Calling A Spade A Spoon

2/22/2008

Elaine Meinel Supkis

Happy harmonic number day! It is snowing like crazy here. I just came back from New York City. Today, we examine the goofs who write for the New York Times and examine how they are utterly unable to understand either history or finance. I use NYT articles from 100 years ago to reveal how today is very much like 1900 in terrifying ways. Namely, England was going through, back then, what we are going through now! The collapse of the British Empire began in earnest only 14 years later. And China chides us about interest rates and reserve ratios. It looks more and more like they will pull the rug out from under us sooner rather than later. And Kosovo: talk about trying to do a repeat of WWI exactly 100 years later! Pure insanity.

When Bankers Fear to Act

In part, that may reflect the slow realization of what is at stake. For many months, we called it the subprime mortgage crisis, because that was where the problem first became apparent. But that label is far too narrow, and serves to obscure what is at stake.

“Rather ominously, borrowing costs for even the most creditworthy of firms have started to rise,” said Paul Ashworth, an economist with Capital Economics in London. Homeowners who can still get mortgages have seen rates rise in recent weeks, and banks say they are tightening their standards for both credit cards and commercial real estate loans.

“The principal cause for concern today is the paralysis of the credit markets,” Martin Feldstein, a Harvard economist and an adviser to President Ronald Reagan, wrote in The Wall Street Journal this week. “The collapse of confidence in credit markets is now preventing that necessary extension of credit. The decline of credit creation includes not only the banks but also the bond markets, hedge funds, insurance companies and mutual funds. Securitization, leveraged buyouts and credit insurance have also atrophied.

Again and again, I see the same thinking process. This comes from viewing things in one direction only. The focus since day one has been on credit: how cheap can it be? How much can we get? Can we get more? Why can't credit be cheap and infinite? How can we regain the happy days of easy credit? Of course, at no point in time must one mention that forlorn word, 'savings'. We hear endless discussions on how to gain easy credit and worries that this will, of course, cause rampant inflation but the cure is never mentioned. The need to increase savings is hidden from view. The magicians playing with our heads all know perfectly well that banking and lending can exist only on a foundation of savings. They have managed to downplay this increasingly by making up all sorts of funny fairy tales. For example: we need only 10% savings as a reserve in order to lend. This story is hilarious since time and again, it has been proven false. Only at the beginning of a spending/lending cycle can a 10% basis in savings work. The split second this cycle ends and they ALL end, the 10% savings basis COLLAPSES. Totally. There is no way that 10% can protect ANY banking system from collapse!

So the bankers came up with a new fairy tale: Little Miss Muffet still doesn't have to hold more than 10% in her bowl of porridge just in case a nasty spider comes visiting, she just has to prevent the spider from visiting! So she sits on her tuffet--whatever that is---and she will simply not be a greedy little girl and eat too much but will go on a voluntary diet! Yes! That is the trick. She will refuse to gorge!

Well, Miss Muffet always ends up weighing 350 pounds and then a big fat tarantula comes waddling over and kills Miss Muffet. She is replaced with a new Miss Krumpet and the bodies of millions of dead humans are carted away and the new ruler of the tuffet. The very first thing the new banker always says is, 'I will NOT yield to temptation and eat ALL the porridge. I will voluntarily control my greed and be a safe, sane banker. I do not want another bubble/panic/depression leading to a world war. Thank you.'

But after a few years of honest care and consideration the same thing happens. Like clockwork. The 1907 business is typical. Far from fixing anything, the global bubble/panic/depression of 1907 led to WWI. I would say that this means it was a failure. First, it triggered some wars right off the bat. Just before this panic, Russia nearly had a revolution, one that foreshadowed the 1917 revolution. Russia and Japan went to war in 1905 which Japan won. Then Russia and Japan cooperated in kicking the US out of Manchuria. The table was being set for WWI. The fact that the US was increasingly vulnerable to fluctuations in international trade is often overlooked when people talk about panics. Note that the NYT article today completely ignores this, too. But international politics and trade are always at the bottom of all panics and collapses!

