Miz Scarlett Explains Dynamic Stochastic General Equilibrium

July 21, 2008

Elaine Meinel Supkis

Time to discuss more queer systems set into motion by economics professors. In this case, the 'New Keynesianism' which is the so-called dynamic stochastic general equilibrium model or DSGE for short. Think, 'Dirges'. This takes us to ponder both 'Gone With The Wind' and Tolstoy's 'War and Peace'. And on to the Lucas critique of macroeconomic analysis and then to the dreaded 'Wage/price spiral' that no longer has the wage element just the price spiral parts. And we go to Mr. Liu's wonderful 4 page opus, the history of US housing lending in a nut shell. By far, one of the better summations of that mess.

Recession is not the worst possible outcome

By Wolfgang Münchau

But there might be better explanations. As the Bank of International Settlements said in its latest annual report, subprime might have been the trigger for this crisis, but not the cause. We do not have a full understanding yet of what happened but the BIS suggested that fast expansion of money and credit must have played a role. I would go further and say this is not primarily a crisis of financial speculation, but one of economic policy. Its principal villains are therefore not bankers, but economists – not in their role as teachers and researchers, but as policy advisers and policymakers.

So who are they? I recall a wonderful episode told by Jagdish Bhagwati in his book In Defense of Globalization when he quoted John Kenneth Galbraith as saying: “Milton’s [Friedman’s] misfortune is that his policies have been tried.” In fact, this is not the worst that could happen. The worst is for economists to try out their own theories themselves. This happened to several highly respected academics [ELAINE: He is referring to Bernake, of course] who have since become central bankers or finance ministers. If, or rather when, they turn out to be wrong, they risk a double reputational blow – as policymakers and as academics. So do not count on them to change their mind when the facts change.

Several of them have been leading proponents of an economic theory known as New Keynesianism. It is, in fact, probably the most influential macroeconomic theory of our time. At the heart of the New Keynesian doctrine stands the so-called dynamic stochastic general equilibrium model, nowadays the main analytical tool of central banks all over the world. In this model, money and credit play no direct role. Nor does a financial market. The model’s technical features ensure that financial markets have no economic consequences in the long run.

Last year, it was as hard to find sane economic discussions as finding hen's teeth at a crocodile convention. Even today, there is still an overarching refusal to take into account all factors when discussing economics. The desire to whittle away much of reality is very strong. It is easy to understand this desire: the overall picture is very grim for the G7 nations. A lot of this is also due to a fundamental misunderstanding of what 'capital' is all about. On the other hand, one person in particular, Mr. Liu who is published by the Asian Times, is one of the very few who can see what capital really is and how it operates.

Some people have fooled themselves into thinking gold is capital. It is not. It can REPRESENT capital. But it isn't that, itself. Call it, a portable form of wealth that can be used to exchange goods and thus, become part of the profits from the use of capital. Namely, it is good for TRADE. It was used historically as a way of gaining access to markets and to promote the sale of manufactured goods whether it be silks, cannons, soldiers, slaves [often, nearly the same item!] etc. Whether selling a spirited, 'refined' horse or a shawl, gold is useful as a tool for trade. In many societies even today, cattle and sheep are used as a means to denote 'wealth' when buying or selling brides or gaining husbands for girls. In stronger economies, gold plays this social function.

But these things are not 'capital', really, in the modern sense. Ever since the Industrial Revolution, the concept of 'capital' as a means of production arose. It is very interesting to me that modern economists have tossed BOTH gold AND 'money/credit' overboard at the same time. And the destruction this has launched is awesome. The idea that financial markets don't have economic consequences is total insanity especially after the muddled US/UK empire decided to ditch traditional banking/trade rules and replace it with the concept of the Floating Currency.

As both the US and UK flounder and sink on the shoals of this Floating Currency that is as buoyant as a lead anvil, the deliberate undercapitalization of the present banking system has been uncovered and is part of the whole 'naked short selling' by crazed green gnomes on Wall Street.

