Archive for May 2011
by Michael Victory
Posted May 13, 2011
I WAS A ZERO. I CAME TO GRIPS WITH IT IN 9th grade when my hot cheerleader girlfriend dumped me for a meathead. Was it because I didn’t play in the big game Friday nights? Or because I’d rather spend a Saturday on a launch ramp trying to pull off backside airs?
Probably both, me… a zero. Back then I thought zeros were bad. Turns out the more zeros you parade the bigger and badder your story really is.
First: When trillion becomes old school, what will replace it?
A Tale Of Many Zeros
(I like them, but don’t take credit for the images below. Props to JB at pagetudor for putting this illustration together and FSN for the heads up.) The illustration starts with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slightly fewer have owned them. Benji’s are certain to make friends wherever they go.
A packet of one hundred $100 bills is less than 1/2″ thick and contains $10,000. 100 burritos can fit in your pocket easily and is more than enough for week or two of shamefully decadent fun.
Believe it or not, this next little pile is $1 million worth of bills (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.
While a measly $1 million looked a little unimpressive, $100 million in bread is a bit more respectable. It fits neatly on a standard pallet…
And 1 billion bux… now we’re getting somewhere…
$1 trillion dollars…
Notice the pallets are double stacked. …and remember those are $100 bills. The next time you hear someone toss around the phrase “trillion dollars”… that’s what they’re talking about.
by Tyler Durden
Posted May 29, 2011
SO, AFTER ONE YEAR OF BEATING AROUND THE BUSH, IT IS FINALLY MADE CLEAR THAT, as many were expecting all along, the ultimate goal of the Greek “bailouts” is nothing short of the state’s (partial for now) annexation by Europe. According to an FT breaking news article, “European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens. People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures.”
Thus Greece is faced with the banker win-win choice, of not only abandoning sovereignty, a first in modern “democratic” history, in the pursuit of “Greek” policies that are beneficial for Europe, or not get a bailout, which would only serve to prevent senior bondholder impairments. How could Greek leaders and its population possibly not accept such an attractive option which either leaves the country as another Olli Rehn protectorate, or forces it to not bailout Europe’s overleveraged banker class. In essence Europe is now convinced, just like Hank Paulson was on September 14, 2008, that the downstream effects from letting Greece implode are manageable. But the key development is that the Greek bankruptcy, which from the beginning, and as Peter Tchir’s note below demonstrates, was always simply a Greek choice, was just made that much easier.
From the FT:
People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures. Officials hope that as much as half of the €60bn-€70bn ($86bn-$100bn) in new financing needed by Athens until the end of 2013 could be accounted for without new loans. Under a plan advocated by some, much of that would be covered by the sale of state assets and the change in repayment terms for private debtholders.
Eurozone countries and the International Monetary Fund would then need to lend an additional €30bn-€35bn on top of the €110bn already promised as part of the bail-out programme agreed last year. Officials warned, however, that almost every element of the new package faced significant opposition from at least one of the governments and institutions involved in the current negotiations and a deal could still unravel.
In the latest setback, the Greek government failed on Friday to win cross-party agreement on the new austerity measures, which European Union lenders have insisted is a prerequisite to another bail-out. In addition, the European Central Bank remains opposed to any restructuring of Greek debt that could be considered a “credit event” – a change in terms that could technically be ruled a default. One senior European official involved in the talks, however, said ECB objections could be overcome if the rescheduling was structured properly.
Despite the hurdles, pressure is building to have a deal done within three weeks because of an IMF threat to withhold its portion of June’s €12bn bail-out payment unless Athens can show it can meet all its financing requirements for the next 12 months.
