Let Them Not Eat Cake

Speculators drive up value of wheat when banks collapsed in March.

May 6, 2008

Elaine Meinel Supkis

The 'credit crisis' which has morphed into a collapse of the G7 banking systems, continues unabated. The western media played up false stories from idiots like former IMF head, Rato the Rat. Even as global inflation continues to rage even in strong currency systems like the European Union, the lunatics who run most of the G7 central banks are still screeching, 'We need MORE liquidity!' The 'we' here are, of course, the pirates, billionaires and corporate clowns who brought this disaster down upon our heads in the first place. And the US government has a meeting to discuss inflation, the surge in wild government spending and how to fix things. More liquidity is their solution. And they blame all this not on our trillion dollar Pentagon but on the American people for wanting security and health care, of course. Hang them all!

Former IMF Chief De Rato Says Global Credit Crisis Nearing End

Former International Monetary Fund head Rodrigo de Rato said the worst of the credit crisis is over and that the recent strengthening of the dollar is justified.

``The markets are telling us that's true,'' Rato told Bloomberg News in an interview in Madrid today, when asked whether the turmoil is closer to an end. ``I think some of the lessons have been learnt. Central banks are not only reacting, injecting liquidity, but also taking a more focused approach.''

The fools who run our present system all imagine they are really honestly and truly wizards. All they have to do is say something and this something becomes real. This reminds me of a fairy tale. Our dear ancestors had a wicked sense of humor and understood the psychology of wealth and the dire messes wishes can create. Once there was this old man and old woman who were granted three wishes. While arguing about what to wish for, they wished to win the argument so they wished bad things would happen each other. They had to use the third wish to undo what the previous two wishes did to them.

Wishes are funny things. In the land of reversals which is a very powerful part of the realm where wealth and money are created out of thin air, wishes are seen as curses. This is why demons love to use them with humans! And people fall for this over and over again. In the present case, we see clearly the many magicians who orchestrate our economic miracles all are throwing out wishes. They hope the demons will listen and grant their wishes. Wishes are funny things: you have to be specific. Heh. You can't say, 'Make me rich,' for example. The demons will say, 'But how do you want to get rich?' That opens the door to tons of mischief. And merriment for the demons, of course.

Rato and his buddies desperately want to end this economic catastrophe which he and his buddies of the New World Order created. So they had several get togethers and said to each other, 'How can we end this?' They tried the old and always useless way, which was to order it to stop. 'Sorry, but this is a dynamic system,' said Chtulhu, 'You mortals have to tell me how you want to stop this collapse.' So the magicians rubbed their heads and other body parts in anxiety and wonder. Then they came up with the solution: 'Give us more liquidity!' they shouted.

Chtulhu knows where there is infinite liquidity. Like in all dark pools, all black holes, one can tap into infinity in these places. All over our global economic systems, these stupid magicians evoking the darkest gods have created infinite systems such as Chtulhu's pet, the Derivatives Beast. This massive creature now dwarfs all global real wealth such as houses, food, industries, human biomass, water in the oceans, everything. Chtulhu petted his lovely monster, Derivatives Beast on the head and chortled, 'You want a SECOND beast? Good. Your wish is granted. You will have infinite liquidity!' And suddenly, out of nowhere, this being the Outer Darkness, the Inflation Beast popped into being!

'Um, that isn't what we wanted. We want NO inflation but infinite credit and liqudity!' wailed the wizards. Chtulhu chortled.

'Sorry, but you are the ones who wished for this. Now you get to slay it,' he hissed with glee.

The wizards can't slay the Inflation Beast except with one sword. Out of the darkness, from his exile long ago, strode the only wizard who understood all this and knew how to slay both the Derivatives Beast and the Inflation Beast. 'Give me my wand back and I shall slay these monsters,' yelled Volcker. All the other wizards recoiled.

'Go away, He That Cannot Be Named!' shouted Bernanke. Greenspan hissed and drew back into the shadows in fear. 'The US budget deficit is ballooning. We need the Inflation Beast. And if you slay the Derivatives Beast, all our banks will go bankrupt.'

