Elaine Meinel Supkis
Over half a trillion spent on goosing up the markets and there was less than two weeks of happy hysteria then reality returns and markets drop. The people destroying the economic power of the West aren't done yet. They can give this dead market a few more expensive jolts of electricity. But the debt ratios in the West are all nearing to or over 100% GNP. This means the economic rule of the European and American empires is about finished. The picnic at Jackson Hole this week is really a panic. The Bank of Japan is speaking there and will explain how to 'fix' everything, HAHAHA.
The rally in 30-year Treasury bonds, the most profitable U.S. government securities in the past 15 months, may become a casualty of the Federal Reserve's efforts to ease a widening credit crunch.Yields on so-called long bonds will increase because Fed Chairman Ben S. Bernanke may lower borrowing costs and cause consumer prices to rise at a faster pace, said Brian Carlin, head of fixed-income trading at JPMorgan Private Bank.
Investors will demand a ``higher risk premium,'' said Carlin, who helps oversee $100 billion of bonds in New York. ``Fed cuts may, in fact, turn out to be quasi-inflationary.''
This is the Horns of Dilemma, the Horn of Plenty is empty. As the US looks puzzled and shakes it ever harder hoping for goodies from Asia to pour out, it is time to talk about reality: the US cannot run all its economic systems in the red forever and forever. This is physically impossible. I have been saying this since the early 1970's. If we time-travel, we can see what was obvious back then.
I said, in public, 'We are in a financial crisis due to unwinnable wars trying to suppress peasant populations of the now-dead European empires. On top of this, we just arrived at the Hubbert Oil Peak. 50 years from now, we will be bankrupt unless we change direction, TODAY. We must begin to work on renewable energy systems, public transportation networks and withdrawing our troops from all over the world and working for peace by mutual disarmament coupled with UN initiatives to draw the communist countries into our economic system.'
Well, seriously, I did make this speech more than once. I even was part of the push to colonize other planets so we would cease attacking each other on this very limited earth of ours. Indeed, I am a believer in interstellar flight and colonization of other star systems. But here on earth, we must turn this place into a biological repository to be treasured, not raped. And I always said, the world is not a ball of oil which we can tap forever. Since we have known this for many years, it infuriates me that we pretend it is still a bal of oil.
Obviously, even so, we can't tap it endlessly for the earth would collapse into a dark hole! So we MUST face reality and change direction. The recent wild spending of money we went through, bidding up vacation or fun time homes in inappropriate, geologically or climatically insecure sectors, all of which have absolutely nothing to do with transportation needs, energy conservation, water conservation or anything rational at all...virtually none of this housing money was spent on solar energy installations, just for example!
The US didn't prepare for the day our empire's energy needs and desire to kill inflation would cause total economic collapse. Thinking the lastest signs of this total collapse are just a slight bump on the road..to hell...a little hiccup is the sort of delusional thinking that infuriates me most. What I foresaw in 1976 is coming true today. Where will we get the money to turn things around if we are bankrupt? The grace period when oil was cheap thanks to Russia suddenly joining the global energy markets, temporarily killing OPEC, did we build energy systems for the Hubbert Oil Peak that loomed in the future?
No, we went crazy and are still going crazy, consuming vast oceans of oil as fast as possible. And we dropped interest rates to near zero. And because energy was cheap, importing stuff from far away was cheap so prices dropped due to the ability to tap cheap labor and use cheap energy to move goods around vast distances, cheaply. And thus, we had a wonderful time, going deep into debt while buying energy and goods at an astounding, cheap price!
This 'cheap' period led the US into quadrupling its public and private debts! Incredible. It did NOT make us richer at all.
The fate of Wall Street's mortgage lending was thrown into doubt this week after Lehman Brothers Holdings, the pioneer whose strategy of buying up mortgage originators was emulated by Morgan Stanley and Merrill Lynch, said it will close a subprime lending unit, BNC Mortgage. The decision triggered $42 million in charges, including a goodwill write-down of $27 million.Hintz said Lehman would not have shut down BNC unless it expected the subprime business to be impaired for a long period of time.
"If this was going to turn around in a quarter or two, you'd leave the infrastructure in place," Hintz said. "I'm not certain you'll see a shutdown at the other firms. But what I'd say is investors may question the wisdom of making subprime acquisitions just prior to the market going into a nose dive."
