October 23, 2007
Elaine Meinel Supkis
More signs that money production, debt increases and money flowing into the offshore pirate coves is diminishing. It is obvious that we are sliding into a recession just like we can see the California housing boom going up in flames. The Economist magazine has a very strange editorial about how our wizards running the national banks created stability (HAHAHA) and killed inflation. I counter this by explaining who killed inflation and how this works. Also, right after the G7 meetings, all our trade partners went home and tried to kill their own currencies. By talking them down. HAHAHA, again.
Hedge funds raised $45.2 billion globally from investors during the third quarter, a decline from record fundraising earlier in the year as losses from subprime- mortgage loans hurt returns.The new money attracted from hedge-fund clients compared with $60 billion and $58.7 billion during the first and second quarters, respectively, according to a statement today from Chicago-based Hedge Fund Research Inc. Fundraising in the third quarter brought industry assets to $1.81 trillion.
At $60 billion a quarter, the hedge hounds grew from near $0 to nearly $2 trillion in just seven years. Now they are growing somewhat slower. All the systems are slowing down. The stock market rises and falls on alternating fear and hysterical happiness, a classic sign of a bear market. Wild swings are a sign of bad times approaching. A $20 billion drop in the funds pouring into the Dark Pool system run by pirates on offshore islands is a sign they are not able to get the loot they usually want via hook or crook. The uneven trade due to high energy prices and hard working Chinese labor is still on track, producing wealth. But the consuming end of this is beginning to slow down: the USA.
The USA can't consume masses of stuff, merrily, if our wages and assets are declining. The US represents over 15% of world consumption. We are about 3% of the world's population so this means our consuming of resources and goods is grossly greater than anyone else. In particular, we consume more energy than any other group. Our energy consumption is double that of Europe or Asia. If we add onto this, the energy put into making and transporting goods sent to America, we actually consume another 5% of the world's energy via this trade.
Americans are so accustomed to being on top of the world, we can't imagine living any other way. In the past, some scientist had figured, if all of the world wanted to consume like we do, it would require 4 more 'earths'. In other words, this is utterly impossible.
Right now, half a million people in California are fleeing fierce, fast moving fires. The houses were built to not respond to fires because we think of our homes as disposable as tissue. But this is false. Japan is even more geologically unstable than California and in the old days, they built light, paper-thin houses which would be quickly reassembled or built from scratch due to all the earthquakes. But the Great Tokyo Earthquake in the 1920's showed the hazards of this when millions gathered in one place: the city nearly burned to the ground and many people died.
The world's economy is an ecosystem just like anything else in nature. All things must balance out one way or another. It is not an open-ended system. Just as we can't go into infinite debt, we can't have zero interest forever. Various actions designed to make money appear magically leads to debasement of currencies and inflation. Too much debt coupled with overbidding the value of real estate leads to depressions. Piling on debts on businesses leads to bankruptcies. Just as banks must attract not just borrowers, they must also attract savers, so it is with everything: paper houses are fine in earthquakes but a disaster in fires. Adobe houses are great in fires, a disaster in earthquakes.
So we try to devise systems which work in these yin/yang situations and none will be perfect. All are compromises. But lately, we have seen, thanks to the evolution of business schools and computers, attempts at creating systems that produce only wealth and never go downwards, instead of stabilizing our systems, this is destabilizing them much worse than pure laissez faire anarchy.
By Stephen S. RoachAfter nearly five fat years, the global economy is headed for trouble. This will come as a surprise to policy makers and investors, alike-most of who were counting on boom times to continue.
At work is yet another post-bubble adjustment in the world's largest economy - this time, the bursting of America's massive property bubble. The subprime fiasco is the tip of a much larger iceberg - an asset-dependent American consumer who has gone on the biggest spending binge in the modern history of the global economy. Seven years ago, the bursting of the dot-com bubble triggered a collapse in business capital spending that took the US and global economy into a mild recession. This time, post-bubble adjustments seem likely to hit US consumption, which at 72% of GDP, is more than five times the share the capital spending sector was seven years ago. This is a much bigger problem - one that could have grave consequences for the US and the rest of the world.