Watch for Rhett Butler's speech in the second scene where he talks about industrialization and the ability to win wars:

That movie is pre-WWII, filmed in 1938. The US came out of the dangers of the Great Depression with no foreign domination here in America, our factories just itching to get roaring again. The US went into the Great Depression as the major Lending Power. We were the Bank. The inability of our clients in Europe and then across the planet to pay their loans we extended caused our own banking system to collapse. All the rigermarole about how Americans caused their own banking collapse is pure bunk. Just like the idea that homeowners in America skipping mortgage payments are causing the present banking collapse.

Just like in 1930, the bankruptcies of small homesteaders is a SYMPTOM and not a cause. The cause in today's case is due to already existing monetary/debt creation forces far beyond the ken and the means of the entire mass of home owners in this country. The true problem is simple: the US has unilaterally decided we are at war with billions of people on this planet. And to prepare for this massive war, we are invading many smaller countries, fighting guerilla wars all over the place and running up gigantic debts by running this military machine at hyper-speed even as we can't pay for any of this at all.

This is where 'capital' comes back into view: in WWI and WWII and a number of other wars, the US built the war equipage of other nations or empires. During the Civil War, the Union increased the industrial bases in Troy, NY, Pittsburgh, Pennsylvania, the NY harbor as well as Boston, and these activities strengthened our ability to build future railroads, etc. It also hyper-capitalized the banking system of NYC. Thanks to government debts! Not capitalist profits but rather, the costs of waging wars. This delightful situation didn't go unnoticed, either.

The biggest boosters of imperial wars are always central bankers and their investor friends who bid up the value of gold as well as funding wars via debt creation. The ability to marshall and control all future taxes are a huge temptation! This, in turn, creates 'Funny Money™' which I keep yapping about here. This money is NOT capital. It is DEBTS. Since these debts are even more portable than gold, this has overwhelmed the capitalist system to the point that the business of feeding tax dollars into useless war equipment which is funded by debts, even the 'sales' we make overseas are NOT sales at all but benefices denominated with bullets. This is what we did for England and France in 1914-modern times. We lend them money, sell them the stuff which gets destroyed nearly instantly and then they ask for more. This useless cycle can eat up lots of stuff and employ many people and is extremely lucrative for the bankers.

More Rhett philosophy about money, sex and war from 'Gone With The Wind.'

This humbug system was called 'The Military/industrial complex' by former President Eisenhower who looked positively sick when he gave his last, most important speech. The US managed to limp along for another disastrous 12 years, right into the Vietnam War after that speech. This shredded the last of our capitalist systems. Beginning with Nixon abandoning the gold peg in 1971, doing this secretly and with no warning...NOTE TO EVERYONE: THE GOVERNMENT DOES THIS SORT OF THING ALL THE TIME!...the US launched the entire concept of relativity in monetary systems, the US threw away the concept of capital and finished the replacement of capital with debt that began with the founding of the Federal Reserve and since then, the US has run, nearly nonstop, on every level, increasingly in the red.

The US basically did what Scarlett O'hara did in this part of the movie: we cut down the curtains to make a pretty whore's dress so we could seduce everyone on the planet to lend us money to pay for what our taxes no longer can afford, so to speak.

The above article talks about 'Dynamic Stochastic General Equilibrium' which is extremely longwinded so it is shortened to DSGE or 'The Dirge of Capital':

From Oxford Journals:

This article gives an overview of the literature that has led to the emergence of dynamic stochastic general equilibrium (DSGE) models. This approach to macroeconomic modelling has gained widespread support among researchers and has recently started to be taken seriously by policy-making institutions as a modelling framework which is useful for policy analysis and the conceptual support of decision making.

Modern macroeconomics is the result of an intense, and at times passionate, scientific debate that has taken place over the last decades. In the early 1980s, a new approach to the business cycle analysis was introduced by Kydland and Prescott (1982). The main tenet of their approach was that a small model of a frictionless and perfectly competitive market economy, inhabited by utility-maximising rational agents which operate subject to budget constraints and technological restrictions, could replicate a number of stylised business cycle facts when hit by random productivity shocks. This so-called real business cycle (RBC) approach to macroeconomic modelling was early on criticised on various aspects. Nevertheless, as it is now widely acknowledged, the RBC agenda has made a lasting methodological contribution. Most of today's DSGE models adopt the general structure of a RBC model, i.e. they feature an impulse–response structure built around optimising agents in a general equilibrium setting. However, the way these models rationalise the business cycle differs substantially from the original contribution and is everything but unique. Various types of imperfections and rigidities in the markets for goods, for factors of production and for financial assets have been introduced alongside a broader set of random disturbances. The current generation of DSGE models has also been successfully used to address normative issues concerning optimal policy-making in a relatively simple and fully transparent way.