This is so very much like the period right before the Great Depression. The big bankers, seeing nothing but losses in the future, cut and run. Countrywide sold off most of its stock right when the inside data showed there was no hope of any future at all in offering high-interest loans packaged with 'teaser' rates at the front. The mounting bankruptcies were obvious at the end of September, 2006, a year ago!
We know from history that if interest rates rise, housing collapses and recessions always follow interest rate rises. This time around, it was totally insane: after Bush took office, his buddy, Greenspan, dropped interest rates EVEN AS Bush cut taxes which everyone sane knew would drive our government back into deficits with a vengence. Greenspan should have raised rates in response to this irresponsible tax cutting but he did the opposite.
Then 9/11 came. Greenspan dropped rates to a level not seen in our history. Bush told everyone to spend, spend, spend and then doubled and double again, military spending. And cut taxes. The results were hideous. A trillion dollar war we are losing, our diplomatic capital, misspent, America hated across the planet and everyone in debt up to their eyeballs here. Historically speaking, universally, during times of war, every sane government increases personal SAVINGS, not spending! Or they go bankrupt. We will be held up as an example to the world in the future.
CNN:
But recently filed reports with U.S. banking regulators show that Merrill Lynch Bank & Trust Co., where much of the First Franklin franchise is housed, lost $111 million through the first half of 2007. In the fourth quarter, before First Franklin's impact was felt, the unit made money, records show.Merrill Lynch put $999 million worth of goodwill on its balance sheet, primarily from the First Franklin acquisition, the company's financial statements show.
This is a classic example. Everyone in the system started losing money once interest rates rose to a saner level. Setting our economic system to run on a 1% loan regime was a stupid mistake. Like any heroin-type drug, this easy money meant if it were withdrawn, all the systems set to accept and make money off of cheap loans would collapse. The only reason it didn't collapse with a sudden boom was due to the Bank of Japan with it's own cheap loans that have kept things barely afloat. But the losses began about a year ago and they have accelerated. This is why the drug addicts who made easy profits off of cheap money want it returned. The pressure on the Federal Reserves to resume this regime is very high.
A federal judge refused to grant permanent protection from U.S. lawsuits for Bear Stearns Cos.' two bankrupt hedge funds, questioning whether the Cayman Islands should be the principal site of their liquidation.U.S. Bankruptcy Judge Burton Lifland in New York today said he ``will issue a decision in the next week to 10 days'' on whether Bear Stearns picked the proper jurisdiction for the funds, whose assets are mostly located in New York.
Lifland denied Bear Stearns's request for permanent protection from U.S. lawsuits as it liquidates the funds in the Cayman Islands, saying he needed more time to consider the matter. He banned any such suits while he deliberates.
I would imagine Bear Stearns should be eliminated. The fact that they felt they could act like pirates and sail away with the loot and hide in the Cayman Islands should be a stark warning to anyone stupid enough to invest in such an organization. The fact that they are arguing for the right to cut and run should alarm everyone. I suppose there are still a few fools left who think pirates are heroes and not crooks but they seem few and far between these days which is why many are selling off this rotten stock. The attitude of investors as well as the pirates catering to them during the 'free money' phase of our dying empire is, 'To hell with our nation, we want money no matter what.' Which is why many rich people are more than pleased with the dual tax cuts and the right to send everything to British islands that pay no taxes! They got their cake and ate it.
Now, there is just an empty dish and thanks to them all farming out their finances and starving the Empire's tax rolls, we are going bankrupt and they are all going bankrupt too. And this is connected. They won't see it nor will the media talk about it but the fact that these tax havens have been allowed to suck our public financing and public weal so thoroughly is proof that our empire is rotten to the core. Too many people are committed to killing off our public finances. And they are succeeding. The anti-income tax people come to mind.
Rich financiers, foreigners taking over our industries and banking and the Republican Right wing all tapped into anti-tax sentiments and used it to enrich themselves, pile debts upon us and weaken our empire. They all did this out of pure, personal greed. And now we are owned by a very angry dragon in Asia.
Bank of China and its BOC Hong Kong arm reported a combined $11.25 billion in subprime-related holdings, the largest potential exposure disclosed so far by an Asian company.Singapore's DBS Holdings Group, meanwhile, told Reuters it had $1.6 billion in holdings of collateralized debt obligations (CDOs), nearly double the exposure it initially declared.
