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More Naked Short Selling Gnomes And The DTCC

Halloween Tricks And Treats

Elaine Meinel Supkis

Halloween is here and the trickery and treatery treachery continues to cause market turmoil. That is, AIG's business with feeding and playing with the Derivatives Beast is now unwinding in the typical way such deals end: the monster eats its master. Right now, it is eating up $144 billion of US taxpayer funds. Also, the DTCC is in the news again because of its own relationship with this same fearful monster, the Derivatives Beast. And the Japanese savers are now being eaten by this same critter! Who would have guessed? And commodity inflation is again, taking off as Japan drops its interest rate to 0.3% and the US to 1%. Who would have guessed again? HAHAHA.

Click here for Wonkette's video of Born Again Christian Heathens worshipping the Golden Calf:

More Photos & Videos From Yesterday’s Sacrilege Wall Street Bull Prayer

All my life, I knew that the Born Again Christians were really demons working for the Antichrist. They embody all the most hateful things I ever encountered. And now we see them waving American flags and begging their demonic devil of a leader, the Fake Jesus Who Loves Money And Power, to give them money and power! Wow. HAHAHA.

Fed Adds $21 Billion to Loans for A.I.G.

The company said it would be able to borrow up to $20.9 billion under the new program, raising its maximum available credit from the Fed to $144 billion under three different programs. The credit includes an earlier emergency loan of $85 billion from the Fed that carries a much higher interest rate.
A.I.G.’s big borrowings underscore the company’s bewilderingly rapid decline. When it suddenly faced a cash crisis in mid-September, the original estimate of the amount it needed was just $20 billion. A few days later, the Fed stepped forward with its $85 billion credit line. And now, the stunning size of that original bailout has grown by almost 70 percent.
*snip*
The company’s financial products division did a lot of business in that type of derivative, called credit-default swaps.

To put things in perspective: the annual cost of occupying Iraq and Afghanistan including the bombing of Pakistan and Syria as well as border feints against Iran, cost us an extra $150 billion a year. So the rescue of an insurance fund is the equal to international war. The war expenses are inexcusable. But this is far, far worse.

We have to pause and ask, 'What is insurance?' It is the collective sale of risk which, by being spread as much as possible, can overcome periods of losses. These losses have to be calculated very carefully so that the insuring agents aren't swamped by some event.

Online, there is much talk about 'black swan events'. Well, we are seeing a massive flock of black swans migrating south. The fiscal skies are black with these birds of doom. For swans were the emblem of death as well as longevity. The ancient Romans ate swan tongues so they could gain youth. A black swan was supposed to be impossible. But then, when the Europeans sailed to places like Australia, they found that the only swans were black swans!

This is a good frame for the concept of 'the black swan' being a 'rare event.' Actually, there is always a yin to every yang. And the insurance risk swap game was predicated on an overall collapse being a 'black swan event' that would probably never happen.

Anyone reading the history of finance, debt and banking is struck by one major thing: they ALWAYS collapse into chaos! They always over slop the banks of the river of liquidity. They always over-expand. They always form bubbles. Ergo: the human tendency to go bankrupt is very strong! The impulse to overrun all barriers, to make too much credit available compared to savings, this is a constant, total temptation. This is why governments must have very powerful rules to prevent this.

AIG is eating up all our national fiscal resources just as certainly as major wars eat up resources. To have a country go deep into debt to keep a bunch of idiot insurance agents alive: this is the definition of a black SWAMP event. We are sinking into the muck and there is no bottom.

A Question for A.I.G.: Where Did the Cash Go?

A.I.G. had come under fire for accounting irregularities some years back and had brought in a former accounting expert from the Securities and Exchange Commission. He began to focus on the company’s accounting for its credit-default swaps and collided with Joseph Cassano, the head of the company’s financial products division, according to a letter read by Mr. Waxman at the recent Congressional hearing.
When the expert tried to revise A.I.G.’s method for measuring its swaps, he said that Mr. Cassano told him, “I have deliberately excluded you from the valuation because I was concerned that you would pollute the process.”

And what was this gentleman 'polluting'? Why, the money stream pouring out of the stump of the World Tree! He was polluting the flood of dollars pouring out of the Bank of Japan! He was polluting the flood of invisible money that was feeding the voracious appetite of the biggest monetary/financial entity ever created by gnomic minds: the Derivatives Beast!

Anyone interfering with the feeding and growing of this monster was ruthlessly eliminated. The gnomes doing all this were proud that they got more and more money so long as they fed the Beast. So it grew, they got richer and everyone was happy so long as no one had to collect insurance due to a failure.

Then, starting in July, 2007, the flood of money from the World Tree stump stopped when the Chinese Dragon put a basket on top of it and the yen began its long rise in value against all currencies. Since that hour, the monkeys have struggled to yank off this thing. More about that later. Seems like they might have succeeded. Yikes.

The gnomes are dirty little monsters. They consider people seeking to clean up messes to be mean, dirty, ugly. This is because they live in a reverse world. By moving into the Cave of Wealth and Death, they think up is down and in is out. The only way we can stop anyone venturing into this cave is to force them to obey strict rules or they die. This is Libra: the lady with the scales and the sword. She decorates many court houses. She is extremely ancient.

AIG is an anti-insurance entity:

Through spring and summer, the company said it was still gathering information about the swaps and tucked references of widening losses into the footnotes of its financial statements: $11.4 billion at the end of 2007, $20.6 billion at the end of March, $26 billion at the end of June. The company stressed that the losses were theoretical: no cash had actually gone out the door.
“If these aren’t cash losses, why are you having to put up collateral to the counterparties?” Mr. Vickrey asked in a recent interview. The fact that the insurer had to post collateral suggests that the counterparties thought A.I.G.’s swaps losses were greater than disclosed, he said. By midyear, the insurer had been forced to post collateral of $16.5 billion on the swaps.
Though the company has not disclosed how much collateral it has posted since then, its $447 billion portfolio of credit-default swaps could require far more if the economy continues to weaken. More federal assistance would then essentially flow through A.I.G. to counterparties.

Periodically I post these reports. I usually look at the forward fluff part and then run off to the footnotes because this is where all the real information is buried. This is what children learn in grade school: put all the bad news in tiny letters on the back page of something and then slap the peanut butter side of the sandwich to that side and smear it.

Failing that, say, 'The dog ate it.' How they have grown up! HAHAHA. And $447 billion in credit default swaps: well, that isn't pennies. All our top major bankers and insurers, hedge funds and other entities ALL jumped into the Derivative Beast's dinner dish here! And now, they want US to jump out of their frying pan and into the Beast's fire?

This, in total, is the plan! To have us make up the difference in these differentials of losses due to banking gnomes handing out mortgages to UNDOCUMENTED people [aka: illegal aliens, criminals in prison, never-do-wells and Joe the Plumber]. These mortgages are seeing a 90%+ default rate in a rapidly declining market. Wow. Who would have guessed?

But then, the entire system is now based on dark pools feeding darker pools which feed into the Derivatives Beast who sucks it all down, quite merrily. And now is sucking down all banking wealth.

Naked short sellers strike again!

The short sellers say they are scapegoats for the real villains in the meltdown. ``The shorts who warned about the real estate bubble have been proven right,'' Fleckenstein says. ``Now the government has changed the rules overnight. They're blaming the shorts and bailing out the ones who lost all the money and almost took the financial system down.''
Manuel Asensio, 53, president of New York-based Mill Rock LLC, says he and his brethren keep the stock market honest by going after companies with rotten accounting, dubious business plans and excessive debt. ``Short selling is an expression of doubt, not a criminal activity,'' Feiger says.
*snip*``
The management at Lehman, Bear Stearns and Merrill kept saying everything was fine. Then, every few weeks, they'd write off billions.''

Lehman, Bear Stearns and AIG all did the same thing: they stuck the peanut butter side of their lunches onto the reports and then handed the mess over to the SEC. Cox is a political appointee who paid no attention to this and when his staff complained, he told them to shut up. Now, he is in the news, pretending to care about the book reports from these gooey fingered gnomes. 'Bad, bad, naughty gnomes,' he cries.

Bears who trade on real information are very steamed now. The market has collapsed but is being artificially propped up. How's that?

Ah! By pouring trillions of dollars of US tax payer's futures into the markets! They are using every crummy trick in the book used by African or South American nations seeking to fix economic messes caused by cronyism and criminal manipulation of the bottom line.

According to Short Alert Research, a Charlotte, North Carolina-based firm that produces research for short sellers, from early July to late September short interest in 33 investment banks and brokers plunged by 33.3 percent. Yet, share prices still declined.
``It was the longs getting out,'' says Fleckenstein. ``Probably the insiders.''
*snip*
``During the year prior to passage of the Securities Act and Banking Act in 1933, there was a massive bear raid on Wall Street,'' Geisst says. ``Some executives were shorting their own stock.''

The longs getting out is fancy talk for the rats who run these joints jumping ship. The gnomes are palming off their dying industries into the laps of someone, anyone. Since bears are barred from buying, this leaves exactly who?

HAHAHA. If you said, 'Uncle Sam!' you win a Derivatives Beast magic decoder ring. This ring is wonderful. You put it on your finger and say, 'Make me rich!' and all your money vanishes! Every child should have one.

DTCC May Raise Credit-Default Swap Disclosure Amid Criticism

(Bloomberg) -- The Depository Trust & Clearing Corp., which operates a central registry for the $55 trillion credit- default swap market, may agree to disclose more data to counter criticism the derivatives amplified the financial crisis. New York-based DTCC has discussed with banks, brokers and others that own the company ``whether or not there's any broader access to information we might provide,'' spokesman Stuart Goldstein said in an interview yesterday, declining to elaborate on what data may be published.
The DTCC earlier this month began releasing some information on trades in the registry to clear ``misconceptions'' about credit-default swaps following the bankruptcy of Lehman Brothers Holdings Inc., among the market's largest dealers.
*snip*
Officials from U.S. Securities and Exchange Commission Chairman Christopher Cox to New York Insurance Superintendent Eric Dinallo have called for increased regulation of the swaps. Dinallo, in an interview that aired Oct. 26 on the CBS news show ``60 Minutes,'' called the market ``legalized gambling.''

One of the deeper, darker pools is the DTCC. I wrote about it in the past so we can just visit Culture of Life News back last spring:

May 11, 2008, Naked Short Traders In Red Hell And Black Ice:

A reader kindly sent me a new link, 'Deepcapture.com' which is a site run by a businessman who believes that the phantom financial world of naked short sellers in the hedge fund pirate/hell hound high seas has defrauded himself and other business people. To explore this story means plunging deep into the darker pools of finance, news reporting and downright demonic affairs with everyone pointing fingers at each other. There are no 'good' people in this story. But lots of lost souls and quite a few swindlers not to mention outright criminals, corrupt politicians and the many despicable follies and wild games of the people who are the bleeding heart at the center of our financial world. Like the DTCC, the organization originally set up to transfer ownership of stocks! All are now in this bizarre universe where there are many secret portals, secret chambers and invisible monsters that destroy or create wealth.

Here is my section about the DTCC from the May article above:

So, what is the DTCC? A crypt! A hiding place for invisible things! The place where ALL THE DERIVATIVE CONTRACTS ARE PROCESSED! HAHAHA.
What does the Cave of Wealth look like? We always have to answer this question when reading anything about the systems we depend on to create or regulate the flow of 'wealth'. Stocks and bonds are pieces of paper that are processed by humans and computers. Their relative level of wealth is very uncertain and shifts like the desert sands in the sighing night winds. The guardians of these various chambers in the Cave of Wealth call themselves 'wizards'. They know they are dealing with magical things and via joint efforts can assign values and purpose to all that they control. These wizards are supposed to be the gatekeepers who protect our joint wealth.
But they are sly and self-centered. They love to rig things and do riddles and such. They are also prone to playing games with gods and dragons. Always greedy and seeking some advantage over the masses of humans and giants working up above in the sunshine, these wizards hammer away in the darkness, seeking errors to exploit. They hope that gullible humans would say, 'Oh, you made a mistake,' or 'It takes you five days to process my check?' etc. I am old enough to remember the pre-DTCC days when stock certificates had to be moved from one broker to another. My previous husband had summer jobs working on Wall Street as a courier carrying these pieces of paper from broker to broker. He would go to the outer edges of the trading floor and wait to be called by a frantic trader and then would run off with a scrap of paper to some broker's office. A guy with the legendary green eyeshades would fetch the appropriate stocks from a big, fancy safe with lots of gold trim and pass it through a grill and he would have to sign off and put it in a pouch and physically carry it to the destination where the process was reversed. This took so much time, by the end of the day, there were stocks still not finished with this fetch and carry.
Eventually, during the run up to the big stock crash that ushered in the stagflation years where stocks were flatter than a pancake on a hot tin roof, every Wednesday the market had to close! Totally shut down so the young boys could run back and forth and finish moving stocks to their rightful owners who paid for them. Well, the Big Brains in charge of things said to the governing board, 'Let's build a house of bricks and the Big Bad Wednesday Wolf who shuts us down every week will huff and puff and we can still trade stocks!' So they built this big, brick and marble tower and locked the doors and not even young men wishing to get a start on Wall Street ever touched a piece of paper being traded again.
And when this new system happened, did the time lag between buying a stock and ACTUALLY GETTING IT vanish? HAHAHA. Being greedy, vicious monsters seeking eternal wealth with no labor or even ownership, the guys who set up this system said to each other, 'Those foolish humans and working giants are stupid. We will tell them that even though ALL the stocks are held now in our new brick and marble tower that looks like the Cave of Death, we will pretend that it STILL takes DAYS AND DAYS to process the paperwork and settle affairs! HAHAHA.' So they continued to pretend that it took at least 3 or more days to move the actual stocks into the hands of the actual buyers. Just like bankers, when computers removed all need to process mere 'money', pretend to this very day, it takes them several days to communicate with other computers that have electronic 01010s. Why, they have to use boys like 100 years ago to carry the bags to the front door and the the Brinks guards have to carry it to the other banks, etc! HAHAHA. Of course not. But it is a great fiction that allows banks to use our money for a few days on the overnight LIBOR markets which is yet another ancient thing that used to take time and now takes only a micro second to operate.
We see a pattern here: upgrade and modernize, speed things up to light speed or faster while at the same time, tell all the people being ripped off that the system is very slow and ancient and has many barriers to speed. Then, exploit this time frame ruthlessly to enrich the people who are 'in the know.' How simple is this? And it is also fraud, a swindle and totally evil. Thus, the childish glee this gives the wizards pulling off these tricks.

Now off to 0% interest heaven, Japan. Japan loved to pretend they were not involved in all this. But they were and still are. I would suggest, they are the deepest, darkest corner of all this. We got the news the other day that the LDP, the dictatorial power base of the children of war criminals, has decided not to have any elections until after the economic crisis is over. Think about this: for the last 16 years, Japan has complained about being in this depression while their export industries have ballooned and have taken first place in many industries!

Well! Japanese workers have been utterly crushed by the LDP. They are in severe decline and now are even unable to have babies! This is going to annihilate the Japanese people in the long run, literally and physically. Another group being robbed there are savers. Saving when the interest rate is 0% is impossible. So desperate savers had to go to con men for help.

Fears mount in Japan over complex yen products

Traders in Tokyo have given warning that about $90 billion (£55billion) of complex foreign exchange products, sold mainly to Japanese households and institutions, are on the brink of falling “like a house of cards”.
A rescue effort by the product issuers - large Japanese, European and American investment banks - is expected to involve extensive hedging measures that will throw global currency markets into even deeper turmoil.
The products, which are known as power reverse dual currency notes (PRDC), were sold to Japanese households as simple products offering higher yields than regular savings but the bonds were in reality hugely complex structures “with 15 moving parts and multiple points of pain”, derivatives experts at RBS in Tokyo said.
The products combine exposure to foreign exchange, interest rate differentials and domestic inflation and have formed a small but potent part of the so-called yen carry trade - the borrowing of yen to invest in currencies offering higher interest rates - a gambit thought to have financed huge amounts of global risk-taking in recent years.

Gads! I read a lot of news and I missed this 'PRDC' product! The name absolutely REEKS of the Outer Darkness! Power...that is the Ring of Power, the Rhinegold, the Ring of Doom, Draco, it is dangerous to wield. Reverse: in the Outer Darkness, up is down and in is out. Magic is all about reversals! Lightning is reversals! Yin and yang is magical. Dual: duality is the Twins. This is the force of duplication and duplicity. It is also yin and yang. Then there Currency: this comes from the word to flow! It is red ink. It is NOW at the same time. It flows yet it is the point of time when reality is actually happening, it is the connection between the Dire Twins, Future and Past, it is the connection between the goddess of Inflation and the goddess of Deflation. Life and Death.

So...when we see such a collection of dire, amazing, magical names to describe a dark pool, impossible to explain entity...try explaining credit default swap derivatives! I spend hours trying to explain this and other amazing concepts. The best method is mythology and cartoons.

Note the last sentence of the paragraph I highlighted above! This gambit of the Japanese FINANCED HUGE....HUGE...HUGE AMOUNTS OF GLOBAL RISK-TAKING...' Thank you, Bloomberg News, for admitting what I have yelled about for years and years! Everyone in the US media looked to China for causing trouble for us. It wasn't China, it was never China. It was Japan. This banking collapse is the fault of the Bank of Japan, not desperate Japanese housewives struggling to stay afloat.

They are VICTIMS. The Japanese workers are VICTIMS. The trouble makers are the LDP and the Bank of Japan working in collusion with the central bankers in Europe and America: the G7 and the G7 leadership. And the Bilderberger people as well as the assorted other Real Rulers. Whew.

Treasury, FDIC Said to Consider Guarantees to Stem Foreclosures

(Bloomberg) -- The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said. The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said.

Lower rates for five years and then raise them? HAHAHA. Won't work. Has housing in Japan climbed after the Japanese made a huge bubble at home? NO! Now that they flooded the entire planet with EXACTLY the same financing that destroyed Japanese housing values, will we recover?

No...unless we destroy the value of the dollar so it is cheaper. This is called 'inflation' and we just went through a very nasty wave of this sort of inflation. And it is not gone, it is gathering power to hammer us yet again.

Oil, Copper Lead Gains in Commodities on Outlook for Rate Cuts

(Bloomberg) -- Crude oil, copper, wheat and sugar led the biggest commodity surge in at least five decades on expectations that lower borrowing costs will aid a rebound in demand for raw materials.
The Reuters/Jefferies CRB Index of 19 raw materials rose as much as 6.4 percent, the most since at least 1956, when the data begin. China, the world's largest consumer of industrial metals, cut interest rates for a third time in two months. The U.S., the biggest oil user, may lower its benchmark rate to 1 percent today, according to the median forecast of economists surveyed by Bloomberg.

What a shock...NOT. I lived through this in the seventies! I remember that time. Has everyone forgotten? We didn't see one wave of inflation, we saw many waves. And everything didn't go up in tandem, things fluxed from one item to another. This wave motion was very restless due to everyone desperately seeking to escape it. The main thing is, whenever the government tried to bail out the economy via cheap lending, the inflation waves would slosh over very suddenly and usually, in horrible places like food and fuel!

And here is another old story of mine from exactly one year ago.

Gross DOMESTIC Product Is Up But This Is INFLATION

Culture of Life News, October 31, 2007: More news about and from the Federal Reserve. Stocks are up today based on this 3.9 growth rate of our GDP. Like all the lies surrounding our finances, using the GDP rather than the GNP is typical. It counts the spending on inflation-ravaged items to be 'commerce'. Inflation, not our economy, is growing, of course. So time to talk about all this and what it means as the world slides into an obvious recession caused by high inflation of raw materials and energy.

Isn't it pathetic? When the government was boasting that all was well, I said, 'This is not consumers being stronger, this is INFLATION.' As usual, I was right. The need to lie is part of the evil of being a criminal. Criminals lie. Libras tell the truth. Take your pick.

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And here is another video of the rear end of the Wall Street Bull at the top of the story. It is mildly dirty so click on it only if you like to have a ball. Culture of Life News Main Page

October 31, 2008 | Permalink | Comments (0) | TrackBack (0)

The True Nature of Banking Is NOT Lending

Otober 30, 2008

Elaine Meinel Supkis

White House press airhead, Perrino, tells reporters that banks exist ONLY to lend. This sets me off on my usual screaming fits since understanding the history of banking and the true mission of banking is at the very heart of the collapse of nearly all banks on this planet. Also, the gnomes are using the rescue funds to line their own wallets. Somehow, this doesn't surprise me at all, nor any readers here. Heh. And time to talk yet again about a very verboten topic: the flood of illegal alien home buyers who bid up housing to outrageous levels and who are ditching their purchases that are mostly only a year or two old, as they flee again.

White House tells banks to stop hoarding money

An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.
"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.
Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.

Dana Perino was selected for the same reasons her clone, Palin, is promoted by the Republicans: she is an airhead. Being congenially silly, she plays a good bimbo. The previous one who died was a male bimbo clone of Dan Quayle.

First of all, banks do NOT exist to 'lend money.' They exist to make a profit! If lending money brings profits, they do this. But their chief original function was to HOLD money for others. The only people who could get loans were people who had big holdings in these early banks. Say, you were a merchant. You could cycle in and out of this lending/capital creation entity. A peasant couldn't go to the bank and ask for a loan!

This was true for many, many, many centuries. When poorer people wanted loans, they had to go to a loan shark. Even in my own lifetime as an adult, people who had no capital had to go to the Mafia for loans. If they didn't pay up, they had bad accidents. Like putting on shoes with cement and then falling into the East River at night.

The beginnings of lending to people with no capital, no property was very gradual. When someone wanted to buy a house, and I was very much one of these people back in 1970, you had to put at least 20% down to qualify for a loan. If you wanted to buy on a credit card, and I had one of these, you put some money in a bank account and American Express would then give you your own money back plus a small forward amount in emergencies [which cost extra!] for a fee. I paid no interest unless I tapped into the emergency fund. This card was used when traveling, especially overseas.

The first credit cards were very difficult to gain! You had to have a sponsor if you didn't have property. Like, mom and dad, for example. Then, the laws were changed. The government was lobbied very hard by the bankers to change the usury laws. Once this was done, they flooded the US economy with easy debt that was very hard to pay off. This was due to the increasingly high interest rates.

One of the many tricks they use to trigger these rates is, if you accidentally go over your limit, they don't stop the use of the card. Instead, they silently reset the interest rates due on the ENTIRE BALANCE from say, 9% to 33%. Then, the poor person goes into shock when they see the impossibility of paying off these debts.

This happened to someone dear to me. We bailed out this person for this is why families are far stronger than individuals. I am a hearty believer that families should stick together. The lessons were learned and frankly, I was quite enraged that Sears would sink so low as to play this sort of Mafioso game. Indeed, I boycotted Sears for years due to this ire.

The childish belief that banks exist to only produce loans is why our banking system is dying. Perino isn't the only airhead running things. She is typical, not exceptional. There are many ugly airheads around. I see them in the news every day.

The United States believed in saving money in my youth not because it was good but because the banks demanded this before they lent anything. The process of socialization was rather simple. When I was only a child, I couldn't wait until I could deposit my babysitting loot in my own bank account. I kept this account until the beginning of the banking collapse in 1970. Then, I went to Wells Fargo and had a big fight with them and withdrew all my money.

I didn't go into debt to go to the University. I worked from May to September in a local bar and this paid enough to live on all the year and pay for school fees! And go on vacation. And I didn't work five days a week, either. Life was good fun back then. Heh. And I learned a lot about banking and business chatting with my customers who were sex-starved gnomes and so, eager to have a young thing listen to their war stories.

The late 1960's was America's financial high tide. It was quite wonderful, actually. I was able to buy hundreds of classical records, dresses and my truck as well as other nice stuff just on babysitting money, working part time ON MINIMUM WAGES. In college, I worked only part time [much higher than minimum wage] and had plenty of leisure and came out of this with zero debt while living in my own two bedroom house which cost me $68 a month. My utility bills were about $12 a month. My pay was about $75 a week and sometimes a lot more due to tips. A dollar was worth something back then. Rent was supposed to be less than one week's wages, not the present 50% of income we see so often today.

Anyway, before you could buy a house, the bank wanted you to pay back some sort of loan. I was rather pissed about that requirement when I went to buy my first house. I always paid cash for things and saved! I asked the officer, what should I buy? He said, 'Buy a car.'

'I already have a 55 Chevy which I rebuilt, with cash,' I complained. Well, I had to go into debt to pay for my first child's doctor. Then, I qualified for a mortgage! This illustrates how parsimonious bankers were before Ronnie Reagan.

Wall Street Won't Surrender Bonuses Amid Outcry, Veterans Say

(Bloomberg) -- Wall Street's chief executives will hunker down and pay bonuses this year in the face of the worst financial crisis since the Great Depression, a taxpayer bailout and mounting political outcry, industry veterans say.
Odds that Wall Street will forgo the payouts are ``slim to none,'' said John Gutfreund, 79, president of New York-based Gutfreund & Co. and the former chief executive officer of Salomon Brothers Inc. ``They're going to have to be a little bit sensitive because politicians, whether they like it or not, are part of their lives now.''

Gnomes are gnomes. Through and through. They aren't just cartoon characters I created. This is their fundamental nature. They are grasping and vicious. They consider the loss of a penny to be worse than dying. They will steal the silverware and eat you out of house and home before giving up a penny. With goddesses, they are foolishly, deliriously generous. But with the people rescuing them, ie, the US taxpayer, they are churlish and snap back.

'Hey! We own the politicians! Try and stop us from looting you schmucks!' snarl the gnome community as they stuff their sacks and rush home. It is very easy to make Wall Street 'forgo their payouts': arrest them all! Then fine them triple of what their payouts would have been. This would be a sharp lesson to these Mafia wannabes.

On November 22, we will be demonstrating in many cities, I hope, demonstrating our ire about the bank rescue and the Federal Private Banking Gnome Headquarters Reserves.

U.S. Treasury Program Shuns Banks That Need Cash Most

(Bloomberg) -- The U.S. government's $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say.
``This has the unintended effect of making the strong stronger and the weak weaker,'' said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. ``Banks that are getting bad exams and are under intense pressure from regulators won't be successful in applying.''

I am not surprised by this news. At the Congressional hearings concerning the bank bail bill, officers from top investment banks sat on either side of me and talked with each other over me until one of them suddenly noticed I was writing down what they were saying. Then they clammed up.

They figured, no one would notice a $700 billion bank heist. When I arrived in DC, the firestorm over the proposed rescue plan was so great, all of Congress was seriously worried. Now, they are not so worried. This is bothersome. This being an election year, no one feeds the US political golden goose more goodies than Wall Street and in particular, the banking gnomes. So outrage is rather muted, to say the least.

Instead, we talk about that mythical and fake creature, Joe the sort-of-plumber who now wants to be a country western singer who, I presume, will croon about his sex life going down the drain due to lack of funds.

Unintended effect???? HAHAHAHA. When I was in the earlier hearings about the bail the gnomes out by buying them all yachts bill, everyone talked about all the things that are now going on. Everyone knew that the bill was going to allow a bunch of sex-crazed gnomes to raid the public till. There was talk about stopping this and having the bail out be strictly so that US people could pile more debt onto our homes and businesses.

Instead, it piled more loot into the bank vaults of a bunch of pirates. Was this unexpected? Well, back in September, I wrote about the funds given to both GOP and DNC members in Congress. It was a huge amount going to the regulators who have to please this army of well-heeled bribesters.

Banks to Continue Paying Dividends Bailout Money Is for Lending, Critics Say

U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years.
*snip*
Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends -- or conversely, why banks that need government money are still spending so much on dividends.

The deal is, the rescuing entity will get dividends. See? So the government lends money at insanely low rates, not credit card rates, takes on ALL LOSSES and then, on top of this, guarantees all dividends of what are essentially bankrupt banks? HAHAHA. This is not a great way to get rich, incidentally. The dark arts of going bankrupt have, through history, been the only way to fix broken businesses or banks.

