are not well known and the Sovereign Economist is only about a month old. It shows you what you can do if you work hard enough at it.


Simply garbage ... Bill Bonner easily skewers Chapman by observing that those with (billions of) dollars are paying the Treasury to store them, presumably in secure closets.

He also comes up with the best line in the finance crisis so far:

But "hot money" from the feds has acted like spent nuclear fuel; every fish in the financial pond now seems to have two heads and a bag over both of them.

That's Chapman!

Ilargi said...


Bob Chapman says a bunch of things that I found interesting, some of which make sense, while others are off by miles. My political views didn't enter the picture. I'm sorry to see there's some among you who cannot make that distinction.



Ilargi: "Bob Chapman thinks he knows what the next steps will be, and claims to have insider information to support his assertions."

"This is the same paranoid rhetoric that Kiley used."

There's nothing paranoid in what I said. But seeing that comment, I'm not sure about you.


Ric said...

Reading TAE:

I had a great evening and this was it."

Even the darkest humor has life in it. Lex Hixon writes on laughter:

Elie Wesel writes about these stories of Rebe Nachman: "Laughter occupies an astonishingly important place in his work. Here and there, one meets a man who laughs and does nothing else. Also a landscape that laughs." We encounter the same holy laughter in an account of kensho, or Enlightenment by a contemporary Japanese [Zen] practitioner: "At midnight I abruptly awakened. At first my mind was foggy, then suddenly that quotation flashed into my consciousness: "I came to realize clearly that Mind is no other than mountains, rivers, and the great wide earth, the sun and the moon and the stars.' ... Instantaneously, like surging waves, a tremendous delight welled up in me, a veritable hurricane of delight, as I laughed loudly and wildly: ha, ha, ha, ha, ha, ha! The empty sky split in two, then opened it's enormous mouth and began to laugh uproariously: ha, ha, ha!" Rebbe Nochman and this contemporary Japanese Buddhist both encounter a landscape that laughs. There is no fundamental cultural separation: ecstasy is ecstasy, fire is fire."

Ruben said...

re: West Coast Visit,

Amtrak is now running two trains a day between Portland and Vancouver. These are actual trains, running on steel rails, not horiffic bus links to Seattle.

Unknown said...

I've actually found bus trips between Seattle and Vancouver to be quite pleasant, if a little slow at the border.

Greenpa said...

This is actually fun, and has something significant to say on the inflation/deflation discussion.

Don't know if you've followed, but this is an old standard news story- inflation index. This year- it's up - a total of 0.9%. Mostly because of the increase in the price of 5 gold rings. Almost everything else is down.

Except French Hens (I wonder if they made the mistake of pricing "poules"..." and Maids-a-Milking - and, um, I kinda wonder about that one, too.

Anonymous said...

El G said:
"The one thing that doesn't make any sense to me is why would they "devalue" the dollar to one third, and what exactly does that mean? When we were on the gold standard and FDR devalued the dollar from $20 per troy ounce to 35, at least one could understand what that meant. But with a fiat currency, what exactly would be issuing a new dollar for three old dollars do other than create a huge amount of confusion. Would debts still have to be paid back in the old dollar amount making it three times as hard? That would be time for Snuffy to lock and load :-) Can someone explain this to me? As Vinnie Barbarino would say, 'I'm so confused!'"

You've answered your own question, El G.

Consider, why doesn't the US just print the money it needs? Instead it prints bonds, which are bought by the Fed, which prints money, which it then hands back to the government to spend. Why the extra steps?

Maybe it's because they want you to be confused? Maybe it's because they want the entire process to seem so complicated and esoteric that only "true masters" of economics can grasp its intricacies? Maybe they just don't want you to see the fraud right in front of your face?

Frank said...

They've clearly never milked a cow.

Bigelow said...


Checked primary source: 12 Days, $21,465.00 --a 1.8% increase. CNN must have had too much wassail.
The 2009 PNC Christmas Price Index

Bigelow said...

Shades of Amnesty International:

“Can you believe it? In the face of overwhelming pressure from YOU, the Department of Prisons backed down and agreed to keep Martin where he is! My understanding is that they just want to make the calling STOP!

Thank you to everyone who did, you may have just saved him from a terrible fate. I hope everyone realizes how RARE this event is. The Prison system is used to working in SECRET and they do stuff like this all the time according to my sources. Well, we shined a spot light on them and as soon as we did, they were forced to back down. This is a great example of the power that people possess and they don’t even know they possess it. It is, quite unfortunately, going to be very important that we use this power in the future again, and I’m sure that the next fight won’t be as easily won. That’s because the abuse in our prison system is a SYMPTOM of a much larger problem, that problem is rooted in our economy, in our money system, and in our failure to follow the rule of law.”
Martin Armstrong -WE WON!

Wyote said...

Mark Pittman Dies at 52.

Here was probably the greatest financial reporter of the new Robber Barron decade.

Pittman brought the FOIA suit against the Fed (pending in appeals), ripped the rating agencies for lies about risk,and exposed the slime of the sub-prime debacle among many, many other exposes.

Read the tribute on the above link. The man was exceptional among his colleagues and literally shamed the status of typical financial journalism today.

From the article: "At the time of his death, Pittman’s outgoing messages offered a link to a black-and-white photo of folk musician Woody Guthrie. Written on Guthrie’s guitar: “This machine kills fascists.”

I ask, how do you die at 52 if not by accident? - Wyote

jal said...

Re.: Dubai
Cash flow to service the debt

Can the owners/mortgagees hand in their keys if they are underwater?

You can do that in most of USA but can it be done in other countries without reprecusions on the rest of your assets?

thethirdcoast said...

I'm just stopping by to share a fantastic visual timeline of the 1999 WTO protests assembled by the folks at the Seattle Times:

Visual timeline of WTO-related events in 1999

One may disagree with the protesters' methodology, but here in the year 2009 it is difficult to refute that they held an utterly prophetic vision of a corporate-controlled world.

Top Hat Cat said...

Hey, another cool interactive chart. This type of chart has a slight edge on the old stodgy static data ones. Mousing around it almost feels like a video game or something, like Whac-A-Mole. The idea is to win back your health coverage with a high score.

American Workers are Rapidly Losing Health Care

Top Hat Cat said...

The sucker rally in the stock market was a way to money launder TARP bailout dough from the government. The extra steps were there to confuse and facilitate this money laundering operation. Pump up the anemic asset market with big government 'loans' and the Banking Mafia's shenanigans, draw in the last 'honey pots' of real money like the pension funds and endowment funds and insurance funds, make a nice profit, and pay back your TARP handout and keep the Clean Money. Who's your Daddy now?

Like Mad Max said, it's been a war all along between savers and gamblers (production of useful stuff and savings) versus a F.I.R.E. ponzi and sociopathic gambling addicts.

Guess who won.

Too bad we (The Human Race) have already crossed the Rubicon on that particular decision. The die is cast, the event horizon is within view.

Fasten your seat belts.

jal said...

What would the market look like if this slide continued for 12 weeks, until 25 Dec 09?

S&P 500
- 2% per week
02 Oct 09 1024 - 20.48 = ACTUAL +4.51% = 1071 =
09 Oct 1003.52 - 20.07 =
16 Oct 983.45 - 19.67 =
23 Oct 963.78 - 19.27 =
30 Oct 944.50 - 18.89 = ACTUAL = 1033
06 Nov 925.61 - 18.51 =
13 Nov 907.09 - 18.14 =
20 Nov 888.95 - 17.78 =
27 Nov 871.17 - 17.42 = ACTUAL = 1,091.49
04 Dec 853.75 - 17.07 =
11 Dec 836.67 - 16.73 =
18 Dec 819.94 - 16.40 =
25 Dec 803.54
No Swans in sight.
Merry Xmas!

Wyote said...

From a 12-12-08 post by me:

Bernanke: “Just What-Is-It that Michael (Bloomberg) wants from us? The guy won’t reel in that bulldog Pittman and the whole FOIA thing is making us look like Cheney with Enron.”

Paulsen: Look, the Board is staying with the “trade secrets” and “Matter of confidence” positions. I think we’re safe. Just keep putting out the bank- run scare story. Even if it is actually true.

B: “ Sure, you’re right. But I just can’t figure Michael. Is he one of us or not?

P: “We’re keeping an eye on him. When the blossom opens the City will eat him alive anyway.

B: “ Dang Hank, you’re cold.

P: “Gotta be, Benny Boy, gotta be. The boat only holds so many.

This video may show the way it came down. (and is that Berry Goldwater?) - Wyote

snuffy said...


I have been named many things,over the years................................"wildly optimistic"
Has never EVER been one . Ever.

Than you for the best belly laugh I have had in awhile....

You are right,after all...there is a whole lot of WTF?going on right now as folks try and adjust to this newly forming economic reality.The reality I see day after day is that of squeezing every bit of fat out of a system.And a hell of a lot of muscle.We don't need all the people that are doing various "tasks" in the system.Stripping and minimizing everything and everyone in every organazation.

An optimist would say we will come out of this in another 6-10 months with a leaner,meaner tougher,trimmed down ,slimmed down economy.
I think the majority of the TAE folks will agree with me that we have one long-assed fall ahead before we start to level out

Chapman has been a read off and on for ten years.He is a doomer,and has called a impact point several times.That he has some political stances to the right of Gengis Khan is a given.I ignore the rants,and have seen the eco-101 messages.I have noticed many economic forecasters make a point of mixing politics into their analysis/evaluations.This is a mistake I believe.

Our gentle hosts have kept the vast majority of their presented material relatively free of of overt political "messages".What they have focused on is much deeper and to me more meaningful and succinct.That is,there exists class war in America,and it has resulted in the very profitable destruction of the middle class to the benefit of those in the top 2-5 % of this country who now control EVERYTHING.

Those who currently are in control of the vast amount of wealth of this country will do any and everything to ensure they remain in power,and control...after all,it took them almost 40 years to undo/corrupt the effects of the last great depression...the monetary and regulatory controls that allowed a comfortable middle class to form.

That this greatest of all thefts in history has now been found out,and the players identified,will mean they will not have peace 'till the day they die...due to the fact there will be those who have been destroyed by their actions.And who will remember.Everything.
I wish I could say that I know how this story ends.But if history is any guide,most of the truly guilty will escape justice,the innocent will suffer even more grievous harm than has already been their fate,and as }"the nanoseconds"} time goes by,we will slide with bumps,and bangs,and bruises to a hard and lonely place.

Being able to see clearly where we are is not a gift.The one-eyed man is not king in the land of the blind.



deflationista said...


someone i know posted this on facebook:

"For anyone Interested the 30 year interest rate on a Home Mortgage is at 4.75% with no points. If you are interested please feel free to contact me in my office. Information on profile. Jumbo rates above $417,000 are 5.375%. ......Don't wait for them to go up!"

holy shit...

where do i begin in my response...

Erin Winthrope said...

