Archive for the ‘Corporatocracy’ Category
Posted February 9, 2012
Until very recently I reckoned this Upper Caste of loyal servants comprised about 20% of the American populace, but upon closer examination of various levels of wealth and analysis of advert targeting (adverts only target those with enough money/credit to buy the goods being offered), I now identify the Upper Caste as only the top 10% (the aristocracy is at most the top 1/10th of 1%). Wealth and income both fall rather precipitously below the top 10% line, and as globalization and other systemic forces relentlessly press productivity into fewer hands, then the rewards aggregate into a smaller circle of laborers.
As noted yesterday in Social Fractals and the Corruption of America (Of Two Minds, February 8, 2012), you cannot aggregate healthy, thrifty, honest, caring and responsible people into a group that is dysfunctional, spendthrift, venal and dishonest unless those individuals have themselves become dysfunctional, spendthrift, venal and dishonest.
Since non-pathological people will quit or be fired, then these fractals of corruption are self-selecting and self-perpetuating. This is true not just of financial America but of elected officialdom. Anyone who is still naive or delusional enough to think that getting elected to Congress or the state legislature will empower “doing good” will soon learn the ropes: the next election is less than two years away, and if you want to retain your grip on power you’re going to need a couple million dollars.
So much for “working within the system.” By the time all the donors, lobbyists, leeches and parasites have been properly serviced, the “reform” bill is 2,000 pages long. As a result of the feudal structure of wealth and power in America and the self-reinforcing, self-propagating fractals of pathological servitude, the citizenry are increasingly remote from power. The aristocracy, like feudal lords in distant, fortified castles, demands obedient service of the powerless citizenry: work hard, pay your taxes and service your debt – and fears any awakening of true self-interest.
Just because a devoted member of the Upper Caste is allowed to enter the castle to do his work doesn’t mean he is part of the aristocracy. That glow of proximity to power is his reward for dutifully slaving away as a higher-order serf.
by Jim Quinn
of The Burning Platform
Posted on 8th January 2012
“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – Strauss & Howe – The Fourth Turning – 1997
IN DECEMBER 2010 I WROTE AN ARTICLE CALLED Will 2012 Be as Critical as 1860?, THAT PONDERED WHAT MIGHT HAPPEN WITH THE 2012 presidential election and the possible scenarios that might play out based on that election. Well, 2012 has arrived and every blogger and mainstream media pundit is making their predictions for 2012. The benefit of delaying my predictions until the first week of 2012 is that I’ve been able to read the wise ponderings of Mike Shedlock, Jesse, Karl Denninger, and some other brilliant truth seeking analysts regarding what might happen during 2012. The passage above from Strauss & Howe was written fifteen years ago and captured the essence of what has happened since 2007 and what will drive all the events over the next decade. Predicting specific events is a futile human endeavour. The world is so complex and individual human beings so impulsive and driven by emotion, that the possible number of particular outcomes is almost infinite.
But, as Strauss and Howe point out, the core elements that created this Crisis and the reaction of generational cohorts to the implications of debt, civic decay and global disorder will drive all the events that will occur in 2012 and for as far as the eye can see. Linear thinkers in mega-corporations, mainstream media and Washington D.C. focus on retaining the status quo, their power and their wealth. They believe an economic recovery can be manufactured through monetary manipulation and Keynesian borrowing and spending. They are blind to the fact that history is cyclical, not linear. In order to have an understanding of what could happen in the coming year, it is essential to keep the big picture in focus. As we enter the fifth year of this twenty year Crisis period, there is absolutely no chance that 2012 will see an improvement in our economy, political atmosphere or world situation. Fourth Turnings never de-intensify. They exhaust themselves after years of chaos, conflict and turmoil. I can guarantee you that 2012 will see increased mayhem, riots, violent protests, recessions, bear markets, and a presidential election that will confound the establishment. All the episodes which will occur in 2012 will have at their core one of the three elements described by Strauss & Howe in 1997: Debt, Civic Decay, or Global Disorder.
