Living Inside The Economic Volcano With Angry Gods
November 3, 2008
Elaine Meinel Supkis
One of my favorite song birds, Yma Sumac, has flown from this earth and is now gone forever. Time to memorialize her. Also, we talk about the Japanese carry trade yet again. It is being restarted with great effort by the central bankers who want to continue flooding us with debts. And Rubins and Bernstein, two of Obama's economic advisors, talk at the NYT. I rip things apart. And we discuss the Volcano Gods who happen to be in the news today.
The fine lady with the most amazing voice, Yma Sumac, has left us a fine legacy of a lot of popular, entertaining music. When I was a child, I wished I had her wide ranged voice. But alas, I was not allowed to sing well. My throat was operated on when I was still a child and I bear the big gash across the neck to this day. When I was young and the scar was very striking, I used to tell children that someone tried to slit my throat but I fought him off. Heh.
So much for lying about things! It was amusing, though. As for Yma, she sang her heart out and I am glad she concentrated on South American themes, composers and culture. During WWII, the government was worried about losing the allegiance of South American and Central American nations so they began this big, big push to popularize the cultures that are south of the US borders.
Thank goodness for that! I happen to love many different cultures. Japanese, Chinese, European, African, South American, etc.= all have something wonderful to give us! This export of cultures I highly recommend. This is quite different from destroying our own industrial base type of export/import markets. I am an enthusiastic supporter of cultural exchanges.
Back to the 1940's: the US government encouraged artists and performers from this hemisphere to produce things in Hollywood or tour the nation. So the wide variety of peoples and cultures of the South came to our nation and opened many doors here. And I remember this flood coming in the 1950's. It influenced our sense of color and space as well as the rhythms of our music, our dance. A tremendous influence. And Yma was one facet of this diamond studded gold rush. Thank you, my dear, for giving us your gifts so generously.
Today thousands of pilgrims flock to Mount Bromo on East Java each year to offer the spirits food, live animals and money and ask for prosperity and health. Bromo, a 7,641-foot volcano, is one of Java's most popular tourist attractions.
The poor arrive days ahead of the ceremony, carrying fishing nets to catch money and anything edible. They camp under tarps in the crater atop the mountain's chilly slopes.
Time for the annual human sacrifices to the Volcano Gods! The Volcano Gods are like the Lightning Gods: very, very dangerous but also the source of life and wealth. The lightning storms brought us fire and water: the falling rain soaks the parched land and things grow. Volcanoes spew out the wealth of the inner core of this planet. The mineral wealth this brings is very good for growing things but like lightning, it is also destructive.
The hammer of lightning and the forge of volcanic fire created humans. We evolved rapidly due to these forces of nature! Several major volcanic events in the history of this planet shoved evolution forwards at a tremendous pace. The skies dim under the aerosol veil as the fine dust covers the entire biosphere. This dimming of the solar energy leads to a cooler climate. This, in turn, causes starvation and death.
Indonesia's volcanoes have caused huge havoc in the past. The eruptions there nearly wiped out all early humanoids, for example. So it is no surprise to see the people there worshipping these dangerous mountains as gods. But since the best farmlands tend to be in the range of volcanic events, humans are resigned to living with this planetary hazard.
This story today interests me because it is so true to the concept of human wealth and power as well as the dangers that the poor must take to gain even small boons. Note that the rulers of this region used to use human sacrifices to placate the gods living in these mysterious deep holes that go far into the earth. Secondly, to make these gods happy, humans not only throw humans but other things into these volcanoes.
Third: despite the belief that the offerings must go to the gods, the poorest humans scramble into a very dangerous place in the hopes of catching a few of these falling items as they are pitched into destruction. Fourth: the destruction of wealth is seen as a way of protecting FUTURE wealth! This is the top item here, in my mind.
If the people fail to sacrifice something valuable today, they believe they will be punished tomorrow. So these people who often had little to give up, would assign high values to things and then pitch these into a volcano or a deep, deep lake. Often, they would make things out of gold and then toss it. This was because gold was seen as eternal and connected to the Death Gods. It had little real use in the real world.