In today's NYTimes, I see a real gem of a quote about from that little worm Andrew Ross Sorkin:

"With the benefit of hindsight — and you didn’t need much — there were plenty of other signs back then that Dubai was building a financial mirage"

As Stoneleigh has suggested many times, if that worm Sorkin replaced the word "Dubai" with "the world financial system," then he'd be onto something. I guess we'll need to wait another few months.

@whut said...

I live in Minnesota and listened to Bob Chapman talk endlessly on $180 million dollar Ponzi schemer Pat Kiley's radio show for over a year. I just thought people would want to know this connection so they can make up their own minds. I suppose people can be paranoid when it comes down to their own money.

thethirdcoast said...

Please feel free to color me astounded that this piece questioning the benefit of the 401(k) scheme was prominently posted on a MSM website like Yahoo! Finance:

The Biggest Scam Ever

Sadly the article's average rating is two stars from 1129 users. I wonder if the people rating it poorly are deluded by their cultural programming, or shills for the programmers? Perhaps a mixture of both?

el gallinazo said...


Autopsies don't help much anyway. The pathologist who did the original JFK autopsy burned his original report almost immediately and rewrote it when he learned that one of the bullet holes was coming from the "wrong" direction.

I was just thinking on the eve of O-man's "war we can live with speech." We gotta wind down the military and bases to save money, but we're going to have this big problem coming up by starving, but armed and pissed off people in the USA acting in a disorderly fashion. Sure we can beef up NORTHCOM to deal with it. But there could be a problem with the soldiers being told to shoot their friends and relatives and it's also bad for the deficit.

So here is my solution. Why don't we get countries like Saudi Arabia, Egypt, and Korea to build military bases in the USA at their own expense and bring in their crack anti-insurgency elite troops. Helps the budget; improves the balance of payment and the economy with the soldiers working up a tab at US business; and solves the shooting relatives problem.

President Correa of Ecuador just last year offered to renew the lease of the giant US base in his country if the US would let him have a base near Miami. This proves that the idea is a starter.

Dang! I should come back and run for office.

el gallinazo said...

Hey Snuffy

"That is,there exists class war in America,and it has resulted in the very profitable destruction of the middle class to the benefit of those in the top 2-5 % of this country who now control EVERYTHING. '

That isn't a political message? That **is** the political message.

How about, "The one-eyed man is on Zoloft in the land of the blind."

ric2 said...

hey 3rdcoast -

the yahoo article you mentioned was written by robert kiyosaki of "rich dad, poor dad" fame.

i havenʻt him lately, but back then he was preaching borrow money and invest in real estate. leverage, leverage, leverage and retire young. for everyone.

el gallinazo said...

Well, it seems that this Chapman chap isn't real popular with the people who know anything about him. I never heard of him until the recent video. He probably got a lot of the stuff right as to upcoming financial market failures, but his inability to see that these would be enormously **deflationary** indicates that he really doesn't understand very much about the real world. He also appears from what people here report to be somewhat to the right of Attila the Hun and of dubious moral and ethical stature. I guess that sums it up. The video did seem to creat a bit of a tempest in a teapot here though.

Toddman said...

re: Stoneleigh on the West Coast -

If Seattle is feasible, I can host as many as are interested.

Otherwise I'll gladly travel up or down to a meetup ;-)

Phlogiston Água de Beber said...

Snuffy, El G:

I wish you guys would stop speculating about me. This one-eyed man is neither king nor on Zoloft. .) I don't exactly see all that clearly anymore either.

What I do see is that I will be visiting Portland in January. I'm not a celebrity draw like Stoneleigh, but I wouldn't mind spending a little quality time with TAE folk.

Snuffy, if by some chance you manage to entice my candidate for Empress of North America to Portland while I'm there that would be beyond fabulous.

Robert said...

In the 1937 Dorothea Lange photograph Wayfarers posted above, note the straight furrows. One man was largely responsible for introducing contour plowing and other measures to mitigate the dust bowl. By coincidence his papers reside at the OSU where Boone Pickens studied geology.

Ilargi said...

Darn Robert,

For a moment there I thought you were going to say that the man who was largely responsible for introducing contour plowing was Bob Chapman.

El G.,

Good sum-up. I still think the Chapman thing was worth seeing. And I don't feel responsible nor guilty for people thinking that means that Stoneleigh and me have any affinity whatsoever with any of Chapman's parade of clowns.

People don't see what he says, only what he is. My interest is the opposite.

APC said...

At 3:25 PM Ilargi said:

"My political views didn't enter the picture. I'm sorry to see there's some among you who cannot make that distinction."

and again at 12:26 AM said:

"People don't see what he says, only what he is. My interest is the opposite."

God damn, I'm sorry I asked the question. I should like to point out that my political views didn't enter the picture either. As far as what he says, well, I listened to the man (along with a cadre of other wingnuts and gun nuts) for well over an hour go on about illuminatists and the international jewish conspiracy as expressed by the jewish lobby, which apparently controls the US.

You might say that "my interest is the opposite" also.

Stoneleigh said...


Wasn't there some gruesome stories in Turnbull's account of the Ik where people found great amusement in the miseries of their fellow man?

Indeed. I remember studying them in a developmental psychology course many moons ago. Children were only looked after until the age of about 3, then they were on their own (in roaming bands of young kids). If a scavenging child happened to injure themselves in the cooking fire, the adults would laugh rather than help. The child would have to deal with their injuries by themselves. There were almost no bonds between individuals as their society had completely broken down. It's the most extreme example of social breakdown (in the absence of actual conflict) that I know of.

During optimistic times, people tend to identify and bond with others. They sympathize with others and often seek to help them. Pessimistic times (in large-scale moves at least) are times of increasing indifference to the suffering of others, dehumanization (or demonization) of people who are different, and active cruelty. This compounds the tragedy of the times considerably and is something I dread quite frankly.

Stoneleigh said...


Do I finish paying off my credit card debt? Do I finish paying off my back tax debt? (About $3000 each) Or do I save it and prepare?

I would pay off as much of the debt as possible, while hanging on to some of the money in liquid form under your own control. Credit card debt has a punitive rate of interest. Paying it off quickly could save you a lot of money over time.

Many people of little means see what is happening but we feel that there is little that we can do. What can we do?

Is there any way you could pool resources with others? That would help you to prepare much more effectively as well as helping you to build social capital (which ultimately matters more than money).

Preparation is more difficult the fewer resources you have, but being debt free (or nearly so) would be a good start. I would suggest spending as little as possible in order to save as much as you can for a rainy day. Learning extra practical skills would help if you have the opportunity. That way you would have something to barter for essentials, which would make you less dependent on actual money.

I wish you the best of luck.

Stoneleigh said...

John Hemingway,

You know, perhaps I'm wrong, but I don't recall you wearing somber clothing the last time we met in Montreal;-)

I am not a sombre person - at ASPO they called me a 'cheerful doomer' ;)

Stoneleigh said...


If the municipal bond market collapses, wouldn't that be hyperdeflationary, in that available credit streams to compensate for missing tax revenues would be instantly cut off, reducing municipal spending to naught?

Indeed. Municipalities are going to find it exceptionally difficult to come up with any revenues at all, hence property taxes will go up drastically, pushing more people over the edge.

Jason said...

Not to replace socionomics, but to lay alongside it, this really puts a bomb in the mix:

... essentially energy use and economic productivity are linked by a constant. (That turns out to be 9.7 milliwatts per inflation-adjusted 1990 dollar.) Throughout history, that means you can predict societal evolution by looking at energy uptake and efficiency.

That means all economic productivity follows energy use and opens the door to a reassessment of White's Law (good wiki page on that.)

I'm betting all of the waves in society are linked to energy similarly.

Stoneleigh said...

sv koho,

Stoneleigh makes so much sense that I wonder if he/she? is a woman.

LOL - thanks, and I am indeed female. Ilargi is male.

Stoneleigh said...

I'd be very happy to meet our readers on the west coast. I'll have a think about logistics and see what I can do. I'm currently thinking of the second half of January, and I could come for a week and a bit (one week off plus weekends either end), so that would give me some scope to get around a bit.

It's great to meet people who have put a lot of themselves into this site. Who knows how long we'll all be able to travel? Turning a virtual community into a real one (albeit a dispersed one) while we can seems a good idea to me.

bluebird said...

Stoneleigh said "Municipalities are going to find it exceptionally difficult to come up with any revenues at all"

Our small community has resorted to speed traps to generate income. From public records requests, we have learned that income, a couple years ago, from speeding tickets, used to be appx $1000-$2000 per month. Such income is now averaging appx $7000-$8000 per month, and one month actually increased to $12,000. Per Month.

There is no way this gouging will continue forever, but I do wonder what will be the next tactic for revenues.

Stoneleigh said...


Expect much more of that sort of thing. Municipalities will look for revenue wherever they can find it. Speed traps are a start, but there's much more to come. All sorts of things could attract fines and fees. When local authorities institute a lot of bylaws that could be difficult to comply with (that being the point after all, since they are designed to generate revenue), a lot of enforcement discretion ends up in the hands of local enforcement officers. That is a recipe for corruption down the line (eg pay the fine or pay the officer not to enforce the law against you). It wouldn't happen right away, but I don't think it would take that long either.

Municipalities could also run protection rackets. The possibilities are almost endless once one starts down that path.

el gallinazo said...


At least, for the moment, you have control over whether you get these additional taxes, and frankly, the speed limit laws are usually reasonable and serve a good purpose. Most of the drivers in Cost Rica drive much too fast, and they don't seem to connect that with all the dead children and seniors. I'll have mixed feelings when the coming energy and credit crises puts them back on their horses, who, for the most part, have been on holiday for the past 15 years.

Just wait until the police start handing out tickets based on false testimony. Inevitable as people adjust to the new "tax" and slow down.

Same deal with the property taxes. Soon the local governments will own the arbitration companies as do the corporations like Blackwater and justice will be quite impossible.

el gallinazo said...


"Municipalities could also run protection rackets. The possibilities are almost endless once one starts down that path."

This has already been going on for quite some time in towns in Texas, where the cops and judges are relieving pass-through drivers of the cash in their wallets. which sometimes is in the four figures.

el gallinazo said...

Doobie........schmoobie. Happy times are back on the world indices. To paraphrase Freud, "Sometimes a doobie is just a good smoke."

el gallinazo said...

Goldman bankers packing heat to do God's work.

Anonymous said...

El G said:

"I just think it was a skunk that was spooked by some sort of big cat."

Be thankful it was a nice skunk. :)

Anonymous said...

Debtwatch No 41, December 2009: 4 Years of Calling the GFC | Steve Keen's Debtwatch

The preceding link is to a Steve Keen article which actually references a mathematical model that supports the I&S thesis. Good reading.

jal said...

Karl D. has identified two big problems and how we got here.
In my opinion, he has not properly identified the problems, and therefore, he missed the implications of his solutions.

