Saturday, August 13, 2011

August 13 2011: The Bigger Picture: Primer Guide Update

Lewis Wickes Hine Oyster Express February 1913
Bluffton, South Carolina. "Varn & Platt Canning Co. 10-year-old Jimmie. Been shucking 3 years. 6 pots a day, and a 11-year-old boy who shucks 7 pots. Also several members of an interesting family named Sherrica. Seven of them are in this factory. The father, mother, four girls shuck and pack. Older brother steams. 10 year old boy goes to school. Been in the oyster business 5 years. Father worked for 25 years in the Pennsylvania Coal Mine, and the oldest brother there. They said they liked the oysters business better because the family makes more"

Stoneleigh: It is time to undertake the yearly review and update of our primer guide, with a view to making it easier for our readers to see the entirety of our TAE worldview in one place. Primers are continuously added in order to flesh out the biggest possible big picture. This will continue as we move over to our new site later this year. These essays are not tied to the events of a specific day, week or month, but are the ones that take a step back and look at the world through a wide angle lens. 

We have covered a wide variety of topics in the three and a half years of our existence. The point is to tackle complexity and make it comprehensible, rather than assuming away the context as most analyses do. All the strands of our century of challenges are interwoven, with each affecting the others. It is vital to understand those interactions, as well as to understand each separate topic and their relative timelines. Different factors will act as primary drivers at different times.

We retain our primary focus on Ponzi finance and the nature of markets, since the consequences of a major bubble implosion will have the greatest impact in the shortest time. Exploring those consequences, both within and beyond the financial realm is of immediate importance, given the scale of the impacts and how quickly they can manifest as a contraction picks up momentum to the downside.

As always, we cover energy as the master resource, and this year the major focus of new energy primers has been the catastrophe at Fukushima. We have also begun to cover the natural gas situation in North America in some detail, returning to the familiar theme of Ponzi dynamics.

Ponzi Finance:

The Resurgence of Risk, which appeared at The Oil Drum Canada in August 2007 provides the background to how we came to be in our present predicament. It is by far the longest of the primers, and its purpose is to explain in some depth the nature of our credit bubble, the role of 'financial innovation', the distinction between currency inflation and credit hyper-expansion and the mechanism by which value disappears as a bubble deflates.

For further explanation of the ponzi nature of bubbles, the spectrum of ponzi dynamics underlying many economic phenomena and the implications of this for where we are headed, see From the Top of the Great Pyramid.  

This ties in with an earlier piece from The Oil Drum Canada, Entropy and Empire, detailing the progression of hegemonic power from empire to empire, as each rises, over-reaches, falls and passes the mantle on to its successor. 

Real Politik:

The picture in terms of real politik (ie the way the world really works behind the scenes) is further developed in 
A more specific look at Europe can be found in The Imperial Eurozone (With all That Implies).


When bubbles reach their maximum extent, they invariably deflate. Our explanation as to why this is inevitable can be found in Inflation Deflated, followed by, The Unbearable Mightiness of Deflation, a rebuttal to inflationist Gary North, and Debunking Gonzalo Lira and Hyperinflation.

The Nature of Markets:

We dispute classical economic theory and the received wisdom as to the nature of markets. Markets are not objective, mechanical and rational as the Efficient Market Hypothesis would have you believe. Our explanation of markets as human phenomena grounded in destabilizing positive feedback can be found in Markets and the Lemming Factor, A Glimpse Into the Stubborn Psychology of Fish and The Future Belongs to the Adaptable (with kudos to Robert Prechter, who has been developing the hugely important theory of socionomics for many years). Historical perspective with regard to bubbles and financial crisis is provided in The Infinite Elasticity of Credit, and a view of finance and ecology as analogous systems structure can be found in Fractal Adaptive Cycles in Natural and Human Systems.

Real Estate:

We have a number of articles on specific aspects of our current crisis. Our view of real estate can be found in Welcome to the Gingerbread Hotel and Bubble Case Studies: Ireland and Canada. Employment is covered in War in the Labour Markets and An Unstable Tower of Breaking Promises


The Special Relativity of Currencies and Dollar-Denominated Debt Deflation address our view of currency inter-relationships and the value of currency relative to available goods and services.

Precious Metals:

Our take on the future for gold can be found in A Golden Double-Edged Sword, and our view of -global- trade is covered in The Rise and Fall of Trade.

Oil and Gas:

Our view of the intersection between peak oil and finance can be found in Energy, Finance and Hegemonic Power and Oil, Credit and the Velocity of Money Revisited. The notion of shale gas as a game-changer and a clean source of energy is challenged in Get Ready for the North American Gas Shock and Fracking Our Future. Ponzi dynamics feature once again.

Renewables and Electricity:

The prospects for renewable power are encapsulated in Renewable Power? Not in Your LifetimeA Green Energy Revolution? and The Receding Horizons of Renewable Energy.

Nuclear Power:

Nuclear power, in the aftermath of the Fukushima catastrophe, is covered in a series of articles written in the two months following the earthquake: How Black is the Japanese Nuclear Swan?The Fukushima Fallout FilesFukushima: Review of an INES class 7 AccidentFukushima: Fallacies, Fallout, Fundamentals and Fear and Welcome to the Atomic Village.


Departing from finance and energy, our contribution to the health debate, which is relevant to future food supply and storage, can be found in Our Daily Bread, or Not, As the Case May Be.

Summary and Lifeboat Prescriptione:

A point-form summary of our views for the future is available in 40 Ways to Lose Your Future, and our prescription for facing hard times is presented in How to Build a Lifeboat

This is our attempt to convey what we as individuals can hope to do about it for ourselves, our families and friends. We cannot avoid living through a Greater Depression, but we can take action, and, being forewarned, we can hopefully avoid many pitfalls. We can attempt to avoid becoming part of the herd that is determined to throw itself off a cliff.

The big picture is of crucial importance as we have reached, and passed, the pinnacle of a golden age. We are moving into an era of uncertainty and upheaval such as none of us have hitherto experienced but all of us must try to navigate successfully. We at The Automatic Earth will continue to provide what assistance we can with that process. The TAE world tour continues, recently in the US, currently in Europe and in Australia after Christmas.

Support The Automatic Earth
Donate to our Summer Fund Drive

The moral decay of our society is as bad at the top as the bottom
by Peter Oborne - Telegraph

David Cameron, Ed Miliband and the entire British political class came together yesterday to denounce the rioters. They were of course right to say that the actions of these looters, arsonists and muggers were abhorrent and criminal, and that the police should be given more support. But there was also something very phony and hypocritical about all the shock and outrage expressed in parliament. MPs spoke about the week’s dreadful events as if they were nothing to do with them.

I cannot accept that this is the case. Indeed, I believe that the criminality in our streets cannot be dissociated from the moral disintegration in the highest ranks of modern British society. The last two decades have seen a terrifying decline in standards among the British governing elite. It has become acceptable for our politicians to lie and to cheat. An almost universal culture of selfishness and greed has grown up.

\It is not just the feral youth of Tottenham who have forgotten they have duties as well as rights. So have the feral rich of Chelsea and Kensington. A few years ago, my wife and I went to a dinner party in a large house in west London. A security guard prowled along the street outside, and there was much talk of the "north-south divide", which I took literally for a while until I realised that my hosts were facetiously referring to the difference between those who lived north and south of Kensington High Street.

Most of the people in this very expensive street were every bit as deracinated and cut off from the rest of Britain as the young, unemployed men and women who have caused such terrible damage over the last few days. For them, the repellent Financial Times magazine How to Spend It is a bible. I’d guess that few of them bother to pay British tax if they can avoid it, and that fewer still feel the sense of obligation to society that only a few decades ago came naturally to the wealthy and better off.

Yet we celebrate people who live empty lives like this. A few weeks ago, I noticed an item in a newspaper saying that the business tycoon Sir Richard Branson was thinking of moving his headquarters to Switzerland. This move was represented as a potential blow to the Chancellor of the Exchequer, George Osborne, because it meant less tax revenue.

I couldn’t help thinking that in a sane and decent world such a move would be a blow to Sir Richard, not the Chancellor. People would note that a prominent and wealthy businessman was avoiding British tax and think less of him. Instead, he has a knighthood and is widely feted. The same is true of the brilliant retailer Sir Philip Green. Sir Philip’s businesses could never survive but for Britain’s famous social and political stability, our transport system to shift his goods and our schools to educate his workers.

Yet Sir Philip, who a few years ago sent an extraordinary £1 billion dividend offshore, seems to have little intention of paying for much of this. Why does nobody get angry or hold him culpable? I know that he employs expensive tax lawyers and that everything he does is legal, but he surely faces ethical and moral questions just as much as does a young thug who breaks into one of Sir Philip’s shops and steals from it?

Our politicians – standing sanctimoniously on their hind legs in the Commons yesterday – are just as bad. They have shown themselves prepared to ignore common decency and, in some cases, to break the law. David Cameron is happy to have some of the worst offenders in his Cabinet. Take the example of Francis Maude, who is charged with tackling public sector waste – which trade unions say is a euphemism for waging war on low?paid workers. Yet Mr Maude made tens of thousands of pounds by breaching the spirit, though not the law, surrounding MPs’ allowances.

A great deal has been made over the past few days of the greed of the rioters for consumer goods, not least by Rotherham MP Denis MacShane who accurately remarked, "What the looters wanted was for a few minutes to enter the world of Sloane Street consumption." This from a man who notoriously claimed £5,900 for eight laptops. Of course, as an MP he obtained these laptops legally through his expenses.

Yesterday, the veteran Labour MP Gerald Kaufman asked the Prime Minister to consider how these rioters can be "reclaimed" by society. Yes, this is indeed the same Gerald Kaufman who submitted a claim for three months’ expenses totalling £14,301.60, which included £8,865 for a Bang & Olufsen television. Or take the Salford MP Hazel Blears, who has been loudly calling for draconian action against the looters. I find it very hard to make any kind of ethical distinction between Blears’s expense cheating and tax avoidance, and the straight robbery carried out by the looters.

The Prime Minister showed no sign that he understood that something stank about yesterday’s Commons debate. He spoke of morality, but only as something which applies to the very poor: "We will restore a stronger sense of morality and responsibility – in every town, in every street and in every estate." He appeared not to grasp that this should apply to the rich and powerful as well.

The tragic truth is that Mr Cameron is himself guilty of failing this test. It is scarcely six weeks since he jauntily turned up at the News International summer party, even though the media group was at the time subject to not one but two police investigations. Even more notoriously, he awarded a senior Downing Street job to the former News of the World editor Andy Coulson, even though he knew at the time that Coulson had resigned after criminal acts were committed under his editorship.

The Prime Minister excused his wretched judgment by proclaiming that "everybody deserves a second chance". It was very telling yesterday that he did not talk of second chances as he pledged exemplary punishment for the rioters and looters.

These double standards from Downing Street are symptomatic of widespread double standards at the very top of our society. It should be stressed that most people (including, I know, Telegraph readers) continue to believe in honesty, decency, hard work, and putting back into society at least as much as they take out.

But there are those who do not. Certainly, the so-called feral youth seem oblivious to decency and morality. But so are the venal rich and powerful – too many of our bankers, footballers, wealthy businessmen and politicians.

Of course, most of them are smart and wealthy enough to make sure that they obey the law. That cannot be said of the sad young men and women, without hope or aspiration, who have caused such mayhem and chaos over the past few days. But the rioters have this defence: they are just following the example set by senior and respected figures in society. Let’s bear in mind that many of the youths in our inner cities have never been trained in decent values. All they have ever known is barbarism. Our politicians and bankers, in sharp contrast, tend to have been to good schools and universities and to have been given every opportunity in life.

Something has gone horribly wrong in Britain. If we are ever to confront the problems which have been exposed in the past week, it is essential to bear in mind that they do not only exist in inner-city housing estates.

The culture of greed and impunity we are witnessing on our TV screens stretches right up into corporate boardrooms and the Cabinet. It embraces the police and large parts of our media. It is not just its damaged youth, but Britain itself that needs a moral reformation.

Most Americans don't have $1,000 saved for emergency
by CNNMoney

A majority, or 64 percent, of Americans don't have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday.

Only 36 percent said they would tap a rainy day funds for an emergency. The rest of the 2,700 people polled said that they would have to go to other extremes to cover an unexpected expense, such as borrowing money or taking out a cash advance on a credit card.

"It's alarming," said Gail Cunningham, a spokeswoman for the Washington, D.C.-based non-profit. "For consumers who live paycheck to paycheck -- having spent tomorrow's money -- an unplanned expense can truly put them in financial distress," she noted.

That's the case for Allyson Curtis, 35. "I think about it every day," she said. Curtis was unemployed for only three months last year, but in that time she accumulated $5,000 in credit card debt that she's now struggling to pay down. In the case of an emergency, Curtis said she would likely postpone other payments and pile on additional debt.

She is already putting off $450 in dental work and a car inspection due to a crack in her windshield, which will cost $300 to replace, she said.

Many respondents, 17 percent, said they would borrow money from friends or family. Another 17 percent said they would neglect other financial obligations -- like a credit card bill or mortgage payment -- in order to free up some funds.

Alternatively, 12 percent of the respondents said they would have to sell or pawn some assets to come up with $1,000 and 9 percent said they would need to take out a loan. Another 9 percent said they would get a cash advance from a credit card, according to the NFCC.

Cunningham finds that particularly troubling. Neglecting other debt obligations -- or worse piling on more debt -- "really exacerbates the problem," she said.

An earlier study by the same organization found that 30 percent of Americans have $0 in non-retirement savings. A separate study by the National Bureau of Economic Research found that 50 percent of Americans would struggle to come up with $2,000 in a pinch.

Reflections On "Correction 2" - This Summer It's Different
by Daniel Alpert - Westwood Capital

I feel more emboldened than ever (probably a good sign I should be rethinking my premise) to reiterate my general contextual theory that the developed world is experiencing the dual deflationary forces of a "supply shock" from the emerging markets, combined with a debt overhang remaining from the bubble period.

During the credit bubble the developed world (with the U.S. leading the way) attempted to neuter the supply shock with borrowed funds from our "suppliers." Thus we plugged the yawning gap between domestic production and consumption.

Europe did fundamentally the same thing, except that borrowing was state sponsored and enabled by the fiscal and monetary disconnect inherent in the Maastricht Treaty.  Europeans used their borrowing to fund their social welfare system and to offset (as in Greece) corrupt tax regimes.  No matter, the underlying issue was the same, they were producing far less than they consumed - with the exception of Germany, which in exchange for an undervalued currency elected to close its eyes to the subsidies its banks we providing to others in the zone.

Net, net - Euro Zone-wide - the effect is the same as it is stateside. But instead of order of relative debt burdens (high to low) being households/government/financial institutions/businesses (except small businesses, which are much like households) as it is in the U.S., the order in Europe is government/financial institutions/households/businesses.

Japan, of course did it differently still - looking back on their two decades of debt deflation, sacrificing corporate, financial institution and government balance sheets, while households were left to slowly dis-save over time.

Debt deflation is debt deflation, wherever the debt resides. Growth suffers either way.  Adding the excess supply and productive capacity of the 3.5 billion people in the emerging markets overwhelmed aggregate global demand even before the developed world over-leveraged itself.

So, the next question to ask relative to the market events of July and August is: Why are things breaking down again now?

The answer is not as elusive as it may seem to some market participants.

 Effectively we have "maxed-out" again - been "cut off" to use another metaphor.  For a while, the developed world continued to pump itself up with additional liquidity, initially (and in Europe still) in the form of transferring private and sub-sovereign risk to government and central bank balance sheets.  Shortly thereafter, the developed world engaged in large scale (but poorly spent) stimulus to attempt to stabilize plummeting demand.  Finally, we have resorted to supply-side moves - zero interest rate policy, quantitative easing and tax breaks (either new or continued).

But here we are again.  The aggregate debt burden in the U.S. and Europe has been shifted about in what can only be deemed a shell game - but it has not been significantly reduced and may have even risen last quarter.

Now the markets have wisely concluded that it is politically unlikely that we will see any fiscal stimulus - to the contrary we are confronted with 1937-like calls for, and actions towards, fiscal austerity.

Finally, the wiser policy makers in the central banking dodge have realized that additional monetary stimulus is futile at best, and counterproductive at worst.  Increasing the supply of capital or liquidity to a globe that is awash in excess supply of capital and the means to use it, is like throwing lighter fuel on sputtering barbecue grill.  You get a raging flare of commodity and financial asset inflation, and then the fire dies again - because the charcoal is not arranged properly in order to grow the heat: the temporary inflation kills demand rather than enhancing it.

Ben, Barack, Tim, Claude, Angela and Nick, have not been tending the grill well, I am afraid.  And there is no question that the fire is dying during the cocktail hour.

Not that their intentions were bad, mind you. Trying to reflate the economy and employing the wealth effect of rising markets to spur demand is – from a text book perspective – the right thing to do to combat a shortage of demand and disinflation in general.  But if the secular, structural environment is inhospitable to such moves, re-employment and middle class deleveraging do not follow – both of which are the necessary prerequisites for economic growth and the raising of sufficient revenues to deleverage governments.

The problem, of course, is that there are no options left that seem viable within the political environment we now inhabit.  Members of congress from the heartland and representatives of the burghers of Germany and Holland have reached, perhaps foolishly, the breaking point on both fiscal spending and central bank bloat - simultaneously.

We have long been unable - despite valiant efforts to make our currency unattractive (ZIRP, QE, etc.) - to devalue the dollar in order to re-inflate the economy.  Our trading partners simply won't let us in an environment of excess supply - everyone can't devalue at once – and the curse of being the world’s reserve currency is that the dollar is also the flight currency in times of weakness.  Protectionist measures - once again being grasped at by otherwise well-intentioned but desperate minds - are more frightening to the market than almost any other solution.

The markets have merely awakened to this fact as the previous measures have expired or been removed, the economies of the U.S. and Western Europe having reacted accordingly.

I have written at length on what to do about the situation in the U.S. - in short, QE3...bad; modest deflation in nominal wages, prices an asset values...needed; an ambitious public infrastructure rebuilding and re-employment program at modest wages...good; household and financial institution debt restructuring and hits to creditors...simply unavoidable.

But we can talk about all that after Labor Day.  The markets, probably not incorrectly, have concluded that all of the above are not yet on the agenda of anyone with the power to implement and shepherd economic restructuring. And that just means that the second and final items on the foregoing list off needed solutions will merely happen in a less controlled way. Needless to say - the markets don't like that anymore than the hit to equity capital that will inevitably result from pursuing the necessary systemic repairs.

We can, of course, merely try to wait for the expansion of demand in the emerging nations.  The events of recent weeks are what that waiting looks like. And it would be a very, very long wait--

EU Heading for Eurobond Clash
by James G. Neuger - Bloomberg

European ratification of a reinforced crisis-management fund will act as a prelude to an even more divisive debate: whether to put more money into the pool and use it to borrow on behalf of all 17 euro states. The question of "eurobonds" or "fiscal union" -- toxic language in northern countries like Germany -- will force itself onto the agenda once the retooled rescue fund is in place as soon as next month.

The trigger will be a European Commission feasibility study of jointly sold eurobonds, seen by a growing number of economists as the only way of guaranteeing to the markets that countries such as Italy won’t go bust. Unprecedented bailouts by governments and the European Central Bank have so far failed to stamp out the crisis that is menacing the region’s core members.

"No single currency has ever survived without some form of debt mutualization," said Simon Tilford, chief economist at the London-based Centre for European Reform, a research institute focused on European integration. "There’s an increasing recognition that that is the only way of stabilizing the euro zone." The European debt crisis that began in Greece in late 2009 has triggered 365 billion euros ($521 billion) in emergency bailout loans, exposed cracks in the euro’s architecture and rattled markets around the world. The fallout may overcome the unwillingness of euro leaders to forge a U.S.-style fiscal union and give up control over national budgets.

'Reverse the Dynamic'
"Only Germany can reverse the dynamic of a European decay," billionaire investor George Soros wrote in today’s Handelsblatt, the Dusseldorf-based newspaper. "Germany and other countries with a AAA rating have to approve some sort of euro-bond regime. Otherwise, the euro will implode."

For now, the focus is on country-by-country approval of the July 21 decision to empower the 440 billion-euro European Financial Stability Facility to buy bonds in the secondary market, grant precautionary credits and recapitalize banks. A raucous parliamentary exchange is shaping up in Germany, already dragged by the debt crisis into an unforeseen role as the euro zone’s guarantor after assenting to the EFSF in 2010.

German Chancellor Angela Merkel and French President Nicolas Sarkozy, who meet in Paris on Aug. 16, have an end-of- September ratification target to enable the EFSF to relieve the ECB of the bond-purchasing job. Along with September’s planned enactment of laws to strengthen Europe’s deficit-limitation rules and monitor economic imbalances, the EFSF upgrade will touch off a fracas Merkel has sought to avoid.

'Taboo, Damaging'
"Iron Chancellor Opposes Eurobonds," German newspaper Die Welt headlined last December when Merkel blunted earlier talk of the idea. Eurobonds are "taboo, damaging, undesired," Norbert Barthle, budget-policy spokesman for her Christian Democratic bloc in parliament, told Bloomberg News on Aug. 5.

While the opposition Greens Party agrees that the EFSF package should be passed as quickly as possible, "we don’t think it’s sufficient," co-leader Juergin Trittin said on ZDF television today. "In Europe, we need to stop individual states from refinancing themselves with bonds: We need European bonds," Trittin said. "That’s the only way to finally stop the speculation against the crisis states and these endless pictures of Merkel and Sarkozy going from summit to summit."

Polls suggest the Greens and their Social Democratic allies, who also back eurobonds, would defeat Merkel’s coalition if elections were held now.

Commission Report
Acting on a July request by the European Parliament, the Brussels-based commission will before year-end issue a report on how the pooling of borrowing could reinforce a monetary union that markets view as no stronger than its weakest link. Greece is the most expensive country in the world to insure against default.