The tragedy of the Soviet State was, they couldn't let any businesses go bankrupt. So the entire nation went bankrupt. Not exactly a good outcome. I keep pointing out that the US is becoming the Soviet Union. These bail outs are obviously right in step with Soviet thinking. Torturing people,indefinite imprisonment,running gulags, limiting public protests, tasering peoplefor asking 'interesting questions,' throwing away the Constitution, concentrating power in the White House Kremlin clone, etc: we even are fighting a futile war with the very same Afghani groups that destroyed Soviet power!

And here is McCain and Palin claiming that Obama is a communist. HAHAHA. I wish he was a Chinese communist! They seem to know exactly what capitalism is! The present regime in DC is utterly clueless about what capitalism is or what banks are.

The government is in collusion with the people who destroyed not only our banking system but who conspired to turn traditional banking into a debt machine. A machine that has ground out endless red ink, red ink that is killing our nation and drowning the world with cheap dollars. Note how much I paid in rent for a two bedroom house, not apartment, with a yard and a place to park my truck!

Reserve Fund’s Investors Still Await Their Cash

The national “bank holiday” that ushered in the New Deal in 1933 locked up the public’s cash for four days. The crisis that hit last month at the Reserve Fund, the nation’s oldest money market fund, has frozen hundreds of thousands of customer accounts for more than six weeks — with no sure end in sight.
At least 400,000 people, and perhaps as many as a million, can’t get access to their savings, a problem that has quietly persisted in spite of widely publicized federal efforts to restore confidence in money-fund investments.
*snip*
And the Reserve Fund had seemed the least likely candidate for trouble, given its long and stable history — its founder, the legendary Henry B. R. Brown, had invented money market funds.
Initially, the company simply announced that it would delay redemptions from the Primary Fund for up to seven days, as allowed by law. Customers were somewhat reassured, but anyone trying to get additional information was met with busy phone lines and unanswered e-mail.

First, let's go to the web page of this ponzi scheme operation and look at two press releases:

Here is The Reserve's press release from September 16, 2008:

The Board of Trustees of The Reserve Fund, after reviewing the unprecedented market events of the past several days and their impact on The Primary Fund, a series of The Reserve Fund and taking into account recommendations made by Reserve Management Company, Inc., the investment manager of The Primary Fund, approved the following actions with respect to The Primary Fund only:
The value of the debt securities issued by Lehman Brothers Holdings, Inc. (facevalue $785 million) and held by the Primary Fund has been valued at zero effective as of 4:00PM New York time today. As a result, the NAV of the Primary Fund, effective as of 4:00PM, is $0.97 per share. All redemption requests received prior to 3:00PMtoday will be redeemed at a net asset value of $1.00 per share.
Effective today and until further notice, the proceeds of redemptions from Primary Fund will not be transmitted to the redeeming investor for a period of up to seven calendar days after the redemption. The seven-day redemption delay will not apply to debit card transactions, ACH transactions or checks written against the assets of the Primary Fund provided that any such transaction from an investor, individually or in the aggregate, does not exceed $10,000.
The Primary Fund will continue to accept purchase orders.
Effective tomorrow, September 17, 2008, the NAV for the Primary Fund will be calculated once a day at 5:00PM, New York time.

Here is the death notice:

Here is the press release just one month later, on October 27, 2008:

Many shareholders have contacted us regarding the status of their investments in Reserve funds. We hope the information below answers some of your questions.
Suspended Purchases:
We are not accepting subscriptions in any of the Reserve Funds.
Suspended Redemptions and Liquidating Funds:
The U.S. Securities and Exchange Commission (SEC) has issued temporary orders permitting the suspension of all rights of redemption for the following funds:
PRIMARY FUND U.S. GOVERNMENT FUND of the Reserve Fund
*INTERSTATE TAX-EXEMPT FUND* CALIFORNIA MUNICIPAL MONEY-MARKET FUND
* CONNECTICUT MUNICIPAL MONEY-MARKET FUND* FLORIDA MUNICIPAL MONEY-MARKET FUND* MICHIGAN MUNICIPAL MONEY-MARKET FUND
* NEW JERSEY MUNICIPAL MONEY-MARKET FUND
* OHIO MUNICIPAL MONEY-MARKET FUND* PENNSYLVANIA MUNICIPAL MONEY-MARKET FUND
* VIRGINIA MUNICIPAL MONEY-MARKET FUND of the Reserve Municipal Money-Market Trust II
* NEW YORK MUNICIPAL MONEY-MARKET FUND of the Reserve New York Municipal Money-Market Trust
* ARIZONA MUNICIPAL MONEY-MARKET FUND* MINNESOTA MUNICIPAL MONEY-MARKET FUND of the Reserve Municipal Money-Market Trust
* RESERVE YIELD PLUS FUND of the Reserve Short-Term Investment Trust
The Boards of Trustees (the “Boards”) are working on plans to effect the orderly liquidation of the foregoing funds, subject to supervision by the SEC. The Boards seek to ensure that all investors are treated fairly and receive their money in the shortest time consistent with realizing the fair value of the securities. The Reserve intends to begin making payouts as soon as practicable.

In other words, the fund is bankrupt. Note how it was cleverly named to make it sound like these government funds were bonds held by the Federal Reserve. This is a common problem. Bankers would name their banks after government entities like 'The Bank of New York' but they are really dangerous private enterprises. Not that they are really that anymore, anyway. Now that the bankers have raided the Treasury to get their bonuses and dividends!

Usually in a collapse, the first funds to tank are those which appeared the safest. This is yet another typical example. This, the oldest of the Funds which are destroying global savings and wealth, was slain by the Derivatives Beast. He ate the whole thing. When he ate Lehman Brothers, nothing was left, barely any bones!

These funds were quite ordinary. And thus, not all that profitable. When inflation raged ahead of the value of these instruments, the desperate fund managers wanted it to grow, anyway, so they played those stupid, useless and destructive credit default swap games. And interest rate flux games. And monetary values market games. And lost their shirts! This sort of hyper-risky activity is due to the dollar dying! And what is killing the dollar?

Hyperlending. Especially to governments. And the wildest borrower is Congress and the President of the US. The same people putting another trillion plus debt on top of the ten trillion mountain of debt we already owe.

Barclays Seeking Bids on $4.5 Billion in Bonds and Credit Swaps

The average hedge fund has lost more than 18 percent this year, according to the HFRX Global Hedge Fund Index. Managers are selling assets to meet demands from lenders for more collateral and investors that want their funds returned.

Investors forced to sell a record $2.3 billion of leveraged loans this month sent prices tumbling to a record low 66 cents on the dollar last week from 88.5 cents at the beginning of September, according to Standard & Poor's LCD, which earlier reported the Barclays loan sale. The sales were forced by clauses in funds' borrowing agreements that require them to raise money when prices drop below a set level.

In other words, the gnomes have to return the loot to the investors who want to run away as fast as humanly possible. When I rented my house for $68 a month, there were zero hedge funds in the universe. When the average American had to cough up $3,000 a month to rent homes, we had thousands of these hedge funds. There is a direct connection here.

Old banks were very parsimonious about lending for housing. The flood of debt that poured into all markets due to hedge funds funneling loans from 0% Bank of Japan to our markets has destroyed the value of the dollar. This is because the Japanese wanted to destroy the value of the yen so they could destroy our industrial base.

To keep the yen weak, the Bank of Japan had to make the carry trade flourish. Note how, when the yen got strong, the carry trade ended and LIQUIDITY VANISHED ACROSS THE PLANET! And all these funds have been caught in the wringer here. They are the funnel for these outrageous loans. The Bank of Japan didn't give a hoot how improvident the lending was, they lent to anyone.

It should occur to people that the Bank of Japan did this before! Like, a decade earlier. They cheerfully handed out loans all over the place and Japan's property and stock markets had a monumental bubble. Then, the Bank of Japan turned and did this to the entire planet. The US wasn't the only place that saw epic real estate and corporate debt hikes. The housing bubble was pretty much global.

CNN: Price declines picking up

Of course, the August indexes don't reflect the financial market meltdown that hit in September and severely restricted access to credit, according to Richard DeKaser, chief economist for National City Corp (NCC, Fortune 500). He believes the pace of price declines has picked up since then.
"There are two explanations for these steeper declines," he said, "neither of which are encouraging. One is that the difficulty in obtaining credit has further constricted demand. The second is that home sellers are finally capitulating on prices. They've been holding out for months, refusing to sell except at their prices. Now they're throwing in the towel."
*snip*
Much of that statistical trend is being driven by data from hard-hit western states like California. The California Association of Realtors reported last week that home sales volume jumped a whopping 97% in September compared with the same period a year ago. But the median price of an existing home has fallen 41%.

Like the huge Japanese bubble, all these bubbles are going flat the same way and at the same rate. The US led the pack only because we were showered with the most red ink in the past. Attempts at restarting lending under these circumstances is impossible. But fixing this is even more impossible if the Bank of Japan isn't punished for what they did!

PUNISHMENTS MATTER!!! For example, the other G7 could condemn the Bank of Japan and isolate it. Forbid all commerce with it until it is thoroughly reformed. This means, first shutting down all the pirate coves which were the places that took the carry trade loans and sent them to various countries to load up debts. The US public financed a great deal of our debts via inflating the value of our homes. So now, we are rapidly losing wealth. 0% loans on homes are not happening. Even as the Fed drops rates, house loans are going up, not down, the interest rate mountain. This is due to the simple fact that everyone sane expects future inflation from all the money creation.

Meanwhile, Libra resets her scales in a rather violent way. As we plainly see. The Derivatives Beast is doing an epic job of eating up credit. Unwittingly, the gnomes themselves birthed this monster. And they want us to slay it for them. And then resume the financial games they played with Japan.

Click here to see video of abandoned houses filled with things bought on credit and then left behind: Foreclosure Alley

By Correspondent Lisa Ling

For the past few years, the Inland Empire in Riverside County has been one of the fastest growing counties in the state - home to a major housing boom. But now the Inland Empire is pretty much the poster child for the foreclosure crisis. In the newer developments, house after house sits vacant - either up for auction, for sale by a bank or going for what’s called a “short sale” which is when the owner owes more than the house is worth.
SoCal Connected tracked down some surreal sights associated with the crisis - a company that specializes in removing whatever people leave behind in their foreclosed homes. The process is called a “trashout” - a term the company came up with because it perfectly describes what happens. Everything that’s left is dumped in a trailer and taken to the landfill.

Several things are important here and seldom talked about. One is, the US consumer has grossly over-consumed. The video above is most infuriating. I have scavenged all of my life. Dumpster diving is great sport! Rich or poor, I could never resist dumpster diving. Watching them simply throw away perfectly good, often new, stuff, is amazing. They couldn't get anyone to come and get it!

I am just aghast. The people living in mostly new houses here in this video went on massive decorating/buying sprees after going very deeply into debt, buying the house on easy credit. When they couldn't pay even TWO YEARS of this high-living, they hightailed out and leave nearly everything behind?

Another thing struck me: nearly all the stuff was new. This means, they probably had very little belongings when they moved. I have moved a number of times and each time, required a moving van after age 28 years old. The real estate boom of the Sub Prime years which were from 2004-2007 were not normal house buying years. This was the period whereby banks who forgot the real rules of banking, were anxious to hand out loans to total strangers who didn't have to prove income or even citizenship.

The Hispanic community of illegal aliens believed that if they owned big houses, they would be able to force the government to hand over citizenship even though they jumped the lines in, so to speak. They came illegally. Here is a New York Times graph that clearly shows how this worked:

Note first of all, both Black purchases of homes and general population purchases began a steep decline in 2004. And was NEGATIVE during the HEIGHT of the bubble! On the other hand, the flood of often illegal Hispanic buyers shot up that very same year! Everyone else was exiting the markets because housing was too expensive. Were Hispanics suddenly earning much more than the general population?

NO! But they happily took on epic levels of debt in the hopes of gaining citizenship. Whole real estate businesses were predicated on luring them into very expensive homes. Most sane people would take one look at the high future rates of the various lending tricks and shake their heads and hold onto their purses. But not illegal aliens seeking to prove they had roots!

In 2005, I published a story declaring the housing boom had peaked. And I was right except for this one sub-market of buyers. The very reckless buyers who interfaced with very reckless bankers who took cynical advantage of their weakness.

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0% Global Interest Rates Totally Destroys Banking

October 29, 2008

Elaine Meinel Supkis

Dear readers of this edition: Typepad stupidly changed their coding. It is very buggy! I can't get it to work right and it is their fault. Especially when it comes to making things bigger or smaller, it does this RANDOMLY. I hope to correct this and am fighting with their staff. Like many computer coders, they think it is the fault of my previously fautless coding skills! So we are at logger heads for the time being. I hope to hammer home the fact that the outcome of our joint efforts at coding has some problems that are NOT at my own end. World stock markets are shooting up like a rocket based on the perception that the G7 central bankers and politicians will restart the destructive status quo that involves the US allowing the flood of exports to enter our country and devastate our industrial base. Great news, eh? All this will be fed by an orgy of 0% financing. Sounds like all those auto commercials. As we watch the entire concept of banking go into this moral collapse, it pays to look closely at the deals we are accepting here. Just like those auto loans at a fake 0% interest rate: read the fine print and see the truth.

Three-Month Libor for Dollar Falls to 3.42 Percent, BBA Says

The comparable euro rate fell 2 basis points to 4.83 percent today, the 15th consecutive decline, BBA data showed.

The LIBOR rate is finally falling. Or so hope our foolish experts. If only they can get this low enough, all will be well! I recall, during the previous 20 years, everyone who pretends to be economic experts marveled at how cheap credit was and how low inflation was, that is, after the 1971-1982 waves of increasingly bad hyperinflation.

I lived through this entire span of time as a working mother who had to cope with these waves of inflation as well as swimming in the real estate shark pool a lot of the time. So I always was hyper-aware of the interest rate fluxes. Also, we did business overseas so we were aware of currency valuation fluxes, too. Since this is personal and not something I read in a book, I have vivid memories of my problems during this time and how I coped with these sometimes, huge problems.

From 1971 onwards, as the US government and the private banking conspirators in the Federal Reserve struggled to keep the economy growing while piling up huge debts thanks to wars, the goal was always to have credit as cheap as humanly possible. The business about 'taking away the punchbowl when the party gets interesting' was just pure propaganda.

At no point has this ever happened. In the past, the Fed raised interest rates whenever anyone overseas came to knocking at the front gates of Fort Knox, demanding their new-minted dollars which often were created overseas via lending, be turned into physical gold. For example, when the Fed dropped interest rates to restart the US economy after the Great Crash of 1929, France merrily made loans in France based on their DEBT trade with the US and then they raided Fort Knox for gold! Even as the government was demanding the US bankroll Germany's reparations by lending to Germany so Germany could give these dollars to the US and then France would take these same dollars and trot back to the US to demand gold!

Now, we don't care about any of this since Europe tried this yet again in the 1960's and drained away 75% of the gold at Fort Knox. Now, we simply have no gold peg. Nations now live with this floating currency game which is making many people very rich and even more people, very poor.

The LIBOR rates are now dropping but are still hundreds of basis points above the fake rates set by the central bankers. The news that the LIBOR has dropped has to be offset with the news that the LIBOR drop hasn't even begun to catch up with the rate of artificial drops being engineered by the punch bowl boys in the central banks.

Fed May Cut Rate to 1%, Signal Steps to Save Economy

(Bloomberg) -- The Federal Reserve may lower its benchmark interest rate to 1 percent today and signal further reductions to levels unseen since Dwight Eisenhower was president.
Tumbling commodities prices and weaker consumer spending are slowing inflation, which officials described as a ``significant concern'' at their last scheduled meeting in September. Tomorrow, the Commerce Department will probably report that the economy shrank at a 0.5 percent annual rate in the third quarter, the most since the 2001 recession, economists predict.
The Fed ``will be very aggressive,'' said Mark Gertler, a New York University economist and research co-author with Fed Chairman Ben S. Bernanke. ``Inflation risks are off the table'' and ``the issue now is how bad the recession will be.''

World stock markets shot through the roof on wishful thinking that the US public will have access to 0% financing and thus, be able to buy, buy, buy more stuff. I shall disabuse everyone of this notion. It isn't going to happen.

But first, I have to address a philosophical issue today: the central bankers are destroying banking in their looney game of trying to control economies via interest rates! The role of bankers is rather simple: they have to balance the creation of credit with reserves and savings! They don't sit down and say, 'Should we make the economy hotter?' They shouldn't decide, unilaterally, 'We should cool the economy, it is growing too fast.'

They have one job: to preserve the reserves and to grow it so it keeps up with credit creation.

This is what has failed! This is why all banking is now collapsing! This is a total failure of the entire philosophy of the concept of central banking! The ebb and flow of interest rates is due to trade issues and wars. And the only role the bankers have in all this is to raise the rate's basis whenever they notice that someone is borrowing too much and is becoming a credit risk.

This means tracking statistics and this is in particular, the M3 stats that Bernanke just cloaked in obscurity. When there is too much debt, the chance of going bankrupt rises in direct proportion to the climb in borrowing. Red flags appear and to stop the madcap borrowing, the bankers are supposed to raise rates! How simple can this be?

Well, the mandate of the bankers is NOT to protect our savings. That is obvious. Savings are always sacrificed on the altar of 'growing the economy' via debt creation. Since no one ever wants this faux growth to stop, the tendency is to keep interest rates below the rate at which it can attract enough savings to capitalize the banking system.

The globe has collectively decided this month that savings will not be encourage, spending will be encouraged, no matter what. So the savers of the world will be asked to gain nothing while they don't spend. And wild spendthrifts will be encouraged to run riot even more. And no nation is more spendthrift than the US.

Consumers Feel the Next Crisis: It’s Credit Cards

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers. The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Credit card companies are allowed to charge ruinous interest rates on easy credit. The fewer questions asked of people being lent money, the higher the interest rate charged against them. The flood of no questions asked lending is leading to a flood of defaults. Credit cards don't mind this, the fees they gain when people fall behind are even greater than the interest collection rates.

Most people pay only the interest on their credit cards so it is pure gravy. A $1,000 purchase can gain a $3,000 profit for the credit agencies.

Anger at 222% Christmas credit card

Major high-street retailers are targeting poor families with bad credit records to prop up their Christmas sales during the credit crisis.
Dozens of high street stores are taking part in a doorstep lending scheme which charges poor families extreme rates of interest. Woolworths, Comet, B&Q and Mothercare and 92 other retailers have been accepting vouchers that are repaid by borrowers at an annual percentage rate of 222 per cent – more than 10 times the rate of a credit card.

Nearly exactly a year ago, I wrote about oil, inflation, interest rates and international central bankers messing around with global trade. The entire article including the data I published is one of my more important stories. The entire efforts of the trade circle of the EU/US/UK and Japan, the G7 group, was aimed at stopping the banking collapse by pouring into the gaping maw, not savings but money created by the central bankers. I was totally against this. I correctly said, the important thing here is to reorganize global trade so it is balanced.

October 30, 2007 Federal Reserve Wants Infinite Debt And Low FOREX Reserves

One of our readers sent this link. I was curious about it since it involves tidbits of data. Like a cat's paw marks on wet cement...ever pour cement? At night, all the animals come to walk on it. When I poured the cement floor to my basement, the dogs, cats, a deer and one horse hoof print appeared at night on it. I didn't fill them in, they amuse me. Anyway, in the banking system, things have to run 24/7 so the Federal Reserve is always open for special solicitations for funds. Generally speaking, banks prefer to make deals with each other and not share 'business' but when business involves working with stinky things like trashy tranches, the Fed is the bank of last resort.
The other time of mega-high rates was in 1980 due to the Iran oil boycott and hyperinflation at home. Unlike Greenspan, Volker raised rates to equal the real inflation rate. I genuinely believe that virtually no one remembers this time period. I remember because I had to do business via barter back then due to high rates. Certainly, I couldn't call a banker. And that was also when banks gave me trouble with money I deposited. They held onto it for as long as possible while I wanted it as fast as possible. Check clearing took forever.
Remembering all this, we look at that 15% deal in mid-October with a sens of foreboding. When there was this sudden hike in the overnight funds meaning that someone came slinking up to the Fed window with a bag of cow droppings, they couldn't get anyone to give them lending loot except at a very high rate indeed. Namely, someone thinks these guys who are probably attached to some pirate ship out at sea, are not long for this world. Too bad we can't tell who this person is. As I keep saying, despite the claims that we have an open system, it is very much 'insider trading' all the time. We get to know enough to think we know what is going on. But this is an illusion. Here it is: we are in trouble due to wild lending at super-low rates leading to the bidding up of various assets and things of every imaginable sort from the futures markets to stock markets, housing markets, etc. The entire problem came about due entirely to the Federal Reserve dropping interest rates lower and lower back in 2001 starting from January 6th of that year. Previous to the election, they tightened the screws, claiming there was inflation even though we were obviously in a recession. Looking at all the data 7 years later, one notices immediately that all the nations of the world went into recession starting in late 1999 and through all of 2000, a time when the Fed raised rates over and over again.
The minute Bush was declared the 'winner' of an election he lost, Greenspan began to loosen rates...right in the teeth of Bush and the GOP irresponibly granting many huge tax cuts to everyone! Then we had 9/11 and rates dropped from a super-low of 3% to a super-duper, mega-low rate of 1%. Right in the teeth of obvious energy inflation. Energy is always a driver of inflation. It doesn't matter what the interest rates are, if energy is rising, inflation rages. This is because energy is a powerful component of all economic systems. From manufacturing to transport, energy is consumed. And as it rises, either wages are cut or profits vanish or both which causes either inflation if both can be passed on or a depression if neither can be passed on and trade and manufacturing slow down.

One of the readers here sent me a link to iTulip.com where one of the members mentioned that the oil crisis of the stagnation years from 1972-1984 was 'fake'. This is typical of many people who were probably too young to remember what happened during those years or were too politically unaware of what was going on back then. My own father was sent to Saudi Arabia in 1974 to be a friendly envoy to persuade King Faisal to cooperate with the US and bring down oil prices.

Instead, the king was simply assassinated and replaced with a man I called, back then, 'The Evil Uncle'. The price of oil suddenly shot up due to wars. The price of oil ALWAYS shoots up due to wars! The more wars, the more the price of oil shoots up. During WWII, the price didn't shoot up because the government rationed oil. During the 1970's, the US again, rationed oil! Who would have thought!

Every time the price of oil is allowed to climb due to wars, we get inflation. This is an iron rule. If people want cheap oil, they can hope for no wars. When Bush and his oil buddies from Texas and Alaska were all agitating for war with Iraq, I warned everyone that this would mean global inflation from high oil prices. And of course, this is exactly what happened!

So, let's go back to Culture of Life News exactly one year ago, October 29, 2007: Energy Drives World Economy Off Cliffs

From Bloomberg: Crude oil climbed above $93 a barrel for the first time, extending this month's gain to 16 percent, after Mexico shut a fifth of its production and the dollar fell to a record low.
State-owned Petroleos Mexicanos, the third-largest supplier of crude to the U.S., halted about 600,000 barrels a day of output as a storm barreled through the Gulf of Mexico, spokesman Carlos Ramirez said in Mexico City. The dollar dropped to $1.4426 per euro, the weakest since the introduction of the 13- nation common currency in 1999. End Bloomberg quote.
There is now a lot of proof that dollars no longer are the basis for oil trading. Namely, every time oil is constricted in some way, the price shoots up more if paid in dollars than paid in euros. So inflation for anyone using or holding dollars is significantly higher than if they use euros.
This dynamic is fairly recent. Ever since Greenspan dropped interest rates to 1%. The aftershocks of this stupid ploy to 'revive' the economy after the Dot Com collapse are still shaking world energy markets. The US itself is aggravating all this by dropping interest rates in the teeth of obvious inflation above 5% and threatening more wars in oil pumping regions.

Why are oil prices dropping this season? It is equally simple: the US and EU have ceased attacking Iran. The threat of war is rapidly fading there. The US is confining its attacks to Pakistan and Syria, non-oil nations. It is leaving the Persian pussy alone. The guys at the top know perfectly well, if they make oil expensive right now, the global economy will continue to collapse. So they are tweaking foreign policy statements and actions to create the illusion of peace.

If the price of oil drops below $50 a barrel, expect more wars in the Middle East.

Back to my story from October 30, 2007:

China's markets are continuing to rise. Of course, they too will fall in the end as a global recession caused by the US overspending and excessive debts and too-small reserves will grip everyone by the throat. Only we won't sail out of this with our empire intact and our power greater. China's retraction will be painful but ours will be fatal. This is due to the logic of all imperial collapses. Just as England, no matter how she twisted and turned, could not shake the depression she caused, so it is with us. Both Germany and the US grew stronger from 1933-1939 while England weakened. When WWII finally began, it really was a confrontation of the new Great Powers: Germany, Japan, the US and Russia. England struggled in vain to hold onto its rotting empire. If the US didn't fight Japan, the Japanese would have finished off the last of the imperial holdings of Australia and India, for example. But the US propped up Britain across the planet and in the end, did most of the manufacturing of war materials.
So now, in this collapse, China will be the world power when all this unwinds. It is quite simple: China isn't up to its eyeballs in debts. And if the US discharges its debts like Russia did twice in the 20th Century, this will destroy us just like it destroyed Russia. And unlike Russia, the comeback won't be easy. Russia has energy to spare. We are on the down slope of the Hubbert Oil Peak and are very vulnerable since our entire transportation and living systems are set to a model that assumes cheap, easy oil.

All over the news are stories about how the G7 are rushing to the Dragon Throne to beg China to bail out everyone. When China's ruler, Hu, went to Africa and openly bailed out IMF victims there, the US and Europe's media and punditry went totally insane with fury and fear. They claimed that China wasn't rescuing Africa but enslaving Africa. HAHAHA. So look at today's news:

British Leader Calls for Larger I.M.F. Bailout Fund

Prime Minister Gordon Brown of Britain called Tuesday for China and the Persian Gulf states to put up more money to help the International Monetary Fund deal with the fallout of the credit crisis.
Mr. Brown’s appeal grabbed the spotlight ahead of a meeting on Tuesday with President Nicolas Sarkozy of France, who called the proposal interesting and vowed to work “hand in hand” with the British leader — just as they had on a coordinated rescue plan for European banks. Mr. Sarkozy said he also believed that the fund needed “additional means” to help ailing economies.

Sarkozy thinks he will get his mitts on Chinese money and then use it to aggrandize French powers? HAHAHA. Mon Dieu! So, China and OPEC are going to bail out Europe? And these guys in France and Britain will back slap each other and imagine, these two devastators of the Chinese and Ottoman empires will be given more power? Are they this blind to history?

The concept that the victims of 500 years of European aggression will hand over goodies to Europe to make them stronger is just beyond pathetic. It is pathological. I try to put myself into other people's shoes. I assume Chinese patriots are like me. Ditto, Japanese patriots. Or Muslims are to their own history. Everyone carries this historical matrix in their minds at all times. Ignoring this is stupid.

Americans try to ignore history but look at the Deep South's white population: they are obsessed with the Civil War. They even go so far as to have huge parties that recreate major battles from that time. These recreationists study all the fine details of that time. We see in our present election, the echoes of the fight to stop slavery while keeping the US as one nation rather than a confederation. The wounds of the Civil War which are not even 150 years old still fester. So imagine how China thinks when many of the things done by Europeans and Japanese invaders are still remembered by living people? Asia wants to help the US and Europe restart the lending game for one reason only: to destroy our economic base and to win the trade wars! Period. This is being done because the US is still too heavily armed and dangerous for more direct confrontations.

