Uno

Ridiculous. Who cares?

Second

Main street is going to get decimated. If your job goes away, who will buy your house? Joe the worker is stuck with it, and will probably default – feeding back through the system.There needs to be a floor in the housing market, or I can’t see how the economy can recover in the near future. If there is to be a bailout, it should be to help main street and NOT to cover CDS problems or other bad investments.The housing deflation issue is no longer “bad investments” or fraudulent loans – people are getting pink slips and can’t sell to cut losses or to move to where jobs are, and it is only going to get worse.This looks and feels like a death spiral.

For a lot of people, this will be a death spiral. Expect a lot of misery in the USA by mid-2009.There’s no way that they can stop the housing price decline. Bailouts won’t do it. People who are really underwater on their home mortage may have to just walk away (provided they can rent at a much cheaper cost). To understand why, see the following article. The logic is correct. There are also some good comments that explain why California is in for a pretty rough time.http://www.doctorhousingbubble.com/california-housing-fiscal-emergency-part-deux-california-housing-and-economic-dynamics-in-massive-recession/PeteCA

Basically the Debt Paradigm has reached it’s limits of credit expansion. The unfolding Deflationary cycle is a process of Equilibrium which will play out regardless of pissy little Government bailouts/stimulus packages etc. As Michael commented yesterday “Those who are desperate to borrow, can’t secure finance… those who ARE Creditworthy DO NOT WANT TO BORROW.” It’s that simple, Folks. The VELOCITY of credit expansion now & going forward WILL NOT match the sort of velocity we achieved 2003-2007. Thus we will not see a turnaround in the Deflationary cycle until the Equilibrium reaches a point closer to REALITY (and we may overshoot on the downside). As Meredith Whitney pointed out yesterday.. Banks will be pulling Credit Card lines as the Defaults & Bankruptcies on them are hitting record highs & still reaching for the moon. This spells DISASTER beyond anyone’s ability to currently fathom. How many American’s LIVE on their Credit Cards????????

I have started liking the comments a lot more than the good Prof’s article, the articles are getting repititive and boring while more and more people are starting to realise the value of living within one’s means. Keep up the good work PeteCA

I doubt the government is big enough to directly support the major capital markets by direct purchase of securities. The sheer amount of money this would require is so stupendous that almost as soon as it became an accounting entry in the Fed’s books the dollar would collapse. The collapse would be expressed as a spike in interest rates as global capital fled the United States, leaving this country prostrate and completely wasted.In other words, the approach that is being recommended is suicide if it happens within the existing global monetary framework.In theory, if this government asset purchase was choreographed with massive dollar support by every central bank in the world, it might work a little longer. But given the dollar’s role a reserve currency, the rest of the world would also bankrupt itself.What is needed is a coordinated relief operation for the US, first, by finding as substitute as a global reserve and then pegging the dollar to the new standard at a sharply lower value. There would be an immediate shock to the US economy in the form of a substantial rise in prices and interest rates, but that would be the end. We could pick up the pieces and go on.However, no other country of any stature would agree to this unless the large American banks and others that are underwater were handled as bankrupt – downsized, reorganized, liquidated or otherwise disposed of.

The cure for a financial crisis is not more structured finance. The government is behaving like a dog biting its tail. We need to build factories for solar panels in the markets where they can be used. The solar panels can be stationed above asphalt parking lots and roadways to shade them from the asphalt’s major source of continuing to cause global warming. Safe and efficient water treatment infrastructure upgrades need to be undertaken. Biogas digesters can provide gas for heating and cooking and nitrogen fertilizer for our local gardens. We need to totally reshape our world. The time as always is NOW.

I disagree. The large American banks should be treated as corrupt, fraudulent entities, and the executive should be arrested, tried and punished. Is treason a felony in the US? Because what they have done has NOT been in the interests of the Country. The Corporation of the US maybe.A massive crime has been perpetuated on the Globe by the US financial market. The spreading of the toxic, “AAA rated” derivatives throughout the global financial institutions is a crime perpetuated with the complicit approval of the highest eschelons in government. The thought that those responsible are likely to walk away unscathed is infuriating to the rest of the world. All in your name.

“US – Too Big To Bail”For me, buy bailing out “too big to fail” banks and institutions, the US is on the way for its own bankruptcy, in a faster pace…Bad debt is being concentrated in the hands of central banks, that means the mess is not in the hands of the financial system, but in the hands of the governments…But the US is too big to bail, I wonder what will follow next… Those who are running to US treasuries and the dollar will get burned like the flies running into the trapping violet lights.ITMgr From Turkey

NOURIEL ROUBINI, PLEASE RESPOND TO THIS COMMENTTo me it sounds like there is no recovery. Just a starting over

Right. And at the end, the US government will nationalize the pension funds and endowments to reduce its external debt. Then the pensions and universities will financed by new taxes levied on workers. Welcome to the USSRA!

” And even more unorthodox “crazy” policy actions become necessary… “@ RoubiniWhat you are looking for, that is the “crazy”, is: Zen.However, “we” / “they” could start by defining the economic phenomena in terms of physics and then, after understanding that which we are dealing with – er, for a change, we could move onto controlling this beast.However, I posit, that even if “they” or “we” knew what economic phenomena was and, understood how it worked – which “they” / “we” don’t; even then, they would not do anything different to what they are doing today;-]Get the point?Well the point is – it’s going to get worse and real bad at that too; maybe just because there is no one who understands Zen?Ho hum

A dollar carry trade pre-supposes excess savings in the USA, like there is in Japan. There is no such thing in the US, we need to borrow from the world, not lend to it. However, it may be relatively simple to finance our deficit spending from Japan, even $2t worth

You analysis is correct. The developing world has been exporting to the developed world for decades, sucking out jobs and profits. The basis for this is a weak currency.Now that the developed world is on its knees, the developing world will feel extreme pain. If they aren’t able to readjust their economies to a consumer economy they will fail even worse than the USA.Basically, the strong dollar for the last few decades – particularly vs Asian currencies, has bankrupted the USA middle class,

The best cary trade is to borrow dollars at a low rate (curtesy of Helicopter Ben) and sell them. This is probably a historic (and sad) opportunity.

no matter what the exchange rates are, if a Chinese worker works for $100 a month, how can western workers compete?

The tsunami of boomers with retirement age in sight will now do their UTMOST to save. Securing a reasonable retirement, for them will trump all other desires. Therefore it’s clear consumption in that demographic will decline dramatically to be replaced by real and earnest savings.But is saving enough? In the huge US middle class, that means no matter what is being thrown at them in the form of easy money- they will still overwhelmingly want to rebuild wealth. Ponder the effect that will have on the US and world economy.Then, there will be a world literally awash in easy money seemingly with nowhere to go. Do Boomers borrow for a house? Yeah right. Borrow to consume- nope saving remember. So, you are a boomer who has taken a major hit to his/her wealth with access to easy money at extraordinarily low interest rates in the midst of an unfolding crisis threatening to destroy what financial wealth you have left. Borrowing to leverage one’s wealth? Is that possible?Well, yes it is if you are confident your new asset will rise in price. It’s called margin lending- where you borrow money to buy stocks etc. And ETF’s. Such as GLD and SLV and USO.The whole world is screaming at the US consumer to borrow and spend.But on what? I think a large chunk of any Boomer expenditure in future will be directed into shoring up his/her wealth. Paying down debt , growing real wealth and being protected from a debasing currency will be high on the list.If the situation clearly favours minimal debt repayment over rapid build up of available wealth then eventually lots of boomers could eventually get religion over gold.

You had the so-called “savings glut” and “liquidity trap”I utterly dislike the word. This country is anything but a liquidity trap. It continues to “drain” – not trap – liquidity built up in other areas of the planet at an appalling rate.This word displays no decency for the ones saving in the other parts of the planet. Only US nationals and banksters, whatever their nationality, dare to use itIt is of course just plain commonsense that US starts to deleverage. They do not deleverage. They just start using less of non-US cash. And once started, the process will run its course.Speculation is not a one-way street. No chance to avoid a recession. Giving freshly-printed money away would not solve this problem. Just displace it.

Pay attention to this Roubini statement:The Fed and the Treasury are taking a massive amount of credit risk, ENDANGERING the long-term SOLVENCY of the US government.What do you think this imply?Will foreigners want to buy T-bonds. Or will they prefer to sell their bonds now at a good price??Who will support the bond market? Printed Money?

Take a look at my post just up there

If they are saved who will want a SUV ? Or Better who will have money to buy it and support the gas ?

Braintrust Debate Number 1. What’s the problem?The BrainTrust’s mission is:“We are going to build and use grass-roots power to influence the evolution of the global economy.”This mission implies that the economy we have is not the economy that we want. While that may be a true statement, is too vague to be actionable. This must be drastically narrowed down, or we will not be effective.What aspect of the world economy most needs to change? We must separate the significant from the irritants, the causes from the effects. What is the root-cause problem in our current economy that we wish to fix?Here are a few of the problem statements we’ve all seen lately:* Our economy is designed for the society we used to be, and not the society we wish to become* Structural imbalances around consumption and production did not get addressed in a timely way* The West mis-allocated the world’s savings* Ethically challenged people operate Government and the Finance sector, and must be ousted* Consumers don’t know how the economy works, and are easily manipulated* Rich and poor societies are not effectively cooperating to maximize average well-being around the globe* Too few people really understand our economic situation, so we’re just floundering aboutWhat is your definition of the core economic problem facing the world today? Please confine your remarks to one or two core problems. We must focus our efforts, and that starts with focusing our thinking.

Just to be a stickler, treason is defined as taking up arms against the US, so it wouldn’t apply here. However I strongly agree that the Banksters and their enablers have worked against the interests of the US and the world and that there needs to be consequences.

“The Fed and the Treasury are taking a massive amount of credit risk, endangering the long-term solvency of the US government.”

re braintrust problem: The role of the government has gone from ‘protector of personal property’ to ‘allocator of resources.’ there are plenty of examples from history to show that this has never worked

excellent questionwhat will follow untenable/unpayable US deficit debt?maybe: refinancing the US debt so that the US can afford to pay its debtjust like refinancing a home mortgageelengthening the 30 year into 100 year?that would certainly reduce the yearly interest payout

The point in Zen is that there is no point and that there is no point is not pointless. Perhaps it is you Peter who does not understand Zen. I know I don’t. Zen is not crazy, only you think it is, for now. You think that using new combinations of words and numbers classified previously as economic and now as economic with a basis in physics will provide us greater understanding; and perhaps you are correct. But to suggest that “moving on to controlling this beast” would in anyway be change is a grave misconception. Our mess is derived from an attempt to control and limit rather than accept uncertainty (we use a fancy term called risk to represent this in Finance). We cut the risk/uncertainty into pieces and figured we could fool people (and we could because they’re easily gullible) by sending them nice baskets with a lot of fertilizer in them and fertilizer can be used to grow things or blow things up. The reason people were so easily duped is because they were told that their uncertainty and risk had been dissolved by the financial priests (for a small risk indulgence of course) But as with most things they forgot that certainty is not just certainty but certainty/uncertainty only one side of a two sided coin. And just as religion can promise only good things will come to you if you follow their prescriptions (again for a small fee) leaving out the point that good is only one half of the good/bad coin; finance promised only certainty in the form of AAA tranches. Zen promises no certainty and in that respect I agree with your prescription.

1.finance has become an industry unto itself, as opposed to a facilitator of productive work. capital is misallocated to speculation through the finance industry rather than productive investment. government must regulate finacial activity to ensure that it is put to productive uses, the same way it regulates pollution in industry2.corporations have grown too large and powerful. they have been able to influence government policy to an undue degree. they have sheparded through legislation enabling them to offshore labor and pay high salaries while avoiding taxes and reasonable wages. People must have MORE rights than corporations.

I agree – most of the 80 million American baby boomers are and will spend MUCH LESSObama may tax American companies who outsource so that they insource(it’s instead of tariffs)bringing industry back to USA and making our exports competitivenecessitates weakening the dollarwhich our burgeoning deficit + lousy economy should make easya weaker dollar means gold/commodities would risebaby boomers might just invest in gold for safety

I think the charging of interest by a private credit cartel for the priviledge of printing the debt/money issued by a sovereign nation in violation of its own constitution, with said interest to be repaid by the taxpayers of said nation in the form of income tax to the treasury without representation is the problem. Until this criminal usury is stopped we cannot expect progress. There is your core problem.

OB, I think that you need to narrow down your mission. It’s so broad that you’ve set up yourselves for failure.You can’t build a grass-roots movement unless you have enough people involved; that can’t happen if the people is not educated; you can’t expect people to sift through thousand of old posts to educate themselves.IMHO the best use you can realistically make of your collective brain power is to tackle problem #5 (widespread ignorance). What I have gained most from reading this blog is a better understanding of where we are, and how we got here. It hasn’t been easy though, as even here there is a lot of jargon thrown around, and tons of irrelevant material to sift through.What the RGE BT could do is to make all this digestible to those that do not have the time/knowledge to do the chewing themselves.IMO this could entail to separate efforts. One would be to build a sort of jargon-free wikipedia for the financial markets. The other would be to have a constantly updated status report of where we are/what has been done/what is working/what not re this global financial crisis.

Guest:Demand has fallen off a cliff. Households are stopping spending. Velocity of money is falling rapidly. That means deflation, which unchecked leads to depression.Households are doing what’s rational at the household level, but what’s rational at the household is suicidal for the economy.Either the households re-start spending, or the nation forces spending by borrowing & fiscal “measures”. Or we fall into a depression.Is the problem lack of spending, or improper spending? On what timescale? The past, or now, or in the future?

