3/23/2008
Elaine Meinel Supkis
Today, we must examine all the Holy Scriptures of the Great Depression. The ones that claim the US should have saved the European Great Powers who were going bankrupt trying to rule the planet, by letting them flood us with their value-added exports. Our defenses may have made all of us suffer worse but the alternative would have been the US being deindustrialized by 1960 and a third world colony by today. The suffering of the Great Depression saved us from this fate. But today, we are not being destroyed by global trade that is based on false relative monetary values. And the 'rescues' of the last six months have WEAKENED the US FATALLY! Instead of saving us, it has ruined us while increasing our trade woes that caused all this in the first place! This is a long article but I consider this one of my most important ones yet.
By PAUL KRUGMAN
Banks exist because they help reconcile the conflicting desires of savers and borrowers. Savers want freedom — access to their money on short notice. Borrowers want commitment: they don’t want to risk facing sudden demands for repayment.Normally, banks satisfy both desires: depositors have access to their funds whenever they want, yet most of the money placed in a bank’s care is used to make long-term loans. The reason this works is that withdrawals are usually more or less matched by new deposits, so that a bank only needs a modest cash reserve to make good on its promises.
But sometimes — often based on nothing more than a rumor — banks face runs, in which many people try to withdraw their money at the same time. And a bank that faces a run by depositors, lacking the cash to meet their demands, may go bust even if the rumor was false.
Worse yet, bank runs can be contagious. If depositors at one bank lose their money, depositors at other banks are likely to get nervous, too, setting off a chain reaction. And there can be wider economic effects: as the surviving banks try to raise cash by calling in loans, there can be a vicious circle in which bank runs cause a credit crunch, which leads to more business failures, which leads to more financial troubles at banks, and so on.
That, in brief, is what happened in 1930-1931, making the Great Depression the disaster it was. So Congress tried to make sure it would never happen again by creating a system of regulations and guarantees that provided a safety net for the financial system.
If this story about the Great Depression were even slightly true, why don't bank runs happen all the time? Banks fail nearly every year. Not hundreds but a dozen or so. Did they all perish because of 'runs'? If so, we would see the news. But there was no panic because there were no runs. Banks would simply quietly fold and vanish. Most people today 'hedge' by putting their money only in banks that are insured by the FDIC which was launched in the Great Depression. I remember the Savings and Loan scandals which nearly took down the Bush elder man who had one son involved in Silverado that went belly up. The people who saved there and trusted the son of the President lost everything. This is because the bank was NOT insured by the FDIC. Because this bank was much more risky, they offered as a lure for money, higher interest rates on CDs. People seeking greater profits ran off to risky banks like Silverado and lost everything.
Just as they did today doing nearly the exact same thing! The US taxpayer ended up saving that mess by spending a mere $200 billion. I thought that was a lot of money back then. Especially since the constrictions in the housing markets wiped out $100,000 in profits on my own ledgers. I swore to never vote for any Bushes due to this. I remember that Halloween. In the NYC Halloween Parade, I was dressed as a demon queen with a huge hoop skirt made of Wall Street Journals with 'Read My Hips' spray painted on it. Two friends who worked in the banking system went as a devil and a drunk banker and the devil was dragging the banker around with a chain. We had a lot of fun. People cheered us because people were both scared and angry as yet another recession bore down on us.
Well, we seemed to have learned nothing from the Savings and Loan fiasco. Instead of preventing this sort of thing, the lesson our leaders seemed to have learned was not to be careful with lending but to HIDE loans off the books as fast as possible. The present system of bundling these and then turning them into CDs instantly and then disowning them has replaced the older S&L system of holding mortgages and selling bank CDOs. The SIV method has now collapsed for the exact same reasons the S&L CDs went bad. Someone, somewhere, has to pay the penalty if loans are not honored! What we saw since the dead days of the Bush S&L collapse is a run for cover. Everyone thought they had found 100% safe hedges for loan repayment failures. They even boasted about this. The seemingly cheap loans being handed out were due to a collapse in RISK, they claimed.
But this was all false. As these same people who got rich off of the present S&L collapse clone are saving us again, we are seeing a re-imposition of super-cheap lending as if there is little to no risk! How bizarre is that?
Four Myths About Americas Great Depression
By Ronald Nash 1994:
Foundation for Economic Education
The Foundation for Economic Education (FEE) is a "non-political, non-profit, tax-exempt educational foundation and accepts no taxpayer money. FEE is supported solely by contributions from private individuals, foundations, and businesses and by the sales of its publications," its website states.[1]
FEE was the first modern think tank established in the United States specifically to promote, research and promulgate free market and libertarian ideas. It continues to do so through its monthly magazine, The Freeman, as well as through pamphlets, lectures, and academic sponsorship. It also publishes reprints of classic libertarian texts, and arranges seminars for American public figures.