Compared with the traditional macro models, the current DSGE models have the advantage of stating explicitly the microeconomic decision problems that give rise to the macroeconomic dynamics. This makes it easier to link the development in macroeconomic theory to the advances in microeconomics. Incentive constraints, imperfect information and strategic interactions among agents are but some of the microeconomic concepts that feature in modern dynamic general equilibrium models. This fact increases the consistency of these models considerably, both internally (i.e. in relation to the underlying assumption of the rational decision-making of agents) and externally (i.e. in relation to other subfields of economics).

This sort of gobbley gook is pure bunk. Instead of looking at futile junk like that formula that bears NO relation to ANY reality, economic students should read Tolstoy's 'War and Peace' that has economic discussions by the often deep in debt quasi-royals of Russia and the various schemes of Napoleon including flooding Russia with counterfeit money....as well as 'Gone With the Wind' deleting all the racist garbage but keeping all the scenes between Scarlett and whoever is discussing war, finances and sex and our students will then begin to have a vague idea about debt, war and sex.

Perhaps a lecture about goddesses [Scarlett is very much a goddess] and gnomes would be in order too.

Back to the Dirge DSGE model universe: bloody hell! The 'rational decision-making that is an underlying assumption' is a fundamentally CRUMMY BASE for any understanding if we forget that the guys doing this supposedly rational thinking are all sex-starved gnomes desiring infinite wealth so they can party! Gah! Without this, all other things make no sense at all. If we were 'rational' somewhere around 1972, the US bankers would have stopped chasing their secretaries around their desks and sat down and gotten to work to deal with all the war inflation from the Vietnam and Cold Wars. A two fronted war equals bankruptcy.

Instead, they severed all the historic anchors including the business about capital being profit on sales thanks to value-added manufacturing and they launched us on the present sea of red ink! From day one, the howls about this red ink should have been deafening.

Instead, there have been and still very much are, howls for more CREDIT and for this CREDIT to be CHEAP LENDING so we can have MORE DEBT! 'Gone With The Wind' has interesting commentary about capitalist profits via various forms of slavery. Including enslaving prisoners and then making them work.

The Wikipedia summary about DSRGE mentions an economics professor, Mr. Lucas. So let's examine him:

Lucas critique

The Lucas Critique, named for Robert Lucas's work on macroeconomic policymaking, says that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.

The basic idea pre-dates Lucas's contribution, but in a 1976 paper he drove home the point that this simple notion invalidated policy advice based on conclusions drawn from estimated system of equation models. Because the parameters of those models were not structural – that is, not policy-invariant – they would necessarily change whenever policy – the rules of the game – was changed. Policy conclusions based on those models would therefore potentially be misleading. This argument called into question the prevailing large-scale econometric models that lacked foundations in dynamic economic theory.

The Lucas Critique suggests that if we want to predict the effect of a policy experiment, we should model the "deep parameters" (relating to preferences, technology and resource constraints) that govern individual behavior. We can then predict what individuals will do taking into account the change in policy, and then aggregate the individual decisions to calculate the macroeconomic effects of the policy change.

The Lucas Critique was influential not only because it cast doubt on many existing models, but also because it encouraged macroeconomists to build microfoundations for their models. Microfoundations had always been thought to be desirable; Lucas convinced many economists they were essential. Later Finn Kydland and Edward Prescott pioneered the use of microfoundations to formulate macroeconomic models. Contemporary macroeconomic models microfounded on the interaction of rational agents are often called dynamic stochastic general equilibrium (DSGE) models.