The commissioner drafting the proposals, Olli Rehn of Finland, is already promoting them in a way that appeals to the fiscally tight countries in the euro area’s north. The study will examine whether eurobonds "could contribute to fiscal discipline and increase liquidity in the bond markets in Europe so that the countries enjoying highest credit rating standards would not see their borrowing costs higher," Rehn said on Aug. 5.

Borrowing Costs
Germany, which authored the rules that failed to prevent Europe’s debt explosion, fears that mutual borrowing would drive up its financing costs, historically the euro area’s lowest and the benchmark for the region.

A switch to shared borrowing would push up German funding costs by 1.22 percentage points -- German 10-year yields are about 2.3 percent -- adding 25 billion euros a year to Germany’s interest bill, Kai Carstensen of the Ifo Institute in Munich told the Frankfurter Allgemeine Zeitung on July 19. "In terms of a eurobond, if it goes well then fine, but there is a real possibility that it won’t and the Germans will have to pay for it," Charles Goodhart, a former Bank of England policy maker and professor at the London School of Economics, said in a telephone interview. "It is essentially a transfer union in disguise."

Two broad options are under consideration in Brussels, according to EU officials: building out the EFSF and its successor as of mid-2013, the European Stability Mechanism, into a Europe-wide borrowing agent; or issuing joint bonds.

'Stabilize the System'
A jumbo fund that acts like a bank would be less controversial, since the EFSF already exists and is run by a former German Finance Ministry official, Klaus Regling. It would need close to 2 trillion euros to chase speculators away from Italy and Spain, Royal Bank of Scotland Group Plc estimates. "What we need is a sort of European monetary fund that can go in and stabilize the system with the backing of the central bank," Thomas Mayer, chief economist at Deutsche Bank AG, told Bloomberg Television.

The best-known joint-issuance proposal is the so-called blue-red model, drafted by researchers at the Brussels-based Bruegel institute. It foresees the 17 euro users selling common bonds to cover debt up to 60 percent of each country’s gross domestic product, the level deemed "sustainable" by the euro’s founding treaty. Greece’s debt last year was 143 percent of GDP, compared to Italy’s 119 percent and Germany’s 83 percent.

That tranche of "blue" bonds would carry a common interest rate. Debt over the treaty limit would be financed by "red" bonds, sold by each country on its own at penalty rates that provide an incentive to keep deficits down.

Growth Market
Blue bonds would form a 5.6 trillion-euro market, dwarfing today’s national pools, according to the authors of the May 2010 proposal, Jacques Delpla and Jakob von Weizsaecker. By turning the euro market into the world’s second largest after U.S. Treasuries, the liquidity boost would quash the Germans’ cost concerns by saving each country 30 basis points per bond, the authors wrote.

Under a variant mooted by economists Paul De Grauwe and Wim Moesen in 2009, the interest coupon on a common bond would be computed as the weighted average of yields paid by each national borrower. Germany and Greece would pay the same rate differential as before, banishing the risk of the rich subsidizing the weak, De Grauwe and Moesen wrote. The advantage for Greece would lie in guaranteed market access, they said.

"There is no way you can help the weaker parties without hurting the strongest parties," Gary Jenkins, head of fixed- income credit research at Evolution Securities in London, said on Bloomberg Television. "But unfortunately for them, they’re in a union. So they’re either in it, or they’re not. And they either have to have some kind of transfer of money, some kind of guarantee system or the whole thing’s going to fall apart."

Weaker euro states could lose local banks
by Harry Wilson - Telegraph

Weaker eurozone members face the prospect of being left with no domestic banks in future as market resistance to funding lenders in peripheral countries grows.

Equity analysts at Standard & Poor's, the credit rating agency, said that the problem with the European banking system is that it is "not aligned to the single currency area" and that larger banks with operations across the region were likely to replace smaller single country-focused lenders.

"We envisage that banks operating on a more EU-wide basis, alongside an ECB with appropriate powers, would be an important part of a sustainable euro project," said Tony Silverman, a financial analyst at S&P. "This may mean peripheral countries should not necessarily expect to have their own domestic banks," he added.

Mr Silverman points out that about 50pc of eurozone deposits lent through the European Central Bank and the interbank market are to banks that have loans in excess of their deposits, adding there is a "conspicuous" absence of banks that are net lenders to the market. "We would question whether this is sustainable and indeed to what extent such funding can meaningfully be regarded as temporary," said Mr Silverman.

Banks in countries such as Greece, Portugal and Ireland have become dependent on ECB funds to remain in business and loans originally seen as short-term have become an integral part of their funding.

The eurozone crisis has put a focus on these issues and there are now doubts as to whether many of these lenders remain viable as independent entities in the longer term. "Eurozone countries have as much right to their own banks as Northumberland," said Mr Silverman.

Ireland is undertaking a drastic reform of its banks and is in the process of merging four of its largest lenders to create two new – what is hoped will be more solid – banks able to eventually be returned to the private sector having been nationalised. In Spain too, the authorities have pushed the country's regional savings banks – known as cajas – to merge to create larger banks.

However, Mr Silverman's analysis suggests that even these larger institutions will remain unsustainable in the long-term due to their domestic focus. Figures for May show that ECB borrowing by Spanish banks increased for the first time in nine months, pointing to an increased funding risk among the smaller savings banks.

In France there are also concerns that the funding markets are becoming increasingly wary about the country's banks.

David Faber, Chris Whalen and Euro Banks
by Bruce Krasting, My Take On Financial Events

I think a lot of Chris Whalen over at Institutional Risk Analytics, so I tuned in CNBC to listen to him this morning. At one point the discussion turned to Europe and Chris made it clear:

There are growing funding issues at some European banks

David Faber jumped out of his chair and challenged Whalen. He implied that Chris was making things up and spreading rumors. I was a bit surprised. It was if Faber was defending the Euro banks.

Faber is an ass. He doesn’t read newspapers either. Two recent headlines:

My understanding from talking to Europe again the morning is that there is a constant drain of dollar funding from highly rated core European banks. I’m absolutely confirming what Whalen has separately heard.

Behind the problems are US money market funds. They have been reducing their exposure to the big “safe” Euro banks. This process has been ongoing for some time. It's not news at all.

This chart from Fitch shows where the exposures were at the end of June. Note that there is not much outstanding for Spain and Italy, but you can be sure that even those numbers are much lower today. Germany is relatively small; the reason is they don’t pay much for deposit money. But look who is a total of 15% of all US money funds.France.

A US money fund that is either facing redemptions (they are) or who just wanted to reduce Euro bank exposure there is only one place to go; France. And that is what is happening. I have no idea of the volume of this unwind; my instincts tell me it is pretty large. It accelerated today.

It’s only Wednesday. There is a lot of time to worry about this before Friday. Normally big developments in Europe have happened over a weekend. That may not be case this time around. The markets may force the global finance leaders to move more quickly to (try to) stabilize things.

The mechanism is already in place. The US dollar swap agreements can be used at any time. A trillion of liquidity could be provided very quickly. It would require that the central banks of Europe on-lend the liquidity to the commercial banks. That would solve the solvency issue. It would be the equivalent of a Euro TARP. A semi-nationalization of the banks.

I wrote yesterday that I was dumfounded by Bernanke’s decision to extend ZIRP for two years. This unprecedented step has huge risks attached to it. Bernanke is well aware of that. Why did he risk it all? He must have known that there was soon to be a very big sucking noise from Europe. One that would require the USA to lend Europe some very big bucks.

I have some sense of what is going on in the background. Chris Whalen has a much better idea than I. But the big shots at the major banks know exactly what is going on the funding markets. After all, they ARE the funding markets. I can assure you that central bankers and treasury officials are all talking as well.

So if your wondering why stocks are tanking and bonds are soaring it’s because the news on this is already out. It’s just not in print. A thanks to Chris Whalen for putting this so squarely on the table.

The era of incredible shrinking banks
by Frank Partnoy - FT

How many people does it take to operate a modern bank and how much should such a bank’s shares be worth? The one-two punch of recently announced lay-offs and stock price declines suggests that the answer to both questions is a lot smaller than you might think.

The numbers are staggering. As of midday on Wednesday, shares of Barclays and Credit Suisse, which announced lay-offs last week, are down more than 20 per cent for the month. Shares of HSBC, which will be making 30,000 redundancies – a 10th of its workforce – are down 17 per cent. Shares of Lloyds, which is cutting 15,000 jobs, are down nearly that much.

Other financial institutions, including Goldman Sachs and UBS, have announced job cuts and suffered double-digit share price declines. And then there are Bank of America and Citigroup, the two banks facing the most intense pressure from investors this week; together they employ more than half a million people. For now.

Typically, job cuts are good for shareholders because they reduce labour costs and improve efficiency. But these lay-offs have set off a labour-capital death spiral: they are bad for employees but are proving even worse for shareholders, and the declines in the share prices of banks are putting yet more pressure on employees and will probably lead to more lay-offs. And so on, and so on.

Bank analysts cite several reasons for share price declines, including litigation exposure, declining investor and consumer confidence and a faltering economy. But one overarching factor, which also explains the increase in lay-offs, is the declining importance of banks.

Banks are supposed to play only a limited function in the economy. Historically they just match lenders and borrowers. Most banking activity – lending, underwriting, mergers, sales, trading and wealth management – revolves around the allocation of capital. But over time, banks have expanded into riskier and more complex activities, including structured finance, derivatives trading and regulatory arbitrage, which can allocate capital in distorted ways. But even distorted capital allocation is still capital allocation; for better and worse, that is essentially what banks do.

In the future, improved technology will reduce the number of human beings needed to allocate capital, as it has done in other service industries. People will also play a smaller role in dealmaking and trading, just as they do when we board a plane or shop for clothes. HSBC is downsizing so dramatically because its leaders look at technology companies and see their bank as a dinosaur that must shed weight or become extinct.

Contrast the employment numbers for banks and technology firms. HSBC and Google obviously differ in substance but both companies are focused on innovation and service, and also have roughly similar market capitalisations. The striking difference is that Google generates these numbers with fewer than 30,000 employees – not even as many people as HSBC is laying off.

Facebook and its peers also play an allocative function, just as banks do, except they help people move content instead of capital. Social network firms and banks both allocate information; in one case it is personal data and in the other it is money. As with Google, though, the employment numbers differ starkly. Facebook’s equity is worth more than that of most banks, yet it has just 2,000 employees.

Imagine the following thought experiment. If all of the world’s major banks had failed during 2007-08, and regulators had permitted Apple, Facebook, Google and Microsoft to take over the economy’s capital allocation function, how would employment numbers have changed? Surely any neo-bank would hire smart lenders, traders, analysts and advisers, the people who have the strongest relationships with, and knowledge of, the institutions that demand or supply capital. But would they have hired all of them? Half? How many people would a new bank really need? Hedge funds take on traditional bank functions with a fraction of the employees.

When my new law students arrive for classes later this month, I will begin with one question: for whose benefit should companies be run? Most for-profit companies are run for the benefit of shareholders. But banks have been run more for the benefit of employees. In the future, banks will face pressure from both groups. They will occupy a smaller place in the economy and they will be less profitable. In a decade, there will be fewer professionals working on Wall Street than there are today. As banks revert to their more limited historical role in capital allocation, they will face hard choices about who to favour: shareholders or employees?

The recent turmoil among banks illustrates a deep irony: although banks are supposed to be exemplars of capitalism, during the previous two decades, bank employees have consistently won the labour-capital battle. As banks expanded, employees extracted most of the gains, like professional athletes demanding their teams’ profits and leaving owners with paltry returns, or even losses. Sports owners will suffer such indignities in exchange for glamour value. But owning a bank isn’t very much fun and future owners are going to play fewer games with smaller teams.

Wild Trading Is Little Help for Banks
by Aaron Lucchetti - Wall Street Journal

The dog days of August have turned hectic in the financial markets. But a spell of wild stock trading won't be enough to quiet the profit questions dogging Wall Street's biggest firms.

The recent stock-market carnage has been marked by a pronounced surge in trading activity. More than 16 billion shares changed hands daily on all U.S. markets as stocks gyrated Friday, Monday and Tuesday. That puts those three days among the 10 busiest stock-trading days ever, according to New York Stock Exchange parent NYSE Euronext. Thursday didn't make the busiest-ever list but registered a still-substantial 13 billion shares.

A run of frenzied trading sounds like a rare bit of good news for big brokerage firms such as Goldman Sachs Group Inc. and Morgan Stanley. Shares in both firms are trading near two-year lows, after a run of softening profits, and are fetching less than book value, a measure of a firm's net worth.

Yet even a sustained run of heavy trading volume alone isn't likely to make up for the setbacks they have suffered lately. While bond trading has picked up in recent weeks, new deals have slowed, putting pressure on a business that was a big driver of Wall Street profits during the 2009-2010 recovery. Bond and commodity trading revenue at nine big U.S. and European banks dropped 37% in the second quarter from the first quarter, according to Nomura Securities.

What's more, a stock-trading surge likely won't generate enough commission revenue for banks and securities firms to overcome the losses they are expected to take this quarter from holding stock inventories whose value has fallen with the recent market rout. "It's a tough environment," says Nomura analyst Glenn Schorr. "Derisking is derisking, and that means people do less" after the initial storm clears.

Part of the reason that heavy activity likely won't save the day is that action sometimes doesn't predict trading profits as well as other indicators. Mr. Schorr points to the direction of the 10-year Treasury yield and the number of bond deals being sold on Wall Street.

On those metrics, the third quarter could be tough. Mr. Schorr noted that while bond trading may improve from the second quarter, the worst environment for bond trading desks tends to be times like now, when both Treasury yields and debt underwriting levels fall. Falling Treasury yields aren't bad on their face, but often correspond with a worsening economy, which is bad for bank profits as their lending spreads narrow.

In the third quarter so far, Treasury yields are plummeting, with the 10-year Treasury note recently yielding 2.34%, down from 3.18% on June 30. Debt underwriting is on a pace to fall from both the second quarter of this year and the third quarter of 2010, according to research firm Dealogic.

Another factor pointing toward a weak quarter: volatility. Roger Freeman, an analyst with Barclays Capital, says that banks' vast trading desks perform better when a key market volatility index known as the VIX stays below 30 on the Chicago Board Options Exchange. That is because banks can more easily and profitably hedge their stock inventories when blue-chips aren't diving and surging frantically.

Last month, while Congress worked to reach a debt-agreement with President Barack Obama, the so-called fear gauge rose from the teens into the 20s, then spiked into the 30s and 40s when a last-minute agreement failed to prevent a debt-downgrade by ratings firm Standard & Poor's.

Adding to the banks' pain, a sharp stock-market correction usually ails other parts of Wall Street, from the prime brokerage business that serves hedge funds to the brokerage forces serving wealthy individuals and bankers trying to get nervous companies to raise money or buy competitors.

Announced merger volume this month is down about 20% from the pace set during the first part of August of last year, while stock underwriting volume is down 28% so far this quarter, Dealogic says. Bond underwriting, excluding Treasurys, is being hit the hardest, falling 36% during the quarter from last year's pace, according to Dealogic.

Wall Street could have been hit harder had it not been for efforts to reduce its risk in recent years. Goldman Sachs, Bank of America Corp., Morgan Stanley and others have closed or announced plans to spin off trading desks designed to make profitable bets for the bank, rather than serve clients.

In part, that is why revenue and earnings estimates haven't been slashed yet by analysts following the banks. Analysts' estimates of Goldman Sachs's third-quarter per-share profit has fallen more than 20% since June 30, according to FactSet Research, in part because Goldman released disappointing second quarter earnings in July. Earnings estimates have fallen less sharply at Morgan Stanley, Citigroup Inc. and Deutsche Bank.

One beneficiary of the market mayhem: financial exchange companies, whose stocks have held up better than bank stocks. While exchanges may suffer later if there's an activity hangover after the decline, they get the immediate benefit of higher volume now without holding the inventories plaguing banks.

On Wednesday, Sandler O'Neill analyst Richard Repetto released a report saying that exchanges such as Nasdaq OMX Group Inc. and NYSE Euronext could see better earnings than expected in the third quarter, due to "surging" volumes in both stocks and derivatives contracts such as stock-index futures.

Mr. Repetto voiced caution, however, about online brokers such as TD Ameritrade Holding Corp. It benefits from heavy trading activity: This week, TD Ameritrade's CEO said the company had the busiest day in its history, processing more than 900,000 trades. But the company stands to be hurt by continued low interest rates, since it means there's less money to be earned by investing clients' balances, Mr. Repetto said.

Trading volumes hit record levels
by Telis Demos - FT

Trading in equities and derivatives has hit record levels this week as investors traded frantically in response to a tumult of factors such as the US Federal Reserve’s decision to stick with near-zero interest rates until 2013, fears over the US’s credit rating and the eurozone debt crisis.

Trading in currencies and gold, seen by many investors as a "safe haven" alternative to dollars, have spiked as central banks in the US, Europe and Japan have intervened to attempt to pump liquidity into currency, equity and sovereign debt markets. "A lot of the selling is being driven by uncertainty," said John Schlitz, head US market technician at Instinet. "It’s panic versus greed, and panic generates higher volume than greed.

CME Group, the world’s largest futures market, reported an all-time volume record on Tuesday, beating the last peak of activity hit during the "flash crash" last year in the US, when markets gyrated wildly.

On the CME, there were 25.7m contracts traded across all asset classes, with individual market records being hit in gold and Australian dollars. "With all this volatility and uncertainty, people might be nervous about making big, long-term bets on stocks. The leverage built in to derivatives contracts allows investors to benefit from smaller, shorter-term trades," said Justin Schack, managing director at Rosenblatt Securities.

Equity markets are also seeing levels of trading not witnessed since the height of the financial crisis. Tuesday’s US equity market volume of 16.9bn shares was the fifth highest on record, surpassed only by trading in the fall of 2008 and around the May 6 "flash crash". "It hasn’t been the huge spikes that we’ve seen in other situations, like on May 6. It’s been much more orderly but heightened activity throughout the day," said Joe Mecane, executive vice-president at NYSE Euronext.

The value of share trades done on the London Stock Exchange more than doubled on Tuesday to £10.8bn, from £5.3bn on August 2. On Wednesday morning at the market open, the New York Stock Exchange saw an all-time message traffic record of 121,257 messages per second in one 30-second period, which includes orders placed, cancelled, executed and routed.

The US options markets, where the CBOE Volatility Index, or the "Vix", trades, also set a daily record for the third session in a row, with 41.5m contracts traded on Monday. That compares to a peak of 27.7m contracts during September 2008, when Lehman Brothers collapsed.

Nicole Sherrod, managing director at online retail brokerage TD Ameritrade – which reported a record 900,000 trades on Monday – said that retail traders were particularly concerned with the US debt downgrade. They have also been unusually active in options trading, with covered calls seeing spikes in activity. Such contracts allow traders to generate income from long-term holdings. "Near-zero rates are forcing people to find alternative ways to generate income," she said.

Institutional traders have swarmed back into the equities market after mostly sitting on the sidelines during the past two years. Trading volumes at Liquidnet, a marketplace for blocks of shares available only to large funds, spiked last week to its highest since September 2008, a jump of 50 per cent versus last year.

"The only way to make money in this market is to be highly selective based on fundamentals, and that’s institutional trading," said Joe Mazzella, global head of trading at Knight Capital Group.

High-Frequency Firms Triple Trades in Rout
by Nina Mehta - Bloomberg

The stock market’s fastest electronic firms boosted trading threefold during the rout that erased $2.2 trillion from U.S. equity values, stepping up strategies that profit from volatility, according to one of their biggest brokers.

The increase from Aug. 1 to Aug. 10 over their 2011 average surpassed the 80 percent rise in U.S. equity volume, showing that high-frequency traders made up more of the market during the plunge, Gary Wedbush, executive vice president and head of capital markets at Wedbush Securities, said in a telephone interview. Wedbush is the largest broker supplying bids and offers on the Nasdaq Stock Market, according to exchange data.

"We’re seeing a tremendous amount of high-frequency trading," said Wedbush, whose company is one of the biggest execution and clearing brokers catering to high-speed firms. "Their business is a trading business, and volatility creates far more opportunities. Some of their algorithms and automated systems are trading two, three or five times as many shares as they would have in a more normalized volatility environment."

The role of high-frequency firms in periods of market swings has come under scrutiny since the May 6, 2010, crash that briefly erased $862 billion from U.S. share values. In contrast to their behavior this month, the traders and other professional investors were said to have withdrawn bids as the 2010 selloff worsened, according to a Sept. 30 report from the Securities and Exchange Commission and Commodity Futures Trading Commission.

Rising Volume
Equity volume from Aug. 4 through Aug. 10 was a record for any five-day period, according to data compiled by Bloomberg and Credit Suisse Group AG. The daily average of 15.97 billion shares beat the previous record of 15.94 billion from Sept. 15 through Sept. 19, 2008. Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15.

Wedbush, which has about 1,000 employees including about 400 in Los Angeles, has been the largest provider of bids to buy and offers to sell shares on Nasdaq every month this year, according to data from Nasdaq OMX Group Inc. The next-largest was Morgan Stanley in New York.

Daily volume averaged 7.5 billion shares in the first half of 2011 when the Chicago Board Options Exchange Volatility Index, or VIX, was 18.04. It rose 80 percent to 13.6 billion shares from Aug. 1 through Aug. 10 while the VIX climbed to 32.69 and the S&P 500 slid 13 percent. The VIX measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index.

Rapid Orders
High-frequency trading is a technique that relies on the rapid and automated placement of orders, many of which are immediately updated or canceled, as part of strategies such as market making and statistical arbitrage and tactics based on momentum. It accounted for about 53 percent of trading earlier this year, down from 61 percent in 2009, according to Tabb Group LLC, a New York-based financial industry research firm. In 2006 it was 26 percent of the market, Tabb said.

Wedbush estimated the firms have made up 75 percent of American equity volume in August. They have boosted trading in shares of Apple Inc., Google Inc., Bank of America Corp. and Goldman Sachs Group Inc. since early July after reducing business the first half of 2011, Wedbush said. The traders are active in the SPDR S&P 500 ETF Trust, iShares Russell 2000 Index Fund and other exchange-traded funds, he said.

