Friday, September 2, 2011

September 2 2011: Austerity is Coming to the People of the Sun

Harris & Ewing German Split February 1917
"Union Transfer Company truck, German Embassy." The scene at the embassy in Washington after Woodrow Wilson ended diplomatic relations with Germany, two months before the United States made its declaration of war

Ilargi: US jobs data come in at exactly zero. Greece debt talks are suspended because the deficit in Athens is getting much larger than anyone based the outcome of earlier negotiations on. The FHFA, part of the US government, will file lawsuits within the next week vs a dozen big banks. Question: given how Washignton has treated the banks to date, why would that worry any of them? And so, while US Treasuries are booming, and yes, that IS the major flight to safety, Greek 2-year debt now yields 46%. The markets are taking their positions, ready to go when the going is warranted.

For the people, all that will remain is less. The longer the recovery charade lasts, the less will be left for Joe and Jane Main Street. Whether they are in Athens, Greece or in Athens, Georgia. Madrid, Spain or New Madrid, Missouri. Paris, France or Paris, Texas. Lisbon, Connecticut or Lisbon, Portugal. There'll be precious little difference.

Ashvin Pandurangi:

Bailouts, Austerity and Rage: People of the Sun

Part 2 - The Portuguese & The Spanish

"Check it since 1516 minds attacked and overseen,
now crawl amidst the ruins of this empty dream.
With their borders and boots on top of us,
pullin' knobs on the floor of their toxic metropolis.

But how you gonna get what you need to get?
The gut eaters, blood drenched, get offensive like Tet.
The fifth sun sets get back reclaim,
the spirit of Cuahtemoc, alive and untamed.

Now face the funk now blastin' out your speaker;
on the one, Maya; Mexica.
That vulture came to try and steal your name,
but now you got a gun.

Yeah, this is for the People of the Sun...

It's comin' back around again;
this is for the People of the Sun!"

-Rage Against the Machine: People of the Sun

Part I in this series, Calm Like A Bomb: The Greek & The Irish, described why the future of bailouts and austerity in Europe will reveal its future of systemic social unrest as well, focusing on the sociopolitical mood in Greece and Ireland. The populations of debtor nations are forced to accept huge reductions in their standards of living to subsidize major bondholders, as a condition of previous IMF/ECB bailouts, while the populations of nations running a budget surplus are forced to contribute their increasingly strained incomes and revenues to do the same via the new "European Financial Stabilization Facility" (EFSF).

The recent step towards a "fiscal consolidation" of the EMU, through its modified EFSF, does nothing to reduce the austerity burdens of Southern Europe or Ireland, while simultaneously placing greater burdens of contribution on the populations of Northern Europe. The Greek and Irish people have already traveled far down the path of bailouts conditioned with severe austerity measures, and, while the latter have appeared to be relatively calm over the last year, they are simply acting as any high-powered explosive device would. The bomb lays still for awhile and, then, it detonates with a deafening BANG!

The next debtor nations to be fitted with I.E.D.s by the EMU hit parade are Portugal and Spain. The latter has not been offered subsidized rates for its public debt by the modified EFSF, and there has been no specific bailout or bond "haircut" plan set in place for it just yet. Given the recent and rapid deterioration in the bond yields of Italy and Spain, which were at one point topping 6%, the ECB has temporarily stepped in stick their bonds on its balance sheet, until the modified EFSF can be implemented. These measures have proven to be wholly inadequate in mitigating systemic fear, however, as French banks are now coming under tremendous pressure to boost capital reserves before they become utterly destitute.

The EMU now truly resembles a chicken with its head cut off, as it cobbles together temporary and ineffective measures to reassure investors. Meanwhile, it continues to exert enormous pressure on member states to implement excessive austerity measures, which are sure to make their financial predicaments even worse. Portugal and Spain, for example, have imposed austerity programs for their populations in response to weak growth in their private economies, threats of "financial contagion" and direct and indirect coercion by the ECB,  with the latter doing so without an official bailout in place. In a painfully ironic twist of fate, the former colonial giants and conquistadors have evolved into the oppressed colonies of supranational finance; their populations, the People of the Sun.


The mood in Portugal over the last year is probably best described as "helpless shock" over its fragile public financing situation. Unlike Greece, Portugal had not extensively lied about its debt over the last decade, and, unlike Ireland, it did not have to systematically bail out a reckless domestic banking sector on the brink of insolvency. Even the housing bubble in Portugal was tame in comparison to that of Spain. The fiscal situation of the Portuguese was certainly influenced by all of the above factors to some degree, but at its heart was something more fundamental. It has fallen prey to the internal instabilities built up through years of systematic globalization and financialization.

Alexander Yung in Der Spiegel:
Seeking a Path Out of the Crisis in Portugal
"The country is deep in a state of crisis, but it seems foreseeable  that the worst is yet to come. Interest rates are going up, borrowing is getting more expensive, banks are lending less money, companies have stopped investing, some are going under as a result of the credit crunch, and the unemployment rate continues to rise. Surprisingly enough, there is hardly any sign of resistance in the country. Many Portuguese are simply shocked.

Unlike the Greeks, the Portuguese did not become involved in questionable business practices. Their banks did not issue nearly as many high-risk loans as their Irish counterparts. And a real estate bubble did not develop in Portugal, at least not to the same extent as it did in Spain. But now the Portuguese are in the same boat as several other ailing European economies.  They are hopelessly in debt and their economic future seems questionable at best. Concerned citizens are asking themselves how this could have happened."

Essentially, Portugal's productive economic growth had stagnated for the last decade as both jobs and investment capital were siphoned away to lower-cost regions such as Eastern Europe and Asia, decimating its ability to develop a valuable export sector and leading to high rates of unemployment. Meanwhile, private consumer credit growth skyrocketed to make up the difference in value between what the people consumed and what they produced, as government-financed expenditures also increased. If the above sounds a lot like what has happened in the U.S., then it's not a coincidence. The difference for now is that Portugal, unlike the U.S., cannot unilaterally direct its own monetary policy and is part of a Union that openly encourages brutal austerity.

While Portugal will be eligible for the low 3.5% borrowing rates under the new EFSF, it is currently not in line for any more bailouts or a Greek-style plan for bondholders to “voluntarily" take minimal haircuts on the value of their holdings. Now that the former Prime Minister Jose Socrates and his "Socialist" government have been taken out of power for failing to burden their citizens with harsh austerity measures, the new Portuguese government has adopted sweeping measures to reduce its budget deficit 3.3% over the course of this year. The government has made it perfectly clear that the new EMU plan will not slow its relentless drive towards economic suicide.

Reuters reports:
"Last week's EU summit that gave a new lifeline to Greece was favourable for Portugal, but the country cannot soften its austerity drive under a 78 billion euro bailout, Finance Minister Vitor Gaspar said on Monday.

He told a banking conference the summit reduced the chances of the Iberian country getting caught up in debt crisis contagion and allows for better market access while Portugal faces at least nine consecutive quarters of economic contraction with growth only expected to return in early 2013."

So Gaspar doesn't feel the slightest need for his country to temper its plan to reduce its deficit by more than 30% this year, even though the Portuguese economy is set to contract for at least the next 2+ years. That's not a bold move or an act of courage; it's foolish and it's an act of cruelty exercised upon a majority of the population. The austerity programme adopted by the Social Democratic Party in early June contains the now boilerplate terms of severe cuts to public sector jobs, salaries and benefits, as well as public spending on health care and social programs.

The government has also established a timetable for privatizing state-owned corporate assets, such as the power utility EDP, the power distribution company REN and the banks, BPN, TAP and CDG. [1]. In addition to major reductions in public spending and the sales of the people's corporate assets, a number of devastating taxes, tolls and regulatory changes will be imposed on the general population as well. These changes will include the following terms, as they are described by the Irish Examiner:

Portuguese Youth Protest Joblessness:
"• An increase of between one and two percent in the VAT from its current figure of 23 percent is widely forecast by analysts to be brought forward from its initial projected date of December 2011 to as early as this month.

• The payment of these additional taxes will also be joined by the loss of a number fiscal privileges. Every year, taxpayers claim back tens of millions of euros in expenses, with costs regarding children or interest paid on mortgages set to be removed from the equation when they file their tax declarations in 2011. Council tax exemptions are also expected to be cancelled, though existing agreements will remain in place.

The charging of tolls on previously unpaid motorways is also firmly back on the agenda after the previous government went back on its decision to introduce them by 15 April as the general election approached.

• The government is also looking to change the way bank holidays are taken in order to boost productivity and avoid long weekends becoming ‘longer’ by limiting the days upon which they can be enjoyed to Mondays and Fridays.

• The government had also previously agreed to change labour laws and limit the damages workers are paid when they are sacked. “We will align severance payments for open-ended and fixed-term employment and submit legislation by end-July 2011 reducing severance payments for all new contracts to 10 days per year of tenure", Portugal has pledged, adding it will “present a proposal to revise severance payment entitlements for current employees in line with the reform for new hires by end-2011, without reducing accrued-to-date entitlements."

• Portugal has further undertaken that it will also reduce the maximum duration of unemployment insurance benefits to no more than 18 months, while any increase in the minimum wage will take place only if justified by economic conditions and agreed in the context of regular programme reviews."

The government has also suspended most current and future infrastructure programs for an indefinite period, including a high-speed rail line that was in being built between Lisbon and Madrid. The scariest aspect of these plans is the fact that Prime Minister Pedro Passos Coelhos has been bragging about his intentions to go over and above the deficit reduction targets set by the IMF/ECB, in an attempt to outdo the foolish audacity of his Finance Minister. Sandrine Morel in The Guardian:

Portugal’s Cutbacks Halt High-Speed Train to Spain:
"In exchange for a €78bn European bailout plan, the Social Democratic party (PSD),voted in on 6 June, has committed itself to a number of measures and reforms to reduce the public deficit to 3% of GDP by 2013. But Passos Coelhos, who has boasted that he will exceed the austerity  targets agreed in the EU-IMF bailout, has added objectives that weren't  on the cards, including the postponement of the Iberian high-speed line.

In Spain, that Portuguese zeal is not appreciated. The Spanish transportation minister, José Blanco López, has described the Portuguese  decision as a "bad" one and reminded his neighbour that "the project has obtained European financing". Madrid fears that the European funds  allocated to the railway will be scaled down if the Portuguese decide to pull out permanently. To press his point, Blanco has asked to meet his Portuguese counterpart at the earliest opportunity.

In the Spanish regions that were to be covered by the high-speed train, there is concern about the local repercussions in terms of jobs and tourism, although according to the president of Extremadura, Guillermo Fernández Vara, "this decision won't affect the Spanish end of the line". Last week, the Portuguese prime minister announced that further budget cuts would be put before parliament."

Spain may have a right to be a little peeved with Portugal's decision to halt construction on the rail-line, given the fact that its government had already expended significant funds pursuing the project and is just as broke, but that's really nothing compared to what the Portuguese people must be feeling right now. The world was provided a glimpse of this fear, frustration and incipient rage in March of this year, when thousands of young protesters took to the streets of 10 different cities in the country.

The Irish Examiner:
"Some 30,000 people, mostly in their 20s and 30s, crammed into Lisbon's main downtown avenue, called onto the streets by a social media campaign that harnessed a broad sense of disaffection. Local media reported thousands more attended simultaneous protests at 10 other cities nationwide. A banner at the front of the Lisbon march said: "Our country is in dire straits" while another said: "We are the future."

...But after a decade of feeble economic growth and a huge debt burden that has forced the government to enact crippling austerity measures, Portugal's economy can't deliver the opportunities that trained young people are seeking. The jobless rate stands at a record 11.2%, and half the unemployed are under 35. In the third quarter of last year, 68,500 college graduates were idle - a 6.5% increase on the same quarter the previous year, according to the National Statistics Institute.

...Four graduates in their 20s were inspired to organise the unprecedented protests after a pop song struck a chord with their despairing generation. The song, called "What a fool I am" by Portuguese band Deolinda, was an unexpected hit in January, even though it hadn't been released yet. An amateur video of a concert performance of the song posted on YouTube went viral as it set a generation's simmering grievances to music.

The song's lyrics - including the lines "I can't go on like this/This situation's dragged on for too long" - built into a battle cry."

This event was no doubt a populist expression of deep frustration with Portugal's economic path, but it was generally only concerned with unemployment and under-employment, and was also relatively timid compared to the protests and riots in Greece this year. As time moved on and new austerity measures came to light, however, the people of Portugal returned to the streets several different times to express more frustration and anger over the increasingly specific and brutal plans. They are now beginning to realize that their government will continue to ignore their cries, and choose instead to bail out large Western banks through the IMF/ECB/EFSF, maintaining the status quo of oppressive inequality at all costs. Portugal News Online:

May Day Demonstrators Denounce Austerity, Bailouts Talks:
"In the capital, several thousand people braved heavy rain on Sunday [July 3] to participate in two peaceful marches organised by the country’s rival trade union confederations. Incidents were only reported from the industrial city of Setúbal, south of Lisbon, where a small group of black-clad “anarchists" clashed with police, leaving three protesters lightly injured.

At the biggest demonstration in Lisbon, the head of the leftist CGTP union federation, Manuel Carvalhoda Silva, accused the caretaker Socialist  administration of burying the country in debt in order to rescue scandal-ridden banks, not to aid the poorest or the unemployed. Many of the demonstrators sported red CGTP t-shirts and shouted slogans like: “We don’t want the IMF here"!

Carvalho da Silva called on supporters to vote against the Socialists, in power for six years, and centre-right parties that governed earlier in snap elections set for 5 June. At the smaller UGT rally, some 2,000 protesters heard leader João Proença reject any  austerity move to cut vacation and year-end subsidies or reduce the €475 monthly minimum wage.

The unemployed youth and struggling workers of Portugal are rapidly becoming fed up with their government's stubborn march towards neo-feudalism, as it desperately hopes to remain in the favors of a European Union run by bankers and corrupt politicians. Prime Minister Coelhos announced in mid-July that his government found a "colossal" $1.7B hole in its current budget plan, along with weak economic data, and therefore new austerity measures must be adopted. What he didn't announce is that they are going to fill that hole up with the skeletal remains of the Portuguese population. EuroNews:

Portuguese Austerity Tax on Bonuses Sparks Protest:
“We want higher pay": that was the message from thousands who marched in Lisbon on Thursday [July 14], heeding union calls to protest against recent austerity measures in Portugal. They include an extraordinary tax on end-of-year bonuses, announced by the prime minister Passos Cuelho.

The move goes beyond Portugal’s bailout terms – because, he says, new figures on the economy show it is necessary. The demonstrators beg to differ.

“I’m here because I think the measures being brought in are very unfair. I am here because it’s through this workers’ struggle that we can fight against the rising cost of living," said one young woman.

A man said:

I’m a worker, living conditions today are bad and are likely to get worse so I’m here to fight for my interests, for the workers’ interests."

Yes, Mr. Coelhos, the "new figures" on your economy are indeed very weak and your budget deficit isn't getting better, because you insist on funneling the productive capital of Portuguese workers to your unproductive banker overlords as interest on the unproductive debt instruments that they hold. You, me and everyone with half a brain knows that the solution to Portugal's economic woes is not oppressive austerity and blatant extraction of wealth, but you insist on doing just that anyway. The people on the street, though, cannot be silenced for generations like the Native Americans were. You can rest or lay awake assured that their future demonstrations will not be quite so peaceful.


The public balance sheet of Spain, like Ireland, has been entirely at the mercy of its reckless and insolvent banking sector, especially its 12 "cajas", or savings banks. The extent of this insolvency is easily implied by the extent of the housing bubble that was financed by these banks over the previous 12 years, which is now thoroughly in the process of imploding. The following graph is a screenshot of an interactive applet found at The Economist website, which can be toyed around with to include more countries, change the measure of housing prices on the Y-axis and change dates on the X-axis.

The Spanish bubble and bust has clearly been one of the worst among those in Europe, and the picture only gets bleaker when you factor in the 20%+ unemployment rate for the Spanish population, which is more like 44% for its young adults, and its projected sub-1% growth until 2016. [2]. It's estimated that the banking sector needs to raise upwards of $20B in capital by September of this year, and it's practically impossible to imagine that any private investors will be brazen enough to put their money into Spanish banks within the next few months. [3]. That really only leaves the Spanish government, the ECB/IMF and their new fiscal collapse sharing mechanism, the EFSF.

For the moment, the ECB/IMF are keeping their paws off of Spain (except for recent bond purchases), hoping and praying that the country can avoid fiscal ruin by imposing its own independent austerity program, while it simultaneously subsidizes its domestic banking sector. Of course, there is a reason why the new ESFS was conceived, and if it is successfully shoved down the throats of the German people, we can be certain it will be used for Spain. The odds of Spain remaining solvent by its own right are becoming less favorable by the day, thanks in no small part to the systematic austerity that is currently and will continue to plague the Spanish people.

That's a big IF, though, and it will necessarily take a few months to get underway, which is a few months too long for Spain. For now, the ECB is directly intervening in Spanish and Italian bond markets to stem the upwards surge in their long-term bond yields, while engaging in shady backdoor discussions with their respective governments about immediate austerity. I was sent the following observation about two months ago from Justin Ritchie, who runs the clever and comprehensive Extra Environmentalist podcast interview website (their latest interviews were with Chris Martenson and economist Manfred Max-Neef). He had been visiting Spain at the time.

"Justin: As I've been walking around the streets of Granada, Spain over the last few days I'm seeing the protests grow every day even though police are trying their best to quiet things among the students here. People were marching with megaphones today and handing out flyers tell all of us to gather in the town square. Much of the pressure here is in anticipation of the election that's coming soon but all the candidates are still thinking within the mainstream paradigm. In the very near future, Spain will have to deal with its debt and that likely means a bailout from the EU with the restructuring required, now that the youth are becoming  more and more organized after frustration with low wages and 40%+ unemployment, Spain has everything in place to become the first European nation to experience a full scale revolution."

Justin's observations are lent some clear support in this brief video clip from Global Research TV about the ongoing protests in Spain. These protests reflect a Spanish populace rapidly coming to the conclusion that expressing its solidarity on the streets is much more meaningful and effective than voting in a few political elections that are designed to manipulate the peoples' perceptions and present them with the illusion of choice. Really, what conclusion is left to draw when you face staggering unemployment, little to no economic growth, brutal austerity measures and your country is still broke?

Spanish Protesters Joining "World Revolution"

On November 20, the Spanish people will be given the choice to vote for either retaining the "Socialist Party" or bringing in the "People's Party". The former has already started implementing painful austerity measures on the people in an attempt to cut its deficit by 50% over two years. These measures have included an increase in the VAT by 2% (from 16% to 18%) and an elimination of jobless benefits for unemployed people who have depleted their contribution-based benefits. A privatization plan was also put into place by Zapatero's government in 2010. Emma-Ross Thomas in Businesweek:

Spanish Industry Sinks as Austerity Dents Recovery
"Prime Minister Jose Luis Rodriguez Zapatero’s Cabinet is due to approve partial privatizations of the national lottery and airport operator Aena in asset sales that may raise 14 billion euros ($18.5 billion) and allow Spain to issue less debt next year. It also plans to pass tax cuts for small companies while scrapping the jobless subsidy that was introduced in 2009 for people who have run through their contributions-based benefits."

It has been somewhat difficult, though, for the national government to direct systematic austerity, given the relative autonomy of Spain's regional governments and their share of the spending. That is where the new government will come in and pile loads of fresh, searing pain on top of what the Old Boss had managed to accomplish. The "People's Party" claims that it will do a better job of implementing austerity and will cajole investors back into Spain's bond markets. These claims came after the Spanish 10-year was once again getting hammered above a 6% yield, despite the "comprehensive" plan developed by EU leaders at their summit in the weeks before. Angeline Benoit for Bloomberg:

Spain Election May Mean More Austerity:
"The current government shied away from sorting out decision sharing between regions and the central government, Nadal said. “This has led to massive overspending," as each level conducts its own policies, he said. “There is a lot left to do for the new government." He cited reform of the labor market and energy sector as well as an overhaul of the regional administrations.

Spain’s regions are crucial to its efforts to rein in the deficit. They have accumulated debt of 121 billion euros ($174 billion) and control more than a third of the nation’s spending, including health, education and half of public employment."

A castration of Spain's regional governments would certainly be keeping in line with the overall trend within the "EU dream", but it would do very little to put Spain's fiscal house in order. In fact, the spending programs of these regions, which are significantly more tailored to their specific populations, are perhaps the only thing keeping the country's housing-based economy afloat, which keeps some tax revenues flowing to the national government. Once these regional administrations are "overhauled" with austerity, the Spanish people can wave goodbye to what remains of their housing and employment markets. Holders of Spanish public debt will once again be clawing at the ECB and ESFS for a bailout while the Spanish people continue to starve.

"Spain’s opposition People’s Party pledged to restore investor trust in the euro area’s fourth- biggest economy by imposing more spending cuts if it wins early elections in November. With Europe’s debt crisis lapping at Spanish shores, the People’s Party led by Mariano Rajoy, 56, is set to campaign on the extra steps it says are needed to kick-start growth and slash unemployment of more than 20 percent. The PP is holding out the prospect of more austerity after the Nov. 20 election as it bids to repeat the trouncing it gave Prime Minister Jose Luis Rodriguez Zapatero’s Socialist Party at local polls in May.

...Spanish 10-year bonds rose today for the first time in four days, sending yields down 10 basis points to 5.98 percent. The additional yield investors demand to hold the securities instead of similar-maturity German bunds fell 15 basis points to 339 basis points. Bonds fell on July 29 for a third day after Moody’s Investors Service said it may downgrade Spain’s credit rating. Zapatero announced the election hours later in a bid “to project political and economic certainty for the next few months." The International Monetary Fund said the same day that Spain remains in “the danger zone.

Spain’s biggest companies were instrumental in Zapatero’s decision to call early elections, El Mundo reported yesterday, citing people at the country’s main business group it didn’t identify. Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, said in a July 29 statement that Zapatero had taken the “right decision" in calling early elections. The Nov. 20 date for the elections coincides with the anniversary of the death of the Spanish dictator Francisco Franco in 1975."

So the ghost of the fascist and ruthless dictator, Franco, will return to haunt the people of Spain in November, when the "Biggest Companies' Party" wins the early elections and proceeds to develop and implement extensive spending cuts, tax increases, regional "reforms" and plans for privatizing public assets. It is inevitable that such a development will further stoke the fires of rage and revolution within the Spanish population. History has clearly proven that it rhymes, but will it repeat itself? Will the uprisings be squashed by a fascist, militaristic government or combination of governments in Europe? Or, instead, will the modern-day People of the Sun ultimately prevail in unlocking their financial chains?

Spanish Riot Police Clash in Madrid With Anti-Austerity Protesters:
"Protesters angry about the government's austerity programme during Spain's economic crisis have been demonstrating for four days in Madrid. Police have been preventing them from re-erecting a protest camp in the central Puerta del Sol square where they had held protests since May. Some of the demonstrators are known as indignados (the outraged). They have protested over Spain's current high unemployment, and demanded more democracy, a new electoral law and an end to political corruption in the country."

Only time can answer the questions posed above, but there is one thing that is nearly certain at this point in time - revolutions are on the way. From Greece and Ireland to Portugal, Spain and beyond, there is very little reason for the people of the developed world to stand down or protest in peace any longer. Their national elections are theatrical shams, and their national governments are clearly beholden to supranational political and financial institutions when the curtains come down on that show. Any meaningful change is then forced to arrive from the bottom-up, starting off slow and then accelerating exponentially, spreading like a wildfire. This time, the revolutionary "contagion" will not be contained for long.

Central bank flight to Federal Reserve safety tops Lehman crisis
by Ambrose Evans-Pritchard - Telegraph

A key warning signal of global financial stress has shot above the extreme levels seen at the height of the Lehman crisis in 2008.

Central banks and official bodies have parked record sums of dollars at the US Federal Reserve for safe-keeping, indicating a clear loss of trust in commercial banks. Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.

"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."

These dollar accounts are just over $100bn (£62bn) and are small beer compared to the vast sums invested in bonds as foreign reserve holdings. Yet they serve as stress indicator, reflecting the operating decisions of the world's top insiders.

Lars Tranberg from Danske Bank said European banks are reduced to borrowing dollar funds for "a week at a time" rather than the usual six to 12 months. "This closely resembles what happened in late 2008, though the difference this time is that the major central banks have dollar swap lines in place. If the dollar funding markets completely freeze up, the European Central Bank can act as a backstop."

Mr Tranberg said dollar deposits of US banks have increased by $400bn since mid-June, mostly offset by dollar reductions in Europe. "It is clear that the problem lies with the European banks. The credit default swaps on these banks are very high and provide a risk gauge."

The Bank for International Settlements says European and British banks have a dollar "funding gap" of up to $1.8 trillion stemming from global expansion during the boom that relies on dollar financing and has to be rolled over. This is not normally a problem but funding can seize up in a crisis.

European officials hotly disputed claims in a leaked document from International Monetary Fund claiming that a realistic "mark-to-market" of Italian, Spanish, Greek, Irish, Portuguese and Belgian sovereign debt would reduce the tangible equity of Europe's banks by €200bn (£176bn). "French banks passed stress tests which were extremely tough less than a month ago: there is no cause for worry," said Valerie Pecresse, France's budget minister. "It is ill advised to provoke alarm," said Michael Kummer, head of Germany's BdB bank federation.

The IMF was attacked as a Cassandra when it warned early in the credit crisis that debt write-downs would reach $600bn, yet losses have since reached $2.1 trillion. European banks are still struggling to access America's $7 trillion money market funds. Fitch Ratings said last week that Spanish and Italian banks have been cut off altogether.

Investors do not fully believe EU pledges that the 21pc "haircut" agreed for private holders of Greek debt is the end of the story, or will remain confined to Greece, as the second Greek rescue is already unravelling. A Greek parliament report concluded that deep recession is pushing the country into a downward spiral, causing debt dynamics to fly "out of control". Public debt will reach 172pc of GDP next year.

Simon Derrick from BNY Mellon said Germany, Holland, and Finland may balk at a third rescue in the current tetchy mood, implying bigger haircuts instead. That will set a precedent for Portugal, and others. Until markets can see an end to the blood-letting, Europe's banks will remain untouchables.

There Is No Housing Bottom in Sight
by Keith Jurow - Minyanville

At the end of June 2011, released the results of a poll in which 108 leading economists and housing market analysts were asked to predict the direction of home prices from now until 2015.

All except four of them predicted that housing markets around the country would hit bottom no later than the end of 2012 before climbing again. Only one of them thought that home prices would not bottom until the end of 2013.

By way of contrast, a survey of consumers released in May by and found that 54% thought that a housing market recovery would not occur until “2014 or later.”

My premise is simple: There is no housing bottom in sight. To test this assertion, let’s take a brief look at three major metro markets and see what I’ve found.


Speculative madness took over the Greater Phoenix market in 2004-2005. When the speculators tried to unload their properties en masse in 2006, the market collapsed and has never recovered. Take a good look at this revealing chart courtesy of

Click to enlarge

The chart is an index of sale prices only for single-family homes in Maricopa County (where Phoenix is situated) that had between 1,500 and 3,000 square feet of livable space. That is the heart of the Phoenix market. It reveals that there was no upturn in prices during the period of the first-time buyer tax credit until its expiration in the spring of 2010. This chart actually surprised me.

Since that expiration, the median price for all homes sold in Greater Phoenix in April of this year was down a whopping 13% from a year earlier. In spite of this, several Phoenix housing analysts whom I respect have declared that the Phoenix market hit bottom in the beginning of 2011.

These analysts also point out that sales to out-of-state investors paying cash are soaring. Many are bidding up prices at the trustee auctions. In June, prices paid at the auctions was nearly 60% higher than the overall median price for all Phoenix sales according to Are these all-cash investors overpaying? Why would a smart investor bid against other investors at these auctions when they can quietly buy a bank REO on the market?

What these analysts overlook is the “shadow inventory” which could be the key to understanding the direction of home prices. In early July, my data contact at CoreLogic provided me with the latest figures from their massive first lien database. It showed that roughly 60,000 first liens in Greater Phoenix were either in default with a notice of foreclosure sale date or seriously delinquent by more than 90 days but without a sale date yet. None of these properties has been foreclosed and repossessed by the banks.

