Bernanke: More, More, More Funny Money™
May 14, 2008
Elaine Meinel Supkis
The banking collapse continues. Even as all the big players pretend all is well, Bernanke admits the Federal Reserve will have to keep the Funny Money™ window wide open and even give out more money. The central banks of Japan and England are also in the news. Both are struggling with keeping the insane system afloat which has sunk. They have to stop inflation while flooding the markets with more loans. US businesses are now endangered by too much debt going into an obvious recession, at 66%, it is much higher than the 40% level right before the Dot Com bust. Japan is rapidly shrinking production in anticipation of dropping markets while food prices continue to soar in Japan. So the Bank of Japan simply closes its eyes and jumps off the cliff.
Bernanke Says Fed to Boost Loans to Banks as Needed
Federal Reserve Chairman Ben S. Bernanke said financial markets remain unsettled and the central bank will increase its auctions of cash to banks as needed.While markets have improved, they remain ``far from normal,'' Bernanke said today in a speech to an Atlanta Fed conference at Sea Island, Georgia. ``We stand ready to increase the size of the auctions if further warranted by financial developments.''
Bernanke's comments contrast with those by Treasury Secretary Henry Paulson and Wall Street leaders including Vikram Pandit, chief executive officer of Citigroup Inc., who say the worst of the credit crisis is over. The Fed chief said it will take ``some time'' for financial firms to resolve the crisis by raising new capital and strengthening their management of risk.
The anxiety of these people is obvious. As the US continues to go into free fall, they all proclaim the banking collapse is over and done with. Except even the head of the super-secretive private banking consortium, the mis-named 'Federal Reserve' lets the cat out of the old bag. Things are not 'normal' at all and the Fed will keep the dark portal open to pour more Funny Money™ into the banking system which is obviously still bankrupt. The collapse of our entire banking system which needs these endless infusions is not a cause of our problems but a symptom. Treating the symptoms with tranquilizers doesn't cure the cancer, of course.
It just prevents us from feeling the pain. And the truth is, not a single thing that is actually wrong with our present system is being addressed. Worse, they don't dare fix it at all. I have said in the past, the only goal of these people is to keep the deadly status quo that is destroying this nation, running to infinity.
It irritates me to hear all the people at the top of the US dog pile yapping about the economy while never, ever mentioning the pesky trade deficit or budget problems. When elections roll around, it is all about tax cuts and handing out goodies to voters. Bernanke is still hoping that the reckless borrowers who tapped into the incredible Carry Trade Bank of Japan to borrow 'new capital' will resume this activity! It just doesn't occur to him that the last thing this planet needs is for all the investment banks infesting the financial systems, to borrow even more money. Also, the understanding as to how one 'manages risk' is a difficulty. People getting nearly free loans that are well below the rate of inflation do so in order to use it to buy something that will rise in value because others are doing the exact same thing. It doesn't matter to them what these things are. If others are also borrowing from the mighty Carry Trade Bank of Japan in order to bid on something, all the others do the exact same thing.
The role of the Central Bankers is to stop this madness. For it is obviously inflationary. We see this in commodities this year. From the minute the investment bankers could not plop debts on top of properties or on businesses in the West, they began to dump this constant stream of new debts onto food and energy products. Traditionally, as this sort of debt dumping causes 'inflation', to combat this, the central bankers raise interest rates. This prevents the generation of even more debts that get dumped into various destinations. Unfortunately, since a record number of governments are also overspending their budgets to an amazing degree led by the example of the spendthrift Americans, all governments have a conspiracy going whereby they pretend inflation is less, rather than more.
This crazy notion means, instead of raising interest rates to prevent the investment bankers from speculating wildly and thus, driving up the value of everything on earth, the banks have pulled ever possible trick in the book to minimize real inflation. So, increasingly, since 1995 when the Bank of Japan created its monstrous and continuous denial of reality in the form or near-zero percent interest rates, all the other central bankers strove to do the same. All, in unison, sang the same song: 'Inflation is dead! We don't have to have any restrictions on debt creation! We can borrow to INFINITY!'
Any country seeking to stop real inflation was swamped by the 'Japanese carry trade'. Since Japan used many tricks to hide inflation, the US did the same and we had the world's top two economies both lying about inflation at the same time. On top of this, the only tool in the box for hiding inflation from reckless bidding up of all things possible, was to cut the wages of workers and offshore labor. So both nations did this to their own work forces with ruthless intensity. Wages of American and Japanese workers fell like rocks.