And the latest set of very timely observations from TF Market’s Peter Tchir:
You can lead a Trojan Horse to water but you can’t make him drink
Restructuring in one form or another seems imminent rather than years away
Well, it seems as though this week’s news flow has spurred the mainstream media into action. Everywhere you look there are stories about the Greek credit crisis. It is encouraging to see that more of them now agree with my view that a restructuring would occur sooner rather than later. Only a month ago, almost every article and every piece of official street research made it clear that a restructuring was at least a year off, if not longer. I demonstrated why I thought that opinion was wrong, and although I haven’t been proven correct yet, I am no longer in a tiny minority. Restructuring (reprofiling or default or whatever you want to call it) will not be easy, but I remain convinced that it is the best outcome for Greece and in the long run will be the best outcome for Europe even with the short term pain it will cause.
by Brandon Smith
Posted originally Friday, 27 May 2011
COMMERCE IS THE LIFEBLOOD OF A NATION. Without the free flow of trade, without financial adaptability, without intuitive markets driven by the natural currents of supply, demand, and innovation, cultures stagnate, countries whither, and one generation after the next finds itself deeper in the somber doldrums of economic disintegration.
In an environment of transparency, honesty, and the absence of monopoly (government or corporate), on the rare occasions in history that these conditions are actually present in one place at one time, we often see an explosion of prosperity and true wealth creation. When local, decentralized markets are given precedence over subversive elitist leviathans like mercantilism or globalism, a wellspring of abundance bursts forward. Free people, building true free markets that serve the specific needs of individual communities and insulating the overall economy from systemic collapse; this has always been the wave of the future. Not “integration”, “harmonization”, or some fantastical nonsensical “global village” administrated by a faceless unaccountable transnational entity like the IMF, infested with sociopathic maid raping euro-trolls.
Unfortunately, average Americans today have grown far too accustomed to having their commerce, and thus their livelihoods, micromanaged for them. Most cities and states in this country today are entirely dependent on corporate infrastructure or federal funding for ready employment and steady incomes. Most people have never even considered life without the Dollar; a highly flawed and unstable fiat currency. They exist enslaved, without any means to carry on even the most remedial exchanges in the event that the worthless paper notes finally hyperinflate into oblivion. Most Americans have never even imagined where they might obtain food or other goods if grocery chains were to shut down for more than a week; a very likely scenario considering the extent to which such businesses are indebted, not to mention the effects of destructive price increases due to inflation in commodities and freight rates. The bottom line is, if the daily fiscal life of the average American were to deviate from today’s norm even slightly, the results would be devastating. There is no flexibility in our current system. All is rigid and fragile. There is no backup plan.
The problem, of course, is in educating the populace on the necessity of alternative markets. To many, the U.S. economy has been and always will be the standard. How could it change? Surely, people have been discussing the possibility of total economic collapse for decades, and it hasn’t happened yet, so why should we worry now?
What these people don’t realize is that first, economic storms are progressive events. They rarely happen in the blink of an eye. Far more like a wounded airplane struggling to maintain altitude but invariably crashing into the unforgiving earth. The collapse of our dollar has been an ongoing program since at least the early 1970’s, when Nixon removed our currency completely from any vestige of a gold standard. Our industrial infrastructure has been dismantled over many years and replaced with low paying, remedial, and unreliable service employment. And, our national debt has been snowballing, more than doubling every decade since 1970. You can only put so much weight on the camel’s back before it finally snaps. This brings us to the second point; that snap has already occurred here in the U.S., many just don’t seem to recognize it.
Make no mistake, the year of 2008 was the breaking point. As soon as the private Federal Reserve in tandem with a paid for and pocketed U.S. government began rampant production of fiat without oversight, without guidelines, and without the consent of the American people, it was all over for our existing economy. The consequences of quantitative easing measures initiated in 2008 will be far reaching into the foreseeable future, and will probably go down in history as the catalyst for immense international catastrophes soon to come. For people who argue that collapse is a farfetched “conspiracy theory”, I simply point out that the collapse they scoff at is going on right now, right under their gullible noses.
This realization usually brings us to the next obvious question: what can we do to stop this terrible landslide?
