Paulson Told Buddies Bernanke's Big Cuts BEFORE It Happened

October 13, 2007

Elaine Meinel Supkis

A beautiful fall weekend here after a sudden frost. The trees are rapidly changing color and the green grass is white with hoarfrost at sunrise. The headline here isn't in the regular news, only in one NY paper. If true, some people should be arrested. As usual. Time to talk about bank reserves and the differences between the Chinese system and the 'reformed' US system. China again, raised the reserve banks must hold. The US doesn't believe in holding reserves or using this to control out of control speculators. Instead, we use this goofy system which the Fed likens to driving a car with a solid wall for a windshield. Isn't that great? World inflation is rising and the US is encouraging speculators, not savers. Good grief in hell. I wish I could give us good news.

From Bloomberg:

Citigroup Inc. and JPMorgan Chase & Co. are leading a group of banks that are in talks with the U.S. Treasury about a plan to revive the asset-backed commercial paper market.

Discussions over the past two weeks addressed structured investment vehicles, units set up by banks to finance purchases of assets including subprime mortgage debt, said a government official and a banker with knowledge of the deliberations. Under one plan being considered by the banks, lenders would establish a fund of as much as $100 billion to buy assets from the SIVs, said two people familiar with the negotiations who declined to be identified because the talks are continuing.

Those scaly SIVs slithered into a hole and won't come out. This infuriates the very rich, tax haven pirates and even the hell hounds bay and woof with despair and fury that they can't use their SIVs to get even richer, making money out of thin air. The Treasury, run by Goldman Sachs, the biggest speculator firm in the US, is desperate to revive these reptilian critters. These 'asset-backed' papers are cute talk for 'a mountain of debt piled onto properties and businesses so speculators could make a fortune in fees and gambling operations based on these things.'

Since I am not a speculator and can't play one on TV, I can criticize this goofy get-rich-quick scheming. $100 billion bail out. Cute. This 'fund' which is a duex ex-Goldman Sachs machina, will fix the 'problem' of rich speculators unable to move their mountain of debt. It will move it...to the government banks who always rescue Goldman Sachs. Goldman Sachs and the pirates are like Little Nell: they put on this cute wig of blonde curls, they then tie themselves onto the train tracks and then, covering their curling, long mustaches, they pitch their voice to the falsetto and start wailing, 'There will be BLOOD in the streets! My friends will be losing their JOBS!' Until Bernanke and his buddies in the Treasury join hands and ride, Dudley Dorightwingers to the rescue.

If rescuing the false Little Nell from the Economic Reality Train means throwing unions and workers as well as all retirees and people on fixed income and savers onto the tracks to stop the Reality Train, they cheerfully do this.

But the Snidley Whiplashes of the speculator world then laugh demonically and rush off to distant pirate coves that charge no taxes and yell, 'Suckasssss!'

From Bloomberg:

``If the firms get together to improve the quality, that's a good development,'' said Mark Amberson, who runs the $5 billion Russell Money Fund for the Russell Investment Group in Tacoma, Washington. ``It would be a positive credit event if you wind up with a better vehicle.''

Unable to create a capitalist system anymore, the speculators are always creating 'vehicles'. These various pirate ships and fast cars then either sail off to tax havens run by Elizabeth II or they drive wildly and then crash in various communities, running over children without health insurance and little old ladies trying to hobble across the street to the local Savings & Loan to deposit their SS checks.

As the crybaby pirates and barking hell hounds of the US plot and scheme with our national bankers and guardians of our economy to destroy us all, it is time to go visit the world's most dynamic economy, the one that is rapidly overtaking the US as world leader in trade and finance: China. This week, the communists had their latest 5 year Jamboree where they set forth the next 5 year's goals. From Xinhua:

It held that guided by Deng Xiaoping Theory and the important thought of "Three Represents", the Political Bureau had implemented the spirits of previous six plenums of the 16th CPC Central Committee and the 16th Party Congress and deeply carried out "the scientific concept of development".

The communique says the Political Bureau pushed forward "an overall development of the socialist economic, political, cultural and social construction" and the "great project of the Party building" by "promoting scientific development and social harmony, strengthening macroeconomic control, adjusting economic structures, transforming development style, boosting energy saving and environmental protection, pushing reform and innovation, advancing social development and trying hard to address problems concerning the public's life".

It says the Party has "taken a firm stride" toward the goal of "an overall building of a moderately prosperous society" set in the 16th Party congress in 2002, and "created better conditions" for the convention of the 17th Party congress.

The Party is not very happy about speculators making too much money. Nor is it happy with party members making too much money. Indeed, it is unhappy with anyone making too much money. The onimous words I have underlined confirms to my mind, the communists are now goingt to move against the wheelers and dealers in China who are making that economy white-hot. The Chinese government wants capitalism and China is very much a creator of the idea and concept of capitalism and paper money and took to this system developed in the West (despite Christianity's leaders frothing at the mouth over this) to turn China into a capitalist wet dream.