Thanks to the investment bankers flooding the world's markets with Funny Money™, this noxious red ink has finally settled upon the markets of all things sold to workers to keep them alive. So now, the workers of Japan and the US are being hammered by very serious levels of inflation. Which both central banks ignore. Japan's bank even went so far as to say, they intend to ignore real inflation since their job is basically to simply pour money into the maw of Toyota, not regulate the monetary value of the realm's coins.
In the US, the government and bankers conspired to simply juggle away true inflation by simply eliminating the vital areas of food, fuel and medicine from the inflation statistics. This works, too. But simply ignoring reality works, as we see this year. The Fed here dropped rates ruthlessly in the teeth of amazing inflation. And boast when it produces a flood of red ink lending by bankrupt banks. And this is not fixing anything, it is making things nearly impossible.
`Short-Sellers' Haven't Had It So Good Since 1990
Almost 100 European stocks currently fulfill the triple criteria needed to be a ``short'' candidate, the brokerage wrote in a report to investors dated yesterday. The requirements include an expensive share price, worsening company accounts, and lack of ``capital discipline'' on behalf of management. On average, the ``short'' list has had 20 stocks, Societe Generale wrote. In the U.S., the number has surged to 174 from 30.``The opportunities are on the short, not the long side,'' the bank's London-based strategist James Montier wrote. ``Perhaps it is time to join the dark side.''
In a short sale, speculators sell borrowed stock on expectations its price will drop, allowing them to buy back the shares at a cheaper value and pocket the difference when paying back the loan.
Short selling whereby one does this with CAPITAL is OK. But short selling by going to the Bank of Japan for a carry trade loan and THEN playing the shorts game is just another way of translating red ink into 'profits' which then enter the monetary system. See? The more they borrow money that is, of course, made out of thin air with a key stroke on a computer, this then becomes spending money when the loan is swiftly repaid BUT THERE IS A PROFIT and this profit is fueling inflation. Just as the borrowing of billions to buy up corporations created a flood of new money that raised the expression of inflation last year. Now that it is obvious to even the oblivious that we are in a global contraction of awesome proportions, everyone is now going to rush the windows of the investment banks, begging for loans so they can all short the markets. And great 'wealth' will be created this way. But like the other half of this system, the dumping of debts onto corporations, this destroys the corporations while lining pockets.
It is, in other words, counter-productive. It is NOT capitalism, it is VULTURISM. Vultures do a service, they eat dead things. But they should not be encouraged to do this by creating inflation in a deflationary system. For these actions will only accelerate the worsening condition of businesses that create 'capital.' Capital is NOT money, it is the value-added profits on human labor that then circulates via the rewarding of labor for production created by harnessing energy and manufacturing systems. If the workers are cut out of the picture and cease gaining profit share, the system collapses.
In the West, we are told 'productivity is up' which is actually fancy talk for 'workers are taking pay cuts or working longer.' This is followed by workers putting in less and less hours as in Japan. There, the part time worker is legendary as businesses crush wages in order to prevent inflation from soaring. No system runs very long if there are no capitalist profits. The US and other G7 nations are experimenting with this idea of never making real profits that flow to workers. Channeling all the profits into speculation or parking it all offshore at pirate coves is very destructive. Yet this is not the topic of conversation with our elites. They are focused on keeping the ratty system going rather than fixing it.
For Retailers, It's Black Tuesday
For major retailers, the week of darkness has arrived. With $4 gasoline and tight credit keeping consumers' wallets shut, it's time to announce dismal profits. Unless you're a discounter or a seller of hip clothing really ahead of the fashion curve, forget about it. Wall Street is braced for the worst.Here's one sign of how bad things are: "Coupon redemption is at an all-time high," says Britt Beemer, president of America's Research Group, which studies shopper behavior. Beemer's research shows that 59% of shoppers last month showed up at stores with specific lists of items they were limiting themselves to buying. The historical average over the 29 years he's been surveying: 33%. Also, more people are reporting plans to shift their shopping from chains to independent stores, where they think price haggling is more accepted.
I remember the seventies. Coupon clipping became a mania. Because I was working insane hours, I never did this. But nearly everyone around me did. Coupon clipping fluctuates a lot over time. I remember the recession of the late 1950's. My mother put us children to work, dealing with her coupons. It was one of our chores, in other words. In the seventies, stores advertising triple coupon values did roaring business. Of course, the hidden part is simple: this drives UP prices. Instead of cutting prices, they RAISE prices and then force people to concentrate on buying only select items which can be piled onto shelves, knowing that people had to buy non-coupon items like milk, for example. I did a little study back then showing that people who ignored coupons and bought based on price differences saved more but alas, I don't have this in my files anymore.
But I knew the executive of one major chain who confirmed my survey's truth. Coupons are mainly advertising tools. And people hope to get a jump on inflation via using these things. So the news that 2/3rds of all consumers now report resorting to this scam is a sign of danger.
