The Yen Continues To Rise, The Carry Trade Is Dead

October 23, 2008

Elaine Meinel Supkis

The yen continues to rise against both the dollar and the euro. The entire universe of the FX trade complex is in a roaring collapse as the old status quo of the Japanese carry trade violently unwinds. This is exposing all the hedge schemes and other monetary games to greatest destruction which is why world markets are reeling. The fundamental basis for all global lending has been the Japanese carry trade. 'Restarting liquidity' has required greatest efforts on the part of all central banks working with governments basically de-privatizing all banking systems WHILE STILL LEAVING ALL THE ORIGINAL GNOMES IN CHARGE OF EVERYTHING. This, of course, is dangerous and stupid.

First, we go to exactly one year ago to see what was happening. This is when all the powerful people running the world's economy first lost control of events and things began to collapse. Note the business about trying to get all currencies to decline against the dollar for trade purposes:

Culture of Life News from October 23, 2007: Central Bank Wizards Wave Wands Like Mad Today

More signs that money production, debt increases and money flowing into the offshore pirate coves is diminishing. It is obvious that we are sliding into a recession just like we can see the California housing boom going up in flames. The Economist magazine has a very strange editorial about how our wizards running the national banks created stability (HAHAHA) and killed inflation. I counter this by explaining who killed inflation and how this works. Also, right after the G7 meetings, all our trade partners went home and tried to kill their own currencies. By talking them down. HAHAHA, again.
*snip*
At $60 billion a quarter, the hedge hounds grew from near $0 to nearly $2 trillion in just seven years. Now they are growing somewhat slower. All the systems are slowing down. The stock market rises and falls on alternating fear and hysterical happiness, a classic sign of a bear market. Wild swings are a sign of bad times approaching. A $20 billion drop in the funds pouring into the Dark Pool system run by pirates on offshore islands is a sign they are not able to get the loot they usually want via hook or crook. The uneven trade due to high energy prices and hard working Chinese labor is still on track, producing wealth. But the consuming end of this is beginning to slow down: the USA.

The USA can't consume masses of stuff, merrily, if our wages and assets are declining. The US represents over 15% of world consumption. We are about 3% of the world's population so this means our consuming of resources and goods is grossly greater than anyone else. In particular, we consume more energy than any other group. Our energy consumption is double that of Europe or Asia. If we add onto this, the energy put into making and transporting goods sent to America, we actually consume another 5% of the world's energy via this trade.
*snip*
The world's economy is an ecosystem just like anything else in nature. All things must balance out one way or another. It is not an open-ended system. Just as we can't go into infinite debt, we can't have zero interest forever. Various actions designed to make money appear magically leads to debasement of currencies and inflation. Too much debt coupled with overbidding the value of real estate leads to depressions. Piling on debts on businesses leads to bankruptcies. Just as banks must attract not just borrowers, they must also attract savers, so it is with everything: paper houses are fine in earthquakes but a disaster in fires. Adobe houses are great in fires, a disaster in earthquakes.

So we try to devise systems which work in these yin/yang situations and none will be perfect. All are compromises. But lately, we have seen, thanks to the evolution of business schools and computers, attempts at creating systems that produce only wealth and never go downwards, instead of stabilizing our systems, this is destabilizing them much worse than pure laissez faire anarchy.

We keep crashing into the same rocks here: this planet's physical resources are limited, but money is unlimited. There are absolutely no restraints on creating funny money out of thin air. The real trick is to balance the act of creation against the reality of limited natural resources including limits on human labor. The magic of manufacturing is, it adds value to physical materials via human labor. With the creation of machines, the ability of even very poorly-trained, untalented humans can create the highest quality goods. With robots, this is even more so.

At one point in my long life, I used to make the prototypes for robots to manufacture computer products. When doing this, I and my co-workers had to be immensely careful. We had to measure and then re-measure things again and again. We had a rule: no one person could measure something by themselves. Why was this?

Indeed, NASA would get pissed off. They wanted to save money by having ONE person measure or calculate things from scratch. This caused huge, expensive disasters! The reason we had this double-blind checking system which depended on people not accepting each other's calculations was, it prevents 'self delusions.' Namely, we HALLUCINATE our errors away! I find this to be true in all human activities. WE SEE WHAT WE WANT TO SEE. Our minds edit out errors. This is human psychology.

This is why we make mistakes. And can't even see them. And indeed, the more power one has, the more one can avoid 'seeing' one's mistakes. Ergo: the people at the very apex of power are the most delusional and the least capable of fixing messes caused by miscalculations and errors! This is why we have revolutions, palace coups and bankruptcies as well as the death of all empires. And all empires die. All. There are no exceptions.

This is why I like to talk about mysterious mental processes so much. There is a huge following on line that seeks to 'understand' things via conspiracies. The people who imagine the ruling elites deliberately crash all systems is a false story line. I could merely say, 'Trust me, they do NOT want their pretty little systems to crash! Far from it! They do flee their messes and leave others to take the blame. But they do NOT want their darling little games to end in a crash.'

No, the preferred ending is for all the games to go on forever. For example, the Japan carry trade game was wonderful. All the people 'in the know' could do the same thing every day and make lots and lots of money. They dearly wanted this to continue forever. None more so than the Japanese! But it destabilized all the other systems of trade, monetary values and the debt levels of the entire planet which was suddenly flooded by epic amounts of red ink and so the Goddesses I talk about all the time woke up in the Cave of Wealth and Death and set out to destroy it all.