An indication that we are at the end of the beginning of our world deflationary depression. Economist still are advocating strong responses from central banks to fix our systemic problems. They believe that tinkering on the edges will provide demonstrative results of lasting value. The problem of world market dislocations are so much larger than the puny attempts of central banks that economist must first capitulate to the reality that central banks are not in control. All those long on central bank tools must be wrung out by Mr. Market and utter despair must replace optimism. Only when the “weak hands” of spend at all cost economic theory crash will the “strong hand” ideas of responsible behavior ascend in thought and mark the beginning of viable future economic theory.

Would selling my home now be the worst thing I could do.

ROUBINIomics!!!! ROUBINIism!!!!

LOLOL the economy is now 65% service and today we get the ISM service number and it collapsed! The lowest reading ever and on that news, the dow CUTS IT’S LOSSES in half!! This market is going to rally 50% by the end of the year-the govt is not only buying treasuries…

This is the second half of a previous post.I see three reasons (perhaps there are more) why the US, in the interest of self-preservation, would inflate the dollar if it had to choose between massive inflation or deflation. In order of importance (greatest to least):1) Above all, the US is fundamentally a nation of debtors that simply cannot withstand deflation.We all know that the US is drowning in debt. Many also understand that deflation is disastrous for debtors (asset values plummet while debt obligations remain largely fixed). It is quite possible that given the size of our collective debt obligations (individuals, businesses, government), repaying them through traditional means (cutting costs, saving more) may simply be impossible in this economic environment.In such a deflationary environment, in order for the US to preserve its relative prominence in the international community, it appears to me that it would have no other choice but to massively inflate the dollar in order to effectively monetize the nation’s debt. Massive dollar inflation would at least allow the US to collectively escape from under its massive USD-denominated debt burden, and help ensure a degree of parity between the US and creditor nations.2) The US is better equipped to fight inflation than deflation, and fighting inflation is more aligned with the US’s long-term best interests.Assuming it has to combat either one or the other, I believe the US would rather fight inflation.Deflation leads to the well-known liquidity trap scenario which has the ability to render most forms of monetary policy useless. Fiscal policy in the form of increased government spending may possibly be successful, but a) it is no quick fix (i.e. spending on infrastructure takes years), b) does not necessarily have a strong track record of success, and c) has some well-known execution issues concerning rent seeking/lobbying, etc.Inflation, on the other hand, would seem a little easier to tackle and more in line with (what should be) our new priorities as a nation. Interest rates can be raised as much as necessary without concern for any sort of problem like the liquidity trap. Of course, there are practical issues posed by high interest rates, such as high borrowing costs for businesses, but if nothing else at least our monetary policy would be something other than impotent (and borrowing costs are going to be high either way, as evidenced by ever-increasing corporate bond yields). Importantly, raising interest rates over the long-term would seem to be in the best interest of a nation that desperately needs to learn how to start saving and whose interest rates are already dangerously low.Similarly, while government spending can take time and the execution of such spending can be tricky, cutting spending can be done almost immediately. Like raising interest rates, cutting federal spending is also in the US’s best interest, as I think most would agree that years of large federal deficits have only compounded the nation’s problems.3) The old saying that if you are going to panic, panic early.I believe that a number of benefits likely exist that the US could reap by being the first to panic (or, equivalently, by being the first to realize that catastrophe looms ahead, if in fact it does). I would appreciate input on this (i.e. other advantages/disadvantages to being the first to act).My basic premise for this point is simple. At present, most nations have stocked up on Treasury bills/notes and hence the USD. As a result, if—today—the US were to adopt a policy of massively inflating the dollar, it would all but ensure the tanking of its own economy, but, to put it bluntly, it would also be pretty much assured to take the global economy down with it, ensuring, at the very least, some degree of international parity. If, however, the US delays, and other nations—out of fear for the long-term stability of the dollar—decide to significantly reduce their USD holdings (granted, this does not look like its going to happen anytime soon), then the US’s standing relative to those nations if and when the dollar collapses will be worse than it could have been had it been the first mover._______________For these three reasons, it seems to me that in a scenario where the US is clearly faced with the alternative of massive inflation or deflation (and I am not suggesting we are at that point… yet), it seems entirely in the best interest of the US to rapidly inflate the USD sooner rather than later.Now, up to this point, I have assumed that the US would be choosing solely between either inflation or deflation. Of course, it may never become clear that returning to a degree of price level stability is out of reach. This makes decision making infinitely more complex. Should the US embrace a policy of moderately aggressive reflation in the hope (however slim) of returning to such price level stability? As I’ve noted, it is my personal opinion that returning to such stability is becoming less likely by the day, and thus such an approach may prove to be ineffective as far as avoiding extreme deflation. But even if that is the case, would that still warrant throwing caution to the wind and adopting an extremely aggressive inflationary policy, with the explicit goal of inducing substantial dollar inflation in order to monetize the nation’s debt?I should reiterate that I am not calling for this course of action. Clearly, it is a tremendously drastic step, and hopefully one that will prove unnecessary. However, if reversion to a world of steady price levels is all but impossible, is a preemptive, outright embrace of inflation—before the deflationary spiral trap truly settles in—in fact the best approach? What do you think?

You were told yesterday by Nancy-retard-Pelosy, that “bankruptcy is not an option” so OF COURSE they will get the money. They will aslo be back in April for another $100 Bill.

Braintrust Q: While many of us partly understand the dire consequences of the “casino financial system and corporate government rule”, the majority of people do not; hence, a good starting point would be for each of us to survey (could be standardized) as many friends, relatives, etc to get a better idea of what most people regard as the most important issues and how to fix them. This could also be done nationally through establishing a web site with incentives for people to participate. Broad grass roots support on a few basic but key issues will go a long way towards changing the current system.

LOL Dow almost back to even!

Bye Bye Mr American Pie !Japan economists call for US borrowing in other currencieshttp://www.atimes.com/atimes/Japan/JK19Dh01.html

@KenI have found Brandon Cox’s input startling and amazing and I look forward to hearing more from him.

They are indeed taking on a massive problem with credit risk. In some ways it’s remarkable that the international system has allowed the USA to “defy the laws of gravity” for so long. However, as we saw in the mortgage bubble – there does eventually come a time when the free market deals out brutal punishment to excessive risk taking.It could be truly said that what the Fed and the US Treasury have done with these bailout schemes represents excessive risk taking – the risk in this case being the credit status of the United States. I understand perfectly well that the Fed wants to save the US banking system. That is their mission – and let’s face it. A failed banking system is in no-one’s best interest. But their response has been so massively out of proportion that their actions have actually endangered the US financial system and credit status.The final resolution will be very painful for all Americans.PeteCA

Is it safe to say that the best time for the US to print money is during times of deflation and/or unexpected inflation in order to hide the monetization of debt?It would appear that the current deflation period is the perfect time to print. After all, once expected inflation arrives, we won’t be able to monetize and print.Any thoughts on the issue?

We need to print to avoid deflation. Remember we are a debtor nation full of debtors. We need to devalue to make the debt more manageable.

The professor is joining the Obama bandwagon, will he join the blackhouse administration?

If we “panic” now we might not even be first. China is apparently going to devalue the yuan against the dollar. We are in a fight for our lives and we must print immediately, it is already getting late.

Old news, the article is two weeks old and I saw it then. I hope their concerns, that we print our way out of much of the debt, are well founded!Why should Americans listen to Japanese about this? I cannot see any reason. Print on!

gm , i think there is a typo in your post. inflation vs deflation.perfect time to transfer bad debt from one party to another rather than deal with the real problem?

OB, my comments on these points in parentheses after each one.* Our economy is designed for the society we used to be, and not the society we wish to become (I think the core problem is that we have too-big-to-fight banks running the society. By too-big-to-fight I mean that they run things and neither ballot box nor any other means can slow them down. Maybe I’m s saying we should terminate their Fed; somehow these “key institutions” are now clearly exposed as uncaring and inimical to the common man’s interest.)* Structural imbalances around consumption and production did not get addressed in a timely way (that’s the past.)* The West mis-allocated the world’s savings (that’s the past. let’s not take the blame for it, surely many of us are not at fault. as for me if i’m asked to “pay my share” i will avoid it somehow. that is a promise.)* Ethically challenged people operate Government and the Finance sector, and must be ousted (certainly true but we don’t have the military, what do we do?)* Consumers don’t know how the economy works, and are easily manipulated (consumers per-se don’t care, they consume to satisfy their needs and wants. there is nothing wrong with that.)* Rich and poor societies are not effectively cooperating to maximize average well-being around the globe (good luck repealing the principle of individual utility maximization, or is there another idea here?)* Too few people really understand our economic situation, so we’re just floundering about (this will not change completely but is changing to a significant extent already, look what wonders we have achieved by pressuring Congress not to roll over to Paulson. We made him rewrite TARP and kneel before Nancy Pelosi — not that I mean to compliment Pelosi)What is your definition of the core economic problem facing the world today? Please confine your remarks to one or two core problems. We must focus our efforts, and that starts with focusing our thinking.

One idea could be a 5 star rating system of all suggestions with the highest ones receiving the Gold, Silver and Bronze “Save the World” medal weekly by way of relisting the winner’s name or alias and his/her suggestion on the web site. Appealing to people’s sense of morality and humanitarianism through recognition rather than monetary compensation often brings out the best people as well as the best in people. Most teachers or social workers I have met do not place monetary compensation ahead of helping their fellow man.

good comment

Pete, your chart references were especially helpful. As Mandelbrot would say, you can get a lot of information out of a picture. Please continue to keep us commenters clued in when you see major movements in T-bill prices, etc., and any analyses of what the movements might indicate. I see that the ^VIX is still running rather high by historical standards. Aside from the $UST, $GSPMS, and $IRX, what else should an ordinary investor keep an eye on? Thanks.

Pete, many thanks for your advice. My family and I will take the steps you suggest.I’m just glad we live in Central California as opposed to SoCal, our county is still largely rural with a decent agricultural base.I wouldn’t want to be living in the LA area as the economic situation deteriorates.On the bright side, maybe this will clear out some of the illegals. Our state legislature HAS to realize we can no longer afford to keep subsidizing Mexico.

Depends on where your home is. But in general, I believe that houses will continue to decline in value for another few years. They rose way above their real economic value and were, in general, on an average, truly unaffordable. Their rise in price encouraged over building. This caused inventories to build the capacity of housing beyond the real growth in house hold units.The bubble then burst and home prices started declining but we shortly thereafter entered a recession. Which has accelerated and removed many buyers and added inventories to be sold by the increases in foreclosures. We have a down turn on almost all fronts forcing more homes on the market driving prices down. This process has not started to show a slowing trend yet so we are still declining. I think that we may have another 20 to 40 percent to go depending upon the area you live in. Some like Portland Oregon still have robust economies and houses have hardly declined. Other areas like Sacramento and surrounding areas have little internal economic activities and relied upon commuters and the soon to retire. These areas were the worst hit and will be the slowest to recover.So IF you are in an area where there is little economy and few prospects for recovery and you could sell, you probably would be better off doing do ASAP. The longer you wait, the lower the values will be. Some areas will recover much sooner than others. Some may never reach the heights they had previously held. Or not in the foreseeable future. It all depends upon the economic base and prospects in the area where your home is located. IMHO All real estate is local and it really is location, location, location!

The failure of the multiplier is bigger than infusions of capital from central banks. Japan deserves our apology for thinking their policies ineffective. There is no solution other than time.If I read this right.

pjb, you can see it every day. if watching w. for 8 years didn’t reveal it nothing but insolvency will. the secondary market desires primacy and this always leads to something. ?

pjb, you can see it every day. if watching w. for 8 years didn’t reveal it nothing but insolvency will. the secondary market desires primacy and this always leads to something. ?

I echo Pete’s compliments; Dr. Hussman does first rate work.Each week I print out his “Weekly Market Comment”, mark it up and then typically do additional research on his weekly topic (similar to many of Prof. Roubini’s posts).This week is no exception; much of “Wheat from Chaff” (12/1/08) is now well underlined, with plenty of margin notes and I’ve spent a fair amount of time combing through old text books and web sites researching this week’s topic – risk premiums.I would appreciate Dr. Hussman addressing his contention that “…most of the fluctuation in the stock market is due to changes in risk-premiums…” by demonstrating the derivation of the risk premiums he refers to (as there are three market risk premiums: required, historical and expected), empirically demonstrating how its fluctuation affects valuations, and what’s likely to cause them to increase or decrease going forward.

I see the option of reflation rather unlikely because of the effect on household budgets and the lack of any likely household wage / income increases.Any significant price increases caused by an actual money supply increase will just diminish disposable incomes and incomes now devoted to the repayment of existing debts and this leads to an acceleration of defaults and bankruptcies and deflation.What is going on right now IMO is that the fed is trying to supply the financial industry with enough cheap liquidity that they do not have to declare insolvency which many would with out the influx of cash. This is just cash to replace losses or vanished fictitious capital. Their ability to over leverage came home to roost with the collapse of housing and now almost all other leveraged lending and they do not have the income to stay in business. The amounts of cash flushed into the system is enormous but is not enough… Does this give you an idea of the amount of leverage that the banking system had? Yeah!So far all the fed and treasury are doing is to add more debts to future generations with no apparent results. But the results are that the financial system is still functioning which it wouldn’t be with out the flush. Will it add to prices rising? Maybe, if they push to much. But if they do, which is likely, the defaults will accelerate again and the crisis will get worse.The Marie Antoinettes didn’t know what they were doing when they allowed the bubbles and it isn’t likely that self interests won’t make them over do all the fixes too. I think their demise is assured and they are scared to death or should be. In the few years, many that were on the top will not be and a new group will slowly replace them… This is how things have been for the history of man.

