Global Meltdown Meets Earthquakes and Extinction News

October 6, 2008

Elaine Meinel Supkis

A series of bad earthquakes rattle the entire perimeter of where India is crashing into Asia. Also, many mammals will go extinct soon. This is the REAL news. Then there is the economic mess. Congress questions Fuld, a top gnome, about screaming for help and then handing out billions in goodies to himself and his buddies before declaring bankruptcy. And world stocks crash through various floors. What do we expect? The Fed is going to lend nearly a trillion more dollars in a failing attempt at reviving banking. Har. That is going extinct, too.

Kyrgyzstan, Tibet and other places hammered by earthquakes caused by India continuing to ram into Asia.

To put everything in perspective, it is good to remember the planet Earth, our home base and the true thing that is at stake here.

With no warning, a number of people minding their own business died this morning when a sharp series of medium-bad earthquakes rippled through the mountains being shoved so violently upwards by the Indian Plate. This plate used to be the fastest moving plate on earth but ramming into Asia has slowed it down, somewhat. But hasn't stopped it from shoving relentlessly northwards. Will India continue until it cuts Asia in two?

It is possible! This titanic force is like all forces of nature: relentless and follows its destiny and doesn't let much of anything interfere. When India split off from Antarctica, most likely after a meteorite strike of great violence there, it shot northwards and geologists still have no idea why it did this with such amazing force. When India passed over this 'hot spot', it released enough gases and lava, it changed the earth's climate and lead to a huge extinction event.

This earth is dynamic and powerful. The sun is also capricious and dynamic. We mere humans would like to think our houses, the wearing of animal skins, our technologies and our use of fire will isolate us from Nature's forces. But we can't even control forces that are TOTALLY within our own control! Yet we think we dominate this amazing planet.

Stocks are now being dragged into the economic cellar just as asset values, commodity prices, all our paper is rapidly losing value while totally made-up money is rising in value, paradoxically! Prices of things we need are still very inflated but will now join all the other things in falling. This flip from 'Inflation' to 'Depression' is not mysterious. This is what ALL systems do: they FLIP.

When I was a small girl, I could read before 3 years of age. But I couldn't speak English worth a hoot. So in kindergarden, since my school was run by people from the University of Chicago for the professorial children [ie: us brats] gave me speech therapy. I vividly remember the word 'flip' and the therapist tried and tried to get me to make the tricky 'fl' sound which is, frankly, a very peculiar lip/mouth trick. You have to blow out the 'f' sound while suddenly jamming the tongue against the roof of the mouth against the teeth! If you think about this while slowing shifting from the 'f' to the 'l' sound, it feels very peculiar and frankly, uncomfortable.

When I was a child, it felt alien and annoying. But I finally was able to get the sound right...after being subjected to a hyper-flip event when all the ions around me went from negative to positive all at the same time, extremely violently. It literally flipped me out of my bed and across the room.

So here is the other important news today:

Mammals facing extinction threat

At least 25% of the world's mammal species are at risk of extinction, according to the first assessment of their status for a decade.

The Red List of Threatened Species says populations of more than half of mammalian species are falling, with Asian primates particularly at risk.

In particular, the Great Apes are fading fast. We were driven out of the Garden of Eden during the Ice Ages. We then figured out how to survive this epic flip flop event and discovered how to use and abuse fire as well as how to steal animal skins and transfer it to our own bodies. We also practiced exo-gamy and cannibalism. A queer combination Blue Beard would appreciate greatly.

Now, onto today's economic news:

Congress opens hearings on financial meltdown

"What has happened is an absolute tragedy," Fuld said in prepared remarks. "I feel horrible about what happened."

Waxman read excerpts from Lehman documents in which a recommendation that top management should forgo bonuses was apparently brushed aside. He also cited a Sept. 11 request to Lehman's compensation board that three executives leaving the company be given $20 million in "special payments."

"In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman said.
*snip*
Waxman said that in January, Fuld and his board were warned the company's "liquidity can disappear quite fast."

Despite that warning, he said, "Mr. Fuld depleted Lehman's capital reserves by over $10 billion through year-end bonuses, stock buybacks, and dividend payments."

Waxman quoted Fuld as saying in one document, "Don't worry" to the suggestion that executives go without bonuses.

