That Was The Week That Was: August, 2007

August 11, 2008

Elaine Meinel Supkis

I take rather a bit of hubristic pride in calling the shots correctly. I lose readers all the time due to this predilection. Here is a review of last year at this very same time frame. We need to take a good look at the past and I recommend reading all these articles in full, to understand the present. For, as I often said last year, all efforts of the G7 and China will be focused on restarting the very destructive status quo that is killing the US in the long run. They are trade rivals and they toil day and night to gain industrial and trade advantages with each other and the lumbering, stupid US economy. The status quo is pure poison for the US working classes. But it gives us Santa Claus goodies in the short term.

August 8, 2007: No August Vacation For Our Rulers And Financiers!

August, the month of the Lion, the hot desert sun shines on the tawny fur of that beast. Actually, it is incorrect, the Zodiac is off by a whole month from the true star positions. This is actually the Virgin, not the Lion. But this is also the month of vacations yet all the money men and their creatures like that constant bankrupt, Bush, are all over the place assuring us that all is well and this is a Bull market not a shit market! And the housing collapse has been FIXED! Like when gangsters fix games. Namely, the taxpayers will take up all that red ink bleeding all over those stupid hedge funds. But alas, America itself is going bankrupt. For obvious reasons.

Bloomberg: President George W. Bush and Treasury Secretary Henry Paulson said they're resistant to changing government policies to address gyrations in financial markets, calling the U.S. economic expansion ``strong.''
``Markets ultimately look at the fundamentals of the economy,'' Bush told reporters today after meeting with Paulson and other members of his economic team in Washington. ``The fundamentals of our economy are strong.''
*snip*
In the equities market, prices already are adjusting. U.S. stocks today continued their recovery from a three-week rout as speculation increased that banks and homebuilders may have weathered the worst of a subprime mortgage shakeout.

Orderly? Well, if this is the Titanic and we are 10 minutes into the sinking, yes, the first class passengers are getting onto lifeboats in a very orderly fashion indeed. No one needs to tell the guys in steerage to come updecks and wait for their missing lifeboats! And the guys in the boiler rooms can all go to hell as far as Paulson and Bush are concerned. Yes, this teetering on the edge is very orderly indeed. As each mortgage organization or their fellow hedge funds go sliding into the cold waters of the Atlantic, there is some screaming and panic but the captain ordered the band to play happy music. And not the 'Blue Danube.'

August 9, 2007: Europe And US Struggle To Contain Collapsing Equity Markets

So, even as I detailed how all other nations whose names are not spelled 'J-A-P-A-N' are raising interest rates, the bank with the strongest currency, the one that the Japanese FOREX traders flooded, selling yens and buying euros, is now forced to drop interest rates to 4%? And they are saying they will lend INFINITE funds at this level?

Treasuries rose, led by short- maturity notes, after European money market rates surged and the European Central Bank said it would provide unlimited funds at a below-market rate of 4 percent to avert a liquidity crisis.
Investors are demanding more compensation in the form of higher yields to provide funds to non-government borrowers after losses in bonds backed by subprime mortgages. Futures traders increased bets the Federal Reserve will cut borrowing costs this year to assure the smooth functioning of financial markets.

What is going on here? Inflation rages in China as their economy rises like a Phoenix from the ashes of communist rule. But China isn't merely experiencing inflation, they are the INFLATION SINK for Japan and the US as well as Europe! Japan boasts of 0% inflation or even depression and milks this relentlessly for trade advantage. So we have the financial black hole of Japan running negative numbers right smack next door to China running inflation figures! And they are connected!

If Japan couldn't move its manufacturing offshore to China, they would have inflation, too. But this would strengthen the yen and put money in people's pockets and they might buy imports so the Japanese fixed this by cutting wages with ruthless efficiency to the point, the Japanese people can't buy much of anything anymore and car sales as well as other big ticket items has collapsed even as Japan boasts of being the world's #2 economy and the #1 trade surplus profit center! This is very contradictory and shows clearly, something is rapidly approaching warp speed in a collapse like when a star falls into itself.

August 9, 2007: Dow Collapses As More Hedge Funds Fail

Maybe they won't wait until October to panic. World markets roil as the poison from all those stupid hedge fund tranches act like gangrene: infecting everything and killing everything. Like germs, a tiny tranche can translate into amputed limbs. And the biggest finance houses on earth are madly chopping off limbs and trimming their hedges. Their entire universe is collapsing on them and they will claim 'We have NO idea how this happened' which is why I will pre-emptively call them all liars, scoundrels and riff-raff. It is obvious now that we are in a bear market from hell.