What America doesn't understand and is increasingly unwilling to tolerate is the smug grin you folks have on Wall Street, having not only run Americans into bankruptcy but when your imprudent lending threatened to bankrupt you instead of sucking it up you extorted Congress to the tune of more than $12 trillion in direct support and guarantees. 
That is you forced the bankrupt consumer to go broke twice and cover your imprudent acts, as all that money to cover up your insolvency is now being forcibly extracted from Main Street by the government through taxes!

Here's the problem, in a nutshell:
1. If we don't get the debt out of the system - really get it out, not just shuffle it around and shift who's balance sheet it sits on - we can't restart true economic growth.
Getting that bad debt out means that both borrowers (who are already going bankrupt) and lenders (who are thus far being protected) need to go bust. 

2. To buy a swap from a company that has no money to pay and then claim that swap as "money good", thereby allowing you to "elevate" an asset that would normally have to be reserved against with regulatory capital to something that doesn't is beyond outrageous - it is ridiculously fraudulent.
This is the root cause of the so-called "systemic risk" right there and absolutely nobody is willing to take it on.

What readers need to understand is that the banks are not the ones that will go bankrupt. They are the middlemen.

The true lenders are the savers ... grandma ... pension funds ... foreign lenders ... etc., They are the ones that will go bankrupt.
You cannot tell the savers that they are bankrupt ... you’ll get Mad Max!
Yes! The governments are protecting the lenders!
Yes, it appears that the middlemen are being protected.
Yes, the middlemen are still middlemen and making money from the transactions needed to protect the savers from the truth.

Nobody knows how to get off the merry-go-round without getting hurt.

Nobody knows how to stop the merry-go-round so that everyone can get off.

The best that can be done is to slow the merry-go-round and hope that some of the people will be able to get off without being killed.

Geee! The stock markets are still going up! Every saver is saying, “MY savings are SECURED!”
(I’m not getting off the merry-go-round, YET!)


ps. I do not have a solution.

Greenpa said...

Stoneleigh said...

"Indeed. Municipalities are going to find it exceptionally difficult to come up with any revenues at all, hence property taxes will go up drastically, pushing more people over the edge."

There IS an alternative- older than money tax. Labor tax; corvée.

I understand it's already happening, on a voluntary basis; some folks hit the news last month when they went out with shovels and farm tractors and just fixed a small bridge taken out by flood- when the upper government layers told them it was going to be a couple months before they could get around to it.

For small communities, this could be both viable and not completely unpleasant. And possibly better than bankrupting everyone, for all concerned.

Stoneleigh said...

Re: West Coast

I am hoping to travel west in the second half of January and am going to look into including a side train trip from Vancouver to Portland and Seattle. I am hoping to get to Victoria as well. When I know specifics, I'll let people know and we can make arrangements to get together. I've never been to the west coast before and am very much looking forward to it. Meeting readers is great fun :)

Iconoclast421 said...

I dont know who VK is, but (s)he has it wrong. Some elites might prefer deflation, but most elites are either insiders or connected with insiders to the corrupt central bank. As such, they can and do position themselves to profit from inflation. This was done in late february of this year. I could see it on the charts, and it even led me to call the bottom (google "GE is a solid buy at $6.10" I bet you wont find one other person recommending GE at 6 dollars, and I've never recommended GE at any other price).

The decision was made to print, and that information was spread out through a series of criminal inside information leaks. Those privy to the information (as well as those who can read a chart) were able to leverage themselves to the hilt and then rake in the cash as the market rallied. You cant run that kind of racket in a period of constant deflation. That is why central banks will always attempt to print their way out of their messes. It enriches them like nothing else. It is a direct wealth transfer, no different than robbing Ft Knox.

Greenpa said...

Sign of the times:

Very bad news for rhinos- and all other large wildlife; when locals are desperate, rare wildlife gets eaten/poached, every time. Lots of history there; look up Père David's Deer and Wisent.

The stories about rhino poaching usually attribute it to demand for "oriental traditional medicine" - when it doesn't just say "Chinese aphrodisiac".

There is another traditional use, though, which is also a major contributor- Arabs will pay insane prices for rhino horn to use as a handle for the ceremonial dagger, the Jambiya.

I actually have a perfect fix for the money end of this problem, and maybe even the food end.

All Greenpeace needs to do is: find/poach about 20 rhino horns. Saturate them one way or another with powdered plutonium. Sell them on into the blackmarket.

Likewise with bushmeat. Pepper a dozen or so bonobo carcasses with plutonium; or heck, polonium works fine- and sell them on.

When word gets out that your tigerbone tea can kill you, in a very nasty way, and bonobo stew killed an entire village- or the rhino horn dagger you gave to your adolescent nephew wiped out his entire family- and that everyone in the black market pathways died or has cancer; that would kind of put a crimp in the market.

Don'tcha think?

John Hemingway said...

In fact, I thought the description of the somber times to come was rather in contrast with your own personality. "Cheerful doomer", I like that:-)

Phlogiston Água de Beber said...


June of 2007 a tornado struck the little town where I grew up and did major damage to the city park. As soon as word got around, people showed up with chain saws, tractors and trucks to clear the debris. A wealthy farmer/business man contributed most of the money needed to build a new shelter.

This was all voluntary, but in a dark and dismal future conscripted labor will no doubt be common. I've commented before about the use of chain gangs in the economically struggling southern states.

Greenpa said...

Crappy Accounting department:

Minneapolis is having to cut $8 millon from its police budget- no money. That's really going to hurt.

"Dolan's proposed 2010 budget eliminates 47 civilian and prevention specialists jobs -- nearly $4 million in savings."

My first thought is: "And $50 to $90 Million in new costs, for crimes to property not prevented, productive lives not saved, court costs, and costs of imprisoning criminals."

Ecologists are trained to, and used to, following all the energy inputs and drains on a system. Economists are trained to account only for monetary inputs and losses.

The non-monetary costs are a large part of what's killing us right now- and there still is no way to put them into the approved "accounting" processes.

If there were, the poor chief of police could have readily shown the city council- "look, cutting this $4 mil is going to result in a $56 million loss to the community over the next 10 years."

Not that that would make any money appear- but it might make a difference in the process..

Some day.

Phlogiston Água de Beber said...

John Hemingway,

Stoneleigh's ability to remain cheerful, in the face of what she knows is coming, is the reason I want her crowned Empress. Alternatively, I guess I could stand to see Jon Stewart in charge. If you can't receive bad tidings at least somewhat cheerfully, you are in for a really bad future.

I've just been told that I have myasthenia gravis. Not the best news anybody ever got. It is the reason I've been claiming to be old one-eye. Both eyes actually work, just not together, so one has to be sent into the closet. Hey, it could be worse... I mean, I could have been told that I was actually Senator Grassley's illegitimate brother. .)

Greenpa said...

I.M.- "This was all voluntary, but in a dark and dismal future conscripted labor will no doubt be common. "

A wise herd manager will find a way to keep the phenomenon feeling "voluntary."

It can be done. I remember driving past a field in China- about 200 people were out in the field, doing something- and all dressed up in their fanciest clothes; kids running around in brilliant colors. Several buses parked nearby, which had brought them all here.

My host explained- it's a government requirement; every person in this region MUST plant 10 trees, each, every year. So they'd turned it into a party- where, incidentally, the compliance could be documented.

Good management. Some of the people were NOT happy to be there- but they weren't complaining enough to ruin it for the others.

Just a spoonful of sugar. :-)

Anonymous said...

Bill Moyers interviews Jane Goodall. Powerful ...

Stoneleigh said...

I can imagine 'voluntary' work along these lines:

On the night of July 30, 1935, miner Alexei Stakhanov performed, as the newspapers called it, “a worker’s heroic act.” In six hours of his working shift, he produced 102 tons of coal, 14.5 times the daily norm.

Stakhanov was dubbed a hero and everyone was called on to follow suit. Workers’ collectives pronounced themselves his adherents and set higher performance targets. Everyone wanted to be like him. What can be bad about a person becoming famous for his work achievements? In the meantime, the model for imitation, Stakhanov himself, soon started drinking heavily and ended his life in a psychiatric hospital of the town of Torez.

Those who studied his biography have voiced their suspicion that it was the discrepancy between appearance and reality that tormented him. He did not mine that colossal amount of coal himself, like regular miners do, but rather with the help of five assistants who followed in his footsteps and finished his job for him.

The truth is there was no heroic worker’s act. The noise around Stakhanov was created to motivate the Soviet people to exert themselves for the same old wage. Labor efficiency was increased not through improvement of equipment and technology, but through greater physical effort by the workers.

The bankruptcy of this approach is clear. If there was somebody naive enough to produce more than the norm, their pay per unit was simply cut. They were forced to produce more for the same money. Obviously, the number of those willing to work like that dwindles fast.

Workers were later 'encouraged' (shamed into) donating their days off for additional work. This became optional only in theory. Workers will have no bargaining power to resist additional demands or maintain existing protections against abusive practices.

Anonymous said...


Greyzone mentioned this by Steven Keen:

I also find it excellent. Very clear, a must read, though I do have two questions.

1. The importance of comparing debt to GDP strikes me as so obvious that I do not understand the objection of the neoclassical economists in the article, who evoke comparing a stock to a flow. What is their point exactly?

2. Is it possible that Bernanke, as Keen asserts, does not understand the effect of delevering on aggregate demand? That strikes me as highly dubious.
I find it far more likely that in the quote presented by Keen, Bernanke is simply presenting the arguments of neoclassical economists in decades past. I would think that Bernanke fully understands the effects of delevering, but for reasons that I am unaware of (i.e. I have no proof) is participating in the current policy of bailing out the banks.


Anonymous said...

The article El G posted above re: Goldman bankers arming themselves has this interesting bit I hadn't heard before (in the bottom 3rd of the article)...

Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and -- oh yes -- the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”

Anonymous said...

El Gallinazo,

Maybe you could give me a few tips? I'll be in CR very soon doing volunteer work. Do you have any recommendations of things one should not miss? I'm more of a wanderer than a tourist, so I don't think the guide books will be all that helpful.


Greenpa said...

Hot Damn!!

AIG American Intl Group Inc

"The troubled insurer said that it completed a deal wiping out $25 billion of its debt to taxpayers by selling the New York Fed preferred shares of two of its international life insurance companies, including $16 billion of American International Assurance Co. and $9 billion of American Life Insurance Co."

Stock is up 15% today. Boy, as a taxpayer, I'm just overjoyed to have that $25 Bil back!!

oh, wait. Where is our cash, exactly?


So is this a new ploy, or an old one?

Greenpa said...

Stoneleigh- no question tax labor is, always has been, subject to vast abuse. I like my Chinese example, because it's in a kind of middle position. A lot of people being taxed (way more than I was seeing, of course) - without apparent abuse, yet.

In part, a way for communities to still get things done, when there is no money anywhere.

sv koho said...

Stoneleigh: Thank you for clearing up what gender you subscribe to. I am pleased I guessed correctly even if I did have a 50% chance of being right. Also as an aside, I thought Colin Turnbull's take on the Ik had been somewhat discredited although I can't find my source. Seems like the IK weren't as icky as he said. You also forgot to tell me where I could find a picture of you and Illargi to hang up in my cave with my other saints. Also, Isn't it about time to think about writing a book like my other favorite is doing: the archdruid ?

