Friday, December 2, 2011

December 2 2011: The Debt Walkers Strike Back

Printed in 1939 by His Majesty's Stationery Office on orders of England's Ministry of Information, "Keep Calm and Carry On" was, despite being run off in vast quantities along with two related posters, never seen during World War II; the event that would have triggered its release -- a German invasion of the British Isles -- never happened.

Ilargi: It's very simple, but maybe that's the problem. For all I know it's just too simple for people to see.

There's a group of people, and it's tempting to call them the 1%, but they’re not really, since there’s politicians in there too who have no shot at even aspiring to be part of the 1%, and media pundits and economists and what have you, who all together try to save the existing financial system at all cost. A cost that they don't bear: that cost is being paid for by the 99%.

Theirs is just one particular view, one particular idea, of what it takes to get out of the crisis we're in. Nothing more, nothing less: just one idea. But one that prevails over any alternatives to such a radical extent that, from an objective point of view, it can't but boggle the mind.

"If we don't save the banks and the financial system at large, there'll be Armageddon to pay". That's the endlessly repeated prevailing line.

However, if we keep on spending ever more trillions to prevent Armageddon from arriving, surely we must invite it, by the very act of doing exactly that, to at some point come knocking on the back door. After all, you can't spend more and more, and then some, without ever being served with the bill for doing so.

So we’ve had all these rescue missions over the past 5 years. Behemoth-sized amounts of taxpayer money and future taxpayer money have been poured into our economies in this alleged attempt to try and save them.

Now, take a step back and tell me what you see. I'll tell you what I see: a financial system that is in worse shape than ever before during those 5 years. At least half of Europe is flat broke, most banks have lost 50%-80% of their market value, Bank of America, a major bailout recipient, is fast on its way to becoming a penny stock, China sees shrinkage wherever it looks and Japan is rumored to be awkwardly close to the chopping block.

Evidently, something's not working the way it's supposed to.

And here is why: it is becoming clearer by the day that saving the banks is not the same as saving the people, upon whom increasing austerity is unleashed to pay for ... saving the banks.

We have a choice to make: either we save the banks, or we save our societies. Which are falling apart as we speak on account of the costs of saving an already deeply bankrupt financial system.

But we're not even starting to discuss that choice. All choices and decisions are being made -for us- in a one-dimensional vacuum theater by a small group of people who, to a (wo)man, flatly deny that such a choice needs to be made or even exists. Because making that choice doesn't fit their purposes and careers and fortunes and ego's.

Merkel, Blankfein, Sarkozy, Jamie Dimon, Obama, David Cameron, Mario Draghi and Timothy Geithner, they are all servants of the existing financial system, of the existing banks, which are broke but try to hide that from us. At our debilitating expense.

Yes, they've been able to stave off the inevitable until now. But that has only been possible because they have virtually unlimited access to your money, to the wallets of the 99%.

We should grow up and make these decisions ourselves, instead of letting a group of morally severely challenged suits with very vested interests make them for us any longer.

They're leading us straight into Dante’s Ninth Circle of Hell. And last I heard, that's definitely not a place to raise your kids.

Ashvin Pandurangi:

The Debt Walkers Strike Back


"There's a time when the operation of the machine becomes so odious—makes you so sick at heart—that you can't take part. You can't even passively take part. 
And you've got to put your bodies upon the gears and upon the wheels, upon the levers, upon all the apparatus, and you've got to make it stop. 
And you've got to indicate to the people who run it, to the people who own it, that unless you're free, the machine will be prevented from working at all."
-Mario Savio, UC Berkeley Speech (1964)

The dawn breaks on a cold, winter day in a major Western city. It’s Monday morning, and the air is permeated by an ominous, dry silence. Some cars remain idly parked on the street, reflecting calm, while others have their windows bashed and their steel burnt black, reflecting chaos.  
The sidewalks are nearly empty and most of the storefronts are dark and devoid of activity as well. There are no buses running, the subway system is out of operation, airplanes are grounded and shipping ports lay dormant. 
Interesting and unusual animals wander about in the streets and alleyways, as if they had all suddenly decided to escape from their cages in the Zoo, out into the real world. Every few city blocks there is a spattering of homeless or a roving gang of restless, frustrated, filthy-looking teenagers. 
The streets are no longer fit for routine travel by the casual drivers and pedestrians who aimlessly search for something to do or someplace to go; for deep meaning in a world with none. 
It is all a rather disquieting and terrifying scene – perhaps one from the latest Hollywood flick about a civilization collapsed by viral infection, transforming masses of human beings into flesh-eating zombies.
Or maybe it was the influenza pandemic that evolved to resist vaccinations and treatment, spread through dense populations like a wildfire and wiped out 75%+ of all humans, leaving only a few survivors to rebuild society from the bottom-up. Or, perhaps it's simply what the Evil Empire left behind in its war-mongering wake.
What’s more terrifying than the cannibalism, debilitating symptoms or war-torn landscapes, though, is the fact that the zombie-like creatures who remain refuse to drive gas-guzzling SUVs, commute 20 miles to work or go on shopping sprees for Christmas presents. 
No zombies flocking to cities from the suburbs, no zombies slaving away at the factory or the office, and no zombies spending their bimonthly paychecks at the mall on computerized gadgets and cheap trinkets. That, more than anything else, is what the consumerist empire fears.
In coming days and weeks, we are going to continue getting a lot of official and unofficial economic "projections", revised and re-revised, such as the economic growth and budget deficits of various countries by the end of 2012, 2013 and beyond. 
In Greece, they’re already telling us the rate of economic contraction will slow down and the budget deficit will be cut in half, as long as certain painful austerity measures are adopted.  It almost goes without saying that all of these projections will be WAY OFF and much worse than expected, just as they were last year and the year before.

Most academics and pundits conduct analysis and make predictions in a Vacuum Universe, where nothing outside of a frighteningly simplistic model matters. One of many factors left out of these models is the predictable socioeconomic reactions to "structural reforms" and bankster bailouts imposed by "technocratic", unaccountable governments. 
There will be riots and protests and perhaps even pockets of full-blown revolution in some developed countries. Call them the "Arab Spring" or the "European Winter" or whatever you want, but they will happen and they will render previous projections meaningless.
What will be most disruptive to the current system of mandated growth, though, are not the riots and protests, but the strikes. Direct action from the people always faces the potential of being met with violent repression from their governments, but direct inaction is a much more stealthy and subversive threat to our political and financial overlords. 
The machine’s propaganda lever will be used to label these people "lazy bums" or "parasites", but they will nonetheless continue refusing to operate any of the other levers, and instead hoist their bodies on top of its gears. 
Our twisted market system has bred a whole new class of human beings who are up to their eyeballs in debt, struggling to find any remaining scraps of gainful employment and incensed with the corporate oligarchies that pass for representative governments these days. 
We may as well label them an entirely new species of humans –perhaps "debt walkers" - because that’s how far apart they must feel from previous generations and from their former selves. Our label is not meant to disparage, but illustrate a general reality that has evolved.
Rioters, protesters, strikers – these are all the debt zombies who have grown in number and influence over the last few years, threatening to pounce and feast on the current neo-feudalistic economic order. 
As small and sporadic groups making a "stand" here or there, they may not seem like a force to be reckoned with, but as a relatively organized bunch, with weekly or even daily events planned, it would be a huge mistake to discount their influence, as most of the agencies attempting to predict future economic growth and budget deficits do. 
In two previous articles, Bailouts, Austerity and Rage: Calm Like a Bomb and People of the Sun, I outlined how people across Greece, Ireland, Portugal and Spain were becoming increasingly infuriated with their banks and their governments, and, in some cases, staging violent protests and riots. 
We should expect this trend to continue, but, as mentioned above, there is another very important aspect to the rage of these zombie debt slaves – their strikes.
The strikers are the ones to keep an eye on, despite their distinct lack of publicity in the popular media. These "walkers" are plainly and simply refusing to participate in what most consider "normal" economic activity for significant stretches of time. 
They will play repeated games of chicken with their employers and customers (individuals, companies and governments), discovering who really has the raw drive to hold out the longest, before one, both or the entire system breaks.
This new species of the Western world is best observed in Europe right now, both in its "periphery" and parts of its "core". 
While Americans were preparing to feast on turkey, stuffing, mashed potatoes, gravy, and Egg Nog, generally warming up their hearts for future episodes of ventricular tachycardia, and to raid every Wal-Mart in the country with their little children and pepper spray in tow, the Portuguese were preparing for a general strike in their land across the Atlantic. Andrei Khalip and Daniel Alvarenga report for Reuters:
Portuguese Strike Against Austerity
Portuguese workers launched a general strike on Thursday to protest against austerity measures imposed as the price of an EU bailout designed to keep Portugal afloat and stem a deepening euro zone debt crisis. 
Planes were grounded, trains halted and public services interrupted as workers across the nation of 11 million protested against job losses, tax hikes and pay cuts agreed between Portugal and the troika of lenders -- the European Commission, European Central Bank and International Monetary Fund.
The Naval Shipyards in Viana do Castelo in northern Portugal ground to a halt as all 700 workers downed tools, the local union leader, Antonio Barbosa, said.
All international flights to and from Lisbon and Porto were canceled for the duration of the 24-hour walkout , according to the website of the airport authority ANA, and only minimum services connecting mainland Portugal with the islands of Madeira and the Azores were operating

Perhaps these debt walkers realized that a country without functioning transportation networks is one without much exploitative economic activity. While the elite institutions continue running financial weapons of mass destruction across national borders, mounting a global attack on freedom, equality, justice and humanity, the Portuguese have decided to strike back. And here’s what they were chanting at the Lisbon airport while they did:
"The strike is general, the attack is global!"

The people of Portugal, of course, aren’t the only ones planning strikes. In Greece, millions of workers called for a general strike yesterday, a week before the Greek Parliament is set to pass a package of oppressive austerity measures mandated by the external authorities of the "Troika" (European Commission, ECB and IMF). Kathimerini (English version) reports on some of the details of this strike.
General Strike to Protest Austerity Measures
"Public services are to be paralyzed again on Thursday as thousands of workers walk off the job to protest an ongoing austerity drive in the seventh general strike this year.
As usual, tax offices, courts and schools will shut down, hospitals will operate on emergency staff and customs officials will walk off the job.
The national rail network will suspend operations all day as will the Proastiakos suburban railway service. Ferries too will remain moored in port as seamen join the 24-hour walkout.
…The metro will not shut down at all but trains will not run to Athens International Airport. They will stop at Doukissis Plakentias station.
The media held a 24-hour strike on Wednesday and will take part in work stoppage on Thursday to show their support for the protest action."

It’s unlikely this current level of popular resistance will actually force the politicians to change their votes, but it will certainly render whatever "structural reforms" they vote on next week meaningless over the next year. How does a country grow itself out of a deficit when many of its inhabitants simply refuse to accept slave wages and standards of living, or participate in "normal" economic activity, as long as the richest among them continue to live like kings? 
It can’t and it won’t, not even in the short-term, and not until the politicians meaningfully respond to the resistance of their people. Their policy changes would have to be just as "radical" as the actions of the debt zombies, including a systematic cleansing of Greece’s banking sector and public debts, or else they may as well join the strike and not show up for work either.
That or the entire economy collapses in a disorderly process as the politicians dither, and then it finally gets a chance to start down a completely different path. Perhaps there are a few other options, but none that look very likely right now. What is certain is that there are plenty more strikes in the Western world that have occurred or will occur in the near future. 
In Greece alone, we can take a look at the tourist website "Living, Working, Musing & Misadventure in Greece", and see a regularly updated list of ongoing and upcoming strikes and protests in the country (tourism in Greece contributes about 15% to annual GDP).
Meanwhile, the people of Britain launched their largest strike in decades two days ago. In what can only be seen as a reckless and insensitive provocation, Chancellor George Osborne announced an unprecedented burden of public sector austerity on top of already burdensome "reforms" in his "Autumn Statement", right before the strikes were due to start. 
Mr. Osborne is probably also under the fanciful illusion that his government still has the upper hand with protestors and strikers (and voters), because the British economy will not be effected by their actions. Severin Carrell, Dan Milmo, Alan Travis and Nick Hopkins reported on this event for the Guardian:
Day of strikes as millions heed unions' call to fight pension cuts
"The UK is experiencing the worst disruption to services in decades as more than 2 million public sector workers stage a nationwide strike, closing schools and bringing councils and hospitals to a virtual standstill.
The strike by more than 30 unions over cuts to public sector pensions started at midnight, leading to the closure of most state schools; cancellation of refuse collections; rail service and tunnel closures; the postponement of thousands of non-emergency hospital operations; and possible delays at airports and ferry terminals.
Union leaders were further enraged after George Osborne announced that as well as a public sector pay freeze for most until 2013, public sector workers' pay rises would be capped at 1% for the two years after that.
In Scotland an estimated 300,000 public sector workers are expected to strike, with every school due to be affected after Scottish headteachers voted to stop work for the first time.
The UK Border Agency is braced for severe queues at major airports after learning that staffing levels at passport desks will be "severely below" 50% despite a successful appeal for security-cleared civil servants to volunteer.
"We will have the bare minimum to run a bare minimum service," said a Whitehall insider. Many major public buildings and sites, including every port, most colleges, libraries, the Scottish parliament, major accident and emergency hospitals, ports and the Metro urban light railway around Newcastle and Sunderland will be picketed."
The TUC said it was the biggest stoppage in more than 30 years and was comparable to the last mass strike by 1.5 million workers in 1979. Hundreds of marches and rallies are due to take place in cities and towns across the country."

It’s too bad that politicians like Osborne are not paying attention, though, because, if they were, they would see that these types of strikes are going to continue on for months and years if need be, and they are one of many factors that are screaming loud and clear that it’s all downhill for economic growth and public deficits for the UK from here on out. 
Perhaps the British Lords of Debt should take a harder look at the report just recently produced by their own Office of Budget Responsibility, which took a hacksaw to its own estimates for growth that were produced a few short months ago, and mirrors forecasting trends in just about every other country in Europe. 

Such huge downward revisions have become characteristic of just about every private and public institution in the business of making projections, as they desperately try and remain credible in the eyes of those people who have been living with reality for years now. They won’t be successful, though, because that credibility is long gone. Their analysis and models are just more garbage products that people are refusing to consume.
Why continue leading "normal" lives and playing by the "normal" rules when the system itself is so abnormal and unjust? Everyone, including the general public in all of Europe and America, should take a hard look at how the austerity cuts are hitting the poorest among us far worse than the richest, as illustrated by this graph from the Institute for Fiscal Studies:

All of this oppressive austerity and systemic inequality is not limited to the Western hemisphere by any means. The world’s second largest economy, China, also presents a stunning example of how fast one can go from a "booming" economy to a rock hard landing, both financially and socio-politically. The recklessly financed cheap labor, industrial export model is simply no longer functioning for countries like China, and their debt walkers are no happier about it than those of Europe. Ben McGrath of the Worldwide Socialist Website reports:
Strikes rock manufacturing centres in southern China
"Thousands of factory workers in the manufacturing cities of Shenzhen and Dongguan in China’s southern Guangdong province have taken part in strikes over the past two weeks to protest cuts to wages and other conditions.
On November 17, 7,000 workers stopped work at a Taiwanese-owned shoe factory in Dongguan. The Yue Cheng facility had recently fired 18 middle managers and cut overtime. Many workers also faced losing their jobs as the company prepared to shift production to inland China or another country, such as Vietnam, where labour costs are lower.
…The tensions continued this week, with security guards patrolling the industrial park. Workers told Reuters that the strike continued. They were clocking in, but refusing to work at the assembly lines. "We are willing to work but you must also pay us enough to survive," one worker said. Another declared: "Even during the financial crisis [in late 2008 and early 2009] we didn’t see pressure like this."
Starting from November 21, two-thirds of the 800 employees at lingerie maker Top Form International Holdings’ factory in Shenzhen staged a five-day strike against a piece-rate wage system and onerous daily production quotas.
On November 22, 1,000 workers at a Taiwanese-owned computer factory in Shenzhen, went on strike over excessive overtime from 6 p.m. to midnight.
…China’s export industry is based on cheap labour and sweatshop conditions. A shift toward domestic consumption would necessitate higher wages for workers, undermine export competitiveness and therefore accelerate job losses in the export sector.
In April, in an attempt to ward off growing social discontent, the Shenzhen authorities increased the minimum wage slightly from 1,100 yuan to 1,320 yuan a month. Even this meagre increase caused companies to speed up plans to reduce their workforces and shift production to cheaper provinces and other countries. Top Form International, where one of latest strikes occurred, is reducing its sewing workforce from 1,000 to 400, by moving to Thailand where wages are even lower."

What we see in China is just a different type of "austerity" – one in which the private sector must suppress wages before a sizable middle class ever gets the chance to form, or the public sector ever gets a chance to over-spend on entitlements and wars. The Chinese zombies have been forced into a state of leveraged fury, just like everyone else.

The only questions that remain now are (A) how long before the American zombies make like their debt-walking brothers and sisters across the Atlantic and Pacific, and generally strike back against a devolving financial consumer empire of exploitation, and (B) what kind of damage can they inflict on this system when that inaction really gets going. 
If localized resistance movements continue to grow and others follow in the footsteps of Occupy Oakland, which is quite likely at this point, then perhaps it won’t be very long, and perhaps the damage will run deep. This particular flick may not follow a Hollywood script or have a Hollywood ending, but you can count on it earning its place in history as something real; something that followed its own script and helped change the world.                