I will say this again, inflation by reflating the financial traders will run up commodities and energy prices and will accelerate the deflation and disintegration of the public sector which is or was 70% of the economy by destroying household budgets. This is a receipt for disaster and destruction of the US as a nation.There is no way they will inflate wages. All they have done for decades has deflated them and SS and Medicare and all other social issues. It is all about them and it has always been.There is pain in deflation but in the end, all assets will be priced below their economic value and this will be good for those prudent savers who can now buy something that has real value to them. This is bad for the gamesters and hypsters who are leveraged to the max. You can see what that kind of a system is like to live in. Does it work in the long run? Extreme leverage is not good for a country or its people, only the bankers who are preying upon us.

Great points EM, a number of which I had not considered. One critical point that you emphasize that I failed to consider in my analysis is the stickiness of wages. Indeed, given that fact, inflation seems just as grim a reality as deflation. Hmm… we are truly between a rock and a hard place.

Most of the US’s 50T private+public debt is owned by Americans (eg. by retirement funds or is in the form of health liability, etc.). By inflating this debt away, this “wealth” on the other side of the debt would be lost. It would cause a problem, when people in large number would start to spend this (nonexistent) money (eg. baby boom generation retirement). In any case, it will turn out, that the future 50 years have already been eaten up.

I’m doing a little of this…I took out a HELOC tied to the federal funds rate… currently 5 percent and likely to go lower…bought government bonds from Brazil, Norway and Australia…so i have a net positive interest rate margin…but on paper i’ve been crushed by the currency drop, which could worsen…i’ve been day trading with some of other loan money and may be able to pay off the loan with those funds to make up for what could prove to have been a mistake…the dollar’s steep rise caught me by surprise… i’ll probably keep rolling over the bonds until the currencies are more favorable…i wouldn’t have done this if i couldn’t pay off the loan with cash (now held in yen) at any point…

I understand what you are saying, but it strikes me that the majority of US citizens are in denial of the fact that the US Government IS A CORPORATION. DO some research!! It’s all out there. All of the states are corporations too! How do you propose to address this? If you dig really deep you will find that all your elected representatives are representing the CORPORATIONS. I would suggest you have to hold independent elections for all levels of government, as the seats have been vacant since the incorporation of the States and the US Government (INC of the District of Maryland)80 odd years ago.

They are all in huge trouble, but the big 3 will get a temporary bailout to at least reach next year; then, anything can happen!

Metal prices fall further than during Great DepressionTelegraph 03 Dec 2008The price of key industrial metals has fallen further over the last four months than occurred during the worst years of Great Depression between 1929 and 1933, according to research by Barclays Capital….

Application for the Federal Bailout Program courtesy of Bruce Feirstein Dec 1, 2008

LS: There is an element of corporate influence. Is it coercion? Up until last quarter, if you went into any retail outlet, you’d see ridiculous purchasing behavior exhibited by consumers with nary a “Mr. Smith” or thought-control police in view. Where’s the coercion?There’s information-flow meddling, to be sure. Massive meddling. But coercion? Can you cite examples?I’m not saying this to be primly within the lines of “acceptable discourse”, as you’ll momentarily see.Foolish, self-defeating behavior is exhibited by people who are … ?* un-informed* emotionally or intellectually lazy* coercedWhere’s the coercion?No, I am not a politician. Therefore, I will say things that some won’t like. Refute me if you can. Please use facts.

Great post, EconomicMinor. I am not advocating – necessarily – an easy way out. I am advocating a clear, precise, consensus view of the problem.Why? Because much effort is wasted barking at strange noises and expecting “someone else” to solve the problem. How can one make strategic and effective maneuvers without thoroughly understanding the adversary (the problem)? It simply cannot be done. Who is going to hand us a magic “solution”? No one. If we are to get an effective solution, it’ll come from within, and from the bottom-up.As Lord Sidcup says below, there is “influence” from above.I don’t believe that our problems are confined to a relative few “over-extended consumers”. A few years of belt-tightening would solve that problem.I have a feeling that it’s bigger, and more fundamental than that – although the situation has been severely exacerbated by poor leadership and larceny amongst the elite.Do you see our situation as mere business cycles, or is environmental destruction, resource contention, and wealth-concentration indicative of other, more fundamental trends?

Again, no mention of sustainability? THIS IS _THE_ CORE ISSUE!The mission should be to establish a sustainable economic system. Yes, easier said than done, but it gets us looking at the real underlying issues.

Oh, and since it can’t purchase a car it’ll be severely taxed- rode hard and put away wet!

DEPRESSION DEFINEDNouriel states:”Traditionally, central banks are the lenders of last resort but they are becoming the lenders of first and only resort, as banks are not lending. Central banks are becoming the only lenders in the land. With consumption by households and capital spending by corporations collapsing, governments will soon become the spenders of first and only resort as fiscal deficits surge.”In other words the only meaningful economic activity will be generated by our bankrupt Federal Government. It is a very dark hole into which we are falling.

Can I also suggest that you keep cash and precious metals on hand and out of the banks (at least some portion). Even if you can’t get out of debt they can’t dictate what they don’t know exists and what is not in there posession

That’s why the intellectuals need to look FORWARD. The future is a different Paradigm. And when Paradigm’s change… they are REVOLUTIONARY EVENTS. This Debt Paradigm has been played out in full. It’s now broken & cannot be fixed. It’s no longer relevant to modern Society. We must pursue a SUSTAINABLE future, which involves Permaculture, growing more of your own food (you don’t have to be providing 100% of your consumption) – catching & storing rainwater – Solar Energy (hey, the cutting edge of Solar is now reaching close to 30% efficiency and Ceramic Fuel Cells are already running at 50% efficiency). Don’t get bogged down in analysing how FC#KED our Financial System is. MOVE FORWARD. YOU’RE ALL INTELLIGENT PEOPLE and this is very obvious… so move Forward. The Debt Paradigm is no longer relevant. Peace

Awesome PA – thanks for that info. This is the direction the world MUST pursue. It is a more sustainable future and a more intelligent communion between people and the Earth. Our system is currently going through a Revolutionary change that’s already begun & will play out over many, many years. The Debt Paradigm is no longer relevant to Modern Society. The future is one of SUSTAINABILITY and this is the path we must pursue with 100% of our time, MONEY and Energy.It’s starting as a grass roots movement & The People are demanding The Powers That Be to take Action through the way we consume (what we choose to buy) the way we VOTE (already occured) and by making our voices HEARD.We The People are the Champions of our own Destiny. We are many… “they” are but few. We have more power as a collective consensus than you realise. It’s time to make ourselves HEARD.SUSTAINABILITY is the Future. Let’s Embrace it & move forward.The Debt Paradigm is no longer relevant to Modern Society.

If the government could do one constructive ‘crazy’ thing in this, they would do something like commandeer a network of national banks, take them over in the national interest and use them as an emergency banking lifeline for the kinds of credit that are necessary to keep food, water, and essential services going, including good business operating credit. This would be the essential credit safety net, and the conduit for government money (with bankers having no ability to hoard it to avoid writedowns.Then they go on to sort out the mess.Now thats a crazy action I could support.

We agree on legal immigration. I believe that lower limits are necessary during tough economic times, and a break will benefit our country by allowing for assimilation (such as happened after the last “great wave”).”Never mind that once upon a time these peoples were the main inhabitants of the American Southwest and were driven out”.The Navajo, Apache, Zuni, Commanche, etc would be very surprised to hear that. Please check maps of historic tribal territories…the only place where there were arguably “Mexican” Indian tribes was in the very tip of what is now Texas.My state spends 10-14 billion per year on services to non-citizen illegals. We have a major 28 billion 20 month budget deficit that could be much improved by not having these burdens placed on taxpayers. Why should American citizens suffer lower wages, upward pressure on housing costs, higher taxes, more crowded less effective schools, and higher crime? Why should the American taxpayer support the citizens of another country at the expense of their own well being and the welfare of their fellow citizens?My family lives in an area that is much impacted by illegals. In the past year, my son in law has found a stabbed, bleeding illegal who was attacked by other illegals in the walkway my daughter and her two young children take to get from their apartment to their car. He has also had a knife pulled on him over a stupid malfunctioning car alarm. A friend of theirs was murdered this year by two illegals who had gotten into a fight with a black American and lost….George was sitting in front of his house when he was shot down in cold blood by two illegals who figured that killing any black American citizen would do for revenge. They are probably in Mexico now and George leaves behind a wife and four kids. Where is the concern for American victims of such vicious and COMPLETELY PREVENTABLE crimes committed by illegals?When the social contract is broken by allowing for a large number of “cheaters”, playing by the rules becomes a suckers game (aren’t we already seeing that with the markets?). Result, cheating becomes the norm, and lawlessness/anarchy/violence skyrocket. I don’t want to live in the equivalent of Pakistan’s tribal areas, do you?Finally, I am not a citizen of the world, I am an American. My loyalty and concern is therefore directed towards my fellow citizens during these trying economic times.

It can’t be funded through the corrupt banking system, however. All good intentions will be swallowed if the money cannot reach those trying to make it a reality.

Well, yes… that’s the point where the only things that are certain, are the Universal Laws of Physics and their Parochial cousins and where these Laws and Principles are inviolate. The rest being probability founded in possibility and circumstances i.e. position and time.@ SWK – is it not the object of Mind?Ho hum

Don’t worry, they’ve got that one covered:The U.S. military expects to have 20,000 uniformed troops inside the United States by 2011 trained to help state and local officials respond to a domestic catastrophe, according to Pentagon officials.http://www.washingtonpost.com/wp-dyn/content/article/2008/11/30/AR2008113002217_pf.html

I will just provide a quote from Stoneleigh over at TAE. She said that “a well equipped homestead is a thing of real value”.So if you own your home, you might think about that one day soon it could become your most valued posession, regardless of its monetary value. Especially since money can be destroyed by hyperinflation.

Saw it a few months ago. What’s really depressing is that the figure they used as the federal debt prior to the movie coming out in August–the $8.7T–has now, in effect, been nearly doubled in just the last 3 months.

Dr. Roubini is telling us that massive government intervention is required immediately, and most economists would agree. On the other hand, he’s also telling us that the massive government intervention he himself recommends represents a huge credit risk that could endanger the long-term solvency of the U.S. government. I believe he’s correct on that point as well. At this point, I think Dr. Roubini would be using a different vocabulary to describe the current crisis if he could do so without being dumped on and written off by the “Tinker Bell” economists. That altered vocabulary would almost certainly include the word “Depression”.

You’re right, printing money is the best solution in times of deflationary anxiety. Most people who post on these boards don’t realize the consequences of deflation and look to inflation as the only threat.Sorry people, now is the time to get out the helicopter. Sure, this doesn’t solve our long term problems, but it does solve an equally dangerous long term problem.

It’s not fair in the assessment of any problem to only investigate one side of the equation. You seem to indicate that there is little or no value in these people. Hmm, then why are people hiring them?Did you support NAFTA? I didn’t.My point about other people inhabiting the South West still holds: unless you’re darker skinned you’re not indigenous there! Whites have only occupied the area for a brief time in the whole scheme of things.The “cheaters” are your stupid politicians, representatives of the wealthy elite who would like for you to focus your attention on the poor…Sure there are crimes committed. But locking people up (after chasing them to the US [NAFTA]) isn’t the solution. More crimes are committed by whites, but I don’t hear people rampaging that we should lock THEM all up.US laws suck. They’re designed by and for wealthy whites, and they’ll eventually be displaced.You can blast tribal communities all you want, but they are the historical norm. And despite all the brainwashing that we get here in the west they aren’t all like those found in “Pakistan’s tribal areas.”If you’re so fearful why don’t you move from there? Why should I spend MY tax dollars dealing with YOU situation there? This is the reality that you face, diminished tax dollars to fence yourself in and lock “them” all up.Afraid that “cheating” would become the norm? Sorry, but the cows long left the barn: Enron, Weapons of Mass Destruction, NAFTA, current economic collapse, majority of college grads cheating on tests… But it’s always more comforting on blaming others, and that’s what the elites like to sell us as they profit off of it ALL!Whether I want things a particular way has no sway over reality. Learn to figure out a way to live with your neighbors or, well, you figure it out, it’s YOUR community. You decide how you want to spend/invest. And good luck in the future…

they call it infrastructure spending!!!

Mark – just a thought but football is a fairly well know American sport – that is, the American version of the sport and it appears to keep the losers on the bench and alternate between offensive and defensive team players – as and where necessary. As opposed to American politics and economics where all the same players hold the field at all times.Perhaps the answers for Americans is to elect a top football coach to President and put the current losers on the bench?Couldn’t do any harm and after all, football is a well established National sport where its’ coaches have greater track records than the usual crop of institutional – mouths-for-sale – and Nobel Prize (of recent date) economists… ?Ho hum

A video for Austrian economist. Payam, you should not watch.http://www.youtube.com/watch?v=vweLBpE4mso&eurl=http://housingdoom.com/2008/12/03/schiff-the-boom-is-the-problem-the-bust-is-the-solution/

in general, credit cards are practical and not the root cause of current turmoil, the problem is financial awarness of people who use them + lax regulation of financial sector (addicted to profits at any cost, ignoring the risks)but i agree, in current environment it’s better to stay away from any form of debt

You liking this rigged US market? Shorts have effectivly been banished from shorting by the flood of competing long $’s from Uncle Ben. Even though we need to drop another couple hundred S&P points from here, it may not happen. That would be too rough on an already fragile US consumer’s sentiment and would have everyone on to the truth…that we are flirting with a depression. Watch for an 800 point up day after the employment reprot. You have been warned.

Overindebtedness

True cost accounting MUST be implemented. No more taking supposedly “free” resources, like the environment, for granted in our economic equations.