Ilargi said...


If you believe that selling shares to the Fed is a way to get debt off the taxpayers' back, then yes, rejoice all you will. AIG lost much more yesterday than it gained today, so not everyone is partying yet.

Phlogiston Água de Beber said...

Greenpa said...

oh, wait. Where is our cash, exactly?

I'm pretty sure the international association of cashiers could certify that no cash was harmed in the making of this lousy picture. It's all credit don'tcha know.

There is a good question as to where that credit entry was made. Did it get used to retire some treasury paper, or was it quietly dumped into the general fund? Perhaps, to be used to buy a few lumps of coal for the troops in Afghanistan? So many questions, so few answers.

Hombre said...

Jason 7:09

I found your link pretty interesting. I find it easy to visualize humanity on earth as a giant bio-machine that consumes energy as it grows. Of course there is always exhaust from a FFuel engine!

Of course I cannot competently judge the article's theory, in which he nails down a discrete figure as a ratio of energy consumption to productivity, but it is worthy of some serious consideration, IMO.

The bottom line in all this is easy to understand, irregardless of the causes and extent of climate change. The earth is round, finite, and we cannot keep living like this for much longer or it will all be concrete, blacktop'd and plastic covered!

el gallinazo said...


Sorry, I can't be of that much help. I have only been here six weeks. I traveled around looking at finca's for the first week in an SUV with friends who were looking to buy, and then high tailed it to the Rio Chirripo Valley just north of San Isidro de General. I then went about finding a place I liked to rent where I could get broadband internet of sorts (wifi from a tower 8 km away; no phone lines) and when I had settled in, I went about buying a very small motorcycle (last week). Also, we are in the monsoon season which is suppose to clear up sometime this month, but it has been raining hard every afternoon. I even took to putting my blue jeans in the electric oven - a la Jeans Cordon Bleu. I use the plastic National Geographic Map which is quite good, google earth maps, and a book really designed for potential ex-pats titled :

Living Abroad in Costa Rica (Kindle Edition)
by Erin Van Rheenen (Author)

which I have been referencing on my iTouch in Kindle version. It is also excellent for people who are thinking of a permanent move, but maybe not so much for the casual visiter. When the rainy season is over I intend to get around and see more on my motorcycle. I am also planning to visit the mountains of Panama just on the other side of the border in mid-January. Tourist visas last 90 days, so if you want to stay on, you have to clear out for 72 hours and then come back.

Other than that, the best I can tell you is that the people are very friendly to gringos and it's the most expensive country in general that I have been in in Latin America and more similar to the USA culturally even than Mexico. Also, the young women dress in tight, low cut blouses and short shorts and microskirts, so be prepared for that if you are of the male persuasion.

Also, so far I have spent less than an hour total in San Jose including clearing customs and immigration at the airport, and that has been quite intentional.

John Hemingway said...

@I.M. Nobody,
When I lived in Milan I used to review the research papers of a good friend of mine who was a neurologist specialized in ALS and other neuromuscular diseases. Review them for grammar and syntax mistakes that is. I'm familiar with the terms they use, but the science behind it, no. Yours, from what I read, is a fairly rare condition, but it is treatable, which is good.

Hombre said...

Looking at the debt/GDP ratio's in the Steve Keen charts (article which Greyzone posted, thanks) I could not help but relate it to the energy use to productivity theory in the article Jason - 7:09 posted.

Debt, production, and energy are like merging rivers flowing together to produce a flood (in which we are now overwhelmed.)

el gallinazo said...

"Only 26 percent of people who shopped over the weekend said they used credit cards for their purchases, according to a poll conducted for Reuters by America's Research Group."

The rest used FR Notes, Cliff Notes, checks, or debit cards against their checking accounts. I guess folks don't like paying 29.999999999999% interest to Jamie the Torch.

el gallinazo said...

Our new "war" president makes his speech tonight. Afghanistan will once again become the anvil and graveyard of another empire. First the British, then the Soviet, and now the American. I wonder what the Afghanis did to deserve such a lousy karma.

Any else think that NPR News should consider changing its name to Goebbels, Inc.

Bigelow said...


I also thought the Keen piece was quite good.

"The importance of comparing debt to GDP strikes me as so obvious that I do not understand the objection of the neoclassical economists in the article, who evoke comparing a stock to a flow. What is their point exactly?"

I am not a neoclassical economist or play one on television but, I would think they don't agree with the sum of credit and cash equals total money definition. Debt (credit) is their stock and cash is their flow. (?)

Gravity said...

Is monetisation of debt a cause of devaluation, or is it identical to devaluation? Does the external hyperdevaluation of the dollar require internal hyperinflation, or would such devaluation cause it?

There are few methods by which internal hyperinflation in the US could be triggered, here defined as prices doubling at least once every six months as a function of excessive money supply.

The easiest way, and possibly the only way, is by declaring martial law for whatever reason, destroying all binding faith in government paper and nullifying dollar demand from taxation, this should create hyperinflationary conditions almost instantly, regardless of money supply. The ensuing monetary conditions are best described as transflation, which is what happens when a trillion dollars wont trade for a sandwich.

It does not seem possible to sustain deflationary conditions if martial law were declared, there should be hyperinflationary distrust of money within a week if that happens, though not caused by excessive money-supply, rather infinite supply in regards to zero demand.

What is the theoretical output-gap during martial law, infinite or zero?

Hombre said...

Ahimsa - I watched and thoroughly enjoyed the Goodall interview (as it happened). She is a gentle spirit and a person to emulate in many ways.

John Hemingway - I think I'll make myself a "TAE cheerful doomer" bumper sticker! (and I don't like stickers) Better yet!...
Host Ilargi -Send all those who hit the tip jar a sticker...



Hombre said...

I M Nobody - "...As soon as word got around, people showed up with chain saws, tractors and trucks to clear the debris."

A lot of similar neighbor helping neighbor around here after a severe ice storm in 2003 which downed limbs and trees and cut power over sevral counties. I have high hopes (but lower confidence) that this behavior will show itself when the hammer falls.

BTW... Sorry about your diagnosis, but glad you can express some humor about it.

Anonymous said...

El G said:

"Any else think that NPR News should consider changing its name to Goebbels, Inc."

Sounds good to me. Since the beginning of the Iraq War NPR should have been renamed National Pentagon Radio.

Anonymous said...

Coy Ote,

Goodall was wonderful! I watched the interview online today since we have no TV.

Gravity said...

It may be a bit premature to mention martial law, but I am afraid such an event has a high probability of happening within four years, maybe two or less, for various reasons, it may be just what is needed to destroy sovereign debt most fully, creating hyperinflationary conditions internally to provide the basis for external currency hyperdevaluation. The elites could presumably profit from this in some ways, more than by sustained deflation if properly diversified.

Erasmus said...


What do you think is going to happen to Taiwan and South Korea? Both are Chinese realms of influence. Both are manufacturing powerhouses. Both have massive reserves. However, both are export dependent countries. Also do you foresee Taiwan being absorbed into mainland China?

Phlogiston Água de Beber said...

@John Hemingway

Thank you for the show of interest. Yes, it's rare and treatable, but not curable. As I understand the science, they know what the immune system does. They don't know why.

The diagnostic blood test was ordered by an opthalmologist. I see a neurologist Friday and will probably be put on drugs.

Maybe, if I get to meet Stoneleigh next month I will be able put both eyeballs on her. That would be good. .)

@el g

I've heard allegations that the Afghani did not exactly endear themselves to the macedonians and mongols either.

Haven't listened to NPR in a long time, but I heard the Public Broadcasting Corporation was subverted quite some time ago. A most unfortunate loss.

Greenpa said...


Maybe we need a law that states "Two hung juries for one case will be construed as proof of jury tampering. Minimum sentence 10 years."

Yeah, yeah. Why, that would go against umpty zillion democratic principles!

So does Gotti.

Hombre said...

El Galileo - I still watch the Moyers show on PBS and a few specials, music, etc. but the news hour is just flat wonder bread! No whole grains, just processed white paste!

I'll watch the Pres. announce his war plans, that match pretty well what the old man and the pretty girl who ran against him would likely have done. (I can say that I'm old too)
As to what it is about Afghanistan that has aroused the world's superpowers to such lengths I cannot fathom, although I am confident it has more to do with oil than Pakistani nukes.

el gallinazo said...


Excellent idea. Greenpeace out to appoach Putin to see if he will part with a little of his stash of Po 210.

thethirdcoast said...

@ Stoneleigh:

Workers were later 'encouraged' (shamed into) donating their days off for additional work. This became optional only in theory. Workers will have no bargaining power to resist additional demands or maintain existing protections against abusive practices.

This is exactly why I roll my eyes and sigh heavily at the "rugged individualists" in my workplace who rail against the unions because, "we have all these laws and OHSA now so we could never return to that!"

Really? Really?

Just like all the other recent events that, "couldn't happen here?"

Then again, I live in a country where some people think it would be a great idea to give Dick "40+ years of destroying America" Heydrich-Cheney a shot at being CinC in 2012.

Back in 2005 I should've dropped out of grad school and done everything I could to take a job in least the populace there isn't 100% section 8 flipping insane.

thethirdcoast said...

Argh...speaking of being 'shamed' into work...I forgot the following point in my prior post...

Currently I have accumulated 200+ hours of vacation time + 8 hours of personal holiday at my workplace.

To get the Wednesday off before Thanksgiving, my company asked people to work an additional 5.5 hours over the course of a 'substitution week' or get supervisor approval to burn 8 hours of vacation time.

I was feeling awfully run down, and there were multiple people absent with swine flu. I would care about the additional 2.5 hours of vacation if I could sell it to a coworker, but that is not an option in my workplace.

I asked my supervisor to burn the holiday time and he gave me all sorts of garbage about working the substitution week like it would build character and improve my morality.

Are you kidding me? You really think I want to be that corporate clown who dies in his cube or lies on his deathbed thinking, "Gee, I wish I would've spent more time at work!"

Don't even get me started about my Gen Y co-op who appears to have few hobbies or interests and, "..doesn't get off campus much."

Phlogiston Água de Beber said...

Coy Ote said...

A lot of similar neighbor helping neighbor around here after a severe ice storm in 2003 ... I have high hopes (but lower confidence) that this behavior will show itself when the hammer falls.

I think the doomer community tends, on average, to expect too little from humankind. People have gone from prosperity to poverty before without going all crazy on their neighbors. I fully expect much more communal cooperation. I even expect we'll get to know our neighbour's names. .)

Of course, a person from a tribe in an adjacent county may want to beg off any invitations to dinner, due to a risk they might be it. .)

ric2 said...

re Martial Law

It seems very likely that there will be civil unrest with possible widescale rioting in at least some of the major US population centers next year. It would take a unique and highly improbable set of circumstances to avoid this, given all that is happening.

