August 29, 2008
Elaine Meinel Supkis
Time once again to look to the recent past so we can see clearly where things are going today. I am rather vain about the fact that I have nearly always called the future correctly based on incoming information each daily cycle. It is even rather scary, how prescient my predictions are. Well, this is due to knowing where money and power come from: that lovely golden Cave of Death. Anyway, we have a small pause today in the news, the major news being Mother Nature taking aim at US oil rigs right when both of our candidates for emperor are threatening Russia and daring Russia to cut energy to Europe. So oil prices are jumping upwards like a frog on a French frying pan. We get to visit the BIS headquarters in Europe to learn more about global currency markets. Yikes.
Over half a trillion spent on goosing up the markets and there was less than two weeks of happy hysteria then reality returns and markets drop. The people destroying the economic power of the West aren't done yet. They can give this dead market a few more expensive jolts of electricity. But the debt ratios in the West are all nearing to or over 100% GNP. This means the economic rule of the European and American empires is about finished. The picnic at Jackson Hole this week is really a panic. The Bank of Japan is speaking there and will explain how to 'fix' everything, HAHAHA.From Bloomberg:
The rally in 30-year Treasury bonds, the most profitable U.S. government securities in the past 15 months, may become a casualty of the Federal Reserve's efforts to ease a widening credit crunch.
Yields on so-called long bonds will increase because Fed Chairman Ben S. Bernanke may lower borrowing costs and cause consumer prices to rise at a faster pace, said Brian Carlin, head of fixed-income trading at JPMorgan Private Bank.
Investors will demand a ``higher risk premium,'' said Carlin, who helps oversee $100 billion of bonds in New York. ``Fed cuts may, in fact, turn out to be quasi-inflationary.''
This is the Horns of Dilemma, the Horn of Plenty is empty. As the US looks puzzled and shakes it ever harder hoping for goodies from Asia to pour out, it is time to talk about reality: the US cannot run all its economic systems in the red forever and forever. This is physically impossible. I have been saying this since the early 1970's. If we time-travel, we can see what was obvious back then.
HAHAHA. 'Quasi-inflationary'? What's that? Why, it is commodities shooting to the moon, that's what was so quasimoto about this desperate lunge to revive banking and global markets by handing out free loans to the biggest banking bandits. The hope was, this money would flow like a broken faucet into the pockets of US homeowners and thus, restarting the Home ATM machine business. People sit at home, it goes up in value, they go refinance themselves deeper into debt and continue being the Consumer Nation.
But it is the Crashing Nation. There is an upper limit to debt. All debtors hate this concept. The deeper into debt an entity, government, business, homeowner goes, the more debt they desire. This keeps things afloat. Once this is cut off, there is a cascade of unpaid bills that pile up rapidly the deeper into debt the entity is. This is why avoiding this condition is of greatest importance. This is all very sad, actually. The US experiment with eternal debt will end in the total loss of our entire empire and the dismemberment of our nation itself. History tells us this with greatest clarity.
When Spain went bankrupt trying to put down the Dutch and English 400 years ago, it gradually lost all of its many colonies and provinces ending with Napoleon invading and destroying the remainder of Spain. The Ottoman Empire nearly took Vienna in the 1600's even as Spain was fighting the Dutch. By 1800, the Ottoman empire was on the rocks. By 1920, the Ottoman empire itself was totally dismembered. The results of this are still relevant today. WWIII will probably be centered on wild attempts by Europe and the US to continue destroying and ripping apart that former empire. Only this probably won't happen. Not if the US goes bankrupt.
We see a clear pattern here: no empire lasts much after going bankrupt. Russia was very rapidly dismembered when it went bankrupt from 1990 to 2000. It is only beginning to reassemble itself. Now that Russia is solvent. Unlike the US which is deep, deep, deep in debt.