“that he doesn’t realize the extraordinary damage that an over-reaction by the Fed is actually doing now.”I think he’s well aware and that’s why we’re seeing this out of control de-leveraging. So far all of the FEDs and Treasury’s bailout efforts have been non-inflationary. When they start trying to help the common Joe by giving him a job you would see inflation. The FED talks about preventing deflation but inflation is what threatens their power, they’re taking care of their one and only precious asset at the expense of the worker-the dollar. If you’re a banker or FED and you’re holding on to valuable dollars when all asset prices are falling wouldn’t you be licking your chops at the chance to own and dominate the entire world.This is why they’re so reluctant to bail out the big 3 because that would be a bail out for the worker which would prevent deflation. Read between the lines the elite are licking their chops at all the wonderful deflation. The elites purchasing power is increasing by the minute.

It’s been going on for a very long time just covered up by easy money policy. All the private gains have been hoarded by the very few take away the credit veil and poof you gotta a disaster. Real demand was destroyed a long time ago, working white collars are just now waking up to it.

correct, but if the deflation is about to happen here, the prices of goods will fall as well. not very pleasant but no tragedy either

A green city blooms in the desertAbu Dhabi, which reckons the world will wean itself from fossil fuels, is building a city that runs on solar power, recycles all waste, and bans cars. How will it work?The leaders of Abu Dhabi have declared that petroleum belongs to the 20th century, so they are making an investment in the 21st century by building Masdar, the world’s first zero-carbon, zero-waste city, powered almost entirely by the desert’s plentiful sun. Ground was broken last winter for the $22 billion project, financed by the government of Abu Dhabi and outside investors and slated for completion in 2016. While more expensive to build than a traditional city, Masdar will use 75% less electricity and 60% less water.

Lol–I wanted to stay in bed, too. I’ve only been educating myself about this within the past 4 months (long overdue, I know). I mean, it was obvious that something was really wrong a few years ago–and I am merely a sahm with a high school education. But since watching the 30-minute version and paying attention to what else has been happening lately, we’re now beyond annual GDP, right? And GDP is not all that accurate anymore, as the bulk of it was consumer-related, and the consumer is failing fast, yes?I am not even remotely an economist or financier, but even I ‘get’ what is so very wrong with this picture–so I’m really having a hard time understanding why more people around me don’t appear to be more concerned. Fortunately, my husband majored in economics and knows his finance & markets, so he is my anchor of sanity, along with this blog and its commenters.Thanks, to you and the rest of the posters (as well as Dr. Roubini, of course) for helping to keep me informed. I lurk more than I post, but I appreciate the invaluable resource that you all have created here.

t, i have also thought that roadways should be dual function that is road way and solarenergy capture structures and perhaps even more. who will pay for it? everyone, no problem.

Back then we were savers and producers. Know we are debtors and exporters of our manufacturing base to a very large extent.hlowe

You’l do just fine, ‘economicminor’. Rural places can normally very well take care of themselves.Last week I put an ad on an ‘green’ site, over here in Europe to gather people for buying a ‘ghost’ hamlet on 250 acres(half wood, half prairies, river)in France to create a kind of ecofarm. And, oh boy, this thing really keeps me busy. I could not have hoped to meet so many interesting people. I think a big part of the new world will definitively be rural.I will keep the Roubinies here updated if ever we come to conclusion on this or other project.

You don’t have to twist my arm too hard for me to believe a worst case scenario for the WW economy is what will end up materializing. So here is a devil’s advocate view. What do you think?http://online.barrons.com/article/SB122790627815565107.html?mod=b_hps_9_0001_b_online_exclusives_right&page=sp…Q: Finally, when do you think the market will settle into more of a historical range?A: Nouriel Roubini at New York University and Peter Schiff [president and chief global strategist of Euro Pacific Capital] have been right on the mark in predicting two years ago that we were heading for an economic and financial disaster in this country because of all the debt that’s been accumulated and all the leverage that has financed economic activity and they still continue to warn that these problems won’t be solved for at least another two to three years.My sense is that while they were correct in predicting the collapse, I think that they are not taking into account a couple of things that could help stabilize the financial markets and smooth out some of the volatility in the major stock indices. One is, as I said, we are getting some new political leadership in Washington. There is going to be a new page turned and it will come with new ideas and new initiatives and I think that will bring a new sense of confidence for investors.Secondly, we have never before had so much monetary and fiscal stimulus being flowed into the global economy. We have never seen such coordination between governments and between central bankers to revive growth. There has been a huge amount of liquidity, in excess of $3 trillion-$4 trillion into the global economy at this point. Virtually every country in the world has now lowered rates and they will continue to do. Under those circumstances, it is absolutely inconceivable that this won’t work.

It’s easier, of course, to speak about what Zen is NOT than about what it IS. If you are you posing the question, “Is Zen not the object of Mind?” then the closest thing I could give you to an answer is that if anything, it is no object of mind, given that the whole point of zazen is to let objects of mind — whether thoughts, feelings, or whatever — come and go freely. Concepts of Zen and words about Zen are not Zen: they are just imperfect symbols. I could paraphrase someone like Shunryu Suzuki, who described Zen as “concentration on our usual everyday routine” and “the expression of our true nature” — which I have always taken to mean that zazen practice is about being focused in the Here and Now — but that, too, is an imperfect expression of the truth of Zen.In my mind, it’s not unlike the mystical experience of the Godhead, which is described as ineffable by all who claim to or are thought to have had it, whatever their culture or time. In spite of that acknowledgment, the experience is so moving and meaningful that these folks — – e.g., Plato, Meister Eckhart, St. John of the Cross, Shankara — invariably and almost universally have felt compelled to try to express the experience in imperfect rational terms. I believe it’s that way with Zen. You only understand it by practice and direct experience, not by any rational thought process about it.Sorry to wax on, here…I was a philosophy major about 30 years ago and spent a lot of time focused on metaphysics and epistemology in relation to the mystical experience, and of course, this entailed a good deal of study of comparative religion as well. I really enjoy exchanges about these topics, but I rarely have the opportunity to engage in them much any more. If you ever make it to Florida — or I to Australia — I’d love to sit down with you and chat at length about this stuff! That, and your memories of Pasadena in the days of “American Pie.” SWK

–inconceivable–”You keep on using that word. I do not think it means what you think it means.” (sorry, couldn’t resist) www.youtube.com/watch?v=G2y8Sx4B2Sk

pjb. , r., k.,when asked to describe the tao…. the response……”the great way has no gate,the tongue has no bone,clear water has no taste,in complete stillness a stone girl isdancing.”author.. i can’t remember his name ..???his response, i will never forget.

“Secondly, we have never before had so much monetary and fiscal stimulus being flowed into the global economy. … There has been a huge amount of liquidity, in excess of $3 trillion-$4 trillion into the global economy at this point. …Under those circumstances, it is absolutely inconceivable that this won’t work.”I am beginning to agree with this view. I don’t know how the author defines “work”, but it is very hard for me to imagine that it won’t have a rather potent effect on the economy. All the liquidity is beginning to look like one huge global inflation bomb to me.Deflation may come and go very quickly followed by an explosion of inflation and high interest rates. In that case the stock market rebounds, then trades in a range like the late ‘70s while the government debt market bubble bursts.

Couldn’t have put it better myself. Thanks!SWK

Take your profits when you can.

Further,As Barry Ritholtz has pointed out recently, the total amount of bailouts funds committed in 2008 is greater than the costs of the Marshall Plan, the Louisiana Purchase, the New Deal, the Korean War, Vietnam and the S.&L. crisis combined – adjusted for inflation!http://www.ritholtz.com/blog/2008/12/more-bailout-comparisons/So how can this mind bogglingly huge amount of money not have a profound effect on the economy – and soon?

Check out the USD exchange vs Asian currencies – it didn’t change during this period. The problem is with Asian’s taking our jobs and not rebalancing their currencies. There is no issue with the Euro.

I don’t doubt in the least that it will have a profound effect on the economy. But, from someone who usually prefers to be optimistic, while I don’t discount the possibility that they might actually be doing something right for a change, I think there’s a better than even chance that the effect will not be what they were hoping/expecting. While nobody likes to be proven wrong, in this case, I would welcome it.

Indeed and I too… thank you and I further submit that the statement “the expression of our true nature” is truly profound – where in physics I find it equally exhilarating to find that each life entity is unique and contains innately within, to be expressed through the processes of differentiation, over time, function (unique) – for thus to be attained.Ayekindest

Braintrust Debate Number 1. What’s the problem?The BrainTrust’s mission is:“We are going to build and use grass-roots power to influence the evolution of the global economy.”This mission implies that the economy we have is not the economy that we want. While that may be a true statement, is too vague to be actionable. This must be drastically narrowed down, or we will not be effective.What aspect of the world economy most needs to change? We must separate the significant from the irritants, the causes from the effects. What is the root-cause problem in our current economy that we wish to fix?Here are a few of the problem statements we’ve all seen lately:* Our economy is designed for the society we used to be, and not the society we wish to become* Structural imbalances around consumption and production did not get addressed in a timely way* The West mis-allocated the world’s savings* Ethically challenged people operate Government and the Finance sector, and must be ousted* Consumers don’t know how the economy works, and are easily manipulated* Rich and poor societies are not effectively cooperating to maximize average well-being around the globe* Too few people really understand our economic situation, so we’re just floundering aboutWhat is your definition of the core economic problem facing the world today? Please confine your remarks to one or two core problems. We must focus our efforts, and that starts with focusing our thinking.

Note to the “What’s the Problem” respondents quoted above: if I didn’t do a good job of excerpting the main points you expressed, accept my apology, and correct me below. I’ll get it right next time.Remember: a faint heart never won a fair maiden. If you’ve done your thinking, out with it. We want to hear what you’ve got to say.

We need to stop thinking about this in only academic terms, like an economist does.In China, the Fiscal stimulus goes Central Govt –> Regional Govt –> people and projects.If the ones at the regional govt level use the stimulus to line their pockets (the big fear) then the massive stimulus does not have the desired effect.In the US, so far, the idea is Fed/Treasury –> Banking system –> people and projects.We all know the US banking system is hoarding. Can they hoard enough to survive the dreaded derivatives bubble?In both cases, the established transmission mechanism is too vulnerable to plain old fashioned greed. In real terms, how does this coordinated stimulus help keep Joe’s Donut Shop open, other then by telling him he has to go further in to debt, even if the loan is cheap?The coordinated stimulus must somehow work differently. If it just works in a way that will lever its beneficiaries even further, and beneficiaries are not willing to be levered any further, then how does it help? Similarly, if the mechanism just transfers money to the greedy but not to the needy, how does it help?So many people need to rise above their natural tendencies in this. I don’t see it, though I would like to.

Major Oxymoron-here’s a quote I pulled from an earlier post.”re braintrust problem: The role of the government has gone from ‘protector of personal property’ to ‘allocator of resources.’ there are plenty of examples from history to show that this has never worked”I am so awfully tired of hearing this shallow nonsense. For this statement to be true it must also be applied to corporations and companies with huge clout both politically and financially. There is no difference between run away government and run away monopolistic corporations that can force poverty on it’s subjects by cutting wages, gaining huge political clout and favoritism etc. with no effective counter. What is the difference between being a slave to a corporation or being a slave to a government, the neo-elite want you to believe there is one- there isn’t. It is so incredibly two faced of those who favor unregulated business with opportunity to gain financial and political dominance yet want to keep government small the only force large enough to act as a representative of people to counter big business’s agenda. It is an oxymoron to favor small government yet favor free unregulated big business- big business is government!!!!!!!!!!!