Regulatory Probe
U.S. prosecutors have joined a regulatory investigation into whether some high-speed traders are manipulating markets by posting and immediately canceling waves of rapid-fire orders, two officials said in April. Justice Department investigators are working with the SEC to review practices "that are potentially manipulative," according to Marc Berger, chief of the Securities and Commodities Task Force at the U.S. Attorney’s Office for the Southern District of New York.

Algorithms, or strategies that execute bigger orders by breaking them into smaller pieces and sending them to different exchanges, also use high-frequency techniques. Mutual, pension and hedge funds employ algorithms built by brokers or vendors to automate some of their trading instead of manually placing orders in markets or turning to humans to buy or sell blocks. Wedbush said professionals who add bids and offers on exchanges make trading more efficient and reduce the cost to investors of buying and selling shares.

Adding Liquidity
"The bulk of high frequency traders are adding liquidity to the marketplace," Wedbush said. "Automated traders employ a myriad of strategies that seek to profit from a stock’s short- term volatility, but the mass of HFT is adding liquidity by being on both sides of the market or doing creation/redemption arbitrage for ETFs."

Authorized brokers can buy the stocks in an index and swap them for shares in an ETF based on the benchmark, or sell ETF units and get shares of its companies. That reduces price differences between an ETF and the index on which it’s based. High-frequency firms generally focus on the most active securities, with about 80 percent of their trading limited to the 20 percent that are the most popular, Wedbush said.

Futures on the S&P 500 climbed 0.3 percent at 6:11 a.m. in New York today after the gauge surged 4.6 percent to 1,172.64 yesterday. The index had plunged as much as 18 percent from its 2011 high and traded at 12.3 times reported earnings on Aug. 10, the lowest valuation since March 2009, according to data compiled by Bloomberg. Dow Jones Industrial Average futures rose 28 points, or 0.3 percent, to 11,112 today.

63% of Volume
Tim Quast, founder of ModernNetworks IR LLC, a Denver-based consulting firm that advises Cisco Systems Inc., Accenture Plc and other companies about market structure and trading, estimates that high-frequency firms are handling about 63 percent of U.S. equities volume, up from about 61 percent in July and down from last year’s 70 percent.

Surges and rapid declines in the S&P 500 are being driven by institutional investors turning over baskets of stocks and investment banks hedging positions in response to actions by central banks in Japan, Switzerland, Europe and the U.S., Quast said. Institutional investments generally focus on correlation between products and asset classes whereas speculative trading is driven by divergence from historical price relationships among stocks, indexes, currencies and other gauges, he said.

"Institutions are engaged in massive efforts to transfer risk across multiple asset classes because of fluctuations in the yen, franc, euro and U.S. dollar," Quast said. His firm saw shifts in institutional money increase beginning on Aug. 4. "This is causing volume and volatility to increase, which in turn attracts volatility traders," he said.

Trading Range
The S&P 500 has moved in an average range of 2.65 percentage points between intraday highs and lows in the past month, the biggest gyrations since the 20-minute crash on May 6, 2010. That pushed the VIX up 50 percent to 48 on Aug. 8, the biggest surge since February 2007, then down 27 percent the next day for the second-largest drop in its 21-year history.

"You can look at a VIX chart and that’s almost perfectly correlated to high-frequency trading volumes," said Wedbush, who returned early from a family vacation in Lake Arrowhead, California, to monitor trading at the firm as volatility rose.

Other senior executives cut short their holidays, Wedbush said. Employees in the company’s technology and operations department, who normally get to the office at 3 a.m. Los Angeles time, have worked extra hours each day to run reports and deal with trade breaks that must be reconciled. The only problems Wedbush has seen is delays in reports about trades settling at the end of the day.

'Heightened' Monitoring
The brokerage is conducting the same type of risk and technology monitoring it does every day although it’s been "heightened," Wedbush said. The investment bank also buys and sells shares for institutional customers like mutual funds and engages in proprietary trading. He added that one reason the securities industry has functioned smoothly even as volume surged is increased automation.

"There’s been a tremendous amount of investment by broker- dealers and exchanges in the last three years," he said. "Because of cost-saving efforts and the commission environment being squeezed, people have had to automate their systems. Automation brings less chance for human errors and it’s paid off in this time of high risk, volume and volatility."

French Economy Stalls
by William Horobin and Nathalie Boschat - Wall Street Journal

Data released Friday showed the French economy failed to grow in the second quarter from the first as consumers sharply cut spending, complicating government plans to reduce its deficit as financial markets question its prized triple-A credit rating.

Gross domestic product in the euro zone's second-largest economy was flat in the second quarter after a 0.9% expansion in the first quarter from the end of 2010, national statistics agency Insee said. The figure dashed expectations of a 0.3% expansion, fueling concerns the government may not have the breathing space to meet its deficit targets.

French consumer spending, the traditional growth driver of the domestic economy, had held up during the recession in 2009. Consumer spending was supported through the economic downturn by a government-funded car-scrapping scheme, which was completely phased out at the end of 2010.

The stalled GDP growth follows an exceptional 0.9% surge in the first quarter, which was boosted by businesses increasing their stocks. Such activity failed to contribute to growth in the second quarter. The slowdown is another blow to France at the end of a week when markets have been plunged into turmoil, partly due to investors questioning France's triple-A rating after the U.S. was downgraded last week by Standard & Poor's Corp. There have also been swirling concerns about the health of the large French banks.

Wild swings in bank shares prompted France's stock market regulator, along with those in Belgium, Italy and Spain, to slap restrictions on short selling of financial shares effective Friday. If the French economy fails to expand at the 2% pace the government is expecting for this year, the official target of bringing the deficit down to 5.7% of GDP from 7.1% last year could be compromised. The government insists it will meet its deficit targets come what may, meaning it may need to embark on further spending cuts if growth disappoints.

French Finance Minister Francois Baroin sought to cast the growth outlook in a positive light. "For this year we are in line." he said on French radio, adding the parameters the government is working on for its 2012 budget are unchanged. The French government expects an acceleration of growth in 2012 to 2.25% from 2% in 2011. Insee said if the French economy fails to grow in the third and fourth quarters, the economy would still grow 1.4% in 2011.

France has already come under pressure from the International Monetary Fund to craft contingency measures to ensure it meets its targets. At the end of July, the fund said France cannot risk missing its medium-term fiscal targets given the need to keep borrowing costs low by securing its triple-A rating.

Focus of eurozone crisis turns to France
by Peggy Hollinger and Richard Milne - FT

Nicolas Sarkozy, the French president, gave his finance and budget ministers a week to devise new measures to cut France's budget deficit as shares in the country’s banks plummeted in the latest bout of financial markets turmoil.

Mr Sarkozy summoned his key ministers back from holiday for an emergency meeting as concern mounted over prospects for growth and the country’s ability to meet its debt targets. In a bid to reassure nervous markets, Mr Sarkozy said these "pledges will be kept whatever the evolution of the economic situation".

The meeting came as rumours circulated about French banks and the possibility of a French credit rating downgrade, with Société Générale plunging by as much as 23 per cent. It closed down 15 per cent, after it denied rumours over its financial stability, while Crédit Agricole was off 12 per cent and BNP Paribas down 9 per cent.

Other European banks slumped too, with Italy’s Intesa Sanpaolo down 14 per cent. SocGen’s shares have fallen by third this month and by 45 per cent since the start of the year.

All three main rating agencies have reiterated that France’s triple A credit rating is stable, but several investors and analysts have said it could be next in line following the downgrade of the US from triple A to double A plus last Friday. "Clearly the market is moving on to who is next in the triple A downgrades and the next one is France," said Adrian Cattley, European equity strategist at Citi.

But Didier Duret, chief investment officer at ABN Amro Private Banking, said: "They need to put their public finances in order but it is a very short-term problem. You really don’t have the same political configuration as in the US, which is a big positive." He called the sell-off brutal and unjustified but warned it could become "a self-fulfilling prophecy".

One senior government official suggested the persistent rumours about a downgrade of French debt and the stability of the French banking sector were being fuelled by speculators. "There are people who have their own reasons for throwing rumours around about France," he said. A final decision on the scale of new spending cuts to be included in the budget for 2012 will be taken at a meeting between Mr Sarkozy and François Fillon, prime minister, on August 24.

Wednesday’s meeting was aimed at reassuring markets after credit default swaps – a form of investor protection that pay out in case of a default – reached a fresh record for France of 176 basis points. Italy and Belgium also hit record CDS levels despite continued European Central Bank purchases of Italian and Spanish debt.

The unexpected summons to senior ministers may have helped to fuel concerns over the stability of the French rating and the banking sector, though officials denied that it was anything more than a working meeting. "It may have added oil to the fire," admitted one government official.

Stock markets globally plunged on the dour outlook for growth. The CAC-40 closed down 5.5 per cent and Germany’s Dax-30 fell 5.2 per cent. In lunchtime trading in New York, the S&P 500 fell 3 per cent, erasing much of the previous day’s gains.

US and German benchmark 10-year bond yields fell sharply to close at all-time lows as investors sought havens. The UK’s 10-year Gilts yields fell to a record low of 2.48 per cent, after the biggest one-day fall in 18 months of 24bp. French yields were also down at 3.07 per cent but the premium it pays to borrow over Berlin remained close to euro-era highs.

Nervousness in Paris is growing over the prospects for economic growth next year, amid a sharper than expected contraction in industrial production in June. Unicredit warned on Wednesday that its forecast for 0.2 per cent growth could be at risk. The official second quarter figures will be published on Friday.

Société Générale Rises as a Global Worry
by Louise Story And Liz Alderman - New York Times

It’s a bank that hasn’t been much on Wall Street’s radar since the days of the A.I.G. bailout. But Société Générale, France’s third-biggest bank, has been stirring financial markets once again on concerns about its big holdings of the debt of shaky European neighbors like Greece.

Although its shares closed slightly up on Friday, Société Générale’s stock has fallen more than 40 percent since mid-July and helped pull European bank stocks down earlier in the week. That volatility is a big reason that France on Thursday night imposed a temporary 15-day ban on short-selling — negative bets — against financial and insurance company stocks.

Why does Société Générale matter? Jitters about the bank’s stability reverberate in New York and around the world because, among other things, Société Générale is one of the biggest global players in equity derivatives — financial instruments meant to protect investors against price plunges in stocks. It does business regularly with the likes of Goldman Sachs, JPMorgan Chase and Deutsche Bank.

"They have significant outstanding derivative exposures, which makes them systemically important," said Kian Abouhossein, an analyst covering European banks for JPMorgan Chase. "They are important to the financial system, not just in the U.S. or Europe, but globally." What’s more, Société Générale has something of a history. It achieved notoriety during the last financial crisis when a rogue trader for the bank, Jérôme Kerviel, lost his employer 4.9 billion euros, or $6.7 billion.

Société Générale may be even better remembered for its disastrous entanglement of derivatives contracts with the giant insurer American International Group. The A.I.G. contracts protected Société Générale from its large stake in troubled American mortgage securities — but only after the United States government bailed out A.I.G. in 2008 and agreed to pay companies like Société Générale 100 cents on the dollar. When Société Générale was eventually revealed to be one of the largest recipients of the A.I.G. bailout funds, some critics questioned why a French bank was allowed to cart home $11.9 billion in American government money.

The French government now, as it did back then, is playing a big role in trying to calm markets and protect Société Générale. Investors’ main fear is that the company’s exposure to Greece — it even owns the majority of a Greek bank — and other troubled European countries might cause a panic that drives away its trading partners and disrupts the derivatives market.

Some investors even worry that Société Générale’s holdings of French government bonds might become a problem if ratings agencies downgrade France’s sovereign debt. So far, though, the ratings agencies have been nearly as loud in their denials that they plan such a downgrade as the French government and Société Générale’s executives have been vociferous in insisting that the bank is on solid footing.

In any case, the rumor-driven run on Société Générale is already costing the company money. It has been forced to pay significantly more than some of its sturdier European banking peers to borrow, according to several market participants.

Analysts point out that Société Générale has a strong balance sheet, but they say that panic in the markets can undermine even strong financials. Mr. Abouhossein, for one, says he thinks the market fear is overblown — as is the risk to Société Générale, even if it were forced to take write-downs on the debt of other troubled euro countries, like Italy and Spain. "French banks can always borrow money from the European Central Bank," he said.

In fact, many European banks were doing just that this week. On Wednesday, commercial banks’ requests for short-term loans from the central bank spiked to a three-month high.
Société Générale officials have spent much of the week arguing that the market’s fears were unfounded. On Thursday, the bank’s chief executive, Frédéric Oudéa, described rumors that Société Générale was having trouble raising money as "fantasy."

And in fact, on Thursday Société Générale was able to raise $2 billion in overnight money — although it reportedly paid higher interest than a more stable European bank like Barclays or Rabobank would have had to. The bank is also still lending out money in the overnight market, which is typically interpreted as a sign of strength.

Société Générale’s direct exposure to Greece is not nearly as large as the exposure it had to the American housing market going into the panic of 2008. Nonetheless, it has been unnerving investors with write-downs like the 268 million euro charge on its Greek holdings the bank announced early this month.

Just as many other large European institutions did, Société Générale bought into sovereign debt at a time when those purchases looked mostly risk-free. It amassed about 18.2 billion euros of exposure to Portugal, Ireland, Italy, Greece and Spain — almost as large as the bank’s 19.2 billion euros in holdings of French debt, according to the European Banking Authority. The sovereign debt of most of those other countries has recently been downgraded, hitting the bank’s portfolio.

But analysts say Société Générale, like other European banks, can count on the support of regulators. In the recent agreement for the latest Greek bailout, Société Générale was among the banks that agreed to forgive about one-fifth of the value of the country’s debt. As part of that deal, a pan-European fund is supposed to make money available to help banks that may need assistance covering their losses on Greece — although each of the 17 euro zone nations’ governments must still vote on whether to finance the bailout fund.

Société Générale, in other words, may be as solid — or not — as the euro union itself. "I don’t think the euro is in danger," Mr. Oudéa, Société Générale’s chief executive, said Thursday. "The governments are very attached to the single currency and lucid about the efforts that must be made."

France feels the economic force of the credit ratings agencies
by Tom Bawden - Guardian

As the French prepare their own austerity package the focus on the ratings agencies' role in the recession becomes more acute

It was the week in which the focus of the financial crisis switched from the streets of New York and Washington to the boulevards of Paris. After roughing up the Dow Jones and Barack Obama, it was the turn of French stocks to be pummeled and for Nicolas Sarkozy to scurry back from holiday to defend his country's honour.

However, in both cases, the bogeyman was the same – the ratings agencies, whose actual downgrade of the US sparked market mayhem and whose rumoured placing of the hex on France brought the chaos back to Europe amid massive selling of shares, especially in the French banks SocGen, BNP Paribas and Crédit Agricole.

Friday's news that the French economy flatlined in the second quarter means there will be no respite from rumours that France could be the next country to follow America and be stripped of its coveted AAA-rating. Although the finance minister, François Baroin, said the figures were "not a surprise", consumer spending in France dipped alarmingly last month and the government may now have to find even deeper budget cuts to meet its deficit reduction targets.

France banned short-selling of its banks on Thursday in an attempt to calm the markets. But, however much it would like to, it cannot ban the rating agencies whose power over the fate of nations has become a key factor in the debt crisis drama.

"After last week's downgrade of US bonds by Standard and Poor's (S&P), Paddy Power are now taking bets on which will be the next country to be downgraded from its AAA rating by the agency," the bookmaker announced on Thursday, taking bets on this eventuality for the first time in its history and illustrating the extent to which the ratings agencies have been thrust into the mainstream.

For example, David T Beers, the S&P boss who took the decision, was given a Wikipedia page for his trouble – moving one of the world's lowest profile, but most powerful financial players, into the spotlight for the first time.

Tracing their roots back to the 1860s when they analysed the risks associated with lending to and investing in America's rapidly growing railroad system, the ratings agencies enjoyed life in the shadows for at least their first century. During that time they morphed into hugely powerful organisations, analysing and rating debts attached to everything from companies and governments to bonds and packages of mortgages, just as consumer credit agencies assign individuals a score based on their financial history.

Although confidence in the agencies has been dented by criticism that they failed to spot the US sub-prime mortgage crisis, their ratings are still taken as gospel by much of the investment community, with banks, pension funds and treasuries governed largely by their grading system. As such, their ratings can ripple across the global economy all the way down to influencing mortgage rates, credit cards and car loans, which are priced, in part, against sovereign debt. Not to mention their influence on general investor confidence and the stock markets.

The ratings process is intensive, as armies of analysts pore over their subjects' accounts and phone their contacts in the government, media, academia, banking and industry, digging for any information that affects their credit risk in a procedure that is part egg-headed economist and part gumshoe.

The top credit rating is AAA, essentially implying zero risk to the lender, which the US lost this month and which the UK has managed, so far, to retain. Although each agency uses different codes to represent the slide down the ratings scale, the principle is the same – the lower the rating, the greater the risk and the more interest is likely to be demanded by the borrower to compensate for the increased chance they will not be repaid.

Each of the "big three" agencies of S&P, Moody's and Fitch, divide their scale into two categories: known as investment grade, which is relatively safe, and non-investment grade, or "junk" status which is not. Portugal, Greece and Ireland have all been downgraded to junk status as the European sovereign debt crisis has escalated. There are a total of 10 ratings agencies, such as Rapid Ratings, but the big three are by far the most influential.

The first time the ratings agencies drew any real criticism was in 2001, when some questioned why it was that the big-three agencies had been rating Enron as investment grade just four days before the meltdown of the US energy trading firm. In 2007, they came in for condemnation for their part in the financial crisis, as critics accused them of failing to identify the risks attached to sub-prime mortgages.

An investigation by the US Securities and Exchange Commission (SEC) and the New York attorney general focused on whether the agencies are compromised by earning fees from the banks that issue the debt they rate. The report savaged the industry and contained dozens of internal emails that suggested they had betrayed investors' trust. "Let's hope we are all wealthy and retired by the time this house of cards falters," one unnamed S&P analyst wrote. In another, an S&P employee wrote: "It could be structured by cows and we would rate it."

Earlier this summer, the agencies endured further criticism, this time from European politicians who complained that their various downgrades and comments about the region's debt problems were exacerbating the problem.

But while bankers and politicians realised the importance of the agencies – and attempted to challenge their dominance, in one case calling for some of their comments on the latest Greek debt rescue package to be ignored – the general public remained, by and large, in the dark about their activities and their significance.

All that changed on 5 August, when S&P took an until recently unthinkable step and stripped America of its AAA rating. This psychologically damaging development will go down as a milestone in the decline of US global economic dominance, and it fuelled the panic that has driven down stock markets around the world. Although the other two of the big-three ratings agencies have kept their gold-plated ratings on US debt for now, both are watching the situation closely, while a downgrade of this nature from even one of the agencies is an historic event.

The spotlight is now firmly on the ratings agencies, with the US government attempting to rubbish S&P's analysis and President Obama's insistence that America will always be a AAA nation. Politicians are particularly angry because the trillions of dollars the US government has spent attempting to stimulate the economy – and the decreasing taxes and increasing benefit bills resulting from the recession – are largely responsible for driving the country's debt levels to the point at which S&P deemed a downgrade necessary.

In other words, opponents of the ratings agencies believe the US government is being punished for bailing the economy out of a problem for which they hold the big three partly responsible, because of their failure to highlight the dangers of the toxic sub-prime mortgages that triggered the recession. As Paul Krugman, the Nobel prizewinning economist, said in the New York Times last week: "It's hard to think of anyone less qualified to pass judgment on America than the ratings agencies. The people who rated sub-prime-backed securities are now declaring that they are the judges of fiscal policy? Really?".

That the ratings agencies failed to spot the difficulties embedded in swathes of toxic debt early enough is beyond doubt. But they are hardly alone in an investment industry that turned a blind eye on a mass scale and failed to ask the right questions. Likewise, they are not alone in identifying that the US is in well over its head debt-wise, whether the Obama administration likes it or not.

Some critics have pointed out that there is potential for conflict of interest when agencies rate non-government debt issuers because they are paid by those they judge – a topic high on the agenda of US lawmakers looking to improve the ratings process. There is no such incentive for sovereign ratings which are provided free of charge to the country.

Now that the US has lost its AAA rating, issues such as how ratings agencies make their money have been catapulted from obscurity into potential topics for dinner-table discussion. While they are on the subject, they may also discuss placing a bet on which of the 18 remaining AAA-rated countries will be next to lose its gold plating.

And so the scene is set for a Wikipedia entry for David T Beers, who we learn is a "mustachioed, chain-smoking head of sovereign credit ratings for S&P". Future entries could have a major bearing on how the debt drama ends.

4 European Nations to Curtail Short-Selling
by Louise Story and Stephen Castle - New York Times

A European market regulator announced on Thursday night that short-selling of financial stocks in several countries would be temporarily banned in an effort to stop the tailspin in the markets.

The European Securities and Markets Authority, a body that coordinates the European Union‘s market policies, said in a statement that these negative bets on stocks would be curtailed effective on Friday in France, Belgium, Italy and Spain. They are already banned in Greece and Turkey.

"Today some authorities have decided to impose or extend existing short-selling bans in their respective countries," the authority said. "They have done so either to restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field, given the close inter-linkage between some E.U. markets." The statement said details for each country will be posted on their individual financial regulators’ Web sites.

European financial regulators have been discussing a continentwide a ban over the last few days amid fears from governments in places like France that these negative bets on stocks were driving a panic. In short-sales, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan. The difference in price is his profit, or loss.

But some countries, like Britain, came out publicly against a short-sale ban. Critics say short-selling encourages speculation and pushes stock prices down, sometimes feeding on itself in a panicked market, while advocates say it keeps the market honest and maintains liquidity.

The increasing number of European governments banning short-selling puts United States regulators in a tricky position. Investors with negative views on bank stocks who are forced to close their negative bets in Europe might shift them to American banks. On Thursday, stocks in the United States continued their see-saw ride, surging 4 percent, buoyed by hopeful data on initial jobless claims.

Market participants in the United States were critical of the announcement in Europe. "It is a crisis of confidence and when you do something like this, it shows a lack of confidence, which is exactly the opposite of what you want to say to the markets," said Robert Sloan, managing partner of S3 Partners, a firm that helps hedge funds manage their relationships with their brokers.