As I keep saying, the Dragon is very angry. And all the talk about the Fed dropping interest rates and weakening the value of the holdings of this dragon, it will not support this but figure, it is time to strangle the US golden goose and kill it off once and forever. The panic in the world stock markets resume as everyone realises this harsh reality. Bad housing news hits hard but this is the fault of the media spreading fake cheer all over the place just a few days ago. They will paper over this mess and 'save' the markets...again. But they can't do this to infinity despite the boasts. The Dragon will NOT allow this.
The fantasies upholding our economy are falling one by one but not fast enough. There is still a belief that the US controls our interest rates and we can cheat the Chinese the same way we cheated the OPEC nations back in the 1980's or the Japanese in the 1990's. But everyone knows we will try to cheat everyone out of their investments and they are now moving to prevent this. OPEC has kept a good grip on the price of oil which continues to be high. Japan has us by the throat via their FOREX reserves and China is now figuring we are finished and is turning attention to destroying Japan's power.
From Market Watch:DAVID WEIDNER'S WRITING ON OFF THE WALL:
Sentiment is growing that Bank of America Corp.'s Kenneth Lewis may have won a place in the pantheon of great Wall Street titans by using his financial clout to help the country avoid economic ruin.
In some circles, Bank of America's (BAC:50.37, -0.50, -1.0%) $2 billion acquisition of a stake in Countrywide Financial Corp. (CFC:19.68, -0.32, -1.6%) is being seen as critical to the end of the Panic of 2007.
HAHAHA. The award for stupidest article this year goes to this story! This story assumes that the Bank of America did this due to smarts and not because Bernanke ordered them to do this if they wanted their overnight rate cut and $38+ billion bail out. Mr. Lewis will join those paragons of pathetic fools, the guys who tried to stop the collapse in 1929.
I was correct about the Bank of America. This bank is frantically running around the planet begging OPEC, China or Russia to buy it, please! The president of the Bank of America certainly will be on a pantheon of fools. Note how Market Watch fondly thought the G7 banking collapse was over and done with...after less than one month of hell? HAHAHA. New readers, do take the time to read these older articles. They are full of mischief.
Next, an educational article from exactly a year ago:
Stocks went up and everyone who put us in this economic mess now are convinced old Santa Bernanke will follow in Greenspan's footsteps. We will now enter a foolish cycle of sudden rises and sudden falls in interest rates that have no connection with reality. And indeed, I will prove that this has been so since the middle of the Vietnam war when Americans voted for Guns and Butter. We have been dining on this toxic dish nearly all my life. And it is bankrupting us gradually. This slow descent into financial death is now going to speed up if Bernanke pretends inflation is less than 4%.
Just to review today's astonishing news, here is Bloomberg:
The Federal Reserve will probably cut its benchmark interest rate to 4 percent as slowing U.S. economic growth restrains inflation, said Edward Hyman, chairman of International Strategy and Investment Group.
The worst housing slump in 16 years is weakening the economy after the Fed raised borrowing costs 17 times from June 2004 to June last year. A mortgage-market survey conducted by Hyman's firm showed conditions are ``pretty bad'' and ``among the lowest ratings we have ever gotten,'' Hyman said.
``They will start to ease in a measured way, 25 basis points every meeting,'' he said in an interview in New York. ``I think the economy will react favorably to it'' and probably avoid a recession, he said.
Hyman said he sees a ``better economy next year,'' with stocks and Treasury yields rising. Slacker growth this year will ``put inflation aside'' as a concern for the central bank, he said.
What has irritated me for many years now is the belief that spending is our economy. This is false. Only after we deduct our trade deficit, can we see if we 'grew' an economy and the answer is a resounding 'NO'. We are not growing anything except an ocean of red ink. Consumer spending is driving America into a very deep hole. We should NOT be encouraging spending, we should be encouraging SAVINGS. Debt has ballooned and savings has collapsed. Ergo, we need to rebalance them with each other.
Not only were these gnomes indulging in wicked wishful thinking, they were totally wrong in their analysis and therefore, their predictions stank. Why is that?