My CoreLogic source has explained that their first lien database does not include the entire first mortgage universe in most metros. Thus the total number of seriously distressed properties not yet repossessed is higher than CoreLogic’s figure.

I have posted a cure rate chart in a few of my articles which shows that roughly 96-98% of these seriously delinquent properties will hit the market in the not-too-distant future either as foreclosures or short sales. Does anyone really think that the Phoenix market can accommodate that huge a number of distressed properties without a further decline in prices? I don’t.

Let’s not forget the matter of second liens. Last September, I wrote about the major problem of home equity lines of credit (HELOC) taken out during the bubble years of 2004-2006. Nationwide, roughly 13 million of them are still outstanding. (See also: Home Equity Lines of Credit: The Next Looming Disaster?)

The Wall Street Journal finally recognized the magnitude of this problem when it posted a front-page story on June 7 of this year about CoreLogic’s latest report on negative equity. It briefly noted that the percentage of homeowners with second liens who were “underwater” on their property was twice as high as those with only first liens.

In Maricopa County, there were more refinancings originated in 2004-2006 than the total number of first liens outstanding today in the county. I was puzzled until I figured out that most of these refinanced loans were second liens, not first mortgages. Homeowners could not resist the temptation to pull cash out of their “piggy-bank” home when prices were soaring. The banks were only too happy to accommodate them.

It is no exaggeration to say that more than 95% of properties in Phoenix with HELOCs are badly underwater. Because most negative equity reports do not include second liens, the percentage of Phoenix homeowners whose property is underwater is much higher than these reports indicate.

I have also written recently about strategic defaults (see Strategic Defaults Revisited: It Could Get Very Ugly). Two studies that I reviewed clearly showed that strategical defaults (“walkaways”) rise as home prices decline and homeowners go further underwater. That is what will undoubtedly happen in Greater Phoenix as prices erode further. It is a vicious circle. Talk of a housing bottom in Phoenix is very premature.

Las Vegas

Like Phoenix, Las Vegas was a hotbed of speculative excesses in 2003-2004. Take a look at this little-known chart from CoreLogic.

The chart shows what percentage of all sales were by flippers who had purchased the property within the previous two years. Look at the percentage for flips in Clark County (where Las Vegas is situated). When speculators unloaded their properties in large numbers, the bubble burst and the market collapsed. It has not recovered.

As with Phoenix, the housing market in Greater Las Vegas has been kept from collapsing by the influx of cash investors who have focused on the thousands of low-priced foreclosure properties. Can these cash investors help to support prices? It’s extremely unlikely. In May, the Greater Las Vegas Association of Realtors reported that the median price per square foot was actually down to the lowest level since 1995.

What about the shadow inventory in Las Vegas? At the end of April, CoreLogic counted more than 50,000 properties in Clark County which were either in default with a notice of default (NOD) recorded or delinquent by more than 90 days without an NOD yet. As with Phoenix, that is not the complete total of seriously delinquent properties in Clark County. Practically all of them will be thrown onto the market over the next few years.

Let’s not forget the huge number of REOs owned or serviced by the banks. They will also be coming onto the market at some time in the not-to-distant future.

Like Phoenix, there are also a massive number of second liens in Greater Las Vegas which were originated in 2004-2006. Many of them were refinanced so the owner could tap the “piggy-bank” home for cash. Similar to Phoenix, 95-98% of these homes with second liens are badly underwater now.

With this massive shadow inventory and REOs overhanging the Las Vegas Market, any talk of a bottom for the housing market is little more than wishful thinking.


As the flippers chart makes clear, speculative madness dominated Miami-Dade County as well. When the speculators tried to unload their properties en masse, sales and prices collapsed as they had done in Phoenix and Las Vegas.

Like Phoenix and Las Vegas, the median price per square foot for resale houses in Greater Miami has plunged by more than 50% from the peak in 2006. In April 2011, it was down by 8.5% over a year earlier. How much lower can it possibly go?

As with the other two metros, the shadow inventory in Miami may provide the answer to where prices are headed. Once again, I turned to CoreLogic and its massive first lien database. My data contact informed me that the number of first liens either in default or seriously delinquent by more than 90 days is larger than that of Greater Phoenix even though Miami-Dade County has only half the number of first liens. Greater Miami’s shadow inventory as a percentage of all first mortgages is the highest in the nation.

When you add in the huge number of second liens taken out by homeowners during the bubble years, the percentage of underwater homeowners whose property has not yet been foreclosed is almost beyond comprehension.

Adding to the problem, servicing banks are keeping nearly all REOs off the market. Can these servicing banks continue to hold these repossessed homes off the market indefinitely? I doubt it.

When the seriously delinquent properties begin to be repossessed in larger numbers and the banks start to work off their REO inventory, prices will be devastated.


As I’ve delved deeper into the “shadow inventory” for the markets I cover in my Housing Market Report, it has become increasingly clear that this huge and growing number of seriously delinquent homeowners may be the key to understanding where nearly every major housing market will be heading. It is not a pretty picture to contemplate. But ignoring it is no way to prepare for what is coming.

Goldman Takes a Dark View
by Susan Pulliam and Liz Rappaport - Wall Street Journal

A top Goldman Sachs Group Inc. strategist has provided the firm's hedge-fund clients with a particularly gloomy economic outlook and suggestions for how these traders can take advantage of the financial crisis in Europe. In a 54-page report sent to hundreds of Goldman's institutional clients dated Aug. 16, Alan Brazil—a Goldman strategist who sits on the firm's trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable.

Among Mr. Brazil's ideas for trading on that downbeat analysis: a fancy option play that offers a way to take a bearish position on the euro, and a bearish bet through an index of insurance contracts on the credit of European financial stocks. The report also includes detailed information about European financial institutions and pointed language about the depth of the problems in Europe, the U.S. and China. A Goldman Sachs spokesman said: "As a matter of course, financial institutions publish reports suggesting strategies to fit clients' needs. Whether clients want to hedge existing exposures or take long or short market positions, our goal is to help them meet the challenges the markets present." Through the spokesman, Mr. Brazil, who is 57 years old, declined to comment.

The report comes as Goldman and its major rivals vie for banking and advisory business from the same European nations whose fortunes it is counseling clients to bet against. On Wednesday, Goldman and two other major banks hosted a presentation in London in which the Spanish economics secretary, Jose Manuel Campa, planned to outline Spain's fiscal austerity measures and pitch Spain's case to investors, according to an invitation seen by The Wall Street Journal. Goldman has a leading position among banks in facilitating sales of Spanish sovereign debt.

Wall Street firms have sought to sell hedge funds ideas for trades that would pay off under dire circumstances in the past. Before the financial crisis of 2008, Goldman and other top Wall Street firms pitched their hedge-fund clients on bearish bets on the housing market involving credit default swaps—insurance-like contracts that rise in price if the value of the underlying asset falls—that the banks developed. Goldman sometimes took the bearish end of such trades even as it was selling the bullish end to clients.

The trading ideas in Mr. Brazil's report, however, are different from the mortgage-related products sold by Goldman, because these suggestions involve existing financial products, such as options and indexes. As a "market maker" in the products listed in Mr. Brazil's report, Goldman is offering to put together the trades it describes. When Goldman handles such trades, it pockets bigger fees than when it executes stock trades, which yield just pennies a share. Goldman's own trading positions potentially could benefit if hedge funds and other clients make trades based on the report. Goldman says in bold letters at the top of the report that other Goldman traders, or "Goldman Sachs personnel," may already have acted on the material in the report.

Of course, Mr. Brazil isn't alone in his dark view on Europe: Bearishness on Europe abounds these days on Wall Street. Neither does Mr. Brazil have a lock on the financial instruments in the report. For instance, the Global Economics, Commodities and Strategy Research unit at Goldman put out a foreign-exchange report in July that mentions the prospects of bearish bets against the euro versus both the U.S. dollar and the Swiss franc. Other investment banks have strategists who provide hedge funds with trading ideas, as well.

The report, released by the Hedge Fund Strategies group in Goldman's securities division, provides a glimpse into the trading ideas that are generated for hedge funds through strategists, such as Mr. Brazil, who are part of Goldman's trading operation rather than its research group. Such strategists sit alongside the traders who are executing trades for their clients. Unlike analysts in firms' research divisions—who are supposed to be walled off from information about the activity of the firm's clients—these desk strategists have a front-row seat for viewing the ebb and flow of clients' investment plays.

They can see if there is a groundswell of interest among hedge funds in taking bearish bets in a certain sector, and they watch trading volumes dry up or explode. Their point of view is informed by more, and often confidential, information about clients than analysts' opinions, making their research and ideas highly prized by traders.

The report itself makes note that the information included isn't considered research by Goldman. "This material is not independent advice and is not a product of Global Investment Research," the report notes. Hedge-fund managers are discouraged from circulating Mr. Brazil's reports, and each page bears the name of the hedge-fund client on it. It isn't clear whether any clients made trades based on the advice the report offered.

Mr. Brazil's report carries language and details about the markets' problems that normally don't appear in research for public consumption. Hedge funds should batten down the hatches, he suggests.
"Here we go again," he says in the report, amid a number of charts displaying negative statistics similar to those that portended problems before the 2008 financial panic. Mr. Brazil writes: "Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world's base currency?" he asks.

Mr. Brazil spells out in detail the borrowing by 77 European financial institutions, identifying some that are especially highly leveraged. Such details are valuable for investors who are looking to make bearish bets through credit default swaps on individual European banks, hedge-fund managers say.

For investors who want to make a broader bet against European financial institutions, Mr. Brazil suggests buying a five-year credit default swap on an index, which reflects the credit of a number of European companies. About 20% of the members of the index, the "iTraxx Europe series 9," are banks and insurance companies, Mr. Brazil writes. He also suggests a six-month "put option" giving investors the right to bet against the euro versus the Swiss franc. The euro, "may weaken if additional financial support packages or stimulus measures are passed by European governments," he writes.

Here's The Bomb That Might Blow A Hole In Bank Of America...
by Henry Blodget - Business Insider

After watching its stock tank 50% this year while denying that it needed capital, Bank of America's management has begun to acknowledge reality.

The bank raised $5 billion by selling preferred stock and options to Warren Buffettdiluting common shareholders in the process. And now, as previously promised, it has sold half its stake in China Construction Bank for $8 billion.

These moves are good news for the bank's employees and shareholders, as well as for the U.S. taxpayer, which will be on the hook if Bank of America's management flies the company into a mountain.

But many analysts believe that Bank of America will need to raise a lot more capital before it gets back on sound footing.

These analysts believe that Bank of America is still overstating the value of some of the assets on its balance sheet. When the company is finally forced to recognize the real values of these assets, this theory goes, the bank will once again have to fill a major capital hole.

Last week, we described the general concerns of one analyst, who is focused on a specific portion of Bank of America's humongous balance sheet: The company's portfolio of residential mortgages and home equity loans.

Below, we put some numbers on this possible exposure.  Based on the analysis below, in this one asset category alone, Bank of America could be under-reserved by tens of billions of dollars. And that doesn't include its ongoing litigation exposure.


As we described last week, the analyst we spoke to is concerned that the performance of Bank of America's whole loans (mortgages and home equity loans) will ultimately mirror the performance of a national pool of "securitized" mortgage loans that were made during the housing bubble.

(The analyst is not a "short-seller." But he wants to preserve his anonymity so Bank of America and others won't be mad at him.)

Bank analysts have much more detail on the performance of the industry-wide securitized loan pool than they do on the individual banks' whole loans. And the analyst thinks it is fair to use the performance of the securitized loan portfolio as a proxy for the banks' whole loan portfolios.

The embedded losses in the national securitized loan portfolio are much higher than the losses Bank of America and other big U.S. banks have reported thus far on their whole loan portfolios. And the analyst believes that the banks are using the leeway given them by U.S. accounting rules to make the whole loan portfolios look better than they actually are. (Presenting a rosy view of loans allows the banks to avoid taking write-offs and, thus, avoid having to raise additional capital and further diluting their shareholders.)

Specifically, a recent analysis of the industry-wide portfolio of securitized loans by Amherst Securities breaks them down as follows:

TOTAL SECURITIZED LOANS: 4.6 million loans worth $1.2 trillion

This is made up of:

  • ALWAYS PERFORMING LOANS: 2.2 million loans worth $606 billion, 51% of total principal
  • NON-PERFORMING LOANS (in default): 1.4 million loans worth $370 billion, 31% of total principal
  • "RE-PERFORMING" LOANS (loans that were in default that are now performing, at least temporarily): ~900,000 loans worth $204 billion, 17% of total principal

So, in other words, of all the securitized loans outstanding, 49% (~$600 billion) are troubled, of which 31% (~$370 billion) are in default.

And there are two other points to keep in mind about the securitized loan pool:

  • The "recovery rate" on Non-Performing non-prime loans is only 36% (this is the portion of the original money owed that the lender gets back after foreclosure)
  • A net 2% of the "Re-Performing loans" become "non-performing" again each month (based on the May-June rate).

Assuming the industry-wide whole loan pool looks similar to the securitized poolwhich the analyst I've talked to thinks is a fair assumption, given that they were both originated late in the housing bubble when home prices were highwe should eventually expect to see similar performance on the banks' whole loan portfolios.

Bali House

Does Bank of America's mortgage loan portfolio look like this?...

Image: Elite Houses


How much exposure does Bank of America have to residential real-estate loans? How is Bank of America saying these loans are performing? How much has the bank reserved for possible loan losses? Is it possible there are tens of billions of dollars of "embedded" losses hidden on the balance sheet?

These are the questions Bank of America analysts have to ask, even though Bank of America is not providing enough information to determine definitive answers.

As of June 30, per Bank of America's financial statements, here's what Bank of America's residential whole loan portfolio looked like:

  • Total residential loans: $413 billion (Composed primarily of $265 billion of first and second mortgages and $132 billion of home-equity loansthe latter of which are generally junior to the first mortgages and, thanks to plummeting house prices, may no longer have any actual "home equity" backing them up).
  • Total non-performing loans (per Bank of America): $19 billion, or 5% of the portfolio
  • Total provisions for loan losses: $21 billion, or 5% of the portfolio

In other words, Bank of America has classified 5% of its loan portfolio as "non-performing" and reserved $21 billion to cover the expected losses from these and other loans that go bad.

housecollapse tbi

Or this?

So how does that compare to the performance of the securitized loan portfolio described above?

It looks downright fantastic!

In the securitized portfolio, 31% of the loans are "non-performing," versus only 5% of Bank of America's. And another 17% of the securitized loans are "re-performing," many of which will slip back into non-performing.

What scares the analyst I spoke to is his belief that much of Bank of America's loan portfolio may actually be just as bad if not worse than the securitized portfolio, despite what Bank of America is telling everyone.

In other words, the analyst thinks that 35% or more of Bank of America's loans might end up going into default, versus the 5% the bank says are in default today.

So how much would Bank of America have to take in losses if the analyst is right? (Or, put differently, how much would Bank of America have to increase its loan-loss provisions by to account for the likely performance of these loans?)

This analysis is very complex, even with the data available, and it involves several different types and classes of loans (first mortgages, second mortgages, home-equity loans, accruals, non-accruals, etc.). To keep things relatively simple, I'm going to take a very broad-brush approach. Doing this involves some technical inaccuracies, but it gets us to basically the same place.

Assuming Bank of America's loans mirror those in the securitized portfolio, here's a look at what the numbers might look like:

  • Total residential loans: $413 billion
  • Total non-performing: 31%, or $128 billion (vs. ~$19 billion currently)
  • Total re-performing: 17%, or $70 billion

In other words, if the securitized pool proves a reasonable proxy for Bank of America's loans, about 35% Bank of America's $413 billion of residential real-estate loans, or ~$145 billion, might eventually be in troublethe non-performing percentage, plus a portion of the "re-performing." 

(Of course, this "proxy" concept is a rough analysis. But without having detailed performance data on Bank of America's loans like we have on the securitized loans, it's impossible to get a clear picture of the situation.)

The next question is what sort of "recovery" Bank of America might get from these loansand, therefore, what its loan-loss provisions should be.

As you'll recall, the "recovery rate" for non-performing loans in the securitized poolthe loans that go to foreclosureis a dismal 36%.  Loans that are permanently modified with a principal reduction, meanwhile (according to my analyst's estimate) might be expected to have a new carrying value of about 70% of the original loan amount.

If Bank of America's resolution of its potentially troubled loans were accomplished via foreclosure or principal writedowns, and its recovery rates mirrored those in the securitized loan pool, Bank of America might end up losing about 50% of the value of these loans.

So, what is Bank of America's exposure under this scenario?

A lot more than is currently reserved.

Possibly many tens of billions of dollars more.

(For example, if we assume that about $145 billion of Bank of America's loans might eventually be in trouble per the assumptions above and that the bank averages a 50% recovery rate, an appropriate loan-loss provision might eventually be, say, ~$70 billion. That's about $50 billion more than Bank of America's current loan loss reserve.)


It's possible that the analyst I've spoken with is wrong and that Bank of America's whole loans are vastly superior to the loans in the securitized pooland, therefore, that its loan loss provisions are conservative.

It's also possible that the housing market and economy will soon start to recover in earnest and that lots of non-performing and "re-performing" loans will quickly become fully performing again.

But it's also possible that the housing market and economy will continue to deteriorate, in which case the performance of the securitized loan pooland Bank of America's loansmight get even worse.

And it's possible that the analyst's logic is sound and that Bank of America will ultimately have to face the reality that the losses embedded in its whole loan portfolio are VASTLY higher than it has currently admitted and that it needs a lot more capital to offset them.

And this is only Bank of America's residential loans were talking aboutwe haven't even gotten to the commercial real-estate loans, consumer credit loans, European exposure, derivatives, and other exposures on the company's $2.2 trillion balance sheet. Or the potentially enormous liabilities associated with the mortgage-underwriting behavior of Bank of America's subsidiary, Countrywide, for which the company seems to be hit with a new lawsuit every other day.

So it's no wonder that some analysts are persuaded that Bank of America needs to raise more capital.

Nevada, U.S. regulator challenge BofA on mortgages
by Jonathan Stempel - Reuters

Bank of America Corp's mortgage practices came under fresh fire as state and federal regulators questioned whether the largest U.S. bank is doing what it must to address perceived harm to homeowners and investors.

Nevada's attorney general on Tuesday accused the bank of repeatedly violating its $8.4 billion agreement with that state and others to address fraudulent lending charges involving its Countrywide unit, which it bought in 2008. Catherine Cortez Masto, the state attorney general, asked a federal judge in Reno, Nevada, to let her back out of that accord and sue Bank of America on behalf of homeowners in Nevada, which has one of the nation's highest foreclosure rates and percentages of borrowers who owe more than their homes are worth.

Separately on Tuesday, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, as well as dozens of investors lodged objections to Bank of America's proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities, an agreement negotiated by the trustee Bank of New York Mellon Corp. Among the other objectors was Goldman Sachs Group Inc, which said it lacks enough information to know whether the accord treats all "similarly situated" investors equally.

And in a third proceeding, a group of homeowners sued to block that $8.5 billion accord, saying it would speed up foreclosures and prolong mortgage abuses. That group asked for a court order requiring the bank to follow servicing policies that are "higher than current industry standards." In her proposed complaint, the Nevada attorney general said Bank of America still engages in "a pattern and practice" of misleading consumers about such matters as why it denies mortgage modifications, or begins foreclosures while modification requests are pending.

Bank of America was to help 400,000 borrowers modify their home loans under the 2008 accord. But Masto called the process "chaotic," even accusing the Charlotte, North Carolina-based bank of reprimanding workers for spending "too much time" on the phone -- an average of seven to 10 minutes -- with individual customers. "Defendants' deceptive practices have resulted in an explosion of delinquencies and unauthorized and unnecessary foreclosures" in Nevada, Masto said in court papers. "The state no longer can get the benefit of its original settlement."

It is unclear how the allegations might affect long-running negotiations on a potential multibillion-dollar settlement with regulators nationwide to improve foreclosure practices at several big banks, including Bank of America. "We disagree that there has been any material breach of the consent decree and will continue to vigorously defend this action." Bank of America spokeswoman Jumana Bauwens said in response to the Nevada filings.

Investor, Homeowner Claims
The settlement with mortgage-backed securities covers 530 mortgage pools from the former Countrywide Financial Corp, the largest U.S. mortgage lender before Bank of America bought it. Bank of New York Mellon had negotiated the accord, covering $174 billion of unpaid principal balances, with 22 big investors including the Federal Reserve Bank of New York, BlackRock Inc and Allianz SE's Pimco.

But some other investors say the payout is too low, or they lack enough information to know whether the accord is fair. In a court filing, the FHFA called it a "positive" that the settlement calls for improving loan servicing and fixing deficient documentation, and said the support of many large market participants is "encouraging." Still, the FHFA said it lacks enough information about the accord, and wants to be ready to voice a "substantive" objection "should a now unforeseen issue arise."

Fannie Mae and Freddie Mac in 2010 guaranteed 70 percent of single-family mortgage-backed securities that were issued, and provided $1.03 trillion of market liquidity, an FHFA report to Congress in June shows. "The FHFA sounds like it wants to preserve its right to contest refinements that could expose Fannie and Freddie to greater losses," said Kathleen Engel, associate dean at Suffolk University Law School in Boston and co-author of "The Subprime Virus."

Meanwhile, the homeowners, who say they have received default notices, seek class-action status for Countrywide borrowers from 2004 to 2008 whose loans are in the trusts and are serviced by Bank of America." "The settlement agreement will speed up foreclosures, perpetuate existing servicing abuses in the system, and undermine federal programs designed to stabilize the housing market," the complaint said.

"It is not clear the borrowers have standing," Engel said. "They certainly may be aggrieved by servicing problems, but they have to show the settlement itself causes them harm, either new injury or the loss of legal rights." A lawyer for the homeowners did not immediately respond to a request for comment.

Dozens of Objections
Bank of America paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.
Several dozen objections to the $8.5 billion settlement were filed ahead of a Tuesday deadline to intervene in the case, which is overseen by New York State Supreme Court Justice Barbara Kapnick in Manhattan. Some of the challenges were filed simultaneously in federal court, where some of the objectors hope to move the case.

American International Group Inc, the insurer suing Bank of America for $10 billion in a separate MBS case, is among the objectors. Others include the Federal Deposit Insurance Corp, attorneys general of New York and Delaware, and various banks, insurers, investment funds and pension funds. US Bancorp, trustee for a $1.75 billion Countrywide mortgage pool, this week separately sued Bank of America to force it to buy back the underlying loans.

Obama Refinancing Bailout to Hammer Taxpayers, Banks: Bove
by Jeff Cox -

“Little gremlins” have proposed a massive government-sponsored mortgage refinancing program for struggling homeowners that is doomed to fail, analyst Dick Bove said. In a scathing note and subsequent CNBC appearance, the Rochdale Securities vice president of equity research said the Obama Administration’s plans will foist new costs on both taxpayers and the banking industry.

Under the plan, homeowners suffering under previously negotiated high rates will be able to refinance under the current rock-bottom rates near 4 percent. The plan comes as about 1 in 4 homeowners owe more than their homes are worth. Advocates believe the plan could help ease the underwater mortgage problem and help generate consumer spending by lowering mortgage payments.

But Bove said the $85 billion in estimated savings for homeowners would translate to costs for taxpayers who subsidize government-sponsored agencies such as Fannie Mae, and to banks which will lose that much revenue with the refinancing. The estimate comes from a New York Times report on the program that cited sources familiar with the plan.

“The point that neither the administration, the Treasury nor the Fed can seem to understand is that they have strangled bank lending with their capital and liquidity rules and their price fixing requirements,” he wrote. “This was a core reason why bank lending did not open up to facilitate a refinancing boom.” Indeed, historically low rates have done little to stimulate the housing market, where sales and price trends are mired at Depression-era levels.

One of the reasons most often cited is an unwillingness to lend on the part of banks that face higher capital constraints and have raised their credit requirements. The changes came in the wake of the subprime mortgage fiasco when millions of homeowners with poor credit and little or no cash received mortgages for homes they could not afford.
Bove has been a frequent critic of the new rules, saying they are cutting off capital to an economy teetering on recession.

“It is a classic example of how badly the people who are supposed to understand banking do not have a clue as to how it works,” he said. “They love to pass laws and new regulations but they do not care nor do they understand what these regulations will do. Then they get frustrated when the simplistic monetary theories they put in place do not work.”

But the plan is generating some support. “This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,” Christopher J. Mayer, an economist at the Columbia Business School, told the Times. “So I think this is low-hanging fruit.”

Bove, though, said a simple relaxing of capital requirements for banks and allowing rates to drift higher would accomplish the same thing at no cost. “The biggest failure is that these people are still working on consumption rather than production programs,” he said. “Until they figure out that more production is what is required we will continue to take money out of one pocket and put it into another and assume that we have accomplished something.”

U.S. Is Set to Sue a Dozen Big Banks Over Mortgages
by Nelson D. Schwartz - New York Times

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims. The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers. In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought. Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

But privately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.

Investors fear that if banks are forced to pay out billions of dollars for mortgages that later defaulted, it could sap earnings for years and contribute to further losses across the financial services industry, which has only recently regained its footing. Bank officials also counter that further legal attacks on them will only delay the recovery in the housing market, which remains moribund, hurting the broader economy. Other experts warned that a series of adverse settlements costing the banks billions raises other risks, even if suits have legal merit.

The housing finance agency was created in 2008 and assigned to oversee the hemorrhaging government-backed mortgage companies, a process known as conservatorship. “While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again,” said Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues.

The suits are being filed now because regulators are concerned that it will be much harder to make claims after a three-year statute of limitations expires on Wednesday, the third anniversary of the federal takeover of Fannie Mae and Freddie Mac.

While the banks put together tens of billions of dollars in mortgage securities backed by risky loans, the Federal Housing Finance Agency is not seeking the total amount in compensation because some of the mortgages are still good and the investments still carry some value. In the UBS suit, the agency said it owned $4.5 billion worth of mortgages, with losses totaling $900 million. Negotiations between the agency and UBS have yielded little progress.

The two mortgage giants acquired the securities in the years before the housing market collapsed as they expanded rapidly and looked for new investments that were seemingly safe. At issue in this case are so-called private-label securities that were backed by subprime and other risky loans but were rated as safe AAA investments by the ratings agencies.

In the years before 2007, “the market was so frothy then it was hard to find good quality loans to securitize and hold in your portfolio,” said David Felt, a lawyer who served as deputy general counsel of the finance agency until January 2010. “Fannie and Freddie thought they were taking AAA tranches, and like so many investors, they were surprised when they didn’t turn out to be such quality investments."

Fannie and Freddie had other reasons to buy the securities, Mr. Rood added. For starters, they carried higher yields at a time when the two mortgage giants could buy them using money borrowed at rock-bottom rates, thanks to the implicit federal guarantee they enjoyed.

In addition, by law Fannie and Freddie were required to back loans to low-to-moderate income and minority borrowers, and the private-label securities were counted toward those goals. “Competitive pressures and onerous housing goals compelled them to operate more like hedge funds than government-sponsored guarantors, ” Mr. Rood said.

In fact, Freddie was warned by regulators in 2006 that its purchases of subprime securities had outpaced its risk management abilities, but the company continued to load up on debt that ultimately soured.

As of June 30, Freddie Mac holds more than $80 billion in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans. Freddie estimates its total gross losses stand at roughly $19 billion. Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans, with losses standing at nearly $14 billion.

European Banks Are Hard-Selling Greek Bailout Plan
by Landon Thomas Jr. - New York Times

No bank likes to take a loss, especially those in Europe that already suffer from a toxic mix of thin capital, troubled financing and weak loan books. But in the case of the proposed second bailout for Greece — the one that is supposed to make private investors feel the financial pain along with taxpayers — the biggest banks in Europe are on the road now promoting the plan.

It’s not that the banks are suddenly masochists. It’s that this first major bond restructuring in Europe’s long-festering debt crisis is shaping up as a much better deal for the banks than for the Greeks it is supposed to be helping. Holders of the Greek bonds would get much better value than they could in the open market, while Greece would still owe a lot of money. What’s more, Greece would be surrendering a lot of its negotiating clout if, in the future, it needed to go back to the bailout bargaining table.