The Chinese leadership memorized...I am not exaggerating, they really, really did memorize the book, 'The Rise and Fall of the Great Powers' by Paul Kennedy. They understand that the goal of Chinese trade is two-fold: to increase their industrial base and to destroy the US industrial base. It is pretty simple. So simple, I had hoped US trade negotiators would understand it!

Instead, in order to evade inflation and allow cheap credit so the US government could go deeper into debt, they foolishly pushed for 'free trade' which is entirely in the favor of Asia, deadly for the US. So we got cheap credit and are now busy destroying ourselves with this.

G7 Gigantic Rescue Operation Now Underway

10/28/2008

Elaine Meinel Supkis

The world's biggest economies are dropping interest rates to 0% while the smaller nations are being forced to raise rates to over 18%. All smaller currencies are dropping against the yen but finally, the G7 got the yen to weaken slightly and this has caused great rejoicing. I examine the flies infesting this ointment. China and Russia continue to merge. Russian billionaires continue to buy threadbare British officials. American banks are using the bail out money to party, give bonuses and buy out each other, not lend. And the Chinese design a gigantic rabbit shaped pavilion. Holy Monty Python!

Australian dollar sinks towards US60c

Traders continued to shun the Australian dollar during another weak offshore session overnight as the popularity of high interest rate currencies continued to fall amid fears of a global recession.
The domestic currency hit US60.12c at 7.30am (AEDT), a level last reached in early April 2003, and came close to retesting that low point again two hours later.

I utterly despise the FX markets. They really took off after the US dropped the gold peg. The sorts of games the Germans had to play after the collapse of the Reichsmark at the end of WWI are now global. Everyone is either trying to get rich, quick, by reading the news and goofy graphs or everyone is placing bets on future instabilities so they can protect their profit margins or international trade deals, etc.

This unstable system has become hopelessly destructive lately. For on top of everything, the central banks of the biggest powers all manipulate their currencies for trade advantages. Everyone but the US. The US, being dead center to all international trade, on the debit side, refuses to defend its own borders and industries. This is causing a huge global bloodbath while the US dies, rapidly. As we shall see clearly in today's news.

Australia is a scantily populated country compared to say, Japan, the Koreas, China, Malaysia, Indonesia, etc. These countries are some of the highest population centers on earth. Australia is mostly a commodity export nation. It began as a giant prison for excess lumpen proletariat/Irish/Scottish rebels and petty criminals. The ones who survived brutal conditions became an important part of the British Empire.

Just as the Siberian prisoners, they opened up vast mineral, animal and plant reserves and made the very same empire that sought to banish them to the Outer Darkness, into a stalward protector of the empire. The Siberian soldiers who poured into Stalingrad to fight hand to hand, room by room combat with the Germans are a shining example of this dynamic.

Australia was not intended to be an industrial rival to England. But today, the main trade partners are now Asian, not English. Australia was a huge funnel for the Japanese carry trade which is now rapidly unwinding. As the Japanese and other G7 powers struggle to rewind that coo coo clock, Australia suffers currency troubles. The hope is, when the carry trade resumes, the good times will return to Australia.

Iceland Central Bank Raises Key Interest Rate to 18%

(Bloomberg) -- Iceland's central bank unexpectedly raised the benchmark interest rate to 18 percent, the highest in at least seven years, after the island reached a loan agreement with the International Monetary Fund.
Policy makers raised the key rate by 6 percentage points, the Reykjavik-based bank said in a statement today, taking the rate to the highest since the bank began targeting inflation in 2001.
``I don't think 6 percentage points will make the krona any more attractive,'' said Henrik Gullberg, a strategist at Deutsche Bank AG in London. ``Basically what we're seeing is a complete liquidation of everything in emerging markets, and Iceland, even in the emerging-market universe, is very vulnerable. Six percent isn't worth a lot if the currency drops another 15 percent.''

Iceland's woes are self-inflicted. They wanted to be Switzerland. But they didn't start off with a huge stash of gold. They did it as if they were the Cayman Islands. Very few people live in Iceland. Virtually no one lives in the Cayman Islands. The smaller the population base, the easier it was for a nation to become a pirate island.

But the real fault lies in the modern economic/political system set into motion by the US after WWII. Iceland, for example, was used as a military base to threaten the Soviets. We overlooked all sorts of things so they would be our allies.

The British pirate coves run by the Crown are another example of this: they are intensely destructive for the US government because they function as funnels to move wealth out of reach of our government. This forces our government to run in the red. Normally, a sane nation would move rapidly to secure and put under government control, these pirate coves.

Instead, since England itself, despite having a huge population base, is trying to be Switzerland. 'We will be a global financial center,' the British declared proudly.

Well, they are a funnel for a host of Crown tax havens like Jersey as well as the Bahamas, Bermuda, Cayman Islands, etc. And these havens are hostile to the US government which uses US taxpayer money to protect not only them, but also the head of these pirates, Queen Elizabeth II. England is cutting back on military spending while leaning more and more on US military spending.

Eventually, someone will come along in the US who will understand that allies who destroy our tax base are enemies. Then he or she will sail a few ships...hopefully before we are bankrupt and have to mothball them...to these islands and take over. This is a legal invasion since these islands are being used for hostile purposes, undermining state power here.

The world’s biggest hedge fund is undertaking a radical restructuring amid a shake-up of the multi-trillion dollar industry which spells the end for thousands of its smaller rivals.

Highbridge Capital Management, which is majority owned by JP Morgan Chase and has $25bn under management, is axing 10 per cent of its New York-based staff and plans cuts in Europe and Asia.
The volatility in global stock markets has savaged the performance of some of the world’s best-known hedge funds, raising fears of a collapse in the sector, which could cause a fresh crisis in the financial system.
Big names including Deephaven, Marshall Wace, Citadel Investment Corp, Lansdowne Partners, Third Point and Harbinger, have in recent weeks sustained losses of as much as 20 per cent in some funds.
Investors pulled at least $43bn (£25bn) from US hedge funds in September, according to TrimTabs Investment Research. This is nearly five per cent of the global sector’s estimated $2 trillion in total assets.

Pulling out only 5% is causing all systems which were preset to run only on profits, into a tailspin. The folly of building business models that can operate only forwards and which have no reverse except for stripping the gears and destroying the brakes is obvious, isn't it? I marvel at the lack of genius here.

Whenever I locate a paper written about these instruments and businesses that are pure financial finaglings, it is perfectly clear that the downsides are always underestimated. This is because the true dynamics at work in any market is simple herd instinct: things happen because everyone does the same thing, at the same time.

When they create a bubble, they all make the same bets that the same outcome will be profitable to the same degree. When everyone is in total harmony and feel they don't have to think, all they have to do is have mindless computers automatically 'do x if y happens' sort of deals. This means, when x is now in reverse from the previous programming, the computer continues to do x when y is happening instead of y when x is happening.

If they all program their computers or have humans follow strict rules for deals, this still happens: sudden reversals occur and no one keeps up with it. When they do, they all reverse at the same time. The whole point of being 'smart' is to exit a bubble before it breaks. But if everyone is equally smart, this simply means they all beat each other's brains out as things collapse and they all rush to the exit.

Hedge funds were a simple fad. Since they were mostly if not all, connected to pirate cove tax haven schemes, they should be outlawed and shut down, not saved.

Time to check up on our other allies who are undermining us, Japan:

Nikkei Rebounds Sharply On Falling Yen, Short-Selling Ban
TOKYO (NQN)--Tokyo stocks bounced back strongly Tuesday, closing higher for the first time in five business days.
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Nomura Jul-Sep Loss Widens On Global Market Turmoil
TOKYO (Dow Jones)--Nomura Holdings Inc. (8604) Tuesday reported a massive net loss in the July-September period - its third straight quarter of red ink - as the global financial crisis choked its proprietary trading operations, suffocated corporate financing and scared investors away from the market.
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Nakagawa: Plan To Ease Mark-To-Market Acctg Rules
TOKYO (Dow Jones)--Japan plans to let financial companies value illiquid assets in a more flexible manner, partly to cushion the impact of the global financial crisis on the nation's banking sector, Finance and Banking Minister Shoichi Nakagawa said Tuesday.
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Nakagawa: Plan To Ease Valuation Rules For Banks
TOKYO (Dow Jones)--As part of efforts to fight the global financial crisis, Japan plans to allow financial companies to value selected assets more flexibly, Japanese Finance Minister Shoichi Nakagawa said Tuesday.
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Latent Stock Losses Dampen Sanrio 1st-Half Profit Growth
TOKYO (Nikkei)--Sanrio Co. (8136) likely posted a group net profit of nearly 1.2 billion yen in the April-September period, up more than 60% on the year but 100 million yen less than its projection.

Good news for brainless traders! The yen was weakened slightly last night! The Bank of Japan worked with all the other goof balls in the G7 and succeeded in preventing the yen from strengthening. They are also now silent about China's currency. This is the core of the secret China/Japan central bank accord that was hammered out in August.

I am just guessing about that meeting's results. But history, as it evolves, makes it pretty clear, this is what happened. The Olympics was Team USA's last blow out attempt at unseating the Chinese. It was a failure. China took home most of the gold medals as well as the best of the secret deals. China's markets are in decline like the US. But China is NOT deindustrializing. It is shedding the low end businesses and building its true industrial base. More about that in a minute.

Now to Normura banks: HAHAHA. Just three weeks ago, they were buying up our banks. The US has decided to become a colonial third world nation. Japan boasted that they could take over everything here. Hello? Eh? Anyone alarmed for a minute? No. We figure, we will deal with them the same way a hiker deals with a bear: play dead.

I warn everyone, not to try this with DRAGONS. People playing dead with Dragons get burned to a crisp, anyway. Dragons have nuclear bombs. So do Russian Bears.

Well, it turns out that Normura wasn't so hot and is falling apart. So of course, the Bank of Japan moves swiftly to undo the BIS banking value rules concerning mark to market. Since the markets are rigged, why not keep them rigged? After all, this is the underpinnings of the fake cheap yen and the carry trade! And the G7 is desperate to get that going again!

So 'selective values' for Japanese banking gnomes is the nifty solution. Now, if I were allowed to restate the value of my own belongings and then burn my house down and then demand a credit default swap insurance value that is 10x reality, I would get real rich, real fast! Isn't that neat?

And Sanrio: only a 60% increase in profits rather than a 100%? Oh, the horror! This is due to the yen strengthening. Sanrio can't destroy competition world wide without the weak yen backing up their profit margins! Now, on to the real core of this game, the destruction of the entire US domestic auto industry:

LA Times: The end of the road for U.S. carmakers?

The U.S. auto industry's downward spiral has accelerated dramatically in recent weeks. In a desperate bid for solvency, General Motors Corp. is seeking a merger with Chrysler. Chrysler has talked with Renault and Nissan about partnerships. And now Ford Motor Co., GM and Chrysler -- backed by Michigan lawmakers -- are lobbying Washington to give them cash, implying that failure to provide a bailout could doom the industry to bankruptcy.
*snip*
Some analysts, economists and industry insiders predict a financial cataclysm, while others foresee little more than a shift of the industry to foreign companies such as Toyota Motor Corp. and Honda Motor Co. Some argue that, in the long term, the U.S. economy would be better off moving past automobile making.
"A failure from the Big Three would be a huge, huge hit," said Donald Grimes, a research specialist at the University of Michigan. "But there's a real question about whether there's room for all of them."
Others posit that the failure of just one of the Big Three would send shock waves through the entire manufacturing sector that could devastate suppliers and freeze up the other two carmakers. Hundreds of thousands of jobs would be lost.

GM and Ford have barely half of their workforce or less, in the US. They are rapidly becoming anti-American corporations that might have headquarters here for a few more years before relocating to Mexico or China. If they made cars across our borders and then sold them there, it would not be a problem.

But they do NOT do this at all! These cars are built in cheap labor locations and then imported. Most of our corporations do this today with the full blessings of the political classes and most of the media and a huge hunk of the economic pundit class.

Note the economist traitor, Grimes: he thinks there is no room for 'three' automakers! HOW ABOUT JAPAN???? They have multiple automakers and they are now half of our markets here! We obviously have room for six, and if you include the three big German automakers, nine auto companies!

Why do universities hire economists this stupid? Eh? This guy wouldn't last 5 seconds in a debate with me. Then there are these 'some others' in the article, the economists who think that it would be better for us to 'move past automaking' to what, pray tell?

We are the major auto buyers in the world. We should be the major makers of autos! There is NO REASON to move 'beyond' that! Tell Japan to move beyond it, instead! This is why the loss of the tariff tool is so important. Japan ceased buying American cars long ago. We didn't retaliate.

This is a dual graph of rapid deindustrialization. And note the clever craveat at the bottom: these graphs show Canada and Mexico in the US data! Last time I looked, the mainstream media was mocking the idea of the Amero replacing the dollar. But it looks to me like the media treats our neighbors as if they are already assymilated by the US.

If we removed Mexico from these statistics, it would be much, much worse! A -50% rather than -30%, for example. Only one other nation is rapidly deindustrializing as fast as the US: Britain. We are both trapped in the same boat only Britain is also playing pirate.

SEM agrees to issue the Beijing Declaration

(Xinhua) -- The Seventh Asia-Europe Meeting (ASEM) issued a Chair's Statement here on Saturday, agreeing to issue the Beijing Declaration on Sustainable Development. The statement said the leaders held extensive and in-depth discussions on issues of realizing the Millennium Development Goals (MDGs) as well as the sustainable development targets agreed in Johannesburg, strengthening energy security cooperation, jointly addressing the challenge of climate change, and environmental protection, including water resources, forests and air, and improving social cohesion under the framework of sustainable development.
Leaders stressed the importance of mid-term review of the MDGs, and underscored the need for ASEM members to further deepen international development cooperation to meet the IADGs, particularly the MDGs, in a timely manner.

China is busy building the New World Dragon Order. We can only hope they succeed. This is because the US version of the New World Order is to spread chaos and destruction coupled with the US shooting at Syria illegally while the UN is totally silent thanks to the G7 control of the Security Council and the US dropping bombs in Pakistan while the Taliban shoot down more helicopters with their missiles.

Oh, they have missiles now. Maybe we could send in the Germans to attack Afghanistan! They sat on their base for three years there and didn't leave. But then, they caused no problems. If our own soldiers did the same, no more fighting, no more helicopters shot down, etc. We are rapidly surrendering in Iraq. The Iraqis use us like we are their garbage men. And they are taking vast satisfaction in knowing they are killing the US empire dead as a frozen duck after hunting season closes.

Third Sino-Russian economic forum opens in Moscow

(Xinhua) -- The Third Sino-Russian economic forum opened here Tuesday, and Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin addressed the opening ceremony.
Wen, who arrived here Monday evening on a three-day official visit to Russia, spoke highly of the rapid growth of Sino-Russian economic cooperation in recent years.*snip* Sino-Russian trade volume surged by 23 percent year on year in the first nine months of this year to hit 43 billion U.S. dollars, according to Chinese official figures. The two countries set the trade target of 60 to 80 billion U.S. dollars in 2010.

China does over $200 billion in trade surplus with the US. Russia wants balanced trade with China so it is much smaller trade. But much, much wiser trade. Putin and Hu love to negotiate. Both are canny, clever and cruel. So they are a perfect fit. We, on the other hand, send goofy guys who don't seem able to add 2+2 or demand a hard deal and some sort of balance.

This irritates me no end. The Chinese or Japanese should blanch in fear when we walk in the room, not laugh their heads off. Europe has to show more respect, too. Hard to ask them, when we send half-baked wanna be cowboy cowards to negotiate.

One can only hope Obama has more sense. He certainly has more intelligence. Even if he is a bastard, if he is a smart bastard, this is tons better than a stupid bastard or in the case of Palin, bastardette.

Tories took donations from Briton linked to Ukrainian billionaire

The Conservative Party has accepted more than £57,000 in cash donations from a British businessman who oversees the assets of a controversial Ukrainian billionaire embroiled in a battle over the control of gas supplies to a large part of western Europe, an investigation by The Independent has revealed.
Robert Shetler-Jones, a 39-year-old property developer who is the chief executive of Group DF – the holding company for the multi-billion pound assets of Dmitry Firtash with offices in Knightsbridge, has made a series of donations over the last two years to Conservative Central Office as a private individual and through Scythian Ltd, a company listed at Companies House as “dormant”.

Isn't it embarrassing that English opposition parties that depend on mindless patriotism of the Queen's subjects [hahaha...inside joke here] are in the pay of get rich quick former Soviets? And then there is the Rothschild's business: these pay out schemes were cooked on his private Corfu island estates. And international finances meets history here.

Foreign money that has island hideaways is being used to undermine democracies. These people should be arrested, not assisted in holding secret Bilderberger meetings where they all can plot to rule the earth and terrorize all of us.

So When Will Banks Give Loans?

It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.
Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.
*snip*
(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

And stealing stuff. I was 100% against the bank bail out because it didn't involve arresting lots of people starting with Bush, Cheney and Paulson. Instead, it was a boondoggle. And the guys opened yet another door to the celestial bank vault and now are shamelessly demanding more and more bail out money. And getting it!

Now, the IMF is saying, they will join the G7 central bankers in piling on the loans by making money out of thin air. They plan to do this to infinity if this is required to keep the crummy, awful status quo going no matter what.

Whatever sort of revolutionary changes we will witness will be shoved into the future. But the more we put of reforms, the nastier the revolution will be. Very explosive. This is why I don't want to put off reforms.

Time/CNN: How Washington's Bailout Will Boost Wall Street Bonuses

Uncle Sam has a new name on Wall Street — Sugar Daddy. Bonuses for investment bankers and traders are projected to fall by 40% this year. But analysts, compensation consultants and recruiters say the drop would be much more severe, perhaps as much as 70%, had it not been for the government's efforts to prop up the financial firms. "Year-end pay on Wall Street will be higher than it would have been had it not been for the government and mergers," says Alan Johnson, a leading compensation consultant. "You would expect it to be down much more."

Arrest them all! Every blasted one of them. Charge them with fraud and treason.

And now for today's most important news: HAHAHAHA. I believe in laughing.

Macau unveils jade rabbit design for pavilion

All of which reminds me of Monty Python's Trojan Rabbit from the Holy Grail:

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Carry Me Home, Sweet Japanese Bankers!

October 27, 2008

Elaine Meinel Supkis

The utter insanity and panic over the fact that the Japanese Carry Trade has died is obvious. Unlike last year, when everyone was so pious about how Japan was in this terrible depression while inflation raged in the streets of Tokyo, the G7 nations hammered China nonstop about raising the value of the yuan. But not a peep about the very weak yen which was dropping against all currencies except Zimbabwe! Well, now that the carry trade has violently unwound, the G7 is demanding it back! They need it for LIQUIDITY. Just as I stated several years ago! And I was right! Wow! Give me the Nobel Prize for Economics!

First, let's look at what I posted exactly one year ago, October 27, 2007:A Mighty Oak Dies

The entire financial system has been corrupted and corroded. This is a classic situation. Every time a financial system is saved from its own tendency towards deceit and deception, the rules forbidding fraud and follies are dropped or terminated one by one, step by step. Then the bubble/collapse happens again.
Starting with the Tulip Mania, everyone assures each other, this will be prevented. The downside of a bubble economy are painfully obvious and everyone wants to avoid this pain as much as possible. Yet they do it over and over again.
On top of this, the desire to make money in a system that is out of whack with economic health and well-being is very strong so the people who have political and economic power will re-engineer economic rules so they can get rich quickly even if this means outright fraud, theft and the destruction of the core of an economy.
Like my oak tree which dropped off one third of its limbs yesterday, stopping all traffic on my mountain, so it is here with our United States. My oak tree is huge. It used to be twice as big but over the last 20 years, even as it continues to grow and have lots of leaves, it has really been dying.
This is due to two things: when this field was first cleared 250 years ago by the Slatterlys, a colonial family in Berlin, they needed one spot in the field to rest out of the hot sun, a place for the oxen and the people haying that would be cool and also have a nice view of the entire valley. These hard-scrabble famers recently fleeing Europe lived in great poverty but they still appreciated the beauties of nature and so this tree grew greater and greater alongside America's growth into the world's greatest empire.

The single branch that fell this week is at least 4' in diameter. The split in the trunk is over 7' tall. The fallen branch stretched across not only part of the hay field but the entire two lane road I built years ago.
Now the tree, weakened by industrial pollution, namely acid rain, will die rapidly. Already, the crown shows many dead branches. Insects will enter the core of the tree and eat it inside-out.
No longer can one rest at peace in its shade: the tree is no longer shelter but deadly, a hazard. For this great limb fell on a windless day. Silently, it suddenly fell with a tremendous boom. So it is with our empire.
Even if nothing is happening, it can suddenly fall with a boom. The fall itself will be violent but the trigger doesn't have to be any storm or earthquake: like the fall of the British Empire or the Soviet Union, previous storms will shake it and weaken it but the actual fall will take all by surprise.
Economies are like this, too: there doesn't need to be any great event for it to collapse, all it needs is to be sick, overextended, overweighted and weakened by previous storms. Then it falls. We are watching exactly such a fall.

The violent unwinding of the messy and very dangerous Japanese carry trade has now gotten so great, all the G7 nations are dropping all pretense that there really was no such thing as the 'Japanese carry trade' and are now all trying desperately to restart this magical flying piggy bank.

From day one, I have written extensively about Japanese trade and their queer monetary games. The queerest part was their 0% lending. It really offended me back in the mid-1990s. But when they began to amass the world's biggest FOREX reserves in 1998 and onwards, I was astounded.

Astounded that the US was doing nothing at all to stop this! It wasn't even talked about. If the IMF didn't have their web page that shows various national FOREX reserves, I would have not been the wiser. But I hang out at the IMF web site so it came to my attention. China has now far, far surpassed Japan in this matter. But they are merely following the leader in this regard.

Over the years, I have tried to riddle out what the Japanese carry trade was all about. By 2006, I was pretty certain what it was: it was flooding the entire planet with liquidity. It was like some of the very oldest stories told by human beings.

It goes like this: there is this tree, this giant World Tree which top branches go to the stars. The trunk of the tree is earthly life. And the roots go into the Underworld. Now, even back when humans barely had mastered fire and stones, they knew that the dark earth was also the place where all power and wealth came from. Wealth, to them, was life.

Well, the tree gets chopped down and out of the trunk comes all the water that makes all the oceans of the world. Everyone begins to drown. But along comes a god/goddess who says, 'Put this basket/plug/rock on top of the tree trunk and the water will cease welling up. So the water stops. But one cannot remove the basket!

In some very ancient tales in Asia, the monkey is too curious and removes the basket and dies a terrible death. Sometimes, a crocodile comes along and persuades the monkey to move the basket. There are many variations on this theme.

I view the Japanese carry trade as exactly this sort of deep-religious/magical thing: the Japanese chopped down the entire concept of banking which is rooted firmly in the concept of paying savers to park their money in a bank which then uses this as a basis for lending to people who wish to have loans. The very offensive 0% savings rate is a crime. It has chopped down the banking tree and out of the stump has flowed an endless flood of red ink.

This has covered the entire planet! As Japan merrily did this, the other bankers decided to break all the old rules, too. So they banished risk by chopping down the Insurance tree. And it began to bleed red ink, too. Soon, all systems were awash in red in via the Magical Flying Piggy Bank interacting with the most hideous invention of the monkey kings infesting the banking systems: the Derivatives Beast.

So here we are: the gnomes need the monkey mess in Japan and they are willing to do anything to restart it. So lets' read today's news with all this mythology firmly in the mind:

Nikkei News:

Japan Trying To Protect Banking System Amid Free-Falling Stocks TOKYO (Nikkei)--
The government is finalizing measures aimed at calming jittery financial markets, with a focus on three goals -- strengthening the financial system, spurring stock investment, and stabilizing the stock market.
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Economic Miseries To Dampen Shipping Firms' Profits TOKYO (Nikkei)--
Shipping companies such as Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha have slashed their outlooks for the full fiscal year in the wake of depressed demand, the strong yen and other factors.
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Nissan CEO: Car Industry Faces Unprecedented Challenge TOKYO (Nikkei)--
The automobile industry is in the unprecedented situation of being hit by a double whammy of a financial crisis and recession, Nissan President and CEO Carlos Ghosn said at a Tokyo forum on Tuesday.
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Govt To Empower FSA To Ban Short-Selling In Times Of Volatility TOKYO (Nikkei)--
The government on Monday began discussing plans to give the Financial Services Agency the power to ban short-selling whenever the financial watchdog deems it necessary as part of emergency market stabilization measures, The Nikkei learned Monday.
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M&As By Investment Funds Down 70% Worldwide This Year TOKYO (Nikkei)--With the financial meltdown making it harder for investment funds to raise capital, the aggregate value of mergers and acquisitions by such funds totaled just 218.5 billion dollars between January and September around the globe, a 70% drop from a year earlier.
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Currency Markets Dubious Of Joint Intervention TOKYO (Nikkei)--Foreign exchange markets reacted cooly to an effort by Group of Seven nations to talk down the soaring yen Monday, reflecting growing skepticism that even government intervention may be insufficient to ground Japan's currency.

For the last two years, I and a great number of professional hedge fund managers as well as assorted others have figured out the obvious connection between the yen going up and the Nikkei dropping. When the yen rises in relation to the dollar, the Nikkei dies. There is a grave danger when any system becomes this predictable: everyone reacts the same way so it MUST do what they expect since they are doing the things, making these things happen.

Ergo: when traders in London or New York notice that the yen is rising in value, they yell, 'Short sell the Nikkei!' And off it goes: in Japan, the handful of traders do the exact same thing. 'The yen is strong! SELL!!!' they yell on the floor and investors call the brokers or even have standing orders to sell under these circumstances.

Japan has set this system up where the yen and the dollar are on this awful see-saw and there is no escaping via other methods. Once upon a time, gold was used as a counterweight so central bankers as well as investors could shift their money into gold reserves and thus release pressure on asset/stock/bond markets. I am guessing that this was supposed to operate as a release valve or brake on obvious money-generating systems.

The yen/dollar duality is dangerous because it is so obvious, even total idiots could make money off of bets that assumed 'Yen rises in value, dollar drops, sell Nikkei stocks'. Now, the system is breaking down.

Why is this, we ask? Aside from the fact that the monkey that lifted off the basket from the stump of the World Tree is drowning, the other factor is simple: when even idiots figure out any system, it collapses! It doesn't matter if it is tulip bulb growers, Mississippi shares sellers or South Sea Bubble blowers. The minute everyone wants to be part of an obvious money-creation scheme, it collapses totally and NEVER comes back.

There seldom is anything left after the collapse to sell for even the original investments. We already are seeing 90% losses on those goofy Credit Default Swaps that were triggered by the collapse of Lehman Brothers! The collapse of the Japanese carry trade/yen/dollar see saw is very similar. When everyone crawls out of the wreckage, they will wonder why they did this silly business in the first place. But by then, it will be too late. The flood of red ink will recede after the Goddess of Deflation comes into the game and simply makes it all vanish.

THE ASAHI SHIMBUN

Megabanks to raise capital amid stock plunge
Once seen as the saviors of struggling foreign financial institutions, Japanese megabanks now plan to prop up their own financial bases to avoid disaster from the recent plunges of stock prices. Mitsubishi UFJ Financial Group Inc. (MUFG) on Monday announced plans to increase its capital by 990 billion yen through measures including the issuing of new shares. Sumitomo Mitsui Financial Group Inc. (SMFG) is mulling a maximum 500-billion-yen increase.
Mizuho Financial Group Inc. is likely to follow suit. Until recently, Japanese megabanks were believed to have staved off serious damage from the U.S. subprime loan crisis and were in a position to provide capital for their less-fortunate counterparts in the United States and Europe.

Japan boasted last year, they were not in trouble. Even after, just a month earlier, whining at China about being in this terrible depression which is why they had to have 0% interest rates. Last July, they boasted to the Chinese, they could drive the value of the yen down to 130 to the dollar by October.