Kyle Bass: This Is What The End Of The Global Debt Super-Cycle Looks Like
by Joe Weisenthal - Business Insider

In his latest investor letter (via Gurufocus), Kyle Bass lays out his case that a wave of hard defaults is coming.

His basic argument: The world is just saddled with too much debt.

Throughout history, he says, total debt-to-GDP only ever breached 200% when nations were spending on war. Today we're at 310%.

Says Bass: "There is no savior large enough with a magical pool of capital to stave off this unfortunate conclusion to the global debt super cycle. We think hard defaults are imminent."

chart of the day, total global debt to debt/gdp, dec 1 2011

Soros: World Financial System on Brink of Collapse
by Brenda Cronin - Wall Street Journal

The world financial system not only isn’t functioning, it’s on the brink of collapse, according to investor George Soros.

The Hungarian-born philanthropist, who recently spent time in areas where his charities are active, such as Africa, said he sees a growing bifurcation between emerging and developed countries – and he’s more confident about prospects for the emerging ones.

Despite their assorted problems, including corruption, weak infrastructure and shaky government, developing countries are relatively unscathed by the "deflationary debt trap that the developed world is falling into," Mr. Soros said at a New York gathering to mark the 10th anniversary of the International Senior Lawyers Project, a group that provides pro bono legal services around the world.

Mr. Soros was among those honored by ISLP, for his work as founder and chairman of the Open Society Foundations, which supports democracy and human rights.

The current global financial system is in a "self-reinforcing process of disintegration," Mr. Soros warned, and "the consequences could be quite disastrous. You have to do what you can to stop it developing in that direction."

While the economic and fiscal woes of the developed world remain critical, Mr. Soros said his recent travels gave him a sense of optimism about Africa and the Arab world. "A lot of positive things are happening," he said. "I see Africa together with the Arab Spring as areas of progress. The Arab Spring was a revolutionary development."

However, he noted, Hungary’s 1956 revolution changed the political atmosphere but didn’t bear fruit until 1989. "You can’t expect immediate success but what is happening will have a lasting impact," he said.

Kyle Bass: Japan Is A Giant Madoff-Like Ponzi Scheme That Will Blow Up Starting In The Next Few Months
by Joe Weisenthal - Business Insider

Hayman Capital's Kyle Bass has been betting on the failure of governments for awhile now, and he's obviously relishing all the latest headlines.

His latest letter, which was posted by GuruFocus is titled "Imminent Defaults" and in it he spells out what he sees as the warning signs for a country, and which countries are already screwed.

The countries he lists are:

"Greece, Italy, Japan, Ireland, Iceland, Japan, Spain, Belgium, Japan, Porutgal, France, and have we mentioned Japan."

What to him makes a country vulnerable?

Says Bass:

"While there are many inputs that are functionally relevant, we look for a couple of warning signs. We move a nation out of risk free category as soon as they spend more than 10% of their central government revenues on interest alone. We also worry about debt loads that represent more than 5x the revenue of the responsible government. When these and other characteristics are met or exceeded, it can quickly move the country into checkmate."

After spending some time blasting the EFSF and Europe, he turns back to Japan, wherein he declares: "Japan Will Soon Be On The Front Page."

He writes:

Madoff's scheme collapsed for one primary reason -- he had more investors exiting his scheme than entering. As soon as this happened it was over. According to this most recent census, the Japanese population peaked within the last few years at 127.9 million and has since lost 3 million. Japan has one of the most homogeneous -- and some might even call it xenophobic -- soceities of any developed nation in the world. It is no secret that there is no love lost between the Japanese and their neighbors, and therefore, immigration is an unlikely answer to a dwindling poulace.


It is indisputable that Japan has the worst on balance sheet debt burden in the world (roughly 229% of GDP).


The European debt crisis will simply act as an accelerant to the Japanese situation as it will most likely change the qualitative thoughts of JGB investors. We believe that the sequence of events is set to begin in the new few months.

Key Charts From The NFP Report: Records In Jobless Duration And People Who Want A Job As Civilian Labor Force Plunges
by Tyuler Durden - ZeroHedge

Here are the four most important data points and charts from today's job report: the civilian labor force declined from 154,198 to 153,883, a 315K decline despite the civilian non-institutional population increased (as expected) from 240,269 to 240,441: always the easiest way to push down the unemployment rate. Percentage wise this was a drop from 64.2% to 64.0%: the lowest since back in 1983.

Naturally, this would mean that the people not part of the labor force rose, and indeed they did by 487,000 to a record 86,558 from 86,071. This also means that more people are looking for a job: and indeed, the number of "Persons who want a job now" rose by 192K to a record 6.595 million. And lastly, confirming the behind the scenes disaster of the US jobless picture, the average duration of unemployment rose to a new record 40.9 weeks from 39.4 weeks previously.

And that is your "improving" jobless picture in a nutshell.

Labor Force Participation Rate:

People Not In The Labor Force:

People Who Want A Job Now:

And Average Duration Of Unemployment:

U.S. unemployment rate drops to 8.6% in November
by AP

Employers add 120,000 jobs, but the jobless rate's drop is also due to a shrinking labor force: 315,000 people gave up looking for work.

The U.S. unemployment rate fell last month to its lowest level in more than two and a half years, as employers stepped up hiring in response to the slowly improving economy.

The Labor Department said Friday that the unemployment rate dropped sharply to 8.6 percent last month, down from 9 percent in October. The rate hasn't been that low since March 2009, during the depths of the recession.

Still, 13.3 million Americans remain unemployed. And a key reason the unemployment rate fell so much was that roughly 315,000 people had given up looking for work and were no longer counted as unemployed.

Employers added 120,000 jobs last month. And the previous two months were revised up to show that 72,000 more jobs were added -- the fourth straight month the government revised prior months higher.

Private employers added a net gain of 140,000 jobs last month. Governments, meanwhile, shed another 20,000 jobs, mostly at the local and state level. Governments at all levels have shed almost a half-million jobs in the past year.

More than half the jobs added were by retailers, restaurants and bars, a sign that holiday hiring has kicked in. Retailers added 50,000 jobs, the sector's biggest gain since April. Restaurants and bars hired 33,000 new workers. The health care industry added 17,000.

The presidential election is less than a year away, which means President Barack Obama will almost certainly face voters with the highest unemployment rate of any president since World War II.

And Europe's financial crisis threatens to slow U.S. growth next year. A recession in Europe could reduce U.S. exports, hurt global financial markets and dampen business confidence.

Paul Ashworth, an economist at Capital Economics, estimates that the economy will expand 2.5 percent in the last three months of this year. But he expects growth to slow to 1.5 percent in 2012, partly because of the crisis in Europe. And if Congress fails to extend the Social Security tax cut and long-term unemployment benefits this month, growth is likely to slow even further.

Weak job growth means companies don't have to raise pay to keep their employees. Fewer jobs and lower pay leaves consumers with less money to spend. That's holding back economic growth.

In the past three months, the economy has added an average of 143,000 net jobs per month. That's enough to keep up with population growth and better than the previous three months, when the economy averaged just 84,000.

Has Ambrose Evans-Pritchard Lost His Mind?
by Mike Shedlock

The question of the day is "Has Ambrose Evans-Pritchard Lost His Mind?" The reason I ask stems from his post on The Telegraph You are all wrong, printing money can halt Europe's crisis
This will enrage many readers — especially the "Austrian" internet vigilantes — but I have to say it.

A near universal view has emerged that Europe's crisis can only be solved by governments and fiscal policy, with varying views over the proper dosage of pain.

I beg to differ. This is a monetary crisis, caused by a jejune central bank that aborted a fragile recovery by raising rates earlier this year, allowed the money supply to collapse at vertiginous rates in southern Europe, and caused a completely unnecessary recession — and a deep one judging by the collapse in the PMI new manufacturing orders in November.

Needless to say, drastic fiscal austerity is making matters a lot worse. You cannot push two-thirds of the eurozone into synchronized fiscal and monetary contraction without consequences.


This crisis can be stopped very easily by monetary policy, working through the old-fashion Fisher-Hawtrey-Friedman method of open-market operations to expand the quantity of money, ideally to keep nominal GDP growth on an even keel.

This does not solve the 30pc intra-EMU currency misalignment between North and South, of course, but it quite literally "solves" the solvency crisis for Italy and Spain. They would not be insolvent if the ECB had not driven them into depression by letting their money supply implode.

Yes, I know there are lots of central bankers who say or think monetary policy cannot achieve these miracles. They are wrong. Of course it can. A whole generation of policy-makers have been side-tracked into cul-de-sacs like (Bernanke) creditism, or German religious theories of "expansionary fiscal contractions". (By the way, I learned in Ireland last week that the country's 1980s experience used as the poster child for that credo is based on false data. It does not validate the theory at all).

They have forgotten some basic lessons of economic history. As the Bank of England's Adam Posen put it, policy defeatism has taken over.


"Yesterday's coordinated central bank intervention was like the captain of a transatlantic flight coming on the intercom to tell us that, while three of the four engines have failed, the remaining one might get us to our destination," said Steen Jakobsen from Saxo Bank.

"The central banks are now the only source – or engine – of funding for banks. Yes, it means we now have even more guarantees of cheap money/liquidity in the system, but it’s still a scary, one-engine plane. The central bank liquidity is the one engine, while the private market that used to be the other three engines, has seized up and stop functioning."

"French banks lost more than €120bn of funding in the short-term wholesale market from the US over the last month, and the duration of the funding fell from an average of 44-days to less than 5-days."


Clearly a lot of investors think that Wednesday's central bank drama is a sign that something big is starting, that authorities of Europe and the world "get it" at last.

Well, I'm sorry. The world gets it OK, but Germany does not, and nor does the ECB.

View from Steen Jakobsen

Pritchard cited at length some stats presented by Steen Jakobsen, chief economist at Saxo Bank. Let me cite a different quote by Steen, straight from the same article Are markets celebrating an engine failure?
The central bank liquidity is the one engine, while the private market that used to be the other three engines, has seized up and stop functioning. This is a negative 'crowding out' of private capital.

The market loves cheap liquidity and has reacted positively to yesterday’s coordinated move on USD swap lines, but this debt crisis is a problem of solvency – not one of liquidity/printing money, which makes the intervention a de facto exercise of extend-and-pretend, version 5.0.

To quote Pritchard "Quite"

Also note that Pritchard conveniently dropped the key sentence "This is a negative 'crowding out' of private capital." from his quote.

Pritchard Wants to Save the Unsaveable

Pritchard clearly has it in for Germany. Why I do not know.

What's disappointing about his article is that he predicted well in advance that the Euro experiment would end in failure. Rather than bask in the glory of being correct early and often, he has now lost his mind attempting to save the unsaveable.

If that's not losing one's mind, what is?

Monetary Printing Rebuttal

I could spend a lot of time writing a rebuttal to Pritchard's monetary printing thesis, but I do not have to. Pater Tenebrarum wrote an excellent rebuttal on November 29.

Please consider Central Banks and Monetary Cranks
Monetary Cranks Unite!

Ambrose Evans-Pritchard is joining the ranks of the monetary cranks (and there are more then a few of those) sotto voce in a recent missive entitled "Should the Fed save Europe from disaster?". After counting down the litany of things that are currently going wrong and could conceivably get worse, he launches into the following diatribe:
Berkeley’s Brad DeLong said it is time for Bernanke to act on this as the world lurches straight into 1931 and a Great Depression II. “The Federal Reserve needs to buy up every single European bond owned by every single American financial institution for cash,” he said.

The Fed could buy €2 trillion of EMU debt or more, intervening with crushing power. The credible threat of such action by the world’s paramount monetary force might alone bring Italian and Spanish yields back down below 5pc, before one bent nickel is even spent. One presumes that the Fed would purchase both the triple AAA core and Club Med in a symmetric blast of monetary stimulus across the board, avoiding the (fiscal) error of targeting semi-solvent states. In sense, the Fed would do quantitative easing for the Europeans, whether they liked it or not.

David Zervos from Jefferies has proposed an extreme variant of this, accusing Germany’s fiscal Puritans of reducing Europe’s periphery to “indentured servants” and driving the whole region into depression with combined fiscal and monetary contraction.

“We in the US need to snuff out these sado-fiscalists and fast, they are a danger to the world. The US can force monetisation at the ECB. We should back up the forklift and buy Euro area bonds. Lots of them,” he said.“

If adding to the money supply is truly beneficial, why not allow every citizen to set up his own money printing press? That would surely 'increase spending', and therefore should, following the logic of the likes of Bernanke and DeLong, lead to 'economic growth'. If they disagree with this proposition, they must explain what difference it makes when the Fed (and the associated banking cartel) does it. As far as we can tell the main difference is in who gets to profit from the redistributive effects of money printing. Of course it could be argued that if everyone were free to print, there would be no way of controlling the amount that is created. In that case, how about crediting every citizen with a pro rata amount of the newly printed money? Why is it not done in this manner?

Evans-Pritchard seems to indicate here that one should prop up unsound debt by hook or by crook, if need be even against the wishes of those concerned. However, what can be expected to change if the debt is not propped up is in the main that the ownership of assets will be transferred from inept stewards of capital to decidedly more prudent ones. The assets concerned will not disappear.

So what good exactly is supposed to come of keeping the inept guys in charge at the expense of those who were prudent? We are eagerly awaiting an explanation.

Always Wrong to Bail Out Banks

Bear in mind that much of the austerity measures Pritchard rails against are designed to bail out the French and German banks.

It is always wrong to force tax hikes and other austerity measures on private citizens simply to bail out reckless bank behavior. Every Austrian economist in the world would agree with Pritchard on that point, something he fails to mention.

Pritchard Poses False Dichotomy

Pritchard poses a false dichotomy: print money or impose various austerity measures like hiking taxes to bail out banks. Why do either?

I wrote about this disgusting situation on Thursday in EU Bank Writedowns to Exclude Pre-2013 Debt; French Bond Yields Drop Most on Record; Italian Bond Yields Drop Below 7%
EU officials have hatched a plan to make banks and bondholders take losses for risks, not now of course, but after 2013. In the meantime, taxpayers will shoulder 100% of the losses for bank lending stupidity. On this confidence inspiring news, European bonds rallied sharply.

Three Key Provisions
  1. Taxpayers would be screwed for all losses up to 2013
  2. The year can be extended
  3. Writing down Derivatives is a last-resort

Since the market likes a free lunch at taxpayer expense it's no wonder the debt markets rallied somewhat. However, to what extent the market will believe "no losses" and for how long remains to be seen.

Bailing Out Banks at Taxpayer Expense is 100% Wrong

Bailing out banks that take stupid risks is always wrong, in every situation. Taxpayers will suffer from higher inflation (notably in food and energy), wages will not rise, banks will pass out big bonuses once they are bailed out, and taxpayers will still be stuck with the debt.

That by the way is exactly what happened in the US and it is one of the reasons hiring is anemic and lending is weak.

In the US, but even more so in Europe, banks cannot lend because they are capital impaired. The solution is not austerity and higher taxes, but rather a writedown of that debt.

However, various structural reforms surely are needed, free-market reforms. France needs to stop protecting farms at the expense of the UK, Greece needs to get rid of its public union problems, Italy needs to shed a plethora of inane rules and regulations. I can go on and on about structural problems in the US, UK, EU, and every European country.

Printing money will not fix a single structural problem, all it will do is bail out the banks (yet again), leaving private citizens with debt they cannot pay back or inflation that punishes savers.

Yes, Ambrose Evans-Pritchard has indeed lost his mind because printing money will not solve a damn thing. It will only provide an illusion of temporary success, requiring still more printing when the stimulus dies.

Why Bank Stocks Are Stuck In a 'Crushing Bear Market'
by Jeff Cox -

Banks are the great poison of the stock market these days—not because of what is known about them, but rather what is unknown.

Looming specters surround the industry at every turn — contagion from European debt crisis, a fiscal mess in Washington and a little-noticed ballooning in the opaque derivative markets. All this has investors running scared from a group that otherwise might be quite appealing.

Before Wednesday's market rally, financial stocks were down 25 percent for the year on the Standard & Poor's 500 Index, which itself was off 5 percent for the year. Even Wednesday's rally underscores just how deeply the concerns run.

Markets surged on a move by global central banks to provide cheaper dollar loans to European banks exposed to the euro zone's sovereign debt crisis. The aggressive intervention, which harkened back to the moves after Lehman Brothers collapsed and sparked a global credit crisis, pushed major indices up more than 3 percent and banks higher by nearly 5 percent.

But once the euphoria ends, banks still will have plenty of issues to confront. "Based on a crushing bear market in bank stocks, investors are understandably jaded and very skeptical as it relates to the relative performance of bank stocks," said John Pandtle, portfolio manager at Eagle Asset Management. "It reflects a very significant risk premium or discount rate based on the macro uncertainty and all the concern that you see related to Europe."

Standard & Poor's helped pull the curtain back somewhat on Tuesday when it downgraded  most of the big U.S. banks.  In part, it was a natural move considering S&P downgraded the debt rating of the US government in August. Even some of banking's biggest supporters — Dick Bove of Rochdale Securities, to name one — said the downgrade was justified considering bank debt had been selling below even the new rankings.

But the problems run deeper than difficulty on the debt markets. Investor perception, for good or bad, is that if Europe's big banks start to fail when the expected sovereign debt restructuring/defaults  begin in earnest, U.S. banks, particularly the largest institutions, won't be able to get out of the way. (Bove takes notable exception to this premise, insisting that American banks actually will benefit from a European financial crisis.)