My gnome cartoons are correct. These gnomes have no shame at all. Yes, they need to be rescued. Especially if it is a buxom babe. And the rescues are not for THEM but for their MONEY BAGS! They are like first class passengers on the Titanic. They want the captain of the ship to load onto the life boats, all their jewels, artwork, safes, bags of money and then any boats left unfilled can carry the second class passengers. The steerage and the workers in the belly of the Titanic will be left to drown like rats.

Congress, who gets paid by these same smug first class passengers, needs to put on a show of scolding the rich as they hand-carry the jewels, artwork, safes, etc onto the life boats for the first class passengers. 'Master, you were very naughty, you know, hogging the life rafts,' complains the Congressional stewards as they carefully pack the life rafts full. 'We should ask for this to be left behind and maybe save some of the children in steerage.'

'Oh, quite, Jeeves. I do understand. But it is frightfully cold out there and I need this for my comforts when I am rescued, you know!' sighs the rich man, brushing aside a second class passenger trying to reach the life boat. 'I say, couldn't you chaps shoot at this mob and keep them away until we are clear of this sinking ship,' demands the rich passenger.

Congress would make tremendous progress in cleaning up this mess by outlawing the flood of corruption that has destroyed our elections. We can't let them sell democracy to the first class passengers! If Fuld isn't arrested for calling a FALSE ALARM or for FRAUD then what is the point of these hearings? Eh?

As my previous story said, these clowns are NOT in danger, they want to keep their loot after destroying global banking. After wrecking our incomes, driving us to despair thanks to inflation and monetary chaos, they want to get all their ill-gotten gains and retire?

World markets hammered over banking fears

By London market close, the Dow was nearly 4% lower at 9920.61, a fall of 404.77, in further evidence that the $700bn (£380bn) Wall Street bail-out package has done little to reassure investors.

In London, the FTSE 100 index slumped 7.29% to close at 4617.2, 363 points down, its biggest ever points fall. Today's fall wipes £93bn off the value of the UK's leading companies.

In its latest attempt to bring calm to the markets, the Fed said today that it is increasing the amount of credit it makes available to American banks by $900bn. It said the move should make it easier for companies and individuals to borrow money. But in a sign that many people have little trust in the financial markets, gold futures jumped by over 5%.

A lot of money is being 'lost' today and nothing irritates people more than losing money. But the problem isn't money at all. If that were so, all we need to do is print more money and then give it back to everyone who lost money! HAHAHA. And frankly, this is the solution everyone wants. A government insurance program that lets people make money any old way but if these things have ANY risk of losing money, the governments step in and restore the losses?

Well! This sort of communist system for the very rich is stupid. First, it causes incredible inflation. Eventually, money becomes meaningless. The entire 'reward' system is totally predicated on the possibility of LOSSES. If there are never losses, the whole thing becomes one big, mushy mess. Why bet on the stock market if you can simply pay some politicians to hand out money at various intervals? The entire US tried this recently. To boost the economy, the government mailed out all those checks. Nearly the entire amount was eaten by a tsunami of inflation.

Now that the money was sucked up, prices of necessities are now falling again. What a shock! If Wall Street can't tolerate losses, the government should outlaw the sales of stocks. Already, they are outlawing shorting of stocks. Next, they can outlaw selling and indeed, there are triggers to market failures. Lose more than 10% value and the markets close. Period.

Central bank doubles to $300 billion the amount it will loan banks. Loans could reach $900 billion by end of year.

The central bank said that its so-called term auction facility, which accepts financial instruments such as mortgage-backed securities as a collateral, will be doubled immediately to $300 billion. The total amount available to banks will rise to $600 billion under the moves announced Monday.

In addition, the Fed signaled it could increase the amount available through those loans to $900 billion by the end of the year, increasing the amount the Fed will loan through the program by $750 billion above its previous limit.

Gollum, aka, Paulson, demanded nearly a trillion three weeks ago. He pulled this number out of his hat. This is near the number of dollars our government is overspending this year. So he basically wanted to double this. Now, we learn that the Spinx, aka, Bernanke, has decided, in his usual dictatorial fashion, that the Federal Reserve, which is privately owned by Goldman Sachs and JP Morgan, just for example, will pull another trillion out of the magical flying piggy bank and throw this into the fire to see if it will create liquidity. Got that? This mixed metaphor is exactly the situation: things have flipped and are now at odds.