But the Party must maintain power while redistributing wealth. The US is a shining example of this: during the years we taxed the rich very heavily, the US was very strong and we had a wonderful economy that grew and grew. But ever since the tax cut mania and the support for only speculators grew ever greater, we now are in decline and the rich get richer and the poor get poorer.

The Chinese are very much aware as to how this works. This, I can guarantee. I pestered them about this long ago, seeing the mess looming in the future, back in 1985. It is no coincidence that the news below is happening this weekend.

From Bloomberg:

China ordered banks to set aside more money as reserves for the eighth time this year to cool speculation in stocks and real estate and curb the fastest inflation in 10 years.

Lenders must park 13 percent of deposits as reserves from Oct. 25, up from 12.5 percent, the People's Bank of China said today on its Web site. The required ratio is the highest in almost a decade.

The United States used to do this. Long ago, before the speculators headed by Goldman Sachs took over our financial system and wrenched it totally out of whack, the US did this sort of thing. The Fed was responsible for preventing asset bubbles and wild speculation. You see, the lessons of the Great Depression were still remembered and the Fed knew that it would be a good idea to encourage savings when people were using money to buy speculative stocks. So they would raise interest rates using this simply tool developed over the centuries. For speculative bubbles has been the plague of paper-weighted asset value systems since the Dutch discovered this back in the 1600's with the Tulip Mania.

When I was a young lass, the price of housing would rise or even fall somewhat. The Fed watched this like a hawk. The last thing the Fed wanted was a repeat of the...get this...Florida land grab boom of the mid-1920's! If mortgages were so cheap that people could be lured into wild property speculations, the Fed would growl and then raise the interest rate AND the reserve ratio rates! This inhibited the ability of banks to create money out of thin air. The magicians hated this tool, they hated this rule and they got rid of it.

Since Reagan and Greenspan, the reserve ratio for banks has stood at exactly 10% year after year. It never changes now. Note how China has raised it to 13%. During the Dot Com bubble, Greenspan didn't raise it. When the speculators had a spectacular crash in 1998, he dropped rates by using the new mechanism which the Federal Reserves kindly explained to us back in 2004. From the Federal Reserve itself:

Amid all the tea-leaf reading and excitement, a simple fact is usually lost on the public when the FOMC makes a rate announcement. Media reports give the impression that the Fed literally sets the federal funds rate, the rate charged on overnight loans between banks, by governmental fiat: Greenspan speaks, and a new interest rate becomes the law of the land, it seems, like the Interstate speed limit or Atlantic fishing quotas. But in fact, when the federal funds rate shifts, it's not because Greenspan and the 12 voting members of the FOMC said so. At its meetings the Committee announces a target for the federal funds rate and the Fed then strives to hit that target by managing reserve balances—money that banks hold in reserve rather than lend to customers.

The Fed wields this key tool of monetary policy through a process called open market operations. By adding or draining reserve balances, it meticulously adjusts the federal funds rate, directly influencing the cost of credit and by extension, the performance of the U.S. economy. A higher rate tends to inhibit economic growth by increasing the cost of money; a lower rate fosters economic expansion by making credit more readily available.

This delicate process has been compared to pressing a gas pedal or stepping on the brakes. But even the Fed admits this car is more like a train: it accelerates slowly and then takes a long time to stop. So when Snidely Speculator ties himself and his off-shore wealth to the tracks and the train can't stop in time, it runs him over and he bleeds, sometimes, to death. This alarms the guys who have taken over the economic train's throttle. The speculators control the train and always want it to go as fast as possible. But they can't do this with impunity: they need fuel. This fuel is called 'Savings' and the other is called 'Loans' and clever men have combined the two to call the points of contact where speculators can get their paws on money, 'Savings & Loans.'

But in the last 25 years, they wrecked these things and now have a totally new system that does away with the 'savings' part and rests nearly entirely on 'loans'. This radical change is talked about by the Fed in this article cited here. Right on Target

A behind-the-scenes look at open market operations, the Fed's big stick of monetary policy

Phil Davies Dec. 2004:

Yet so effective is the open-market process that it's hardly surprising that when the FOMC issues a directive, the financial community and the press treat it as a fait accompli, a done deal. In reality, the relatively steady rate that prevails between meetings depends to a large extent on the actions of staff at the New York Fed and the Board of Governors in Washington, D.C. This article takes a behind-the-scenes look at open market operations, the Fed's big stick of monetary policy that, for all its power, is often taken for granted.

Putting on the pressure

The Fed influences the economy through the banking system's demand for reserves. Commercial banks and thrift institutions have no choice in the matter; under the Monetary Control Act of 1980, the Board imposes a minimum reserve requirement of up to 15 percent on transaction deposits—typically checking and other accounts from which transfers can be made to third parties. The current reserve requirement on the bulk of transaction deposits above regulatory thresholds is 10 percent.