@OBYou are looking at defining the ‘problem’, but be careful that you aren’t just describing/listing symptoms. The two can be confused at times, but any good solution requires finding the actual problem(s). For my contribution, I repost here my comment from the end of the previous thread regarding the overarching role of the DTCC as a nexus of the financial system and what it has led to. I have thought about this over a long period of time and I think it goes a long way towards explaining how/why decisions were made over the decades and explains why leverage was so easily increased over time. I hope it can be of use to the BrainTrust.Amen! I have been preaching about DTCC operations here for over a year. The reality is that the FED has oversight of the DTCC because it is a member which also implies that Congress has authority too since it has the ultimate power over the FED! The reality is that the DTCC is so omnipotent that nobody dare shake the branches of the tree for fear that things might just fall and boink them on the head. Let’s take a peek inside:The interesting thing is that if we look at the original movement to electronic clearing, we can see that due to physical constraints paper certificates were indeed a drag on operations. Nobody who has been around markets for 30-40 years would argue otherwise. The problem was that the masses could not implement electronic clearing in the 70′s and early 80′s. Only big institutions could afford the computers and programmers at the time (the PC was still just a glimmer). The “bridge” solution was to allow the big brokers to implement electronic clearing and to invite the masses to participate by holding securities in “street name”. The security’s owner was Cede & Co. (DTCC nominee name). Under existing law the DTCC became the legal owner of the security. You, the one who ponied up the money, are the “beneficial owner”. This is why there is no direct correspondence between you and the issuer of the security you ‘bought’. The correspondence is all via proxy (usually your broker). With both electronic and paper clearing coexisting side by side, there was always room for discrepancies to crop up and literally no way to systematically verify the source of the discrepancies. In short, the system greatly increased efficiencies and it was recognized that these discrepancies were the ‘cost’ of progress.However, the ‘brilliant’ minds at the investment banks soon realized that these “street name” securities could be manipulated to their benefit. In fact, these securities can be counted as the investment bank’s own collateral! When you pony up your money you are effectively giving the broker free money (actually they have the gall to charge you for the money you give to them). Due to the way the system works coupled with direct broker to broker transactions, the DTCC can never be sure that what its records have agree with what actually is occurring (the DTCC’s records are supposed to reflect reality, but there are too many holes and discrepancies for it to actually attain that goal). The end result is that the investment banks have had access to free capital via the ‘system’. This was akin to the fractional reserve scheme granted the C-banks! Only better!Eventually, the Commercial Banks realized that there was no way for them to compete with this “street name” system. They wanted a piece of the action and eventually Glass-Steagall was repealed. The deal in all this was that they would provide more capital to the system and both I and C-banks would benefit. This was fine with the I-banks now because a large portion of the securities were now being held in street name. In other words, there capital base was leveling off and they could lever up much more. However, with the C-banks at the table, the I banks created collateralized securities based on C-bank assets. How did this help? First, with the banks assets now converted into securities, it allowed these assets to be held in “street name” and voila new capital and more leverage was available. As for the C-banks, they benefited by getting an immediate pay out against their portfolio via the proceeds from the sale of the collateralized securities. Money that they can then multiply via fractional reserve banking and this increased their available collateral and therefore their ability to leverage higher. The kicker is that these bank securities which had been privately/institutionally held could now be also sold to the masses. Not only did the C-banks increase their customer base, but the asset got to be used twice! First in the traditional sense by a buyer via the collateralization and secondly via the ownership privileges of having the security held in “street name”The party was on. I think if someone were to do a retrospective of the driving force behind many actions over the last 30+ years they would find that everything was geared to transport more collateral to financial institutions to allow them to lever it so that the country got the maximum use out of each dollar. 401Ks were another mechanism to feed collateral, drawing foreign investments expanded the available pool, and housing was collateralized to again provide more collateral, etc. My point is that, over these last decades, if an action could increase the collateral available to financial institutions then it bubbled into existence. If an action reduced capital available to financial institutions then it was cancelled. This is the real basis behind the ‘freedom’ allowed to reign in the markets. This directly led to an increase in the velocity of money, but it also disguised the degeneration of true wealth. Now the velocity is being greatly slowed and the guise is being lifted. What’s happening now is that collateral positions are being reinforced to shore up what never existed in the first place. Accounting constructs were invented to maximize the use of these new found sources of fictitious collateral, but what we now find is that the system is now putting real capital in its place so as to get reality to conform to the accounting positions!As a mater of fact, I think that in retrospect we are going to find out that the seed that this mess grew from is now a grown tree that is withering and bringing this all down. You see, all exchange traded securities are now required to be DRS (Direct Registration System) eligible. This has been an ongoing situation since 2006 and fully implemented in January of this year. This new system again was as obvious as its older sibling “street name” and had no rational argument against it. Yet, it was the beginning of the end of the feed the collateral to the financial institutions game. This was the first critical step in reducing capital available to financial institutions. You will find that all major/minor financial players now use DRS and it is the lowly small investor and 401K holder/mutual fund holder who still uses street name. This new system curbs the mismatches and discrepancies by having the issuer of the security directly involved in its movement about the financial system. Technically, the DTCC’s, the issuer’s , and the broker’s records should all agree! Because the communication is now directly between the issuer and the owner, there is less margin for hanky-panky. The legal owner and beneficial owner are again one and the same under DRS. Transparency is returning to the system and we are paying for the lack of it during the preceding decades. It is my firm belief that this single stroke will prove to be the straw that broke the camel’s back so to speak. Without this free and easy access to easy collateral, many positions had to be unwound which meant the securities most susceptible to a decrease in velocity were the ones to be hit first.We now are stuck in the position of forcing reality to somehow agree with the book entries, or forcing the book entries to somehow agree with reality. Inflation if you are in the first camp and deflation if you are in the second camp. I don’t care what Obama, the FED, IMF, or whatever does, this is the battle that hey are waging. Personally, I would just prefer to adjust the book entries to agree with reality and move on. Mainly because I think that inevitably it is futile to do otherwise, but it’s not my sandbox.

President-elect Barack Obama, with his Robert Rubin protégé appointments to his economic teams, is being forced to be defensive against charges that he’s continuing the “insider” control of America’s financial system. With his selection of Hillary Clinton, this insider criticism is likely to get considerably stronger.The New York senator, because of her necessary connections with the New York City headquarters of the big banks and foundations, especially the core power players in the New York Federal Reserve Bank, can now smooth those connections to every world body and every world economic institution. Of course, Hillary’s husband’s “bodies buried” and “buried treasure” memory and his 100,000-name donor list will come in handy.Earlier, it looked as if Obama’s biggest cabinet appointment problem might be with attorney general designate, Eric Holder, because of Holder’s role in the scandalous pardon of fugitive international tax cheat Marc Rich.That’s still true, but Hillary’s appointment now ties Holder and all the Clinton-connected appointments together into one big “insider” problem. Hardly what enthusiastic Obama supporters wanted.Former White House counsel Jack Quinn was hired by Marc Rich to ask for the pardon, not through the usual channels, but through Israeli officials such as Ehud Barak and Abner Azulay, former Mossad intelligence service high operative and director of the Rich Foundation based in Tel Aviv, and using former spouse Denise Rich. Writes Barbara Olson in the “New York Times” best seller, “The Final Days”: “To paraphrase James Carville, troll through the White House with a voluptuous woman and a lot of money, and who knows what you will pull in.”A number of individuals played a part in getting the Rich Pardon. But with time running short in the Clinton Administration’s final days, writes Olson, “If they were looking for a high official who would not turn on a red light, they succeeded with Deputy Attorney General Eric Holder.” She writes that he replied to Clinton’s White House council Beth Nolan, when asked…”Holder accommodatingly told her he was ‘neutral, leaning toward favorable’ to the Rich pardon if it had foreign benefits.”Hillary and Bill’s connections with the New York banks and their past working relationships with almost every top Obama appointment make Obama’s promise of a “President to all Americans” rather hollow. What’s one to think of the divisiveness of naming one of the most hated women in America to be America’s ambassador to the world?

We’re given two choices either neo- lib’s or neo-con’s, either case Wall Street gets to continue its pillaging of a once great nation. At the risk of sounding condescending, unfortunately this is too difficult of a concept for the average American to comprehend given his or her attention span but it won’t matter once the bread lines start forming civil unrest will soon follow.

I just wanted to add that when securities are mentioned above it does not just mean stocks. The DTCC processes stocks for over 100 countries, but it also processes ALL Treasuries, Corporate and Municpal bonds, MBS, CDOs, Money Market instruments, ADRs, ETFs, UITs, Agencies, Swaps, etc. They are the absolute nexus of the world’s financial system and what goes on here governs and shapes what happens everywhere else.

Many Thanks Guest.

Perhaps it’s just me, but I’ve got to where I mainly read [in the comments section] the replies to any given post in order to decide whether I ought to read the original post or not. Fuck the rest.

You stupid fuck motherfucker, when will you realize that they are one and the same. Goddamn what a stupid fuck!!!!!

Here is the link to the article you referenceThe new “D” word: duration!David A. Rosenberg

Yea I think he misunderstood my post we’re on the same side? I get a little angry but come on .

famc, bingo!

Yes Guest, this is the correct pdf. Thanks.Everyone, READ THIS!!

The ‘hate speech’ part is when you question rabid nationalism and ethnic cleansing.

Don’t listen to Pete CA…you’ll end up homeless selling apples listening to him. Also the more you find out about our govt/central bank…the more you shouldn’t know if you want to be homeless and not incarcerated for so-called bogus ‘hate speech’ because you disagree with what’s happeneing or at worse tracked down some day. When you dig too deep it is not pretty but it is shocking and unbelievable much to the organized elite’s advantage. Pretend you know nothing and don’t care to know. Yeah Pete thinks it’ll be cool to live like a Chinese peasant but this manufactured Depression/fleecing won’t be cool. Buy what you need to survive and that’s it. The rest can be written off just like the banks do it.

Yes, there has been saving in certain parts of the world (not the U.S. or Europe), and yes, much of that saving has been foolishly sent over to the U.S. and Europe for speculative gambling purposes. However, some of that savings has been squirreled away in central bank reserves. The net savings worldwide has been miniscule compared with the worldwide (again, lion’s share to U.S. and Europe) creation of new – and often otherworldly exotic – credit. The famous “Excess Liquidity” of Greenspan and “Savings Glut” of Bernanke never existed in a earnings-and-savings sense, only in a money-printing sense. Way too much attention has been given to low central bank interest rates, when the unleashing of banks from reserve requirements and the explosion of psuedo-banks with the power to create their own new credit and everyone’s mania for wealth through leverage have been the main sources of the growth of excess money in the world. The Great Bubble (mislabeled The Great Moderation) cannot be sustained, so the deleveraging begins (and it has just begun), and the inability to sustain it is simply being mislabeled a “liquidity trap”.

Central banking created the ‘debt paradigm’.

I agree with Professor Roubini. We need an infusion of extreme liquidity fast. If not, deflation is inevitable. Check out GloomBoom.com

The WORLD lacks a vision of our future.I see a sustainable future and stimulus package being tied together.1. 400,000,000 1 megawatt wind turbines (compress air at night)2. Domestic rooftop solar water heater on EVERY residential unit.3. Electric train system, starting at each port and moving inland.4. Introduction of the “Air” car. 4 million units/ yr. Reduce urban speed limits ot 35 mph and resevere the left most lane (at the start) to HOV gas vehicles and Air cars, that can travel at 55 mph. Besides being VERY economical and NON-Polluting, having Air cars speed by backed up traffic in the left lane (lanes) will stimulate their purchase.This is a start. IMO, nothing is going back to 2007, but this is a start of a future the WORLD can grasp onto.http://www.youtube.com/watch?v=fm8RCww3cUY&NR=1WE THE PEOPLE do not have TIME to wait for .gov to save us. WE must make the future happen, it’s NOT .gov’s responsibility.

Isn’t it obvious to everyone that the bankers/elitist are in charge and will soon go on huge buying sprees with their hoarded cash. Look how they refuse to bail out the big 3, why because that would be inflationary. They’re only interested in increasing their purchasing power by allowing economic collapse so they can buy your assets for nothing. All of the FED’s moves have been very carefully devised so as to avoid inflation. They can re-inflate this thing any time they want so why aren’t they?

Hear, hear! Well Said!Forgive them father for they have been brainwashed and know not what they say.

Hank borrows and spends,then Ben prints an equal number of dollars and buys the bonds that Hank sold which puts the money back into the economy!Voila! We get $2 into the economy for every $1 Hank borrows!It reminds me of those old Wrigley chewing gum commercials,Double your pleasure,Double your fun,With Double print,Double print,Double print Ben!

We misunderstood the nature of man.1. The assumptions we made the basis of our economic thinking were incorrect.2. Having built a system on poor foundations (No 1) we ignored the need for an ethical structure.

I’d bet this is you posting again JGU, giving yourself a bit of anonymous support.The blackhouse comment was moronic.

Read the Declaration of Independence, the list of King George’s injustices against the colonists.Even if most of us are immigrants since that time, the ideas there are taught in our schools. I wonder if the military, now on active duty here, really would shoot at rebels. It’s far from clear that they would.

g, i suspect they are bleeding suckers of what is left to be bled in the sucker bear market while the fed, tres does there daily work. when they conclude the grazing is now on the diminishing returns portion of the curve they will, and after Christmas, then crash the market and bottom feed with the stored cash if there indeed is any. the market will then rebound violently and briefly due to latent and frustrated exuberance and they will again crash it after a final feeding frenzy. this will be enough to keep th elights on through 2009.at this point everyone else will walk away destroyed. even the winners will feel hopeless and dirty and the world will be forced to look in the mirror and laugh. many will retire to television in sports bars. only reading by candle light and banjo music will remain unscathed.

Look up Saipan. It was the closest thing ever to a free market. Where there was no minimum wage. Where you could be deported on a moment’s notice by your employer. Where you had no rights.

My guess is that prior to massive debasement of the US currency in order to reflate the economy (and incidentally debase all outstanding Govt debt while they are at it!) and openly monetize all manner of US debt, the Fed want’s this action sanctioned by law in Congress. Probably embedded within a mammoth expenditure/recovery Bill being prepared to hit the floor close to Day 1 of Obama’s presidency.Remember, the Fed is paranoid about inflation EXPECTATIONS. Those expectations are in full reverse right now and the oppose those forces will need unheard of expansion in the money supply- highly inflationary. They know they are playing with fire here because there is a very strong possibility it will backfire unleashing hyperinflation. On top of the disaster that has already occurred, if that event transpired the US population will be in revolt.

And how exactly are you going to pay off all those CDSs? Raise taxes to 50%? Do you think that might inhibit economic activity?Well if so then we gotta inflate. Yes we gotta, and fast. Or just plain default and print different currency.

PeteCA, thanks again for sharing your insights!

Well it does seem that some elements are acting that way. For example, some banks seem to want to accumulate REO and make a joke of the idea of “working with” borrowers who fall behind. If they wanted to, they could make their procedures accessible. Clearly they do not want to, perhaps they think they are getting real estate on the cheap and can hold it until hyperinflation makes its nominal value go way up.Just a theory, I’m not sure about it one way or the other.

Outerbeltway. Yes, certainly the economy should be there to give opportunities to all the American people. I only focused on the investment angle because that was the thrust of John Hussman’s article.PeteCA

Uh…Kent State? I would always have concerns whenever military or paramilitary forces are brought in to manage civil unrest. People will get hurt or worse.SWK

Doh! Well, it was REALLY early this morning — no coffee, dim lighting, and I didn’t have my glasses on — so I could well have confused John with Hank! That’s my story and I’m sticking to it. Thanks for noting my apparent error. :-}SWK

GSM: I agree – this is a serious concern. Let’s face it … where exactly does the Fed get the confidence to think that these steps will work? Bernanke uses economic models to help with is resolution apporaches. But the current financial situation is completely out of bounds from any normal economic model. Likewise, the Fed really has no previous historical experience that they can count on to give them assurance that they are doing the right thing. At this stage every step they are taking is extrapolated well beyond the bounds of normal functioning of the US economy. Yet – they keep taking bigger and bigger steps to rectify the situation. The danger of unexpected consequences is growing enormously.PeteCA

nassim taleb is presently on charlie rose

I am not an economist by any stretch of the imagination, nor am I particularly talented with finance & numbers.. in light of that, I really wish that someone would, if possible, explain to me how an economy based primarily on consumerism can continue to survive without the consumer..? The government becomes the consumer, and then bills the taxpayer? Is there something that I’m not understanding about what is going on? It just seems to me that things are not adding up properly, so I have to assume that either my math is incorrect, or I missed the bottle of whiskey when it was passed around the first time.