Back in 2008, European and United States officials coordinated temporary bans on shorting financial stocks. The bans in Europe are drawing to the list of comparisons that commentators are making between the current market unrest and the financial crisis of 2008. Back then, governments around the world, including Britain and the United States, banned short-selling on financial stocks temporarily. The ban was meant to prevent bank stocks from falling further, but in time, stocks fell anyway.

Hedge funds, in particular, were hurt by the ban because it interfered with trading strategies that pair negative bets with positive ones. The ban on short-selling in 2008 has been widely criticized and blamed for driving investors out of the market altogether, further hurting stock prices.

It is impossible to know whether the panic would have been worse without the ban, which protected companies like Goldman Sachs and Morgan Stanley, but general studies of short-selling have found that bans on that activity can lead to more volatility in the market and lower trading volume, according to Andrew W. Lo, a professor at the Massachusetts Institute of Technology.

Mr. Lo said banning short-selling also removed important information about what investors think about the financial health of companies, and suggested that the bans served mainly political purposes. "It’s a bit like suggesting we take heart patients in the emergency room off of the heart monitor because you don’t want to make doctors and nurses anxious about the patient," he said.

Details were still emerging about each country’s policy. In France, the market watchdog banned short-selling or increasing short-selling positions, effective immediately, for 15 days on 11 financial institutions. They are: April Group, Axa, BNP Paribas, CIC, CNP Assurances, Crédit Agricole, Euler Hermès, Natixis, Paris Ré, Scor, and Société Générale.

Shares in the banks have slumped sharply, sometimes on market rumors. Société Générale’s shares plunged as much as 23 percent Wednesday before closing down 14 percent, on what the chief executive, Patrick Oudea, called "fantasy rumors." Its shares recovered slightly on Thursday, gaining 3.7 percent.

The European authority does not have the authority to impose a policy on short-selling but it can make recommendations and coordinate cooperation among the European Union’s 27 governments. The European Parliament is considering legislation to give the authority additional powers.

Some investors are already anticipating that such a ban may occur, Mr. Sloan of S3 Partners said. He said that for the past two months many investors had been getting out of their short positions, in part out of fear that such a ban might be introduced. He also said if there were more short-sellers in the market now, the markets might be falling less than they are. That is because as markets fall, short-sellers often close their positions to cash in profits and in doing so, they have to purchase shares to cash out.

The markets could use these sorts of buyers now, said Mr. Sloan, who wrote a book after the 2008 crisis called "Don’t Blame the Shorts: Why Short Sellers Are Always Blamed for Market Crashes and How History Is Repeating Itself."

Arturo Bris, a professor of finance at the IMD business school in Lausanne, Switzerland, studied financial stock prices in 2008 before and after a short-selling policy was put in place. On Wednesday, Mr. Bris said that he did not think such a ban in Europe would help in the long run. "If there is a ban in the European markets in the next couple weeks it would stop the blood, but it’s not going to solve the problem," Mr. Bris said. "It would just delay the problem."

Even with the European countries’ bans on short-sales of some stocks, investors who have negative opinions on companies may still find ways to bet against them in the derivatives market, if those sorts of trades remain allowed.

Short selling ban boosts bank shares
by FT

A partial ban on short selling in the eurozone boosted European bank shares on Friday but led to confusion among market participants unclear about how the rules would be applied.

France, Italy, Spain and Belgium on Thursday introduced a ban on the short selling of financial stocks for 15 days in response to sharp share price falls this week, but they failed to convince other regulators to go along with a European Union-wide prohibition.

The bans on the controversial practice where investors aim to profit from price falls took effect on Friday morning. But other main markets, including the US and the UK, have said they have no plans to follow suit.

However, differences were emerging on Friday between the four countries that have introduced the latest ban. All four countries have applied the restrictions to various stocks, but the French and Belgium rule changes do not appear to cover derivatives that are included in the Spanish ban. Regulators said they had put the ban in place in an effort to "restrict the benefits that can be achieved by spreading false rumours".

Jean-Pierre Jouyet, head of the AMF, the French securities regulator, said on Thursday night: "They wanted to test French resistance. This is our response, as always very determined, and it will be so for all those who want to put us to the test."

Bank shares across Europe rose on Friday, with Belgium’s Dexia rising to the top of the leaderboard. UniCredit of Italy and Crédit Agricole of France also rose after a week that had seen heavy selling of the region’s lenders. Société Générale, one of Europe’s most heavily sold stocks this week, rose 0.1 per cent on Friday.

But banks in countries not covered by the ban were also higher. Barclays and Royal Bank of Scotland of the UK rose, while Deutsche Bank, Germany’s largest lender by market capitalisation, and Commerzbank were also higher.

However, the experience of 2008, the last time short selling was banned in Europe in the wake of the collapse of Lehman Brothers, shows bans only have a short-term impact and fundamentals reassert themselves in the longer term. "We think that although short sellers are active in the market there has been selling also due to uncertainty on fiscal and monetary policy issues that are yet to be resolved which results in natural selling of asset classes," said Atif Latif at Guardian Stockbrokers.

Lee Hardman at Bank of Tokyo Mitsubishi UFJ said: "With deteriorating investor confidence in eurozone debt likely to continue driving reduced investor confidence in the ability of European banks to withstand the fall out from the eurozone debt crisis we doubt that downward pressure on European financials will now dissipate."

Academics who have studied the 2008 bans said the latest restrictions could backfire. "It is the worst thing to do right now. This would signal to the market there may be something fundamentally bad that is happening," said Abraham Lioui, a professor at the Edhec business school in France.

There was also confusion on Friday at London-based trading platforms like Chi-X Europe and BATS Europe unclear on how the rules applied to them. These alternative trading platforms offer trading in pan-European stocks, including the banks of all four countries that imposed the ban, but are regulated by the Financial Services Authority.

Legal experts at the companies on Friday were in urgent conversations with the FSA over whether their customers were affected by the ban given that that the UK has not introduced the ban.

The introduction of the ban represents a partial victory for the new European Union market regulator, Esma, which has sought to avoid a repeat of the uncoordinated actions that swept around the world after the collapse of Lehman. Greece and Turkey had already imposed restrictions on short selling earlier this week

Germany’s market regulator BaFin said on Friday it had not seen any signs of abuse to warrant taking further action against short selling and Dutch regulator AFM said it had decided against introducing a ban after consulting other European regulators.

Italy, EMU and the Evil Eye
by Ambrose Evans-Pritchard - Telegraph

For those in Euroland convinced that Anglo-Saxon hedge funds and speculators are responsible for the sorry state of the Italian bond market (seemingly the view of EMU’s entire governing class), here is a nugget from a Swiss blue chip investment house.

Dieter Wemmer, CFO of Zurich Financial Services, said his group had slashed its holdings of Italian government bonds by €2bn since June 30, cutting its exposure to €6bn. It also had €5bn of Spanish debt and €18bn of Greek debt.

Much of the capital flight from Italy is crossing into Switzerland, so the Swiss have a good insight into the behaviour of the Italian financial elites.They know what Italy’s insiders are doing.

The ZFS announcement follows a revelation by Deutsche Bank that it had cut its exposure to Italy from €8bn to €1bn by hedging (ie, buying insurance) through the CDS market. These are not hedge funds. They are real money accounts, and they give us a glimpse into what is happening.

Italy has a primary budget surplus, the best fiscal profile of the G7, and low private debt. So why do Swiss investors want to pull out? Why are other countries with their own sovereign currencies and central banks able to borrow at barely over 2pc for ten years despite awful public finances, while Italy had to pay 6pc until the ECB intervened this week, and still has to pay 5pc now?

I hate to keep repeating an elementary point but currency unions switch exchange rate risk into default risk. Italy’s current travails are a direct result of — and function of — EMU membership. The deeper issue is that Italy is 20pc over-valued within EMU and is now trapped in very low growth and a stubborn current account deficit. This is a slow rot. It is directly linked to EMU membership.

Italy could have used the decade and half since Euroland’s currencies were locked together after Maastricht to free up labour markets and carry out the `micro’ reforms needed to make EMU viable. It did not do so. It is very late in the day now.

Yes, before Euroland readers all scream "what about the mess in Britain?", let me repeat for the millionth time that I don’t write about Britain. The rest of the Daily Telegraph is giving blanket coverage to the current stew of riots, knife attacks, and anarchy in British cities.

Britain is of course in a terrible mess, but Gilt yields nevertheless fell below 2.5pc this morning. The UK is very lucky that it still has the sovereign instruments to mitigate the fiscal disaster left by Gordon Brown.

Italy has the ECB, and behind it stands Germany. Whether Germany will continue to stand behind the Project as the cost rises is the great unknown. That angst is what is really eating away at markets.

Linde chief Wolfgang Reitzle caught the mood when he said: "I am fundamentally for the euro, but not at any price — above all not at the price of socializing the debts of other countries." I suspect that is the true voice of Germany, whatever the German ministers may say to please peers in Brussels.

Investors Fret at Costs if Rescues Are Needed
by Landon Thomas Jr. - New York Times

Ever since Lehman Brothers collapsed nearly three years ago, Europe’s leaders have repeatedly vowed to prevent any major European bank from failing. But as bank shares plummeted this week, the question on investors’ minds was not whether governments would rescue their banks if necessary. It was how much a bailout might cost them.

Whether it is Société Générale in France, UniCredit in Italy or Santander in Spain, the fear is that already indebted countries will find themselves in deeper trouble if they are forced to rescue some of their biggest banks.

By one measure, according to a recent report from the Peterson Institute for International Economics, 90 of Europe’s biggest banks hold 4.7 trillion euros ($6.7 trillion) in short-term loans that must be repaid over the next two years. That burden alone is more than half of the combined gross domestic product of the 17 nations that share the euro currency.

"This problem has become cancerous," said Stephen Jen, a former economist at the International Monetary Fund who runs a hedge fund in London. "France will not hesitate to fiscalize its banks — but it will be very expensive."

Shares of European bank stocks were volatile on Thursday. Société Générale, which has been the focus of the greatest fears, ended the day up 3.7 percent. But its stock price is still down 16 percent this week — and off almost 43 percent for the year. Shares of Santander climbed 3.2 percent and UniCredit rose 3.4 percent Thursday. But they, too, were rebounding slightly after big recent sell-offs.

In another danger signal, commercial bank reliance on the European Central Bank for short-term loans spiked to a three-month high on Wednesday. Banks borrowed 4 billion euros, or $5.7 billion, compared with 2 billion euros the day before, according to figures released on Thursday. That would indicate the banks are becoming wary of lending to one another, preferring to borrow from the central bank.

"What strikes me in the crisis of the last few weeks is the large content of self-fulfilling prophesies," said Paul De Grauwe, an economist in Brussels who advises the president of the European Commission, José Manuel Barroso. "The fear that something bad will happen increases the probability that the something bad occurs."

Heightening market anxiety is the realization that the banks that have promised to participate in the Greek debt restructuring may face larger losses than expected. Société Générale, which has one of the larger Greek exposures among major European banks, already announced a 268 million euro charge early this month.

What is more, Europe’s latest plan to address its bank problem — endowing its rescue fund, the European Financial Stability Facility, with the power to recapitalize banks — will take at least another month to become functional. Parliaments of the euro area countries must vote on the rescue fund’s new charter, and approval is by no means guaranteed.

Despite statements this week by Société Générale that it is in good condition, unconfirmed rumors have swirled through the markets that some of its lenders — including Singapore and the United States — were threatening to cut their exposure.

Addressing the issue head on, the governor of the French central bank, Christian Noyer, said on Thursday that the latest results of so-called stress tests on French banks demonstrated their health and that they had adequate capital to ride out any difficulties. "Recent stock market movements won’t affect the financial stability of the banks or the resilience they have shown since the beginning of the crisis," Mr. Noyer said.

And the agency that regulates French financial markets took pains to warn that "the dissemination of unfounded information is subject to sanction." The attacks on French banks began amid speculation that French government debt was about to lose its gilt-edged AAA credit rating.

France’s three largest banks — BNP Paribas, Société Générale, and Crédit Agricole — have bulging portfolios of French government bonds that represent substantial portions of their core capital. The latest worries, focused on the prospect of a lower rating for those bonds, could put pressure on the banks to raise more capital almost immediately if a downgrade occurred.

Even without a downgrade, worries about France’s finances have increased the risk profile of those bonds, making it more difficult for banks to use them as collateral for the short-term loans they still depend on to finance their operations. It becomes a vicious circle. If the French government had to inject cash into a failing bank, the additional debt burden could push the credit ratings agencies to downgrade France, making the European debt crisis worse.

Analysts point out that the top French banks report plenty of cash on hand: 150 billion euros in liquidity for BNP Paribas and 105 billion euros for Société Générale, according to a research report by Sanford C. Bernstein & Company. But analysts say unsettled investors are less concerned about the banks’ current positions and more focused on fears that their lenders will abandon them if their top-grade collateral is impaired.

In fact, most European banks, including France’s top institutions, appear to be in much better shape than their counterparts in Ireland and Britain were in 2007 and 2008 when they were forced into the arms of their governments. None of the banks are in the dire straits that pushed Ireland to take over Anglo Irish Bank or Britain to rescue the Royal Bank of Scotland.

Reinforcing that point, Alison Miller, head of European credit strategy in London for Nomura, said on Thursday that many people were misinterpreting money market indicators and falsely concluding that a crisis on the order of 2008 was in the making. For example, a spike in the so-called Euribor-OIS spread, a measure of the perceived riskiness of interbank lending, seems to be reminiscent of 2008.

But Ms. Miller said on a conference call that the widening spread reflected the extra cash that the European Central Bank was lending banks, rather than higher interest rates banks were demanding to lend to each other. She said the demand for central bank cash, while up sharply, was not at levels that would suggest a bank financing crisis. "It is not really signaling that there is major stress," she said.

Compared with 2008, Ms. Miller said, banks took advantage of favorable market conditions earlier this year to issue bonds and fill their coffers. In addition, European banks have vastly more money at the United States Federal Reserve than in 2008, making it less likely that banks will run out of dollars. "There is a lot of misinterpretation around some of the indicators," Ms. Miller said. "We are more sanguine."

At the root of Europe’s banking crisis is the pressing need of the biggest banks to raise large sums of money in a market environment that is very unforgiving. In a widely circulated research paper published last month by the Peterson Institute for International Economics in Washington on the debt burden of Europe’s 90 biggest banks, the authors, Peter Boone and Simon Johnson, suggest that the euro zone’s banking crisis was more than a short-term liquidity problem — that it might, in the worst case, require some banks to be bailed out by their governments, adding to the governments’ own debt woes.

"The bank troubles now are not about liquidity, but instead solvency," said Mr. Boone, a visiting economist at the London School of Economics. "Governments can solve solvency problems through capital injections and loan guarantees  — but this just increases the potential liabilities of the government."

US postal Service proposes cutting 120,000 jobs, pulling out of health-care plan
by Joe Davidson - Washington Post

The financially strapped U.S. Postal Service is proposing to cut its workforce by 20 percent and to withdraw from the federal health and retirement plans because it believes it could provide benefits at a lower cost.

The layoffs would be achieved in part by breaking labor agreements, a proposal that drew swift fire from postal unions. The plan would require congressional approval but, if successful, could be precedent-setting, with possible ripple effects throughout government. It would also deliver a major blow to the nation’s labor movement.

In a notice informing employees of its proposals — with the headline "Financial crisis calls for significant actions" — the Postal Service said, "We will be insolvent next month due to significant declines in mail volume and retiree health benefit pre-funding costs imposed by Congress."

During the past four years, the service lost $20 billion, including $8.5 billion in fiscal 2010. Over that period, mail volume dropped by 20 percent. The USPS plan is described in two draft documents obtained by The Washington Post. A "Workforce Optimization" paper acknowledges its "extraordinary request" to break its labor contracts. "However, exceptional circumstances require exceptional remedies," the document says.

"The Postal Service is facing dire economic challenges that threaten its very existence. . . If the Postal Service was a private sector business, it would have filed for bankruptcy and utilized the reorganization process to restructure its labor agreements to reflect the new financial reality," the document continues.

In a white paper on health and retirement benefits, the USPS said it was imperative to rein in health benefit and pension costs, which are a third of its labor expenses. For health insurance plans, the paper said, the Postal Service wanted to withdraw its 480,000 pensioners and 600,000 active employees from the Federal Employees Health Benefits Program "and place them in a new, Postal Service administered" program.

Almost identical language is used for the Civil Service Retirement System and the Federal Employees Retirement System. The USPS said the programs do not meet "the private sector comparability standard," a statement that could be translated as meaning that government plans are too generous and too costly. "FEHB may exceed what the private sector does in certain areas," said Anthony J. Vegliante, USPS chief human resources officer and executive vice president. "It may not meet what the private sector does in other areas. So cost may be above the private sector, while value may be below the private sector."

Bills that would rein in employee benefits or have workers pay more for the benefits have been introduced in Congress and met with vigorous opposition from federal employee organizations. Intentionally or not, the Postal Service’s proposal provides support for such legislative initiatives. The proposals are the USPS’s latest money-saving effort in a series of moves, some as recent as a few weeks ago and others stretching over a decade.

The Postal Service has reduced its workforce by 212,000 positions in the past 10 years and recently announced it is considering the closing of 3,700 post offices. It also has asked Congress to allow it to deliver mail five days a week instead of six and to change a requirement that it pre-fund retiree health benefits.

The USPS said it needs to reduce its workforce by 120,000 career positions by 2015, from a total of about 563,400, on top of the 100,000 it expects by attrition. Some of the 120,000 could come through buyouts and other programs, but a significant number would probably result from layoffs if Congress allows the agency to circumvent union contracts.

"Unfortunately, the collective bargaining agreements between the Postal Service and our unionized employees contain layoff restrictions that make it impossible to reduce the size of our workforce by the amount required by 2015," according to the optimization document. "Therefore, a legislative change is needed to eliminate the layoff protections in our collective bargaining agreements."

The layoff protection, however, does not apply to employees with fewer than six years of service, which presumably would include thousands of workers. Postal union leaders quickly and sharply rejected the plans.

"The APWU will vehemently oppose any attempt to destroy the collective bargaining rights of postal employees or tamper with our recently negotiated contract — whether by postal management or members of Congress," American Postal Workers Union President Cliff Guffey said. "Our advisers are not encouraging us at all to even consider it," said National Rural Letter Carriers’ Association President Don Cantriel. "We are absolutely opposed" to the layoff proposal, he said. "We are opposed to pulling out of the Federal Employees Health Benefits plan."

National Association of Letter Carriers President Fredric V. Rolando said: "The issues of lay-off protection and health benefits are specifically covered by our contract. .?.?. The Congress of the United States does not engage in contract negotiations with unions, and we do not believe they are about to do so."

How Congress will respond to the proposals, however, remains to be seen. Many Republicans, including those who have sponsored legislation that labor considers anti-union, may support the plan. Some Democrats, for which organized labor is an ally, could back union opposition. But the Postal Service’s critical financial situation could make some Democrats have second thoughts.

Two members of Congress who have introduced separate postal reform bills were noncommittal on the USPS plan. A spokeswoman for Sen. Thomas R. Carper (D-Del.) said, "He is particularly interested in learning whether these proposals would be fair to employees and effective in reducing the Postal Service’s costs."

Rep. Darrell Issa (R-Calif.), chairman of the House Oversight and Government Reform Committee, said: "These new ideas from the Postal Service are worth exploring. Options for reform and cost savings that will protect taxpayers from paying for a bailout, now or in the future, need to be on the table."

Switzerland: Desperate Measures
by Bruce Krasting, My Take On Financial Events

After Bernanke capitulated on the Fed’s responsibility to balance it’s dual mandate and committed to keep ZIRP alive for another 24 months the Swiss Franc exploded in value. It was up 6% in just a few hours. That was the biggest one-day move in 30 years.

The Swiss National Bank is getting desperate. They responded by announcing new emergency measures. They are immediately increasing “sight deposits” by CHF 40B. This is the second increase in a week. The two actions together will increase liquidity in the banking system from CHF 30B to CHF 120b. A 400% increase.

We are confronted with huge numbers every day. What does an increase of CHF 90b really mean? It’s a very big deal. Swiss GDP is about CHF 500b. So the increase in liquidity is equal to 20% of GDP. Now think of US GDP at $15 Trillion. What the Swiss have done in just a week is equivalent to $3 trillion in a big economy like the USA. That is massive.

This is the language from the SNB yesterday:

The massive overvaluation of the Swiss franc poses a threat to the development of the economy in Switzerland and has further increased the downside risks to price stability.

This was the sentence that caught my eye:
To accelerate the increase in Swiss franc liquidity, the SNB will additionally conduct foreign exchange swap transactions. The foreign exchange swap is a monetary policy instrument which the SNB uses to create Swiss franc liquidity.

From this I conclude that not only is the SNB trying to push interest rates to zero, they intend to push the interbank swap rates for Swiss Francs to BELOW ZERO. This is a form of intervention that is intended to discourage speculative holders of SFR. This action by the SNB is working as of this morning. The CHF has backed off against all currency pairs.

One sees the evidence of the monetary intervention in the short date swaps. This morning the Spot Next and Spot a Week roll of CHF to dollars is being priced in the hole. This is the area of the market where speculative holdings of CHF are rolled over. The one week bid offer spread pricing this AM is:
-1.9 / -0.83

Note that both sides of the swap are negative. This implies that CHF interest rates are negative. The left side (the bid side) is the price one has to pay if they were long CHF versus dollars and wanted to hold onto a long position for a week. Some math:

The USDCHF spot rate is .7378. The cost of the one-week roll is .00018. The cost of rolling a long CHF position of 10,000,000 Francs comes to $3,307 per week. That may not seem like a big deal as the dollar equivalent of CHF 10mm is $13,550,000. But that is not how things work in this big casino.

Currency trading is done on very high margin. Many participants can play at the table with only 2% margin. Others have to come up with as much as 5%. What does $3,307 come to when the equity involved is only a fraction of the principal? For the 5% player it comes an annualized cost of holding the position of 23% of equity. For that big shot who plays with only 2% down the rollover cost comes to an annualized penalty of a whopping 63%.