One big number that signifies other possible dangers: $708 trillion. That is the total notional  level of outstanding over-the-counter derivatives as of the first half of 2011, according to the Bank for International Settlements. Derivatives are those black-box financial instruments that helped bring down the U.S. financial system after the subprime mortgage industry exploded in the previous decade.

Of course, the notional value only represents a theoretical level of exposure should every derivative contract out there come to full payment. The gross market value — a closer, though still inexact, computation of actual exposure — is at $19.5 trillion.

Because the derivatives market has such little visibility, it's difficult to determine what the exact exposure would be to American banks should derivative contracts tied to European debt explode. But a few of the BIS numbers tell a disturbing story about risk acceleration.

The notional level represents an 18 percent gain in derivative exposure from the second half of 2010, while the gross market value dropped by 8 percent, a directional move indicative of falling value in the contracts. Interest rate derivatives surged by 19 percent, while forex derivatives increased by 12 percent.

So at a time when tightened regulations were designed to cut risk to the global financial system, the amount of hard-to-decipher high-risk trading actually accelerated in the first half of the year, the most recent period covered by BIS data.

"There's no doubt that exposure remains very significant," said Fred Cannon, director of research and chief equity strategist at Keefe, Bruyette & Woods. "The one concern one has to have is that counterparty risk, to the extent that they're trading with European counterparties. One of the things we learned in the financial crisis is the fire usually isn't where the fire hose is pointed."

Significantly, Cannon pointed out that the bulk of the derivative exposure is nestled within the industry's largest names — Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup and Bank of America — the supposed too-big-to-fail names that have only gotten larger since the financial crisis.

On the bright side of things, banks have reduced the disparity on their balance sheets between assets and total cash, or what analysts commonly refer to as "leverage." At the peak of the financial crisis, the balance sheets of global banks were levered at about 37 to 1. The consequence of that was that when loans, particularly mortgages — counted as assets — started going bad, the banks didn't have enough cash on hand to take the hit.

The trouble was particularly acute for insurers such as American International Group, which sold credit default swaps to investors who bet against the subprime market. AIG didn't have enough money to pay off once mortgage defaults exploded, and subsequently required a government bailout.

Now, banks are near record-lows for leverage at 7 to 1, according to computations by economists at Deutsche Bank. Even that metric, though, contains a warning sign.

Banks reduced their leverage largely by halting loans and hoarding cash after the crisis. Total bank assets peaked at $12.2 trillion in October 2008 — shortly after the fall of Lehman — and have been flat around $10.8 trillion, according to Deutsche Bank. Most of that decline came from a $1.2 trillion drop in loan activity.

The reason why banks stopped lending primarily was to comply with regulatory requirements, which have provided an economic Catch-22 that also has fueled investor concern.
In response to the years of irresponsible lending that precipitated the financial crisis, regulators have demanded that banks only loan to high-quality customers.

But it is those individuals and businesses with good cash positions and credit histories who don't want to borrow in a down economy. Conversely, those who want and need the loans can't get them.

As indicated in the most recent Federal Reserve Senior Loan Officers survey, banks have relaxed lending standards and indicated a desire to lend, but have found too few takers.

"The challenge there is the borrowers who are in very good condition are sitting on a boatload of cash. So they're not all that anxious to borrow and the weak borrowers are still constrained because of recent credit history," Cannon said. "The thing that would get lending going would be a revival in the animal spirits of those in strong financial shape." The window for getting those spirits going, though, could be a short one.

"It is encouraging that in response to the increasingly uncertain economic outlook banks have continued to loosen their lending criteria," Paul Dales, senior US economist at Capital Economics in Toronto, said in a recent report. "But it is a bit disturbing that firms have become less eager to borrow. This could take some of the gloss off business investment, which has been a rare shining light in an otherwise gloomy economic recovery."

And then there's Europe. Should the central bank solution applied Wednesday prove to be fleeting, the increased appetite for risky lending among banks could be brief.

"The real danger, however, is that the events in Europe trigger a sharp fall in the willingness of lenders to lend," Dales said. "Another credit crunch is a risk that will hang over the U.S. economy until the problems in Europe are resolved once and for all."

Finally, there's the Fed. The U.S. central bank has set criteria for stress tests in 2012 that assume devastating conditions: A 52 percent drop in stocks, a 21 percent slump in already-depressed housing prices, and a stunning upturn in unemployment to 13 percent.

Overkill? Perhaps. But the standards reflect the Fed's desire to make sure banks can withstand a major global crisis. "The decline in bank stock prices and the financial crisis unfolding in Europe has the Fed concerned over contagion and risk to the U.S. banking system. High levels of retained capital at U.S. banks are a defense against this concern," KBW's Cannon said in a research note.

"European stress tests have done little to stabilize the market for European bank stocks," he added. "We believe the Fed wants to ensure that the U.S. stress test is more credible than what is presented in Europe."

Bove is more pointed in his views on the stress test plan. "If the banking system is required to develop plans to meet the most adverse of these scenarios," he wrote in a series of notes lambasting the Fed, "it will be unable to function to assist the economy and a recession could result."

Yet Bove has been a continuous advocate for banks, insisting, for instance, that S&P's only mistake in its Tuesday downgrade was not noting that bank performance is improving.

Investors, though, aren't having any of it. Cannon says investors are wise to stay away from large institutions, while Pandtle, of Eagle Asset Management, said there is only selected value in the space.

"We think there is compelling value in a select group of bank stocks," Pandtle said. "But to make a macro call on the banks that you have to own these stocks now — it's too early to make that call until you have more visibility."

Euro Central Banks May Provide $270 Billion Through IMF to Fight Debt Crisis
by James G. Neuger - Bloomberg

A European proposal to channel central bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis, two people familiar with the negotiations said.

At a Nov. 29 meeting attended by European Central Bank President Mario Draghi, euro-area finance ministers gave the go- ahead for work on the plan, said the people, who declined to be named because the talks are at an early stage. The need for a new crisis-containment tool emerged as the effort to boost the 440 billion-euro rescue fund to 1 trillion euros fell short.

Under the proposal, national central banks would recycle funds through the IMF, potentially to underwrite precautionary lending programs for Italy or Spain, the two countries judged to be the most vulnerable now, the people said. "We’re looking for a maximum reinforcement with the IMF and the central bank," Belgian Finance Minister Didier Reynders told reporters Nov. 30.

For governments in rich countries such as Germany that are unwilling to lend more to high-debt states, the idea would unlock a fresh source of funds without violating European rules that bar central banks from offering direct budget financing, the people said.

The euro area’s 17 national central banks operate under the umbrella of the ECB. Draghi yesterday hinted at a stepped-up crisis-fighting role as long as governments take steps toward a ‘‘fiscal compact’’ that ensures healthy long-term public finances.

Merkel’s Strategy
German Chancellor Angela Merkel laid out elements of that strategy today, calling for European treaty amendments to create automatic, court-enforced sanctions on countries that overstep limits of 3 percent of gross domestic product on deficits and 60 percent of GDP on debt.

Bonds of Italy and Spain rose today amid optimism that European leaders will piece together a tighter fiscal framework at a Dec. 8-9 summit that would prompt a greater central bank commitment.

One option is the lending via the IMF, which specializes in aid programs. The sums being discussed by finance officials range from 100 billion to 200 billion euros, the people said. Bilateral loans through the Washington-based lender would also spare the euro-area central banks from conflicts of interest that could arise from enforcing conditions on countries where they also set interest rates, the people said.

‘‘If we could see the proposed combination of IMF and ECB action, obviously that would be very, very credible to the market,’’ Swedish Finance Minister Anders Borg said Nov. 30. Such a program wouldn’t be a substitute for the increase in ECB bond purchasing that countries such as Spain have clamored for.

The central bank has bought 203.5 billion euros of bonds of three countries receiving financial aid -- Greece, Ireland and Portugal -- plus Italy and Spain since May 2010.

Why Do Foreign Banks Need Dollars?
by Binyamin Appelbaum - New York Times

The announcement Wednesday that the Federal Reserve, working with other central banks, will offer dollars to foreign banks at cut-rate prices surely raises the question: Why do foreign banks need dollars?

The simple answer is that foreign banks really like the things that dollars can buy. They liked investing in American government debt, and lending money to American corporations, and most of all they liked buying American mortgages and all manner of crazy investments derived from those mortgages.

Bank holdings of assets denominated in foreign currencies ballooned from $11 trillion in 2000 to $31 trillion by mid-2007, according to a 2009 report by the Bank for International Settlements. European banks posted the fastest growth, and that growth was concentrated in dollar-denominated assets. By the eve of the crisis, the dollar exposure of European banks exceeded $8 trillion.

Many of these investments were funded on a short-term basis. The paper from the Bank for International Settlements estimates that European banks had a constant need for $1.1 trillion to $1.3 trillion in short-term funding. The banks raised that money mostly by borrowing domestically and then acquiring dollars through foreign-currency swaps. Banks also sold short-term debt to American money-market funds.

The financial crisis happened in large part because investors stopped providing banks with short-term funds. They lost confidence in their ability to discern which banks could repay such loans.

In response, the Fed started offering dollar loans to foreign banks in December 2007. At the peak of the lending program, in December 2008, foreign banks held more than $580 billion provided by the Fed. The European Central Bank accounted for half the peak total, $291 billion. Loans to the Bank of Japan peaked at $123 billion, but most of the rest of the dollars also went to Europe, to the Bank of England, the Swiss National Bank and the central banks of Sweden, Norway and Denmark.

An analysis by the Federal Reserve Bank of New York, published earlier this year, found that the dollar loans played an important role in stabilizing foreign banks during the financial crisis. (Those banks also borrowed directly from the Fed, in large quantities, through American subsidiaries.)

Forward to the present moment: European banks have tried to reduce their dollar exposure since 2008 by shedding dollar-denominated investments and avoiding new ones. The Bank for International Settlements said in a 2010 paper that the short-term dollar needs of European banks might have declined to as little as $800 billion by the end of 2009.

It is likely that banks have made some additional progress over the last two years. But the funding need remains considerable, and once again private investors like money-market mutual funds are pulling back from lending. And once again the Fed is stepping in, although so far it has lent only $2.4 billion.

Europe's Lenders Find Branch Trumps a Unit
by Patricia Kowsmann, David Enrich and Laura Stevens - Wall Street Journal

European banks are restructuring their businesses outside their home countries in ways that reduce the impact of tough new regulations that were adopted in response to the financial crisis.

In the U.S., U.K. and Portugal, at least a few large European banks have altered their legal structures or moved assets and business lines between units, partly in an attempt to avoid local rules and oversight, according to bank disclosures and people familiar with the matter.

The latest example came in Portugal this week. Deutsche Bank AG converted its business there from an independently incorporated local subsidiary into a branch of the parent company. The switch means the giant German bank's Portuguese operations are no longer subject to new capital and other requirements that Portugal imposed in the wake of the country's international rescue earlier this year.

In the U.K., a number of big European banks, including France's BNP Paribas SA, recently moved assets between different legal entities, at least partly to reduce the scope of operations subject to aggressive British regulations and oversight, according to people familiar with the matter.

The maneuvering follows recent examples of major European banks, including Deutsche and Barclays PLC, that tinkered with the structures of their U.S. operations in ways that enabled them to skirt last year's Dodd-Frank financial-overhaul law.

The banks say they are making the changes mainly to improve efficiency, and none of this breaks any rules. But the effect, intended or not, is that they don't have to adhere to stringent local capital and liquidity rules, as they move outside the jurisdiction of regulators who have been growing more assertive, according to bank executives, regulatory lawyers and other experts.

Some experts say the trend could add risk to Europe's beleaguered financial system.

At issue is the type of legal entity in which the banks run businesses outside their countries. They have two main choices: a subsidiary or a branch. A subsidiary must maintain its own balance sheet and answer to local regulators. A branch is simply a foreign appendage of the parent and therefore doesn't face the same financial or regulatory burdens.

Many banks, as well as regulators, prefer the subsidiary approach, partly because it helps instill confidence that problems in one unit won't spread throughout the company. Spain's Banco Santander SA and the U.K.'s HSBC Holdings PLC are among those that rely on local subsidiaries to house their far-flung operations.

In some recent cases, regulators have been pushing banks to embrace the use of subsidiaries. The U.K.'s Financial Services Authority, for example, successfully pressed UBS AG to shift assets such as portfolios of loans and derivatives from its lightly regulated London branch into a U.K. subsidiary that is subject to FSA oversight, according to people familiar with the matter.

But with regulators clamping down on banks, other lenders are starting to inch away from the subsidiary model, partly to avoid having to satisfy local rules that exceed international requirements on capital levels.

Banks' increasing use of branches, while making it easier for them to move money around their businesses, could prove worrisome for the broader financial system, some experts say. "The downside for authorities is it makes the bank more difficult to resolve in a windup," said Jon Peace, a London-based banking analyst with Nomura.

Deutsche Bank recently moved its Portuguese and Hungarian businesses from subsidiaries to branches and is doing the same in Belgium. In a letter notifying Portuguese customers of the planned change, Deutsche said the goal is "to strengthen its commitment to the Portuguese market." The letter added that the switch meant Portuguese regulators would lose some power over the operations. "The main regulatory authority will be BaFin," the letter said, referring to Germany's regulator.

The timing of the move coincided with the intensification of bank regulation in Portugal. The country's €78 billion ($105 billion) international bailout requires its banks boost their capital ratios and become less reliant on foreign funds to run their day-to-day operations.

Obama’s morbid fear of EU meltdown
by Richard McGregor - FT

For a summit with a continent in crisis, this week’s meeting between Barack Obama and European leaders was a strangely low-key affair, with only a moment set aside for photographers and no joint press conference at its end.

But behind the scenes, within both the administration and Mr Obama’s campaign team in Chicago, there is a morbid fear about a eurozone meltdown and its flow-on impact on the US economy and the president’s re-election chances.

"The thing that matters the most in determining the health of the US economy and job creation is what happens in Europe," says a senior administration official.

Mr Obama and his advisers met on Monday with Herman Van Rompuy, the European Council president, José Manuel Barroso, the European Commission president, and Catherine Ashton, the region’s chief foreign policy official.

Afterwards, Mr Obama was diplomatic. His ambassador to the European Union, William Kennard, was more blunt, saying: "The president has made clear repeatedly he would like to see bolder, quicker, more decisive action by European leaders."

The administration worries that the tentative US recovery, and any success it might have in pushing a new stimulus plan through Congress, will be undone by the eurozone’s inability to negotiate a political settlement of its debt problems.

Mr Obama and the Democrats in Congress are locked in talks with Republicans in Congress over an extension and expansion of payroll tax cuts into next year, along with a continuation of jobless benefits. The Senate is due to have its first vote on the issue on Friday.

If the administration does manage to get even a part of its jobs package through, however, it may provide little stimulus if the eurozone is coming apart at the same time. "There is no question that if the eurozone crisis continued and it started to break apart there would be a severe economic impact and political consequences," said Tony Fratto, a Treasury adviser under George W. Bush.

Any financial crisis in Europe could have spillover effects into US banks and the financial system more broadly, even before hitting consumer confidence and the real economy.

Although exports are a relatively small share of output, the US needs to increase sales overseas if it is to wean the economy off its reliance on consumption and housing for growth and a European recession will hamper that.

Despite the severe threat that the crisis poses to the US, Washington’s leverage remains frustratingly limited. Even if Europe needed and requested financial help from the US, the money would not be forthcoming. "Congress would say no," said Jacob Funk Kirkegaard of the Peterson Institute for International Economics in Washington.

Besides moral suasion and offering wisdom gleaned from handling its own financial crisis in 2007-08, the US has a role in the eurozone rescue as a big shareholder in the International Monetary Fund, which is providing funds.

But the administration remains firm that the eurozone has enough money of its own to build a financial firewall around the currency union and does not see any need to solicit extra cash from emerging markets such as China to buttress either the region’s efforts or the IMF’s firepower.

Like the eurozone itself, the administration is captive of German domestic politics and Chancellor Angela Merkel’s juggling act balancing support for European unity with local taxpayer discontent about ever rising demands for funds to bail out its neighbours.

Mr Kirkegaard said he was "surprised" at how tactful Mr Obama was in public after the summit and expected him to be "more forceful" in grasping an opportunity to talk to a domestic audience about the crisis.

Just as he rails against a "do-nothing Congress", he could take a stand against "a do-nothing Europe", he said, adding: "Maybe he thought the people in the room were not the actual decision makers, or they told him something he wanted to hear."

Mr Obama may toughen his public line on Europe as the 2012 presidential election campaign intensifies and he is called upon to defend his economic record, because, as the incumbent, he will be blamed regardless. "It would not be: ‘You didn’t do enough to save Europe,’" said Mr Fratto. "It would just be the fact that the country is in another recession."

Germany is the ultimate victim of EMU
by Ambrose Evans-Pritchard - Telegraph

Enough is enough. Please stop defaming Germany out there in the blogosphere.

The Germans are not engaged in a mercantilist conspiracy to subjugate and milk southern Europe. They are not conducting "warfare by other means", or heaven forbid, trying to establish a Fourth Reich.

The German people entered monetary union for honourable motives, believing they were acting as good Europeans. It is excruciating for them to see those Athens banners in Syntagma Square showing Chancellor Angela Merkel wearing the Swastika, or read that sign "Arbeit Macht Frei".

They gave up the D-Mark reluctantly under French and Italian pressure, as the price for acquiescence in Reunification. They entered EMU at an overvalued rate after the Reunification bubble, leaving them in semi-slump for half a decade. They slowly clawed back competitiveness the hard way, by squeezing wages and driving up productivity.