THE VERY RICH AND POWERFUL HAVE ZERO POWER OVER THE GODDESSES. Let me be perfectly clear here: the goddess of Inflation can be 'defeated' but this only brings the goddess of Depression into action and she takes over with characteristic brutality. In the case of today, the ruling elites came up with the CDO scheme that would lock out both goddesses and remove all risks and thus, allow everyone to flood the planet with funny money. This, of course, has failed most spectacularly. For the Derivatives Beast which the ruling elites created turned out to be far more destructive then the goddesses. He is a total demon.

This is due to the fact that the operation of money and banking is very much tied into the Outer Darkness where all things merge and converge at the same time. Where up is down and in is out. And can reverse instantly when the time is right. Even time is very twisted there where the past, present and future can be all at the same time, in a terrible crash of lightning. The ruling elites have learned over the centuries how to cope with their greed: they throw to the enraged masses someone else who takes all the blame. In most cases, this is the Jewish people. Who are a very small but very exposed minority.

The Jewish people, over the years of severe repression from 68 BC onwards, ruled first by pagans and then Christians in the West, evolved rapidly to have certain mental skills. Including cunning. But they have never figured out how to avoid falling into the trap of funding the Real Rulers and then being flung like so much meat to the wolves. Again and again, this is done. When the British ruling class owed their Jewish bankers too much money, they simply kicked them out. When they needed more lending, they brought the Jews back in. With the promise, they will be kicked out again if this is the best way to save the Crown.

This terrible history should alert the Jewish community to be more careful instead of working day and night to find some back door to the Cave of Wealth and Death and thus, exploit it so the Jewish community can get rich, quick. This is one reason why I talk about 'religion' so much here: the entire business of banking is magical. It is also haunted by history. And this history is all about Jews, Christians who hate paying interest on loans, Muslims who are following the same bizarre desires of lending without paying interest and these two massive religions have been joined by the Japanese who have exploited this desire for 0% interest to upend the Jewish/old-Dutch/early northern-Italian Renaissance merchant-banker's system of compound interest.

Why does compound interest work better than the 0% system? Many of my readers wonder about this riddle. Compound interest encourages savings and the use of capital gains to be put into banks and then 'farmed out' as loans. All savers wish to have a fair interest paid on savings. Otherwise, they buy gold and hide it under the mattress. The present collapse of the banking system has shown how this works: gold climbs rapidly as interest rates drop.

The present price of gold is dropping, you say! And yes, it is: this is due to hedge funds using gold as yet another way of making funny money. They took Japanese carry trade loans and bought gold futures. We know the real price of physical gold has not dropped nearly as fast as the price of fake gold, the paper futures. The mainstream media shows little interest in this little riddle.

Back to the collapsing systems and attempts to prop it up: the US is at the center of the entire rescue operation going on right now. The ruling elites are desperate to prop the dying US dollar up and propping up the US stock markets. They don't care if Argentina, Brazil or Iceland die. The humans living there can die! But the real rulers use the US military arm to control the planet and they, in turn, own our 'democracy' which has been totally undermined by bribes to the point, our 'representatives' rarely vote for anything that is popular with the masses anymore. If the vast majority of US citizens want an end to wars, they do NOT get it.

Just for one hideous example. Congress merrily votes to pay for more and more wars since the ruling elites want these wars. Same with health care issues or stopping the spying on US citizens, Gitmo, whatever. All these key issues end up going the way the elites desire. The lack of control and power is astonishing. But typical of any empire.

From my blog exactly one year ago:

The sudden fall in inflation comes right where this triple whammy begins: the fake inflation figures, the drop in world oil prices and China entering the industrial export markets. This wasn't due to any wand waving by financial wizards. Far from it. It is as if they were waving wands and then the sea went out at low tide. 'We moved the very oceans!' they crowed. Now, the tide has turned. The waves are rushing in, sweeping away all the pretty sand castles built on the shore. The wizards are frantically waving wands and the waves are bigger and bigger.

This is why the insanity of demanding China raise the value of the yuan is so striking: they do this and the last leg of deflationary costs will collapse! Not that our wizards will understand. Using fake inflation numbers will allow them to pretend all is well even as Americans freeze or starve to death due to declining incomes at the bottom. The elderly will be treated like the people of Gaza: put on short rations and then told to go off and die. This is why the right yells about spending on the elderly and then asks for trillions for wars.

*snip*

From China Daily: The Chinese government Monday said it objected to an overhaul of International Monetary Fund (IMF) guidelines for foreign exchange surveillance adopted earlier this year.
Li Yong, China's vice finance minister and the government's representative at the IMF and World Bank's annual meetings, told fellow ministers the IMF should strictly adhere to its tradition of consensus-based decision-making.
"We regret the IMF adopted in June its policy on foreign exchange surveillance, in the absence of consensus among its members," Li said in a speech. "We believe the IMF should focus on whether a member's exchange rate regime is compatible with medium-term macroeconomic policies, not the level of its exchange rate."

The IMF also needs to strengthen its oversight of policies of countries responsible for major reserve currencies, the dollar, the euro and the Japanese yen, Li said.

As I expected, the Chinese are now pushing back. They know the game is ending soon. Unlike the US, they also know that if they go into economic decline, they intend us to go into economic COLLAPSE. The US consumes far more than we make. Far more than our share. If this ends, China won't see its economy grow so fast but we will see our civilization go up in flames just like all those multi-million dollar homes with no sprinkler systems in California.