But as a currency for the true overlords, the Gods, yes, gold was quite valuable. We must remember that the Egyptian pharaohs or the Inca emperors didn't park gold deep in lakes or deep in caves or in pyramids, etc in order to keep it for themselves. They did this for the Afterworld. What I often call, the Outer Darkness. Our museums are filled with these things that were created for the Death Gods. We pay a lot of money to view them with wonder and envy.
So let's go to today's news again. The world is in a global grip of a mega-financial meltdown which is due to the Emperor of the US refusing to pay tribute to the gods or to keep an even balance between revenues and desires to spend.
Bloomberg) -- The yen fell against the dollar and the euro as a rally in Asian and European stocks encouraged investors to step up purchases of higher-yielding assets financed with the Japanese currency.
The yen also weakened versus Australia's dollar on expectations the Reserve Bank of Australia will cut interest rates tomorrow to sustain economic growth. The Japanese currency slid against South Korea's won and India's rupee after Korea announced a $10.8 billion stimulus package and India's central bank cut borrowing costs for the second time in two weeks. The dollar declined against the euro before reports this week that may add to evidence U.S. economic is slowing.
``We're seeing a bit of risk appetite returning as things stabilize and I wouldn't be surprised to see the yen even lower,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the most accurate forecaster in a 2007 Bloomberg survey. ``We should see lower-yielding currencies coming under some more pressure.''
*snip*
The yen has appreciated 8.8 percent versus the greenback since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed for bankruptcy. The remainder of the world's 16 most-active currencies declined as frozen credit markets and a rout in stocks that wiped out more than $13 trillion of market value fueled risk aversion. The yen may drop to 103 against the dollar in the next week, Stannard said.
Japan sighs with relief. They are absolutely desperate to get the yen above that horror level of 100 or less to the dollar. They are happy that the US government is equally desperate to restart the mega-moneymaking-machine of the Japanese carry trade. This will pour more liquidity around the planet and we will continue with our false sense of well-being as we get shoved deeper and deeper into the volcano.
If the Japanese carry trade leads to huge sums of free funny money being tossed madly into this massive volcano, we can lurk below the rim and catch some of the loot as it plunges downwards. There is a lot of economic debate going on here on this planet as people struggle to understand the nature of magical money and how it intersects with reality.
One cannot do this unless one first accepts the concept that all of this is magical and all of this is very connected with fires and holes deep in the earth. And the heavens, of course. And above all, death. If our cultural ancestors across the planet knew that gold and wealth was very much connected to Death Gods, we must accept this as a fact of human nature and deal with it appropriately.
The US prayed to the Kami of Japan for wealth. These Kami are often found in volcanoes. And the ocean. The magic golden fish that grants wishes lives there, for example. We begged these Kami for wealth without work. They granted our wish. But of course, this will destroy us. But being Death Gods, they are overjoyed we made this request and are very happy to grant us this wish. Throughout the history of fairy telling stories of yore, there is this common thread: wishes are DANGEROUS. One doesn't get what one imagines when one wishes. Especially if the wishes are being granted by the gods and goddesses who control access to the Cave of Wealth and Death!
The yen also weakened as volatility implied by one-month euro options against Japan's currency fell to 42.40 percent, from 43.93 percent on Oct. 31, signaling a reduced risk of exchange-rate fluctuations that make so-called carry trades unprofitable. Volatility was 49.62 percent Oct. 27, the highest level since the common European currency's debut in 1999.
In carry trades, investors get funds from countries with low borrowing costs, such as Japan, where the benchmark interest rate is 0.3 percent, and invest the money in overseas markets where returns are higher. Japan's main interest rate compares with 3.75 percent in the 15 nations that share the euro and is the lowest among industrialized countries.
Japan doesn't mind it if the US drops interest rates to Japanese levels. Since Japan already has worked well at deconstructing the US industrial base and now has outpost factories here which send all their profits to Tokyo, they are happy when our government desperately lowers interest rates and makes credit easier to obtain.