The Fed will LOAN us all this loot. The Fed has no reserves left. It certainly can't lend much of anything, much less, a trillion dollars. But thanks to Paulson's coup, there is well over $1.4 trillion in debt being issued by the Treasury so the Fed can then lend back to us the money we are borrowing....my head hurts. This, so Fuld and his fellow gnomes can keep their bags of loot, artwork, yachts and fruity women.

Deflation Threat Returns as Asset Markets Decline

(Bloomberg) -- As Federal Reserve Chairman Ben S. Bernanke and his global colleagues fight the worst financial crisis since the 1930s, one danger is looming larger by the day: deflation.

With asset markets tumbling, commodity prices plunging the most in 50 years and banks keeping a tighter grip on credit, the ingredients for a sustained period of falling prices are coalescing. While inflation is still a concern for many policy makers only months after oil and food prices peaked, the risk is their patchwork of rescue and stimulus packages will fail, and prices will start to fall throughout the broader economy.

``The ghost of deflation could be dragged out of the closet again in coming months,'' says Joerg Kraemer, chief economist at Commerzbank AG in London.

Libra is outraged. If Paulson, Bernanke, the international banking consortiums, G7, Japan or anyone thinks they can fool HER, they are nuts. She is a goddess. This means she is an elemental natural force. Trying to stop her from setting her scales right is like Asia seeking to halt India as it continues to relentlessly plow through the heart of Asia: impossible. It is like having all the bankers and politicians stand on Galveston Island and blowing hot air in unison, blowing off hurricane Ike. By the way, that is already being forgotten. 57 oil rigs vanished in that storm and a great number of oil facilities ruined.

And hundreds of people were swept away by the angry seas. Houses were wiped out and the debts parked on them are now washed to sea and will never return. Life is all about losses. Ask the mammals facing extinction.

Bank crisis strains EU unity

But just the day before Chancellor Merkel was standing in Paris with other EU leaders declaring that Europe needed to act together.

"We agreed that member states should take decisions at the national level," she said. "But at the same time member states should not take decisions without regard to the effect they have on other member states."
Twenty-four hours later the Germans seemed to have done just that.

The problem with trying to coordinate a common approach is that the EU just does not have the right to legislate or act in many areas - they fall outside the EU's competence, to use a bit of euro-jargon.

All confederations collapse the minute economic distress comes down the pike. The EU is doomed. Only thing uniting them is the desire to export to the US and a fear of Mother Russia. Russia is in trouble like everyone due to falling energy prices. But Russia, unlike Europe, has a huge military power base. Like China. England is rapidly mothballing the last remnants of its pathetic navy to save money. Once, the sun never set on England. Now, it barely shines on England.

Germany has been nearly totally disarmed. Way back about 200 years ago, Germans seeking military power went to Russia and fought with the Czar's armies. Then, after Napoleon, they came filtering home when Bismark began to unite Germany and turn it into the most dangerous military machine on earth. Maybe they can repeat this process. Certainly, Germany MUST look to the East because the land between Berlin and Moscow is awfully flat.

No extra safety for German savers

The German government will not pass new legislation to provide extra protection for savers, the BBC has learned.

Chancellor Angela Merkel's commitment was a political one that no German savers would lose any money, according to BBC business editor Robert Peston. Her undertaking was similar to that offered by Chancellor of the Exchequer Alistair Darling.

There were fears at the weekend that if Germany offered 100% protection, the UK would have to follow suit.

This swaying back and forth is due to fears of the natives and the desire to conspire. Every leader in the G7 alliance can't help but join forces...against their own people. This is the New World Order. The US and Europe spend fortunes propping up dictators in the Middle East, the borders of Russia, Africa and South America in order to keep the rulers loyal to the G7 bankers and conspirators. Not to listen to dissent at home. So long as we can arm police who crush their own people, we are happy. Or rather, the gnomes are happy. Steerage has to be kept locked below while the Titanic sinks!

Alistair Darling: 98% of accounts are fully covered

In a parliamentary statement, the chancellor said it was his responsibility to support a stable, well-functioning banking system, as he revealed that Northern Rock had now repaid half of the money it had been lent by taxpayers.

"Financial transactions are at the heart of everything we do. They allow people to buy goods, pay for services, buy homes, save for pensions and invest, so it's essential that we take action to both support the banking system as a whole as well as being ready to intervene in particular cases when it's necessary to do so," Darling told MPs. "Both general support and individual intervention is necessary."