Volker was a mean man. He made speculators cry. He came in and tried to stop th gold bubble and it popped and all the people who bought gold at $800 an ounce had to wait all the way until today to see this investment return to the value it had back then. Interest rates were ruthlessly driven upwards by the Fed and he had to raise the ratio rates held by banks. This is why they had to change the regulations. The founders of the Federal Reserve never imagined the US would be so reckless as to attempt hyperinflation.

Since 1980, the appetite to raise the reserve ratio has vanished due to the fact that any President who allows this to happen is thrown out of office. There had to be some system set up that would allow and even encourage speculators that could be used to control the value of the dollar so it wouldn't go off the Weimar Deutschemark cliff. To this day, the government and the exo-government Federal Reserves struggle with this. They must inflate all speculative bubbles but not too much. Thus, the 'delicate' interest rate manipulations that don't use this simple tool set up long ago.

The Fed in 2004:

The Fed has other monetary policy tools at its disposal aside from open market operations. It can also adjust reserve requirements and rewrite terms for borrowing from the Federal Reserve discount window, the last resort for banks that can't satisfy their reserve obligations in the federal funds market. But these methods of influencing reserve levels aren't used as often as they were in the past. Over the last 15 years the Fed has hesitated to raise historically low reserve requirements because they impose a cost on banks—forgone interest on $10 out of every $100 deposited by account holders. The last time reserve mandates changed was in 1992, when the rate on transaction deposits was cut, from 12 percent to 10 percent. As for borrowing from the discount window—at one time an actual window at district banks, where banks dropped off collateral for loans—the practice has declined in the last decade, partly because of increased clearing balance requirements but also because of public perception that borrowing from the Fed is a sign of weakness.

That leaves open market operations as the Fed's preferred method of influencing short-term interest rates. The Domestic Trading Desk at the New York Fed, in consultation with Board staff, conducts open markets operations by buying and selling previously issued U.S. government securities. Known as an “open market,” because securities dealers that the Fed conducts business with compete with each other on the basis of price, the U.S. Treasury securities market is the broadest and most active of U.S. financial arenas, trading over $480 billion every day.

Ever since the US decided to degrade the dollar during the Vietnam war and the 'Guns 'n Butter' show, the US has steadily refused to pay for our military or our many wars via war bonds and higher taxes. Indeed, taxes have been cut and the budget and trade deficits have soared to the heavens. The US and our allies have set up various ingenious financial systems like the present FX markets that supposedly used 'free markets' to determine relative value of money and other things. Supposedly, everyone was going to follow the same IMF and FX rules to let money be directly connected to the financial industrial and trade health of a nation. Supposedly, if a nation or an empire were to run in the red, the value of the currency should drop.

Of course, political and trade rivals swiftly figured out how to game this system and we know exactly who they are today: anyone with a FOREX reserve that is many multiples of the US FOREX reserves.

This brings us to the concept of the bank reserves: the US system, out of whack due to the flood of red ink and inflation, can't support the older system for this shows the many weaknesses of our red ink policies. We want to continue to generate oceans of red ink so this monstrous mess continues with new mechanisms to allow us to run in the red. Whew. Talking about this is making me dizzy!

The 'sign of weakness' the Fed is talking about here, the older system's warning lights was the need for banks to come to the Federal Reserves' emergency money window for help. We saw this in the news just last month. The Fed had this interesting experiment whereby the banks in desperate need for these funds pretending it was all merely a PUBLICITY STUNT whereby, banks in trouble could go to the emergency window and get a slice of the billions of dollars the Fed was flooding into the banking system and NOT BE SEEN AS WEAK. Namely, they were doing this for fun! HAHAHA. Right!

There was no banking crisis. This misleading story then sanitized the real news, that the banks were on the verge of collapse, and the country relaxed and there were no bank runs. Like in England. Meanwhile, after the Fed made money out of thin air, they had to apply their new system of money management: 'Open market operations.' This is funny talk describing the helicopter Greenspan and now Bernanke use to drop oodles of money into the banking system while pretending this doesn't cause inflation or create more red ink.

The half a trillion + that is traded every day is a very vital part of the system used by speculators running pirate coves and hell caves. It is also the point of entry for the communist powers. They use this open back door to control world markets! DUH. Ever since this stupid system was set up, the powers who have this incredible thing called 'sovereign wealth' are now taking over the system set up by speculators and their buddies in the Fed Reserve and the government to circumvent older banking rules that were set up to prevent asset bubbles and speculatory surges! Why are stocks shooting up while inflation is raging here?

The Chinese just dumped $200 billion in sovereign funds into the system on top of the Arab rulers putting in another $300 billion SF! The SIVs mentioned at the top of this story will be saved by this flood of money but the price we pay is, we lose control of our economy, our money and our futures. The market won't crash yet---the day this happens will be when China pulls the plug and trust me, the communist leadership fully plans to do this and expects to do this and often itches to do this.