Debt – On the Road to Serfdom
The world is awash in debt. Everyone is focused on the PIIGS with their debt to GDP ratios exceeding the Rogoff & Reinhart’s 90% point of no return. But, the supposedly fiscally responsible countries like Germany, France, U.K., and the U.S. have already breached the 90% level. Japan is off the charts, with debt exceeding 200% of GDP. These figures are just for the official government debt. If countries were required to report their debt like a corporation, their unfunded entitlement promises to future generations are four to six times more than their official government debt.
Any critical thinking person can look at the chart above and realize that creating more debt out of thin air to solve a debt problem is foolish, dangerous, and self serving to only bankers and politicians. The debt crisis took decades of terrible choices and bogus promises to produce. The world is now in the midst of a debt driven catastrophe. At best, the excessive levels of sovereign debt will slow economic growth to zero or below in 2012. At worst, interest rates will soar as counties attempt to rollover their debt and rolling defaults across Europe will plunge the continent into a depression. The largest banks in Europe are leveraged 40 to 1, therefore a 3% reduction in their capital will cause bankruptcy. Once you pass 90% debt to GDP, your fate is sealed.
“Those who remain unconvinced that rising debt levels pose a risk to growth should ask themselves why, historically, levels of debt of more than 90 percent of GDP are relatively rare and those exceeding 120 percent are extremely rare. Is it because generations of politicians failed to realize that they could have kept spending without risk? Or, more likely, is it because at some point, even advanced economies hit a ceiling where the pressure of rising borrowing costs forces policy makers to increase tax rates and cut government spending, sometimes precipitously, and sometimes in conjunction with inflation and financial repression (which is also a tax)?” – Rogoff & Reinhart
The ECB doubling their balance sheet and funnelling trillions to European banks will not solve anything. The truth that no one wants to acknowledge is the standard of living for every person in Europe, the United States and Japan will decline. The choice is whether the decline happens rapidly by accepting debt default and restructuring or methodically through central bank created inflation that devours the wealth of the middle class. Debt default would result in rich bankers losing vast sums of wealth and politicians accepting the consequences of their false promises. Bankers and politicians will choose inflation. They believe they can control the levers of inflation, but they have proven to be incompetent, hubristic, and myopic. The European Union will not survive 2012 in its current form. Countries are already preparing for the dissolution. Politicians and bankers will lie and print until the day they pull the plug on the doomed Euro experiment.
The false storyline of debt being paid down in the United States continues to be propagated by the mainstream press and decried by Paul Krugman. The age of austerity storyline gets full play on a daily basis. Total credit market debt in 2000 was $27 trillion. It skyrocket to $42 trillion by 2005 as George Bush and Alan Greenspan encouraged delusional Americans to defeat terrorism by leasing SUVs and live the American dream by putting zero down on a $600,000 McMansion, financing it with a negative amortization no doc loan. Paul Krugman got his wish as a housing bubble replaced the dotcom bubble. Debt accumulation went into hyper-speed in 2006 and 2007 as Wall Street sharks conducted a fraudulent feeding frenzy by peddling their derivatives of mass destruction around the globe. By the end of 2007, total credit market debt reached $51 trillion.
In a world inhabited by sincere sane leaders, willing to level with the citizens and disposed to allow financial institutions that took world crushing risks to fail through an orderly bankruptcy process, debt would have been written off and a sharp short contraction would have occurred. The stockholders, bondholders and executives of the Wall Street banks would have taken the losses they deserved. Instead Wall Street used their undue influence, wealth and power to force their politician puppets to funnel $5 trillion to the bankers that created the crisis while dumping the debt on taxpayers and unborn generations. The Wall Street controlled Federal Reserve provided risk free funding and took toxic mortgage assets off their balance sheets. The result is total credit market debt higher today than it was at the peak of the financial crisis in March 2009.
Our leaders have done the exact opposite of what needed to be done to address this debt crisis. The country is adding $3.7 billion per day to the National Debt. With the debt at $15.2 trillion, we have now surpassed the 100% to GDP mark. The National Debt will be $16.5 trillion when the next president takes office in January 2013. Ben Bernanke has been able to keep short term interest rates near zero and the non-existent U.S. economic growth and European disaster has resulted in keeping long-term rates near record lows. Despite these historic low rates, interest on the National Debt totalled $454 billion in 2011, an all-time high. The effective interest rate was approximately 3%. If rates stay at current levels, interest will be between $400 and $500 billion in 2012. Each 1% increase in rates would cost American taxpayers an additional $150 billion. A rapid increase in rates to the 7% level would ratchet interest expense above $1 trillion and destroy the last remaining vestiges of Bernanke’s credibility. It can’t possibly happen in 2012. Right? The world has total confidence in pieces of paper being produced at a rate of $3.7 billion per day.