Anyone who thinks the Bank of China won't punish us for this is nuts. When did they learn about their losses? HAHAHA. I know. It was at the middle of July. 7/17/7. The US sent a Treasury official hot as hell over to Beijing to demand they continue to buy more of our rotten CDOs. China told us, 'Do you want to see the entire world banking system collapse? We will do this to you.' Then, it happened. The world banking system collapsed.
China has decided they can't get blood from a stone so they are going to stone us to death. We imagine, they will keep giving us money because we owe them a lot of money! I just got a call from a reader who told me, he is withdrawing all his considerable funds from the Bank of America for two reasons: one is, they just spent $2 billion on Countrywide and on top of this stupidity, their biggest return on Certificates of Deposit also are NOT FDIC insured! He was aghast. If they suddenly close and trust me, none of these clowns give the slightest warning, indeed, the week before a big financial house goes down, they always assure everyone, they are in great shape!
Just a warning: if you money, and savers are outnumbered greatly by people seeking bankruptcy these days, do NOT keep your money in an insecure account. In the past three banking collapses I have witnessed close up, the non-FDIC banks go down much, much faster than the insured banks. And the FDIC is a relic of the Great Depression! All things that protected us from that horror have fallen, even just last month, the pirates are destroying our protections.
The potential for a convention-based gaming market in Japan is huge and if introduced it could grow as big as that in Macao, U.S. casino mogul William Weidner said Monday on the eve of the opening of the casino complex Venetian Macao Resort Hotel in Macao. Weidner, president of the Las Vegas Sands Corp., told reporters his company is waiting for the Japanese government's decision on whether to allow casinos in the country. Currently, Japan bans casinos but allows pinball-slot-machines called pachinko. "(Japan's casinos) could be every bit as big as Macao's, sure," Weidner said. "If the government of Japan wanted a...
Japan is rotting just like the US and Europe. Gambling is a curse. Much of our housing wealth was squandered on building stuff near casinos across the US. We are one giant gambling operation and this reckless disregard for sanity and care of the future is a characteristic of all declining powers. Gambling produces nothing but bankruptcies and wild living. Winners of lotteries actually die younger than if they didn't win, for example. And often end up bankrupt.
Forbes commentator, Rich Karlgaard:
The liquidity "boom" that drove financial events up until July was always the result of two causes, one good and one bad. The bad was loose money/lax lending standards that got imbedded like a virus into mortgage-backed securities. In July, the market woke up to this fact and reacted as you might expect.The other cause of liquidity is a good one. That would be the "Laffer to Google" global boom of the last 25 years. The world has enjoyed a tremendous run of innovation, technology, productivity, prosperity and profits during the last quarter-century. Few dispute the essential fact of this boom beyond a few left-wing fossils.
To say, then, that in 45 days the world has gone from global-liquidity surplus to drought is to believe that the 25-year boom was a mirage, or else that all its profits were tossed into Miami and Las Vegas construction holes. You'd have to believe that no economic miracles had occurred in China, India, Southeast Asia, Eastern Europe and Ireland during this time; that none of the wealth created, at home and abroad, was saved and invested; and that no new financial technology was available to turn wealth into lendable resources.
This idiot thinks we got 'rich' due to the internet? And computers? Are we making computers? Are we making much of anything anymore? The 'economic miracle' of Asia and even Ireland was 'cheap labor.' Period. Ireland ate into our computer expert market here. Jobs for computer experts flowed to Ireland and graduates here found they had no jobs or poor pay. Then the jobs flowed to India. Degrees in computing collapsed in the US. How did all this benefit us? The boom in Asia is based 100% on increasing debts in the West! This is a transfer of wealth!
The liquidity crisis and the lending crisis are not due to technology nor is it caused by a shortage of money. It is due 100% to the inability of the West to take on much more debt because we are now at the point, we can't pay for even the interest rates, forget the principal! Indeed: many loans the West holds have to be 'turned over' when they expire due to no one paying off the principal and this mountain of debts has grown tremendously and the earlier foothills are being 'reset' and the West wants this at cheap interest rates and the West wants ASIA to do this...at cheap rates. But China has closed its window! And Japan can't afford to do this for everyone, 100%. So we have a banking crisis from hell. And the fake cheer from idiots like Mr. Karlgaard looks stupid in light of all this.
After a quarter-century of welcoming and even courting foreign investors, Beijing officials are starting to show considerably more caution. Chinese lawmakers are set to pass legislation this week that would limit foreign acquisitions in China on national security grounds.Authorities in Washington recently said they would review foreign attempts to purchase American companies working in certain military or technology sectors, including Chinese companies.