I like to examine the analysis of more than one school of thought. This provokes thinking on my own part. This is highly suggested to all people interested in figuring things out. One point of view is often a dead end. No human is always right, not even me...hahaha. Far from it. Also, within even the queerest analysis is often a gem of truth. In the case of Mr. Nash, he has half of the Great Depression correct. But he also has a good hunk wrong. And the place this happens is, as usual, concerning 'free trade'. I am against totally unregulated free trade for the simple reason, no nation has ever won the trade wars if they don't play dirty. Since this is so, we must have penalties for such things. And nations wishing to fix things by flooding other nations with money or trade must be prevented one way or another. Our own ancestors wrestled with this over the centuries. It is one of the greater causes of the Revolutionary War and the foundation of our nation, after all. And of course, it is tremendously important. For from the very first, our colonies were established for trade purposes. Cod fishing, beaver skins [for waterproof warm hats during the Little Ice Age], tobacco, sugar, strong, straight oak timber for ships [quaint Medieval houses look that way due to lack of straight oak planking and beams], etc. In return, tea, silk, glass products, brass cooking pots [which are lighter in weight than the heavy iron ones] etc were sent to the colonies. Taxing or balancing this trade was important for England and this led to a rebellion here when the English Crown, to pay for wars against France, raised tax rates on trade from America to England.
Here is a 1920's New York Times article talking about all this. I highlight the nations which are being flooded by British manufactured goods:
So patriotic Americans should always keep in their mind and line of sight, the concept of trade balance. This has been nearly totally missing since WWI. It pops up but a chorus of intellectuals and people getting rich off of unbalanced trade as well as our 'allies' all unite to crush any attempt at dealing with our trade difficulties. Even when people are writing about the Great Depression, they fall into the mantra that the US, when it was in the middle of struggling to fend off a flood of imports from Europe, caused this Depression thanks to cutting down on the flood of imports. The real question someone has to ask is, 'Should the US had run a giant trade deficit to enrich the European Empires during the Great Depression, would there be no Great Depression?'
I would venture to say that the European Powers would have grown back to their pre-WWI extent while the US would have been destroyed and turned into a third world state providing farm goods in exchange for manufactured goods. There would have been no WWII but also, the US would never have been a world power nor gotten richer. We would be re-colonized back in 1945.
This is a shocking concept and perhaps I stand alone in this but HISTORY VINDICATES ME! Our main exports are farm products and we are going down the tubes, deindustrializing rapidly due to a flood of manufactured imports!
Nash:
The higher postwar prices led in turn to an increase in cheaper imports. But this hurt American businesses, which led businessmen, farmers, and labor unions to pressure Congress to do something about foreign competition. This pressure led to two unfortunate tariff acts (tariffs are clearly antithetical to capitalism). The Emergency Tariff Act of 1921 increased duties on such commodities as wool, sugar, and wheat. Another tariff act passed in 1922 imposed the highest duties to that time in the history of the nation. It also gave the President the power to change tariffs as he thought necessary. These high tariffs produced a serious instability in agriculture, other export industries, and the rest of the American economy.All of this intervention with the economy had the effect of reducing foreign trade. Prospective foreign customers could not buy American products until they accumulated credits; but such credits could be accumulated only after they first sold their products to us, something the increased tariffs made much more difficult. In an effort to offset some of this harm, the government adopted cheap money policies. To make it easier for foreign buyers to purchase American goods (while still making it difficult for them to sell their goods in the United States), bankers floated enormous loans and bond issues in this country. Between the end of World War I and 1929, American lenders provided more than $9 billion in foreign loans, done largely to shore up America’s sagging export markets which had been hurt as a result of earlier interventionist measures (the tariffs) to reduce imports. While the cheap money policy of the twenties produced temporary increases in exports, it was accompanied by a huge burden of internal and international debt.
Pure hogwash. Before WWI, England was the world's creditor nation center. To this day, we talk about the LIBOR funds which are based on London banking lending terms. Not the USIBOR. Why did Europe need loans from the US?
Both England and France were expanding their empires into the Middle East during this time frame! Far from peace reigning supreme, they were battling Muslims all over the place. Propaganda in schools overlook this obvious imperial military activity due to pure racism. We date the start of WWII with Japan and Italy invading parts of Asia and Africa. But England and France were invading Asia and Africa as well as the Middle East back then! Doing the EXACT same colonialist things! But to fight these illegal and amoral wars, they both needed money. Germany was supposed to pay reparations during the 1920's. To do this, they needed loans. The only empire not bankrupt was the USA so we lent them money for reparations which paid England and France to go to war, invading the rest of the planet.
This riled the Germans, who complained that they were punished for imperialist wars but the winners were using their war punishment money to commit war crimes in other lands. On top of this, the reparations were not enough. England and France needed more and more and more money. We see this dynamic today. The US wants loans from China so we can attack them for wanting to control Tibet and Taiwan. I don't see a good end to that little business arrangement.
So America lent to these two bankrupt empires WITH THE PROVISO, THEY BOUGHT US MANUFACTURED GOODS. Which they tried to evade. They wanted loans from us so they could then turn the money into manufactured goods with which they could flood our nation! England and France DID flood their captive colonies! Forced to buy these goods as they underpriced native handcrafts, all of the Asian countries saw their native industries utterly collapse and the flow of money from China and India to England, for example, shot upwards. This triggered revolutions and riots. Gandhi's actions calling for the Indians to produce their own cloth and salt was attacked as revolutionary by the Brits who used military force to stop him. Above all things, they wanted to kill the native Indian cloth industry and force them to accept endless imports!
The US had to protect itself from all this. And during the 1920's the only tool was tariffs. Or we could have done the alternative: NO LOANS. Most commentators focus on only US policies while ignoring world forces when building their case for 'free trade.' And they have won all the arguments so far...FATALLY. As we can see in reality: our trade deficits have ballooned to the point of utter disaster. Yet they tell the same moth-eaten fairy tale about the Great Depression!