Volcker gave Bernanke a disgusted look. 'They already are bankrupt, you fool,' he said.

Well, Rato is wishing all this mess was over with. So he hopes, just by saying this, it will be as he wishes. But his cure is the same stupid cure all these bankers want. They want liquidity even though the entire mess can be fixed by raising interest rates to a high enough level that savings reenters the system and we have savings once again. For savings are the bedrock of banking. Without this, banks are Titanics sailing merrily about a huge iceberg field.

UBS Set to Cut 5,500 Jobs After First-Quarter Loss

(Bloomberg) -- UBS AG, battered by $17.3 billion of first-quarter losses at its investment-banking unit, plans to cut 5,500 jobs, or about 7 percent of the workforce.

The reductions will include as many as 2,600 positions at the securities division, the company said in a statement today. The bank also said it plans to exit the municipal bond business and sell $15 billion in distressed assets to a newly created fund managed by BlackRock Inc. UBS had a net loss of 11.5 billion francs ($10.9 billion) in the first quarter.

UBS fell as much as 5.6 percent in Swiss trading, the most in seven weeks, after clients withdrew more assets than they added for the first time in almost eight years. Chief Executive Officer Marcel Rohner told analysts he expects ``tough business conditions,'' which already caused $38 billion of markdowns at the company, to continue.
*snip*
The job cuts are on top of 48,000 reductions announced by the world's biggest banks and securities firms in the past year, as writedowns and losses from the U.S. subprime crisis swelled to $319 billion.

I can remember just a few months ago. UBS said they were not in trouble. Nothing was wrong that a billion gallons of liquidity couldn't fix. One thing I must note here: 99.9% of the articles about the G7 banking collapse NEVER EVER mention the Bank of Japan, the carry trade and how this created the sea of red ink which is causing the Inflation Beast to roam the land, devouring wealth. Everyone thinks it is the US housing mess. This is a SYMPTOM not a cause. The Japanese carry trade vanished in a flash in mid-July last year. The banking crisis began in a flash 2 week later! These are connected. Why no one wants to see this connection is very simple:

EVERYONE WANTS THE JAPANESE CARRY TRADE LIQUIDITY TO CONTINUE AND GROW EVEN GREATER!

And the demons of the Outer Darkness are granting us this terrible wish. The goal of these monsters is to destroy us. But since they hold the keys to the Cave of Wealth which is also the Cave of Death, we go along with their schemes. This is a moral issue. We call this 'greed' which is one of the Seven Deadly Sins. Along with 'hubris' and 'temptations'.

Tropicana Makes Bankruptcy Filing As Casino Glitz Takes Economic Hits

Kentucky-based Tropicana -- with a small casino kingdom that includes the famed Tropicana Resort & Casino in Las Vegas and a host of small regional casinos -- missed an interest payment Friday on a $1.32 billion loan with lender Credit Suisse Group, said two people familiar with the matter. Missing the payment terminated a forbearance agreement the company had with bondholders, putting further pressure on the gambling company.
*snip*
Mr. Yung expanded his small presence in the gambling industry in 2006 by besting competitors in a bidding war for Aztar Corp., which owned the Tropicana Las Vegas casino and other properties. The resulting $1.94 billion deal dropped jaws in the industry because it set record prices for land -- as much as $30 million an acre -- on the Las Vegas Strip, which was in the midst of a development frenzy.

Just two years later, Mr. Yung was struggling to keep the company together. After taking over, Mr. Yung began making steep cutbacks at some of the properties, including the Tropicana casino in Atlantic City, N.J.

Mr. Yung III jumped into the red ink Japanese carry trade liquidity pool with both feet. Like all the other gamblers and fools around him, he thought he could bid up the value of various business assets to the heavens and then deal with the debts by firing people and cutting back in hidden places while the money rolled into his own bank vaults. But when everyone does this, there is no money that rolls back in. This is due to the very nasty part of the 'buy up' and 'buy out' process that dumps tremendous debts onto the backs of businesses: they have to fire people. When everyone is piling on debts AND firing people all over all industries as the top people seek instant wealth via piling on debts, we get a mess. Namely, the backbone of any economic system are the workers. If they are fired in bigger and bigger numbers, if their incomes decline and their debts rise, if they are pushed to the wall, if they have to spend all their money on food and fuel, the economic system goes into reverse.