Last fall, the ruling elites decided after meeting very secretly in DC under the aegis of the Bilderberg Meetings, to cut out China and protect their own systems by crashing China and thus, teaching Hu a lesson. Only Hu was always one step ahead of them. This is because the Chinese are not babes in the woods, learning the dark arts of the ruling elites for the first time. They are champions at inside fighting in Byzantine systems! So the game of cornering China and defeating them and thus, turning that powerful creditor nation into the fool, failed. We see this defeat most clearly.

During last summer, the West was reduced to whining about the quality of the Olympic Games. Nonstop. This epic whine-a-ton backfired. Even as China faced very great difficulties due to Mother Nature and the CIA-sponsored riots in Tibet, the people of China's patriotism grew much stronger during the last year. This was not the plan! The plan was to bust apart China! Not make patriotism stronger.

In the US, the ruling elites use the excuse of our nearly-futile elections to drive us all apart. We have collective and regional disagreements. But instead of focusing on this and working out solutions and compromises as well as moving everyone forwards [for example, if someone hates abortions, they can not do this themselves but forcing others to bear children is stupid]. The US has many issues that unite us but instead, we are driven apart with fanaticism replacing rational thinking. Using bizarre propaganda routines like accusing a black man who wasn't even raised by a normal family and certainly, not a rich family, of being an 'elitist' was a classic example. The people who promoted this bizarre and insane idea were ALL true elite ruling class people! The pandering to workers based on race is another example. The refusal to allow Ron Paul and Kucinich air time in the mass media to talk about banking and economics is another example.

Isolating the followers of Ron Paul from Kucinich is another example. We have common cause and to unite under some sort of banner for reform and this includes cleaning up the media/election mess by forcing the media to carry free time for all candidates including minor ones in elections...we have a lot of work to do but are at odds and this helps the ruling elites who firmly believe in 'divide and conquer.' Which is why they tried to chop China in two last summer. I think that if they believe the US is going to be a threat, they will encourage North/South anger and break the US apart. Encouraging insurrections is just one more tool in their box, a very, very old tool. Machiavelli talked about this back 500 years ago and trust me, part of the education of the young rulers is his famous book.

Now, on to the news today:

Paulson lauds China cooperation amid market turmoil

(Reuters) – U.S. Treasury Secretary Henry Paulson on Tuesday praised China's cooperation in taming global financial turmoil and urged the next U.S. president to continue an active economic dialogue with Beijing.

In his first major speech on China in two months, Paulson said he has held useful and constructive discussions with Chinese Vice Premier Wang Qishan on the turmoil rocking global markets.

"It is clear that China accepts its responsibility as a major world economy that will work with the United States and other partners to ensure global economic stability," Paulson said in prepared remarks to the National Committee on U.S.-China Relations in New York.

Paulson said the United States has demonstrated that it will "do what is necessary" to strengthen financial institutions, unlock credit markets and minimize the impact of financial instability on the broader U.S. economy. He urged other governments to do the same.

Look at my old story above! China was the enemy! Note the utter change in tune today! China is our ally, our friend. China wants to fix our messes! Note also how Paulson still has to swipe at the Chinese saying, they must 'accept...responsiblity as a major world economy' and the Chinese must cooperate with us. But this is simple propaganda aimed at the US public. I am 100% certain that Paulson cringed and crawled like Gollum at the feet of the Chinese Dragon Throne and assured the rulers there that he didn't really mean what he says in the US. The Chinese will live with this. They are happy they have a collar and chain around Paulson's neck and they know that if the US or world notices this, things will get rather messy, a tad too fast.

The Chinese have patience. They believe in their 50 year plan. It has been awesomely successful. They know how it will end. They know that the US is still very strong and can easily cause WWIII and that is troublesome for the Chinese. They, unlike the US, are hemmed in and don't want stray nuclear warheads flying all around them. The US is still protected by vast oceans or the North Pole. So they would far rather avoid WWIII. The ruling elites want the US strong enough to fund our military so long as the military doesn't protect the US. Note that the rulers didn't care that New Orleans drowned while our navy was busy trying to annoy the Iranian Persian kitty cat three years ago!

They are most anxious to keep the US protecting EUROPE. That precious place filled with palaces filled with tremendously expensive art work, etc.---they do not want destroyed. This makes them rather nervous. For Russia can and will destroy all of this if they menace Russia too much. This is why they alternate between petting the Russians and parking US missiles on the border of Russia.

Back to Paulson: he wants the status quo with the ruling elites ruling the US and the world enabling them. Note that HE and not our 'President' or Congress, is telling world leaders, what the real deal is. This is INFURIATING. How dare he! How dare Greenspan trot around the planet, telling us what is going on?

Credit Suisse Posts $1.1 Billion Quarterly Loss

(AP) -- Credit Suisse Group (NYSE:CS) reported a 1.26 billion Swiss franc ($1.08 billion) loss during the third quarter Thursday, blaming bad investments and the global financial turmoil, and the bank said it was working to further cut its exposure to toxic assets.

Credit Suisse's second quarterly loss this year came as no surprise, following a warning by Switzerland's No. 2 bank last week that it expected to book writedowns of 2.4 billion francs ($2.06 billion) from its investment banking business during the quarter.