@ OBWell not quite. Without trying to sound cheery given the current state of affairs, I think that the DRS implementation by the DTCC is a positive move towards transparency. Can the DTCC go further? Well of course! The DTCC could publish running securities mismatch data for starters. They could allow individual securities owners to monitor their DRS holdings directly. There is an enormous amount of insight available through the DTCC they just need to be given the green light to offer their data. The issue isn’t so much the ability to root out the problems through the DTCC rather it is the reluctance of TPTB to do so and publicly utilize this information.So your sound bite might be something like we have the tools and capabilities to monitor the guts of most markets in near real time why don’t TPTB use and expand this tool? It’s like having DNA evidence available at a crime scene but refusing to perform any type of DNA analysis/search. Just plain stupid! The answer lies in multitude of layers of why this information is hidden from view.

This is a worthwhile thread of discussion. Because- we see a timeline evolving. My sense also is that it goes to the very epicentre of the immediate future of the US and world finances. Yes, these are completely uncharted waters. The Fed has a myriad of options open to it- Ben makes that plain. What however is FAR from clear are the repercussions of these various US policy actions both inside and outside the US. Perhaps the G20 meet was called to read out the riot act- after all most of the US overseas creditors were present.US is signalling that they WILL inflate (to offset deflationary forces) and shoving it down the collective G20 throats. The US attempts to convey a sense of control whilst blatantly that is not so. The G20 has also since come onboard with their various stimuli as well.The kicker of course: what happens to the US Dollar? Was there some kind of tacit agreement made in supporting the dollar and it’s hegemony during what will obviously be a very trying period? Was there some agreement on gold? Pointedly, Obama stayed away. A red herring? Volcker named as head of an Economic recovery board? Here is a man well versed in inflation fighting.My sense is that the intent of the Fed will be successful. Why? Because the Fed’s ability to print money is limitless. Determined enough, Bernanke will find ways of putting sufficient easy money in the pockets of the US consumer to encourage spending again. This is now the only game in town for the US- for the US to survive this disaster, the US MUST spend big and spend big NOW.The question in my mind as always- where will all this expenditure be directed to?

Good point about that bottle of whiskey. Who’s got it, right now?PeteCA

WAAAAAAYYYYYY too many stupid people.

It’s certainly obvious, number one, that the Fed and the Treasury are crooked. Number two, the case can be made that the Fed and the Treasury don’t know what they are doing. They are in very strange territory. Nor do they know what the results will be from the actions they’ve taken. It’s one thing to take measured actions a step at a time; it’s another to take rapid-fire shots containing billions and trillions in fiat currency and credit expansion and worthless securities in an imploding derivatives market.It’s almost unbelievable to me that Paulson, the keeper of the US Treasury, had a go with Congress for $750 billion saying over and over and over again that the major problem was those pesky mortgages debts that are junk and have to be taken off the market — all the while selling it to Congress on a Sunday-overtime emergency basis. And then it turns out that wasn’t it after all, not at all. The keeper of the US Treasury and the boys used the money for something else. And now, by the way, he and the boys need to have more money, for those pesky dept things once again.Bernanke’s been dealing from the seat-of-the-pants and his doctorate thesis ever since he’s been at the controls of his helicopter – engaging in some of the most extraordinary maneuvers in the history of finance. And the most extraordinary thing of all is how big and wild his moves are. The bottom line is that the helicopter that’s taking Bernanke round and round the market place is going to crash. The question is, how many people on the ground are going to be taken down with it?I’m reminded of a story in the newspapers the other day. Some fellows robbed a bank or something and while fleeing with the money discovered it was marked with ultraviolet purple stamps and could be spotted. So they started throwing the money in the street to keep from getting caught with it – and nobody really bothers picking it up because it’s marked, sort of like the Bernanke helicopter money that’s going to be blowing in the streets soon, a basketful worth about a nickel if you can trade it in.Which brings to mind the old saw about inflation: Used to be, you’d go into the grocery store with money in your pocket and pick up a basket of groceries; now, with inflation so bad, you go into the store with your money in the basket and put the groceries in your pocket.Which is just several ways of saying that the current investment environment requires caution.

If you are being kept awake at night is not knowing. This may or may not help.Alexander Tyler, a Scottish history professor at the University of Edinburgh, had this to say about the fall of the Athenian Republic some 2,000 years earlier:“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.’ ‘A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury.” From that moment on, the majority always vote for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years’. ‘During those 200 years, those nations ALWAYS progressed through the following sequence:1. from bondage to spiritual faith;2. from spiritual faith to great courage;3. from courage to liberty;4. from liberty to abundance;5. from abundance to complacency;6. from complacency to apathy;7. from apathy to dependence;8. from dependence back into bondage;Where does the USA sit now?

I think I have very good arguments supporting the above, OB but am pressed for time at the moment so it may be a few days before I can back to you.The word coercion is strong but I used it advisedly. I am not into conspiracy theory. One example. Peteca above wrote: “Try to keep your job at all costs (even if you hate it)”. This is excellent practical advice, however does that indicate to you a free society? “At all costs?”Look how fearful and isolated workers in America have become. You dont have to be Noam Chomsky to call that coercion.I will come back on this.I love what you’re doing with creating the grassroots group, but I think a negative (and thus realistic) view of the mechanisms that control our society is needed as you define the ‘problem’ in debate one.ThanksLord Sidcup

Excellent post 2cents, but ” be careful that you aren’t just describing/listing symptoms. “

Latest from Bill Buckler — Excellent ReadWe live in astonishing financial times. In its latest reports, the US Fed has let it be known that total Fed lending has climbed above $US 2 TRILLION for the first time. That is a rise of 140 percent – or $US 1.172 TRILLION – in SEVEN WEEKS!! The total includes a $US 788 Billion increase in loans to banks through the Fed and another $US 474 Billion in other lending, mostly through the central bank’s purchase of Fannie and Freddie bonds. Here comes the problem. The Fed has refused to identify the recipients of almost $US 2 TRILLION of emergency loans and what the Fed has accepted as collateral!Bloomberg has sued the Fed under the US Freedom of Information Act, trying to get this information, but the issue is stuck in Federal Court. Somebody out there got this $US 2 TRILLION from the Fed but they are not talking. The Fed, in turn, got some financial paper as collateral, but it won’t say what it is…..Governments across the world are now diving into deficit spending, chosen as a means with which to “stimulate” their national economies. The US is leading the global parade. Only two weeks ago, the deficit estimates for next year were between $US 1.5 TRILLION to an average of $US 2.1 TRILLION. But in an interview last weekend, President-elect Obama said that the government should not worry about deficits over the next two years while spending money tojumpstart the ailing economy.This is economic primitivism of the first order. It presupposes that the basic problem is that there is not enough money in circulation, so the government will borrow that money and spend it all into circulation. Presto, the economic problem is solved. The REAL problem is the mountain of debts piled on top of American households and businesses and the stark lack of savings. The solution is to cut taxes as well as spending but to cut spending faster than taxes to leave more real economic and financial resources in private and individual hands so that they can repair their balance sheets. On top of that, interest rates must be raised – not lowered – to reward savers for producing more than they now consume.

Is it reasonable to expect a 30% to 40% price deflation to adjust for the same amount of loss in pension funds ? And what about the impact on the funds distribution of zero interest rate policy ?

So much for independant and qualified thought. Change you can believe in , eh?

and build and make things that others want not sit at a desk and watch numbers

So the Fed prints new money to purchase huge ammounts of new Treasury debt – whereby the USG promptly spends the newly minted money offsetting big tax cuts, infrastructure spending, BAILOUTS, toxic derivatives purchases, equities, programmes etc.But consider- how does the Fed/USG extricate itself from this process once embarked apon it ?The Fed knows it cannot do this scam covertly, it’s simply too big. So it makes it’s intent public.Expectations (that wonderful word) change to inflation.Or is that a foil? What if the real problem here was the bond market itself and the Fed/USD fears that the parabolic rise in Treasury Bonds will soon reverse. And, given the stratospheric levels of outstanding US Sovereign debt, and the parlous state of the Fed’s balance sheet, debt service payments could overwhelm the Treasury pushing the US close to default and the economy into a long depression. To fix that- just print new money? So, better to obviate the scam but obsure the motivation for it.This then smells to me like an end game. A last roll of the dice.If this plan works, we will see inflation come back as intended, and very strong, just as intended. In that situation we rely on the Fed raising rates to reign inflation in.Hands up who sees the Fed raising rates anytime in the next several years?If the plan fails, the Fed’s and the US bluff will have been called- laying bear the desperation at the core of the US financial system and it’s inability to honour it’s IOU’s.Given the disaster of the Fed’s balance sheet by then, it’s constituant parts will be considered significantly worth-less. Currency crisis, Sovereign debt rates go parabolic.Financial collapse.In these circumstances, the Fed will want to see inflation FIRMLY ESTABLISHED prior to any raising of interest rates. On the one hand there is rapid inflation. On the other (failure), debt default and chaos.Or, some kind of unstable equilibrium …….?For sure though, this is a very brave new world for the Fed, the US and the US people.

“Obama himself has tragically and ironically wedded himself to convention, all his life.”I recently saw an Obama interview where he talked about his father being a rebel who was black balled from the government for being too radical. In the interview he referred to his father as being a loser and the implication was that he should have conformed. I just hope and now actually pray that Obama is a free thinking leftist wolf in sheep clothes, but it doesn’t look good.

An interesting post at AlphaVille on Quantitative Easing – note the link, If All Else Fails Devalue the Dollar

Experts bearish on near-term global economic turnaroundDuncan Mavin, Financial PostPublished: Wednesday, December 03, 2008

HONG KONG — Bill Clinton’s Global Initiative is supposed to bring hope, as well as concrete political and business answers, to the world’s biggest challenges.But the panel of experts opining Wednesday on the global financial crisis gave delegates to the forum’s first ever Hong Kong event few reasons to smile about a firm solution to the ongoing economic turmoil.First up was blunt-speaking Stephen Roach, Asia head of Morgan Stanley, who was typically bearish on the prospects of a near-term turnaround for the global economy. The planet is in for a long, drawn-out downturn and a protracted recovery, even in emerging Asia, he said.”There’s not a country in the [Asian] region that is not either slowing or its economy is in recession,” he told the audience of Asian bigwigs.It was no crowd-pleaser; nor was his naming of the former U.S. president, whose well-meaning party this was, in a glum assessment of the causes of the recent turmoil.“Go back, I hesitate to say, to the glory days of the Clinton administration, and talk about horrible mistakes that were made in terms of monetary policy, regulatory oversight, encouraging asset bubbles, encouraging people to lever at the bubble. Wasn’t this an outgrowth of a system that condoned excess and now we are paying the price?”The Morgan Stanley banker’s fellow panelists were mostly in agreement with his gloomy view. They were also largely of the opinion that investor confidence must be restored by consistent, coherent policies from Western governments — something they said was lacking in the response to the crisis so far.”The capital markets are seriously broken,” said Laura Tyson, a business professor from the University of California, Berkeley. It is impossible to assess risk or price assets, and that means investors that have fled the markets in droves are not likely to come back until they know the system works again, she added.Authorities in the U.S. have made a number of bad decisions on the financial crisis, Ms. Tyson said. Now they must deal with “a tremendous unaddressed mortgage relief issue” and also come up with a plan to syphon off the toxic assets from the banks that created them, she added.Backing up her opinion that investors are still unsure about the markets, the head of China’s US$200-billion sovereign wealth fund said ailing U.S. banks should not come knocking at his door for any handouts.”Right now, I’m not brave enough to invest in financial institutions,” said Luo Jiwei, chairman of China Investment Corp. CIC has incurred big losses on US$8-billion invested last year in Morgan Stanley and private equity firm Blackstone Group.Mr. Lou criticized government policies in developed nations that are shifting too frequently for his fund to be comfortable pouring more cash into the financial sector. “Until the [policies] are clear, I don’t dare to invest in them,” he said.The panel also featured former World Bank managing director and Citigroup Inc.’s current head of global markets Shengman Zhang. The world’s financial “architecture” — the International Monetary Fund and the World Bank — were too focused on potential issues in emerging nations to notice potential issues bubbling under in the developed world, he conceded. The IMF and World Bank need to be rebuilt with a greater nod to the growing economic power of Asia, he said.While Mr. Zhang steered clear of the grimmest predictions of some of his co-panelists, the only real bull of the group was Marc Lasry, who runs the US$20-billion New York-based hedge fund Avenue Capital Group.”If all of a sudden we started buying and CIC started buying, no one would be talking about the financial crisis,” said Mr. Lasry, noting that his fund is sitting on US$7-billion in cash right now. The panel looked to be unconvinced by his optimism. “Confidence is slowly coming back,” he insisted…

http://www.financialpost.com/story.html?id=1026805

2C: Sorry for such a lame abstract. Will do better next time. Also, thanks again for the prodigious effort to attract attention to a strategic control point. I’ll get into strategy shortly, and this may play a role. We may not elect to address the DTCC given group capacities, but it points out that every system has a strategic points where relatively small effort can yield major change. Thanks!Also: BlindMan – great song, great comment. Thanks for throwing that in.Lord Sidcup: Tks for the boost on the symptoms .vs. fundamental cause dimension.

