January 12, 2008
Elaine Meinel Supkis
Today, we visit the BIS: The Bank for International Settlements. Founded in the Great Depression in order to take care of Germany's reparations and debts, Hitler whacked them in the forehead by refusing to pay a pfenning. So instead of disbanding, they have thrived by protecting the gold standard for money only that was whacked first by Britain than the US. So they just thrive as the conspiratorial coven for wizards mucking around with interest rates and reserve ratios. Which they screwed up badly, of course. Are we surprised?
What drives the growth in FX activity?
Interpreting the 2007 triennial survey1
The most recent BIS triennial survey shows that turnover in foreign exchange markets increased by more than 70% over the three years to April 2007. Two specific findings stand out. First, the growth in transactions between banks and other financial institutions was particularly strong, consistent with the increasing importance of hedge funds, as well as portfolio diversification by institutional investors with a longer-term horizon, such as pension funds. Second, there has been a marked increase in turnover involving emerging market currencies.
I try to read the annual reports of the various banking entities and systems. The Bank for International Settlements is one cog in the machine that has broken down this year. It is mainly an European entity centered in Basel, Switzerland. Today, I want to examine the history of this bank and look at old reports and newspaper stories. This bank as a few Canadians and Americans, especially the head of the Federal Reserve, for example. It has one Japanese representative who, I guess, goes for amusement purposes before trotting back home to laugh and then undermine the others. Snicker. There were no Chinese on the board until last year when the Dragon was finally initiated into the inner chambers.
The BIS is very important because this is where the rules of international banking get hacked out behind doors that are very solid and very exclusive. The Basel II banking rules which require banks to show us their books was produced here. By the way, the banks are now in a crisis due to this. There are a lot of things they don't want to 'put on the books', namely, defaults. On top of this, the brutal game of 'gotcha' being played in world currency markets where export nations selling finished goods target the currencies of their primary import targets, is misunderstood by the Western bankers who cling to the past. This past is the American hegemony. Low reserves for banks and central banks fueling a vast consumer economy.
Which the Asians exploit to an amazing degree! The West, in trying desperately to create increasing consumption even as the industrial output falls, plays right into the Asian game of increasing production while decreasing the value of their currencies. On top of all this, Asians are building factories in their target nations so the drop in industrialization is masked heavily. Production of cars in the US continue even as Japan imports millions of cars due to Japan putting down select factories all over the South where there are no unions. The dire situation of native industries is hidden from statistical examination and allows the Western bankers and politicians cover as they profess, all is well.
But the flow of PROFITS is to the East. And the present banking collapse we are seeing has its roots in this dynamic. So today, I will do my favorite thing: closely examine not only the BIS organization but also this year's report about derivatives and currency trading put out by the BIS this week. Deep inside the statistics and charts lies some clues to the present banking collapse in the West. First, let's look at the official history of the BIS:
The Bank for International Settlements (BIS)
The Bank for International Settlements was established in 1930. It is the world's oldest international financial institution and remains the principal centre for international central bank cooperation.The BIS was established in the context of the Young Plan (1930), which dealt with the issue of the reparation payments imposed on Germany by the Treaty of Versailles following the First World War. The new bank was to take over the functions previously performed by the Agent General for Reparations in Berlin: collection, administration and distribution of the annuities payable as reparations. The Bank's name is derived from this original role. The BIS was also created to act as a trustee for the Dawes and Young Loans (international loans issued to finance reparations) and to promote central bank cooperation in general.
The reparations issue quickly faded, focusing the Bank's activities entirely on cooperation among central banks and, increasingly, other agencies in pursuit of monetary and financial stability.
HAHAHA. The reparations issue didn't fade, it was slaughtered by the Nazis. Germany simply said they would not pay it, period. End of story! And then launched WWII in retaliation for the reparations and in a looting expedition seeking slaves, gold and Lebensraum. In other words, the BIS became nonfunctional about...um...nearly instantly. In 1924, the US loaned huge sums to Germany for paying reparations so this was the earliest sub-prime loan? Indeed, it was a round about way to float Britain and France's empires which were still growing, for crying out loud. And when this floundered so badly that in June, 1929, the Young Plan in the US was used to reduce the mortgage [heh] Germany was paying, instantly, the rest of the world's liquidity suddenly dried up, doesn't this sound sort of familiar? A country promises to pay a large interest rate on a huge pile of IOUs and then can't so world liquidity crashes?
In this case, Wall Street fell flat about the same number of weeks later as we are seeing this time around. In 1932, the Lausanne Agreement finalized what Germany did, unilaterally. Reparations vanished and with them, a huge pile of IOUs went up in smoke. Money's magical quality comes from reaching into the future. We have expectations of money coming in and when this ceases, the future becomes the present and this causes a panic and crash. Generally speaking, when the money to pay the interest on a loan ceases, the loan seldom is revived. This is because the conditions causing the cessation make this impossible.