During the last 7 years, whenever any company announced layoffs or firings, their stocks shot upwards. So they kept doing this! One executive even did it right before Xmas so he and the other officers could get bigger bonuses! He had no other reason! He, of course, had become a demon, himself. Well, when all our demon-loving executives do this simultaneously, this creates a depression. The depression is a time when the value of ASSETS fall. After that, the value of commodities fall. But if the idiots running things work hard enough, they can create inflation and give the appearance that all is well, prices are rising.

Only in 'stagflation,' inflation rages while the price of assets falls. And Volcker smiles bitterly when he thinks about how he was rewarded for stopping this destructive dynamic: higher interest rates.

Buffett Says Bond Insurers Don't Deserve AAA Rating

Billionaire Warren Buffett, whose Berkshire Hathaway Inc. has begun competing with MBIA Inc. and Ambac Financial Group Inc. to insure municipal bonds, said some rivals don't deserve their AAA credit ratings.

Credit-rating firms shouldn't be giving top grades to bond insurers that borrow money at 14 percent or whose stock has dropped 95 percent, Buffett said at a press conference today in Omaha, Nebraska, a day after Berkshire's annual meeting.

If there's been a similar case of a company retaining its AAA rating after the stock plunged from $96 to $4 in a year, Buffett said, ``I've yet to see it.''

Buffett makes money by betting against the wizards. He knows they will do the stupidest things. This is why he joins Volcker in pointing out the obvious. In this case, the Bond Insurers are naked in a blizzard and are really dead. Dead, he says! Not vital and alive. The Derivatives and Inflation Beasts ate the Bond Insurers and all we have are the bones. Note Buffett's understated irony. Of course, no business of any sort is AAA if they lose 95% of their value in six months! I am glad Bloomberg News is covering this story. The wizards want us to be unaware of this reality. In truth, the Derivatives Beast is actually a stinking corpse and the sooner we clean it up, the better. But this means the US has to stop wild spending, the world can't export goods to the US and our military has to collapse to 1/10th its present size.

Steve Waldman:

Liquidity is often said to be the great lubricant of financial markets. Let's go with that metaphor for a moment. Yeah, baby, liquidity. It's high performance motor oil that turns hard metal to smooth silk and keeps the engine of capitalism firing on all cylinders! Pop the hood and pour that stuff in. Rub it onto the gears and axles, so nothing ever squeals, pops, or (God forbid) grinds to a halt. Slather it all over the tires, so that no friction comes between our purring metal machine and the sweet American road.

Ummm, wait a minute... Putting lubricant on the tires might not be such a great idea after all. Friction is precisely what tires need to do their jobs. Throw a lot of oil on the tires and, well, something bad might happen.

Similarly, in financial markets, we want liquidity at some times and in some places. But there are times and places where we want, even need (gasp!) illiquidity!

An amusing story illustrating my own points here. A good read. But as usual, no mention of the Japanese Carry Trade. This doesn't surprise me. Only the rulers of the G7, China and I seem to understand what is going on. The status quo is dead. But everyone wants it. Now let's go off to read the latest minutes from the committee to advise our inane President who thinks all is doing just fine, how messed up things really are:

The Federal government's budget balance is deteriorating in fiscal year 2008. Weaker economic activity has dampened the pace of revenue collection and lifted growth in economically sensitive spending. A recent survey of primary dealers estimates that the deficit for the 2008 fiscal year ending in September will exceed $400 billion with some economists expecting a deficit of more than $500 billion--a significant deterioration from fiscal 2007's deficit of $163 billion. Economic stimulus measures will complement the forces widening the budget deficit. This year's shortfall may surpass fiscal year 2004 as the largest on record in nominal dollars.

In its first charge to the Committee, the Treasury solicited our advice and recommendations for Treasury issuance over the near and intermediate term given the aforementioned deterioration in the fiscal budget outlook.