Confidence in Ben Bernanke, Barack Obama and the U.S. Congress is all that stands between continued stability and complete chaos. What could go wrong? Debt related issues that will likely rear their head in 2012 are as follows:
- A debt saturated society cannot grow. As debt servicing grows by the day, the economy losses steam. The excessive and increasing debt levels will lead to a renewed recession in 2012 as clearly detailed by ECRI, John Hussman and Hoisington Investment Management.
“Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.” – ECRI
At present, we observe agreement across a broad ensemble of models, even restricting data to indicators available since 1950 (broader data since 1970 imply virtual certainty of recession). The uniformity of recessionary evidence we observe today has never been seen except during or just prior to other historical recessions.- John Hussman
Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012. Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income. In summary, the case for an impending recession rests not only on cyclical precursors evident in productivity, real wages, and inventory investment, but also on the disfunctionality of monetary and fiscal policy. – Van Hoisington
- The onrushing recession will send housing down for the count. With 2.2 million homes already in the foreclosure process and another 13 million homes with negative or near negative equity, the recession will push more people over the edge. As foreclosures rise a self reinforcing loop will develop. Home prices will fall as banks dump houses at lower prices, pushing millions more into a negative equity position. Home prices will fall another 5% to 10% in 2012, with a couple years to go before bottoming.
- The recession will result in companies laying off more workers. It won’t be as dramatic as 2008-2009 because companies have already shed 6 million jobs. The working age population will increase by 1.7 million, the number of people employed will go up by 1 million, but the official unemployment rate will drop to 7% as the BLS reveals that 10 million people decided to relax and leave the workforce. Surely I jest. The government manipulated unemployment rate will rise above 9%, while the real rate will surpass 25%.
- The American people rationally increased their savings rate to 6.2% in the 2nd Quarter of 2009. When you are over-indebted and the country heads into recession, spending less and saving more is a sane option. Consumer expenditures accounted for 69% of GDP in 2007, prior to the economic collapse. The “recovery” of 2010-2011 has been driven by Ben’s zero interest rate policy, the resumption of easy credit peddling by the Wall Street banks, and consumers convinced that going further into hock to attain the American dream is rational. Consumer spending as a percentage of GDP has actually risen to 71% and the savings rate has plunged to 3.6%. The 20% drop in gas prices since April bottomed in December. This decline temporarily boosted consumer spending, but prices are on the rise again. With the State and local governments reducing spending, do the Wall Street Ivy League economists really believe consumers will increase their consumption to 73% of GDP and reduce their savings rate to 1%? If you open your local newspaper you will see the master plan. Car dealers are offering 0% financing with nothing down for 60 months. The GMAC/Ditech/Ally Bank zombie lives as subprime auto loans are back. The “strong” auto sales are a debt financed illusion. Ashley Furniture is offering 0% financing for 50 months with no payments through Wells Fargo Bank. When the Federal Reserve provides the Wall Street banks with 0% funding, banks are willing to take big risks knowing that Uncle Ben and the naive American taxpayer will be there to bail them out when it blows up again.
- With recession a certainty as fiscal stimulus wears off, home prices fall, employment stagnates, and consumer spending grinds to a halt, what will happen to the stock market? The Wall Street shills paraded on CNBC and interviewed by the multi-millionaire talking head twits assure you that stocks are undervalued and the market will surely be up 10% to 15% by 2013. It’s a mortal lock, just as it has been for the last twelve years, with the S&P 500 at the same level as January 1999. The fact is the stock market drops 30% on average during a recession. The talking heads declare that corporate profits are at record levels and will continue higher. Not bloody likely. Corporate profit margins are at an all-time peak about 50% above their historical norms. Profits always revert to their mean. These profits are not sustainable as they were generated by firing millions of workers, zero interest rates for banks, fraudulent accounting by the banks, and trillions in handouts from the middle class taxpayers to corporate America.