One important application of the critique is its implication that the historical negative correlation between inflation and unemployment, known as the Phillips Curve, could break down if the monetary authorities attempted to exploit it. Permanently raising inflation in hopes that this would permanently lower unemployment would eventually cause firms' inflation forecasts to rise, altering their employment decisions.

Horrors! This is why we are going off the cliff! Economists all imagine that if they see one tiny bit of what is going on and study it well, they can see the whole kit and caboodle. Alas, what has happened is that now no one wants to look at the global picture and see, honestly, exactly where we stand or rather, how we are now on our knees, with our begging bowl, desperate for our trade partners to bankroll our finances and our entire economy. When the US went off the economic cliff due to an inability to fund our own wars of planetary domination, the resulting inflation was falsely ascribed to the dreaded 'Wage/price spiral.' Which was another invention of the economists in academia.

Price/wage spiral

In macroeconomics, the price/wage spiral (also called the wage/price spiral) represents a vicious circle process in which different sides of the wage bargain try to keep up with inflation to protect real incomes. This process in turn is one cause of inflation. It can start either due to high aggregate demand or due to supply shocks, such as an oil price hike. There are two separate elements of this spiral that coexist and interact:

Business owners raise prices to protect profit margins from rising costs, including nominal wage costs, and to keep the real value of profit margins from falling.
Wage-earners try to push their nominal after-tax wages upward to catch up with rising prices, to prevent real wages from falling. To maintain purchasing power equal to the rising costs reflected by CPI's basket of goods and services, a taxable salary must increase faster than CPI itself to result in an after-tax wage increase comparable to the increased cost of goods and services - unless tax brackets are indexed.

So "wages chase prices and prices chase wages," persisting even in the face of a (mild) recession. This price/wage spiral interacts with inflationary expectations to produce long-lived inflationary process. Some argue that incomes policies or a severe recession is needed to stop the spiral.

Workers had to struggle to keep slightly ahead of the Inflation Goddess who is always released by generals and war mongers. By pointing to these victims of inflationary bankers, the bankers could continue to ravage the financial markets by destroying capital while blaming the workers who are the basis if all capital! Ah! We see a pattern here!

From Tolstoy's great masterpiece, 'War and Peace':

Note how the paper confetti of the Napoleonic wars caused tremendous inflation which was reflected even in silver. Gold was the only thing to float above all of this. I suspect it was due to the fact that gold could be hidden from the troops that ravaged all of Europe, seeking loot. During the Civil War, the value of gold shot up. During the present War on Terror, the value of gold has shot to the moon.

Here is a great analysis of the housing mess by the always great Mr. Liu at the Asian Times:

The current talk about the need to curb speculation in the commodities and financial markets to stabilize prices is off target, especially for believers of market capitalism. All market transactions are speculative in nature. Speculation can stabilize prices as well as to destabilize them, but only in the short term. Long-term price levels (inflation or deflation), as Milton Friedman aptly observed, are always monetary phenomena. The current turmoil in the financial system, the subprime mortgage implosion, the credit crisis from the seizure in the asset-backed commercial papers market, the undercapitalization of commercial and investment bank, the rating agency dysfunction, the insolvency of monocline (bond) insurers, the massive financial losses by the GSEs and a host of other financial problems percolating under the media radar, are the outcome, and not the cause, of this market turbulence.

BRAVO. Just what we expect from Mr. Liu! Normally, I quote only a paragraph or two of his great series of articles. But today, he carefully, like a lawyer, goes over the entire business of the US housing lending markets starting with 1933. Only one thing he leaves out is the business of Greenspan and others plotting to create the messy ABX and CDO and SIV markets deliberately so they can isolate risk from banks and thus, encourage nonstop lending with no limits. This was a plot hatched by the same characters who are trying to 'rescue' us today from this folly they created.

From the incredible Liu at the Asia Times:

Before the Great Depression, affording a home was difficult for most people in the US. At that time, a prospective homeowner had to make a down payment of 40% and pay the mortgage off in three to five years. Until the last payment, borrowers paid only interest on the loan. The entire principal was paid in one lump sum as the final "balloon" payment. Lenders could demand full payment of the outstanding loan at any time of the lender's choosing, often at time least advantageous to borrowers. This allowed lenders to use foreclosures as a means to take over desirable properties.