To begin with, we need to abandon the idea that our economic implosion is something that can be mended before the pain it creates is felt. Like every sickness, it is something that we will have to struggle through, and suffer through, before a cure is made viable. There is also no single magical solution to defuse the situation, and anyone who tries to sell you one is probably not to be trusted. We must accept that no matter what we do from this point on, we WILL see a breakdown of the U.S. dollar and by attrition the rest of our financial system. Our only practical options are those which insulate and shield us as much as possible from the effects of that breakdown, so that the country might have the opportunity to remove manipulative elements (global corporatists) from the equation, and rebuild.
Do we wait around for politicians, legislators, and courts, to set up protective barriers in our communities and our local economies for us? I certainly hope not. Anyone doing that will be twiddling their thumbs long after the nation has fallen apart. Elections at the federal level have proven time and again to be utterly useless in effecting any meaningful improvements in our society, let alone preventing calamity. There are only so many Ron Paul’s and Rand Paul’s operating in our government today. Vote for them, but don’t put all your hopes for prosperity and liberty into one candidate, or one election.
At the state level (depending on your state), there tends to be a bit more breathing room, and a chance for free market and sound money legislation to be pushed to the forefront (as has been done in Utah). However, relying on state representatives alone will not turn the tide. When it comes down to it, the only person that can protect your financial future, and your community’s financial future, is you. Yes, they created the mess, and now YOU are responsible for cleaning it up. Sorry, that’s just the way it goes…
by Jim Willie, CB
Posted originally May 25, 2011
An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold.
IT IS NOT CLEAR WHETHER THE AMERICAN FINANCIAL COMMUNITY HAS THE ABILITY to observe and conclude that the US Federal Reserve is adrift and relies upon deception as policy in revealing its directions. Its position is to hold steady, inflate to oblivion, support financial markets in heavy volume secretly, and lie about leaving its trapped policy corner. The USFed is a propaganda machine that deals with ruses as a substitute for transparent policy discussion in the public forum. Two years ago the ruse disseminated widely was the Green Shoots of an economic recovery that had no basis at all. The scorched earth showed more evidence of ruin than fresh business creation, at a time when the grotesque insolvency was spreading like a disease throughout the entire US financial system.
On one hand the USFed was busy operating numerous credit and liquidity facilities in order to prevent systemic seizure, busily redeeming the Wall Street toxic bonds at the highest possible prices. On the other hand they were talking about Green Shoots, as insolvency spread across the big banks to the household equity. They lost their credibility in the process. They have lost it completely after two full years of 0% rates, the ultimate in central bank shame. The Jackass dismissed the Green Shoots ploy quickly, regularly, and correctly, as whatever little shoots showing were probably mistaken for some toxic green runoff from a nearby financial office of a corporation.
One year ago the ruse disseminated widely was the Exit Strategy from the 0% monetary corner that had no basis at all. The USFed was well aware that 0% as an official rate was untenable, dangerous, and would produce different maladies. They promoted a phony story of a Jobless Recovery, an utter contradiction and bad joke played upon the American workers. To make the cost of money free encourages speculation in the most general systemic sense. The primary gold market fuel is the price of money being far below the current price inflation rate. Anyone who believes the CPI is actually 2% to 3% is braindead. Even USGovt statistics list the numerous categories with strong price increases, yet the overall CPI is lower than all components. Power to adjustments.
My description has been that the USFed is stuck in the 0% policy corner. The corner has been described since the start of 2009 when it was instituted. If the USFed raises rates, they torpedo the housing market left as derelict adrift at sea, listing badly, taking on more water, weighed down by the inventory burden. Given that the USEconomy was so dependent upon housing for three or four years, and that dependence has turned to deep vulnerability, they cannot hike interest rates and exit the policy corner without sending home prices into a fast acceleration downward. They will bottom out 20% to 30% below construction costs.
Worse, a rate hike would trigger a credit derivative series of explosions from the Interest Rate Swaps. These queer devices hold down long-term rates far below the prevailing price inflation level. That is why the USFed Chairman Bernanke insists on an undying focus of the inflation expectations, the USTreasury Bond yields and TIPS yields (both of which they purchase in monetization operations). They control them using IRSwaps. If the USFed holds steady, as they must, they generate significant rising costs for everything from food to energy to metals to cotton. Even scraps (paper, metal, plastics) are rising in price. Even the toys sector must contend with fast rising prices in time for the Christmas season. See the Li & Fund effect, also called Foxconn in China. They also make i-Pods.