Thanks to Fred, a head's up that the Bank of Canada is now giving away free money to stop the panic:

OTTAWA – In light of current market conditions, the Bank of Canada would like to assure financial market participants and the public that it will provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets.
These activities are part of the Bank's normal operational duties relating to the stability and efficient function of Canada's financial system. The Bank is closely monitoring developments, and will deal with issues as they arise.

This is just like all classic financial collapses: it moves up the food chain, first hitting the very littlest guys then the medium sized guys and then the bellowing and trumpetting of the World Ruling Elites as they stampede about, in a total panic as a mouse chases them around and around. 'SSSSAAAAVVVEEE us!' they scream and suddenly, the entire banking system of this planet goes into high gear and saves them... maybe! And the big craveat here is simple: only a mighty empire with deep pockets can save the ruling elites, the kings, queens, princes and sheikhs of ths world! And if that empire is broke like England in 1929 or America in 2007, we get an unholy mess called 'Financial Crisis!'

August 10, 2007: Understanding Panic And The Need To Be Infantile

Panic is emotional. When a magician is on stage doing a fire trick. 'Now watch me make a tiger jump through this flaming hoop and turn into a dragon', he says and then the tiger jumps through the hoop and out of it comes a very angry Chinese dragon clutching a bag of money, the biggest money bag on earth, and then it decides to burn the entire theater down, everyone panics and runs for the exits. Miz Japan is trying to pour liquid on the burning theater but the hose is attached to a gas tank so things get worse and worse. So the Federal Reserve turns on the taps only this causes global inflation and destabilization and makes the fires rage higher. I sat in the audience for years, booing loudly while everyone clapped. Time to examine this, the 4th major financial panic I have seen in my own life.

Everyone stay orderly while rushing to the exits! Don't push. Please don't trample each other and don't make a mob a the doors. Damn. They never listen. When people exit a burning theater, they go as fast as possible and climb over each other. Of course, the hotsy-totsy people in the executive boxes quietly sold off their stocks and removed themselves from this smoke-filled chamber of death. But some sat in place, hoping the next act would be a reenactment of the 'Zeus as a swan' myth.

August 10, 2007: The Perfect Typhoon Is Still Churning Off Shore

The sun just peeped out behind the rolling edges of black storm clouds. Already, one arm of the churning typhoon has passed over, dumping a few inches of rain and swatting us with 90 mph winds. Then the sun comes out and the winds drop and we all run outside to see the damage. Already, the clean up crews are at work. But the waves pounding the beaches are not getting smaller, they are making the ground shake with each concerted crash and surge. We can already see the storm rotating towards us. About these storms; the faster they move in, the swifter they are over. But if there are enough contrary winds, a major storm can sit and stew for several days and then utterly destroy everything. This economic storm might be a catagory 5 typhoon.

From the Washington Post:

The injection of $130 billion into the financial markets by the European Central Bank was the largest amount ever provided in a single operation, exceeding the amount added after the Sept. 11, 2001, attacks.

All right: we were in good times up until July 17, 2007. Everything was fine according to the idiots in the media. The subprime mess was tiny and who cares, we have a strong economy! And everything was coming up roses. It was a record bull market! Look! We hit the highest level ever! Time for champagne, not warnings from creepy ladies on the internet.

August 11, 2007: This Banking Collapse Is Different From Earlier Ones

First, note the Bank of Japan, the world's #2 economy, gave only a tiny infusion. Europe's amount was 25X greater! And it was also 3X bigger than the world's #1 economy, the US. Why is this? What happened that caused this huge differential in response? The euro isn't the world's reserve currency. The dollar is supposed to be that. I really am puzzled and so far no one has even brought up this question. I do a lot of looking at history and reading old newspaper articles and old academic studies. A common feature in these is, they usually profess to not know what is the cause of these clockwork-like boom/panic cycles. Each one is treated as singular. If a writer connects several, they tend to connect only 'in country' events rather than lining up all possible events and seeing a pattern emerge.

Having lived through a number of cycles, I find them to be all stemming from the same situation if we look at things as if it is an evolutionary landscape. The causes of these manias lies in the nature of growth/death cycles as well as population increases/population crashes. So let's talk about evolution.

Evolution isn't a smooth process where nature is always in balance. It is an unweildy network of many levels that evolves to create an environment. There are micro-booms and micro-busts within this system, some are very regular like insects that suddenly emerge every 7 years to mate. We have moth infestations that occur every 10 years or so. They suddenly are crawling all over everything and they strip the forest of every leaf. Then they are gone. Poof.