From long experience in this business I can tell you that short-term currency traders HATE negative carry trades. A long CHF position now has a big cost to it. If a trader has a short Dollar/Swiss position of $100mm (a modest currency position for these folks) the cost of holding it is now $25,000 a week. This cost was zero two weeks ago. This squeeze on short date swaps is a very good reason to cut those short dollar positions. That is exactly what has happened so far today. The CHF has backed off (a bit) against all other currency pairs as of this morning. As of today, the SNB has achieved its objective of getting people out of the currency market.

This won’t last for long. There will be another tremble in the market that gets people scrambling for safety. The “go to” trade will still be to buy CHF when that happens. The cost of ownership be damned. What will happen as a result of the liquidity steps is that greater volatility in spot Swissie will occur.

The relative rate of the CHF versus Euros or Dollars is important to the SNB. But even more important is the rate of change. The short date squeeze by the SNB may result in a bit of retrenchment for a few days. But it will almost certainly result in increased volatility.

My take on the actions by the SNB is that they are trying to buy time and create a more orderly adjustment to a stronger CHF. I think the consequences will be that we will have violent intraday adjustments, but over the course of a month the Franc will be stronger anyway. The SNB is trying to buy time as measured in days. To me, that is no plan at all, just a desperate act by a desperate central bank.

How long is the list of Central Banks that are undertaking extreme measures to influence very short-term outcomes? The list is endless. Virtually every CB in the world is doing it today. As a result, extremely high volatility across all markets will prevail. Squeezing short dates often has a negative affect. Something always blows up as a result. Yet every central bank is attempting essentially the same thing. They are trying to buy time. They are the source of the volatility we are living through.

Desperate Swiss eye euro peg to repel safe-haven flood
by Ambrose Evans-Pritchard - Telegraph

Switzerland is mulling drastic measures to fend off safe-haven flows from Euroland and stop the relentless rise of the Swiss franc crippling large parts of the country's economic base.

The franc retreated against the euro in a wild-one day move on Thursday after top officials at the Swiss National Bank (SNB) floated ideas for a temporary euro peg, a once unthinkable move. "Nothing is excluded," said Jean-Pierre Danthine, a SNB board member. "The situation is extremely complex and difficult. There is no magic wand."

The Swiss franc has moved with gold over recent weeks, acting as a magnet for capital flight from the discredited debt currencies of West. The SNB said the franc is "massively overvalued" and has moved into dangerous territory over the past month. The hotel and restaurant lobby GastroSuisse said the 240,000 strong tourist sector was in an "extremely precarious" state, while the machine tool industry risks major lay-offs and loss of investment to foreign sites.

The SNB has already flooded the banking system with SwFr80bn (£65bn), a vast sum for a country of less than 8m people. This was overpowered by a wall of money on Wednesday after contagion hit French banks and the US Federal Reserve pledged to hold rates near zero until mid-2013. The SNB has since gone further, hinting at unlimited liquidity through swap transactions. Short-term rates have fallen below zero, leading to "negative carry" to deter hedge funds, but this may not be enough.

Kurt Schiltknecht, the SNB's former chief economist, said every measure used to curb inflows in a similar crisis in 1978 proved a "failure", including negative rates. Eventually the bank set a target against the Deutschmark (10pc above market levels) and pledged to buy foreign currency with printed francs for as long as it took. "It worked well. After some hesitation, the market became convinced," said Mr Schiltknecht. A euro peg would be similar.

Thomas Jordan, the SNB's vice-president, said a "temporary link with Europe's common currency" might be allowable under the bank's mandate so long as it did not compromise Switzerland's monetary independence.

Hans Redeker, currency chief at Morgan Stanley, said Swiss companies have been shielded so far by currency hedges taken out two years ago but these contracts are expiring. "They are running against the clock. The Swiss economy has been stable until now because exporters are still operating at the earlier exchange rate. There could be significant problems next year."

Denmark has avoided Switzerland's fate by pegging to the euro, though the model may be hard to replicate. "Nobody is speculating with the Danish krona. I think a euro peg could work if the SNB is willing to defend the level by creating as much liquidity as needed," said Mr Redeker.

The franc came within a whisker of parity against the euro this week before moving back to SwFr 1.08. It was trading above SwFr 1.65 to the euro before the credit crisis in 2008. Sterling has more than halved against the Swiss currency in just three years.

100% mortgages return to the British market
by Richard Evans - Telegraph

The 100pc mortgage is back. After becoming extinct in the wake of the credit crisis, one bank is now offering borrowers the chance to buy a property without a deposit.

Northern Bank, which operates in Northern Ireland, is offering the loans subject to affordability, although borrowers do not have to belong to a special group, such as professionals who can expect to earn high salaries in future, in order to be considered. The bank does not offer mortgages in other parts of the UK.

Previously, buyers without a deposit normally had to rely on help from parents via a guarantee. With "guarantor" mortgages, the home loan is effectively underwritten by the parents. So if you fell behind with monthly payments, this means that they would be obliged to pay.

The advantage of such schemes is that parents don’t have to stump up cash sums upfront and it can enable you to borrow more. But if you run into financial problems, this can affect your parents’ ability to get credit and potentially put their home at risk. Your parents would need to have sufficient income and/or equity in their home to be an effective guarantor, so not all first-time buyers would be able to obtain one of these mortgages.

If you have a deposit of less than 5pc – the minimum for almost all other mortgages – you could try a shared ownership scheme. Here housing associations allow you to buy 25pc of a property and pay rent to them on the rest. When you can afford it you make a further staged purchase. As you are only buying a slice of the property, the deposit needed will be significantly smaller.

King warns of harsh winds ahead as Bank cuts growth forecast
by Heather Stewart - Guardian

Sir Mervyn King warned that the headwinds facing Britain's fragile economic recovery were becoming "stronger by the day", as the Bank of England cut its growth forecasts.

City analysts predicted that interest rates would remain at their record low of 0.5% until 2013, after the governor used his quarterly inflation report briefing to warn that the UK could not be isolated from the turmoil in the global economy.

As George Osborne, the chancellor, prepared to address the House of Commons on Thursday on the risks for the UK from the mayhem in world financial markets, the Bank's nine-member monetary policy committee (MPC) downgraded its growth forecast to about 1.5% this year. That was down from 1.8% in its last report three months ago, and weaker than the 1.7% pencilled in by the Office for Budget Responsibility.

King warned that the Bank's number-crunchers had not included in their forecasts what he called "the unimaginable and the unmentionable" – risks impossible to quantify, such as a full-blown sovereign debt crisis in the eurozone. "It is very important that we do not see the development of a sovereign debt crisis."

For 2012, the Bank is now projecting growth of about 2%, against the OBR's 2.5%. It expects cash-strapped consumers, hit by tax rises and rapid increases in the cost of living, to continue tightening their belts. "The squeeze in households' real incomes is likely to continue to weigh on domestic demand, especially over the next year or so," the MPC said in the report. "But expansionary monetary policy, prospective growth in global demand and the current level of sterling should mean that, after some near-term weakness, GDP growth picks up."

King said that the drama in the markets reflected the fact that the imbalances built up in the global economy during the boom years had still not been resolved, and the Bank would be unable to cushion the UK from the fallout. "There's a limit to what monetary policy can do," he said. "There are significant adjustments that need to be made."

The governor made clear that a fresh round of "quantitative easing" – the injection of electronically created money into the economy – remains an option if the situation deteriorated further. Peter Dixon, UK economist at Commerzbank, said, "unsurprisingly, Sir Mervyn King maintained his long-standing view that the BoE still had some shots in its locker, including more asset purchases if necessary."

The governor rejected the idea that the Bank could follow the US Federal Reserve and make a long-term commitment to keep interest rates at current levels, however. In a bid to calm chaotic financial markets, the Fed suggested on Tuesday that borrowing costs would remain at their current exceptionally low levels until 2013. But King argued: "I think it's very dangerous to try to make a commitment. To lock in monetary policy now for two years does not seem to me to be particularly sensible." He added that financial markets in Britain already expected interest rates to be held for the foreseeable future.

George Buckley, chief UK economist at Deutsche Bank, noted that the Bank's forecasts suggested that without fresh monetary stimulus, such as a new round of quantitative easing, inflation would be below the MPC's 2% target in two years. "The Bank's signalling may be less obvious than that of the Fed, but in its own way it is telling us that rates are likely to remain low for a long period," added Buckley.

After King's bearish assessment, RBS joined other City banks in forecasting that there would be no rise in interest rates until 2013 at the earliest. The MPC expects inflation to peak later this year at about 5%, driven by soaring utilities bills, but to fall rapidly in 2012, as the effect of oil price rises and the VAT increase wear off. The MPC's analysis suggested the deep recession that followed the credit crunch has left lasting scars on the economy. "Output is likely to remain significantly below its pre-recession trend," it said, warning that even by 2014, GDP growth is only, "a little more likely to be above its historical average than below it".

Brendan Barber, TUC general secretary, said: "This recovery is already the slowest on record, and the Bank's assessment that it may take another three years for us just to recover lost ground shows that the pain is set to continue for some time." King said it was far too soon to say whether there was any connection between economic weakness and the riots. He stressed that the private sector had created many more jobs than had been lost through public-sector cuts over the past 12 months.

'The unimaginable and the unmentionable'
The risks too scary for the Bank of England to calculate:

  • Eurozone break-up
    As the continued sell-off in European markets makes clear, the future of the single currency looks alarmingly uncertain. Perhaps hard-hit Greece will decide it's had enough and leave – or maybe the entire 17-member bloc will be blown apart.

  • Middle East conflagration
    A worst-case scenario has the stand-off in Libya and the Syrian unrest spiral into a much wider conflict, sending world oil prices rocketing.

  • 1930s-style protectionism
    As Mervyn King said, creditors and debtors – east and west, China and the US – still have to work out how to share losses from the financial crisis. The pain could be evenly shared or end in a tit-for-tat trade war, with everyone worse off.

  • Military conflict
    The world economy is already perilously weak, and confidence is in tatters. Any sabre-rattling, from North Korea to the Caucasus, could be shattering.


Greenpa said...

"We dispute classical economic theory and the received wisdom as to the nature of markets. Markets are not objective, mechanical and rational as the Efficient Market Hypothesis would have you believe. "

I long for the day when that can be written this way, without being perceived as sarcasm:

"We reject "classical" economic fantasy and the delusional beliefs as to the nature of markets. Markets are not objective, mechanical and rational as the Efficient Market Fallacy would have you believe. "

Jack said...

When I looked in my local newspaper everything is up beat and they were quoting Warren Buffet and that he is on a buying spree of stocks and taking this chance to add stocks to his portfolio.
Also upbeat about real estate and everything and I found that disturbing because there are many people planning their financial strategies that way.

Jim R said...

When we drive around our shopping malls in the suburbs and around the fringes of the city, we find more and more 'for lease' signs and empty storefronts. Highland Mall is now ready for the ghost-mall catalog, along with many others.

Joe in NC said...

Check out the Summary of Italian Austerity:

Suppose there might be some pissed off Italians in the coming weeks?

SecularAnimist said...

We dispute classical economic theory and the received wisdom as to the nature of markets. Markets are not objective, mechanical and rational as the Efficient Market Hypothesis would have you believe.

Which is why it needs to be renounced, intellectually attacked at all times and eventually removed as a set of rules.

A majority, or 64 percent, of Americans don't have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday

Well, we can easily add another 10% or so without significant savings to make any difference.

Than the portion of people that have significant assets, but will get wiped out because they did not build a "lifeboat"

Which all equate to lifeboat sinkers

When individual survival(lifeboat) runs contrary to social survival, there is a major systemic issue that will be rectified in the type of social malfunction on the horizon.

Lifeboat is an appropriate name - because there is not enough room for all the passengers and you will be stuck pushing the herd's face underwater with your oar.

Greenpa said...

"In a notice informing employees of its proposals — with the headline "Financial crisis calls for significant actions" — the Postal Service said, "We will be insolvent next month due to significant declines in mail volume and retiree health benefit pre-funding costs imposed by Congress."

So far labor has failed to use it's only weapon in these battles; and it needs to start using it immediately; or all chances of having any voice will be lost.

The quoted statement is unacceptable to labor, yes? Then strike- 100%, and immediately. Don't threaten to strike; nobody will believe you. Strike instantly; and completely, and permanently- until you get what you want.

What should postal workers demand? Only one thing right now- a completely new set of executives. Wipe out existing Post Office executives, and replace them with a new set. You don't even have to demand the right to hire them- just replace the current incompetent leadership, and see if the next set can come up with a better way to move forward.

Grab your courage in both hands, and do it; immediately. Or lose it.

Greenpa said...

previous thread: 

I. M. Nobody said...

"It has been a helluva week all around. Who would have predicted Israeli's would be the first to roll out a guillotine?"

Maybe they read TAE. Couple years ago, back when Usacos were incensed about banker bonuses and actually demonstrating, I suggested, here I think, setting up a guillotine outside the corporate headquarters of AIG, JP Morgan, etc.

I thought at the time it could be an effective statement- evidently the press agrees. :-)

Glennjeff said...

Is the helluva week over ?

Complex Full Moon , Weekend and Alcohol, England ?

Protests planned for Israel today. Wonder if that guillotine is a working model ?

May be counting chickens before they hatch.

This "news watching" can be exhausting.

Madonna - Bedtime Story

seychelles said...

Lifeboat is an appropriate name - because there is not enough room for all the passengers and you will be stuck pushing the herd's face underwater with your oar.

Ah yes, massacre of the innocents. A pity. Greater depression as a Twin Towers implosion to the nth degree? If we really are intelligent beings we should take reasonable measures to protect ourselves against problems we anticipate. But let's not kid ourselves as to effectiveness guarantees. Has anyone considered an optimum colony size and composition? What a modern-day Noah's Ark might look like? I am too old and infirm to be out hoeing in the fields. Maybe with good cause the first to be declined membership during an Ark Triage. No matter how hard we
prepare, fitness according to chance circumstances at the time of the collapse will be the main determinant of survival. We will not escape the laws of Nature.

bluebird said...

Guillotine ordered removed

There should be a guillotine setup for every TBTF bank

jal said...

Stoneleigh: said ...

“ It is time to undertake the yearly review and update of our primer guide, with a view to making it easier for our readers to see the entirety of our TAE worldview in one place. Primers are continuously added in order to flesh out the biggest possible big picture.”

There is one subject are that has not been covered ...

What can the 0.01% of the people, who control and have all the wealth, do, to tackle the complexity and prevent the collapse of of the system that has given them all this wealth and control?

As we have seen in the riots in England, the energy and talents of the youth need to be harnesses or chaos will rule the day.


@ the board did you read ...

High-Frequency Firms Triple Trades in Rout
by Nina Mehta - Bloomberg

“Some of their algorithms and automated systems are trading two, three or five times as many shares as they would have in a more normalized volatility environment."

"Because of cost-saving efforts and the commission environment being squeezed, people have had to automate their systems. Automation brings less chance for human errors and it’s paid off in this time of high risk, volume and volatility."
Like I said ...
Robos are in charge and are doing their job. 70% of trading is done by robos.

Like I asked in the last post ...
Who is that peon that is feeding the ROBO information about real world event for the robos to evaluate before making trades?

That peon is making all the traders look like idiots.


el gallinazo said...

seychelles said...
Lifeboat is an appropriate name - because there is not enough room for all the passengers and you will be stuck pushing the herd's face underwater with your oar.


There were times and places where ships carried sufficient lifeboats for all the passengers. Late Victorian England, on a vessel which carried the elite as well as steerage, and where only the officers and elite were permitted firearms, was not one of them.

All one can hope is to improve one's odds. This is all the editors of TAE claim that they are attempting to do by supplying meaningful data and advice.


I was impressed with how snarky and arrogant that article in the Jerusalem Post was. Here's hoping that the guillotine was put into quick release storage and sees proper service. Right now, Israel is one of the leading war criminal states on the planet. As we used to say during the Vietnam War era, what goes around comes around. When the criminal elites treat the Arabs like shit, it's not long before they start treating the middle and lower classes in a similar fashion. What is interesting though is that Israel is in a precarious enough position, particularly after the last Lebanon war which ended in a stalemate, that the elites can act with such stupidity. Shades of Let them eat cake. Guillotine indeed.

el gallinazo said...


"Robos are in charge and are doing their job. 70% of trading is done by robos."

Actually it's less than 70% because 70% of all trading in terms of shares is done in dark pools. So the bot trading is actually only about 50% of the total trading. This is assuming that one of the reasons that the Big Boyz are trading in dark pools is that they don't wish to be annoyed and distracted by the front running bots that they have released upon the hoi polloi traders that one might find on ZH.

jal said...


You could be right.

It is all in the dark.

There is not enough light on what is happening for us bystanders to understand.


The Q said...

U.K.'s broken social contract blamed for riots

seychelles said...

Automation brings less chance for human errors and it’s paid off in this time of high risk, volume and volatility."

Let's not forget about the wonderful success that clique of Nobel Laureates had a few years back. Machines and their programmers are inherently imperfect and one of these days we may see little error in and huge megaleveraged and unstoppable error out, like that arrowhead supersonic gizmo a few days back.

el gallinazo said...

Mitt Romney- Corporations Are People!

He's got my vote!


Jesse has a good essay up:

The Great Flaw in the Free Trade Theory And Other Vain Beliefs, Hoaxes, and Follies

Also - Frank

You posted about a week ago that quite a few of the Rothschild bankers were captured and murdered by Hitler's forces. I just finished viewing Bill Still's Money Masters which deals with the center of the banking cartel, the private Bank of England, which was taken over by the Rothschilds in the late 18th century. I find this strange only as these people had the resources and savvy to evade this fate. I have tried to look into this, but my location precludes a good library, and no matter what words I feed into Google, it spits out 95% psychotic inanities. Do you have any solid links to substantiate your statement?

Frank said...

@el G Wikipedia is always a good place to start. BTW, I was wrong about actual deaths, but the Austrian branch lost a bunch, including having to pay a serious ransom for Baron von Rothschild, who was captured in the Anschluss.

The French branch (Baron de Rothschild), also lost personal property when they had to bug out.

Jack said...

Hi El G
Your answer might be here

Jim R said...

El G,
Wikipedia, for what it's worth, categorically declares that all the Austrian Rothschilds escaped the Nazis. They had to abandon their banks and mansions, however.

Regarding the robot trading fad, remember that when computers make mistakes (with their generally insect-like reasoning), they make really big stupid ones. They can only cause as much damage as the stuff they are allowed to control, however ... in other words, a _lot_.

Brunswickian said...

The Beginning of the Endgame
By John Mauldin | August 12, 2011

"'Perhaps more than anything else, failure to recognize the precariousness and fickleness of confidence—especially in cases in which large short-term debts need to be rolled over

continuously—is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! — confidence collapses, lenders disappear, and a crisis hits.

'Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public's expectation of future events, which makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to "multiple equilibria" in which the debt level might be sustained—or might not be. Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.'"

Bigelow said...

"What can the 0.01% of the people, who control and have all the wealth, do, to tackle the complexity and prevent the collapse of of the system that has given them all this wealth and control?"

As Mike Ruppert reiterated recently: "It's infinitely more profitable to kill than save. It's just the reality of the world we live in."

el gallinazo said...

Thanks DIYer,

I had looked at that Wiki page but skimmed it too fast and missed it. Of course I knew that the Nazis confiscated all their bulky stuff and mansions. That was a no brainer. But the fact is, as far as I can tell, no Rothschild died at Nazi hands. That's what I figured just by "common sense."

Interesting that the Austrians took over 50 years to return their art treasures from the Nazis. There must be a story there as well.

Tom Christoffel said...

I reviewed: "How to Build a Lifeboat"
which is now nearly three years old.

It holds up, but I wonder if you've had any new insights or refinements.

We probably need to build arks and have alternative proposals for community organization/governance.

The proposals should debunk the socionomic thinking that led to this crisis, argue against reinstating such thought as the operative paradigm and, most importantly, offer an alternative approach based on historical success in cultures, not fantasies of the future.

soundOfSilence said...

So how many oysters were there in a "pot"... is a pot more or less than a bushel (which seems to run about 100-120 oysters)?

My mind began to wander on this one. 7 pots works out to what 700-840 oysters. 8 hour day (although we're not talking a salaried position here with a defined benefit pension... lunch break, bathroom break and getting sick is all "on you" and all directly impact pay at the end of the day).

30 seconds per oyster. Don't stab yourself in the hand. Don't cut the oyster "down the middle" separating it from the shell. Don't get mud from the shell in the oyster...

el gallinazo said...

Tom Christoffel

i also suggest you look at CHS's new book. I think it would address some of your remaining questions in some detail.

Jack said...

Warren Buffet is a smart guy ,how come he cant see the depression coming

el gallinazo said...


Of course he can. He is just trying to get all the suckers in before they pull the plug. Buffet has managed to pull off outrageous PR as the Sage of Omaha over the years. He is cut out of the same moral cloth as Jaime and Lloyd.

Jack said...

Thanks El G
I have a lot to learn on this subject because I wasn't able to see that

Lynford1933 said...

It seems the idea of large lifeboats like an 'Ark' is the defining issue of the Transition Movement where a community organizes to survive. There probably is an optimum size for maximum survival. 'Transition New York City' would probably not work too well while 'Transition Smalltown' could be quite successful.

My 100 year old mother in law passed away in '95. She talked about the flu epidemic of 1917-18 and in their small town fifty percent of the people died. Every pregnant woman died. I asked how the rest survived. She said, “Everyone knew how to garden, blacksmith, farm, handle mules, knit, sew, wood work, milk cows, butcher meat and weave. People just carried on.” On think about this, I'm sure some were better than others at each craft but they got it done. I am afraid those skills are very lacking today and people cannot just carry on very long.

I am a very proficient wood worker and I can build most any wood project with hand tools I have and use almost daily. I use power tools for speed and ease of construction. Since I have been woodworking for over 50 years, my hands are trained. I doubt I could learn any of the other crafts even to a good basic level in much less than a year or two.