The losses are global and piling on top of each other. The headquarters of the gnome universe is in that old pirate hold of Switzerland. Back, when banking was born in Europe, the top mercenary bands were the Free Swiss. They took their loot to the Alps and lent against it via the northern Italian bankers who promised them compound interest returns. This fueled merchant bankers who were taking huge risks to bring to Europe, the trade goods of India, China and all of Asia as well as African commodity wealth like ivory, ebony, jewels and slaves.

The 'toxic assets' in the above story are not 'assets' but banking 'assets': namely, DEBTS. And above all, the interest profits in lending. The banks don't want the principal paid off, they hate that! They want the precious compound interest due to be returned to them, this is their profits! Savings are not assets, these are things the banker has to share the wealth with: the savers get their cut of the deal. This is why we are in trouble today: thanks to the Japanese 0% carry trade mess, savers were unnecessary. Debts ballooned far above even the minimal 10% reserves required of banks.

The great 'investment banks' like Goldman Sachs and JP Morgan, etc, all began to run on a 30-1 or worse, ratio. So when these assets ceased to cause money to flow into these banks due to no one paying the interest due, the entire value of the banks collapsed and there was no foundation to form a bottom. What we are seeing is a classic Outer Darkness business:

THERE IS NO BOTTOM. This is a classic 'bottomless pit.' If we read any stories about the world of warlocks, wizards, vampires, etc, if we look at all stories about that dream world of nightmares, the worst nightmare is to fall into this bottomless pit. This pit is the Cave of Wealth and Death, of course. When I was hit by lightning as a child, I fell into this place. It was very terrifying. The only thing that saved me was Pegasus came tearing past like a burning comet and I grabbed at him and was yanked upwards.

This is all dream metaphors, of course. My human mind grasped at concepts and pictures that helped me not despair as I struggled to breath again in the real world. So it is with money: it is magical yet it has to have a connection with real things. The only way out of this mess is to take away all the magic money from the bankers and turn it back into real things. This is what 'mark to market' is all about: making these imaginary values real again. And the banks hate this with a passion and are now unloading all of this into the central banks who are using the governments of Europe, Asia and the Americas to restore value by having the tax payers, not the bankers, eat the losses.

Allstate posts surprise $923M loss for 3Q

(AP) — Property, casualty and auto insurer Allstate Corp. on Wednesday posted an unexpected loss in the third quarter, hit by hefty hurricane-related losses and the ongoing global financial crisis.
For the July to September period, the company lost $923 million, or $1.71 per share, after a profit of $978 million, or $1.70 per share, a year earlier. Revenue fell to 7.3 billion from 9 billion.
Operating losses, which excludes investment gains and losses, totaled $190 million, or 35 cents a share — missing analysts' average profit estimate of 72 cents per share, according to Thomson Reuters.

Insurance companies are not about insurance. They are about making profits on money that comes from people seeking insurance against Mother Nature hammering them in the real world. The insurance industry is a middle man. We could put this money into a savings account and then fix things ourselves. But instead, we play the lottery. 'Maybe I won't get hurt but paying this small sum just in case is OK with me,' says the homeowner. The insurance company has to figure out something: 'Geeze, these houses in California have a good chance of burning down! And Galveston and New Orleans are regularly destroyed by storms! I better not insure them,' thinks the insurance agent.

But they insure them, anyway, because they are short sighted and don't like to think about reality. This is a peculiarity since they are supposed to be filled to the gills with people who calculate chance of losses. But then, the entire planet is going into the bottomless pit because the biggest bankers on earth played false risk games and insured each other against losses while totally unable to pay for these losses if they occurred!

And this, in a nutshell, is what the Derivatives Beast is all about: he was supposed to save everyone and eliminate risk but no one wanted to pay a REALISTIC insurance rate! They wanted a cheap rate and infinite expansion of risk! So they got it. In spades. Back to the infamous cave I yap about all the time: the Goddesses are many there. One of them is Lady Luck. She is the eldest of the goddesses. She is before Mother Nature. She existed before the Big Bang. She is random chance. She is the possessor of infinity as well as all fractional systems. She is a maniac who loves coincidences and convergences. This is her magic: when all the numbers are just right, she can have amazing reactions occur! These things are obvious to mathematicians who know that all their arts are very close to the Dark Arts of true wizardry. Indeed, the birth of mathematics is seeped in mystic knowledge and philosophical riddles.

You can't cheat Lady Luck. She doesn't stop rolling her knuckle bone dice just because we won the pot this time around. She does it constantly. Every day, she is doing this thing about risk: it is always CHANGING. We may have a one in a million chance that the San Andreas Fault will jump today. But we have a 100% chance of this happening this century! We might get hit by massive asteroids or comets once every 50 million years but it can happen tomorrow or right now! This is why calculating insurance is tricky and important: you can't have true insurance unless risk is figured out exactly so the company maintains a cushion when they must pay back. The credit risk pools all failed because NOT ONE of them calculated risk appropriately. They all goofed, badly. And this was because, they wanted to PRETEND that risk was gone so they could double and redouble risk. This was immensely profitable and the buying and selling of risk was utterly unregulated and thus, became a source of wealth by itself! So they wanted to do this even more, not calculate how ridiculous this was and stop doing it.

Citic Pacific Tied to Australian Dollar After Losses

(Bloomberg) -- Citic Pacific Ltd.'s attempt to manage currency risk means the Chinese steelmaker and property developer has four times more money riding on the Australian dollar than it earned last year.

