Bank Rescues Means Exact Replication Of Great Depression

March 21, 2008

Elaine Meinel Supkis

Everyone at the very apex of the economic pyramid are celebrating the 'rescue' of Wall Street. Commodities are collapsing thanks to this 'rescue' mission run by the Fed. But cause and effect are harder to see than people expect. The underlying trade/debt problems, far from vanishing, are reaching a critical melt-down stage. Bernanke and his greedy friends all think they have prevented a descent in to a Great Depression II. Instead, the very actions they took to save their own status quo has triggered the exact same forces that created the Great Depression. This is because they misunderstand what the collapse of 1929 was all about: the bankruptcy of the Great Powers, Germany and England, due to excessive war debts which both were unable to pay when Wall Street loaded even more debts on top of that huge mountain of debts. Now we see the Federal Reserve trying to dump more debts on top of our mountain of war and speculative debts.

From Futurecasts.com's excellent 'Great Depression' web page:

On September 15, 1930, the N.Y. Times editorialized:

"Everyone recognizes now that this is not a new economic era, in the sense that old-fashioned principles and penalties of economic law have been abolished. The new inventions in the way of manufacturing credit are seen to have been merely a novel way of repeating the very old practices of abuse of credit."

Abuse of credit: what is this, anyway? Traditional banking rules enforced by a central government which wishes to avoid massive lending bubbles/panics/depressions, the dreaded BPDs, sets rules for banks. One of the most useful rules is the one that prevents lending/holding ratios from dropping below a sensible limit. Banks have to attract some savings in order to lend. Now, in good times with stability and no bubbles, they are permitted to lend at a 10:1 ratio. Ten dollars can be lent on one dollar of savings. This rationalization of money via lending works in normal times. But when banks or QUASI banks such as investment/finance houses are allowed to do what Bear Stearns just did---lending on a 90-1 dollar ratio, it doesn't take much to trigger a complete collapse in any small downturn.

Years ago, I was very disgusted with the wild lending the 1% Fed rate triggered. I said, 'We now cannot afford even the smallest downturn.' Small changes in the direction of money flow or value of assets due to lack of lending ability can have tremendous effects. If the lending doesn't continue ever-faster, it could lead to a total collapse as everyone defaults on previous loans. This is true in all systems. Home buyers who put $0 down on houses have no capacity to sell if a market falls even 1% much less, 20%. Businesses that need ever-greater loans go bankrupt if they can't turn over their previous debts continuously.

Why did the Fed, unlike the dishonest Bank of Japan, raise interest rates in 2005 right at the peak of the lending frenzy?

They were behaving in the classic way: trying to stop a bubble. Of course, this bubble was launched when Greenspan dropped rates to a ridiculous level when the US went to war. The US needed to do this in order to run budget deficits far above even the high rates of previous Republican spend and spend administrations that ignored budget deficits. Running up an extra $4+ trillion in less than 6 years, cutting taxes and giving out money at 1%, this was a hyper-inflationary matrix. To fix this, the Fed in a panic, began to raise rates by 5% until it reached 6%. Of course, this caused all the lending frenzy games to come screeching to a halt. But not after terrible things happened: the entire financial system, increasingly offshore, ran off to the Bank of Japan. The bank was and still is, ignoring real inflation in Japan. The low rates enabled Japanese corporations to expand global market share, the weak yen due to this low rate and a high FOREX rate for holding dollars out of the markets, meant Japanese manufacturers were able to undersell and undercut everyone but fellow Asian nations like China that were doing the same.

So the 6% rate hikes had absolutely no effect on the big bankers and financiers who were generating massive loans. But it did hammer the US real estate market which is not global but internal. The collapse of this particular balloon triggered the meltdown in global finances. The housing bubbles in England and Europe were on the same plot line as the US markets. Now, they too, began their long collapse. Japan, in alarm at its own housing bubble, deliberately collapsed it by making its housing codes nearly impossible to follow. This way, they could keep the sub-inflation level interest rates that benefit the export industries.

So, despite a near-total collapse in banking in the G7 nations, Japan evaded the strictures of higher interest rates. Normally, higher rates trigger savings and recharges the banking industry's reserve accounts. Money ceases to flow to Wall Street or commodity speculation such as the rare metals markets like gold and platinum and instead, the money flows back into the banking system. Only this has been short-circuited by Japan. As the world, during 2006-2007, raised both reserve ratios and LIBOR interest rates, Japan defiantly refused despite obvious inflation. To kill this nascent inflation, Japan crushed worker compensation and killed its housing market, manually, not via rising interest rates.

So the 'carry trade' continued for two more fatal years. I must say, I stood alone for two years, hammering on all this. We cannot stop the economic destruction if we ignore what caused it. The carry trade enabled the banks and financiers to evade higher interest rates and continue lending! So the money supply continued to shoot upwards from 2006-2008. Only with the total collapse of the US housing markets across the board as the frantic Fed tried to kill inflationary Wall Street bubbles by raising rates, did this finally begin to hammer Wall Street and these carry trade maniacs in the banking system! Meanwhile, commodity inflation shot through the roof!

Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke

The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.

The Standard & Poor's 500 Index posted its first weekly gain in a month, and the dollar leapt from its lowest level since 1973 after the Fed stepped in March 16 to rescue Bear Stearns Cos., the fifth-largest U.S. securities firm, and expanded its role as lender of last resort to embrace the biggest dealers in Treasury notes.

Investors who had poured money into gold, oil and corn, seeking a hedge against inflation and a weak dollar, sold commodities to raise cash or buy stocks. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29.

``Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''

Did commodities drop due to lower interest rates? ARE THEY NUTS? The lower the rates, the higher the ability to buy....except for in one case: when the lower rates are ONLY for bankers and financial houses! They are NOT passing this bonanza onwards to the masses of people seeking 1% loans to play speculative games. They are using these super-sub-inflationary loans to HOARD. They need this money to REPLACE LOST PROFITABLE LOANS THAT WENT BANKRUPT.