During the 1920s boom time in real estate, a rudimentary secondary mortgage market had come into being.
*snip*
To help lift the country out of the Great Depression, Congress created the FHA through the National Housing Act of 1934. The FHA's insurance program protected mortgage lenders from the risk of default on long-term, fixed-rate mortgages. Because this type of mortgage was unpopular with private lenders and investors, Congress in 1938 created Fannie Mae to refinance FHA-insured mortgages.

Now one of the things I struggle to explain is how 30 year mortgages are poison for bankers unless they can palm them off somehow. No one wants to be stuck with any 30 years something if the interest rate is below the rate of inflation. How does this figure in the present banking collapse? Plenty!

Liu explains further:

Some of these statutes and regulations make it possible for deposit-taking institutions to invest in Fannie Mae debt more liberally than in corporate debt and other mortgage-backed and asset-backed securities. Others enable certain institutions to invest in Fannie Mae debt on par with obligations of the United States and in unlimited amounts. Fannie Mae uses a variety of funding vehicles to provide investors with debt securities that meet their investment, trading, hedging, and financing objectives, not all of which serves the public interest. Fannie Mae is able to issue different debt structures at various points on the yield curve because of its large and consistent funding needs. As the Treasury retired 30-year bonds, these GSE agencies stepped in to fill the void in long term finance.

The bankers need 30 year bonds but they need them to be at least as SECURE as Treasuries. So the morphing of simple mortgages which were originally only 20 years into 30 year mortgages was pushed through even though normally, no one sane wants to be stuck with something like this. Except if it is held by a government which has access to further debt financing or future tax revenues. Note that the rescue of the Fannie Mae and Freddie Mac entities is based on turning them into twins of the Treasuries which are tax, not property based. For properties have NO value to a government unless they are on the tax rolls! And the government keeps them on the tax rolls by not evicting anyone. Bankers, on the other hand, have to vacate properties during defaults because they have to support the entire mortgage system. If the let anyone not pay on time, no one will pay on time. And they know this.

But if the government makes up the differential, then there is no risk of default from bankrupt mortgage payers! The government takes over the duties of paying for the loans. All of this is due to the alteration of the banking system from being based on capital being stored at banks and then used to capitalize lending to one where loans capitalize lending which is total bunk, utterly impossible and by its nature, prone to going into infinite warp-speed drive to eternity.

The ever-astute Liu:

The term "undercapitalization" for financial institutions is merely a sanitized euphemism for insolvency.
*snip*
Fannie Mae and Freddie Mac, ranked Aaa by the world's leading credit-rating companies, are now being treated by derivatives traders as if they were rated five levels lower because the issuers are pitifully undercapitalized for the size of the debt they issue. Credit-default swaps tied to $1.45 trillion of debt sold by these two biggest allegedly US-backed mortgage finance companies are trading at levels that imply the bonds should be rated A2 by Moody's Investors Service. The price of contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac and to protect against a default has doubled in the past two months.
*snip*
The New York Times reported on the night of July 13, 2008 (Sunday) that discussions among senior US government officials had heated up with respect to the US taking over Freddie Mac and Fannie Mae before markets opened in Asia. The structure being contemplated is a "conservatorship", which is permitted under a 1992 law and is one that would essentially wipe out the two GSEs' respective equity while allowing their loans to be managed.

Conservatorship is another fancy term of nationalization.

Hell, the entire banking system is totally 'undercapitalized' and far worse, as I keep yapping, the Federal Reserve is neither Federal nor has much reserves! If all the rest of the planet including most tiny nations, all have bigger FOREX reserves than the US, this is bad! Bad! Even if we refuse to believe it is bad, the fact that 50% of this planet has bigger reserves than the supposed biggest economy on earth, this is by definition....BAD. We can't act like small children and throw a temper tantrum and refuse to understand why this is totally stupid. If the rest of the top economies on earth are doing this, we better do this, not ignore it.