European roots for the panic of 1907:

Why would a panic happen? One answer that is really not of much help is that all depositors suddenly became so concerned about the solvency or liquidity of their bank that they decided they would rather hold cash than deposits (Diamond and Dybvig 1983; Jacklin and Bhattacharya 1988). (Solvency refers to the relationship between assets and liabilities; an insolvent bank has liabilities greater than its assets. Liquidity refers to the ease with which assets can be converted to cash without loss of value; liquid assets are close to cash or have a market in which they can be easily and quickly sold.) Whatever the deeper psychological reasons might be, it is not hard to identify some immediate shocks to depositor confidence that sparked the Panic of 1907. Such a shock occurred on October 16, 1907, when F. Augustus Heinze's scheme to corner the stock of United Copper Company failed. Although United Copper was only a moderately important firm, the collapse of Heinze's scheme, exposed an intricate network of interlocking directorates across banks, brokerage houses, and trust companies in New York City. Contemporary observers like O.M.W. Sprague (1910) believed that the discovery of the close associations between bankers and stockbrokers seriously raised the anxiety of already nervous depositors.
*snip*
Under more normal financial conditions, the discovery of a scheme like Heinze's might not have sparked a panic, but conditions were not normal in the Fall of 1907. The economy had been slowing, the stock market had been in decline since early 1907, and the supply of credit had been contracting causing rising interest rates. Tight credit markets in Europe, particularly in England where the Bank of England had been raising its bank rate since December 1906, have been implicated in setting an especially precarious financial stage in 1907. Therefore, the normal seasonal inflows of foreign gold were not happening in 1907 as European interest rates rose. Because there was no central bank or reliable lender of last resort during the National Banking Era, there was no reliable way to expand the money supply in the United States.

Why were depositors 'nervous'? Interest rates were rising in Europe which means Miss Muffet in London was nervous about the big, fat German spider and decided to strengthen the pound. You see, the German spider was eating Miss Muffet's reserves. Money was flowing from England to Germany! And feeding this dangerous spider. The greedy imperialists in England wanted to kill the spider while still eating their porridge themselves! This led to a destabilized banking system.

Time to read a real news paper article from 1900: OUR LONDON CABLE.; DELUGE OF CREDITS RELEASED Week-to-Week Money Easy at 2 1/2 Per Cent. -- Divergence Between Money and Discount Rates -- The Gold Bogy and Prospect of Withdrawals -- Indian Gold.

This story if from October 8, 1900. Does this resemble today's headlines? OF COURSE. The fantasies of gold hoarders that driving up the price of gold due to speculation and hedging will save them is pure nonsense. World Wars are global. The masses of humans trying to flee the messes that evolve into greater and greater messes shows us clearly that flight may work in the past, barely, but in the future, this is quite unlikely. Far from finding places to flee, there are none at all unless one plans to live with penguins. Here we are: a mirror of 100 years ago! The same forces at work doing the exact same things! This is why it pays not to just read history but read the news from various time periods. What we learn from this is, NOTHING EVER CHANGES! There is no quick solution or easy trick one can use when Miss Muffet gets too fat and can't deal with a gigantic spider. If the spider of 1900 was big, the one of 1930 was much bigger. And the present spider is so huge, it cuts off the sun itself! The spider is 'hidden pools of risky schemes going bankrupt.'

And we have that in spades. And Miss Muffet's spoon can deal with this monster. The difference between 1900 and 2000 is simple: Miss Muffet, aka, the British Royals, were on the tuffet back then. Today, they are sitting on the US tuffet! And England, once the creditor nation of the world, was rapidly sinking into debtor empire status in 1900. So with the US. We are following the English trajectory nearly exactly! And just like back then, Germany and Japan both were flexing their muscles. Note how both nations flex their muscles every cycle! This, too, isn't accidental. In 1900, Germany, Japan, Russia, England, France and the US were working hard to put China in their collective yokes and the battles over this helped ignite WWI and WWII. The Chinese are very, very, VERY aware of this history. They are utterly fascinated by this history. I assure everyone, I know this first hand. The training of the former Maoist history teaching fell swiftly to modern thinking in China. But this mess launched Mao.