Japan's carry trade was never mainly with the US in the first place. It is with other, much smaller nations. This way, they can happily inflate the number of dollars across the planet while virtually none of this except a small overflow, goes directly to the US. This is fine with our rulers. They don't want inflation due to this flood of US dollars coming home. The violent unwinding of the Japanese carry trade coincided with the biggest inflation bubbles in commodities, by the way. All of which mainly happened in the last 2 years.
The US and Japan like it this way. The US can overspend budgets and the Japanese buy our debts so they can continue both the carry trade as well as increasing the US trade deficit. Anyone even slightly interested in fixing the present mess has to address the politics of the Japanese carry trade. It is painfully obvious to me that everyone at the top want this to continue no matter what. Let's look even deeper:
Overall tax revenue for fiscal 2008 will fall more than 5 trillion yen short of the government's 53.5-trillion-yen estimate, due mainly to poor corporate performances, the Finance Ministry said.
The shortage in the general account could force the government to issue deficit-covering bonds, which will likely push the total amount of national bonds issued this fiscal year past 30 trillion yen for the first time in three years.
The government intends to attain a primary balance surplus in fiscal 2011, at which the sum of new government bonds issued each year is kept under the total repayment of interest and principal for bonds issued in the past.
But the additional deficit-covering bonds for fiscal 2008 would make it extremely difficult to achieve that goal unless there is a sudden surge in tax revenue.
The government's tax revenue estimate for the current fiscal year was based on economic forecasts and corporate performances as of last December.
Corporate tax revenue, which accounts for about 30 percent of total tax revenue, was estimated at 16.7 trillion yen.
Japan has the cheapest credit on earth. And for a very long time, too. This was no emergency. Unless an emergency lasts forever. They have found this deep hole in the ground, one that is actually a volcano. They are happily using this to create massive global credit. This, in turn, has flooded all nations with debts. International debt levels are increasing.
Japan has the world's #2 FOREX reserves which are mainly dollars. And yet the government is running in the red! This, after strangling public services. The government could use their reserves to make the shortfall. But why do that? They are borrowing at virtually free values! What is there to stop them from borrowing even as they flood the planet with debt via their FOREX reserves? This is fundamentally very bad! But they don't care. Everyone is clamoring for them to do this.
The other matter here is the fact that Japanese corporations that make some of the highest profits via their export trade, pay 30% of the government's taxation! So let's go to the other side of this trade ledger: the US spending and taxation systems.
Deficits over the next decade are now projected to be enormous in size. A joint analysis by the Center on Budget and Policy Priorities, the Concord Coalition, and the Committee for Economic Development projects deficits totaling $5 trillion through 2013.
An analysis by Brookings economists reaches a very similar conclusion, while Goldman Sachs projects deficits totaling $5.5 trillion.[1]
Despite the deteriorating fiscal outlook and the historically low corporate revenue collections we already face, Congress nonetheless seems poised to shower more tax breaks on corporations that would cause deficits to grow substantially larger over time .
Treasury Department figures show that actual corporate income tax revenues fell to $132 billion in 2003, down 36 percent from $207 billion in 2000.
As a result of these low levels, corporate revenues in 2003 represented only 1.2 percent of the Gross Domestic Product (the basic measure of the size of the economy), the lowest level since 1983, the year in which corporate receipts plummeted to levels last seen in the 1930s.
Corporate revenues represented only 7.4 percent of all federal tax receipts in 2003.
With the exception of 1983, this represents the lowest level on record (these data go back to 1934).
I heavily amended these graphs to illustrate the forces at work here. Here is a most important fact we must never forget:
WHEN THE US RAN TRADE SURPLUSES, WE TAXED CORPORATIONS AT 30%!!!
This startling fact should be a hot topic. These graphs are very good at showing how the deterioration of corporate tax revenues corresponds quite directly with the deteriorating US trade situation. Namely, I simply made the years that we ran a trade deficit, red. And the previous period in green to reflect the profits from back then.
A general rule of thumb is very simple: if someone is doing something and it is quite successful, we should imitate them. The Chinese follow this rule very closely. This irritates the Japanese, of course. We are in competition with both China and Japan. Not to mention, the rest of the world. We can have and want global trade and I am all for this. But NOT global one-way trade.