The entire basis of our economy this decade is home-improvement and using rising home values to fund a hedonistic lifestyle beyond our means. We want this to continue! We will pay the devil to keep it going. If we have zero capitalization and sell nearly everything to foreigners especially the Japanese, Chinese and OPEC, why we hope to get lending extended forever!

Mr. Liu:

Yet everyone knows that the GSEs face an interest-rate risk in their long-term mortgages if interest rates should rise over the loan period. To protect itself from interest rate risks, the GSEs use derivatives to hedge against interest-rate risk.

And what are hedges? Why, the Derivatives Beast! It is now growing at ten times the rate of our debts. Our debts are slowing down, thank the gods! But it is too little, too late. And Congress, the central bankers of all the top nations in the world with huge FOREX reserves and huge trade surpluses with the US are all very anxious to keep this red ink flowing as fast as humanly possible.

We will probably see 40 or 50 year mortgages, eh? And with interest rates that require not inflation but DEPRESSION. Low interest rates are pure poison in inflation cycles. They are good as gold in deflation cycles. By demanding long, long, long term low interest rate loans, we are locking ourselves into a depressionary future we will regret. Especially after we decapitalized our entire banking system and dismantled our industrial base.

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Comments

[calvino]

True enough, however there is an obvious connection to be made here. Genentech, aka DNA on the NYSE, the most advanced, best capitalized genetic research labs that we have is getting swallowed up by the Swiss Roche. They already have a controlling interest, since Da Boyz did not think it was a substantial investment, like say Merril Lynch, or Morgan Stanley. So the clockmakers got the first dibs, and are now closing in for the last cuckoo gulp. Don't know why you don't think that is not important. Most likely, genetics will be the industry of this century. It is all very well with the voracious gnomes, however this is reality that will ring for a hundred years. The chances of any other country except the Stupid States of America letting this treasure fall into foreign control are zero.

[Anthony]

yep. this is predictable... right after they bail out FM & FM. suddenly US bond worth nothing. The entire planet know the US gov. is bankrupt. Adding $1T debt overnight? what's the premium on that stuff?

China is so going to dump their US holding. (Hey maybe we can make a deal they can have the entire central asia for the rest of useless paper.)

[calvino]

Anthony, our Treasury paper credit default swaps just doubled to 20 points from 9. This is unprecedented.

[GK]

Holy S$%^ calvino! Are people protecting themselves against the US government defaulting on the tbills, or is it traders purchasing the CDS for speculation that eventually other people will start wanting to protect themselves?

But a CDS does not protect against currency falling towards infinite zero like zimbabwe, and it does not protect against the interest rate going through the roof and the value of the Tbill going through the floor.

So is there any other explanation other than people are protecting themselves against the US defaulting on its debt, ala Russia in the 1990s?

What are the scenarios where the US Treasury would default on their debt? Would it be a financial WMD used on China (and SA)?

Just a power play as in 'F you, I don't need to pay your stinking paper; just try to get it back F-ing loser. '?

Genocidalists try to trigger a population-clearing starvation/epidemic/war crash?

Who could possibly be a reliable counter-party on the T Bill CDO? Now you need to buy another CDO to backup the counter-party of the original one to watch the watchers!

The world is ruled via the Bond market, so I bet it is insider speculations buying up these Treasury CDS ahead of some 'scary' news that 2nd tier traders will pick up.

This is war baby.

http://www.reuters.com/article/marketsNews/idUSN1121920080711

The cost to insure Treasury debt with credit default swaps jumped to 16.5 basis points, or $16,500 per year for five years to insure $10 million in debt, from 8 basis points on Thursday, an analyst said.

[Elaine Meinel Supkis]

Thanks for that news! I scan the news endlessly, I get wonderful emails all the time and no one alerted me to that juicy story! Wow,

That huge jump was entirely due to the 'rescue' of half of the US mortgage market.

The Chinese told me long, long ago, it would be worth it to them to lose a lot of money if they could lure the US into bankruptcy. And when Russia went bankrupt and their empire disintegrated in less than 5 years, this confirmed to the Chinese the wisdom of using lending to drive rivals into penury works.