Generally speaking, if the climate and the landscape remains the same for a long period, everything settles into a status quo that is equally stable. There are few surprises and deaths are in harmony with births. But is only one element is changed. Weather conditions, a new disease, new predators, land bridges or invasions via the sea (humans have wrought giant changes this way!)---all this can destabilize an ecological landscape and we see population vacillations or crashes that can lead to extinctions and out of this grows a new status quo. Sometimes there are huge celestial events like meterorite crashes or comets hitting a planet and most living things die nearly instantaneously. The evolution of life forms springs from catastrophes.

Puzzling out how and why great extinctions as well as lesser ones happen takes lots of detective work. So it is with economic evolutionary events. There are vacillations over time, little ups and downs that change the landscape hardly at all and then there are great extinction events. Universally, the economic great extinction events are coincidental with the internal collapse of a great empire. The greater the empire, the bigger the extinction event. For example, the collapse of the Roman Empire's economy was so bad and so thorough, the resulting depression lasted for 1,000 years.

The history of civilization is coincidentally a record of boom/collapses which we see as changes in government and the founding of or destruction of cities and dynasties. The Old Kingdom, Middle Kingdom and New Kingdom dynastic cycles of ancient Egypt starting 12,000 years ago are one of the earliest archeological examples of mega-boom/crash cycles. Each one started modestly, over time would grow ever greater and more complex and then suddenly collapse. Just as we see the pyramids starting out as small death-houses and working upwards until each pyramid is bigger than the last and then it ceases, the culture fails, the government collapses and chaos reigns until a new, supposedly better system is established.

Sometimes a culture never re-emerges after a catastrophe. The caldera event on Santorini island annihilated the Minoan empire totally and no empire replaced it. The chaos this caused in Greece was called 'the Greek Dark Ages' and all reading and writing vanished. China has an equally long cycle of dynastic birth/death cycles. Some are nearly fatal such as when the Mongols invaded and hunted down and killed, for sport, nearly half of the population. Another such collapse was after the Europeans and Americans invaded and utterly destroyed the economy and culture and sent the Chinese people spinning down into economic destruction ending with Mao and the Great Leap Forward and the Cultural Revolution.

We are entering difficult times because of this sort of cycle. Namely, whenever an empire falters and falls, it causes great chaos and wars. And if a global empire collapses, this causes world wars and tremendous chaos. The revival of the Chinese and Russian empires coinciding with the collapse of the Pax Americus set up (badly) by the US after WWI and cemented after WWII is an important historic event and the increasing financial difficulties of world trade reflect the deteriorating condition of the American empire.

Many of the smaller banking/economic collapses like the bankruptcy of Argentina or the collapse of smaller currencies like the lira or peso can trigger banking panics and economic recessions to a minor degree, world wide. But even the smallest slip up or the slightest hiccup in the American economic system or banking community can trigger massive global vaccilations and collapses that are virtually uncontrollable due to the nature of this being caused by a global empire. The Japanese boom/bust of the late 1980s to the early 1990s was purely internal. The Japanese were forced to raise the value of the yen and this was fine fun until the US picked yet another war against Iraq, Desert Storm I, and this caused world oil prices to spike without warning and threw the world into a recession. Japan is very vulnerable to US recessions.

The Asian Currency Crisis was Japan's solution to its weak banks and strong yen: they played underwater currency pulls that caused a cascading event that ended with everyone revaluing all Asian currencies...much lower against the dollar. Settling in at that point, Japan reduced interest rates to 0% and wrung out their entire banking system by making it pretty much vanish and leaving only the Bank of Japan, controlled by the government and the powerful industrialists in control of all money in Japan.

August 11, 2007: SEC To Investigate Goldman Sachs, Merrill Lynch

The money spent on saving the G7 nation's intra-banking system is now $326.3 billion and climbing! And the markets are closed during the weekend. Will this get worse? Well, the biggest brokers won't fund mortgages above $400,000 anymore except at crazy rates well over 8%! And more hedge funds are dying and the SEC is investigating Goldman Sachs (!!!!OMG!!!) and Merrill Lynch for lying about the value of their assets and hedge fund holdings. And Bear Stearns executives sold out right before the crash! It's Enron time!
*snip*
It is easy to grow if money is free. I am a saver and I hated the 1% years because we savers were offered Japanese rates! Needless to say, savings plunged. I only save in order to pay taxes now. CD rates were pretty slender, too. Everyone had to invest or lose their money to inflation. From 2002 to 2005, the price of gasoline in my community went from $1.05 to $3.00 a gallon. Food prices shot up, too. I ceased heating my house with propane and went strictly to firewood from my own forest. A bank would sit on my savings and use it to generate these ridiculous mortgages while I waited to pay my taxes. And this annoying situation still continues. I warned the Federal Reserve that interest rates were NOT reflecting 'inflation'---whatever that is. But rather, the amount was supposed to attract SAVINGS! Who saves when it is 1% or less? Or if it scrapes along the rate of inflation which makes it basically 0%?