China was very irritable last July and warned Japan, they would shift gears and begin hoarding yen. The yen began to strengthen. Japan said to China, they would flood China with liquidity from the magical World Tree. China said, 'We are the Dragon. Try it and you will die.'

And so it was. The yen has been slowly and now, swiftly rising in value. Not because global currency traders want it to rise. But because China wanted it to rise. This is China's first real monetary power play: muscling Japan successfully. The Japanese got the message. They want desperately to swim above this sea of red ink they created but this depends on everyone buying Toyotas and Sony stuff.

And this is no longer happening. So all the goofy trades based on these debts churned out by Japan are now being paid off and all those dollars from Australia or New Zealand or the US are flowing into Japan to pay off all those goofy loans at nearly 0%. This is all very mysterious and obvious at the same time. People can't borrow any more. They have to make margin calls due to stocks falling.

And since the Nikkei always falls when the yen gets strong, the banks and business hedges in Japan are collapsing because stocks are collapsing. Anything below 10,000 in the Nikkei is bad news. Tonight, it has fallen all the way to 7,000 and threatens to go much further. After all, even idiots know that 'If the yen rises, the Nikkei falls.' So gravity is working just perfectly.

Here is my old story from last September 20, 2007: China And Japan Banks Have Seceret Meeting Yesterday!

From Breitbart:
Bank of Japan Governor Toshihiko Fukui met with his Chinese counterpart Zhou Xiaochuan on Thursday to discuss a wide range of international economic and monetary issues, BOJ officials said. Although the BOJ officials did not disclose the details of their talks, the U.S. subprime mortgage crisis and its repercussions across the world are believed to have been high on their agenda. Fukui briefed Zhou, governor of the People's Bank of China, on why the BOJ decided not to raise interest rates at its Policy Board meeting Wednesday as well as his take on the outlook for the Japanese economy, according to the officials.
********************************************************************************
My comments to this story: 'Between us, we hold over $12 trillion in US wealth, money, bonds, stocks and other things,' says the Dragon, hauling out its acabus and clicking the wooden markers up and down as it adds up everything.
'I don't like losing this investment. I doubt you want to lose, either. As you know,' continued the Dragon, giving Miz Japan a very dark look, 'I have an interest in buying yen suddenly. But if you want to cooperate with me, we can keep the foreign demon bank accounts running for a while longer but you must do as I say and not run off and double deal me when the G8 meet, understand? No more calls for me to change the value of the yuan and we will let the yen drop in value against the dollar again.'
Well? We shall see if I am right about this. So far, when it comes to figuring out these people, I am right so the chances of the present status quo STRENGTHENING is VERY HIGH!
The collapse of the West will be put off, the battle between the Dragon and Miz Japan will evaporate and all will be well until we are disposed of. For loading us up with debts is the whole point here! And if this is what WE want, it will happen! And we will find some means of doing this, somehow.
Beggars at Beijing's Gates, we will continue to pretend to be an emperor while being in reality, the beggar. Until the Wheel of Fortune grinds us under its iron bound rims.

As I read the G7 statements coming out, it is shocking, really shocking, to see them openly talk about the need to flood the US with imports and the US must strengthen the dollar to enable Japan to flourish. They even admit that 0% Japan is the world's second strongest economy. But they don't call for us to flood Japan with our exports. Oh, no, not even slightly.

Lagarde Says Intervention Would Be `Purely Japanese,' Not G-7

Bloomberg) -- French Finance Minister Christine Lagarde said Japanese authorities may sell the yen for the first time since 2004 after the currency surged to its strongest in almost 13 years. Speaking hours after the Group of Seven nations warned against the yen's ``excessive volatility,'' Lagarde foreshadowed a ``purely Japanese'' intervention to weaken it, saying in an interview that the G-7 had no plans to help. That leaves investors testing Japan's resolve as the yen's advance threatens to erode the earnings of exporters such as Canon Inc. and pushes stocks to a 26-year low.

Poor Japanese exporters! For the last 5 years, they have enjoyed record export profits! They got more and more powerful. Toyota is now outstripping General Motors as the biggest auto manufacturer on earth. Now, the silly yen is killing this fine game! The yen is making it impossible for Japan to undersell competitors or to penetrate the US markets. Rats.

Pay attention, please: Japan has the world's biggest trade profits. Not China. China imports a lot of stuff, so China has a huge trade surplus with the US but not with the world. Per capita, it isn't even slightly as well off as Japan. The other G7 nations all want the US to enable, help and assist Japan in destroying us in trade because they ALL want to destroy us via trade! This is the whole point: the G7 is NOT some solid organization with common goals.

It is a one-way street whereby all our trade partners assist each other in keeping trade with the US as unbalanced as possible. The crisis is NOT the end of the terrible, stupid and dangerous Japanese carry trade.

The crisis is the bankruptcy of the US, the world's biggest consumer nation. We cannot go half a trillion dollars+ in the red every year to all our trade partners. This has to end, the sooner, the better. None of our allies want this to end. Thus, the open lust to restart the carry trade con game.

Euro Slides to 2-Year Low on Rate Outlook, Recession Concern

(Bloomberg) -- The euro dropped to its lowest in more than two years against the dollar on speculation European interest rates will slide as recession looms.
The currency approached a six-year low versus the yen after European Central Bank President Jean-Claude Trichet said yesterday he may cut interest rates next week, less than a month after slashing the key rate by half a point.
Europe's economy is on the brink of a recession, with the region's manufacturing and service industries contracting at a record pace in October and German business confidence dropping to a five-year low.

I heard that German auto manufacturers like Mercedes Benz is going to force all the workers to take nearly one month off this winter! These cutbacks are due to one thing: the US isn't buying.

Last year, I visited the deep sea port in New Jersey to photograph the foreign ships pouring into our docks to unload massive numbers of cars. As far as the eye could see were parking lots surrounding these docks. But not ONE of the ships docking had any names on them that could be seen easily! I went from the Japanese ports of call to the German ones and it was the same: the ships were anonymous.

And huge! I couldn't believe how gigantic they have swollen over the last decade! They were all basically immense boxes that floated. The need to restart this flotilla's invasion is very important for our allies. So they will shrug as General Motors dies. They don't care. They want us to buy their stuff, of course.

I seriously doubt there are ANY American ships with even ONE car on it, sailing to either Hamburg or Yokohama.

G-7 countries express concern about excessive volatility in Japanese currency

(AP) - The yen rose to a 13-year high against the dollar in trading Friday, raising concerns in Japan that it could harm its exports of cars and other products because they will now cost more in U.S. markets.
The statement by the G-7 finance officials was released in Washington, Tokyo and other G-7 capitals. "We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G-7 finance officials said.

Any American reporter writing this story should be yelling with fury. 'What the HELL???' Oh, Japanese cars will cost more than Fords? Well! We can't have that happen! We must make it easier for Japan to undersell US autos. Right? And traitors are usually shot at sunrise, too.

Note here that the G7 Europeans are demanding 'stability' and this means: the US buys and everyone profits while we accumulate debts. Via the carry trade, of course. Now for a good article from last year about this business:

The ‘Carry Trade’ and the Current Financial Turmoil By Michael MH Lim

In the simplest case, speculators and investors borrow yen at 0.5% and invest in US treasuries at 5%, earning a spread of 4.5%. In theory, this is not supposed to happen as the difference in interest rate between the two currencies is equal to the difference between the spot and forward rates of the two currencies.
In other words, the interest rate differential is theoretically offset by the appreciation of the yen over the dollar over the same period. Perversely, however, borrowing the yen puts downward pressure on the yen value. Furthermore, a confluence of factors in Japan, including a high savings rate and the government’s policy to reflate the economy out of recession and deflation through cheap exports, result in an undervalued yen and a low interest rate environment.
The yen has traditionally been undervalued, and the relative stability of the interest rate spread between the yen and other currencies has allowed investors to enjoy the ride from the carry trade for a long time. Japanese yen is reputed to be the most undervalued currency, even more than the renminbi.
It is estimated that the yen is 40% undervalued against the euro. To enhance their yield, investors could invest in bonds, equities, real estate, sub-prime mortgage loans or any other instruments. In short, the carry trade has become a major source of low-cost funds for the world, with money flowing into everything from Wall Street stocks, to main-street home mortgages, to emerging-market stocks and bonds. The yen carry trade amplifies the already serious distortions in the global economy.
Japanese excess liquidity is supporting asset inflation and bubbles across the world.

And Mr. Lim is correct. The carry trade is extremely distorting. So we have to question the friendship of our G7 partners who are flipping out because it is ending. They obviously don't have our best interests at heart.

Group of 7 Meeting in Tokyo Tackles Yen’s Rise

The statement from the G-7 officials and a surprise rate cut in South Korea highlighted the depth of concern over the latest wave of financial turmoil, which has wreaked havoc not only in the debt and stock markets, but also in the currency markets.
In the last few months, the yen has appreciated dramatically, while the euro and won have dived. The statement, which said the G-7 would “monitor the markets closely and cooperate as appropriate,” came as countries in Asia, spooked by the relentless sell-offs in the stock markets, scrambled to support their economies.
Japan’s prime minister, Taro Aso, said the government would expand a plan that gives banks access to public funds and would strengthen regulation on the short-selling of shares.
In South Korea, the central bank staged its deepest-ever interest rate cut during an emergency session in Seoul, while the Australian central bank intervened in the currency markets for a second day.
In Japan, the world’s second-biggest economy after the United States, the yen’s rise has hit the key export industry, as corporate giants like Sony are seeing their goods become more expensive in the crucial markets in Europe and the United States.

All countries trading one way with the US and in steep competition with each other are all dropping rates to 0% rapidly. Last summer, China raised both the reserve ratio rates as well as overall interest rates because they correctly foresaw a burst of hyperinflation. They should be praised for a good call.

The communists decided the hot stock market was too hot, incidentally, back then. They want generous trade deals but are not going to allow things to get out of hand. But now, everyone is racing to the bottom. The carry trade dies if everyone collapses global banking totally. But then, we won't have any banking anymore once this happens.

If everyone is at 0%, the monetary system will be officially dead. Like, the World Tree: chopped down.

GM stops 401(k) payments

GM is dying so we have to open the gates to more Toyotas! Right? This news is horrifying. And we have NO need to boost Japan's auto industry. None what so ever. Got that, everyone? Can you hear me, Bush? Anyone running for President? Good grief!

Gulf Bank May Have Loss as Derivatives Contracts Sour

(Bloomberg) -- Gulf Bank KSC, Kuwait's fourth- biggest lender by market value, may suffer losses after some clients defaulted on derivative contracts linked to the euro, sparking concern regional banks may be further hit by the global financial crisis.
The losses were incurred on currency derivatives after a decline in the value of the euro versus the dollar, state-run Kuwait News Agency said today, citing central bank governor Salim al-Sabah. Gulf Bank will have to absorb the losses until an agreement can be worked out between the bank and its clients, the news agency cited the central bank governor as saying.

The Derivatives Beast is having quite a dinner. Yummy. I expect him to return to eating the banking systems in the West this week. Stocks are falling, this is weakening everyone playing markets with leverage and banks can't attract savings. Only more funny money from central banks. And Bernanke is handing out more of that to regional banks, now. The list of banks needing rescue is longer and longer.

And they are going to flourish under a 0% regime? HAHAHA. And now, for fun, we can go to yet another video that one of the readers posted here yesterday:

Click here to see more of Hirsch's videos.

Marketplace Senior Editor Paddy Hirsch explains how banks have gotten frozen in their tracks, awaiting a rescue. More coverage of the financial crisis at Marketplace.org

The credit crisis as Antarctic expedition from Marketplace on Vimeo.

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October 27, 2008 | Permalink | Comments (2) | TrackBack (0)

Carry Me Home, Sweet Japanese Bankers!

<big> <div>October 27, 2008

Elaine Meinel SupkisThe utter insanity and panic over the fact that the Japanese Carry Trade has died is obvious.  Unlike last year, when everyone was so pious about how Japan was in this terrible depression while inflation raged in the streets of Tokyo, the G7 nations hammered China nonstop about raising the value of the yuan.  But not a peep about the very weak yen which was dropping against all currencies except Zimbabwe!  Well, now that the carry trade has violently unwound, the G7 is demanding it back!  They need it for LIQUIDITY.  Just as I stated several years ago!  And I was right!  Wow!  Give me the Nobel Prize for Economics!

<div>

<div><a href="http://elainemeinelsupkis.typepad.com/money_matters/2007/10/elaine-meine-24.html">First, let's look at what I posted exactly one year ago, October 27, 2007:A Mighty Oak Dies </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> The entire financial system has been corrupted and corroded. This is a classic situation. Every time a financial system is saved from its own tendency towards deceit and deception, the rules forbidding fraud and follies are dropped or terminated one by one, step by step. Then the bubble/collapse happens again.Starting with the Tulip Mania, everyone assures each other, this will be prevented. The downside of a bubble economy are painfully obvious and everyone wants to avoid this pain as much as possible. Yet they do it over and over again.
On top of this, the desire to make money in a system that is out of whack with economic health and well-being is very strong so the people who have political and economic power will re-engineer economic rules so they can get rich quickly even if this means outright fraud, theft and the destruction of the core of an economy. Like my oak tree which dropped off one third of its limbs yesterday, stopping all traffic on my mountain, so it is here with our United States.

My oak tree is huge. It used to be twice as big but over the last 20 years, even as it continues to grow and have lots of leaves, it has really been dying. This is due to two things: when this field was first cleared 250 years ago by the Slatterlys, a colonial family in Berlin, they needed one spot in the field to rest out of the hot sun, a place for the oxen and the people haying that would be cool and also have a nice view of the entire valley. These hard-scrabble famers recently fleeing Europe lived in great poverty but they still appreciated the beauties of nature and so this tree grew greater and greater alongside America's growth into the world's greatest empire. </blockquote>

<a href="http://elainemeinelsupkis.typepad.com/.a/6a00d83451c0bf69e2010535c440ca970c-popup" onclick="window.open( this.href, '_blank', 'width=640,height=480,scrollbars=no,resizable=no,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0' ); return false" style="display: inline;"><img alt="Picture 1" class="at-xid-6a00d83451c0bf69e2010535c440ca970c " src="https://elainemeinelsupkis.typepad.com/.a/6a00d83451c0bf69e2010535c440ca970c-500wi" style="width: 475px;"></a>
 <div><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;">The single branch that fell this week is at least 4' in diameter. The split in the trunk is over 7' tall. The fallen branch stretched across not only part of the hay field but the entire two lane road I built years ago. Now the tree, weakened by industrial pollution, namely acid rain, will die rapidly. Already, the crown shows many dead branches. Insects will enter the core of the tree and eat it inside-out. No longer can one rest at peace in its shade: the tree is no longer shelter but deadly, a hazard. For this great limb fell on a windless day. Silently, it suddenly fell with a tremendous boom.

So it is with our empire. Even if nothing is happening, it can suddenly fall with a boom. The fall itself will be violent but the trigger doesn't have to be any storm or earthquake: like the fall of the British Empire or the Soviet Union, previous storms will shake it and weaken it but the actual fall will take all by surprise. Economies are like this, too: there doesn't need to be any great event for it to collapse, all it needs is to be sick, overextended, overweighted and weakened by previous storms. Then it falls. We are watching exactly such a fall. </blockquote>

The violent unwinding of the messy and very dangerous Japanese carry trade has now gotten so great, all the G7 nations are dropping all pretense that there really was no such thing as the 'Japanese carry trade' and are now all trying desperately to restart this magical flying piggy bank.  From day one, I have written extensively about Japanese trade and their queer monetary games.  The queerest part was their 0% lending.  It really offended me back in the mid-1990s.  But when they began to amass the world's biggest FOREX reserves in 1998 and onwards, I was astounded. Astounded that the US was doing nothing at all to stop this!  It wasn't even talked about. If the IMF didn't have their web page that shows various national FOREX reserves, I would have not been the wiser.  But I hang out at the IMF web site so it came to my attention.  China has now far, far surpassed Japan in this matter.  But they are merely following the leader in this regard. Over the years, I have tried to riddle out what the Japanese carry trade was all about. By 2006, I was pretty certain what it was: it was flooding the entire planet with liquidity.  It was like some of the very oldest stories told by human beings. It goes like this: there is this tree, this giant World Tree which top branches go to the stars.  The trunk of the tree is earthly life.  And the roots go into the Underworld.  Now, even back when humans barely had mastered fire and stones, they knew that the dark earth was also the place where all power and wealth came from.  Wealth, to them, was life.  Well, the tree gets chopped down and out of the trunk comes all the water that makes all the oceans of the world.  Everyone begins to drown.  But along comes a god/goddess who says, 'Put this basket/plug/rock on top of the tree trunk and the water will cease welling up.  So the water stops.  But one cannot remove the basket! In some very ancient tales in Asia, the monkey is too curious and removes the basket and dies a terrible death.  Sometimes, a crocodile comes along and persuades the monkey to move the basket.  There are many variations on this theme. I view the Japanese carry trade as exactly this sort of deep-religious/magical thing: the Japanese chopped down the entire concept of banking which is rooted firmly in the concept of paying savers to park their money in a bank which then uses this as a basis for lending to people who wish to have loans.  The very offensive 0% savings rate is a crime.  It has chopped down the banking tree and out of the stump has flowed an endless flood of red ink. This has covered the entire planet!  As Japan merrily did this, the other bankers decided to break all the old rules, too.  So they banished risk by chopping down the Insurance tree.  And it began to bleed red ink, too.  Soon, all systems were awash in red in via the Magical Flying Piggy Bank interacting with the most hideous invention of the monkey kings infesting the banking systems: the Derivatives Beast. So here we are: the gnomes need the monkey mess in Japan and  they are willing to do anything to restart it.  So lets' read today's news with all this mythology firmly in the mind: <div><a href="http://www.nni.nikkei.co.jp/">Nikkei News: </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;">
Japan Trying To Protect Banking System Amid Free-Falling Stocks

TOKYO (Nikkei)--The government is finalizing measures aimed at calming jittery financial markets, with a focus on three goals -- strengthening the financial system, spurring stock investment, and stabilizing the stock market. *******************************************************  Economic Miseries To Dampen Shipping Firms' Profits

TOKYO (Nikkei)--Shipping companies such as Mitsui O.S.K. Lines and Kawasaki Kisen Kaisha have slashed their outlooks for the full fiscal year in the wake of depressed demand, the strong yen and other factors. ****************************************************** Nissan CEO: Car Industry Faces Unprecedented Challenge

TOKYO (Nikkei)--The automobile industry is in the unprecedented situation of being hit by a double whammy of a financial crisis and recession, Nissan President and CEO Carlos Ghosn said at a Tokyo forum on Tuesday.

*****************************************************Govt To Empower FSA To Ban Short-Selling In Times Of Volatility

TOKYO (Nikkei)--The government on Monday began discussing plans to give the Financial Services Agency the power to ban short-selling whenever the financial watchdog deems it necessary as part of emergency market stabilization measures, The Nikkei learned Monday. *******************************************************M&As By Investment Funds Down 70% Worldwide This Year

TOKYO (Nikkei)--With the financial meltdown making it harder for investment funds to raise capital, the aggregate value of mergers and acquisitions by such funds totaled just 218.5 billion dollars between January and September around the globe, a 70% drop from a year earlier. ********************************************************Currency Markets Dubious Of Joint Intervention

TOKYO (Nikkei)--Foreign exchange markets reacted cooly to an effort by Group of Seven nations to talk down the soaring yen Monday, reflecting growing skepticism that even government intervention may be insufficient to ground Japan's currency. </blockquote>

For the last two years, I and a great number of professional hedge fund managers as well as assorted others have figured out the obvious connection between the yen going up and the Nikkei dropping.  When the yen rises in relation to the dollar, the Nikkei dies.  There is a grave danger when any system becomes this predictable: everyone reacts the same way so it MUST do what they expect since they are doing the things, making these things happen. Ergo: when traders in London or New York notice that the yen is rising in value, they yell, 'Short sell the Nikkei!'  And off it goes: in Japan, the handful of traders do the exact same thing.  'The yen is strong!  SELL!!!' they yell on the floor and investors call the brokers or even have standing orders to sell under these circumstances. Japan has set this system up where the yen and the dollar are on this awful see-saw and there is no escaping via other methods.  Once upon a time, gold was used as a counterweight so central bankers as well as investors could shift their money into gold reserves and thus release pressure on asset/stock/bond markets.  I am guessing that this was supposed to operate as a release valve or brake on obvious money-generating systems. The yen/dollar duality is dangerous because it is so obvious, even total idiots could make money off of bets that assumed 'Yen rises in value, dollar drops, sell Nikkei stocks'.  Now, the system is breaking down. Why is this, we ask? Aside from the fact that the monkey that lifted off the basket from the stump of the World Tree is drowning, the other factor is simple: when even idiots figure out any system, it collapses!  It doesn't matter if it is tulip bulb growers, Mississippi shares sellers or South Sea Bubble blowers.  The minute everyone wants to be part of an obvious money-creation scheme, it collapses totally and NEVER comes back. There seldom is anything left after the collapse to sell for even the original investments.  We already are seeing 90% losses on those goofy Credit Default Swaps that were triggered by the collapse of Lehman Brothers!  The collapse of the Japanese carry trade/yen/dollar see saw is very similar.  When everyone crawls out of the wreckage, they will wonder why they did this silly business in the first place.  But by then, it will be too late.  The flood of red ink will recede after the Goddess of Deflation comes into the game and simply makes it all vanish. <div> <a href="http://www.asahi.com/english/Herald-asahi/TKY200810280054.html">THE ASAHI SHIMBUN </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> Megabanks to raise capital amid stock plunge Once seen as the saviors of struggling foreign financial institutions,
Japanese megabanks now plan to prop up their own financial bases to
avoid disaster from the recent plunges of stock prices.
Mitsubishi UFJ Financial Group Inc. (MUFG) on Monday announced plans to
increase its capital by 990 billion yen through measures including the
issuing of new shares. Sumitomo Mitsui Financial Group Inc. (SMFG) is
mulling a maximum 500-billion-yen increase. Mizuho Financial Group Inc. is likely to follow suit.
Until recently, Japanese megabanks were believed to have staved off
serious damage from the U.S. subprime loan crisis and were in a
position to provide capital for their less-fortunate counterparts in
the United States and Europe.</blockquote>

Japan boasted last year, they were not in trouble.  Even after, just a month earlier, whining at China about being in this terrible depression which is why they had to have 0% interest rates.  Last July, they boasted to the Chinese, they could drive the value of the yen down to 130 to the dollar by October.  China was very irritable last July and warned Japan, they would shift gears and begin hoarding yen.  The yen began to strengthen.  Japan said to China, they would flood China with liquidity from the magical World Tree.  China said, 'We are the Dragon.  Try it and you will die.' And so it was.  The yen has been slowly and now, swiftly rising in value.  Not because global currency traders want it to rise.  But because China wanted it to rise.  This is China's first real monetary power play: muscling Japan successfully.  The Japanese got the message.  They want desperately to swim above this sea of red ink they created but this depends on everyone buying Toyotas and Sony stuff.  And this is no longer happening.  So all the goofy trades based on these debts churned out by Japan are now being paid off and all those dollars from Australia or New Zealand or the US are flowing into Japan to pay off all those goofy loans at nearly 0%.  This is all very mysterious and obvious at the same time.  People can't borrow any more.  They have to make margin calls due to stocks falling. And since the Nikkei always falls when the yen gets strong, the banks and business hedges in Japan are collapsing because stocks are collapsing.  Anything below 10,000 in the Nikkei is bad news.  Tonight, it has fallen all the way to 7,000 and threatens to go much further.  After all, even idiots know that 'If the yen rises, the Nikkei falls.'  So gravity is working just perfectly. <div>

<div><a href="http://elainemeinelsupkis.typepad.com/money_matters/2007/09/elaine-meine-10.html">Here is my old story from last September 20, 2007: China And Japan Banks Have Seceret Meeting Yesterday! </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;">
From Breitbart: Bank of Japan Governor Toshihiko Fukui met with his Chinese counterpart Zhou Xiaochuan on Thursday to discuss a wide range of international economic and monetary issues, BOJ officials said.
Although the BOJ officials did not disclose the details of their talks, the U.S. subprime mortgage crisis and its repercussions across the world are believed to have been high on their agenda.

Fukui briefed Zhou, governor of the People's Bank of China, on why the BOJ decided not to raise interest rates at its Policy Board meeting Wednesday as well as his take on the outlook for the Japanese economy, according to the officials.  ********************************************************************************
My comments to this story:

'Between us, we hold over $12 trillion in US wealth, money, bonds, stocks and other things,' says the Dragon, hauling out its acabus and clicking the wooden markers up and down as it adds up everything. 'I don't like losing this investment. I doubt you want to lose, either. As you know,' continued the Dragon, giving Miz Japan a very dark look, 'I have an interest in buying yen suddenly. But if you want to cooperate with me, we can keep the foreign demon bank accounts running for a while longer but you must do as I say and not run off and double deal me when the G8 meet, understand? No more calls for me to change the value of the yuan and we will let the yen drop in value against the dollar again.'
Well? We shall see if I am right about this. So far, when it comes to figuring out these people, I am right so the chances of the present status quo STRENGTHENING is VERY HIGH! The collapse of the West will be put off, the battle between the Dragon and Miz Japan will evaporate and all will be well until we are disposed of. For loading us up with debts is the whole point here! And if this is what WE want, it will happen! And we will find some means of doing this, somehow. Beggars at Beijing's Gates, we will continue to pretend to be an emperor while being in reality, the beggar. Until the Wheel of Fortune grinds us under its iron bound rims. </blockquote>

As I read the G7 statements coming out, it is shocking, really shocking, to see them openly talk about the need to flood the US with imports and the US must strengthen the dollar to enable Japan to flourish.  They even admit that 0% Japan is the world's second strongest economy.  But they don't call for us to flood Japan with our exports. Oh, no, not even slightly. <div><a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=azUK3eGFAevs&refer=home"> Lagarde Says Intervention Would Be `Purely Japanese,' Not G-7 </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> Bloomberg) -- French Finance Minister Christine Lagarde said Japanese authorities may sell the yen for the first time since 2004 after the currency surged to its strongest in almost 13 years.

Speaking hours after the Group of Seven nations warned against the yen's ``excessive volatility,'' Lagarde foreshadowed a ``purely Japanese'' intervention to weaken it, saying in an interview that the G-7 had no plans to help.