The unit of China's largest state-owned investment company has contracts committing it to buy as much as A$9.44 billion ($6.3 billion) of the currency, according to an Oct. 20 statement. That's more than quadruple Citic Pacific's market value yesterday and compares with 2007 net income of HK$10.8 billion ($1.4 billion).

Citic Pacific has plummeted 66 percent in Hong Kong trading since disclosing it has an unrealized loss of HK$14.4 billion on the contracts, which force it to purchase Australian dollars at an average price of 87 U.S. cents. The currency traded at 66.72 cents as of 7:54 p.m. in Sydney.
*snip*
The Australian dollar may trade as low as 50.45 U.S. cents through March 31, according to Divyang Shah, chief strategist in London at CBA Europe, a unit of Commonwealth Bank of Australia.

I am 100% against the FX markets as they stand today. The entire floating currency mess is a mess and it is messy because it is wrong, it is bad, it is impossible and it is fatal to our nation and we have to kill it. Just kill it dead! It is no basis for global trade! The free trade movement ran on the same rails as the floating currency regime and both are now crashing into each other and we just have to can the entire system. The attempts of all corporations and nations to run this system has been a total failure. And this is why France and China are calling for an international meeting to talk about Bretton Woods II and the Nixon floating currency.

But they can't replace this unless the US first stops spending trillions on military domination, etc. And no one who has power wants this to stop. I keep mentioning the horns of dilemma. Well, we are trapped on this until something happens. Namely, the bankruptcy of the US government will change world systems in a massive cascade just like the fall of Britain in the last century.

The total notional value of outstanding foreign-exchange OTC derivatives in the world increased 78 percent in the two years ended 2007 to $56 trillion, according to the Bank for International Settlements in Basel, Switzerland.

``They have gotten very popular in the last three years and a lot of people have been hurt already,'' said Joseph Ngai, a principal for the financial services sector in Hong Kong at McKinsey & Co., a New York-based consultancy. ``When prices fall, you have to keep buying at a loss.''
*snip*
``I'm not quite sure how many understood what they bought, but when everything was going up in a straight line it looked very sensible,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte Ltd. in Singapore. ``The great unwinding will see more casualties.''

Eaton Vance, Deerfield Sell Loans, Unwind Saps Credit

(Bloomberg) -- Eaton Vance Management, Deerfield Capital Corp. and Babson Capital Management LLC are being forced to dump their loan investments as prices tumble, sparking even more selling and causing borrowing costs to rise.

Investors sold a record $2.3 billion of high-yield, high- risk debt in the first three weeks of October because of clauses in their funds' borrowing agreements that require them to raise money when prices drop below a set level, according to Standard & Poor's. With loans plunging to a record low 66 cents on the dollar last week from 88.5 cents at the beginning of September, the threshold is increasingly being hit.

At least $50 billion of forced sales may be ahead if prices continue to slide, S&P analysts predict. The actions help explain the sudden decline in prices and highlight the obstacles faced by U.S. Treasury Secretary Henry Paulson in his efforts to unlock credit markets. As loan prices fall, yields are soaring, raising costs for companies just as the economy slows.

Everyone is forced to sell at the same time because everyone followed the same plans, made the same deals and had the same thoughts. Anyone who truly hedged the upside of the bubble were spurned by investors. Everyone who was making money in the bubble were rewarded. Since few or no one was really hedging, the hedges all vanished into smoke since all were feeding the fire, not acting as water on fire. This is the 'herding instinct' and this is why governments have to regulate markets. A regulator prevents everyone doing the same thing all the time. People who are really hedging have to be protected.

Over the Counter Derivatives are just one appendage of the Beast. So are the much nastier 'Credit Default Swaps' which are CDS for short. These things are bets: the bet is, the insurer will never have to pay out. There will be no asteroid hit or San Andreas earthquake. Then, when the inevitable happens, all falls apart! DUH. To have to keep buying at a loss is the reverse of making money. Money vanishes as more and more players default. There is no final pay off except if governments wish to support the system by paying all the losses. Note that this is choice #1 for these goofy gnomes. Instead of all of them going bankrupt, they keep on going while driving all governments into bankruptcy. Cute of them, isn't it?

The Japanese yen is now 97 to the dollar and 124 yen to the euro. Last August, the yen hit record weakness against the euro at 162 yen for one euro. August, one year ago, the yen was fetching 120 to the dollar. So the rise in value of the yen is very significant and ongoing. This is a key event. All the previous FX positions that expected to make money were predicated upon a weak yen and 0% loans from Japan. This is dying rapidly! Japan is in hysterics over this. The strengthening yen has killed the Nikkei and is troubling the export industries. They are very fearful of being undercut in world trade. Japanese cars are more expensive in America! Yikes! This means people will buy Fords!

Now we go to Nikkei News in Japan:

Exporters' Profits Weighed Down By Falling Euro

TOKYO (Nikkei)--Japanese exporters, which are being battered by the financial crisis and a global economic downturn, are seeing their bottom lines squeezed further by the euro's drop against the yen.
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Singapore Firm Looking To Invest Y100bn In Japan Property

SINGAPORE (Nikkei)--A real estate company affiliated with the Singaporean government plans to invest some 100 billion yen in Japan's property market over the next two to three years.
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Accounting Industry Head Opposes Freeze On Mark-To-Market Rules

TOKYO (Kyodo)--The chief of the Japanese Institute of Certified Public Accountants expressed opposition Thursday to a proposed freeze on mark-to-market accounting rules for stocks and other financial assets.