Darling said that the government had made available in excess of £100bn of long-term funding and was "willing to make further resources available as necessary".

England is now jumping ship. Ireland and Iceland are rushing over the side. Germany itches to do the same. The Italians and Spanish are locked in steerage and hacking away at the locks. France is undecided. As usual.

Here a is a Federal Reserve report from September:

International Finance Discussion Papers: How Long Can the Unsustainable U.S. Current Account Deficit Be Sustained?

Carol C. Bertaut, Steven B. Kamin, and Charles P. Thomas

Abstract: This paper addresses three questions about the prospects for the U.S. current account deficit. Is it sustainable in the long term? If not, how long will it take for measures of external debt and debt service to reach levels that could prompt some pullback by global investors? And if and when such levels are breached, how readily would asset prices respond and the current account start to narrow?

To address these questions, we start with projections of a detailed partial-equilibrium model of the U.S. balance of payments. Based on plausible assumptions of the key drivers of the U.S. external balance, they indicate that the current account deficit will resume widening and the negative NIIP/GDP ratio will continue to expand. However, our projections suggest that even by the year 2020, the negative NIIP/GDP ratio will be no higher than it is in several industrial economies today, and U.S. net investment income payments will remain very low. The share of U.S. claims in foreigners' portfolios will likely rise, but not to an obviously worrisome extent. All told, it seems likely it would take many years for the U.S. debt to cumulate to a level that would test global investors' willingness to extend financing.

Finally, we explore the historical responsiveness of asset prices and the current account in industrial economies to measures of external imbalances and debt. We find little evidence that, as countries' net indebtedness rises, the developments needed to correct the current account--including changes in growth rates, asset prices, or exchange rates--materialize all that rapidly.

We would emphasize that these findings do not imply that U.S. current account adjustment is necessarily many years away, as any number of factors could trigger such adjustment. Our point is rather that international balance sheet considerations likely are not sufficient, by themselves, to require external adjustment any time soon.

This paper is INSANE!!! It uses statistics to say that the world's top empire and holder of the global trade currency of choice can safely ignore deficits? ARGH. Anyone sane reading history knows that ANY empire that embraces constant war and constant overspending and wasting money on bribes while seeing the core system go corrupt ends up BANKRUPT. History is 100%+ certain of this. And when the people in the empire cease sending enough tax or trade money to the Capital, it all dies, very, very fast. The peak of an empire is ALWAYS close to its decline and utter destruction! There are NO EXCEPTIONS. So does this study talk about all this?

This graph says it all! Terrible. Just terrible.

Federal Reserve last year: What Can the Data Tell Us about Carry Trades in Japanese Yen?

Joseph E. Gagnon and Alain P. Chaboud*

Although we have no measurements of carry positions in derivatives markets, we conjecture that the Japanese private non-banking sector (investors and exporters) may desire to hedge some of its net foreign-currency exposure. Hedging demand in the opposite direction is likely to be much smaller, reflecting the fact that Japan is running a trade surplus and has foreign assets that greatly exceed its liabilities. Thus, many of the derivatives counterparties to Japanese exporters and investors are likely to be engaged in the carry trade. Likely candidates to hold these carry positions include hedge funds, pension funds, investment banks, charitable endowments, and individual investors, mainly outside of Japan.

Again! This study minimizes the effect of the Japanese carry trade! Even doubts it exists! And then the graphs tell another story:

It is painfully obvious that something is out of kilter and the ship is sinking. Libra fixes sinking ships only one way: she fills all the airspace with water. And god forfend we ask for more liquidity! She will give it to us, whole oceans of it. This is why having a realistic frame of reference is so important before dashing off to look at statistics.

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Comments

[Tonu]

"So in kindergarden, since my school was run by people from the University of Chicago for the professorial children " --- another Lab Schoolee? --- no wonder I read your rants most days;-)

Keep it up --- doubt it will change much but it's at least comforting for me to know someone is thinking.

[Blunt Force Trauma]

Tectonic fragment linked to Tokyo's quake peril: scientists

http://tinyurl.com/4xgvnf

[Impatient Patriot]

Wow My little head is overflowing today.
So much info so little space to fit it.
Nice work on that first post today.
Your demanding attention.

[Elaine Meinel Supkis]

Actually, the weather here in the Northeast is giving me a migraine headache. Heh. OUCH. Markets recovered when the gnomes were told by Congress, 'You are naughty, now take your loot and hide for a few weeks until we get the peons to clean up your messes.'