From the Fed:

For the Trading Desk at the New York Fed, the Committee's directive is a call to arms. Putting their heads together with counterparts at the Board, the Desk's forecasters and analysts develop an action plan for hitting the federal funds rate target, expressed as a “reserve path”—the trend that total available reserves must follow over the coming weeks to achieve the designated interest rate. Comparing this path, based on detailed forecasts of reserve demand, with daily projections of reserve supply determines how much money the Fed must pour into or drain from the banking system. Thanks to its $690 billion portfolio of Treasury and federal agency securities, the Fed is in an excellent position to expand or shrink reserve balances, the portion of reserves held on deposit at district banks. About 30 primary dealers in the U.S. Treasury securities market work with the Trading Desk to ring daily changes in the volume of reserve balances available to banks.

When it wants to increase reserves, the Desk buys securities and pays for them by making a deposit to the account maintained at a district bank by the primary dealer's bank. In effect, the Fed writes a check on itself, increasing the aggregate volume of reserve balances in the system. To reduce reserves, the Desk sells securities to a dealer and collects money from that account, drawing down the total volume of reserves. In an open market, the law of supply and demand drives the process: The Desk accepts the lowest offers for purchases and the highest bids for sales until enough dollar volume has been traded to make the desired impact on reserve levels.

'Mommy,' asks the puzzled child, 'How does the Fed create inflation?'

'Dear child, it is laughably simple,' says mother, pausing from picking lice out of the child's hair as they crouch under a bridge to keep out of the rain, 'They wrote trillions of dollars of checks to themselves and thus, added more money to the banking system, money that wasn't backed by anything at all but was made up like your invisible friend you talk to all the time.'

'Oh, you mean my demon friends, the three headed hell hound and the pirate?' says the child, eyes wide with wonder.

'Yes,' said the mother as she returned to stirring her pot with the eyes of newts and the unicorn hairs, muttering dark spells and chants calling for retribution.

The stupid trading system the Fed now uses is a catastrophe. Proof is simple: our entire banking system nearly collapsed between 7/17/7 and 9/15/7. It is now limping along. The cure simply makes it easier for Goldman Sachs and an army of leeches like them to milk yet one more system that allows them to make money by juggling money. The more money is manipulated, the greater they can leech off a percentage on a daily basis and make more money magically. This magic money is now grown so great, it is a major cause of inflation! It, in turn, must seek ways of growing and this is why we saw trillions in hedging going on in the last 7 years. Ever since this stupid new system was set up, it has caused inflation while interest rates for traditional savings has collapsed.

In other words, the foundations of banking for the last 500 years has collapsed. This is causing the new system to be increasingly unstable and we all saw with horror, how this can suddenly cause the global systme to completely seize up. If the Fed can write checks to itself, it will do this more and more. And as this causes the savings rate to collapse since the Fed is usually desperately trying to keep interest rates below the real rate of inflation, the check writing increases and thus, real inflation shoots up. The price of oil was supposed to be falling but instead, it is now staying over $80 a barrel and is rising more than it falls, it is creeping up to the mid-$80 range and the value of gold is soaring ever higher. The last time we had a banking collapse, we had soaring oil and gold prices. Only the Fed wasn't writing checks to itself.

This was the old banking system. All Volker had to do was raise the reserve rate held by banks. This is what isn't happening today. The banking reseves collapsed and the Fed fed them more inflation via magic money making checks to itself and then handing it out at the discount window while pretending this was all a funny stunt, hahaha. I hope everyone now understands. I find this all very hard to deal with but the picture comes slowly into focus.

From the Fed:

Other possible changes in open market operations are harder to predict, dependent as they are on changes in Fed monetary policy. How and why the FOMC sets a target for the federal funds rate is a topic beyond the scope of this article. Suffice it to say that the mechanics of the U.S. economy change over time prompting different approaches to achieving both price stability and sustained growth. In the early 1980s, concerned about spiraling inflation, the FOMC directed its staff to tightly control reserve supplies while letting the federal funds rate float freely over a wide and flexible range. But later in the decade when the relationship between reserve supplies and key economic variables broke down, the Committee chose instead to try to control the federal funds rate.

That has remained the focus of open market operations ever since, guiding the type and frequency of securities transactions by the Trading Desk. But in the future, when different economic conditions prevail, the FOMC may devise other ways to exert control over reserves and keep the economy humming along. Whatever monetary policy goals the Committee pursues, chances are good that open market operations will continue to play a vital role in achieving them.

What exactly broke? Eh? What??? The refusal to understand why the Japanese paid Ronnie Reagan $2.5 million for one speech in Tokyo the month after that obviously senile old man left office is still not discussed in polite society. This was a naked bribe by the Japanese to get him to cut them a good deal vis a vis trade. And their penetration of our markets has now gone through the roof while we are still locked out of Fortess Japan. And the US still tries to get rid of oil inflation by inflating all things so the dollar is weakened against other currencies so the oil pumping nations gain nothing by raising prices.