This week, bankers representing the Greek government — Deutsche Bank, BNP Paribas and HSBC — have been explaining to investors why it is in their interest to trade in their decimated Greek bonds, take a 21 percent loss and accept a new package of longer-dated securities with AAA backing. Those bondholders include big European banks, smaller fund managers and insurance companies.

The bond exchange is a crucial component of the more than 200 billion euro ($286 billion) in rescue packages that Europe and the International Monetary Fund have put together to support the near-bankrupt Greek economy through 2014. The German chancellor, Angela Merkel, and others insisted that banks make such a contribution to give them some political cover at home.

The part of the rescue announced in July is subject to the approval of Germany and the governments of the 16 other member nations of the euro union in coming weeks. If investors balk at the 21 percent write-down that is the price for getting a deal done, the whole package could collapse. European governments would be hard-pressed to come up with those extra funds themselves.

But with the price of Greek debt trading in some cases at 50 cents on the dollar — even lower than when the bailout deal was announced in July — the 21 percent haircut seems to be quite a bargain. As a bonus, the new bonds would be governed by international law, rather than Greek law. That is a significant alteration of lending terms that would strengthen the negotiating hand of the bondholders if Greece eventually concluded it had no alternative but to default — even after this latest bailout.

The International Institute for Finance, the advocacy group for global banks that is also the chief architect of the deal, says that 60 to 70 percent of the financial institutions holding Greek bonds have agreed to the swap so far. That comes close to the 90 percent threshold that the Greek government has stipulated, although it is too early to predict the final outcome because Greece will not formally make the swap offer until October.

“This is an attractive offer,” said Hung Tran, a senior executive at the institute. “We are making the case that if this deal is implemented it will restore stability to Greece.” The question remains, however, whether the banks that financed the country’s debt by buying its bonds would get off too easy — and whether the Greek government should have pushed for a larger write-down to ease its debt load.

Analysts also note Greece’s diminished bargaining power in any future debt negotiations with its bankers. In past debt negotiations involving countries like Argentina, Uruguay and Russia, the bulk of the debt was governed by either United States or British law. That gave the biggest bondholders the upper hand in negotiating terms; they could either hold out for a better deal or challenge the governments in foreign courts.

In the case of Greece’s debt, more than 90 percent of it was issued and is governed under Greek law, as a holdover of the era preceding Greece’s entry into the European monetary union in 2001. That, legal experts say, currently gives the Athens government the flexibility, if it so chooses, to alter bond contracts and secure a more beneficial restructuring deal over the objections of its foreign creditors.

For example, the Greek Parliament could pass a law allowing it to push through a restructuring deal with the support of a simple 51 percent majority of creditors — as opposed to the 75 percent level that most international contracts require. More drastically, it could simply refuse to pay and leave it to creditors to seek redress in Greek courts.

Debt experts have long argued that this legal quirk gave a powerful bargaining advantage to Greece as it sought to pare down its debt. “No other debtor country in modern history has been in a position significantly to affect outcome of a sovereign debt restructuring by changing some feature of the law by which the vast majority of the instruments are governed,” wrote Lee C. Buchheit, a veteran debt lawyer at Cleary Gottlieb Steen & Hamilton, in a paper he co-wrote in 2010 about how Greece might restructure its debt.

If the exchange goes through, though, the old bonds will be replaced by ones governed by international law. That would tilt the negotiating scales in favor of Greece’s international creditors. Mr. Buchheit is now advising the Greek government on its debt exchange offer. Neither he or the Greek government would comment on whether Greece would give up too much by losing the local law advantage.

There is no doubt that as long as it wants to remain a member of a common currency zone, Greece, unlike Argentina or Russia before it, has limited ability to act in a more proactive manner or threaten to default outright. But there is no question Greece has lost a big bargaining chip.

“This was a big concession, but because Greece was not willing to default it had little choice,” said Anna Gelpern, an expert in sovereign debt law at American University in Washington. “But if in another two years their debt stock is still unsustainable and they are willing to walk away from their debt and Europe, then they will be exposed to a higher threat of litigation.”

With this latest injection of money, the bet is that Greece will not reach that point of no return. But late Wednesday, a Greek parliamentary committee issued a report saying that Greece’s debt dynamics were “out of control.” Given the depth of the recession — the economy is expected to shrink by more than 5 percent this year — Greece’s ratio of debt to gross domestic product for 2012 is likely to exceed the official forecast of 172 percent, the report said.

The government disputed the committee’s findings, prompting the panel’s head researcher to resign on Thursday. But what cannot be disputed is that this year and next, Greece’s debt-to-G.D.P.-ratio will go up — not down.

Greece Bond Yields Go Nuts, Hit Eurozone Record
by Simone Foxman - Business Insider

Yields on Greek 2-year government bonds hit 46.84% today, a eurozone record.

The surge in yields follows a report that $8 billion in bailout funds could be in jeopardy after Greece missed its reform goals and an announcement by Greek Finance Minister Evangelos Venizelos that talks between the Greek government and officials from the ECB, EU, and IMF will take a 10-day hiatus.

The pause in talks -- which will allegedly give Greece time to do a technical study of its economic data -- has been taken as a bad sign in the developing drama over the Greece bailout, regardless of anything Venizelos had to say.

2-year yields shot up shortly after his 5:00 AM ET press conference this morning.

greek 2 yr bonds 9-2-11
Image: Bloomberg

Greece budget watchdog warns 'debt is out of control'
by AFP

The Greek finance ministry went on the defensive after a new budget watchdog released an internal report warning that debt was "out of control". Evangelos Venizelos, the Finance Minister who earlier this week had to explain to auditors from the EU, ECB and IMF why the debt-laden country had missed targets, put the report down to inexperience.

He said in a statement: "All responsible international organisations know in which way macroeconomic and fiscal reports are compiled, checked and published. It is clear that the budget office still lacks this knowledge, experience and responsibility." The report warned that the dynamic of Greece's enormous debt is "out of control" and said slippage on meeting deficit targets, exacerbated by a deep recession, threatened to cancel out the benefits of a new EU bailout.

Eurozone leaders approved a new €109bn bailout for Greece in July to save the country from bankruptcy, with the private sector providing another €50bn. The newly-formed State Budget Execution Monitoring Office, staffed by independent analysts, said in its report: "A significant debt increase, a high primary deficit and the deep recession have boosted to the extreme the debt dynamic, which is now out of control." Mr Venizelos insisted on Thursday that the document "lacks the validity" of equivalent international reports.

Greece is currently undergoing an audit which will determine whether it will be given the latest portion out of an earlier €110bn loan that pulled the country back from the brink of bankruptcy last year. The Greek economy is shrinking at an alarming rate, with Mr Venizelos last week admitting it will likely contract by more than 4.5pc this year, worse than an earlier 3.5pc forecast.

Greece's debt, meanwhile, has ballooned to over €350bn. The public deficit is also running dangerously high, coming in at €14.7bn in the first half of 2011, compared to a target of €16.7bn for the entire year. In July it climbed further to €15.5bn, deputy finance minister Filippos Sachinidis told parliament on Wednesday. He added that part of state revenue included in this year's calculations will not be collected until early 2012.

To make up the shortfall, on Thursday the authorities raised sales tax for food at restaurants and hotels by ten points to 23pc. The restaurant sector has described the measure as ruinous and some operators have threatened to withhold the tax to avoid closing down altogether.

Troika Suspends Greek Budget Talks
by Alkman Granitsas - Wall Street Journal

Talks between Greece and a visiting troika of international inspectors have been suspended amid a dispute over the country's ability to meet its deficit targets, a Greek government official said Friday. The delegation of European Union, International Monetary Fund and European Central Bank officials is expected to return in about 10 days after the Greek government has prepared a draft outline of its 2012 budget, the official added.

"They will come back in 10 days when we have a draft of the 2012 budget ready," the official said, adding that there had been differences in opinion over how Greece would address a yawning budget gap that is wider than expected. "When they return, they will take a look at the draft budget and we'll see how we can resolve the issue."

The visit by the delegation was previously expected to conclude Sept. 5, but was suspended after talks between the delegation and Greek finance ministry officials broke down early Friday. At issue were diverging views over Greece's economic outlook this year and next, and whether the government would have to take additional measures to meet its deficit targets in 2011 and 2012.

Greece's government now says the economy will shrink between 4.5% and 5.3% this year, against a previously forecast 3.9% contraction. As a result of that deeper-than-expected recession, government officials say this year's budget deficit could exceed 8.5% of gross domestic product, compared with an official 7.6% target.

According to officials, the troika is asking Greece to take additional budget-cutting measures to meet its target this year. But Greece's finance minister, Evangelos Venizelos, has said no further measures will be necessary if a austerity programs passed by the Greek parliament in June are fully implemented. "The talks were friendly," the official said, denying Greek media reports of a sharp disagreement between the two sides. "But, yes, there were discussions about the recession and about the deficit and there was a divergence of opinion."

Greece to miss 2011 deficit target, privatization goals in doubt
by Ingrid Melander - Reuters

Greece will overshoot its 2011 budget deficit target by at least one percentage point and its privatization plan, the second key requirement of an EU/IMF bailout plan, is seriously in doubt, a source close to Athens' international lenders said on Thursday.

IMF, EU and ECB inspectors started combing through Greece's books and laws on Monday to decide whether it has made enough progress to receive a new tranche of the bailout that has staved off Greek bankruptcy in a crisis that has shaken markets worldwide The official close to the inspectors said it was much too early to say if the 8 billion euro ($11 billion) tranche of aid was at risk in any way as Greece struggled with a deeper-than-expected recession.

Analysts believe Greece will get the aid tranche but it may come with a stark warning over the need to step up reforms. "The deficit is certainly at least one percentage point higher than the target," the source close to the inspectors said. "We are still counting ... 8.6 percent (of gross domestic product) is the lower range."

Finance Minister Evangelos Venizelos has said that Greece may come close to meeting its targets if it implements all the austerity measures, including new tax hikes and spending cuts, with Athens blaming the shortfall on a recession seen at more than 4.5 percent, and possibly over 5 percent, versus a 3.9 percent projection. But the troika of EU, IMF and ECB inspectors say delays and shortcomings in implementing the bailout plan are also at fault.

"The gap has three sources: 1) the economy is doing worse than expected; 2) some of the measures of the mid-term plan are not implemented as they should be, either they lag or they are not implemented at all; 3) previous measures which were in the baseline plan yield less than expected, in particular tax measures," the official told Reuters on condition of anonymity. The inspectors were set to continue discussions with Greek officials later on Thursday both on the deficit itself and on causes of the overshoot.

Asked about the next tranche of EU/IMF aid, which is ultimately decided on by euro zone member states and the International Monetary Fund's board, the official said: "A lot depends on the (deficit) number, on what it is attributed to and on whether they can catch up."

Athens must also raise 1.7 billion euros from privatizations by the end of September and 5 billion euros by the end of the year to meet the conditions set by the European Union and the IMF. It has already used a 3-year old put option to sell a 10 percent stake in Hellenic Telecom to Deutsche Telekom for about 400 million euros, but that still leaves it short of 1.3 billion euros that must be raised by Sep. 30. "The government thinks it can achieve the targets but we have serious doubts whether they can achieve that," the official said as the troika visit, set to be concluded next week, was still ongoing.

Underlining the relentless decline of the Greek economy, the Markit Manufacturing Purchasing Managers' Index (PMI)showed on Thursday that manufacturing sector activity shrank for the 24th month running in August, with weak domestic demand outweighing a sharp rise in export orders. The PMI survey showed manufacturers continued to lay off staff steadily in August. The country's official jobless rate jumped to a record 16.6 percent in May, fueling widespread popular discontent over austerity policies.

The Finance Ministry rejected on Thursday the findings of an independent parliamentary committee of experts, which said on Wednesday that the debt dynamics were out of control and that policies meant to get Greece out of its worst crisis in decades were failing to restore finances.

IMF and eurozone clash over estimates
by Alan Beattie and Chris Giles - FT

International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt. The analysis, which was discussed by the IMF’s executive board in Washington on Wednesday, has been strongly rebutted by the European Central Bank and eurozone governments, which say it is partial and misleading.

The IMF’s work, contained in a draft version of its regular Global Financial Stability Report (GFSR), uses credit default swap prices to estimate the market value of government bonds of the three eurozone countries receiving IMF bail-outs – Ireland, Greece and Portugal – together with those of Italy, Spain and Belgium.

Although the IMF analysis may be revised, two officials said one estimate showed that marking sovereign bonds to market would reduce European banks’ tangible common equity – the core measure of their capital base – by about €200bn ($287bn), a drop of 10-12 per cent. The impact could be increased substantially, perhaps
doubled, by the knock-on effects of European banks holding assets in other banks.

The ECB and eurozone governments have rejected such estimates. Elena Salgado, Spanish finance minister, told the Financial Times on Wednesday that the fund was mistaken in looking only at potential losses without also taking account of holdings of German Bunds, which have risen in price. “The IMF vision is biased,” she said. “They only see the bad part of the debate.”

Ms Salgado added “this is the second time it has happened”, referring to the fund’s October 2009 GFSR, which estimated that eurozone banks had only written down $347bn of $814bn of probable losses from the financial crisis. It later revised down that total of probable total losses by a quarter. Ms Salgado said that the European stress tests of banks were a better indication of their vulnerabilities.

Officials involved in the debate say the mark-to-market analysis can explain much of the recent fall in European commercial banks’ share prices, including French and German institutions that have large holdings of eurozone sovereign debt.

“Marking to market is a fairly brutal exercise, but these are the estimates that hedge funds are currently making,” one official said. It echoes criticisms of European banks made by the International Accounting Standards Board, which sets bank accounting rules, to the European Securities and Markets Authority, the EU’s markets regulator.

The final version will be published in three weeks’ time just before the IMF’s annual meetings, and is subject to revision depending on the debate between fund staff and the fund’s executive board. The board, on which European countries hold about a third of the votes, discussed the draft report on Wednesday. People present at the board discussion said there was little initial change in position, with European executive directors reiterating their governments’ criticisms of the research.

Officials say IMF staff do not claim their estimate is a comprehensive measure. But they say that the analysis strongly suggests European banks need to raise more capital, an argument recently made by Christine Lagarde, the fund’s new managing director. One eurozone official told the Financial Times that the report relied on unconsolidated data on bank exposure from the Bank for International Settlements that did not take into account mark-to-market trading losses recorded by banks between the end of 2009 and summer 2011.

Dutch finance head: Germany, France bear responsibity in crisis by breaking debt rules in past
by AP

The Dutch finance minister said Thursday he blames Germany and France in large part for Europe’s sovereign debt crisis because they violated rules laid down at the creation of the euro by running larger-than-permitted budget deficits in the early 2000’s.

Jan Kees de Jager said that when the eurozone’s two largest economies ran deficits of more than 3 percent in 2003 and 2004 without penalty, it “opened the flood gates for other countries” to flout debt rules, ultimately leading to the current crisis. “We’re here now in a situation we never should have been in. A situation in which the euro is in danger, and that could even threaten the world’s financial stability,” he said, speaking to the Netherlands’ foreign press association.

De Jager said the Netherlands will continue to support the bailout package agreed for Greece on July 21 — despite difficulties in nailing down its final terms and reservations about whether it is the right course of action. “In the eyes of many people, Greece is a country that has made a mess of things 10 years long, conned left and right, cheated about everything and now needs a lot of loans,” he said. “And they’re partly right about that, and I wrestle with that myself sometimes.”

However, “as minister of finance I have to consider interests pragmatically ... and then it’s important that we make every effort to guard the eurozone’s stability, and that it’s better for everyone’s wallet in the end, Dutch and German citizens, that the eurozone survive.” Under the July 21 agreement between Greece, the European Union and International Monetary Fund, Greece is due to receive €109 billion ($156 billion) in cash and debt forgiveness, following an earlier €110 billion bailout agreed in May 2010.

De Jager said he believes the eurozone countries will solve by next week how to deal with Finland’s demands for collateral from Greece in return for its share of rescue loans. He said the question of how much bailout money Greece actually receives will depend on its success in meeting conditions laid down in the July 21 agreement.

Asked whether he thought Greece may default in any case, given the soaring yields on its government bonds, an indication investors don’t believe the country is solvent, he hesitated. “As minister of finance you have to speak with your head and not your heart,” he said. “At this moment I can’t do anything else but express the joint European standpoint. And that’s that there should be a package to rescue Greece.”

He noted that under the agreement, Greece’s debt burden would be lowered as private holders of Greek debt are accept new terms on the bonds. He declined to comment on the European Central Bank’s moves to buy Greek, Italian, Portuguese and Spanish debt — which some argue violates eurozone rules — saying that the ECB must remain independent of political influence. De Jager noted that the eurozone rescue fund, the European Financial Stability Facility, is due to replace the ECB in any future government bond purchases.

Asked whether the Netherlands has a plan ready if Greece defaults, he declined comment. “If there were one, that’s not something that you would speculate about in public as minister of finance, or at least not this minister of finance,” he said.

Double-dip fears across the West as confidence crumbles
by Ambrose Evans-Pritchard - Telegraph

The Western world is at mounting risk of a double-dip recession after key measures of confidence collapsed in both the United States and Europe, with Germany suffering the steepest one-month fall since records began in the 1970s.

The US Conference Board's index of consumer sentiment in August plunged to the lowest level since the depths of the slump in 2009, falling to 44.5 from 59.2 in July. Future expectations fell even harder. The drop was far steeper than expected and follows grim warnings over the weekend from Christine Lagarde, new chief of the International Monetary Fund, that the global crisis is entering "a dangerous new phase".

The fund has slashed its growth forecast for America and Europe, according to a leaked draft of its World Economic Outlook. It has called on both the US Federal Reserve and the European Central Bank to stand ready for "further easing of monetary policy" - implying a fresh blast of quantitative easing (QE) by the Fed.

The minutes of the Fed's meeting in early August show that a number of committee members called for more "substantial" stimulus, suggesting that they pushed for further bond purchases or 'QE3'. The Fed's so-called "Gang of Three" hardliners has already shrunk to two. Minneapolis Fed Narayana Kocherlakota said on Monday that deflationary pressures are building again. "Increasing policy accommodation might well be appropriate," he said.

In Europe the picture is as bad if not worse. The eurozone is already on the cusp of recession even before austerity bites in Italy and France, and bites harder in Spain, Portugal, Greece, and Ireland. The European Commission's economic sentiment index (ESI) dropped below the contraction line in August. "A loose monetary policy seems to be the only medicine left to prevent a painful fall back into recession," said Peter Vanden Houte from ING.

Jose Vinals, the IMF's head of capital markets, rebuked Europe's leaders for failing to beef up bank defences and allowing the debt crisis to fester. "You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire," he said.

Charles Dumas from Lombard Street Research said a recession is inevitable on both sides of the Atlantic next year, blaming "fiscal deflation" without offsetting monetary stimulus - either because the central banks have used up their ammunition, or refuse to act. Mr Dumas said the ECB has been too tight and blundered by raising rates in July to counter an oil spike just as the economy was sputtering. Unit labour costs are falling and the M3 money supply is stagnant.

Jean-Claude Trichet, the ECB's president, signalled this week that rate rises are off the table but he has little scope for outright stimulus. The ECB is acutely vulnerable after German President Christian Wulff accused the bank of going "far beyond" its mandate and engaging in "legally questionable" purchases of Spanish and Italian bonds.

The unspoken contract of EMU is that it should never lead to inflation in Germany or threaten German control over the project, yet this contract is now being tested. Any suspicion that the ECB is loosening policy to nurse southern Europe through its debt crisis will trigger a political backlash in Berlin, though with Germany itself now flirting with recession as exports buckle this may help paper over EMU divisions for a while.

Hans-Olaf Henkel, former head of Germany's industry federation (BDI), wrote in the Financial Times that his support for the euro had been "the biggest professional mistake I have ever made". He described EMU as an unworkable experiment that is turning Europe's nations against each other. He called for a 'Plan C' under which Germany, The Netherlands, Austria, and Finland break away and form their own currency, leaving the South with a weaker euro and a chance to restore growth. Some Northern banks would have to be nationalised for a while to prevent losses on Southern debt causing a financial crisis.

Stephen Jen from SLJ Macro Partners said the next phases of the eurozone crisis is likely to come when the debtor states conclude that it is no longer worth putting up with the pain of EU-imposed austerity. "I think this will happen in weeks rather than months."

Un petit French funding problème
by Tracy Alloway - FT

Rumours of funding problems at French banks have been rife this summer.

Without even getting into specific financial firms, you can see a potential issues.

French banks do have a relatively higher reliance on wholesale funding, and that’s made them easy targets for anyone remotely squeamish about funding. The ratio of deposits to total assets at French banks, for instance, equated to about 31 per cent in 2010, according to UBS figures. That’s compared to 36 per cent for Europe as a whole, 39 per cent for US banks, and a whopping 42 per cent for British ones.

What’s more — French banks have also traditionally been heavy users of short-term funding markets in their corporate and investment banking (CIB) businesses. We all know by now that these have been pulling back from Europe. The FT reported in July, for instance, that US money market funds (MMFs) had sharply cut their exposure to European banks, including France.

Some detail from an excellent note by UBS analyst Omar Fall:

The numbers involved are significant as a percentage of French banks’ total short-term funding requirements. CASA disclosed at its Q2 11 results that it had $36bn in US commercial paper outstanding, against total short-term funding outstanding of €140.6bn. SocGen had some $38bn in US CP/CDs outstanding at the end of Q2 11, against total short-term debt issuance of €96bn at the end of June. BNP Paribas has not disclosed its US CP/CDs outstanding, but given the respective balance sheet sizes and external disclosures … it is likely to be materially higher than the other two banks.
These funding stresses are neither a solvency nor even truly a liquidity issue, given central banks’ unlimited provision of funding for the banks that require it. Indeed, French banks hold significant amounts of unencumbered assets pledgable to central banks and liquid assets ready for sale (CASA had €120bn of liquidity reserves as at 31 July, SocGen c€105bn at end-June and BNP Paribas had €150bn of unencumbered assets eligible for central banks in mid-July).
The issue is one of confidence and cost: confidence, given that it is not a sustainable sign of faith in the region that some of the largest banks in the Eurozone, with generally sound asset quality and business models, struggle to fund themselves in public markets; cost, given that the cost to French banks of funding in US CPs was around LIBOR +10bp. Central bank funding in US$ would cost some 100bp more.

A money market shift away from French banks, then, might equate to yet another drag on earnings and a rather big piece of evidence of the MMF market’s lost confidence in anything euro-related.

For UBS, it means French banks will simply have to pull back on their short-term CIB balance sheets But, of course, that itself will mean another drag on the French banking business — at best.

UBS have accordingly cut their 2012-2013 French bank earnings estimates by 14-21 per cent.

When debt levels turn cancerous
by Ambrose Evans-Pritchard - Telegraph

Now we know where the tipping point lies. Debt becomes poisonous once it reaches 80pc to 100pc of GDP for governments, 90pc of GDP for companies, and 85pc of GDP for households. From then on, extra debt chokes growth.

Stephen Cecchetti and his team at the Bank for International Settlements have written the definitive paper rebutting the pied pipers of ever-escalating credit. “The debt problems facing advanced economies are even worse than we thought.”


From the Chicago Tribune 1934, sent to me by a reader

The basic facts are that combined debt in the rich club has risen from 165pc of GDP thirty years ago to 310pc today, led by Japan at 456pc and Portugal at 363pc.

“Debt is rising to points that are above anything we have seen, except during major wars. Public debt ratios are currently on an explosive path in a number of countries. These countries will need to implement drastic policy changes. Stabilization might not be enough.”

Demographic atrophy and aging costs will make this even nastier. “Rising dependency ratios put further downward pressure on trend growth, over and above the negative effects of debt.”


Why has it happened?

1) Restrictions on credit have been “systematically removed” since the 1970s. (ie Gordon Brown’s 120pc mortgages and other such idiocies)

2) Greenspan’s “Great Moderation” fooled us all into thinking the world was free of risk.

3) The “Asian Savings Glut” pulled down real bond yields. (The BIS is being too kind to its masters — central banks — who also pulled down short rates for fifteen years, catastrophically so in my view).

4) Tax policies favour debt; ie corporate debt in Europe, or mortgages in the US, as well as a host implicit debt subsidies and guarantees (Fannie Mae and Freddie Mac?)

So get rid of all these bad policies (gradually of course).

The professoriat has been a little too cavalier in arguing that debt does not really matter for the world as a whole because we all owe it to ourselves. Debtors are offset by creditors (not always from friendly countries). Common sense suggest that this academic solipsism is preposterous, and so it now proves to be.

“As modern macroeconomics developed over the last half-century, most people either ignored or finessed the issue of debt. Yet, as the mainstream was building and embracing the New Keynesian orthodoxy, there was a nagging concern that something had been missing. On the fringe were theoretical papers in which debt plays a key role.

“There are intrinsic differences between borrowers and lenders; non-linearities, discontinuities… It is the asymmetry between those who are highly indebted and those who are not that leads to a decline in aggregate demand.”

Creditors do not step up spending to cover the shortfall when debtors are forced to retrench suddenly. So the economy tanks.

My own suspicion is that debt has very powerful “intertemporal effects” that are not factored into the models. It steals growth from tomorrow, until there is little left to steal. The BIS does not explore this angle. (Mr Cecchetti said politely that I was talking nonsense when I raised this point with him .. well yes, perhaps, wouldn’t be the first time).

Here is the league table. It is revealing.


As you can see, the US has one of the lower combined debts at 268pc of GDP. Australia is lowest (232), followed by Austria (238) and Germany (241). (I don’t believe the Norway figure in this chart. Norway has no public debt, except for purposes of monetary management).

This is one reason why I hold to my quirky view that the US is in better relative shape than much of OECD bloc — though still dreadful, obviously. It was on a flat line of around 150pc for half a century before exploding).

The US also has much healthier fertility rates and demographics than most. Adjusted for aging effects, America is more credit-worthy than Germany.

By all means strip the US of its AAA rating, but every country with total debt above 240pc of GDP and a fertility rate below 1.9 should also be stripped. All members of currency unions should be capped at AA automatically, since they no longer have sovereign policy instruments and since they switch FX risk into default risk.

It is far from clear what the rich world should do about this mess right now. The BIS does not offer a policy prescription, though the IMF has.

Christine Lagarde says there is an optimum “therapeutic dose” of fiscal tightening. If too violent, it threatens to tip the global economy back into recession and prove self-defeating. Deficits and debt will rise as fast, or even faster.

The IMF view is that calibrated fiscal tightening must be offset by easy monetary policy, perhaps even QE3 if deflation rears its ugly head again and threatens a full-blown Fisherite debt-deflation spiral. That is broadly my view. We are not there yet, though we might be soon.

Let us not demonize all debt. It is the lubricant of progress.

“Used wisely and in moderation, it clearly improves welfare. But, when it is used imprudently and in excess, the result can be disaster.”

And disaster we have. We must prepare for a long hard slog, for the rest of my life and yours.

Do read the report. The BIS has been a rare of voice of good judgement for the last decade.

Homelessness could spread to middle class, Crisis study warns
by Randeep Ramesh - Guardian

Homelessness charity points to direct link between economic downturn and welfare cuts, and rising numbers living on streets

The economic downturn and the government's deep cuts to welfare will drive up homelessness over the next few years, raising the spectre of middle class people living on the streets, a major study warns. The report by the homelessness charity Crisis, seen by the Guardian, says there is a direct link between the downturn and rising homelessness as cuts to services and draconian changes to benefits shred the traditional welfare safety net.

In the 120-page study, co-authored by academics at the University of York and Heriot-Watt University, Crisis highlights figures released over the summer that show councils have reported 44,160 people accepted as homeless and placed in social housing, an increase of 10% on the previous year and the first increase in almost a decade. Last year another 189,000 people were also placed in temporary accommodation – such as small hotels and B&Bs – to prevent them from becoming homeless, an increase of 14% on the previous year.