The Chinese national security provision is somewhat incongruously tucked into an antimonopoly bill that the National People’s Congress is expected to pass this week, after 13 years of debate and many drafts. Western companies have welcomed many of the law’s provisions, including limits on monopolistic behavior by state-owned enterprises, but the final draft has an unexpected last-minute addition: it states that acquisitions by foreign companies “should go through national security checks.”
The addition reflects what many executives and lawyers describe as greater Chinese skepticism toward foreign investment, even as the Chinese government establishes a $200 billion overseas investment fund and encourages Chinese companies to buy foreign businesses with valuable technology or brands.
China will force us to sell the remaining industries and companies or the window will close on our fingers. No more money for real estate. Now we have to pay the piper. The US has forbidden the dragon from buying an oil company here and now China is closing the door on us. The NYT article doesn't understand all this. Which is normal. China PLANNED THIS long ago and the only question was timing the various moves. The next moves will really upset us because they will not let us drop interest rates!
And this is a huge nightmare for the reckless US spenders.
Here is a report from the 2005 Jackson Hole picnic:
Professor Edwards says there is no example of a world girdling empire going bankrupt suddenly. He really doesn't say that but he does say that no nation in his own time (he is obviously rather young, not 100 years old) has ever run as far into the red as the USA and not gone bankrupt. He has marvelous formulas that you can plug numbers into that are lots of fun but if not attached to history, they are meaningless.
The idea that the US is a world girdling empire and will, like all previous world girdling empires, go utterly and completely bankrupt for the same reasons all the others went bankrupt, it is hard to understand what is going on. Many Americans are propagandized from earliest childhood to not see our empire as an empire. I was trained the same way. But since my meddlesome parents were out of the imperial headquarters and off to all sorts of lands...around 100 different countries, I figured out that we were an empire pretty early on.
I even had an amazing and fun dream last night where I was back in Germany, explaining (in German) that my parents couldn't be contacted because they were in some country doing business and the only way to contact them would be via the State Department or the CIA.
The US is following the same track all empires fall into: since the emperor can make money appear magically, he or she always ends up doing this nonstop so the empire can 'grow' via WAR. Thus, the US empire's military budget doubles even as the trade deficit and the red ink in government revenues double yet the head of the banking system can boast, he can make money to 'infinity' if he desires!
I heavily modified some charts produced by Professor Edwards:
Note the continuous decline in US holdings in all the parts of our empire. The main frame system called 'the United States' is in arrears to the other parts of its empire. This always signals 'decline and fall of Rome' setting in. The US empire
Now to the Keynote speaker at this party for ants, Here is Greenspan at his last Jackson Hole picnic:
In the spirit of this conference, I asked myself what developments in the past eighteen years--both in the economy and in the economics profession--were most important in changing the way we at the Federal Reserve have approached and implemented monetary policy.The Federal Reserve System was created in 1913 to counter the recurrent credit stringencies that had so frequently been experienced in earlier decades. As lender of last resort, we had a mandate that, at least viewed from today's perspective, was limited. We did not engage in Systemwide open market operations until the 1920s. And as recently as the 1950s, the framework within which those open market operations were formulated was still being developed. Credit was eased when the economy weakened and tightened when inflation threatened, but largely in an ad hoc manner. As a consequence, the Federal Reserve was perceived by some as often accentuating, rather than damping, cycles in prices and activity. Importantly, however, the surge in prices that followed the removal of wage and price controls after World War II and again after the Korean War kept monetary policymakers wary of the threat of inflation.
But concern that the monetary restraint of the 1950s had led to unnecessarily high unemployment persuaded the Federal Open Market Committee to adopt a more stimulative policy stance in the mid-1960s. Those actions appear to have been predicated, in part, on an acceptance of the then-prevalent view that a long-term tradeoff existed between inflation and unemployment.1
Starting in 1960, the US became inflationary. Between then and 1970, three quarters of the gold at Fort Knox was sold in an effort to keep the currency going. The amount of silver in coins collapsed and finally disappeared except for a thin wash that is now too expensive! Once all the mineral wealth was depleted, the fiat currency took off with a vengence. Inflation raged and the Fed struggled to deal with this. I got Deutsche Marks 4 to the dollar in 1968 but by 1970, it was 2 to the dollar. A total collapse. The pretense that we can't have employment unless we have raging inflation is the whole problem. Viewing interest rates as a mechanism for dealing with employment has meant the death of the American worker as wages fall so inflation can fall and as jobs leave this country in order to clean up any need for inflation. Which means the workers are NOT part of the inflation problem but a VICTIM of it!