[Elaine Meinel Supkis]

Blunt Force Trauma, thanks for the earthquake link! This is EXACTLY like LA: the same fragment, the same position! This means there is logic at work here.

[Tell]

"Also, many mammals will go extinct soon. This is the REAL news"...

"bonny portmore"...

http://tinyurl.com/4l44ae

[Paul S]

I would note that on CSPAN today Glenn Fine, an IG for the Justice Dept was being grilled by the House Judiciary Committee on the Attorney General firings under "Dubaya" in 2006. There also, what is the point of having these hearings if there is no serious intent towards prosecuting Gonzales and his master Bush? House Committee members describe the top-to-bottom cronyism at Justice under Bush/Gonzales, where ideology not competence was the measure for employment. I hope the Committee acts quickly; members of the Bush administration have a nasty habit of fleeing the country when cornered.

[Elaine Meinel Supkis]

Paul, long ago, I gave up on the news about the slow motion Democratic pursuit of Bush and his gang. If they were any slower, they would fall behind elderly turtles.

[Bear of Little Brain]

At the end of another gloomy day in England, proof that our wet climate softens our brains:

'Gordon Brown has urged global markets to abide by a system of "morals", including "responsible risk-taking" and a "work ethic".'

What planet is he on? If you didn't laugh, you'd cry. But where did this fool say this?
'At the annual dinner of the United Jewish Israel Appeal'

They must have wet themselves trying not to laugh!

I despair.

http://news.bbc.co.uk/1/hi/uk_politics/7655723.stm

[Bokonon]

Cheer up Bear of Little Brain.
In Australia, we think these bright minds of the UK and the USA are going fix everything.

[Bokonon]

Elaine, if I didn't know better, I would say that Jim Kunstler has been reading and taking inspiration from your blog. (IMO a great compliment.) Please see his latest post Oct 6th at Clusterfuck nation. He is starting to make you sound like an optimist.

[carli]

Good morning all, the markets were not the only thing that got hammered yesterday, so did a guy named Fuld! LOL.

Check this out for a dose of Reality humor to make your day. OC, don't miss this one: http://tinyurl.com/3grahg

Payback is a bitch and a half, and I suspect were are going to see a quite a bit of it as the extent of the damage these thugs have inflicted on the world. You are right OC, they can run, but they can't hide. THe world has become a very small place.

[Elaine Meinel Supkis]

Jim K and I chat periodically. He lives not too far from my mountain.

[carli]

Trading in Icelandic banks halted pending announcement: http://tinyurl.com/46ggey

This has a massive impact on 200,000 Britons who have accounts with Icelandic banks, notwithstanding that the BOE is guaranteeing the accounts.

Quite alarming as it will set of a daisy chain of implosions, much like sympathetic detonations.

Another good read: Will the Crisis Bring Down the Global Financial System? Go Get Your Dollars Out Now! FAST!!!
http://tinyurl.com/4ckjfj

[OC]

Carli,

Thanks, I'm in Oz right now so slightly behind u guys.

Bokonon,

Rudd is goin to save the day...err he better check with his banker first (China)...might be a bit of a hiccup to his plans if they don't line up with Hu and Wen.

The silly season is officially on - all these jokers is planning to bail out the Titanic with silver teaspoons after hitting THE iceberg. And they locked us in the boiler rooms...the B***

[OC]

Elaine,

Your clairvoyant skills are contagious; all your regulars here are picking this up from u.

Carli,

I think this is only the start. Soon, they can't even get out onto the streets without body guards.

[DrKrbyLuv]

Carli - that video made my day...hope he did get sucker punched.

Today I talked to several people who brought up the financial mess, and they were angry. This is good news as the only way to stop this insanity is for people to get mad enough to notice.

I have been handing out copies of the "Money Masters" to some friends and relatives.

[Fetung]

Elaine, Fed might have just stealth cut the rate from 2.00 to 1.25 today! Helicopter Ben now goes invisible while Bazooka Hank fire away trillions of credits! When will our foreign creditors realize USD is worthless and dump them?

"Fed Sets Floor Below Rate Target, Engineering `Stealth' Cut"
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSiAeDH_QZtk&refer=home

[Fetung]

Oct. 6 (Bloomberg) -- The Federal Reserve may have cut borrowing costs today without actually saying so.