Crisis says that with no sign of economic recovery in sight, there are already signs that homelessness is returning to British streets. In London, rough sleeping, the most visible form of homelessness, rose by 8% last year. Strikingly, more than half of the capital's 3,600 rough sleepers are now not British citizens: most are migrants from eastern Europe who cannot find work and, unable to get benefits or return home, are left to fend for themselves on the streets.

The charity says the evidence is that the current recession has seen the poor suffer the most, but other parts of society may be in jeopardy if the government's radical welfare agenda is acted on as the economy stutters. "Any significant reduction of the welfare safety net in the UK as a result of coalition reforms may, of course, bring the scenario of middle-class homelessness that much closer," the report states.

The charity says that the government needs to reverse cuts to housing benefit and invest urgently in new housing. It also calls on ministers to withdraw the most radical provisions in the localism bill, which would make "temporary accommodation" for needy families just that. Under the new legislation, councils would be forced to remove parents and children who have been in a hotel for a year. At present the assistance is open-ended.

There is also an alarming trend in what the charity calls the "hidden homeless" – families forced to squeeze into one room rather than a flat. It says 630,000 households are now "overcrowded", with London and the south-east the worst hit. This trend could worsen: this summer a survey by the National Landlords Association found more than half of private landlords were planning to reduce the number of properties they let to tenants on housing benefits. Crisis says more families will be forced to share an ever decreasing number of homes.

In a separate report, Channel 4 News will broadcast further evidence that official figures underestimate the true picture of homelessness. In Crawley, West Sussex, the Open House hostel said it turned away people needing a bed almost 2,000 times last year, although official figures estimate there are just seven homeless people in the town. Two-thirds of homelessness organisations nationwide told Channel 4 there had been a rise in rough sleeping in their area.

Leslie Morphy, Crisis's chief executive, said: "We are extremely worried. Homelessness in both its visible and hidden forms is already rising and as the economic downturn causes further increases in unemployment and pressure on households' finances, homelessness is likely to continue to rise. This research is clear that it is the welfare and housing systems in the UK that traditionally have broken the link between unemployment and poverty and homelessness, yet these are now being radically dismantled by the coalition government. The government must listen and change course before this flow of homeless people becomes a flood."

Crisis argues that instead of doubling its efforts to end the "scandal" of homelessness, the government is in effect making it impossible for those on low incomes to pay their rent. It says in the past British welfare policy, unlike that in the US, has linked housing benefit to actual rents. But the government's changes break this link and mean that claimants will be priced out of swaths of the country – or end up on the streets in wealthy regions.

The report also says the government's "affordable" house-building regime is likely to generate fewer than 50,000 homes by 2015, "well short of the 80,000 required to meet ministers' targets". Gone will be the lifetime tenancies offered by councils which had to give priority to those in need. Instead, under new powers, local authorities will be able to choose families with "local connections".

With the coalition's welfare reform bill heading to the Lords and MPs voting on the localism bill next week, Labour said Crisis's warnings were a "timely reminder of a looming homeless catastrophe". Karen Buck, Labour's welfare spokesperson, said the government had played down the rising number of people who thanks to the economic downturn were forced to rely on housing benefit.

She said that since the government took power another 150,000 families had been forced on to housing benefit. "The numbers relying on housing benefit to help with housing costs have been soaring. These figures include not just the unemployed but hundreds of thousands of working families. Rising rents, benefit cuts and housing shortages risk a homeless catastrophe will with all the associated human and financial costs."

The Department for Communities and Local Government said: "Ministers have always made clear their commitment to ensure the most vulnerable in society are protected, which is why the government is investing £400m in preventing homelessness, and has announced plans to extend the London project, No Second Night Out, across the country so no one spends more than one night sleeping rough.

"But the most important thing the government can do to help struggling households to stay in their homes is to keep interest rates low, and to do that we must cut the deficit. That is why we are introducing reforms that will cut the housing benefit bill. But to ensure a smooth transition to this new system, the government is giving councils a £190m fund to help those families most in need.

"Far from the claims made by Crisis, the government's £4.5bn affordable homes programme is set to exceed expectations and deliver up to 170,000 affordable homes by 2015."

Analysts Expect China Liquidity Squeeze in September
by Li Yuqian - Caixin

With the central bank's recent increase on margin deposits requirements for commercial banks, Bank of China economist Cao Yuanzheng anticipated an acute capital shortage

Analysts fear severe liquidity strains in September as the central bank extends reserve requirements on commercial bank margin deposits. An estimated 887 billion yuan will be frozen over the next six months, with roughly 140 billion yuan to be frozen in September within the commercial banking system when the new margin deposit regulations take effect.

Analysts interpreted the regulation as part of the central bank's move to further tighten liquidity and several anticipated a severe capital crunch in September. Bank of China economist Cao Yuanzheng anticipated an acute capital shortage in September and months to follow as the amount of frozen capital rises. However, UBS economist Wang Tao said liquidity injected by the growth of foreign exchange reserves and central bank bills maturing in September will serve to offset the strain caused by the new reserve requirements.

In September, a total of 351 billion yuan is expected to be unfrozen through 229 billion yuan worth of maturing central bank bills and 122 billion yuan in buy-back operations. A research report by UBS released on August 29 stated that over the next six months, there will be at least 1.2 trillion yuan in new foreign exchange reserves. Meanwhile, Industrial Bank economist Lu Zhengwei, said the growth in foreign exchange reserves tends to decelerate toward the year's end and banks tend to set aside extra reserves for third quarter assessments.


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jal said...

I can only copy what was said by CHS
Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy

September 1, 2011
Finally serious economists are considering a position I have been maintaining and writing about since the 2008 financial meltdown. Whatever its name— erasure, repudiation, abolishment, cancellation, jubilee—debt forgiveness, will have to eventually emerge forefront in global efforts to solve an ongoing systemic financial crisis.
After that comes the big question.
What kind of financial system will we get?


Anonymous said...

Bond yields are slowly rising in europe - France, Italy, Spain, Belgium. Meetings were cancelled in Greece, and gold jumps $50, silver $1.50, the S&P drops 10 (and another 10 on the NFP number), and oil drops perhaps $3. The dollar is up slightly, the euro down slightly. US 20 year treasuries hit a near term high - up almost 2.5%.

This is the markets reaction today to "increased default risk."

Why do we care? This is just information - it can be used to give some insight into what the big money is thinking and how it is reacting right now to "default" situations. It might be predictive as to what Big Money will do if Greece actually does default.

It is like performing a science experiment. Poke the financial world with a "default" risk, and see how it responds.

Ashvin said...


That post was written by a contributor to CHS' site named Zeus. My opinion is that debt forgiveness would be a critical measure to take at this point, albeit one that will never happen due to the financial and political implications. However, I also believe it imlpies the "something is better than nothing" mentality, which is simply not a great mentality to have right now. What are we really aiming for here? A restoration of balance sheets so that financial activity and economnic growth can restart? I don't think so.

Dr. Keen has proposed that debt repudiation is coupled with financial reforms that disincenticive people from speculating on asset prices with debt, such as putting a time duration on equity shares once they have entered the secondary market (i.e. in 50 years the shares will be worthless). Sure, these are sensible reforms, but much more than a hair short of what is needed for a more sustainable and equitable society. It is also basically guaranteed that such reforms will be rolled back, modified or skirted through legal chicanery once certain people once gain enough influence in the system.

So, it seems that the system is presenting us with an "all or nothing" scenario now, meaning full blown global revolution of the oppressed class or full blown global domination by the oppressors. I am but one individual person and cannot pretend to know whether this is either how it should be or how it has to be. I do know, though, that human civilization as it is currently organized is on a collision course with the limits of natural ecosystems, and the only way that changes is with an extreme re-structuring of our current structures. Debt forgiveness is a stepping stone, perhaps, but not nearly enough.

scandia said...

Ash, I'd like to say now what I've been meaning to say for some time. I appreciate your capacity for big thinking, big pictures, your ability to " teach " the likes of me. You have been very generous on this blog. Thank-you.
I agree with your closing words, " There is very little reason for the people of the developed world to stand down or protest in peace any longer..."
Most of the time I can maintain the " cognitive override". Then something happens that is just plain personal, attacks the heart of me and I get mad. I want to fight back. In recent days the issue that I've taken personally is the raid on Gibson Guitars. Shite, I don't play an instrument and am tone deaf. Yet I love the music makers most. I love the craftspeople who make instrumens/tools by hand. This raid of Gibson fires up a revolutionary spirit.
I am wondering if others here have this experience. What other than banks/housing would get you into the streets?
I have turned away so often as what I hold sacred is desecrated. I am most uncomfortable now with myself.

el gallinazo said...


"Yes. We get $25 bucks per post. Not much, but hey... it's a living! ;-)"

That's good money in Mexico. Got a link where we can sign up, or just send an inquiry to Cass Sunstein c/o his best bud, O'bumma at the White House.? Do they assign blogs to you or do you have some freedom to choose?

Biologique Earl said...

Frank said... "I'll have to weigh to be sure, but it looks like a 20 to 1 bean return on beans invested."

Sounds like a good ROI (return on investment) to me :-)

Frank said...

@Jack (from last post)

@Jack The Armenians, while they have always had a recognizable "Armenia", have also survived and prospered for many centuries in an extensive diaspora.

In particular, here in the States they have been able to make noise about the Turkish genocide all out of proportion to their numbers, and more than once when the government was trying to make nice with Turkey.

@Alan (from last post) What el G said. 40 posts/week is $1000. Twenty hours work (max), 50 grand a year, working from home.

I have one ghostwriting gig now (about gardening) that pays about that per hour, so it sounds totally plausible.

el gallinazo said...

Alan 2102


Do they evaluate you on quality, or could you get $25 each for just throwaway one liners which we also see here though admittedly not from you? If the latter, I have to commend you for service to our country beyond the call of duty.

Biologique Earl said...

Alan2102 said:

'Robert1: "I can't help but wonder if the paid trolls on this site get paid piecemeal based on the number of posts."

Yes. We get $25 bucks per post. Not much, but hey... it's a living!'

Thanks for confirming that.

Its like the man who went to hospital badly beaten. Hospital attendants asked what happened. He said "I called her a 2 bit whore."

The doctors said: "Well that sounds a pretty unpleasant thing to say. BTW what did she hit you with that did so much damage?"

He answered, in obvious pain, "a bag of quarters.

Well now we know what you are and the price.

el gallinazo said...


We are all proud of our claimed ethnic heritage, but the Patriarch Abraham is reputed to have been born and raised in the city state of Ur which is a lot closer to the city of Basra in modern Iraq than modern Armenia.

Anonymous said...

@ El G

Last comment on German constitutional law.

Concerning article 68 (vote of confidence), I noted in the last post that it had been used five times, but "succeeded" only three times. By "succeeded", I meant resulted in the dissolution of the Bundestag.

That may seem bizarre, but I learned to my surprise that in all three instances where art. 68 unseated a government (not only in December 1982), it was the main political party in power at the time that used it in a backhanded manner (voting against itself) to launch new elections.
The second time (Kohl) caused a scandal, the third (Schröder) less so.

So it succeeded in the sense that provoking new elections was the goal of the main party already in power. The article is clearly being used in a manner contrary to the original intent, but that is because there is no other way for a Chancellor to dissolve the Bundestag (contrary to the English system).

@ Board

I am leery about calling people trolls each time we emphatically disagree with them.

I disagree with Alan about the scalability of renewables and really wonder where he found his data on developing topsoil, but so what.

I think we have seen some disruptive people here, but they have stood out much more clearly than Alan.


Biologique Earl said...

Frank said... "I'll have to weigh to be sure, but it looks like a 20 to 1 bean return on beans invested."

FYI, I tried pinto beans, one of my favorites, and found them to have a short growing season with vigorous growth (until a deer started nibbling on them - up with an electric fence extension!).

I used out of the package grocery store beans, from the foreign food section, for seed and yield was good. Original seed was admixed with a bit of dark brown beans. Now I have saved seed from the harvest and removed the brown beans.

My goal is to grow only non-hybrid varieties of all vegetables. Pretty well have achieved that goal and I save seed for future planting. I do not try to grow bi-annuals (eg. carrots) from saved seed.

el gallinazo said...

I tried to request an application at

but Chrome couldn't find the server :-(

(I'm sorry board, but roadkill is down and I gotta eat.)

Ashvin said...


Thanks, and I know exactly how you feel, as I'm sure many others here do. So I don't really have an answer to the question of what would get me out into the streets, except that it's an extremely frustrating question!

I think we just have to keep on trucking, stay flexible, be ready for (to do) anything, and see how things play out. I'm gonna go sailing in a little bit, forget all about what you said ;-)

TechGuy said...

davefairtex said...

"It might be predictive as to what Big Money will do if Greece actually does default."

If? You mean When! A Greek default is inevitable. Pehaps before the end of the year, No later than the end of 2012.

75% chance of a revolution and return to communism or some leftist form of gov't when the Greece defaults. 15% that France and Germany will roll in their troops to restore order and to seize the remaining wealth by installing an interim gov't under the premise to restore order in Greece when the current gov't fails and the chaos rules.

snuffy said...


That is one of the key questions that many of us ask...What will put you in the street?

My heart of hearts has ask this question many times.What I think is the key,what I think will be the turning point,is when the degree of radicalization of the majority reaches some critical point where group dynamics start to work.I think this is a lot of the reason that the media makes a point of not showing demonstrations nationwide.It give a hella boost to any group that is demonstrating to see others, in other states singing their same song.This is why the media so severely downplayed all the anti-bailout demonstations...S

After a few weeks they died down and the rape/robbery of our economy was finished

It was effective in quieting the outrage.

Since it was effective last time,ahead,when we have a repug for pres,and a teaparty/repug controlled congress I expect to see a gang-rape of the social safety net programs,including SSN ect.

Bee good,or
Bee careful


Anonymous said...

TechGuy -

Ooh point taken. When the Greek default happens, not if. Just to hammer your point home, a "20%" default has actually happened, but that's just the faux default. The real one has yet to occur - one that will actually relieve the Greek state from its debt rather than just extending maturities.

ben said...

common sense by diktat:

Ka said...

I second FB's warning about premature troll-outing. The mark of a troll, for me, is that of saying something contrary, and then not responding to responses, not engaging reasonably with the issues. Alan2012's reasoning may be off-base (as I think it is) but it is there.

TechGuy said...

Snuffy Wrote:

"I expect to see a gang-rape of the social safety net programs,including SSN ect."

Its highly improbable that any significant changes will happen with entitlements (except for the non-baby-boomers, who will be cut off from entitlements. Existing retires and soon-to-be retires will be still continue to receive entitements and probably will even see increases.

Remember that the biggest voter block is entitlement recipients. The rest of the Population doesn't amount to a can of beans when it comes to elections. Younger generations don't vote and there are very few Gen-X voters that are fiscally aware. The Majority of Gen-X voters are liberals who votes for more gov't authority and more gov't wealthfare programs.

Politicans that try to cut entitlements will be voted out of office. Its likely that politicians will fight over who can get the biggest share of entitlement recipients (in both parties) in order to secure votes. Even most of the past republicans increased entitlements, most recently, Bush Jr with the medicare prescription plan. In fact, it was the Medicare Prescription bill that secured Bush's second term.

Before entitlements are cut the gov't will opt to cut other programs. Science will be the first to go. I doubt NASA, NSF will survive as its the easiest to cut and few will complain since most America's care more about sports and reality TV than science. One of the the options being discussed in the super comittee is to end the FICA caps (now capping FICA contributes at $107,500). Removing the cap would probably increase contributions by $100B to $175B. To my knowledge, no cuts to entitlements have been discuss in the super committee.

Recall that during the Debt ceiling hike standoff, entitlement cuts were brought up. Politicians on both sides quickly reversed course when AARP screamed and Washington switch boards became clogged for days with angry callers about the cuts.

What is highly probable is that the gov't turns to the printing press to honor entitlements. This of course will devalue the dollar, causing the gov't to print ever greater sums of money to stay running in place. This is what all nations have done in the past with Fiat currencies. Argentina, Germany, Russia, Japan, Bulgaria, Belarus, Poland, Yugoslavia, etc all resorted to the printing press to honor financial obligations that the could not cut because of political and social issues.

el gallinazo said...


Great and informative article. Thank you. But you left out the most important factor - Fado :-)

Tech guy

You left out 10%. Could I fill it in with an alien invasion? Actually, you might as well move up a NATO invasion (of a NATO country) to 90% as they would never accept a grass roots democracy. Maybe I should read the NATO charter to see what it says about defense of a NATO country attacking itself. Sort of like lupus. Naw! It would be written off as a humanitarian intervention to prevent any danger of nationally self inflicted pederasty.


The German market took a really big hit today. And the Euro-USD has fallen from 1.45 earlier in the week through the 1.42 mark today. And the German Constitutional Court rules on Thursday. If the ruling supports national sovereignty, TSWHTF as Greece would have to default before the end of the year and probably a lot sooner, and very strange things would happen with that 800 pound Italian gorilla in the living room. A Greek default will start the CDS dominos toppling. German banks are leveraged over 30 to one now. Reminds me of the condition of Yellowstone NP before the great conflagration of the last decade. Europe is just strewn with tinder waiting for the right lightning bolt and the troika is running around trying to pee on the sparks despite having a purported woman as head of the IMF.

IMO, gold has two different factors weighing on it and they are pushing to some extent in opposite directions. (This is in addition to cartel manipulation through shorts, futures, and margin changes at the exchanges). One is the weakening of the USD through Fed induced "liquidity" injections to the casino which is also reflected in other commodities, particularly crude oil. The other is a search for a safe haven (other than the Swiss Franc and T bills which many regard as over bought). Both push the price up. Today for example, the USD strengthened against the Euro, the SPX is down almost 3% on the day, and gold went up parabolically over USD 50, in my opinion in a rush from Euros and looking for a home. This is all counter to the movements of the last two years. We made be headed into an "event" this week with Europe at the epicenter. I guess what I am also saying is that fear in the Euro zone right now is totally trumping a strengthening USD and a falling SPX.


My 13 week T-bill auction just came in. The rate was 0.015%.


I did know that all three successful ploys using article 68 were used by a reigning chancellor to consolidate his strength in the Bundestag. Whether the writers of the constitution thought of it used that way or not, it seems to me to be a really obvious ploy for a chancellor with a weak Bundestag position but rising popularity. But not knowing about article 67, I thought that no confidence was totally under the control and discretion of the chancellor.

Regarding trolls. We are a bit more wary in the USA because it has been publicly acknowledged that Cass Sunstein in the White House ( the Ministry of Truth) as well as the Department of Defense are both engaged in this activity and well funded with Benny Bux. The DOD even bragged recently that they had hired a software company so that Agent Smith could run 10 avatars at a time. I think what one must scrutinize in this regard is whether the purported troll is damaging the flow of useful information and interaction here by such tactics as spamming or misdirection. As the wolf safeguards the strength of the caribou, so may the troll safeguard the critical thought of the commentariat if he sticks to proper issues.

lautturi said...

25 corporations last year paid more money to their CEOs than they did in income taxes to the U.S. government. If anybody cares...

Ka said...

What will get me into the streets? Nothing. As I see it, the industrial-military-financial system will, thanks to peak everything, have to do step-wise retrenchment to nothing, leaving a gradually expanding periphery where a hundred flowers may bloom. As my mantra goes, in addition to submitting and fighting, there is the option of fleeing. Most will flee involuntarily -- unemployed and without a safety net -- but the option of voluntary flight is there, which increases the chances for one's flowers.

el gallinazo said...

Labor Day will only be a seasonally adjusted 18 hours this year, courtesy of the BLS.

Jack said...

Hi Folks
Everyone is trying to make claims for that great person Abraham.
I know that he was born in Ur I had a link explaining the city and why many Armenian's believe Ur was a part of Ancient Armenia.
Anyway we are all proud of our past but more important that is the present and the future.
God Bless You all

Jack said...

Hi Ash
From last post
You said when the collapse happens money will flow into USD and out of Euro,Yen,Gold
I wanted to why all the money that comes out of Euro ,Yen would go into USD and why not go to gold.
Than the price of gold would shoot up to who know what.
Also if you can comment about the Canadian dollar

TechGuy said...

El Gallinazo said...

"You left out 10%. Could I fill it in with an alien invasion? Actually, you might as well move up a NATO invasion (of a NATO country) to 90% as they would never accept a grass roots democracy."

15% chance France or Germany will make a move on Greece, either if the gov't goes communist, reforms, or anarchy. Not 75% + 15%.

Alien Invasion? I doubt it. Its fair more likely Greeks flee Greece to become illegal aliens in neigboring states than for illegals to invade Greece with no jobs, no money.

I presume you were really mocking me about an extraterrestrial invasion, but I'll give you the benefit by pretending you didn't stoop that low.

bluebird said...

I go back and forth whether the world slowly devolves into people having less and less, or whether we get the Big Kaboom where the global financial Ponzi bubble implodes instantly and everything stops.

I think a Big Kaboom would cause many people, both young and old, to angrily protest. So the TPTB are doing all they can to keep things quiet and low-key for as long as they can.

Unknown said...

Mensaje en una botella

Seems written along the same wavelength as the automatic earth. I have seen it only now following the publication of a translation from Italian. Sorry if somebody else has read it already.

el gallinazo said...


I definitely was not mocking you. I do however like to use humor to lighten the dangerous absurdity of the times that we are experiencing. Not with the mastery or graphical interface of Banzai7, but in a similar vein. Some people here appreciate it and some think it at best sophomoric and at worst moronic. Everyone's milage will vary. But as that old Ricky Nelson song goes, you can't please everyone, so you might as well please yourself.

My reference to the "alien invasion" was based on a televised comment that Paul Krugman made last week that got a lot of publicity. IMO, it was a rather deceitful ploy on the part of Krugman to extol the virtues of war to pull a country out of a balance sheet depression when standard Keynesian remedies fail, which of course they always do. (See the Great Depression). Krugman's problem is that his constituency tends to be politically correct and ostensibly against war and mayhem as a solution to economic problems, thought strangely silent with the Libyan travesty. So he had to hypothesize an alien threat. Even the most politically correct people would not object to zapping alien invaders.

In any event, my humor was mocking Krugman and not you. That said, I disagree with your probability numbers. IMO Germany or France would not invade Greece unilaterally, but would almost surely do it under the umbrella of NATO with some humanitarian rationalization even more absurd than Libya, if Greece were to go communist or anarchist. Throw in a few Finnish, Norwegian, and Canadian troopers for good measure. The Owners simply could not tolerate this as a precedent and the Owners own NATO. OK. I said it without one quip or double entendre and I feel better - not :-)

jal said...

@ Ash
“That post was written by a contributor to CHS' site named Zeus.”
Yes. Pure sloppyness on my part.
Did you read ...
Did the Phoenicians Introduce the Idea of Interest to Greece and Italy; and if so When?

by Michael Hudson

Re: bean "Jacob's Cattle"
look up The images of romano beans. Same???
I got my supply from Turkey. They will probably yield + 50 when they are harvested. The vines grew to +10 ft.

I have just finished harvesting my fava beans and I got approx. 50 lbs from my 10 X 20 plot.

One seed produced over 200 beans on 10 stalks. (Of course, It will be seed stock for next year)

I found out that a seed from a pod of 7 beans in the pod produced mostly 6 beans in the pod and a seed from 6 in a pod produced mostly 5 beans in a pod.
Of course, there were enough pods with 7 or more for next years seed crop.

Unfortunately, I do not have enough beans in my "emergency kit" to share with the refugees in Somalia.

Anonymous said...

Worth noting: In countries with high infant mortality rates, the life expectancy at birth is highly sensitive to the rate of death in the first few years of life. Because of this sensitivity to infant mortality, simple life expectancy at age zero can be subject to gross misinterpretation, leading one to believe that a population with a low overall life expectancy will necessarily have a small proportion of older people. (wiki)

This aspect of the life expectancy calculation is often commonly misunderstood, particularly when we pat ourselves on the back for having a much higher life expectancy than did our distant ancestors or when when concluding that people of a few hundred years ago were considered old at 40.

Alpha Beta Soup said...

Scandia's question of what would it take to make one take to the streets has prompted me to post.

If things get bad enough to fuel my fire enough to make me want to fight, is the day that I head to the hills to live like a hermit off the land.

I refuse to take to the streets and fight, as I feel some rich puke somewhere will find amusement in all the ruckus of us dumb animals.

ben said...


"I found out that a seed from a pod of 7 beans in the pod produced mostly 6 beans in the pod and a seed from 6 in a pod produced mostly 5 beans in a pod.
Of course, there were enough pods with 7 or more for next years seed crop."

that's really awesome. if i recall correctly last year you were hoping cultivate fives consistently, no? i love favas, don't know them, but sixes, that's epic! congrats! you gotta start wearing shades :-)

Frank said...


Same species as the Romano bean. All beans except fava beans are the same new world species. But then cabbage is the same species as brussel sprouts.

My wife is from el Paso. She wanted beans for refried beans and chili. Rather than go for the varieties she grew up with in zone 9, we chose one that had a couple thousand years of local adaptation.

These guys were in mediocre soil: I have hopes that a couple inches of compost will do great things. The real challenge will be figuring out how to save seed from red beans, yellow snap beans and black beans. Same species, bee pollenated.

TechGuy said...

el gallinazo said...

"My reference to the "alien invasion" was based on a televised comment that Paul Krugman made last week that got a lot of publicity. IMO, it was a rather deceitful ploy on the part of Krugman to extol the virtues of war to pull a country out of a balance sheet depression when standard Keynesian remedies fail, which of course they always do."

Agreed! On top, he made a statement that the Virginian Earthquake didn't cause enough damage and destruction! Hinting that a major East Coast Earthquake causing the deaths of tens of thousands would be "good" for the nation. Krugman is a financal terriorist, as Max Keiser often chides. My Apologies on not picking up on the Krugman reference.

"I disagree with your probability numbers. IMO Germany or France would not invade Greece unilaterally, but would almost surely do it under the umbrella of NATO with some humanitarian rationalization even more absurd than Libya"

I wasn't referring to a direct take over by miltary force, but rolling in security forces under the premise of "humanitarian relief", but with the real intention of securing France's and Germany's interests. I doubt any real aid to Greek citizens would happen.

It's quite possible they will move in under NATO/UN flags, but initiated by Germany or France and no support from the US. Turkey might be another player that acts to seize lands (under humanitarian issues) that is already in dispute with Greece.

Only 15% because its quite possible that when Greece defaults is might trigger domestic issues, forcing France and Germany to keep their security troops home to fend off civil unrest (protests, riots, strikes, etc). France has already had youth riots. I am not sure Germany will have the balls or the troops numbers to go into Greece alone. Sweden, Norway, and Demark would probably write off Greece as loss rather than commit significant troops. When Greece does default its bound to cause the markets to go nuts, and send unemployement higher.

Oddly enough, Hitler's Nazi Germany used "humanitarian relief" to invade Czechoslovakia in 1938. Germany and France and the 21st Century Axis Power? Ha!

FWIW: I doubt it will work. I suspect that Greeks will put up too much of a fight and force them to leave before they can set up some form of puppet gov't. Unlike Czechoslovakia in 1938, the Greeks will fight back on the streets as they already do with their gov't, only worse since they'll blame France and Germany much worse than their own politicians for the crisis.

John Day said...

I find myself impatient at the slow rate of necessary change in the power structure of our world. The odious debt must be expunged.
I am simultaneously living as simply as feasible and working 2 jobs, and grateful for the opportunity to have 4 kids in higher education. Only the one who just started med school has incurred any debt, and we are keeping that to what should be under $10k/yr.
I bike commute. We rent. No vacations. Hours of entertainment dredging news of our unfolding generational supercycle crisis, and sending it out as an e-newsletter.
I have no idea how I will adapt, so why do I feel impatient?
There is a sense of urgency for the vast unemployed youth, and those trying to eat beans twice a day with no fresh vegges, but I feel somehow more urgency to take down the oppressor-class.
I benefit from the system I despise, even as it makes my work more of a waste of time every year, and less efficient for the patients I see.
I think there is a widespread sense of discontent, driving change, with no path to improvement conceived.
I'm pretty mellow these days. I go stand out in front of the Texas Capital a couple times a year for causes.
What do the desperate feel?
Is this what they call "zeitgeist"?