In a true free market excess profits will draw more competitors and profits will fall due to competition. When corporate profits exceed the mean by such a large amount, you can conclude that crony capitalism has replaced the free market. Government bureaucrats have been picking the winners (Wall Street, War Industry, Big Media, Big Healthcare) and the American people are the losers. Corporate oligarchs prefer no competition so they can reap obscene risk free profits and reward themselves with king-like compensation. Mean reversion will eventually be a bitch. Real S&P earnings have reached the 2007 historic peak. To believe they will soar higher as we enter a recession takes the same kind of faith shown by Americans buying a $600,000 McMansion in Stockton with no money down in 2005. The result will be the same. Do you ever wonder how corporations are doing so well while the average American sinks further into debt, despair and poverty?
The brilliant John Hussman captures the gist of an investor’s dilemma in his latest article:
“With 10-year Treasury yields below 2%, 30-year yields below 3%, corporate bond yields below 4%, and S&P 500 projected 10-year total returns below 5%, we presently have one of the worst menus of prospective return that long-term investors have ever faced. The outcome of this situation will not be surprisingly pleasant for any sustained period of time, but promises to be difficult, volatile, and unrewarding. The proper response is to accept risk in proportion to the compensation available for taking that risk. Presently, that compensation is very thin. This will change, and much better opportunities to accept risk will emerge. The key is for investors to avoid the allure of excessive short-term speculation in a market that promises – bends to its knees, stares straight into investors’ eyes, and promises – to treat them terribly over the long-term.”
by D. Sherman Okst
Posted June 27, 2010
In a nutshell: Corporatocracy has replaced capitalism
CAPITALISM FIXES PROBLEMS AND PRESERVES DEMOCRACY: Capitalism is what we should be relying on to fix our problems. Capitalism has it’s own ecosystem, just like biology’s ecosystem. An economic ecosystem that weeds out the weak, has parasites that eat the failures and new bacteria that evolves and grows replacements for that which failed. A system that keeps everything in balance.
The problem is we are no longer a capitalistic society. What we were taught in school is now utter and absolute nonsense. Capitalism is a thing of the past. As outlined in “It’s Not A Financial Crisis – It’s A Stupidity Crisis”, we created two back to back bubbles. The air out of the Tech Bubble was sucked up for fuel by our next stupidity crisis: The Housing Bubble.
Now, after the second Stupidity Crisis there isn’t a third bubble to inflate. If we still lived in a capitalistic environment the banks and financial institutions that created loans for folks who should have remained renters and then sold those loans as investments to pensions and countries would have been cleansed by capitalism’s ecosystem. But that isn’t what happened.
In a very anti-capitalistic move the government decided that stupidity and criminal activity should be rewarded. I’d say they took our money, but it is worse, we didn’t have that much money. So they borrowed the money in our name. The loan has a variable rate. They borrowed so much money that our kids cosigned the loan. In fact, our kid’s future kid’s signed on the dotted line.
That is unequivocally immoral. They gave that borrowed money to a bunch of morons as a reward for stupidity. Morons who created subprime loans, liar loans, no income, no documentation loans and other fraudulent instruments. Morons bundled that trash, got it rated AAA and then sold these turds or weapons of mass destruction that they had the audacity to name complex financial instruments or derivatives to pension funds, countries and other “investors”. Then it all blew up.
Big surprise. For blowing up the world’s economy this Stupidity Crisis was falsely named an Economic Crisis by CNBS and 535 morons on a hill in DC (Ron Paul and a few other fiscally responsible adults excluded). The idiots who created the mess were rewarded with a 700 billion dollar “bailout”. This “bailout” was anything but a bailout and had a price tag of anything but 700 billion. The actual price tag is closer to 11 trillion and puts us on the hook for another 13-17 trillion – not counting interest.
Think about that for a second. This stupidity crisis is the equivalent of our Federal Debt which took a generations of politicians over a hundred years to wrack-up. For anyone who still believes we live in a free country where capitalism reigns please show me one economic textbook which states that failure, and fraud get rewarded with borrowed taxpayer money. For anyone who believes we live in a democracy please show me a textbook that says the government will en-debt you and your kids and their kids to pay for a failed business. How is that democratic?