Nash:
Often overlooked as a major contributing cause of the Depression was what became known as the Smoot-Hawley Tariff Acts. Even though Smoot-Hawley was not passed until June of 1930, it makes sense to view the measure as a significant cause of the Crash. The bill had been widely discussed and debated in Congress throughout much of 1929. By the autumn of 1929, Wall Street had begun to realize that passage of the tariff bill was inevitable. It also realized that President Hoover would not veto the damaging measure. Hence, it seems clear, the damage from Smoot-Hawley was not confined to the period of time following its passage, as bad as that was. It also had a major effect on events prior to its passage, including the October Crash of the Stock Market.
Our trade partners gave us no choice. The pound was nearly as worthless as the dollar is today. Thus, they could flood us with imports. Things were identical to the way they are today with Japan. The US could either protect the native industrial base or let a potentially hostile empire destroy our own industries. The US would have loved to trade with Europe but Europe wanted COLONIAL style trade with us as the colony like China and India. And were we trading with India? HAHAHA. NO! England had barriers to that! And China: we know about the 'Open Door' business? ALL the European powers tried to lock us out of China, too! So there was considerable anger in the US against England. My own grandfather explained this to me when he taught me about history. This anger has been glossed over, of course, by propaganda since 1941. But it was so strong, even as Hitler bombed England, most Americans were not all that interested in saving England!
Nash:
The economic decline that began at the end of 1929 could and should have been of short duration, if only Hoover and the Congress had acted in an economically responsible way. Unfortunately, they did not. Hoover and his administration were in no mood to admit their mistakes. Had they taken their medicine, paid their dues, and suffered through the severe but limited depression that would have followed, the economy soon would have made the proper adjustments. Instead, the Hoover administration piled error on top of error. Its mistakes plus the blunders of Congress plus the economic malfeasance of the Roosevelt Administration turned what would have been an economic downturn like every other one in the previous history of the country into an economic nightmare that lasted eleven years.
How silly is this? England, France, Germany and Japan were all going bankrupt due to not only WWI but also this massive war raging in...CHINA! They needed loans for MILITARY INVASIONS. They needed WAR MONEY while pretending to be part of the League of Nations. Which stopped not one war. But enabled the victors of WWI to terrorize the world! To pay us for our loans for wars, they wanted to have us be locked out of trade with China, India and the Middle East! This was our 'reward.' We won WWI yet we were supposed to pay for everything via loans AND one way trade! This insane proposal was trounced and for good reason: it stank. My grandfather made this very clear. This is why, all my life, I have had a contrarian view compared to the onslaught of pro-ally propaganda.
Southwest Economy
Issue 4, July/August 2005
Federal Reserve Bank of Dallas
Commodity Money and Fiat Money
Given that the world has experienced globalization on a scale comparable with what we are witnessing today, it seems reasonable to look at how central bankers conducted monetary policy during the earlier era to see what lessons it may hold for contemporary monetary policy. Unfortunately, history offers relatively little guidance on this issue. Here’s why.A major difference between the current era of globalization and the last era has to do with the monetary institutions. At the turn of the 20th century, most of the world was on a commodity standard; currencies were backed by precious metals, in almost all cases gold. The need to maintain convertibility into precious metals limited the ability of central banks to change interest rates at will; that is, central banks had very limited discretion when it came to monetary policy.
One of the great benefits of the commodity standards that prevailed in the previous era of globalization was that price levels were relatively stable. Periodic inflations were followed by deflations, with the result that over long periods the price level remained nearly constant. There is some debate about whether this greater price stability was accompanied by greater instability of the real economy. The idea of using monetary policy to smooth out the business cycle is very much a by-product of the Keynesian revolution during the interwar period.
To get a sense of just how much nominal stability the gold standard conferred, take a look at Chart 5, which shows the price level in the United States for the past two centuries. It is clear that the level was a lot more stable under the gold standard than it was after its abandonment. Between 1820, when the United States went on the gold standard, and 1932, when the gold standard was abandoned, the average annual inflation rate in the United States was essentially zero. Since 1932, the average annual inflation rate has been about 3.8 percent, although in recent years the rate has been lower than that. However, the greater long-run stability of prices that prevailed when the United States was on the gold standard came at the cost of greater short- and medium-run volatility of inflation rates.[6]
Who dropped the gold standard first? Germany. This was due to losing WWI and having to hand it over to France and England. By 1930, England had to drop the gold standard next. This was due to the above-mentioned wars. England didn't have one day of peace after WWI. The struggle to enlarge their economic domination of Asia and the Middle East as well as Africa meant high bills they couldn't afford. So their grip upon their own currency collapsed as the country went bankrupt right behind Germany's bankruptcy.
Germany had no empire and they shook off their own bankruptcy in just a few years while England remained mired in bankruptcy. The looting of the Jewish citizens of Germany facilitated this process, of course. This was a very evil solution! But one that ALL nations have a habit of doing: looting native populations who are minorities is a classic reaction to bankruptcy and penury.
Here is a headline in the New York Times from BEFORE the Great Depression took hold: 'GERMANY NOW SECOND AS WORLD EXPORTER; Passes Britain in First Six Months of This Lear With $1,870,000,000 Shipments.
November 18, 1929, Monday'. Note the date! Germany was NOT suffering from lack of export trade, they were now #1 right after England who was the former #1. How does that fit our picture of the US halting world trade? Or was this trade ONE WAY, in a competition between England and Germany trying to best each other? This is an important question to remember as we look dispassionately at our own woes today.