Frank said...

@Techguy Neither Sweden nor Norway is part of the Eurozone. And lest there be too much talk of "the owners", those were the two countries that actually fronted cash to Iceland when Britain and the Netherlands were having hissy fits in Brussels.

It is not worth more than about 25 kroner (NOK or SEK) to them to save Deutsch Bank's ass.

jal said...

@ ben
Its only a start on improving the genetics. I happy with what I’m discovering.

@ Frank

All beans may be the same but we have different varieties.

I’ll give an update when the harvest is done.

bosuncookie said...

Scandia asks, “What other than banks/housing would get you into the streets?”

When I mull over that question, I see that it connotates at least three things: a perpetrator, a victim, and a tipping point of injustice. Perpetrators and injustice abound, but what if you choose not to be a victim in the face of all the tipping that has been so highly documented on this site for many years?

What if the question is wrong? What if the question was reframed…

When are you going to get off the couch and help shape your own destiny?

That questions connotates something other than helpless rage and pitchforks in the face of gross injustice. Look around you and you will see the knock-on effects of global injustice right in your own locale. There is plenty of work to be done to prepare yourself and others for the ongoing contractions.

In my own town—Wilmington, North Carolina—I fully expect that Greek-or-London-style demonstrations will arise when food or cash become scarce to the point of hunger. And in my town, the explosion will be race-based? Why? We have deep racial wounds that remain open, the festering remnant of the (only American coup) that took place here in 1898. A fusion government and black and white rousted out of office by the elite whites deposed in the aftermath of the Civil War. They reclaimed “their” town from the upstart blacks and whites who had power at that time. Over 100 years later, that event still colors relationships in the town.

So what does this have to do with me and mine and our destinies as contraction unfolds? If I am correct in that contraction will possibly play out here in the form of racial violence, I want to be an agent of nonviolent conciliation. I want me and mine to have relationships with black and white activists in town, such that if disaster strikes, an organized nexus of trustworthy relationships may be a mitigating factor.

Interestingly enough, that work is useful without regard to a future of contraction. What does that work look like here? Our nonprofit engages in projects that bring black, white, and Latino together in organic ways, arising from needs in the community. We operate a community center in an integrated neighborhood, we operate and support two community gardens, we offer diversity training, we resisted an effort by the good old boys to re-segregate the public schools, and lastly, we are attempting to become the operator of public access television in our community so that the voiceless may be heard. Oh, yeah, we also are incubating the Community Exchange System I described in the last TAE posting; it got lost in the gold vortex threads and Blogger Monster hiccups.

So, to sum it up: you don’t have to wait to get in the streets. Get busy creating parallel structures that will make your community saner and perhaps less susceptible to the vicissitudes of contraction.

bosuncookie said...

Oh, and I forgot to mention that our nonprofit sponsored a talk by Stoneleigh right here in the deep South, with good ol' boys on every corner.

John Day said...

I'm excited to have figured out how to put a picture and info on my profile.
I'm trying it out.
Salute to Bosuncookie post.

Anonymous said...


Good on you for being so proactive. I live in WNC, and while I think we are better situated in some respects, I feel an urgent need to do something more active in the area of building community resilience and cohesion. Having two small children and lifeboat homestead (with limitless demands on my time) present a challenge, but I'm hoping to try to organize a community resilience/skill sharing/mutual support organization this fall. I've been talking to a few neighbors who agree with the need for such an effort- I'll keep the board posted on my progress. In the meantime about all I have time for is a bit of peripheral participation in local community groups and a weekly 1 hour spot on the local progressive talk radio show (every tues at 4pm) where I talk about whatever big picture issue I feel inspired to discuss.

If you ever make it up to the mountains, you should look me up and we could meet for a pint.

Ashvin said...


"I wanted to why all the money that comes out of Euro ,Yen would go into USD and why not go to gold.

Than the price of gold would shoot up to who know what.

Also if you can comment about the Canadian dollar"

USD was established as the reserve currency and the currency of choice in global financial transactions, which means only it can be used to settle trillions worth of debt in the global economy. If a good amount of those debts are refinanced with gold serving as marketable collateral, then that's a big positive factor in support of higher gold values in the near-term. But I'm not seeing that happen, are you?

All I can say about the CAD is that it is very similar to the USD, except that it is more of a "commodity currency", like the Australian Dollar. If oil prices plummet like they did in 2008, that will be negative for the value of CAD. Other than that, it should be seen as a safe haven similar to USD.

Anonymous said...


USD was established as the reserve currency and the currency of choice in global financial transactions, which means only it can be used to settle trillions worth of debt in the global economy.

I don't follow the logic that only the USD can settle debt-
All Currencies are fungible-

If i lived in Europe and i owe a Swiss bank 1000 CHF i can pay that in EUR by exchanging at today's 1.14 EUR/CHF -
No USD involved-

I could also buy 1000 bbls. of oil from Iran and pay in EUR-again no USD needed--

scandia said...

RE taking to the streets I don't necessarily mean doing so violently or destructively. I mean more speaking up,peaceful protest/ intervention. Historical records are full of people drawing their curtains in order not to witness their neighbours being taken away in the middle of the night. Who is the other somebody who will object if I am playing it safe?
How can I be guided by my conscience without adding to the chaos? Or is conscience obsolete in the new paradigm?
I know life is not fair but much evil is being done in my name. The Cdn tar sands is a case in point. The privatization of water, the commons is another. The ongoing planning to store nuclear waste in the Great Lakes...Like I said my conscience is pricked these days. I am uncomfortable within my own skin.

Skip Breakfast said...

@John Day

I think when you talk about feeling impatient about the long drawn out period of "extend and pretend," you are actually voicing what a lot of us feel. It's a conflicted point of view, as you mention, because we all benefit to a great extent from the largesse of the existing credit-bubble system. And yet you also note how you have gone to great lengths to begin preparations for "the worst."

While the worst is inevitable, there is no precise time-frame, and I think it's human nature to want to know how it's going to play out. Waiting for the end is positively painful--like the man on death row who keeps getting reprieve minutes before they hang him. After enough years of that, eventually he really just wants it over with.

I dread the coming suffering. But living with the unkown is rather excruciating too. Not to mention the lingering fear that I'm just doing it all wrong--that my preparations are for nothing and gold will go to a million and I'll be stuck in worthless dollars. We expect things to change over night, and maybe they will turn that fast eventually. However, in the meantime we wake to the same headlines every day that make it look like everything is going to continue just the way it has been, which means we've been idiots. Certainly the mass media would lead one to believe that, while ncertainty reigns, there really will be no fundamental change to the system. They try to convince us that somehow we'll muddle through. And most people believe it too.

I think it's human nature to need to know we're "right." Especially since we contrarians bear the brunt of hostility from greater society that labels us downers, or nuts, or paranoiacs. Part of us needs to be able to say, "You see now? Things were really bad and you didn't listen, and now we have to all start changing."

I think that, although I am "speculating" on a great unwind, and this could help put me in a stronger financial position in the future if we're right, I also am more concerned for the world at large, the whales, the environment, the fish, the polar bears, the rain forest, the poor, all of which is being decimated by our credit-driven, sociopathy. But there's hope that something better can replace the unsustainable system we are living in.

The unwind is inescapable, eventually, and maybe like you, I just want to get on with things!

snuffy said...

You watch what happens when this "Super Congress" gets rolling...and all the dems will throw their hands up and say they could not stop it!!We are being set up!

This screwing of the public will happen and not a 100 thousand marchers in the streets,or roars of discontent will change a thing...We,the people matter not, when the wealthy ,who own those creeps in congress say "frog",they jump.When they say "Austerity"get ready to see hungry kids...

Just watch...

Bee good,or
Bee careful


Anonymous said...

Skip, John and Scandia,

I'm with you. It's excruciating to watch, like a slow-motion car crash on a global scale. And yet, I'm not ready yet. I have two young children (3 1/2 and 9 months). I need more time. Pessimist though I have long been, things seem to be unraveling even faster than I expected. But I suppose time waits for no man. Still, I think the "faster than the slowest camper" metaphor falls far short. It's not a bear that's coming, it's a hurricane. And no matter how prepared I might be (relatively speaking), if the levy doesn't hold I may well be washed away in the coming storm...

If it was only me that I had to look out for, I'd be at peace with it all.

Biologique Earl said...

John Day said...

"I'm excited to have figured out how to put a picture and info on my profile."

Ah, I see you have been to Bodhgaya. Bodhgaya is a very humbling place, one of the highlights of our travels in India.

bosuncookie said...


I think I know exactly how you feel, especially the part about evil being done in your name...

I'll tell you what moved me from being self-focused to other-focused: the First Battle of Fallujah in 2004. I had always been community-minded in a self-focused sort of way, such as helping to stage small boat sailing regattas, helping with inward-looking church events, etc. But at that period of my life I was living alone, mostly focusing on me. I did spend a lot of time following the buildup to the invasions of Afghanistan and Iraq, and I even participated in our town’s one public demonstration of resistance. Yet it was all somewhat sterile and distant, however.

That changed as—from the safety of my couch—I watched the horrible and systematic destruction of Fallujah being done in my name, where white phosphorous was being illegally used, inflicting horrible suffering on innocents.

I couldn’t stand to be associated with that, couldn’t stand it. I got off the couch and got busy, and I haven’t looked back. My energy has been redirected several times since that day in 2004, but it is still much more other-directed than self-directed. (And if you believe that we are all interdependent, then “other-directed” IS self-directed!)

That sentiment you are feeling, that prick of conscience, may be of the same order. I screamed at the TV in 2004, “How can you be doing this? And in MY name! An American attach on evildoers in Fallujah? No, this is YOUR attack, Cheney! This is YOUR attack, Bush! This is YOUR attack, Rumsfeld!”

When the suffering inflicted on others in “my” name got to the point where I couldn’t take it anymore, I got up off the couch and got busy.

If that time comes for you, you will know it, I feel sure. Maybe it'll be a Howard Beale moment for you, and I'm here to report that if so, then it doesn't necessarily have to end the way it does in the movie.

bosuncookie said...

Impatient for the new reality of contraction to begin? Peruse this stunning photo-essay:

The Ruins of

Is this the future that you hope will arrive more quickly?

Be careful what you wish for.

Skip Breakfast said...


I've met with this argument before. Let me be clear. I don't "wish" for it. It is happening whether I wish for it or not. Me wanting this or that to happen changes nothing. The cards were dealt long before I even knew we were playing a game. I've just changed my bet is all. No matter what I wish for won't change a thing. If my wishes could change anything, we'd all be happier, because I'd wish for peace and health and love for everyone suffering war and illness and loneliness. I didn't make the rules. In fact, I'velong opposed a lot of them, because I knew they were only bound to make us unhappy. So here we are. And I'm preparing for the unwind. Not wishing for it. Accepting it. Trying to survive. But knowing it's going to hapen while everyone around me carries on like normal is excruciating. It's a catch-22. As soon as everyone else realises things are as bad as they really probably are, then it will all fall down at once. Again, that's not by my design. I am impatient because it's excruciating to watch a dying patient while you want to get on with your life and do the things you've known for a while now need to be done. But we wait. Again, if my wishing could change anything...alas it has nothing whatsoever to do with what is unfolding. Just expressing my human nature while witnessing everything I can't control, while trying to make the paltry changes to the things I can control.

Skip Breakfast said...

And yes, it is a stunning photo essay.

bosuncookie said...

Skip Breakfast,

"But knowing it's going to hapen while everyone around me carries on like normal is excruciating. "

Agreed. Absolutely.

I have sat by a dying spouse in impatience, but now I realize that my impatience was born of fear, fear of what the new life would be like.

Subsequent to that experience, I have sat by death with less fear and less worry about the future.

The second way was much easier. My point being that it is possible to both prepare and be with just what is. Right here, right now.

scandia said...

@bosuncookie, Ah yes, Falluja.As you got off your couch,I began to challenge my Cdn neighbours about our " friendhsip " with the US. What is the nature of friendship I asked. If we truly love our neighbours south of the border we will speak to them about the horror of Falluja, we will warn of the dire outcome to the innocent.
( Reports are that outcome is ongoing with high incidence of cancer in its residents) I warned that what happened in Falluja can happen anywhere. Same with the horrors of Abu Graib. I was deeply rattled by the justice system's defence of torture. I was late to the party in support of Mr. Arar's defence against torture by the US in a Syrian jail. It is one small beam of light that he won his case and a settlement.
Not one parliamentarian who lied and lied again about Mr. Arar's torture has faced justice.I doubt one black ops torture chamber was decommissioned. The Cdn gov'ts committment to US world domination is deep and complete. Our two military forces are now an integrated force. It is now legally possible for G.I Joe to cross the border to control that protest in Ottawa should it be deemed necessary. It is also legal for Cdn troops to cross the border to keep US citizens in line.
I know not how to break up this deal with the devil. Canada now plays with the same death cards in Afganistan.Our PM is proud of our action in Libya and vows to stay on.I do wonder if our troops understand they serve multinational corporations?
My decision to protest in Ottawa on Sept. 26th is a small gesture , perhaps it will become civil disobedience. How frightened I am to be disobedient. Where does this fear come from? Why should I be obedient to masters of environmental disaster? How can I stay home when Naomi Klein, Maud Barlow, Bill McKibbon stand up on Parliament Hill. I must stand with them.

I have never watched " Network ". I will now.

Bosuncookie, your posts of late have held meaning. Thank-you for reaching out to me.

Jack said...

Hi Used
Tell me if this makes sense
you are talking about settling small transactions
I kow oil in large quantities are not small but
global financial transcations
might be government debt

Ashvin said...


The debt is usually settled by the currency it was denominated in, i.e. what it was originally paid out in under the terms of the contract. The reason that means a lot of debt can only be settled by USD is because a lot of debt around the world has been denominated in dollars in both the private and public spheres. There are, of course, many debts denominated in other currencies, and CHF-denominated debt will prove to be a huge problem for Eastern Europeans, as that currency also appreciates due to its regional safe haven stastus. Also, if you have to convert your currency to another currency to pay a debt, then what you are doing is selling the first currency to buy the second. That's the essence of capital flight.

Anonymous said...

"Italian town Filettino declares independence" and prints own currency -BBC news

Italian town Filettino declares independence

I expect the TPTB to derail this sort of thing as a matter of urgency!

Ashvin said...

Skip Breakfast,

"But knowing it's going to happen while everyone around me carries on like normal is excruciating."

No other time is this more evident for me than college football season, which kicks off today. People I know will spend ridiculous amounts of money to secure tickets, drive to the stadium, tailgate, etc. even when they may not have a job waiting for them after the weekend is over. I imagine some of them are even aware of their precarious position, but choose to immerse themselves in the game anyway. The team is like a part of their family, and they feel obliged to follow them every weekend. Now when the NFL season starts and people get warped into their land of "fantasy teams"... forget about it. I was really hoping that the season would be canceled, but alas the allure of money overwhelmed any sense of dignity or fairness yet again.

Anonymous said...

Sorry, I missed a bit off the link
here it is again

Italian town Filettino declares independence

Anonymous said...

Ash and Jack-

All countries hold USD's in reserve simply because the US is the largest economy in the world and the fact that they run large deficits-so naturally if the other countries run a trade surplus with the US-then USD's end up held as foreign reserves and also because of the need to accommodate hot money flows and in the case of China maintaining their currency peg (manipulation)they must buy/accumulate USD's-

The reason the USD is regarded as the world reserve currency is because no other country has the trading volume to become a reserve currency--

Any commodity in the world is priced in all denominations and can be traded/paid for in any currency-
The world commodity benchmark price on world markets is of course measured in USD but can be bought and settled in any tradable

The case of EUR/CHF debt is a good example-
People in the East bloc Euro nations borrowed Swiss Franc and it must be paid back in CHF-
"Selling EUR and buying CHF"
I agree this is a huge problem for Swiss lenders now that the EUR is depreciating/crashing against the Franc-

The US is somewhat different in the sense that they owe all their debt in USD's and can therefore print and technically never have to default-unless there is a run/loss of faith in the dollar-but i see no danger in that since all countries compete/print/devalue in coordination to try and maintain the weakest currency-which is why there will be no currency hyper-inflation in a floating fiat currency regime-

el gallinazo said...

I am getting a lot of contemplation value from the introspective nature of the current tone of the thread, and I find it a welcome complement to strictly financial analysis. I extend my appreciation to Bosuncookie, Skip Breakfast, John Day, and also Scandia for first asking the right question at the right time.

I must admit that I am thankful that I have no dependents and even that I am on the home stretch of life as the horse racers would put it. I also know the mixed feelings of wanting extend and pretend to end and also wanting to savor the last vestiges of the old pseudo prosperity. I just got a taste of it, as posted here, by being cut off for no discernible reason from credit and debit cards. I can no longer buy a Kindle book from Amazon. As I said, the faintest taste of things to come, but not pleasant.

I also fear torn between living in a foreign country where I can barely speak the language and have no cultural roots, but where I can exist at a fraction of the cost in the USA, or returning to the Vaterland, and attempt to sail the storm there. I must say that where I am now in Mexico, I am experiencing far more freedom on a day to day basis than I ever have in the USA. People are more friendly and relaxed here in this town and take no pleasure in harassing you.

I tried to build a new life in Argentina with a new family and doomstead, but I choose the wrong partner, suffered a serious loss of savings which I had invested in the physical doomstead, and now I feel my path to be undetermined. I do not wish to make my previous mistakes and am more cautious.

As to the other shoe falling, IMO we are there. The ridiculous show in Washington had only one purpose. The debt ceiling could have been agreed to in 15 minutes, for better or for worse. The sole purpose was a cover of complete buffoonery to the final act of democracy and constitutional destruction with the replacement of a 535 congress with a 12 member politburo and president. I don't think the Fed is going to try to expand credit very much now. They know it is hopeless, and the looting is almost complete. The only thing left to loot are the pension funds and the tax deferred accounts, but they have all ready been looted. The CPA's just haven't been called in yet to make it official. I think they are ready to pull the drain plug.

Just as an aside, the upcoming suits against the transnational banks by the Eric Placeholder is just a ploy to settle the trillions of dollars of fraud for pennies on the dollar. If Placeholder were serious, they would involve criminal indictments. Over a 1000 bank execs went to Club Fed for the savings and loan debacle. Times change. I wonder if the Bllderbergers chose black men to be the USA president and AG in order to distract hatred and violence away from themselves and into internecine racial hatred and strife? Doesn't take much in Usanistan.

We need a bigger war as well. A bombing of Syria is in the works to be followed by Iran. As the Oaf of Omaha put it, when the tide goes out we will see who is swimming naked. Notice how so much of our "ultra progressive" media, such as Amy Goodman and Amnesty International has focused on the "Syrian issue," with no focus on the travesty of Libya. The first rule of the CIA is to co-opt all the factions where possible, and now in this frenzy of resource aggression in North Africa and Central Asia, the sheep skins are being dropped from the baby media wolves. The collapse of the Ponzi will IMO take place before the end of the year and probably in this month or October. It will be far more intense than 2008. Liquidity is drying up very rapidly right now. The guys who study the esoteric numbers regarding credit are starting to freak. Time to short trust. It will be triggered in Europe and move to the USA in hours.

el gallinazo said...

I found the new currency of the little Italian town Filettino interesting. As Stoneleigh would put it, it is a push back of the periphery against Central State wealth extraction. These battles will be waged all over the world. The Owners are still fighting for one world political and financial government and will not accept these moves without violence. Any pretense of democratic rule is soon to be jettison in favor of the jackbooted thug of the Central State. They still believe that they can hire half of the working class to kill the other half and they are probably right.

There is no question that the Owners are using the crisis to consolidate the NWO. The only questions are:

1) Will they succeed to usher in a biblical 1000 years of dystopia?
2) Was it all planned this way from many decades ago, or is the current situation just the owners trying to make lemonade from lemons?

Anonymous said...

Re: Filettino

I wish them luck. I'll be interested in details of their progress and what elements can be applied, for those interested, in the US.

There are historical precedents for such behavior, but this is a new era; the rules are different and seem to be ad hoc, at least in the US.

Jack said...

About Turkey
I honestly don't believe that it has anything to do with Islamic fundamentalism.
These days everything is about money.
They were benefiting from Europe and USA and thats why they were good with them

Now Europe and USA is falling apart so they are becoming anti west

I thought they were going to turn to the Arabs for friendly relations but they are also falling apart.

Everyone has brains in their head and Turks also have that
They are not stupid
can someone explain Why is Turkey behaving like this.

Greenpa said...

John Day: "I have no idea how I will adapt, so why do I feel impatient?

"There is a sense of urgency for the vast unemployed youth, and those trying to eat beans twice a day with no fresh vegges, but I feel somehow more urgency to take down the oppressor-class.

An excellent observation and question; possibly deeper and more significant than you might realize.

I will give you my answer; from an evolutionary ecologist. I don't think this is discussed anywhere, or recognized; and it's a really big problem.

Our current population of Homo whatever consists of "survivors". We can look behind in a bunch of different ways, from listening to stories from Grandpa, "history", mythology, and folk tales.

Possibly a majority of all story telling deals with crisis situations; life or death - struggles. The hero- and your grandparents - survived.

We profess to treasure peace, quiet, and leisure; in fact those are the carrots dangled in front of us to make us "work" our entire youth away, so that we can "retire" (never mind that the Owners were always just kidding about taking care of us in retirement.)

My analogy:

Nature has selected us to be, physically and mentally, race cars, with 400 hp engines.

Our "goal", however, is "spare time, leisure, going fishing." The pursuit of "happiness", Jefferson wrote, struggling for the concept; and without any real way to explain what he meant- but everybody recognized it.

It's a deep, massive, conflict for our entire species. It may be the bottom cause of our economic system; and its looming collapse.

Greenpa said...

El Gal: "They still believe that they can hire half of the working class to kill the other half and they are probably right."

They do have history on their side.

Anonymous said...

used -

To me thisis less about fungibility of currency and more about margin debt and how things work in The Big Casino.

Buying paper commodities in the Casino uses huge gobs of borrowed money - money borrowed most often in dollars. COMEX leverage is perhaps 20:1.

So, when the casino players start having significant losses, they get margin calls from their (suddenly nervous) lenders. They have to start picking paper to sell to raise money to repay their margin loans, or else the lender takes over and sells their stuff willy-nilly. Margin loans aren't in gold, they're in dollars - or euros, or pounds, or yen and so that's why the run for currency in a crash.

We saw this in 2008. Everything was thrown under the bus during that time of great margin call de-leveraging. It only takes a 5% move to cause margin calls in a world of 20:1 leverage.

So even though you may hold your gold in a non-levered position and you aren't forced to sell, the price of your gold bars is linked via the COMEX to all those casino players who will be forced to sell because their other positions are dying and they need to raise dollars immediately.

And in the aftermath of that de-leveraging, your gold price will have been hammered down a great deal. That's the theory anyway. A replay of 2008. but on steroids because 2008 was just a crash, not a collapse.

el gallinazo said...


A whole hour of interesting anecdotes about chimps and bonobos with your childhood bud, Robert Krulwich.

My favorite is the first short episode where a tiny Jane Goodall acolyte is constantly harassed by an adolescent male chimp trying to make his bones by dominating all the females in the troop. Finally he tries to steal her raincoat and the results are hilarious.

Ric said...

@bosuncookie says: I have sat by death with less fear and less worry about the future. The second way was much easier. My point being that it is possible to both prepare and be with just what is. Right here, right now.

Man, that's nicely said. Reminds of a what you'd find at the Dark Mountain project. Coming Round The Dark Mountain Part 1: Uncivilisation

Du Cann then does a follow-up comparing Dark Mountain to her Transition Villages: Coming Round The Dark Mountain Part 2: the Shaman and the Village

There are a lot of Transitioners at Uncivilisation from all over Britain, from Reading, Hereford, New Forest, Brixton and Wales. There’s all the intensity of a Transition debate here but without the concerns of the Village, worrying about whether “the community” is going to come to your event, or understand you, or fund you. No battle with the Council, no struggle to get Other People to do stuff. No psychology or sitting around in a circle talking about your feelings. Everyone understands you. Peak oil and climate change and financial collapse are a given and I’m experiencing a fluency amongst the Dark Mountaineers where I often feel tongue-tied in Transition, based as it is in academic discourse and science, in practical skills I don’t have. Everyone I meet at Uncivilisation is an individual with a collective story to tell: a poet from Scotland, a professional forager, the captain of a Greenpeace ship, a designer of hydrogen cars, a researcher into Luddite history. It’s the café I wanted to walk into ever since I first read about existentialism when I was 16.

The difference between the living value and pursuing value.

sensato said...

Inspired the other day by a comment following a post by Ugo Bardi on The Oil Drum regarding the "Seneca effect", I viewed a couple of episodes from a BBC documentary series "Philosophy – A Guide To Happiness". With the introspection evident in today's thread on TAE, readers might find these enlightening, maybe even comforting:

Seneca on Anger
Epicurus on Happiness
Montaigne on Self-Esteem

lautturi said...

Nice going, Armorica.

Supergravity said...

"You watch what happens when this "Super Congress" gets rolling...and all the dems will throw their hands up and say they could not stop it!!We are being set up!"

About that Supercongress,
if this illegal entity attempts to [en]force whatever proposed legislation even after regular congress votes said legislation down, then the treasonous twelve must be arrested forthwith on the established charges of sedition. Such an arrest would not be optional but obligatory under pain of offensible collaboration, it being civic duty to safeguard constitutional integrity from enemies both foreign and domestic etc.

Anonymous said...

davefairtex said...


I'm not sure what Gold has to do with this-but I think this time is much different then 2008-
First of all the Hedge Funds are not in the Gold market with the extreme leverage like 08 and further more the CFTC has been continually raising Margin requirements on COMEX Gold/Silver futures trading which reduces leverage-also Central banks/Governments are now buying up Gold and holding it in reserves-which they were not in 08-so Gold is now finding support on any sell offs-
The public in general has never participated in the physical Gold market and so they have none to sell/liquidate-this can also be seen in the lackluster performance of PM miners who are still sitting at 08 valuations-
So i think you are mistaken about the complete wipeout in Gold-in fact I think this time it might go the other way-

Look at Switzerland-most of the largest US cities have a GDP output greater than Switzerland-
70% of Swiss GDP derives from Banking-which is in serious trouble right now and yet the CHF is the strongest currency in the world-despite the Swiss Government doing everything it can to try and devalue-
Why is that?
Because the CHF sits right next to one of the largest supplies of Gold in the World-
The CHF is locked to Gold-not by Government decree-but by Market sentiment and no Political or Banking entity can out trump Market sentiment-

Chas said...

How do your prepare teenagers for the future?

I have two kids, a HS school senior and a HS junior.

The HS senior just received her CNA certificate, so she has a marketable skill. She plans on studying nursing in college.

The HS junior is a prgramming wiz and he plans on becoming a software engineer.

They are both pursuing careers which at the moment, at least, there is some demand.

Both kids will likely go the state universities.

bosuncookie said...


Interesting that the BBC series on philosophy/happiness was primarily from a Western perspective...

Happiness. Such a useless word, in a way. What the hell does it mean?

Here's a paraphrase of an Eastern definition of authentic happiness: The ability to relate to the world with equanimity, wisdom, and compassion regardless of external conditions.

I want me some of that!

Such a happiness diminishes the frenzy surrounding collapse, contraction, overshoot, collapse, gold to $250, gold to $3000, deflation, hyperinflation, stagflation, whatever. A person with such happiness would have a different relationship with all of those things.

There are indeed paths to that sort of authentic happiness. "Thus I have heard."

Jim R said...

Such an arrest would not be optional but obligatory ...

I can imagine a course of events in which the various police/military organizations fragment into groups following various interpretations of "obligatory" here... Chaos. Unfortunately.

Rule of Law has been systematically dismantled from the top down over the last five or ten years.

Jack said...

Hi used
This is my opinion about what you said
margin raised
yes I agree

banks/gov buying
gov will need cash and might be forced to sell
cant trust CB

Public has lots of gold
I think they will be forced to sell in a crisis

PM miners sitting on gold
I dont know how much gold they have

Maybe you can explain this a bit more
CHF sits right next to one of the largest supplies of Gold in the World-
The CHF is locked to Gold-not by Government decree-but by Market sentiment and no Political or Banking entity can out trump Market sentiment-

scandia said...