Despite the BIS having no reason to exist nearly immediately after founding, it simply ignored this fact and the bankers who created it simply kept on going. It was a great cover for conspiracy. And it attracted conspirators. To this day, we are not allowed to see the innermost workings of this organization. The meetings are put on CSPAN. It issues reports that are ignored. But not by the bankers and all those tax haven British Islands!
In the monetary policy field, cooperation at the BIS in the immediate aftermath of the Second World War and until the early 1970s focused on implementing and defending the Bretton Woods system. In the 1970s and 1980s, the focus was on managing cross-border capital flows following the oil crises and the international debt crisis. The 1970s crisis also brought the issue of regulatory supervision of internationally active banks to the fore, resulting in the 1988 Basel Capital Accord and its "Basel II " revision of 2001-06. More recently, the issue of financial stability in the wake of economic integration and globalisation, as highlighted by the 1997 Asian crisis, has received a lot of attention.
Did they manage the Asian Currency Crisis or did they cause it? An interesting question. Perhaps we will figure this out over time. The fact that Japan was deep in a financial crisis when this happened and the fact that Japan found a solution to this crisis in the same time frame and the fact that, and no other Asian bank participated in the BIS structure or had any votes, is very significant. Using it after WWII to prop up the British and French empires..yet again...created Bretton Woods whereby England and France were allowed to close their borders to currency traders, was of course, done in order to force lands conquered by England and France to do business in their currencies while the dollar flourished elsewhere. This was a rather crude tool. It also shows us that any pious talk about open markets is BS from the BIS. They are imperial conspirators, not disinterested guardians of global economic rights.
Let's go back in time to when they had to keep on going in the teeth of no reason to continue:
B. I. S. Election
Monday, May. 15, 1933
With world finances teetering topsy-turvy, directors of the Bank for International Settlements met in Basle last week, elected a new president, and by their election broke their own charter. In 1930 when the B. I. S. was set up to facilitate German Reparations payments (TIME, March 25, 1929, et seq.) it was decided that its secondary purpose was to uphold and spread the gold standard throughout the world. In its charter it was expressly provided that no central bank of a country not on the gold standard should be admitted to membership.
HAHAHA. The great empires thought it could be an exclusive club via that rule! When England dropped the gold standard because France and Brazil were exploiting the declining pound in the same way everyone raided Fort Knox before the US stopped the gold flow in the 1960's, England's dropping of the gold standard was a sign of weakness. Up until then, they thought they were still Masters of the Seven Seas. At this point, the BIS should have thrown in the towel.
A note to gold buyers: these people are very dangerous. Note how they rewrite their own rules instantly. Also, note how gold was not so long ago, the basis of banking. Due to the banking crisis, gold is again, valuable. It is pretty obvious that a sudden rise in the value of gold is a sign of a banking collapse.
Starting with six banks, the B. I. S. now represents 26, and of them only France is still on free gold. Last week's meeting was to elect a successor to heavy-set President Gates W. McGarrah of Manhattan, re- tiring. Normally there would have been no question of the election of his alternate and chief adviser, Boston-born Lawyer Leon Fraser, Reparations expert at the birth of the Young Plan in 1929. In February B. I. S. directors so moved and appointed him (TIME. Feb. 27). But what about the sidestep of the U. S. from the gold standard? Last week's meeting silenced the quibblers and ratified Mr. Fraser's election. This was no insult to gold-standard France, simply a compliment to able Banker-Lawyer Fraser.
The banker/lawyer sidestepped the fact that the US had begun to shut down its banking system. How clever. I will note that the wreckage arose because the US allowed England to cling to its power when it was bankrupt. England then wanted Germany to subsidize this while having virtually no industry. And the US could have prevented this, we did this after WWII. Indeed, after WWII, both England and France STILL wanted to hang onto their empires which is why we had the Bretton Woods conspiracy. This forced outraged colonies to turn to Russia for hope and help. Thus, the Cold War and the communist triumph in China.
I do like this old article. Time Magazine actually gave a good take on the unfolding mess and in 1933, it was a mess. Now to look forwards to 1983. The BIS was rolling along just great after the Bretton Woods II Accords.