With this money in hand, they and only they, get these super-cheap loans. They HAVE to make money by turning the Fed Reserve loans into profits via lending at a HIGHER RATE to outsiders. Only outsiders need these 2% loans, too. The Fed gave everyone a great boost in 2003. But this time around, the entire boost will be confined to the con men of the biggest banks and financial companies. And they will boost the value of this by going to Japan. But ONLY if the yen drops vis a vis the dollar!

As I keep pointing out, many traitors here at home WANT unbalanced trade. They make money in many ways off of this mess. They WANT Japan to artificially weaken the yen and have 0.5% interest loans! They WANT Japan to play tricks! They make profits with this scheme. Even if it means destroying the US economy. So we are now in a new matrix, one that is twice as toxic as the old matrix.

We have a weak US dollar made stronger by hyper-holding by not only the Bank of Japan but by all of Europe! Europe is now dropping interest rates to catch up with the US dropping rates. Both Japan and Europe need to flood the US with more 'savings' via 'cheap loans' except the US can't soak up this money caused by our roaring trade deficit. The ONLY cure left for us today is to decrease our trade deficit by ceasing consumer buying. And this is happening, willy-nilly via rising CONSUMER interest rates and fees. The US consumer can't tap into 2% loans. We are increasingly forced into 30% lending traps. And the decline in housing values means we can't increase our mortgages eternally to fund our purchases of foreign imports. And this is the rock bottom problem: US consumers, hammered by lay offs, falling wages, rising health, food and energy costs, are unable to sustain the global trade system which focuses mainly on exports to the US consumer!

The $600 per American scheme hatched by our government is a frantic attempt at restarting the US consumer's consumption of foreign goods. But this can't work unless the commodities market is strangled. And it has been shot in the head. I can't say how, just yet. But I suspect the Wall Street gangs are behind this Tupac Shakur-style drive-by shooting. All I can say today is, something dark and fishy is going on and the gold buyers are going to be forced into insolvency. I warned them a month ago that the people running all our banking systems are aiming to destroy the gold market and the signal was, India and China were beginning to see their gold markets' sales turn from buying to selling off. Too much leveraged money flowed into gold markets as well as oil, etc. Now, the little buyers will be hammered by the Big Guys. Life is unfair. And these people doing this are always unfair. They get to keep all their loot no matter if markets go up or down. After all, they control all the levers of power!

Bloomberg:

Concern that the central bank would let inflation get out of control eased after the Fed cut its key interest rate by 0.75 percentage point on March 18, less than the reduction of at least 1 point that investors had expected.

``Clearly they've gotten some stability,'' said Keith Hembre, a former Fed researcher and chief economist at FAF Advisors Inc. in Minneapolis, which oversees more than $107 billion in assets. ``You have to stand back and say, for the time being, it looks to be a pretty successful combination of moves that have worked.''

This 'stability' is very unstable. This 'stability' is a weak yen/cheap Bank of Japan lending/cheap US Federal lending/high government debt accumulation/Wall Street bubble. I am astonished that a 10% drop in stocks could trigger total meltdown! But this is what happens when everyone is 'over-leveraged' which is smart talk for 'speculating using loans from the Bank of Japan.' Unfortunately, the world matrix has changed. The euro, not the dollar, is now the world's chief currency. The dollar is no longer plunging but this is due to market manipulation, not natural trading. The G7 central bankers are CONSPIRING to raise the value of the dollar. According to the IMF, countries with huge trade deficits are supposed to correct this via dropping the value of their currency. Japan broke this rule by having a very weak yen with RECORD trade SURPLUSES. The more they had surpluses, the weaker they made the yen. They hoped to keep this mal-adjusted system running as long as humanly possible. Ditto, China. The US couldn't drop the value of the dollar against either country due to them both buying our massive government war debts and also holding excess dollars in their FOREX funds. This has not been fixed at all, indeed, Japan recently redoubled parking US dollars in their FOREX reserves which shot up in the last year by over $300 billion. Our trade deficit with Japan is only $60 billion so this was far above that rate and is a signal that they are desperate to make their currency weak despite their huge trade advantage they already enjoy vis a vis the US.

So this stability is dearly bought: the only way the US can correct its trade deficit now is something we all should fear and dread. THE ONLY WAY TO BALANCE TRADE LEFT TO US IS DEPRESSION HERE IN THE USA.

Treasuries' Scarcity Triggers Repo Market Failures

Surging demand for U.S. Treasuries is causing failures to deliver or receive government debt in the $6.3 trillion a day market for borrowing and lending to climb to the highest level in almost four years.

Failures, an indication of scarcity, surged to $1.795 trillion in the week ended March 5, the highest since May 2004, and up from $374 billion the prior week. They have averaged $493.4 billion a week this year, compared with $359.6 billion over the last five years and $168.8 billion back through July 1990, according to Federal Reserve Bank of New York data.

Investors seeking the safety of government debt amid the loss of confidence in credit markets pushed rates on three-month bills today to 0.387 percent, the lowest level since 1954. Institutions worldwide have reported $195 billion in writedowns and losses related to subprime mortgages and collateralized debt obligations since the start of 2007, making firms reluctant to hold anything but Treasuries as collateral on loans.

``It shows you the kind of anxieties that are going on and the keen demand for Treasuries,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York. ``The rise in fails tells us about the inability of dealers to obtain Treasury collateral.''

The bond markets are still malfunctioning. The banking crisis, far from being over, is entering a new stage. This is like watching a ship flounder and sink. The corrections are all making things worse. It is just amazing to me to see how attempts at bailing out the same men and women who put us into hazard is being cheered onwards even as it is painfully obvious that this is totally wrong. Resetting the status quo is doomed to failure since it doesn't address the core problems: the US budget and trade deficits. And moving even more money to offshore pirate coves which is what is happening today, is making both worse!