The same time we had inflation begin, taxes on the upper classes fell rapidly. I would suggest, the more the taxes fall on the rich, the more inflation on the poor and thus, the need to drop wages of the poor so this can kill the inflation caused by tax cuts for the rich. The recent huge cuts under Bush, causing inflation despite the collapse in wages and the ballooning debts of the working classes, proves my model is the correct one, not Greenspan's model.
Herr Greenspan:
The structure of our economy will doubtless change in the years ahead. In particular, our analysis of economic developments almost surely will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period. The determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them. Our forecasts and hence policy are becoming increasingly driven by asset price changes.The steep rise in the ratio of household net worth to disposable income in the mid-1990s, after a half-century of stability, is a case in point. Although the ratio fell with the collapse of equity prices in 2000, it has rebounded noticeably over the past couple of years, reflecting the rise in the prices of equities and houses.
Whether the currently elevated level of the wealth-to-income ratio will be sustained in the longer run remains to be seen. But arguably, the growing stability of the world economy over the past decade may have encouraged investors to accept increasingly lower levels of compensation for risk. They are exhibiting a seeming willingness to project stability and commit over an ever more extended time horizon.
This snippet shows clearly, this man is a habitual liar. Household net worth hasn't increased at all. It has collapsed...when one deducts debt. Namely, more Americans owe more EVEN WITH HIGHER ASSET VALUES than any time in our history. And it is worse: as these assets lose value, the red ink levels rise even if we don't add on more debts!
When Greenspan made this speech, interest rates were rapidly rising since they were at a ridiculous level in the first place. The rate of increase in asset values was beginning to decline. The time-lag is one year so the beginnings of all this were barely visible in August, 2005. Seemingly, we were on top of the world, ma! But like in that movie, we were sitting on top of a tank of gasoline ready to explode. For gasoline prices which had been climbing now took off as the OPEC nations were joined by Russia in raising the price of energy from less than $50 a barrel to nearly $80 a barrel...in one year!
Understanding what will happen next means tracking not one or three things but keeping an eye on many things including diplomacy and the lessons of history which are very, very clear. All empires that go into debt, go to war and spend on frivolities all go bankrupt. Fast.
How about a little Frank Sinatra for the old timer Greenspan? ......Fairy tales can come true, it can happen to you, if you're young at heart..... Greenspan doesn't have old timers disease and he isn't alzheimic which was Reagan's excuse, so what will he do if this house of cards collapses? Hire an influencial lawyer sympathetic to that theory expoused by the infamous Charles Ponzi?
Posted by: teddy | August 28, 2007 at 11:52 AM
He should be arrested and forced to work in a Chinese coal mine.
Posted by: Elaine Meinel Supkis | August 28, 2007 at 12:21 PM
"...the growing stability of the world economy over the past decade may have encouraged investors to accept increasingly lower levels of compensation for risk."
What a freakin' bizarre statement. I guess the Asian currency crisis and collapse of the tech bubble are signs of "growing stability." Oh, wait. I get it. He and his rich buddies got richer during the past decade, which is the very definition of stability.
And I also guess the frenzy to buy mortage-based derivatives because of impatience with the yield of anything else is a sign that investors are learning to "accept increasingly lower levels of compensation."
Since I do not believe that Greenspan is stupid, I must conclude that he is a lying sack of shit.
Posted by: shargash | August 28, 2007 at 01:00 PM
I vote for 'lying sack of shit' that is under our feet.
Posted by: Elaine Meinel Supkis | August 28, 2007 at 05:29 PM
I was just reading where a reader took his "considerable" funds out of BofA. That's so funny cause I just did the same this morning. Although in my case "considerable funds" is based on Wal-Mart shopping standards. I took mine out for the same reasons as your reader did. Since I mentioned WM - did you know Wal-Mart in Mexico has volunteer baggers who bag for tips ? The bottom feeding Walton family makes their multi-billions and won't even pay their employees the NAFTA-ruined Mexican wage for baggers ! Que pinches codo duros cabrones ! which is what the baggers might say.
Posted by: Al | August 29, 2007 at 01:54 PM
Next there will be people in the parking lots wiping windows (we had zillions of those in NYC during the great inflation years).
Posted by: Elaine Meinel Supkis | August 29, 2007 at 10:58 PM