Ruling the World of Money
Edward Jay Epstein -1983 Harpers Magazine
The membership of this club is restricted to a handful of powerful men who determine daily the interest rate, the availability of credit, and the money supply of the banks in their own countries. They include the governors of the U.S. Federal Reserve, the Bank of England, the Bank of Japan, the Swiss National Bank, and the German Bundesbank. The club controls a bank with a $40 billion kitty in cash, government securities, and gold that constitutes about one tenth of the world's available foreign exchange. The profits earned just from renting out its hoard of gold (second only to that of Fort Knox in value) are more than sufficient to pay for the expenses of the entire organization. And the unabashed purpose of its elite monthly meetings is to coordinate and, if possible, to control all monetary activities in the industrialized world. The place where this club meets in Basel is a unique financial institution called the Bank for International Settlements - or more simply, and appropriately, the BIS (pronounced "biz" in German).
The powerful men running today's BIS spent last summer trying to convince us, gold was worthless and stupid. Ahem. Reminds me of con men trying to steal antiques from little old ladies.
Even though an isolationist Congress officially refused to allow the U.S. Federal Reserve to participate in the BIS, or to accept shares in it (which were instead held in trust by the First National City Bank), the chairman of the Fed quietly slipped over to Basel for important meetings. World monetary policy was evidently too important to leave to national politicians. During World War II, when the nations, if not their central banks, were belligerents, the BIS continued operating in Basel, though the monthly meetings were temporarily suspended. In 1944, following Czech accusations that the BIS was laundering gold that the Nazis had stolen from occupied Europe, the American government backed a resolution at the Bretton Woods Conference calling for the liquidation of the BIS. The naive idea was that the settlement and monetary-clearing functions it provided could be taken over by the new International Monetary Fund. What could not be replaced, however, was what existed behind the mask of an international clearing house: a supranational organization for setting and implementing global monetary strategy, which could not be accomplished by a democratic, United Nations-like international agency. The central bankers, not about to let their club be taken from them, quietly snuffed out the American resolution.
The IMF is the club for clubbing baby seals in Africa and South America. The BIS is for protecting the central banks of the G7 nations. So we have a dual banking system designed, in one case, to control and punish as well as exploit former colonies who rose up and violently tossed the old empires out on their ears, to bring them to heel. The BIS protects these older empires from their own follies. It does this silently and stealthily only it had Japan on board since the 1980's and China, today. This screws up everything since both are interested in penetrating and then controlling these same former and present empires! HAHAHA. History laughs to death sometimes. I feel sorry for her.
For example, a few years ago, when the Organization for Economic Cooperation and Development in Paris appointed a low-level committee to study the adequacy of bank reserves, the central bankers regarded it as poaching on their monetary turf and turned to the BIS board for assistance. The board then arranged for a high-level committee, under the head of Banking Supervision at the Bank of England, to preempt the issue. The OECD got the message and abandoned its effort.
HAHAHA. This is too funny. Ahem. Sorry. I should put a pillow near my chair for when I fall out of it.
OK: those BASTARDS. Um, one of my main themes is the lack of reserves in the West. Our banks hold 8% in reserves which is far less than China holds! And we lecture China about money. This 8% is very fluid. It only has to be 8% on occasion. And much of this can be imaginary. This is where the Basel II business comes in along with pricing stuff to sale. One can make up value by having an organization state that various SIVs are worth 85% more than they are worth if someone actually tried to peddle these worthless funds on the street. The banks want their mortgages held at 'full value' and not what the housing is actually worth, too. Repricing stuff realistically is the thing that is killing them in this downturn.
The BIS lectured Asia about the need for reserves. Asia holds by far, the vast majority of banking reserves on earth and note how, in the 1980's, the BIS tried to prevent reserves from being forced upwards in the West even as a wild lending boom was driving us all into a banking crisis in the US! Volker killed inflation and Reagan and Greenspan were pumping inflation in housing and banking as much as possible.
Investor's Business Daily, May 1, 1992 summed up the character of the BIS in an article entitled:
Why a Global Credit Crunch? Some say Little-known BIS Is Partly to Blame - Despite its global anonymity, the BIS is one of the most powerful financial institutions in the world ...Even before Japan's equity markets began to contract, regulations put into effect in 1988 by the Bank of International Settlement's Committee on Banking regulation and Supervisory Practices had begun to exact a particularly heavy toll on Japanese lenders. Those regulations require the world's bankers to raise their underlying asset bases, the money against which they lend, to 8% to total capital, more than double the asset average of the 1980's.- J Epstein
In other words, the reserves were set at an astonishing 4% during the Reagan years! I did some charts about this the other day. Note the Bretton Woods II period when banks held very little, I dare say, negative reserves? This puzzle looks like it may be solved. The plunge at the end of this chart...is it due to a collapse in value of paper holdings of banks? And is this a sign that reserves are gone? We are in the middle of an extremely dangerous banking crisis that looks worse as time passes.