New post up at London Banker

" Liquidity,Bank Capital and Market Reform "

Anonymous said...

Hi used
This is my opinion about what you said
margin raised
yes I agree

banks/gov buying
gov will need cash and might be forced to sell
cant trust CB

Public has lots of gold
I think they will be forced to sell in a crisis

First of all-i do not want to start some pissing contest about gold-that is not what i was commenting on-

The Government will sell gold to raise cash?
The Government can print cash-why would they have to sell gold to raise cash-Holding gold reserves allows for increased printing ie: Switzerland

The public does not have a clue about Gold-in fact i doubt 1 in 1000 people could even tell you what the price of gold is today-

People are and have been selling gold/jewelry not buying it-
Very few economic blog participants are bullish gold aka the AE-

The CHF?
Switzerland is printing as fast as they can and cannot manipulate the currency lower-
27% of their GDP has been loaned into the PIIGS and other shaky east bloc countries and defaults will hit them hard-
They have no amount of resources/manufacturing to underpin their currency-so what else besides the largest per capita supply of gold reserves in the world is holding it up-why is it seen as a safehaven currency?
"Western private households are probably at the bottom of the list of gold holders, having been driven into paper investments in the past 25 years. It is believed that the Western world holds only less than 3% of its assets in gold."

scandia said...

Re "There are indeed paths to that sort of authentic happiness"
Talk to Lautturi. I think he just rowed his " muscle " boat to that place:)

Supergravity said...

Criminal prosecution of the treasonous twelve is mandated by law if sedition were established, sedition is a serious felony and evidence of felonious mischief committed by any members of congress does oblige to criminal prosecution, immunities inherent to the functioning of office notwithstanding, felonies are never lawfully inherent to said functioning.

It would be sedition for this supercommittee body to enforce legislation which is explicitly unauthorised [voted down] by congress, within the stipulations of said offence, being an attempt [or incitement] to coerce alteration of governmental structure or to overthrow the consitutional republic by force, so evidently committed by supercommittee members when willfully enforcing any legislation explicitly disauthorised by congressional voting procedure.

It is disputable whether citizens' arrest of said supercommitee members may be deemed lawful within the district of Columbia, yet on sufficient evidence of sedition the criminal arrest [by other authorities] of this supercommittee would become necessary.

Congress itself is explicitly forbidden to subsume the consitutional mandate of its own functioning, therefore establishing such a supercommittee without authority to do so may itself entail an offense of sedition committed by congress upon itself, when supercommittee enforcement of unauthorised laws is to be coercively misauthorised, so establishing seditious intent.
Otherwise, if no legislation proposed by supercommittee is ever enforced against congress' will, sedition would not be immediately evident.

Jack said...

I am not an expert on this subject so my opinion is going to be that of an average person
We know that Governments print money as they want but they do have limits.
If their debt is 1 trillion and they only have 1 billion to pay than they cant print 1 trillion amount of money.
I think Ash will explain this better

Jack said...

Why isn't Canada in that list

el gallinazo said...

Margin on gold at CME is still over 20 to one despite increases, or under 5% on current value. With this kind of leverage, I don't think the margin squeeze idea has been disabled.


The probability of the congress not passing anything the politburo enters as a bill is exactly equal to the Fed rate. I would see the only useful work now for the congress is to hook their collective asses to the drive shaft of an electric dynamo and then invite the PM of Israel to address a joint session. As they bob up and down to applaud, we could convert some of that taxpayer caviar and martini to useful energy.

Jack said...

I thought this was the amount owned by banks but I think
this list is showing the amount owned by individuals.
If this is a list for the pollution of those countries I think something is wrong with it
How can they know all those figures

Anonymous said...


I thought this was the amount owned by banks but I think
this list is showing the amount owned by individual
That is what "Central Banks/Governments" hold-divided by the population-you aren't reading it correctly-


Why isn't Canada in that list

Because Canada has no Gold-the crook Mulrooney was swindled out of it 700 metric tons for the sole purpose of allowing Canada into the G8-so that the glutton Brian could hobnob around with all the so called "world elite"

He should be tried for Treason-

el gallinazo said...

Margin on gold at CME is still over 20 to one despite increases, or under 5% on current value. With this kind of leverage, I don't think the margin squeeze idea has been disabled.

Before you can access what the actual leverage is-you must also decipher what part of it is a hedge for some other bet and what part of it is fully hedged against another commodity-
How much of it is held naked and how much is secure-
How much is backed by actual below ground reserves-
Gold producers use the COMEX to hedge and have deliverable product-
The margin requirements shake out the weak/naked hands

Here's a fact for you-
Less than 5% of Gold transactions are through the COMEX- which is why some goldbugs are clinging to the false hope of a COMEX fail to deliver-that will supposedly cause the gold price to spike-

Anonymous said...

Jack-wrong link-try this one

snuffy said...

El G

Check your e-mail.

Bee good,or
Bee careful


Anonymous said...


I've been thinking about ways to "get in the streets" without actually getting in the streets.

Here are a few ideas:

1. Big Finance Capital (BFC) owns big things - so stop supporting big things. McDonalds? Nope. Wal Mart? Nope. Costco? My bill is down by about 75%. You get the idea.

2. Buy small, locally owned and pay CASH to the small businesses - don't use credit cards. The mega banks get ~2% of every sale with a credit card - and the local merchant doesn't get it. I want all my money going to the local merchant, not 98%. When I plug my nose (literally) and go to Costco, I use their American Express because BFC owns Costco, too.

3. If you bank with one of the bigs, please... stop posting here and complaining about anything as YOU ARE THE DIRECT FINANCIER OF YOUR OUR DEMISE. Vote these crooks off your island. Bank small.

4. If you have to have a credit card, make sure it isn't a mega bank credit card - get one from a local credit union or local bank.

5. Spread the word in as positive a way as you can.

They are waging economic warfare against us and we need to defund them as much as possible.

Anonymous said...

Speaking of defunding the enemy...

I was watching a documentary - I think it was "The Most Dangerous Man in America: Daniel Ellsberg," and I noticed something that really struck me.

There was a scene where a grieving father who had just lost his you daughter to the American bombing. He held up her shirt and said that he wanted to mail his shirt to LBJ (like LBJ would care, but some don't get it).

But that wasn't what struck me (well, it did, but not for the purposes of this post).

What struck me was a guy in the back ground drinking a bottle of what I think was Coca Cola.

Guess who gets the profits from that bottle of Coca Cola?

Big Finance Capital.

Guess who just murdered this man's daughter?

Big Finance Capital.

If it was Coke, the guy in the village was funding the bombing of his own country and the bombing that murdered this poor man's daughter.

Yes, Coke is big - AND BAD.

Yes, so is Pepsi - it is bad, too.

BTW, they don't compete, they are both subdivisions of the BFC Owners... the same BFC crowd controls both.

Yes, you will pay more in order to support your local community - but that exposes one of BFC's primary method of control...


Remember that... because one day they will pull the plug, the boot will hit your neck and "cheap and convenient" will no longer be so.

John Day said...

@Robert 1
Have not been to Bodhgaya, but have been to Dharmsala, and blessed by H.H the Dalai Lama. Better weather...
@Skip Breakfast
"The suffering of uncertainty" = "Existential Angst" for us...
The second "battle of Fallujah", which commenced as soon as the Democratic traitor Kerry conceded to the Republican traitor, Bush, was genocidal, with white phosphorous, murder of doctors and reporters and all other body-counters beforehand. Devastation.
I ride my bike through UT campus to work. In the 70s I walked through UT campus to work. Always have cognitive dissonance with unruly masses at football games. too Orwellian, especially now. Big game today. Streets blocked off. Guards about.
@el gallinazo
Mexicans are very graciuos about butchered attempts at Spanish, in my experience
I'm evolved for species success, not my own satisfaction?

Anonymous said...

used -

"Here's a fact for you-
Less than 5% of Gold transactions are through the COMEX- "

Hey I love factoids like that. Do you have a source for this one? I love sources just about as much as I love factoids.

But as for the whole deleveraging claim - I just point to what happened in 2008. Pretty clearly gold got thrown out with everything else, for "some mysterious reason" which I'll stand up and say was because of de-leveraging. Clearly, there was a flight to safety, but gold wasn't one of the safe haven plays at that point.

The whole point was about why traders would need dollars in a big downturn. Its about leverage. Gold is one example. Any other leveraged investment would do. Hedge funds that operate on leverage (and many do) would also qualify. They have to "sell stuff' in order to get dollars to satisfy their margin calls - which drives down the price of stuff, and raises the price of dollars.

Push things down far enough, and margin calls start happening. Futures are the easy target, since they are so highly levered, but other margin loans exist as well. And liquidating such loans creates demand for dollars because that debt is denominated in actual currency.

Same thing about our friends the Casino Bankers. Their prop desks are trading on leverage too, and if their risk manager tells them its time to get out, its time to get out. Leverage gets unwound, paper stuff is exchanged for dollars.

I have seen it many times. The equity market drops 5%, gold jumps $50, but the gold miners get sold off because - well, someone is throwing out babies along with bathwater simply because they have to. It makes no sense, but that's what happens.

Its cool if you don't believe it. I've seen it in action. I don't know what will happen the next time we have a real crash, but I'd be willing to bet any levered instrument will take a beating. It is possible safe-haven buyers will bid for some of the items being tossed overboard - but its also possible they will be swamped by sellers desperate to meet their margin calls.

I honestly don't know how it will turn out. I'm not smart enough to have a level of certainty about such things.

lautturi said...

Here's ex-central banker Bernard Lietaer from Belgium who talks about the problem - it's systemic and it's money (like we didn't know that). Very nice presentation from about a year ago, highly recommended.
Part 1
Part 2
Part 3
Part 4
Part 5
Total about 40min.

scandia said...

@skilo, I like your suggestion to withhold. Enough people doing small actions like that could count for something. At the very least it strengthens local systems which we will need.

Skip Breakfast said...
This comment has been removed by the author.
Skip Breakfast said...

@el gallinazo

Your Argentine foray sounds like it was stressful. But you're also living an interesting adventure, and thinking strategically about surviving the worst. I suppose I wonder if you won't find more comfort back in the USA. I wonder if Mexico will become much more destabilised in the unwind that USA. What do you think? Not to mention the fact that being a foreigner in a foreign land puts one at a disadvantage, no?

I watched "Collapse", the excellent documentary about Michael Ruppert, who has been preaching about the great unwind for years now. He's an older man, and things did not unwind as rapidly as he feared. Which means he has sacrificed a lot to get his life in order to prepare himself very, very early. Maybe he gave up too much, too soon.

Supergravity said...

@El Gallinazo
"The probability of the congress not passing anything the politburo enters as a bill is exactly equal to the Fed rate."

You made me laugh with that,
but if they do attempt to enforce anything against congress' will, then sedition would happen. Its illegal for congress to even institute such an arrangement where supercommitte can theoretically enforce legislation against congress' will.

Congress itself is explicitly forbidden to subvert the consitutional mandate of its own functioning, therefore establishing such a supercommittee without authority to do so may itself entail an offense of sedition [or derelictions of duty] committed by congress upon itself, whereas coerced supercommittee enforcement of any legislation as explicitly disauthorised by congress, when said supercommitee was misauthorised by congress, would recursively establish seditious intent.

Im super seriously, the treasonous twelve must be apprehended on charges of sedition in the event of their enforcement of disauthorised legislation, all members of congress who voted in favor for the establishment of said supercommittee may then be held accountable for dereliction of duty, if not for autogenic sedition.

Supergravity said...

But seriously, monetary metals cannot attain negative value flux density, whereas credit currency can do so.

Anonymous said...

There is a good post at Jesse's Cafe today, for those who continue to believe that a grand deflation is inevitable.

I like TAE, but so far, Jesse has been right, and TAE has been wrong.

Record counts.

YesMaybe said...


There is a good post at Jesse's Cafe today, for those who continue to believe that a grand deflation is inevitable.

I like TAE, but so far, Jesse has been right, and TAE has been wrong.

Record counts.

I read the post, but (a) it didn't make sense to me (e.g. if money isn't the same as credit, then fractional reserve banking creates credit, not money, as far as I can tell), and (b) works under the assumption that an economic recovery is possible, which is obviously false given peak oil.

And given that the blog spot claims that it's important to be able to explain things, not just make right guesses sometimes, I think it's quite undermined.

Anonymous said...

davefairtex said

Hey I love factoids like that. Do you have a source for this one? I love sources just about as much as I love factoids.

Your post drips with uninformed sarcasm and is totally void of the "factoids" you require so--
Let's see your sources that Hedge Funds are leveraged like they were in 08?
I have some data that says-you are wrong about the leveraged positions of Hedge Funds this time around-but i want to see your "sources"

Unallocated Accounts
Unallocated Accounts represent the most popular way of trading, settling and holding gold, silver, platinum and palladium. Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties. Credit balances on the account do not entitle the creditor to specific bars of gold or silver or plates or ingots of platinum or palladium but are backed by the general stock of the precious metal dealer with whom the account is held. The client in this scenario is an unsecured creditor.[4]


We spoke to the Director of Metals Products in the COMEX Marketing Dept. This is what COMEX says;

What you may have thought about COMEX

It may seem reasonable to you to assume that the ‘net’ position on COMEX would be covered by COMEX actually ensuring that this amount of gold or silver is held in one of their four COMEX approved depositories that are all located in New York city. After all, delivery of the gold and silver is effected via electronic warrant. This would reassure us that COMEX dealings did affect the gold or silver price, would it not?. After all, supposing someone went short and could not deliver, who would supply the metals? The implications are that COMEX is constantly adjusting their gold & silver holdings to make sure that no-one would be left without the metal they bought there. Not so!


The long and short of it is that COMEX is simply a ‘cash’ market that does not deal in gold or silver or other items at all. They simply provide a cash market where risks are laid off. Yes, physical dealers in gold and silver may well use the market to ‘hedge’ opposing real physical positions so that they don’t face a price risk and yes, traders o[or gamblers] use the market to take leverages speculative positions that are in now way backed by the physical possession of the metals.

So you see-if the Comex was unable to meet delivery-they do not have the means to physically cover delivery demands-they do not have to settle in physical Gold-they can settle any claims in cash-
The Comex is simply a large "paper trading" platform and holds about 5% physical Gold to the total amount of paper gold traded on a daily basis-

Thus my point about no big deal for Gold if there is a Comex default

scandia said...

@El G...just a thought. Have you ever considered Canada? You have friends up here:)No it is not cheap but there are some advantages the least of which you wouldn't stand out as foreign/other.No need for language lessons:)For the time being we still have universal healthcare.

scandia said...

Pepe Escobar doesn't pull any punches with this article on Libya. I am surprised he gets away with it.
"It's TOTAL war, monsieur "

Ashvin said...


"Im super seriously, the treasonous twelve must be apprehended on charges of sedition in the event of their enforcement of disauthorised legislation, all members of congress who voted in favor for the establishment of said supercommittee may then be held accountable for dereliction of duty, if not for autogenic sedition."

As much as I appreciate your insights, what's the point of bringing up this point? No treason or sedition has occurred according to the law and you know that. In fact, nothing that would ever stand as criminally guilty "beyond a reasonable doubt" has occurred. As we have discussed before, the Constitution and federal statutory law isn't worth the parchment, paper or computer database its written on. It's ridiculous to think the American legal system, based on the English legal system, has something valuable to offer a human society struggling for a sense of fairness, equality or justice... it doesn't.

Anonymous said...

YesMaybe said...

There is a good post at Jesse's Cafe today, for those who continue to believe that a grand deflation is inevitable.

I like TAE, but so far, Jesse has been right, and TAE has been wrong

From the link-

Like gold or any other asset or liability, credit must be transformed into a utilitarian form of wealth, or money, in order to effect the exchange. You may HAVE a million dollars in credit somewhere, but at some point someone must agree to transform that credit into actual money for you to use it. If an unused million dollar credit line expires, we do not see ourselves as a million dollars poorer.

Jesse still doesn't get it and as usual he's got everything totally assbackwards-

People "did" transform credit into money-in fact he's wrong about separating credit from "money" during credit expansion-
Credit is money-
Here's simple proof-
I have 20K limits each on 2 credit cards-
I have a debit card for a checking acc. with a 100K credit line- and $100 in my wallet-
I can draw on all of it--I can spend it all-
If I default on the payment-
Is someone out/poorer?
Does someones balance sheet have a loss?
Did someones money supply decrease?
Did the 140K I spent into the economy drive GDP?
Sounds like money to me-
On the other hand-credit in contraction acts very different than cash-
Debt remains and if the value or market price of the asset falls-the debtor experiences a decrease in money supply = Deflation-
If the debtor defaults the banks have a decrease in money supply-
Did this just not happen to credit leveraged banks and debtors?

Credit/debt supply to cash supply-

52 Trillion credit supply-
2.8 Trillion cash supply-

"Someone" has "spent" 52 Trillion dollar on "something" and don't think for a second that contraction anomaly on a 60 year chart isn't significant-
Think we can just forget about the credit/debt supply and focus on only cash supply?

The economy will not enjoy a sustainable recovery without a significant improvement in the media wage, if you wish to look at some simplistic indicator. Those reforms that people propose, if any, since continuing to steal from the weak seems to be in vogue in some vocal circles, will be effective to the extent that they increase it.

Right-If the truth were known-likely 20% unemployment and climbing because Corporations have moved overseas because of the low wage advantage and Jesse thinks increasing wages here in a falling job market will be what has to occur to bring about a recovery-

Stoneleigh said...

We need Model People:

John Doe and Mary Jane have:
W children
X savings
Y debt
Z marketable skills

They live in East Jabip. Their family lives in West Jabip, which is ? miles away.

Fill in the parameters: W, X, Y, Z, locations, and distance.

Offer suggestions for the course of action moving forward. Anyone?

YesMaybe said...


Yeah, I was quoting GS, and then I said Jesse is way off.

Nassim said...

Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree

I keep on repeating this. The days when the USA/ UK/ France/Germany/ Italy/ Spain/ Canada/ Australia/ etc. made all the big decisions about what does and what does not matter in finance are rapidly drawing to a close.

Anonymous said...

YesMaybe said...


Yeah, I was quoting GS, and then I said Jesse is way off.

I snagged your name and cut GS by accident-apologies-

Punxsutawney said...


Has anyone heard about a proposed tax here in the states that would apply a 1% fed tax on any deposits made at banks, whether cash or electronic?

My mother in law was asking because a friend of hers had received an e-mail about it. Since it mentions Obama proposed it, it sounds like right-wing fear mail to me but sometimes there's a kernel of truth in these things.

Seems like a great way to encourage me to abandon the banking system entirely. Easier said than done of course.

Draft said...

Punxsutawney: it's a right-wing fear email, no basis. I've been hearing about it as well and looked into it, and just like the birth certificate thing these email rumours take on a life of their own among people who don't know better.

When there are real conspiracies out there, like the enacting of laws over the last few decades to create the biggest ponzi bubble in human history to enrich the few at the expense of the many, I get tired of mickey mouse rumours designed by political ideologues to rile up their base.

Anonymous said...

used -

I don't recall saying hedge funds were levered "like they were in 2008". Could you please re-read my post and point me at the offending statement?

As for my post dripping with uninformed sarcasm, I apologize for both my uninformed state and the the sarcasm. Let me try again.

According to my information, traders on COMEX do about 18M ounces per day on average. LBMA trades about 18M ounces per day as well. If COMEX is 5% then LBMA would be 5% - where is that other 90% traded? (COMEX numbers come from my trading app, LBMA numbers come from that same wiki page you quoted)

As for leverage, all the big US banks are levered about 12:1 or so - for their official ratios anyway. CDS (effectively naked puts) don't appear in those ratios. Neither does US treasury debt. I don't know exactly what the risk weighting for sovereign debt is in europe, but I'm betting its not 100%.

From my understanding, euro banks are more highly levered than their US counterparts. And with a bunch of (low risk-weighted) sovereign debt on the books, just imagine the amount of forced selling that will happen when a euro sovereign finally defaults. Oops I guess that low risk rating on sovereign euro debt wasn't so appropriate after all.

Even banks that survive will have to dump unrelated positions to reduce their leverage due to the hit to capital from losses from the default. Unless of course they get bailed out by the sovereign - but wait, aren't these the same sovereigns that are defaulting?

And those losses will transmit to the US, because some number of US banks have written CDS (naked put options) on euro sovereign debt. Which ones? We don't know. But the bankers know. Perhaps watching bank stock prices can give us a clue, since the bankers who do know are quite happy to short the stock of their vulnerable competitors.

And the stuff sold will likely include gold. And the leveraged nature of COMEX trading will mean many long specs will likely bail out as well and contribute to the move down. They'll buy back in as soon as prices stabilize, but during the initial hurricane nobody will want to be long.

Will gold safe-haven buying compensate for the forced selling? I'm guessing not, at least not initially. The sell-side pressure will likely be too great - kind of like a bigger version of what happened on Aug 22/23. But that's just a guess.

Nassim said...

re: Spain's 40% youth unemployment

It seems to me that no one is bothering to mention that most employment is in small firms - SME's. Politicians, the media, the public-sector, economists and big firms are obsessed with everything else - except the small-scale private sector. The laws in all European countries without exception are skewed in favour of the big companies and the big bureaucracies. Whenever a law is enacted to "protect" employees, because of the enormous economies of scale in that type of complexity, it greatly favours entrenched and big business.

For example, when the number of days of maternity leave is increased, small firms have problems with coping with that due to the increased load on the remaining staff. Also, the almost fixed cost of administering it is trivial for big firms but very substantial for small firms - especially for their managers/owners.

On the other hand, big firms are more likely to operate internationally and it is then far easier for them to ensure that the profits end up - untaxed - abroad. Small firms simply do not have that option. For practical purposes, it is almost impossible for a firm of any size to compete properly with another firm in the same sector that is not paying its taxes.

In countries like Spain, France and so on, small firms do not bother to expand as it is just not worth it. This is really sad as there is plenty of evidence out there that most people do work for small companies.

Blackbird said...

Interesting. A conventional Investing wisdom talk/chat room for the middle to upper middle class managerial sector -- the 70%-90% bracket of the income spectrum.

There are all kinds of discussion threads on investing. Huge participation. Diametrically opposed to TAE world view.


Lots of discussion about the relative merits of 5 year Ally bank CDs and their 6 month early withdrawal interest penalty. Lots of Ally Bank (former GMAC) fans over there.
It gives you a different perspective on how serious people save and invest. Low cash (as in commercial bank deposits), diversified stock and bond funds. Rebalancing. In it for the long haul. As far as treasuries, its TIPS only -- nothing else exists because you've got to keep your nose above the inflationary water-line.

Should be interesting to view thread dynamics over the coming weeks. Given the tone conventional upper middle class managerial wisdom, the coming shitstorm is going to rock that boat something merciless.

Blackbird said...

NPR Gold for the middle classes!

American Public Media -- Marketplace Money Show:

Tess Vigeland interview of financial advisor Carl Richards and economist Carl Thornberg offering the upper middle classes financial advice for volatility as of August 12th:

Interviewer Vigeland: "People predicting that we're going into a double-dip recession or saying that we actually never came out of one. I know you don't have a crystal ball, but is this deja vu?"

Economist Carl Thornberg: "....the stock market has predicted nine of the last five recessions. My feeling is is that this is one of those four. That is to say that the fundamentals of the economy are not good, but they're not bad either. For an economy to go into a recession, where it's actually contracting, there has to be some sort of shock, there has to be some sort of external driver. And boy, I've looked across all the numbers I looked at and I don't see where it is."

Interviewer Vigeland: "Then, Carl, let me ask you, as a financial adviser, how do you counsel your clients on how to deal with this kind of volatility -- if it is the norm?"

Carl Richards: "If this money is like Ron mentioned is supposed to be invested for the long term, sure, buying today feels better than buying two weeks ago. But we don't know what it's gonna feel like a week from now. And so, to me, I still love -- Warren Buffet's got a lot of great quotes -- but still of the quote when he said, "The best time is to buy is whenever you have money and the best time to sell it never."

Nassim said...

the best time to sell it never.

Over here, in Australia, he is venerated. Personally, I think he was amazing - but that was a long time ago. Now, he is seems to be keen to take as many people as possible down with him.

Anonymous said...

CharlieRose -

Nice references.

I remember the whole Vanguard balance your portfolio minimize expenses concept. It makes sense within its own worldview (and its certainly better than handing off your money to the 2.5% per year managed funds), but that whole thought system assumes at its core business as usual to eternity.

In their discussion of the impending sovereign default of Greece, one guy talks about the virtues of raising the allocation of cash. "It might be a good thing to sit on some cash for a bit. We are talking 1-3% of portfolio here."

Interesting world view.

Ashvin said...

BBC Article - A Point of View: The Revolution of Capitalism

"But when he argued that capitalism would plunge the middle classes into something like the precarious existence of the hard-pressed workers of his time, Marx anticipated a change in the way we live that we're only now struggling to cope with.

He viewed capitalism as the most revolutionary economic system in history, and there can be no doubt that it differs radically from those of previous times.

Hunter-gatherers persisted in their way of life for thousands of years, slave cultures for almost as long and feudal societies for many centuries. In contrast, capitalism transforms everything it touches.

It's not just brands that are constantly changing. Companies and industries are created and destroyed in an incessant stream of innovation, while human relationships are dissolved and reinvented in novel forms.

...The trouble is that among the things that have been destroyed in the process is the way of life on which capitalism in the past depended."

Jack said...

Hi Ash
I was able to take a quick look at that article.
Communism failed because people were doing business under the table.
It was as corrupt as our system that we have now.
Whether we will ever have a system that will be fair to every individual is something that I cannot see happening.

Ashvin said...


Your point is well taken, especially in China...

The Atlantic Magazine: Arab Spring, Chinese Winter

"Why, then, has the government reacted as if the country were on the brink of revolt? Do the Chinese authorities know something about their country’s realities that groups like Pew have missed, and therefore understand that they are hanging by a thread? Or, out of reflex and paranoia, are they responding far more harshly than circumstances really require, in ways that could backfire in the long run?

...Those who think the government has good reason to be worried say that the accumulated tensions—political, economic, environmental, and social—of China’s all-out growth have reached an unbearable extreme. By this interpretation, the seeming satisfaction of the Chinese public is a veneer that could easily crack. “If one were to read only the Party-controlled media, one might get the impression that China is prosperous, stable, and headed for an age of ‘great peace and prosperity,’” Liu Xiaobo himself wrote, in an essay shortly before he was arrested. (The English version, translated by Perry Link of Princeton, will appear this fall in a collection of Liu’s essays and poems, No Enemies, No Hatred.) He continued:

Not only from the Internet, but from foreign news sources as well as the internal documents of the regime itself—its ‘crisis reports’—we know that more and more major conflicts, often involving violence and bloodshed, have been breaking out between citizens and officials all across China. The country rests at the brink of a volcano.

By June of this year, a wave of bombings, riots, and violent protests at widely dispersed sites across the country illustrated what Liu was warning about. The trigger of the uprisings varied city by city—ethnic tensions in some areas, beatings by police or chengguan in others—but they added to a mood of nationwide tension. “With rampant official corruption, inflation, economic disparity, and all sorts of social injustice and political tensions, the threat to the CCP rule is very much real,” Cheng Li, who grew up in Shanghai and is now a specialist in Chinese politics at the Brookings Institution, told me this summer.

Five years ago, in his book China’s Trapped Transition, Minxin Pei argued that China would be hitting a limit of its current economic growth scheme in about seven years’ time, or about now. Pei, who is also originally from Shanghai and is now at Claremont McKenna College, in California, said that China’s state-led development model would work wonderfully—up to a point. The same traits that made the country a miracle of the infrastructure-and-cheap-exports era would handicap it, he said, when it had to compete in higher-value industries and jobs, as it is now trying to do.

“If you were sitting in Hu Jintao’s office, you would see the protests, the ethnic tensions,” he told me recently, “and you might think, ‘If we are not tough enough, things could quickly get out of control.’” From the central authorities’ point of view, according to Pei, there is one clear lesson of Tiananmen Square: “They have learned from past experience in 1989 that you have to be very tough at the beginning, to nip things in the bud. It is much better to have overkill than underkill.”