I am not an expert on this but it just seems like JIT food delivery has too many failure modes and at least one will happen next year.

Most of my family lives just outside Baltimore, which has a population of 650,000 with 162,195 food stamp program participants and a city police force of 4000 officers. Even if JIT remains functional, what happens when government services collapse due to a funding crisis?

I know Stoneleigh had earlier said that civil unrest will likely occur next year with an uncoordinated response from authorities (to be eventually followed by more organized state repression). I concur, and think the Feds will have no choice but to declare martial law in more than one city in the US before the end of 2010.

God help us.

Stoneleigh said...

IM Nobody,

Automimmune diseases were the subject of one of my major papers when I was studying biology. I wish you the best of luck in dealing with this one. At least yours isn't one of the worst ones to be afflicted with, although I'm sure that's small comfort at this point. The TAE community will be rooting for you I'm sure.

Frank said...

@IM Nobody It's my understanding that the Afgans have never endeared themselves to anyone. Without trying too hard to defend Czarist Russia, the British Raj or the Soviet Union, the Afghans are really crappy neighbors. Even Iran has given us a bit of under the table help there over the last few years. IOW el G, they've spent the last few thousand years earning their kharma.

Persephone said...

Interesting article
UPDATE 2-Boost US debt ceiling to cover 2010, Hoyer says

"Congress will have to raise the current debt ceiling of $12.1 trillion in coming weeks to prevent the Treasury Department from defaulting on its debt."
"The recession, wars in Iraq and Afghanistan and tax cuts have forced lawmakers to more than double the debt limit from $5.7 trillion when former President George W. Bush took office in 2001."

Thanks VK. You're statement is quite enlightening.

Thank you all for your links and posts. My education continues every day I can read TAE.

El G - haven't done a search on Costa Rican wildlife, but any animal that is from the mink/weasel family can emit a musky skunk smell .

TechGuy said...

Ilargi Wrote:

"Zimbabwe and Weimar are invalid comparisons. It doesn't take that much to recognize that. Just find the differences."

Where are the differences? Both Zim. and Weimar had unpayable debt and the Credit market for Joe Six Pack was dead too. Both Countries owned printing presses. How is that different the United States? Please point out the differences.

Ilargi Wrote:
"The deflationist said in Dec 2008.
is hilarious."

That would be you and Stoneleigh. How many predictions did you make that didn't come true? Virtually all of them. Please go back to your TAE posts in December thru March 09 to see what you predicted would happen by now.

TAE: Dec 30, 2008:
"But first, 2009. No more loans, not for cars and homes, not for business lines and letters of credit, and increasingly not for governments, who'll be attempting to sell their bonds in an ever more overcrowded marketplace. International bond markets will be but a faint shadow of their former selves"

There are many more predictions that you made in the December-April period that didn't happen.

I believe Stoneleigh said sometime in earl 2009 (Jan, Feb or March) that she expected a total economic collapse by the Fall of 2009. While the economy is very bad its still alive. I can't find the exact statment she made, simply because there are so many comments about this prediction and I don't recall the exact text written to find the link. I think it was written in March or April of 2009. I should have bookmarked it. In the future I will be sure to bookmark yours and Stoneleigh predictions.

People are still able to get loans for cars and homes. In fact the FHA is still handing out Mortgages with only 3% downpayment to less then prime borrowers. The GSE's are still buying Billions in new mortgages. People have no trouble getting loans. In fact a bunch of recent college grads with no jobs bought a Million Dollar Mult-famility home in SF (From Wall Street Journal Article about a week ago). The borrowers were even shocked that they got their Million dollar loan!

There is no deflation as the price of Oil, commodities, and the Stock market started rising significantly since March. The period of deflation is likely gone. Perhaps for one more significant market correction, but we won't see a gov't pull back on spending or Fed Money printing. Interest rates will likely remain at extreme lows for the foreseable future.

Suggested reading:

el gallinazo wrote:
"If your analysis is correct, I think one's best bet is to buy assets now, leveraged as high as you can. I think for the average non-zillionaire"

Real estate is a terrible investment in a hyper-inflation crisis. since it a non-liquid asset and costs for energy and maintaince, and taxes will soar. No body was buying real estate in Zim. or in Germany during the Weimar years and it didn't save property owners from hardship. Real estate isn't a inflation hedge, its an inflation deadweight, as you can't sell it and you can't buy goods and services with it.

If you think deflation is ineviable then sell everything and hold US dollars under a mattress!

Hyper-inflation has happen when gov't can't pay there debts and obligations and turn to to printing presses. It had nothing to do with Consumer and Business Credit and thier confidence. It isn't the same when credit and money liquidity is excessive. Zim and Wiemar had much much higher unemployment than we do today, yet they still had hyper-inflation. If Credit does continue to contract, the gov't will print even more dollars. Look at the charts of the big banks balance sheet. They are hoarding $100s of Billions and offloading Trillions of bad loads to the Fed and the GSEs, and the gov't is on a buying binge. Today the NY fed bought two AIG units for an overpriced value of $25 Billion. The gov't will go on overpaying for worthless assets until the banks balance sheets are healthly.

Anonymous said...

Living Abroad in Costa Rica (Kindle Edition) by Erin Van Rheenen (Author)

el gallinazo,

I'll look at the book and see if there is anything helpful in it.

I don't really plan to put my pants in the oven, but one never really knows. I'll keep the other wardrobe tips in mind though as there may be some reason for such fashions that isn't evident to me from here.

I had heard about the tourist visa requirements, but I appreciate the reminder.

I think you really should get out and about some when you get that motorcycle.

Thanks again

NZSanctuary said...

Thanks for the Moyers link, Ahimsa. Part 2 (about 13 mins in) becomes relevant for those interested in hearing her views on sustainability, but the whole thing is interesting.

Greenpa said...

"@IM Nobody It's my understanding that the Afgans have never endeared themselves to anyone. "

It's not my forté, but- it's my understanding that nobody has ever endeared themselves to the Afghanis.

All the wars there I can call to mind were the results of the invasion of Afghanistan by somebody. Unfortunately for them, they're astraddle of all local trade routes, and outsiders keep trying to control them. They've resented that, extremely stubbornly, regardless of their current religion.

How rude of them! :-)

Greenpa said...

The "Rome Is Crumbling" stories abound these days- but have you noticed- we don't notice?

"LOS ANGELES, Dec 1 (Reuters) - California officials said on Tuesday that drought and environmental restrictions have forced them to cut planned water deliveries to irrigation districts and cities statewide to just 5 percent of their contracted allotments."

Last year; they planned 15% of contract; and ultimately delivered 40; normal delivery is ~ 70%.

From the Minneapolis Star-Tribune (just out of bankruptcy)

"Someone broke into the city-owned St. Paul stadium late Sunday or early Monday, not to swipe bases but to take copper wiring in circuit-breaker boxes along the outfield wall, St. Paul police and a Saints official said."

They have no suspects.

LindaBob said...

Still feeling new here and a bit shy but 'couple things...

We took the plunge and nuked the IRA and paid off the house. May have been foolish, I hope not, but it's what we felt was right. At least we'll sleep better in our own house. Zero debt all around.

Next we have to figure out what to do with the rest$. Physically, we are pretty much set up (been here a long time, have water, gardens, heat, stores and PMs. It's a good problem to have but still thinking about choices. We know that we'll be the family homestead if things come to that and we are trying to prepare.

BTW, we are in Portland OR and would love to meet Stoneleigh and others.

Jim R said...

Fed's Plosser says policy must be preemptive
ROCHESTER, New York (Reuters) - The U.S. Federal Reserve must be prepared to raise interest rates if needed before the jobless rate has fallen to an "acceptable level", or risk losing its inflation-fighting credibility, a senior Fed official said on Tuesday.

Jim R said...

Oh, and somewhere I ran across this:
-- an e-zine about expatriate life

Phlogiston Água de Beber said...


Thank you for your good wishes. I have a long history of taking things as they come. There certainly are agravating symptoms in addition to the ocular problem. I mostly take comfort from the fact that I'm old and was already effectively pretty useless.

I do appreciate the well wishes, but I think TAE folk should focus on the problems you blog about instead of wasting time rooting for me. That's life and I intend to go on laughing just like I always have.

ps: I hope to meet you in Portland.

soundOfSilence said...

Persephone said...
Interesting article
UPDATE 2-Boost US debt ceiling to cover 2010, Hoyer says

"Congress will have to raise the current debt ceiling of $12.1 trillion in coming weeks to prevent the Treasury Department from defaulting on its debt."

Dont' look now (too late) the number as of 11/30 is 12,113,047,538,115.42. Wonder if there's an overdraft fee on that?

soundOfSilence said...

Persephone said...
Interesting article
UPDATE 2-Boost US debt ceiling to cover 2010, Hoyer says

"Congress will have to raise the current debt ceiling of $12.1 trillion in coming weeks to prevent the Treasury Department from defaulting on its debt."

Dont' look now (too late) the number as of 11/30 is 12,113,047,538,115.42. Wonder if there's an overdraft fee on that?

snuffy said...

This is starting to look more and more like a likely way to trouble...the control is food...thru food stamps...1 in eight.1 in four children....What a control mech..."shut up and be still/sit down or the food to your kid stops."

or something a little more subtle,but as effective....

I cannot see anyway out of where we are now except to go to zero and start over.And that will mean blood,death and pain for many.There exists too many of the it 3 to 5 million people in American to whom life is just fine as it is...and want absolutely no change.....or better put...change "they" believe in.

The rest of us can slide into the long as "they" control the strings,the ownership of 95% of everything...

Pretenses of a egalitarian society are being put aside everywhere...and the blinders are off for many,and soon for all.

There is a not-well-received..somewhat radical night talk radio host name of Mike Malloy.He is way way populist...not right..left,and loud.I cannot listen to him to much,as what he is broadcasts is so true,and on the money that my blood-pressure goes thru the roof,and I get depressed.The same is true of any of them...Thom Hartman,Randy Rhoads ect,Jack Rice...what happens is they have pulled the curtains back from the poltical clusterfluck and give a blow by blow of how we are being sold down the road by our "representitives"

Anyway,Malloy has pointed out many times that as soon as the poor dumb sob that believed that he too was part of the American dream,and thought he would have a nice house and toys and security....[well all thats gone]

His rage will melt steel..the payback will be in blood.

O-mans job is to get things done that the republicans could never Clinton passing Nafta and gatta....his job is to gut Social security,and medicare,things a republican could never do....
And smile a big smile doing it.

I can not see where he is wrong.


Phlogiston Água de Beber said...


They were never OUR representatives. I don't know about you, but I've never given one a plugged nickel. Why would they represent me? We accuse them of being corrupt, but that implies that we believe they could somehow not be. Given the actual rules being observed, I don't see how.

If listening to those clowns boils your blood, stop. You already know it is drain circling time. Devote your mental energies to figuring out how to ride the currents so that maybe you can shoot a landing and escape the vortex.

Jihad against the supposed perps will not be part of the solution.

Bukko Boomeranger said...