Unraveling the Basel Capital Accord
By Smithy
International treaties like GATT, administered by the WTO, and under which new financial services agreements have been added, are accelerating the pace of cross-border acquisitions by large Western institutions. Another contributor to this activity was the Asian financial crises, in the aftermath of which various countries and investors were forced to sell off their bankrupt financial institutions at fire-sale prices to the Western institutions who benefited from the IMF bailouts.Domestically, within the borders of the G-10 countries, mergers and acquisitions between financial institutions have also been accelerating. This is creating huge "financial empires" that are increasingly too-big-to-fail and, as noted earlier, will also be able to set their own internally determined capital requirements. The incentives for abuse of minimal capital requirements created by the "too-big-to-fail" moral hazard are tremendous. This may also give the larger players extra competitive advantages via lower capital charges and thereby facilitate more acquisitions.
Furthermore these financial empires seem to be acquiring greater powers over their own supervisors, meaning that supervisors may not be able to control them anyway, even if they wanted to. Further compounding the problem is that these same regulators are allowing mergers and acquisitions to proceed unheeded.
The regulators and controllers float around through these systems. They can run a democracy [sic] and then head off to run these hyper-national organizations. Warlords in the US are installed in the World Bank and the IMF as well as the BIS. Once someone becomes part of this hyper-conspiracy, they have the golden key to the back door that lets them into increasingly secretive organizations set up to keep the rulers outside of the rules. If the rules are too annoying, out they go! Bam.
Here is the 2007 BIS report that interested me today:
The 2007 BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity shows that turnover in traditional foreign exchange markets increased significantly to $3.2 trillion in April 2007 (Table 1).2 The growth since April 2004, the previous survey date, was an unprecedented 71% at current exchange rates and 65% at constant exchange rates.3 Although this growth was broadly based across traditional foreign exchange instruments, the pickup in the growth of foreign exchange swaps was particularly strong, increasing to 82% from 44% over the previous three years. Turnover in foreign exchange derivatives, such as currency swaps and foreign exchange options, increased even more rapidly, albeit from a very small base.
And why is this? The growth of exchange rate monetary flows is staggering. Is this due to the world getting richer or is it due to someone pouring an ocean of red ink into the system, red ink that needs to be sopped up somehow. From 1923-1929, Germany sopped up much of the red ink which was caused by a flood of real read blood of millions of soldiers in WWI. Just months before the reparations were dropped in 1933, England, France and the US gave Germany a huge non-reparation loan. Which Germany didn't repay, of course.
In today's case, the Germany is California. And Florida. The US can't pay its bills. Today, in the news, there is talk about having our government extend loans to these clones of pre-WWII Germany. Only the US is deep in debt, too. This is why we are in a banking crisis, of course. That isn't a small matter of jiggering some numbers. The data in this report to the BIS simply shows the dynamics of the dying system. It is seeing explosive growth due to the US bleeding to death, not due to us being a healthy economy. Just like Germany's many loans disguised the underlying mess leading to mass bankruptcy across the entire planet.
Financial customers were the main drivers of the strong rise in global turnover. Growth in this segment has accounted for half of the increase in total turnover over the past three years, compared with 29% for interbank trading and 21% for the non-financial customer segment. This growth can be explained by
several factors, many of which were noted in previous surveys and, as such, can be regarded as a continuation of earlier trends (Galati and Melvin (2004)). First, foreign exchange markets have offered leveraged investors with relatively short investment horizons attractive returns. Second, investors with a longer- term investment horizon have been actively diversifying their portfolios, which has created direct and indirect demand for foreign exchange. Finally, an increase in high-frequency algorithmic trading by some investors, mostly investment banks, has also increased turnover, particularly in the spot market.
Indeed, strategies such as the carry trade, which use leverage to exploit rate differentials and exchange rate trends in an environment of low financial market volatility, have been profitable over the past three years (Galati et al (2007), Graph 1). The triennial survey statistics show that several currencies identified as carry trade targets, such as the Australian and New Zealand dollars, experienced particularly strong growth in turnover between April 2004 and April 2007 (Table 3).5 More broadly, there is a positive correlation between growth in turnover and the level of domestic interest rates across instruments (Graph 2). The contribution of these investment strategies to overall turnover has been amplified by the increase in the funds managed by leveraged investors. Although it is difficult to obtain precise numbers, it is clear that hedge fund activity, measured by either estimates of assets under management or the number of funds, has increased significantly over the past six years (Graph 3, left-hand and centre panels). The growth in hedge fund activity has been concentrated in the United States and London.
This article has many charts. I feel it is important to pore over these rather than glance at some graph. Seeing the actual numbers puts things into perspective.