If wishes were fishes, we would all be swimming in the deep blue sea! These poor saps just wanted to get rich. So they figured, if they talked as if there was no crisis or it was a small mess and not a mega-mess, it would be small. Like little children who spill the milk taking it out of the fridge and then trying to drink directly from the spout, they can't just shove it back into the container. So if they minimize the damage, they can pretend there is no spilt milk. When the house is burning down, we don't want firemen saying, 'I don't see a fire and it is a little fire, oh, the roof is on fire? Well, that means the fire is about to go out. Let's pour on gasoline. That will fix it.'
The Fed poured gasoline on the inflation fires! I knew this. It was painfully obvious back then. Anyone who claims no one knew, is lying.
BREAKING NEWS: BERNANKE WILL DROP INTEREST RATES TO 4%! ARRRRGH!
As expected, markets overseas echoed yesterday's panic on Wall Street. Ever since the .com crash, investors have begged wizards to write new spells that create instant wealth. The wizards used two spells: the 'let's exploit Chinese labor even more' spell and the 'let's create pre-Great Depression investment trusts of various sorts' spells. Both no longer produce easy wealth because the basis of both is piling on debts in the Western empire's populace. The last gasp of this long process of indenture came when Greenspan had to lower interest rates 4% below the real rate of inflation which caused the balloon we now see going bust. Today, I talk about SIV funds, another goofy creature created by these magicians.
I was about to publish my story warning about repeating the Greenspan super-low interest rates while pretending there is no inflation when this hit the news wires! And of course, this is PURE INSANITY. And stocks are shooting up! Obviously, Bernanke and his gang surrendered to the financial class who brought this mess down on our heads in the first place.
Now they are safe...until China starts teaching us Mandarin. We are so doomed. But the party will roar on, houses will sell, America's debts will increase to 200% of our GNP instead of 100% and our empire will lose its entire industrial base and anyone saving money will be wiped out, totally.
I knew that was the beginning of the helicopter rescue Bernanke promised Congress. Instead of arresting him, they cheered him. The biggest wastrels on the planet earth is our Congress! They want infinite debt with all their hearts and souls. They are all criminal except for a forlorn handful. I grimly knew that Bernanke would drop rates to 1%. He has hesitated at 2% but itches to drop it further. This, in the teeth of epic inflation. The trick they are now trying is to lower the price of oil. This, they pray, will stop global inflation. A silly idea. They, themselves, spent the last 15 years, claiming that oil prices are not the basis of all domestic inflation.
No indeed. It is cheap money via sub-inflation level lending that fuels inflation. Oil simply rises to the surface, so to speak. It just makes the PAIN of inflation so hideous. And the masses notice this and begin to get somewhat agitated if not downright violent.
Now, on to today's news:
(Bloomberg) -- The U.S. Open has one up on Wall Street. It's escaping the credit crunch unscathed.
The U.S. Tennis Association, organizer of New York's Grand Slam tournament, sold out its 84 luxury suites at an average price of $250,000 for the two-week event that ends Sept. 7, even with a $5,000 increase over last year.
Companies including MassMutual Financial Group, International Business Machines Corp. and JPMorgan Chase & Co. pay a total of $50 million a year to sponsor the tournament, according to the USTA. The Open attracted a record 715,587 visitors last year.
``The Open is one of the best corporate events,'' said Stephen Newman, 43, a director at the structured credit products group of Deutsche Bank AG in New York, at JPMorgan's hospitality tent just outside the National Tennis Center. ``You eat, talk and sit next to the person. It's kind of an ideal venue.''
Things are dire and the parties roar onwards. The wealthy financiers are not getting richer but they are certainly NOT poorer. Their income stream has slowed down but they have lots and lots of wealth. And they are out to make deals with other rich people. Golf, horse events and tennis are good for this because the pace is slow, there is no cheering or shouting to interfere with talking business. Making money is social. They make connections which are then exploited. This isn't business at all. This is cronyism a la ruling class nobility style.
The goofy parties these same people threw for our corrupt Senators in Denver are the same sort of game. The rules are harsher at these events so it couldn't be a sit-down dinner. Instead, it had to be 'spoon food' so the caterers made HUGE spoons and loaded these up with food. HAHAHA. Babies eat spoon food. Mama shoves it down the tykes' throats.