This is yet another good analysis of what is going on here. The US is so accustomed to rising house values, we don't understand that this can, like anything else, vanish in a flash. It is a mirror of our economic health but a rear view mirror. It doesn't show the future, it reflects the past. The latest bidding up of housing was based on sub-inflationary interest rates. As housing values shot up, savings collapsed. Like any yin/yang system, this one was headed towards a crisis where the model must 'flip' to a new system. Namely, savings had to increase one way or another. The longer this takes, the more destruction the flip. And the flip is to go from inflation to depression.
While poking about the web, I saw this news show on You Tube. The couple in this story wanted to sell their home. They bought it a year earlier and were 'flipping' it. In a down market. They paid slightly more than $400,000 for this pathetic suburban 'dream' home. I once rebuilt and sold a mansion in New Jersey which was photographed by the NY Times and which was sold at an open house auction which saw the price bid up to $350,000. In 1986. It was a very beautiful, 8 bedroom, Victorian mansion, a historic structure, too.
This house in this video is a suburban box with thin walls and no really good details and a galley kitchen. Ack. And it went for $100,000 more than my mansion did 20 years earlier. This is pure inflation. Not a rise in value due to it being nicer.
The greedy couple lied to buyers and pretended to have a bidding war. One thing about bidding, if you set a bottom line and anyone rises above it, you must sell, You can't have a fake bottom line. In the sale of my own mansion, it was $270,000 so I did well in this sale. I owed the bank only $38,000 for the mansion so this was pure profit for me. In the case of this goofy couple, they were 'flipping' a property that was 100% in debt! Wow! Talk about stupid.
You can't do this! People did this but got caught in the gears when things went down and they go down regularly. Flipping, like investing in stocks, should only be in excess funds, not debts. Indeed, all collapsing markets are very much about 'margin calls' when people in debt play gambling games and then lose. The couple in this video rushed out and bought a second house without selling the first one. They just wanted a nicer house and hoped to have enough profit to pay for the move. This wishful thinking put them into danger and as I see all over the place, they wanted Risky and not Safety and will now pay the price as they go bankrupt. And you can bet, they will whine that this isn't their own fault just like the investors running all these games across the planet, playing with money, whine about being caught in the inevitable down markets.
This is why Bernanke decided to destroy savers by reducing already ridiculously low interest rates vis a vis real inflation to even lower levels.
WASHINGTON - President Bush asked Congress for $46 billion more to bankroll wars in Iraq and Afghanistan and said he wants the money approved by Christmas. The fighting in Iraq, in its fifth year, already has cost more than $455 billion.Democrats who gained control of Congress with an antiwar message said Bush should not expect lawmakers to rubber-stamp the request.
"The colossal cost of this war grows every day — in lives lost, dollars spent, and to our reputation around the world," House Speaker Nancy Pelosi said. "The American people long ago rejected the president's planned 10-year occupation of Iraq and want the administration to provide a concrete plan to bring our troops home.
Pelosi always makes antiwar speeches before voting for more wars. I saw ABC news last night---I usually avoid TV this last 10 years due to the silliness of the propaganda. They had a long thing about war 'heroes' and then about how safe and wonderful Fallujah was. Not a peep about the cost of this war. Not a word. Each time Bush and the free booters running the Pentagon ask for money, they get it and then some. I recently heard from readers who told me about this petition to ask for fiscal responsiblity. But then I looked into the web site of the writer of the petition and he is a supporter of the Republican Party! Gah!
Talk about deluded. People who put the free-spending GOP in power should be ashamed of themselves. And this guy didn't support Ron Paul who at least is serious about cutting spending! The US still imagines we have Sovereign Wealth and can fund any wars we want in perpetuity. This week, Bush is vetoing a slight rise in the fuel heating bill because we supposedly can't afford it. Then turns around and asks for 4 times that amount for extra war funds! Will millions of Americans wish to freeze to death so we can secure oil we can't afford?
BRITAIN’s biggest brewer, Scottish & Newcastle, is planning to thwart a £7.5 billion hostile takeover by Dutch and Danish rivals by selling off Hartwall, the Finnish holding company behind its most valuable asset.Heineken and Carlsberg last week stunned S&N, which makes Foster’s, John Smith’s and Kronenbourg, by revealing they are plotting a bid to split the British brewer between them.
S&N’s board, however, is studying a radical plan to defeat the move. It is investigating a sale of Hartwall, the Finnish company that holds S&N’s 50% interest in BBH, its Russian beer business. The stake is worth £2.5 billion.