Often, when I read analysis concerning history, most people echo earlier propaganda rather than look at real time headlines or pawing through ancient statistical tables. This is both pure laziness coupled with a desire to not rock the boat or learn anything new.
Here is a Dallas Fed chart I have amended to show world events:
The Dallas Fed:
Globalization and DisinflationA more practical question might be to ask how globalization has impacted inflation. For about a quarter century following the end of World War II, the Bretton Woods system of fixed exchange rates anchored inflation rates around the world. As Chart 6 shows, for about 10 years following the end of World War II not a single country experienced high inflation, which I define as an annual rate in excess of 25 percent. From the late 1950s until the early 1970s, episodes of high inflation were still rather rare. With the collapse of the Bretton Woods system in 1971 and the oil shocks that followed, episodes of high inflation became a lot more common, with no fewer than 49 countries experiencing high inflation in 1994. But note that since then, the number of countries experiencing high inflation has declined to nearly zero. The average inflation rate has also declined, from a peak of more than 35 percent in the early 1990s to less than 5 percent today.
This decline has taken place at the same time that world trade has continued to grow, prompting some analysts to claim that there is a causal link between the two. Cruder versions of this story routinely confuse relative price changes and price level changes. More sophisticated versions look at the political economy of monetary policy and examine how globalization has altered the incentives of central banks to engineer inflation.
One basic story that builds on the insights of Kydland and Prescott goes as follows. [12] In the presence of taxes, tariffs and other regulations that cause economic activity to be lower than it would be otherwise, central banks that are not bound by rules will have an incentive to try to engineer surprise inflations to boost economic activity. Households and businesses understand the incentive of central banks to behave this way and come to expect the higher inflation. The net result is higher inflation with no gain in real economic activity. However, as the taxes, tariffs and regulations that depress economic activity are removed, the incentive of central banks to engineer higher inflation will fall and so, too, will the actual inflation rate. Thus, we might expect to see declining inflation as the world becomes more integrated as a result of deregulation and freer trade.
HAHAHA. I think this fairy tale told by the people who run the Dallas Fed is fit for children but not adults. Look at the top chart! The plunge in global inflation coincides totally with the day the Bank of Japan, desperate to turn around trade with the US and flood us with exports coupled with a strong yen that was killing trade, hit upon the wonderful idea of soaking up dollars via two tools: dumping trade dollars in a FOREX reserve that then weakens the yen. The other being the birth of the carry trade. Until 1995, Japan had normal interest rates. Since then, despite inflation, roiling world markets and flooding the world with cheap loans, they have clung to sub-1% rates no matter what.
This insane policy is rapidly destroying world banking. Yet no bankers are fighting this force. Far from it: THEY ARE NOW ALL IMITATING JAPAN. The number of nations building huge FOREX reserves of dollars shot upwards as the US flooded the world with unbalanced trade-dollars. Let's look at yet another chart from the Dallas Reserve Bank:
And an earlier chart for comparison:
As the rate of money making has soared to the multi-trillions, 'inflation' has collapsed! But something else soared to the trillions: the US trade deficit and the US budget deficit! And here we are: where the other Great Powers wanted us in 1930 but we refused to go there: the US used as a global trade sink-hole while deindustrializing this nation as we become a COLONY again! My god. And who understands this? Besides my grandfather?
The Dallas Fed finishes with a flurry of lies:
Conclusions
This article has shown that in many ways, there is nothing new about globalization. In the years prior to World War I, goods, capital and labor flowed across national borders with the same ease as they do today and, in some cases, with greater ease. [Elaine: THIS IS A TOTAL LIE...the entire business leading up to WWI was due to the Great Exporting Powers rushing around the world, LOCKING UP MARKETS which is why the US was yelling about the 'Open Door' policies!] However, the monetary standard under which globalization took place in the late 19th and early 20th centuries was very different from the monetary standard under which globalization is occurring today. [Elaine: ENGLAND WAS THE GLOBAL CURRENCY AND USED IT AS A WEAPON...EVEN AGAINST THE US ITSELF!] And therein lies the challenge for monetary policymakers.This article has scratched the surface of what the greater integration of the world economy might mean for monetary policy in the United States and around the world. I reviewed a small subset of the issues that globalization raises for monetary policymakers. There are many more that need to be addressed.
For example, how exactly should we define and measure the phenomenon of globalization? I presented some simple measures of globalization based on export data, capital flows and migration. A more economically meaningful measure of globalization would probably look at consumption volatility as well and the co-movement of consumption in different countries.
How does globalization affect strategy and tactics of monetary policy? Does globalization make the case for an explicit numerical price objective for monetary policy (an inflation target) more or less compelling? How does globalization affect the so-called Phillips curve, that is, the relationship between inflation and unemployment (or something similar) that forms such an important part of many central bankers’ analytical apparatus? There are grounds for thinking that in economies that are more open to trade and capital flows, a decline in the unemployment rate, other things being equal, is associated with a smaller increase in inflation.[13] Of course, there is also a body of thought that argues that even in closed economies the Phillips curve is essentially useless as a guide for setting interest rates, and it is arguably just as useless in an open economy.