Goldman Will Reduce Capital Markets Workforce, N.Y. Post Says

Goldman Sachs Group Inc. plans to dismiss as much as 15 percent of its workforce in the capital markets and related support departments, the New York Post reported, citing unidentified people familiar with the matter.

The reductions are likely to come in the division that includes investment banking, debt and equity underwriting and merger advice, the newspaper said. Employees were first notified about the staff cuts on Monday, the Post reported.

Note that layoffs are increasing. These are no longer blue collar jobs. This is the cream of the white collar crop. How can housing rise in value if the people who are at the top of the buying spectrum can't buy due to job insecurity? And banks can't lend to people who might be laid off! This is the logic of our economic system. Banks can't lend easily in downturns due to layoffs! This is why we need solvent governments during GOOD times to have the capacity to take on huge debts in BAD times and thus, keep people employed and prevent a depressionary cycle! The reverse has been true during the last 7 years. As our government and Wall Street boasted about how great our economy was, everything was running in the red. And this means our own government can't run up another $10 trillion in debt in order to save us!

The scheme cooked up this last 6 months was for the Fed to simply create money and hand it over in the hopes this would create a thriving economy. This has OBVIOUSLY failed. For layoffs are accelerating, not decreasing. And the very houses that received most of the super-cheap loans are turning around afterwards and FIRING STAFF and reducing their commerce. They are in a devolving cycle, not a growth cycle. There is more proof of this below.

Fed Bypasses Emergency-Loan Policy on Rate for Securities Firms

The Federal Reserve bypassed its own emergency-lending policies to let securities firms borrow at the same interest rate as commercial banks as the central bank sought last weekend to stave off a financial-market meltdown.

Guidelines revised in 2002 say the Fed should charge non- banks more than the highest rate that commercial banks pay. Instead, Chairman Ben S. Bernanke and his colleagues, in emergency votes on March 16, invoked broader authority in the Federal Reserve Act to give Wall Street dealers the same rate as banks, a Fed staff official said on condition of anonymity.
*snip*
``They certainly pushed the limit,'' said Brian Sack, a former Fed researcher who is now senior economist at Macroeconomic Advisers LLC in Washington. The law probably has ``enough gray area'' to allow the decision, he said.

They basically threw away all rules, regulations and possibly laws. They used every possible tool all the way up to simply handing over billions of dollars to super-wealthy financiers who wanted more money to replace lost profits! And being pirates, they all pocketed this money. As we shall see below:

Goldman Sachs President Winkelried sells $5.2 mln in company shares

Winkelried sold a total of 30,000 shares of the investment bank on Wednesday and Thursday for an average of $173.25 apiece, according to a filing with the Securities and Exchange Commission and data provider Washington Service.

This is Winkelried's first sale of Goldman Sachs shares since January when he sold the same number of shares at an average price of $200.50.

Separately, Vice Chairman Michael S. Sherwood reported selling about $1.28 million in Goldman Sachs shares through a family trust.

HAHAHA. They had to bring in someone, some DUPE to buy their shares they needed to unload! As they fire staff, they stuff their pockets and then board their Mega-yachts and off they sail into the sunset! Mission accomplished! This is what Mazilo did in 2006: he sold very rapidly, half a BILLION in shares to unsuspecting investors. Because he could see all the loans going bad in 2006. He bailed out and still has that money and hasn't been arrested yet.

As the recipients of Federal Reserve largess convert their own stocks into cash, a classic move in deflationary cycles, people are being pitched this happy story at the mainstream media that the banking crisis is over and happy days are here again.

Bank of England answers pleas with £5bn injections

The Bank of England announced an unprecedented series of £5 billion cash injections for the banking sector, after high street bank chiefs pleaded for more liquidity.

The auction yesterday of £10.9 billion by the Bank – £5 billion more than expected – was one of a series of props provided by central banks to the financial community.

The European Central Bank offered €15 billion (£11.7 billion) and the US Federal Reserve said that it would make $25 billion (£12.6 billion) available.

The Bank of England said that it would continue to offer an extra £5 billion of one-week money on top of its usual repo auctions every week until its policymakers decided whether to change lending rates at their next monthly meeting on April 9.

All the G7 banks are heading into deflationary collapse. All are trying to drop interest rates and all have collapsing housing markets! This dynamic was first seen in Japan in 1990. We know what will happen next. A number of commentators like in the New York Times are pitching all this as 'we are NOT Japan.' Only we are Japan, for Japan is part of the G7 banking system. Effects from 15 years ago can come back to whiplash the present. Time is patient when it comes to mega-forces in economics. We have been in this deflationary cycle since the US has tried to kill inflation in 1980. The high rates back then did the job but things eroded badly. So increasingly, the central banks have desperately tried to create deflation and the biggest tool in their bag has been to encourage free trade so that WAGES drop in all the top nations! And this has worked! Perfectly! And is fundamentally the basis for the present collapse into depression. Workers can't tap into profits anymore and so they can't buy manufactured goods much longer.

A good read I am including here. Enjoy.

Main Street Sacrificed to the Gods of Wall Street

By Trader Mark

I was looking through CNNMoney.com, and it is striking to now see the stories of the real effects I outlined long ago really beginning to hit people. [Do the Bottom 80% of Americans Stand a Chance?] But since it's a slow motion implosion it is not sexy like Bear Stearns turning into dust within 72 hours. So I believe it continues to get ignored and/or people are simply ignorant - with the salaries made on Wall Street, it creates a disconnect from Main Street.