The current path lifts the cost structure to such a level that both businesses and households are experiencing a pinch. The fast collapse of the Philly Fed index is testament to the pinch. Shelves at major retail chains are experiencing a slow decline in volume. It is called the profit squeeze. Business profit margins are shrinking, even as household discretionary spending funds are shrinking. The Jackass dismissed the Exit Strategy ploy quickly, regularly, and correctly, as the monetary policy corner was described consistently and clearly. It was a bluff, but a very bad one. The savvy analysts did not fall for it, since the consequences of ending the 0% rate would be like turning the lights off for the entire USEconomy.
THE BIG RUSE & THE BIG BIND
The USFed is caught in a gigantic bind, cannot raise rates, and must endure the global price inflation problem that festers on the cost side of the equation. They busily deny their role in producing price inflation from debt monetization coupled with 0% rates. They lost more credibility in the process. They are the object of global anger and ridicule. They must hope that the eventual rate hike will keep the speculative juices from overflowing. Gold & Silver do not rest, as they brush aside such a plain ruse of a threatened rate hike. The sovereign bond situation in the entire Western World (with Japan adopted into the fold) is horrendous and worsening. The government deficits are out of control. Few analysts prefer to point out how the foundation for the global monetary system is supported by the gaggle of crippled sovereign bonds. To be sure, the Southern Europe debt is in a ruined state. But the debt of the United States is no better and the same for England, when viewed as annual debt ratio to total budget, when viewed as cumulative debt ratio to GDP (economic size). The graph below shows those two dimensions, and how the United States and United Kingdom are positioned among Spain, Ireland, and Greece, apart from the mass of nations. In the full year since this graph was produced, the US debt situation has grown worse. The reckless socialists seem prudent.
The extended PIIGS pen of nations, fully ruined and recognized widely as ruined, do not have the tools to prevent rising bond yields. They uniformly rise versus the German Bund benchmark. Their differentiation actually permits the Euro currency to trade more freely, even to rise. The Chinese were responsible for much of the Euro rise from 130 to 150, as they dumped USTBonds in favor of discounted PIGS debt, later to be converted into shopping malls, commercial buildings, and factories. Somehow, that factor did not appear on the US news networks. The USGovt has tools, wondrous electronic tools, which enable them at zero cost to fight off the barbarians at the gate. It is the Printing Pre$$. Unfortunately, its backfire is a powerful rising cost structure that has shown visibly in the high food & gasoline costs. So hardly at zero cost!! A year ago, the USFed folded like a cheap lawn chair. Instead of exiting their 0% corner, and implementing the advertised Exit Strategy, they went one step deeper down the rathole. That was exactly the Jackass forecast, QE to follow 0% stuck. They combined the ZIRP with the QE. They added the debt monetization scourge of Quantitative Easing to the already reckless no cost money of the Zero Interest Rate Policy.
PURE QE3 DECEPTION
The current ruse disseminated widely is the End of QE2 and no continuation of Quantitative Easing (aka debt monetization). The ruse has no basis at all in reality. The USFed would have to find buyers for the USTreasury Bonds. They have been buying 75% to 80% of USTBonds since the end of 2010. They have been supporting the US housing market by purchasing mortgage bonds. In other words, they have been preventing the more complete implosion of the mortgage market. It is one thing for the USTBond to go No Bid. The USFed has the direct responsibility to cover that up quickly and proclaim every USTreasury auction a rip-roaring success with great 2.3 bid to cover ratio. But it is another matter altogether to permit the mortgage rates to fly upward from lack of bids. If mortgage rates move to 7% or the adjustable ARM mortgages reset 3% to 4% higher suddenly, then housing prices will descend by another 10% to 15% quickly, as in with lightning speed.