Libor Poised for Shake-Up as Credibility Is Doubted
The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs.For the first time since 1998, the British Bankers' Association is considering changing the way it sets the London interbank offered rate, according to Chief Executive Officer Angela Knight, who appeared before a parliamentary committee in London today. ``We've put Libor under review,'' Knight said in an interview yesterday. The BBA will announce changes May 30, she said.
The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. The association is under pressure to show the rates are reliable following complaints by investors that financial institutions weren't telling the truth after the collapse of subprime mortgages nine months ago contaminated credit markets and drove up borrowing costs.
All the regulatory systems set up to give us a good idea about economic or banking realities are failing in unison. Isn't this ODD? HAHAHA. Just like the DTCC is failing to track who owns what stocks, just as organizations rating CDOs, etc are all shown to be utterly useless, rating obvious junk as AAA, so it is here. Isn't this a shock? The British Bankers Association can't give good information if all their members are lying. And why is this?
The entire system is really bankrupt! So they must lie! Since it is obvious to anyone looking at the banking system, this means they must simultaneously pretend to be upset about lying while at the same time, frantically looking for some way of continuing this lying! Here is one news story from the official BBA website:
The association said that the FSA’s work towards creating a level playing field would help to ensure that all comparison websites provide a good service to their customers, but added that consumers needed to be fully aware of all the facts when purchasing financial products through comparison sites to make sure that the purchases suit their needs, including being adequately covered by any insurance.Other key issues that the BBA wants the FSA to further consider include research methodology, transparency of commercial interests, data provision and privacy policies as well as absolute clarity on the nature of any special offers.
Then there is this interesting headline from Bloomberg:
Treasury Cash Avalanche Offers Respite for Bond Bears
Treasury investors beset by rising debt sales and faster inflation are about to get a reprieve.Holders of U.S. government notes and bonds will be handed a net $71 billion this week from maturing debt and interest, a record, according to the research unit of Jersey City, New Jersey-based ICAP Plc, the world's biggest inter-dealer broker. In all of last year, the Treasury returned $73 billion more to investors than it sold.
Much of that money may be funneled back into Treasuries because the economy shows few signs of accelerating and banks and securities firms are still reporting losses from securities tied to subprime mortgages. Vikram Pandit, chief executive officer of Citigroup Inc., said on May 9 that he plans to sell about $400 billion of assets over the next three years as part of his plan to make the biggest U.S. bank profitable again.
Shows how this banking collapse is causing contrary systems to fly apart rapidly! There is an AVALANCHE of cash...and FASTER INFLATION...but all is well because the government is handing out $71 billion in maturing debts! Whoopee! And this will fix inflation how?
It won't, of course! It makes it WORSE. The Treasury pumped an extra $73 billion into the system last year! Or so this story says. Now, all is well, since this is flowing back into Treasuries which are then called 'assets' by the central bank and this, in turn is used to create more DEBT! So the Ouroboros nature of this beast is revealed. A money snake eating its own tail only it is growing in size as it does this.
The global slump of 2008-09 has begun as poison spreads
The avalanche of bankruptcies has begun. Six US companies of substance have defaulted on bonds over the past fortnight, against 17 for the whole of last year.
*snip*
The sick list is varied, though most for now are victims of the housing crash: Linens 'n Things, ($650m), Kimball Hill ($703m), Home Interiors ($310m), French Lick Resorts ($142m), Recycled Paper Greetings ($187m), and Tropicana Entertainment ($2.49bn).Diane Vazza, S&P's credit chief, says defaults are rising at almost twice the rate of past downturns. "Companies are heading into this recession with a much more toxic mix. Their margin for error is razor-thin," she said.
Two-thirds have a "speculative" rating, compared to 50pc before the dotcom bust, and 40pc in the early 1990s. The culprit is debt. "They ramped it up in the last 18 months of the credit boom. A lot of deals were funded that should not have been funded," she said.
Some 174 US companies are trading at "distress levels". Spreads on their bonds have rocketed above 1,000 basis points. This does not cover the carnage among smaller firms outside the rating universe.
I highlight the key paragraph. Vazza is correct. I noted also how, in the previous year and a half before the collapse of the Japanese carry trade last July, debts were dumped on nearly all businesses at an increasingly frantic rate, all of this funneled by hedge funds and investment bankers collecting easy lending from Japan! Every time 'speculative' ratings rise past 33%, things become destabilized. It is at a record today not seen since...1929. And everyone knows this. The naked fear of depression is very great so the central bankers are experimenting with avoiding this by creating massive inflation! As if we learned nothing from the 1970's. And back then, our manufacturing/business base wasn't drowning in red ink!