The buy up/buy out madness as resumed thanks to the central banks in Europe and the US pouring in over half a trillion dollars into the system. Note also, Russia is in the game now. They have sovereign wealth and no wars eating away at their finances. They went bankrupt, fighting wars.
From an editorial in the Economist:
If only life were so simple. In reality, the credit crisis has presented central banks with their greatest challenge since they won the battle against inflation a generation ago. It has cast doubt on how well they have discharged their twin duties as the guardians of financial stability and as the defenders of price stability. It poses questions about whether the almost mystical status that they have acquired over the past two decades can endure—and whether it would be a good thing if it did.A great deal rests on those questions. A brilliantly inventive generation has harnessed computing power and financial theory to transform the world of finance. Trillion-dollar global markets have sprung up on the back of techniques for converting loans, interest payments, default risk and who knows what else into new securities that could be chopped up and repackaged in mind-boggling combinations, sold and resold. Much good has come of that—and not only fat bonuses on Wall Street and in the City. The most valuable result of the new finance is that more people and businesses have gained access to credit on better terms.
This grossly misunderstands what is going on. If all the central banks must do is provide cheap money for investors and speculators, they did a fine job of that. But how did they do this? Simple: they created oceans of inflation. And why is inflation only 2% a year right now?
BECAUSE THESE CRIMINALS ARE LYING ABOUT INFLATION!
It is easy to have low inflation if you ignore real inflation. This is quite magical. If they pretend inflation is 2% when it is really 6%, this means the investors and speculators can make an easy 4% profit simply by shifting things around, juggling them from one thing to another. So long as they do this WHILE ACCULATING DEBTS! The money here is anywhere from $200 trillion to $500 trillion, we haven't the slightest idea since these guys are all using Dark Pool money that flows through Japan and then to a host of offshore, 0% tax havens where there are no controlling autorities. This tremendous sea of 'wealth' is mostly red ink. And all over the place, there has to be someone who keeps paying interest on these sub-inflation rate loans. Since Japan has managed to totally evade inflation by chopping off huge hunks of its domestic economy, this is the ground support of sub-inflationary loans. This is echoed by the US which revised inflation calculations under Reagan and then finessed this under Bush Sr so that all the real inflation is wiped out. On top of this, the Chinese joined the world's markets and reduced labor costs so the cost of production, in classic Marxist theory, fell. This caused a global drop in wages which is still ongoing and we are seeing the utter destruction of unions in the US/EU/UK empire. But this 'kills' inflation by killing the worker's ability to gain value from labor.
On top of this, during the last 20 years, Russia entered world energy markets, first by selling to Germany and now the world. This had a tremendous impact on world oil prices for 15 years. This is now over since we are at the Hubbert Oil Peak and Saudi Arabia's production has been dropping despite lies about increasing production. Here is a chart by the Economist showing inflation and how it was 'fixed':
The sudden fall in inflation comes right where this triple whammy begins: the fake inflation figures, the drop in world oil prices and China entering the industrial export markets. This wasn't due to any wand waving by financial wizards. Far from it. It is as if they were waving wands and then the sea went out at low tide. 'We moved the very oceans!' they crowed. Now, the tide has turned. The waves are rushing in, sweeping away all the pretty sand castles built on the shore. The wizards are frantically waving wands and the waves are bigger and bigger.
This is why the insanity of demanding China raise the value of the yuan is so striking: they do this and the last leg of deflationary costs will collapse! Not that our wizards will understand. Using fake inflation numbers will allow them to pretend all is well even as Americans freeze or starve to death due to declining incomes at the bottom. The elderly will be treated like the people of Gaza: put on short rations and then told to go off and die. This is why the right yells about spending on the elderly and then asks for trillions for wars.
The Economist:
As for financiers, so for the economy as a whole. As chart 1 shows, the Great Inflation of the late 1970s gave way to an age of low, steady inflation thanks in large part to the skill with which central banks learnt to steer policy. The anchoring of inflationary expectations at moderate levels in turn combined with technological change and globalisation to support strong, steady economic growth. And in both America and Europe unemployment fell below the rates at which economists used to think inflation would start to rise.