What is striking is while the system is pumped with floodgates of paper money, and inflation is constantly pooh poohed as "moderating by 2nd half 2008" - almost all these stories have the common thread of rampant inflation busting frail budgets - keep in mind anecdotal study after study says 70% of Americans live paycheck to paycheck regardless of income strata (as we have greater incomes, our spending expands at similar pace). I am aghast at the CNBC cheerleading (paralleled by countless blogs, economists, and pundits) that the decision to cut 75 basis points instead of 100 is a clear sign the Fed now cares about the dollar and inflation. Pathetic. 75 basis point is a historic type of cut, rarely done in the past. 100 basis points was NEVER done before (don't quote me, but I believe I read that). So this move to only do 75 is "good" for the dollar and "a strike back at inflation"? Really, the logic on The Street is beyond me many times. I find it laughable. Main Street is being sacrificed to the gods so that NYC can be saved. Bottom line, no matter what line of crapola people in NYC says over and over - maybe if they say it enough they will believe it and not feel as guilty.

Now for the scary stuff: the depression being created by the Fed and the Bank of Japan is following nearly exactly, the collapse of the Great Depression. The information below is shocking and horrible. And a warning to us all. In this case, the US is not the creditor nation. We are a combination of England and Germany! And one more thing: we are not going to use tariffs to prevent our markets from being flooded with trade goods. We are going to use LACK OF BUYING POWER to fix this! Which is 10X uglier than tariffs! Trust me on this.

DESCENT INTO THE DEPTHS (1930):

Rebound:

There had been much talk about eliminating short selling. The NYSE now requested lists of all holders of borrowed stock (short sellers). The rush to cover to stay off the list and to realize profits assisted in ending the decline.

The discount rate was reduced again, to 4 1/2%. Congress rushed a tax cut. Rockefeller ordered 1 million shares of Standard Oil at 50. An order for 50,000 shares of U.S. Steel at 150 "pegged" that speculative leader. Its drop from 261 3/4 to 165 had been the bellwether of the crash.

The gyrations quieted. The stock market rallied in quiet trading for the rest of November.

Secured bank loans and borrowing on life insurance policies had each risen about $2 billion.

Bank deposits had been declining all year, for the first time in two decades. Banks reported 1/2 million fewer depositors. [Elaine: note that in the US, the savings rate has been negative for over a year now!]

By December 1, 1929, broker's loans had declined by over 50% to just over $4 billion. But unsecured bank loans were up $2 billion to almost $10 billion. Secured loans by banks were about $8 billion. There was $2 to $3 billion tied up in installment buying. Borrowing on life insurance policies rose over $2 billion to a new total of almost $10 billion. Bank deposits had been declining all year, for the first time in two decades. Banks reported 1/2 million fewer depositors. Both investors and consumers were living off capital, extending themselves further into available supplies of credit.

There was certainly no evidence that an increase in savings had played any role in the ending of the 1920s period of prosperity. Here, too, facts perversely refuse to conform to Keynesian theory.

Exports, imports, railroad car loadings, textiles, auto and steel production, commodity prices, all took big drops in November and went even lower in December. However, employment, wages, and retail sales remained good, and Christmas buying was encouraging.

The November rally continued into December, recouped 1/3 of the stock market loss, only to be hit by renewed unloading of distress stocks by banks and brokers and a large volume of short selling which drove prices down yet again.

Copper, autos, textiles and agricultural commodities were now suffering from accumulated inventories. The financial slump now accelerated the business decline. Steel production nose dived during the holiday season.

The Wall Street prop had been knocked out from under world finances, spreading the effects around the world. Germany and Austria suffered large market declines and increases in unemployment. Paris and London markets were also lower, but the French economy would not be seriously affected until the second quarter of 1930.

Large volumes of short selling? We have seen this since November. The three attempts at saving Wall Street foundered and failed by Thanksgiving. The hope was, the American consumer would go on a spending binge at Xmas anyway. This, of course, didn't materialize. But enough price cutting lured customers into stores giving the impression that all was well and would increase again. So now we go into the New Year with the bears waking up again and preparing to rip up the system that is sick and dying.

The new year, 1930, dawned bright, cheery and confident. A parade of business, financial, labor, academic and government leaders made page one news with reviews of promising business conditions and future growth. December retail sales reports were quite good. The stock market had edged steadily upwards during the last half of December despite year end cash selling and the continued unloading of the distress stock held by banks and brokers.

Wall Street was openly bullish. Broker's loans moved impressively upwards as hope continued to surge through the breasts of bull speculators. The Big Board actually gained $1.1 billion in December, to a new total value of $64.7 billion. Broker's loans were down to about 6.16% of this tota

As we look at stocks, we can see how they fall only to whip back upwards. But this is not NATURAL. Every sudden shot upwards since October has been due entirely to government interventions by the G7 nations trying desperately to funnel huge sums, now well over a trillion, into the system by hook or crook.

There were great expectations of a quick business revival in the spring of 1930. Credit was ample and available at low rates. Bank rates had been cut sharply by the Federal Reserve Bank and all the major European national banks. Private interest rates had been cut even faster and sharper as people with money found it increasingly difficult to profitably employ it. Not only were business risks rising, the profit inducement to borrow was clearly declining, making the availability of money at sharply declining interest rates increasingly irrelevant.

Now doesn't this ring a loud bell? Alarm bells going off! BZZZZT. They are expecting a quick business revival this time around just like then! And contrary to Bernanke's assertions, the banks DID drop rates like crazy right after the stock market collapse. They were dying to get it all going again! This was top priority. If handing out masses of loans to the biggest banks and financial houses could restart world trade, they were willing to do this. March, 1930, was only a mere 5 months after record highs on Wall Street, after all!

As each drop in interest rates only caused more banks and financiers to turn it into CASH, did they try yet again to restart the lending cycle by making loans ever-easier. People with equity and capable of taking on loans fell for these cheap loans and began to leverage things again. Including the stock market that shot upwards with each infusion.

But the traditional spring trade revival would put everything straight. Hopeful expectations plus what appeared to be a normal increase in business in anticipation of a healthy spring trade pushed Big Board stocks up more than $4 billion in January, 1930, to a new total of $69 billion.
*snip*
Total NYSE stocks reached just under $80 billion by April 10, 1930, making up about 73% of its losses since its September, 19, 1929 highs. The Big Board had surged about $30 billion in five months, a gain of about 65%. Its loss from its September, 19, 1929 highs, was just about 12%. Bond prices were running above 1929 levels, and bond financing was now running at 10 times the rate of stock flotation - reversing the tendency in 1929.