That leaves investors testing Japan's resolve as the yen's advance threatens to erode the earnings of exporters such as Canon Inc. and pushes stocks to a 26-year low. </blockquote>

<a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a2t7Pas3lpLs&refer=home"> </a> Poor Japanese exporters!  For the last 5 years, they have enjoyed record export profits!  They got more and more powerful.  Toyota is now outstripping General Motors as the biggest auto manufacturer on earth.  Now, the silly yen is killing this fine game!  The yen is making it impossible for Japan to undersell competitors or to penetrate the US markets.  Rats.  Pay attention, please: Japan has the world's biggest trade profits.  Not China.  China imports a lot of stuff, so China has a huge trade surplus with the US but not with the world. Per capita, it isn't even slightly as well off as Japan.  The other G7 nations all want the US to enable, help and assist Japan in destroying us in trade because they ALL want to destroy us via trade!  This is the whole point: the G7 is NOT some solid organization with common goals.  It is a one-way street whereby all our trade partners assist each other in keeping trade with the US as unbalanced as possible.  The crisis is NOT the end of the terrible, stupid and dangerous Japanese carry trade. The crisis is the bankruptcy of the US, the world's biggest consumer nation.  We cannot go half a trillion dollars+ in the red every year to all our trade partners.  This has to end, the sooner, the better.  None of our allies want this to end.  Thus, the open lust to restart the carry trade con game. <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a2t7Pas3lpLs&refer=home">Euro Slides to 2-Year Low on Rate Outlook, Recession Concern </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> (Bloomberg) -- The euro dropped to its lowest in more than two years against the dollar on speculation European interest rates will slide as recession looms.The currency approached a six-year low versus the yen after European Central Bank President Jean-Claude Trichet said yesterday he may cut interest rates next week, less than a month after slashing the key rate by half a point. Europe's economy is on the brink of a recession, with the region's manufacturing and service industries contracting at a record pace in October and German business confidence dropping to a five-year low. </blockquote>

I heard that German auto manufacturers like Mercedes Benz is going to force all the workers to take nearly one month off this winter!  These cutbacks are due to one thing: the US isn't buying. Last year, I visited the deep sea port in New Jersey to photograph the foreign ships pouring into our docks to unload massive numbers of cars.  As far as the eye could see were parking lots surrounding these docks.  But not ONE of the ships docking had any names on them that could be seen easily!  I went from the Japanese ports of call to the German ones and it was the same: the ships were anonymous. And huge!  I couldn't believe how gigantic they have swollen over the last decade!  They were all basically immense boxes that floated.  The need to restart this flotilla's invasion is very important for our allies.  So they will shrug as General Motors dies.  They don't care.   They want us to buy their stuff, of course. I seriously doubt there are ANY American ships with even ONE car on it, sailing to either Hamburg or Yokohama.  <div> <a href="http://biz.yahoo.com/ap/081027/g_7_currencies.html">G-7 countries express concern about excessive volatility in Japanese currency </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> (AP) - The yen rose to a 13-year high against the dollar in trading Friday, raising concerns in Japan that it could harm its exports of cars and other products because they will now cost more in U.S. markets. 
The statement by the G-7 finance officials was released in Washington, Tokyo and other G-7 capitals.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G-7 finance officials said. </blockquote>

Any American reporter writing this story should be yelling with fury.  'What the HELL???'  Oh, Japanese cars will cost more than Fords?  Well!  We can't have that happen!  We must make it easier for Japan to undersell US autos.  Right?  And traitors are usually shot at sunrise, too. Note here that the G7 Europeans are demanding 'stability' and this means: the US buys and everyone profits while we accumulate debts.  Via the carry trade, of course.  Now for a good article from last year about this business: <div><a href="http://www.twnside.org.sg/title2/finance/twninfofinance110704.htm"> </a> <a href="http://www.twnside.org.sg/title2/finance/twninfofinance110704.htm">The ‘Carry Trade’ and the Current Financial Turmoil
By Michael MH Lim </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;">In the simplest case, speculators and investors borrow yen at 0.5% and invest in US treasuries at 5%, earning a spread of 4.5%. In theory, this is not supposed to happen as the difference in interest rate between the two currencies is equal to the difference between the spot and forward rates of the two currencies.In other words, the interest rate differential is theoretically offset by the appreciation of the yen over the dollar over the same period. Perversely, however, borrowing the yen puts downward pressure on the yen value. Furthermore, a confluence of factors in Japan, including a high savings rate and the government’s policy to reflate the economy out of recession and deflation through cheap exports, result in an undervalued yen and a low interest rate environment. The yen has traditionally been undervalued, and the relative stability of the interest rate spread between the yen and other currencies has allowed investors to enjoy the ride from the carry trade for a long time. Japanese yen is reputed to be the most undervalued currency, even more than the renminbi. It is estimated that the yen is 40% undervalued against the euro.

To enhance their yield, investors could invest in bonds, equities, real estate, sub-prime mortgage loans or any other instruments. In short, the carry trade has become a major source of low-cost funds for the world, with money flowing into everything from Wall Street stocks, to main-street home mortgages, to emerging-market stocks and bonds. The yen carry trade amplifies the already serious distortions in the global economy.Japanese excess liquidity is supporting asset inflation and bubbles across the world. </blockquote>

And Mr. Lim is correct.  The carry trade is extremely distorting.  So we have to question the friendship of our G7 partners who are flipping out because it is ending.  They obviously don't have our best interests at heart. <div><a href="http://www.nytimes.com/2008/10/28/business/worldbusiness/28g7.html?_r=1&oref=slogin"> </a> <a href="http://www.nytimes.com/2008/10/28/business/worldbusiness/28g7.html?_r=1&oref=slogin">Group of 7 Meeting in Tokyo Tackles Yen’s Rise </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> The statement from the G-7 officials and a surprise rate cut in South Korea highlighted the depth of concern over the latest wave of financial turmoil, which has wreaked havoc not only in the debt and stock markets, but also in the currency markets. In the last few months, the yen has appreciated dramatically, while the euro and won have dived.

The statement, which said the G-7 would “monitor the markets closely and cooperate as appropriate,” came as countries in Asia, spooked by the relentless sell-offs in the stock markets, scrambled to support their economies.Japan’s prime minister, Taro Aso, said the government would expand a plan that gives banks access to public funds and would strengthen regulation on the short-selling of shares. In South Korea, the central bank staged its deepest-ever interest rate cut during an emergency session in Seoul, while the Australian central bank intervened in the currency markets for a second day. 
In Japan, the world’s second-biggest economy after the United States, the yen’s rise has hit the key export industry, as corporate giants like Sony are seeing their goods become more expensive in the crucial markets in Europe and the United States. </blockquote>

All countries trading one way with the US and in steep competition with each other are all dropping rates to 0% rapidly.  Last summer, China raised both the reserve ratio rates as well as overall interest rates because they correctly foresaw a burst of hyperinflation.  They should be praised for a good call. The communists decided the hot stock market was too hot, incidentally, back then.  They want generous trade deals but are not going to allow things to get out of hand.  But now, everyone is racing to the bottom.  The carry trade dies if everyone collapses global banking totally.  But then, we won't have any banking anymore once this happens. If everyone is at 0%, the monetary system will be officially dead.  Like, the World Tree: chopped down. <div><a href="http://www.bizjournals.com/buffalo/stories/2008/10/20/daily53.html"> GM stops 401(k) payments</a> GM is dying so we have to open the gates to more Toyotas!  Right?  This news is horrifying.  And we have NO need to boost Japan's auto industry.  None what so ever.  Got that, everyone?  Can you hear me, Bush?  Anyone running for President?  Good grief! <blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> </blockquote>

<div><a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aslQSqza5_30&refer=home"> Gulf Bank May Have Loss as Derivatives Contracts Sour </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> (Bloomberg) -- Gulf Bank KSC, Kuwait's fourth- biggest lender by market value, may suffer losses after some clients defaulted on derivative contracts linked to the euro, sparking concern regional banks may be further hit by the global financial crisis. 
The losses were incurred on currency derivatives after a decline in the value of the euro versus the dollar, state-run Kuwait News Agency said today, citing central bank governor Salim al-Sabah. Gulf Bank will have to absorb the losses until an agreement can be worked out between the bank and its clients, the news agency cited the central bank governor as saying. </blockquote>

The Derivatives Beast is having quite a dinner.  Yummy.  I expect him to return to eating the banking systems in the West this week.  Stocks are falling, this is weakening everyone playing markets with leverage and banks can't attract savings.  Only more funny money from central banks.  And Bernanke is handing out more of that to regional banks, now.  The list of banks needing rescue is longer and longer. And they are going to flourish under a 0% regime?  HAHAHA.  And now, for fun, we can go to yet another video that one of the readers posted here yesterday: <div><a href="http://vimeo.com/album/37581/format:video">Click here to see more of Hirsch's videos. </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> Marketplace Senior Editor Paddy Hirsch explains how banks have gotten frozen in their tracks, awaiting a rescue. More coverage of the financial crisis at Marketplace.org </blockquote>
<object height="302" width="400"> <param name="allowfullscreen" value="true"> <param name="allowscriptaccess" value="always"> <param name="movie" value="http://vimeo.com/moogaloop.swf?clip_id=1933993&server=vimeo.com&show_title=1&show_byline=1&show_portrait=0&color=&fullscreen=1"> <embed allowfullscreen="true" allowscriptaccess="always" src="https://vimeo.com/moogaloop.swf?clip_id=1933993&server=vimeo.com&show_title=1&show_byline=1&show_portrait=0&color=&fullscreen=1" type="application/x-shockwave-flash" height="302" width="400"></object> <a href="http://vimeo.com/1933993?pg=embed&sec=1933993">The credit crisis as Antarctic expedition</a> from <a href="http://vimeo.com/marketplace?pg=embed&sec=1933993">Marketplace</a> on <a href="http://vimeo.com?pg=embed&sec=1933993">Vimeo</a>.
 <div><a href=""> </a><blockquote style="background: #ccffff none repeat scroll 0% 0%; -moz-background-clip: -moz-initial; -moz-background-origin: -moz-initial; -moz-background-inline-policy: -moz-initial;"> </blockquote>
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October 27, 2008 | Permalink | Comments (0) | TrackBack (0)

History of Chinese Trade and Money

October 27, 2008

Elaine Meinel Supkis

During the last few weeks, I have read many commentaries trying to explain the current mess that world trade is in today. Virtually no one seems to understand the trap we are in is due to trade imbalance, not banking difficulties. The banking problems grew out of the trade problems. And worse, the trade problems grew out of the difficulties of the US empire funding its military arm via debt, not taxes. Also, I wish to talk about the history of China's money. For China was the inventor or leader in the use of currencies, paper fiat money and global trade relative values. It is also a tragic history which is even more important.

The Tariff and Barrier debate goes back to the founding of the US Congress.

In 1789, our first year under the new Constitution, Congress passed the first tariff, primarily for revenue purposes. Forbidden by the Constitution to tax exports (goods leaving the United States), Congress had power to tax imports (goods entering the nation).
*snip*
As a means of protection, however, they gained importance. Because of a sectional depression in the early 1820s, tariffs became the dominant issue. In the North, manufacturers and farmers alike favored such a tax. Agricultural prices had nosedived; wheat growers in Pennsylvania and sheep ranchers in Ohio went out of business in large numbers. Industrial workers lost jobs as textile and iron works factories closed.
As these conditions prevailed, the Tariff Act of 1824 was passed, imposing duties on items not previously included and raising rates from 25 to 37 percent of the value of imported goods. Unlike previous tariff issues, this one restricted more goods on the basis of protection than of revenue.
As an advocate of the protective tariff, Senator Clay expressed a view that has been propounded generally throughout our history. To encourage home industry, he claimed, it was necessary to keep out foreign goods that competed with domestic industries.
Unloading their warehouses after the War of 1812, the British had been dumping goods in the American market below their cost, causing the shutdown of many factories. Only a tariff, claimed the Senator, could protect American workers and factories.

The global depression following the Napoleonic Wars was like all subsequent depressions which always follow on the heels of all major international struggles between great empires.

The fact that this always happens is something our ancestors were very aware of...they discussed this after WWII extensively and the moves by the US under Truman like the Marshall Plan and Bretton Woods I was an attempt by the US victors to try to avoid a post-war contraction.

Whether an empire wins or loses a war, these depressions always follow. Since this seems to be an iron rule in economic history, it should get more respect! Worse than this, if an empire slowly bleeds to death in colonialist wars that are futile and bring in very little loot, this causes really grinding depressions as the war spending uses up all available credit.

Russia and America's Cold War spending is a fine example of this. 'But the US didn't go into a depression after winning the Cold War,' people say in wonder. Ah! Something terrible happened after we won the Cold War! Not only are we being shoved into one confrontation after another with the very same determined fighters who fought the Soviet Union until it went bankrupt.

We also were savaged by global trade rivals who have utterly penetrated all our markets, depressed our wages and driven our entire economic system into deep debt.

Depressions are not when there is no lending. Depressions are when borrowers can't take on any more debt!

This seems rather simple, I would suggest. Just as small homeowners and small businesses can't soak up any more debt, so do countries. There is a set limit on the amount of debt one can accumulate. A noted feature of all bankruptcies is how the desperate business or individual would go restlessly about, seeking more and more loans. All, in a forlorn hope of using debt to pay debts and thus, put off the day of reckoning.

This never works. This is also why lenders charge people deep in debt higher points. The point spread is for the risk of bankruptcy.

'But haven't interest rates mostly dropped since Reagan?' people ask, justifiably.

This is where it gets most interesting: most sellers of goods will happily bankroll purchases so long as the buyer keeps buying. The US was the world's biggest creditor nation after WWI. For half a century, from 1914-1964, the US had to pull several major empires out of flames of their own making. These incendiary global ruler-wannabes were France, Germany, Italy, Britain and Japan.

Because we opposed the massive, growing empire of the Soviet Union, we generously rebuilt the industries and banking systems of our top trade rivals. We figured, this would make it harder for the communists to win power. We even allowed the French and British imperialists to continue ruling much of the earth! This was a very foolish foreign policy. Although many of these nations finally, and sometimes, very violently, overthrew their European rulers, the US insisted on propping up colonial governments which is why our creditor nation status vanished by 1964.

After that, we needed borrowing to keep our empire rolling. So our trade rivals began a reverse Marshall Plan: they would lend to us ONLY if we allowed them to flood our nation with their manufactured goods! And so the great deindustrialization of the US commenced.

US cotton exporters wanted a third world-style of economy which depends on exporting commodities and importing manufactured goods:

Senator Webster, on the other hand, recognized that sections of this nation were witnessing an economic depression, but refused to concede that it was the result of imports. Instead he attributed it to a prosperity depends upon foreign trade.
Tariffs, he explained, would curtail international trade, and thus impair American prosperity. Goods are imported because they are needed, and if such goods can be obtained elsewhere it is to the nation's benefit to buy them at a lower price.
Let cheap labor outside the country produce goods more cheaply than inside it; labor could then turn to more useful endeavors.

The depression wasn't caused by the US. It was caused by Britain and France. Both tore apart all of Europe and France destroyed a huge swath of prime Russian real estate including burning down Moscow. This was very similar to the Mongol invasions that also destroyed huge parts of Russia.

The Spanish civil war against Napoleon ravaged the shattered remains of the once-great Spanish Empire. Spain ceased ruling the Seven Seas and England finally succeeded into this prime role. America was still basically a commodity source for England. The US was, like all English colonies, forbidden to manufacture goods and this is one primary reason for the revolution.

The Crown not only imposed import tariffs and taxes but EXPORT tariffs. Which is why Congress was anxious to end that practice. The only thing the English would LET INTO ENGLAND from the US was cotton and a few other important commodities needed desperately by industrialists in England. The South wanted this to grow but it was not making the US a stronger nation.

The Founding Fathers like Ben Franklin, realized that the budding industrial revolution was the key to future wealth. America needed to develop glass making capacity, for example. Not to mention, the iron industries, tooling industries and other things used by civilizations.

The English were very protective EXCEPT for cotton and other raw materials they needed badly. This is remarkably similar to a certain other island kingdom which is on the opposite side of Eurasia: Japan. Both have very similar histories and solutions to trade. Today, Japan operates 100% on the system set up by post-Napoleonic England.

The American South was very content with the third world-style economy they created. They loved slavery and I would suggest, still are much too fond of slavery's philosophical basis. Which is why Southern laws go far in preventing unionization and Southern Presidents are mostly anti-union including Bill Clinton. All Southern Presidents [Reagan struggled against this, he penned his name to the Plaza Accords, after all] are happy to allow a flood of imported goods.

This was part of the Civil War's roots:

Webster's argument was especially relevant to the Southern economy, which was largely dependent on one crop: cotton. Restriction of imports put Southern planters in a double bind.
England was the main market for their cotton, and high tariffs meant fewer English manufactured goods were imported -- and so, they could not buy as much cotton. And, if the people in the South could not buy inexpensive English goods, they had to pay higher prices for the same goods produced in New England.
Before long, other sectional issues would emerge that would gnaw at the very fabric of this nation. The great tariff debate was but a portent of a nation seriously divided and sectionalized.

England had us over a barrel, in other words: they would not buy cotton unless the US allowed a flood of English exports into domestic US markets! This is how they balanced their trade. Like Japan, they could not afford to have their commodity imports overwhelm their manufactured exports!

The US right now, imports a huge amount of commodities. One of the biggest being energy commodities. Oil and gas, in particular although we also import electricity from Canadian dams, for example. We are NOT balancing this with exports. Some time ago, I looked at IMF statistics on global trade and noticed that many oil exporting nations are importing mostly Asian, not American goods. The American goods share of oil exporter's markets has been dropping precipitously over the last three decades.

Both China and Japan import a lot of energy so they have been very energetic in expanding their market shares of OPEC nations. These same competitors also offer the US nearly unlimited credit so we can borrow money to buy oil and gas. This money then flows back to both China and Japan in the form of OPEC purchases of manufactured goods from Asia!

This is a cycle that drains the US of wealth. Now, let us go off to Asia for a while. It is always good to review some history! The Chinese have a very long and convoluted history when it comes to money. They are a very practical people and have no philosophical or religious biases against trying out various banking systems and trade processes. The one thing they try to focus on is simple: will it work? And work, meaning, it makes China itself more secure and wealthier.

First, here is a news story from this week, via the BBC:

The treasure trove making waves

Ten years ago, at a spot known locally as "Black Rock", two men diving for sea cucumbers came across a large pile of sand and coral. Digging a hole, they reached in and pulled out a barnacle-encrusted bowl. Then another. And another.
They had stumbled on the oldest, most important, marine archaeological discovery ever made in South East Asia, an Arab dhow - or ship - built of teak, coconut wood and hibiscus fibre, packed with a treasure that Indiana Jones could only dream of.
There were 63,000 pieces of gold, silver and ceramics from the fabled Tang dynasty, which flourished between the seventh and 10th centuries. The artefacts from the find are nearly 1,200 years old Among the artefacts was the largest Tang gold cup ever discovered and some of the finest Yue ware - a porcelain that the ancient Chinese likened to snow because of its delicacy.
The exceptional quality of the goods has led some scholars to suggest that these were gifts from the Tang Emperor himself. The bulk of the cargo was more homely, including 40,000 Changsha bowls, named after the Changsha kilns in Hunan Province, where they were produced.
*snip*
Its most likely destination was a place familiar to us for other reasons, the Iraqi port of Samara, or Basra as it is called today. In the 9th Century, Basra was one of the wealthiest cities in the world, with a prosperous merchant class hungry for Chinese luxury goods.

In 800 AD, the Islamic Revolution had already swept across all of the Middle East and Northern Africa as well as almost all of Spain when it finally was repelled by the Pyrenees mountains. Almost all of these lands were part of the Roman Empire. There was a lot of loot lying about.

The nature of gold and other loot is very simple: it tends to become dissipated over time if the central government loses control. As the weakening imperial government tries more and more desperate moves to regain control over wealth, it vanishes faster and faster. The most useless end point for gold is to be reburied in the earth in hidden places!

Yet, this is where it ends up, always. If a government flounders and fails. This is why gold hoards are still being dug up today, gold buried at the end of the Roman Empire. When the Islamic rebels swept across the land, they did this so fast, there was little time to bury the gold. Like the Mongols, they would force gold owners to cough up the location of this buried gold.

They then rushed off to China to buy manufactured Chinese goods! Both China and India were major manufacturing powers. Both also did exports but their main markets were domestic. We might ask why China even bothered with export markets so distant from China. Actually, the Chinese asked this all the time, too! This ship is curious to me. It carried some of the highest artistic creations of the Chinese.

Yet it also was filled with what the Chinese considered to be throwaway ceramics of the least artistic value! We know that China was viewed by Medieval rulers as a fabulous land filled with great treasures. But they also were worried about trade with China since China wanted very little from them...except for silver and gold.

Ming Dynasty

The Ming dynasty began in 1368, and lasted until 1644 A.D. Its founder was a peasant, the third of only three peasants ever to become an emperor in China. He is known as Hongwu Emperor, and led the revolt against the Mongols and the Yuan Dynasty. He was constantly worried about conspiracies against himself, and despite the many moral homilies he gave, favored violence in dealing with any one suspected of plotting against him or associated with the conspirators.
The capital was originally located in Nanjing but the third emperor moved the capital to Beijing. As a result of his peasant origins, Hongwu created laws that improved the peasant life. He kept the land tax low, and kept the granaries stocked to guard against famine.
He also maintained the dikes on the Yellow and Yangtze Rivers. However, economically he lacked the vision to push trade. He supported the creation of self-supporting communities and, in a typically Confucian viewpoint, felt agriculture should be the country's source of wealth and that trade was ignoble and parasitic.

There is this same mental split today. Many people think that the goal should be no trade, not balanced trade. No nation can be 'civilized' while being totally self-reliant because of the problem of distribution of earthly resources as well as climate conditions.

When Japan closed its door to global trade under the Shogun dictatorships, the people there became poorer and poorer and the condition of the peasants deteriorated. Even the warrior class lost wealth rapidly. At first, the Japanese dealt with this by elevating poorly-made goods into 'art'.

So a crude clay cup was seen as 'refined' in lieu of fine Chinese porcelain cups that were forbidden. This aesthetic continues in Japan, incidentally. It is actually quite clever and the 'less is better than more' attitude has some use in the modern world! There are so many tangents to wander off topic here...I have to watch my step!

The Ming expressed their anti-trade bias by literally building walls and barriers:

Another accomplishment of the Ming was the building of the Great Wall. While Great Walls had been built in earlier times, most of what is seen today was either built or repaired by the Ming.
*snip*
From the very beginning of the Ming Dynasty, money was a problem. At first, paper currency was used. However, Hongwu did not understand inflation and gave out so much paper money as rewards that by 1425 A.D. the currency was worth 1/70 of its original value.
This led to a return to the use of copper coins. The government did not make enough coins and counterfeiting became a problem. At this point, the provinces were required to mint their own coins. Unfortunately, some of them added lead to the coins, which depleted their value. Due to the abundance of counterfeit coins, their value again declined. This coin problem was amplified by an increasing need for money due to the growth of trade.
Although merchants and trade in general were looked down upon, China had established sea routes that were used for trade with Japan and south Asia. Starting in 1405 A.D., Zheng He began a series of seven naval expeditions that went as far as the east coast of Africa. These trips followed established routes and were mainly diplomatic. The last of these voyages was completed in 1433 A.D.
At this point, China was far ahead of the rest of the world in naval capabilities. Their ships could carry as many as 500 men. However, after the last voyage was completed none were ever again attempted. In fact, records of the trips were destroyed and shipbuilding was restricted to small-size vessels. As a result, China's coast was frequently attacked by pirates.

As usual, the expansion of the money supply ran alongside trade expansion. England suffered from this as the empire expanded. The industrial revolution utterly swamped finance! The gold standard was dropped and then re-imposed repeatedly. I have a strong caveat with the author of this history: counterfeits don't cause inflation by themselves.

The economic conditions demanding more and more money to circulate faster and faster causes this! Money is anything people want it to be! If the value of money is restricted too much, people create new forms of money to make up for this! When governments get too restrictive, people will even re-invent paper money of various sorts or even use sea shells, sticks with whittled marks, whatever they can, as 'money'.

The battles between who controls finance, the goddess of Inflation or the goddess of Depression, has been going on since the beginning of the agricultural city-states in the Nile, Indus, Mesopotamian and Chinese river valleys 6,000 years ago. Matching agricultural surplus with official designations of value controlled by the state and then balancing that with trade: this is an ongoing story from the very start of the earliest civilizations.

One way of coping with trade is simple: invade the exporters! A nation can get loot and balance the government budgets and create more money via this simple but dangerous solution! For example, the stresses of the Great Depression drove Japan into subjugating trade partners in Asia and the Pacific. Attaching whole populations as slave labor also fixed the problems of labor overhead.

Then the Manchus took over, they were even more anti-trade with Europeans:

The impact of the west was also felt for the first time in China. Great Britain especially was interested in trading with China for silk and tea. However, the British did not have anything that was easy to import to China until they began importing opium.
This was devastating to China. Many became addicted to opium, and land that had previously been used for food began to be used to produce opium. Also, a large amount of Chinese money left the country in payment for the opium. Finally, in 1839 A.D. the opium trade was abolished.
This set off a war with Great Britain that came to be known as the Opium Wars, and in 1842 A.D., China was forced to sign a treaty in which Great Britain received Hong Kong, and ports were opened to European trade.

The reason opium caused an outflow of Chinese wealth was simple: the Emperors made opium production illegal except for medicinal purposes. The British didn't want to legalize opium in China. The Chinese didn't want British manufactured goods. China wanted one way trade in tea and other goods.

The British needed to enforce trade in their own favor. The opium turned the Chinese into literal slaves. They were renown for their work ethic and the drugs made them inured to pain so they would literally work to death and were indifferent to weather or hunger. The 19th century saw lots of opium in the West. This is why the art from that period is very queer and dense. Thick design with lots of deep perspectives onto endless landscapes, the effect of floating or dying being very prominent.

Another topic one could endlessly talk about but must be avoided today. Opium caused Europeans to work less and less, not harder. This is a cultural trait, I guess. Maybe due to the liquor drinking habits of the Europeans.

The%20China%20Trade

For centuries, the Chinese traded their riches with Europe along the Silk Road and its many branches to the north. But the sea trade to the south was new in the 17th and 18th centuries, and the Chinese government feared that the westerners would corrupt the Chinese and perhaps even try to conquer China.
In 1760, the government established a set of regulations to control the foreigners and their ships. Canton was the only port open to strangers. All ships were required to stop first at Macao, a small settlement acquired by the Portuguese in 1557. Macao was about 65 miles south of Canton and 40 miles from Hong Kong.
There, foreign ships hired a pilot licensed by the Chinese government. The pilot had to acquire written permission (called a "chop") for the foreign ship to enter Chinese waters. The ships were examined, and finally with the guidance of a pilot, the vessel could proceed up the river to Whampoa, an island 13 miles below Canton. All ships had to anchor at Whampoa and could go no further.
It was not uncommon for a hundred ships to be anchored at once. Here the loading and unloading of cargoes took place. The sailors had to stay with the ship, and were only allowed on rare occasion to enter Canton for a day in the company of an officer.
The Japanese, the Tibetans, the Burmese, many rulers in Asia all reacted to the new European expansions the same way: they tried to restrict it as much as humanly possible. Usually, granting only one or two traders access to remote islands. The revolution in shipping hammered Asia very hard.
All attempts at restricting trade were dealt with very ruthlessly. The Europeans would kill anyone trying this. The only reason Japan was spared for a while was simple: the Japanese were dirt poor and their art was not appreciated much, its aesthetics were considered to be miserable due to the limitations for creating fancy stuff. But by 1860, all the Western nations were anxious to grab and pry open all possible markets no matter how poor or isolated. So the US moved against Japan with a display of naval power.

Ancient currencies

Cowry shells are believed to be the earliest form of currency used in Central China about 3000 to 4500 years ago.
In the Chinese writing system the characters for 'goods' (貨), 'buy/sell' (買/賣), 'monger' (販), in addition to various other words relating to 'exchange' all contain the radical '貝', which is the pictograph for shell.
*snip*
The Mongol Yuan dynasty (元, 1271-1368) also attempted to use paper currency. Unlike the Song dynasty they created a unified, national system that was not backed by silver or gold.
The currency issued by the Yuan was the world's first fiat currency, known as Chao. The Yuan government attempted to prohibit all transactions in or possession of silver or gold, which had to be turned over to the government.
Inflation in 1260 caused the government to replace the existing paper currency with a new paper currency in 1287, but inflation caused by undisciplined printing remained a problem for the Yuan court until the end of the Dynasty.

Gold restrictions cause depressions. Fiat currency causes inflation. Bernanke often mentions this as a passing interest. He firmly believes that we can never have a depression if a private bank simply makes money out of thin air as fast as possible.

We see very clearly, yet again, that this sort of inflation is useless in the long run. It simply causes everyone to stop selling to each other since the money they get diminishes the minute the transaction is made. Zimbabwe makes this very clear: stuff disappears from stores!