I discussed how under a fiat money standard, fixed exchange rates may be preferable to floating exchange rates. Would the United States really be better off if we were to participate in a new system of fixed exchange rates with the dollar, the euro and the yen pegged at 1–1–100, [Elaine: HAHAHA. The Japanese will kami kazi us if we suggest this!} as some have suggested? Should there be more coordination of monetary and fiscal policies between the major economies, or is conversation preferable to formal coordination, as Federal Reserve Board Vice Chairman Roger Ferguson recently suggested?[14]
Has globalization had a strong effect on global inflation, or is the improved inflation performance of the past decade or so due to better policy on the part of central banks around the world? Is China having a restraining influence on U.S. inflation, as some have suggested? Or is it still too small to account for more than a few tenths of a percent of the lower inflation in the United States in recent years, as Federal Reserve Board research seems to suggest?[15]
We fell for the 'cheap imports are better than native industries' ploy first pushed by Great Britain back in 1840. The 'new British' are the Chinese. They are walking the same capitalist path Britain hacked out many years ago. Including brutal suppression of dissent in Ireland/Tibet. For the actions of China today are not even slightly different from British actions 200 years ago. And this is not by accident! The Chinese leadership read a lot of Western histories written by intelligent Westerners and some of them read this news service here. They are not stupid. Now, back to the news to reinforce my contentions here:
Dollar Set for Weekly Gain on Fed Steps to Restore Confidence
The U.S. dollar headed for the first weekly advances against the euro and the yen in a month on speculation Federal Reserve moves to revive lending among banks will restore confidence in financial markets and the economy.The greenback also strengthened to at least one-month highs versus currencies of commodity producing nations from Norway to Australia after raw materials including gold and oil tumbled the most in five decades. The Fed cut interest rates, agreed to accept a wider range on collateral on loans and extended credit to non-banks for the first time.
``The dollar is enjoying a bounce,'' said Hideki Amikura, deputy general manager of currencies at Nomura Trust and Banking Co. in Tokyo, a unit of Japan's largest brokerage. ``The Fed is working to restore confidence. U.S. investment bank earnings weren't as dire as some predicted.''
Our trade rivals who are destroying us MUST re-establish the status quo. The US, far from struggling to do this too, should be fighting like hell to NOT allow this at all! We should be the agitators here, not the enablers! They will drag the dollar upwards if it KILLS them. They will use every trick in the book so long as the result is this: the US buys their goods and kills our own industrial base. A bad recession is now inevitable. This will reduce world inflows of goods to the US. But it will simply mean our allies will stop buying OUR goods! And we will end up with no advantage: our market share of world trade will NOT grow. And if we go into this recession with our trade partners forcing the dollar upwards, this means we only weaken further! Isn't this utterly insane?
Countries with weak trade statistics usually see their currency devalued. BUT NOT IN OUR CASE. We are the world empire. We can't play these games as England discovered 100 years ago. Either we wake up and stop being childish and figure out how our ONLY TOOL LEFT is tariffs and barriers or we can continue to be colonized until we are a third world power.
Citi Economists: Interest Rate Cuts Ahead… Lots of Them
the U.S. Federal Reserve to cut its key short-term rate, now at 2.25%, to 1% by mid-2008.
the European Central Bank – which has been holding its key rate steady at 4% — to beginning cutting rates before the end of the second quarter and bring them to 3% by early 2009.
the Bank of England, where the key rate is 5.25%, to cut rates to 3.75% by mid 2009.
the Bank of Japan, which has been itching to raise rates from the current 0.5%, to leave them unchanged through 2009.
I have a lot to say about commodities collapsing in the teeth of rising inflation, government interference causing fake interest rates that are below the rate of even the official inflation statistics and this, in both Japan AND the US! The top two world financial powers will both be doing the same, insane thing! With Japan desperate to devalue the yen, on top of it! This cannot be allowed to happen. Let's look at the recent past when Argentina allowed a flood of foreign investment into their country which suddenly dried up while they ran a trade deficit:
Saturday, 27 April, 2002, 00:06 GMT 01:06 UK
Argentines swap pesos for 'Evitas'
Argentina's banks were partially operational for five hours on Friday, but that did not relieve the demand for cash of ordinary Argentines.After a long and difficult week, banks reopened their doors but mainly to pay pensioners and those on welfare.
Nevertheless it was not possible to withdraw funds and most ATMs remained empty, while people scoured the city in search of a working cash machine.
This hasn't happened to us...YET. But trust me, this is the Chinese plan for us. It will hit as suddenly as it hit Argentina. They had less than a week's warning of bad news before the banking system shut down. The US is being assisted in 'saving' our banking system and we are being allowed to flood the world with over a trillion dollars in new money but ONLY if we let them flood us with trade!
Auction-Rate Market Shrinks By $21 Billion as Borrowers Escape
Municipal borrowers from Wisconsin to California plan to pull at least $21 billion of bonds out of the auction-rate market by May 1 to escape soaring costs, according to data compiled by Bloomberg.The amount is more than what was sold in any one year before 2002, the data show. About 69 percent of auctions in a market that also includes debt of student lenders and closed-end mutual funds failed to attract enough buyers this week, resulting in interest rates as high as 14 percent. Rates are determined through a bidding process managed by banks typically every 7, 28 or 35 days.
REAL inflation is raging! And we can't wish it away. The government will try to stop this by MORE RED INK. This is FATAL. We cannot do this forever. And note all my musings about the Great Depression: England's red ink from WWI didn't vanish, it grew. For they continued to fight, to seize lands, to steal stuff from Asia, etc. And this FAILED. Spectacularly. And if the US boycotts the Olympics and demands the dismemberment of the Chinese empire...by the way, Taiwan just voted for CLOSER relations with China, not the reverse!!!!...as I predicted correctly, by the way....the Chinese will pull the rug on us. They will be monumentally angry. We are striking at their heart and they MUST do this! They have NO CHOICE. And us?