Hey Snuffy -- good onya for listening to Malloy! More than anyone else, he mirrors how Mrs. Bukko and I think. Especially the rage. We did not miss a minute of any of his shows (during several network changes he went through) even when we were living in Australia. (Thank goodness for downloadable podcasts.) Have I told you tonight how much I hate these people? (i.e. the maggots devouring the flesh of American society...)

(And yes, defenders of maggots, I realize they only eat dead stuff, not living tissue.)

Re: the supposed ease of getting credit -- Mrs. Bukko and I have excellent credit histories and high credit scores in the U.S. We were hoping to get a credit card in Canadian dollars, and possibly a loan on a new Prius. But we cannot get credit in Canada to save our lives.

The ostensible reason is that we have no Canadian credit history, because we're recent immigrants. We told the credit union (where we have five figures' worth on deposit) and the Toyota dealer to check our ratings at TransUnion et. al. The U.S. is just next door, after all, and it's not unheard of for Americans to move to Canada. No go, though.

If credit is so fricking easy to get, TechGuy, then how come we can't? It's no trouble for us -- we will continue to use our U.S.-dollar denominated plastic. (We had the same problem in Australia, and did the same thing.) And we could afford to pay for a new car in cash (or even gold dubloons) if we wanted to. But I'm so aggravated that we're going to buy a used car for cash, and eschew plastic wherever possible. Screw these stupid Canadian lenders if they don't want to make some low-risk profit from us. Have I said tonight how much I hate these people? Have I said that already?

Lastly, ThirdCoast, it's too bad your work situation is not in the worker's paradise of Australia. Whilst I can't speak for the entire country, where I worked, it would be considered unsporting, if not outright gauche, to ask employees to labour more to make up for a holiday. "Wagging" a shift or "ringing in a sickie" is the real national sport, not Aussie Rules football.

They don't have the slave mentality in Oz, yet life goes on. People drive nice cars, eat at restaurants, have enough money for holidays overseas. No reason it can't be that way in the USA, except the psych is already on the populace.

Bukko Boomeranger said...

Comment-world trivia bit re: the Steve Keen piece on a country's aggregate debt to GDP ratio -- the banned-from-TAE commenter "Scepticus" was an active participant (with multiple responses from Keen) on that one, FWIW.

el gallinazo said...

Tech Guy

All of I&S's predictions are unfolding, except at a somewhat slower rate than they expected. And the equities markets are currently quite irrational. I am no expert, but I assume that the current P/E ratios are the highest in history. The S&P has stopped publishing them a few months ago, probably for a good reason. The system has more inertia than one might have thought and TBTB have thrown out a sea anchor, but at huge expense to future taxpayers. Most of the lauded credit you are extolling is going on the taxpayer tab, and this cannot go on indefinitely. Doesn't change the direction, just the rate that it is happening (for the moment). I&S are not day traders, and exact timing is of little interest to them, though Stoneleigh will look at it vis-a-vis equities as an amusing hobby involving herd instinct and probability functions. Whether the inevitable happens in 6 months or 18 months is just not that high on their priorities list.

FYI, Stoneleigh does predict hyperinflation for the US dollar. She simply says that it cannot happen until almost all of the vast credit evaporates, and that will take a matter of some years. One can only get hyperinflation when the primary source of money is fiat currency. Right now, at under $1T, it represents less than 3% of the entire USA credit/money supply.

Mike said...

Speaking of melting steel, check out Jim Puplava's podcast with Martin Gross the author of National Suicide. I knew nothing of Gross before this podcast, but the O-Man froth was palpable through my headphones...

Hombre said...

S O S - 12.1 Tr... 12.2 Tr... Oh well, what's a few billion among friends!

ric2 said...


People are still able to get loans for cars and homes. In fact the FHA is still handing out Mortgages with only 3% downpayment to less then prime borrowers. The GSE's are still buying Billions in new mortgages. People have no trouble getting loans. In fact a bunch of recent college grads with no jobs bought a Million Dollar Mult-famility home in SF (From Wall Street Journal Article about a week ago). The borrowers were even shocked that they got their Million dollar loan!

Overall, loans are down, although a few categories are up. I direct your attention to Table IIA from the 2009 Q3 FDIC Quarterly Banking Profile (large pdf file) which compares data at all FDIC insured institutions from 09Q3 to 08Q3.

Although the non-farm residential and home equity lines categories are up, overall loans secured by real estate are down.

Loans to inviduals: down
Commercial & industiral loans: way down

Net loans & leases are down 8.2% when comparing 09Q3 to 08Q3.

If you look at the previous 2 reports, we see the following:

09Q2 vs 08Q2: Net loans & leases down 5.6%
09Q1 vs 08Q1: Net loans & leases down 3.9%

The trend is clearly that banks are lending less, just as I & S said would happen as we get more and more stuck in the liquidity trap.

You can access the FDIC quarterly banking profile reports (along with lots of other data) at their web site: FDIC QBP

Beware of giving WSJ rah-rah "yay economy!" reports too much credence.

Phlogiston Água de Beber said...


As you have opened the box, so to speak, I will take issue with your assumption that Zimbabwe prints their own money. That is highly unlikely, but as currency printing is a pretty secretive business I can't be certain. However, if you would go read this story about Currency Printing at the NY Times, you will see that even the US$ is printed by private banknote companies. The Zim government can buy all the banknotes they want, but they'll have to pay for them with a hard currency. That puts some limit on quantity though not nominal value.

Anonymous said...

"The Campaign Cash Behind the Afghanistan Escalation"


"But while the president may be showing disloyalty to his political base, he's remaining faithful to the defense industry interests that so generously funded his campaign.

According to the Center for Responsive Politics' database, the top recipient of defense industry money in the 2008 election cycle was Barack Obama, whose haul of $1,029,997 far surpassed Republican contender Sen. John McCain's $696,948.

During the 2008 cycle, the industry contributed a total of $23.7 million to federal candidates -- far more than the $17.4 million it invested during the 2006 cycle or the $18.1 million in the 2004 cycle.

The top five defense industry contributors during the 2008 elections were Lockheed Martin at $2.5 million, Boeing at $2.1 million, Northrop Grumman at $1.8 million, and Raytheon and General Dynamics at $1.7 million each.

And it appears their investment may be paying off: The Associated Press reports that analyst Howard A. Rubel of the global investment bank Jefferies & Co. sent out a client note today stating that the fiscal 2010 Defense Department Budget will likely boost demand for precision munitions, communications gear, helicopters, armor and surveillance systems.

Among the companies whose stock Rubel rated as "Buy"? General Dynamics and Northrop Grumman."

Erin Winthrope said...

Smells like deflation to me:

From today's Wall Street Journal Personal Finance Section:

"Are Your Old Clothes Good Enough?
Resale Shops Are Getting Picky as More People Look to Exchange Their Used Duds for Cash"

Score another point for Stoneleigh's predictions.

Top Hat Cat said...

Empires die from military boondoogles.

The U.S.military is a parasitic creature at this point in time. It will kill it's host populace with outrageous and impossible demands on it's resources. It does not care, it has taken on the spirit of a rabid vampire bat.

Afghanistan is not about terrorism.

It's about oil and gas, from the former Soviet republics.

Afghanistan is the only avenue for a pipeline that does not pass under the territorial/political control of Russia or Iran.

Obama doesn't have the nuts to say that. Pretending to be a powerful rich white man in black face is more than enough deception for him to handle at any one time.

Who knows, when Obama was deeply bowing in Asia,, it was because the pipeline is for China. A gift. A token of our appreciation for them not outright destroying our economy. Stranger bed fellows have happened in history.

Since we can't pay China back anything of worth, how about blood sweat and tears doing 'god's work' in Afghanistan.

Let's Make a Deal.

Hombre said...

Ahimsa - Remember the time in the movie CASABLANCA when Claude Rains, the local "Policia" went up to Rick and said... "I'm shocked! shocked! I tell you, to discover gambling in this establishment!"

well... (wink)

"Ahimsa! I'm shocked! Shocked that you would think those $$$$$ contributions had any effect on U.S. foreign policy!"

el gallinazo said...

I. M. Nobody

Please send me your email address. I would like to send you an interesting link that is even too bizarre to post on this comment section dealing with autoimmune diseases.

hpaulfuchs at a the commercial site gmail.

el gallinazo said...


"I think you really should get out and about some when you get that motorcycle.'

Well, I have had that motorcycle for a week to the day now. I have about 100 km on it. To go into more detail why I haven't been "out and about:"

1) It is extremely uncomfortable to tour with a motorcycle in a monsoon. Additionally it is a lot more dangerous for a variety of reasons, starting with staying on two wheels.

2) In less then 100 km I have passed two motorcycles smashed in the middle of the road with police and EMT's in attendance. I went to pay my rent yesterday, and my gringa landlady apologized for being a little weird, but she said that she just passed a dead older woman in the middle of the road, hit by a car, awaiting the arrival of the police.

The best that can be said for Tico drivers is that they are reckless. The worst will remain unsaid.

3) I sold my last motorcycle over 12 years ago. All my previous bikes were 650cc highway bikes which I almost never took on dirt roads. I now have a 125cc and I cannot avoid crappy dirt roads as I live on one. Furthermore, the low power gives them less evasive powers. I am over 60, my strength, reflexes, and agility are waning, and my bones heal slowly now.

4) It is probably no coincidence that your arrival here coincides with the end of the wet season in the central highland.

5) I have the rest of my life to see the sights, and I will probably see a lot more of them if I extend that life a bit.

So I will be out touring and investigating as soon as it is reasonably safe and dry. In the meantime thanks for the advice. It's always nice to correspond with younger people of strong opinions and generous with them.

Bigelow said...

@Top Cat

“Afghanistan is not about terrorism.

It's about oil and gas, from the former Soviet republics.”

Add to that the intelligence and military's Opium business.

Anonymous said...

On Afghanistan, Adam Curtis, creator of the excellent docu, The Power of Nightmares,

has a blog up about the last 200 years of the West's relationship to Afghanistan. For some reason, the embedded video's aren't working for me, but still a good read.

el gallinazo said...

Top Cat said...

"......... it has taken on the spirit of a rabid vampire bat."

Jeez, I'm ready to start humming the Donovan song, "Must Be the Season of the errr .... Vampire." First the great Vampire Squid, then the cinema vampire dreamboat, and now the rabid vampire bat. Think I'll buy futures in my local blood bank. Does Sheila insure the deposits? Does one have to be a type A?

Wolf at the Door said...

@ Tech Guy

Yes....Ilargi is somewhat over the top in his least in terms of timing not scope.

Everything is going to take a lot longer to play out IMO than the timeframes usually expressed here. The most powerful empire in world history will not collapse overnight...I usually take the timeframes and outcomes that are the consensus here and automatically spread them out over the next half decade or so. If you do this then you can still appreciate the analysis and the fine understanding of all the many interrelated factors that will come into play as we progress along the road to collapse while being amused and entertained at the certainess of some here regarding its imminence.