It is entirely understandable that they now think Club Med can and should do the same. (They are profoundly wrong, of course, because Germany was able to lower relative wages during a) a global boom, b) against other EMU states that were inflating c) and with benchmark borrowing cost that stayed low even during the dog days. None of these factors apply to Italy or Spain now. But this is hard to explain this to the man or woman on the Berlin tram.)

If EMU now puts Germany in mercantilist ascendancy – an untenable position politically – it is by accident. They make good products (and for that reason they should have a strong currency that rises to reflect the fact). The euro is the cause of all the trouble, not German ambitions or motives. Germany is now hated in Europe more than at any time since World War

Two because it allowed itself to roped into this ruinous currency experiment, and for no other reason whatsoever. Chancellor Merkel gave an emotional defence of German conduct today in the Bundestag. Her country is not trying to dominate anybody, she said. "Politics has destroyed all trust," she said. "German and European unity have been and are two sides of the same coin. We will never forget that."

She is entirely right in one sense to continue ruling out Eurobonds as "unthinkable" under current structures, and a violation of German constitution, but that is not really an answer to the historical challenge that she faces in late 2011. Germany cannot unwind the clock. It did take the fateful step of joining monetary union, and from that awful error follows a string of strategic imperatives.

As the wise professors warned at the time, EMU would lead ineluctably to full fiscal union because an orphan currency would not endure without an EU Treasury and government to back it up, but it would a fiscal union accountable to nobody, because no European democracy exists, or can exist.

It would lead to debt pooling and shared budgets.

It would lead – fatally – to loss of the Bundestag’s sovereign powers to tax and spend. The core functions of parliament would slip away to EU mandarins.

It would lead to the emasculation of Germany’s exemplary post-War democracy.

It would lead in essence to the abolition of Germany as a nation state, even if the window flowers remained in place.

All else was illusion and wishful thinking.

That is what monetary union always meant and means now, though the trick being played on Europe’s citizens was fudged by dishonest treaties, themselves dishonestly ratified.

It is why so many of us on this side of the Ärmelkanal have fought tooth and nail for twenty years to stop Britain being subsumed into this plaything of unaccountable elites, this Project so profoundly threatening to our self-government and constitutional order.

But this is where Germany now is. It must either immolate itself and dismantle the Bismarckian state for the cause of EMU, or prepare to finance an orderly withdrawal from monetary union (with the Finns, Dutch, and Austrians) so that the South can breathe again and hope to recover.

That is the choice. All else is can-kicking, denial, obfuscation, muddle, and self-delusion. As is now becoming obvious, the failure to resolve the matter one way or the other is becoming a danger to the global financial system. It threatens to uncork a global depression. Germany must at last decide.

It is a horrible choice. My sympathies go to the German people who were never given a vote on this ensnarement and infeudation of their peaceful country, and who were egregiously deceived by their own leaders, and who cannot now begin to understand why they suddenly are target of such furious and venomous global criticism.

The Germans too are victims of this ruinous project, the greatest victims of all. Their elites have led them into a diplomatic and economic Stalingrad.

Nicolas Sarkozy promises no eurozone member will default
by Louise Armitstead - Telegraph

Nicolas Sarkozy pledged that no other eurozone country will be allowed to default in a passionate speech aimed at shoring up Europe's shattered markets.

The French president admitted that European infighting had led to markets and consumers being "paralysed by fear" and vowed to stop the bitter argumentswith Germany to ensure the euro is properly supported. "It must be made clear that a debt of a euro member will be repaid," he said. "It's a question of confidence."

Announcing more talks with German Chancellor Angela Merkel in Paris on Monday to "guarantee Europe's future", Mr Sarkozy added: "France and Germany, after so many tragedies, have decided to unite their destiny and to look to the future together."

However, he indicated that the European Central Bank (ECB) may intervene if the crisis worsens, despite German opposition, saying he had "no doubt that with the deflationary risk facing Europe, the ECB will act".

Admitting that France had "spent too much and often badly", Mr Sarkozy pledged an "immense revolution" to install a "new model of growth". But he insisted the eurozone would have to reform together. "We will not re-take control of our destiny alone. We will not domesticate finances alone. We will not change the rules of globalisation alone."

Using similarly apocryphal language for a central banker, ECB chief Mario Draghi said in a separate speech he had "observed serious credit tightening" in Europe that "does not bode well for the months to come". He hinted he may unleash further help but only if countries united behind "new fiscal compact" binding them to common debt and deficit rules. Mr Draghi said a "fundamental restatement of the fiscal rules" was "definitely the most important element to start restoring credibility".

In comments that analysts said hinted at another bond-buying programme, Mr Draghi added: "Other elements might follow but the sequencing matters."

The fresh energy from leaders came as data showed that Germany's manufacturing sector shrank for the second month in a row in November, and activity fell at the steepest rate since the middle of 2009. French output also fell while Greece's figures showed a record decline. Markit's manufacturing PMI for the eurozone as a whole fell to 46.4 in November, the lowest since July 2009.

The data snuffed out a four-day rally on European markets, ending the euphoria that followed central banks' co-ordinated efforts to increase liquidity on Wednesday. The Stoxx Europe 600 index fell 0.7pc; the FTSE 100 was down 0.3pc. France and Spain managed a successful bond auction each - but only after paying far more than normal.

Meanwhile, the EU's Competition Commissioner Joaquin Almunia announced state aid rules allowing EU governments to bail out troubled banks will be extended until market conditions improve. They had been due to expire at the end of the year.

French President Warns of Dire Consequences if Euro Crisis Goes Unsolved
by Steven Erlanger - New York Times

Saying that he wanted to tell the truth to the French people, President Nicolas Sarkozy said Thursday night that Europe could be "swept away" by the euro crisis if it does not change.

He said that Europe would "have to make crucial choices in the next few weeks," and that France and Germany together were supporting a new treaty to tighten fiscal discipline and promote economic convergence in the euro zone.

The European Union needs "an overhaul," Mr. Sarkozy said, to remain relevant and competitive, but he was vague about the details of what needs to be done. "If Europe does not change quickly enough, global history will be written without Europe," he said. "Europe needs more solidarity and that means more discipline."

His televised speech came against a backdrop of deepening alarm about the contagious nature of the euro crisis, which threatens Italy and has begun to sap confidence in France and Germany, the strongest economies among the 17 European Union countries that use the single currency. The crisis has exposed the seeming inability of European leaders to resolve the onerous debt problems of its weaker members, calling into question the survival of the euro, once seen as a glue that would bind Europe together.

Chancellor Angela Merkel of Germany is scheduled to give a similar address to Germans on Friday, but it was clear that Paris and Berlin do not agree on all aspects of a proposal. Mr. Sarkozy said the two would meet on Monday in Paris, before a European Union summit meeting next Thursday and Friday.

Mr. Sarkozy expressed confidence that the European Central Bank, while independent, would act in the face of possible deflation, one of the looming consequences of the crisis. To promote faster change and more fiscal responsibility, France favored more majority voting within the euro zone instead of acting only by unanimity. But the euro must be saved, Mr. Sarkozy said.

"The disappearance of the euro," he said, would "make our debt unmanageable" and create "a loss of confidence that would lead to paralysis and the impoverishment of France."

Speaking in Toulon, the port city where three years ago he gave a major address about how to counter the 2008 economic crisis, Mr. Sarkozy said that convergence between France and Germany was his goal, but that convergence did not mean any loss of identity. "There can’t be a single currency without economies heading toward more convergence," he said.

Facing a tough re-election fight in five months, Mr. Sarkozy is presenting himself as a man of experience, capable of strong leadership in a crisis. He is beginning to improve in the opinion polls, though from historically low levels. But if the crisis worsens, of course, Mr. Sarkozy’s chances for a second term are likely to diminish rapidly.

He is said to be more willing to try for treaty amendments to be approved by all 27 European Union members, as Germany and Britain want, though he is reported to believe that a treaty or an intergovernmental agreement among only the members of the euro zone would be easier — and faster — to achieve.

France would prefer to involve the European Central Bank more explicitly as a lender of last resort, which Germany rejects. Mrs. Merkel also rejects the idea of changing the bank’s charter in any treaty changes.

But European officials believe that a significant move toward treaty changes to create more economic governance in the euro zone — with tighter, more enforceable limits on debt and centralized oversight of national budgets — will give the European Central Bank the political cover to act more aggressively to defend Italy and Spain and drive down currently unsustainable interest rates on their bonds.

Mikolaj Dowgielewicz, Poland’s Europe minister, said on Thursday that it was "too late for half measures." Decisions at next week’s European Union summit meeting should provide "a signal that there is a willingness to have the E.C.B. do more," possibly with the help of the International Monetary Fund, he said. He said he was not speaking for the rotating European Union presidency, currently held by Poland.

Mario Draghi, the new head of the European Central Bank, hinted at a readiness for more aggressive action. "What I believe our economic and monetary union needs is a new fiscal compact — a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made," he told the European Parliament on Thursday.

He said that a new compact was "definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters." But he also said that the bank’s purchases of sovereign bonds must be "temporary and limited."

France remains reluctant to involve the European Commission, the permanent European Union bureaucracy, or the European Parliament, in any serious oversight role for national budgets. France wants to reserve that power to the European Council of nations, arguing that directly elected national parliaments must be consulted.

France has historically been reluctant to cede too much sovereignty to Brussels, beginning with the rejection of a European army in 1954 and the referendum defeat of a draft European constitution.

How much sovereignty to cede is an important political issue for Mr. Sarkozy, who heads France’s Gaullist party. He is seeking a balance between French nationalism, especially when Marine Le Pen of the far-right National Front is calling for France to exit the euro, and support for European solidarity in a crisis, when the euro, and possibly the whole European project that anchors Germany, appear to be at risk.

With details of the changes still be to agreed upon between France and Germany, the president of the European Council, Herman Van Rompuy, has begun circulating ideas as the basis for the negotiation, a European official said on the condition of anonymity because of the delicacy of the issue. "No one is waiting for a Franco-German paper," the official said.

Euro-Zone Manufacturing Downturn Deepens
by Nicholas Winning - Wall Street Journal

The euro zone's manufacturing sector contracted at a faster rate in November, with production and new orders falling at the strongest rate since the height of the credit crunch in 2009, a monthly survey by Markit showed Thursday.

The Markit final euro-zone manufacturing purchasing managers' index, a gauge of activity in the sector based on a survey of about 3,000 firms, fell to a 28-month low of 46.4 in November from 47.1 in October. A reading below the neutral 50 level indicates a contraction in activity.

"The latest survey is broadly consistent with manufacturing output falling at a quarterly rate of 2%, and a further decline in the survey's new orders to inventory ratio suggests that production is likely to be cut at an even faster rate in December," Chris Williamson, the chief economist at Markit, said in a statement.

The manufacturing PMI in Germany was confirmed at a 28-month low of 47.9 while in France it dropped to a 29-month low of 47.3, below the preliminary estimate of 47.6. However, the PMI in Italy rose unexpectedly to 44 from 43.3.

Franco-German Push for Budget Policing Meets Resistance
by Tony Czuczka and Helene Fouquet - Bloomberg

Germany and France are pushing for closer economic ties among euro nations and tougher enforcement of budget rules to counter the debt crisis, snubbing investor pleas to back an expanded European Central Bank role.

German Chancellor Angela Merkel, who will use a speech lawmakers today at 9. a.m. to outline her stance before a Dec. 9 European Union summit, has repeated her push to rework EU rules to lock in budget monitoring and seal off the ECB from political pressure. French President Nicolas Sarkozy late yesterday called for "more discipline" and automatic penalties for nations that break fiscal rules.

Merkel’s refusal to deploy the ECB is a rebuff to President Barack Obama after he exhorted Europe’s leaders to take more action to combat the crisis. The chancellor is loath to agree to follow the Federal Reserve and the Bank of England in policies she views as akin to fighting debt with more debt. Enlisting the ECB in battling the crisis would violate the central bank’s independence and set it on a course of action that might not work, destroying its credibility.

"The market is questioning Merkel’s tough approach," Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in a telephone interview. Investors want "clarity on what the framework will look like and what the financial bridge will look like" to fund euro-area governments and banks that need aid while fiscal ties are negotiated, he said.

'A Lot of Time'
EU President Herman Van Rompuy has questioned imposing policy through a treaty, saying the process doesn’t move quickly enough to satisfy markets. "It can take a lot of time," he said late yesterday in Brussels. "We are looking for something that can be handled much quicker" to restore investor confidence.

Throughout almost two years of market turbulence and conflict with allies, Merkel hasn’t budged, rejecting joint euro bonds and a greater ECB role, at times clashing with Sarkozy. Merkel will travel to Paris on Dec. 5 as the two leaders prepare the proposed overhaul of European institutions. It’s a required step before considering more aggressive measures, she says. "You can’t put the cart before the horse," Merkel said on Nov. 23.

In his last night speech in Toulon, France, Sarkozy said the 17-nation euro area, bound by a currency introduced a decade ago and intended to be permanent, risks "exploding" if members fail to converge economically.

Sarkozy’s Convergence
The countries sharing the currency must prepare their budgets in common, narrow competitiveness gaps and face tougher automatic penalties for fiscal rule-breaking, Sarkozy said.

"There can’t be a single currency without economies heading toward more convergence," Sarkozy told 5,000 supporters in a 50-minute speech in the Mediterranean port. "If living standards, productivity, and competitiveness gaps widen among euro-zone countries, the euro will sooner rather than later be too strong for some and too weak for others, and the euro zone will explode."

ECB President Mario Draghi signaled yesterday that the central bank could do more to fight the crisis in return for closer fiscal union. "The sequencing matters," Draghi told the European Parliament in Brussels. "It is first and foremost important to get a commonly shared fiscal compact right."

'More Strictly'
Germany is seeking changes to the EU’s rulebook to allow closer monitoring of euro countries’ budgets, with sanctions against persistent offenders and potential veto power over national spending plans wielded by the EU Commission, the EU’s Brussels-based executive. Van Rompuy is due to present proposals for treaty change at the Dec. 9 summit.

Merkel, who has signaled she doesn’t want financial markets or even her own economic advisers imposing solutions for the debt crisis, is sticking to the crisis-fighting arsenal built up since Greece, the euro area’s most-indebted country, was bailed out in May 2010. Six months later, as Ireland prepared to join Greece in requesting a rescue, Merkel said policy makers have to assert "primacy" over the markets in "a kind of battle."

Germany and Europe don’t have "unlimited financial strength" to counter the crisis, Merkel’s chief spokesman, Steffen Seibert, told reporters Nov. 28. That’s "why the German government reacts so skeptically to the many calls for Europe to finally free up the really big, final financial reserves, which the Anglo-Saxon world likes to call showing the bazooka."

IMF Role
In the latest bid to tame the crisis, European finance ministers said this week they would seek a greater role for the International Monetary Fund alongside their own bailout fund, the European Financial Stability Facility.

German Finance Minister Wolfgang Schaeuble said the IMF option, along with the EFSF’s ability to buy sovereign bonds and guarantee as much as 30 percent of bond issues by troubled governments, guarantees that all euro-area members will meet their financing needs well beyond the first quarter of 2012.

The EFSF looks like "yesterday’s story" as German policy makers play a "huge game of chicken" over future economic and monetary union to achieve their budget-tightening aims, said Jim O’Neill, chairman of Goldman Sachs Asset Management.

"How close to the edge do you want to take this?" O’Neill said in a Bloomberg Television interview with Francine Lacqua. "It needs Germany and the ECB to decide whether they want EMU to exist or not, because that’s how it’s going."

Merkel Says Joint Euro Bonds Unthinkable
by Tony Czuczka and Rainer Buergin - Bloomberg

German Chancellor Angela Merkel likened solving Europe’s debt crisis to a marathon, shunning investor calls for quick action while pushing for stricter budget enforcement and overhauling the region’s governance.

Addressing lawmakers in Berlin today before a Dec. 9 summit of European leaders, Merkel rejected joint euro-area bonds or trying to make the European Central Bank the lender of last resort as quick fixes. The ECB’s role is different from that of the Federal Reserve or the Bank of England, she said.

"Marathon runners often say that a marathon gets especially tough and strenuous after about 35 kilometers (22 miles)," Merkel told the lower house of parliament in a speech previewing the European Union summit. "But they also say you can last the whole course if you’re aware of the magnitude of the task from the start."

Germany and France are leading the push for closer economic ties among euro nations and locking in tougher enforcement of budget rules to counter the debt crisis now in its third year. Merkel welcomed French President Nicolas Sarkozy’s "important" speech yesterday in which he warned that the euro region’s fissures threaten to blow the 17-nation shared currency apart. She is due to hold talks with the French leader in Paris on Dec. 5 to coordinate their approach to next week’s summit.

Cameron and Sarkozy
With financial markets and world leaders including President Barack Obama pressing Europe to end the crisis, Merkel said that while she favored involving all EU countries, fiscal union could be limited to the euro area. That would avoid the task of getting all 27 EU members to agree. U.K. Prime Minister David Cameron was due in Paris about 1 p.m. today for talks with Sarkozy.

Europe needs fiscal oversight that’s "binding" and includes "real automaticity" to punish states that persistently breach debt and deficit rules, Merkel said. European Union President Herman van Rompuy will make proposals on closer economic union on Dec. 9, when Germany will push for EU treaty change, she said.

Euro-area limits of keeping debt within 60 percent of gross domestic product and deficits within 3 percent of GDP must be enforced, she said. Merkel has said that countries that breach the limits could be sued in the European Court of Justice.

"The lessons are very simple: Rules must be adhered to, adherence must be monitored, non-adherence must have consequences," she said today. Leaders have to "overcome fundamental flaws in the construction of the euro area."