I heard similar sentiments from people now working in China, Chinese and foreign alike. For instance, a well-known economist in China, who asked not to be named, said that the government was worried precisely because it understood the difficulties of the economic adjustments ahead. “There is increasing awareness of how out-of-control the growth model has become, and it will require a sharp adjustment involving a growth slowdown,” this person said. “The more aware the leaders are of the strains in the economy, the more worried they are about the difficulty of the adjustment”—mainly through layoffs, bankruptcies, and other economic shocks.


Ashvin said...

"If, months or years from now, the volcano should explode and the veneer of control should crack, it will be easy to find evidence that this was inevitable all along. When I asked an academic at one of China’s leading universities how he would explain the government’s harshness, he wrote in an e-mail that the level of public discontent was extreme:

'It is hard to get anyone in Beijing under the age of 30 to indicate anything but contempt for the government, and I suspect this is true in a lot of other cities. There really is a sense among young people and college students that everyone is grabbing everything they can, and it is noteworthy that princelings [children of senior party leaders] no longer want to be investment bankers but rather want to be private equity investors. In other words, getting paid millions for your connections isn’t interesting anymore. Owning the whole lot is better.'"

The argument for "reflex and paranoia" is also presented in the article linked above, but, of course, it is much less convincing.

scandia said...

@IMNobody...thinking of you, missing your presence here

Anonymous said...

davefairtex said-

According to my information, traders on COMEX do about 18M ounces per day on average. LBMA trades about 18M ounces per day as well. If COMEX is 5% then LBMA would be 5% - where is that other 90% traded?

I think this is what's misleading you as to my first comment-

"Less than 5% of Gold transactions are through the COMEX- "

It should say-or i meant to say-

Less than 5% of "Physical" Gold transactions are through the COMEX-

Which is why i said a COMEX FTD would have little effect on the upward price of Gold-

Physical buying happens mainly through the hundreds of Bullion banks-like Perth-Zurich-Japan
Goldmoney-Bullion vault-Hong Cong--thousands of local coin dealers-not to mention the prolific Asian/Indian black markets-

"Under COMEX rules, the counterparty must be informed and agree to be the counterparty in a physical, gold transaction. As COMEX itself will confirm, only 5% of such transactions will involve physical gold. So COMEX is not really the place to buy gold. "


Anonymous said...

davefairtex said.

Same thing about our friends the Casino Bankers. Their prop desks are trading on leverage too, and if their risk manager tells them its time to get out, its time to get out. Leverage gets unwound, paper stuff is exchanged for dollars.

I have seen it many times. The equity market drops 5%, gold jumps $50, but the gold miners get sold off because - well, someone is throwing out babies along with bathwater simply because they have to.

Yes that happened in 08--Hedge funds levered to the hilt with no hedges-
Where are they today?
Blown sky high and out of the market-
Do you suppose the Hedge funds that did survive 08 are back in the market and unhedged?

The casino players of yesterday are done-out of business and people who lost will likely never use a Hedge fund again-credit has been virtually non existant since-
So "Casino Players"?
Maybe not so much anymore-
Peloton joins Thornburg Mortgage Inc. and Sailfish Capital Partners LLC on the growing list of funds and companies that have had to sell securities or shut down after banks restricted how much they could borrow, or demanded more collateral as values of securities backed by mortgages slumped. The world's biggest financial institutions are cutting off lines of credit to hedge funds after at least $163 billion of asset writedowns and market losses.

"More hedge funds will blow up this year than ever before," said Michael Hennessy, who helps oversee $10 billion of hedge fund investments at Morgan Creek Capital Management in Chapel Hill, North Carolina. "Financing is much harder to get. The bubble has burst.

So sure-if there is a panic sell off-most everything will take a hit-at least initially-but the "unhedged" leverage is nowhere near what it was in 08-

Gold itself might decouple sooner-and trade with the USD/CHF-
You cannot deny Gold has caught the safehaven bid-along with the CHF-

btw--I'm long USD too-

Speculation on my part-as is yours about trying to capture micro moves in Gold and predicting the outcome of a sell off-

Anonymous said...

davefairtex said

I don't recall saying hedge funds were levered "like they were in 2008". Could you please re-read my post and point me at the offending statement?
"But as for the whole deleveraging claim - I just point to what happened in 2008. Pretty clearly gold got thrown out with everything else"
I didn't find it offending-just misplaced as to comparing 08 with today-

Jim R said...

Remember when anyone that expressed dissent from the Bush administration was a "traitor"? Remember that? And later some of the same wingnuts were using the same terminology for folks who agreed with any Obama policy they were dismissing? They had trouble making it stick, but there you go.

Well, terms like "sedition" and "treason" are likely to be splashed around even more liberally shall we say, in the near future. As I was said, I can imagine a time in which the "constitution" is whatever your local warlord thinks it is for the day.

As for our current bloated regime, I wouldn't hold my breath for anyone to arrest members of the "supercongress", whether the Constitution authorizes it or not.

Punxsutawney said...

Draft said:

When there are real conspiracies out there, like the enacting of laws over the last few decades to create the biggest ponzi bubble in human history to enrich the few at the expense of the many, I get tired of mickey mouse rumours designed by political ideologues to rile up their base.

Thank you, my sentiments exactly.

Just this week a co-worker forwarded one of these from an alleged professor of history which claimed that Obama will become the next Hitler and he was building a legion of Brown Shirts (read skin color other than white) to enforce Marxism on us and that there is two trillion unaccounted for at the Fed. Really, only two trillion? doG knows, I have my issues with Obama, his economic team says enough right there but this idea is ridiculous and the arguments in it were “mickey mouse” to say the least.

She knows I pay attention to what’s going on and wanted me to entertain the idea and confirm her fears. Unfortunately (I was not channeling my inner Stoneleigh that day) I was a bit harsh in my response (no time for stupidity) and asked this person to not send this stuff to me in the future.

But this stuff does its job. Politically it is effective in the US at least. It distracts us from the real stuff going on quietly. Keeps people afraid and with fear, closes their minds.

Ashvin said...

Justin Ritchie (referenced in my post) has also written a great article about his trip to Europe in a Vancouver publication. Here is an excerpt about Spain:

Postcard from Europe, Verging on Collapse

"As I stepped into Spain, the Puerta del Sol was being occupied for the first time by the Spanish Indignados. To support them, students poured into the square just a few blocks away from me in Granada. I was staying with an old friend from the U.S. who was lucky enough to find a job when he moved there two years prior. He explained that the unemployment rate in the Andalusia region was over 40 per cent. Nearly one out of every two people walking around was unemployed. After graduating from the universities, technically adept and aspiring information technology or engineering professionals would be fighting to find jobs that paid 800 euros a month. The average salary across Spain was a mere 1,000 euro per month. Many friends of his had left for the U.K. or had traveled across the U.S. and Canada searching for employment that had a decent level of compensation.

As I browsed the town, the local shops were mostly empty. The local politicians bragged that they had ended "entitlement payments" to airline companies which caused them to withdraw from the town's airport, dramatically impacting local merchants that relied on visitors to the incredible Moorish palace of the Alhambra. Students marched with megaphones and signs proclaiming the need for dramatic action against this economic injustice, politely ignored by happy tourists. A friend sent a text saying there would be the potential for conflict that evening, because an order for eviction of the public square at midnight had been issued. There may be tear gas, he said.

But when the clock struck 12:00, the thousands of Spaniards occupying the square jumped passionately in unison, chanting and cheering the fact that no riot police showed up. The Spanish youth had won the right to command public space, and in doing so created a marketing tool more powerful than any political candidate's advertising. They could not be ignored in the midst of Spain's election. Locals expected these protests to stop immediately after the election, yet as the country's economic situation deteriorates further, the Indignados have only become more coordinated and have spread their net wider.

D. Benton Smith said...

This may seem so obvious as to be fatuous, and maybe I am, but I still have to say it.

If counterfeiting currency is undetectably done then it is a crime only because of the inflationary effect it has on the currency, thereby stealing a tiny amount of purchasing power from everybody.

A great deal of law enforcement effort and expense is devoted to curtailing it nonetheless.

In a credit based monetary system, where virtually all money exists solely as the accounting of debts, it would seem that a similar devotion of law enforcement attention would be focused on the cleanliness and accuracy of accounting.

But such is not the case.

The question of WHY fairly screams for attention, but the screams are dismissed, ignored or muzzled.

While the prices of trade goods being bought and sold are more or less allowed to rise and fall, notice that the book value of collateral on debts is NOT allowed to rise and fall.

It is instead being held onto, at original book value, with a such a tenacity that you might think it was a matter of life or death. And maybe it is.

That inflexibility of value is one of the hallmarks of a monetary base. There's your first hint.

The accounting discrepancy ( some would call it crime ) gave rise to the so-called “mark to market” versus “mark to fantasy” debate. Although you could hardly call it a debate when one side is not even talking.

The debate you do hear is over the pros & cons of whether money should be fiat ( that is, based on the promises of banks ) or based on gold or other precious metals. But that misses the point altogether. Advocates on both sides of the issue mis-state ( or omit ) what the basis of our present money supply currently is.

How curious! The obvious fact, the fact of what our money is actually based on, seems to have been left out of the discussion.

For better or worse the money of planet earth is based on the book value of assets, set at the time that money was first loaned against them.

In the current paradigm this collateral consists of houses and similar real estate. Theoretically it could have been something else, but in reality it wasn't something else. It was houses and the like.

If one now “marks to market” ( in other words, CHANGES the value of the original loans' assets ) one is, de facto, changing the monetary base of the world's money supply.

In other words, the underpinnings of out money supply CHANGED and no one was looking.

Hence the panic. Hence many ( by no means all ) of the other shenanigans that beset us.

Accounting rules and a host of other LAWS say that one must change those accounted values.

Survival of the monetary system clearly requires that they NOT change.

The law enforcement agencies charged with the responsibility of upholding the entire system of laws on accounting, contracts, the whole shebang ( from the top guys on down ) feel trapped.

Uphold law and die, or ignore crime and live.

Civilization itself hangs in the balance.

Only it's not balanced.

It's tipping.

The tipping point was passed with hardly a backward glance years ago.

The rule of law is dead.

The people who killed it still run the monkey house.

Get ready for a whole new set of rules that you are NOT going to like.

jal said...

What has caught me off guard was the demonstrations against cost of living in Israel by the working middle class.

The demonstrations by the Indignados, in Spain, was expected since they have a high unemployment.

I don't know the unemployment numbers for Israel.


jal said...

D. Benton Smith,

Get ready for a whole new set of rules that you are NOT going to like.
I like your short accurate presentation.
The only thing that I would quibble with is the word YOU.

There will be a large section of the social/economic spectrum that will like it.

From the bottom ... street people cheering that those pretenders are getting exactly what they deserve.
From the top ... the elites holding cash and being able to buy all kinds of assets at deflated prices.

Eventually, there will be a new system that will be functioning to replace the casino.


Anonymous said...


>>No treason or sedition has occurred according to the law and you know that.<<

That all depends on one's perspective. A great case can be made that EXACTLY that has happened, however it is made by people who do not control the nation's military and its establishment entities.

But just because the powerful agree something isn't criminal and there is no redress, does not mean that it isn't criminal.

Yes, the Constitution is, effectively, toilet paper being used by those whose boots are about to stomp on some necks.

I guess people want to learn the hard way.

Anonymous said...

@Scandia and board...

1. Start a website explaining the issues that are important to you... You can take reasonable efforts to remain private (although Uncle "Sugar" will know one way or the other).

2. Print up some business cards with a catchy phrase and the name of your website and place them on people's doorsteps or post flyers.

This minimizes public exposure but still gets the word out.

The more people that do it, the harder it is for the system to prevent it.

Ashvin said...


I probably should have said "according to the legal system", because that's what we are really talking about, right? A set of institutions and institutionally disciplined people drafting, enacting, enforcing and interpreting various combinations of ambiguous and convoluted human language. That's why I feel it becomes pretty meaningless to talk about what's an arrestable criminal offense and what's not, especially when we're talking about the actions of the very people who designed and manage the current system. It was never meant to be fair and just, only an expensive imitation of the financial market system of wealth/power concentration in which it operates.

Frank said...

@Skilo Both the British and French monarchies played fast and loose with the charge of treason. As a direct result, the crime is explicitly defined in the US Constitution, and very narrowly defined at that. You pretty much have to put on another country's uniform and shoot at a US soldier to be convicted.

This is not a recent situation, and the historic reasoning is quite clear. The supercongress is not committing treason as defined in the US constitution.

The whole deal is bullet-proof legal. The two houses of Congress are completely free to repeal or amend the law that established the Supercongress. Obama can sign or veto, congress can override or not.

It may be sleazy, but sleazy goes back forever, and has always been legal.

Greenwood said...

Buying Stakes in U.S. Banks

Chinese banking officials considered buying up stakes in American banks during the height of the 2008 financial crisis, the McClatchy Newspapers reported Sunday, citing documents obtained from WikiLeaks.

The Chinese banks discussed the possibility of investing in American financial corporations, but ultimately declined to do so, fearing a public relations firestorm and...


...the scrutiny of U.S. banking regulators.


comic relief :>)

Jack said...

We are all assuming that the coming years will be a bit tough because the economy is most likely going to collapse.

We may get a feeling of hopelessness.
The level of that hopeless feeling depends a bit on the person.
We should try to play a role in shaping our environment.

Many times when we assume that things will turn out in a certain way and the reverse happens.

Now we are expecting something bad and maybe we will get the reverse.

Jack said...

Stoneleigh was saying that we should not hold any group reasonable and I agree with her.
Look at the track records of the politicians.
They get caught red handed and still they get away with murder.

Jack said...

Stoneleigh is saying I didn't say that.
Anyway she said something like that

Gravity said...

There's not six of them, to make a seditious six. Therefore, the treasonous twelve would only be guilty of sedition in the event that they would coercibly enforce disauthorised legislation, no treason would actually be committed, unless perhaps when enforcing proposed legislature to directly enable disauthorized warfare against congress' will, in similar manner to the POTUS being chargeable with impeachable treason by levying unauthorised warfare against the US in the Libyan war.

Again, congress itself is explicitly forbidden to subsume or subvert the consitutional mandate of its own functioning. This is precisely to prevent abuse of authority or the autogenic creation of superseditious intent by congress.

It would be an act of sedition for this supercommittee body to enforce legislation which is explicitly unauthorised [voted down] by congress, within the stipulation of said offence, being an attempt [or incitement] to coerce alteration of governmental structure or to overthrow the consitutional republic by force, so evidently committed by supercommittee members when willfully enforcing any legislation explicitly disauthorised by congressional voting procedure.

Supercommittee enforcement [by force] of any disauthorised legislation [as voted down by congress] would then yield an offense of sedition, whereas its principal establishement with seditious authority may also be an offensible act by congress.

"It's ridiculous to think the American legal system, based on the English legal system, has something valuable to offer a human society struggling for a sense of fairness, equality or justice... it doesn't."

Legal systems have unsubstitutable utility for preventing violence, and consitutional government has no viable substitute for safeguarding unalienable rights and liberties.

Your idea seems to be that any legal structure can only be [ab]used to restrain socio-economic progress, and cannot stimulate progress at all.
I disagree wholeheartedly.
The only counterbalance to [institutional] oligarchy is a fully informed and enabled citizenry enjoying constitutional representability.

The geometry of hierarchy is a function of Gravity justly.
Replicative polyarchy, bitchez!

Gravity said...

To bring about the rule of righteousness in the land, so that the strong should not harm the weak.

Loot what thou wilt shall be the whole of the law?

ben said...

"We are all assuming that the coming years will be a bit tough because the economy is most likely going to collapse...

Many times when we assume that things will turn out in a certain way and the reverse happens.

Now we are expecting something bad and maybe we will get the reverse."

the reverse is bad too.

jal said...

Jack said ...
Now we are expecting something bad and maybe we will get the reverse.

Who is we?

I'm not expecting something bad to happen to me.
I'm expecting something bad to happen to someone else and something good to happen to me.

Think about it ...

Specifically, the gov. "lent" $T to the banks and took crappy MBS, which they knew was crappy, and now it is saying we need our money back because we cannot do another QE. Your are capitalist so now prove it. Make it or go bankrupt.

(Full FHFA Statement Disclosing Suits Against 17 Banks (Including Such Dead Man Walking As SocGen))

John Day said...

@ D. Benton Smith
I like your falsely modest introductory sentence. Nice touch.
The mark to book monetary base is a nice concept, which you tease out in a thought provoking way.
I have thought that the US could move to a real-estate-based monetary system, with government as landlord, a neo-feudalism.
Since the banks have poor chain of title, Fannie and Freddie own a huge chunk of US real-estate, and the government can take posession of real estate when the banks fail, then reset the title, it looks like this is well underway, already.
I think that Gold may be the necessary standard for trade between nations, when complex barter is impractical, but Uncle Sam's rent could well be the basis of the US monetary system very soon.


Lynford1933 said...

Chas: Encourage them to do the best they can with the area of education and jobs they intend to enter. If you think deeply about it, there is little else to do after the child is an adult. There is always room for the best in most any field. The two areas your kids are looking at appear to be as good as it gets for now.

It might also help to get a hobby of gardening and let them help. The earth is the only solid thing we have. All the rest is virtual in one way or another.

Frank said...

@Gravity, @SuperGravity where have you seen anything that says the supercongress can enforce any of its dictates if regular congress votes them down?

All of your talk of sedition is based on the idea that they can do so. I've seen no indication that they can.

scandia said...

From a far away Cdn perch it looks to me that Congress endorsed the creation of a Supercongress. Why would the Congress not do what the Supercongress dictates?
The very fact of creating a Supercongress is a handover of responsibility and thereby the power to make decisions to a newly formed body?

Gravity said...

"All of your talk of sedition is based on the idea that they can do so. I've seen no indication that they can."

The supercommittee proposals cannot be filibustered or amended before coming under vote, which is already enough to disqualify the arrangement as an unconsitutional procedure, but not necessarily for seditious intent, as nothing would be enforced against congress' will.

Indeed, there isn't anything I can find right now that substantiates the enforcement clause if proposals are voted down, but this vital issue is brought up by several people, I cannot find sources though, so the argument wouldn't fly. The reasoning for establishing sedition by those means is untenable without it, yet accusations of autogenic sedition for establishing the supercommittee are not necessarily retracted.

"As much as I appreciate your insights, what's the point of bringing up this point?"

Its morally obligatory to bring it up for me, being a value-system I faithfully adhere to.
For any citizen, it is obligatory civic duty to bring a possible severe felony, even committed by government agents, to the authorities' attention when substantiable with known evidence, inaction would entail some measure of complicity.

If evident sedition would actually be committed by supercommittee, by any means, it would be obligatory for every aware citizen to attempt lawful interdiction or apprehension, by filing criminal charges, or possibly directly with citizens arrest, if deemed lawful.
Protecting constitutional integrity by being attentive to possible crime or corruption within government is simply not optional, although it may be simply too late.

It may be foolishly idealistic to believe that the rule of law may be used by the citizenry to restrain crime and corruption, instead of enabling it, while the strong use the law as a weapon against the weak. It wouldn't be the constitutions fault, but the citizens, for failing to maintain the republic.

I'll drop this now unless I do find something to substantiate the enforcement clause.

Gravity said...

According to unverifiable sources,
the [proposed] debt super committee has legislative enforcement powers in spite of congressional vote, which may yield sedition in the aforementioned way. Ill look further into it.

Skip Breakfast said...

@ Draft and Punxsutawney said...

Punxsutawney said regarding the right-wing fear-mongering emails of late...

"...this stuff does its job. Politically it is effective in the US at least. It distracts us from the real stuff going on quietly. Keeps people afraid and with fear, closes their minds."

I totally agree. I also find it interesting that they've changed tactics. That is to say, for a long time--years now--I've argued that the fear-based campaign to oppose gay marriage was a giant, laughable and immensely successful sleight of hand manoeuvre to distract a population from the real problems. There was something so tremendously absurd about the scale of energy and money thrown at this imaginary problem that clearly something else was at work. I finally concluded that the Republicans and Democrats were so insidiously complicit in the economic crimes of such mass proportions that they mutually engaged in a debate as far removed as possible from the "real problems" (i.e., true moral bankruptcy in the form of vast financial corruption, fraud and theft).

Amazingly the tactic worked. The Republicans’ imaginary threat was used to keep the conversation well and truly away from anything like the real threat to the American people--bank corruption and theft from the poor and middle-class. While I don't believe the powerful tacticians all sat in a room and concertedly masterminded the strategy, nevertheless, underneath it all, this is exactly what was at work systemically. Most likely, it's a perfect example of how the powerful can exploit human nature's weaknesses towards corrupt ends--they simply exploited an ever-present fear of "other" at a very opportune time in order to command attention and attract votes. Because a much better campaign would have been to begin to raise awareness early on about banks and fraud and debt explosion a long time ago. I think people would have listened, because it makes for a scary story. But they were all part of that problem, and profiting handsomely. So they didn't dare go there. I just don’t think it’s a great coincidence that the gay marriage debate raged for all those years that the debt bubble was going exponential and no one heard a thing about it.

Now, as we're witnessing with new fear campaigns, they have left behind the certain doom gay marriage was sure to bring and are calling up a new fear campaign with new targets. I think the gay marriage one worked for a good decade--it distracted us all long enough for uas all to be fleeced. How many hours of prime-time news debates did they waste on that!!!! Just so utterly shameful. We could have been debating something that mattered--something that actually saved people's lives and made our society better.

Now that many countries have enacted equality in marriage laws and nothing really has changed in those societies at all as a result, they'll come up with other ingenious fear campaigns to distract us while the take the rest!

(This is in no way an invitation to engage in that marriage debate. That debate is dead. I'm just raising my own conspiracy theory as an example of what we have to be wary of--every fear campaign should be suspect when the players launching the campaign have everything to gain from the status quo!)

Glennjeff said...

Chaos is the fundamental ground state of the manifest universe. (primordial matter)

Order arises from chaos as a manifestation of higher dimensionality. (Spirit)

Life is transient and cyclical, seeded to rise to a state of peak order only to collapse into nothingness. (Birth, Death and Reincarnation)

The function of cyclical Life is to develop a third element, Soul or Consciousness.

Spirit, Soul, Matter. the song remains the same.


(That's the dogma and doctrine they live by anyway)

Bring it on, I say. Payment has come due.

I have no idea why I felt comppelled to say that, nor do I have an idea what it is communicating.

I think it was Gravity paraphrasing Aleister Crowley for at least a second time in this commentariat with great comic irreverance.

And the photo's of Detroit which gave me such a warm fuzzy feeling inside. Ah the joyous, free but dangerous, lanscape of Fallout 3.


Do you like my new avatar, the double rosette white water lilly, such a lovely Sun mandala. A preemptive celebration of The Sixth Sun, the seed left after this FALL. May it bear great fruit of bountiful harvest.

Hilarious (humans that is)

agtefc said...

@ Glenjeff...

All great things emerge from chaos (agtefc) ... Affirmative :)

@ Board...

Been a while since last post, but I have been reading the comments none the less. Great commentary and links. Keep it up! :)

@ I&S... Well done! :) I have a little story to tell that relates to your impact on TAE community:

At work one day we found a 3 meter solid metal bar with triangular welding at one end. We were perplexed as to what this odd item could be used for. Several weeks later one of the excavator operators saw the item and knew right away that it was a "train car mover." He described that the tool is wielded by a single person to manually leaver entire train cars. Just as the metal bar moves trains, so too do you move people. The emergent properties of cause and consequence in complex systems is a beautiful thing indeed.

Thanks & Cheers

NB: Things are accelerating. Good time to purchase an extra few pairs of boots. People get their panties up in a bunch about PM's, when all I think about is how many years of great footwear can you purchase for one once of gold. Quality footwear (>300 dollar boots, not made in china) is the best investment any person can make IMHO.

Blackbird said...

Ambrose Evans Pritchard, the ECB, and Italy:

Could the ECB buy all of Italy's debt? Serious question. Ambrose seems to be serious when he suggests it could.

Is there any truth in these paragraph's from his latest Telegraph article:

"Italy must redeem €14.6bn of debt this week and €62bn by the end of September, the highest ever in a single month. It must roll over €170bn by December.

The ECB can in theory hold the line by soaking up the entire public debt of Italy, the world’s third largest at €1.84 trillion. The question is whether it can plausibly act on such a theory when the president of EMU’s dominant power deems this to be illegal."

SecularAnimist said...

"It may be foolishly idealistic to believe that the rule of law may be used by the citizenry to restrain crime and corruption, instead of enabling it, while the strong use the law as a weapon against the weak. It wouldn't be the constitutions fault, but the citizens, for failing to maintain the republic."

We the people, or the idea - concept of people, has always been the catcall of any elite that wishes to initially enlist the people in whatever their desire might be, couched in the language of the self interest of the people. That is what the Declaration Of Independence was, an official document meant to move the people that they might gain what they desire. The dissatisfaction of the people after the war of Independence, the revolution meant more for elite few is attested to by the unrest, food wars, and numerous rebellions right after the war. Unless of course, you believe the tripe that was taught to you in public school about the founders virtue and some mythical egalitarian society that was different from the bane of feudalism - all complete trash.

The very AIM of government according to the father of the Constitution, Madison, in Federalist Paper 10 says it is "to check the leveling impulses of the people" and to protect men of means from the lower classes. Also, that it is the "responsible class" which is supposed to rule, and not the people.

The idea of "checks and balance" is an explanation of verbal fodder for the masses, these checks and balances have been run over rough shod since the inception of this country - it did not just start in the last hundred years. It is about as valid as the concept of "representation" which was a ruse to pass the Constitution, and was argued against vociferously by the ruling elite. The entire frame of the Constitution was built to isolate the people from ruling the nation, this can not only seen by the original qualifications for office but by the scoffing at redress which has always shorted the will of the people. Not to mention other issues like the appointment of judges high and lower in every critical realm of final appeal, etc.

You write as though there was some panacea of "republic" in the beginning of this nation, some form of equality that never existed. From the very beginning America, the myth of America - the land free of want and the disparity of the old feudal world, just DID NOT EXIST. There were landed estates given to the few by the British crown, by 1700 the real estate in all of New York belonged to less than a dozen men - in 1760 fewer than 500 men in five colonial cities controlled most of the commerce, the banking, the mining, the manufacturing and most of the news papers and journals on the eastern seaboard - and THEY owned most of the land.

Nothing will suffice but the complete bringing down of this system in its entirety, not only here but all over the world. The people all over the world have to tear this monster up by the roots, and than they need to grasp hold of all the means of production This is the only globalism worth the name, and the heretofore nations which have proven to be nothing but elite ideas to pit humanity against one another must be abolished (not the playground of a few elites to the commiseration of the majority). The only thing I have to say is you better learn what you are up against, or your children's children without end will be singing the same song of woe - if we survive as a species.

Blackbird said...

Germany and Eurobonds -- it's inevitable.

No Political party is against them -- Germans have no political representation.

Merkel implicitly supports Eurobonds and an expanded EFSF.

Even though power is slowly shifting to the Social Democrats and the Greens, both of those parties are even MORE explicitly in support of Eurobonds.

I don't see any major political party that explicitly opposes Eurobonds.

The Financial Times has already run stories about how the Social Democrats can push through Eurobonds after Merkel is ousted from power later this year.

Germany is getting Eurobonds whether they want them or not. As Hugh Hendry pointed out last year, the German people don't really have a voice in their political system.

agtefc said...

Human Herding Behavior 101:

When you are with the herd you are safe from the dangers at the perimeter, but the grass is eaten, your stepping in shit, and your head is up another herd members ass. When the herd is confronted with danger it stampedes. If a cliff is nearby, all die.

When you beat your path away from the herd, you lack the security of numbers of the herd, but the grass is green, your not stepping in shit and your head is not up someones ass. Away from the herd you have lateral freedom when confronted with danger.
When confronted with danger outside of the herd, safety is not guaranteed, but at least one has freedom of action to deal with the threat on their own terms.

Proceed with caution. Karma and luck be with you.



SecularAnimist said...