Wonder if JHU has enough cojones to go down to the ‘hood’ and make his silly comment about ‘blackhouse’?Jpudentain

What’s the right word for this – direct purchase of private obligations, or counterfeiting? If it’s against the law for Congress to spend money without an appropriation, how much worse is it for a bank to spend money that doesn’t exist at its own discretion? I guess we go on the assumption that the end justifies the means, and Bernanke is infallible.

check out the post a few above here – a good discussion (and links) on this topic Link

It’s just you.

g, to halloween we go.

Welcome to Japan circa 1991, Please leave your zombie company at the door and join us for a decade of zero growth and massive personal savings…

2cents,I must apologize for not reading you post more carefully in the past. This is one of the meatiest posts I have seen on this blog. It offers mechanisms where normally intelligent human beings can get caught up in a vortex of mal-investments.You obviously have had a great deal of experience in the financial industry. I was wondering if you could point us to some of your favorite readings on the DTCC, Street Name, and DRS. Thanks much.

Some thoughts on the dollar -Ed Harrison RGEmonitor Why I am bearish on the U.S. Dollarand over at Alphaville Economic nationalism and the USD

Frodo: I wish none of this had ever happenedGandalf: So do all who live to see such times, but that is not for them to decide. All we have to decide is what to do with the time we are given.– Lord of the Ringseconomicminor, I like you own a home, though not in a rural area, rather it is in the epicenter of the foreclosure downturn in metro Phoenix. I worry about Mexico dissolving into anarchy and our proximity to that. I wish I could see it as an adventure, but I can thing of better adventures, thats for sure.

Maybe I’ll add my own link at RGEMonitor “Why I’m Now Buying Emergency Food for my Family”. I can’t believe we’ve reached the point where the Fed is now printing massive sums of money and using it to artificially prop up prices of US bonds (which would otherwise collapse due to the threat of hyperinflation and/or currency collapse). London Banker was smart to get all of his money out of US assets.PeteCA

If you think about it this may explain why the markets are holding up so well. e.g. coming devaluation

DEBKAfile’s military sources report that in their talks in New Delhi and Islamabad Wednesday, Dec. 3, US secretary of state Condoleezza Rice and top US soldier, Adm. Mike Mullen, failed to tamp down the rising military tensions between India and Pakistan.I have no idea if Debka’s story this morning is correct. Furthermore, no-one wants to see a new war in SW Asia. But let’s get a grip here. When the US was attacked by terrorists on 9/11 what did we do? We went straight out and started wars in two foreign countries. Now we’re telling India to sit still and do nothing, after a major terrorist attack in Mumbai. Does anyone see a problem here?PeteCA

I’ve thought about it. The only move really open to them now is a big devaluation of the US dollar. The Fed’s moves could be a major preparation for such a step. But what ordinary Americans need to understand is that a large amount of our goods are imported. So if the value of the dollar is halved, the price of most items in WallMart will double. Effectively, the buying power of everyone’s savings account and retirement account will also be halved (or worse). It’s an endgame for financial security for Americans.PeteCA

@ “Geithner May Seek to Push Bair Out After Clashes During Crisis”This fits with the theory that Obama’s team can’t afford to have anybody who won’t take orders from the power center. That’s the primary reason for appointment of all the previously tested Clinton administration people: they’ve proven their loyalty and discretion. Example, Podesta’s and Richardson’s discreet handling of Monica Lowensky during the tense days after her revelations.

It’s in Benny’s play-bookfrom post up above Bernanke 2002 on Deflation

Paying interest by printing it to give to the banks who have deposited their worthless assets in the Fed’s garbage disposal is just more flim-flam financial largess to the bankers subtracted from the value of Joe’s paycheck.

If there is anyone that could be labeled a ‘Good Guy’in this mess, it would be Sheila!

Its a PIO (Pilot Induced Oscillation).In a PIO, the aircraft reacts too violently and pitches the nose of the aircraft up. However, he goes too far and realizes he has overshot and pushes down. He keeps overshooting in ever widening oscillations.The worst I remember was when a Greek business jet had a system that froze the yoke when the autopilot was on. The pilot, lacking training, kept pushing against the yoke, which loaded an autopilot servo (unknown to him). Finally, the yoke tripped and the autopilot disengaged. The servo unwound pitching the aircraft violently, opposite his commanded direction.He was doomed, the forces were so violent he could only wildly pull and push as the airplane porpoised up and down.He landed in Hungary. His six passengers in the back were hamburger. I worked with the guy who had to go and inspect the airplane. I can’t forget his description.I cannot fathom an enonomy in PIO. We will have to coin the name bizjet Ben.

Bair publicly criticized the Bush Administration’s $700 billion bailout package, saying it will not do enough to help Americans facing foreclosures. Bair told the Wall Street Journal “[W]e’re attacking it at the [financial] institution level as opposed to the borrower level, and it’s the borrowers defaulting. That is what’s causing the distress at the institution level,” she said. “So why not tackle the borrower problem?” [5] On Friday, November 14, 2008 Bair released details of her much more ambitious plan — a $24.4-billion program aimed at preventing 1.5 million foreclosures — even though Treasury Secretary Henry M. Paulson had told reporters earlier in the week that he would not pay for it.UNBELIEVABLE!Someone who actually is trying to help and they are going to push her out!

Could also explain Paulson’s current trip to China. Maybe he’s trying to get Beijing to agree that if the USA devalues the dollar in a “surprise move”, that the Chinese won’t follow suit and allow the yuan to devalue by the same percentage. I don’t know if they’ll agree to this though – they’ve already got riots going on in some of their towns and cities.PeteCA

@ Lord SidcupYes, there are symptoms listed in my post, but the root is the conditions which are allowed to exist in the system and are utilized assymetrically and this needs to be corrected as OB so eloquently condenses above in his underlined text.Thanks for keeping everyone honest.

Ohhh .. and one other thing. This latest Mumbai attack plan by the terrorists is a BIG problem. The trouble is – it works anywhere in the world. Hijack a cargo ship. Kill the crew – but leave the captain alive. Force him to sail you to your final destination, and handle any radio calls. Then murder the captain when you arrive at yourt final destination, and use some rubber inflatables to go ashore at night. All coastal cities in the world are vulnerable to this. It could be Sydney, Australia, or Vancouver, Canada, or Miami, Florida. This attack plan is not limited to Mumbai, India.PeteCA

@ MAI’m not sure that we disagree at all I never described the DTCC as evil at all. See my reply to OB @ 2008-12-03 22:43:23 above for more clarity.Also, I do agree that in principle the DTCC and other clearing firms DO provide a positive and worthwhile service absolutely necessary for market efficiency. However, when conditions are allowed to exist which prohibit those services from operating ‘closed loop’ so to speak or seeing the end to end continuum of the transactions then their usefulness is diminished. The DRS implementation was indeed a positive step by the DTCC in gaining end to end visibility.By allowing incomplete tracks of the transactions to exist the system took advantage of this quirk and this absolutely led to a concomitant increase in velocity. Now that more complete tracking of the transactions has been gradually implemented since 2006 there has likewise now been a concomitant decrease in velocity.So yes, as you said There’s no “real production or service” coming from the Broker/advisor/PM/etc… The money they “make” (even for their clients) is money that had to be taken from the system. When they take that money, it is without having actually provided a service… but what these folks are finding out is that all that money they booked didn’t actually exist in the first place! It’s kind of like giving the bank robbers Monopoly money and now they are just realizing that they’ve been duped. Unfortunately, these particular folks are powerful and currently trying to remedy their mistake to make themselves whole according to what they booked.I saw your good post over @ Economonitor “reckless Endangerment” and left a comment there.

DR. ROUBINI GIVES THE “NEW 4.5% INTEREST BAILOUT PLAN” HADES ON YAHOO TECH TICKERSee the proof:http://finance.yahoo.com/tech-ticker/article/138829/Mortgage-Rates-to-4.5-Percent-Homebuilders-Win-Crisis-Continues?tickers=TOL,HOV,CTX,DHI,LEN,XHB,CTXI totally agree with him and find interest rate cuts in general a good way to lock the Baby Boomers out of retirement; how can they retire on like 2-3% money markets or -40% stocks?The young college graduates better hone up on the burger flipping skills, because the older professionals may likely work until they die in this “let’s lower the interest rates” brainlessness; making jobs for the younger generation that much scarcer.Also, the retirees are the ones buying stuff in America [like I estimate about 50% of our economy?], things like cars, electronics, vacations, etc….kiss that massive retail spending good-bye as you butcher axe retirement chances with lower home interest rates. They’ll just keep working and saving at 2-3% or -40% interest rates.There’s a positive spin-off that helps housing by blocking retirenments though, the Baby Boomers won’t be selling their McMansions in droves soon to downsize for retirements, unless they get caught in the lay-offs.

Thanks MA. It is really tough here. Using current street estimates (+18% earnings growth), with the collapse in the CPI and interest rates, you can justify the market ralling here to back over 1,000. HOWEVER, my leading earnings model is calling for 2009 earnings to be flat, 0% growth in 2009. At that level, holding rates and CPI where they are currently, fair value on the S&P is around 713. That is too much downside risk for me yet but there is aloways that little voice in the back of my mind…what does the street see that I don’t? Then I remember, the street had strong buy recommendations on Enron up until the day it collapsed! I feel better now.

If the USD is going to collapse, is one best served by taking the hit on tax deferred retirement savings and paying off the mortgage? It would appear so to me, but I’m new at this game.

@ Roubini: “Traditionally, central banks are the lenders of last resort but they are becoming the lenders of first and only resort, as banks are not lending. Central banks are becoming the only lenders in the land. With consumption by households and capital spending by corporations collapsing, governments will soon become the spenders of first and only resort as fiscal deficits surge.”And, thus the US will take its final step from capitalism into a total managerial society such as that reached in Stalin’s Russia, as the “New Deal” crystallizes into the “Last Deal.”Franklin Delano Roosevelt ran for the office of president in 1932 on a platform for less government and fiscal sanity. His “fireside chats” sounded the themes of thrift and individual enterprise. But he immediately began to seize the reigns of economic power in America.Says author Justin Raimondo in a review of the writings of the Old Right journalist Garet Garrett, “the New Dealers took the most direct route: control of the money supply, banking, and credit. The collapse of the weaker banks had given Roosevelt a golden opportunity and he did not hesitate. Demanding extraordinary powers to deal with the emergency, he proceeded, in a series of nine steps to gain control of the economy by (abbreviated):”1. Declaring a bank holiday, that locked in the rich who were forbidden to transfer funds abroad.2. Relegating Congress to the role of rubberstamping.3. Directing that government seize all gold, on pain of fine and imprisonment…in exchange for paper money…drastically devalued.4. Creation of three billion dollars in fiat money at the President’s discretion and giving him the power to devalue the dollar by half.5. Repudiating the gold standard. On June 5, 1933, Congress not only defrauded it own bondholders, but it invalidated the gold-redemption clause in all private contracts.6. Changing “shall” to “may” in the law that a Federal Reserve Bank “shall” lend to a private bank on suitable security. Thus a right became a privilege…7. Fixing the value of gold in dollars every day by the President and Treasurer, the uncertainty causing all private lending virtually to halt and paving the way for the Reconstruction Finance Corporation that socialized private debt by “theft.”8. Confiscating by law all the gold supposedly held in trust.9. Devaluing the dollar to 59% of its former value, using the 41% confiscated to seize control of the foreign exchange market.Next on the New Deal’s agenda was to be the conquest of the stubborn individualism of the American people… by the use of negative images to counteract the power of positive values….

I have written on the enormous trade imbalance underlying the US current account deficit. That deficit served the greedy short term interests of our political and economic elites. They basically exploited the cheapest labor possible and the most expensive consumption possible. China, Asia and others produced, and the US consumed (charged up by cheap debt). The producers accumulated dollar reserves and claims against the consumers. We had very low interest rates and inflation as a result. The Fed was thus able to keep rates artificially low. The system was rigged for asset bubbles. Financial liberalization encouraged Wall Street to book huge profits on the capital flows. The party stopped when the debt became unsustainable, in a classic Minsky cycle.The problem is that stuffing money into the pockets of those with power did not work.Think of it this way: we followed neoliberal logic except when it did not serve the purpose of enriching elites. Thus we allowed free flow of capital but not free flow of people. Free flow of people would empower people to migrate to their highest and best use–their highest wage. That did not fit the plan. The plan was to allow transnational corporations to use the LOWEST POSSIBLE WAGES for the HIGHEST POSSIBLE PROFITS.For the short term the plan did lead to high profits for the few. For the 99% of the world who are not CEOs, we were left with unsustainable levels of debt and an unsustainable model of globalization.Maximum empowerment of people to reach their highest and best use will maximize both output and stability. That truism was (and still is) lost on our leaders.

I think Obama’s choice of Tim Geithner as Treasury Secretary will be recinded. The folowing individual’s qualifications are above reproach. A Better Treasury Secretary

What do CDS’s have to do with this discussion? How is the government related to the CDS market?Retard

Mess 1 is not a mess. The mess was securitization and subprime loans, 50% of which were made by mortgage companies, not banks.Mess 3 is not a mess for us.You’re an idiot. You mises folks are the biggest blight that has been introduced to economics. You people bring shame to the profession. Your quote is stupid as well.

When money is loaned it is not inflationary(it is in the very short run). The treasury issues debt and other governments or companies/people here in the US buy them. When money is put into one part of the economy money is taken out elsewhere. This is by definition not inflationary.

You didn’t read it right. Sorry.

Ron Paul is an idiot who knows nothing about economics. He’d be lucky to get through an economics masters program.