The Japanese are a CREDITOR nation. Like China. And like China, wants good accounting of mark to market, not the fake kind. This is because creditor nations are savers and thus, on the other side of the scale of the debtor nations. And the US system is set to run on debt, not build credit. Debt must always increase, never decrease. Even when times are good, we increase our debts even faster, not slower! This is why our government spend over budget even more during good times than in bad times. The only time this was not true was when the Republicans defied a Democratic President or the reverse, when the Democrats forced Bush Sr to raise taxes and balance the budget.

Goldman Sachs May Slash 3,200 Jobs as Credit Turmoil Worsens

(Bloomberg) -- Goldman Sachs Group Inc. plans to eliminate about 3,200 workers, adding to more than 125,000 job cuts across the securities industry this year.

Goldman will cut about 10 percent of its 32,500 workforce as the credit crisis worsens, said a person briefed on the plans who declined to be identified. Paul Kafka, a spokesman for Goldman in London, wouldn't comment.

Banks worldwide are shelving deals and cutting employees as the unprecedented turmoil in credit markets spreads and spurs concern the global economy may fall into a recession. Goldman, the top-ranked adviser on mergers and acquisitions this year, has dropped by almost 50 percent in New York trading this year, and plans to convert into a bank from a securities firm.

Goldman Sachs is like everyone here: toss the staff overboard and heave ho, away we go, pull those oars! As the Titanic sinks, they make it much worse with these firings. Everyone is firing so this means the recession is set in cement. No matter how much money our government gives these pirates, the workers will be walking planks on every corporate ship, big or small. Here is another example of this:

Merck 3Q net drops 28 percent; to cut 7,200 jobs

Drugmaker Merck & Co. said Wednesday it will slash 7,200 jobs as part of a new restructuring program that comes as its third-quarter profit plunged 28 percent, due to a hefty restructuring charge and flat sales.
The maker of allergy and asthma treatment Singulair and cervical cancer vaccine Gardasil said it will cut nearly 13 percent of its work force, including many executives, to lower overhead and become more competitive, in its second major restructuring in less than three years.

The US just announced that the government is guaranteeing 70% of all US mortgages. This is a huge, huge hole in the budget but they don't care. Do they? The US can be sold at some future fire sale. At least, the Asians hope this will happen. Because the US government is the final payer of almost all US lending to homeowners, this is causing our stocks to go up. What a price to pay! I hope Joe the Plumber who put his small house deep in hock last year, is happy.

Brazilian stock market suspended as index plunges

Trading on Brazil's stockmarket, the biggest in Latin America, was automatically suspended Wednesday when the main Bovespa index plunged more than 10 percent.

The stockmarket was suspended for 30 minutes at 1917 GMT, the fifth time in three weeks that the automatic suspension has gone into effect.

All the once-hot commodity market countries are going under. When they do this, it increases the chance of a depression. The fundamentals of world trade are still collapsing, not improving. When commodities shot up thanks to inflationary dollars coupled with wild pirate speculations, this was a bubble and not due to natural forces. Now that the gnomes can't get endless loans from Japan, the flood of free money has ceased. Ergo: the commodity markets are collapsing due to very few bidders with free money bidding wildly on every possible commodity, asset or equity. This is why the news about the yen is most important.

One last story from Japan for my kids:

Japan Copyright Authority To Allow YouTube Uploading

TOKYO (Nikkei)--The Japanese Society for Rights of Authors, Composers and Publishers (JASRAC) will soon announce that computer users may upload videos containing JASRAC-protected music content onto the YouTube video sharing site, it has been learned.

Well, we certainly enjoy Japanese anime and music a lot so it is a relief that it will be available on the web. The Japanese creators are wonderful people unlike their government. Indeed, many Japanese anime are very subversive! They also hate the politicians who are often portrayed as goons or dangerous maniacs! Heh. A healthy view.

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[JT]

http://www.cnbc.com/id/24494689

Greenspan, Cox and Snow live now.

[DrKrbyLuv]

Elaine said: "The US just announced that the government is guaranteeing 70% of all US mortgages. This is a huge, huge hole in the budget but they don't care."

This is the untold story; our government has been irresponsible in jeopardizing their credit to save private corporations. Confronted with a decision to allow private institutions to fail from bad business dealings, they instead put our country on the hook.

This will ultimately make the problem much worse as we will eventually see the government fail and lose their credit. Will our government be able to trade on the international markets after insolvency? Will we be denied oil and other necessities of life?

I don't see where in the constitution the government is allowed to potentially destroy their credit by guaranteeing the bad debt of the private sector.

There really is no difference between the democratic or republican presidential candidates in this regard. They both supported the bail-out, they both want to increase the military, they both want an imperial presidency and they both promise tax breaks despite the fact that we run a perpetual deficit.

But we should expect this as both candidates kneel in front of the same masters and disregard the better interests of the american people.

[don]

Dr.Krbyluv: Your assessment is excellent. As I shake my 8-ball in a discreationary
manner, with my eyes closed, hoping one day, I will run for office, get a $150,000 allowance for clothes, use the Fed to bail out my buddies and other institutions- because of my own mistakes, maintain my off-shore accounts for a rainy day, make sure that the Dems-Indymac Rep. gets the fair housing act in shape for my own discount, borrowing money on derivative credits, just to name a few. I finally open my eyes and think to myself-is the answer "yes"? No !!!