Lynford1933 said...

Ref Previous Comment: YMMV

Phlogiston Água de Beber said...

@ Jack

What makes you think he doesn't see it coming? He is a very rich and influential man. He is not going to go around yelling "The sky is falling, the sky is falling." Because then the sky would fall.

Buffet is both The Wizard of Omaha and The Wizard of Oz. What he does best is stand behind a virtual curtain and make pronouncements that tend to influence other investors. But, his power to transport the lost back to Kansas? Pretty much limited to the slippers.

What is coming will not be remembered as a depression because it will not be followed by another Golden Age of increasing wealth and techno-wonders. Whether or not Buffet sees it that way is not likely to be known by very many others, if any. Everyone should keep in mind that we are all travelling in a spaceship. One that is running low on fuel. Whatever form the socionomic events take, noone is leaving. We are all going to live it.

Uncertainty is what keeps that deer frozen in your headlights.

Jack said...

Hi I. M. Nobody
Think of all the people looking at Warren Buffet and making decisions based on his statements

Nassim said...

Standard & Poor's faces investigation over 'possible insider trading' over downgrade of U.S. debt

pour encourager les autres

Greenpa said...

lynnford: "There probably is an optimum size for maximum survival. "

There are some indications from studies of business dynamics that the upper limit is between 100 and 120 people. More than that seems to spell trouble.


Phlogiston Água de Beber said...


Those people hanging on his every word have a choice. They can do their own thinking, or they can let Warren and whomever else they want to believe is smarter than themselves do their thinking for them. Sadly, a maddeningly huge percentage of the people on the ship prefer the latter option.

AFAIK, Warren is the only member of his class to acknowledge that they are engaged in economic warfare against us. I seriously doubt he will go any further than that in betraying his side.

Phlogiston Água de Beber said...


Not an expert on this, but your range of about 100-120 seems to my mind to be somewhere around the typical number of Native Americans in a tribal band. Maybe my very bright and studious sister umaperegrina might jump in here with what she knows about that.

While on the subject of spelling trouble and pertinent I think to Jack's questions. If you turn Fred loose to think about Larry Summers, you can end up with a most Fredwitzian conclusion about why the world is so screwed up.
Personally, I'd Rather Have A Possum As President Of Harvard

Anonymous said...


>>"We reject "classical" economic fantasy and the delusional beliefs as to the nature of markets. Markets are not objective, mechanical and rational as the Efficient Market Fallacy would have you believe. "<<

What sarcasm? ;-)


You'd be buying, too, if you were using tax payer money and any losses would be tax payer covered. He omitted, that didn't he? He could simply be lying to bring out sellers so he can get better prices, too.


The private economy is cratering about 10% per year since 2008. Denninger has a nice graph of this... and the data points are cumulative... 11% + another 12% + another 8%.

Of course doors are being shuttered.

@SA, the system was designed to limit "lifeboats" and to ensure that the average citizen was screwed. The system is a fraud and was juiced criminally by the Federal Reserve. They belong in jail as traitors. Ignorance and Stockholm Syndrome within society makes this reality absurd to some.

If you don't solve the root cause, the problems never go away.


>>just replace the current incompetent leadership, and see if the next set can come up with a better way to move forward.<<

It won't work simply because the problem is higher than postal management. The people who put them in place are crooked and they will put in more crooked people.

Stoneleigh nailed it... "the system is corruption."

The whole thing - but 70% of the rot is in the top 0.5% or so.

el gallinazo said...

Greenpa said...
lynnford: "There probably is an optimum size for maximum survival. "

There are some indications from studies of business dynamics that the upper limit is between 100 and 120 people. More than that seems to spell trouble.

From Harris' Cannibals and Kings, hunter/gatherer clans in the the 100 people range seem to go back a few hundred thousand years. What remains of modern H-G such as the !Kung, the Amazon indigenos, and the Aussies also seem to be in this range. Harris fine tunes the numbers which depend on certain variables such as branching from another group, nature of warfare with surrounding groups, but they are all less than 200.

el gallinazo said...

Eric Lovely of the Sovereign Citizen blog said on Charlie McGrath web radio show Friday, that the British are burning down their police stations because 330 people died in police custody since the start of the year. Anyone know anything about this? I don't regard him as that reliable.

el gallinazo said...

Durden frames Bachmann's greatest asset in photo.

Anonymous said...


>>What can the 0.01% of the people, who control and have all the wealth, do, to tackle the complexity and prevent the collapse of of the system that has given them all this wealth and control?<<

Isn't the answer obvious? Get rid of us!

While that might sound crazy at first viewing, it is in their economic interest to do so as we simply use up all the valuable resources they would prefer to have for themselves.

You already know these people are not nice people - they starve children to death as a matter of debt-dollar policy (they suck $25k per second out of sub Saharan Africa) and they privatized water in bolivia and charged 25% of some workers' income for access to rain and other water.

They love some war, too.

Archie said...

@El G @8:17pm

According to this article the actual number is 333 dead over the past 13 years. The real problem is that ZERO cops have been charged or convicted of any wrongdoing in any of these incidents.

FWIW, I am pretty much in agreement with Arthur Silber's observation and analysis of the ongoing events in the UK.

Greenpa said...

Skilo "it won't work because" -

I didn't SAY it would WORK! :-)

just that they should do it. It would be a good precedent, anyway- and various things might be made to happen in the ensuing chaos...

jal said...

skilo said...

"Isn't the answer obvious? Get rid of us!

... They love some war, too."

That used to be one of the historical responses.
In actuality, it was an attempt at grabbing the wealth of another of their peer and at the same time solving their population problem.

It didn't always work out as planned. May times the attacker had to return home with his tail between his legs.

This approach did not lead to sustainability. With our complexity, they will have to come up with "modern" solution.

Didn't Obama and the leaders of the richest companies have a meeting this week to try to find a solution?


John Day said...

Nice compilation of news and comments tonight.

Lifeboat for hunter-gatherers = 100-200 multitalented.

Lifeboat for elites = Roman trireme with rowers chained to the benches

thethirdcoast said...

@ el gall:

Durden frames Bachmann's greatest asset in photo.

Well, based on that photo, she certainly seems like a fetching enough lass! ROFL

Patrick said...

@ SecularAnimist

Lifeboat is an appropriate name - because there is not enough room for all the passengers and you will be stuck pushing the herd's face underwater with your oar.

Or, the herd will grab your oar and pull you in. Whichever, it'll all be pretty nasty.

I read a post somewhere about a wealthy dude who was loading provisions in the Bahamas for destination unknown. His boat was staffed with an eclectic mix of people with a variety of skills, including engineers, mostly young and fit. So when the SHTF what is going to keep his crew loyal to him?

Archie said...

Durden frames Bachmann's greatest asset in photo.

Oh, you naughty buzzard. You've been hanging around that Greenpa too much! LMAO!

Jim R said...

Durden frames Bachmann's greatest asset in photo.

Still chuckling after reading the rest of the comment thread. ... "M Bachmann's husband is gayer than an tree full of pink parrots"

Thanks El G, I wasn't going to read this article until you called attention to it.

Stoneleigh said...

$400000 liquid assets.
No debt

How much in cash?
How much in treasuries?

What is 1-year's income during a deflationary depression. Currently I spend about $45000/year

Nassim said...

But one overarching factor, which also explains the increase in lay-offs, is the declining importance of banks.

The FT article about the banks reducing their staff is close to home.

My friend who was "operation risk manager for group treasury" for one of the very biggest banks in the UK has lost his job. I would guess that he lost the bank a few bob during his time on the bridge.

He is a really nice guy, but he never had a clue about maths and risk. His only qualification is in accounting.

Frank said...

@ el G Of course I knew that the Nazis confiscated all their bulky stuff and mansions. That was a no brainer. But the fact is, as far as I can tell, no Rothschild died at Nazi hands.

Now you're playing games. They indeed lost the art collections and mansions, but wording it that way invites skipping over the bank and factories that they lost as well. They had a big chunk of Skoda works for instance, which they even managed to transfer to their English cousins in time. That saved the family "lots" (currency of your choice). But it was still a loss cutting measure...Stalin gave the British Rothschilds pfennigs on the mark, whereas he would have given the Austrians nothing at all.

scandia said...

Whilst noting the import of US policing methods to Britain I picked up on another meme, " Democracy is messy. " Been hearing that language on both sides of the Atlantic.
Ha! In other words you are not seeing resistance to oppression and corruption, ignorance and want do not walk your streets.
See democracy in action,see rampaging young people as the fruits of great leaders who clearly deserve reelection.
Ho hum, no problems at all, this is democracy in action:)

@John Day, Like your compilation!

@Richard, You asked what is a year's income during deflationary times? On the surface a simple question. You did make me think about what it would be for me. There is an assumption in the question that an income will meet needs. Availability may change, networks may matter equally to income.
In my case I have enough cash to cover basic expenses( rent,food, meds,cat care, transport) as they are currently for 10 months. Whether there will actually be an operational grocery store, pharmacy, bus service etc in the future is uncertain.Should those parts of the system fail I'm done, my stash will be useless.

scandia said...

To quote Stoneleigh this article challenges " our deeply held notions ".
" Why did Japan surrender? "

message_in_a_bottle said...

Our whole economic system is predicated on exponential growth
which however cannot endure in an environment of limited resources.
Exponential growth can also be viewed as a steady speedup of time:
less and less time is needed to add one more unit.

To make this more clear let us start a process starting in the year 1950 with value 1 and growing exponentially at a rate of 5% per year.

Thus we can think of one unit as the size of the economy
in the year 1950.

It will take 13.9 years to add the second unit.
It will take 8.1 years to add the third unit.
It will take 5.75 years to add the fourth unit.

---- i.e after 13.9 + 8.1 + 5.8 years the economy has quadrupled. ----

Now we have the year 2011.
It now only takes 0.93 years to add another unit.

In 2050 it will take only 1.5 MONTHS to add another unit.

The economists want us to believe that we can add a unit --- which is the size of the economy
of the 1950s --- first every year (now), then every month (2060), then every week (2088),
every day (2128) and later even every HOUR (2192).

Well, that ain't going to happen and 5% growth is not exactly a boom phase.
Now we should all reflect on the fact that most pension funds do their accounting with
assumed stock market returns of 8% per year.

However the only problem with the growth above is that it is growth in real terms.
There are no resource limits to prevent growth in nominal terms --- otherwise known as inflation.
Inflation can be engineered at will and the imagination of governments is limitless.

There are only two solutions to the problem of exponential growth:

(A) Make it a nominal growth, not real growth (inflation).
(B) Reset the base to a much smaller level (world wide destruction) to be able to grow
from the smaller base again.

I am confident that (A) will be followed since it is the painless way of an illusionist culture.

Ashvin said...

Scandia, some quotes from the very interesting article you referenced:

"But another reason, Wilson argues, is that to look at history in this new light is to entertain what seem like shocking ideas. That the destruction of cities does not sway leaders."

"But Hasegawa and other historians have shown that Japan’s leaders were in fact quite savvy, well aware of their difficult position, and holding out for strategic reasons. Their concern was not so much whether to end the conflict, but how to end it while holding onto territory, avoiding war crimes trials, and preserving the imperial system."

"How is it possible that the Japanese leadership did not react more strongly to many tens of thousands of its citizens being obliterated?

One answer is that the Japanese leaders were not greatly troubled by civilian causalities. As the Allies loomed, the Japanese people were instructed to sharpen bamboo sticks and prepare to meet the Marines at the beach."

If this is true of Imperial Japan, then its even more true of Western Imperialism since WWII. Large countries/economies around the world have been invaded by supranational corporate-fascist institutions, with a full-scale assault implemented after 2001 for what capital assets, territory, resources, etc. remained. While I agree with Hasegawa's premise that the nuclear bombs were not the decisive factor for Japanese surrender, it is obviously still clear that a nuclear attack is far different from a traditional bombing in terms of its physical and environmental damage over the short, medium and long-term, regardless of how our sociopathic leaders perceive it.

The Cold War notion of M.A.D. or nuclear deterrence is becoming nothing more than a joke now, and perhaps the cruelest joke every played on mankind. The desire for these sociopaths to preserve and defend the imperial system is more pronounced now than ever before, and the annihilation of cities and massacre of civilians in the developed world will not sway them away from that desire. It's a scary thought, but a realistic one nevertheless.

What may sway them, though, is the equivalent of the Soviet declaration against Japan. Something that convinces them that the imperial system as it exists is doomed and they will not be able to hold on to their precious territory and resources. Basically, a global awakening of sorts. African and Latin American populations have been awake to the realities of Western imperialism for some time now. Middle Eastern as well, but now it is spreading throughout the entire region, to encompass the people of Israel. Parts of Asia including China and Japan are also waking up, and of course the European periphery, and arguably parts of the UK. That leaves the European core and the US, really. All of these populations must not only be awake to face the realities of their corporate imperial sponsored governments, but fully conscious and somewhat organized. It has to happen quickly too, and it just might.

seychelles said...

Dyler Turdens's imagery casts doubt on my facile assumption that her core fantasies center around muffin munching.

Phlogiston Água de Beber said...

John Pilger pointed out in some documentary a few years ago that our current wars are yielding approximately 90% civilian casualties. The USAF loves to believe that destroying enemy cities will win the war. If true at all, it would appear that they have to totally destroy all of the enemy's cities. I believe that was also the Mongol approach to conquest.

I think the answer to why rulers will not submit to massive destruction and civilian death toll can be found in Fred's article that I linked last night. Testosterone fueled obstinance, blind stupidity and cold heartedness seem to explain it better than anything else I can think of.

el gallinazo said...

Frank said...

Now you're playing games.


Frank, I never play rhetorical games on this blog - at least not intentionally. You made a statement that a lot of Rothschilds were murdered by the Nazis. I found this statement strange, as with their resources and savvy, one would have thought that they could have avoided this fate. Research so far indicates that no ranking members of the Rothschild clan were killed by the Nazis. There is no argument that the Nazis expropriated all their assets that could not be moved out of the occupied areas very quickly including title to industrial assets. I never had a doubt to that.

asim said...

El G,

Thanks for mention CHS' blog...because of your mention, I started reading it regularly and purchased his book, and have found both the blog and his book to be a great read.

Based on his most recent blog, Stock Market participation is now only limited to the top 5-10% of the American population, which means that most people are already heeding Stoneleigh/Prechter advice to stay out of the markets.

Also, I believe consumers have been paying down their debt loads since 2008, excluding Student loans which have been on the rise, which also falls in line with StoneLeigh's advice as well.

Lastly, I live in the SouthEast, and in talking to friend in Dallas and in traveling around major cities have noticed that the whole local food movement seems to be sprouting up everywhere.

These are some encouraging signs that I see happening at a societal level that fall in line with some of Stoneleigh's lifeboat advice.

Joe in NC said...

Interesting new video (with interviews) of China's Ghost Cities:

asim said...


I saw this post on Seems to contradict StoneLeigh's view of Deflation. Wondering what you guys might think are the gaps in this argument:

prof said...

Governments in possession of reserve currencies, supreme military power and printing presses do not tolerate the power diminishing effects of deflation. Period! Betting against them is a fools game.

Disinflation, sure....deflation, never.

Frank said...

@el G. If i misunderstood I apologise, but I read "mansions and art collections, whatever". I don't have a clue whether the family as a whole made a profit on WWII.

But looking only at the British branch without also looking at the Austrians and French is guaranteed to be wrong, as is only looking at mansions and art, without looking at the loss of actual wealth producing assets as well.

Bigelow said...

German May Be Open To Euro Bonds... Wait, WHAT!?

el gallinazo said...


Your posting is a valuable lesson for the mathematically naive, and gives us all a pause for thought. And indeed, William Jennings Bryan's and J.P. Morgan's hundred million is today's trillion. As only a moron would think that real wealth resources could expand at this rate, the only viable other explanation is inflation. Inflation is also a positive exponential function in the real world with a value greater than one of the exponent itself. Meaning that inflation must also increase exponentially, or speed up, which is another way to look at it. If it speeds up enough, we enter the realm of hyperinflation, and this is where you put your vote as to the near term financial future of the USA and the world.

I imagine that Stoneleigh (with my personal opinions thrown in for good or bad measure) would counter your argument as follows:

Inflation is an increase in the money and credit supply assuming that the velocity of money is near constant. Increasing velocity will also result in increasing inflation. However, money and credit are two different animals though both may cause inflation. Money need not be a precious metal. It is simply a means of exchange which cannot disappear due to the changing fortunes of finances, In other words, it is a physical thing. Lincoln's greenbacks for example, were money though they were totally credit (as opposed to debt) based fiat - paper, ink and nothing more. (Though many would regard cash (Federal Reserve Notes) as credit, I see them essentially as asset based money as were Lincoln's greenbacks, though the right to issue them has been extra-constitutionally transferred to a private institution). If one factors in derivative instruments, which act as a form of credit, credit represents more than 99% of the money/credit supply and money represents less than 1%.

Credit can disappear instantly into an alternative universe while money cannot. I will give an example, which is not likely to actually happen, but to emphasize the point of how credit can slip into the other universe. Say you have a multinational, Federal Cow Turd Corp. (FCT) which is trading at $100 a share. There is a market panic but most stockholders decide not to sell. However, one stock holder in Podunk Iowa does decide to sell his ten shares, and the best he can get is $50. Since this is the only market maker event, FCT, which had a market capitalization yesterday of $10 billion, suddenly finds itself a $5 B. So where did the other $5B go? The only answer is into this alternate universe. This was not a transfer of credit or wealth, unless the little green guys in that other universe can figure out what to do with it.

el gallinazo said...

The most important and key concept to Stoneleigh's ideas in the deflation - HI debate is the difference between credit and money. When one increases the money supply, such as by printing money in Zimbabwe or Weimar, one is diluting the share of each monetary unit. However, when one increases the credit supply, one is not diluting the share but rather constructing multiple claims upon the same assets. Like suppose ten people each have an apparently legal title deed to your paid off house. Hmmm. It is not for me to explain this further in a posting, but Stoneleigh does her usually masterful job here in assorted primers.

The banking cartel of the NWO is not increasing their supply of money. As a matter of fact, the percentage of money as a part of the entire supply is constantly falling. The reason for this is the NWO system is debt based money and they regard asset based money the way Superman regards Kryptonite. IMO, they would do away with paper money in the near future if it becomes politically feasible. Your money will be a chip implanted somewhere in your body.

But the total money supply (and I am using this term here as a shorthand for the money / credit supply) must continue to increase exponentially, as message_in_a_bottle points out, or the banking cartel system collapses. The two primary ways that the central banking cartel are doing this is through the "manufacture" of derivatives and an increase of sovereign debt. But both have their dangers. The danger of derivatives is that they are based on huge leverage, and the higher the leverage the more fragile the system comes to collapse. Bankrupting formerly sovereign nations is an ideal path for the NWO because their ultimate success toward a neofeudal, debt slave system relies in part on the destruction of the sovereign nation state under any semblance of democratic control. But in their greed, they have apparently gone past the limits of nations to service the gambling losses which were transferred to their books, and now they are desperately scrambling around trying to wave their magic wands, and in the case of the EMU, invent more ***credit*** money to bail out the banks that hold Spanish and Italian national bonds. But as mentioned earlier, the cartel will only invent debt money even with a wave of the wand, and someone has to be stuck with the debt. As France seems likely to lose its AAA rating shortly, it appears that this $2 trillion euro debt must be shoved up the collective rump of the German people which is approximately the size of the national annual GDP. The question is whether Merkel can accomplish this politically fast enough before the whole things blows up.

el gallinazo said...

The greatest danger is not even that the cartel banks would have to take a haircut on the national bonds. The greatest danger is that there are untold (quite literally) Credit Default Swaps which would be triggered by even a nominal default of Spanish or Italian debt, as Ilargi recently pointed out. There is no way the TBTF banks can pay of on their obligations. CDS's are a zero sum game as long as no one defaults and welches on their bets. But the banks would be forced to default as they are, in reality, already insolvent. The Bank for International Settlements (a subsidiary of Satan Inc.) however locked the door to the coroner, so it is not yet official. So when the TBTF welch on their CDS's, and as they are also credit and thus subject to a near instantaneous transfer of nominal value to our alternative universe, they will be regarded as worthless, in the same sense that if Vinnie the Nutcracker refuses to pay off the winning bets of his clientele, any outstanding bets with Vinnie for tomorrow's trifecta would have little value. So as these swap derivatives are triggered, the entire credit portion, i.e. 99% (or a very major portion of it) will funnel itself in a giant mushroom cloud into our alternative universe, leaving only fiat currency, precious metals, and hard productive assets with any value at all. But Interest Rate Swaps are even a bigger derivative market than CDS's, and this disequilibrium and turmoil would undoubtedly trigger these swaps as well. So the NWO appears at the moment to be between the devil and the deep blue sea. OTOH, as I am not privy to their planning sessions, this may be part of their over all plan. Anyone with any money after the crash will be able to buy up real assets for pennies on the dollars. So crashing their own system may be the ultimate dump in their centuries of pump and dump finance.

This is why Stoneleigh believes that FRN will increase in purchasing power in the short to midrange future.

Anonymous said...


>>This approach did not lead to sustainability. With our complexity, they will have to come up with "modern" solution.<<

Yes, but... probably not what we'd like to think.

You see, complexity requires energy, and we don't have nearly enough of that left to sustain the complexity.

IOW, they KNOW the complexity is going away, even if they don't tell you it is going away.

So, put on your Dr. Evil glasses for a moment.. what do you see?

1. The current complex system roaring forward until all the resources are depleted and nobody has much access to them.

2. Some other method to eliminate "demand" for said limited resources so that Dr. Evil and his buddies can have essentially unlimited resources to themselves?

My guess is war will play a role, but it is much easier t, oh, release some kind of bio weapon and pretend it is a natural disaster so Dr. Evil doesn't get blamed.

Ware is all about deception and the best warriors never need to fight. They also keep their conquered territories whole.

The (Bankrupt) Bank Owns My City...

el gallinazo said...

Lincoln's greenbacks for example, were money though they were totally credit (as opposed to debt) based fiat - paper, ink and nothing more.