Namely, the US cannot run deficits nonstop. There was exactly one year we ran a surplus. But this was due to Gulf War I when Bush Sr. sold our soldiers as mercenaries to the despotic rulers of Kuwait. Not because the US suddenly began to manufacture and sell overseas, more US goods.
More Yma great singing:
Here is a New York Times story about how this flood of Japanese carry trade funny money ravaged our entire corporate base even as the easy lending sent stock markets to the heavens:
Private equity firms embarked on one of the biggest spending sprees in corporate history for nearly three years, using borrowed money to gobble up huge swaths of industries and some of the biggest names — Neiman Marcus, Metro-Goldwyn-Mayer and Toys “R” Us.
When the economy was booming, the firms made huge profits by cutting costs at their new acquisitions, improving operations and then turning around and selling them. In 2007, at the height of the bubble, such deals totaled $796 billion, or more than 16 percent of the $4.83 trillion in all the deals made globally that year, according to data from Dealogic.
Firms like the Blackstone Group and Kohlberg Kravis Roberts & Company, faced an image problem at the height of the bubble for excessive compensation and beneficial tax treatment, but their returns were so high that even investors like pension funds were drawn in. Now these firms, built on enormous amounts of debt, are being forced to go back to the financial markets just as those markets have nearly frozen up.
If history is any guide, the worst may be yet to come. Steven N. Kaplan, a professor at University of Chicago Graduate School of Business, found that nearly 30 percent of all big public-to-private deals made from 1986 to 1989 defaulted.
Why did our nation allow this? The rulers knew that this sort of debt-piling on game would have AT LEAST a 30% default rate! This is totally unacceptable. A 10% default rate can cause an entire economy to go into a bad tailspin.
Recall, please, how this present collapse is being nearly totally blamed on the poor homebuyers who are at the very bottom of the money feeding scale, the people who live on the lip of the volcano and spread their aprons and nets to catch some of the loot. How sad this all is! Innocent people trapped inside the volcano are being blamed for it blowing up.
The US ruling elites and corporate overlords knew perfectly well, the game they were playing would, AT BEST, lead to a 30% loss if things didn't continue to expand. So they continued to expand things despite knowing this. The tool they used the most was the most insidious of creations: the Derivatives Beast!
Yes, it all boomerangs back to that thing. Millions of humans will die in the volcano because the Beast lives there and is one of the Death Gods! Workers who live inside the lip of this mighty volcano were told to give their money to the guys throwing it into the volcano and if they catch some of this falling loot which were their own savings, they would get RICH! Only, they won't get rich. For none of the savers in the volcano were told that the failure rate of these loans would be at least 30%.
Instead, they were told lies about the Derivatives Beast. They were told, this deadly creature would shelter them. And so the money is lost and people will die because of this. Now, the NYT has printed a major editorial from the staff working for Obama. There are many interesting levels of this editorial which I must explore as we think about volcanoes and Death Gods:
We also jointly believe that fiscal stimulus must be married to a commitment to re-establishing sound fiscal conditions with a multi-year program that includes room for critical public investment, once the economy is back on a healthy track.
One of us (Mr. Rubin) views long-term fiscal deficits — in combination with a low national savings rate, large current account deficits and foreign portfolios that are heavily over-weighted in dollar-dominated assets — as a serious threat to long-term interest rates and our currency and, therefore, to our economic future. The other views these economic relationships as much weaker.
*snip*
One important policy question is what our fiscal objectives should be in terms of deficits and of the ratio of the national debt to the gross domestic product. In times like these, larger than normal budget deficits will add to the national debt. In more stable times, a budget deficit equivalent to roughly 2 percent of G.D.P. will keep the debt-to-G.D.P. ratio constant, a legitimate fiscal policy goal. In flush times, a smaller deficit would lower the debt ratio and that might be desirable.
We both agree that individual income tax rates and other taxes for those at the very top could be moved back to the rates of the Clinton era. It’s worth remembering that rates at this level helped finance deficit reduction and public investment that contributed to the longest economic expansion in our history.
So, they will up corporate taxes? HAHAHA. I would suggest that they read this story of mine and then explain the need for higher taxes. Namely, our deadly rivals in Japan have these higher rates. So we should, too. Period. No other excuses needed.