The securities markets had staged a nearly complete recovery by any measure, and, despite weak spots, the domestic economy was doing well. But brokers loans were rising sharply, indicating the speculative nature of much of the recovery. v
*snip*
This was the "spring rally" of 1930. The stock market remained determinedly over optimistic - bouncing back vigorously after each selling climax - rising in expectation of each possible trade turning point - and falling back only when disillusionment became inevitable.

OK: if stocks soar during March and April to regain 65% of what they lost in the previous six months, what shall we all say? Oh my god? How about 'History is a bitch who likes to repeat herself over and over again'?

Copper had been pegged at 18 cents per pound by an international cartel. It had been as high as 24 cents per pound in April, 1929. However, overwhelming stockpiles and sales from secondary sources at lower prices broke the dam. The price dropped to 12 1/2 cents in the beginning of May.

Um, this is too much, isn't it? As the Fed and the bankers rejoice in killing the metals markets and thus, proving that gold, etc, are mere commodities, the fall in value is just another signpost on the road to depression. Why are they pleased with this? They should look at the past and scream, 'We are going the wrong way!'

But the need to kill inflation by hook or crook is all-pervasive. But the simple tool of using rising interest rates is VERBOTEN. So they use the utterly awful tool of dropping rates while strangling the working classes which is pure 1930-depression ethics.

Commodity prices were now sinking like stones - at something more than 2 1/4% per month - with a big decline in April. World money rates had been cut in half since October, 1929, and private lending rates had declined even faster.

This typical whipsawing was killing the margin speculators, both long and short, and was chasing many out of the market.

On June 9, the stock market suffered its sharpest loss of the year as the decline resumed. The next day, short covering and bargain hunters pushed a market recovery of practically all the previous day's loss. But U.S. Steel production declined to 71% and its unfilled orders report showed a dramatic decline. On June 11 an even bigger market drop wasn't stemmed until financial leaders stepped in with big orders for key stocks.

Each crash was followed by a sharp partial recovery as shorts covered and new "bargain hunters" were lured in. The rediscount rate was lowered to 2 1/2% - the lowest level in history - recognizing an already existing fact as there was little demand for Federal Reserve funds. Steel dropped to 65% of capacity, railroad car loadings continued to drop, and other bad news kept coming in. Each rally petered out, followed by a slipping movement, culminating in a sharp selling climax.

Markets never reach bottom until the last bargain hunter is eaten by the last bear. Then the bears depart and the markets lie there, dead. Reviving it is nearly impossible. The destruction of credit and the resulting bankruptcies now continue to burn for several more years. The banking system, far from being saved, now faces total melt down. The banking system limped along after 1930 for 2 more years until it totally fell in 1933. Along with many governments. Millions of people starved to death across the planet. Draconian measures were suggested. One of them being, 'loot the Jews' launched by Herr Hitler in Germany. The Russians launched the 'loot the landowning peasants in the Ukraine', Italy decided to loot Africa. Japan lashed out at China and invaded Manchuria to take over the factories there and cease trade and replace it with slavery. Spain began a revolution which was crushed by the German fascists. The world was set towards WWII.

Dr. Schacht, former president of the Reichsbank, predicted cessation of reparations payments. The flight of capital out of Germany forced an increase in her bank rate to 5% in spite of the worsening Depression. Tariffs, quotas, higher taxes and interest rates were forced on the overburdened German public by the growing burden of her huge debts.

The cumulative effects of reparations payments, massive debts, and the trade war - building up for more than a decade - had destroyed Germany -- and the whole world would pay the price.

We are Germany. We are running for President two war mongers, McCain and Clinton, both of whom want to increase military spending, government debt, cutting taxes, increasing imports and in general, all want to do the same thing so the lack of choice in this critical junction is exactly none. It is now painfully obvious that Obama won't rise to power for the simple reason, he might change something. And NOTHING dares change no matter how tiny. This is because the entire push right now is to restart the dying status quo. The one that China is no longer interested in continuing. Which means it won't continue. No, not at all.

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Comments

[Paul S]

Elaine: Mr. Bush's latest budget calls for a $410-$460 billion deficit and he has funded his $3 Trillion war ALL on borrowed money. Why do you call him a 'spend and spend' Republican? Well if you don't make jokes about it, you would cry. What is startling to me is the evidence shows that the only times the US economy grows is when wages of the middle class--and employment--go up. It is about the only times when the US shows a savings rate increase, and the benefits that result, NOT distributing wealth to the upper .5%. Pardon the rant.

[Richard]

Lots of great information in this post.

Thanks especially for the article Treasuries' Scarcity Triggers Repo Market Failures.

It is interesting that the article mentions "short"; I take this to mean two things: first, some are simply short, that is not returning, the borrowed asset; and second, have short interest, yes there is a lot of short interest in the Treasuries across the board and especially in the 2,5 and 10 year area.

And yes, today's situation is exactly like the 1929 to 1930 entrance into the Depression: deleveraging and asset deflation is on the way; famine, starvation and war is going to continue on and on globally; the result being the creation of an pyramidal society in America with the governing elite at the top, protected by Dyncorp, and a massive povertized and pauperized population at the bottom.

Lots of residential real estate will stand as glimmering tombs to a former speculative age.

It could be that Obama will become the Democrat nominee and win the Presidency; but he will continue the war in Iraq to some degree with bases there and throughout the region; the oil reserves are just too great to be left unplundered and left to the Arabs alone; our miltary bases give us some sovereignty there; and Obama if elected, may be left with a war on Iran by the current President Bush.

However, there is one thing that is different from 1929 to 1930; although platinum (being speculative) and silver (being traditionally an industrial metal rather than an investment metal) may fall in price, gold is going to to do one of two things, decrease in price less than stocks and bonds, or increase in price from its current $904 to $920 level.