People have to scrounge for goods and pay in other ways. Weimar Germany made that very clear. Brazil went through this once where money was simply thrown away in despair since it bought nearly nothing, the governments always have to do the same thing: repuidate their own paper fiat currency and start all over again. I am including these two web sites that have an excellent overview about the history of Chinese money.

One of these sites is for coin buyers. Note how European coins changed drastically the use of 'money' within China. For China was never a major silver or gold producer before today. And they didn't raid all of North and South America to gain gold and silver like the Europeans [and then European settlers] did.

The flood of new metal coins flowed into China, changing relationships and the value of Chinese money. Chinese metal value was via weight and the purity was due to trust in gold or silver handlers who were basically the bankers for traders. The new coinage overwhelmed this system and ruined relationships.

Paper money, a Chinese invention?

During the Tang Dynasty (618-907) there was a growing need of metallic currency, but thanks to the familiarity with the idea of credit the Chinese were ready to accept pieces of paper or paper drafts. This practice is derived from the credit notes used by merchants for their long-distance trade.
Due to this lack of coins, also the dead had to change their habits of taking a coin with them to pay their passage to the other world. About the 6th century notes replaced coins as burial money. May we consider this as a real means of payment? Of course not, but it is remarkable that also here paper replaces very smoothly the copper coins that were used before.
At the end of the Tang period, traders deposited their values with their corporations. In exchange, they received bearer notes or the so-called hequan. Those hequan were a real success and the idea was exploited by the Authorities.
Merchants were invited to deposit henceforth their metallic money in the Government Treasury in exchange for official "compensation notes", called Fey-thsian or flying money. During the Song Dynasty (960-1276) booming business in the region of Tchetchuan likewise resulted in a shortage of copper money.
Some merchants issued private drafts covered by a monetary reserve which initially consisted of coins and salt, later of gold and silver. Those notes are considered to be the first to circulate as legal tender. In 1024 the Authorities confer themselves the issuing monopoly and under Mongol governement, during the Yuan Dynasty (1279-1367), paper money becomes the only legal tender.
During the Ming Dynasty (1368-1644) the issuing of notes is conferred to the Ministry of Finance. The long-term shortage of silver caused it to remain extremely rare and expensive in China; its price consistently remained at a higher level than its value in the western cultures- Roman, Byzantine and Persian. As a result of the persistent demand for the metal, silver began to be transported to China for profit making reasons, in particular by Persians and Arabians.
During the Tang Dynasty, this foreign silver may have been a major source of supply. In recent years, a large number of ancient foreign silver coins, the most common being Sassanian silver Drachms, have been excavated in Si-An, Xinjiang and other locations. During the Sung Dynasty domestic silver production increased significantly. In the Northern Sung, the annual national silver production varied from 210,000 to 880,000 taels (#1).
This increased supply of silver is confirmed by records of the tremendous amount of silver continuously paid to its opponents- the Liao, Western Xia and Jin -as tributes or war indemnities, and also by the use of silver as a trade medium both domestically and with these 3 countries.
The Sung Dynasty (Northern 960-1127, Southern 1127-1279) was distinguished by flourishing commercial activity and a dynamic economy during which some of the largest amounts of copper cash coins in Chinese history were cast and put into circulation. However, the low value of cash coins made high valued transactions unwieldy since the sheer volume of coins could not easily be transported or stored.

Chinese Sycee

Before foreign silver coins came into existence, sycee in China had been circulated for more than 1,000 years and a purity assurance system had already been created.
Such a system was usually reliable for the Chinese; they only had to chop sycee infrequently. A Chinese sycee always carried the name chop of its makers; it had been the law during almost every dynasties for silversmiths to be responsible for the purity of sycee made by them.
Most of the time, therefore, the law and practice dictated that people who received sycee in payment could be sure of its fineness, and protected if it was found to be of inferior fineness. Moreover, Chinese sycee had derived different patterns- including shapes, weight and purity standard, in different regions of China.
People were not used to accepting sycee cast in a pattern of another place unless it was tested by their local assayers or melted down and recast. As a result, Chinese sycee got more assaying chops, but less of other forms of chopmarks. V. Cross-examination on the chopmarks of foreign silver coins and Chinese sycee During the late 16th century, the two southern coastal provinces of Kuangtung and Fujien were the pioneers in using foreign silver coins, and soon became the largest markets in China for imported silver coins because of their early exposure to outside trade.
Local sycee of these two regions was soon replaced by foreign silver coins. Very few sycee of these 2 provinces can be found today, but many of the surviving examples are chopmarked, and can be used for cross-examination between the sycee and various chopmarked coins.
During 1800-1900 AD This period covers the reign of Jia-Ching, Tao-Kuang, Hsien-Feng and Tong-Ze; the most difficult time of the Empire. Because of the continuing and dramatic increases of the import of Opium, sycee of better purity was shipped abroad as payment for the narcotic.
Foreign silver coins with less silver fineness were imported for domestic trade, which caused serious exchange loss to the Chinese. Older foreign silver coins had higher silver finenesses and were more welcomed by Chinese people and as a result, from about 1800, many contracts specified using Old Pillar Dollar (w/o bust of a King). The growing demand for opium meant that China was losing its silver throughout the first half of the 19th century.
As a result, the price of silver climbed, causing many people, including foreigners and natives, to try and take advantage of this by counterfeiting silver coins. Under such circumstances, using heavy and big chops and chopmarks, became customary, and was the most expedient, though primitive, method for the identification of counterfeited or inferior silver coins.
Coins, including Old Pillars, Portrait Dollars (those with busts of Carolus III, IV, Ferdinan VII) started being impressed on with big, rough and heavy chopmarks from around the time of the Opium War. Large numbers of foreign coins of earlier periods bear chopmarks in both smaller and bigger fonts, indicating they circulated in China for a long period, encompassing both stable and tumultuous periods ."

And here is a very old NYT story from April, 1915, concerning trade with China. The US demanded an 'Open Door' policy with China while the European powers wanted to carve out 'Spheres of Influence' in China.

WWI destroyed the ability of the European Emperors and Empresses to exclude the US from Chinese trade. The US wanted markets for our MANUFACTURED as well as commodity goods. Opening up Asia to our exports was a top priority. But at the same time, the US, like all of Europe, wanted trade barriers.

The destruction of these trade barriers has raised Asia very high and looking over history, one can say that this is probably history balancing out things over time. Europe and the US destroyed Asian societies but they, in turn, are using our own philosophies and economic dynamics in their own favor.

This is giving them all a great deal of satisfaction. Now, they are the creditor nations. And one Asian nation, China, is also a diplomatic and military power. One that can eventually rule the Seven Seas. A rule China spurned in the past, to its great loss. I doubt the Chinese will want to try that again.

And I am for world trade! I like world trade! But I dislike imbalance. And this is the key: we have to balance things even if others don't want this. We have to tell them firmly, 'Sorry, but we have to do this one way or another. This is the safest way.' And then we tax imports! We must do this. Just as China had the right to stop British opium. We can't be passive about this. We have to look always to the bottom line. During periods of protection, we have to upgrade and improve things!

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Synthetic CDOs Slit Many Banking Throats

October 25, 2008

Elaine Meinel Supkis

It is a very windy, thunderstormy October night. The leaves are being stripped from the trees, flying wildly high into the clouds, whipped far from the gentle embrace of the Mother Trees. So we are going to talk about Synthetic CDOs and figure out not only why they are all losing 80-90% of their value but also looking at the people responsible for this mess and how much did they actually know several years ago. Hint: they knew perfectly well, what they were cooking up. They just thought that October storms would never hit, would it? Right.

WSJ: Trouble for Banks, Insurers May Lurk in Synthetic CDOs

A recent rash of bank failures is wreaking havoc on a large but little-known corner of the credit markets, in a development that could mean more write-downs for banks and higher borrowing costs for companies everywhere.
Even as some lending markets begin to recover from last month's demise of Lehman Brothers Holdings Inc., the securities firm's default -- together with those of other U.S. and European banks -- is causing new dislocations in the multitrillion-dollar market for complex investments known as synthetic collateralized debt obligations.

Geeze, when Lehman Brothers became the Lameman Sob Sisters, one of the most ugly little details was the fact that all that paper they held which they sold as great investments were worth literally less than a dime on the dollar. Some were only a penny on the dollar. Even when a homeowner goes belly up, most often, the property does have some value! Usually, about 60% of the loan. Imagine if homes that were collateral for $500,000 sold for only $5,000 or even just $500? Only if there was some great catastrophe!

Sort of like all those fancy houses in the Galveston area. One middle class community was totally wiped out, leaving only cement floors outlining where the house once stood. This is what has happened to all CDOs of whatever tranche and type.

The Lehman mess has not been settled at all. The bidders at the credit default auction who were supposed to collect the debris and then resell it...HAHAHA...knew this junk was as marketable as popsicles in a January blizzard in Nome, Alaska. But they had to buy something because the government enticed them somehow. How? Well, I would think that the $700 billion lollipop was waved in front of them?

With all this pious talk from the gnome community about 'transparency' and 'trust'...well, this doesn't go particularly far, does it? This is like being in a poker game where the young ladies are asked to play strip poker while the gnomes put on more and more layers of coats and hats and even veils and masks.

Synthetic CDOs are magical things. They have no reality. But they exist. They are devious creations created by some of the most devious minds on earth. The search for the Holy Grail of untraceable, finger-printless, opaque, dark pool money machine was perfected a mere 10 years ago and it was unleashed upon this earth to exploit the Japanese carry trade's funny money 0% lending! See? When we talk about all these strange unicornic creatures created by the gnomes, we must never forget the ultimate reason: to exploit this amazing, once in the last 500 years event! Never, in modern times, has any major export/industrial nation run itself on a 0% system!

So the problem was, how to shimmy this good thing into the real economic world and thus, use it as a basis for building great wealth without lifting a finger or making anything exportable. Before we descend down the particular deep pit into the Outer Darkness, first, let's visit the Bionic Turtle:

The Bionic Turtle explains all about CDO's:

This illustrates a partially-funded synthetic CDO typical of the failed structure in the subprime meltdown. "Partially-funded" refers to the fact that only a fraction of the reference portfolio is collateralized (e.g., 7% to 15%); the investors purchase securities only on this funded tranche. "Synthetic" refers to the fact that credit risk is transferred not with a sale of loans to the SPE/SPV, but by the purchase of credit protection with credit default swaps (CDS).

He tries! He tries his best! Explaining this mess, do note with his graph, how the arrows all move contrary-wise. And how they basically dump all 'risk' onto others while absconding [to the bottom of the graph] with the real loot. Which is ALWAYS LESS THAN !0% OF THE VALUE OF THE DEALS! And the cherry topping this melange are the juicy fees earned, building, slicing and dicing these deadly deals!

After searching the web, I found this interesting magazine that is all about credit. Just 4 short years ago, they ran an enthusiastic article about the wonders of Synthetic CDOs and how they magically grow EXPONENTIALLY! Wow!

May 2004: CDO guide: cashflow versus synthethic CDOs

Balance-sheet and arbitrage CDOs can be structured as cashflow or synthetic instruments, although an increasingly popular formula among originators is to combine the two into so-called hybrid CDOs. The cashflow CDO, which formed the bread and butter of the market in its formative years, is a structure in which CDO notes are collateralised by a portfolio of cash assets purchased by the originator. In other words, in this classical structure the CDO owns the physical bond, loan or other security referenced by the instrument.
The volume of traditional cashflow CDOs has been eclipsed in recent years by synthetic products, sometimes referred to as collateralised synthetic obligations. In a synthetic CDO, no legal or economic transfer of bonds or loans take place, with the underlying reference pool of assets remaining on the balance sheet of the originator. Instead, the CDO gains exposure to credit risk by selling protection to others through a CDS, which functions very much like an insurance contract. In other words, the CDO is still being paid for bearing credit risk, just as it would do if it physically owned a bond or loan.
From the perspective of originators, there are a number of clear benefits associated with synthetic CDOs. One of these is that risk transfer via synthetic structures allows bank originators in the CDO market to ensure that client relationships are not jeopardised. That is an especially relevant consideration in the market for CLOs, given that deal documentation in the syndicated lending market often prevents the transfer of loan ownership. Even where loan transfer is permitted, CDOs would often need, in theory, to secure the written permission of each borrower in order to construct a cashflow, which would amount to an impractical burden.

A number of danger signs in this early article! First off, there is NOTHING LEGAL about these deals! Gads! How do we spell, 'ILLEGAL'? Legal means things are set in ink, signed by actual humans who can go to prison for fraud, for example. It means it leaves fingerprints, a trail, something physical. Instead, since these bizarre new thingies were NOT LEGAL, this meant the sellers and buyers could make up whatever stories they wanted with each other since no one ever expected to be hauled before a judge or examined by the SEC.

With that Republican idoit, Cox, in charge of the SEC, no one was ever allowed to interfere with deals. And indeed, more and more deals were done 'off the books' and in other obviously crooked ways. This was encouraged by Greenspan who claimed this was pure capitalism and not pure Ponziism. When these things took off, interest rates were at 1% and the search for places where higher rates could be charged was on. These Synthetic CDOs were all about removing obvious risks from the high-interest rate pools.

Business deals or home lending to risky people who were not good clients was the only way one could charge very high interest rates. But everyone buying these things were frightened about bankruptcy of these same, risky borrowers. So they needed come scheme to remove this threat. This is where the Synthetic CDOs were so very clever: they pretended that they could SELL the risks and thus, insure it!

The sales of these risks turned out to be a great way to feather many a gnome's nest. The fees and the sales and resales of these seemingly innocent things was a great way to make a buck for two years! Then the bad news began to come in: the bad risks were very bad risks. And were defaulting at record rates! And the people who supposedly were going to pay for these losses so that the original owners of these tranches would not be hurt, were unable to pay or unwilling to pay up!

The guys at Credit Magazine are just overawed at the idea that these synthetic CDOs are growing EXPONENTIALLY!

A Deutsche Bank report on synthetic CDOs traces the strong growth in investment-grade CDOs back to 2000, by which time – notes the Deutsche report – “the credit default swap market was expanding at a seemingly exponential rate. We estimate the outstanding notional amount was growing at about 75% per annum and that the market totalled about E800 billion. Between the US and Europe, about 150–200 names were actively traded.”
Since then, liquidity in the CDS market has continued to grow at breakneck speed, with some estimates suggesting that by the end of 2004, the CDS market will be worth some $4,800 billion.
For investors there are a number of important attractions associated with exposure to the CDS market rather than to cash bonds. CDOs made up of CDS allow investors to buy ‘pure’ credit because the structure separates the credit risk component of from the other asset’s risks, such as interest rate and currency risk.

The fantasy that the risk was separate from the credit was a fool's game. It was cynical. The people who cooked this up knew it was a con. This is why it was not LEGAL. Namely, no one responsible wanted their nasty little names attached to any deals. Goldman Sachs and JP Morgan's top dogs didn't want to be barking in the pen after a trial. Paulson had to drop his lucrative business when he saw what was coming. He knew two years ago, all hell would break loose so he got himself installed as Treasury chief so he could be in control of the main banking entity that matters when things go crashing down.

He is NOT some nice guy who is sacrificing himself for humanity. He has hundreds of millions of dollars of Goldman deals at stake here and he wants to protect this stuff. Indeed, he is frightened of being arrested for fraud. But Congress doesn't want to arrest him. They want him to catch the falling knife of the Synthetic CDOs. He promised them, he would. Alas! This is all attached to that super-monster beast, the Derivatives Beast. Who isn't just synthetic paper but all sorts of oddball deals like currency/interest rate swap games and credit default swaps. These goofy, stupid gnomes let this creature grow to be bigger than the entire planet earth! Illegally!

Wiki Synthetic CDO

A synthetic CDO is a collateralized debt obligation (CDO) in which the underlying credit exposures are taken on using a credit default swap rather than by having a vehicle buy physical assets. Synthetic CDOs can either be single tranche CDOs or fully distributed CDOs. Synthetic CDOs are also commonly divided into balance sheet and arbitrage CDOs, although it is often impossible to distinguish in practice between the two types.

Tweedle Dee and Tweedle Dumb. Can't tell them apart. And they are not physical. They are metaphysical with a vengeance. Any time we see something that is full of mysteries like this, full of outright contradictions or suspend the laws of gravity, we are seeing magic, not reality. Like, magic TRICKS. Now onwards to tonight's news:

CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic

(Bloomberg) -- Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.
The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.
``We'll see the same problems we've seen in subprime,'' said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. ``Banks will take substantial markdowns.''

Every one of the queer, strange, bizarre things cooked up by these crooks this last decade are collapsing! Not one of them is useful, sane or good. Whenever we see this sort of thing in the real, physical world, we usually decide, this is a crime. Drunks driving down the wrong side of the road, smashing into everything are criminals and liable to be arrested if they survive.

The utter and complete failure of EVERYTHING these guys cooked up shows determined criminality. Just like Enron collapsed into bankruptcy, thus showing the underbelly of their conspiracies and illegal deals, so it is here: how on earth can these things be legal if they are so lethal?

Recently, China had several scandals over children's milk, toys and things. Lead or melamine was poisoning and even killing children. This was a crime and the government moved to punish the people responsible. Namely, they have committed suicide or are in prison. So it is here! All the bankers and dealers who invented, created and sold this obviously illegal business should be punished!

You don't need a law saying, 'Do this or that and you get arrested.' The mere fact that all of them have conspired to create TOTAL and UTTER economic destruction on an epic scale is grounds for arrest! Terrorists are supposed to scare us and this is illegal, whatever tools they use to scare us. So it is with these guys! They are terrorizing the entire planet. They are destroying our nation and many other nations as certainly as bombers blowing up buildings or shooting officials! Send them to Gitmo!

Here is proof that the Fed under Greenspan had plenty of warning about all this. A report written in 2004:

This graph is a classic 'hockey stick' graph. There should be a big sign attached to all such graphs: DANGER! DANGER! UNSUSTAINABLE GROWTH!!! Any realistic adult looking at such a graph should scream, 'Oh my god! Oh, my god! We must stop this, now!' Not, 'Oh my, look at that! We found a magic way to make something grow very, very fast!' This irritates me no end. I saw such graphs years ago and began to howl about it. No one listened. This is because humans WANT to have things grow to infinity as fast as possible if they can do it. This delights them, not terrifies them!

Out-of-control growth pleases us immensely. So the only way to stop this is to train our youth to fear this graph. Whenever they see such a graph, they must immediately raise alarms and show anger and fear, not happiness. The Credit Magazine guys thought the exponential growth was great! Not hideous. So we have a philosophical problem here that has to be addressed by the schools. Pronto. And we must force Congress to look into this matter, too. For they are making our debts grow the same rate!

From the Federal Reserve: Understanding the Risk of Synthetic CDOs

Michael S. Gibson∗

Revised, July 2004

CDO tranches are sensitive to the business cycle

Because CDO tranches are sensitive to correlation, and correlation of defaults is typically driven by the business cycle, the correlation risk of CDO tranches can also be characterized, and measured, as “business cycle risk.” Using the model described in section 3 above, and interpreting the common factor as business cycle risk that is common to all credits, I can compute the exposure of each of the tranches of the hypothetical CDO to business cycle conditions. Speciﬁcally, I can compute the expected loss (EL) on the CDO tranche as deﬁned above, conditional on a certain value of the common factor.
Table 10 shows such a calculation. Three diﬀerent business cycle conditions are considered:
boom, trend growth, and recession. These correspond to setting M , the common factor driving defaults, at its 10th, 50th, and 90th percentiles, respectively. The table shows both the dollar amount of each tranche’s conditional EL in the boom, trend growth and recession scenarios, and the conditional EL as a percent of the tranche’s notional amount.
The equity tranche, in a ﬁrst-loss position, expects to bear defaults of about half its notional amount in a trend growth macroeconomic scenario and expects to lose its entire notional amount in a recession.
The mezzanine tranche, in a second-loss position, suﬀers no losses in a boom and minimal loss in a trend growth scenario, but suﬀers most of the portfolio’s EL in a recession.
In this sense, mezzanine tranches are leveraged bets on business cycle risk. Recall the hypothetical CDO’s mezzanine tranche. Its par spread is 315 basis points, compared with 60 basis points on the reference portfolio. In exchange for this higher return, the mezzanine investor is exposed to a loss of 64 percent of principal in a recession scenario, compared with 7.6 percent on the reference portfolio.
The senior tranche expects to suﬀer very little loss, even in a recession scenario. Figure 5 shows the expected loss on the three tranches across a full range of macroeconomic shocks (1st to 99th percentile). Beyond the 96th percentile common factor shock, corresponding to a less than 4-in-100 or less-than-once-per-25-years shock, the senior tranche begins to see its principal signiﬁcantly eroded by additional losses. While the senior tranche is not exposed to “recession risk,” it could be said to be exposed to “depression risk.”

This is so sad, actually. Mr. Gibson thought that these CDOs would lose 64% value? HAHAHA. More like 98%. And far from a once in 25 years' shock, all the tranches and rubbish collapsed totally and completely in less than 10 years! And because the economist writing this study for Greenspan is not all that wise, he looked straight at his graph showing EPXONENTIAL growth and didn't scream, 'Ach, mein Gott! Herr Grünspan! Achtung! Ungefährlisch!' Nope. Instead, he did recognize that something wasn't quite right and worried that in a recession, somethings might not work.

But he didn't think these things would CREATE a recession or even worse, a depression! He thought they might not be good in such climates. But didn't put two and two together and realize they would be the actual TRIGGER, the CAUSE of a depression. We see this clearly today. Today, all the central banks are in hysterics because of this stupid deal making. They haven't the faintest idea, how to unwind this without much of the wealth squirreled away in banks, vanishing in a horrid flash. Boom.

One of the things this paper has is a bunch of useless formulas. One is this simple thing: M T M [mark to market] = Fee − Contingent. This is what has failed. There is no market and the mark is way off the mark. Like, into the rough. And the whole point was to gain the Fee! After the pay-out. Elsewhere, the good professor talks about the Default hazard rate which he pegs optimistically at just 1 percent per year. Instead, it is a classic all or nothing matter. All the schemes floated at the same time and when one fell, they all collapsed. This is why we like to compare this with Ponzi schemes: critical mass means the whole thing collapses in a cascade. This is why Ponzi schemes are illegal.

Federal Reserve's 2004 CDO study: Conclusions

Synthetic CDOs are popular vehicles for transferring the credit risk of a portfolio of assets.
Using a pricing model for CDO tranches that does not require Monte Carlo simulation, [Elaine: HAHAHA]I analyze the risk characteristics of the tranches of synthetic CDOs. In a hypothetical CDO, the equity and mezzanine tranches contain 10 percent of the notional amount of the CDO’s reference portfolio but 70–90 percent of the credit risk.
This implies that credit risk disclosures relying on notional amounts are especially inadequate for ﬁrms that invest in CDOs.
A basic result is that equity and mezzanine tranches are leveraged exposures to the underlying credit risk of the CDO’s reference portfolio.
I explore several implications ofthis result. First, event though mezzanine tranches are typically rated low-investment-grade, the leverage they possess implies their risk (and expected return) can be many times that of a low-investment-grade corporate bond. Second, a mezzanine tranche’s risk and leverage depend on the riskiness of the CDO’s reference portfolio and the tranche’s credit enhancement. Third, because the equity tranche contains a large fraction of the CDO’s total risk, risk transfer is limited when the CDO originator retains the equity tranche.
CDO tranches and other innovative credit products, such as single-tranche CDOs and ﬁrst- to-default basket swaps, are sensitive to the correlation of defaults among the credits in the reference portfolio. Because correlation is unobservable, diﬀerences of opinion among market participants as to the correct default correlation can create trading opportunities as well as “correlation risk” to be managed. Finally, the paper shows how the dependence of CDO tranches on default correlation can also be characterized and measured as an exposure to the business cycle, or as “business cycle risk.” A mezzanine tranche, in particular, is highly sensitive to business cycle risk.

Again, this darkness! Things can't be 'observed'. Now you see it, now you don't! The biggest tricks in the trade of all stage magicians is to show you only part of what is really going on. The various machines, mirrors, cloth curtains, etc, are all there to mislead, conceal and confuse. The closer you look, the more you are deceived. This is because all good magicians use 'patter' to control people's perception of reality. Talking is magical. And it works! It can twist reality into a pretzel even though the dough is not tied in a knot.

U.S. has plundered world wealth with dlr -China paper

(Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday. The front-page commentary in the overseas edition of the People's Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies. A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.

Oh boy! The Chinese were the oldest magicians. When Europeans first invaded China, they were amazed to see some of the street tricks. A fad grew from 1700 till today, trying to do these tricks in the West. Las Vegas depends on the magic community to awe and confuse patrons. The Chinese have a long history with the business of paper money. They invented it, after all! I will write a little history about that tomorrow.

East Asian Countries to Create $80 Billion Fund to Deal with Financial Crisis

Leaders from East Asian countries agreed Friday to have the fund set up by the middle of next year.
Members of the Association of Southeast Asian Nations, Japan, China, and South Korea will be allowed to dip into the money when faced with a financial emergency.
Japan, China, and South Korea agreed to provide 80 percent of the funds, and Southeast Asian nations will give the rest.
"The pressure they're under now I think is more related to just a panic, the ongoing panic in financial markets. And, I think, the thinking is the $80 billion could be used as sort of a backstop for the regional authorities, that when they do experience pressure, to fend it off," he said.

Asians are groping for some way of dealing with this. Yet they are doing this with Japan! HAHAHA. Good luck. So long as Japan clings to the 0% system, they are endangering everyone. Right now, the carry trade is violently unwinding. But the hope is, in Asia, to rewind it and get the trade going again. This is a futile effort if the US is at 0%, too! A problem! For all of Asia has the biggest trade surpluses with the US. We are their profit center! So they are united in this regard. And so, this deal won't work if we can't bend to their will and resume consuming.

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Nothing New Under The Depression Sun

October 25, 2008

Elaine Meinel Supkis

As the US falls into the same system that runs Japan, we have to recognize that the effects of the 0% system is not going to fix the US trade deficit. The Treasury is allowing all our dear, bankrupt banks to announce that they are going to the bankrupt Fed for funds. We also look at a series of old, old newspaper clippings that clearly show that today's mess is nearly totally identical to past messes. The IMF is going to allow many of the 'first world' nations to borrow immense sums. And not live under IMF cruel rules, either, I bet. And we revisit the business of the Plunge Protection Team.

Fed: New rate cut likely, with record low within sight

The Fed lowered its federal funds rate, the benchmark overnight lending rate at which banks lend to one another, by a half-percentage point to 1.5% in an emergency announcement Oct. 8.
Many investors believe the central bank will cut rates by at least another half-percentage point following the end of a two-day meeting on Oct. 29. In fact, the fed funds futures on the Chicago Board of Trade are now pricing in a 26% chance that the Fed will cut rates by three-quarters of a percentage point to 0.75% by that meeting.

Well, with the Treasury and the Fed pumping money like mad, handing out loans like there is no tomorrow, why bother with any banking traditions? Why not have 0% interest like Japan? This sort of wacky thinking is contagious. Japan pioneered the 'endless zeros' and got away with it. So now, all nations that can do this are tempted to do this.

It should be obvious to even the experts that if 0% interest was a good thing, why, this would have been the interest rates from day one! Why have compound interest, for example? Why even have banking? If all we need is someone to sign off on loans that require no money down and the loans are based on $0 savings, why, anyone can get and pay for a loan! This charming,fabulous system is similar to the concept of Santa Claus: all we have to do, is be 'good' and he will give us free gifts!

Actually, this present Santa system is rewarding BAD children. The bankers across the planet went totally insane, underwriting trillions in loans, thanks to the Japanese 0% lending system. The housing bubble was global, not local. If we read the news very carefully, the first thing that springs to mind is, almost all developed nations had housing bubbles that ran alongside each other like horses hitched to the same carriage. If we look even closer, we see an interesting thing: nearly all the housing built during this global bubble were based on the same interest rates, usually around 5%, more or less.