I have noticed that when they are right it is a product of their superior analytical skills and when they flub something it is all chalked up to the fact that the analysis is probabilistic (which is just a fancy way of saying that even when they are wrong they are actually right).

Nobody knows when she blows but everything that has been done to date to avoid the blowup will only insure that when it happens it will be spectacular....

Anonymous said...

@TechGuy, et al. The flaw in the deflationary model is the gross miscalculation as to the extent governments and CBs would undertake to devalue their respective currencies.

Private loan origination may be (temporarily) down, but it is being more than offset by extraordinary levels of government borrowing.

In a fiat environment, the only thing restricting the ability of the PTB to re-ignite an inflationary bubble is the residual debt overhang from the previous credit fueled party.

I&S subscribe to the theory that the herd will bolt in a mad attempt aimed at extinguishing those excess claims. Others, such as myself, believe that FI investors will simply be wiped out, thereby saving everyone a lot of time & effort spent trying to collect something that no longer exists.

Deus ex machina, and all that.

In order for my thesis to work, it requires two key assumptions:
* older savers dying off; and
* foreign holders recognizing that they wouldn't even have reserves in the first place if previous inflationary cycles hadn't taken place.

If everyone is perfectly sensible about this, debts are cancelled (ie jubilee) across the board and the party resumes.

That means dollar denominated risk assets rise in proportion to $USD devaluation. For example, if the dollar drops by a factor of 20x (5% of its current value), assets across all classes should increase by 20x.

The operative word is "sensible". I contend that the only fly in the ointment is if pesky Americans start rioting before the devaluation plans are completed.

If we see an interruption in political power, and the herd does bolt, then the I&S theory comes into play.

YD said...

El G,

If you could send me the link I would appreciate it. Traditional Chinese Medicine treats autoimmune diseases quite well. Sadly, there is probably not enough money to be made to ever justify the research needed "to prove" its effects. Anyhow I love to keep abreast of what is out there.

As an update on some real real estate info. My St. Louis condo has had more interest, from short sales people. The are unhappy but undaunted to find that BofA is the mortgage company. I have been selling the appliances, and have found a huge glut of them on the market so very little to be reclaimed there. My mother successfully sold a house in Oregon for 20% less than peak value. It took almost 6 weeks to close because of financing delays, that were never adequately explained. There are huge anisotropies in the market, same as it ever was, just more so I suspect.

TAE Summary said...

* Stoneleigh may visit the Pacific Northwest; If so TAE Summary hopes to meet her

* Devaluation questions:
- Will 3 Reichsdollars be replaced by one new dollar?
- How is this done and what does it mean?
- Why not let inflation do this naturally?
- Since one dollar = 9.7 milliwatts and e=mc^2 are mass, energy and money all the same thing?

* Hindsight shows there were problems in Dubai; Dubai is bottomless pit; Who will throw their cash in? Someone who expects growth to resume

* To buy is to do; To do is to buy; Do-buy-do-buy-do

* Food banks expect 100% increase; Food stamps are canary in coal mine; Those on food stamps won't pay much in taxes; Martial Law is likely in a few years; Food will be used as the carrot, guns will be the stick

* Counties make better localization units than states; Municipalities are hosed; Speed traps, conscription and protection rackets may fund some munis; Municipal Bond will have a new meaning; Good neighbors may fill in the gap when munis fail; Doomers underestimate humankind

* VK's generation will inherit the mess; Let's hope they are up to being heroes since the prophets have failed them

* Are the TPTB kicking the can down the road or do they just have Restless Leg Syndrome? Elites may want to deflate but lack the will to do so; The top 1% are happy with the things the way they are; Elites have assets, not cash

* Bob Chapman:
- Says interesting things
- Assigns dates to I&S predictions
- Wants to sell us gold or treasuries
- Is hopefully wrong
- Is politically to the right of Genghis Kahn
- Is in a strange right side funk
- Is old and well off
- Is anticipating hyperinflation too soon
- Deserves suspicion
- Is an idiot full of nonsense who is usually dead wrong
- Is beneath our level
- Is easily skewered by Bill Bonner
- Probably introduced contour plowing

* Mish's fame has gone to his head; Jim Kunstler plagiarizes TAE faithfully; Stoneleigh is a cheerful doomer; Snuffy is wildly optimistic

* Debt is the hangman's noose during deflation; Many jobs will disappear; Invest in independence

* Things that smell like skunks:
- Pesticide drift
- Stale marijuana
- Skunks, minks and weasels
- Beavers in search of a new stadium

* People bond during optimistic times and become cruel during pessimistic times; Art is the shadow of economic conditions; Dark humor is a symptom of despair; Go placidly among the doom and gloom

* In inflation those who stand closest to the printing press win; In deflation everyon loses except savers; Deflation will devastate commerce which will make hyperinflation inevitable; Buy, baby buy

* Dying before 52 is an accident; Autopsies aren't much help

* 401K is biggest scam ever; Sucker's rally is laundering TARP money; There is a war between savers and gamblers

* Obama now owns Afgahn war; Obama is the man who would be king; Afgahnistan is the graveyard of empires

* Humpty Dumpty has already been blown to smithereens and is nothing but shell fragments; Economy will soon look like the blue screen of death; Time to press the reset button; Unfortunately many programs will be terminated and lots of bits and bytes will be lost

* Humanity is a giant bio-machine; I and S predictions are unfolding in SloMo; The herd is only shuffling toward the cliff

* Debt ceiling at $12.1T is too low; Raise high the roof beam, congressmen. Like Ares comes the deficit, taller far than a tall man

Unknown said...

I was reading some of the commentary from Ahimsa's link and saw this reference to Afghan conflicts. Quite the checkered history....

As Santayana said, "Those who cannot learn from history are doomed to repeat it."

There are many, too many, reasons Afghanistan is called the "Graveyard of Empires" as noted in Michael Moore's letter to Obama. Sadly, we are now poised to repeat a long, deadly history there.

My numismatist brother Paul Terpstra has collected coins of MOST of the empires that met their end (as imperial powers) in roughly the region we now call Afghanistan. He notes: "A partial list of them occurs below. Overlapping dates indicate times when multiple empires were simultaneously munching on different parts of the poisoned bait..."

The Union of Soviet Socialist Republics: 1979-1989
The British Empire: 1837-1919
The Mughal Empire: 1525-1709
The Timurid Empire: 1370-1506
The Il-Khanate: 1245-1332
The Mongol Empire: 1221-1245
The Khwarezmid Empire: 1215-1221
The Delhi Sultanate: 1206-1221
The Ghurid Empire: 1186-1202
The Ghaznavid Empire: 970-1186
The Abbasid Caliphate: 750-970
The Umayyad Empire of Arabia: 637-750
The Tang Dynasty of China: 620-637
The Hepthalite Kingdom: ca. 400-580
The Sassanian Empire: 224-561
The Kushan Empire: 135-240
The Kingdom of the Western Satraps: 020-405
The Indo-Scythian Kingdom: BC140-AD020
The Greco-Bactrian Kingdom: BC250-BC048
The Mauryan Empire: BC305-BC232
The Seleucid Empire: BC323-BC250
The Empire of Alexander the Great: BC328-BC323
The Archaemenid Empire: BC550-BC328

For corrections additions:

Bukko Boomeranger said...

Re: the pondering here over banknotes -- There's been a scandal slowly brewing in Australia over bribery in "selling" the material used to print money on.

To sum it up, it takes specialized material to print fiat money on, so it's harder to counterfeit. Australia, Switzerland and many other countries I haven't visited, use colourful plastic-y stuff, with clear plastic windows inserted. And some company has to make the stuff, and sell it for a profit.

In Australia, raw banknote material is made by a company named "Securency". It's part-controlled by the Reserve Bank of Australia, Oz's Fed. To increase its business, it tries to get other countries to use their plastic stuff. And apparently Securency bribed decision-making officials in Vietnam so they would start making plastic dongs. (Mish fans might remember the humourous thread about the Viet dong...)

Coverage of this dirty deal revealed a lot about the international currency stock business to me. As far as Zimbabwe, I recall that their worthless banknotes were printed on paper supplied by Germany, and one of the issues about anti-Mugabe sanctions was whether it was moral to keep sending him the raw material to add those zeros to.

I wonder what form of money Zimbabwe used to pay the supplier of its banknotes?

Unknown said...

As usual, I highly recommend John Michael Greer's latest essay. This time, he posits that a more (or at all) useful understanding of the nation's economic position could be based on a tri-partite productivity indicator that separates the primary (natural resources), second (goods and services) and tertiary (monetary/financial) products of the economy and allows us to compare them to each other. He also makes the case, which is fairly self-evident, that GDP reporting is by itself useless.

ric2 said...

My sister just showed me the "Dollars & Sense" column in one of our local community newspapers, The County Chronicle in northern Baltimore County, MD. (Is every small-paper financial column in the US named "Dollars & Sense" or is it just me?)

Anyways, the 2-page article is on Bob Prechter and Elliot Waves. The columnist says deflation is likely. He recommends holding dollars (but doesn't go so far as to say cash in hand out of the banking system).

He ends with this: "Watch the dollar. Hated by all, should it find a bottom and begin to advance significantly, everything else goes down. Everything."

Is the TAE message finding ears in smaller, local media outlets?

ric2 said...

Actually the author of the column on Prechter is a former commodities trader for a "large Wall Street firm" and currently consults for Elliot Wave International. Probably not the typical background for a small-newspaper financial columnist.

john patrick said...

TopCat, thanks for the commentary...

I wonder, since Afghanistan is the leading opium producer (right?) then perhaps it's not that the U.S. wants to take over the business, but rather it doesn't want anyone else doing so.

I don't know. It's just depressing that we've had non-stop war for the past 10K years with intermittent periods of peace to re-arm.

I had hoped that Obama would be different, set us on a path to avoid past mistakes. But alas, human nature hasn't changed one bit. And I am now wiser for not expecting it to do so anytime soon.

Thanks I&S. And all the commenters.

TechGuy said...

Ric2 Wrote:
"Overall, loans are down, although a few categories are up. I direct your attention to Table IIA from the 2009 Q3 FDIC Quarterly Banking Profile (large pdf file) which compares data at all FDIC insured institutions from 09Q3 to 08Q3."

But thats a lot different that Credit is completely gone and unavailable, as was suggested by Ilargi a year ago:
"TAE: Dec 30, 2008:
"But first, 2009. No more loans, not for cars and homes, not for business lines and letters of credit, and increasingly not for governments"

Credit is no longer as abundant and as easy as it was, but its still available. Its still easier and less costly to get a loan today, then it did 10 to 20 years ago. Business and Consumers are borrowing less, as the cost of borrowing have go up. People want free money, and that simply not available (at least until the dollar is worthless).

el gallinazo wrote:
"One can only get hyperinflation when the primary source of money is fiat currency. Right now, at under $1T, it represents less than 3% of the entire USA credit/money supply."