Exploding’ Euro Area
Merkel’s prescription echoed Sarkozy, who said late yesterday in a speech in Toulon, France, that the euro area risks "exploding" if members fail to converge on fiscal policies. Countries sharing the currency must prepare their budgets in common, narrow gaps in competitiveness and face tougher automatic penalties for rule-breaking, Sarkozy said.

ECB President Mario Draghi, who has criticized European leaders’ response to the debt crisis, signaled yesterday that the central bank could do more to help if governments push the euro area toward fiscal union.

"A new fiscal compact" is needed to start restoring credibility," Draghi said in Brussels. "Other elements might follow, but the sequencing matters." He didn’t specify what more the ECB could do and said its purchases of euro-area sovereign bonds to stem the crisis "can only be limited."

Merkel said the ECB has to be free to move in any direction and that she won’t comment on what it does or doesn’t do. The ECB’s independence to take decisions "in any direction" must be guarded, Merkel told lawmakers.

No Praise, Criticism
The ECB is independent and must choose its own method of ensuring the euro’s stability "without being praised or criticized" and states must protect that independence by improving their finances, the Westdeutsche Zeitung quoted Merkel as saying in an interview released yesterday.

Sarkozy agreed at a meeting with Merkel and Italian Prime Minister Mario Monti on Nov. 24 to stop pressuring the ECB to step up its response to the debt crisis. Sarkozy retreated after Draghi criticized French calls for the ECB to use its unlimited power to backstop euro-area bond markets, something that Merkel has also repeatedly rejected.

Joint euro-area bonds are also "unthinkable" as long as governments retain national control over budgets, Merkel said today. "You have to differentiate between credible enforcement powers and joint European control over revenue and spending," she said. "And as long as this is so, joint liability for the debt of others is unthinkable. That also takes care of the debate over so-called euro bonds for now."

Congress push to relax US securities laws
by Tom Braithwaite, Telis Demos and Shahien Nasiripour - FT

Proposals for a big relaxation of US securities laws are being pushed forward in the US Senate in the face of opposition from state regulators, academics and a group of Democrats.

A hearing of the Senate banking committee will examine on Thursday a package of measures to encourage "capital formation" that has drawn White House support but which critics warn could hurt investors and make markets more opaque.

The proposals, pushed by both Republicans and Democrats, include allowing companies to engage in "crowd funding" to solicit investments online and helping fast-growing companies such as Facebook keep their accounts private.

Behind the scenes, the measures have engendered a fierce fight between lobbyists for traditional exchange operators such as NYSE Euronext and newer private-shares marketplaces such as SecondMarket.

Congressional aides said privately that a number of senior Democrats intended to object to some of the measures. They are joined in their concerns by academics, lawyers and the North American Securities Administrators Association, the association of state regulators, who warn that proposals would see investor protection sacrificed in the name of cutting red tape.

However, the House of Representatives has already passed many of the measures with big majorities and congressional staff believe at least part of the package could be passed by Congress this year.

People involved in congressional negotiations say the crowd funding measure – which allows companies to solicit investments of up to $10,000 without the normal registration and disclosure procedure – is one of the most controversial innovations under consideration. It could encounter headwinds in spite of the White House endorsement, they add.

"Unless this were refined," John Coffee, professor at Columbia Law School, said of the crowd funding measure, "you could call this bill the Boiler Room Legalisation Act of 2011."

"What is dangerous is that people who are not brokers – who are simply unemployed salesmen who used to sell used cars – could start marketing all this stuff, possibly being paid by the issuer or some intermediary based on the sales they accomplish." Mr Coffee is due to testify at Thursday’s hearing.

Many Democrats and Republicans, however, are won over by industry arguments in the name of job creation. "Why do you have to saddle a start-up with higher capital costs?" said David Weild, chairman of Capital Markets Advisory Partners, a consultancy. A move to allow companies to raise up to $50m without registering the offering has engendered little opposition.

Another proposal would increase the threshold for filing detailed financial reports to the Securities and Exchange Commission from 500 to 2,000 shareholders in a measure that would help rapidly developing companies such as Facebook to stay private for longer if they wished.

At present, companies have to disclose publicly financial accounts if they have more than $10m in assets and more than 500 shareholders of record, even if their stock is not publicly traded.

China's Bind: How to Avoid a Crash Landing
by Tom Orlik - Wall Street Journal

ORDOS, China—For a sense of the sharp policy shift China's leaders have to orchestrate to avoid the world's second-largest economy landing with a hard thud, look no further than this Inner Mongolia desert town, where construction cranes have come to an abrupt standstill.

Just as a European crisis and a weak U.S. recovery are hurting Chinese exporters, the confidence that had sustained China's property boom is evaporating, causing a double whammy for growth: fading demand overseas and at home at the same time.

The construction slump could not have come at a worse moment for China's factories. A key manufacturing measure Thursday, the official purchasing-managers index, fell to 49 in November, below the 50 mark that separates expansion from contraction and the lowest since the financial crisis in February 2009.

With both the real-estate and export sectors in trouble, the warning light on China's growth is flashing red. Like in the last crisis, China's leaders have been quick to react but this time around their options are limited.

A slowdown in China would have far-reaching consequences world-wide, from commodity producers in Australia and Brazil to U.S. exporters that target China's consumers and a crisis-ridden Europe seeking financial backers.

Metals would be among the hardest hit; Chinese construction is among the largest global drivers of demand for iron ore. And Chinese consumption, ever-more important globally, could also be dented as about half of China's household wealth is tied up in property.

The weak manufacturing data prompted J.P. Morgan economists to cut their growth outlook for China's economy; they now see gross domestic product growing at a 7.2% annual rate in the fourth quarter, down from the 8% they expected previously. In the third quarter, GDP grew at a 7.9% rate.

"The question is, do you think in six months this weakness is going to feed on itself and is China going to be a force for greater slowing," said J.P. Morgan chief economist Bruce Kasman. He is reckoning no, on the view that Chinese authorities will further ease monetary policy and take other measures to help boost growth.

Nowhere is China's predicament more visible than in Ordos, the unlikely epicenter of China's real-estate investment frenzy. The town grew prosperous on the back of massive reserves of coal, and like the newly rich all over China, its residents piled into property. The result was a new city in the desert—Kangbashi—the eerily empty "ghost town" that has come to symbolize the excesses of China's property boom.

"Everyone has at least two or three properties and lots of people have seven or eight," says Zhao Yanan, a saleswoman at Heng Sen Property Co. "Where's the demand for more?" she asks.

As Ordos property prices edge down and transaction volumes plummet, sales reps shiver in empty, unheated offices. Developers who borrowed funds at usurious rates are left with unsold inventory and mounting debts.

Ordos's chill, while extreme, echoes the broader trend. Mark Williams, China economist at Capital Economics, says that across the country, growth in new housing starts came in at close to zero in October. One developer, Zhejiang-based Greentown, plans to slash new starts by 40%-50% in 2012. Other major developers are also promising to focus on shifting the swelling backlog of inventory before breaking ground on new projects.

Wang Tao, China economist at UBS, now forecasts China's gross domestic product will grow 8% in 2012, down from a projected 9.2% in 2011,

The government has already pushed the panic (read: stimulus) button. On Wednesday, the People's Bank of China moved to reduce the percentage of deposits that banks must keep on reserve by 0.5 percentage point, freeing up new funds for lending.

But the options Beijing has to support growth are more constrained than in 2008, when it leaned on banks to finance a massive stimulus plan. Huang Yiping, China economist at Barclays Capital, anticipates a further three cuts in the reserve-requirement ratio by June 2012 as the government guides the banks to ratchet up lending.

The government will also aim to fire up investment in public-housing projects to compensate for the construction slump, but there are doubts such efforts can realistically pick up the slack. In Ordos, work on a 20,000-apartment complex is under way. Concrete shells of some buildings are already in place, while work on others has hardly commenced.

The fiscal position remains strong, with a surplus of 1.3 trillion yuan in the first ten months of the year—equal to 3.3% of 2010 GDP. A shift toward fiscal deficit in 2012—with the government supporting demand by spending more than it takes in in taxes—could provide a significant prop to growth.

The spending binge that pulled China out of the 2008 crisis left local governments loaded with debt, exposed banks to the risk of surging bad loans, and inflated a real-estate bubble. Further stimulus risks adding to those problems. Near the top of the list of potential pitfalls: reinflating the real-estate bubble that the government has spent the past 20 months trying to deflate.

Real-estate investment in Ordos, with a population of around 1.6 million residents and with 9.1 million square meters of property under construction, has averaged growth of 68.8% over the past four years, compared with 27.6% for China as a whole. The biggest and most extravagant development so far is Xinghewan—or Star River—on the edge of the city's old town, where 1,925 apartments are under construction.

In the palatial sales center, a 3D animation on a cinema-size screen presents the vision for the finished complex. Shoppers walk past a Louis Vuitton store in an on-site shopping mall. Water spews from the mouth of a golden dolphin statuette into an artificial lake. A 12,000-square-meter garden is covered by a glass roof, protecting the plants from the winter cold.

On Sept. 6, the developer put 300 of the apartments on the market; so far 270 have been sold, according to a sales rep for the company. Zhou Gaizhi, a former sales rep, now working for another developer, is unimpressed. "If the buyers were there they would have taken all the apartments to market at once," she says.

November data from property consultancy Soufun published Thursday show average prices in Ordos down a mere 0.78% month-to-month. But speculators buy property because it is rising in value. Even slight falls have been enough to scare them out of the market, putting pressure on developers to offer sharper discounts.

On Wednesday morning in Kangbashi, a group of about 35 migrant workers clustered around the entrance to the showroom of Wenming Property. Inside their colleagues negotiated with local officials and company management over unpaid wages. "We've come to settle accounts with the boss" said one worker from Gansu province, who did not give his name.

Wenming means "civilized" and the dispute appears headed for an amicable resolution. But it underlines the difficulty developers have covering even their basic costs. Locals trace the beginning of market decline in Ordos to Sept. 24, when Wang Fujin, the president of Ordos Zhongfu Property Development Co., committed suicide. Chinese media reported he left unpaid debts of 263 million yuan (about $41 million), borrowed at a rate of 3% a month.

Mr. Wang's death triggered a panicked response from investors with funds in the underground lending schemes that helped to fund Ordos's building boom. One Beijing-based businessman, who asked not to be named, said he is trying to pull almost 200,000 yuan out of a lending scheme since hearing news of the suicide, with no success.

Ghost towns like Kangbashi are symptomatic of a wider malaise in China's property sector. Nationwide there was 3.6 billion square meters of property under construction at the end of October, compared to sales of just 709 million square meters in the first 10 months of the year, suggesting a wave of overcapacity about to hit the market.

Eyes are on what tools China's leaders will employ to cushion the economy. Shares in mainland developers soared Thursday on news of the central banks' move to encourage more bank lending.


el gallinazo said...

Carry over from the last thread

For those of you who enjoy snappy paced economic videos, I must recommend yesterday's (half hour) Capitol Account as a must see, interviewing Reggie Middleton. For the guys in the group, even the geezers, try not to be too distracted by the under the glass table shots of Lauren Lyster's shapely legs or her black nail polish. For the women, unfortunately Reggie is in a dress shirt and tie (and no spear), though his famous photo does appear for a moment :-)

BTW, Lauren's financial word defined for the day is "vampire squid."

Re the question of democracy and the Eurozone breakup with Ash, Frank, and FB.

I see no real difference between Ash and Frank's arguments. As you slide down the pyramid from an increasingly hard fascist empire, to states, to counties, and particularly to small towns, you see an increase in participatory democracy. That is the reason why I would wish to see increasing governmental power reside in smaller and smaller demographics. Which is easier to influence or overthrow, an emperor or Boss Hogg? Frank, while I am a great enthusiast of the town hall meeting, is the Fed's future QE policy or an upcoming trillion dollar bail out for the vampire squid on the voting agenda?

If someone had told me 10 years ago how far I would come toward a libertarian position (not the co-opted Tea Party Koch Bros fascism), I would have laughed in their face.

I lived on a small Caribbean island for 13 years where I was an active snorkeler and scuba diver. There was nothing that I enjoyed more, other than snagging a tasty lobster for dinner, than being immersed in a school of small squid. They are amazingly beautiful and graceful. Their iridescent colors shift from moment to moment, and they are highly intelligent. After all, the famous German Paul the Octopus, a close cousin, got 8 World Cup matches right with no errors. He should have been a hedge fund manager, but they only live for 2-3 years. I was in Argentina during the World Cup, and when someone had trouble with my name, I would say (como Pulpo Paul - like Paul the Octopus) and everybody would nod. He was a real celebrity. Thus I do have mixed feelings about referring to something really disgusting, such as Goldman Sachs, as a squid.

Joe in NC said...

New Kyle Bass panel presentstion:

Kyle Bass Explains The New World Order - Panel Presentation

"We need to delever globally. We haven't delevered. Just now we are seeing marginal delevering in Europe and all hell is breaking loose."


Glennda said...

Ilargi - as usual a fine post. I especially like this part: "Evidently, something's not working the way it's supposed to."

And this is the point of the Occupy Movement. Just questioning the system.

Ash - Also a fine post. I like the use of Debt Walkers Strike. You seem to have a clear idea of what the OWS is about. Two posts ago you noted JMG's blog and his thought that Occupy's lack of "platform" was okay as a tactic, but not as a strategy.

What I see is that he misses one of the main points of OWS is the way of the General Assemblies really do work for all that people claim that they are co-opted. The leaderlessness of it is: its strength in that we then all become leaders.

Another point missed by most writers on the subject are that this is a training ground for local activists to get to know each other for the "future".

Your post has prompted me to start an article called "What #OO means to me". I expect to finish it when time permits.

As for strikes, #OO plans a strike to close the Oakland port in sympathy with the longshoremen all along the west coast on Dec 12.

Locally I have been writing up tips for people in foreclosure and local resources to help them.

More later on all this.

~ Glennda

Nassim said...

"We need to delever globally. We haven't delevered. Just now we are seeing marginal delevering in Europe and all hell is breaking loose."


Going back to the relatively simple example of Greece. How on earth are they expected to maintain anything close to their current standard of living? Their imports are three times their exports. They have very few natural advantages over their neighbours. No oil and little water. If their agricultural products were not protected by the European Union, Turkey, Lebanon and Egypt would take over their markets the following day. Their political system is entirely based on patronage. Any Greek with brains who does not have a family with political connections has always been forced to go elsewhere - it is the most politicised society that I have ever observed.

My guess is that they will be going down to an Egyptian or Tunisian standard of living within a decade - unless someone from outside decides that it is of strategic importance and pumps in money.

Joe in NC said...
This comment has been removed by the author.
YesMaybe said...

El G

Lauren is a great host, and the guests she has on are awesome. But that damn glass table + camera below the table thing just fills me with disgust every time. I guess a channel which is neither in wall street's pocket nor shamelessly sexist is too much to ask for. (P.S. I realize your talk of Reggie and Lauren is tongue-in-cheek, it just serves as a prompt for my rant.)

Joe in NC said...


The "relatively simple" example of Greece you presented is important to me because it screams (I think) that defaults are just gonna happen.

And then the banks, TPTB, squid, hedgies, etc. will have to deal with the derivatives blowback.


lautturi said...

Canadian folks might find this a bit disturbing. In short "Armed U.S. police officers will for the first time be allowed to operate in Canada".

el gallinazo said...

You know, one has to wonder at how much heat Obumma and Eric PlaceHolder are taking to keep Corzine out of orange. I think it curious. Is there really that much honor among thieves? Why not throw him under the bus. Would be great public relations. Maybe they figured it would calm down after a week or two, but that is not happening. I have another theory. As Lauren Lyster and Reggie Middleton put it, FM Global was just the first body to reach shore. If Corzine were packed away to Club Fed, it would establish a terrible precedent for how the 0.000001% were to be dealt with as they commit massive theft and fraud. Corzine is the test case for the too big to jail.

For those of you who didn't watch the video, Middleton said that FM Global was the "victim" of a bank run because their liquidity rested on very, very short term money which their creditors decided not to roll over. Corzine's bets on PIIGS sovereign debt may yet pan out as the Oligarch's will eventually monetize to save the banks again, but FMG imploded before that happened.

lautturi said...

Major Bloomberg appears to have lost contact with reality. "I have my own army in the NYPD, which is the seventh biggest army in the world. I have my own State Department, much to Foggy Bottom’s annoyance. We have the United Nations in New York, and so we have an entree into the diplomatic world that Washington does not have"

As if not enough loonies weren't running around the US: "The Senate voted Tuesday to keep a controversial provision to let the military detain terrorism suspects on U.S. soil and hold them indefinitely without trial — prompting White House officials to reissue a veto threat.".

The last line about White House threatening with a veto is most hilarious - Newspeak in it's puriest.

el gallinazo said...


Major Bloomberg? As a multi-billionaire he should at least be promoted to Generalissimo.

Here is a photo in combat uniform:

lautturi said...

@ el G

I thought Mr Bloomberg was a major at some point of his life... but that's a fine pic you have there (^_^)

How about this one:

"Merck has agreed to pay $950 million and has pleaded guilty to a criminal charge over the marketing and sales of the painkiller Vioxx".


" indicate that 140,000 Americans suffered Vioxx-induced heart attacks and strokes; 55,000 died, and many more were permanently disabled."

Lesson for corporations? Don't get caught next time. Oh wait - that has been the line for eons. For some strange reasons I doubt the learning abilities of these --- these creatures.

Supergravity said...