The economy, with these Fed changes, is NOT 'humming along.' It is DYING. DYING!!! And the sign of death approaching is simple to see: the sea of red ink. This red ink is hard to not see. But it is NEVER mentioned in ANY Federal Reserve statement discussing the health of our economy. Nor is the trade deficit. When they do discuss this, it is to either minimize it or to suggest the working class should have their wages and benefits reduced. This is the 'throw the workers and children and retirees under the train' part of saving our economy.

Open markets are speculative by nature. If our banks are too weak to raise their reserve rates when they are wildly handing out Alt A loans then this is a banking system that needs to be reformed and this means increasing savings and going after tax cheats who are speculators operating out of distant island tax havens! I will note here that China is following the OLD banking rules. This is a sign of great strength.

This is a graph from the above report showing how the Fed dropped rates to the cellar using the new system for pricing the value of loans. I will add that during this time frame, world oil prices shot up higher and higher and I know that inflation was biting me pretty hard in the ass. But the Fed could write many checks to itself and selling these stupid checks meant fewer buyers who bought in bulk at this replica of Sam's Club. Call it Alan's Club. Or Club Caribbean.

This graph is from the Economist's View.

Note the giant GDP spike during the 2003-2004 super-cheap rate period when the Fed wrote huge checks to itself. The first check writing spree was in 2001 when Greenspan wanted to get the economy going great so Bush could cut taxes on the rich. The tax cuts kicked in right when the Fed was writing even more checks because of 9/11.

I think I will call this new Fed system, 'Greenspan's check kiting system'. The US can write bad checks so long as world financiers buy them. The present banking collase is on the heels of the Fed refusing to use bank reserves to stop asset bubbles and even more importantly, the refusal to accurately track inflation by leaving out the two most important bellweathers showing inflation: energy and food. On top of this, the Fed also killed the M3 statistics so we can't track that money flow, either. The claim that this was of no interest to anyone was a pure lie. I and an army of people complained quite bitterly about this. I used those statistics regularly in the past.

From the Fed in 1992:

Managing the Crisis: The FDIC and RTC Experience

Chronological Overview: Chapter Fourteen—1991

For the first time in the history of the FDIC, the Bank Insurance Fund (BIF) dropped below zero to a negative $7 billion. On April 30, 1991, the FDIC issued a regulation raising the deposit insurance assessment rate from 19.5 cents to 23 cents per $100 in assessable deposits. That increase in assessment revenue was designed to help offset BIF losses, which had been outpacing revenue since 1984.

This is from the last big bout of bank failures. I remember that time well: I lost $100,000. This kind of pissed me off. Rather big time. I growled that the system needed to be fixed and Volker's regime re-instated. Instead, the opposite happened. All the red ink systems were reinforced and the changes made were all aimed at keeping this goofy and dangerous status quo going. The collapse of the Japanese systems should have alerted us to the idea that the New World Order system caused dangerous speculative bubbles and we should beware of this.

Indeed, the people who set up the present horrible system solemnly swore, they would prevent all future bubbles. Right. In hell, of course. Just this month, on the heels of one of the worst banking collapses I have ever seen, the new systems were activiated. We know the recent bout of Fed check kiting is inflationary because the stock markets took off instantly. The new system FORCES BUBBLES. Note the second chart here! The Fed tried to save the Conneticut hedge fund and look at how it created a GDP spike! The drop from the top of the spike to the recession was very swift. And to fix this, the Fed made another spike! And this one had NO fundamental health-basis. This was during a war! And the US had been attacked. And a huge hurricane ravaged our oil and gas fields in the Gulf and destroyed a major city. Our GDP rose because we were spending like fiends. Writing ourselves many checks.

From the NY Post:

DID Federal Reserve Chairman Ben Bernanke give away any secrets to Treasury Secretary Hank Paulson when the two had an hour-long lunch on Aug. 16?

And did Paulson share what he and Bernanke discussed with anyone in the hours immediately after that lunch?
Those are two key questions that the Securities & Exchange Commission needs to address if the integrity of the financial markets is to be protected.

Those points are particularly pertinent because Paulson has confessed that he "talks regularly to market participants," the kind of folks who could profit handsomely from the slightest hint as to what the chairman of the Fed is thinking.

Arrest Paulson. Arrest Bernanke. Arrest Goldman Sachs executives. Send them to China. I watched that happen. Readers here know I was thoroughly enraged as I watched stocks soar that day, right at the very end of the day when they learned that Santa Claus was going to rev up that helicopter.

NY Post:

The only explanation at the time for the final-hour rally was a rumor that the Federal Reserve was going to "hold a press conference." The next day newspapers said the stock move was puzzling.

The Fed never holds press conferences and there weren't any on Aug. 16.

But Bernanke and his colleagues at the Fed did enact a surprise reduction in the so-called discount rate the next morning, on Friday, Aug. 17, sending stock prices sharply higher.

Exactly one month after the carry trade crisis happened. This was when the yen suddenly rose in value despite attempts of the Bank of Japan to keep it going. US and Japanese interest rates hadn't changed. This was a FOREX markets deal. Someone who speaks Chinese was suddenly buying yens and selling dollars. HAHAHA. Sigh. And the Iran Kitty was demanding yens, not dollars.