“Law of Morons”: Years ago, while serving on a committee I came to a sad realization. Like gravity, there is the another invisible force which I dubbed “The Law of Morons”. Put a group of very intelligent, well meaning people in a room together, put them on a committee or some governmental body that is devoid of guiding principles or merit-based decision making and “The Law of Morons” will prevail. The collective IQ will drop to the smallest shoe size in the room. And hope for loafers, because collectively this body won’t be able to tie anything together – not even a single shoelace.
Government Creates Problems: Basically our government is comprised of many well meaning intelligent people who for whatever reason, re-election, greed the “Law of Morons”, corporate puppet strings (read: lobbyist), self interest, corporatocracy or whatever else, do nothing but create massive problems. Lack of regulation, too much regulation.
by Matthew K
Posted 23 August 2011
on Le Café Américain
IT’S BEEN A ROUGH FEW WEEKS FOR THE CAPITALIST SYSTEM, WHICH BESTRIDES THE GLOBE like a teetering colossus. Not only has there been stock market turmoil worldwide, and the temporary threat of a US default on its debts, but an esteemed, mainstream economist suggested that Karl Marx was right. In the Wall Street Journal, no less! Karl Marx Was Right
That would be Nouriel Roubini, whose claim to fame came from timely warnings about the US housing bubble and subsequent US stock market collapse. It is important to note that he only said that Marx was right in that capitalism could collapse on itself, not that it actually would.
Most people are familiar with the spectacular failures of central planning in the Communist regimes. According to the resurgently fashionable Austrian school of economics, an economy is too complex to be managed by one expert, or even one committee of experts, regardless whether the clubhouse door reads “Politburo” or “Shark Tank.”
According to the Austrians, society’s fastest path to prosperity consists of allowing every person to decide freely what is in their best interest, with the emphasis on individual transactions.
A biological analogy comes from flocks of birds, schools of fish, and ant colonies, among others. These swarms function extremely well, despite being composed of simple creatures following simple rules, and despite the anarchic lack of a leader directing things. Our own “simple critter rules” in modern society are probably along the lines of “try to get a higher paying job, and pay lower prices for stuff, within the laws of the land, and without making too many enemies.”
A business analogy comes from Toyota. Their quality went from hopeless to fearsome by training every employee to be competent enough to figure out how to do their own job better, and then allowing them to do so. If their management tried to dictate how each task was to be done, they might have peaked at early-80’s American car maker quality levels.
In a similar way, they decided not to try to predict the right production levels for each model, colour, and trim. Instead they pre-built enough cars to fill dealership inventory, and each time a customer purchased a vehicle, they would build one more of that same model, colour, and features. In economic nerd speak, they responded to that “market signal”. So if 5% of Corolla drivers wanted a green car with deluxe extras, in the long run 5% of Corolla production would consist of deluxe green vehicles.
Since the flaws of central planning and benefits of distributed decision-making occur in the public sector, the private sector, and even in biology, we can generalize that the USSR’s economic problem was ultimately that a small group of people would decide how to (mis)allocate most of the country’s resources.
In the past thirty years, there’s been an immense concentration of wealth — particularly in Anglo-American countries (the US, UK, us, the Aussies). The US is at the leading edge of this trend, with the top 1% owning 42% of the wealth, or about six times as much as the bottom four fifths of the population, and a significant portion of the means of production and public information (media) and influence over the course of society.
In recent decades Western capitalism has moved towards the central planning model of a relatively small number of people in charge of directing the allocation of resources. This narrowing of perspective has in turn led to policies progressively more disastrous for the moved and the shaken… which was the Soviet denouement.
I have to credit the influence of the thoughtful blog of a well-to-do American entrepreneur and military strategist, and especially this particular posting: Central Planning and the Fall of US Empire
Capitalism’s path back from the self-perpetuating central planning will require a more equitable, or at least a less inequitable, distribution of wealth and power, by which to rebuild the middle class and promote decision making based on individual choice and a more widely based entrepreneurial meritocracy. Which is what Roubini was complaining about, in saying that too much wealth was being redistributed from labour to capital.