Posted Café Américain 27 May 2011
THE STORY OF THESE MARKETS IS A SLUMPING ECONOMY and a debilitated middle class versus currency debasement and excess liquidity, selectively spread amongst friends. And also an undercurrent of manipulation of prices and information, to extract wealth and shape perceptions. The management of perception is a facet of government, always. To think otherwise is to naively ignore history and the practicalities of leadership.
But when that management becomes a more powerful and self-serving impulse than the written law, than the public good and the very fabric that binds people together into a society, then it becomes an end unto itself, an extra-legal excess, literally outside the law, that invalidates the legitimacy of what had been an otherwise legitimate organization.
This phenomenon is most often seen in organizations with a long standing individual leadership by strong personalities, and an embedded bureaucracy that is excluded from effective oversight and the customary balances of power. One example of this is the late stage Hoover administration of the FBI, which began to turn in on itself and its own ends, and use its control of private information to control and subvert the political process.
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”– Charles Mackay
Of course these herds of the misguided often have a thought leader whose own perspective, and sometimes even delusions, become an almost unshakable set of core assumptions expressed as slogans and tenets of fundamental belief, the center of the whole, the familiar and comforting orthodoxy, and trusted filters of knowledge for a profession.
In the case of the Fed, it is based on similar principles as the efficient market hypothesis and of dogmatic deregulation, which are the natural goodness and incorruptibility of a highly educated and privileged elite, not subject to transparency and oversight, public checks and balances. These fatally flawed assumptions have been the cause of much misery in the last 30 years.
Power indeed corrupts all, and their thinking, even in the well intentioned.
And this is what I fear the Federal Reserve is becoming, or more likely, has already become. And so I would not necessarily argue that an independent central bank is a bad idea per se, although such an argument can certainly be made.
But I would propose that the Greenspan-Bernanke Fed itself has outlived its lifespan as an effective organization, and is in dire need of reform and refocusing, and it must come from outside the group think of their bureaucracy. And the Congress and the Executive seem insufficient to the task having been severely compromised over the years through participation in the Fed’s decisions and its control of money flows.
So the question of reform is problematic. The current government, both Republicans and Democrats, seem to be up to their elbows in the muck, beholden to a powerful elite and their vested interests that operate behind the scenes, and too often outside the law.
Terrible thoughts in their implications, and so most cannot bear to even think them. In times of the big changes people may desperately cling to the familiar, even if it is a rotting corpse of what it had once been. Reform is hard and often tedious work, never easy, and it has it own dangers. The cure may be as dangerous as the disease, and so it bears much thought and careful action. But action is required, it must be done.
Transparency and disclosure are always a first step, if not a prerequisite, to expose the true dimensions of a problem and the impediments to its resolution, and the flaws and conflicting priorities, and too often corruption and coverup, that always seem to underlie such systemic failures. ‘Let justice be done though the heavens may fall’ is a principle not in favor amongst those embroiled in a corrupted system. And so they rush to push out ineffective and superficial solutions in order to control the impulse to reforms and control the subjects of the debate in their own favor.
And this is what is paralyzing an effective response to the financial crisis in the US today.
“The control of information is something the elite always does, particularly in a despotic form of government. Information, knowledge, is power. If you can control information, you can control people.” – Tom Clancy
Let’s see which way the market breaks, perhaps before the long American holiday weekend.
by Gemma Laming
Posted May 26, 2011
THE BIG PLAYER IN THIS IS CHINA. [Not mentioned in Andrew Lilico’s article below: What happens when Greece defaults (1)]. China has some real bearing on this issue. China still exports a great deal of its manufacturing to Europe, so letting this crumble for the sake of a few billion simply is not worth it for the Chinese, who after all, have the money sloshing around in their giant coffers. Okay, so maybe it is a little more than “a few billion” but to the Chinese this sort of thing is found in the footnotes.
What is at stake here is more than principle, more than European Union, or much else to do with Europe. It is to do with China’s establishment of their own advanced economy, and this will not happen for a few years yet. In the meantime, political unrest or an outright currency crisis would harm world trade, and this is not in China’s interest.