[Duski]

Found an interesting article:

http://www.dailykos.com/storyonly/2008/9/10/105137/798

"The Republicans have just spent a month going completely frothy over the need to drill for oil and natural gas in every backyard in America, claiming it'll lower gasoline prices at the pump.

But did you know that in the meantime, they've been preparing to secret all that natural gas out of the country and sell it to the Japanese?"

Well, you have to pay debts in a way or another...

[ziff house]

What i don't see, maybe i missed it here, or at Denningers, is any discussion of US dollar hegemony. After all that is how we got here. When Bush was being interviewed at the Olympics he was asked about the 'problems' the US faced, and he gave us the usual smiling chimp response '' the us dosen't have any problems''
Crazy i know, but from his point of view the US can print as much it wants because everyone is holding the dollar bag , they cannot let it fall.

[DeVaul]

I am not sure, but I think that Elaine is saying that these Forex reserves and sovereign wealth funds are the "defenses" that other countries have come up with to our threat or attempt to "spray the earth" with dollars.

I don't pretend to know how it works, but it seems to be working for them so far. China is not collapsing from us printing endless dollars and credit, so they must be doing something right.

As for the stock and commodity markets, they bear little or no relation to reality now, as they are heavily weighted with pretend values and "future" goods bought and sold that do not actually exist right now. Following them is increasingly a waste of time. The black or local market is where real prices will and are being set right now for goods that exist right now.

[Elaine Meinel Supkis]

Like in the Soviet Union: the true value of 'mark to market' goods as the black market.

[Tell]

Elaine

http://tinyurl.com/6juujd

"this planet's physical resources are limited"

Now you are at the heart of what is really happening.

[Elaine Meinel Supkis]

All the many physical limitations are crashing into the latest attempt at gaining infinity. Just like the very rich wish dearly to live forever.

They cannot accept limits. This is a human desire which the Greeks called 'hubris.' And the entities who punished hubris were gods of various sorts or rather, goddesses in specific.

[Tell]

"this planet's physical resources are limited"

And mankinds greed is unlimited...or should that read insanity.

[Blunt Force Trauma]

Hey, all.

Been away from the "scene" for a while. Drove to Mazatlan, Mexico from Toronto but still paid attention to what is going on listening to both CNBC and Bloomberg on satellite radio.

I see Roubini is predicting a stock market trading cessation for a week or more in the coming days (and war) and the US dollar is gaining against most currencies except the Yuan, Yen and the Israeli Shekel. Weird. Or not(?).

The best though is the news of the FDIC who may guarantee bad mortgages. Wow. What a further kick in the groin to US taxpayers!

FDIC May Guarantee Some Home Loans (Washington Post)

http://tinyurl.com/6f3m5q

America's financial dominance is ending, warns Nouriel Roubini (Telegraph UK)

http://tinyurl.com/6ngb4h

[blues]

http://tinyurl.com/6mzlnj

"In his Guardian interview, Deripaska made it clear that Britain was of little strategic interest to him. His global empire, he explained, was based on smelters, hydro-electric dams and cheap Siberian power. "I'm dealing with industrial things, and Britain is a post-industrial economy," he said."

[don]

Elaine:
If the United States continues on this path
of self-destruction of the dollar, and the
official debt count is in the trillions,
will the people we owe money too, attack
the off-shore accounts to pay for the mistakes of wall street? Is that when we
really go broke, technically?

[ziff house]

''the "defenses" that other countries have come up with to our threat or attempt to "spray the earth" with dollars.''

come up with' ? they didn't come up with it they exchanged their labor for it.

[Zulu]

The Chinese are no slouches. They've been attacked many times throughout their long history by one conqueror or another and have always come out on top. They won't give in to us or anyone, unless it suits their purposes. I do not trust them, and no intelligent leader from the West should.

No The Elite do not want the game to end, but it will. The game will go on for a while, with fits and hiccups, but will end suddenly and violently. Just like a house built on a faulty foundation.

‘Alas, alas, that great city Babylon, that mighty city! For in one hour your judgment has come. For in one hour such great riches came to nothing. Alas, alas, that great city, in which all who had ships on the sea became rich by her wealth! For in one hour she is made desolate.’

[Simon]

Please do not take it as a comment against the general Jewish people but I have noticed that in history at one point or another nations that took prominent Jew as advisors ended badly

cases in point:
Egypt
Babylon
Persia under Xerxes
Germany
Great Britain
US?

Again a small group of elites does not represent the entire people, amorpheous concept that it is.

[ziff house]

FRom the press [telegraph]

''The spectacular dollar rebound has geostrategic implications. Heady talk earlier this year that dollar hegemeny was coming to an end - or indeed that the US was losing its status as a financial superpower - now seems very wide of the mark.''

propaganda i know, they can't even spell, but they will try to make it stick.

[Q]

With the Yen currently under 95 the Fed is faced with the 'Horns of a Dilemma' cut rates to keep the US markets from tanking in the next day or two but at the cost of totally wiping out the remainder of the Yen carry trade and destroying most global economies that borrowed the yen to expand (or) sit back and watch the US markets drop 25% and drag down the global markets in sympathy. I am afraid we are on the verge of a market holiday where they can figure out how to screw the taxpayers of the world even further to bail out the gnomes in their derivative Ponzi scheme. All credit swaps default contracts must be deem null and void with no recourse as soon as possible to avoid bringing the global economy crashing down, beyond the 25-50% drop that is coming.