Always, throughout history, the Chinese have preferred this methodology. I suspect most US people do not closely study Chinese history or worse, know this information and then ignore what it means to us. They think, 'The Chinese were invaded by the Mongols and the Manchu and the British.

But those failures are significant to the Chinese. This is why, this time around, the Chinese are very focused on their 'virtues' and have not underfunded their military. I have noted in the past that the Chinese are now very big into 'spit and polish' which is a sign their military is in good shape. They are not being bled to death with wars with 'barbarians' from the depths of Asia.

And the US forces are increasingly wearing wrinkled, mud colored, sloppy uniforms with big, brown shoes. We look terrible.

Oddly enough, this matters!

[GK]

If I had to bet on only 2 things in life, I would bet that the Chinese Government is going to get loaded up with debt to build a WORLD, nay UNIVERSE, CLASS military and the citizens will get loaded up UNPRECEDENTED amounts of personal debt.

What is 1 billion people borrowing 1 million each?

1,000,000,000,000 of fresh new debt.

Banker orgasm.

But getting back to the T Bill CDO, I am quite curious who is the counter-party stronger than the US GOVERNMENT???

Perhaps it is insurance against the plan laid out by Lyndon LaRouche to regain US Sovereignty from the Criminals in the EU.

He proposed freezing all our debt. But instead of selling off the US to the IMF/Lisbon treaty gang, he proposes us using our Constitutional authority to issue credit.

To rebuild our asset-stripped nation and crumbling infrastructure.

We must PLAN AHEAD and be ready for the Shock Doctrine to be applied to us.

http://www.larouchepub.com/other/2008/3529europe_collapse_b4_us.html

"The only solution to this death spiral is the plan laid out by LaRouche, which involves returning to the American System of Economics. The beginning point is the use of Constitutional powers to put the financial system through the equivalent of a bankruptcy proceeding, freezing the huge mountains of debt and protecting the nation and its people—by making sure that the essential goods and services continue to flow, that people remain in their jobs and homes, and that the rebuilding of the productive sector of the economy begins as an immediate priority. The Government, speaking for the People, must assert its dominion over the banks, the corporations, and the markets, and must work with other like-minded nations in international cooperation to reclaim the planet from the parasites. We may have political obstacles to overcome to implement such measures, but the levers to do this are built into our form of government, whereas these levers do not exist in Europe."

[GK]

1,000,000,000,000,000 one quadrillion

[RobG]

Bernanke keeps Canadian bonds (Bloomberg):

Federal Reserve Chairman Ben S. Bernanke held low-risk mutual funds and retirement investments last year as he led central bank efforts to calm financial markets amid the subprime mortgage crisis.

Bernanke and his family owned $1.2 million to $2.5 million in financial assets in 2007, little changed from the previous year. The filing requires officials to report only the range in the value of their specific holdings.

The Fed chairman's investments ranged from Canadian Treasury bonds to a retirement annuity, according to annual financial-disclosure filings released by the Fed today.

[Elaine Meinel Supkis]

HAHAHA about Bernanke! Boy, does he have faith in the US dollar.

About Larouche: one giant problemo here: OIL. We have to cut oil imports to zero barrels. We can do this but not while driving SUVs a all over kingdom come.

[calvino]

The bimbo's on bimbo tv are about creaming on themselves with the dow coming off the overnight spill! They know, or at least someone told them that oil is supporting the indexes. Coincidence? I don't think so. Today aboo doobi is announcing they will buy 120 billion of ge shares. It's good to be born on top of an oil swamp. Especially if you are the king. So the king of aboo doobi, decided to throw us a bone and knock down crude a littlle more. Whoppee bimbos. They really don't care which gnome they will be cucking though. From here, from aboo doobi, gold shines all the same. See it's not zi juus who own zi gold and zi usa. It's zi arabs, zilli.

[PLovering]

Icelandic CDS hit 1000 basis points at two of their major banks, double just two months ago.

1 mil/year to insure 10 mil over five years.

One year ago, they paid only 30,000. And then they suffered the diabolical visit from Bear Sterns.