Europe as a political entity cannot be a democracy by forced fiscal integration, because unitary fiscal and monetary policies with near-zero democratic coefficient can never be made representative of people's disparate political identities, cultural and commercial values.

Forced fiscal integration of european nations to enforce antagonistic monetary monopoly would conquer democracy, usurp elected legislative bodies and establish an empire, as only empires impose moneys and taxes upon foreign people by menace and force.

Any economic strategy that can slow collapse and kill off the central banking cartels without destroying the people, reissuing public money somehow, is worth considering.

@el gallinazo
I was considering thermokinetic delivery, deepwater detonation of nuclear torpedos drilled into faultlines and somesuch, no exotic physics. Its most likely that Fitts misinterpreted that single anomalous trading event to be indicative of foreknowledge, although she seemed convinced of its veracity.
I also appreciate squid physiology and intelligence, highly developed nervous systems and complex chromatophoric communication.

lautturi said...

This one is from two weeks ago: "$30 Trillion being the overall debt holding the Euro Zone hostage".

Who dares to say this kind of numbers out loud? "Olivier Sarkozy, brother of French President Nicholas Sarkozy, and head of the Carlyle Financial Group". And so the small circle goes round and round again...

el gallinazo said...


Re Bloomberg. Naw, no military career until this week. He was born in 1942 so there was a real shooting war going on when he might have made major and majors got killed, either by the Cong or by fragging if they were really unpopular. Like Field Marshall Cheney, his skin was too valuable to the country to risk.

Speaking of Vietnam and Vioxxnam. About 55k dead in both adventures. What does a criminal charge against a corporation mean? Merck's current mascot is my cousin Arnie, the one that Michele Bachmann almost shot down. Will they execute him?

Re your Canadian link. Welcome to the North American Union. Soon Alaska will be the second biggest state. And there will be no treaties and rigged elections - it's just going to be a fait accompli. Nassim - does quisling mean harper in Norwegian? Even worse, it involves Mexico also. Fortunately, with the language barrier, it will be more difficult.


A nuclear trigger would be seismically super obvious, not to mention the technical difficulties of drilling under all the water. I am not saying it wasn't triggered by TPTB. But I am saying that their is no publicly known technology to do it.

Nassim said...

I think it curious. Is there really that much honor among thieves? Why not throw him under the bus.

el g,

I think he knows too much and their options are either to eliminate him or to protect him. The first option would have lots of repercussions.

Greenpa said...

And here I HAVE the answer to it all. Sigh. If only someone will listen.

Listen: You, in Hungary. Declare what the bankers have been doing illegal. (IT IS, you know.) In the middle of the night; knock on ALL their doors with your military police. And lock them up.

When their lawyers come to bail them out- lock them up, too. When THEIR lawyers come- lock them up. They're obviously in collusion. (AND THEY ARE.)

Then Portugal can do it. Then Spain. Then Italy. Greece. Ireland. Get the idea? Once we're all on the same page- it's a snap.

Declare all their phony debts void. Seize every asset they ever had, and use that to pay off any debts you feel like.

Then we start over! Maybe with a few changes, to how we do business.

See? Easy.

Sounds crazy, right? But- there's historical precedent; and - you see anything LESS crazy on the horizon?

Greenpa said...

oh, incidentally, yes, I know the politicos are owned by the bankers, but- it's very close to "every man for himself" day, yes? So?

Greenpa said...

And Iceland. The shining example, gone on before.

And likely to be in the news again, soon- 500 quakes in October?

Supergravity said...

@el gallinazo
Fitts maintains that the trading anomaly was too timely and too great in magnitude to be coincidence, an indonesian sovereign wealth fund dropped by 15% one week prior to the tsunami with no obvious economic or political cause, allegedly on 'heavy insider trading'.
Such trading would then only be logical in case of foreknowledge of impending disaster, but Fitts doesn't elaborate on her investigations into that.
There could have been compartmentalised foreknowledge of an impending natural seaquake and resulting tsunami devastation with enough certainty to trade on, using unpublicised seismic and hydrodynamic modelling of unusual predictive accuracy.
This should be more likely as it would not require tectonic forcing, yet the magnitude of tsunami effects on indonesia specifically may have been more accurately predicted if the seaquake was artificially triggered within constricted parameters of kinetic propagation.

Anomalous trading has preceded disaster before, trades curiously correlated to objects of disaster and profitably timed to events,
but nothing conclusively proving foreknowledge, yet the probability of coincidence to such trades remains exeedingly negligible.

Supergravity said...

Also, now that the military detention bill has been passed, is anyone monitoring the mass arrests of OWS groups across the US, and especially confirming everyone's release?
Its conceivable that the regime is already politically purging people from the arrested crowds, making them disappear into military detention as enemy belligerents without anyone noticing. This would now be legal according to the extremists who passed the bill, yet such lawless detention of genuine combatants on a genuine battlefield would be a defined warcrime under the laws of war, whereas impementing military detention of citizens declared in a battlefield on US soil would be most treasonous.

As enabled by this new abominable legislation, its reasonable to assume the political purges will begin soon if they haven't already, or when the financial collapse becomes uncontainable, the legal and logistical infrastructure for mass internment is completed.

It may still be possible to drag the POTUS from office on established grounds of mental incapacitation, if some court renders it so and forces congress to remove the POTUS under penalty of felonious dereliction of duty. The rest of the administration, VP and most members of both houses may, upon court order, be dismissed or impeached on grounds of mental incapacitation, autogenic political extremism or upon charge of myriad substantiable felonies.

I'm becoming exceedingly aggravated by the recent sabre-rattling and warmongering, global thermonuclear war is uncomfortably likely with these people in office; violent extremists, psychopaths and suicidal nihilists [pathological narcissists] are too dangerous to be in positions of power and must be removed from public office.

Supergravity said...

It won't do to unduly pathologise peoples behavior arbitrarily, but there are those cases where only [ill]defined terms of mental pathology or criminology may be sufficent to explain abberant and unlawful conduct within public office, such as has been witnessed of late.

Chas said...

I moved three years ago and purchased a home. I could have paid cash. but opted for a 10 yr mortgage at 3.5%. I owe about 100K on it.

Any thoughts on continuing to pay the mortgage versus just paying it off?

Ash said...

@Frank (last thread)

El G is correct - we are in agreement. I only meant the US is not a democracy at the national level. States and communities within a nation-state can and do exhibit democratic processes regularly. European nations are hanging on to democracy by the skin of their knuckles - let's hope they can endure the pressure.

@FB (last thread)

I second what Frank said. We can disagree about Farage's underlying motives, but that doesn't mean we can't agree about the validity of his broader arguments. Or we can disagree about that too, but that's a whole different conversation.


"Your post has prompted me to start an article called "What #OO means to me". I expect to finish it when time permits.

As for strikes, #OO plans a strike to close the Oakland port in sympathy with the longshoremen all along the west coast on Dec 12."

That's great news on both fronts! Please keep us updated.


For anyone wondering, a new Diamond poll will be ready to go up when the latest article on "Food Urbanism" is published. Sorry for the time delay on that.

ben said...

"What I see is that he misses one of the main points of OWS is the way of the General Assemblies really do work for all that people claim that they are co-opted. The leaderlessness of it is: its strength in that we then all become leaders.

Another point missed by most writers on the subject are that this is a training ground for local activists to get to know each other for the "future".

Your post has prompted me to start an article called "What #OO means to me". I expect to finish it when time permits.

glennda, great! can't wait to read the article.

that's the first time i've heard of the claim that GAs have been co-opted, unless you mean by the spokescouncils. if you mean co-opted by vanguardism then i will be very excited. viva the revolution! :P but i don't expect you do.

while decentralized in its format, i don't consider occupy to really be a leaderlessness movement. everyone may feel like a leader but as usual the leaders are leading and the followers following :), which, now i mention it, is essentially what vanguardism is, right - leaders leading more or less together? although it should be noted, at least up here, that it doesn't feel like a revolutionary context. well, occasionally it does, i suppose, in a fit of whimsy, though from a cascadian separatist point of view.

i totally agree with you about viewing occupy as a community building exercise. this is largely how i see it, too.

Jim R said...

El G,
I think it's time for a hasty heart attack and quick closed-casket funeral.
Later maybe he'll turn up sipping margaritas with little paper umbrellas on the patio with Ken Lay.

Greenpa said...


It's a bit of a surprise to me, but reading Jimmy Carter's novel of the American Revolution, "The Hornet's Nest" has truly given me a clearer perspective.

I recommend it to students of human cultural evolution. Remember that his writing comes after his time serving at the top of the American power system, which certainly exposed him to as much reality as anyone can grasp.

His stories are based on autobiographies, journals, and contemporary sources, accumulated and filtered over 7 years; it's more a work of scholarship than fiction.

His description of the British economic power structure is, to me, literally identical to the structure we now have; with identical results. He also describes in detail the specific strategy of the financial elites of the time- to entice the native Americans into debt- to the point where the only way they could pay the debt was with their land. The entire trading operation was set up with this intention.

Corruption and incompetence were widespread. One of the early Rebel Governors of Georgia could easily have been the incarnation of Newt Gingrich. He documents civil chaos; atrocities committed by all sides, justice existing nowhere. I find myself pondering how he would have described the identical historical events if he'd been writing BEFORE his time as President. I suspect he might have glossed over the "rough spots", as partisan historians tend to do.

My point- the horrors we are seeing revealed world wide right now- are far, far, from new. Rather- we've been living in the fog of empire; willfully accepting the myths handed to us as children, and refusing to see and believe the worst. But the worst was always the reality; and has been- certainly since Rome- Greece- Egypt. And I have to fear, literally since Sumer was one mud hut and one tent. The probability is high that the hut owner held a mortgage on the tent- one he knew was unpayable.

If anyone has any desire to CHANGE this situation- you'll need the age-long perspective, to comprehend how deeply embedded it is in what we call "humanity".

It's not easy to contemplate. It's ugly to see. But. If you want to live in this world; Reality, however much of it you can grasp, is your only - only - friend.

Jack said...

Anonymous said...

Anyone think that general strikes will have any long-term value? Might any of the systemic incentives for bubble creation somehow be permanently eliminated? Didn't think so.

Greenpa said...

Steve B- no, general strikes will not change the behavior of the Owners. Per se. But- they CAN build a sense of unity and identity among the 99%.

There's abundant history on what happens then.

bluebird said...

Ilargi said "We have a choice to make: either we save the banks, or we save our societies."

Isn't the choice of the elites to save the banks by stealing all our money? Their plan is working just fine, for the elites.

However, by not saving our societies first, will also bring the downfall of the banks and many of the elites too. Are the elites so arrogant that they don't see this coming?

Greenpa said...

bluebird: "Are the elites so arrogant that they don't see this coming?"

History, history, history! It's one of the puzzles, to me- why do the Owners never break the cycle; which does, always, result in their own destruction.

I'm afraid the answer is- the Owners are merely human; and most of them are as stupid as the rest of us; self-deluded, and certain the rules apply to everyone- but them. They fantasize that they are "in charge"- but it just ain't so.

They have an ancient self-reinforcing internal logic, that justifies their actions. But it's identical to Astrology, as a science. Not. But oh, do people believe it, when it serves their purposes.

Greenpa said...

Peru; not a general strike; but a related symptom involving extraordinary activism.

Greenpa said...

And- the Owners are tightening the noose- around YOUR neck.

A "new and improved" credit score system- mines the infinite consumer data; specifically to ferret out any possible reason whatsoever to cut your credit- i.e., charge you more.

There's actually an opportunity here for the Occupy folk, so someone related; the "credit agencies" are wholly designed to "serve" lenders. Why don't we have a rating agency- that rates the lenders? On how often they shaft their borrowers? And other little moral quirks they may have?

We should, don't you think? I know; there are a number of "rate the credit card" operations; but... at this point, I think they're mostly selling advertising. A very hard-nosed non-profit corporation is in order.

Ash said...

A very interesting and unusual game of chicken - this time not between striking workers and their employers, but between state governments and sub-prime lenders.

GMAC Boycotts Massachusetts, Will Halt State Mortgages In Retaliation For Lawsuit

"In an email sent out today, GMAC Bank said it would "no longer accept new locks for properties located in the Commonwealth of Massachusetts." The reason given: "This change is necessary due to the complexity of transacting business in an increasingly difficult legal environment in Massachusetts." By complexity GMAC of course means being confronted with Attorneys General who refuse to be pushed over or jump when the banking cartel says so.

In essence, GMAC (with other lenders likely to follow suit) has decided to boycott states that dare to break away from the settlement talks and to pursue unilateral action. Alas, since pretty soon every state will be suing the banks now that the Nash Equilibrium of the settlement negotiations has collapsed and it is every state for itself, GMAC better figure out a way to make money doing something besides lending as very soon the "legal environment" in every state is about to get "increasingly difficult."

Bottom line - anyone searching for a "Nash Equilibrium" in all of these conflict dynamics are bound to be disappointed.

(*cough* SteveB *cough*)

Ilargi said...

Hmm, forget how much GMAC got in bailouts. Mothership GM sure got a lot. And yes, tru,e they undoubtedly found an accountancy loophole to separate the two when and to what extent that was convenient.


Ilargi said...

"Are the elites so arrogant that they don't see this coming?"

It is this simple: they count on the fact that the armed forces and the police forces will be on their side. Only when they defect will there be a substantial change. Most often after a lot of blood has been shed.


el gallinazo said...

Chas said...
I moved three years ago and purchased a home. I could have paid cash. but opted for a 10 yr mortgage at 3.5%. I owe about 100K on it.

Any thoughts on continuing to pay the mortgage versus just paying it off?


I found your question logically interesting which is the primary reason that I am responding to it.

Any response would depend on how we see monetary events playing out in the near term future, and my response is based on Stoneleigh's predictions in her primers and other comments. Her predictions state that we are in the initial stages of the collapse of the global financial Ponzi, and as assets disappear into that alternative universe, that the average buying power of Federal Reserve Notes and surviving cash equivalents will increase as they did in the 1930's. At some point in the future, the USD will also collapse in value, but we are quite a distance from that point in time, which will not happen until deleveraging nears completion and the USA essential leaves the global marketplace. If one subscribes to the more conventional libertarian view such as held by Tyler Durden or John Williams of ShadowStats, we will enter hyperinflation shortly which, if correct, would radically alter one's tactic in this regard.

Some items, mainly essentials, will maintain their value vis-a-vis the USD more than others, such as luxuries, for example, large flat screened TV's. While some may regard housing as an essential, due to it forming the fulcrum of the last great credit Ponzi, residential real estate should eventually drop to 10-20% of its 2007 peak "value." This is due to the fact that the 2007 price was forced to the moon by fraudulent credit, and eventual sale of real estate will be cash on the barrelhead devoid of credit.

Tactics diverge at this point according to one's circumstances and predilections. One tactic is to invest in a "doomstead" (my preferred sardonic term) ASAP including physical goods such as hand tools and improvements that go along with it. The advantages of having more time to prepare (conservation and redundancy learning curve, improvements, orchards, community building, etc.) outweigh the initial cost which will be far lower down the road. If for whatever personal circumstance, one is not prepared to do this, or one's currently owned residence is not appropriate as a doomstead, then one should attempt to sell the REA ASAP and rent. Stoneleigh goes into the many advantages of doing this and I will not repeat it.

From your question, one can assume that selling your current dwelling is not an option to you, though from previous comments, my intuition tells me that it is not an appropriate doomstead from my perspective. But that may be your issue and certainly not mine. That being said, I would think that paying off the mortgage ASAP would be the best move.

1) One cannot achieve an investment (or as CHS would term it, a speculation) in a safe, cash equivalent fixed income at anything near nominal 3.5%. So holding the cash and conservatively speculating on it at minimum risk is a very losing proposition.

el gallinazo said...

2) Stoneleigh points out repeatedly that there are two types of monetary expansions. The first is printing actual physical symbols of money for exchange. This results in a dilution of the per unit exchange value of the monetary unit. Extreme examples of this are Weimar Germany and recent Zimbabwe. The second type of monetary expansion is credit expansion, where the unit value remains fairly constant, but there are multiple claims on financial or physical wealth. A recent example of that is MF Global. We are all in a pool composed of krill, minnows, sea bass (Kyle excluded), barracuda, and great whites. The typical TAE reader is in the krill or minnow category. As the implosion proceeds, the barracudas and great whites will succeed in capturing the multiple claims and the law, soon to be enforced domestically by the military under the direction of the great whites, will "alter" itself to support these claims. Thus all paper claims are subject to de facto theft and expropriation by the great whites. (The MF Global collapse is interesting as the great white, in this case Corzine, ripped off a lot of barracudas with assets over $50M. Madoff did this three years ago and is now in prison. The barracudas had more power three years ago but The Times They are a Changin'.)

Even (for Americans) cash (in Backyard National) and cash equivalents have their dangers. I see the greatest danger to the former as the government saying that only a drug dealer would hold substantial cash, seizing it, and throwing you in the recycling bin. The greatest danger to holding 3 month treasury bills through is being labeled a terraist with similar results.

OK. Cutting to the chase of your question. I think you should pay off your mortgage. You cannot achieve a return of over 3.5% in anything vaguely safe. You seem from previous comments to have additional financial resources to pay the taxes, for example, if your employment should cease. If the rule of law maintains itself a hair above the rule of a thug with an assault rifle, it would be quite difficult for the great whites to claim your dwelling. As we enter further into the deflationary collapse, the nominal cost of almost everything barring debt will decrease. What would happen if the great whites seized your paper assets and you lost your employment? You couldn't pay the mortgage and would be out on the street. Assuming you can continue to pay the taxes, paying off the mortgage protects you from being out on the street.

scandia said...