It would be a terrible irony if Marx was proven correct, and unchecked capitalism destroyed itself by evolving the self-crippling features of a centrally planned communist economy. One can only hope that we can reform our current market systems before things get worse.
by Doug Noland
Posted June 17, 2011
ISN’T IT INCREDIBLE THAT THE FAILURE OF ONE FIRM, Lehman Brothers, almost brought down the global financial system? It is equally incredible that, less than three years later, a small country of 11 million has the world teetering on the edge of another systemic crisis. Today’s circumstance is a sad testament both to the instability of the international Credit “system” and to the lessons left unlearned from the previous crisis.
For about 15 months now my analysis has attempted to draw parallels between the initial subprime eruption and last year’s Greek debt crisis. Both were the initial cracks in major Bubbles (“Mortgage/Wall Street Finance” and “Global Government Finance”). These two weakest links – due to their role as the marginal borrower exploiting a period of system market excess – were extremely poor Credits. On the one hand, the systemic vulnerabilities associated with a potential bursting of major Bubbles elicited aggressive policy responses to the initial subprime and Greek tumults. On the other hand, policy had no constructive impact on the underlying quality of the debt – while significantly inciting market excesses (market price distortions, Credit and speculative excess, etc.) that exacerbated systemic fragilities.
There was heightened fear this week that the “Greek” crisis was evolving into Europe’s “Lehman Moment.” Recalling back to 2008, the Lehman collapse was the catalyst for a crisis of confidence throughout the expansive universe of “Wall Street” risk intermediation. Importantly, market confidence in the willingness and capacity for policymakers to backstop this multifarious system held steady virtually until the moment the Lehman bankruptcy was announced. The marketplace had appreciated the enormous risks associated with a potential crisis of confidence throughout the securitization and derivative marketplaces, yet assumed that policymakers would simply not tolerate a failure by one of the major players in this financial daisy chain. The global financial system almost imploded when this precarious “too big to fail” assumption was debunked.
I have posited that the global policy response to the 2008 crisis only expanded and solidified the market’s notion of “too big to fail.” Most in the marketplace believe that policymakers now recognize that allowing Lehman’s failure was a major policy blunder. The expectation today is that the EU, ECB, IMF, Germany, China and the Fed will not tolerate a Greek debt default. This faith had better not be misplaced.
While the Lehman failure proved the catalyst for the 2008 crisis, it was definitely not the root cause. The problem was instead the Trillions of unsound debt underpinning Trillions of leverage, Credit insurance, and sophisticated risk intermediation that, through “Wall Street alchemy”, had transformed really bad loans into seemingly appealing (“money-like”) debt instruments. As soon as the market began to back away from these structures (commencing with subprime concerns), the downside of a (Hyman Minsky) “Ponzi Finance” scheme was set in motion. And as the Bubble began to falter, the market increasingly valued huge amounts of debt based on the perception of a system backstop rather than on the fundamentals of the underlying debt instruments (largely, increasingly vulnerable mortgages).
If authorities had moved to save Lehman back in September of 2008, it would have bought some extra time – and would have changed little. Trillions of unsound debt, distorted asset and securities markets, and a severely maladjusted economic structure ensured a major crisis. It was only a matter of the timing and circumstances as to how the widening gulf between distorted market prices and the true underlying value of the debt was resolved. As we are witnessing with Greek, Portuguese and Irish debt (and CDS) prices, market troubles often manifest when unanticipated policy uncertainties force the marketplace to take a clearer look at the fundamentals underpinning a debt structure – only to grimace.
The problem today is not really Greece. A dysfunctional global Credit “system” has created tens of Trillions of unsound debt – and rapidly counting. Aggressive “activist” policymaking has been at the heart of this unprecedented Credit inflation, and the markets today fully expect policymakers to ensure this Bubble’s perpetuation. And, importantly, for better than two years now global fiscal and monetary policies have incited another huge round of global speculation and leveraging. This latest Bubble gained considerable momentum with last year’s European Greek bailout and implementation of the Fed’s QE2 program.