Should have - read, totally asset (as opposed to debt) based fiat

message_in_a_bottle said...


You would need to hear the following:
Fewer loans extended.
Debts paid back.
Debts written off.
Banks closed, depositors lose accounts.
Liquidity drying up, forcing asset sales.
Prices falling because of asset sales.
Falling prices of collateral creating more liquidity needs.

Positive feedback loop established:
(1) Need cash.
(2) Sell assets.
(3) Prices fall.
(4) Because prices fell GoTo (1).

Unfortunately this spiral is not in evidence since governments are providing unlimited amounts of liquidity. Note also how every writedown or reappraisal of asset values is fiercely resisted.


You would need to hear:

CPI rising (see
Confidence in currency dwindling.
Price of gold rising (inflationary expectations).
Riots because cost of living.
Wage price spiral.

We see all these except the last.

Phlogiston Água de Beber said...


The gaps aren't in the arguments. The gaps are in the conclusions. It seems to me that Eric has argued almost exactly what I have argued here, but maybe doesn't think it important. Namely, that whether one is seeing Austrian inflation depends on which class you belong to. The rich are drowning in money. The laboring class, not so much.

It goes back to Volcker and his undeserved reputation for taming inflation. He didn't stamp it out. He reconfigured the sluice gates so that it went to Wall Street instead of Main Street. Unlike Main Streeters, Wall Streeters just like the hell out of rising prices.

Happy ending, right? Well, no not exactly because the deflation in paycheck money brought the Main Streeters lumbering over to the banksters credit-money trough. Credit-money for non-productive expenditures is the paving material for the road to hell. It is not a substitute for paycheck money.

The hoi polloi side of the economy is enjoying the twin miseries of monetary deflation and price inflation. Thanks in no small part to the monetary inflation heaped upon the silver spoon set. Who after all are certain to know how to put it to good use. There might have been some sarcasm in that last sentence.

el gallinazo said...

message_in_a_bottle said...

Unfortunately this spiral is not in evidence since governments are providing unlimited amounts of liquidity. Note also how every writedown or reappraisal of asset values is fiercely resisted.


First, I am not so sure I would use the word "unfortunately" as deflation has its horrors.

But more importantly as far as this discussion goes, just how is "liquidity" being added? Since this is a debt based system, only by sticking someone with additional debt for this "liquidity," namely the future taxpayer. (This is a very different process than printing paper with 20 zeros. ) But sovereign debt is nearing its limits as recent events indicate. Where is unlimited additional liquidity going to come from? How much more debt can the Fed stick to the future taxpayers of the USA, and if this does have a limit, what happens when that limit is reached? Can Merkel stick the German public with the country's GDP to save the banks?

On another note, while John Williams serves many useful functions in countering the Bureau of Lying Statistics, one has to be cognizant of his politics and thus his own fish to fry.

In the last few years, the average McMansion has lost close to 40% of it's market value, and even its remaining value is artificially propped through backing Freddie and Fannie with taxpayer debt. So say it's $250k per McMansion. How many cheeseburgers and tanks of gasoline is it going to take to counter that disappearance of value?

Phlogiston Água de Beber said...

miab said that government possessed limitless imagination and then went on to describe the two "imaginative" solutions that any government had so far come up with. Which to my mind pretty well describes the limits to their imagination.

WRT to the exponential doubling of the 1950 economy. Not really happening. The 1950 economy was very labor intensive and labor was starting to gain a good share of the wealth produced. It turned out that growth was too unreliable in that system. With the industrial system faltering, the MotU took to manufacturing money. The industrialists took to exporting jobs. When that system started to look a little shaky, along comes Blythe Masters and suddenly hundreds of trillions of dollars worth of derivatives are hanging over the world like a massive fleet of god rods satellites.

We might ask ourselves this question. Have government and the ruling class exhausted their powers of imagination? Or can they yet conjure up an even bigger nightmare?

el gallinazo said...

For those of you who enjoyed the Bachmann photo on ZH, a much higher res version exists here in its full glory:

Ashvin said...

The following is a comment I posted on FOFOA in response to one of the "regulars" there referencing EJ's reply to Mish and then baiting me with a snarky comment, which worked quite well, because I wanted to comment on EJ's nonsense anyway.

"Man, CRA [Costata the Resident Antagonizer], in keeping with your name, you just had to draw the "troll" out from his cave, didn't you? I imagine some people won't be happy with that snarky reference you made, but, to be fair, I was just itching to comment on your link to Erik Swimsuit Jantzen's (sp?) reply to Mish. It's funny that you first quoted the part where he points out that Mish got the spelling of his last name wrong. Funny, but not surprising, because the misspelled name is perhaps the most damning criticism of Mish and Mish's argument in that entire post.

Jantzen's entire argument could probably be dispelled by a layperson who doesn't understand any economic or monetary theory by the simple quip, "what goes up must come down". Or, alternatively, by pointing out that projecting past price trends of markets indefinitely into the future, especially financial and consumer markets, is the quickest way to prove that you have no idea what you're talking about. Statements like the following only further prove how utterly detached from reality your boy Jantzen is:

"By August 2009, my forecast was proved 100% accurate and yours wrong."

Yes, his forecast in 2007 of brief "deflation" followed by sustained "inflation" was proved 100% correct just two years later... good job, Jantzen, your extreme lack of economic/financial understanding, arrogance and various CPI charts have combined into an unfathomable level of flawed analysis. My advice: don't quit your day job selling bathing suits, because your "iTulip" website just took an irredeemable turn for the worse. Then, he manages to comletely discredit himself in a single, short sentence.

"Both [money supply and prices] are equally relevant in economics in the way that the force of gravity and weight are equally relevant in physics."

If Jantzen had the slightest understanding of either economics or Einstein's theory of relativity and gravity, he would also understand why neither money (credit) supply (and velocity) and prices nor the force of gravity and weight are "equally relevant". One is a fundamental force driving the behavior of components within a system, and the other is an extremely superficial, and many times transitory, effect that provides very little insight into the dynamics of the underlying force. It is no coincidence that he likes to focus on past consumer price trends, M0 and sometimes M1, because focusing on broader money supply, financial asset prices (which are highly inter-connceted to the "productive economy"), wages or anything else would decimate his "100% proven" argument.

For example, considering economic, social and political dynamics in conjunction would be devastating for him. The fears of evaporating liquidity and debt deflation a la 2008 have once again returned, despite Jantzen's rising consumer prices since 2009. Many people were banking on the Fed to come through with QE3 asset purchases last week, but, even when its willing to go against the wishes of 3 dissenting members, its still not willing to resume asset purchases. Its only willing to tell people short-term rates will remain low for another two years, which really isn't news to anyone paying attention. It is also unwilling to purchase any assets except perhaps Treasuries, and the Fed simply cannot monetize what Congress isn't spending, which itself has been significantly hamepered by the debt ceiling discussions and the S&P downgrade within a few short weeks. There are many other comprehensive examples like this one that people like Jantzen would never dare to think about, let alone mention."

Frank said...

The following is a comment I posted on FOFOA in response to one of the "regulars" there referencing EJ's reply to Mish and then baiting me with a snarky comment, which worked quite well, because I wanted to comment on EJ's nonsense anyway.

Or I can use a rainy August Sunday to sort the freezers and the pantries and make sure that everything I buy from the grocery store in the next 12 months is labelled either McCormick or Zinfandel.

Frank said...

@Ash Freegold or bacon? FOFOA may do ok over in Europe. I know which will pay my bills down to the shire town.

el gallinazo said...

Archie said...
@El G @8:17pm

According to this article the actual number is 333 dead over the past 13 years.


I wonder if al the English police are now issued 00 numbers with a license to kill frightened, dark skinned kids in handcuffs.

Ashvin said...


It's all about multi-tasking, my friend. And Europe is having a few debt problems of its own, as I'm sure you have noticed. Will the EU populations become happy campers with a few transfers of gold between CBs? I'm thinking, "nein!"

Greenpa said...

The Bachmann pic is a pip. It'll be fascinating to watch its fate in the days and years ahead.

I think we need a caption contest, though- preferably on one the really huge blogs; or maybe Colbert..."

my offering:

Blissful Bachmann Bites The Big Brown Wazoo.

Nassim said...


This whole thing about Soviet Union's entry into WW2 against Japan triggering the surrender of the Japanese has been known about and well-documented for an awfully long time. The trouble was that people in the West had to be made to believe that the USA, UK and so on won the war.

Anyone who looks seriously at what happened on the German front would have to notice that the Germans had 5 times as many troops on their Eastern Front as on their Western Front - even when American troops were on the German border in the West. This could only mean that the Soviets were 5 times a bigger threat to the Nazi regime as the combined forces on the west. The Japanese leadership was not stupid and knew full well that if most of these troops were transferred to the East, they would be finished. They knew full-well what the Soviets did to their tsar and what became of their ruling elite.

Here is a good book for understanding what was really going on in the upper echelons of Japanese society from the end of WW1 to the end of WW2.

Japan's Imperial Conspiracy

Please don't pay too much to the criticisms in this Wiki entry - everything of importance that the author wrote has been ultimately proven to be correct. The USA's elite had a vested interest in a very different interpretation of history.

Alexander Ac said...

And what about THIS JOKE? :-)

Anonymous said...


re: inflation argument

Janszen is wrong on a couple accounts.

1. All currencies end up at $0.
2. The real issue is if TPTB put a deflationary pit designed to transfer society's assets over to the TPTB (duh! criminology 101 here!)
3. The debate isn't over. to suggest as much shows a profound lack of understanding or inability to fight his "tribal instinct" - the my team "won" effect.
4. I like his first chart, but it means something different to me. given that money is debt, all that time above the center line indicates just how bad the eventual collapse will be WHEN PEOPLE ARE ACTUALLY FORCED TO PAY ALL THAT BACK WITH INTEREST! This is our system.
5. CPI isn't "inflation." Well, it depends on how you define inflation. Money supply is the root cause for long term CPI increases and it isn't increasing. His arguments depend on the speculative bubble continuing on into the future. TAE doesn't think that will happen.
6. The author then goes on to explain the money supply version of "inflation" and says that adding new debt an deficit spending is a long term solution that will prevent deflation. It is looking less and less long term to me. If he's wrong, his theory goes up in flames. So, do you think we can spend $2.5 trillion in dept at the Fed / Govt level for eternity without rates rising and more and more going to service debt? I don't. Can they do it a while longer? Maybe. Forever, nope.

scandia said...

@Alexander Ac...Love the cartoon! Just listening to a radio live broadcast of the UK police smashing in doors. 1400 rioters incarcerated so far. And how many doors in Kensington have been smashed in by the police looking for criminals? I would guess zero. I would guess that the more corrupt, the bigger the theft from the national purse the more police protection of your front door.
Did all those MP's caught fiddling their expenses lose their accomodation allowance, end up serving time? Sarah Ferguson was caught on tape selling access to the prince. Is she in jail?

@Ash and Nassim...I sure did swallow the official story on Japan's surrender hook line and sinker as they say.
I've had nightmares invade my Sunday afternoon nap- images of concentration camps past and presnt,the Russian front littered with Napolean's army while Napolean scurried back to Paris, Vietnam and Agent Orange, the Soviet gulags,
Holodomor, Syrian Navy guns bombing the population as I write this....drones unchallenged masters of the skies...Think I'll go hang out with my cat for awhile...

scandia said...

" Markets heading to new danger zone:Zoellick "

I suggest the following quote from the article be read as forewarning to all citizens in western nations including the US and Canada.

"...efforts to cut US government spending have so far been focused on discretionary spending as opposed to the entitlement program such as social security."

D'ya think the purpose of the Super Congress is to get that nasty bit of work done?

NZSanctuary said...

Greenpa, El G, others, re: group sizes.

The optimum group size for strong social cohesion is less than 150 people. The reason is simple: relationships.

Most people can have a strong relationship with up to about 150 people (it is a rough estimate obviously, but is supported historically across many cultures). Beyond that social cohesion on an individual level begins to fragment, and group dynamics change quite radically. In small groups you do not need a physical medium of exchange (money), disputes and abuse are difficult to hide, unproductive cliques can be broken easily, and so on.

In a village of 100 people you can know every one intimately. In a village of 1000, even though you may know everyone, the dynamic is completely different. That is why so many tribal groups split when they became too big.

Ashvin said...

Dateline NBC is now running a show on the severe effects of the "Great Recession" on a factory worker, restaurant owner and banker in Georgia. The MSM still cannot bring itself to use the "D" word, except when making brief comparisons to GD1, but I think the fact this show was even made and aired is a decent piece of evidence that the social/cultural mood is moving right along with the renewed deterioration of financial and economic indicators throughout the year.

Archie said...

Scandia asked . . .

D'ya think the purpose of the Super Congress is to get that nasty bit of work done?

No doubt this is the plan and it is designed to accomplish the deed without anyone taking ownership of that decision. It will be interesting how this plays out and what "devils are in the details", so to speak.

Firstly, all of the pols and DC pundits keep referring to SS as an "entitlement". This is a gross misnomer which feeds the dull witted reactionary citizens, of which there are sadly far too many. In fact, SS is a pension plan or perhaps can be considered retirement insurance. Both workers and employers have paid into this plan. As a self-employed individual, I had the distinct "pleasure" of paying in both portions for a number of years.

Now, the fact that previous administrations have borrowed the SS contributions in the past to use for general budget expenditures, doesn't change the nature of the plan. The only thing in question, really, is will the US Gov't honor the special T-bills it issued as it borrowed from the SS funds over the past 2 decades or so? If they do not, then they have defaulted on the "full faith and credit of the US" which was so prominently flogged in the "deficit debate".

Just to set the record straight with respect to SS, Bruce Webb has written volumes about the topic and debunked every hysterical outcry about the "unfunded liabilities" at least with respect to SS.

I'm not saying TPTB won't f*ck over retirees, but everyone should understand the deviousness of their actions. Older people tend to vote in much higher % than younger groups. So, they tend to be better informed and less easily BS'd.

The committee approach is President Zero's favored approach for achieving "bipartisan consensus". It will most interesting to see how it all plays out.

Ashvin said...

Archie, your point about SS reminds me of a documentary I recently watched about the famous McDonald's "scalding coffee" tort case. This case was bandied about by the media and conservative politicians as an example of why we need "tort reform", such as measures to cap punitive damages. Of course, almost every detail of this case either manipulated or outright fabricated, and most average Americans would not put any effort into digging deeper and thinking for themselves.

For example, the mainstream story said that the burn victim was driving with the coffee between her legs, but she was actually parked in the parking lot in the passenger seat when the coffee spilled. The story also repeatedly mentioned that the jury awarded the victim $2.6T in punitive damages (about a days worth of coffee sales for McDonald's, awarded to punish it for "malicious and reckless" behavior), but the judge then lowered the award to about $450K. The story also failed to mention the 700+ complaints McDonald's had received about its scalding hot coffee (above 180 degrees Fahrenheit) before this incident.

And there's no way the media or politicians would talk about the fact that the victim got full thickness burns and needed extensive skin grafts on her legs, or show the pictures of these injuries presented at trial to the public. It's really quite amazing how the masses can latch onto a severely manipulated storyline about something with details so publicly available, but I guess that's the whole point. The Megalithic corporations win, and the people lose everything of their own coerced volition.

Ashvin said...

$2.6T = $2.6 million

el gallinazo said...

OK, it's Sunday and we need some more entertainment.

I don't agree with everything that Felonious Monk says about balancing the budget, but it is the most entertaining editorial I have come across.


My caption:

Does Michele have the life experience or is she about to bite off more than she can chew?

Also re SS

They are going to steal our $2.6 T from the lock box. Count on it. We should have buried it on the beach where Wall Street, O'bumma, and the congresscritters couldn't find it.

Archie said...

"And there's no way the media or politicians would talk about the fact that the victim got full thickness burns and needed extensive skin grafts on her legs, or show the pictures of these injuries presented at trial to the public. It's really quite amazing how the masses can latch onto a severely manipulated storyline about something with details so publicly available, but I guess that's the whole point."

Yeah, the whole thing is scripted, or so it seems. I've been reading lately that town hall meetings in Iowa, Minnesota, the Dakotas and New Mexico haven't been going so well. Too many people asking inconvenient questions and not accepting BS or avoiding the question as a proper response. Better yet, people are organizing state by state for the purpose of sharing the "truth", exposing the misdirection, and coordinating themselves to dog the candidates wherever they might be campaigning in their respective states. And from what I can tell, it is R's, D's and Independents together challenging ALL candidates and President F*#k You himself.

I find this to be a good development in the long run, but an unstable one in the shorter run. Fasten your seatbelts!

ogardener said...

Blogger el gallinazo said...

"Also re SS

They are going to steal our $2.6 T from the lock box. Count on it. We should have buried it on the beach where Wall Street, O'bumma, and the congresscritters couldn't find it.

Man, that's a lot of schedule 80 PVC pipe.

scandia said...

@Archie, Very good point about SS that is NOT an " entitlement ".
In Canada Old Age Security isn't much but it is universal to everyone over 65. Our CPP( Cdn Pension Plan ) is the one workers pay into. Recently our Minister of Finance is proposing that the CPP fund be managed by the financiers, the so called experts. That is scary development, another way to funnel money into elite pockets.

Nassim said...

Dateline NBC is now running a show on the severe effects of the "Great Recession" on a factory worker, restaurant owner and banker in Georgia.


I checked out this link: Preview: 'The Town That Jobs Forgot'

It seems that the town of Millen, Georgia, lost 1,400 manufacturing jobs - plus lots of service jobs dependent on these 1,400 - but all the news is not bad. A new "corrections facility" requires lots of construction workers and will eventually offer 200 full-time "jobs". I am sure economists will count that as "growth" or, perhaps, as "creative destruction".

el gallinazo said...


My runner up caption:

Bite me!

Re the Japanese surrender

The Japanese had been using Molotov as an intermediate envoy to the USA for weeks if not months, suing for conditional terms. Of course Molotov screwed them and never passed on a word of it Washington. They new about the a bomb from spies at Los Alamos. Actually, Truman told Stalin shortly before they dropped it. Stalin put Mr. Nice Guy, Beria, in charge of their own project after he felt that Molotov wasn't getting results. The plan to declare war on Japan at the very end was long in the works. The advantages were obvious. China, Manchuria, Korea, and seizing the north islands south of Kamchatka.

Archie said...

Another angle on the "bottom line" for Amerika's future is succinctly presented by Steve Lendman today:

Dire State of America's Children.

Today's clusterf@#k is certain to live on and multiply.

Additionally, it seems likely that the London riots are ready to erupt here in the near future. This article lays out a strong case for it. Having lived in NJ for almost 20 years, I can attest to the dire prospects of places like Camden, Trenton, Newark, Jersey City, Harrison, Elizabeth, Rahway, Perth Amboy, etc., etc..

Wrong policies have been in place for so long that there is just no simple answer to how to fix things in these communities. It is a lost cause that will have to play out in harmony with the destructive forces already set in motion there through societal neglect. Or as Arthur Silber puts it:

"History happens. Try to understand it. Otherwise, get the hell out of the way."

Ashvin said...


"A new "corrections facility" requires lots of construction workers and will eventually offer 200 full-time "jobs"."

Ah yes, maybe they can build some "mental hospitals" down there too and civilly commit all of the formerly employed Georgians. That way we have some temporary growth in the finance, insurance and RE industries, just in time to goose GDP before elections, while all the distraught, unemployed misfits are kept off the streets. Win-Win! Only people that lose are a bunch of lunatics, anyway.

Anonymous said...

@message in a bottle,

1. CPI rising (see

Why? Because the money supply is going vertical or because of a redistribution of a static money supply - essentially speculation against a flat money supply?

It is the latter.

2. Confidence in currency dwindling.

Riddle me this, Batman... Given money is debt, how does one lose confidence in their own debt such that they don't have to pay it off?

3. Price of gold rising (inflationary expectations).

Riddle me this, Batman, why are trillions being held at very low interest rates by the richest and most powerful people in the world?

4. Riots because cost of living.

Due to... speculation against a flat money supply.

5. Wage price spiral.

Can't happen when wages are arbitraged against slaves and American mega-corporations that get to play "Mastah" TAX FREE!

The current system only works so long as people never have to pay their debts.

Hyper-inflation is a bet that debt holders (who have the power and make the call) will bail out those they criminally put in debt.

If you think $2.5 trillion can be borrowed off into infinity with no interest rate rise that shuts down borrowing, place your bets.

jal said...

Tell me what you think.

The Black Swan Is On The Wing

seychelles said...

Has anyone considered that the London riots might have been inspired by Chicago's convenience store robberies by masses of minority youth several months ago? But the Brits kicked it up a bit with firebombs, other types of property damage and injury to some innocent bystanders.

Phlogiston Água de Beber said...

@ seychelles

England is home to some of the most riotous yobs on the planet. Why would they need inspiration from Chicago? There are people all over the intertubes saying we should be taking inspiration from them.

ogardener said...

George Carlin The Best 3 Minutes of His Career "The American Dream"

jal said...

Everything will be alright!
WHEN ...

They can get jobs for ...

There are 40 million Americans over the age of 65 today. You might even know a few of them. There will be 10,000 people per day joining their ranks for the next nineteen years as the Baby Boomers retire en masse.

They can get jobs for ...

the number of Americans on food stamps surging from 26.3 million in 2007 to 45.8 million today

They can get jobs for ...

the millions, 9.1%, of unemployed people

Don’t worry everything will work out just fine.
/sarcasm off

Guest Post: Bernanke Pledges To Screw Your Grandmother For At Least Two More Years

seychelles said...

I am referring to the STYLE of the youth groups, all wearing sweatsuits, entering businesses en masse, taking what they want and moving on with quasi military precision.

jal said...

Do you see a conspiracy everywhere?

What is the ulterior motive for the following statement by W. Buffett.
Stop Coddling the Super-Rich

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

thethirdcoast said...

@ seychelles:

You can tell that a lot of the London rioters who have been captured basically joined during the heat of the moment.

I say this because several of them seemed to have promising futures and they didn't bother to take a moment to rethink things, or minimally disguise themselves in baggy grey sweats and a black ski mask.