It is almost heartbreaking from my vantage point high up on the cliffs of life with the other vultures, looking down at the milling herd, watching it being torn apart by lions and bears. In between these epic battles, the vultures sail majestically downwards to pick at the carcasses. Note that repeatedly, as the obvious outlines of a truly epic banking collapse were unfolding, the main players all claimed that the US economy was strong, all was well and this was just a small pebble on the wide road to prosperity and not a gaping black hole eating up wealth as fast as the bankers could generate free funny money.

Now, on to today's stories: the re-establishment of the Japanese carry trade and the need to shove the US back into the role of consumer, not producer, debtor, not creditor nation.

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Comments

[Peter]

Elaine,

I'm sure you know how much "catching up" one has to do if one's "education" was obtained in US schools-your lessons are much appreciated, but may I ask the teacher to give us a review of two areas you mention often: Japanese Carry Trade, and Forex? I have a general impression, but as you continue to stress their importance, I fear I won't pass your final exam on these topics. Thanks,

Peter

[Anthony]

Instant result... (the twin deficits are going to explode soon. Then the real problem will rear its head. This is a little too predictable.)

http://www.bloomberg.com/apps/news?pid=20601087&sid=akr7J7kMoxeo&refer=home

The yuan fell 0.24 percent to 6.8588 per dollar in the five days ended Aug. 8, near a six-week low. It dropped 0.34 percent the week before, the most since China scrapped the currency's peg to the dollar in July 2005. The People's Bank of China has kept the yuan little changed since June, after gains of 4.1 percent in the first quarter and 2.3 percent in the second.

U.S. Treasury Secretary Henry Paulson, writing this month on the Web site of Foreign Affairs magazine, said yuan strengthening still has ``much further to go.'' Of the advance since the peg ended, Paulson said 70 percent has come about since he initiated semiannual economic talks with China in 2006.

Global Slowdown

China is reining in yuan appreciation to help exporters weather a global slowdown and deter so-called hot money, speculative funds attracted by anticipated gains in the currency. The yuan recovered from earlier losses today after a government report showed export growth unexpectedly gathered pace in July and the trade surplus widened for the first time in four months.

[Ralph]

The currency game is easy. They are in a race to the bottom, to see who can destroy their currencies purchasing power 1st.LOL. Thats the orderly decline that they want. The US mangled the dollar, now the EU can mangle the euro, the Japs have already mangled the yen. Its such a joke. Since 71 were all speculators to some degree, because THEIR IS NO STABILITY!!! Even Gold is screwed by this, and fluctuates violently.

[Elaine Meinel Supkis]

Yes, when there is no Libra to regulate and balance things, all things fall apart. This rising chaos increases risk which increases wealth which makes money off of risk. But this also DESTROYS wealth via either asset value destruction or inflation of commodities.

We are once again, trying to inflate assets. This WILL FAIL.

[GK]

Elaine, does any of this have to do with the end-time predictions that the Russian army will storm into Israel and somehow magically vanish into thin air (thermo-nuke vaporization?) on their way there?

When you study the map of Iran and think about the Georgia action, you can see where they would roll.

http://maps.google.co.nz/maps?hl=en&q=
iran+map&um=1&ie=UTF-8&sa=X&oi=
geocode_result&resnum=1&ct=title

[GK]

Someone else with the same, insane, thought.

http://europebusines.blogspot.com/2008/08/
080808-beginning-of-summer-olympics-and.html

"On the 5th of August, days before the attack on South Ossetia, in my article “The Good and the Bad and the Truly Ugly”, I quoted an interesting prophecy from Nostradamus, Quatrain X.74 which reads "The year of the great seventh number accomplished, it will appear at the time of the games of slaughter, not far from the age of the great millennium, when the dead will come out of their graves." This could refer to the Seven Year Tribulation, which could well be the time from 9/11/01 to 9/11/08, at the time of the Olympic Games, not far from the age of the great millennium (the beginning of the Third Millennium in 2000/2001), and Armageddon (when many dead saints are suppose to "come out of their graves"). It is interesting that the dates of the 9/11 and 7/7 attacks and now the 8/8/8 attack all have occult meanings."

[Elaine Meinel Supkis]

Yes, they love magic numbers. This is why the US didn't tell Israel to stop bombing civilians in Lebanon for 33 days. By the way, there is nothing more hypocritical as the US fuming about Russia bombing for less than a week.

Then there is the whole bomb, bomb, bomb Iran business....

[JSmith]

"I take rather a bit of hubristic pride..."

YOU!? No WAY!!!