Structural Crisis in the World-System
Where Do We Go from Here?
Premise No. 1 is that all systems—from the astronomical universe to the smallest physical phenomena, and including of course historical social systems—have lives. They come into existence at some point, which needs to be explained. They have “normal” lives, the rules of which need to be explicated. The functioning of their normal lives tends, over time, to move them far from equilibrium, at which point they enter a structural crisis, and in due course cease to exist. The functioning of their normal lives has to be analyzed in terms of cyclical rhythms and secular trends. The cyclical rhythms are sets of systemic fluctuations (upturns and downturns), in which the system regularly returns to equilibrium. However, it is a moving equilibrium since, at the end of a downturn, the system never returns to exactly where it was at the beginning of the upturn. This is because secular trends (slow, long-term increases in some systemic characteristic) push the curve slowly upward, as measured by some percentage of that characteristic in the system.

Eventually, the secular trends move the system too near its asymptotes, and the system is unable to continue its normal, regular, slow upward push. Thereupon, it begins to fluctuate wildly and repeatedly, leading to a bifurcation—that is, to a chaotic situation in which a stable equilibrium cannot be maintained. In such a chaotic situation, there are two quite divergent possibilities of recreating order out of chaos, or a new stable system. This period we may call the structural crisis of the system, and there is a system-wide battle—for historical social systems, a political battle—over which of two alternative possible outcomes will be collectively “chosen.”

Blackbird said...

Case Study: Ireland vs. Germany

Do the people have political representation in either case? No...let's prove it.

Political party Fianna Fáil presides over an immense banking system bailout. As national debt spirals out of control, it further caves-in to an international banking bank-bailout at the expense of Irish citizens.

Irish Political cost: Fianna Fáil is swept from power and replaced by center-left Fine Gael.

Political Result: Fine Gael promptly resumes Fianna Fáil policies of accepting the poisoned chalice of international banking bailout.

No shift in direction. New faces but No change. No political representation.

Germany: Merkel and the CDU implicitly support Eurobonds and dramatic expansion of EFSF.

Political Cost: Merkel and CDU lose support and center-left Social Democrats gain support.

Political Result: Social Democrats also support ESFS and Eurobonds even more strongly than Merkel and CDU.

As in Ireland, new faces will emerge but the policy remains the same.

The USofA: Bush becomes Obama and song remains the same.

Anonymous said...

Bogleheads are some of the worst idiots around.

Instead of doing their homework, or trying to understand how the world works, or trying to take control of the essentials of their lives (the approach of TAE), they just park their money in a fund, assuming that it will make them rich!

More money, more growth, forever and ever, amen!

I was once like them, but education cured me.

Nassim said...

NB: Things are accelerating. Good time to purchase an extra few pairs of boots. People get their panties up in a bunch about PM's, when all I think about is how many years of great footwear can you purchase for one once of gold. Quality footwear (>300 dollar boots, not made in china) is the best investment any person can make IMHO.


I agree with all of that except for the price. Anyone who wants an asset that can only go up in value, should check out this link:

Wholesale new boots and trainers for a tiny fraction of their original cost

SecularAnimist said...

""What other than banks/housing would get you into the streets?""

A good plan,

""A second tactic is to reject categorically the goal of economic growth and replace it with the goal of maximum decommodification—what the movements of indigenous nations in the Americas are calling buen vivir. This means not only resisting the increased drive to commodification of the last thirty years—of education, of health structures, of the body, of water and air—but decommodifying as well agricultural and industrial production. How this is done is not immediately obvious, and what it entails we shall only know by experimenting widely with it.

A third approach is an effort to create local and regional self-sufficiencies, especially in the basic elements of life such as food and shelter. The globalization we want is not a single totally integrated division of labor but an “alterglobalization” of multiple autonomies that interconnect in seeking to create a “universal universalism” composed of the multiple universalisms that exist. We must undermine the provincial claims of particular universalisms to impose themselves on the rest of us.8

A fourth derives immediately from the importance of the autonomies. We must struggle immediately to end the existence of foreign military bases, by anyone, anywhere, for any reason. The United States has the widest collection of bases, but it is not the only state to have such bases. Of course, the reduction of bases will also enable us to reduce the amount of the world’s resources we spend on military machines, equipment, and personnel, and permit the allocation of these resources for better uses.

A fifth tactic that goes along with local autonomies is the aggressive pursuit of ending the fundamental social inequalities of gender, race, ethnicity, religion, sexualities—and there are others. This is now a piety among the world left, but has it been a real priority for all of us? I do not think so.

And, of course, we cannot expect a better world-system circa 2050 if, in the interim, any of the three pending supercalamities occurs: irrevocable climate change, vast pandemics, and nuclear war.

scandia said...

@SecularAnimist...I know zilch about chaos theory so I probably shouldn't comment.
I am unable to line up what you say with what I observe. You say,"...two quite divergent possibilities of recreating order out of chaos....a political battle over which of the two alternative possible outcomes will be collectively be " chosen ".
Why bifurcation? Why not a three or six way split?

I observe that the collective has already " chosen ". Chosen to not challenge abuses of the system. On one hand you have those mesmermized by media and consumption who just want the good times to keep rolling, quite content with the staus quo for many reasons. They have chosen not to make changes to the system. Heck they are even willing to die to maintain it, die to expand it.
On my side of the fence are those who see how corrupt and broken the system is, that it will be the death of many. Yet my side choses also not to challenge the status quo for a variety of reasons: spirituality, street smarts,impotence,fear or whatever reasons. So pray tell where is the political battle of which you speak.
I think I missed it.

Blackbird said...

Youtube plane crash videos. They're so bad, but the erie knowledge of impending doom somehow fixates the eyeballs and the imagination -- simultaneously terrifying, nauseating, and exciting.

If feel the same way when I read the stuff at:

1) Bogleheads

2) The New York Times Financial Reporting: Bucks with Ron Leiber.

3) Wall Street Journal Personal Finance Section.

4) MSN Money Personal Finance.

I feel giddy butterflies when I read the dripping condescending "tut tut, my little chickadee" attitude of professional financial advisers and wealth coaches. Their pores exude holier-than-thou arrogance as they console the middle classes against being naive cave-man children by scrambling for exits at the first scent of smoke. Short-circuit your fear. Focus on the long-term. Stick with our plan of 8% gains over a lifetime. We extrapolate. We win the future.

"I am Arthur, King of the Britons"
"King of the who?"
"The Britons"
"Who are the Britons"
"We are all Britons, and I am your King"

agtefc said...

@ Nassim...

Good evening.

For personal use I prefer the best footwear available! I only have one pair of feet, my feet are my single limiting factor of mobility, and therefore I want the best so I can hike, garden, relax, hunt, and run in the worst mother nature can throw at you. Viberg boots are made from water buffalo and last over a decade. Lumberjacks/foresters across the northwest swear by them. 400+ dollars but worth it.

For investment (non-personal use) I would go much cheaper. Agreed. I will look into your link. Army surplus outfitters are top notch. Have you used the site before?

Thanks & cheers

Patrick said...

I was about to write a laudatory post about how this may be the best group of comments on this or almost any other site since the Internet started. But then it bogged down into a dispute whether or not the whole of the U.S. Congress could be impeached for treason for ceding power to a super congress. Yawn! Like that'll ever happen and who the hell would hold them accountable anyway. Bogus distraction.

But the thoughtful, perceptive comments by bosuncookie, el gal, Ash, Greenpa and some others have been inspired if sobering.

Bosuncookie summed up for me the schizo feeling of impatience and yet fear of things getting started--well of course they have begun.

As my friend and frequent reader here Dr. Doom (no not Nouriel R.) says he can "hear the falls and feel the mist in the air."

Nassim said...

For investment (non-personal use) I would go much cheaper. Agreed. I will look into your link. Army surplus outfitters are top notch. Have you used the site before?


No. However, a while back someone here was proposing to spend $20,000 on dry food or some such thing and I realised that he was looking in the wrong direction.

I did a search and found this site. I have no reason to believe that they not serious. IMHO, cold weather boots are going to be worth a lot more than $5 each before too long.

Anonymous said...


"Treason against the United States, shall consist only in levying War against them."

Can there be an economic war? I'd argue yes, I'd put the black letter law criminal activity (Section 2A, Federal Reserve Act that prohibits credit bubble blowing) of the Federal
Reserve up as evidence and throw them all in jail where they belong.

But, hey, that view won't be popular with the criminals running the economic warfare *and* our country, so I don't expect it to get much traction.

Re: The Super Congress and the power of Congress to create it.

Where in the Constitution does it give explicit power to Congress to create a Super Congress (or a dictatorship)?

From 10th Amendment:

"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

America is NOT a democracy where the people vote and the rulers can do whatever they want - even create a dictatorship if they so wish.

America is supposed to be a Republic with a base set of laws that NOBODY, elected or not, CAN BREAK.

That base set of laws is the Constitution. If the power to create a Super Congress is not given to Congress in the Constitution, then they don't have it. It isn't, so they can't. According to the law of the land.

Ash is 100% correct, though. The game is to subvert the Constitution and now it is essentially meaningless.

@Constitution is Paradise:

While I'm aware of some people who promote this idea, at least on the surface, it simply isn't true. The Constitution was not designed to do what can't be done - create a perfect state of affairs amongst a fundamentally selfish and self centered creature - human beings. Nothing can do that.

What it was designed to do was to prevent the massive centralization of power that is, inevitably, used by criminal insiders in order oppress everyone else.

"The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first."

The criminals have turned government into the legalized version of the criminals running government.

This is essentially what Ash has observed and it is what Jefferson warned about.

Anonymous said...


When evaluating a situation, it is often valuable to envision the perfect state of a thing - even if you know that won't ever be accomplished.

It is like a slave never dreaming of being free - even if freedom is an incredibly unlikely outcome.

The criminals at the top would like little better than a populace that simply thinks it is absurd to complain about their crimes due to some form a acceptance, Stockholm Syndrome or similar.

We need to call out the crooks and highlight their crimes from time to time so that people can have the correct frame of reference when considering these people, their actions and their inactions.

BTW, if everyone identified the criminals as criminals and realized the power they have to hurt America, lots of things would change.

If nobody highlights the crimes, that will never happen as the media is designed to mislead citizens in America and around the world.

el gallinazo said...


Thanks for the kind words. Regarding Canada, two of my very closest friends live in SASK, north of Prince Albert, in a large house he built with his own hands. Sometimes the cold would trigger the husband's asthma in the winter, and they stayed with me in the Caribbean during the heart of their winters for most the past 15 years. I have a room there whenever I want it. I was up there in 2008 just as Lehman and AIG went belly up, but the thing I remember most was hunting the great northern pike. They have a large garden and I helped dig out at least ton of potatoes. Always a deer in the freezer. I gave him my compound bow, so now he is trying to make it two. I also remember that the temperature fell below 0 C before the autumn equinox in the night.

That said, I see little advantage to Canada over Usanistan. I could never get a landed immigrant status as a retiree, meaning I would be allowed to stay 180 day a year maximum. I am past my 65th birthday, so Medicare is comparable to the Canadian single payer system, and it is a toss up which would fold first. Finally, while I remember Canada in my 20's and at the height of the Vietnam atrocities as a potential haven of sanity, since then it has been folded into the USA imperial umbrella, and Harper has shown as much jackbooted thuggishness as W or O'bumma. And even before the thuggishness, the bureaucracy seemed to take a certain delight in enforcing stupid and arbitrary rules. Finally, it is expensive. One of the great joys of Mexico is getting by on USD15,000 without hardship. And getting local fresh fruit and veggies for peanuts. Of course now that my treasuries are paying me 0.015% interest, I might move up my epicurean life a notch :-)

el gallinazo said...

Re Wingnuts

Anyone who has been on this site for 3+ years knows that I am not friend of the Koch Bros., or their cringing minions like Perry, Palin, an Bachman. That said, I have developed a certain respect for the libertarian movement and even have come to regard a certain branch of them as my allies. Certainly not the Ayn Randers, they can eat dirt. Actually, this change in my attitude I find somewhat amazing. But I am not so willing anymore to make a knee jerk discount of their ideas. BTW, my acid test for libertarians is their attitude toward the Empire and the wars of foreign aggression. If they want to bring all the troops home and end the wars, they are my allies, though we might not be on the same page with everything.

As to the two ideas on this thread regarded as absurd.

The first is banks charging interest to the depositors to hold their money. Absurd? The Bank of New York Mellon is already doing this with the large accounts of their corporate customers and it may spread. Sweden is either doing it or talking about it I have heard. In a deflationary depression the idea is not necessarily bad if your government is not run by scurrilous criminals which excludes the USA, Canada, and the Eurozone of course. The reason for this is that it tends to increase the velocity of the money supply which counteracts deflation and enhances prosperity.

Second is the O'bumma birth thing. I despise O'bumma even more than W. He is doing just as much harm but his hypocrisy quotient is much higher. Furthermore, the black people of the USA will pay a price for him in increased racial redneck hatred. With the goring of the Constitution, I regard his birthplace as one of the least important issues. Furthermore, as his mother was an American citizen affiliated with the CIA and me not being a lawyer, I really don't know if he were proven to be born in Africa, how that would effect his eligibility to be president. After all, McInsane was born in the Canal Zone of Panama.

That said, I regarded the issue as absurd until someone's whose intelligence and savvy I hold in high esteem supported it, namely William Banzai7 of Zero Hedge. If Banzai7 is anything, he is an expert in Photoshop and he says that the Hawaiian long form birth certificate, recently released, is a crude forgery. Additionally, his paternal grandmother says she was present at his birth in Kenya until she was shut up. That with further research has me giving the probability of his actual African birth at over 50%.

If you thing Banzai is a Koch sucking right wingnut, check out his Labor Day edition at:

But I don't care any longer who the president is or will be. No one decent could get the money to get elected, and if they could, they would be dead before inauguration at the hands of the Owners. Just ask the ghost of Jack Kennedy. These guys play hardball.

Blackbird said...
This comment has been removed by the author.
Blackbird said...

T minus ? until we hear the following:

"Look, the banks paid back the money the first time and taxpayers came out ahead...."

SecularAnimist said...

These framers wanted to protect THEIR PROPERTY in certain ways - so they laid taxes, established a currency, fixed imports and duties, and created uniform laws of bankruptcy. Debts allowed speculators to buy securities that they bought for pennies on the dollar, which were refunded at face value (making a killing).

They protected slavery in the constitution, because it was considered just another form of property. The framers also worried about rebellions, so they brought forth armies to quell insurrections. Later these same armies were used to break workers strikes at factories and the railroads.

The electoral college was supposed to be the bulwark against popular sentiment. Only the monied elite were allowed to debate who would become president. In fact, senators were not directly elected by the people until the 20th century! SO YOU HAVE THIS ENTIRE STRUCTURE WHICH IS INSULATED FROM THE POPULAR WILL. INITIALLY THE ONLY THING THAT BECAME THE PROVINCE OF THE PEOPLE WAS THE ELECTION OF THE HOUSE OF REPRESENTATIVES, BUT THAT DID NOT HAPPEN WITHOUT GREAT DELIBERATION AND ARGUMENT.

We have this whole set of intelligencia today in education which have taught that the founding fathers were a noble bunch, and that they were motivated by "higher matters." They wanted to build a sound national structure but one that would PRESERVE AND NOT HURT THEIR CLASS INTEREST.


The framers of the Constitution loathed democracy, but they needed to show regard for popular sentiment of the people. Without this the Constitution would have never been ratified - to a man they voted down the Bill Of Rights, it was only the state legislatures that later had the Constitution amended.

Throughout the 18th century they had food riots and insurrections. Democratic victory was never given by this moneyed and landed aristocracy, it was won by the agitation of democratic forces in society. These same struggles have reached their climax in our time.

It is vital that we understand that what we as the people struggle against is not some new event, but it is buried deep in the very warp and woof of how America was originally designed Those in power want to roll back every gain THE PEOPLE have made in the last two centuries - they must be stopped.

Ka said...

"We must struggle to...." (SecularAnimist). "We need to...."(Skilo). Or not.

I see phrases like that and get flashbacks to the sixties, remembering all those attempting to lead the "masses" to overthrow the system -- SDS, from which splintered off RYM, then RYM-2, and so on. The problem then as now is that the masses aren't interested. ("False consciousness -- we must educate them...."). They failed, in spite of a lot more organization and numbers than now.

The value of this site is simply to get the information on pending financial disaster out to those who have ears to hear. Stirring messages urging the formation of, let me guess, "the vanguard of the sheeple" just, in the immortal words of Jemima Brown (in The Eiger Sanction), makes my ass tired.

Anonymous said...


The system depends on the peoples' apathy.

If you choose to be apathetic - well, that is your free choice.

But do you really want to sell apathy to others on behalf of the criminals?

Really? Is that the legacy you want?

Where do you think this tyranny ends?

Where did Russian tyranny end?

Where did Chinese tyranny end?

Where did German tyranny end?

Where did European tyranny end?

Where does all tyranny end?

Some understand history and realize that resisting the system is the only choice IF one cares about the future of free humanity.

“If ye love wealth [or apathy] better than liberty, the tranquility of servitude than the animated contest of freedom, go from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains sit lightly upon you, and may posterity forget that you were our countrymen!”
~Samuel Adams

Anonymous said...


So let's keep the good of the Constitution and throw out what is bad.

I think keeping the Federal government small is good because it will always end up being run by criminals who then legalize the crimes they commit against us and use our wealth, blood and name to wage wars of corporate front asset aggregation against other nations on the planet.

I also agree that slavery should not be protected.

I'm all for improvement, but mega government never has worked in world history and I don't expect the next time will be "different."

All humans are selfish and hypocrites (at one time and another), so if we wait for perfect people to create a governing law, you will have to wait for the 2nd Coming, if you believe in that. Until then, what do we do?

Ka said...


I am not selling apathy. I am selling the choice of getting out of the system and letting it destroy itself.

Some understand history and realize that resisting the system is the only choice IF one cares about the future of free humanity.

Sounds like something Lenin might have said. At least that is my understanding of history. Resistence, if it succeeds, replaces one tyranny with another. If it fails, it has made the system stronger. The New Left's main accomplishment was to help get Nixon elected.

Anonymous said...


>>I am selling the choice of getting out of the system and letting it destroy itself.<<

1. That's rich because the ideas I expressed when I said we must do something (to which you criticized) were about getting out of the system.

2. How did "getting out" work in Russia? Germany? China? North Korea?

How will "getting out" work when the whole world is ruled by tyrants who lie, cheat, steal and murder for fun?

Oh yeah, they do produce some good entertainment, too.

My point is the more you run, the more fun you are to catch and take down.

Kind of like hunting... for murdering psychopaths.

Blackbird said...


Bemoaning public apathy is pointless. It's like feeling satisfied when you recycle some aluminum cans: It makes absolutely no difference.

Apathy will disappear the as pensions vanish and social security/medicare are cut to the bone. That's coming soon. Apathy is fed by comfort, and there's no food left in the pantry.

Ka said...


1. That's rich because the ideas I expressed when I said we must do something (to which you criticized) were about getting out of the system.

2. How did "getting out" work in Russia? Germany? China? North Korea?

Umm, which is it? In point (1) you seem to be saying one should flee the system (agreeing with me), while in point (2) (and further in your pcomment) you are saying fleeing doesn't work.

As to how did "getting out" work in Russia, Germany, etc., well, refugees tended to survive, while resisters tended not to, so yes, by and large it worked. However, the current situation is different, as there likely won't be any nation state that will welcome refugees, as they will all be facing resource limitations. But that also means the authorities will have to allocate their resources to controlling an ever decreasing center, leaving the periphery as autonomous zones. Of course, life in the periphery may well be nasty, brutish, and short for a while, but there is where whatever comes next will develop.

Anonymous said...


Let me clarify.

One effective way, en masse, to fight the system is to systematically defund it. One defunds it (fights it) by removing oneself from the system of funding it.

This was the point I was making that you initially criticized.

Now it appears you agree with that point.

Either that or we are completely talking past each other.


Yes, you are correct. Apathy will end when the pain threshold of society is met. BTW, I view TV personality Charlie Rose as a Big Finance Capital stooge, FWIW.

bosuncookie said...


I like your "good plan."

But--as Tip O'Neil is reputed to have said--all politics is local. I would refine that by adding that politics is also of the locale.

Every one of your strategic goals range in scope from the local to the global. Where am I going to pursue these strategies, however? In my locale, of course.

And if I have a military base in my town (I do!), and if there are race issues in my town (There are), and if a financial criminal is on the loose in my town (He is!)... Then where do I place my limited energy, while at the same time continuing my personal preparations for Age of Contraction?

These are not easy questions, and each person must answer them for herself, if they are so inclined to such action. But locale is the thing! If I am an international lawyer and I live in my DC, then my "locale" and my opportunities to implement your "good plan" are quite different from those of a retired schoolteacher in Wilmington, NC.

Working in one's locale doesn't preclude coordinated efforts that span great distances, but that is a different kind of work, too.

Massive, coordinated resistance on the scale that your post implies is difficult. Most of the Arab Spring uprisings started with particular complaints in particular locales. It remains to be seen what will come of those uprisings...

Is it possible for a modern day Shay's Rebellion for
debt relief
--which started in a locale--to go national (or international)?

I don't know. But what I do know is that authentic change usually starts organically, from some locale. (Or combination thereof!)

Blackbird said...

My prediction (not an endorsement): Global QE is near.

G7 meets next weekend. Expect an announcement before markets open on September 12th. Bank of Japan, People's bank of China, Bank of England, and Fed -- all of them holding hands in a coordinated global burst of liquidity.

The ECB will lower rates and commit to secondary market debt for sustained periods. It will consider expansion to the primary market.

Pain focuses the mind. Eurobonds are coming.

Stoneleigh: Did you predict last week that there would be no more QE? I think you did.

ogardener said...

Blogger CharlieRose said...

My prediction (not an endorsement): Global QE is near.

G7 meets next weekend. Expect an announcement before markets open on September 12th. Bank of Japan, People's bank of China, Bank of England, and Fed -- all of them holding hands in a coordinated global burst of liquidity.

Libertarian utopia just around the corner.

Blackbird said...

Stoneleigh and QE:

In the comments section on August 29th, Stoneleigh said there would be No more QE. Do you still stand by that, or are you reconsidering? It seems quite clear to me that a massive wave of QE is coming.

AUGUST 29, 2011 12:51 PM
Stoneleigh said...

There is no genuine printing. It's all a smoke and mirrors game designed to reignite confidence, and it's critically dependent on the rapidly disappearing ability to midwife credit. There won't be any more QE. Confidence is evaporating, and liquidity will go with it. Deflation will unfold far more quickly than any central authority can respond once it reaches a kind of critical mass. Bernanke and the rest will be overtaken by events.

Jack said...

Hi CharlieRose
You are right about that.
But the art of guessing these things is not perfect but at least she is on the right track.
Whether we a new QE doesn't change things it will just prolong the waiting period.

Blackbird said...

Isn't the ECB doing QE right now?

The ECB is buying Italian and Spanish debt in the secondary market.

Isn't that a form of QE ?

Or, is it only QE if the central bank buys the debt in the primary market, on the day of an actual government security auction?

Is there a distinction between buying pre-existing debt on the secondary market and buying newly issued debt on the primary market? Do both actions have the same effect on credit injection?

I don't understand this distinction. Part of the FED's QE1 program was buying pre-existing MBS from banks. Thus, by that definition of buying pre-existing debt, then the ECB is definitely engaging in QE right now.

Blackbird said...

More evidence of coming QE

This morning the Italian foreign minister said the ECB will continue buying Italian and Spanish debt to keep yields low. When the chips are down, the ECB always comes through.

As Ambrose Pritchard pointed out in the Telegraph: The ECB could buy the entire $1.8 Trillion Italian debt market. It's all a matter of focus and commitment.

Ashvin said...

re: the Constitution and the legal system

I couldn't have expressed the broader situation any better than SA did with his two posts. I don't value a system of federal laws first created by at least some "criminals" (if owning human slaves and/or supporting the institution of slavery does not meet our common sense definition of "criminal activity", then I don't know what does), and then refined and interpreted by more criminals in response to evolving conditions. Arguably the most significant delegation of Congressional power was back in 1913 to a privately-owned network of banking institutions. Since then, Congress was completely undermined as a representative body by the rise of the Administrative State. The truth is that the complex economic/social/political system would have literally broke down without such "transgressions" of the "rule of law", which was itself a transgression in the first place. We are not citizens of the "United States", any more than Dred Scott was back in the early 1800s. It is not my (or anyone else's) duty to support this "Constitutional Republic", only my past folly.

Jack said...

The FED buy government bonds $600 billion QE2, inject into the banking system.
what the ECB is doing doesn't sound like a QE

Blackbird said...
This comment has been removed by the author.
Blackbird said...

President Rick Perry. The world belongs to beautiful people.

He's got Hollywood A-lister written all over him. He's rugged like the Marlboro Man, and his voice matches his twinkle. It fits in the way that Bush didn't. Bush looked like a spoiled brat with a Texan Twang. Perry has that million dollar sand-blasted leading man jawline. He looks like he just rustled up some cattle and now he's ready to tan some DC hide.

Ashvin said...

Charlie Rose,

The US QEX hawks have an inescapable propensity to predict QE ahead of every Fed meeting and speech (which conveniently is exactly what Bernanke & Co. would prefer), while some of us prefer to make informed guesses about the likelihood that it will actually occur in any given timeframe. So the next date is Sept. 21, and a lot can and will happen in the markets between now and then. Will those fears provide the Fed with enough juice to jump back into QE, via asset purchases or shifting the maturity profile of its Treasury portfolio? There is still a good number of financial and political reasons why they will constrained from such "aggressive" measures. Granted, what happens in the next few weeks could be a doozy and many of the major banks, already predicting (begging for) more QE, may really bring the pressure (or give the order, as the case may be) for it.

What's more important, though, is what the effects of further QE will actually be, and that's where most here differ from those continuously predicting that QE will occur. We believe that the marginal benefits of QE to both the productive and speculative economies are minimal if not non-existant at this point, and so the bulls and/or inflationists may get a few weeks of glory, but will be brought back to deflationary reality before the year is up. Some here (and CHS) also tend to believe that the Fed (and its owners) is clever/malicious enough to be aware of that fact, and so that weighs against further QE, which will only serve to bring unwanted attention and explicit reliance on the institution. Still, a severe enough market situation could certainly prompt some form of easing or "dovish" language, but, again, it won't really do squat for anyone.

Blackbird said...

The mainstream media and the elephant in the room.

Why is Perry beating the pants off Romney?

Perry is better looking than Romney. And you could drink a Budweiser with Perry. The man has what it takes. He's got the sparkle and the glow that once followed Obama.

ogardener said...

Blogger CharlieRose said...

Why is Perry beating the pants off Romney?

Because Romney is a Mormon and society frowns upon polygamy. Also, because Texans want to lose another village idiot.

Greenpa said...

John Day: @Greenpa
"I'm evolved for species success, not my own satisfaction?"

I'm not sure, but you may be committing a very basic, and very common, error in comprehending evolution.

You seem to be under the impression that you are important, somehow. But evolution cares not one whit what you are, or do- it only "cares" about whether your children have children.

A koan for evolutionary enlightenment:

"Having children is hereditary. If your parents didn't; you can't."


Greenpa said...

CharlieRose said...
"President Rick Perry. The world belongs to beautiful people.

"He's got Hollywood A-lister written all over him. He's rugged like the Marlboro Man, and his voice matches his twinkle. It fits in the way that Bush didn't. Bush looked like a spoiled brat with a Texan Twang. Perry has that million dollar sand-blasted leading man jawline. He looks like he just rustled up some cattle and now he's ready to tan some DC hide."

Ok, now you've scared the shit out of me. Really.

I've been discounting Perry as blatantly an idiot and unelectable- but... that's what I thought about Reagan, too. "This guy is a transparent moron!" I said to myself.

Which he was, of course, all of which goes to show being smart is not at all a guarantee of understanding anything.

Anonymous said...

German DAX down over 5% USD/CHF/Gold all strong-
Silver/Oil negative-

This is the true Deflationary/flight to safety trade-

Doesn't mean it's developing a sustainable trend yet-but there it is-

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