As a near-term solution, there was universal agreement on the Committee that the Treasury should introduce a 52-week bill to its auction schedule. A "year bill" would reduce the Treasury's reliance on large cash management bills and provide sufficient financing to absorb the increased borrowing needs that have grown so quickly over the last year.

There was also universal agreement on the Committee that the Treasury needs to prepare for additional financing needs over a more intermediate term. In fact, several members argued that the current deterioration in the fiscal outlook might be more than temporary and that the risk of further deterioration outweighs the risk of a surprise improvement in the deficit.

Furthermore, additional members again reiterated their concern that this latest "cyclical" deterioration in the fiscal outlook is particularly troublesome as the longer-term "secular" forces of entitlement spending and the aging of the baby boom generation and their effect on the budget deficit are no longer that distant in the future.

Over and over again, the fact that the US will now have a budget deficit of over half a trillion dollars means we have to find someone to lend us this money. As my story yesterday showed, increasingly this 'somebody' is in Asia or pumps oil and sells it to the G7 nations! And one of these somebodies, the biggest somebody of them all is Japan and its carry trade. Japan buys and holds the most US government debts. This is why it is very important to increase Japanese imports to the US and to increase Japanese influence in buying out our remaining industries. The Japanese will NOT buy our debts unless we do this in return. This is destroying America.

So, we are overspending like crazy on our military that eats up a trillion dollars a year while at the same time, turning over our nation to foreign powers to pay for our military. Do our politicians and their advisors address this issue? Well, if we click on the above link, we learn that the subject of cutting our military obligations to protect our trade rivals who are killing us in the markets, the answer is, 'No.'

From the Fed:

In the second charge, the Committee was asked to address the prevailing low interest rate environment's potential impact on an increase in systemic fails in the Treasury market. The consequences of such fails would be an impairment of liquidity and an increased cost to Treasury borrowing. Consequently, the Treasury has encouraged market participants to discuss and pursue market-oriented solutions to ease this potential burden.

The discussion was accompanied by a chart that depicted tangible spikes in fail activity during the low rate periods of 2001, 2003 into 2004, and the recent fail rate increases over the past few months, as rates have once again declined precipitously.

The presentation suggested that a number of private sector participants, including the Securities Industry and Financial Markets Association Group (SIFMA) and the Treasury Market Practices Group (TMPG), were encouraging some actionable steps towards dealing with this issue. A few of the Borrowing Committee members actually sit on one or more of these industry groups and suggested that their work was yielding some positive results.

What they are saying is, the G7 partners we protect didn't want to buy our debts when interest rates are set at 1% or so. HAHAHA. Even the Chinese got ticked off a that. The solution is to raise interest rates. Volcker smiles wickedly when this is suggested but he wasn't invited to this meeting any more than I. So this solution wasn't mentioned. 'We need more LIQUIDITY!' was the chorus! And so they muck around, trying to find some way of producing this liquidity. And I will suggest, they found a way.

Conspiring with Japan, they have conspired to weaken the yen. The yen is dropping against all currencies even as inflation rages in Japan. Just like we pretend there is no inflation here as it destroys the US workers, it is the same in Japan. This 'cure' is death for the working classes but it allows the US government to continue over-spending.

The Fed:

Committee members were in agreement that the problems in the housing market were significant, and many were concerned that without intervention the problems would grow worse. In fact, housing price data from S&P/Case-Shiller was released hours before our meeting and highlighted that the decline in housing prices is not over but that prices are actually accelerating to the downside. For example, while year-over-year prices were reported to be down almost 13%, prices on a 6-month, 3-month and 1-month basis have declined 21%, 25% and 28% annualized, respectively.

This is a sign that we are in a depression. The inflation is thanks to Japan. But like all evil wishes, this is making the destruction worse. Again, the only cure for it is higher interest rates. The value of housing will drop, of course. But that can't be helped. We have to do this. We don't like this, no one likes this. But alas, if we want this banking collapse to end, we have to take the hard road. There is no easy road anymore.