ABC news doesn't have to worry about being strangled and then threatened and arrested at the US Open. The Open is not on the radar because it is business, not political. Except it is political but we are not supposed to know this, of course.
Trade winds aren’t blowing in Washington these days, but business is puffing hard in the Mile High City.
Two prominent groups--the Consumer Electronics Association (CEA) and the U.S. Chamber of Commerce--are on a quixotic offensive at this week’s Democratic National Convention, pushing for approval of several free trade agreements stalled by the Democrat-controlled Congress.
Undaunted, the CEA, a group whose 2,200-plus members include just about everyone having to do with electronics, from Microsoft (nasdaq: MSFT - news - people ) to Gibson Guitar, wasted no time in getting to work. They want to see trade deals approved so they can export electronics more cheaply to burgeoning markets.
On Monday, several hours before the convention officially opened for business, the group released a survey claiming that 62% of Democrats say they benefit from free trade. CEA is wrapping a seven-week, 28-state bus tour (to end at the GOP Convention in St. Paul, Minn.) called “America Wins with Trade.”
Why aren't workers attacking this silly bus? Heh. At least give it a flat tire. The US workers are still waiting for Santa Claus. Exports are up! Wow! Only the dollar shoots upwards. All our trade deficits since the Floating Currency was launched, have always happened during bad recessions. I suppose a great depression will make it level due to US no longer consuming imports. And this survey: hogwash.
Did the survey say, 'Did you save money buying manufactured goods from China last year?' for example. You bet. If the American public is this suicidal, I would blame the media. The media has been, across the board, totally pro-'free trade'. The NYT and Washington Post are certainly fearfully fond of this Flat Earth style economy! Try getting anyone with an anti-free trade voice access to the business or editorial pages!
(Bloomberg) -- Crude oil headed for its biggest weekly gain in almost two months and natural gas rose as producers evacuated rigs before the arrival of Gustav, forecast to be the largest hurricane in the Gulf of Mexico since Katrina.
Royal Dutch Shell Plc and ConocoPhillips started pulling workers from Gulf of Mexico platforms and cutting production in a region that pumps 26 percent of U.S. oil and 14 percent of gas output. Louisiana officials said they will start evacuating residents today in two counties around New Orleans that house refineries owned by Exxon Mobil Corp. and Valero Energy Corp.
Look at how hurricanes are now popping up in the Caribbean:
Right on time for the US to try to pick a fight with one of the world's largest energy export countries, Russia. The effects of this inflation will savage the US consumers. And will be more of an excuse for Bernake to drop interest rates to near zero. We seem to have a poor method of learning about cause and effect. I suppose another epic hammering of the US economy might finally drive this lesson home.
The depth and breadth of Asian foreign exchange markets have improved markedly in recent years. Volumes grew rapidly and the diversity of market participants increased. Activity in Asian currencies remained concentrated in onshore markets to a much greater degree than that in major currencies, indicating that foreign exchange controls are having the intended effect of stalling the internationalisation of Asian currencies. At the same time, foreign exchange controls appear to be restraining the development of Asian foreign exchange markets by depressing derivatives trading and fragmenting activity between on- and offshore markets.
The development of foreign exchange markets is closely linked to the participation of foreign investors in local bond markets. The absence of a liquid derivatives market in which to hedge currency risk might deter foreign investment in local currency bonds and, therefore, limit the diversity of bond market participants. Managers of multi-currency bond portfolios typically prefer to hedge the associated currency risk because the volatility of currency returns is greater than the volatility of most bond returns; open currency positions are usually found to
add volatility to bond portfolios without adding much return (Ramaswamy and Scott (2005)). This contrasts with equity portfolios, where the case for hedging is less convincing because the volatility of equity returns is much higher. The link between foreign participation in equity
markets and the development of foreign exchange markets is correspondingly weaker.