The 1,000 basis point jump in cost of lending today is being 'fixed' by central banks handing out 'free money' to the bankers in the hopes they will pass this on to businesses overburdened already by too much debt. Instead of talking about reducing debt levels to reasonable levels, the desire is to put all things into a track of infinite debt. This is the dreaded 0%/0%/0% system I argue, will destroy capitalism. If we set interest rates, equity down payments or values and then never pay any principal, we can theoretically lend to infinity. And money would then become utterly worthless.
Wal-Mart Cuts Way Back -
Arkansas Bank Fails
The collapse of ANB Financial National Association is significant.
Population of Bentonville, Arkansas is 19,500 people .... and Wal-Mart Stores, Inc. Bentonville IS Wal-Mart !
For the past four months, Wal-Mart (Bentonville, Arkansas) has been canceling almost all of their (major) corporate projects into the future. We know the magnitude of Wal-Mart's financial dilemma directly from its internal (attorney) legal "dropped project memos" and "Real Estate Committee reapproval memos."
ANB's bankruptcy is interesting since it is right at the heart of the 'offshore/outsourcing/cutting wages' Walmart Universe. Hillary Clinton was on Walmart's board of directors. And has great appeal in Appalachia, the land where Walmart is king. And like many in Congress, her financial well being has ballooned by many millions of dollars while supposedly serving the people. The chasm that splits the ordinary people from the ruling elites has greatly widened in the last 10 years! Walmart has boasted their sales are way up but this is due to people playing the 'coupon' and 'super cheap' game in desperation. This will increase Walmart's efforts to offshore and outsource as well as cutting wages, etc. This is devolutionary, not evolutionary.
Economists Estimate Growth Of 1.79% For Jan-March Real GDP
TOKYO (Nikkei)--Japan's real gross domestic product likely grew by an annualized 1.79% in the January-March quarter, according to a survey of 34 private-sector economists released Tuesday by the Economic Planning Association.
***************************************************58% Of Restaurant Operators To Raise Menu Prices In FY08
TOKYO (Nikkei)--Citing an ongoing rise in food costs, 58% of restaurant chain operators said they plan to hike menu prices in fiscal 2008, marking a second straight year of increases, according to a survey conducted by Nikkei Inc.
**************************************************Toyota To Raise Output Capacity At Chinese Joint Venture
SHANGHAI (Nikkei)--Toyota Motor Corp. (7203) said Tuesday that it will increase capacity 50% by the end of 2009 at one of three plants operated by a Tianjin joint venture with China FAW Group Corp.
And Japan is outsourcing and offshoring like crazy to stop 'inflation' even as inflation's fires roar to life in Japan! Also, even as the US falls flat on its face, note that Japan's economy is still growing! For the last 9 years, it has grown steadily. A peculiar 'depression' indeed! It has lots of inflation and growth, doesn't it? But like the US stagflation times, it rests upon a base of shrinking working class incomes. And this is worsening, not improving.
From September, 2004: U.S. will get China engines; Toyota builds plant to make export products
Toyota Motor Corp. is building an export base for engines, components and eventually cars in south China's Guangdong province.And some of those engines will end up in the United States, Toyota says.
The Japanese automaker will start exporting 2.4-liter engines from its manufacturing joint venture with Guangzhou Automobile Group early in 2005. The venture, Guangqi Toyota Engine Co., will export 25,000 engines next year, all to Japan. ...
I went back in time to include this story to show clearly that the problem is NOT China, but JAPAN. The Japanese have offshored many of their operations to China and then export it to the US. So it shows up as Chinese statistics, not Japanese trade statistics. This is why China has a much higher trade surplus with the US while JAPAN joins Germany in having the highest trade surplus PROFITS! And we must figure this out, not ignore it or paper over this fact. The nuances of free trade and finance isn't all that hard. I would suggest, it is made hard deliberately by people who want to lie about it.
Japan Production Falls at Fastest Pace in Five Years
Japan's factory production fell at the fastest pace in at least five years in March as the global slowdown prompted Toyota Motor Corp. and Honda Motor Co. to make fewer cars at home.Companies cut output 3.1 percent from February, when it rose 1.6 percent to a record, the Trade Ministry said today in Tokyo. The decline was almost four times steeper than the 0.8 percent median estimate of 33 economists surveyed by Bloomberg.
Because the US behemoth is unable to absorb more debt for consumer spending, Japan is now seeing its own industries shrink this quarter. If everyone cuts wages of the workers or reduce spending ability via high inflation, even Japan's economy will shrink.
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