Bernanke, the MINUTE he saw the stock market shoot up 500 pts with NO GOOD NEWS, he should have put 2+2 together and said, 'Oh my god, Paulson ran off and called his friends on the cell phone and alerted them that I am planning a huge check kiting scheme tomorrow morning!' He then should have gone to the press conference and said, 'I am asking the SEC and the FBI to investigate Paulson and Goldman Sachs to see of they are guilty of insider trading. And I am going to NOT cut more checks. The government feels there is too much money in the system and we need to attract savers, not speculators.' This would have had me cheering and our system would have troubles but we would be SAVED from certain DOOM.

But no. He is now part of the conspiracy. He needs to be arrested and water boarded and then put in Padilla's cell. We should put Paulson in a cell at Gitmo. Along with Cheney and Bush.

Here is another chart from Dark Wraith, a very amusing economic blog run by a young and funny professor:

The savings rate has collapsed! EHHHHHH!!!! Throw granny under the wheels of the speculator's train! Blood is all over the tracks. And this is red ink, everyone. Red! Red! And thank you, Dark Wraith, for using a moniker from the Outer Darkness. Very suitable. You should start a hedge fund with such an adorable name.

From the NY Post:

Ellington Capital Management, the country's largest mortgage-backed securities hedge fund, sent a letter to investors notifying them that redemptions and withdrawals in two of its funds would be suspended because of a sharp decline in the liquidity of certain mortgage- and asset-backed markets.

The Old Greenwich, Conn.-based hedge fund, which has $5.2 billion in assets, is considered a bellwether for measuring the health of the mortgage-backed securities market.
*snip*
The letter emphasizes that the redemption suspension was not a function of losses or investor withdrawals. The two funds, according to the letter, have a minimal amount of withdrawal requests and any that came in easily could have been handled out of available cash.

More bones in the hell caves! No one was withdrawing funds and the funds aren't in danger but they won't let anyone withdraw funds because everything is OK, got it? Lying is life and death for these guys. Like politicians, as they pick one's pockets, they have to convince us, they are protecting us. This is why the US is now drenched in red ink. Saving these clowns consumes the Fed who, in turn, consumes us as they bleed us dry via inflation.

From the Washington Post:

Economists have been predicting that consumers would slow their spending but that the damage would be cushioned as U.S. businesses sold more products abroad. Yesterday, there was evidence that both are starting to happen.

The U.S. trade deficit fell to $57.6 billion in August, and major retailers' sales at stores open at least a year rose a meager 1.7 percent in September from a year earlier, two reports said yesterday.

World trade is contracting but intra-Asia and intra-Arab trade is growing. I hope the news carries this information but they won't, of course. Too much reality. I have proof that world trade in these areas are growing.

From the Telegraph:

The cost of shipping raw materials such as iron ore and coal has soared to a new record as the economic boom in developing economies like China sucks in natural resources to fuel their breakneck industrialisation.

Yesterday, the benchmark Baltic Dry Freight Index, which tracks daily charter rates for dry bulk ships, broke through 10,000 for the first time, closing at 10,218. It is 150pc higher than a year ago and has almost doubled since June. David Bradley, head of dry freight markets at the Baltic Exchange, said: “The global economy is very strong and demand for ships is huge. With 90pc of all bulk trade carried by sea, the index is a very good indicator of the strength of the global economy”.

Shipping costs fall if trade is falling. Ergo: it is growing. And the price of raw materials and energy used by China are climbing, not falling. Will the Fed figure out the schemes they hatched over the years are making China who is using the OLD BANKING RULES AND METHODS, stronger? I will stir my pot of newt and unicorn hairs to see what emerges....

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Comments

[Stirling Dingleberry]

More tiresome left wingnut rantings. Please retire and move into a nursing home.

[DeVaul]

Why don't you just let go and drop into the toilet where you belong, Dingleberry?

[Dark Wraith]

Good evening.

I felt my ears burning, so I decided to wander over here to see what was going on.

Most excellent: good layout of salient aspects of the current situation regarding the economy; but I should caution that, although the economy seems to be headed for a recession within the next four quarters or so, that looming prospect is the least of our problems.

The Federal Open Market Committee—inspirationally led, of course, by the thunderingly mediocre but loyal as a dog Mr. Bernanke—had to make a choice a couple weeks ago: on the one hand, the members could hold to an ostensibly (not really, but at least ostensibly) tight monetary policy, thereby allowing the secondary market debt crisis to expand and finally perhaps reveal the deep crisis in the overall domestic credit markets; or they could back off the tight monetary policy and simply pour liquidity into the market, thereby putting off a recession for a few quarters at the high risk of roaring inflation down the road.

Those bulwarks of monetary policy integrity chose the road least likely to invite a pitchforks-and-torches barbecue fest.

The good news is that this means the economic version of B-movie apocalypse is thereby avoided for the time being.