What a time for the US, Germany, England and France to open up the Balkans charnel house! This spooky place just CRAWLS with poisonous black widow spiders! Why on earth did we collectively fling NATO and ourselves this week into the pit in that outhouse from hell? Can we send Prince Charles there to be assassinated? This time, instead of England, Russia and France on one side, it is Russia and China against Europe and the US. I will note here that Turkey supported this move in Kosovo and typical tit for tat, the US is letting Turkey invade Iraq from the north! To kill Kurds. Kurds are one of the more durable groups of guerrillas along with the Irish or the Basque: they never give up. If I were setting a table for WWIII, it would feature settings like the ones we are presently arranging. Always, my main fear is this looming war and all my heart is devoted to stopping it. This is why I talk about money so much. For I have to make people understand the underpinnings of world wars. They are most decidedly financial!

Before WWI, most people were dead set against wars. The Internationale was growing greater and the cross-border political activity was growing, not diminishing. Just like before WWII when even the German people didn't want more wars, they got it. Why is this?

As Goebbels famously noted, any population can be herded into the charnel house in a panic. As the present rulers of American know well, the US was 60% against Bush and his gang until they managed to help Atta and his gang attack us. We are still in that matrix, by the way: the WWIII matrix. Obviously, Bush and his gang viewed 9/11 as a most excellent spending and looting opportunity.

Back to the New York Times article:

It is not clear what the Fed or the Treasury could, or should, do now. The players can no longer be gathered into a single room, and they are regulated in different countries around the world, if they are regulated at all. Things are far more difficult because many of these markets are unregulated, making it difficult to gauge who is at risk and for how much.

But it is hard to see this ending until something is done to, in Mr. Feldstein’s words, assure “that necessary extension of credit.” Lowering interest rates will not, by itself, do that so long as the banks and investors are too scared to lend money at any rate.

In their book on the Panic of 1907, published last year before the crisis began, Mr. Bruner and Mr. Carr hailed Morgan’s actions, as well as the Fed’s 1998 move to salvage the hedge fund. But they warned, presciently as it turned out, that the current environment might hamper similar efforts in a new crisis.

“In a globally complex financial system, will such collective action be possible if the crisis is triggered beyond the reach of any of today’s regulators?” they asked.

So far, it appears the answer is no.

The financial system is unregulated because the ruling elites who want to meet AGAIN in some back room or on Jekyll Island, to come up with a 'solution' that gets themselves richer and drives us into a world war! They have NO INTENTION of fixing things so we do well. They WANT US TO GO DEEPER INTO DEBT......TO THEM!!!!! This is why there is 100% focus on 'liquidity' and 'credit' and zero attention paid to savings and sanity! Going deeper into debt isn't an option for all of us, collectively and in many cases, individually. They lure us into hell by saying, 'Credit=wealth'. But I say, the real words, stripped of their magic, are really, 'Debt=DEATH.' And my big theme here, how wealth is in the Cave of Death, and the accounting for debts is done at the Gates of Death continues! So long as this ancient truth is ignored or laughed at, 10,000 years of knowledge cannot be brushed off so easily! No.

We need debt to grow and do business. But too much debt leads to the inevitable bubble/panic/depression episodes. The downside is alway wars. Our solution to our present over-indebtedness was the Iraq invasion. But being weak and not strong, it simply showed all our rivals how weak we are just as the Boer War 100 years ago showed Germany how weak England was. Time to visit both Germany and China in today's news to see what is going on here.