A really superb summation!! (There are many excellent posts on this discussion!) And how exciting! I just found you at http://www.luc.edu/law/faculty/ramirez.htmlHope you don’t mind ~Steven RamirezProfessor of LawDirector, Business Law CenterBiographySteven Ramirez joined the law faculty at Loyola University Chicago in July 2006. Ramirez comes to Loyola from Washburn University School of Law, Topeka, Kansas, where he was the founding director of the Business and Transactional Law Center. Prior to joining the Washburn law faculty, he was a partner with Robinson Curley & Clayton, a Chicago litigation firm, specializing in corporate, securities and banking litigation. He also served as a Senior Attorney for the Resolution Trust Corporation and as an Enforcement Attorney with the Securities and Exchange Commission. Professor Ramirez teaches Business Organizations, a Securities Litigation Seminar, and other business related classes. He has published extensively in the areas of corporate governance and financial regulation, including the impact off the Sarbanes-Oxley Act of 2002.

Never never never believe anything you read on DEBKAfile.

My first reading of your piece gave me the idea that the DTCC is the main engine that created this crisis of capitalism. Of course there are many sources of it and you cannot unexplored a bomb, but its my belief that this crisis of debt capitalism is a logical and inevitable result of capitalism itself as it magnifies asymmetries to the point of its own destruction, like any human or natural system I can think of off the top of my head.

Payam go assist Hossein Samsami

@ StevenAs asked over on my post today (http://www.rgemonitor.com/globalmacro-monitor/254664/reckless_endangerment)…How many CONVICTIONS have there been under the whistleblowers provision in SarbOxAct?

There is a train of thought out there – based on technical analysis – that S&P = 800 is a bottom for this market. The logic is pretty transparent. The 800 level is the support level after the 2001 recession. i.e. these people believe the idea that the Dow will form a double peak and then start increasing.Watch out for this market if we penetrate decisively below the 800 point. We’re pretty close now. The S&P closes around 835-840 today. The dropoff will be frightening if we go below 800. There is no clear level of support below – just various theories based on different (loose) technical interpretations of long-term Dow charts. Personally, I think a drop below 800 is very conceivable. Heaven help us all if it occurs – because it will only drive the Fed even harder into this mad push towards inflationary stimulus theory.PeteCA

@ OB, RE: Problem definition.If one is to give only one root cause of the problems (which is difficult to do) I would advise looking at the mirror. Here is the backward reasoning:Many have pointed out to the fact that the current crisis is a direct consequence of central banking, monetary policy, fiat money system, leveraging, cheap credit, overindebtedness, financial and banking system, fraud, living outside one’s means, loose risk assessment and control methods, lack of regulation, excess regulations … But I believe that one thing can be described as major enabler of all these travesties; the broken political system. That is a political system that has no vision (for the people it is supposed to be serving that is), that has lost what is it to be a representative of the people, that is supposed to be a subordinate to the needs of the people, that is too preoccupied by its own survival and well-being, that has become addicted to power, that has created enemies where there is none to divert attention from their mistakes or power grabbing, that is based on empty ideologies instead of real and simple values, that has invaded and acquired other supposedly distinct powers … that lost focus on such values as responsibility, liberty and justice. The fiscal irresponsibility, which I think is a precondition for system abuses like the one we are witnessing, is a resultant of these political diseases – a precondition that is exacerbated by a fiat money system, as a facilitator, but not necessary dependent upon its existence.This where the responsibility of the people comes in. For good or bad reasons/pretexts, it is the right, duty of the electors to sort out, monitor, motivate (encourage and punish) their representatives. The reasons those are not done are varied (prosperity and peaceful times make the watchdog fall asleep, the politicos acquired the means to give a sleeping/poison pill to the watchdogs (e.g. PR), lack of education …). It is known that the body’s immunity system weakens if the person has lived for an extended period in a sterilized environment. That would be a good if the person intends to spend her life in that environment, but it is life-threatening with the weakest bacteria.At some point cause and symptom become interrelated and confused, probably due to a loophole relationship, in which case it is very difficult to differentiate between the two or break the loop (e.g. the people is not watching the politicos because the politicos are deploying the means to gather more power and weaken the ability of the people to watch them … etc)It is worthwhile to mention that one of the most dangerous aspect of the current political system is its infiltrability by exogenous and special-interest agents. It is, in fact, a book example of an AIDS virus attack. I’m not here arguing whether the the contamination is deserved (pre-planned by the agents – for those who believe in conspiracy) or by accident (a flaw in the system – an inevitable consequence to how “businesses” amorally think and behave). It is also worthwhile to discriminate, among all suspecting causes of the crisis, between preconditions (fiat money system is one of them), problem enablers, system vulnerabilities, problem disablers, exogenous “attacks” …Although a corrupt political system may be inevitable due to circumstances, I believe it is possible to design a system that has more disablers to power grabbing attempts, a system that is in constant alarm mode. That’s why the separation of powers was such a good idea from the beginning.I will refer to the quote at the end of MA’s post

yes I think we are heading to around 675 between now and 15 December

@ Payam… who do you think is backstopping the CDS Market???AIG, Leh, GE, Merrill, BoA, BS, MS, GS, Citi and of course… last but not least JPMChase???Round 1 of money went towards recapping, which was previously recapped through TAF cash (which will never be returned)Where the Gov’t used to look to taxes as income… they now are dependend on payment of the bad debt they own, since tax rev has fallen off the cliff.The printing we see, will be a payment to the insolvent, so they can in turn keep paying the bad debt they exchanged into the gov’t. …Effectively, laundering fake debt dollars, for clean new system dollars.Miss America….so my new question to you is… Is that guest a “retard”?

The one problem with Ron Paul is how would he regulate the creation of credit? My guess is that he would not regulate it and we would end up right back in the same mess, but with a gold-backed currency.

This book is a must read about the history of the corporation and how corporations came to have the rights they do.http://www.amazon.com/Gangs-America-Corporate-Disabling-Democracy/dp/1576753190/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1228428674&sr=8-1It is also available for free download here:http://www.gangsofamerica.com/read.html

Gasoline futures at 97 cents a gallon… lowest ever… indicates to me that consumption will fall off the cliff for a multitude of reasons… people have no more cash, credit, jobs, etc…

BUSH got through an economics masters program and look how much that helped

Mumbai India : unarmed subjectsSydney Australia : unarmed subjectsVancouver Canada : mostly unarmed subjectsMiami Florida : Armed Citizens with Concealed Carry ** Results may vary.

You lost your bet, Sidcup.I am not JGU.

Dr. Roubini is a genius! Check it out at GloomBoom.com

You pay for them with citizen effort and thinking. There is no discount available.

well now when neo-con tactics are needed the cabal is so silent. What we need is a ruthless, agressive approach to deal with the specter of deflation! Thus I propose that the government mails a 1 Trillion USD check to every U.S. citizen and legal resident. If that will not take care of the threat of deflation, nothing will.

how about a 500,000 USD check instead? The benefit of that would be that even though it would increase inflation, it would not affect the existing debt of the Americans. Thus people could use it to pay off their mortgage and other debts.

Well I think Big Ben and Hanky Panky believe in the new theory of “gravity of debt”: that is, keep printing money until you inflate the debt away!

Ok we’re all citizens let’s start now what do you have in mind?

Read Miss America’s latest post.Reckless EndangermentCould have been titled “Smart People Unite!”. Good work, MA.

Although I didn’t study the question (moon orbit around the sun), one can always argue it is a matter of dimensions (or if you wish, perspective).But generally, I call the willingness of the Fed to inflate as the BH (Black-Holes) SN (Supernovas) options pricing model. The formula goes as below;Ju=st+ki(2d*ing)

pjb, first, i was blind. then the structure of my eyes realized their function and then i saw for the first time but did not know what i was looking at. then i found out. my structure and function was exactly that of the entire world and i began to use my sight, what i had learned and the potentials of functions. then i began to think, i am seeing this world through a silk screen and it is beautiful, but this didn’t last as the silk screen slowly began to tear and deteriorate in micro and macroscopic ways. now, once again, i am blinded by the MIND.ps. always test drive and kick the tires…http://www.counterpunch.org/cockcroft11282008.html.A long time ago, a Mayan said:They destroyed our cropsThey cut our branchesThey burned our tree trunksBut they could not kill our roots….Historic Changes Across Latin AmericaIndigenous People RisingBy JAMES COCKCROFTIndigenous peoples in Indo-Afro-Latin America, especially Bolivia and Ecuador, are rising up to take control of their own lives and act in solidarity with others to save the planet. They are calling for new, yet ancient, practices of plurinational, participatory, and intercultural democracy. They champion ecologically sustainable development; community-based autonomies; and solidarity with other peoples locally, regionally, and internationally – what they describe as “unity in diversity.” Their values are often different than those of the United States or Europe. One indigenous leader has stated: “We give what money we have not to banks to collect interest but to others – and their gratitude is the interest we receive.” ……………..Bolivia’s President Evo Morales, an Aymara elected in 2005 with a majority of votes in the initial round, an unprecedented event for Bolivia’s multi-party system, has often pointed out that “The fight of our people is an historic struggle against empire.” Native peoples throughout the Americas tend to see empire as an uninterrupted process of 516 years of genocidal subjection in the face of their proud resistance. They understand well the continuity of colonialism/imperialism: the routine use of kidnappings, disappearances, torture, and male violence against women; ecological destruction; and the creation and perpetuation of an un-payable external debt for economic blackmail.Bolivian filmmaker Jorge Sanjinés once called Bolivia’s indigenous peasants and miners “the clandestine nation.” Now they and other peoples in Latin America and the Caribbean are changing history. Ecuador’s President Rafael Correa, a US-trained economist elected in a runoff in 2006, has declared: “We are living not in an epoch of changes, but in a change of epochs.”..In an address at the United Nations in September 2008, Evo, as he is popularly known, proposed “Ten Commandments” to save the planet, life and humanity:Put an end to the capitalist systemRenounce wars (Evo says “I don’t believe there can be peace under capitalism”)Create a world without imperialism or colonialismHonor the right to waterDevelop clean energiesRespect Nature (Pachamama)Recognize basic services as human rightsCombat inequalitiesPromote diversity of cultures and economiesSeek “Vivir bien” — living well (what is known in Ecuador as “sumak kawsay,” living fully), instead of living better at the expense of othersEvo pointed out that Bolivia’s recently drafted constitution “is to support a new pact with all humanity and Pachamama, from the heart of the Andes, from the South, for all the world.”Revolutionary Processes Rooted in Indigenous and Social MovementsRevolutionary processes in Bolivia and Ecuador are rooted in the social movements of native peoples and ………During and after Sachs’ “shock therapy,” Bolivia’s resistance movements reached new levels of community-based organization. People perfected roadblocks and other acts of civil disobedience. Women’s committees, a traditional institution among miners, began running urban slums. A street vendors’ union grew each year to its present size of 800,000 members. Bolivia’s citizens conducted huge marches “For Life and Peace,” “For Life and Bread,” and for “People before Profits.”.Prefect Ruben Costas in Santa Cruz and several ex-Nazis and large landholders began to organize their ¨civil” coup. They referred to Evo with racist epitaphs and claimed no “Indian monkey” could possibly govern the nation. They sent fascist goon squads to attack, beat up, and kill native peoples. They took over national offices, including airports, making it impossible for the nation’s president to fly to important areas…Tuesday, December 2, 2008 5:00 pmPublic Affairshttp://archive.wbai.org/index.phphit play or not…… taking aim , ralph and miya , obama’s war room…Wednesday, December 3, 2008 3:00 pmPublic Affairs…. immigration and criminal industrial complex and a pakistan india conversation..ditto, or not…Reinventing America: A return to thinkingBy Gary Simonhttp://onlinejournal.com/artman/publish/article_3368.shtml.Such shocking events can occur when key elements are in place, like a democratic meltdown that no longer supports a system of checks and balances. This meltdown can easily worsen when complete power (a major fear of our founding fathers, particularly Jefferson) is handed to a simple Texan whose sole crusade since pilfering the presidency has been to amass wealth and power. The ultimate game naturally is to weaken democracy and keep Americans and other viable nations politically removed, intellectually lethargic, and economically depressed. Once the Corporate Combine succeeds in sealing these initial steps, it can then go about completing its business of the control and seizure of other nations…In short, unless one has been asleep and has not noticed, the shape and scope of American democracy has undergone some serious setbacks. To the more awakened, it has been beaten and virtually swept under the rug. Under Bush II our political system has amounted to nothing more than a puritanical farce. During his tenure, this president has unraveled the constitution, maintained and masterfully landlocked an unenlightened proletariat on the sidelines, and masterminded a coup without the knowledge or consent of much of the voting public. His callous disregard for law has been nothing less than the ugly actions of greedy hands in the cookie jar with the cautionary consent of Congress..At one time there might have been zero tolerance for such totalitarian behavior. But a listless public sold a bill of goods under the guise of tens of thousands of waving flags, has been anesthetized. This is the sort of theft against which any rational person should rebel. I’ve been conscious of this since I first sensed that a Texas governor with a dishonorable environmental record and a zeal for capital punishment could actually land the job of national leader..I never envisioned that any American government could be as calculating and shameless in trashing constitutional and environmental law as this one is. Nor did I expect to live through an era where the possibility of dictatorship could even begin to surface, no less be joked about by the chief executive himself.I always assumed I would be allowed to think and live within a safe environment. I also took for granted that everyone would share my expectations, but I see that isn’t so. Thinking for oneself in America has now become like anything else that requires nurturing and caring: a threatened commodity. The tragedy here isn’t just that we don’t insist upon thinking for ourselves. It’s that we don’t comprehend what we sacrifice when we fail to think.At present, we’re in a historical crisis with language and thinking in jeopardy. We also have a body of law in disarray. We’ve lost habeas corpus and our right to privacy. We’ve permitted energy policy to take place behind closed doors and have remained hushed as scientific papers on major global matters are censored and rewritten. We’ve watched silently as a vice president places himself outside of the executive branch and secretly profits from war coffers, an action Harry Truman declared a high crime. We’ve witnessed together inalienable protections become scrapped and buried and eventually disappear.