This won't fix our own problems. For they lie not in China but in Japan and Germany, the nations we 'defeated' in WWII only to turn the tables and escort them into our markets where both have taken over and now dominate us.
Foreigners Sell Most Japanese Stocks Since Black Monday Crash
Foreign investors last week sold the most Japanese shares since the Black Monday market crash in October 1987 after the yen rose to a 12-year high, clouding the profit outlook for exporters.Outflows from Japanese stocks by foreign investors were 922.7 billion yen ($9.26 billion) on a net basis in the week ended March 14, according to figures released today by the Tokyo Stock Exchange. That was the most since the period ended on Oct. 23, 1987. Japanese stocks have attracted net buying on a weekly basis by overseas investors once this year.
WOW. This won't make news here. The Japanese are flipping out. THEY NEED THE WEAK YEN BADLY. This is very dangerous. If the only solution is to destroy the US, they will do this. Trust me on this.
Ex-Chairman Says Fed Policies Didn't Cause Current Woes
Regarding the current turmoil, Greenspan said that a market crisis was inevitable. "If it weren't the subprime crisis it would have been something else," he said. That is because an era was ending that had seen "disinflationary forces" from developing countries such as China and a "protracted period" in which there was an "underpricing of risk."Not all economists are ready to let the former Fed chairman off so easily.
Lee Hoskins, former president of the Cleveland Fed and Fed chairman from 1987 to 1991, says that to find "partial causes" of the credit turmoil, "you have to go back to the Fed's decision to push the federal funds rate down to 1 percent and leave it there for over a year." Hoskins says the Fed "made money very cheap, and we began to see the whole leveraging process we see today. The Fed has to take responsibility for some of that excessive growth."
Arrest Greenspan. Seriously. This is what happens when we hand over our finances to a crazy man. And Hoskins is right. But he doesn't mention Japan's sub-1% rates. Am I the only one aware of the connection?
SEC probing options activity in Bear Stearns
The Securities and Exchange Commission is investigating the events leading up to the collapse of Bear Stearns (NYSE:BSC - News), specifically a surge in options contracts betting that the investment bank's share price would fall sharply, according to the Wall Street JournalCiting people familiar with the matter, the paper reported the SEC probe focuses on a surge last week in "put" options that came days before the firm's proposed sale to J.P. Morgan Chase & Co. (NYSE:JPM - News) for stock now valued at about $278.5 million, or $2.32 a share.
A put option allows the buyer of the option the right to sell a certain number of shares in the company at a specific price within a set time. (Reporting by Edward Tobin; Editing by Derek Caney)
Arrest the pirates. J.Pirate Morgan is a good place to start. And don't forget the Goldman Sachs pirates.
As a post script, here are some charts I drew up comparing England's GDP and population growth with the US. Recessions are in red:
Note how the British were in a depression from WWI all the way until 1935. 17 years versus 6 years on our own part. Before WWI, the US had more negative growth periods than England. After 1954, when Britain handed over many of their imperial headaches to the US, their own growth problems vanished! They had downturns when we had them. Note also, they have de-industrialized nearly totally at this point. They are a colony of the US and increasingly, Asia.
I'll have to re-read this several times for it to sink in. Us Skins got hard heads Elaine ! There was anger towards us from England and France regarding us wanting payback for war debts, usually this was considered cost of business by the winning side rather than a debt to collect. The Garet Garret book indicated the English felt very angry about us influencing their elections by criticizing Labor, I believe it was.
Back to read again. It will eventually make sense to me.
Posted by: Al | March 22, 2008 at 02:33 PM
A bit off-topic:
Seeing your last table and the highlighted UK depression through the 1920's and 1930's made me think of my paternal grandmother (my ol' gran) and my mother and Winston Churchill. My mother was a teenage girl during the war and still idolises Churchill as the saviour of England and the British Empire (wry smiles all round). My grandmother loathed him with a vengeance. She was a young woman in the 'twenties and mother of two children from the mid-twenties on and she and they suffered greatly through those years. It was a period of outright class warfare (and we know who lost) and she blamed Churchill for much of it.
I mention this not just in passing, but also to illustrate how complex any attempt at analysing history is. Elaine, I have to thank you for broadening my outlook on all things economic (and hence, political). One thing I do have to do, however, is remind myself that whenever you refer to the actions of any country, that it is always a shorthand for 'the ruling class of' that country. Time and again, we underlings have to be duped or goaded into fighting each other, when we'd rather not bother. Who was it said, "Patriotism is the last refuge of the scoundrel"? (Thank Google, it was Dr. Samuel Johnson, not just me.)
Just to make this vaguely about economics, back to my gran and to show how a generation never recovered from the trauma of the 20's/30's:
From when I was boy in the early sixties, I can remember seeing her neatly writing out her shopping list and entering the prices from memory (before going shopping - and all in beautiful Copperplate handwriting); then adding it up in her head (pounds, shillings and pence - not easy); then checking her purse to make sure she had enough money (even though she had no financial problems by then). Whenever I blew my earnings from my paper rounds and grocery deliveries on some fad, I would usually hear one of her favourite sayings – "Well, a fool and his money are soon parted". But always said with a smile or a laugh.