German State-Owned Banks on Verge of Collapse

The German government has had to bail out state-owned banks with taxpayers' money after their managements recklessly gambled away billions on subprime investments. But if a state-owned bank were to go under, the consequences could be disastrous for the whole economy.
*snip*
Ortseifen and Matthäus-Maier are perfect examples of the fatal mix of amateurism, greed and political protection that is symptomatic for many of Germany's state-owned, partially state-owned and public sector banks. It is an environment that can only thrive in the shadow of the state -- and that has drained more than €20 billion from the public treasury within the last decade.

This is not the major banks of Germany like Deutsche Bank. Deutsche Bank is in serious trouble for the exact same reasons all the other G7 banks are in trouble. Everyone, instead of using savings as a fundamental basis for banking, used debts piled on debts! Their 'assets' were slowly turned into 'loans from other banks, especially ones where everyone speaks Japanese.' These LOANS were considered to be the same as savings because they were put on the books as an amount of money held. So loans were backing loans which were backed by derivatives that were also all based on loans from the monoliners and the ABXers and the SIVers and other 'ers' that littered the financial landscape. But all of these were based on the fiction that the Japanese, struggling in a multi-generational depression that features full employment, inflation and 3.5% growth, HAHAHA....yes, this fake depression was the 'savings'. Only Japan's government is the most, per capita, debt holder on earth! And on top of that, the vast bulk of the 'savings' in Japan are nearly a trillion in US government bonds and another trillion in dollars. But this money isn't really savings at all since they are the ONLY basis for the flood of free money flowing like mad around the world causing massive global inflation and bubbles!

The legendary Germans and the even more mythological Swiss gnomes that used to be very careful with money has been replaced with a bunch of fat Miss Muffets. And this is why finding a refuge in a banking collapse is impossible: these things always travel around the world in the best of times. But when major empires trigger this sort of mess, it engulfs all of humanity from the lowliest to the highest.

Der Spiegel:

Anyone who is not responsible for bearing the consequences of the risks he or she takes can easily turn into a gambler. And the bets kept increasing in recent years, getting more and more public-sector banks into financial hot water. Now the banks find themselves lacking the assets they need to weather the turmoil of an international financial crisis.

And what are these 'assets'? Loans! And if no one pays, the loan turns into the opposite. Snow White becomes the Wicked Witch. The bride becomes a bear. There were no unencumbered assets! In the past, in the old days, when one got a mortgage, one paid it off. Businesses tried to stay out of long term debt. Short term debt was OK but not 50 deals. Those lead to a collapse in the long run. In the last 7 years, people didn't pay off their mortgages, they piled on more and more debts. So any turn around, no matter how tiny, turns into a rout. There are no savings within the assets of the banks which are these loans since everyone has kept themselves at maximum debt levels! This irresponsible lending is what is at fault and more of the same will make this worse, not better.

WE WON THE FIGHT!

The U.S. Department of Commerce’s Economics and Statistics Administration (ESA) has decided to continue the economicindicators.gov website. Featuring the economic releases from ESA’s Census Bureau and Bureau of Economic Analysis (BEA), the site was started by this Administration in 2002 to give greater awareness to these economic statistics. ESA initially planned to discontinue the service due to cost concerns but given the feedback ESA received, the decision has been made to continue the site and improve its functionality.

A popular feature of the site is the calendar that links directly to economic indicators on the Census and BEA websites. By continuing the Economic Indicators (EI) site, the fifteen major indicators released by those bureaus will still be listed, along with links to the full text of each release. EI’s information will continue to be provided free of charge.

Many users also subscribe to the site and have economic indicators and the full releases emailed to them. There are a number of technical challenges with this aspect of the EI site – the service often backs up and fails because of bandwidth issues, releases sometimes take hours to reach subscribers, and some subscribers receive multiple copies of the releases while others get none at all. The cost of maintaining the site is almost entirely attributable to operating this feature.

To address these concerns we will redesign the subscription feature of economicindicators.gov. The new system, which will remain free of charge, will email an abstract and link so that users can access the full release on the source website. We believe the cost of rewriting the system will, in the long-run, be less than continuing to run the existing system. The new subscription service will be operational in the next few months.