[calvino]

Q watching the futures are we? Your suggestion is logical, however lying Hank will not allow it. All off-exchange derivatives and contracts are to be canceled, lest they suck all the value out of the markets. As any preening academic rat, Dr. Bouhiki came to fight the Great Depression that he jailed in the thirties. Too bad bank guarantees are THE problem in the two thousands. When the high school principal returned Beavis and Butthead to middle school, he explained: 'these boys aren't geniuses, these boys are morons.'

The AIG grab for an extra forty billion is taking the markets down four percent as I write. Some of us who harp on flying wax lips and chocolate faeries think this is all a play removed. This is actually very real, and very bad. Now real people's savings and retirements are being torched. When Exxon Mobil moves ten percent in one day, the markets are imploding.

[calvino]

Correction, the s and p 500 futures are down five percent now.

[Elaine Meinel Supkis]

As I keep saying, the Derivatives Beast has not gone back into his cave, he is eating all the wealth of the world since he is a totally NEGATIVE creature. To get back to parity and balance, he must eat all the wealth.

The foolish, dangerous, idiot gnomes who created him were hoping he would allow them to reach infinite wealth. This is why they madly made him grow from less than a billion to way, way over the value of all earthly finances in less than 15 years.

Thus ends a goofy experiment in eliminating risk! Indeed, the entire period of 'little inflation' was FAKE. To keep it going, the governments of the world conspired to cook the books and deny obvious inflation. As a person on a fixed income, I felt this directly as my retirement funds ceased covering my expenses which it covered previously.

This cannot end unless the governments of the world first bow to Libra's tremendous powers. She wishes to save us but if we insist on unbalance trade and monetary systems, she pulls out her sword and uses it to balance the scales.

This is why being smart and at the same time, humble ourselves to the natural forces at work here is the best solution.

[Simon]

S&P500 is limit down 6%
Opening soon, lets see what happens

[srini]

hi elaine :-), i dont think i would feel safe to make those bubbles today in front the tse.. lol

[Simon]

This is why I NEVER, NEVER listen to any of the goldbugs
Too much is at stake, and they can outgun you any day.

[Elaine Meinel Supkis]

Since gold is presently a commodity, note how it is collapsing in price as all currencies fall. This is due to it being an odd thing relative to money.

Gold still has the 'monetary' aspect attached to it! Since so many central banks still hang onto their gold reserves and instead, 'swap' it rather than part with it, it continues to have this curious relationship with monetary games of the Floating Currency system.

This is why gaming with gold is dangerous: the central bankers still control this game! And they WANT people to park their paper money there for a while so when it is time to kill inflation, it dies in the gold areas where desperate people trying to escape inflation flock.

The governments want us to SPEND money so they can TAX it.

[carli]

Calvino, I too would like to think that lying Hank and Dr. Bouhiki will save the day by reneging and cancelling all the CDS's, but two things are preventing this, 1.) Greed. They are to happy to apply 10% vigorish for their buddies in every piece of the bailout pie (the Brits have now started mimicing this behavior), and 2. DISTRUST. Read how the "prestigious rats" fight for cheese...

[The following message came yesterday to my desk. It pertains to General Electric. It involved dishonoured Letters of Credit (L/C). The US banks not only distrust each other, they are engaging in criminal activity, like contract fraud. If big enough, or connected well enough to the power center, it is permitted. Again, no solutions, only proliferation of chaos.

[“Try this one on. One of our clients did a bond early last year (underwritten by RBC/Dain Rauscher) backed up by a General Electric Letter of Credit. There is a tag end of $1 million. The deal was the sale and lease back of 13 bank branches. One remains. The tenant is a regional bank. RBC cannot remarket the bond now because the market is still frozen. So the client, per the documents, called on the L/C for performance (as allowed in the L/C, which extends to 2021). GE has reneged on the L/C and will not pay unless the two principals come up with $1M in cash. The client has said no way, the L/C has no such provision. GE has said, too bad, if you don't like it, talk to our attorney. We're not paying.” Stories like this are probably surfacing all over the North American landscape. US banks are defending themselves by dishonouring contracts.]
http://tinyurl.com/56r4zh

[Yusef]

"will the people we owe money too, attack
the off-shore accounts to pay for the mistakes of wall street? "

Money swirls in electron clouds hither and yon like wispy, whispering fog over a swamp. Don't try to catch the wind and attacking a vault to get "money" is no better.

[Dutch]

Nice article Elaine, Kirby is right. So is Denninger.

@ziff house- It was an interesting comment by Bush. Mish has got a link from the Charlie Rose program last night. I dont know if his video has all of the interview.(There were two guests)

http://calculatedrisk.blogspot.com/

The last guest gave a good explanation of MBS(mortgage backed securities) The banks bundled these things up and sold them off probably assuming that the good would cover the bad. Like your credit card. The shortfall could be picked up over time. Vis a vie the 'the floating currency'

The danger here is that if greed overtakes common sense on the gold price. Hence the Ezekiel warning. If the new hybrid banks take hard currency and use it as collateral it might save the system. What say you?

I think its time to put politics and war aside and let real money in before congress hands a gun to our enemies and tells them to shoot us.

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