The bad news is that, when it finally does hit, the fan will be meeting its love interest sometime in the middle of the first (and probably only) administration of the next President of these United States of America.

Trying to explain to the American people that the catastrophic perfect storm of spiraling inflation, enormous out-year spending obligations, and foreign capital markets no longer very interested in buying our new-issue Treasury paper is going to be the equivalent of explaining calculus to a gorilla.

(I can attest to the difficulty of doing that, considering my job every day is worse: I teach students who've come from American secondary education.)

Back on point, in other words, the gallows so richly deserved by the assortment of debt-doesn't-matter neo-conservatives, Rapture-will-save us fundamentalists, and garden-variety opportunists now holding the reins of power in Washington will swing empty because the deserving necks will be long gone to the lecture circuit, K Street, think tanks, and academia when the fiscal fun flies.

That will, of course, leave whoever is President to look around and say (in the most reassuring tone, of course), "This job can bite me."

That won't stop the economic catastrophe from proceeding unabated, but it will certainly encourage a more business-casual environment at the regularly scheduled Cabinet meetings.

The Dark Wraith has digressed sufficiently for one evening.

[Elaine Meinel Supkis]

At last, I have found the perfect person for rummaging around in the various dark caves of hedge fund hell hounds, the perfect person to sail off to the pirate coves of Queen Elizabeth's many tiny islands to shoot cannonades at those liquid-loving financial plank walking tax cheating LLPs! And someone capable of throwing spells back in the face of financial wizards waving their wands and selling bonds back to themselves in order to make money appear out of thin air!

The Dark Wraith's wrath awaits the rising of the gibbous moon to reveal itself!

And then there is the Furies and the Fates: they have messengers, the Watchers who are vultures and who see the future.

Will we avoid the future? Will hubris fade and flowers bloom?

Enough with my birthday message.

[blues]

I remember way back when Ronald Reagan first started running. I was at this entertainment-oriented bar in the middle of Western Connecticut, which is the middle of nowhere. (Just one multi-millionaire every mile or so are there, and a few exotic restaurants.) The crowd of about 200 were mostly in the 20 to 30 age group. I was shocked when a band climbed onto the stage and asked how many liked Reagan. Every arm but mine went up. Only my arm went up when they asked if we wanted Carter. It was surreal. Why would all these young people want Reagan?

A lot of other things were happening at the time. I knew various con artists. The were all very different; con artists seem to be extravagantly individualistic; one was a sort of on-the-edge-almost con artist who worked like a demon to be a raving hipster. Now, the thing that all my con artist friends agreed on was that Reagan would bring fascism. No ifs, ands, or buts. These con artists never seemed to lay hold of much money, but they were not about to get conned themselves. These folks don't give much of a damn, but they seem to know everything.

So what has the Reagan Revolution come to? Well the thugs took huge helpings of the worker's paychecks, and essentially forked it over to the super rich. But a lot of what Elaine writes about here is the other things they have done. They have largely eliminated what I have called the Aggregate Productivity System (APS), which is very roughly "industry." "Industry" is a very strange word, almost beyond definition. You almost cannot define the APS. For example, is a setup with some guy flipping burgers a part of it? I don't know. Artists and musicians seem to be in the APS. But lawyers, accountants, and PR consultants are not. The "productivity" part means there has to be an actual physical product. I would contend that the worst crime of the Reaganite thugs was the sale of most of the APS (which we basically need for our very survival) to foreign interests.

A third thing the neocon Reaganite thugs have done, rather obviously in pursuit of fast-buck pleasure, involves the gutting of the laws and rules protecting our ridiculously complicated financial "machine." As Elaine has demonstrated, the thing is so ridiculously complicated that the public has virtually no idea of what has been done to it. There is no easy way to explain it all, apparently. However, one way to do it is to go the Alex Jones Duct Tape route, which, while a tad kitschy, is astoundingly effective. Jones has this giant, world-enveloping conspiracy theory. It involves things like giant bulldozers lying in wait at the border, ready to smash their way through the very heart of the nation. He envisions a North American Union (NAU) that will weld Mexico, the U.S., and Canada into one huge totalitarian hell. The U.S. dollar will be murdered, only to be replaced by the new NAU "Amero." Jones' Duct Tape narrative, while not up to handling the subtlety of Elaine's analysis, has achieved a surprisingly strong following among common people.

The smart-ass youth were played. The con artists saw the big trick coming with crystal clarity. It might even pay to get to know a few con artists. (They are not, in any straightforward sense, "nice" people, but they generally know the score.)

[Elaine Meinel Supkis]

Thanks, Blues. You are correct. It is so funny, the Amero makes nearly no news and then former President Fox of Mexico says outright, twice, that the Amero is the future Neue Deutsche Rentenmark.

This is when Germany simply made up a new money form based on FUTURE RENTS in Germany in 1923. Then Hilter decided to not pay the rent at all and we had WWII.