NOW: can we get those creeps in the Federal Reserve to cough up the M3 data again? It is amusing to see this retreat from wiping out vital information. But the Fed seems to have an open door only to clowns like 'Blood in the streets!!!' Cramer, not myself or others who are sort of saner. I bet the people running this government web page are relieved. There may be drones within the government such as the Pentagon, who should be removed. But the army of number crunchers and analysts within the government are not drones, they are the worker bees. We need them and I thank them for the unsung heroic work they do. I am so happy we won this fight for them. It looks as if they are getting more funds rather than being defunded! Hooray! Happy days. See what happens when we fight back? Onwards! We must celebrate every victory, no matter how small. I will cheer and run in a very tiny circle around my swivel chair. There. Done. Onwards to China:

China to Use Yuan, Interest Rates to Tame Inflation

China's central bank said it will make the yuan more flexible and use interest rates to curb inflation that's projected to remain ``high'' in the first half of 2008.

The yuan's appreciation is helping to temper import prices while exporters have shown ``higher-than-expected'' tolerance to a stronger currency, the People's Bank of China said in a report today. It didn't give a forecast for inflation, which reached an 11-year high of 7.1 percent in January.

The yuan completed its biggest weekly gain this year and has risen 16 percent since the end of a fixed dollar link in 2005, as the government tries to prevent the world's fastest-growing major economy from overheating. China's economy grew 11.4 percent last year, the fastest pace in 13 years.

``The central bank needs to achieve a balance between growth and inflation,'' said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong. ``The best way to curb inflation is to appreciate the currency faster and reduce import costs.''

HAHAHA. I love Gong. He pokes at Miss Muffet with his chop sticks. 'See that fly? Watch,' he says gravely. He then snags it with the chopsticks before it can land on the bowl of porridge. Then he turns around and feeds the fly to the huge spider crouching in the corner, glaring at Miss Muffet with six eyes. Note how sweet the Dragon is to tell us what to do and why, in simple language. I hope the NYT and the Fed gets his message. I would suggest tying it to a rock and throwing it through the Fed Reserve's windows only they have no windows. The Fed buildings have more in common with the Skull and Bones crypt at Yale. They are caves of death.

China doesn't want to pay a fortune for things. They want things cheap. They are like me. They also want value. So they want perfection? At least their leaders aren't trying to be Miss Muffets. The Chinese keep trying to please everyone but they are getting restive now. I see them taking off. The Day of Doom when the Dollar Dies is nearly here. All we have to do is irritate them some more. And looking at the Kosovo situation, I would not be very shocked if Bush and his gang do exactly that. Then they can blame China for our problems. Then people will turn their rage to Goebbel's theory about wars. Pushed into combat by the fiends causing our woes.

You know, we could imitate both China and Japan. Barriers and expanding export markets is all great fun. And to do this, you need savings. So we have to first save money which means no more debts. This means the government can't hand out $200 billion in a scheme to boost the buying of Asian products. That is a total no-go. Note how China is using traditional methods, not this 'more liquidity' business.

Chinese Mills Reject Rio's Ore Price Push, People Say

Chinese steelmakers, the largest buyers of iron ore, will reject Rio Tinto Group's demand for a minimum 71 percent price increase in an attempt to slow accelerating costs for raw materials, two people familiar with the negotiations said.

The mills want to pay no more than a 65 percent extra for ore from London-based Rio's mines in Australia, said the people, who declined to be identified because the talks are confidential.

Irritation with global speculation caused by this flood of easy loans is a rising concern to China. They want and need to push us into debt and for us to be stupid, stupid cows are easier to kill than smart kine. But they are increasingly furious at the tsunami of red ink pouring out of Japan. And I sense them moving towards locking out both the US and Japan and turning their attention elsewhere. This will be fatal to our economy as it is set up to be very dependent on Chinese labor and sales. And they have the most savings on earth.

Demand for gold up by 26 per cent as China becomes second-biggest market

With the start of the Year of the Rat, Chinese have been forming queues across the country to buy solid gold rodents. Last year they queued to buy solid gold pigs. The surging desire for the precious metal from increasingly well-off Chinese fuelled a 26 per cent increase in demand in 2007.