The central bank used authority granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.

``Absolutely, it's a stealth easing,'' said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher.

The announcement, and a Fed decision to double the auction of cash to banks to as much as $900 billion, failed to avert a 3.9 percent decline today in the Standard & Poor's 500 Index. The index has tumbled 28 percent this year even as the central bank has expanded credit more than at any time in seven decades, including a 3.25 percentage-point cut in the main rate during the past 13 months.

``The problem is it's an easing that's trying to offset a massive tightening in the market. Net-net, are we easier in policy? In some sense the answer is no,'' Ryding said.

By paying interest on reserves, the Fed can pump more cash into the financial system without worrying the overnight lending rate will drop to zero at the end of each day as banks withdraw excess reserves. The move doesn't preclude a further reduction in the target rate by the Federal Open Market Committee.

Biggest Surprise

The 0.75-point spread, announced today, was the biggest surprise in the Fed's moves to implement its authority under the financial-rescue legislation, economists said. The Fed set the new rate Oct. 3, the same day the House approved the bill and President George W. Bush signed it into law.

The FOMC, composed of the Washington-based governors and 12 Fed regional-bank presidents, meets about every six weeks to set a target for the overnight lending rate, which the New York Fed tries to achieve by buying and selling Treasury securities from bond dealers.

The Fed requires banks to keep a level of reserves at the central bank. On those funds, the Fed will pay a higher rate equal to the average target rate over a one or two-week period less 0.10 percentage point. For excess reserves, the rate is the lowest FOMC target over a period less 0.75 percentage point.

The Fed said it would raise or lower the spread so the New York Fed trading desk can keep the federal funds rate near policy makers' target ``based on experience and in response to evolving market conditions.''

The central bank didn't set a meeting schedule for discussing the reserve-interest rate.

Channeling Cash

The federal funds rate will probably trade below the FOMC's target as long as the Fed is channeling cash into the banking system, thereby prompting financial institutions to park their funds with the central bank each day. The rate may trade closer to the policy target when the credit crisis eases and the Fed begins to withdraw its emergency lending.

Still, a ``soft federal funds rate does not provide a perfect substitute for a cut in the target,'' former Fed Governor Laurence Meyer and former Fed researcher Brian Sack, now with Macroeconomic Advisers LLC in Washington, said in a research note to clients.

The Fed said today ``the rate on excess balances should be set sufficiently low to provide an incentive for eligible institutions to trade funds in excess of required reserve balances and clearing balances in the federal funds market.'' The rate should also discourage banks from trading funds ``far below'' the federal funds rate.

The interest payments begin Oct. 9.

Start Lending

A higher rate on payments may give banks too much of an incentive to keep funds at the central bank, said Peter Hooper, chief U.S. economist at Deutsche Bank Securities Inc. in New York and a former Fed official. ``The whole objective here is to get banks to start lending again, and the more you pay them to hold on to their reserves, the less likely they'll be willing to lend.''

Even if the funds rate trades below the 2 percent target, it doesn't mean the FOMC is deploying a new policy tool by paying interest on reserves, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``I doubt the FOMC will want to give up their Fed funds rate target as the key indicator of monetary policy.''

To contact the reporter on this story: Scott Lanman in New York at slanman@bloomberg.net
Last Updated: October 6, 2008 18:02 EDT

[Fetung]

Elaine, this is insane, just insane! Now if you borrowed from the Fed. They pay interest to YOU. This is NEGATIVE INTEREST RATE. We are absolutely !@#$ed. This is WORSE than 1990 Japan. Japan is a saving country. Bernanke is turning USA into Zimbabwe!

http://blogs.wsj.com/marketbeat/2008/10/06/the-feds-interest-in-paying-interest/

The Fed’s Interest in Paying Interest
Posted by David Gaffen

One of the less-heralded — but long-sought — components of the $700 billion bailout legislation is that it gives the Federal Reserve the authority to PAY INTEREST ON BANK RESERVES, the assets banks are required to hold but until now were prohibited from paying interest.

The hope is that these interest payments will help increase banks’ capital at a time when there is an excess of bank reserves in the system, which constrain banks because they take up valuable space on a balance sheet that might be reserved for other assets, such as loans or mortgages, that actually earn banks money.
Funds
Coupled with the billions in toxic assets that banks are holding as a result of bad decisions in the mortgage markets, the banks have been constrained from doing new business because of the excess reserves in the system.