Something tells me that proverb will be back in fashion soon, along with, "Neither a borrower or a lender be".
Oh, I see S&P downgraded Goldman and Lehman late Thursday. What fun!
Posted by: Bear of Little Brain | March 22, 2008 at 04:06 PM
From Der Spiegel; It's High Time to Re-Regulate Banking
By Wolfgang Kaden
The shocking and reckless practices of banks behind the recent plunge in global markets illustrates just how far they have veered from reality. Stricter, more effective supervision is necessary, and the banks' perverse bonus systems must be radically revamped....Bankers, who like to see themselves as the true masters of the global economy, have driven the global economy into a calamity that is spreading to become a fundamental crisis for the entire financial system"..
The solution: "As difficult as it is for a liberal economist to say this, the only real solution is to disempower the bankers. We must impose tighter restrictions on our money traders' freedom of action. After years of deregulation, what we need now is re-regulation."
Finally, the reason for our current disaster:
"Everything in banks is currently geared toward taking advantage of the greed of individual bank employees, from senior executives to clerical workers, to maximum overall profits. Greed is treated as the supreme and sacred business principle. "This rat race for greater and greater profits can literally rock the system," Steinbrück aptly said in a SPIEGEL interview."
http://www.spiegel.de/international/0,1518,542644,00.html
The title of this article should be BANKS GONE WILD
Posted by: rockpaperscizzors | March 22, 2008 at 04:34 PM
Hundreds seeking housing money overwhelm Boca Authority
BOCA RATON — A crowd of more than 500 people waiting for hours this morning for housing voucher applications were dispersed by police in riot gear at the Boca Raton Housing Authority when the applications ran out sooner than expected.
The action prompted complaints that officers used excessive tactics and housing authority officials were incompetent in their planning.
Two people were arrested and six to eight people hospitalized for exhaustion during the ordeal.
Hundreds of people, mostly mothers who had spent more than eight hours in line, were forced to leave the property at 2333 W. Glades Road by 30 Boca Raton Police officers, including SWAT team members, who walked toward the crowd in unison holding their police shields up about 10:30 a.m.
"Leave or face arrest," police officers shouted at the crowd as they urged them out of the housing authority parking lot. People were made to leave the vicinity altogether, with officers forcing them to cross the street and move toward their cars.
http://www.palmbeachpost.com/localnews/content/south/epaper/2008/03/12/0312vouchers.html
Posted by: rockpaperscizzors | March 22, 2008 at 04:58 PM
History is a Laughing Bitch indeed. The neocon plan for Iraq at the time of the invasion was to create a new economic model, a free trade Shangri La, that was going to be a bonanza, for US companies only, from the feast on Iraqi Oil. All for the benefit of the US Empire... The neocons went to great lengths to tease 'Old Europe' over this point.
Posted by: Chris | March 22, 2008 at 07:09 PM
Bear of Little Brain makes a good point about the ruling elites. Ask the Japanese people of Okinawa how they feel about the US military *occupation* of Okinawa.
Chalmers Johnson puts this point across well in his article 'The 'rape' of Okinawa:
http://tinyurl.com/3cx9bc
*snip*
Because the Japanese government speaks with a forked tongue. For the sake of the Okinawans forced to live cheek-by-jowl with 37 US military bases on their small island, Tokyo condemns the behavior of the Americans. Prime Minister Yasuo Fukuda called the recent assault "unforgivable" and demanded tighter military discipline. But that is as far as it goes.
The Japanese government has never even discussed why a large standing army of Americans is garrisoned on Japanese territory, some 63 years after the end of World War II. There is never any analysis in the Japanese press or by the government of whether the Japanese-American Security Treaty actually requires such American troops.
Couldn't the terms of the treaty be met just as effectively if the marines were sent back to their own country and called on only in an emergency? The American military has never agreed to rewrite the Status of Forces Agreement, as demanded by every local community in Japan that plays host to American military facilities, and the Japanese government meekly goes along with this stonewalling.
Once an incident "blows over", as this latest one now has, the pundits and diplomats go back to their boiler-plate pronouncements about the "long-standing and strong alliance" (Rice in Tokyo), about how Japan is an advanced democracy (although it has been ruled by the same political party since 1949 except for a few years after the collapse of the Soviet Union), and about how indispensable America's empire of over 800 military bases in other people's countries is to the maintenance of peace and security.
As long as Japan remains a satellite of the United States, women and girls in Okinawa will continue to be slugged, beaten and raped by heavily armed young Americans who have no other reason for being there than the pretensions of American imperialism. As long as the Japanese government refuses to stand up and demand that the American troops based on its territory simply go home, nothing will change.
Posted by: Chris | March 22, 2008 at 07:26 PM
Chris,
well said. Both regarding Iraq and Okinawa.
Posted by: Al | March 22, 2008 at 07:30 PM
Japanese never consider folks from Okinawa as 'real' Japanese - why else no American military base in Kyushu, Shikoku or Honshu??
More importantly, time is running out once US dollar tanks and when the Japanese refuse to foot the bill for the US military base in Okinawa.
Posted by: OC | March 22, 2008 at 08:42 PM
Only two things are certain they say. Death and Taxes.
I am beginning to think the Grim Reaper is both Death AND the Taxman when it comes to Empires and overspending. No cheating him on either account.
Posted by: Chris | March 23, 2008 at 01:28 AM
Note that the British finally pay off the WWII loans to US last year: from 1945 - 2007 (62 years)
Wonder how long US needs to pay off the loan from China??