Frantic governments periodically raised their local rates, even up to 6%, in order to cut back on this housing lending. It had no effect. It didn't matter if one's currency was strong or weak, all of them ended up in this global housing boom that was predicated on an endless stream of easy lending money pouring into the back door of all the banks, hedge funds and investment houses.

These same guys also flooded the world with lending for buy-ups and take-overs. All the money for this came from the same odd source: the 0% lending by Japan. The source for all this nearly free lending wasn't China, for example. China's rates have always been above 2%. There was briefly another source of cheap lending: Greenspan's 1% interest period from 2003-2004. But this was only one year. The Japanese have been doing this for over a decade!

The swelling of 'world wealth' coincides with this long period of free lending. Most of the money created this way was not in yen but in dollars. So the US lost control of who produces dollars. Since dollars are debt, the cranking out of epic amounts of debts meant this debased US dollars. Since this was done via Japan, this also killed the yen. So we saw, for about 6 years, the dollar and the yen BOTH in free fall vis a vis most currencies on earth.

Years ago, I often noted that the concept of the two top economic powers on earth both running cheap lending schemes coupled with WEAK CURRENCIES was insane and could not end well. Little Iceland shouldn't be the 'strong currency capital of the world' while the US and Japan were playing this cheating game. Both the US and Japan openly stated that they HAD to do this because they wanted their economies to grow.

And that inflation didn't matter. Well, we just got washed over by a tsunami of hyperinflation which has now receded. We are now in the other half of this destruction of all that Japanese/US 0% lending lunacy: equity and asset value destruction. Both the US and Japan desperately want to reinflate all the original items this flood of funny money inflated. Namely, stocks, housing, corporations, etc.

These items are 'wealth producers' because one can dump cheap debts on top of them! Commodities translate directly into inescapable inflation. But when artwork, diamonds, gold jewelry, vacation villas, yachts and custom cars rise in value as everyone eagerly bids higher and higher thanks to tons of free money, this gives the illusion of wealth. Paying more to fuel the yachts, custom cars, etc. feels like losing wealth.

It doesn't make one feel one iota richer. I will note here that the solutions being tried by everyone in charge of financial systems in the world are all aimed at 'controlling' the creation of money but no one is discussing what exactly got out of control in the first place. When Japan's FOREX reserves began to bulge in size back when the Asian Currency Crisis happened, this should have been recognized as a warning sign.

Everyone was in agreement that Japan, after an epic housing/stock market bubble of 1990, was in this 'depression.' Yet, they squirreled away an amazing amount of US dollars! How could they do this? Certainly, they were not rolling in dough in Tokyo. This riddle disturbed me back in 1999 when the Japanese FOREX reserves were less than $500 billion.

Back then, the economic giant, the US, had a reserve of around $70 billion. So the disparity was already massive and troublesome. For some reason, few, if any, economists or central bankers considered this to be a warning sign of impending economic destruction. When China, after 1999, began to do the same, there was rising alarm but this was only because it was China doing this. Even when Japan, who stopped at $650 billion in 2004 suddenly began to increase their holdings again, still, many people disregarded this coincidence. I was astonished at the ease with which China built their own FOREX reserves.

This infuriated the G7 nations who attacked China for this activity over and over again. While never attacking Japan. When China approached nearly $2 trillion in their reserves, Japan was at $1 trillion. Their race was joined by Russia, who built up their own reserves to be ten times greater than the US.

Treasury to Allow Banks to Announce Equity Injections

WSJ: The decision came after concerns that banks left off any group list would appear too weak for government assistance, spooking investors and depositors and potentially making troubled banks' situations more dire. Treasury officials were expected to announce investments in about 22 different banks Friday at 11 a.m.
They shifted gears after PNC Financial Services Group Inc. announced Treasury was investing $7.7 billion in its bank as part of the deal to acquire National City Corp. National City was denied government assistance and was forced into a sale.
One reason for regulators' rush to arrange the National City deal by Friday morning was the planned 11 a.m. announcement. Regulators worried that National City's absence from that list would spark a panic among customers and shareholders.
Among the banks that were going to be included on this morning's list were Capital One Financial Corp. and SunTrust Banks Inc., according to people familiar with the matter.

The US has nothing to invest. Japan, China and Russia all have RESERVES they can put up as the basis for internal lending. But not the US. I often joke that the Federal Reserve is neither federal nor has reserves. When the Japanese carry trade created all those dollars for us [aka: liquidity] we didn't 'grow' our own reserves to the same degree. Not even slightly.

Not one bar of gold was added. Nor did we buy a pile of euros and yen to the same degree as our trade rivals were socking away those new dollars. And let's look at today's news story about our dying banking system: depositors are fleeing it. I can't blame them. It isn't simply naked fear. It is the same problem savers in Japan are facing: they earn little to no interest on savings in banks.

A number of the smaller economies that were funnels for the Japanese carry trade were islands like Ireland, Iceland, New Zealand, etc. These places offered real savings rates if people deposited their money in banks located in these island 'kingdoms'. Desperate Japanese savers flocked to these places. When the US and UK both dropped rates too low, savers in these two places did the same. The world saw this flood of savings fleeing the world's top economies and this was supposed to be good, not evil.

The world became so accustomed to this, it became 'normal'. But this is very abnormal. Just like previous periods in time when there was a trade/monetary imbalance as the nation hosting global trade resolutions, England, tottered on the edge of final destruction starting in 1914 with WWI breaking out.

New York Times, October 4, 1914:

Europe resolved its financial problems by launching WWI. The US wasn't even in the war which, when this story about 'bank hoarding' was written. The war was only slightly more than two months old when the government was already fretting about the banking situation.

For the condition of the central banks in London and Paris were rapidly deteriorating. Germany was rapidly moving towards Paris. And the overextended British and French empires could not bring home their troops that were subjugating huge swaths of the planet. The US is at war today. Our war spending is at the same level as during the Vietnam/Cold War.

This war expenditure requires 0% financing. The US is relieved that Japan has violated all sound banking rules and has made this sort of war financing OK. Normally, during wars, interest rates rise as lending increases. Governments get around this by printing money and unleashing seas of inflation. The US has done this during the War on Terror.

We not only unleashed record overspending in the government, we stood idly aside while Japan cranked out dollars like crazy, too. Now, banks are 'hoarding money' just like in 1914. And the government is bankrolling the banks like in the Great Depression.

I hate to tell everyone this news, but the various tricks and schemes being used by Paulson and that Great Depression 'expert', Bernanke, are identical to the Hoover attempts at restarting the economy back in the early 1930's. Here are some random samples:

THE NEW YORK TIMES. July 2, 1930 BUSINESS MEN URGE FREER WORLD TRADE

International Chamber Sees in Exchange of Goods a Remedy for Present Economic Crisis. HOARDING OF GOLD DECRIED Resolution Adopted In Paris Calls for Cheap Credit and More Liberal Circulation of Capital. Decry Hoarding of Gold. Cites Causes of Crisis. Gold hoarding by central banks is partly responsible for the present critical economic conditions throughout the world, it is set forth in a resolution passed by the council of the International Chamber of Commerce, which has been meeting in Paris.

Again: the banks are hoarding gold! Oh my! And that is what is responsible for the banking collapse. We see this today: who has the biggest money hoards on earth? The banks? Or perhaps we should look at several major, central banks: Japan and China both are sitting on $3 trillion, just by themselves!

This goes back like a rabbit running into his hole to the idea that this hoarding is part of the global trade process which is due entirely to the US passively allowing everyone to flood the US with their exports! International leaders tried to hold meetings about this 'hoarding' by the banks. At these meetings, they tried to jawbone everyone into lending again.

But why lend at 0% interest? And if prices are falling, why borrow? The giant loans and even bigger reparations of WWI were in default. On top of that, Russia defaulted on the Czar's loans. So this was a triple whammy. The top creditor nation, the US, could no longer underwrite any loans at all since nearly everyone was defaulting on previous loans.

Not matter what tools the President used, it couldn't bring dead loans back to life anymore. So banks 'hoarded' their loot. China and Japan are doing this right now. Due to their currencies rising as well as their industrial exports contracting, they have to hold onto their hoards instead of lending. So even if they drop rates and Japan cannot do this, it won't change the dynamics of them holding while the US flounders about, seeking more and more loans for its increasingly gigantic budget deficits. Here is a story from two years later:

THE NEW YORK TIMES. March 25, 1932 Mills Reports Big Drop in Hoarded Funds; Vast Improvement Noted in Bank Situation

A large reduction in money hoarding and rapid slowing down of bank failures in recent weeks were shown in figures made public today by Secretary Mills.

In 1932, after a lot of meetings and rescue operations, everyone thought the firestorm of asset and equity destruction which was caused by bankrupt nations defaulting on massive loans, was done.

This proved to be delusional, of course. The worst was yet to come. Like this year, it was an election year. Hoover desperately wanted to have things set to rights. But wages were still dropping. Workers were being laid off. World trade had collapsed as everyone scrambled, like we will see next year, everyone who still had some industries left were desperate to protect them. And rightfully so! Any nation that refused to do this, ended up ravaged.

The US has, so far in the present cycle, stupidly volunteered to continue to sop up all global trade. But back then, we were a creditor nation so we were very wary about this. Back in 1933, the new President didn't walk into his office until mid-Spring. And one of the earliest decrees of Roosevelt was his confiscation of gold and the revaluing of the dollar to a lower peg.

April 6, 1933, Text of President's Gold Hoarding Order

The text of President Roosevelt's executive order on gold "hoarding issued today was as follows:
Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled An Act to provide relief in the existing national emergency in banking, and for other purposes~',
in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of the order:
Section 1. For the purpose of this regulation, the term 'hoarding" means the withdrawal and withholding of gold coin, gold bullion, and gold certificates from the recognized and customary channels of trade. The term "person" means any individual, partnership, association or corporation.
Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:

Again, the business about bankers and savers 'hoarding' wealth rather than lending it! When banks can't offer any decent return on savings, why hand it over? So the government simply used the power of the sword to force savers into lending. The US has no savers now, not to the extent that they can even begin to cover the capital costs of borrowers who are going rapidly bankrupt.

The government's offer of less than 1% interest is not going to bring in any money into the system. Now let us discuss gold again: it being inert and geologically stable, it doesn't rust or shrink away, for example, it is a good icon to use as 'money' since one can hold it for a very long time and not see any changes in its geological status.

For example, we had stories last year about people in an Indian bank who lost their life savings because termites crawled inside and ate all the paper. There are no bugs that eat gold. Not even gold bugs eat their gold [hahaha...stupid joke]. The point is, gold hoarders can sit on their loot for a long, long time! And time is money. The more money circulates, the more it can 'grow' so if it becomes inert, this is a problem.

The world price of gold is declining right now, oddly enough. Just like in 1932. But then, suddenly, France decided to convert its dollar hoard into gold. The raid on US gold holdings was swift and devastating. This is why the President had to take draconian controls over gold in the US! We do wonder if Japan and China will do this, too.

France did it during the worst part of the Great Depression because trade with France was declining. Trade with Japan and China is now declining. Eh? The world price of gold is artificial since the biggest gold stashes are held by governments and still used as a secret handshake, so to speak.

But China and Japan COULD demand payment in gold. If they buy gold from the many gold bugs who would dearly love this, the gold bugs, who are in a slump right now, will be in heaven. This is possible. And it a weapon used by China and Japan while they negotiate with the US to deal with the immense paper holdings they have in their vaults.

Because History seems to be like an old dog going to bed and goes around and around in circles, the re-emergence of gold as the core of FX markets just may be around the corner, ipso facto. Now to look at this blog one year ago:

Culture of Life News, October 25, 2007: The Plunge Protection Team Circles The Toilet

The Plunge Protection Team holds more meetings. They are desperate to find some Hail Mary play to save their financial houses from destruction as the SIVs now go off the cliff. Meanwhile, China is strengthening their Asian trade complex and are working towards creating an Asia-centric economic system.
*snip*
There are supposedly around $400 billion SIVs swimming about the planet, most of which are drowning. $400 billion, to put things in perspective, is what we spent on killing Iraqis and stealing oil in Iraq for about 3 years.
I remember when Bush fired the Treasury Secretary when he warned this war would cost us $200 billion. This sum is big, by the way. Just as the Iraq war is bankrupting the US government, so will this global SIV fund mess. As each one sinks beneath the waves, the others take on more water. It certainly was a cool trick for all the financial houses to create these funds.
We forget why. When the stock market suddenly collapsed in 1987 and a number of banks went down along with a host of savings & loans, the US had to bail out a huge number of rich financial houses and some of the more outrageous financiers went to prison (fraud, of course) and to fix this, the Federal Reserve decided to allow a new form of financing that involved creating out-of-the-bank entities which we now call 'hedge funds'.
They were supposed to go bankrupt in bad times but NOT pull down the huge houses because they would be seperate entities. This solution has a huge flaw: because they can go bankrupt with no effect on the big entities spawning these hedge funds, they became very reckless and spawned a host of these creatures, every week, more and more were created.
A lot of thought went into creating as many variations on various fund types as possible. On top of this, since they believed their risks were hardly visible, they could float BBB funds that carried high risks but even higher interest rates. Soon, everyone rushed out and poured a lot of money into these BBB funds hoping to get super-rich, super-fast.

People hardly remember that flotilla of SIVs that vanished under the waves last year. Everyone was told, this was all under control, $400 billion was no big deal. I noted that this is not only equal to the war misspending by the US, it was also half the size of Japan's huge FOREX reserves.

So it is a huge amount of money that simply vanished. When this happened, all the credit default swaps were also taking on water and were soon swamped. These CDS deals are now sinking rapidly, very rapidly, faster than the SIV fleet last year. Just like in the Great Depression, all the deals and systems set up to funnel money and trade in the wake of WWI being launched failed one by one, in succession. Today, we see a host of failures becoming obvious.

For example, the credit default failures from the Lehman collapse are STILL not being registered. Indeed, there is fear that these things that are 90% in default, will utterly destroy the last remnants of world banking. So like a hen sitting on a hand grenade, the central bankers are clucking away, trying to find some solution to this impossible situation.

IMF Mulls Emergency Lending; Iceland Gets $2 Billion

(Bloomberg) -- The International Monetary Fund is considering an emergency program to prevent a collapse of emerging markets by almost doubling borrowing limits for members and waiving its standard demands for economic austerity measures. The fund is discussing plans to offer so-called hard- currency loans of three to six months, two IMF officials informed of the matter said. Separately, the Washington-based agency agreed today to lend Iceland $2.1 billion in accordance with existing rules after the island nation's banking system collapsed, threatening a prolonged economic contraction.

For years and years, the US and its IMF buddies told poor nations to bite the bullet. Now that we are up against the wall, we want puff balls, not bullets. So Iceland, a nation with a very, very high standard of living, doesn't have to do 'austerity'.

Argentina had to be treated so cruel back in 1999, children were literally starving to death to the horror of the rest of the world but the IMF didn't give a hoot. And Africa! Masses suffer terribly, yet have to pay off IMF loans in full! This dual standard is not lost on the rest of the planet. The Chinese know, for example, if they need loans, they pay through the nose and if millions of Chinese die, so what? But little Iceland, being 'white European,' will get generosity and assistance, not chains and blows.

Why is this? HAHAHA. Russia said they would save Iceland. This was a strategic move to take away a big NATO base there. So the IMF is saving Iceland since the US can't do it. Most of our foreign aid flows to Israel or to pay the military of dictators holding down Muslims for us across the planet. We can't also fund all of Iceland, too. Israel has a standard of living [in the Jewish quarters, of course] that equals Iceland, by the way.

BBC: Irish house of cards comes down

The Irish thought their Celtic Tiger economy had put an end to generations of emigration. It is not back yet, but the fact that people are talking about it again is a sign of how bad things have got. Ireland is the first country in western Europe to officially fall into recession, defined as two consecutive quarters of negative economic growth.
Places like Drogheda, a commuter town near Dublin, have been particularly hit. During the unprecedented boom years, the population here grew by a third. Now, it is an unemployment black-spot - ringed by new developments with empty, unsold houses.

More proof that the housing bubble was global. And the energetic financial games by many small nations has had a very toxic outcome. All these nations worked hard at one main thing: to grab US jobs via the outsourcing and offshoring mania. The US government not only didn't protect any of our own industrial base, it stood aside or actively assisted corporations in looting our nation by having us consume products which were imported or done overseas while the jobs and the tax base flowed overseas.

Ireland did this very aggressively in the computer field. Like India, they also did telephone work and other office jobs that used to be done in America for Americans. Since they are not part of our main economy, they are easily cast aside when the economy flags. Ireland has little real power and therefore, can't blackmail other nations into supporting them as they flounder about, for example.

Also, they used their new wealth to build lots of houses. The BBC article talks about people buying two, three or more houses. These people hoped to sell to someone else but were in reality, selling to each other for investment purposes. There were no tenants in the wings, begging for housing.

The US also has too much housing in the wrong places. Housing has to be reasonably close to jobs! And jobs are moving restlessly about the planet. One day, you have a job, the next, it has jumped to Asia or South America! Or even back to the US! This instability coupled with a housing boom is most dangerous. Houses can't jump from one country to another, after all. And workers stuck with overpriced/overleveraged properties have only one road open: bankruptcy and abandonment.

Russia's financial crisis is escalating

with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default. Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.
The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund. Moves by Hungary, Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe.
Romania had to raise overnight interest rates to 9% on Wednesday to stem capital flight, recalling the wild episodes of Europe's ERM crisis in 1992. The CDS spreads on Ukraine's debt have topped 2,800, signalling total revulsion by investors.
Rating agency Standard & Poor's issued a downgrade alert on Russian bonds yesterday, warning that a series of state rescue packages worth $200bn (£124bn) could start to erode the credit-worthiness of the state. S&P said Russia's budget was likely to slip into deficit in 2009 as result of the dramatic slide in oil and metal prices this autumn, and cautioned that "the ongoing concentration of the financial system in state hands" had become a political risk.
Russian companies must roll over $47bn of foreign loans over the next two months, and a further $150bn or so next year, a task that has become close to impossible as investors flee Eastern Europe.

Russia has a huge FOREX reserve. Note how everyone is leery about Russia defaulting due to dropping oil/gas contracts but Russia is not running in the red? Eh? No nation is running deeper in the red, longer in the red, than the US. The only reason we are allowed this boon is NOT because the dollar is the world's premier trade resolution currency! It is because we are allowing everyone to destroy our native industries and markets.

Russia, like Japan and China, will not let just anyone come in and rearrange the furniture. There are far more controls there than here. In the long run, the nation that is in the most trouble is not Russia but the US.

What is goofier about this article is the remark that more and more Russian economic systems are falling into the hands of the Kremlin! Well! Looking at the US news, it seems that the US is taking over all mortgages, all banking and most of our industrial base is military so it is connected to the government quite directly. And we are doing all of this, deep in the red!

Much, much deeper than Russia. But since we allow everyone to invade our markets, this is just fine with the rest of the world. Indeed, this is the old status quo everyone wants to continue.

UK recession fears spark massive sell-off of sterling

The pound has slumped to a five-year low against the dollar, and is close to having its worst week since sterling was ejected from the European Exchange Rate Mechanism in 1992. Sterling fell as far as $1.62 during yesterday's trading.
Foreign exchange, gilts and equity markets all reacted strongly to the Prime Minister and the Governor of the Bank of England admitting that Britain is likely to enter its first recession in 16 years.
The turmoil in currency markets was reflected on world stock markets, as the FTSE 100 in London and the Dow Jones Industrial Average in New York plunged once again as company after company warned that the outlook for profits was deteriorating.

The yen is rising because it has a huge FOREX base behind it. England, like the US, has virtually no reserves so the pound is falling. The US dollar is not going downwards only because of the peculiar position of the dollar and only the dollar: the US is the world's main trade destination. Until this changes, the dollar must be 'strong' so they can profit from this one-way trade.

JCB workers take pay cut to avoid layoffs

Thousands of workers at the manufacturing firm JCB have voted to accept a pay cut of £50 a week to prevent the loss of 350 jobs, it was announced today. The GMB union said around 2,500 of its members at seven JCB plants in England and Wales had agreed to work a four-day week for the next 13 weeks to help the company weather the economic downturn.
Despite recording pre-tax profits of £187m last year, the company has been badly hit by the downturn in property and construction. In July this year, it warned of a "rapid decline" in demand.

The workers are the fundamental basis of all economies. Period. Not banks, not corporations. Workers must be able to buy for an economy to 'grow'. When workers can't buy, we get bad depressions or recessions. Working wages have not kept up with inflation.

The majority of profits have flowed increasingly into the hands of the few. It is getting worse and worse. In the Great Depression, workers at first did this sort of sacrifice. To keep all from being eaten by wolves, they would make joint sacrifices. But this only makes the recession or depression worse in the long run.

The fact that wages are falling and unemployment is rising is yet another indication that the unbalanced system we call 'the status quo' is failing. Reviving it by saving the very rich won't work. Indeed, the rich have bent all their energy towards dumping epic amounts of debt on all systems and on top of this, evading taxes. Just today, the top advisor to the NY governor has had to resign because it turns out, he hasn't paid or filed any taxes for years!

All the top wealthy people on earth are very good at gaming systems so they can evade taxes. The tax base has not kept up with wealth growth. Instead, thanks to the 0% rates being offered by governments themselves, government debt has grown. The PRINCIPAL matters! Even if we never pay any interest at all on this mess, as the principal grows, it still is destructive.

Margin Calls Prompt Sales, and Drive Shares Even Lower

In the last week, as the value of stock portfolios has plunged, executives and fund managers who had bought shares on margin — that is, using borrowed money — have been forced to sell millions of dollars worth of stock to settle those loans with banks.
Professional investors say that the margin calls probably added to the pressure on stock prices last week, when the average stock plunged nearly 18 percent.
Some analysts and investors are concerned about a situation in which margin calls occur in larger numbers, causing an even bigger wave of selling, even though most analysts say that stock prices are already historically low.

One smart thing that came out of the Great Depression were the rules concerning playing speculative games with loans. Namely, you can't do it! Margin calls, thanks to Greenspan and the host of right wing Ayn Randistas, are now eating away at everything.

People who borrowed super-cheap money can't hold stocks and other things when the value drops on the PRINCIPAL owed. Namely, if it isn't earning a profit, they can't eat the losses due to these loans. So they have to sell as fast as possible. Of course, this causes panics and price collapses! Which is why it must be illegal.

Citadel: liquidity strong, operating as usual

(Reuters) - Citadel Investment Group, one of the world's biggest hedge funds, said on Friday it has $8 billion in available credit and sought to quell rumors it was liquidating some portfolios after its two main funds had lost 35 percent since January.
Reacting to persistent market talk it had asked the U.S. government for a cash injection and that financial regulators were coming to inspect its accounts, Chicago-based Citadel held an unusual and hastily arranged conference call.

Just like the SIVs and CDS markets, the host creatures are dying. The hedge funds will die just like their grandpas, the Trust Funds of the Roaring Twenties died off, one by one, during the Great Depression. Again, our ancestors made these stupid things illegal. And the Ayn Randistas legalized and enabled it all over again.

Greenspan "shocked" at credit system breakdown

Former Treasury Secretary John Snow agreed that risk had been under-priced on a global basis. He said risks in mortgage markets were masked in part by accounting irregularities at Fannie Mae and Freddie Mac.
"A critical lack of transparency in secondary markets left policy-makers and regulators unable to discern the true nature and extent of the systemic risk that continued to build," he told the panel.
Greenspan urged that securitizers be required to retain "a meaningful part" of securities they issued. He said that regulatory reform will be necessary in the areas of fraud, settlement, and securitization to reestablishfinancial stability.
He also conceded he was "partially wrong" about his belief that certain derivatives, such as credit default swaps, did not need to be regulated.

My, how this god has fallen! He now admits to being 'partially wrong'? HAHAHA. How about totally, absolutely wrong from top to bottom, beginning to end? Until these clowns finally admit they were bonkers, we will continue to suffer. And Trust Funds/Hedge Funds will not function well no matter how 'transparent' they are. They could be stark naked and still be coyote ugly broads.

The risks of lending at 1% or less were painfully obvious to me, years ago. It should have been obvious to Greenspan. When he did this while Bush was cutting taxes to the rich, he knew this was a very, very naughty thing. But his excuse was, this all for the good of the nation because the stock market crash and 9/11 was so very unusual. Har.

WWI was a major emergency. So was WWII. The attack on Wall Street by the 9/11 gang [with some significant assistance from our own government letting them do their worst] was not anywhere near the level of global wars. And we know from history that the last thing a government should do when under attack is drop interest rates to near zero! It was unprecedented and stupid. But everyone loved it because who doesn't love tax evasion and free loans? The Gnomes blacked out all financial deal information from 'rescue' papers.

The Treasury Department has hired two big accounting firms to help keep tabs on the government's financial-industry rescue program, and once again certain basic elements of the deals are shrouded in secrecy.
PricewaterhouseCoopers LLP will provide internal controls for the government's $700 billion bailout fund. Ernst & Young will provide general accounting and consulting. The Treasury Department said the first phase of the three-year contracts will be worth $191,469.27 and $492.006.95, respectively.
That sort of specific detail is lacking in the agreements themselves. The Pricewaterhouse Coopers contract released by the Treasury Department on Tuesday has blacked-out text in the area covering the firm's bid, and also conceals the name of the PricewaterhouseCoopers partner who signed the deal. Another section listing the names of the
PricewaterhouseCoopers employees designated to work on the contract also is blacked out. *snip* A spokesman for Bank of New York Mellon said he did not know why the compensation information was redacted, and referred our question to the Treasury Department.

The gnome has not idea why all important information about how much money the same gnomes who destroyed our financial system will be getting? HAHAHA. Always good for a laugh! Will Paulson tell us why this is all so tip-top secret? HAHAHA. Again. I notice that all the pious calls from these same clowns for less secrecy falls to the cellar the minute we ask for any information! So much for nakedness.

Corporate-tax rates are falling

AS THE effects of the financial crisis ripple out into the wider economy, businesses are struggling. With access to credit all but choked off and global demand falling, firms are keen for any help they can get.
America's big companies have a friend in John McCain, who says he will cut the top federal corporate-tax rate from 35% to 25%. Once state and local taxes are added, the combined rate amounts to an average 40% of profits, the second highest in rich countries. Over the past decade, corporate-tax rates have fallen considerably, especially in the countries of the European Union.

Yup: here it is in a nutshell. Our corporations have screwed up the entire planetary financial systems. They control many governments via bribery, etc. They write the rules, damn it! And they want massive spending on things like wars, etc. And bail outs, of course, when they screw up everything! But THEY DON'T WANT TO PAY TAXES.

They hate taxes when they pay it. They encourage poor little debt-beasts like poor little Joe the Plumber to also hate taxes. Then these cruel rulers turn on Joe and tell him, when he loses his job, 'Sorry, chum. We can't afford to feed you or keep you alive. HAHAHA. Eat that, fool! Oh, and vote for me!' Yes, a real alliance.

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Yen Rose Last Night To 90 To The Dollar!

October 24, 2008

Elaine Meinel Supkis

Happy Birthday to my loving husband day! It is colder outside, Libra is finished and now we enter Scorpio, the constellation of the Goddess of Death. The Derivatives Beast continues to munch away, unstoppable. AIG is demanding more loot because it is a bottomless pit. The übergnome of the planet, Greenspan, admits that he may have had a tiny flaw in his economics plans! HAHAHA. But the real heavy news of the hour is the amazing skyrocketing value of the YEN! It is shooting upwards at an astonishing rate. The Japanese are beyond hysterical about this. They see their doom for it is killing the export trade golden goose!