I believe, in the second alternative above: in as much as gold trades inversely with the US dollar, it is going to rise from $904 to $920, with the impetus being a lower dollar, coming from a higher Yen and higher Euro as well as a sell off in the 30 Year Treasuries which will come as the US dollar falls, or will occur in late spring or early summer when the provisions of the Security and Prosperity Partnership of North America, the SPP, are applied in response to a "financial emergency", in which cash and short selling accounts at brokerages, checking accounts and money market fund accounts are not going to be honored at full face value.

Unlike those aforementioned cash accounts, gold will always be honored at face value.

Also, gold will be in demand as it will be used as a small portion of regional currencies that will arise as the Middle East oil producing countries and others de-peg from the US dollar and start up their own regional monetary integration.

[blues]

Today it's 7 1/2 months before the election. I wonder if she will blow before then.

I hate to say this, but in one crucial aspect, this approaching debacle could be far worse than the 1929 one. My grandmother said the means of production were still there, but no one was working (much). Well, those factories aren't here anymore. Without the factories, we probably would have had to let Hitler have England. I have heard my share of econobabble, but I don't recall anything ever being mentioned about seriously measuring productive capacity (the strength of the productive system).

My grandmother also told me about the (to her) very eerie realization that the Great Depression was never announced. It was as is some great flood had gathered around everything, but the newspapers refused to acknowledge it.

Ronald Reagan famously asked "are you better off now than you were..." I know we are not better off than when he said that!

Said of English Professor Peter Dale Scott:

((----- Copy & Paste - W/O The Line Breaks -----))

http://www.globalresearch.ca/index.php?context

=viewArticle&code=20070121&articleId=4538

— quote —

...he has offered us the concept of deep politics, which “posits that in every culture and society there are facts which tend to be suppressed collectively, because of the social and psychological costs of not doing so. Like all other observers, I too have involuntarily suppressed facts and even memories about the drug traffic that were too provocative to be retained with equanimity.”

— unquote —

I have witnessed this deep politics all my life. Today's absurdity becomes tomorrow's history.

[Jim Smith]

Elaine:

From your above most interesting survey of the parallels between the Great Depression and our current situation, it appeqrs you expect severe deflation. Are you ruling out hyperinflation, or what do you make the odds? I suppose a major war with intendant controls would be a separate alternative?

[PW]

Commodities are down and the dollar up due to hedge fund selling and covering dollar short positions in order to meet margin requirements.

[Ed-M]

I remember the Governor of the People's Bank of China deciding to stomp on all bubbles in China with both feet, as soon as they appear. This action ALWAYS prevents the usual B/P/D cycle. Unfortunately, we couldn't do that here even if we had Paul Volcker running things due to a certain Monkey in the White House who wanted to cut taxes, go to war and borrow and spend, spend, spend to the degree that would make even drunken sailors blush. Which he went ahead and did.

[Elaine Meinel Supkis]

When we invaded Lebanon on behalf of Israel when Reagan was allowed to be President, only 275 Americans were blown up and he pulled out the troops INSTANTLY.

Now, they are blown up nearly every day and no one gives a hoot.

Reagan got to play cowboy thanks to Volker saving us from hyper-inflation. He did it by raising rates.

But today, they are all trying desperately to drive DOWN prices, drive DOWN interest rates while spending like fiends. This is not a good thing. I am expecting things to get out of control in the negative because the US doesn't control our economy anymore, Asia and Europe have a death grip on it.

and they need us to spend! We can't spend if we have commodity inflation. So they are in the process of killing commodities across the board.

This is a concerted action and I am still looking for proof as to how the Bank of Europe and the Bank of Japan are pulling this stunt off. Trust me, this stinks to high heaven. We saw a FLOOD of financing pour in and NONE of it is going to commodities.

[DeVaul]

I believe Elaine is right about commodities.

Gold is down 80 dollars and silver is down 4 dollars an ounce in just a week or so!!!

NBC did a report on "Gold Selling Parties" a few days ago. That means the average person now knows gold is valuable, and that is intolerable to the money managers and banking cartel.

When gold reached 1,000 an ounce, that was the psychological turning point for everyone. I expect it to go down from here and the rich will convert all their paper into cash and then rule the earth again.

Gold will be outlawed and so will silver.

[OC]

Except this time round, the Dragon and the Bear has final say!!!

[dougie]

Elaine: one thing you wrote i cant follow: you said "And they will boost the value of this by going to Japan. But ONLY if the yen drops vis a vis the dollar!"

boost the value of wht by going how to Japan? It seems to me the end of the carry means money is returning home to Jpan whence it came

[LQL]

Not hard to force down commodities in a very highly leveraged paper market held by Hedge Funds. The evidence is there in plain sight. Somebody made a series of margin calls against a number of large funds that held SIVs and commodity holdings. You can easily restrict bids on the futures market but more likely after a few stops are taken out at the current technical level everybody sees the falling knife from a commodity spike and backs off. The only commodity that cannot be manipulated for an extended period of time at this point is wheat. If prices hold the end of 2007 levels then you have a correction/manipulation, if prices drop to the end of 2006 levels you just had a crash. Speculators got too greedy with the "I can just buy future call options on XYZ commodity and get 10x back in 4 to 8 weeks with no effort." mentality. The margin calls just took the excess long contracts/claims out of circulation. The demand for gold and silver definitely changed but the supply and demand for wheat (inelastic) didn't change significantly and its price in the next couple months will tell you the answer to the real question if this was just a correction (real or manipulated doesn't really matter over the long run) or the start of a severe deflationary spiral.

[Elaine Meinel Supkis]

I frankly can't tell yet. We don't have enough data. All is speculation.

What seems to lead me to think this is conspiratorial is the crowing, the boasting from the mainstream media that Bernanke FIXED things good by WRECKING the commodities markets.