Nassim said...

Pulling the foundations stones out of the global financial system

Martin Armstrong's take on the S&P downgrade.

Nassim said...

Carl I. Hagen will limit terrorist investigation

Essentially, the leader of the second biggest political party in Norway - a nationalist party that is very much against foreigners living Norway - declared that the police investigation should be speeded up and less resources are needed to investigate because it is an "open and shut case". Parents do not need to know the details as to how their kids were shot.

NZSanctuary said...

Nassim said...
Pulling the foundations stones out of the global financial system. Martin Armstrong's take on the S&P downgrade.

Wow. What a jumbled message.

scandia said...

@ThirdCoast, I am reading Mate's In the Realm of Hungry Ghosts which covers the role of various parts of the brain. There is a spot in the prefrontal cortex that decides whether to do or not to do, a kind of executive decision maker. If this part of the brain is damaged or underdeveloped there is no impulse control.
Voila, all and sundry types participated in rioting.
Punishing rioters does not address the complexity of the situation of underdeveloped brains in mature bodies, a result of stress, malnourishment etc in the developmental years.
Throwing stressed families out of their subsidized housing accomplishes what exactly? Certainly not a return to safety and sanity.
These riots arise as much from poor mental and physical health as much as any other cause.
Another face of our predicament.

Greenpa said...

JAL - you beat me to it. I also spotted that Buffet op ed piece, and was going to stick it up here.

It's interesting; very intelligent and lucid.

If action were taken as he suggests- he'd pay a bunch more money out; but it would all ultimately be in his actual self interest, too.

None of this makes him an altruistic saint. Just definitely smart...

Greenpa said...

El Gal; I like your first caption direction- but it's got to be shorter for impact. Remember your target audience is people with a 3rd grade reading ability...

something like

Bat-Shit Shelly Always Bites Off More Than She Can Chew!

Always Bite Off More Than You Can Chew! Bachmann Does!

Greenpa said...

A bit of homework for those interested in the topic of "gold".

An explanatory article from Fortune magazine- 1931.

I haven't read it, zero time today; except enough to know the writer is intelligent.

Greenpa said...

"Enough To Choke A Horse" : Doing Her Homework.

Bigelow said...

'You Need This Dirty Word, Euro Bonds' -SPIEGEL Interview with George Soros

Ashvin said...

Martin Armstrong is most likely wrong about the S&P downgrade. I have said before that the timing of the release was obviously chosen somewhat carefully with an eye towards markets (mainly the US bond market), but market manipulation was not its fundamental goal. DBS has developed a much more plausible theory (China/India connection) with a lot of supporting evidence, which is also in line with my own thoughts. It was not the Obama administration or anyone trying to goose stock markets, and there is no need for anyone to manipulate the stock market downwards. It was a move with a medium to long-term horizon, and the following headline I just saw on Bloomberg says a lot:

"US Commerce Secretary tells China 'will get US fiscal house in order'"

seychelles said...

"Using Her Head To Get Ahead"

Anonymous said...


>>I'm not saying TPTB won't f*ck over retirees, but everyone should understand the deviousness of their actions.<<

For a moment of clarity... with some bad language sprinkled in...

My only criticism of Carlin is that SS had already been stolen... they just haven't let society know yet.

Anonymous said...


>>What is the ulterior motive for the following statement by W. Buffett.<<

Be very careful with guys like Buffett. They are very shrewd manipulators. They are also criminals and want to desperately hide this fact.

The key questions to ask about a guy like Buffett (and Gates and everyone else shilling for "higher taxes on the "rich")...

1. How many $10s of millions has he actually spent lobbying Congress to raise all these taxes? Oh, that would be $0? Yeah...

2. How many $10s of millions have his assets spent lobbying to lower their mega-corporate tax rates such that they pay in the low single digits, if at all?

3. How many $10s of millions have his assets spent lobbying to off shore jobs TAX FREE, thereby eliminating American jobs?

4. How many $10s of millions have his assets pent lobbying to get some of those trillions offshore back on shore tax free?

5. How much effort is Buffett making to repay the tax payer HIMSELF for all the benefits HE PERSONALLY got from being bailed out.

Come on, people, we can't participate in the chumptocracy any more.

We have to plumb the depths of the criminality and the happy face the criminals put out to keep us accepting their crimes against humanity.

Buffett does all he can to avoid paying HIS actual taxes based on HIS actions. NOTHING stopped him from paying taxes on the $10s of billions he gave to the Gates Foundation (and believe there are plenty of scams going on there!) or the money he earns now.

It's all PR - and Buffett spend more on PR than he does to lobby Congress to increase his own taxes, which, BTW, HE COULD DO ALL ON HIS OWN ALREADY!!!

He wants to raise YOUR taxes and hopes you don't figure it out. He wants more bailout money for he and his assets to loot!

See through the "image" and look at the "actions."

jal said...

Wellll ... no other comments on W. Buffett’s op-ed?

Here is mine.

I'm sure that he knows more than me and that he has more influence than me. :-)

In exchange for not closing the tax deduction for charity, he is encouraging “shared sacrifice”.

He and his partners have known, (for a longer time than me), that everyone on the lifeboat must put their back to rowing. He probably sees an opening in the shoal and it required the efforts of the biggest passengers to reach that opening.

Why would he tell us peons that the rich passengers are not working the oars? We know it.

He should be convincing the rich "to man the oars" or they will perish on the reef.


Mister Roboto said...

Thanks for this. I like this blog the same reason I like "The Archdruid Report", namely because I feel like I learn an awful lot here that I otherwise probably wouldn't have learned.

el gallinazo said...

Re the Buffet opinion piece

Greenpa makes a viable argument, essentially the FDR argument to reform the system just enough to save it. I take an even more cynical view, the CIA argument. Which is co-opt both sides of the revolution. This is what they did in Egypt for example.

Buffet knows the system runs on political corruption. If his opinion was more than empty words, he could take some of his $70 billion fortune and start sponsoring (bribing) Congress critters and the executive incumbents and candidates to "do the right thing." Even in today's den of vipers, $70B goes a long way in the political bribery department. Now we are in a true Supreme Court republic of one dollar is one vote. With a pissed off ex-consumerate, Buffet could go to Hollywood, pick a handsome actor with an IQ over 80, feed him an enlightened script, and put him in the presidency, At the least, he could force the major parties way toward honesty out of sheer fear. Same with Congress. There are plenty of unemployed actors in Hollywood, and a few of them have IQ's over 80.

I read exactly the same thing 10 years ago by Buffet and actually was suckered by it, even comparing his tax percentage to that of his secretary. As he nears the end of the line, he is just trying to shore up his legacy - the richest man in Amerika but still a fighter for the little man. The Kingfish of Omaha. But that was when I could tell my left from my right. Now I am completely dyslexic. But like him, it's getting old. As the gunfighters of the old west used to say, "Watch their hands, not their lips."

bluebird said...

Mister Roboto said "Thanks for this. I like this blog the same reason I like "The Archdruid Report", namely because I feel like I learn an awful lot here that I otherwise probably wouldn't have learned."


Ashvin said...

66 killed in Iraq today from a coordinated attack across 17 cities.

"The attacks come after Iraqi leaders said on August 3 they would hold talks with the US over a security training mission to last beyond 2011, when all 47,000 American soldiers must withdraw under the terms of a 2008 bilateral security pact."

I wonder how long this "security pact" will hold up now, and how long this "training mission" will last. At the very least, we'll have plenty of private "security consultants" over there into the indefinite future, who get paid well upwards of $100k/year. From your paycheck to Erik Prince's bank account.

In other under-stated news, a recent interview with Arnie Gunderson re: Fukushima can be found in this post by GW on ZH.

Greenpa said...

Wow! Whoda thunk!?! David Cameron totally "gets it"!!

"London (CNN) -- Prime Minister David Cameron blames the riots that shook Britain over the past 10 days on a "slow-motion moral collapse ... in parts of our country," he said Monday, as police arrested a new suspect linked with one of the deadliest incidents in the violence.

"Cameron listed problems including "Irresponsibility. Selfishness. Behaving as if your choices have no consequences. Children without fathers. Schools without discipline. Reward without effort. Crime without punishment. Rights without responsibilities. Communities without control," in a speech in his constituency in Oxfordshire."

The only problem, of course being- he knows exactly what; just has no idea WHO.

Biologique Earl said...

Ash said...

"66 killed in Iraq today from a coordinated attack across 17 cities."


Sorry, I have to say this:

I smell CIA rats in the wood pile. The US does not want to pull out of Iraq at all. Too much oil at stake.


Robert 1

el gallinazo said...

Recommending today's CHS piece in particular.

el gallinazo said...

Re Iraq, I won't even get into the old jokes about "pulling out," other than the Vatican disapproves of it and the USA has more concrete in its Iraqi embassy than the Vatican has in its whole city. Iraq is the 52 state. (Canada is the 51st).

Yeah, we are about to abandon this complex of a dozen odd, huge military bases and the world's second largest crude oil reserves to the Shia majority. Anyone interested in the deed to a bridge in Brooklyn? Cheap!

el gallinazo said...

Off topic - whatever that means

A Radiolab short about a certain type of genius which will blow your mind regarding what some humans are capable of. About 15 minute episode.

Greenpa said...

El Gal- good grief. I'd lost track of him- small world dept; I used to play jungle volleyball with Bob Krulwich, after lunch... 42 freaking years ago.

Re: 4 track minds; there is evidence "that cannot be dismissed" according to critics; that olfactory senses utilize quantum mechanical processes -

If on CNS system is using quantum mechanics- why wouldn't they all?

Incidentally, it's now basically accepted that photosynthesis does use quantum mechanics to accumulate and control energy flow between molecules.

A brave new world.

bluebird said...

@Greenpa - Perhaps some of those riots were from seeing greedy rich taking from the poor. Now the poor are fighting back.

Ka said...

I second El G.'s recommendation on today's CHS post. It, among other things, leads me to react to this from Skilo:

We have to plumb the depths of the criminality and the happy face the criminals put out to keep us accepting their crimes against humanity.

with: No we don't have to. The only reason to do so is to stoke our anger, and that does no good.

I live a life of (comparative) luxury, in that I have enough cash to pay for indoor plumbing and plug-in connections to the electrical grid and internet. I got that cash by working for those criminals, and I am also aware that it was those criminals who were by and large responsible for putting the pieces together that lets me live so luxuriously. Now that all that is in the process of falling apart, it would seem rather churlish of me to get angry at them, as if that will stop the falling-apart process. Much more appropriate is to learn how to be a rat to leave this sinking ship.

el gallinazo said...

While Stoneleigh warns against linking real stuff to market movements, I think the upward movement of Friday and today is linked to Merkel and Sarko broadcasting an offensive plan after their upcoming meeting to establish Eurobonds. If France loses its AAA rating, then the debt would almost completely fall on the German taxpayer. It may be unconstitutional as well and at the least Merkel would have to force it through the Bundestag. This may be possible by bribing the MP's as they did with Iceland, Greece, Ireland, and Portugal. I have no doubt that it would be soundly defeated in a referendum as the Icelanders were permitted to do through an unpredictable decision by a titular leader. Of course this is all about "bailing out" the giant banks. If the Eurobond issue dies, the EMU is toast. Everything is on the line as all of the Primary Dealers go belly up if Eurobonds are defeated.

It appears that London has become the haven for banksters with outstanding warrants in their home countries as Argentina and Paraguay were for Nazi war criminals. Go UK!!


What is your current take on how the physical brain stores detailed sensory memories and constructs and projects sensory ideas into inner space? I think the current consensus is that it has to do with differential resistances to synaptic connections. Because the mathematics then enters the realm of permutations and combination series, it allows for the incredible number of bits necessary. But it doesn't begin to start to answer how the conversion is done into subjective consciousness.

ghpacific said...

A very cogent overview of where we are and a warning of what is likely to come by George Friedman at Stratfor

el gallinazo said...

Sorry ghpacific

But I found that Friedman article to be, at best, superficial, and at worst, duplicitous.

Greenpa said...

El Gal "What is your current take on how the physical brain stores detailed sensory memories and constructs and projects sensory ideas into inner space?"

I think your assessment of current beliefs is correct, as is your final statement.

There is huge abundant evidence that that conceptualization is bull puckey.

2 examples: corvid intelligence. For decades, behavioral scientists have scoffed at farmers and folk anecdotes about the intelligence of crows: for one unanswerable reason: "they can't be THAT intelligent, their brains are incredibly too small."

Except they ARE that intelligent; "smart" would an insult. Ergo; our concept of brain function is crap.

2nd; I've studied and used hypnosis for decades. Evidence there, abundant, is that people have vast stores of memories that they normally have no access to; potentially amounting to "everybody has an HD video tape of their entire lives" stored in their brain. We just don't usually have CONSCIOUS access.

The 4 track dude; also- proof of function beyond comprehension um- means- your comprehension is crap.

If organic brains are using quantum mechanical information storage- that would go a long way to explaining the quantities and power. But the details - man, my brain hurts.

Archie said...


"...Now that all that is in the process of falling apart, it would seem rather churlish of me to get angry at them, as if that will stop the falling-apart process."

Churlish! really?! I'm with Skilo on this one, sorry.

Anyway, I'm happy to hear that since you got yours, all others apparently don't matter. What goes around, comes around!

Archie said...

Re: Bachmann photo caption

I think The Rude Pundit has a short list of possible winning captions.

My favorite is: "Oh, God, it's been so long".

And did anyone know that Mr. Bachmann got in the act as well?

el gallinazo said...


Thanks. My connection with birdbrains came with the late and lamented Alex Pepperberg, an African Gray, who seems to have discovered the zero on his own. These 30 cc brains would embarrass Porsche with their pickup.

The tree of the financial empire is about to topple, but we still have some choice as exactly where it will fall if we can develop some political leverage. Maybe ameliorate the suffering a bit. I guess anger is self destructive. One should operate a guillotine dispassionately :-)

Phlogiston Água de Beber said...

One should operate a guillotine dispassionately :-)

Highly recommended! I've seen some pretty bad things happen when machinery is operated in anger. One might easily lop off their own hand.

Ka said...


You misunderstand me. "I got mine" means, in my case, that I can continue living my (comparatively) luxurious life, which costs me about $900 a month, only as long as social security and the monetary system survives. I don't expect that to happen, so I expect to lose "mine". My point is that getting angry over that fact (a) won't prevent it from being lost, and (b) is anyway unjustified, since it is the "corruption which is the system" which made it possible to get "mine" in the first place.

Gravity said...

One should not publicly demonstrate the operation of a guillotine by the beheading of effigies which represent any recognizable persons or groups, as this may be easily construed as inciting violence towards such persons or groups.
Political manifestations involving the exposition of an inoperative guillotine, which is not demonstrated in operation of beheading, would still be protected political speech as a generic symbol of anti-monarchism or liberalism not necessarily inciting violence.

Phlogiston Água de Beber said...

Michelle does Corndogistand

el gallinazo said...


This little dialogue between you and Archie is really touching on fundamental metaphysical questions - namely free will and determinism. I will weigh in with my two cents being an opinionated fatfinger. I started out in this round of life as a determinist. Seemed to be part of the scientific way. Now, I am firmly in the camp of free will. I now subscribe to the tenets of the physicist philosopher Tom Campbell. Namely that All That Is set the joint up with consciousness being the fundamental substance and evolution and free will being the fundamental dynamics. So to weigh in on this discussion, every human has the innate capacity to stop their current stupidity and straighten up. The problem is that it is very, very hard work. A corollary is that it is each being for himself as to spiritual advancement. To advance one must be both kind and savvy with one's fellow beings. But one cannot stop them from phucking up to their hearts content. Attempting to do so is water off a duck's ass and is liable to get one to meet a painful end to one's current physical existence-

el gallinazo said...

In my opinion, no matter how many meat shafts Michele sucks and chomps, Rick Perry is the next Presidente. A hot dog never out trumped a Bilderburger.

Bigelow said...


"protected political speech" is a concept from the past Republic. Only political servants of the elite may now "target" their opponents using techniques and language befitting murderous anti-abortionists, certainly not liberals wielding guillotines (figurative or otherwise).

Bigelow said...

I agree with el G.

The part about the Bilderburger.

I don't want to know about undead zombies breeding habits however.

thethirdcoast said...

@ scandia:

Good points about unformed young minds. I believe that the riots are a symptom of growing inequality, but that the Very Serious People in charge refuse to admit this fact.

@ el gall, Greenpa:

Agree regarding animal and bird intelligence. I witnessed some very intelligent, efficient technique from a crow that scampered out of my car's way this morning. It knew exactly how far and fast it needed to move to reach safety beyond the concrete curb.

From the ethics, LOL files:

AP Enterprise: Exam-cheating scandal hits Navy sub

Nice to see the MSM take a break from telling me that certain folks are superior examples of the species.

Ka said...

@El G,

I'm pretty much in the same metaphysical camp as Tom Campbell, I think, though I admit I gave up reading his book after about 200 pages of being told to keep an open mind, to finally be presented with a couple of axioms which I already pretty much held. In any case, I am in full agreement with what you said about its being the personal responsibility of each of us to evolve in the right direction.

scandia said...

@El G...I listened to a radio analysis of the Rick Perry camp this morning, the fundamentalist fervour. As a secularist I felt chills up and down my spine. Those folks sound like the Taliban.
Also have heard several people express that Perry WILL BE the next president. I shudder...just when you think things couldn't get any worse they do...

scandia said...

@Jal...Just got to " The Black Swan on the Wing". Whoa!
Definitely in the spirit of " V for Vendetta"
I decided not to watch the coin. It could well be a hypnotist's technique?

seychelles said...

EG said

Rick Perry is the next Presidente

If he is in charge, he and his ilk will bear most of the blame for the upcoming collapse, thus political outcasts for a generation or two, assuming anything like our present political system survives. However repugnant the concept, it does have some potential positive consequences.

el gallinazo said...


Check out the conservation campaign poster for the Sperm Rockefeller at:

el gallinazo said...

seychelles said...

assuming anything like our present political system survives.


Hmmm. Anyone remember who ran against Hitler in the election following his capture of the chancellorship? My memory has gone to hell. It's a senior thing.

Anonymous said...

I now subscribe .. - el G

Nice to see 'those' cards. being your cards and on the table.

So you have actually finished the books/trilogy ?

My regular cyberspace hangout is the forum for the book. As you might guess, it's a bit different of a place.

Archie said...

This video supports my earlier assertion that older citizens are more aware and that BS may not fly so freely in the next election. This happened recently in New York State.

I'm not sure that these types of encounters with the pols will be a big difference maker (though I sure do hope so), but it is evidence that there is a large voting contingency who are paying attention, at least.

And I might add that the guy at the end, imo, is anything but churlish in his condemnation of the evasiveness exhibited by the candidate. YMMV.

Archie said...
This comment has been removed by the author.
jal said...

@ Archie
Its time to repeat my posting ...


They are the black swan of the bankers and the politicians.
They hold “the pool of wisdom.” (Pass and future)
They are more powerful that “the woman behind the throne.”
They are more powerful than the bankers.
Their organizations are in the open but can operated clandestine and swiftly.
They are only 3 phone calls away from any decision maker.
They can cause a bank run.
They can “starve the beast”.
They can make the members of parliament “quake in their boots”
They are immune to the tools of crowd control. Tear gas, batons, and physical force.
They have the ability to write modifications to any bill passed by governments and get it passed.
They are stirring and waking up from their nap.
They are learning to communicate with computers by the thousands.
They are getting informed on how they have been conned and used by the bankers and the politicians.
They are unbeatable, when they decide to act/work as one.
They will be obeyed, when they speak.
They are growing stronger by the day.
“They’ve been there, done that.”
“They can do the walk and they can do the talk.”
“They’ve seen it all and done it all.”



You might be able to do “selective hearing” with your wife.
You might be able to ignore your mother.
BUT, when gran calls you had better be listening if you do not want the black swan swooping down upon your house.

Anonymous said...


>>Now that all that is in the process of falling apart, it would seem rather churlish of me to get angry at them,<<

My apologize for not being more clear.

I don't want people to be angry, although that is a natural reaction to being set up like this.

I do want people to be able to identify and REMOVE THE ROOT CAUSE.

People who solve problems for a living know that you MUST get rid of the root cause in order to get rid of the problem.

You are close, but not quite there. The last step is small, but it might be hard for some in your shoes to take.

These crooks didn't make your life better, they've only been a drag on your life.

I'd love to have less material crap and live in a more balanced world where nations worked together and we shared the wealth amongst each other.

As for ducking and ignoring the sociopaths, how'd that work out for people in China? Russia? Germany?

Where do you think this tyranny ends up?

Anonymous said...

@el g,

>>In my opinion, no matter how many meat shafts Michele sucks and chomps, Rick Perry is the next Presidente. A hot dog never out trumped a Bilderburger.<<

Perry / Bachmann looks to be the ticket to me.

However, Bachman is negotiable.

Perry, however, I agree Perry has been "blessed" and is almost certain to be the nomination.

Anyone who wants to know what the BFC ruling class will hide about Perry in the upcoming election cycle...

14 Reasons Why Rick Perry Would Be A Really, Really Bad President

My favorite is Al Gore's campaign chariman, but that's mostly for giggles. There are more serious issues in the list.

Anonymous said...


>>Good points about unformed young minds. I believe that the riots are a symptom of growing inequality, but that the Very Serious People in charge refuse to admit this fact.<<

What does a "formed" mind do when the police run around your neighborhood, assassinate your neighbors for decades, rarely face any consequences and don't bother to answer questions from the community?

Just askin'.

Not justifying the mayhem - in fact, I reject it as it plays into the tyrant's hands.

But these people have been getting shafted and their shafters rarely face consequences.

I also hear that people in this neighborhood get shaken down by police - as in, they get searched whenever the police decide it is time to get inside their pockets.

Ilargi said...

New post up.

Europe on the Verge of Breaking


Mister Roboto said...

I think it's very unlikely that Michele Bachmann is presidential material if all it takes to make her run for the proverbial hills is a self-righteously loud-mouthed high-school kid.