[Al]

Blues, I too was astounded at the time to see widespread support for Reagan among the young people. I remember commenting to friends how young people used to rebel, now they mindlessly buy into the power structure. And they celebrated it. No shame at all.

Dark Wraith, nice post except you shouldn't talk smack about gorillas :)

[Dark Wraith]

Good evening, Al.

I could have used neo-cons as exemplary of diminished higher learning abilities, but that seemed too much like gilding the lily(-livered).

I've been thinking of raising money for a neo-con wildlife preserve. Nothing terribly fancy, just a native-environment type of deal. I could have game rooms where they could play Age of Empires and pretend they're actually warriors instead of chicken-hearted draft dodgers and champagne squadron fly-boys.

The feeding area is my greatest triumph. Visitors could watch every day as the neo-cons line up to run to the trough at the AIPAC Financial Nourishment Center. Minor obstacles could make the trip more exciting: maybe a Judith Miller/Scooter Libby "Avoid Registration as a Foreign Agent" climbing wall would be cool.

I'm not sure about the breeding area, though. Research indicates that in-species copulation (instead of screwing the universe) is so rare that we'd probably have to put up infra-red cameras to catch them in flagrante delicto, but the sight of that would be well worth the expense... unless, of course, we have to throw in the cost of that Karl Rove Metro Bar and Baptist Reading Room, too. That would be expensive, what with the cost of the Ann Coulter look-alike bouncers.

Where was I? Oh, yes: the neo-con wildlife preserve. I think it's an idea we should all consider. A soon-to-be vanishing breed could go to extinction without our help. If the last of the neo-cons disappears, we'll be left with only one option: DNA extraction and cloning.

That could get downright nasty. It's better if we keep 'em alive... in small numbers, of course. Someday, children will want to see what kind of animals walked the halls of Washington DC and left all those giant, fossilized messes for the next generation to clean up.

The Dark Wraith reaches for the scooper.

[Katya]

I gotta say that I find the Duct Tape narrative pretty believable. One of two qualms I have about pulling up stakes and relocating to Canada.

That said I wasn't voting age when Reagan entered office, but I remember that they held a mock vote at my elementary school and Reagan won. I do remember the press dogging Carter about the Iran hostage crisis.

My grandpa despised Reagan. He saw how it was, knew the score. I miss him. He passed the summer before 9/11 and we all felt that is was a sort of blessing that he missed that.

I didn't get at the time how justified he was in his wrath. Thanks grandpa. I would have less of a clue if it hadn't been for you.

[DeVaul]

Dark Wraith, you are hilarious! I love reading your posts. I hope you post here more often.

I know all too well the "gorrilla-like" (sorry Greenpeace!) intelligence level of American college students (and their parents). It is truly amazing.

[Dark Wraith]

The Dark Wraith shall, by the grace of God, Richard Cheney, and decent coffee drinks at attractive prices, return in cameo roles...

...unless, of course, all that paranoid talk about bloggers getting the Rendition Red-Eye isn't paranoid talk after all, in which case my return may be delayed because of long-term in-house counseling sessions conducted by "Dr. Omar" and his electric light clinic, complete as it is with attractive, non-conductive upholstery and a rather kicky theme music background compliments of the Death Metal/Polka fusion group, "Leg Cramp at 50,000 Joules."

I need sleep.

The Dark Wraith will be back at some point.

[Elaine Meinel Supkis]

And visit his web page! A great fun time there!

And the Zoo: it already exists. We call it the Washington, DC Zoo. The top draw there is the Chinese Panda. It owns the Zoo.

[sunny]

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[Elaine Meinel Supkis]

You should pay me for any ad space, Sunny.

[DeVaul]

My first tactic would be to fire you, Sunny Boy.

[John]

Don't charge "Sunny" - just delete it. What is it they say, "terminate with extreme prejudice"? I'm all in favor of cruel and unusual punishment for spammers.

I like the Dark Wraith too, although he dogs on Ron Paul, and for the life of me, I can't see another person running who is fit to hold the office. Thompson? Riiiiight - like he isn't simply going to keep the Cheney/Rove/Bush machine running as it is now. Anyone who wants to dismantle the Fed is okay in my book, but then, I'm a long-time Fleckenstein reader; one must make of that what they will.

Mr. Wraith also somehow seems to think that ol' "Poppy" isn't in on the Neo-con crapola. I believe the expression I'm looking for is "not bloody likely."

Between Clinton and Carter we have both a China and a North Korea with a lot more nuclear hardware than they would otherwise have had--and I'm not talking RadarRanges, here. This is not for to making of the happiness.

Still, Mr. Wraith does say a lot of other stuff that I do find reasonable, he being of a similar "both sides SUCK" mindset, overall. All in all, a good find, O Learned Blogging Goddess.

[Elaine Meinel Supkis]

Correct, John.

But the loss of US power started with the loss of the Vietnam war and our brush with bankruptcy. We have paid for everything by going steeply into debt since then. No empire going into debt has kept any power at all. Note how little people in Iraq are rapidly bankrupting our red ink empire.