These same factors were undoubtedly responsible for part of the increase in the turnover of Asian currencies, although their relative importance was less than was the case for the major currency pairs. Certainly algorithmic trading had a much smaller impact on Asian currencies than on internationalised currencies (Wright (2007)). Foreign investment both to and from Asia has increased sharply since 2002, in the process creating direct and indirect demand for foreign exchange. The IMF estimates that in 2007 inflows to the region totalled about $650 billion and outflows $500 billion, for a combined total of $1150 billion (Graph 1). By contrast, in 2004 inflows and outflows summed to less than $500 billion. In addition to foreign direct investment, portfolio investment increased, including purchases of local-currency debt
securities. Leveraged trades concentrated in IDR, INR and PHP, which were popular target currencies over this period (Gyntelberg and Remolona (2007)).
The importance of this chart is the Hong Kong factor: look at how much bigger it is compared to all the others. And the growth rate. It more than quadrupled in less than 3 years. Grew more than 6 times greater in just 6 years. Like all the charts and graphs tracking money and trade, it is shooting upwards. All systems are now so totally out of balance, the parts that are going into the red are plunging into the red at ever-faster rates and the parts growing like the Derivatives Beast, have shot upwards, straight upwards. This divergence is totally unstable and unsustainable. The games being played using currency and interest rate systems that grew out of the crash of the US gold/dollar dual system is getting more and more out of control.
Vast fortunes have been made out of thin air, playing these totally unnecessary and destructive monetary games. The Floating Currency is at fault here. The US experiment in having the world's biggest empire run on fake money has failed. The failure is great and growing worse by the hour. Until we give this notion up, the banking crisis will only worsen. Imagining a bit of tinkering and assistance from the World Bank and the International Monetary Fund coupled with the banks ravaging the US economy 'assisting' will fix this mess is PURE INSANITY.
Note how, in this last year, the Bank of Japan cannot sustain the US entirely by itself. Indeed, first China then Russia ended up funding our banking system. As well as OPEC. And they can't feed the monster further since the US decided this year to run thing totally out of control, in the red. Handing out tax cuts and rebates like so many candy canes.
The rapid growth of turnover and increase in intra-regional trade and investment flows has not lessened the pre-eminence of USD crosses in the trading of Asian currencies. USD was on one side of about 97% of all transactions involving Asian currencies in April 2007 (Table 4 and Graph 6). This share was unchanged from previous surveys. In short, turnover data give no indication of a decline in the use of USD as a vehicle currency among Asian currencies. A vehicle currency is an international medium of exchange. It is the currency through which transactions between other currencies are settled. Currencies which are used as a vehicle are typically those with the lowest transaction costs. Provided that transaction costs are a decreasing function of the volume of transactions, the cost of trading two currencies directly is likely to be greater than the cost of transacting indirectly through a large third currency market (Krugman (1980), Hartman (1998), Rey (2001)).15
Among Asian currencies, the proportion of transactions against currencies other than USD is small and stable. For all currencies except the major ones, turnover by currency pair is available only for onshore trading. To the extent that these data are representative of total turnover, they indicate that the importance of non-USD trades ranges from 7% of IDR and THB turnover to 1% of HKD and PHP turnover (Graph 6). By contrast, 28% of EUR trades, 21% of JPY trades and 10% of AUD trades are against currencies other than the USD. IDR, SGD and THB are the only Asian currencies to have seen the share of non-USD transactions increase perceptibly, from 2% in 2001 to around 7% in 2007.
The graphs are clear: this is yet another system in divergence. One part is 'normal' and not really growing all that much while other parts that are easier to manipulate are shooting upwards at an increasing speed. These sorts of charts are indications of great danger and future pain.
Note how New Zealand, in its attempt at stopping inflation, became a favorite vehicle of the Japanese Carry Trade juggernaut.
The system is fatally flawed. Redesigning this is never mentioned except at the furthest fringes of online, non-mainstream commentary. The childish hope is, this mess can simply roll onwards forever. This is a stupid belief. It is obviously not fixable in the present form. Whoever does fix this properly will be the next ruler of the planet. And it won't be Americans doing this, either.
It will be the communists.