I made the charts simpler in several cases as well as colorizing them so they can be read easily. The green lines are systems going upwards and the red ones, going downwards. Click on graphs to enlarge.
Look at these graphs! Cross-border and institution to institution has climbed rapidly. The total has nearly tripled since 9/11. That day is very important. Bin Laden wanted to target the US banking system and Wall Street that day and succeeded. The repairs to the system used to 'rescue' it were all the worst sort. Basically, the West went on a mad spending spree thanks to the easy money that poured into the system to revive it after the attacks. We are now entering an even more dangerous zone whereby the US pours in even more money to stop the contraction that is connected with the triple trade, government and savings deficits.
Because the Federal Reserve refuses to hold more than a token sum of the currencies of any of the nations running trade surpluses with our nation, 90% of world currency markets were in dollars back at 9/11. Note how the share of yen being traded has dropped by 6.2% during the same years Japan has moved its FOREX reserves from less than $400 billion to nearly a trillion dollars! The euro, which has been rising rapidly against the yen, has dropped, too, but only .7%. The dollar has dropped by 4.1%. This is due to everyone pouring into the 'emerging markets' currencies. One of which is the yuan.
I believe the US, if it were strong, would have to buy and hold other currencies, not sit passively by while others do this to the dollar. But we thing backwards as I showed in the first story here. We think we are strong when we are weak and we keep in place a system that is undermining us even as we imagine this is strengthening us. But this chart shows that the system's flows which we depend on, are shifting significantly.
The top three players in this game is the US, Europe and Japan. England bringing up the rear and then all others come far lower in volume. If we add both Europe and Japan, they come to 263,732 which is 179,346 less than the US. But the OPTIONS are nearly the same with the US and Japan while Europe has less than half of what Japan has. This heavy US derivatives is rather annoying for me. Derivatives have mushroomed going into this huge banking collapse and I fear are very much a part of why we are in a collapse. It is one of the Dark Matter objects in this financial universe which troubles many people. Anyone who noticed the near collapse of that hedge fund in Greenwich, Conn, in 1998 knows that within these derivatives lurks over $48 trillion in money that can vanish faster than I can clap my hands.
This notational amounts outstanding is interesting. The outright forwards in currencies for the US is...OVER 21 TRILLION!!!!! Wow. Ouch. This is over 5X bigger than Japan. And 2 1/2 times bigger than all of Europe. Note how the options in $US is only double Europe and Japan and both of them are about the same.
Note the rising types of trade. Cross boarder went from slightly more than half a trillion to nearly $2 trillion in less than six years. With dealers has grown but lost market shares while finance to finance [hedge funds] doubled its shares. The charts below show this clearly.
Hedge fund mania! This chart doesn't show the rapid loss of value or the beginnings of the collapse of these funds which we see in the news every day now. The 'assets under management' chart stops right before this banking collapse. I bet it has a definite downturn today. And note the Japanese trust funds: as the domestic part has drastically shrunken since 9/11, the foreign parts had ballooned. We know that Japan is shifting its funds, massively. It amazes me that the BIS can look at these graphs and not yell at Japan at their monthly secret meetings.
To understand this, we go back in time to 2003 and visit another organization, the Federal Reserve!
2003-11; April 25, 2003
Foreign Exchange Reserves in East Asia: Why the High Demand?
Since the 1997-1998 Asian financial crises, monetary authorities in emerging markets in East Asia have more than doubled their stockpiles of foreign exchange reserves; by the end of May 2002, they held $845 billion, or 38% of the world total. Of these countries, China, Taiwan, Hong Kong, South Korea, and Singapore rank just behind Japan as the world's biggest holders of foreign exchange reserves--together those five countries hold reserves totaling nearly $700 billion.
I like going backwards to see what is going on. This Federal Reserve report on FOREX reserves in Asia gets absolutely everything backwards. In 2003, perhaps the poor professors and financial advisors sitting in their well-padded, protected chairs with protected incomes, could be forgiven for being too naive to understand what is going on but they are still believing this today, as I have noted in the past. This year, this very last 12 months, they have been screeching at Asia, holding huge reserves is stupid. But Asia, far from stopping, has INCREASED their reserves and on top of this, they have launched a flotilla of attack Sovereign Wealth Funds. To fend off these, first, the Western bankers hollered, these SWF ships were ships of fools. Only idiots wanted Sovereign Wealth. And it didn't exist, anyway, so there.
