Archive - Dec 13, 2011

All you need to read.

Other than that, SOPA is just dandy …

I am constantly reminded how useless are official and semi-official committees, subcommittees, boards, associations, organizations, bureaus, brotherhoods, conferences, dialogues, and congresses. The word bloviate comes to mind. Today that reminder came in the form of a report from the OECD on tax policy and inequality from the "International Tax Dialogue (ITD) 4th Global Conference on Tax and Inequality." 

In continuing our exclusive analysis of the periodic variations in the by now all important shadow banking system, we next look at the change in third quarter (3 Months ended 9/30) shadow liabilities as disclosed by the just released Flow of Funds (Z.1) report by the Fed. As by now should have been made all too clear, if there is one threat above all to the monetary regime, primarily of the US but by extension, global, it is the ongoing collapse in shadow banking, which is simply an unregulated pass-thru funding conduit for all the non-traditional banks and bank holding company firms which perform one or all of the three banking functions: maturity, credit and liquidity transformations. As such these are critical because having peaked at $21 trillion, the shadow banking system was always substantially larger than the traditional banking system since Q4 of 1990 when it finally overtook in terms of total notional, and provided far more broad "credit-money" liquidity to the global financial system than regulated (and we emphasize this word with bold and underline) entities. And since the burst of the credit bubble, the liquidity is now evaporating on a quarterly basis. So cutting to the chase, in Q3, US shadow banking declined by $357 billion to $15.2 trillion in liabilities, a decline of $654 billion in 2011 YTD, and a drop of $5.7 trillion from the $20.9 trillion peak in March of 2008. Such an uncontrolled ongoing collapse, primarily brought by the disappearance of dumb incremental (marginal) money originating in Germany (Landesbanks) and Spain (Cajas), as well as various Asian sources of dumb money, is beyond a shadow of a doubt the biggest deleveraging threat to the global monetary system bar none. And here is where the central banks step in.