This is simply astonishes me. Of course, inflation didn't kick in when employment went up! This is because the people being hired to manufacture things were in CHINA. Not Europe or America. Over here, the employment rise was in SERVICES. This is where Japan has been most ruthless, cutting the wages and the employment opportunities in services. The US has only 20% employment in manufacturing and about 70% of that is involved in the military/industrial complex. For example, we no longer build ships for trade. We do build military ships that cost a fortune and have huge cost overruns. This is a net loss to our economy, not a gain. These ships bring no profits from abroad. For we are not selling them to anyone unless we want to sell them to China, heh.
No, inflation was low due to loss of power in the working classes in the West. And this will unscroll most dangerously as they no longer can even get low wage jobs in services when the flood of wealth shifts and starts flowing to, not from, China. Already, it is flowing strongly to all the oil pumping nations that sell surplus energy.
The Chinese government Monday said it objected to an overhaul of International Monetary Fund (IMF) guidelines for foreign exchange surveillance adopted earlier this year.Li Yong, China's vice finance minister and the government's representative at the IMF and World Bank's annual meetings, told fellow ministers the IMF should strictly adhere to its tradition of consensus-based decision-making.
"We regret the IMF adopted in June its policy on foreign exchange surveillance, in the absence of consensus among its members," Li said in a speech. "We believe the IMF should focus on whether a member's exchange rate regime is compatible with medium-term macroeconomic policies, not the level of its exchange rate."
The IMF also needs to strengthen its oversight of policies of countries responsible for major reserve currencies, the dollar, the euro and the Japanese yen, Li said.
As I expected, the Chinese are now pushing back. They know the game is ending soon. Unlike the US, they also know that if they go into economic decline, they intend us to go into economic COLLAPSE. The US consumes far more than we make. Far more than our share. If this ends, China won't see its economy grow so fast but we will see our civilization go up in flames just like all those multi-million dollar homes with no sprinkler systems in California.
China doesn't have to let the IMF see into their affairs any more than all the offshore pirate islands. As the wacky financial systems set in motion by lying wizards in the US and Europe fall apart, more and more money making/money moving systems will shift to Dark Pools until the system collapses. The only cure for this that I can see is for real honesty: they have to set up a new way of calculating inflation that very definitely includes medicine, taxes, energy and food! If they can't figure this out, I know of ways of assembling a bunch of smart economists who can do this task!
Traders sold off holdings of the Canadian dollar Monday in what some currency watchers suggest could signal the beginnings of a "long overdue" correction in the currency. Meanwhile, at least one Canadian bank sees the dollar dropping to 90 U.S. cents by the end of 2009, based on a rebound in the U.S. currency and overall softening of commodity prices.
This news tidbit shows how whacky the system is today: just as Japan is grinding the gears, desperately trying to make the yen super-weak, Canada exports to the US so they want the Loonie to be a lame duck. So they take this 2x4 and give it a good whack. Bingo. Over and over again, I read central bankers boasting about how they will make the dollar strong and their own currency, weaker. Only China is supposed to do the exact opposite. Which they have! The yuan has risen against the dollar.
Then everyone of the G7 dwarves sneaks off and plays these stupid games. Right on the heels of the othe dwarves begging the US to raise the value of the dollar so they can export to us, they rush home and strengthen the dollar using the same tools used by the Chinese Dragon! Right now, Canada's FOREX reserves is a measly $40 billion. This is even smaller than the US funds. Now if they do as Russia and increase this to $400 billion, then they can write their own currency checks! Then, no one but they can control the value of the Loonie!
Right now, they are 'talking down' their currency. This is fancy talk for 'waving wands frantically while chanting spells.' Despite the Harry Potter books where they simply wave wands and chant stupid things, this doesn't work when the tide turns. Real magic is when we understand how nature is our mirror and our actions must balance out in the end or She does it in Her brutal fashion which is quite destructive.
Culture of Life News Main Page
I recently found your blog from a link used on a gold investment board to one of your articles.
Firstly, very well done for your propensity to produce SO MANY well thought out articles!
I particularly enjoy the topics on the global economy and the shenanigans in the corridors of power.
This has become a daily dose of stimulating reading in the flaky world of pretending that the world loves "us" (whoever we are).
This may be controversial and off topic, but the part in the article about the esteemed speaker of the House whinging about the high cost of the war prompted me to pose this thought...
After WW1 and WW2 (and maybe others), the victor/s got to enjoy the spoils of war - make the losers pay - (and that was the start of 20th century economic chaos, and the USA never got paid back anyway!).