Posted by: OC | March 23, 2008 at 04:48 AM
All very good comments. I loved the story about the British grandma and mother. Yes, I use the name of countries for shorthand reference to the rulers. And yes, the input from 'voters' is severely limited by the rulers who insure we all have very poor choices for leader.
This is why no one gives good speeches anymore. And if they do, the media turns on them and attacks them unless they are supporting the present status quo.
And the status quo is bad. For our allies as well as us. It is not strengthening the allies, they are all sliding off the same cliff with us! This is why they have to cooperate with us in fixing our trade deficit. Once this happens, all other things get easier. And we can't fix it, either, unless we cease trying to rule the planet via our military.
Posted by: Elaine Meinel Supkis | March 23, 2008 at 07:37 AM
Elaine's article on history only reinforces what I learned from reading her several years ago, and that is that world trade always leads to war.
This is why I am against international trade of any kind. We should produce everything we need right here at home. I live just down the street from one of Kentucky's few remaining plantations. Unlike the southern plantations, this one was totally self-reliant. It imported only coffee and sugar.
I still go there with my daughter to see the well-made root celler, which has a drain connecting it to two "ice houses". These ice houses look like teepees. They cover deep, stone-walled shafts that were filled with snow during the winter and packed down tight so that there was ice available all summer long. The melting ice flowed into canals that circled around the deep celler where milk and butter were stored and kept cool. They had a smokehouse nearby where meat was salted in a wooden trough or hung up and smoked. Little vents in the brick walls along the sides allowed the smoke to smolder for long periods of time. And of course, there were the outhouses.
It is fascinating what our forefathers were able to do with just local materials and their own homegrown ideas. There is no reason why we cannot be totally independant of foreign countries and their get-rich-quick schemes. It is a shame that we are now just like them. We will pay an awful price for this.
Posted by: DeVaul | March 23, 2008 at 02:26 PM
America has ALWAYS had international trade. And trade is GOOD. And there is no 'retreating' into a turtle shell. For others will come to us and force us to trade like we did to China and Japan!
That is reality!
All we have to do is be alert to where our trade priorities lie and to use this to protect ourselves as we trade with others! This is the adult way to deal with reality.
The 'fight or flight' attitude is due to fear, not smarts.
Posted by: Elaine Meinel Supkis | March 23, 2008 at 02:53 PM
It goes back to 'competitive advantage' - why countries like Germany, Japan, Korea, Taiwan and China succeed in the face of overwhelming odds and others with all the inherent advantages (like most of ME) don't.
Our airheads (academics) can only do framework but not detail and lacks real life experience on the ground!! Totally fatal and their analysis led to wrong conclusions for 3 generations. Payback is a bitch especially
for empires!!
Posted by: OC | March 23, 2008 at 07:19 PM
rockpaperscizzors,
Instead of regulating again banks, maybe the solution is just to increase P2P banking market share on world banking. Examples: propsper.com, kiva.org. They don't create money !
Posted by: PJSV | March 24, 2008 at 06:23 AM
Excellent article and like some others, I will have to re-read it to get more of its meaning. I believe the underlying problem is corruption at a very basic, fundamental level. The actions with no consequences style of morality if you want to give it a name. Clearly the thieves on Wall Street were guided by the belief that the Government would bail them out, so they engaged in no limit risk taking. The US "ship" will not right itself UNTIL a number of Wall Streeters go to prison--for long terms. The message MUST be sent: you can buy off politicians but sooner or later you WILL be held to account for your thievery. Don't bother to expect politicians to reform. Expecting politicians to stop taking bribes or being corrupt is like expecting fish to stop swimming; they just can't do it.
Posted by: Paul S | March 24, 2008 at 12:01 PM
God, is is MUCH WORSE. They created the Derivative Beast. This creature straight from hell, is their protector. Only it now has to devour them. So they want US to save THEM from the creature THEY created! To protect THEM! My latest cartoon two stories above shows how this works.
Posted by: Elaine Meinel Supkis | March 24, 2008 at 12:36 PM
I viewed the cartoon. It does hit the mark. But the situation isn't all political--in a sense at least. There is an item in the Wall Street Journal discussing how the Chamber of Commerce is ramping up a PR campaign to blunt or defuse any coming regulation as a result of this scandal. At least now we know who will carry the water for Wall Street. The quote in the Journal said,'We're going to use every tool in the toolbox, including a Web-based effort.' (Can't wait to read the "information" on the website.) My prediction re their website? Regulation is bad; it will ONLY make matters worse. Let the markets sort it out. Yes, I AM psychic. I can't wait to read the studies done by their "independent" think tanks supporting their claims. Do you think they will have the nerve to call themselves a public interest group? Hehe. Wall Street recognizes the coming threat of regulation and they are preparing for a fight.
Posted by: Paul S | March 24, 2008 at 11:33 PM
How nice to be so detached. To let someone else solve the problem. To never get your hands dirty. To never sin, to be always judging and never in the pits firing. To always quote the book and never live the book...and so on....and so on....THROW THE BOOK AWAY...IT DOES NOT WORK.
Posted by: EL JOHNNY | March 28, 2008 at 09:19 PM
Ta;k about east meets west. Tribal behavior always looks for someone who will pay the bills. The big chief. Anyone who will take care of me and my life. We, they say, like white people because in the balltle bewteen the individual and the tribe, the tribe alway win. Weak white people, they are so weak,
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