Let's look at some more crazy talk with this Fed report:
There is a growing debate about the need to hold so many reserves. Some critics point out that holding a lot of reserves is costly. Reserves held in U.S. Treasuries, for example, earn a modest return, far below these countries' own cost of borrowing either in local currency or in dollars. Why hold cash in the bank and pay high interest on outstanding liabilities? Critics also note that the yield on reserves is much lower than the potential return they could earn by using those reserves to make real investments in the economy, such as building roads, bridges, and schools.Those who support holding large reserve balances argue that the cost of doing so is small compared to the economic consequences of a sharp depreciation in the value of the currency that is often associated with financial crises in emerging markets. A devaluation of the currency raises a country's costs of paying back debt denominated in foreign currency as well as its costs of imported goods, and it also raises the spectre of inflation. With a large stockpile of foreign exchange reserves, a country's monetary authority can buy up its currency in the foreign capital markets, which helps to uphold its value.
By having its own ammunition to defend its currency in a crisis, a country with large holdings of reserves also avoids being shut out of international capital markets due to concerns that the government or the private sector will default on foreign debt payments. Therefore, these proponents argue, holding large reserve stockpiles is prudent policy for those occasions when defending the value of the currency makes sense.
Accustomed to having our own way in currency battles via the neat trick of dragging everyone to a meeting and then suddenly cutting the value of the dollar in half vis a vis trade partners, the US can't comprehend the need to do this sneakily. Japan and China can't demand the yen and yuan be made weaker. Indeed, they can't let anyone strengthen their currencies! So they use their FOREX reserves in the reverse: to weaken, not strengthen. After all, if it is protection, it means it can work both ways depending on the desires of the country in question. On top of this, Japan has weakened the yen to an amazing degree through the simple method of dropping interest rates to near zero.
The US has only one method of dealing with this: we must buy yen and yuan and the currencies of all nations hoarding dollars and then, hold this, too. This changes the flow of money drastically, of course. The present status quo will collapse. And of course, liquidity will dry up but the holding of these vast reserves has already done this to some degree in the first place. Japan has made up for these holdings, I would dare suggest, by generating a sea of liquidity via the convenience of the 'carry trade'. Since all things like to balance, this growth of FOREX holdings is mirrored in the growth of the carry trade which off-sets the loss of liquidity from these gigantic FOREX reserves.
Stop obsessing about the Fed, Mishkin pleads
It's the journey, not the stopping-off points along the way, that merit attention, said Fed Gov. Frederic Mishkin in a speech in New York."What is important for pricing most financial assets is the path of monetary policy, not the particular action taken at a single meeting," Mishkin said, adding that he hopes the Fed's more transparent communication policy can shift attention away from the medium term.
Mishkin specifically urged markets not to take anything in his speech Friday as an indication of what monetary policy he would favor at the next meeting.
*snip*
But when financial markets are as disrupted as they are now, the economy doesn't behave in a predictable manner.In Mishkin's phrase, the behavior of the economy is "nonlinear." That means "monetary policy needs to be timely, decisive and flexible," he said.
In times of great uncertainty, the Fed must focus its attention away from what's the most likely outcome to one of preventing the most damaging outcomes, he said. Mishkin and other Fed officials have referred to this shift in emphasis as taking out insurance.
As Tolkien's Bilbo Baggins said, 'The road goes on and on...' And in this case, to a collapsed bridge. Is the Fed aiming at driving us to drink? Making us all laugh to death? One thing is absolutely clear today: the markets are TOTALLY predictable! I don't need to bother my Watchers for information of 'incoming projectiles'. A baby can predict what will happen next. We all know the dynamics of this market all too well which is why it is collapsing. Any system that reacts in the same way all the time will do exactly that. And if the Fed and the BIS and the IMF and the G7 nations work day and night to keep the status quo going, it will keep on going. And if it is going off a cliff, it will go off the cliff even more!
Just changing one dynamic, say, strengthening the yen and raising the interest rates there to reflect reality or the US imposing charges on trade pouring into our country or balancing the budget by reducing our military by 75%, these things change the status quo! These things will make things go differently. The fact that the Fed is pretending...they can't be doing this due to simple stupidity...they don't know how the market works...hell's bells! Arrest them or maybe better still, send them to China to learn the older banking rules!
Or cleaning pig sties. Now, the Fed will obfuscate, thinking that if they talk backwards and have their heads spin like in the 'Exorcist', throwing up green goo, this will fool everyone who will not guess what these bastards will do next. Hint: they will have the bed levitate. I saw the movie.
These Linda clones are easy to read. They will drop rates because they have to keep this status quo, the consumer US buying spree, going. Period. When we go bankrupt, I will yell, 'Arrest them all!'
"A note to gold buyers: these people are very dangerous. Note how they rewrite their own rules instantly."
I agree: He who owns the gold makes the rules.
But what can a poor man do to protect himself and his family?
Take Care Elaine.