[BK]

The Reuters link is not working, anyone have a headline to search on?

http://www.reuters.com/article/marketsNews/idUSN1121920080

[Bear of Little Brain]

Calvino:
Uh? Quick check shows Marketwatch reporting $8Bn joint venture spread over three years ($4Bn from Mubadala). My Ameritrade info gives total GE shares outstanding as 10 Bn and current price as $28.27. Where'd 120 Bn come from?
And I guess they're using recycled dollars, not gold. ;-)

[calvino]

Bear, I have been watching bubble tv all morning.. they said ten percent of GE was their goal.. 28 bil.

[Elaine Meinel Supkis]

Edison is turning over in his grave.

[Elaine Meinel Supkis]

GE is also a very big military producer entity. The Arabs want this badly.

[Paul S]

The book, "Unrestricted Warfare", the Chinese lay out their approach to 'fighting' the USA. Economic warfare is very much in the Chinese "toolbox". Everyone here realizes this, but the book is illuminating in that it explains the logic, as the Chinese see it,for using this tactic. With the military buildup, I think the Chinese plan is using their military as a giant trump card in case the USA is stupid enough to try anything. If you haven't read "Unrestricted Warfare", I would recommend it. It was written (reportedly) by two Chinese Army officers.

[Bear of Little Brain]

Calvino:
Maybe the hyper-inflated $28 Bn will come out as $120 Bn by the time they've got their 10%! ;-)

I can't rally get excited about 10%, though.

[Bear of Little Brain]

Calvino:
Maybe the hyper-inflated $28 Bn will come out as $120 Bn by the time they've got their 10%! ;-)

I can't really get excited about 10%, though.

[Bear of Little Brain]

Ooops, sorry about the duplication. Some server error came up and I re-sent.

[JZ]

If the prime motivator here is sex, or lack of sex, then religion is to blame for these problems for making sex a forbidden fruit.

If sex was a very normal part of life, nobody would be "sex starved"

[Market Watcher]

Hi, Elaine.

I spent some time in East Asia in my youth, about 25% of it, and have burned incense at the graves of the 47 Ronin and prayed at Yasukuni. I am of the Warrior sort. I have read Stalin's speeches. Politically I am torn between Maoism and traditional culture, tribe, clan, Church, and Nation (as was Mao).

I can still sling the Marxist-Leninist lingo. I study Mao's life these days since China has opened up materials. I have had my children get majors in Mandarin and have sent the willing ones to China for study.

This is to establish my bona fides for my next statements. Henry C.K. Liu is a Maoist, and a self proclaimed Maoist, one who has left tracks all over the internet making this certain. I understand him well enough. If you think the Gnomes are bad wait till the Maoists are in power here in America.

Which is coming. The probability is high.

The Falun Gong were all arrested and none have been released. There are fairly reliable claims that most have been killed. Certainly they have been harvested for bodily organs and then killed. This is the future for us unless we take the correct road.

[Elaine Meinel Supkis]

I am a historian. I write history as it happens. This is because everything is easy to track, frankly.

The great European/US imperial rule of the planet is fading fast while the sun rises in the East. We have to accept this fact. Once we do this, it is easy preventing our own destruction.

But this means stopping all our many wars in the East. We won't do this. So we head towards destruction.

[Market Watcher]

Hi, Elaine, again.

The existing situation can be saved, although, personally, I don't think it will. Europeans and Americans would have to stop acting like children that don't want to get out of bed in the morning. There is an insistance that only pleasant dreams be allowed. The sleepers (us) refuse to awaken and the Dragon is no longer sleeping.

My Dad's friend, a Professor Ueda, a very learned and wise man, talked about China, the Dragon, awakening. Dr. Ueda invited us into his home when I was ten. He had an impressive collection of antiquities and old books, history, mostly. Dr. Ueda was an historian in depth but especially studied China.

His youngest son was a Kamikaze pilot who never received his mission. He was then about twenty five years old. He was not a happy young man. I asked him if he was even a bit happy to be alive when so many were not. He was not. His feelings were mixed, but only a little bit. From Dr. Ueda's son I learned much. Remember his face to this day. Wish him well.

Learned about everything I know about war from East Asians.

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