The real money supply is much greater than 1 Trillion. I doubt that hard cash is necessary to create hyper-inflation. Paper currencies were the dominate media for transactions in the past. Today, the bulk of transactions are electronic.

el gallinazo wrote:
"I&S are not day traders, and exact timing is of little interest to them"

My point was not to critize future expectations. I was merely fallicy of point in time prediction that never come true. Don't believe people that tell you that some event is going to happen on such a date. It doesn't matter if it Bob Chapman, Obama, Ilargi or even the Pope. No one can predict the future. We can only speculate on future trends.

Just for the record, in the past decade we've had more than 3400 days of higher inflation and a mere 112 of deflation (if I recall correctly). We probably will have a few more days of deflation in the coming years, but its extremely unlikely to have a lasting impact. The Trend is towards inflation and has been for many many decades. The worse the economic becomes the more money that will be spend by Washington to buy votes and futile attempts to re-inflate the labor market. This will reduce faith foriegn creditors will have on America. Foriegns will continue to sell to the US market as long as they believe there are consumers that can buy their exports. Sooner or later they will realize the American consumer is tapped out and that the only one doing the buying is the Federal gov't using devalued dollars. Thus further devalueing the dollar to the point its worthless. The dollar does not deplend on how many people are unemployed, how little credit is available to consumers and businesses, its value is dependant on the confidence of its creditors to take US dollars in exchange for goods and services. For the average Joe that is unemployeed and has no money, inflation or deflation is nearly irrelevant. In either case, he still can not buy stuff. 100 Trillion of Nothing or 0.00001 of Nothing is still Nothing.

The only way deflation will happen is if the gov't stands behind the dollar and gets serious about fixing america's financial issues. Since the odds of that happening are zero, the smart bet is hyper-inflation. its not going to happen tommorow, next month, or even next year. I don't know when its going to happen but I know its inevitable.

Best of Luck to you All

BTW: Congress quietly or covertly increased the Debt Limit to at least 13 Trillion. They are just waiting for the Senate to approve the request.

Gravity said...

Actually, my previous comments don't make much sense, basically any situation of sufficient anarchy would be hyper-inflationary, most likely triggering massive hoarding and subsequent loss of faith or trust in currencies as form of payment.

Martial law could probably do that, but that depends on the manner in which it would be declared. Its possible the government would continue to demand payment of taxation in dollars, and some commercial activity could remain intact, which might just continue deflation if general faith in currency were preserved.

I do think hyper-inflation would have to be based mostly on physical currency, so that most transactions are done in paper notes, not credit. I'm not sure if credit flows can be hyper-inflationary at all, unless done on purpose, since they are so easily removed from circulation, the problem with hyper-inflationary spirals being that volume and velocity of money flows cannot be easily decreased when in physical circulation.

It is difficult to provide a sound definition of said hyped phenomenon, prices doubling once per unit time as a direct function of excessive money flows, but how would any of the 'money' pumped into equities thus far be translatable into actual money-flows chasing goods?

As for moneyed elites profiting most from deflation, is that not dependent on whether they are invested in dollar-denominated assets very much? They must have ways in which to profit from dollar inflation as well, surely.

el gallinazo said...

Wolf at the Door

I think your time frame is a bit too slomo. As with Wile E Coyote looking down, d= 1/2 gt2, or for those who hate physics (which included most of my classes when I had to teach it), things fall a lot faster given a little time.

Costa Rican Dentistry

Went to see the dentist today. She is an attractive woman in her late twenties who speaks fluent English. She asked me when I had got my last cleaning, and I said two years. She groaned and said that someone with my gum problems should get a cleaning every eight months. I replied that my dentist is in Cusco, Peru and my trip last year fell through. Then we got into cost.

She said she simply couldn't understand the prices that American dentists charge. Most of the work she sees from the US is quite ordinary in technique and materials. She said that sometimes Germans come in, and they also had paid through the nose, but both the work and materials were quite intricate and extraordinary, so the prices could be rationalized a bit. She repeated that she didn't understand it, and that she made a decent living at her rates, and she used all the latest USA equipment and materials in her practice.

She spent almost an hour working on me with advanced equipment and an assistant in attendance who wrote down notes as she called off her findings and held the phone to her ear when her child care called for advice. Total cost was $38.

Then I had to go to an X-ray store. The proprietor was a 58 year old gringa from rural Kansas of Scandinavian extraction who came to the CR in 1973. She was not a hippy at all, and was into the old values, but she just got tired of all her male friends and relatives either coming back from Nam in body bags or totally crazy. So she left. Started a private school, married a Tico, has three kids. Ultra green outlook. Waste not - want not.

Had a very sophisticated x-Ray device which totally circled around my head and took one graph that showed all my teeth and jaws. Total cost - $21.

jal said...

A good thanksgiving??

Privately-owned AmTrust’s bankruptcy a bad sign for regionals
Posted by Edward Harrison on 2 December 2009
Moreover, the bankruptcy occurred yesterday, not on Friday in the typical FDIC bank seizure fashion.

EBrown said...

I just caught up on this list - several things I think warrent a comment.

1. Afganistan - There are several reasons the USA has a military prescence there. Defense contractors that need targets/ratioanle for large budgets. Export lines for gas and oil in former Soviet republics. Misguided belief by some that we can actually secure the US by dropping bombs and shooting people in distant lands.

2. Bukko_in_? Isn't it time for a name change? I think the TAE groupies would be able to follow it without attributing a new appellation to some knock off, relative, or descendant.

3. Municipalities - There has been discussion of local goverments' finances on TAE before, and the consensus is that many are totally hosed. Last night my wife and I decided to try out a restaurant in town for the first time as we are new to the area. "In town" happens to be the county seat and our table happened to be right next to a group of six people discussing tax rates and budgets. I recognized the treasurer as I sat in my chair because he'd won the election less than a month ago by a narrow margin (and he had taken out some full page adds in local papers prominently displaying his face). I wasn't privy to the whole conversation but I did gather that the county's general fund is running rather low. The budget as currently proposed could work, but any hiccup and the general fund will be depleted. There is no cushion left to play with. I even heard him use the "B" word - bankruptcy if there are unforseen problems. For anyone that's curious I'm in Upstate NY in a predominantly rural county.

4. Steve Keen is a genius. I always find his stuff to be educational and understandable without being dumbed down too much.

5. OFF TOPIC - but really interesting - Immune disorders. Hookworms? There are some people with terrible asthma histories and Crohn's disease out there who claim to have "cured" themselves with hookworms. If I had an auto-immune disorder I'd totally give them a shot. The worst thing that could happen is I'd have an auto-immune disorder AND hookworms. There's a cure for hookworms though. If you're interested try googling the topic.

Gravity said...

There is a theoretical basis for a brief period of hyper-deflation, which would be defined as a halving of prices per unit time as a function of extreme shortages in moneyflows, but this could not last very long before collapsing the system totally.

It may not be possible to sustain >5% deflation for more than six or seven years in industrial society without causing total supply-chain collapse, making sustained debt-deflation somewhat unfeasible, in that sense extreme inflation would likely happen in five years or less by conscious choice of policy.

Credit-based hyperinflation might have to be forced actively and deliberately, maybe with freely dispersed richly-endowed debit cards on negative interest rates, while huge amounts of physical cash dissemination could cause a runaway moneyflow 'by accident'.
Causing hyper-inflation in the US is very much harder than is generally assumed, it requires greater active policy than with traditional cash-based moneyflows. If oil reaches 2000$ per barrel or so, it might become more feasible to deliberately attempt it.

Dr J said...

Bukko - Vancouver is used car heaven. Lots of good deals to be found. Some pitfalls, though, and places to avoid. Get in touch if you want some advice on where to look. El g can hook us up - if he hasn't pancaked that scooter yet ;-)

Dr J said...

KD has published an incoherent rant about Tiger Woods now. He appears to be really losing it.

Top Hat Cat said...

Yoa el gallinazo


These guys are in your 'neck' of the woods, sorry for the vampire pun.

"...Although pregnant vampire bats can be netted in any month of the year, it is said that they have high pregnancy activity rates for the wet seasons in northern Costa Rica, and this may be related to pray availability.

Presumably vampire bats experienced a population explosion when domestic animal where brought to the New World. These afforded the vampires a more accessible an more plentiful supply of blood than did the native wildlife. Today serological tests of blood meals of Desmodus rotundus in Mexico, Trinidad, and Costa Rica indicate a nearly complete switch to domesticated animals, particularly cattle, horses and poultry.

Though their unique feeding habits, vampires can transmit a number of diseases, the most serious, of course, being paralytic rabies. Desmodus rotundus is known to survive the virus itself...."

Don't freak out, I'm sure the locals are aware of the critters and know the right moves. They don't like moonlight nights and they too apparently have fabulous teeth :>

Anonymous said...

I believe there is A Flaw in the Hyperinflationary Argument. I explain my reasoning on my blog.

scandia said...

@Greyzone...You make a good point. I had just assumed the money was circulating widely.

jal said...

What could be done with $30 billion?
Give $12,000/year to 2,500,000 USA citizens for welfare.
Hire at $12,000/year 2,500,000 Aufgans for wages.
Pay 2,500,000 Afgans $12,000 not to grow poppies and to plant another kind of crop.
Directly help the war machines for 18 months.

Anonymous said...

el gallinazo,

You aren't the first older person to take that tone. Being but a mere 40-and-some-change, I realize how little I must know in comparison to the many, many, many decades of wisdom you likely possess. Of course, this is the reason why I asked you for advice in the first place.

You paint a truly frightening picture of commuting in Costa Rica. Up until this exact instant, I hadn't imagined anything could possibly surpass the perils of Phoenix freeways during the dreaded August rush hours. Now however, I understand that although the desert folk pack pistolas in order to resolve their methamphetamine induced road rages, what you report to have experienced since your arrival there is true treachery!

Your assumption #4 is just really wrong. It is a mere coincidence of timing. As this is said to be everything, I feel safe to consider it something. I'm personally assuming that there should be safe ways to see the sights at any time if only one were creative about it. Indeed, I tell most everybody to get out as much as possible because frankly, life is short.

Since being a smart ass is not really my strong suit, again I say thank you.

Phlogiston Água de Beber said...

el g,

It seems that EBrown does not share your belief that the topic was too bizarre for TAE. Who knew the standards were so low? .)

All I can say is, this should be good news for those who make it thru the bottleneck. There should be plenty of worms and to few shoes.

el gallinazo said...

Top Cat

"Don't freak out, I'm sure the locals are aware of the critters and know the right moves. They don't like moonlight nights and they too apparently have fabulous teeth :>"

Not to worry. I have lots of garlic and a giant crucifix made out of 4 by 4's.


OK. you let the worm out of the bag, teeth and all. Here's the link:

With particular emphasis on the middle segment:

Sculptors of Monumental Narrative

I have not vetted this information in any respect. However, if I had an "incurable" autoimmune disease and was opened minded enough to subscribe to TAE, I would want to have heard it.

«Oldest ‹Older   1 – 200 of 206   Newer› Newest»