Posted by: hakan with the reindeer | January 12, 2008 at 05:48 PM
Can someone please explain the appeal of Ron Paul. Although I like much of what he says, where does gold come from? And who owns the gold mines? And how would he accomplish his, "You're on your own, and, oh, by the way, there are no more income taxes."
Would he do away with the corporate income tax, as well? Certainly he'd be doing away with a lot of accountants and lawyers.
This is all great maybe, if all, and I mean ALL, the counters are set to '0' once his policies take effect.
But that ain't gonna happen.
What does he say about repatriating all that off-shored loot?
They'd assassinate him, if he ever got close - and the Congress might not play along - unless he is planning on extending the Unitary Executive a la BushBoy.
If the next President does that, it's a monarchy for sure.
Narry another George Washington in sight...
My vote for the Greatest Generation - the 1776 Generation - not the Robert McNamara/J. Edgar Hoover/Prescott Bush group ..
Posted by: D.F. Facti | January 12, 2008 at 06:05 PM
Nothing great about that generation, unless you were a White landowner. Declaring yourself independent while occupying someone else's land and using slaves to do the work, nothing great about that.
Posted by: Al | January 12, 2008 at 09:09 PM
Paul is a Texan, for crying out loud. They are simultaneously very smart and extremely foolish at the same time. I lived there, 80miles from El Paso, when a child.
I got in a fight in school back in 1955. My teacher said, 'Spell "allyfant."' I spelled 'ally cat.'
"No", she said, 'Allyfant: the big animal with the big nose.'
I said, 'Ant eater?'
She got real angry with me. I told her, I wanted to go to school with the black kids because they had more fun. She said something about the 'n' word and kicked me to the principal's office. My mother got me a tutor.
Schools were desegregated the following year.
Posted by: Elaine Supkis | January 12, 2008 at 10:06 PM
" ... the use of the planet's wealth can be fundamentally reorganized in response to entirely new conceptions of need. ... "
Posted by: Dean Hedges | January 12, 2008 at 10:25 PM
What Dr. Paul is proposing is to allow currencies backed by gold or other metals to circulate as LEGAL TENDER simultaneously with the politician's promises backed Federal Reserve Notes. If he were proposing a Gold Standard only, he would be proposing that all notes in circulation become gold backed. His proposal is MUCH more radical than simply trying to go back to a one metal or bimetallic currency basis. He is proposing currency competition.
He has proposed doing away with the IRS, that would mean doing away with all the FEDERAL level income taxes. This would put a few lawyers and accountants and H&R Block type operations in need of finding new sources of income.
So far he has said nothing about repatriating offshore loot. Of course if he is correct and people prefer currencies backed by real things instead of promises, those offshore loot piles will suffer a major drop in value.
The USA had a bimetallic standard up to 1913, during that period: real incomes increased and prices decreased. Without the drag of taxes and regulations, efficiency increased which is how you can have both price deflation and real income increase simultaneously. The only reason we have a Federal Reserve system is that it was impossible to finance large intercontinental wars without inflation and slavery ( conscription ),
Paul was a Pennsylvanian actually, born and raised on a farm outside of Pittsburgh and college in PA. Medical degree from Duke ( he has one published paper in biology from his time at Duke ). He was a practicing Ob/GYN in Texas since his separation from the USAF. His economics plan is basically Austrian school ( Von Mises, Hayeck, Rothbard, et.al.) You can find a HUGE library of the Austrian school thinkers at
http://www.mises.org/
The Austrian school stands in opposition to the Keynesian school. Keynes wrote in English, von Mises in Austrian. Had von Mises written in English we would all be Misesians now instead our economics is mostly quasi socialist Keynesian.
Posted by: CK | January 13, 2008 at 05:56 AM
I have US dollar GOLD CERTIFICATES from 1928. They ended in 1933.
Silver certificates went until 1967. I still have a number of certificate dollars I keep as museum pieces.
Posted by: Elaine Supkis | January 13, 2008 at 06:51 AM
Austria and Germany practiced heavy Keynsian economics in the 1930s. National socialism was not capitalism at all. The only Austrian school people are in Asia.
Germany, by the way, had the world's very first Social Security system. Started by Bismark. This rapidly turned them into the top power in Europe. But this also started some very big wars.
Posted by: Elaine Supkis | January 13, 2008 at 06:58 AM
You are correct, the bimettalic standard continued after the creation of the Fed. Gold was confiscated by the Rooseveldt administration, silver was removed as a payment for FRNS in the 60's.