Policymaking gave a new – and egregiously profitable – lease on life to the “global leveraged speculating community.” Given up for dead in late-2008, hedge funds, proprietary trading desks and others have been able to exploit government-induced market distortions like never before. With confidence that massive fiscal and monetary stimulus would ensure economic expansion, abundant marketplace liquidity, and strong inflationary biases for global securities and commodities markets, the global “risk on” trade proliferated near and far. Re-risking and re-leveraging – through the creation of new market-based debt and attendant liquidity – fueled a self-reinforcing speculative boom. QE2 (and other central bank liquidity operations) coupled with re-leveraging dynamics bolstered the perception that the markets had commenced a cycle that would prosper in liquidity abundance for an extended period. Fragile underpinnings, especially in the U.S., seemed to ensure years of policy largess.
There is a big problem any time the leveraged speculating community begins to question core assumptions – certainly including the capacities of policymakers to sustain Credit booms, ensure liquid and continuous markets, and to contain Credit stress. Think of it this way: Enterprising market operators are incentivized into leveraged (“risk-on”) trades when they discern that policymaking is providing both a trading edge (generally an inflationary bias or predictable spread) in the marketplace and a favorable liquidity backstop availing an easy exit when necessary. I would argue that huge speculative positions have accumulated over the past two years on assumptions that are increasingly in doubt. This has quickly become a major market issue, and largely explains recent market action.
from Zero Hedge
Posted June 11, 2011
OPERATION EMPIRE STATE REBELLION IS BACK. Perhaps in the aftermath of the IMF “very major breach” by anonymous hackers, it is really time to make sure all external access points to FedWire and FedLine are truly safe and sound. It will be very sad if it is uncovered that this source of externally accessible portal to hundreds of billions in emergency Fed funding has been somehow compromised. Just imagine the loss of confidence in the system… Why, a global distributed attack would really stretch the Fed’s 1,200-strong police force quite thin.
Transcript, from Op ESR’s just released video:
Ninety days ago, we requested Ben Bernanke’s resignation as Federal Reserve chairman. Mr. Bernanke has not complied with our request.
- The Federal Reserve’s policies are systematically looting the country to enrich one-tenth of one percent of the population.
- The Federal Reserve has deliberately driven tens of millions of people into poverty.
- The Federal Reserve is responsible for Crimes Against Humanity!
- The Federal Reserve gave trillions of American taxpayer dollars, in secrecy, to the people who were most responsible for causing our economic crisis.
- Our tax dollars were handed out as all-time record-breaking bonuses to top executives at the “Too Big to Fail” global banks.
- The Federal Reserve gave American taxpayer dollars to foreign banks and corporations.
- The Federal Reserve directly subsidized tax evasion by funneling taxpayer dollars into to the Cayman Islands.
- The Federal Reserve gave American tax dollars to their primary dealer banks, so the banks could then lend that same money back to the US government at higher interest rates, leading to significant profits for the banks, at the further expense of the American public.
- Through bailout programs the Federal Reserve socialized financial losses onto American taxpayers and privatized profits into the hands of global banks.
- The Federal Reserve aids and abets trillions of dollars in accounting fraud.
- The Federal Reserve routinely manipulates the stock market.
- The Federal Reserve deliberately caused inflation in the price of food, gas and basic necessities, while devaluing the dollar!
- The Federal Reserve represents the central planning force behind a global banking cartel that has deliberately impoverished people throughout the world.
US Politicians have not taken action to break up the Federal Reserve and the “Too Big To Fail” Banks.
US Politicians have not taken action to prosecute the people who caused our economic crisis.
US Politicians have not taken action to end the system of political bribery, the campaign finance and lobbying racket, which allows global bankers to control our political process.
Democrats have failed us.
Republicans have failed us.
No one is defending our interests.
We cannot remain passive while our future is going up in flames.
It is time for us to stand up for ourselves.
It is time for you to stand up for yourself.
We must restore the rule of law and fight back against the organized criminal class.
We must now launch Operation Empire State Rebellion.
The operation will commence on June 14th.
As a first step, we are calling upon you to occupy a public space until Federal Reserve Chairman Ben Bernanke steps down.
Operation Empire State Rebellion, Engaged.