@Lautturi, Yes I knew about the changes at the US/Canada border.
Canada is no longer a sovereign democracy. I become almost apoplectic with outrage that America can monitor my movements.
Takes a few moments before I realize my jaw is locked, my fists are clenched and I've stopped breathing...
I have tried to raise debate on this betrayal without success. It is as if Cdns have given up, feel powerless to resist the empire.

Glennda said...

@ Ben - Yes, I suppose the spokes council might be termed,"co-opted" by critics at least in New York. I've seen nothing like that here in Oakland, unless it's the many committees that have sprung up. I'm in the Resources-for-Housing one.

What I do see is that some people show up more often than others [is that a vanguard?]. And a large part of "success is just showing up", but more important is that many of these students, working people and seniors are putting in real time and effort to make things happen. This is finally a door through which local structures can be set up. We are making bridges among local service groups to form what may become a strong safety net as our larger nation and states crumble. We will need this kind of community net. The many idle hands of the unemployed can become active in this new "workshop". To build a softer landing for the bottom 20% and for the rest of us as our nation sinks.

@Ash - Here is what is going on in #OO. The strike could be prolonged if the PTB decide to intervene in any of the participating cities along the West coast. The odds seem high that there will be police intervention, so the ports may need picketing for an extended period.

"Support Grows For Occupy Movement’s Coordinated West Coast Shut Down On December 12th

As of November 27, 2011, the Occupy movement in every major West Coast port city: Occupy LA, Occupy San Diego, Occupy Portland, Occupy Tacoma, Occupy Seattle have joined Occupy Oakland in calling for and organizing a coordinated West Coast Port Blockade and Shutdown on December 12, 2011. Other West Coast Occupies, including Occupy Anchorage and Vancouver, Canada are planning to join the economic blockade and disruption of the 1% on that date, according to organizers.

“We’re shutting down these ports because of the union busting and attacks on the working class by the 1%: the firing of Port truckers organizing at SSA terminals in LA; the attempt to rupture ILWU union jurisdiction in Longview, WA by EGT. EGT includes Bunge LTD, a company which reported 2.5 billion dollars in profit last year and has economically devastated poor people in Argentina and Brazil. SSA is responsible for inhumane working conditions and gross exploitation of port truckers and is owned by Goldman Sachs. EGT and Goldman Sachs is Wallstreet on the Waterfront” stated Barucha Peller of the West Coast Port Blockade Assembly of Occupy Oakland.

“We are also striking back against the nationally’ coordinated attack on the Occupy movement. In response to the police violence and camp evictions against the Occupy movement- This is our coordinated response against the 1%. On December 12th we will show are collective power through pinpointed economic blockade of the 1%.

Each Occupy is organizing plans for a mass mobilization and community pickets to shut down their local Port. The mobilization of over 60,000 people that shut down the Port of Oakland during the general strike on November 2, 2011 is the model for the West Coast efforts. Organizers state that a police attempt to disrupt the port blockade or police violence against any city participating will extend duration of the blockade on the entire coast."

~ Glennda

scandia said...

Just reading over at ZeroHedge,
""Furious at Latest U.S. Attack,Pakistan Shuts down Resupply Routes To Afganistan " Permanently "
Things are getting interesting...I wouldn't be trusting the Plan B supply route through Russia these days.

Chas said...

el gallinazo,

Correct, I am earning 1% at a small local bank, so 1% plus the tax write off, I am losing money versus paying the house off.

You're right, it's not a doomstead, I have a 0.30 acre city lot and the growing season in Central WI is pretty short.

I know I should sell it and rent, but as a practical matter that's difficult. The good point is the house is only about 6.5% of my net worth, so if I had to walk away, it would be painful, but not a complete disaster.

el gallinazo said...


TTBOMK the Battlefield Earth is a section of the humongous "defense" appropriations bill. The bill which passed the House did not have this provision. The two versions of the bill must now go to a conference committee where there will be some sort of battle over the Fascism Now Martial Law provision. There are also rumors that Obumma might veto the bill if it is included in its present form. The bottom line is that though it is SOP right now, it is not "the law of the land" yet.

Though the bill is prima facie unconstitutional and it throws out half of the Bill of Rights, as the science fiction writer of Dune, Frank Herbert, put it, control the coin and the courts and leave the rest to the rabble.

Gravity said...

@el gallinanzo
True, its not quite law yet, but its past the amendment stage, largely unspoiled and freshly fascist.
Rand Paul apparently blocked something awful from being added, that would have allowed citizens to be held in indefinite military detention on criminal charges even after they were aquitted of the same charges in a court of law, in those cases the detainees are charged at all. Its the very end of due process.

Obama threatens to veto the bill because it doesn't go far enough. The administration already appropriated such powers and wants to avoid the suggestion that congress has any authority to determine the conditions for military detention itself, so legislatively limiting the executives unnatural powers to pronounce verdict on kidnapped innocents.

Its possible that political purges will begin as soon as this monstrosity does become law.
Some scenarios would preclude mass political purges by constitutionalist resistance within police and military, perchance triggering a military counter-coup, or the regimes command and control functions might collapse too quickly for purges to be enacted. Or it may be found unnecessary if most of the dissidents were already starving and too weak to rebel.

Article 25 section 4 of the constitution does allow the POTUS to be dragged from office on grounds of mental incapacitation, but the procedure requires the VP and principal officers of the executive departments to be in agreement on the POTUS' dysfunction, whereas there is no specified procedure to determine whether the VP or principal officers are equally mentally incapacitated at the same time, which would prevent them from determining the POTUS' status.

Therefore, a court must declare, upon testimony by a legion of psychoanalysts, that the entire administration at once is mentally incapacitated. This finding would have the legal standing to force congress to discharge the POTUS and VP simultaneously under penalty of felonious dereliction of congressional duty.
Most members of both houses may then be forced, by court order, to discharge their own functions upon the finding of their own incapacitation, autogenic political extremism or upon charge of felonies.

Supergravity said...

That insanity clause is in the 25th amendment section 4.
Using the 25th amendment to discharge the POTUS is quicker than impeachment for his several offenses would be. It still requires two-thirds majority vote of both houses to declare incapacitation and discharge the POTUS, and additionally requires the VP and principal executive officers to not be insane in equal measure to the POTUS, in order to have the discernment to "transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office".

Otherwise, a court of law readily qualifies as "such other body as Congress may by law provide" to declare the administrations mental incapacitation and transmit this finding to congress. It would be more timely than deciding such matters by committee. In the event the VP also happens to be found insane and is unable to transmit the finding of the POTUS' incapacitation, congress may be compelled to sequentially purge the remaining administration and both houses upon its own findings of incapacitation.

Ash said...


Thank you very much for pointing us towards the update via Occupy Oakland, and what a great one it is!! It's not often that you ask questions like these,

"The only questions that remain now are (A) how long before the American zombies make like their debt-walking brothers and sisters across the Atlantic and Pacific, and generally strike back against a devolving financial consumer empire of exploitation, and (B) what kind of damage can they inflict on this system when that inaction really gets going."

And get such a satisfying answer, so quickly. Regardless of how long the port strikes end up lasting, they are very significant and promising developments, IMO. But, of course, the longer the better! (assuming the 1%, or whatever, doesn't actually capitulate... which is a pretty safe assumption, I'd say).

Supergravity said...

Sorry for spamming the comment section with legal arguments, I do that sometimes.

I heard more european federalist arguments for fiscal integration, but none make any sense, all false dichotomies or appeals to fear.
But only those ideas are getting any attention in the media.
Really, there's not a single logically consistent argument for fiscal superstructures. Calculations of what the collapse of the euro would cost various countries are too linear, they never include the compounding cost of keeping a broken currency, and the democratic price for saving it is already much too high.

el gallinazo said...


What was your source on the Fed currency swaps when you stated that they financed it 100% through the sale of treasuries into the secondary market? I am hearing in other places that they just "printed" the money.

el gallinazo said...


The ruling anonymous elite in the USA, those people that Professor Peter Dale Scott refers to in dismal academic detail as the "deep government," control most of the proles through Bernays propaganda from cradle to grave. For the minority that pass through that sieve and can reason and protest against it, then there is the threat of ridicule, alienation, and financial impoverishment. And for the minority that don't go suicide and can reason and protest against that, there is imprisonment, torture, and assassination. To paraphrase Tina Turner, "What's law got to do with it?" The law and Constitution are exactly what the Supreme Court says it is. And if there is a contradiction between what you read of the Constitution on your computer display or the SCOTUS decisions, who are you gonna believe, them or your lyin' eyes? You are not doing IMHO anyone a favor by these postings, because you are simply perpetuating the myth that the USA is really a country of law, and perpetuating that myth can get some naive people into trouble. Speaking as an ex-plumber, when you have to work on a septic tank, don't imagine that it is filled with ice cream.

And discussing it from the standpoint of a cult of personality, who is president, who is VP, entices people to think that it makes a difference. Since the Kennedy brothers were murdered, POTUS are well aware of the consequences of going renegade. I used to be upset that W's boyz stole the election through their Florida and SCOTUS fraud. Doesn't bother me a bit any longer. The trajectory for the next 15 years was planned out before the election. If Gore had won we would have had the exact sequence of false flags and wars. Just as a Nobel Peace Prize winner has expanded the war in Afghanistan, dropped thousands of humanitarian bombs on Libya, and replaced Gadaffi with (former?) al Qaeda fighters, as reported by even the MSM such as CNN. These presidents are puppets who take their marching orders. If I could have voted in 2008 (I couldn't because I was a resident of the US Virgin Islands at the time), I probably would have voted for McCann just to make the status clearer.

Ash said...

El G,

"What was your source on the Fed currency swaps when you stated that they financed it 100% through the sale of treasuries into the secondary market?"

The source I quoted didn't say that. It said they used to be 100% financed, until the "swap lines and other liquidity facilities expanded in size" (i.e. 2008). Then, "the Fed increased its liabilities commensurately, taking on the proceeds from the sale of a special series of Treasury bills and boosting incentives for depository institutions to hold reserves at the Fed".

I take that to mean it essentially began "printing" the difference between what it could afford to finance domestically (not much) and what was required by foreign CBs. The short-term funding made available during this time, though, was all unwound by 2010 (according to this source).

"During 2009, foreign demand for dollar liquidity through the swap lines diminished steadily as funding market conditions improved. Foreign central banks’ practice of offering funds at a penalty rate—that is, a rate somewhat above the cost of funds for most banks under normal conditions—cut the program’s use as banks secured funds elsewhere at lower costs. Consistent with the improved market conditions and reduced swap line use, the Fed ended the program February 1, 2010. The last outstanding loan under the program matured February 12, 2010."

Now it has reinstated the program until 2013. I have a feeling those short-term funding stresses aren't going away anytime soon, though, and therefore the ECB probably won't be making good on its promises to reverse any swap transactions at the fixed rate. I should also probably mention that this source is the Fed itself, through a publication by the FRBNY.

Alexander Ac said...

So finally, debt is NOT a problem, since Great Britain has a total debt of almost 1000 % GDP and can borrow cheaply, cheaper than Germany!

All you need is to borrow on your own currency like US, JAPAN, and UK!

Relax, debt is not a problem, finally...

john patrick said...


I've read comments about debt forgiveness, jubilee, etc.. But since money is debt, if the debts were all cleared off the books, wouldn't this apply to 401K/pensions, as well? Since they also represent debt/IOUs.


el gallinazo said...


OK. My earlier point is that this is a Fed alphabet soup program for the European banks which includes the stealth invention of quite a few more dollars, this time offset on the Fed balance sheet by euros instead of treasuries or MBS toxic waste. It is QE with the virtual new dollars sent to european banks.

!) Fed opens dollar account under ECB control.
2) ECB opens equal euro holding account due to the Fed. This account is a lockbox.
3) ECB loans the money to their favorite eurobanks at 0.50% interest and "writes checks" against their Fed dollar account to the banks. The banks cash the checks at the Fed and do what the wish with the money. The ECB is on the hook for the credit liability to the Fed if the eurobanks stiff the loans.

And then, theoretically in the future:

1) Swap line ends. ECB puts the dollars back in the Fed account and Fed cancels its right to the ECB euros.

Question: What happens to the returned dollars from the ECB now back in the special account? Do they disappear into the alternative universe of paid off or defaulted debt or do they still exist in our universe for the Fed to use as it wishes? If the latter, then it is a form of additional, permanent credit creation for the Fed.

But more interestingly:

This whole charade emphasizes that the deflationary collapse of credit that I&S have predicted for so long has entered a new, accelerated phase. The central banks, of which the Fed is the undeniable kingpin, is once again pouring huge amounts of "liquidity" into the system to prevent their insolvent patrons from collapsing into open bankruptcy. So far the game is extending them credit (as opposed to simply gifting them virtual money) at such a low rate of interesting that even an idiot could make a profit on it and eventually bail itself out of de facto, if not de jure, insolvency. However, the banks have proven themselves to be sub-idiots as they have been unable or unwilling to do so.

el gallinazo said...

John Patrick

Good point. Since in the USA more than 98% of apparent money is credit, a total jubilee would eliminate 98% of the liquidity in the economy instantly. Stoneleigh likes to compare this to removing 98% of the oil from an operating car engine with similar consequences. There are two general ways around this. One is for a partial jubilee and the other is for the governments to issue non-credit money to offset the loss of credit in the economy. Both approaches and how they could be executed are huge political issues. Most people feel it will never happen. A lot of people feel that the next move of the Oligarchs is to replace the USD with the IMF SDR currency for international trade and balance of payments. The Oligarchs hope that this will kick the can down the road for another decade or two.

Greenpa said...

So, if you were an Iranian hothead today- and retaliating for the provocative intrusion of the US drone- "beyond the borders of Iran" - what/who would you shoot at?

john patrick said...

Thanks, El G.

This is something that has bothered me about the whole debt-forgiveness idea. Everyone is for wiping out debts, but what if it included wiping out pensions along with it? They show up as a debt to someone/bank. All of a sudden the jubilee doesn't sound like a great idea.

I do think, as I&S have outlined in the lifeboat/40 ways summary, that pensions will be diluted/disappear over time. Or--that it will become increasingly hard to cash out of them. Perhaps, a script exchange for another piece of debt.

I personally think it will become very hard to do the buy/sell transaction as it makes more sense for the banks to keep the inflated asset on the books for capital collateral. Particularly, if these assets are bound up as foreign investments. Can't have investors thinking we're broke.

Greenpa said...

And while Pakistan is not in the top headlines right this instant; I'll stick to my statement that serious shooting at "us" is as likely there as in Iran, at this point.

Biologique Earl said...

Blogger Greenpa said...

"And while Pakistan is not in the top headlines right this instant; I'll stick to my statement that serious shooting at "us" is as likely there as in Iran, at this point."

Well why not shoot down a drone.

Ash said...

El G,

"What happens to the returned dollars from the ECB now back in the special account? Do they disappear into the alternative universe of paid off or defaulted debt or do they still exist in our universe for the Fed to use as it wishes?"

I don't see any reason why it would be different from when principal is paid down on other debt-assets the Fed (or any bank) owns. Either the value of the assets are written down on its balance sheet or, as is currently the case with the Fed, the principal is reinvested into more debt-assets to maintain the value. As far as we know, the former was done with the swaps from 2008-10, as short-term liquidity was no longer an issue. Until now, of course.

"However, the banks have proven themselves to be sub-idiots as they have been unable or unwilling to do so."

Yeah, I'd venture a guess they are mostly unable. That is the essence of a liquidity trap. When baseline rates are hovering close to 0 for even relatively long-dated paper, and risk assets such as equities/ commodities are performing as they have been over the course of this year (and esp the last few months), there's really no way to paper over structural solvency issues for very long.

Ash said...

Pretty funny, but not sure this would go over so well in the good old US of A, where wearing a tent can qualify you for a personalized drone attack.

Occupy Melbourne Tent Monsters

jal said...

@ john patrick said...

“Everyone is for wiping out debts, but what if it included wiping out pensions along with it? They show up as a debt to someone/bank. All of a sudden the jubilee doesn't sound like a great idea.”

I’m going to try to answer.

Keep in mind that the bookkeepers, with invisible ink, and the slickest lawyers wearing invisible cloaks have been working on the solutions far longer than we have been on this earth.

First mark to book, instead of being mark to market is the way to pretend that you have money that you don’t have.
The Fed comes to the rescue.
If your assets is only worth 10% and you give it to the Fed for 100% of your book value in exchange for money that they just printed then you have a debt jubilee with no losses to the pension funds and no loss for the banks. Remember that they did not have the cash. The new cash is only replacing the pretend cash.
The debt jubilee did not show up on the banks book and everyone has got the liquidity that they needed to continue doing business.

What the E.U. lawyers and accountants are trying to do is to find way to exchange bad debt, (that has not been declared bad), for newly printed money so that the system can keep functioning. In order to achieve their aim, everyone involved has to cooperate and all the CDS insurance premiums have got to be accepted as a business expense/loss by all the participants.

Setting up a “fund” that can, one day, be declared bankrupt without causing financial hardship to those that supplied the “seed money” is why those lawyers and accountants are working so hard.
The model already exist. Pay a fine for your wrong deeds and call it a cost of doing business.

Asmita said...

Anybody here do coin roll hunting for Pre-65 quarters, dimes and half-dollars? (90% silver content).

65-70 half-dollars are 40% silver.
War nickels (42-45) are 40% silver.