“If the Fed has to provide excess reserves you’re strengthening the banking system if you can pay them a market interest rate,” says Lou Crandall, strategist at Wrightson ICAP. “Otherwise, you’re penalizing them by forcing them to hold sterile assets.”

The massive increase in excess reserves has taken place over the last few weeks, dating to around when Lehman Brothers Holdings failed. Reserve Bank credit was $908 billion on Jan. 3, 2008, and sat at $906.8 billion on Sept. 10, 2008. By Oct. 1, this had ballooned to $1.481 trillion. The reserves are created through the sharp increase in the various Fed credit facilities created, and in normal times, excess reserves are quickly removed from the system. Not so now, because of the cash-hoarding occurring at the banks.

However, at the end of each day, banks don’t want to keep these excess reserves on their balance sheets, because they are undesirable as non-interest-earning assets. In fact, banks have been trading these assets back-and-forth with each other, causing the overnight federal-funds rate to drop to near 0% at the end of every day of late as banks tried to unload their unwanted reserves.

The problem with this is that it results in a de facto easing of the federal-funds target, but it happens in a way that is completely out of the control of the Federal Reserve. The target rate is currently 2%, but the effective funds rate on Thursday was 0.67%. Should this continue, it would disrupt the markets further and have ramifications for money-market funds, among others.

The new provision will allow the Fed “the ability to literally flood the U.S. financial system with money without it impacting the federal funds rate,” writes Tony Crescenzi, chief bond market strategist at Miller Tabak. “This is because banks will ’sell’ or deposit their excess money at the Fed rather than chase the funds rate lower when they have excess money to sell.”

[WG]

Great article Elaine. I always wanted to witness history in the making, and your analysis is the best clip of reality in the world(even comes with preview of future!) Onward we go to witness the end of the current economic era!

[GK]

First earthquakes, and now asteroids! HAHA!

http://au.news.yahoo.com/a/-/technology/5062771/asteroid-expected-burn-africa/

An asteroid discovered earlier on Monday by an Arizona observatory will hit Earth's atmosphere over Sudan in a few hours but will burn up before it can hit the ground or endanger aircraft, astronomers said.

The asteroid will create a large fireball at about 2:46am GMT on Tuesday as it burns up, the team at the Harvard-Smithsonian Centre for Astrophysics said.

"We want to stress that this object is not a threat," said Dr. Timothy Spahr, director of the International Astronomical Union's Minor Planet Centre at Harvard in Massachusetts.

"We're excited since this is the first time we have issued a prediction that an object will enter Earth's atmosphere," Spahr added in a statement.

The asteroid, known as a meteoroid, is between 1 metre to 5 metres in diameter.

"A typical meteor comes from an object the size of a grain of sand," said Gareth Williams of the Minor Planet Centre.

"This meteor will be a real humdinger in comparison."

[Elaine Meinel Supkis]

I have seen meteoriods burn up in the atmosphere. It is quite amazing. Looks like a flaming jet crashing. Yes, dear old Mother Nature is toying with us.

[CEO Nutcracker]

The Martial Law Mission in under way as of Oct. 1.

dictators and their gnome masters are getting nervous.

http://silverbearcafe.com/private/10.08/martiallaw.html

"Paul, long ago, I gave up on the news about the slow motion Democratic pursuit of Bush and his gang. If they were any slower, they would fall behind elderly turtles."

....on Quaaludes.

Thanks for keeping this unfurling disaster fun, Elaine! HAHAHA

[Paul S]

The video of Lehman CEO punched out has been pulled. Sorry I missed it. I certainly do not endorse violence, but am fairly certain much fiercer 'responses' towards banksters than punches will happen. When the formal means of justice break down, vigilantism almost always ensues.

[GK]

Elaine, are you familiar with Catherine Austin Fitts?

She worked with HUD and watch $59 billion get looted from the government.

http://www.scoop.co.nz/stories/HL0810/S00063.htm

Overwhelming American communities with mortgage, auto and credit card debt as we shift manufacturing and research capacity, jobs and approximately $10 trillion of capital offshore-much of it by illegal means-has been the US economic strategy since 1996.