We also see in this editorial that the top economic advisors to Obama are split on many issues. Actually, this is a very good thing! Obama can listen to all sides and then MAKE CHOICES. The one-voice method used by Bush was a failure. We need debate. I hope I get invited to these debates over time. I would be happy if they merely read me. After all, knowledge is good. Especially if it is very old knowledge.
Free markets versus regulation and protection: We both feel strongly that there are important lessons to be learned from the disruptions in our financial system, and that significant reforms are needed. The objective ought to be to optimize the balance between increasing consumer protection and reducing systemic risk on the one hand, and preserving the benefits of a market-based system on the other.
We know, too, that Wall Street and Main Street are intimately connected. The consequences of the financial market crisis are profound for Americans in terms of lost jobs, lower incomes and reduced retirement savings. Measures to reform and strengthen the financial system should be evaluated by this measure: Do they ultimately translate into improving the jobs, incomes and assets of working Americans?
With respect to trade, the choice is not trade liberalization versus protectionism. Instead, as trade expands, we must recognize that protecting workers is not protectionism. We must better prepare our people to compete effectively and help those who are hurt by trade — not just dislocated workers, but those who find their incomes lowered through global competition. This means investing more of the benefits of trade in offsetting these losses, through more effective safety nets, including universal health care and pension coverage.
Neither advisor understands global trade. Nor does virtually anyone working for the major media. Indeed, the blind spots here are so massive, we could say that, when it comes to trade, our entire pundit class lives in the Outer Darkness. They are blind and stupefied by propaganda and hubristic imperial belief systems. Or worse, divided loyalties.
Note how these two guys who happen to be Jewish, fret about 'those who are hurt by [this idiotically unbalanced] trade! Oh dear!
Well, I have a stark message to both men: THE ENTIRE US ECONOMY AND SOCIETY IS BEING HARMED BY THIS UNBALANCED TRADE!!!
It will kill the entity we call, 'The United States'. We will become Yugoslavia: the maker of crummy cars who then fell apart with ethnic and religious infighting and is now a series of mini-states after killing lots and lots of people.
Let's look at one prime example of unbalanced trade which involves many financial experts turning a blind eye because they support other nations benefitting from US trade imbalances:
The United States of America consumes almost 40% of Israel’s total export shipments, far more than second-place Belgium at 6.5% and third-place Hong Kong at 5.9%.
Israel’s imports are less concentrated, with products from trade partners distributed more proportionately. Leading exporters into Israel include the U.S. (12.4%), Belgium (8.2%), Germany (6.7%), Switzerland (5.9%), the United Kingdom (5.1%) and China (also 5.1%).
In 2007, Israel exported an estimated US$50.2 billion worth of goods onto the international trade marketplace. Israeli imports totalled roughly $55.8 billion, resulting in Israel’s overall $5.6-billion trade deficit last year.
Despite its overall deficit, Israel enjoyed a US$7.8 billion trade surplus with its American trade partner in 2007. The most recent surplus statistic is 32.6% higher than the Israel-US surplus in 2003 but represents a 5% decrease from the $8.2 billion surplus in 2006.
With a population of 7.1 million, Israel exported US$20.8 billion worth of merchandise to the United States in 2007, an 8.6% increase from 2006 and up by 63% in 4 years.
US exports into Israel is 12.5% but the reverse direction is 40% of Israel's exports are to the US. Ergo: Israel imports more from others while the US gets a very much smaller slice. But Israel gets to ship things with pretty much Japanese-levels of impunity to the US! And this has been climbing steeply. True, it declined a slight amount this last year. But this happened with Japan and China and is only a side effect of the US going into a steep recession.
Anyone looking at trade statistics can clearly see that nearly all trade deficit reductions in the past 35 years have come ONLY during recessions. The minute spending picks up, the US is inundated with imports pouring in all our major ports.
In the last 4 years while the US ran epic trade deficits, Israel had one of the highest growth rates. True, it is not a towering mess like from China! But Israel is a very small country, so it is no surprise the amounts are smaller. But the growth rate is not smaller.