This is why listening to reasonable warnings is so important. Way back when Greenspan dropped interest rates to 1% while the US merrily charged off into wars, lost a huge hunk of Wall Street in the Dot Com collapse and the collapse of the two World Trade Center buildings [hint: not even Bush was so stupid as to want both towers to be destroyed! ] we went on a buying spree. Bush even said, 'Go shopping!' as the cure for 9/11 and the wars that came out of that mess. We wanted our cakes and wanted to blow them up, too.

The flood of war spending that was on top of tax cuts rather than hikes flooded the US with unpayable future debts. Smart people noted this and I warned everyone, 'ALL wars cause inflation and the end of all wars cause depressions. Governments must sell bonds to CITIZENS [not enemies and rivals] to pay for a war or the nation goes bankrupt at the end of the wars!'

Well, Britain, instead of taxing their own people for WWI, went to the US for money. This destroyed the British Empire even as it expanded after WWI. The fact that the British couldn't stop ANY of the attacks from rival empires a few short years later is proof of the bankruptcy. So it is with the US: the people at this meeting cannot and will not understand how THEY are the ones who created this mess by tax cuts, war spending and wild speculative bubbles. There is NO CURE for a speculative bubble that included 'keeping all the wealth created by the bubble.' None. Once the bubble pops, all that fake wealth, all that Funny Money™ vanishes. Forever.

Also, if the value of housing is accelerating in its decline, this means the banking crisis is not over at all. Despite Rato's lies.

The Fed:

On balance, the outlook for the economy will remain uncertain until credit conditions improve and financial intermediation begins to function more smoothly.

This sentence is a clue as to why we won't see light at the end of this economic tunnel: the problem isn't a lack of credit. It is a lack of savings. Credit is easy to make! All one has to do is drop interest rates to 0% and have no principal paid back! Then everyone can secure loans! The problem with this is obvious: it creates infinite inflation. And this is why these dumb geniuses scratch their heads and mutter and groan. They wish for this! But dare not try doing it. Even the Bank of Japan has hesitated about dropping rates back down to 0%. As it is, in relation to inflation, the US and Japan both have rates well below the rate of real inflation. This is why inflation is taking off.

Dollar Rises Most Against Euro Since March on Fed, Jobs Report

The dollar rose the most against the euro since March and reached a two-month high versus the yen as traders bet the Federal Reserve will stop cutting interest rates and the U.S. lost fewer jobs in April than economists forecast.

The currency appreciated versus the Swiss franc, the Swedish krona and the South Korean won this week after the Fed cut the target lending rate by a quarter-percentage point on April 30 and said ``substantial'' easing since September would help foster economic growth. The euro weakened as confidence among European executives and consumers fell in April.

``The tide is beginning to turn for the dollar on two fronts,'' said Jim McCormick, head of global currency strategy at Lehman Brothers Holdings Inc. in an interview on Bloomberg Radio. ``One is that the Fed is becoming less dollar-unfriendly. The other is a clear signal that economies outside the U.S. are starting to slow.''

And the dollar is getting stronger? HAHAHA. The G7 made it very clear, they will make the dollar stronger. Japan just finished a meeting with China and Korea dealing with currency issues. They are all working now in unison to make the dollar stronger...SO THEY CAN ALL EXPORT GOODS TO THE US. This is the ONLY reason the dollar is getting stronger. Anyone in the FX markets who is reading this news service of mine should be warned, this dollar strengthening is going to continue until the staggering export markets get 'stronger' again. Right now, the US enjoyed a slight bump upwards in trade but this will be crushed. Totally. So time to resume the betting that the dollar will strengthen even in the teeth of obvious red ink problems in the US. Our 'alllies' are anxious to keep the US debt growing and growing. They will grow it to infinity just as our rules plan to grow it to infinity.

Then, they will tell the US elderly to go die. It is their fault Social Security, the ONLY US government system that is solvent, is the cause of our collapse. In this week's Fed meeting, not one soul brought up the issue of grotesque military spending. That will be preserved. Why?

Because our trade partners are the beneficiaries of our military spending! We are protecting them! On our dime. Isn't this lovely?

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