The soaring price of gold, which hit a record $948.60 an ounce yesterday, has failed to dim the Chinese rush. China's demand climbed to 326.1 tonnes, supplanting the United States as the world's second-largest gold consumer and exceeded only by India.

Of the total, 302.2 tonnes were bought for jewellery, the World Gold Council said, marking the first time that jewellery demand in China had exceeded the 300-tonne mark.

Because the G7 are moving heaven and earth to keep the Japanese carry trade, rising US debts and dying dollar/dying yen going, the price of gold will, along with oil, climb. The pause last month due to Indians selling gold, is now being overwhelmed by the news about the Fed dropping rates to the cellar. If the Fed is determined and I now think they are insane enough to do this, determined to drive rates to the cellar, the sky is now the limit for gold.

But do note where it is going: China. And it is being used mostly for trinkets and jewelry. Only 23.9 tons of this gold is being used for non-magical purposes. I have Chinese in my family. The culture has a long history of understanding how mud, caves and wealth all work. This is why these little golden gods are purchased. To bring good luck in business and finance! It is like insurance. Not to be used as money but to attract the gods of wealth and to bring out the Money Toad. He is not the Spider. He is the little dwarf creature who lives in the Cave with the Dragon who sits on a hoard of wealth.

The astrological meaning of all this is highly important to many people who instinctually sense that human knowledge, religion and wealth are all connected with understanding the Gods and the way to do that is to understand the stars. And this means the Zodiac. The band of constellations that the sun, moon and planets all travel on, the celestial plane of our solar system, this is the road we walk in life. As the granddaughter and daughter of astronomers, I love this sense of being. I am glad humans try to triangulate with the heavens in this fashion. I love the Chinese Zodiac as I admire and praise the Egyptian/Ur Zodiac that was formulated thousands and thousands of years ago.

And gold is bound in all this. Not as an investment but as a bridge to the gods. This is why the majority of it ends up in the hands of the religious leaders in any culture. The golden palaces of the gods dot the earth.

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Comments

[Koshka]

Tuffet , pouffe or hassock are all terms for a piece of furniture used as a footstool or low seat. It is distinguished from a stool by being completely covered in fabric so that no legs are visible. ...
en.wikipedia.org/wiki/Tuffet

[Chris]

http://www.youtube.com/watch?v=8LBPiuq6EMU

This sketch is completely insane.

What is even more insane is that reality trumps insane sketches. I cannot but help thinking that banks were happy to give money to deadbeats like this... (if only they had sent that letter...)

[Suusi M-B]

We had this interesting program about the current banking crisis.

How The Banks Bet Your Money

http://www.channel4.com/news/articles/dispatches/how+the+banks+bet+your+money/1563152

[GK]

Elaine, your thinking and writing is exquisite. I am fascinated as well between the parallels between the US and UK 100 years ago.

The following 2 videos tie together the patterns back 3000 years. Incredible.

AMEN. In GOD we trust. ;-)

Part I
http://video.google.com/videoplay?docid=8250619454941053618

Part II
http://video.google.com/videoplay?docid=-1158343264447729869

(or search 'Ring of Power Amenstop' in google video.)

[JSmith]

"The astrological meaning of all this is highly important to many people who instinctually sense that human knowledge, religion and wealth are all connected with understanding the Gods and the way to do that is to understand the stars."

One fails to understand how the cyclic movement of luminous balls of gas thousands of lightyears away has any influence over the daily existence of carbon-based lifeforms on a smallish plant in a backwater neighborhood of a nondescript spiral galaxy. Why, you may as well throw the I Ching!

[Elaine Meinel Supkis]

The IChing throwers are beating out the chartists. Look, everyone likes to follow some mystical systems. Chart guys like to imagine there is this future sight via examining chart's ups and downs. No difference.

[JSmith]

I'm a dartboard theorist, myself.