Namely, this was his intention. Since they have many meetings with the biggest financial houses that milk us for loot, this was a gross attempt at redirecting the flow of the LOANS handed out by the central banks.

Did these guys sign papers stating they would not use this money to buy commodity futures? I would suggest this is a very real possibility.

[Daliwood]

blues, your comment about your grandmother parallels things I've heard my mother say about the Depression. It also reminded me of a story she once told me when she was comparing society then and now.

She was a girl growing up on a small farm when the Depression was at its worst. One day, a terrible storm hit, and one of the children on a neighboring farm was killed. No one had any money, and the farmer who had lost a child couldn't afford a funeral, so my grandfather rounded up the local farmers and said, "Let's go into town and take up a collection to give that child a decent burial."

When they returned to my grandfather's house to pool their collections, my mother noticed that her father had collected more money than all the other men put together. When the men had left, she asked him how he had managed to get more money than the others. He replied, "Well, you see, they all went to their churches to ask for money, but I went to every beer joint in town. If you want to find charitable people, that's where you should be looking."

Not to make light of the potential economic meltdown looming ahead of us, I'll still say that perhaps we should all gather in the beer joints when it hits.

[blues]

Thanks for the additional confirmation, Daliwood.

When she blows, half will head for the churches and half will head for the beer joints.

What this country needs is a combination beer joint/church! This morning I get me a bottle of merlot, crank up my meanest word processor, and begin to write the Divine Revelation of Liquid Prophesy. I can rant pretty good, so with the help of the the Divine Bottle, the sermons are guaranteed to be outrageous.

[LQL]

Smacking down all commodities is a more subtle form of price controls to mask credit inflation. China has set the precedent for price controls of food and fuel for quite some time. Unfortunately this will just lead to severe global shortages later when the disincentives kick in to plant extra crops or develop energy reserves and everybody holding the cheap futures contracts demands delivery and the counter parties default. Price controls on fuel are already partially in place in the U.S., just compare the price of unleaded gasoline to diesel. Every time the PPT intervenes it makes the future worse.

[Elaine Meinel Supkis]

Thanks for that analysis, LQL! YOu are probably right.

Blues and Daliwood, I love both of you and thank you for the stories.

As for the beer/religion joint: Welcome to Mt. Olympus! Time for a Dionysian orgy! Worship, sex and drink all in one big bundle.

[Elaine Meinel Supkis]

Oh, and the gap between diesel and gas up here is nearly a dollar now. I use a lot of diesel with my farm equipment. All the farmers I know are in great fear of dropping crop prices next year coupled with all this.

[blues]

Thanks Elaine!

The dentures are working out very well. The landlord inspection overlooked the patched-up dog damage from the pooch being left alone over 30 minutes with separation anxiety. A friend's illness seems not to be so bad as we feared. The Valley crocuses are opening! I should feel great, but now I seriously just want to sleep for a month. You really are getting a lot of new commenters.

Maybe we can transplant all the Iraqis to Texas (they might not even know the difference) and steal the oil. We could pay them well to patrol the border, and they could be US citizens. Any terrorism would have to be less grave than the losses we have now. It's horrendous, but about the best I could come up with.

We also need a huge demonstration where we parade around with a coffin with a huge dead dollar in it. That will get people thinking!

[CK]

It took less than a week, but following in the marvelous footsteps of representative Mark Foley, Elliott Spitzer has entered rehab for his "sex addiction."
Foley tried a career in real estate sales after departing rehab, maybe Elliott will find a worthwhile career in a few months.
And because I am "unworldly" in so many ways, how exactly does one get rehabbed from enjoying sex? Electroshock therapy? Chaffing? Hours of listening to the Barney song? Going on the Karen Carpenter diet?
Just how is it done?
Next up after rehab at least two tell all books by Mr and Mrs Spitzer both of whom/which will be remaindered.
@Blues:
Way back in the day, I used to do a sunday sermon in one of the less reputable chat rooms on MSN ( it was a tech chat ).
Those were the days. Fire and bluescreens, hell and config.sys optimizations, Purgatory and MacLovers. I once gave a sermon on the heaps ... it was well received by the annointed, revelatory one might say.
With Diesel skyrocketing, can home heating oil be far behind. The truckers cannot continue to eat those price increases, have to love those wharehouses on wheels that Walmart believes in so strongly.
I have not noticed the demand for food falling, so unless there are bumper crops in everything, I don't see any downward pressure on food prices. Restaurants may have a decline as folks trim their credit card spending, but if you ain't eating at a restaurant you are eating somewhere else. So there may be a demand shift coupled with a decrease in volume purchases but no demand decline until the populace all goes on a diet simultaneously. The problem for the farmers is that they need a 10% price increase in money terms to maintain a 0% decrease in purchasing power. The prices won't fall but what a dollar will purchase will continue to decrease.
Greek courts have finally allowed Greeks to worship the old Greek gods.
http://news.bbc.co.uk/2/hi/europe/6285397.stm

[blues]

One of the strange things about me is my brain is wired very differently than other folk's. Doctors did months of tests on it at Harvard. I seem to be using completely different neurotransmitter chemicals than anyone else they know of. My hand-eye coordination beats that of their best surgeons. But step-by-step motor sequencing is all messed up for me. After six years of practice, I've achieved a typing rate of about five words a minute. This even happens if I use Dragon Dictate with the "alpha,' "bravo," "Charley" method. I can do continuous voice dictation, but error correction and such with their dictation program is a pain in the butt. The best you can do with that is train the program minimally, then never correct anything, nor save more to the recognition files, but just say "pound sign," and go back to correct errors later. If not for this deficit, I would have almost certainly become a programmer. Bill Gates would be flipping burgers! But I learned all kinds of abstract math, logic, differential equations etc. by reading books.