For the same reason America’s foolishness in profligate money-printing is being tolerated, but with China seeking a more stable currency to deal in, it is unlikely to be tolerated for very long. To my mind this behaviour on the part of the US – the arrogance – is annoying the Chinese because it is not allowing them their fair share in the dealings. This American stand-alone stance of printing more money when China could simply have poured in the required amount from its almost limitless reserves of foreign currency is seen from Beijing as outright contempt. This to any China hand is not a good omen for in China the Kao-Tao is still well respected and indeed required, especially of foreigners who in times past could easily lose a head to a sharp Chinese sword. To a Chinaman, it is the subtlest and most pleasing thing for a foreigner to genuinely humble himself without first being asked or told: for this is an occasion for bringing out the finest pu-erh.
Remember that the Chinese have traditions so ancient that they make the Hebrew traditions seem as freshly baked. That the western cultures have consistently ignored these has been the greatest slander in China’s long history. To those in the know, the destruction of the Temple of the North and the Temple of the South was seen as an uprooting of the firm base upon which China’s culture was founded only to be replaced with the flimsy and worthless spectre of materialism.
So what does this mean for Europe and the problems that she faces? I doubt if the mythical fate of Europa on the back of the Jovian bull will happen just yet, but it will be the final outcome unless Europe does manage to pull herself up by her own bootlaces. We in Europe still have a few years yet, whatever the nay-sayers might suggest. The ECB will find finance from Beijing, for this will be in China’s interest, whatever the cost in the short term might be and short term economics does not interest Beijing.
The problems of the Greek economy are pretty small stuff in European terms. As mentioned in one of the rare serious comments on the Telegraph blog, their economy is around the size of Munich in Germany. The Chinese have not yet established the Remimbi or the Yuan as the reserve currency, which leaves the Euro as the most sensible option. With that in place the US can do what it likes with its dollar for the sharp Chinese sword will have fallen: the US has been too arrogant for the Chinese to worry about US heads.
In short, Greece will remain part of the Eurozone, if by the skin of its teeth. China will buy Piraeus – if the deal has not already gone through – as well as the airport and goodness knows what else. China will have circumvented the US dollar and established itself as rightful heir to the world’s number one economy with the Euro group in second place.
In ten year’s time, when the Chinese economy has grown to a sufficient size, Europe will be cut adrift to its own fate. If – and it is a very big “if” given the usual short-sighted policies of the Europeans – if the Europeans have gotten their act together and have worked with China then there is a possibility that Europe will develop its own sure-footed economy from the problems they collectively face. But it will take determination and courage and some very special technologies and some very clever thinkers to keep abreast of the Chinese. Not to do so will speed Europe’s decline to third-world status.
I really don’t know if China will help Europe or not; if she does not then it is curtains for us, but the Chinese will certainly suffer too. So really, this is the only plausible alternative I can see. Put simply: in the short term, China needs a relatively stable reserve currency, and probably the only one that qualifies for the job is the Euro.
Another scenario: The dollar and euro both crash through poor management of their banking sectors and the colossal borrowings that this led to. This will mean misery for millions of people as they will have nothing to live on but grass and nettles, for their gold will not be worth much as it cannot be eaten. Quite how far this scenario goes I cannot see, but what I do see is that there will be a world currency and a world leader who will rise from the ashes of the modern world and put it all to rights. [This could also be the scenario when China pulls the plug on Europe after the Europeans have been found sleeping on the job].
* Pu-erh is a speciality Chinese tea, and much revered in China. Ordinary stuff costs around 5-10 times what English quality teas cost and a good one – a very good one – can cost around $10,000.
Gemma Laming: short biography:
Escaped housewife, passionate compost maker and part-time furnituremaker. Early years spent in Thailand, South Africa and emigrated to Europe on getting married. A move to England shocked her into realizing that people in advanced nations did not take their democratic rights seriously and led her to question why. Recent visits back to Thailand led to the realization that the Thais, despite being poor, had a high level of self esteem, which could possibly be the answer to many of Europe’s problems.