I'm saving these 90% silver coins for the hyperinflation a few years hence. A fun way to pass the time when you're retired.

Where you find enjoyment is arbitrary. See the world in a grain of sand.

el gallinazo said...


Re the downed drone in Iran

There is some evidence that the drone was not shot down at all, but rather Iranian military hackers were able to take command of it electronically and force it to land. Thus the statement that is was only slightly damaged. Maybe they need practice landing them.

jal said...

... were able to take command of it electronically and force it to land.

hehehe ... electronic warfare coming to your


Greenpa said...

El Gal - what actually happened to the drone should prove interesting. If folks remember; there was a HUGE kerfuffle just a month ago or so, when it hit the MSM that there was a keylogging virus infecting ALL the drones and their bases, and they'd been unable to eradicate it. So much fun!

Clearly hacking into the drone commands is not impossible, but I find it hard to believe the normal military mentality didn't include a self-destruct button, of course wired independently. You don't want it running out of gas and have some camel jockey just pick it up to do a little reverse engineering; so - almost HAD to be a self-destruct.

Didn't work? Cause of the "slight damage"? A whole lot of "wha hoppen?" going on there.

Almost entertainment. Except for the potential for nuclear weapons.

Ash said...

Welcome to the Living Dead Economy

"There is a story, almost certainly apocryphal, that John Maynard Keynes and Friedrich Hayek used to discuss the state of the world while sharing on air raid warden duties on the roof of King's College Chapel in Cambridge during the second world war.

Hayek would say that the zombie-like state of affairs has been due to the refusal to allow banks that lent irresponsibly to go bust. His analysis of the crisis would be that too much easy money led to too much unproductive investment. While not cavilling at the suggestion that spending should be maintained during a slump, Hayek would argue that the aim of policymakers should be to return to a situation where production was sustainable and profitable. If that meant letting banks go under, then so be it. If nature's cure took time, then so be it.

...Interestingly, it is not only free-market economists that believe in the power of creative destruction. The term, although it came to be associated with Joseph Schumpeter, originally came from Marxist economic theory, which held that each phase of development emerged out of the wreckage of a system that no longer worked. Socialism would follow capitalism, just as capitalism followed feudalism. The Marxists believe the attempts to muddle through are doomed to failure.

...Keynes would have approved of the action to slash official interest rates. He would have approved, also, of the attempt to manipulate market interest rates lower using QE. But he would be alarmed at the weakness of private-sector investment, particularly given the large amount of cash sitting idle in company bank accounts. Keynes would conclude that the "animal spirits" of commerce are currently low, and so it is up to governments to prime the pump through higher public spending.

...Policymakers' riposte to Keynes would be the same as it would be to Hayek: get real. If we take no action to rein in deficits, we will be slaughtered by the markets; bond yields will go up sharply, negating the impact of cheap money. Keynesian fiscal policy, in other words, will only be possible when the markets share Keynes's belief that jobs matter more than the level of national debt, and given the way economics has been taught in universities for the past 30 years, that moment may be a long time coming.

As things stand, economic policy lacks intellectual coherence, monetary policy is governed by a belief in the need for unrestricted credit, and fiscal policy by a belief in "expansionary contraction". It is a mishmash based on one big assumption; given time, the grown-ups can fix things. There are three possible responses to this: they can fix it given time; they can fix it if they use a different toolkit; they can't fix it at all because the system is bust. You decide."

OK, I'm gonna go with...

busted system.

Nassim said...

In his morning program on Fuji TV he’s been promoting Fukushima produce by eating them in the show. He also happened to be in Fukushima in March 15. Just a coincidence? Never mind that ALL is predominant in small children, and an adult case is one in 100,000 annually in Japan.

Fukushima: Japanese produce linked to newscaster's cancer

Greenpa said...

Ash: "they can fix it given time; they can fix it if they use a different toolkit; they can't fix it at all because the system is bust."

I'd phrase it a little differently; they can't fix it, because in fact they don't understand "it" - at all. Not what it is; nor what it should be.

el gallinazo said...

"Never mind that ALL is predominant in small children, and an adult case is one in 100,000 annually in Japan"

Are those tougher odds than drawing on an inside straight? Well, the Lords of Karma still rule despite the central banks.

I have heard reports in the alternative blogosphere that levels of radioactivity and the most dangerous isotopes have skyrocketed across the USA and that the govmint and the universities are trying to cover it up. Anyone have any links with serious, hard data either about the levels or a coverup?

Ash said...


I believe a good number of "them" understand "it" to be the market-driven system of profit imperatives that feeds on never-ending growth and keeps them comfortably in positions of material power over others and in good health (so far). The problem is that they have historically defined "it" for the rest of us, and we have eaten up every word like little children dosed with Ritalin at story time. That's a big part of the problem, anyway.

But therein lies the hope - they can't fix "it", but "it" can fix them.

Gravity said...

There's still a cloud of radioiodine above europe, source remains unknown, but for a nonsensical explanation:

No mention of bioaccumulative exposure on thyroid tissue, which is the relevant factor for radioiodine contamination.

It seems the radioactive cloud was first detected before the mysterious explosion at that iranian revolutionary guard base was reported, so that shouldn't be the source. It could be fukushima fallout or some unreported dirty disaster involving live fission.

Nassim said...

re: drones

So far, the USA/Israel have had a lot of fun with drones. The former against mountain-dwellers in places like Afghanistan, Pakistan and Yemen. The latter against villagers in occupied lands and in adjacent countries. IMHO, the fun will only really start once they start using drones against people who are a little higher up the food chain - people who can work with bits of balsa wood and plastic. I mean, just imagine what a cheap drone - based on stuff you can get on eBay - would do to all those remote bases that are surrounded by wire fences.

The fundamental equation is that if you improve the accuracy of delivery of an explosive by a factor of 10, the power of the explosion goes up by 100 times - 10 grams would do what would have formerly required 1kg. A real game-changer.

Greenpa said...

Ash - well, it depends on how you define "it"... to make a mildly amusing historical allusion-

I'm sure they understand quite a lot about a variety of the tiny inner wheels- but if I may resort to a biological metaphor;

These guys, and economists in general, are very much like the "cancer geneticists", and physiologists; who spend their entire lifetimes dissecting a particular biochemical pathway, and feel they are contributing understanding.

But from where they are, they have no actual concept of how the entire cell works- let alone malfunctions- because they're only looking at 1/1,000th of the integrating operations- and only between 8 AM and 5 PM; primarily between September and June.

And - it literally has not OCCURRED to these guys, that different stuff happens at 2 AM; although we know it does, and in July, though we know it does. They wipe that information out of the brains, don't want it. You can remind them of this on Monday, and ask about it on Wednesday, and get the "wiped drive" look. (Yeah, I've done it. "What, you want me to come in at 2 AM and run this again??" "You want to understand what's going on?" "Nobody does that." Ah.)

Anyway. That's sorta what I was basically kinda aiming at. In a fashion.

SecularAnimist said...
This comment has been removed by the author.
SecularAnimist said...

Great blog today.

Our system of economic growth, of ineffectual democracy, of over loading the earth resource capacity, of unfettered corporate greed plus a trillion dollar advertising industry urging us to consume ever more - this system, OUR system - is in the process of eating itself alive.

If we, the youth of the world, do not come alive and start fighting for a different kind of future, then we will not have one

-From this months Adbusters(the guys that sparked OWS)

Frank said...

Ash, I agree the Keynes/Hayek story is almost certainly apocryphal. However, both were smart and honest men. If it is true, I am sure they agreed in hoping/praying to see a day when their economic disagreement was a more important question than would the poster Ilargi put up here be deployed.

Nassim said...

re: Soros

However, he noted, Hungary’s 1956 revolution changed the political atmosphere but didn’t bear fruit until 1989. "You can’t expect immediate success but what is happening will have a lasting impact," he said.

Hungary's debt system seems to be unwinding faster than many other countries in Europe with the country's inhabitants borrowing heavily in stronger currencies. They have already grabbed private pensions so I don't really think that Soros' idea of "success" corresponds with my own. Say what you like about Hungary's communists, but pensioners had a better time than they do currently.

Hungary’s parliament has voted to approve the effective seizure of assets held in mandatory private pension funds, a move that reverses a 1998 reform and has unsettled investors.

Hungary reverses pensions reform (December 14 2010)

Frank said...

Occams Razor shaves NWO. Penny in Kaliningrad fuse box does not save Medvedev's butt.

Sometimes a cigar is just a cigar.

Frank said...

The Russian election was as rigged as anything that ever went down in Chicago. And they still lost.

Gravity said...

@el gallinazo
"you are simply perpetuating the myth that the USA is really a country of law"
And you're propagating the consent that it isn't and cannot be, which is also damaging. The US has a decent constitution people swear an oath to, creating moral limits on the abuse of power, which should be sufficient if anyone actually enforced it and protected its integrity from domestic enemies.

You yourself mentioned that lawless military detention bill with disgust, why complain about it if the law is but farce and has never worked to protect citizens? It seems inconsistent to me, more defeatist than realist. Our Ash also reasons this way, dismissing appeals to legality. sometimes I think its this very attitude of anticipatory corruption that caused the descent towards legal barbarism in the first place.
The only narrative in which that bill is offensive is within the limitations of executive power and rights-based constriction of the constitution. Its the logical frame of reference from which to derive the enumerated sense of injustice we experience when reading fascist legislation.

The SCOTUS may only say what the constitution allows them to say. If they'd rule that slavery was legal again, you'd purge them immediately by discharging the offending justices for autogenic extremism. Politically extremist speech by definition intends to violate unalienable rights defined in the bill of rights, and is either criminally or administratively offensible.
Any agents of government advocating extremist policy are forbidden to hold politically representative positions by court order and are discharged from public office on detection, as is tradition.

Discharging POTUS, VP and other administrative puppets by finding them insane in a court of law, besides forcing a precedent on mental incapacitation in congress, forces the oligarchy to present lesser puppets as replacements, eroding extremist legitimacy and nullifying any executive orders the lunatic puppets have issued.

Constitutional checks and balances to limit power do work when two out of three branches are functional within its framework. This system was not configured for the eventuality that all three branches become hopelessly corrupted, yet the people reserve the right to overthrow and replace an intractably corrupt government by whatever means are most expedient, lawfully if possible.

Gravity said...

Here's a constructive use of constitutional law:
Corporations are incapable of political speech or of attaining any rights of political expression afforded to the citizenry, because corporations are not moral actors defined within a sovereign political boundary. Incorporated speech is already legally defined as profit-based marketing, which is not protected political speech.
The SCOTUS ruling on this issue, so deciding for unlimited campaign donations by corporations, does not contain a logical identity of the concept of 'citizen', much as the SCOTUS itself does not.

scandia said...

@ Jack, thanks for the link to George Galloway. I'm a fan:)

Asmita said...

I'm thinking about a house in Vegas to house my coin collection.

Good idea? I need to be close to the slots for new coin inputs.

You'd be amazed how many silver quarters dimes and nickels still circulate. This is big business for those with an eye for coin dates.

Frank said...

The more I think, the more the Kaliningrad thing is bogus.

Israel/US attack Iran. Kaliningrad doesn't see a thing. Putin blows away Western Europe because he likes the same rock music as Ahmahdinajhad. Kaliningrad is purely defensive, useless to help an offensive strike.

US actually follows NATO treaty and turns several Russian cities into glass. Missiles come from North-Northeast. Kaliningrad radar pointed West-Southwest. Not actually useful.

I grant you that both Brits and the French have nukes, and for sure will fire them the minute Putin attacks. And Kaliningrad may save Moscow's butt, for about an hour.

In so doing, it will show the yanks where Russia's missile defenses are....

I totally agree that Russia and China will do all sorts of violent and nonviolent things to save Iran's ass in the case of an Israeli/US strike. Will the radar in Kaliningrad actually be useful in any of them. Nope.

Frank said...

I'm also highly skeptical of an Israeli strike on Iran. Their choices are overflying Saudi Arabia, Iraq and Turkey to get there.

This reduces to getting Saudi permission. Both Saudi and Irag have bought the same air defense from us, as good as what the Israelis have. Turkey's might not be quite as good. If they made it over Turkey, no sure thing, they would have violated NATO air space on an offensive mission. That is a really bad place for even Israel to go. Firefight with the Icelandic Coast Guard anyone? (No, not a joke, the Danes, Dutch and Norwegians would be waiting for the first shot....)

And finally, no they have no excuse to justify the Saudis letting them through. The House of Saud might be willing to make a deal, but Iran's universally acknowledged level of scumwaddery does not reach the level of meriting letting infidels beat up on muslims.

Ash said...


"sometimes I think its this very attitude of anticipatory corruption that caused the descent towards legal barbarism in the first place."

Well that's your problem right there. Attitudes are not the root cause of anything, and words in a document are not going to salvage a fundamentally broken economic system. I have no problem enforcing federal law, but I also realize federal law will be used as an instrument of oppression until the underlying problem is addressed in a meaningful way (i.e. no legislative tweaks that pile complexity on top of complexity ad infinitum). Money will never leave politics until the system that values the accumulation of money above all else is dismantled. A Constitution has no meaning outside of its context, and our context is just a really lousy one.

That's why the US Constitution contains just as many clauses geared towards oppression as those geared towards protection of "rights". Once the context changes drastically, then I will be able to reclaim some degree of faith in the state and its political and legal apparatuses (which may be sooner than most expect), but not before then. That's not to say, though, that I believe these political and legal apparatuses can't play any role in dismantling the system and taking us towards something better. They can and they just might.

Chas said...

Another Ann Barnhardt interview.

She makes the prevailing opinion here appear sanguine.

Ash said...


"If it is true, I am sure they agreed in hoping/praying to see a day when their economic disagreement was a more important question than would the poster Ilargi put up here be deployed"

Read this a few times, but... still stumped.

Joe in NC said...


Thanks. Sounds like you know the risks involved with a strike on Iran. I missed how Kaliningrad is unable to effect a strike?


el gallinazo said...


The USA seems to be a few weeks away from throwing due process out the window and incarcerating citizens "legally" indefinitely without charge. This could be viewed as a "big deal," as big as reinstituting slavery. We will see what kind of reaction we get.

I obviously can't write for Ash, but I am negative about the idea that fighting against the increasing oppression of the Oligarchs and the state through the federal courts is a winning battle. The deck is so rigged that it is IMO a waste of energy and resources. One may get a few victories on the state level occasionally, but on the national level - forget it.

As Ash writes in the current lead, the real battle is in strikes, civil disobedience, passive resistance, local community control, and waking up your fellow citizens from their slumber. The occupy movement has nothing to do with the courts other than Generalisimo Bloomberg getting his bogus injunctions. Yet other than shooting off their own feet with decades of their stupid fiscal policies, it is the one thing that scares the hell out of the Oligarchy and their minions.

scandia said...

@Chas,yeh, I just listened to the Barnhart interview on Financial Sense and thought the same thing. Her sense of urgency is palpable. She gives the system until Christmas.

ben said...

"@ Ben - Yes, I suppose the spokes council might be termed,"co-opted" by critics at least in New York. I've seen nothing like that here in Oakland, unless it's the many committees that have sprung up. I'm in the Resources-for-Housing one.

What I do see is that some people show up more often than others [is that a vanguard?]. And a large part of "success is just showing up", but more important is that many of these students, working people and seniors are putting in real time and effort to make things happen. This is finally a door through which local structures can be set up. We are making bridges among local service groups to form what may become a strong safety net as our larger nation and states crumble. We will need this kind of community net."

sorry for the delayed response, glennda. is that a vanguard? in the broad sense of the word it definitely is. it sounds like you guys have got your shit together down there. i'm still trying to find my place in it. i may be spending too much time in the streets with the kids and not enough time with the older set. yesterday i missed a vision and strategy meeting with the latter at the unitarian church because we were trying to hold our new camp (second attempt) which was just several hours old at that point and lasted about 5. it is my understanding that there is a tent still standing symbolically and people will be sleeping in bags tonight.

i should also say, regarding co-optation, a mainstay of the communication team here, who is heading out tomorrow on a tour of the southwest occupations, thinks there is CIA support for Occupy along the lines of the wikileaks argument for said support, which i suppose could be true. he seemed to take the position that this was not a dealbreaker, that the ends justify the means. (myself, i would rather not be a pawn as pawnish aspirations are thoroughly expendable.)

while he seemed convinced of CIA involvement then again he also believes perpetual motion machines are being withheld from the marketplace, that technotopian crutch i've had the displeasure of running into several times, recently, amongst the general population; when he confided in me regarding his absentee father he still pines for at the age of 35 i wondered from my armchair whether it bore some relation to said belief.

i was pleased when he mentioned that they are developing good relations with a network of existing pirate radio stations.

i'm running extremely late for tonight's spokecouncil.

ben said...

frank stumped us alright on that one, ash. thanks for the analysis, frank. i love geostrategy. :)

Skip Breakfast said...


Doesn't Barnhardt roil at length about Satan and the evils of Planned Parenthood? And then seems to equate Obama with Satan, as though the Republican party were any different or better?

I wouldn't take a word such a woman utters seriously...even if she happens to agree with a lot of us with regard to the debauched state of the world financial system.

Biologique Earl said...

Blogger Skip Breakfast said...
"Doesn't Barnhardt roil at length about Satan and the evils of Planned Parenthood?"


Yes she does ad nauseam. She seems to be reading from the same (Good) book as Michele Bachmann. The difference is that Bernhardt has some thing up above rather than just loose peas.

Her religious rambling loses me as a potential reader.

Ilargi said...

New post up.

Look Back, Look Forward and Look Down. Way Down.