Since none of our leaders, all of whom swear fealty to Israel before running for office, are going to stop this one-way trade with Israel, they can't go off and do this to other nations. So, to let Israel do this, they have developed a philosophical matrix that says, 'It is OK for the US to continuously run trade deficits'. Closely connected is this concept of, 'The US can run trade and budget deficits forever.'
This is very clearly seen in DC. Whenever I talked about trade deficits and the need for the US to stop piling on debts, eyes would glaze over. THIS IS TREASON. Ignoring dire dangers to the US people due to this is treasonous. The people who live in DC and run our government are REQUIRED to protect us, protect our borders, protect our Constitution and to live within certain bounds. Selling us to foreign powers is not allowed. It is quite outside the directives of our government.
Both sides expect a close finish, something of a paradox in a struggling state in a year in which the poor economy is driving support for Obama and other Democrats. Ohio lost 300,000 manufacturing jobs this decade and its median income has dropped by 3 percent, yet polls show Obama with no more than a narrow lead in a state that Sen. John F. Kerry lost to Bush by two points.
That may be because the weak economy has driven away younger and college-educated residents who lean Democratic, because abortion remains a potent issue and because an African American candidate with an unusual name remains a tough sell in some corners. But voters also say the poor economy has not swung more voters to Obama precisely because the state has been down for so long -- many have come to see the woes as systemic, and not easily blamed on a particular party.
Ever since the US launched the floating currency, the collective boats of the working class have sunk deeper and deeper. Or maybe I should say, the workers have been pushed deeper and deeper into the volcano. They are now cynical and are feeling victimized. People who are victimized turn to racism or religious fanaticism for comfort.
This is very bad! We see it very clearly in past depressions! Over and over again, no matter what country it is, when the economy goes bad, minorities get hammered. Ohio has been let down by everyone. When Ross Perot talked about the 'Giant sucking sound' he got over 20% of the vote.
So the DNC and GOP conspired to kill the sponsorship of Presidential debates so they could exclude anyone who could talk about the Federal Reserve and Free Trade. Now, we get faux debates where the people must choose based on emotions, not economic principles.
This is why things get worse and worse. The US auto workers should be demanding tariffs and barriers. But when they vote for people endorsed by their unions, these same people end up supporting free trade. This is simple: the entire Congress and the Presidential candidates are owned by the banking gnomes and international dealers seeking to drive us deeper into debt!
So everyone comes to Ohio to be pious but then goes to DC to be corrupted.
So people left behind in these dying communities are bitter, as Obama noted. They cling to guns and religion. A very deadly combo that leads to Yugoslavian solutions.
Now, back to the Derivatives Beast who lives in this volcano:
The Depository Trust & Clearing Corporation (DTCC) announced today that it will begin to publish aggregate market data from its Trade Information Warehouse (Warehouse), the worldwide central trade registry it maintains on credit derivatives. Starting Tuesday, November 4 and continuing weekly, DTCC will post on its website www.dtcc.com/derivserv the outstanding gross and net notional values ("stock" values) of credit default swap (CDS) contracts registered in the Warehouse for the top 1,000 underlying single-name reference entities and all indices, as well as certain aggregates of this data on a gross notional basis only. The data is intended to address market concerns about transparency.
The very secretive gnomes running the DTCC can't be trusted nor are they clear. These monsters are going to soothe markets by publishing hard information. So I said, 'Whoopee! I will haunt this website!' Only I can't!
Only certain people, namely, ONLY GNOMES can access this information! I hope some of my more connected readers can overcome this barrier for me and send me information published by the DTCC. I would love to see the actual numbers.
According to the DTCC, the actual physical losses due to Lehman Brothers was virtually nothing. Less than $10 billion. Well, this begs the question: what on earth is this stupid Derivatives Beast that is many trillions in size if it isn't big at all? And if so, why continue to keep this vital information behind a locked door that only gnomes can access? EH???
Gads. They are pulling yet another gnome trick here. Can't fool me.
Treasury Department figures show that actual corporate income tax revenues fell to $132 billion in 2003, down 36 percent from $207 billion in 2000.
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Posted by: Teeth Whitening | November 12, 2008 at 05:02 AM