Now, the USA invades Afghanistan and later Iraq, and what does it do? It PAYS to fix up those countries and hand them back to the peasants!!!
Perhaps it is not the warlords who are the problem, it is the bleeding hearts who think that everyone is like them.
Long live greed and vanity.
Posted by: oldgrey1 | October 23, 2007 at 04:03 PM
@ oldgrey
"Now, the USA invades Afghanistan and later Iraq, and what does it do? It PAYS to fix up those countries and hand them back to the peasants!!!"
What on earth can it mean to say the US is 'fixing' anything up anywhere in the world. The US "treasury" (mostly debt to foreign nations) has been bled (by bloody warlords and not bleeding hearts) to the tune of over 1/2 a trillion dollars to utterly destroy Afghanistan and Iraq, certainly not to build it up.
As to WWI and WWII, who has the financial upper hand in the world today, Japan, China, Russia, or the US? What leverage does the US "warlord" have in regard to even its own economic health, compared to the leverage of countries with "Sovereign Wealth Funds"? In what country will the "peasants" of the future reside?
The only viable corrective is the downfall of greed and vanity!!! (and that is not controversial, just ignored)
Posted by: Richard Kover | October 23, 2007 at 04:45 PM
oldgrey,
with all due respect, if you think the US is paying anyone other than rival militias/warlords in Iraq/Afghanistan and that the US is planning on handing things back to the native population ( and the Iraqis are hardly peasants) you are fucking delusional.
Posted by: Al | October 23, 2007 at 11:46 PM
@Old Grey:
"Now, the USA invades Afghanistan and later Iraq, and what does it do? It PAYS to fix up those countries and hand them back to the peasants!!!"
I would like to mimick Elaine here: "This is a conspiracy to make me laugh to death."
Seriously!!!!
The US never pays to anyone else except its own greedy corporations. It's a shame the US people still believe that the big corporations have their interest at heart and that their government is both capable and willing to defend them.
Why would you think that a "president" with eight years in power and no accountability thereafter will think for the long term benefit of the people?
Why would you think the supposedly "congress" would care about the "peasants" who supposedly "voted" them into the "house" over the "big money" who really is their master?
The checks and balances of the original system is no longer in existence. All that's left is merely a ghostly shell of what used to be democracy. (There isn't even Hebaes Corpus anymore in the States)
Posted by: Not Student | October 24, 2007 at 12:43 AM
Elaine,
Check out the latest article from
LEAP/E2020 GEAB N°18 :
Seven sequences of the impact phase of the global systemic crisis (2007-2009).
That is a gloomy prospect for all if it comes true...
Posted by: OC | October 24, 2007 at 04:59 AM
Yes Elaine, as I said before, try to sequence the future like these europeans: LEAP/E2020 GEAB N°18.
I know that this is very hard, when you already make a lot for your readers by keeping this blog.
Posted by: PJSV | October 24, 2007 at 06:43 AM
"With 15% of world consumption. We are about 3% of the world's population."
Let 15% be x then world consumption is 100/15*x = (6.6...7)x
Let 3% be y then world population is 100/3*y = (33.33...)y
I think the U.S. population is about 300 million, then if y = 300 million, the world population is nearly 10 billion (a tad high?).
Then if world consumption is 7x
3% consume x or x/300m = (3*10^(-9))x per person, 97% consume 6x or 6x/10b = 0.0000000006 per person.
If the 97 were to consume the american rate world consumption would be 30x (3e^-9 * 9 billion)x
therefore 30x/7x is about 4 times.
Its only proportion, a clever person could see it more easily than me, a trivial calculation.
The data comes from statistics, economics, whatever. Scientists like the rest are lying elitists looking out for themselves. The counter by scientists is that productivity can be increased by genetic improvement of crops etc. and economics by micro-finance etc. which is all nonsense so we are going to have big fights. Since our industry is so run-down, and the universities are filled not by the expected clever people but deadbeats, our Prime-Minister is opening Military Technical Colleges for young people. That is a trap beyond the obvious. When people join the military they do not get to go where they want to go.
Forgive me. I agree with you. I am just drawing attention to method. I was going to canvass the possibility of equitable consumption but I suppose that is a no-brainer
Posted by: TKN | October 24, 2007 at 08:41 AM
Proof of our consumption is simple: our trade deficit.
Posted by: Elaine Meinel Supkis | October 24, 2007 at 09:26 AM