This was a strategy that depended on massive government spending and market intervention. It was intentionally designed to leave us where we are now. There clearly is a plan. I am not privy too it. However, what is happening is not an accident. The people who run the world are plenty smart. Originating a great deal more debt than anyone could carry, let alone pay back always ends in failure and bankruptcy of someone or something. So Fannie and Freddie's failure or nationalization was always in the cards - it was a matter of when.

If your goal is total centralized control, this is a great way to achieve it. Between Freddie, Fannie, Ginnie Mae, FHA, VA and the Federal Home Loan Bank Board, the federal government no longer regulates or provides credit to the residential mortgage market - it is the market.

[Bokonon]

Elaine, I hope you didn't think my previous post was criticism of Jim. I think he is an ideas man and a wordsmith par excellence and I look forward to Tuesday mornings with Jim (normally read just after I read your posts.)

The other resident of your state of great interest (to me) is Gerard Celente of Rhinebeck. Gerard predicted that the consequence of the collapse or financial 911 would be a taxpayer revolt.

[David]

I like the English, or should I say the British. They have a sense of honor I find quite touching. I think its something they learn as children when reading up on their history.

Of course, that sense of honor gets eroded quite rapidly once they start working. I suppose it would be more accurate to say that I find the remnants of their honor quite touching.

The City types are like city types everywhere. A shark in Australia is just as dangerous as a shark in Hawaii.

[OC]

Elaine,

Here is an interesting article from itulip.com:
'The US Treasury has just nationalized the Federal Reserve due to looming Fed insolvency'

http://tinyurl.com/3vrtuy

The pace of collapse is accelerating even as we type.

[Elaine Meinel Supkis]

Oh dear! Bokonon! I meant, I know Jim and he is wonderful! He is coming over to visit and have dinner next month. He is most fascinating. I hope to wrangle an interview with him when he comes, by the way.

[Elaine Meinel Supkis]

OC, I pointed out that our Reserves has no reserves anymore. They and the Treasury are BOTH bankrupt in the real world. But our trade rivals want us alive, not dead.

But selling weapons to Taiwan might end with us being dead.

[OC]

Elaine,

No worries, by the time the deal comes through for the delivery of weapon systems, it'll be too late to matter to all the parties involved.

The economics 9/11 is now. It is just plain stupidity to irritate China with nothing to gain for it; just like the Tibet issue during the Olympics.

On the other hand, it might be a backdoor way for US military industry to pass sensitive weapon technologies to China via Taiwan.

[OC]

Elaine,

I'm sorry, am getting to be cynical and grouchy in my old age.

[Elaine Meinel Supkis]

OC, the ITulip forms format is ancient! I hate that format style where you must click through a cascade of comments one by one. Ick.

But the information is good.

By the way, long ago, I said the Fed Reserve would go bankrupt due to having practically no reserves. This is a running joke here at Culture of Life News. The instant the Japanese began to hoard dollars, the US should have hoarded yen. We didn't and now we are paying the price, literally. Everyone is now hoarding dollars and we can't fix this mess.

[Elaine Meinel Supkis]

OC, you are about as cynical as I am. HAHAHA. I am going back to bed now. Sleep soundly! Enjoy life. Fall here is very beautiful.

[carli]

Paul S, try this link for the Lehman punch:
http://tinyurl.com/3nx4j8

On another front, the Russians are getting quite vocal (what's taken them so long?) after loosing 20% of market cap yesterday, expect them to begin accepting payment for oil and gas in currencies other than dollar. This is going to accelerate pretty quick once deleveraging ends.

Putin: Dump the dollar, trade in rubles
"I don't understand why we are still trading in U.S. dollars ... while we are well aware of the problems faced by the U.S. economy," Putin said. http://tinyurl.com/3g5he2

[Paul S]

Saw the video. Thanks for the link Carli.

[Tell]

"Keating Economics"

"The current economic crisis demands that we understand John McCain's attitudes about economic oversight and corporate influence in federal regulation. Nothing illustrates the danger of his approach more clearly than his central role in the savings and loan scandal of the late '80s and early '90s."...

http://tinyurl.com/4fsmso

[Paul S]

I beleive that once the full force of the banking collapse is exposed, other countries with a score to settle with the US will be lining up to dish out some payback. It won't be just the domestic front that implodes. They say that bad things happen in threes. We will probably get more than three though.

[Tell]

"other countries with a score to settle with the US will be lining up to dish out some payback"

Paul S

With 12,000 nuclear weapons and God knows whatelse...

At the end of the day...I don`t think so.