Kenes wrote the General Theory of Employment Interest and Money in 1936. His economic theories were not widely practiced in Germany and Austria ( but then neither were the Austrian school theories )
Posted by: CK | January 13, 2008 at 07:30 AM
This crossed my morning reading
http://www.telegraph.co.uk/news/main.jhtml;jsessionid=GK0FARS1NQKNTQFIQMGSFGGAVCBQWIV0?xml=/news/2008/01/13/norgans113.xml
Organ harvesting without the deceased permission. One cannot sell ones organs to benefit both society and ones family, but the state may harvest them and give them away unless the deceased has officially opted-out. So sign me up for opting out.
Hmmmm Instead of metal backed or promises backed currency, maybe what this country needs is a currency explicity backed by livers and kidneys and spleens and corneas. When some future president responsding to some unusual happenstance encourages americans to go out and spend it would be just venting ones spleen. No problem with money supply either, every new born would be born with a huge asset base; that could not be used in specific but could be added to the general supply. Inflation would automatically equal the net rate of births - deaths. No need for a fort knox. I Has the solution, indeedey I does.
Posted by: CK | January 13, 2008 at 08:51 AM
The solution of the debt crisis,to declare the USA bankrupt and start again with new currency. Why not?
Posted by: aprilzi | January 13, 2008 at 09:27 AM
Because there are assets to be paid out to the claim holders. National parks, aircraft carriers, buildings, Bankrupt walks away from his assets and someone else takes them in payment for the debts.
Because no one will fund the restart, and there is no "empty continent" to pillage and plunder to do an internal restart.
Because the "full faith and credit" of a bankrupt is 0.
Posted by: CK | January 13, 2008 at 09:43 AM
I suspect the English will be harvested for body parts to pay for the huge national debts.
And the US will get to be slaves. Isn't this all very jolly?
Posted by: Elaine Supkis | January 13, 2008 at 11:06 AM
Oh, and note how we are going into the Morlocks/Eloi configuration here.
Written 100 years ago, the SF story The Time Machine goes into the future and in this future, the Morlocks are the descendants of the ruling elites. They eat the Eloi. Note that they can afford extra body parts so they may live longer. Their aim is to live forever, trust me on this. I know this from up close, like, conversations with my relations and others who are RC.
Posted by: Elaine Supkis | January 13, 2008 at 11:09 AM
Thanks so much, CK, Elaine and all.
I am a realist with idealist aspirations. The government is the employer of choice - for the massive defense industry, for goddamned near everything - and the safety net for crooked, insane banks - - - retooling the government(s) - the shock would likely do everyone in.
I do know one thing, though. I am finished with the Democratic Party. There is one blonde bimbo tool governing the state of Michigan - and everyone in the party is protecting her ass - and theirs - and we don't yet know why.
The sixth congressional district could be in play - it's been R since 1932 or '34 - - - and the D Party is fucking ignoring it.
It will all be in my book.
Posted by: D.F. Facti | January 13, 2008 at 12:04 PM
DF:
The government gives out money to about 50% of the US population in one form or another from paychecks to subsidies to school loans to food stamps to sba loans to mortgage guarantees to social security. The government is also one of the largest customers for the banks, the telecom companies ( govt phone bill is huge ) the defense industries, the think tanks etc. The government is also the largest supplier of free labour to the prison industry.
A cynic would tell you that there are two wings of the one ruling party not two antithetic parties. The one ruling party believes in war as the health of the state, and taxation and inflation as the tools. The wings differ only slightly in which groups of preferred victims will receive the most encouragement.
Posted by: CK | January 13, 2008 at 01:58 PM
The military/industrial state has morphed into a classic empire with a parasitic center and cynical perimeter. The perimeter in this case is the entire earth. We have uprisings in provinces and a mighty empire growing right where it was growing while the Roman Empire was dying: China.
And back then, eons ago, China's manufactured goods were causing Rome to lose gold and silver at a mad rate. In the end, money disappeared along with the entire government and most of the population.
Posted by: Elaine Supkis | January 13, 2008 at 02:06 PM
A fascinating discussion of post-World War I economics and the founding of our modern system ... for more on this, DO have a look at my wonderful new book ... "A Shattered Peace: Versailles 1919 and the Price We Pay Today" [ www.ashatteredpeace.com ] just out from Wiley and available at Amazon and most major bookstores !
Spread the word !!
cheers,
David
david@ashatteredpeace.com
Posted by: David A. Andelman | January 21, 2008 at 06:41 PM
David, I didn't know about this book. I will contact you.
Posted by: Elaine Supkis | January 21, 2008 at 08:23 PM
Hi Guys
For over 20 years, this Luxury Resort Membership has been sold exclusively to high net worth individuals via private sales presentations
Cheer"s
Private Luxury Membership | Private Membership Clubs | amazing Luxury Resort Membership | Best home based business opportunity
Posted by: mhannah25 | February 06, 2008 at 03:59 AM