My vast ten-year linguistics project has languished criminally as I have tried to stem the tsunami of political idiocy that washes up on the internet. This, I must stop doing. In order to be any kind of decent blogger, one must spend ten hours reading for each hour writing. This issue got me seriously fed up with sites like MyDD, which might conceivably be worth some effort if their posters ever bothered to read enough to know that WW-II has in fact ended.

I have communicated with the great Chomsky, and concluded that the poor guy is, at some level, nuts. The pretentious bullmanure of the field of linguistics is nonsense, as most smart people know. Human language is very, very, very different than "computer language." But one good analogy might be that you have to crack the neurological operating system before you can begin to discuss human language. This, apparently, is just what I've done. The damn thing is cosmically powerful.

So I guess I should get moving on my linguistics sites (anti-grammar.com, linguisticsredux.wordpress.com, and (eventually) linguistics.name). I would love to solve all the world's problems. And those solutions would make everybody poop their pants! But all of you just keep standing in the way. Should I stop reading the news and pump out my linguistics stuff while people can still afford computers?

[CK]

@Blues
1) Do what makes you happiest.
2) Do what makes you wealthiest.
3) Do what give you the most free time.
4) Do what others demand you do as they solve all the world's problems too.
The neurological operating system throws up blue screens too.
5) Any sufficiently advanced solutions for the world's problems is indistinguishable from Ex-Lax. ( Pace Arthur C, Clarke, indeed the stars are going out ).
So just remember while you are offering Ex-Lax, there is a lot of money to be made in Kaopectate and Immodium.
Significant money to be made in Dry Cleaning and tidy whitey laundry, and some motivation to wear kilts and squat when necessary.
Funniest thing of the week:
The little dutch boy stuck his finger in a dike to save Holland. Chris Matthews only fondled.

[PJSV]

Elaine,

Maybe a banking cartel has been setup by the top banking managers, and now they are chasing HF leveraged on commodities, requiring bigger spreads !!!! It's an attempet to make the banks solvent again...
This makes sense, i think.

[Elaine Meinel Supkis]

I fear it is ALL these things, PJSV. Seriously, we are now in the second act of the Great Banking Collapse of the 21st Century. I just published a huge piece about this very topic full of charts, graphs and commentary, as usual.

I pride myself on making points based on hard data, not repeating other people's ideas. We need to keep looking backwards at history in order to see the future.

[blues]

NEVER pride yourself.

This is the ultimate message.

[Elaine Meinel Supkis]

Aw, the gods constantly toss lightning bolts at me. I never learn. Heh.

[Bear of Little Brain]

Bernanke has said in his speeches that it is not inflation but the management of inflation expectations that is important. One of the members of the PPT is some head honcho from the commodities exchanges. I saw a report of a rumour that the commodities exchanges were going to raise margin requirements all round at the beginning of the week, just ahead of the markets opening (as they already have on wheat a few weeks ago). That could have prompted a panic, together with a bit of interventional encouragement from da Boyz. At this stage, I remain sceptical that the commodities boom is over, especially the basic foodstuffs (industrially-biased metals I'm avoiding anyway, as I cannot form a view about them).

Gold and silver were already looking extended on this recent up-leg and, as my holdings are for the long term, I was getting worried about a real blow-off top years too soon. (Having to get the stuff out of secured storage and hauling it off to a dealer is a good way of discouraging myself from trading!) I'm actually relieved that these PM's are backing off, it was getting silly. Mind you, an attack on Iran would change that, not to mention OIL (Operation Iraqi Liberation? Ooops,, we meant "Freedom"). I own PM's because my assessment is that we are entering a crisis period; years, not months. I understand that a lot of silver is used somehow in armaments. Gold is self-explanatory.

Grains are in short supply worldwide with producer countries raising export tariffs or banning export altogether (India only permits the export of the expensive Basmati rice, last I heard, three weeks ago). A wheat stem rust, Ug99 (Ug -Uganda, where first found; 99 - 1999, year found), has moved from Africa, across the Yemen and is now in Iran. There is something called the barberry bush in Iran (maybe throughout Asia, but I don't know). Apparently, this has the power to transform the asexual Ug99 to the sexual type (I've got no idea what all this is!). One researcher has commented that this could be catastrophic, saying "whatever blows out of Iran will be much worse than what blows in", referring to the genetic mutation(s) that could occur, rendering current attempts to find resistant strains irrelevant. That was before the Iran confirmation. (Hey, maybe George can claim that nuking Eye-ran will kill the stem rust and save the world.) From Iran it will move across all Asia. Apparently, India is the second-largest wheat producer in the world (if anyone knows different, please correct me). The most recent report I read from India reported no cases found this season, which was not the most encouraging way of putting it. Incidentally, it is entirely possible for the spores to reach the US. They are just carried on the wind. There are many researchers trying to find resistant wheat strains, but the problem is that once you have one (or several) it takes time to produce enough seed to replace the existing wheat. Years, not months. So, will the spread of the rust outpace the resistant strains? Almost certainly. Of course, the current wheat varieties which were part of the "green revolution" which averted starvation in the 1970's are also high-yielding varieties. Will the replacements have comparable yields? I'll assume the worst.
I'm afraid I don't see wheat as being anything other than a bargain on any pullback. Stockpile flour, just in case?

Perversely, I hope I lose catastrophically on gold, silver, and wheat. What I lose will be offset by the lack of losses suffered by my (adult) children, who think I've totally lost the plot, and the pleasure in knowing that the world is rolling merrily on! The children will just have to make room for their poverty-stricken father, which is better than me having to pay off their mortgages and top up their living expenses through a depression/famine.

Unfortunately, unless there is an unprecedented scientific breakthrough in agriculture and a worldwide outbreak of peace, love, and understanding (and some sanity) soon, I'm going to stick with commodities.

[CK]

@Bear
Barberry is a common ornamental, worldwide.
The dried fruits make Zerzeshk, a popular spice in Iran.

[Mulberry Alexa]

I'd actually love to review these boxes on my shopping/lifestyle blog. i wonder if they'd send me a sample box to talk about?