This Time Is Different - by Stephen Lendman

The derivatives problem is especially ominous. At extreme levels and very dangerous. An estimated $180 trillion held by commercial banks alone meaning those with most of it are technically insolvent. JP Morgan Chase holds half of it. An "unprecedented concentration of risk in modern US history." The large counterparty default risk in this market isn't understood. Currently the Office of the Comptroller of the Currency (OCC) reports credit derivatives exposure (or risk of trading partner default) at $465 billion. Up 159% from 2007. Failure to address the derivatives time bomb "leaves a gaping hole through which financial panic can spread."

In addition, beyond the above lowball figure, no estimates are available of derivatives default amounts or forecasts of more likely in a continuing downturn.

In sum, a monumental problem. Too big to ignore, but precisely what Congress is doing. At enormous risk to the economy, businesses, households, the American way of life, and the nation as the world's economic superpower. Plus the effect on world economies and people everywhere.

A reader sent me this guy's blog. He is a very good read and has quite a resume. So let's give Stephen Lendman a boost! Tell him, he is right! And tell him about the Derivatives Beast and his many adventures in the Bottomless Pit. Oh, I haven't told all that many stories about him? Sorry. He is still germinating in my cartoon mind. But once I am done with all the pre-winter work which eats up most of my time, 8 to 12 hours a day, I will do a whole cartoon series about the Cave of Wealth and Death. How the gnomes raid this place, what the dire female goddesses do about all this and the baby, now grown up Derivatives Beast. And the magical flying piggy bank, of course.

This derivatives business was all about two big things: getting lots of loot via fees which came from passing risk from hand to hand, over and over again. And to eliminate the appearance of risk by pretending that in the end, someone would pay everyone if they lost their bets in world markets of various sorts. So they could do all of this with low, low interest rate loans! From the Bank of Japan. All these elements were in place in 2005 and I talked about them back then. It was pretty easy to see what was going to go wrong, too.

One of the biggest propaganda points being put out by all the players in this noxious game is this huge lie: 'NO ONE KNEW THIS WOULD CRASH AND BURN!!!!' But the internet proves this wrong. True, the people understanding this crash and predicting it were few in number. I am a proud member of this tribe. But within this tribe, very, very few people....I would suggest that I stand virtually alone...understood that the real problem was Japan's 0% lending, the weak yen and the Japanese carry trade.

Today's amazing news about the yen shooting up like a rocket against all currencies is proof that I am right! And more: the entire world is seeing stocks crash DUE TO THE JAPANESE CARRY TRADE CRASHING AND BURNING! As I predicted it would way long ago, in ancient times. Ah! This gives me a certain dark satisfaction. And the goddess of History lifts her feather and pauses while inscribing the past. She smiles grimly and laughs before resuming her story, 'The Decline And Fall of All Empires.'

Back to today's startling news:

AIG Taps $90.3 Billion From Fed, CEO Says More May Be Needed

(Bloomberg) -- American International Group Inc. has used $90.3 billion of a U.S. government credit line since it was bailed out last month, an amount that exceeds the size of the original loan meant to save the insurer.

AIG may need more than the $122.8 billion now available to the New York-based insurer, Chief Executive Officer Edward Liddy said Oct. 22. The company, which agreed Sept. 16 to turn over majority control to the U.S. in exchange for an $85 billion loan, got access to an additional $37.8 billion this month. AIG's latest balance was revealed yesterday by the New York Federal Reserve, and is up from $82.9 billion a week ago.

``This emphasizes the uncertainty for anyone trying to put a number'' on AIG's cash needs, said Bill Bergman, an analyst at Morningstar Inc. in Chicago. The financial-products unit that caused most of the firm's losses ``is a big black hole.''

Nearly double the rescue amount! Will the entire $700 billion, minus the 10% cut off the top so AIG officials can party, will all of this end up in the Bottomless Pit?

Yes, it will. This is why the government should have siezed AIG, put the executives on trial and then shot them dead at Yankee Stadium, Chinese-style. This, in turn, would put real fear in the gnome community and cause them to hesitate before doing insane, stupid things in the future. Of course, we could be merciful and have them spend a lifetime in Sing Sing up the Hudson river. These people are Enemies of the State since they are bankrupting our government.

I am happy that Bill Bergman admits that AIG is NOT an insurance company but rather, a Big Black Hole. and this hole is in the Cave of Wealth and Death. Instead of ending risk and being a well-funded counterparty to any claims of losses, AIG is a loss leader, not a loss fixer. And this is due to them playing games whereby they pretended to be an insurance company while really acting like a piratical hedge fund.

As I said years ago, hedge funds no longer hedge. A hedge is supposed to be a support when things go bad in regular markets. Instead, hedge funds became this vile creation that were supposed to bring in bigger and bigger profits come rain or shine. So they did this by exaggerating whatever systems were being used, NOT AS A COUNTERBALANCE! If commodities began to rise, all the hedge funds would run off to the Bank of Japan for cheap loans in the carry trade and then use this to speculate in commodity markets. If stocks were rising, they bought stocks. If stocks were falling, all of the hedge funds would short stocks.

The wild, rocky, violent ups and downs we are seeing in stock markets, commodities, forex exchanges, etc are all amplified effects of a massive number of hedgers hedging harder and harder. The number of hedge funds exploded in the last 8 years and the dire efforts of these endless numbers of pirates has unbalanced an already grossly out of balance global trade/monetary system. And now, we are seeing the entire thing sink.

AIG's collapse has but just begun. The US efforts at saving it has now created conditions that may lead to the bankruptcy of our nation. Imagine that: an insurance company, thanks to them feeding everything into the maw of the Derivatives Beast, kills our nation? Like I said, we must put these people on trial. Not scold them at a Congressional hearing.

Paulson Is Said to Plan Buying Stakes in Regional U.S. Banks

(Bloomberg) -- Treasury Secretary Henry Paulson is preparing to take stakes in a number of regional U.S. banks as he seeks to halt the freeze of credit to businesses and households, according to a person briefed on the matter.

The Treasury may announce the plans as soon as today, the person, who was briefed by bankers and Treasury officials, said on condition of anonymity. The purchases would be the second round in a $250 billion program to inject capital into financial companies, after an initial $125 billion was allocated to nine of the largest banks.

Why not cut to the chase: nationalize all our banking and then hand it over to the Chinese. They have the whip hand here, anyway. And they seem to be a bit more traditionalist when it comes to banking. If we are too queazy about arresting these criminals, let the Chinese army do it for us. We can continue to patrol Bagdad and the Chinese can patrol Washington, DC for us! A good deal, I think! Heh.

Seriously, here we are, losing our true sovereignty while Paulson struggles to bail out his fellow gnomes. He definitely should be arrested for conflict of interest, cronyism and conspiracy to strip the State of all our future assets. Ie: treason. By the way, the Chinese love this guy. I can see why. So do the Japanese.

Greenspan Concedes to `Flaw' in His Market Ideology

(Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded his free-market ideology shunning regulation was flawed.

``Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.'' Greenspan added he was ``partially'' wrong for opposing the regulation of derivatives.
*snip*
``If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,'' Greenspan said. ``Forecasting never gets to the point where it is 100 percent accurate.''
*snip*
He later added that he couldn't respond to every warning. ``There are always a lot of people raising issues, and half the time they're wrong.''

Dear Mr. Greenspan: anyone looking at my blog going back to the beginning can see that my call rate is far in excess of 60%. It is very close to 100%. So why am I not running the Federal Reserve? HAHAHA. Actually, Greenspan is such a habitual liar, he exaggerates as usual. He is NOT right 60% of the time. He is right about 1% of the time which is incidentally, the interest rate he set back in 2002 in the hopes that this would create 'market liquidity' and enable more lending. We were deep, deep, deep in debt when he did this. And worse, we already had a savings deficit which his 1% rate made much worse.

No banking system can run for long if there is no domestic savings! Relying on foreign money to capitalize any banking system is suicidal. This should be carved into the tympanum of the Treasury building after the Federal Reserve is torn down and the directors put in prison. Now, just to prove that I am usually right, we go way back in time to the earlier days of my little blog, the old one at Blogspot:

Culture of Life News, APRIL 30, 2005

Testing the Water: China Plays Currency Games

The the longest time Americans have demanded the Chinese revalue their currency. No such demands are made with Japan who can't connect their perpetual depression with their perpetual currency game of constantly devaluing the yen by purchasing excess American dollars which we happily churn out and ship off to Japan. Since the Japanese hold much more of our debt than the Chinese, one would suppose we would be much angrier about their currency manipulations.

After all, it is Japanese cars that are killing our native car industry!

But, as usual, geopolitical games of Go trump mere domestic politics and we allow this to continue. On the other hand, our identical situation with China somehow ticks off everyone in our government!

Way back in the ancient days of yore, I was told by other economists to stop bothering them all the time about Japan. 'Start your own blog, ' I was told. So I did! And today's amazing news about the huge unwinding of the Japanese carry trade confirms that I, not they, was right about the true nature of global monetary systems and the highest importance of the Japanese Carry Trade!

China did control the value of the yuan by using the same FOREX reserve system Japan was exploiting. Both China and Japan were weakening their currencies so they could export more and have higher export profits. But China was also trying to raise the lives of the workers in China while Japan was crushing them brutally. China was raising interest rates and reserve ratios to control inflation while Japan was faking inflation statistics in order to hide inflation. Then, when inflation was obvious, Japan simply said, 'Go to hell, we want free money and the carry trade no matter what, our fake depression is great for growth and profits!'

So back in 2005, this infuriated me. And I was nearly alone back then, thinking about all this.

From my old Blogspot blog, March 9, 2006:

Like our trade deficit, in the exact same timeframe, starting in 1983 under Herr Ronald "Give me $2.5 million, please, Japan!" Reagan. He made a neat deal with Japan. To make our inflation disappear, the Japanese would soak up the red ink our government began to grind out that year to pay for the Laffer Curve tax cuts. Once this system was set up, it ran awfully nice, for FOREIGN POWERS. Others piggybacked into the system. I even explained how it worked to the Chinese so they could grasp what "traitor" means. They are in absolute awe of the propaganda machine that kept Reagan in power and popular even until this traitor's death.

No one has been able to pull our country out of this nose dive. Clinton and Rubins gave it a shot but hit so much flack, they had to give it up. This is because the bait: cheap interest below inflation and exporting of said inflation is just jim dandy for nearly everyone even as the downside to all this becomes increasingly obvious to even Republican right wingers. But like crack addicts on cheap speed, we can't drop the pipe or stop injecting.

You know what happens to crack/speed freaks. The become violent and end up dead.

The graphs and cartoons from back then are just as relevant today as then.

Here is yet another old, old story of mine. If Greenspan read my blog, he could have had a 60% success rate in his predictions.

From that same week in 2006, one of my older yen stories:

The USA sucks up around 80% of all possible international funds of various sorts. This is to pay for the half trillion in government red ink and near trillion in trade deficits. In return, we printed money at an accelerated rate and now inflation is beginning to rage across the planet. Interest rates are shooting up and investment funds are vaporizing.

From the BBC:
The European Central Bank (ECB) looks set to raise interest rates in the light of rising inflationary pressures in the eurozone.
Economists are betting on a quarter percentage point rise in the cost of borrowing to 2.50% on Thursday.

The euro is the strongest currency right now so they don't have to defend it by raising interest rates alot.

Japan defends the yen by deliberately weakening it which is why their interest rates remain at a totally insane 0%. This is ridiculous since inflation is now raging in Tokyo according to on the street accounts. Even the prostitutes have figured out the dollar isn't worth what it was so even their prices are now climbing.
*snip*
All countries are exposed but none as much as the USA. Our rulers keep lying to us and claiming, the budget deficit is "only" 6 to 7% of our GNP which is of course, a very dangerous level but untutored people reading this information seldom realize what would happen if we can't get 7% of our GNP in the form of hard cash.

Crash/tinkle!

Since our GNP is so huge, this 7% is also huge! And since America has outsourced/outsized potential taxpayer's jobs, this means we can't fill this yawning gap by taxing the middle class. The rich can't be taxed at all since they rule us and they intend to keep things this way and besides, they squirrel away their money in off shore accounts, anyway. Since Americans can't tax the people with the money, this means cutting the budget by $500 billion not in ten years but next year. This is impossible unless our government either cuts the military to near zero or kills off most Americans who are dependent upon the government functioning.

Not one thing I complained about back then was fixed by any of the DC players who control events. Instead, we now see these same criminals trying to bail out their wacky economic systems by pouring in infinite US-Treasury/US taxpayer-backed funds into this Bottomless Pit. This pit is the home of the Derivatives Beast, of course. For the gnomes tried their best to make him infinitely bigger than the entire wealth of the entire planet! Again: this can only be fixed by punishing the people who did this. And negating the entire thing and starting over. With the humbled US and UK paying penance.

Soaring yen slashes Sony's profit outlook

Sony Corp. on Thursday revised downward by 270 billion yen its consolidated operating profit forecast for the fiscal year ending March 2009.

Sony now expects an operating profit of 200 billion yen for fiscal 2008, compared to 470 billion yen forecast in July.

The stronger yen, falling stock prices and stagnant personal consumption have packed a triple punch to Sony's business operations.

Japan is now in very serious trouble. All that Japanese carry trade is being violently sucked back into the Bank of Japan. As I keep saying, NO bank should EVER be allowed to lend at 0% for even one hour! Much less, many years. Japan stuck to its 0% regime for over a decade. Now, this must unwind and it is a huge, huge unwinding. The US passively allowed Japan to flood the planet with amazing amounts of 'liquidity' which everyone turned into dollar products. This meant the dollar was far, far stronger than in reality.

I remember the whole business about the 'Floating Currency' even back in the seventies! Namely, it was supposed to tell us the real value of the dollar vis a vis TRADE. And the dollar fell against the Deutsche Mark and the Japanese yen! This was what Bretton Woods II was all about. And the Plaza Accords, etc. All were attempts at making the dollar weaker. Each time, we also promised to balance our budget. But we never did this!

And Germany and Japan both took advantage of this to increase their trade surpluses with the US.

So here we are: the Germans decided after Germany reunited, to rebuild the Holy Roman Empire with France. And both pulled the rest of Europe into the new euro regime. And the euro was not controlled by one power like the yen or yuan. So instead of keeping parity with the dollar, it began to climb relentlessly.

The rise of the euro and the Japanese carry trade are connected. Before, everyone concentrated on controlling the trade value of the dollar. Suddenly, there was a major new currency representing a huge hunk, now bigger than the US economy. And this unbalanced things. Let's look at what happened last night:

The dollar has fallen to 91 yen to the dollar. This is over 5% down in ONE NIGHT! Even more amazing, the euro has dropped to only 115 yen to the euro, an over 10% drop in one night! For many months, the yen dropped along with the dollar against the euro. Like a huge spring, this is unwinding rapidly, far more rapidly than the gradual drop. Whenever anything unwinds with a big bang like this, it is an indication of an artificial system breaking down.

Polish, Hungarian Currencies Head for Worst Week; Stocks Fall

(Bloomberg) -- The Polish zloty, Hungarian forint and South African rand headed for their biggest weekly declines as the global economic slump fuels concern of a worsening credit crisis in emerging markets.

The zloty fell 2.7 percent against the dollar today, taking its weekly decline to more than 16 percent, the steepest since Bloomberg began tracking the data in 1993. The forint extended its weekly loss to a record 14 percent while the rand fell almost 17 percent in its biggest five-day decline since 1975.

Iceland sank beneath the waves. Now, other small countries are doing the same. There are many, many of these poor places that will see their sovereignty vanish along with the value of their currencies. Zimbabwe went underwater long ago and was a stark warning sign that was as clear as the Weimar Republik hyper-inflation mess that presaged the coming currency collapses of the Great Depression.

The Asian Currency Crisis of the late 1990's was another warning shot. The repairs done to the system were correct back then. But applied ONLY to a handful of Asia economies. Not to the causes of that crisis which was actually in the US. Just like this mess is due to the US taking on too much debt, etc. Back then, the Asian Currency Crisis coincided with the US balancing its budget. The entire Asian system is based on the US overspending on all levels.

This is why everything is now unwinding: the US can't take on more debt. And the debt we ARE taking on is not for buying anything. It is all vanishing down this massive Bottomless Pit where the Derivatives Beast eats every penny and belches. Nothing is being bought or created. This is creative destruction with a vengeance. Indeed, this is very much akin to the ancient Chinese practice of burning worthless paper money to bribe Celestial Guardians at the Gates of Death.

Denmark Raises Main Rate Half a Point to Boost Krone

(Bloomberg) -- Denmark's central bank unexpectedly raised the benchmark lending rate by half a percentage point to defend the krone's peg to the euro, threatening economic growth as the country teeters on the brink of recession.

Copenhagen-based Nationalbanken lifted the rate to 5.5 percent, it said today. The bank's mandate is to keep the krone pegged to the euro in a 2.25 percent band. In the past week, the krone fell 0.1 percent and on Oct. 13 fell as much as 0.7 percent.

``The krone has actually fallen slightly since they raised rates this morning, so they may have to raise again,'' said Jacob Graven, chief economist at Sydbank A/S in Aabenraa. ``One can't rule out an increase as early as today, or possibly in the coming days. Additional increases may well be larger than half a point.''

How bizarre. The US and Japan have both piled into the 0% rate boat. The US is still above 1% most of the time. But they are already planning to destroy the last of the savers in the US by dropping rates below 1%. I guarantee this. I know they will do this because they always do the wrong thing. If they are right 1% of the time, this is amazing. Forget Greenspan's boast about being right 60% of the time.

U.K. Pound Weakens Most Since at Least 1971 as Economy Shrinks

(Bloomberg) -- The pound tumbled below $1.53 in its biggest drop in at least 37 years after a report showed the U.K. economy contracted more than forecast in the third quarter, bringing the nation to the brink of a recession.

The decline surpassed that of Black Wednesday in September 1992, when the U.K. was driven out of Europe's Exchange Rate Mechanism. Gross domestic product contracted 0.5 percent in the three months through September, the Office for National Statistics in London said today, more than the 0.2 percent forecast by analysts in a Bloomberg survey. The FTSE 100 index slumped as much as 9.1 percent and the yield on the U.K. 10-year gilt headed for its biggest weekly decline in a decade.

``This is once-in-a-lifetime stuff, we're all sat under our desks with tin hats on,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``The U.K. is in the first step toward a recession and the dollar's bid because of repatriation flows.''

The pound is plummeting! Along with all the other non-essential currencies. Europe is very big yet the euro has dropped 10% against the yen! So of course, little England which is mainly a consumer society like the US, is being pitched overboard since the English have little room for more debt. And isn't big enough to resuscitate. The profits for Asia are much more slender than with the US. If Asia can prop up only a part of the global trade economies, they will prop up the profitable parts first.

Charts from currency trade site, Mataf.com:

All the major trade currencies that are also the biggest components of many national FOREX reserves are all collapsing against the yen all this fall and definitely last night. This is a clarion call that global monetary flows and trade are shifting dramatically! Here is yet more FX news that confirms that the Japanese carry trade has not only died but is now rushing home to roost:

Dollar plummets to 6-year low against yen

The Australian dollar fell this week to the lowest levels against the yen in at least six years as investors sold higher-yielding assets.

The currency headed for its third weekly drop this month as Asian stocks slid on signs the world economy is on the brink of a recession. Investors bought back yen they borrowed in so-called carry trades used to purchase assets offering higher returns in Australia.

The dollar also fell versus the US currency as the price of commodities the countries export plunged on concern demand will falter.

``What you have is the global economy going down, commodity prices coming off and the old theme of global de-leveraging,'' said Thomas Harr, a senior currency strategist at Standard Chartered in Singapore. ``All of these issues are negative for the Aussie and the (New Zealand dollar) and positive for the yen.''

All the hedge funds that did the same thing in unison for years which was to exploit the Japanese carry trade, are now unwinding simultaneously as they all try to cope with the Derivatives Beast's messes. They need cash. Not more loans. If we want to pursue the cartoon system I run here, what is happening is simple. The Derivatives Beast doesn't want more Japan carry trade loans. He wants real money. And this means getting the major governments of the world to feed him real meat and potatoes: future taxes, the wealth of empires.

The Nikkei:

Dollar Falls Below Y91, Lowest In 13 Yrs, 2 Months

TOKYO (Nikkei)--The Japanese currency accelerated its climb against the greenback Friday evening, briefly hitting 90.89 yen to the dollar, rising to the 90 range for the first time since August 1995.
**************************************************

Nomura Continues Global Quest As 'Last Investment Bank'

TOKYO (Nikkei)--As Nomura ramps up its bid to become a major player in global investment banking, about 8,000 former Lehman Brothers employees are on board, ready to contribute their M&A and underwriting expertise to the effort.
**************************************************

Crisis Chokes Sony Profits, Demands Strategy Makeover

TOKYO (Nikkei)--The accelerating downward spin of the world economy is biting deeper and deeper into Sony Corp.'s (6758) profits, raising serious questions about the future of the electronics giant.
*************************************************

Clearinghouse For Credit Default Swaps Seen Spurring Transparency

TOKYO (Nikkei)--The proposed establishment of central clearinghouses for derivatives products is gaining traction amid a growing search for ways to boost the safety and transparency of such instruments.
*************************************************

Stocks: Nikkei Slumps To Near Post-Bubble Low On Surging Yen

TOKYO (Nikkei)--Tokyo stocks accelerated their decline toward the closing bell Friday, leaving the Nikkei average to close just above the post-bubble low marked in April 2003.

First: Japan is hiring all those Lehman Brother people who helped create and feed the Derivatives Beast? HAHAHA. Talk about taking on a plague ship's cargo of rats! Second: the biggest profiteers on earth during the long Japanese carry trade decade were Japan's exporters. All the EU and US got from this cycle was epic debts and a loss of global trade shares. Third: CDS will NEVER be 'transparent'. I would say, it is slowly revealing its true nature as it appears inside of banks, eating up all wealth of the planet and anything the various desperate governments feed it. Fourthly: as per usual, when the yen goes up, the Nikkei goes down. Japan allowed this dynamic to be far to predictable.

Smart investors or people reading my blog have learned this years ago. I constantly remind people of this. Want to get rich? Short Japanese stocks whenever the yen rises. This is a danger for any system: when it becomes too obvious and everyone plays the same game, this destabilizes systems very rapidly and they die. Time to visit the past again, this time, exactly one year ago:

Japan Really Has Inflation Just Like The US

The world financial systems may be slipping but the effects in Asia are quite different from the effects in the US and England. Time to discuss this. Once again, we have to discuss the stupid, outrageous inflation statistcs created by our rulers. These are designed to cheat savers, retirees and anyone worried about relative value of their finaces. On top of the new FX trade system and monetarist philosphy, this system is rotten to the core and the destruction it is causing will become increasingly clear as things deteriorate.

From the BBC:

The world's wealthiest private investors are planning to put more money into alternative investments over the next three years, a report says.
*snip*
It found that only 48% of respondents planned to buy further investments in stocks over the next three years, down from 64% over the past 36 months.
*snip*
By contrast, 15% of respondents said they planned to invest in private equity funds, up from 11% over the past three years; while 21% said they expected to invest in hedge funds, up from 20%.

This article also noted that many of these 'rich' investors don't have the foggiest notion, what they are doing. They are simply looking to find the easiest place to park their money and then sit passively by while it grows. The hedge funds are not growing at the rate they grew just one quarter ago, they are off by about 30%. But they are still growing. There is always this business in money flows: the people in the know are the ones selling to lower level people and for the last six months, the top hell hounds have been trying very hard to convince people who can't read charts or understand the elements of world trade and money manipulations, to buy.

Just as the top bulls on Wall Street will talk up stocks when they know perfectly well, it is a bear market. They need to shift their funds and to do this, they need other people to be fooled into buying. They knew every bit as I knew, that the Bernanke helicopter drop didn't fix anything. But they also knew that if they sold this as a solution, many people would flood into the market and buy which means they get customers.

So it is here: stocks shot up before the announced rate cuts. Then, the market has gone on to higher highs. But note that there are intersperced huge falls. Up 200 pts, down 350 pts, up 100 pts, down 50 pts, etc. This is a classic see/saw movement we often see at peaks. The smart guys can see we are about to take a classic tumble. They are clearing out their own stocks while staking out some territory elsewhere. This has caused the price of bonds to fall since this is one Safety place people park funds whenever Risky crashes into a brick wall.
*snip*

From the Nikkei:
Winter Bonuses At Major Firms Up For 5th Year In Row: Keidanren
TOKYO (Nikkei)--Bonuses are set to increase for the fifth year running at major companies this winter, the Japan Business Federation, the influential business lobby that is better known as Nippon Keidanren, reported Wednesday.

The peculiar depression in Japan rolls onwards. As we see a mirror image of the US system: fake interest calculations used to keep interest rates well below the rate of real inflation and huge bonuses for the upper tiers of the industrial/financial systems. For 5 years, the Japanese who keep the LDP in power have rewarded themselve increasingly while the workers get less and less and less. This corkscrew system also keeps Japan's imports down so they can run this surplus. I will note that the other G7 nations won't talk about this in public. We used to hear about it all the time since 1974!
*snip*
As I said, the yen was going to rise because the Japanese openly boasted they could make the yuan rise in value while the Chinese couldn't make the yen rise in value. In the news, they will pull all sorts of reasons for the yen's rise out of their hats but of course, up until now, all these things were obvious and the yen went down. We keep forgetting, China and Japan are trade rivals and they aren't just fighting over US market shares but also Asia and Europe. For a while, China raised the value of the yuan to please us but has been rather ill tempered about this as they saw the yen drop. So they have been moving since July, to raise the value of the yen. Back then, the Japanese boasted the yen would be 130 to the dollar. Hahaha.

So we will see this battle continue. The Chinese don't mind the yuan rising against the dollar so long as the yen rises against the dollar even more.

From Market Watch:

Japan's trade surplus climbed a higher-than-expected 62.7% in September from a year earlier, as continuing strong export growth to Asia and Europe offset weaker U.S. demand.
Exports rose 6.5% in September from a year earlier, easing from 14.5% growth in August, the Ministry of Finance said Wednesday in Tokyo. Imports declined 3.2%, marking the first contraction since February 2004.

September's trade surplus hit a record 1.638 trillion yen ($14.28 billion), the ministry said. Shipments to the U.S. declined while those to Europe and China expanded at a slower pace.

As I said before, the international trade game is now all about monetary manipulations allowing one way trade. Right now, the target nations are the EU. The Asian traders know that England and the US are nearly tapped out or over-developed now and they are fighting over Europe's markets. Both China and Japan are now holding EUROS more than dollars. Because the dollar overhang is so gigantic, it was the vast majority of the money they are holding, the percentage is still relatively small. But we can sense the shifting of the gears here. Even as the yen and yuan rise against the dollar, they have fallen greatly against the euro. And Europe is feeling this quite strongly. This is why their inflation rate is much lower than Japan, China and the US. If we use real statistics like the price of oil.

As far as I am concerned, the only thing that has changed since last year is, the dynamics downward have increased, the powers pushing up the yen and killing the carry trade are increasing. The world appears to lack liquidity only because the amazing flood of free funny money from Japan has totally shut down and the reverse has happened.

This is a classic Libra moment. As she steps down and we enter Scorpio, we get her deadlier sister, her ancient Egyptian twin, the poisonous one who lives under rocks. When I was a child, I learned swiftly to never pick up anything but to kick it first to see if there is a scorpion hiding there. I also used a knife in the outhouse on Kitt Peak [before there was plumbing] to stab these bugs before they bit me. I would cut them in half.

And so it is here: we are in new dangers but within this system is hope. Namely, that finally, despite all the efforts of everyone at the top, the goddesses will force everything into balance no matter what. And in balance comes health, growth and strength! For the present system is very bad for many people and will not end nicely. It has to end, anyway. Might as well do it before we all blow ourselves to smithereens.